<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 May 4, 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 June 13, 1996, the registrant had 5,895,074 shares of Common Stock, $.01 par
value per share, outstanding.
Page 1 of 15 pages
1
<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 February
3, 1996.
2
<PAGE> 3
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------
May 4, April 29,
1996 1995
------------ ------------
<S> <C> <C>
Sales $ 87,016,000 $ 79,611,000
Interest and other income 410,000 455,000
------------ ------------
87,426,000 80,066,000
------------ ------------
Expenses:
Cost of sales, store occupancy and
warehousing 64,989,000 59,124,000
Selling and administrative 17,769,000 16,935,000
Depreciation and amortization 1,896,000 1,343,000
Interest expense 921,000 895,000
------------ ------------
85,575,000 78,297,000
------------ ------------
Income before income taxes 1,851,000 1,769,000
Income taxes 671,000 653,000
------------ ------------
Net Income $ 1,180,000 $ 1,116,000
============ ============
Weighted average common shares and
common share equivalents outstanding 5,938,000 6,038,000
============ ============
Net Income per share $ .20 $ .18
============ ============
</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)
May 4, February 3,
1996 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 7,656,000 $ 5,411,000
Short-term instruments 4,169,000 8,148,000
Marketable debt securities 8,651,000 8,654,000
Accounts receivable 5,118,000 4,709,000
Merchandise inventories 107,405,000 99,471,000
Deferred income taxes 6,454,000 6,566,000
Due from affiliate 61,000 -
Other current assets 3 408,000 1,034,000
------------ ------------
Total Current Assets 142,922,000 133,993,000
------------ ------------
Property and Equipment, at cost:
Furniture, fixtures and equipment 58,938,000 56,982,000
Leasehold improvements 11,360,000 10,196,000
Property under capital leases 22,032,000 22,032,000
------------ ------------
92,330,000 89,210,000
Accumulated Depreciation
and Amortization 44,190,000 42,324,000
------------ ------------
48,140,000 46,886.000
------------ ------------
Other Assets 1,715,000 1,787,000
------------ ------------
Deferred Income Taxes 5,479,000 4,929,000
------------ ------------
Total Assets $198,256,000 $187,595,000
============ ============
</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)
May 4, February 3,
1996 1996
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 51,981,000 $ 46,431,000
Income taxes payable 1,728,000 698,000
Accrued expenses -
Salary and benefits 12,447,000 11,463,000
Taxes other than income 6,591,000 5,185,000
Other 12,730,000 11,399,000
Current portion of obligations under
capital leases 101,000 101,000
Due to affiliate - 71,000
------------ ------------
Total Current Liabilities 85,578,000 75,348,000
------------ ------------
Obligations Under Capital Leases 26,844,000 26,802,000
------------ ------------
Reserve for Closed Stores and
Restructuring 2,450,000 3,167,000
------------ ------------
Other 62,000 95,000
------------ ------------
Total Liabilities 114,934,000 105,412,000
------------ ------------
Stockholders' Equity:
Common stock, par value $.01 per
share; 15,000,000 shares authorized;
6,422,370 and 6,416,058 shares issued,
respectively 64,000 64,000
Paid-in capital 46,313,000 46,236,000
Unrealized investment gains (losses) (21,000) 97,000
Retained earnings 45,686,000 44,506,000
Treasury stock, 528,190 shares
of common stock, at cost (8,720,000) (8,720,000)
------------ ------------
Total Stockholders' Equity 83,322,000 82,183,000
------------ ------------
Total Liabilities and Stockholders'
Equity $198,256,000 $187,595,000
============ ============
</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>
Thirteen Weeks Ended
--------------------------
May 4, April 29,
1996 1995
------------ ------------
<S> <C>
Cash Flows from Operating Activities:
Net income $ 1,180,000 $ 1,116,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,896,000 1,343,000
Change in assets and liabilities:
Accounts receivable (458,000) (254,000)
Merchandise inventories (7,934,000) (9,658,000)
Due from affiliate (61,000) -
Other current assets (2,374,000) 716,000
Deferred income taxes (504,000) 197,000
Other assets 72,000 15,000
Accounts payable, trade 5,550,000 (662,000)
Accrued expenses 3,788,000 2,587,000
Due to affiliate (88,000) 341,000
Income taxes payable 1,030,000 468,000
Reserve for closed stores (699,000) (524,000)
------------ ------------
Net cash provided by (used for)
operating activities $ 1,398,000 $ (4,315,000)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures $ (3,184,000) $ (1,936,000)
------------ ------------
Net cash used for
investing activities $ (3,184,000) $ (1,936,000)
------------ ------------
</TABLE>
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TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------
May 4, April 29,
1996 1995
------------ ------------
<S> <C>
Cash Flows from Financing Activities:
Principal payments under capital
lease obligations $ (25,000) $ (57,000)
Acquisition of treasury shares - (6,882,000)
Proceeds from exercise of stock
options 77,000 -
------------ ------------
Net cash provided by (used for)
financing activities $ 52,000 $ (6,939,000)
------------ ------------
Net decrease in Cash and
Equivalents $ (1,734,000) $(13,190,000)
Cash and Equivalents at
Beginning of Year 13,559,000 24,134,000
------------ ------------
Cash and Equivalents at
End of Quarter $ 11,825,000 $ 10,944,000
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during quarter for:
Interest $ 921,000 $ 895,000
Income taxes 260,000 8,000
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 4, 1996 AND April 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 May 4, 1996 and April 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
May 4, 1996 and April 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 May 4, 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 May 4, 1996 and February 3, 1996, inventories
determined on a first-in, first-out basis would have been greater by $6,641,000
and $6,579,000, respectively.
8
<PAGE> 9
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 4, 1996 AND April 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. The Company did not take a physical inventory
for the quarter ended May 4, 1996.
(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, 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 May 4, 1996, market value was $21,000 less than cost,
net of income taxes. At May 4, 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 67.2% of the Company's common stock,
approved a resolution authorizing a credit facility. As of June 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 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
9
<PAGE> 10
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 4, 1996 AND April 29, 1995
(Unaudited)
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 use in importing merchandise.
At May 4, 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, decreased by $1,734,000
to $11,825,000 at May 4, 1996 from $13,559,000 at February 3, 1996. This
decrease was due primarily to payments for increased merchandise inventory and
capital expenditures and was partially offset by funds provided by current
period operations.
Operating activities provided $1,398,000 to the Company during the
thirteen weeks ended May 4, 1996 compared to using $4,315,000 of the Company's
funds during the thirteen weeks ended April 29, 1995. Current period operating
results was the primary source of funds during the thirteen weeks ended May 4,
1996 and was partially offset by payments for increased merchandise inventory
levels.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (Continued)
Investing activities used $3,184,000 of the Company's funds during the
thirteen weeks ended May 4, 1996 compared to $1,936,000 for the thirteen weeks
April 29, 1995 for capital expenditures. The increase is the result of the
opening or conversion to Super Trak and Super Trak Warehouse stores.
Financing activities provided $52,000 to the Company from the proceeds
from the exercise of stock options and was partially offset by payments for
capital lease obligations.
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 May 4, 1996, the
Company had entered into lease agreements to open 15 new stores and amendments
to existing lease agreements to convert two Classic Trak stores into Super Trak
or Super Trak Warehouse stores.
Results of Operations
During the thirteen weeks ended May 4, 1996, the Company opened two new
Super Trak Warehouse stores and closed or converted two Super Trak stores and
four classic Trak stores. At May 4, 1996, the Company had 272 stores,
including 111 Super Trak stores and 31 Super Trak Warehouse stores.
Sales of $87,016,000 during the thirteen weeks ended May 4, 1996
increased by $7,405,000 or 9.3% over the thirteen weeks ended April 29, 1996.
The increase was primarily due to the continuing conversion to larger and more
successful Super Trak and Super Trak Warehouse stores and the addition of 14
stores in the Pittsburgh, Pennsylvania market in January 1996. Comparable
sales (stores open more than one year) increased 4.9% for the thirteen weeks
ended May 4, 1996. Sales for comparable Super Trak Stores increased 5.4%, sales
for comparable Super Trak Warehouse stores increased 16.5% and sales for
comparable classic Trak stores increased 3.0%. Sales for Super Trak and Super
Trak Warehouse stores represented 62.8% of total sales during the thirteen
weeks ended May 4, 1996 compared to 52.8% for the thirteen weeks ended April
29, 1995.
Interest and other income decreased by $45,000 when compared to the
prior year, largely due to reduced interest income as a result of less funds
available for short-term investment.
Cost of sales, store occupancy and warehousing expenses as a percentage
of sales were 74.7% for the thirteen weeks ended May 4, 1996 compared to 74.3%
for the same period in the prior year. The increase was primarily due
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
to increased store occupancy costs and was partially offset by increased
advertising credits.
Selling and administrative expenses were 20.4% and 21.3% as a percentage
of sales for the thirteen weeks ended May 4, 1996 and April 29, 1995,
respectively. The decrease was due primarily to decreased insurance costs.
Payroll costs as a percentage of sales remained unchanged.
Depreciation and amortization expenses increased $553,000 for the
thirteen weeks ended May 4, 1996 compared to the same period one year ago. The
increase was due to an increase in store fixed assets resulting from the
opening of Super Trak and Super Trak Warehouse stores.
The effective income tax rate was 36.3% for the thirteen weeks ended May
4, 1996 compared to 36.9% for the thirteen weeks ended April 29, 1995. The
decrease in the effective rate was primarily due to a reduction in state income
taxes as a result of an increase in the apportionment of state taxable income
to states with lower statutory rates.
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 final 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 and $12,800,910, respectively.
On May 30, 1996, the U.S. Court of Appeals for the Third Circuit
affirmed the judgment of the district court.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Document
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27 Financial Data Schedule
(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
Date June 14, 1996 By R. Keith Green
---------------------- ---------------------------
R. KEITH GREEN
President
Date June 14, 1996 David B. MacGlashan
---------------------- ---------------------------
DAVID B. MACGLASHAN
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<CASH> 11,825
<SECURITIES> 8,651
<RECEIVABLES> 5,118
<ALLOWANCES> 0
<INVENTORY> 107,405
<CURRENT-ASSETS> 142,922
<PP&E> 92,330
<DEPRECIATION> 44,190
<TOTAL-ASSETS> 198,256
<CURRENT-LIABILITIES> 85,578
<BONDS> 26,844
0
0
<COMMON> 64
<OTHER-SE> 83,258
<TOTAL-LIABILITY-AND-EQUITY> 198,256
<SALES> 87,016
<TOTAL-REVENUES> 87,426
<CGS> 64,989
<TOTAL-COSTS> 64,989
<OTHER-EXPENSES> 19,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 921
<INCOME-PRETAX> 1,851
<INCOME-TAX> 671
<INCOME-CONTINUING> 1,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,180
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
