<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 2, 1997
--------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to
----------
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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) 226-1200
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
At September 12, 1997, the registrant had 5,909,279 shares of Common Stock,
$.01 par value per share, outstanding.
1
<PAGE> 2
PART I
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 1, 1997.
2
<PAGE> 3
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Twenty-Six
Weeks Ended Weeks Ended
--------------------- ---------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 90,523 $ 90,428 $172,128 $177,444
Interest and other income 243 364 396 774
-------- -------- -------- --------
90,766 90,792 172,524 178,218
-------- -------- -------- --------
Expenses:
Cost of sales, store occupancy
and warehousing 69,869 68,561 132,134 133,550
Selling and administrative 20,172 18,488 37,639 36,257
Depreciation and amortization 1,801 1,858 3,860 3,754
Interest expense 941 925 1,864 1,846
-------- -------- -------- --------
92,783 89,832 175,497 175,407
-------- -------- -------- --------
Income (loss) before income taxes (2,017) 960 (2,973) 2,811
Income taxes (benefit) (1,074) 286 (1,332) 957
-------- -------- -------- --------
Net income (loss) $ (943) $ 674 $ (1,641) $ 1,854
======== ======== ======== ========
Weighted average common shares
and common share equivalents
outstanding 5,909 5,947 5,909 5,940
======== ======== ======== ========
Net income (loss) per share $ (.16) $ .11 $ (.28) $ .31
======== ======== ======== ========
</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>
(Unaudited) (Audited)
August 2, February 1,
ASSETS 1997 1997
---------- -----------
<S> <C> <C>
Current Assets:
Cash $ 7,012 $ 5,782
Short-term instruments 10,275 5,941
Marketable debt securities 717 2,479
Accounts receivable 5,209 6,841
Merchandise inventories 105,959 106,193
Due from affiliate 109 -
Deferred income taxes 6,876 6,494
Other current assets 2,979 3,083
-------- --------
Total Current Assets 139,136 136,813
-------- --------
Property and Equipment, at cost:
Furniture, fixtures and equipment 64,782 63,675
Leasehold improvements 11,924 12,103
Property under capital leases 22,032 22,032
-------- --------
98,738 97,810
Accumulated Depreciation and Amortization 53,686 49,876
-------- --------
45,052 47,934
Other Assets 1,369 1,502
-------- --------
Deferred Income Taxes 6,145 5,971
-------- --------
Total Assets $191,702 $192,220
======== ========
</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>
(Unaudited) (Audited)
August 2, February 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997
---------- -----------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 51,514 $ 47,690
Income taxes payable 689 1,581
Accrued expenses -
Salaries and benefits 12,115 11,440
Taxes other than income 6,295 5,569
Other 11,052 13,791
Current portion of obligations under
capital leases 209 209
Due to affiliate - 18
-------- --------
Total Current Liabilities 81,874 80,298
-------- --------
Obligations Under Capital Leases 26,983 26,912
-------- --------
Reserve for Closed Stores and
Restructuring 1,055 1,597
-------- --------
Total Liabilities 109,912 108,807
-------- --------
Stockholders' Equity:
Common stock, par value $.01 per share;
15,000,000 shares authorized;
6,437,469 shares issued 64 64
Paid-in capital 46,476 46,476
Unrealized investment gains 21 3
Retained earnings 43,949 45,590
Treasury stock 528,190 shares
of common stock, at cost (8,720) (8,720)
-------- --------
Total Stockholders' Equity 81,790 83,413
-------- --------
Total Liabilities and Stockholders'
Equity $191,702 $192,220
======== ========
</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 2, August 3,
1997 1996
-------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ (1,641) $ 1,854
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 3,860 3,754
Interest in excess of capital lease payments 176 -
Change in assets and liabilities:
Accounts receivable 1,632 (3,419)
Merchandise inventories 445 (5,114)
Due from affiliate (109) -
Other current assets 104 (2,364)
Deferred income taxes (478) (601)
Other assets 133 142
Accounts payable, trade 3,824 3,959
Accrued expenses (1,338) 3,390
Due to affiliate (18) (91)
Income taxes payable (892) 1,037
Reserve for closed facilities (542) (1,336)
-------- --------
Net cash provided by operating activities $ 5,156 $ 1,211
-------- --------
Cash Flows from Investing Activities:
Capital expenditures $ (1,189) $ (4,450)
Maturities of United States Treasury Bills 50 -
Sales of United States Treasury Bills - 4,299
Maturities of United States Treasury Bills - 3,345
Maturities of United States Treasury Notes 1,150 4,070
Maturities of marketable debt securities 502 1,574
-------- --------
Net cash provided by investing activities $ 513 $ 8,838
-------- --------
Cash Flows from Financing Activities:
Principal payments under capital lease obligations $ (105) $ (50)
Proceeds from exercise of stock options - 151
-------- --------
Net cash provided by (used for)
financing activities $ (105) $ 101
-------- --------
Net Increase (Decrease) in Cash and Equivalents $ 5,564 $ 10,150
Cash and Equivalents at Beginning of Period 11,723 5,557
-------- --------
Cash and Equivalents at End of Period $ 17,287 $ 15,707
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during quarter for:
Interest $ 1,864 $ 1,846
Income taxes - 673
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 2, 1997 and August 3, 1996
(Unaudited)
NOTE 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 in
the United States. The unaudited statements as of August 2, 1997 and August 3,
1996 reflect, in the opinion of management, all adjustments (normal and
recurring in nature) necessary to present fairly the consolidated financial
position as of August 2, 1997 and August 3, 1996 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 2, 1997 are not
necessarily indicative of the results to be achieved for the full fiscal year.
NOTE 2 - EARNINGS PER SHARE
Earnings per share is 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 (loss) per common
share and fully diluted net income (loss) per common share is not significant
for the periods presented.
NOTE 3 - INTERIM INVENTORY ESTIMATES
The Company's inventories are priced at the lower of last-in, first-out cost or
market. At August 2, 1997 and February 1, 1997, inventories determined on a
first-in, first-out basis would have been greater by $6,920,000 and $6,733,000,
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. A physical inventory was taken for all stores
during the quarter ended August 2, 1997.
NOTE 4 - SHORT-TERM INSTRUMENTS AND MARKETABLE DEBT SECURITIES
The Company's short-term instruments included United States Treasury Bills,
with a maturity of three months or less, and money market funds. Marketable
debt
7
<PAGE> 8
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
August 2, 1997 and August 3, 1996
(Unaudited)
securities included United States Treasury Bills with a maturity of greater
than three months, United States Treasury Notes and United States Agency
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 2, 1997, market value was approximately $21,000 greater than
cost, net of income taxes, and 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.
NOTE 5 - CREDIT AGREEMENTS
In December 1996, the Company entered into a revolving credit facility (the
"Facility") with a finance company to borrow up to $25.0 million. The Company
intends to use proceeds from drawdowns under the Facility for working capital
and other corporate purposes. The Facility has an original term of three years.
Borrowings under the Facility bear interest at rates ranging from prime rate
minus 0.50% to prime rate plus 0.25%, for prime rate loans, and LIBOR plus 1.5%
to LIBOR plus 2.25%, for LIBOR loans. Interest rates are based upon the
Company's ratio of debt to tangible net worth. Borrowings are limited to
eligible inventory levels, as defined, and are secured by the Company's
inventory, accounts receivable, and proceeds from the sale of such assets. The
Facility contains certain restrictive covenants including limitations on
additional indebtedness, advances to affiliates and payments (limited to $25.0
million) or guarantees (limited to $20.0 million of the $25.0 million) to
settle disputes with Haft family members and a maximum leverage ratio covenant.
Interest on prime rate loans is payable monthly. Interest and principal on
LIBOR loans is payable between one and six months from the borrowing date.
LIBOR loans are subject to a prepayment penalty and may be continued for a
subsequent one to six month period. LIBOR loans may be converted to prime rate
loans and visa versa. The Facility includes a facility fee of .25% per annum on
the unused principal balance, as defined. No single advance may be outstanding
for more than 36 months. The Company may terminate the Facility upon 60-days
prior written notice to the lender and the lender may terminate it as of
December 18, 1999 or on any anniversary date thereafter upon 60-days prior
written notice to the Company.
8
<PAGE> 9
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
August 2, 1997 and August 3, 1996
(Unaudited)
In addition, the Company has a $750,000 commercial letter of credit facility
for use in importing merchandise.
As of August 2, 1997, there had been no borrowings under these credit
agreements.
NOTE 6 - PROPERTY, EQUIPMENT AND DEPRECIATION
Effective February 2, 1997 the Company changed its accounting policy from
expensing purchased computer software costs in the year of acquisition to
capitalizing and depreciating these costs over the estimated useful life not to
exceed five years. Management has determined that these costs benefit future
periods.
During the 26 weeks ended August 2, 1997, the Company recorded amortization of
computer software costs of approximately $4,000. The effect of capitalizing
purchased computer software was to reduce the Company's loss by approximately
$50,000, ($.01 per share) net of income tax benefits.
NOTE 7 - SUBSEQUENT EVENT
Settlement with Robert, Gloria and Linda Haft
On August 18, 1997, the Company and Dart Group Corporation ("Dart"), which owns
67.1% of the Company's outstanding common stock, entered into an agreement to
settle certain litigation and enter other related transactions (the "RGL
Settlement") with Robert M. Haft, Gloria G. Haft, Linda G. Haft and certain
related parties (collectively, "RGL").
The transactions contemplated by the RGL Settlement between Dart and RGL
include: the purchase by Dart from RGL (or related parties) of 104,976 shares
of Dart Class B Common Stock and 77,244 shares of Dart Class A Common Stock;
the termination of options held or claimed by RGL to purchase a total of
283,750 shares of Dart Class A Common Stock; the termination of putative
options to purchase 15 shares of Dart/SFW Corp., and the termination of a small
number of options to purchase shares of common stock of the Company and Crown
Books Corporation ("Crown Books"), an affiliate of Dart. Dart will pay RGL a
total of approximately $41.0 million in connection with these transactions.
The RGL Settlement also contemplates the completion of bankruptcy plans of
reorganization for the partnerships owning Dart's headquarters building in
Landover, Maryland and a warehouse leased by the Company, in Bridgeview,
Illinois. Under these bankruptcy plans, Dart will pay a total of $4.4 million
(50% of which would be offset by the release to Dart of funds previously
escrowed for Ronald Haft) to Robert and Linda Haft for their interests in these
two partnerships, and a total of $7.0 million to reduce outstanding
institutional mortgage loans on these properties, which will thereafter be
wholly-owned by Dart affiliates.
9
<PAGE> 10
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
August 2, 1997 and August 3, 1996
(Unaudited)
The RGL Settlement requires a supplemental settlement arrangement between Dart
and Ronald S. Haft, which has not yet been completed and which cannot be
assured. The closing of these transactions is scheduled for late September,
subject to the satisfaction of various conditions. Closing of these
transactions cannot be assured.
The RGL Settlement, if consummated, would result in the termination of the
pending claim by RGL to control of Dart and the settlement of all litigation
between them and Dart and its subsidiaries.
A small portion of the cost of these transactions may be allocated to the
Company.
Settlement Discussions with Herbert H. Haft
The previously-announced settlement discussions between Dart and Herbert H.
Haft have not produced a final settlement agreement at this time, though
discussions are continuing. There can be no assurance that a settlement between
Dart and Herbert H. Haft will be entered into or that, even if a settlement
agreement with Herbert H. Haft is entered into, that the settlement
transactions will close.
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 represents the strongest
segment of its business and anticipates that all of its new stores will be
opened within this concept as 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.
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.
The automotive aftermarket is a highly competitive market place. As a result,
the industry is consolidating with independent operators and small chains
either going out of business or being acquired by larger competitors.
Additionally, the do-it-yourself customer base is shrinking due to the
increased complexity of automobiles, increased incidences of leasing, and the
availability of well-maintained leased vehicles entering the used car market.
Management believes that the markets in which it operates will remain highly
competitive in the foreseeable future and, as a result, that the Company will
be challenged to improve operating results in fiscal 1998.
Liquidity and Capital Resources
Cash, including short-term instruments, is the Company's primary source of
liquidity. Cash, including short-term instruments, increased by $5,564,000 to
$17,287,000 at August 2, 1997 from $11,723,000 at February 1, 1997. This
increase was due primarily to cash generated by operations, the maturity of
marketable debt securities, collection of year-end receivables and timing of
payments for inventory purchases.
Operating activities provided $5,156,000 to the Company during the 26 weeks
ended August 2, 1997 compared to $1,211,000 for the 26 weeks ended August 3,
1996. The increase was primarily due to the collection of outstanding accounts
receivable and stable merchandise inventory levels compared to increasing
receivables and inventory last year.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Investing activities provided $513,000 to the Company during the 26 weeks ended
August 2, 1997 compared to $8,838,000 for the 26 weeks August 3, 1996.
Maturities of United States Treasury Notes was the primary source of funds in
the current year which was partially offset by capital expenditures.
Financing activities used $105,000 to the Company's cash during the 26 weeks
ended August 2, 1997 for principal payments under capital lease obligations.
In December 1996, the Company entered into a revolving credit facility with a
finance company to borrow up to $25.0 million. The credit facility has an
original term of three years. Borrowings are limited to eligible inventory
levels and are secured by the Company's inventory, accounts receivable and
proceeds from the sale of those assets. The credit facility contains certain
restrictive covenants and a maximum leverage ratio covenant. The covenants
include a limitation of $25.0 million on amounts paid (including a $20.0
million limitation on amounts guaranteed) to settle disputes with Haft family
members. As of August 2, 1997, the Company had not borrowed under the credit
facility.
The Company funds its requirements for working capital and capital expenditures
with net cash generated from operations, existing cash resources and, if
necessary, borrowings under its credit facility. The Company's primary capital
requirements relate to remodelings and new store openings (including purchases
of inventory and the costs of store fixtures and leasehold improvements). As of
August 2, 1997, the Company had entered into lease agreements to open seven new
Super Trak or Super Trak Warehouse stores.
Funding of Possible Settlements
Dart and certain of its subsidiaries (including the Company) have
entered into an agreement to settle certain litigation and enter other related
transactions with Robert M. Haft, Gloria G. Haft, Linda G. Haft and certain
related parties. In addition, settlement discussions are continuing with each
of Herbert H. Haft and Ronald S. Haft. The aggregate payments estimated to be
paid by Dart and its subsidiaries in connection with these possible
settlements, if all of them occur, would be approximately $92 million
(including a loan of $10 million), part of which would be deferred. It is
anticipated that Dart would pay substantially all of this amount, though a
portion (yet to be determined) could be allocated to Crown Books Corporation
("Crown Books"), an affiliate of Dart and to Trak Auto. Allocation of any
actual settlement obligations among the companies would be in proportion to
reflect relative benefits each company receives, as determined by their boards
of directors after consultation with outside advisors. Trak Auto anticipates
that it would pay its portion of the settlement obligations from borrowings
under its credit facility.
Results of Operations
During the 26 weeks ended August 2, 1997, the Company opened five new Super
Trak and two new Super Trak Warehouse stores and closed or converted four
classic Trak stores and converted one Super Trak Warehouse to a Super Trak. At
August 2, 1997, the Company had 289 stores, including 128 Super Trak stores and
45 Super Trak Warehouse stores.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Sales of $172,128,000 during the 26 weeks ended August 2, 1997 decreased by
$5,316,000 or 3.0% compared to sales for the 26 weeks ended August 3, 1996
while sales of $90,523,000 during the 13 weeks ended August 2, 1997 increased
$95,000 or 0.1% compared to sales for the same period one year ago. The sales
decrease during the 26 weeks ended August 3, 1996 was primarily due to the mild
winter conditions in the Midwest and East coast markets as well as the weak
performance of the stores in the highly competitive Los Angeles market, during
the first quarter. Comparable sales (stores open more than one year) decreased
8.2% and 6.4% for the 26 and 13 weeks ended August 2, 1997. Sales for
comparable Super Trak and Super Trak Warehouse stores decreased 8.3% and 7.0%
for the 26 and 13 weeks ended August 2, 1997, respectively. Sales for
comparable classic Trak stores decreased 8.1% and 5.3% for the 26 and 13 weeks
ended August 2, 1997, respectively. Sales for Super Trak and Super Trak
Warehouse stores represented 68.7% and 71.5% of total sales during the 26 and
13 weeks ended August 2, 1997 compared to 63.7% and 64.5% for the 26 and 13
weeks ended August 3, 1996, respectively.
Interest and other income decreased by $378,000 and $121,000 for the 26 and 13
weeks ended August 2, 1997, respectively, when compared to the prior year,
largely due to reduced income from subleased store locations and reduced
recoveries from audits of prior years vendor allowances.
Cost of sales, store occupancy and warehousing expenses as a percentage of
sales were 76.8% and 77.2% for the 26 and 13 weeks ended August 2, 1997
compared to 75.3% and 75.8% for the same periods in the prior year. The
increases were primarily due to increased occupancy and distribution costs.
Selling and administrative expenses were 21.9% and 22.3% as a percentage of
sales for the 26 and 13 weeks ended August 2, 1997 compared to 20.4% for both
the 26 and 13 weeks ended August 3, 1996. The increases for the 26 and 13 weeks
were due primarily to increased advertising costs (largely due to the Company's
entry into the Milwaukee market) and increased payroll costs, as a percentage
of sales, due to the decrease in sales during the first quarter.
Depreciation and amortization expenses increased $106,000 for the 26 weeks
ended August 2, 1997 compared to the same period one year ago. The increase was
due to increased fixed assets for new stores, particularly in the Milwaukee
market.
Interest expense of approximately $1,864,000 during the 26 weeks ended August
2, 1997 was for interest under capital lease obligations.
The Company recorded an income tax benefit of $1.3 million during the 26 weeks
ended August 2, 1997. The tax benefit is the result of the Company's $2,973,000
net operating loss.
Effect of New Financial Accounting Standard
In February 1997, the Financial Accounting Standards Board issued a Statement
of Financial Accounting Standards ("SFAS") No. 128 Earnings Per Share. SFAS
No. 128 replaces the presentation of primary earnings per share, previously
presented by the Company, with basic earnings per share and requires a
reconciliation of the numerator and denominator of basic earnings per share to
13
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
fully diluted earnings per share. Fully diluted earnings per share is computed
similarly to the previous requirements. The Company will be required to adopt
SFAS No. 128 in the fourth quarter of fiscal 1998 and to restate all previously
presented earnings per share data. The presentation of the Company's basic
earnings per share under SFAS No. 128 is greater than the amounts presented
herein as primary earnings per share.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
Reporting Comprehensive Income. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company will adopt SFAS No.
130 in the first quarter of fiscal 1999 and will provide the necessary
disclosures.
14
<PAGE> 15
PART II
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 1, 1997 and, with
respect to material developments in such earlier reported legal proceedings,
see below.
Dart and certain of its subsidiaries (including Trak Auto) have entered into a
settlement agreement with Robert, Gloria and Linda Haft. See Note 7 to Trak
Auto's Consolidated Financial Statements contained herein. This settlement, if
consummated, would result in the termination of the pending claim by Robert,
Gloria and Linda Haft to control of Dart and the settlement of all litigation
between them and Dart and its subsidiaries, including Trak Auto.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders (the "Meeting") was held on June 27, 1997.
At the Meeting, Trak Auto shareholders re-elected all five incumbent Directors
to Trak Auto's Board of Directors.
The results of the voting for the election of directors at the Meeting are set
forth below.
<TABLE>
<CAPTION>
Number of
Name of Nominee Votes For Shares Withheld
--------------- --------- ---------------
<S> <C> <C>
Herbert H. Haft 5,143,951 662,985
R. Keith Green 5,159,911 647,025
Larry G. Schafran 5,160,211 646,725
Bonita A. Wilson 5,160,211 646,725
Douglas M. Bregman 5,160,211 646,725
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 12, 1997 By: R. Keith Green
--------------------- --------------------------
R. KEITH GREEN
President
Date: September 12, 1997 David B. MacGlashan
--------------------- --------------------------
DAVID B. MACGLASHAN
Senior Vice President and
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
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