<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 August 3, 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
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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 September 13, 1996, the registrant had 5,904,394 shares of Common Stock,
$.01 par value per share, outstanding.
Page 1 of 16 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 Twenty-Six Weeks
Ended Ended
------------------ -----------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 90,428 $ 86,407 $177,444 $166,018
Interest and other income 364 710 774 1,165
-------- -------- -------- --------
90,792 87,117 178,218 167,183
-------- -------- -------- --------
Expenses:
Cost of sales, store occupancy
and warehousing 68,561 63,687 133,550 122,811
Selling and administrative 18,488 16,673 36,257 33,608
Depreciation and amortization 1,858 1,291 3,754 2,634
Interest expense 925 901 1,846 1,796
------- -------- -------- --------
89,832 82,552 175,407 160,849
------- -------- -------- --------
Income before income taxes 960 4,565 2,811 6,334
Income taxes 286 1,672 957 2,325
-------- -------- -------- --------
Net income $ 674 $ 2,893 $ 1,854 $ 4,009
======== ======== ======== ========
Weighted average common shares
and common share equivalents
outstanding 5,947 5,892 5,940 5,971
======== ======== ======== ========
Net income per share $ .11 $ .49 $ .31 $ .67
======== ======== ======== ========
</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)
August 3, February 3,
1996 1996
--------- ----------
<S> <C> <C>
Current Assets:
Cash $ 6,683 $ 5,411
Short-term instruments 9,382 8,148
Marketable debt securities 2,972 8,654
Accounts receivable, trade 8,157 4,709
Merchandise inventories 104,585 99,471
Deferred income taxes 6,717 6,566
Other current assets 3,398 1,034
-------- --------
Total Current Assets 141,894 133,993
-------- --------
Property and Equipment at cost:
Furniture, fixtures and equipment 60,298 56,982
Leasehold improvements 11,213 10,196
Property under capital leases 22,032 22,032
-------- --------
93,543 89,210
Accumulated Depreciation and Amortization 46,001 42,324
-------- --------
47,542 46,886
-------- --------
Other Assets 1,645 1,787
-------- --------
Deferred Income Taxes 5,297 4,929
-------- --------
Total Assets $196,378 $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)
August 3, February 3,
1996 1996
-------- --------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 50,390 $ 46,431
Income taxes payable 1,735 698
Accrued expenses -
Salary and benefits 12,086 11,463
Taxes other than income 5,946 5,185
Other 13,199 11,399
Current portion of obligations
under capital leases 101 101
Due to affiliate 24 71
-------- --------
Total Current Liabilities 83,481 75,348
-------- --------
Obligations under Capital Leases 26,958 26,802
-------- --------
Reserve for Closed Stores and Restructuring 1,813 3,167
-------- --------
Other 29 95
-------- --------
Total Liabilities 112,281 105,412
-------- --------
Stockholders' Equity:
Common stock, par value $.01 per share;
15,000,000 shares authorized; 6,430,694
and 6,416,058 shares issued, respectively 64 64
Paid-in capital 46,387 46,236
Unrealized gain on short-term
investments 6 97
Retained earnings 46,360 44,506
Treasury stock 528,190 shares of common stock,
at cost (8,720) (8,720)
-------- --------
Total Stockholders' Equity 84,097 82,183
-------- --------
Total Liabilities and Stockholders' Equity $196,378 $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>
Twenty-Six
Weeks Ended
-------------------
August 3, July 29,
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,854 $ 4,009
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,754 2,634
Change in assets and liabilities:
Accounts receivable (3,419) 359
Merchandise inventories (5,114) (4,485)
Other current assets (2,364) (58)
Deferred income taxes (601) 388
Accounts payable, trade 3,959 (3,563)
Accrued expenses 3,390 4,239
Due to affiliate (91) 490
Income taxes payable 1,037 2,956
Other assets 142 27
Reserve for closed facilities (1,336) (1,490)
-------- --------
Net cash provided by
operating activities $ 1,211 $ 5,506
-------- --------
Cash Flows from Investing Activities:
Capital expenditures $ (4,450) $ (2,861)
Maturities of United States Treasury Notes 4,070 -
Maturities of marketable debt securities 1,574 -
Disposition of marketable debt securities - 50
-------- --------
Net cash provided by (used for) investing
activities $ 1,194 $ (2,811)
-------- --------
Cash Flows from Financing Activities:
Principal payments under capital
lease obligations $ (50) $ ( 159)
Acquisition of treasury shares - (6,904)
Proceeds from exercise of stock
options 151 306
-------- --------
Net cash provided by (used for) financing
activities $ 101 $ (6,757)
-------- --------
</TABLE>
6
<PAGE> 7
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six
Weeks Ended
--------------------
August 3, July 29,
1996 1995
-------- --------
<S> <C> <C>
Net Increase (Decrease) in Cash and Equivalents 2,506 (4,062)
Cash and Equivalents at Beginning of Year 13,559 24,134
-------- --------
Cash and Equivalents at End of Period $ 16,065 $ 20,072
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during quarter for:
Interest $ 1,846 $ 1,796
Income taxes 673 (832)
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 3, 1996 AND JULY 29, 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 August 3, 1996 and July 29, 1995
reflect, in the opinion of management, all adjustments (normal and recurring in
nature) necessary to present fairly the consolidated financial position as of
August 3, 1996 and July 29, 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 August 3, 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 August 3, 1996 and February 3, 1996, inventories
determined on a first-in, first-out basis would have been greater by $6,624,000
and $6,579,000, respectively.
8
<PAGE> 9
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 3, 1996 AND JULY 29, 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. A physical inventory was taken for all stores
for the quarter ended August 3, 1996.
(4) Short-term Instruments and Marketable Debt Securities:
The Company's short-term instruments included 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 August 3, 1996, market value was $6,000 greater than
cost, net of income taxes. At August 3, 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 Agreements:
On February 27, 1996, the boards of directors of the Company and Dart Group
Corporation ("Dart"), which currently owns 67.1% of the Company's common stock,
approved a resolution authorizing a credit facility. As of September 14, 1996,
the Company and Dart have not established the facility pending a
reconsideration of its needs. If the Company and Dart establish the credit
facility as authorized on February 27, 1996, Dart would be able to borrow up
9
<PAGE> 10
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 3, 1996 AND JULY 29, 1995
(Unaudited)
to $15 million from the Company on a short-term, secured basis. The credit
facility would expire March 31, 1998. The Company expects that it would fund
any loans under the credit facility from cash on hand. Any advances under the
credit facility would bear 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. Any advances under the
credit facility would be secured by a pledge of shares of the Company owned by
Dart. In addition, the Company has a $750,000 commercial letter of credit
facility for importing merchandise.
At August 3, 1996, there were no borrowings under these existing or proposed
credit agreements.
10
<PAGE> 11
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 $2,506,000
to $16,065,000 at August 3, 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 period operations.
Operating activities provided $1,211,000 to the Company during the
twenty-six weeks ended August 3, 1996 compared to $5,506,000 for the
twenty-six weeks ended July 29, 1995. Current period operating results was the
primary source of funds during the twenty-six weeks ended August 3, 1996 and
was partially offset by increased merchandise inventory levels.
Investing activities provided $1,194,000 to the Company during the
twenty-six weeks ended August 3, 1996 compared to using $2,811,000 for the
twenty-six
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
weeks July 29, 1995. The disposition of United States Treasury Notes and
marketable debt securities provided the funds in the current year and was
partially offset by capital expenditures.
Financing activities provided $101,000 to the Company during the twenty-
six weeks ended August 3, 1996 from the proceeds from the exercise of stock
options and was partially offset by payments for capital lease obligations.
During the twenty-six weeks ended July 29, 1995, the Company used
$6,757,000 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 August 3, 1996,
the Company had entered into lease agreements to open 16 new stores and
amendments to existing lease agreements to convert three stores into Super Trak
or Super Trak Warehouse stores.
Results of Operations
During the twenty-six weeks ended August 3, 1996, the Company opened
four new Super Trak or Super Trak Warehouse stores and closed or converted two
Super Trak stores and five classic Trak stores. At August 3, 1996, the Company
had 273 stores, including 114 Super Trak stores and 31 Super Trak Warehouse
stores.
Sales of $177,444,000 during the twenty-six weeks ended August 3, 1996
increased by $11,426,000 or 6.9% over the twenty-six weeks ended July 29, 1995
while sales of $90,428,000 during the thirteen weeks ended August 3, 1996
increased $4,021,000 or 4.7% compared to the same period one year ago. The
sales increases were primarily due to the Company's continuing conversion to
Super Trak and Super Trak Warehouse stores and to the acquisition of new stores
in Pennsylvania in January 1996. Comparable sales (stores open more than one
year) increased 2.9% and 1.0% for the twenty-six and thirteen weeks ended
August 3, 1996. Sales for comparable Super Trak Stores increased 2.3% for the
twenty-six weeks ended August 3, 1996 and remained unchanged during the
thirteen weeks ended August 3, 1996. Sales for comparable Super Trak Warehouse
stores increased 8.7% and 4.1% and sales for comparable classic Trak stores
increased 2.6% and 2.3% for the twenty-six and thirteen weeks ended August 3,
1996, respectively. Sales for Super Trak and Super Trak Warehouse stores
represented 63.7% and 64.5% of total sales during the twenty-six and thirteen
weeks ended August 3, 1996 compared to 54.1% and 55.4% for the twenty-six and
thirteen weeks ended July 29, 1995, respectively.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
Interest and other income decreased by $391,000 and $346,000 for the
twenty-six and thirteen weeks ended August 3, 1996, respectively, when compared
to the prior year, largely due to reduced interest income as a result of less
funds available for short-term investments.
Cost of sales, store occupancy and warehousing expenses as a percentage
of sales were 75.3% and 75.8% for the twenty-six and thirteen weeks ended
August 3, 1996 compared to 74.0% and 73.7% 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 20.4% as a percentage of sales
for the twenty-six and thirteen weeks ended August 3, 1996 compared to 20.2%
and 19.3% for the twenty-six and thirteen weeks ended July 29, 1995. The
increases were due primarily to increased payroll costs.
Depreciation and amortization expenses increased $1,120,000 and $567,000
for the twenty-six and thirteen weeks ended August 3, 1996, respectively,
compared to the same periods one year ago. The increases were due to increases
in store fixed assets resulting from the opening of Super Trak and Super Trak
Warehouse stores.
The effective income tax rate was 34.0% for the twenty-six weeks ended
August 3, 1996 compared to 36.7% for the twenty-six weeks ended July 29, 1995.
The decrease in the effective rate was primarily due to reduced taxable income
as a result of certain permanent book/tax differences.
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.
13
<PAGE> 14
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, 1996 (the "Annual
Report") and, with respect to material developments in such earlier reported
legal proceedings, see below.
Robert M. Haft Employment Litigation
As reported in the Annual Report, in October 1995, Dart, Crown Books and
Trak Auto filed a notice of appeal with the U.S. Court of Appeals for the
Third Circuit with respect to a judgment that the U.S. District Court for the
District of Delaware had entered in a lawsuit brought by Robert M. Haft for
breach of employment contract. Among other things, the district court had
awarded Robert M. Haft damages against Dart and Crown Books in the amount of
$18,856,964 (plus interest) and $14,947,160 (plus interest), respectively.
On May 30, 1996, the U.S. Court of Appeals for the Third Circuit
affirmed the judgment of the district court.
On August 21, 1996, Dart and Crown Books paid $20,976,945 and
$16,895,295, respectively, to Robert M. Haft in satisfaction of the monetary
damages component of the judgment.
Rollerson Litigation
As reported in the Annual Report, Dart and Trak Auto had filed a motion
for summary judgment in a case involving a former employee of Trak Auto who has
alleged sexual harassment (Rollerson v. Dart Group Corporation, et al.). On
June 25, 1996, the court denied the motion for summary judgment.
Item 4. Submission of Matters to a Vote of Security Holders
Dart, as a holder of over fifty percent of the outstanding voting
capital stock of Trak Auto, took action on June 28, 1996, to re-elect all five
incumbent Directors to Trak Auto's Board of Directors by less than unanimous
written consent in lieu of taking such action at an annual meeting of
stockholders. These directors are as follows:
Herbert H. Haft
R. Keith Green
Larry G. Schafran
Bonita A. Wilson
Douglas M. Bregman
14
<PAGE> 15
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
15
<PAGE> 16
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 September 16, 1996 By R. Keith Green
---------------------- -----------------------------
R. KEITH GREEN
President
Date September 16, 1996 David B. MacGlashan
---------------------- -----------------------------
DAVID B. MACGLASHAN
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 16,065
<SECURITIES> 2,972
<RECEIVABLES> 8,157
<ALLOWANCES> 0
<INVENTORY> 104,585
<CURRENT-ASSETS> 141,894
<PP&E> 93,543
<DEPRECIATION> 46,001
<TOTAL-ASSETS> 196,378
<CURRENT-LIABILITIES> 83,481
<BONDS> 26,958
0
0
<COMMON> 64
<OTHER-SE> 84,033
<TOTAL-LIABILITY-AND-EQUITY> 196,378
<SALES> 177,444
<TOTAL-REVENUES> 178,218
<CGS> 133,550
<TOTAL-COSTS> 133,550
<OTHER-EXPENSES> 40,011
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,846
<INCOME-PRETAX> 2,811
<INCOME-TAX> 957
<INCOME-CONTINUING> 1,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,854
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
