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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended January 31, 1998
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( ) 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
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(Exact name of registrant as specified in its charter)
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Delaware 52-1281465
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 75th Avenue, Landover, Maryland 20785
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (301) 226-1200
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
At April 30, 1998, the registrant had 5,909,179 shares of Common Stock
outstanding and the aggregate market value of such shares held by
non-affiliates of the registrant was approximately $23,363,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1998 proxy statement for the annual stockholders'
meeting to be held June 26, 1998 are incorporated by reference in Part III of
this Form 10-K
The exhibit index begins at page 69 of this Form 10-K.
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This Amendment No. 1 amends the registrant's Annual Report on Form 10-K (the
"Form 10-K") for the year ended January 31, 1998, which was filed on May 1,
1998.
The Form 10-K is hereby amended and replaced in its entirety, as the result of
a technical error that caused a page to be omitted from the financial
statements.
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Table of Contents
Part I
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Page
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Part II
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Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . 29
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 60
Part III
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Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . 61
Part IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
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PART I
Forward-looking Statements
Statements in this report that are not historical in nature, including
references to beliefs, anticipations or expectations, are forward-looking. Such
statements are subject to a wide variety of risks and uncertainties that could
cause actual results to differ materially from those projected, including
without limitation the consummation of the Merger (as defined below), the
ability of the Company (as defined below) to open new stores and close other
stores, the sufficiency of recorded reserves for store closings, the
availability of capital to fund operations, the effect of national and regional
economic conditions, the effect of increased competition in the markets in
which the Company operates and other risks described from time to time in the
Company's filings with the Securities and Exchange Commission. 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, which revisions may be made to reflect any future events or
circumstances, other than through its regular quarterly and annual financial
statements, and through the accompanying discussion and analysis contained in
the Company's Quarterly Reports on Form 10-Q and Annual Report on Form 10-K.
Item 1. Business
Trak Auto Corporation ("Trak Auto") was incorporated in Delaware in 1983 and
operates retail discount auto parts stores in the United States. The term
"Company" refers collectively to Trak Auto and its wholly-owned subsidiaries,
including Trak Corporation, Super Trak Corporation ("Super Trak") and Trak DHC
Corporation. Dart Group Corporation ("Dart") owns 67.1% of Trak Auto's
outstanding common stock, par value $.01 per share (the "Common Stock").
Operations
The Company operates retail discount auto parts stores in the metropolitan
areas of Washington, D.C., Richmond, Virginia, Chicago, Illinois and Milwaukee,
Wisconsin, and central Pennsylvania. During the year ended January 31, 1998,
the Company sold its operations in the Los Angeles, California market and
closed its Pittsburgh, Pennsylvania operations.
The Company is engaged in the retail sale of a wide range of automobile parts
and accessories for the do-it-yourself market. The Company's products include
"hard parts" (such as alternators, starters, shock absorbers, fan belts, spark
plugs, mufflers, thermostats, and wheel bearings), as well as motor oil, oil
filters, headlights, batteries, waxes, polishes, anti-freeze and windshield
wipers. The Company does not sell tires and does not provide automotive
service or installation.
Trak Auto characterizes its stores as "Classic Trak" stores, "Super Trak"
stores and "Super Trak Warehouse" stores. Classic Trak stores are typically
between 5,000 and 6,000 square feet and carry 10,000 different product item
numbers or "SKU's".
Super Trak stores are typically between 6,000 and 11,000 square feet and carry
approximately 5,000 more SKU's than Classic Trak stores, concentrated primarily
in hard part categories.
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Additionally, Super Trak stores feature special order services that permit
customers to access virtually any automotive part, including engines. The
stores also offer extensive technical assistance through computerized parts
look-up, instruction for repairs, free use of specialized tools, and factory
trained parts personnel.
Super Trak Warehouse stores are typically between 11,000 and 24,000 square feet
and carry approximately 30,000 SKU's. The added SKU's are composed of
additional application parts.
The Company's stores use modern fixtures and equipment and the interiors have
been standardized, so that the interiors of new stores can be assembled
quickly. The stores are open seven days a week. No store contributed more
than 1.0% to the Company's consolidated sales during the year ended January 31,
1998.
Trak Auto believes that Super Trak stores represent the strongest segment of
its business. Since 1993, Trak Auto has successfully opened or converted 87
Super Trak stores excluding the Los Angeles and Pittsburgh markets. Trak Auto
anticipates that all of its new stores will be Super Trak stores in existing
and possibly new markets. As of January 31, 1998, Trak Auto had entered into
lease agreements to open two new stores in Chicago, Illinois.
The Company generally purchases merchandise directly from a large number of
manufacturers and suppliers. The Company's distribution system is
computerized, utilizing an automated replenishment and perpetual inventory
system to generate shipments of product from distribution centers in Landover,
Maryland and Bridgeview, Illinois. The required items are generally assembled
and packaged for delivery in the order in which they will be unpacked and
displayed on the shelves at the retail stores, promoting store efficiency.
Inventories are monitored both at the stores and in the distribution centers to
determine purchase requirements. The Company has a computerized point of sale
("POS") register system in every store. The Company uses scanners to identify
most merchandise at the register and uses a price look-up function to price the
sale. Most merchandise is pre-labeled with bar codes provided by the
manufacturers.
The Company's merchandising philosophy is to develop strong consumer
recognition and acceptance of its name by use of mass-media advertising to
promote a broad selection of products at low prices. The Company emphasizes
quality customer service through knowledgeable personnel and advanced
technology such as electronic parts look-up, POS and computerized
do-it-yourself aids in all stores.
The following table sets forth by metropolitan area the locations of the
Company's stores for each of the last five fiscal years.
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Item 1. Business (Continued)
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Number of Stores
at end of fiscal year
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Metropolitan Area 1994 1995 1996 1997 1998
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Chicago, Illinois 97 86 79 82 81
Los Angeles, California 116 104 96 93 -
Pittsburgh, Pennsylvania - - 14 16 -
Central Pennsylvania - - - 2 7
Richmond, Virginia 15 11 10 9 9
Milwaukee, Wisconsin - - - 7 8
Washington, D.C. 86 81 77 77 76
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Total 314 282 276 286 181
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The following tables set forth the number of stores of each of Classic Trak,
Super Trak, and Super Trak Warehouse that were opened, closed or remodeled
during each of the last five fiscal years, as well as the total number of such
stores as of the end of each such fiscal year.
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Super Trak Stores 1994 1995 1996 1997 1998
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Opened during the year 62 34 17 14 9
Closed or converted to Super Trak Warehouse
during the year 1 1 10 5 12
Sold during the year - - - - 32
Super Trak Warehouse Stores
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Opened during the year - 7 23 14 1
Closed or converted to Super Trak during
the year - - - - 5
Sold during the year - - - - 14
Classic Trak Stores
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Opened during the year 1 - - - -
Closed or converted to Super Trak or Super
Trak Warehouse during the year 65 72 36 13 16
Sold during the year - - - - 36
Total Open at End of Year
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Super Trak Stores 73 106 113 122 87
Super Trak Warehouse Stores - 7 30 44 26
Classic Trak Stores 241 169 133 120 68
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Sales and Closing of Stores
On October 6, 1997, Trak Auto entered into a purchase agreement (the "Purchase
Agreement") with CSK Auto, Inc. ("CSK") pursuant to which Trak Auto agreed to
sell to CSK its interest in its California operations (including inventory,
store fixtures and the assignment of store leases). Trak Auto and CSK closed
the transaction on December 8, 1997 for an aggregate purchase price of
approximately $32.8 million. Ninety percent (90%) of the aggregate purchase
price, or $30.2 million, was paid in cash at the closing. The remaining ten
percent (10%) was paid upon finalization of the inventory valuation. The
Company realized a pre-tax loss of $8.2 million (net of a reduction in the LIFO
reserve of approximately $2.3 million) on the sale to cover losses associated
with the sale of assets and exposure under remaining lease obligations. The
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Item 1. Business (Continued)
Company has recorded this estimated loss in the accompanying Consolidated
Statements of Operations.
On January 31, 1998, Trak Auto closed 15 stores in the Pittsburgh, Pennsylvania
market. The stores were closed as a result of disappointing operating results
and Trak Auto recorded a loss of approximately $14.9 million, primarily as a
closed store reserve.
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.
Store Closing Reserves
The Company continually evaluates its store operations and the need to close,
relocate, or expand stores or convert existing Classic Trak stores into Super
Trak or Super Trak Warehouse stores. The Company recognizes store closing
costs when management decides to close a store. In prior years, the Company
has also recognized the anticipated costs for closing, relocating, expanding
and converting existing stores to the Super Trak and Super Trak Warehouse
concepts. The costs associated with store closings are primarily unrecoverable
lease obligations (rent, real estate taxes and common area charges, net of
estimated sublease income) and the book value of leasehold improvements as of
the actual store closing date.
As of January 31, 1998, the Company had a reserve of $12,838,000 for store
closings. The reserve relates to 30 stores that have been closed stores. The
activity in the closed store reserve during the last two years is as follows:
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(dollars in thousands)
1998 1997
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Reserves, beginning of year $ 2,644 $ 4,491
Net provision recorded/(charges) 10,194 (1,847)
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Reserves, end of year $ 12,838 $ 2,644
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The increase in fiscal 1998 is primarily due to closing 15 stores in the
Pittsburgh, Pennsylvania market as a result of the poor performance of the
stores.
The total unrealizable lease obligation of Trak Auto at January 31, 1998 is
$12,838,000 and the amount of such unrealizable lease obligation allocable to
related party leases is approximately $834,000. The closed store reserve as of
January 31, 1998 is expected to be utilized as follows:
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Item 1. Business (Continued)
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(dollars in thousands)
Fiscal
Year Total
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1999 $ 2,086
2000 1,434
2001 1,271
2002 1,107
2003 969
2004-2005 5,971
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Total $12,838
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The amount recorded for future lease obligations has been estimated at 95% of
the total lease obligation after the closing date because the Company believes
that certain alternatives (subleasing and favorable lease buy-outs) to
abandonment may be available.
The Company will continue to evaluate the performance and future viability of
its stores and may close or convert additional stores in the future.
Relationship with Dart
Dart provides the Company with certain general and administrative services.
Dart also pays certain "common expenses" for the Company and its affiliates and
allocates such expenses on a judgmental basis. Dart charged the Company
approximately $1,873,000 for such services in the year ended January 31, 1998.
In addition, the Company provides similar services to Dart and its other
subsidiaries. The Company charged Dart and its other subsidiaries
approximately $768,000 for such services in the year ended January 31, 1998.
See Note 4 to the Consolidated Financial Statements and Item 2.- Properties.
Planned Merger of Dart
On April 9, 1998, Dart entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Richfood Holdings, Inc. (Richfood Holdings") and a
subsidiary of Richfood Holdings ("Acquisition Subsidiary") pursuant to which
Dart has agreed to become a wholly owned subsidiary of Richfood Holdings.
Pursuant to the terms of the Merger Agreement, Richfood Holdings will (1) make
a cash tender offer (the "Offer")for all of the issued and outstanding shares
of common stock of Dart at a price of $160.00 per share and (2) take all steps
necessary to cause Acquisition Subsidiary to merge with and into Dart (the
"Merger") in a transaction in which Dart will become a wholly owned subsidiary
of Richfood Holdings. As a result of the Merger, Richfood Holdings will
indirectly own 67.1% of the outstanding Common Stock.
The Merger is subject to the tender in the offer of a majority of shares of
common stock of Dart on a fully diluted basis and to other customary
conditions, including the receipt of regulatory approvals and the absence of
material adverse effects on the business or financial conditions of Dart and
its subsidiaries, taken as a whole, with certain limited exceptions. There can
be no assurance that the Offer or the Merger will be consummated.
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Item 1. Business (Continued)
Competition
The business in which the Company is engaged is highly competitive. The
Company competes with local, regional and national retail sellers of automobile
parts and accessories. To some extent, the Company competes with garages,
service stations, automobile dealers, supermarkets, and department, hardware
and other stores. Some of the Company's competitors offer installation
services, which are not offered by the Company. Many of its competitors have
greater resources than the Company and the Company encounters strong price
competition.
Seasonality
The Company's business is somewhat seasonal in nature, with the highest sales
occurring in the second and third fiscal quarters (May through October). Sales
for the combined second and third quarters in fiscal years 1998 and 1997 were
55% and 52%, respectively, of total annual sales. The Company's business is
also affected by weather conditions. Extremely hot or cold weather tends to
enhance sales by causing a higher incidence of parts failure, thus increasing
sales of seasonal products. Rain or snow, however, tends to reduce sales by
causing deferral of elective maintenance.
Employees
On January 31, 1998, the Company employed approximately 1,400 full-time and
1,100 part-time persons engaged in retail, warehouse and administrative
operations. Approximately 100 of these employees were located in the Ontario
distribution center and as a result of the sale of California operations were
no longer employed by the Company as of April 25, 1998. The Company considers
its relationship with its employees to be good.
Executive Officers
The following table sets forth the names, ages and positions of the executive
officers of Trak Auto. Executive officers are appointed to serve until the
meeting of the Board of Directors following the next annual meeting of
stockholders or until their successors are appointed.
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Name Age Position
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Richard B. Stone 69 Chairman of the Board and
Chief Executive Officer
R. Keith Green 47 President and Director
David B. MacGlashan 54 Senior Vice President and
Chief Financial Officer
Robert E. Brann 46 Executive Vice President
Robert H. Thomas 48 Senior Vice President, Operations
</TABLE>
Richard B. Stone was elected Chairman of the Board and Chief Executive Officer
in October 1997. Senator Stone serves as Chairman and Chief Executive Officer
of Dart. He is also Chairman and Chief Executive Officer of each of Dart's
other subsidiaries, including Crown Books Corporation ("Crown Books"), Total
Beverage Corporation ("Total Beverage") and Shoppers Food Warehouse Corp.
("Shoppers"). Since December 1995, Senator Stone had been Voting Trustee of a
trust that held all of the voting stock of Dart until February 1998 when Dart's
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Item 1. Business (Continued)
Class A shareholders were given voting power. From 1992 to 1994, Senator Stone
was a Director of International Service System. He served as United States
Ambassador to Denmark from 1992 to 1993, and he is currently a member of the
Council of American Ambassadors. He was Chief Operating Officer of Capital
Bank, N.A. from 1989 to 1991, and was Vice Chairman of the Board of Directors
of Capital Bank, N.A. from 1985 to 1991. Senator Stone served as President
Reagan's Special Envoy for Central American Affairs and Ambassador-at-Large
from 1983 to 1984. He was a United States Senator from 1975 to 1981,
representing the State of Florida.
R. Keith Green has been President of Trak Auto since 1990 and a Director of
Trak Auto since 1991. From 1987 to 1990, Mr. Green was President and Chief
Executive Officer of Whitlock Corporation. Prior to 1987, he served as Vice
President of Stores of Auto Zone.
David B. MacGlashan has been Senior Vice President and Chief Financial Officer
of Trak Auto since December 1995. From 1991 to 1995, he was Principal
Accounting Officer of Trak Auto. From 1987 to 1991, Mr. MacGlashan was Vice
President of Finance and Chief Financial Officer of WSR, Inc. (formerly
Whitlock Corporation). Prior to 1987, he served as Chief Financial Officer of
I. B. Diffusion Ltd.
Robert E. Brann has been Executive Vice President of Trak Auto since 1990.
From 1989 to 1990, Mr. Brann was Vice President of Merchandising of Trak Auto.
Prior to 1989, he served as Vice President of Merchandising and later Vice
President of Store Operations and Administration of Franks Nursery and Crafts.
Robert H. Thomas was appointed Senior Vice President of Operations in June
1997. Mr. Thomas has held various positions with Trak Auto's store operations.
He joined Trak Auto in May 1984 as a District Manager.
There is no family relationship between any director and executive officer of
Trak Auto.
Changes in Management of Dart
On September 7, 1994, the Board of Directors of Dart established an Executive
Committee comprised of Dart's outside directors to conduct the affairs of Dart
with respect to matters that were the subject of disputes between the then
Chairman of the Board and Chief Executive Officer of Dart, Herbert H. Haft, and
the then President and Chief Operating Officer of Dart, Ronald S. Haft. For a
description of such disputes and their resolutions, see Item 3 - Legal
Proceedings. On October 11, 1994, the Board of Directors of Trak Auto, Crown
Books and Total Beverage each established an Executive Committee of their
respective Boards of Directors comprised of the same outside directors, with
authority parallel to that of Dart's Executive Committee. The disputes between
Herbert H. Haft and Ronald S. Haft concerning issues involving Dart were
extensive. Accordingly, the Executive Committee assumed day-to-day involvement
in these disputed issues and other matters affecting Dart, in particular
matters relating to litigation to which Dart was then a party. The Executive
Committee remains active in the day-to-day affairs of the Company. Its
continuing role is dependent on future developments.
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Item 1. Business (Continued)
In October 1995, Dart and Ronald S. Haft entered into a settlement of certain
litigation and other related transactions (collectively, the "RSH Settlement").
Among other things, the RSH Settlement transferred majority control of Dart's
voting stock to one or more voting trustees under a Voting Trust Agreement (the
"Voting Trust Agreement"), by and among Ronald S. Haft, Dart and Larry G.
Schafran and Sidney B. Silverman, as initial Voting Trustees. On December 28,
1995, the initial Voting Trustees resigned and appointed Richard B. Stone as
successor Voting Trustee.
On September 24, 1997, Richard B. Stone, in his capacity as Voting Trustee and
Herbert H. Haft, in his capacity as the holder of the purported Proxy from
Ronald S. Haft to vote 172,730 shares of Dart's Class B common stock, removed
Larry G. Schafran from Dart's Board of Directors and appointed Richard B. Stone
to Dart's Board of Directors. For a description of the Proxy, see Item 3 -
Legal Proceedings - Herbert H. Haft Proxy Litigation. In addition, Richard B.
Stone was named Chairman of the Executive Committee of Dart's Board of
Directors, and Acting Chief Executive Officer of Dart and he replaced Larry G.
Schafran as a director of Trak Auto, Crown Books, Shoppers and Total Beverage.
Richard B. Stone also assumed the positions of Acting Chief Executive Officer
of Trak Auto and Chairman of the Executive Committee of both Trak Auto and
Crown Books.
On October 21, 1997, Howard M. Metzenbaum and Harry M. Linowes were elected to
fill new positions on the Board of Directors of Dart, which was increased from
five to seven members. On December 19, 1997, Richard B. Stone, in his capacity
as Voting Trustee, and Herbert H. Haft, in his capacity as holder of the
purported Proxy, executed a unanimous written consent in lieu of an annual
meeting of stockholders pursuant to which (i) Dart's bylaws were amended to
provide for a board of directors composed of four directors and (ii) Richard B.
Stone, Howard M. Metzenbaum, Harry M. Linowes and Herbert H. Haft were elected
directors of Dart. Accordingly, Ronald S. Haft is no longer a director of
Dart. At the same time, Douglas M. Bregman and Bonita A. Wilson jointly
stepped down as directors and Executive Committee members of Dart and its
subsidiaries.
In February 1998, pursuant to the Settlements (as defined in Item 3 - Legal
Proceedings), Herbert H. Haft among other things (i) resigned from all of his
positions with Dart and its subsidiary corporations, (ii) relinquished his
claim to voting control of Dart, and (iii) terminated his employment contract
with Dart. In addition, all outstanding litigation and disputes between Dart
and Herbert H. Haft were dismissed or resolved. For a description of the
Settlements, see Item 3 - Legal Proceedings - Resolution of Haft Family and
Related Litigation.
In February 1998, Richard B. Stone was appointed Chief Executive Officer of
Dart and its subsidiaries instead of Acting Chief Executive Officer.
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Item 2. Properties
The Company subleases from Dart 210,000 square feet of a distribution center
and office facility, located in Landover, Maryland, which it shares with Crown
Books. The sublease is for 30 years and six months, provides for rental
payments increasing approximately 15% every five years over the term of the
sublease and commenced in 1985. The current annual rental is $1,647,000. The
sublease also requires the additional payment of maintenance, utilities,
insurance and real estate taxes allocable to the space subleased. Dart
originally leased the entire 271,000 square foot distribution center and office
facility from a private partnership in which Haft family members owned all of
the partnership interests. As a result of the various settlements with members
of the Haft family, a Dart subsidiary now owns the warehouse and office
facility. The Company's sublease is on the same terms as Dart's lease was
from the Haft family partnership.
Dart had a lease agreement with a Haft family-owned entity for vacant land near
the Company's distribution center in Landover, Maryland. The lease was for the
same period as the distribution center and office facility lease described
above. The Company's current annual rental is $26,000 with increases of three
percent per year. As a result of the various settlements with members of the
Haft family, the same Dart subsidiary discussed above now owns this land and
the Company no longer pays rent for the land.
The Company has an agreement with Dart to use space in a warehouse facility,
adjacent to the above distribution center and office facility. Dart originally
leased this property from a partnership in which Haft family members owned all
of the partnership interests until the RSH Settlement. This warehouse is now
owned by a Dart subsidiary. The rental is variable dependent on square footage
used. In fiscal 1998 the rental was $177,000. The arrangement also requires
the Company to pay a prorated share of utilities, real estate taxes and
maintenance.
The Company leased a 176,000 square foot distribution center located in
Bridgeview, Illinois from a private partnership in which Haft family members
own all of the partnership interests. As a result of the various settlements
with members of the Haft family, the Company's lease is now with a subsidiary
of Dart. The lease is for thirty years and six months, provides for rental
payments increasing approximately 15% every five years over the term of the
lease and commenced in 1984. The current annual rental is $754,000. The lease
also requires the Company to pay for maintenance, utilities, insurance and real
estate taxes on the warehouse.
The Company leases a 317,000 square foot distribution center located in
Ontario, California from a private partnership in which Haft family members own
all of the partnership interests. The lease is for 20 years and provides for
increasing rental payments, based upon the Consumer Price Index for the Los
Angeles area, over the term of the lease. The lease commenced in 1989. The
current annual rental is $1,516,000. The lease also requires the Company to
pay for maintenance, utilities, insurance and real estate taxes on the
distribution center.
As part of the RSH Settlement, Ronald S. Haft agreed to transfer the real
estate and partnership interests controlled by him in the Ontario, California
office and distribution center to Dart (or its subsidiaries). The transfer was
subject
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Item 2. Properties (Continued)
to contingencies, including bankruptcy court approval, mortgagee approval and
challenges brought by Herbert H. Haft concerning the extent of Ronald S. Haft's
ownership interest in the property. As a result of the Settlements with Herbert
H. Haft and Ronald S. Haft the contingencies that still remain are agreements
with mortgage and bankruptcy reorganization plans.
The Company leases all of its 181 retail stores. As of January 31, 1998, the
total remaining minimum annual payments for the Company's retail stores
(excluding closed stores) were $85,404,000 to the lease expiration dates and
(including closed stores) were $98,032,000 to the lease expiration dates. The
lease and license expiration dates (without regard to renewal options) range
from 1998 to 2014.
Twenty-two of these store leases are with entities in which the Haft family has
substantially all the beneficial interest, two are subleased from Crown Books
and one is subleased from Shoppers Food (a total of 25 leases). These 22
leases provide for various termination dates that range from 1998 to 2024 and
require payment of future minimum rentals aggregating $42,293,000 (including
renewal options) at January 31, 1998. These lease agreements also require
payment of a percentage of sales in excess of a stated minimum. Annual fees
and rentals paid to Haft-owned entities for stores and office and warehouse
space was $5,999,000 in the year ended January 31, 1998.
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Item 3. Legal Proceedings
Lawsuits Against Trak Auto
In January 1998 Trak Auto was named as a defendant in two class action lawsuits
(Richard Amezcua, Augustin Dominquez, and other members of the general public
similarly situated v. Trak Auto Corporation, Superior Court of California.
Action No. BC183900) and (D'Artanyon Tett, Linda Wendt and individuals on
behalf of themselves and all others similarly situated v. Trak Auto
Corporation., Superior Court of the State of California. Action No. BC 186931)
involving former California employees of the Company alleging improper wage and
hour practices. The suit claims that former salaried employees should have
been paid overtime. Management and outside legal counsel are in the process of
evaluating these claims. The Company is unable to express an opinion as to the
merit, if any, or potential liability, if any, of these lawsuits as of the
filing date of this report.
Resolution of Haft Family and Related Litigation
The litigation discussed below involving Dart Group Corporation ("Dart"), its
affiliates, including Trak Auto and members of the Haft family settled prior to
January 31, 1998. On February 5, 1998, Dart closed the settlement agreement
with Herbert H. Haft (the "HHH Settlement") and a Second Supplemental
Settlement Agreement with Ronald S. Haft ("Second Supplemental Agreement").
The RSH Settlement, the First Supplemental Agreement, the Second Supplemental
Agreement, the RGL Settlement and the HHH Settlement are collectively referred
to herein as the "Settlements". The RSH Settlement, the First Supplemental
Agreement, the Second Supplemental Agreement and the RGL Settlement are
described below. As part of the closing of the HHH Settlement, Herbert H.
Haft (i) sold to Dart all of his shares of, and options to purchase, Dart Class
A Common Stock, and sold his capital stock of Dart's subsidiaries Trak Auto and
Crown Books Corporation ("Crown Books"),(ii) resigned from all of his positions
with Dart and its subsidiary corporations, (iii) relinquished his claim to
voting control of Dart, and (iv) terminated his employment agreement with Dart.
In addition, all outstanding litigation and disputes between Dart and Herbert
H. Haft were resolved. As consideration for the HHH Settlement, Dart paid
Herbert H. Haft approximately $28 million at the closing. In connection with
the closing of the Settlements, Dart also made a $10 million loan to a
partnership owned by Ronald S. Haft, the proceeds of which were used to repay a
$10 million note to Herbert H. Haft. As a result of the consummation of the
Settlements all litigation between Dart and members of the Haft family has been
settled and dismissed, and the Company is no longer subject to the Standstill
Order previously imposed by the Delaware Court of Chancery.
In October, 1995, Dart entered into a settlement agreement with Ronald S. Haft,
to settle certain litigation to which Dart was a party ("RSH Settlement").
Pursuant to the RSH Settlement, Ronald S. Haft transferred 172,730 shares of
Dart's Class B Common Stock, par value $1.00 (Dart's sole voting stock prior to
February, 1998 when Dart discontinued its dual class common stock structure,
"Class B Common Stock"), in exchange for 288,312 shares of Dart's Class A
Common Stock, par value $1.00 (Dart's non-voting, publicly traded class of
stock prior to February 1998, "Class A Common Stock"). Ronald S. Haft also
exercised an option to purchase 197,048 shares of Class B Common Stock, and
paid the exercise price by paying cash and issuing a promissory note to Dart
for approximately $27.4 million. Dart also loaned Ronald S. Haft approximately
$37.9 million and
13
<PAGE> 15
Item 3. Legal Proceedings (Continued)
he issued a $37.7 million promissory note to Dart. Then, Ronald S. Haft placed
the 288,312 shares of Class A Common Stock and the Class B Common Stock which
he owned or in which he had an interest, into a voting trust. Dart also (i)
transferred approximately $11.6 million to Ronald S. Haft in exchange for an
additional promissory note (which was repaid in May 1996), and (ii) entered
into a variety of agreements with Ronald S. Haft regarding the sale of certain
properties owned by Dart or affiliates of Dart at that time. As a part of the
RSH Settlement, Ronald S. Haft resigned all positions he had with Dart and its
subsidiaries and consented to the termination of all of his outstanding options
with Dart and its affiliates.
On November 19, 1997, the real estate related transactions contemplated in the
First Supplemental Agreement to the RSH Settlement were closed and include:
completion of bankruptcy plans of reorganization for partnerships owing Dart
and the Company's headquarters in Landover, Maryland and a distribution center
leased to the Company in Bridgeview, Illinois; payment by Dart of $7.0 million
to reduce outstanding mortgage loans on these properties, which thereafter are
wholly-owned by Dart and/or its affiliates; and Ronald S. Haft paid $2.2
million to Dart from escrowed funds previously earmarked for him.
Trak Auto advanced approximately $3.3 million to a wholly-owned subsidiary of
Dart for the Bridgeview distribution center. The $3.3 million advance is in
the form of a promissory note and is expected to be repaid in May 1998.
The Second Supplemental Agreement to the RSH Settlement closed in February 1998
and Dart required that the shares held in the Voting Trust for the benefit of
Ronald S. Haft to be transferred to Dart. Dart's Class A Common Stock and
Class B Common Stock from the Voting Trust was then placed in treasury and on
February 17, 1998, the distinctions between Dart's Class A Common Stock and
Class B Common Stock were eliminated.
On September 26, 1997, Dart closed an agreement to settle certain litigation
and enter other related transactions (the "RGL Settlement") with Robert M.
Haft, Gloria G. Haft and Linda G. Haft (collectively "RGL").
In addition to mutual dismissal of claims against or by RGL (including control
of Dart), Trak Auto's portion of the RGL Settlement was $205,000 for repurchase
of certain Trak Auto stock options. Dart also acquired all of Robert M. Haft
and Linda G. Haft's interest in partnership owning Dart and Trak Auto's
headquarters building in Landover, Maryland and a distribution center leased by
Trak Auto in Bridgeview, Illinois for $4.4 million.
Derivative Litigation
In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn Derivative
Plaintiffs"), shareholders of Dart, filed a lawsuit in the Delaware Court of
Chancery for New Castle County naming as defendants Herbert H. Haft, Ronald S.
Haft, Douglas M. Bregman, Bonita A. Wilson, Combined Properties, Inc. ("CPI"),
Combined Properties Limited Partnership and Capital Resources Limited
Partnership. The suit is brought derivatively and names as nominal defendants
Dart, Trak Auto, Crown Books, Shoppers Food Warehouse Corp. ("Shoppers"), a
wholly-owned subsidiary of Dart, and other affiliated companies. The
complaint, as amended on January 12, 1995, alleged waste, breach of fiduciary
duty,
14
<PAGE> 16
Item 3. Legal Proceedings (Continued)
violation of securities laws and entrenchment in connection with various lease
agreements between the CPI defendants and Dart and its subsidiaries, the
termination of Robert M. Haft, the compensation paid to Ronald S. Haft and
Herbert H. Haft, the employment agreement entered into by Ronald S. Haft and
Dart on August 1, 1993 (the "RSH Employment Agreement"), the sale of 172,730
shares of Class B Common Stock by Herbert H. Haft to Ronald S. Haft, and the
compensation paid to the Executive Committee. Plaintiffs sought an accounting
of unspecified damages incurred by Dart, voiding of the options sold to Ronald
S. Haft, appointment of a temporary custodian to manage the affairs of Dart or
to oversee its recapitalization or sale and costs and attorneys' fees.
In January 1994, a Special Litigation Committee consisting of two outside,
independent directors of Dart, Crown Books and Trak Auto was appointed by the
Board of Directors to assess, on behalf of Dart, whether to pursue, settle or
abandon the claims asserted in the derivative lawsuit. (After the death of one
member in December 1994, the Special Litigation Committee has consisted of one
director.) In September 1994, the Special Litigation Committee moved for
dismissal of certain claims in the derivative lawsuit and for realignment of
the parties to permit Dart to prosecute other claims in the derivative lawsuit.
Thereafter, the Special Litigation Committee amended its motion and advised the
court that it had instituted certain lawsuits concerning Dart related party
real estate transactions, and was considering asserting additional claims,
certain of which were subsequently asserted. See the Lawsuit Against Herbert
H. Haft Concerning Haft-Owned Real Estate, described below. The Court did not
act upon the amended motion.
As a result of the Settlements, the derivative litigation has been dismissed
with prejudice and Dart paid approximately $3.5 million in attorney's fees to
derivative plaintiffs' counsel (approximately $0.5 million of such fees remain
payable by Dart in December 1998).
Herbert H. Haft Proxy Litigation
In connection with Herbert H. Haft's sale of 172,730 shares of Class B Common
Stock to Ronald S. Haft on July 28, 1993 (the "Stock Sale Agreement"), Ronald
S. Haft purportedly granted Herbert H. Haft an irrevocable proxy (the "Proxy")
to vote these shares of stock "to the same extent and with the same effect as
Ronald S. Haft might or could do under any applicable laws or regulations
governing the rights and powers of shareholders of Dart," until Herbert H.
Haft's death or incapacitation. On June 30, 1995, Ronald S. Haft sent a letter
to Herbert H. Haft purportedly revoking this proxy.
On July 18, 1995, Ronald S. Haft filed a lawsuit against Herbert H. Haft and,
nominally, Dart in the Delaware Court of Chancery for New Castle County for
Herbert H. Haft's alleged breach of contract and breach of fiduciary duties to
Ronald S. Haft and to Dart in connection with the Proxy (Ronald S. Haft v.
Herbert H. Haft, et al., Civ. A. No. 14425). In this action, Ronald S. Haft
sought a declaration that the Proxy was revocable or would be revocable under
certain conditions, as well as costs and attorneys' fees. Ronald S. Haft also
requested that the court require Dart to refuse to recognize the validity of
the Proxy. On August 9, 1995, Herbert H. Haft filed an Answer and Counterclaim
denying liability and requesting rescission of the Stock Sale Agreement because
of Ronald S. Haft's alleged breach of contract and other grounds. On September
15
<PAGE> 17
Item 3. Legal Proceedings (Continued)
25, 1995, Dart filed its answer in this action. Both Ronald S. Haft and
Herbert H. Haft moved for summary judgment in this lawsuit. On November 14,
1995, the court denied Ronald S. Haft's motion for summary judgment; Herbert
H. Haft's motion for summary judgment was not acted upon.
In October 1995, Dart and Ronald S. Haft entered into a settlement of certain
litigation and other related transactions (collectively the "RSH Settlement").
As part of the RSH Settlement Dart purchased from Ronald S. Haft the 172,730
shares of Class B Common Stock that were subject to the Proxy and placed the
shares in treasury.
As a result of the Settlements, this litigation has been dismissed with
prejudice.
Challenge to RSH Settlement by Herbert H. Haft
On November 6, 1995, Herbert H. Haft filed a lawsuit captioned Herbert H. Haft
v. Dart Group Corporation, et al., Del. Ch., Civ. A. No. 14685, in the
Delaware Court of Chancery for New Castle County naming as defendants Dart, all
of its directors (except Herbert H. Haft), Robert M. Haft, Gloria G. Haft and
Linda G. Haft (collectively, "RGL") , John L. Mason, Ellen V. Sigal and Michael
Ryan. Herbert H. Haft sought a judgment (i) declaring the RSH Settlement
unlawful, hence null and void; (ii) declaring either that 172,730 shares of
Class B Common Stock belong to him were wrongfully sold by Ronald S. Haft to
Dart, and that Herbert H. Haft is entitled to restitution of such shares or,
alternatively, that his purportedly irrevocable proxy on the 172,730 shares
continues to be valid; (iii) declaring that Herbert H. Haft retains voting
control of Dart or, at a minimum, 34.55% of Dart's voting power; (iv) declaring
that the Trust Shares may not be lawfully voted; and (v) declaring that
defendants John L. Mason, Ellen V. Sigal and Michael Ryan are not duly elected
directors of Dart.
On December 5, 1996, Herbert H. Haft filed a motion for partial summary
judgment in which he asserted two arguments based upon Section 160(c) of the
Delaware General Corporation Law. Section 160(c) provides that the shares of
capital stock "belonging to" a corporation are not entitled to vote. Herbert
H. Haft maintained that (i) notwithstanding Section 160(c), the 172,730 Class B
shares that Dart purchased in the RSH Settlement on October 6, 1995 do not
"belong to" Dart and are still subject to the Proxy, and (ii) Section 160(c)
does not permit the Trust Shares to be voted because those shares "belong to"
Dart, not Ronald S. Haft. Dart opposed this motion for partial summary
judgment and, on March 14, 1997, the Delaware Court of Chancery denied Herbert
H. Haft's motion in its entirety.
As a result of the Settlements, all claims in this litigation against or on
behalf of Dart have been dismissed with prejudice.
Standstill Order
In connection with the legal challenges to the RSH Settlement raised by RGL,
and by Herbert H. Haft, on December 6, 1995, the Delaware Court of Chancery
entered the Standstill Order, which restricted certain actions by Dart.
Without further order of the court, Dart could not (i) change its Certificate
of Incorporation or Bylaws; (ii) change the current composition of Dart's Board
of Directors or
16
<PAGE> 18
Item 3. Legal Proceedings (Continued)
any of its subsidiaries; (iii) change the Haft family officers of Dart or any
of its subsidiaries; or (iv) issue any additional securities of Dart or any of
its subsidiaries (except employee stock options issued in the ordinary course
of business). In addition, without first giving Herbert H. Haft and the other
parties to the Section 225 Action not less than seven days written notice, Dart
could not take any extraordinary actions, including but not limited to actions
that would result in (a) the liquidation of Dart or any of its subsidiaries,
(b) the sale of any major subsidiary of Dart or (c) the disadvantage of any
Class B stockholder of Dart through any debt transaction. For purposes of the
Standstill Order, the phrase "extraordinary actions" means any transaction,
contract or agreement, the value of which exceeds $3 million.
As a result of the Delaware Court of Chancery approval of the Settlements in
November 1997, Dart is no longer subject to the Standstill Order.
Lawsuit Against Herbert H. Haft Concerning Haft-Owned Real Estate
On December 17, 1996, Dart, Crown Books and Trak Auto filed a lawsuit captioned
Dart Group Corporation, et al. v. Herbert H. Haft, Civ. A. No. 96-26474, in the
Circuit Court for Prince George's County, Maryland, seeking damages from
Herbert H. Haft for breach of fiduciary duty, fraud and waste arising from a
series of lease transactions between Dart and certain partnerships owned
beneficially by members of the Haft family. The complaint alleged that Herbert
H. Haft exploited the dominance and control he enjoyed as an officer, director
and controlling stockholder of Dart to enrich himself and other members of the
Haft family unlawfully and unfairly at the expense of the public stockholders
of Dart, Crown Books and Trak Auto. In particular, the complaint charged that
Herbert H. Haft (i) caused Trak Auto to surrender favorable retail store
leases and subleases in Haft-owned shopping centers in exchange for new leases
less favorable to Trak Auto; (ii) required Crown Books to relinquish its
favorable lease in the McLean Chain Bridge Road Shopping Center and to enter
into a new lease with a Haft family partnership for a new location in the same
shopping center at a rent rate equal to 450 percent of the prior lease; (iii)
caused Dart, Crown Brooks and Trak Auto to enter into exorbitant long-term
leases for warehouse and distribution facilities that were purchased and
developed by Haft family partnerships for the purpose of leasing those
facilities to these companies as captive tenants; (iv) induced Dart and Trak
Auto to lease retroactively from a Haft family partnership a 2.66 acre wooded
lot for which the companies had no use; and (v) caused Trak Auto to purchase
certain used warehouse equipment from a Haft family partnership for more than
700 percent of the price contemplated by the original equipment lease.
As a result of the Settlements, this litigation was dismissed with prejudice.
Lawsuit Against Herbert H. Haft in Washington, D.C.
On December 17, 1996, Dart, Crown Books and Trak Auto also filed a lawsuit
captioned Dart Group Corporation, et al. v. Herbert H. Haft, Civ. A. No.
96-CV-2788 (D.D.C.) in the U.S. District Court for the District of Columbia
naming Herbert H. Haft as defendant. In this action, Dart, Crown Books and
Trak Auto have advanced claims for breach of fiduciary duty, civil conspiracy
and tortious interference with contracts. The companies alleged that Herbert
H. Haft wrongfully imposed Robert M. Haft's excessively generous employment
contracts
17
<PAGE> 19
Item 3. Legal Proceedings (Continued)
upon Dart and Crown Books, later breached those contracts for personal reasons
and then, due in large part to a personal conflict of interest, mishandled the
defense to Robert M. Haft's wrongful termination lawsuit. Dart, Crown Books
and Trak Auto seek to recover the approximately $38 million paid to Robert M.
Haft in satisfaction of the judgment in his wrongful termination suit,
approximately $5 million in attorneys' fees incurred by the companies in
defense of that litigation, and punitive damages.
As a result of the Settlements, this litigation has been dismissed with
prejudice.
Other
In the normal course of business, the Company is involved in various claims and
litigation. In the opinion of management, liabilities, if any, will not have a
material adverse effect, if established, upon the consolidated financial
condition and results of operations of the Company.
The Company recorded legal expenses of approximately $961,000, $1,685,000 and
$780,000 during the years ended January 31, 1998, February 1, 1997 and February
3, 1996, respectively.
18
<PAGE> 20
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
19
<PAGE> 21
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Common Stock is quoted on the Nasdaq National Market ("Nasdaq") under the
symbol TRKA. The following table sets forth the range of the high and low sale
prices for the Common Stock, as reported by the Nasdaq, for the fiscal quarters
indicated.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
May 4, 1996 20 1/2 14 3/4
August 3, 1996 17 3/4 16
November 2, 1996 17 3/4 16 1/4
February 1, 1997 17 1/4 14
May 3, 1997 14 3/8 10 5/8
August 2, 1997 13 10 1/2
November 1, 1997 16 3/4 9
January 31, 1998 13 1/8 10 3/4
</TABLE>
There were approximately 120 record holders of the Common Stock as of April 30,
1998.
The Company has not paid dividends during the past two fiscal years and does
not expect to pay dividends in the foreseeable future.
20
<PAGE> 22
Item 6. Selected Financial Data
INCOME STATEMENT DATA: (in thousands, except per share and sales % data)
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $319,440 $345,984 $342,242 $348,599 $334,798
Interest and other income 2,181 1,586 2,358 1,887 1,562
Cost of sales, store occupancy
and warehousing 246,632 262,472 253,582 256,210 255,669
Selling and Administrative 68,862 72,050 69,208 67,680 71,781
Provision for loss on sale
of California operations 8,193 - - - -
Depreciation and Amortization 8,481 7,495 6,292 6,004 6,756
Interest expense 3,753 3,705 3,638 3,849 3,561
Closed store provision 13,929 402 418 1,580 (943)
Income (loss) before
income taxes (28,229) 1,446 11,462 15,163 (464)
Net income (loss) (17,673) 1,084 7,290 10,265 81
Per share data:
Basic income (loss) per
share $ (2.99) $ .18 $ 1.24 $ 1.69 $ .01
Diluted income (loss) per
share (2.99) .18 1.23 1.67 .01
Weighted average common
share and common share
equivalents outstanding
Basic 5,909 5,900 5,867 6,078 6,046
Diluted 5,909 5,942 5,928 6,139 6,107
Percentage increase
(decrease) in sales
Total stores (7.7)% 1.1% (1.8)% 4.1% 6.0%
Comparative stores (8.7)% (1.7)% (2.7)% 2.1% 1.3%
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: (dollars in thousands)
at end of Fiscal Year
--------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Current assets $114,156 $136,813 $133,993 $137,306 $129,805
Current liabilities 70,167 80,298 75,348 75,293 75,737
Working capital 43,989 56,515 58,645 62,013 54,068
Total assets 173,506 192,220 187,595 187,649 179,149
Long-term obligation 37,597 28,509 30,064 31,797 33,737
Stockholders' equity 65,742 83,413 82,183 80,559 69,675
</TABLE>
21
<PAGE> 23
Item 7. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Control of Dart
Dart owns 67.1% of the outstanding common stock of Trak Auto. Prior to the
Settlements Dart's voting stock, the Class B Common Stock, was beneficially
owned by Haft family members.
On April 9, 1998, Dart entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Richfood Holdings, Inc. (Richfood Holdings") and a
subsidiary of Richfood Holdings ("Acquisition Subsidiary") pursuant to which
Dart has agreed to become a wholly owned subsidiary of Richfood Holdings.
Pursuant to the terms of the Merger Agreement, Richfood Holdings will (1) make
a cash tender offer (the "Offer") for all of the issued and outstanding shares
of common stock of Dart at a price of $160.00 per share and (2) take all steps
necessary to cause Acquisition Subsidiary to merge with and into Dart (the
"Merger") in a transaction in which Dart will become a wholly owned subsidiary
of Richfood Holdings. As a result of the Merger, Richfood Holdings will
indirectly own 67.1% of the outstanding Common Stock.
The Merger is subject to the tender in the offer of a majority of shares of
common stock of Dart on a fully diluted basis and to other customary
conditions, including the receipt of regulatory approvals and the absence of
material adverse effects on the business or financial conditions of Dart and
its subsidiaries, taken as a whole with certain limited exceptions. There can
be no assurance that either the Offer or the Merger will be consummated.
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 without limitation the consummation of the Merger (as
defined below), the ability of the Company to open new stores and close other
stores, the sufficiency of recorded reserves for store closings, the
availability of capital to fund operations, the effect of national and regional
economic conditions and other risks described from time to time in the
Company's filings with the Securities and Exchange Commission. 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 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
22
<PAGE> 24
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
certain performance objectives. As a result of this ongoing review, on October
6, 1997, the Company sold its California operations. While the California
operations represented approximately thirty percent (30%) of annual revenues
the operating results have historically been weak and declining because of the
highly competitive Los Angeles market. The Company sold all inventory, store
fixtures and assigned store leases, but has retained the lease obligation on
the distribution center in Ontario, California. The transaction closed on
December 8, 1997. The Company recorded a pre-tax loss related to this
transaction of $8.2 million (net of reduction in LIFO reserve of $2.3 million).
In addition, on January 31, 1998 the Company closed 15 stores in Pittsburgh,
Pennsylvania as a result of continued poor performance.
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.
Liquidity and Capital Resources
Cash, including short-term instruments, is the Company's primary source of
liquidity. Cash, including short-term instruments, increased by $6,164,000 to
$17,887,000 at January 31, 1998 from $11,723,000 at February 1, 1997. The
increase was primarily the result of proceeds from the sale of California
operations, partially offset by loans to Dart for the Settlements (discussed
below).
Operating activities used $7,702,000 of the Company's funds for the 52 weeks
ended January 31, 1998 ("fiscal 1998") compared to providing $1,027,000 for the
52 weeks ended February 1, 1997 ("fiscal 1997"). The change was primarily due
to payments for California liabilities.
Investing activities provided $14,077,000 to the Company in fiscal 1998
compared to $5,000,000 in fiscal 1997. The increase was due to the proceeds
from the sale of California assets and was partially offset by loans to Dart
for the Settlements (discussed below).
Financing activities used $211,000 of the Company's funds in fiscal 1998 for
payments for 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 an interest rate that fluctuates with the Company's
ratio of funded debt to equity. The covenants include a limitation of $25.0
million on amounts paid (including a $20.0 million limitation on amounts
23
<PAGE> 25
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
guaranteed) to settle disputes with Haft family members. The Company did not
borrow under the credit facility during the year ended January 31, 1998.
The Company funds its requirements for working capital and capital expenditures
with net cash generated from operations, existing cash resources, expected
income tax refunds and, if necessary, borrowings under the Company's new
revolving 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 January 31, 1998,
the Company had entered into lease agreements to open two new stores.
Funding of Settlements
Dart and certain of its subsidiaries (including Trak Auto) closed an agreement
to settle certain litigation and enter other related transactions with RGL.
Trak Auto contributed approximately $205,000 for this settlement in addition to
its dismissal of claims against RGL. In exchange for a $3.3 million demand
note from a wholly-owned subsidiary of Dart, Trak Auto funded payments of
approximately $1.3 million to Robert M. Haft and Linda G. Haft to acquire their
interests in a partnership that owns a distribution center leased by Trak Auto
in Bridgeview, Illinois and $2.0 million to the wholly-owned Dart subsidiary to
reduce the principal mortgage balance on that property. Dart expects to repay
the demand note in May 1998.
Dart and certain of its subsidiaries (including Trak Auto) closed an agreement
to settle certain related transactions with Herbert H. Haft and Ronald S. Haft.
As consideration for the settlements with Herbert H. Haft and Ronald S. Haft,
Dart paid Herbert H. Haft approximately $28 million upon closing. Dart also
made a $10 million loan to a partnership owned by Herbert H. Haft and Ronald S.
Haft, which loan is personally guaranteed by Ronald S. Haft and is secured by
the partnership's interest in three shopping centers located in suburban
Washington, D.C. and by a one-half indirect interest in an office building in
Lanham, Maryland leased by a wholly-owned Dart subsidiary Shoppers Food
Warehouse Corp. ("Shoppers"). Dart paid substantially all of these amounts
with loans from Trak Auto ($15 million) and Shoppers ($25 million). In
addition, certain derivative litigation was dismissed with prejudice and Dart
paid approximately $3.5 million in attorney's fees to derivative plaintiff's
counsel. Trak Auto paid its portion of the Settlements of approximately $1.4
million prior to January 31, 1998.
At January 31, 1998
Working capital decreased $12,526,000 to $43,989,000 during the 52 weeks ended
January 31, 1998. The decrease was primarily due to the $15.0 million loan to
Dart and was partially offset by cash received from the sale of the California
operations.
At February 1, 1997
Working capital decreased $2,130,000 to $56,515,000 in fiscal 1997 primarily
due to capital expenditures for new or converted Super Trak and Super Trak
Warehouse stores.
24
<PAGE> 26
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
Results of Operations
Year Ended January 31, 1998 Compared to the Year Ended February 3, 1997
During fiscal 1998, Trak Auto opened nine Super Trak stores and one Super Trak
Warehouse store. Including the Pittsburgh, Pennsylvania store closings, Trak
Auto closed or converted 16 Classic Trak stores, closed or converted 12 Super
Trak stores and closed or converted five Super Trak warehouse stores. As a
result of the sale of its California operations, the Company reduced the number
of Classic Trak stores by 36, Super Trak stores by 32 and Super Trak Warehouses
by 14. At January 31, 1998, Trak Auto had 181 stores, including 87 Super Trak
stores and 26 Super Trak Warehouse stores.
Sales of $319,440,000 for fiscal 1998(52 weeks) decreased by $26,544,000 or
7.7% compared to fiscal 1997 (52 weeks). The decrease was primarily due to the
mild winter conditions in the Midwest and East coast markets during the first
quarter as well as the sale of the operations and weak performance of the
stores in the highly competitive Los Angeles market. Comparable sales (stores
open more than one year) decreased 8.7% in fiscal 1998 compared to fiscal 1997.
Sales for comparable Super Trak Warehouse stores decreased 6.2% in fiscal 1998.
Sales for comparable Super Trak stores decreased 9.9% in fiscal 1998. Sales
for comparable Classic Trak stores decreased 8.3% in fiscal 1998. Sales for
Super Trak and Super Trak Warehouse stores represented 69.8% of total sales
during fiscal 1998 compared to 64.6% for fiscal 1997.
Interest and other income increased by $595,000 in fiscal 1998 when compared to
fiscal 1997. The increase was primarily due to increase income from recoveries
from audits of prior years vendor allowances and increased interest income.
Cost of sales, store occupancy and warehousing expenses as a percentage of
sales were 77.2% in fiscal 1998 compared to 75.9% in fiscal 1997. The
increases were primarily due to higher store occupancy costs for larger stores
with newer leases, and increased distribution costs due to broader geographical
delivery areas and increased SKU's supplied to Super Trak Warehouse stores.
Selling and administrative expenses as a percentage of sales were 21.6% in
fiscal 1998 compared to 20.8% in fiscal 1997. The increase was primarily due
to increased payroll costs, as a percentage of sales (actual payroll dollars in
fiscal 1998 were less than fiscal 1997) and to the HHH Settlement (see Note 8
to the Consolidated Financial Statements).
The provision for loss on sale of California operations of $8,193,000 is an
estimate of the loss associated with the sale of the Company's California
assets (see Note 5 to the Consolidated Financial Statements).
Depreciation and amortization expenses increased $986,000 in fiscal 1998
compared to fiscal 1997. The increase was due to the write-off of favorable
lease rights in conjunction with closing the Pittsburgh stores and was
partially offset by a reduction in depreciation as a result of fixed assets
becoming fully depreciated and fixed assets sold or taken out of service.
Interest expense increased $48,000 in fiscal 1998 compared to fiscal 1997.
25
<PAGE> 27
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
The Company recorded a closed store provision of $13.9 million in fiscal 1998
primarily for the stores closed in the Pittsburgh market.
The net loss of $17,673,000 in fiscal 1998 compared to net income of $1,084,000
in fiscal 1997 was a result of the foregoing factors, primarily the closed
store reserve and loss from the sale of the California operations.
The effective income tax rate was 37.4% in fiscal 1998 compared to 25.0% in
fiscal 1997. The increase was primarily the result of a net operating loss
generated and fully utilized while a permanent tax difference remained
relatively unchanged.
Year Ended February 1, 1997 Compared to the Year Ended February 3, 1996
During fiscal 1997, the Company opened or converted 14 Super Trak stores and 14
Super Trak Warehouse stores and closed or converted 13 Classic Trak stores and
five Super Trak stores. At February 1, 1997, the Company had 286 stores,
including 122 Super Trak stores and 44 Super Trak Warehouse stores.
Sales of $345,984,000 for fiscal 1997 (52 weeks) increased by $3,742,000 or
1.1% compared to fiscal 1996 (53 weeks). The increase was primarily due to the
Company's entry into the Pittsburgh, Pennsylvania market in January 1996 and to
increased sales in the Washington, D.C. and Chicago, Illinois markets during
the first quarter of fiscal 1997 resulting from harsh winter conditions. The
increases were partially offset by a decline in sales for the Los Angeles,
California market where three stores were closed in fiscal 1997. The extra
sales week in fiscal 1996 was approximately $6,000,000. Comparable sales
(stores open more than one year) decreased 1.7% in fiscal 1997 compared to the
52 weeks ended February 3, 1996. Sales for comparable Super Trak Warehouse
stores increased 0.3% in fiscal 1997. Sales for comparable Super Trak stores
decreased 1.6% in fiscal 1997. Sales for comparable Classic Trak stores
decreased 2.3% in fiscal 1997. Sales for Super Trak and Super Trak Warehouse
stores represented 64.6% of total sales during fiscal 1997 compared to 56.2%
for fiscal 1996.
Interest and other income decreased by $772,000 in fiscal 1997 when compared to
fiscal 1996. The decrease was primarily due to reduced interest income as a
result of a decrease in funds available for short-term investments.
Cost of sales, store occupancy and warehousing expenses as a percentage of
sales were 75.9% in fiscal 1997 compared to 74.1% in fiscal 1996. The
increases were primarily due to a decrease in gross margins as a result of
competitive pressures, higher store occupancy costs for larger stores with
newer leases, and increased distribution costs due to broader geographical
delivery areas and increased SKU's supplied to Super Trak Warehouse stores.
Selling and administrative expenses as a percentage of sales were 20.8% in
fiscal 1997 compared to 20.2% in fiscal 1996. The increase was primarily due
to increased payroll costs.
Depreciation and amortization expenses increased $1,203,000 in fiscal 1997
compared to fiscal 1996. The increase was primarily due to increases in store
26
<PAGE> 28
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
fixed assets as a result of the opening and conversion of stores to Super Trak
or Super Trak Warehouse stores and the stores in new markets.
Interest expense increased $67,000 in fiscal 1997 compared to fiscal 1996.
Net income decreased $6,206,000 from $7,290,000 in fiscal 1996 to $1,084,000 in
fiscal 1997 as a result of the foregoing factors.
The effective income tax rate was 25.0% in fiscal 1997 compared to 36.4% in
fiscal 1996. The decrease was primarily the result of a decrease in taxable
earnings while a permanent tax difference remained relatively unchanged.
Year Ended February 3, 1996 Compared to the Year Ended January 28, 1995
During fiscal 1996, the Company opened or converted 17 Super Trak stores and
23 Super Trak Warehouse stores and closed or converted 36 Classic Trak stores
and ten Super Trak stores. At February 3, 1996, the Company had 276 stores,
including 113 Super Trak stores and 30 Super Trak Warehouse stores.
Sales of $342,242,000 for fiscal 1996 decreased by $6,357,000 or 1.8% compared
to fiscal 1995. The decrease was primarily due to lower sales during the 13
weeks ended April 29, 1995 compared to the 13 weeks ended April 30, 1994, as a
result of the mild winter conditions in Chicago and Washington, D.C.
metropolitan areas. (Extremely cold weather tends to enhance sales by causing a
higher incidence of parts failure and the need for anti-freeze). In addition,
sales were down due to a net decrease in the number of stores. The sales
decrease was partially offset by 53 weeks of sales during fiscal 1996 compared
to 52 weeks of sales in fiscal 1995. The extra sales week was approximately
$6,000,000. Comparable sales (stores open more than one year) decreased 2.7%
in fiscal 1996 compared to the 53 weeks ended February 4, 1995. Sales for
comparable Super Trak stores increased 0.1% in fiscal 1996. Sales for
comparable Classic Trak stores decreased 3.9% in fiscal 1996. Sales for Super
Trak and Super Trak Warehouse stores represented 56.2% of total sales during
fiscal 1996 compared to 42.6% for fiscal 1995.
Interest and other income increased by $471,000 in fiscal 1996 when compared to
fiscal 1995. The increase was primarily due to higher interest rates on the
Company's short-term investments.
Cost of sales, store occupancy and warehousing expenses (excluding closed store
reserves) as a percentage of sales were 74.1% in fiscal 1996 compared to 73.0%
in fiscal 1995. The increases were primarily due to a decrease in net
advertising income as a result of increased advertising costs and increased
occupancy costs for Super Trak and Super Trak Warehouse stores and were
partially offset by increased gross margins.
The Company recorded closed store reserves of $418,000 and $1,580,000 in fiscal
1996 and 1995, respectively. These reserves are for future lease obligations
and net book value of leasehold improvements for under performing stores.
Selling and administrative expenses as a percentage of sales were 20.3% in
fiscal 1996 compared to 19.9% in fiscal 1995. The increase was primarily due
27
<PAGE> 29
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (Continued)
to increased payroll costs as a percentage of sales (actual payroll dollars
remained almost the same) and to increased health benefit costs.
Depreciation and amortization expenses increased $288,000 in fiscal 1996
compared to fiscal 1995. The increase was primarily the result of increased
fixed assets for new Super Trak and Super Trak Warehouse stores.
Interest expense decreased $211,000 in fiscal 1996 compared to fiscal 1995.
Net income decreased $2,975,000 (29.0%) from $10,265,000 in fiscal 1995 to
$7,290,000 in fiscal 1996 as a result of the foregoing factors.
The effective income tax rate was 36.4% in fiscal 1996 compared to 32.3% in
fiscal 1995. The increase was primarily the result of the valuation allowance
reversal in fiscal 1995 and is partially offset by a lower pre-tax income in
fiscal 1996 compared to fiscal 1995.
Year 2000 Compliance
Trak Auto is currently in the process of conducting a review of the impact of
Year 2000 on its information systems, as well as reviewing its impact on
relationships with key customers and vendors. Based on the results to date of
this review, much of the Company's store hardware, and software used to run the
hardware and provide information will have to be replaced in order to be Year
2000 compliant. Additionally, the Company's warehouse distribution and
merchandising system is not Year 2000 compliant and could potentially begin to
affect operations as early as the coming fiscal year. The Company is
considering a plan to ensure minimal disruption to the Company, however, there
can be no guarantee that the plan will be adopted in its current form or that
there will be sufficient time to implement the plan by the Year 2000. The
aggregate costs associated with the plan are currently estimated at $5.7 million
for the store related hardware and software plus unidentified internal and
contracted labor costs to modify and enhance store, warehouse distribution and
merchandising systems.
Effects of Inflation
Inflation in the past several years has not had a significant impact on the
Company's business. The Company believes it will be able to recover future
cost increases due to inflation by increasing selling prices.
28
<PAGE> 30
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Financial Statements
- --------------------
Page
----
<S> <C>
Report of Independent Public Accountants 30
Consolidated Balance Sheets 31-32
Consolidated Statements of Operations 33
Consolidated Statements of Stockholders' Equity 34
Consolidated Statements of Cash Flows 35-36
Notes to Consolidated Financial Statements 37-59
</TABLE>
29
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO TRAK AUTO CORPORATION:
We have audited the accompanying consolidated balance sheets of Trak Auto
Corporation (a Delaware corporation and a majority-owned subsidiary of Dart
Group Corporation) and subsidiaries as of January 31, 1998 and February 1,
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three fiscal years in the period ended
January 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trak Auto Corporation and
subsidiaries as of January 31, 1998 and February 1, 1997, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in fiscal 1997
the Company changed its method of accounting for cash equivalents and in fiscal
1998 changed its method of accounting for purchased computer software costs.
ARTHUR ANDERSEN LLP
Washington, D.C.
April 28, 1998
30
<PAGE> 32
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 5,914 $ 5,782
Short-term instruments 11,973 5,941
Marketable debt securities 666 2,479
Accounts receivable 8,653 6,841
Note Receivable from Dart Group 3,215 -
Merchandise inventories 67,027 106,193
Prepaid income taxes 3,670 -
Deferred income taxes 9,844 6,494
Other current assets 3,194 3,083
--------- ---------
Total Current Assets 114,156 136,813
--------- ---------
Property and Equipment, at cost:
Furniture, fixtures and equipment 54,767 63,675
Leasehold improvements 9,970 12,103
Property under capital leases 22,032 22,032
--------- ---------
86,769 97,810
Accumulated Depreciation and Amortization 50,513 49,876
--------- ---------
36,256 47,934
--------- ---------
Other Assets 93 1,502
--------- ---------
Note Receivable from Dart Group 15,000 -
--------- ---------
Deferred Income Taxes 8,001 5,971
--------- ---------
Total Assets $ 173,506 $ 192,220
========= =========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 33
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade $ 41,325 $ 47,690
Income taxes payable - 1,581
Accrued expenses-
Salaries and benefits 11,177 11,440
Taxes other than income 5,518 5,569
Other 11,688 13,791
Current portion of obligations under
capital leases 282 209
Due to affiliate 177 18
--------- ---------
Total Current Liabilities 70,167 80,298
--------- ---------
Obligations under Capital Leases 26,846 26,912
--------- ---------
Reserve for Store Closings 10,751 1,597
--------- ---------
Total Liabilities 107,764 108,807
--------- ---------
Commitments and Contingencies
Stockholders' Equity
Common stock, par value $.01 per share;
15,000,000 shares authorized; 6,437,869
and 6,437,469 shares issued, respectively 64 64
Paid-in capital 46,481 46,476
Unrealized investment gains 7 3
Retained earnings 27,917 45,590
Treasury stock, 528,690 and 528,190 shares,
respectively, of common stock at cost (8,727) (8,720)
--------- ---------
Total Stockholders' Equity 65,742 83,413
--------- ---------
Total Liabilities and Stockholders'
Equity $ 173,506 $ 192,220
========= =========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 34
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
<S> <C> <C> <C>
Sales $319,440 $345,984 $342,242
Interest and other income 2,181 1,586 2,358
-------- -------- --------
321,621 347,570 344,600
-------- -------- --------
Cost of sales, store occupancy
and warehousing 246,632 262,472 253,582
Selling and administrative 68,862 72,050 69,208
Provision for loss on sale of
California operations 8,193 - -
Depreciation and amortization 8,481 7,495 6,292
Interest expense 3,753 3,705 3,638
Closed store provision 13,929 402 418
-------- -------- --------
349,850 346,124 333,138
-------- -------- --------
Income (loss) before income taxes (28,229) 1,446 11,462
Income tax (benefit) (10,556) 362 4,172
-------- --------- --------
Net income (loss) $(17,673) $ 1,084 $ 7,290
======== ======== ========
Per share data:
Basic earnings (loss) per share $ (2.99) $ .18 $ 1.24
Diluted earnings (loss) per share (2.99) .18 1.23
Weighted average common share and
common share equivalents outstanding
Basic 5,909 5,900 5,867
Diluted 5,909 5,942 5,928
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 35
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
<S> <C> <C> <C>
Common Stock:
Balance, beginning of period $ 64 $ 64 $ 63
Stock options exercised - - 1
-------- -------- --------
Balance, end of period $ 64 $ 64 $ 64
======== ======== ========
Paid-in Capital:
Balance, beginning of period $ 46,476 $ 46,236 $ 45,206
Stock options exercised 5 240 1,030
-------- -------- --------
Balance, end of period $ 46,481 $ 46,476 $ 46,236
======== ======== ========
Unrealized Investment Gains (Losses) $ 7 $ 3 $ 97
======== ======== ========
Retained Earnings:
Balance, beginning of period $ 45,590 $ 44,506 $ 37,216
Net income (loss) (17,673) 1,084 7,290
-------- -------- --------
Balance, end of period $ 27,917 $ 45,590 $ 44,506
======== ======== ========
Treasury Stock:
Balance, beginning of period $ (8,720) $ (8,720) $ (1,816)
Common Stock repurchased (7) ,- (6,904)
-------- -------- --------
Balance, end of period $ (8,727) $ (8,720) $ (8,720)
======== ======== ========
Common Stock Outstanding:
Balance, beginning of period 5,909 5,888 6,114
Stock Options Exercised 1 21 84
Common Stock repurchased - - (310)
-------- -------- --------
Balance, end of period 5,910 5,909 5,888
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 36
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(17,673) $ 1,084 $ 7,290
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 8,481 7,495 6,292
Provision for loss on sale of
California operations 8,193 - -
Interest in excess of capital lease
payments 216
Provision for store closings 13,929 402 418
Deferred income taxes (5,315) (525) 1,227
Changes in assets and liabilities:
Accounts receivable (1,812) (2,132) 738
Merchandise inventories 7,338 (6,722) (6,871)
Prepaid income taxes (3,670) - -
Other current assets (111) (2,049) 36
Other assets 309 285 42
Accounts payable, trade (6,365) 1,259 (4,088)
Accrued expenses (7,613) 3,345 4,953
Due to affiliate 159 (53) (137)
Income taxes payable (1,581) 883 305
Reserve for closed stores (2,187) (2,245) (2,607)
-------- -------- --------
Net cash provided by (used in)
operating activities $ (7,702) $ 1,027 $ 7,598
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures $ (2,288) $ (8,638) $ (7,835)
Proceeds from sale of California
assets 32,828 - -
Purchase of Pittsburgh store assets - - (5,767)
Purchases of United States Treasury
Bills - - (19,550)
Dispositions of United States
Treasury Bills - 4,299 8,180
Maturities of United States
Treasury Bills 50 3,345 3,368
Purchases of United States Treasury
Notes - - (499)
Maturities of United States Treasury
Notes 1,150 - -
Dispositions of United States
Treasury Notes - - 500
Dispositions of marketable
debt securities - 4,370 1,092
</TABLE>
35
<PAGE> 37
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
Cash Flows from Investing Activities (Continued):
<S> <C> <C> <C>
Notes Receivable from Dart Group (18,215) - -
Maturities of marketable
debt securities 552 1,624 470
-------- --------- ---------
Net cash provided by (used in)
investing activities $ 14,077 $ 5,000 $ (20,041)
-------- --------- ---------
Cash Flows from Financing Activities:
Principal payments under capital
lease obligations $ (209) $ (101) $ (261)
Purchase of treasury shares (7) - (6,904)
Proceeds from exercises of stock
options 5 240 1,031
-------- -------- --------
Net cash provided by (used in)
financing activities $ (211) $ 139 $ (6,134)
-------- -------- --------
Net Increase (Decrease) in Cash
and Equivalents $ 6,164 $ 6,166 $(18,577)
Cash and Equivalents at Beginning
of Year (Note 1) 11,723 5,557 24,134
-------- -------- --------
Cash and Equivalents at End
of Year (Note 1) $ 17,887 $ 11,723 $ 5,557
======== ======== ========
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 3,753 $ 3,705 $ 3,638
Income taxes 178 450 3,339
Supplemental Schedule of Noncash
Activities:
Write-off book value of fixed assets
to restructuring and closed store
reserves $ 1,549 $ - $ 521
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 38
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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 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.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31. The
fiscal year ended February 3, 1996 included 53 weeks and all other fiscal years
presented include 52 weeks.
Cash and Equivalents
Effective in fiscal 1997, and applied retroactively to all years presented
herein, the Company changed its accounting policy to include only investments
with a maturity of three months or less as cash equivalents. The impact of
this change was to reclassify amounts previously presented in the accompanying
consolidated balance sheets and statements of cash flows.
Short-term Instruments and Marketable Debt Securities
The Company's short-term instruments include United States Treasury Bills with
a maturity of three months or less and money market funds. Marketable debt
securities include United States Treasury Bills with a maturity 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'
37
<PAGE> 39
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
equity. At January 31, 1998, market value was $7,000 greater than cost, net of
income taxes. At January 31, 1998, 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. The following table
(which excludes money market funds) presents the estimated fair value of debt
securities available for sale by contractual maturity at January 31, 1998:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Due in one year or less $ -
Due after one year through three years 666
--------
$ 666
========
</TABLE>
Expected maturities may differ from contractual maturities because the issuers
of securities may have the right to prepay obligations without prepayment
penalties.
Fair Value of Financial Instruments
The fair values of current financial assets and liabilities are approximately
the reported carrying amounts.
Merchandise Inventories
The Company's inventories are priced at the lower of last-in, first-out
("LIFO") cost or market. At January 31, 1998 and February 1, 1997, inventories
determined on a first-in, first-out basis would have been greater by $3,846,000
and $6,733,000, respectively. The Company had a reduction in the LIFO reserve
of approximately $2.3 million as a result of the sale of its California
operations (see Note 5). This amount has been recorded in the accompanying
Statement of Operations as a reduction in the loss on sale of California
operations.
The Company takes a physical count of its store inventories semiannually and
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 took a physical inventory for all stores during the
quarter ended January 31, 1998.
Property and Equipment
Property and equipment are recorded at cost. The Company depreciates
furniture, fixtures and most equipment generally over a ten-year period using
the straight-line method. Computer equipment is depreciated over a five-year
period
38
<PAGE> 40
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
using the straight-line method. 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 52 weeks ended January 31,
1998, the Company did not record amortization of purchased computer software as
the software was not placed into service. The effect of capitalizing purchased
computer software was to reduce the Company's loss by approximately $198,000
($.03 per share) net of income tax benefits. All stores and some equipment are
leased. Improvements to leased premises are amortized over a ten-year period
or the term of the lease, whichever is shorter. Assets (primarily buildings)
financed through asset-based financing arrangements are depreciated over the
lives of the leases. Accumulated amortization for assets under capital lease
was $9,173,000 and $8,253,000 as of January 31, 1998 and February 1, 1997,
respectively.
Long Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value should be assessed. Impairment
is measured by comparing the carrying value to the estimated undiscounted
future cash flows expected to result from the use of the assets and their
eventual disposition. The Company has determined that as of January 31, 1998,
there has been no impairment in the carrying value of long-lived assets.
Preopening Expenses
All costs of a noncapital nature incurred in opening a new store are charged to
expense as incurred.
Advertising Expense
The Company records the costs of advertising as expense as the costs are
incurred.
Self-Insurance Programs
The Company is self-insured for certain levels of general liability, workers
compensation and employee medical coverage. Estimated costs of these
self-insurance programs are accrued at the expected value of projected
settlements for known and anticipated claims.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist primarily of short-term instruments, marketable debt securities and
accounts receivable from vendors. The Company restricts investment of
temporary cash investments to United States Treasury Bills and Notes and
corporate notes
39
<PAGE> 41
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
and municipal securities with a high credit standing. Credit risk on accounts
receivable is minimized as a result of deducting such receivables from amounts
payable to the related vendors.
Earnings Per Share
The computation of diluted earnings per share is based on the weighted average
number of common shares and common stock equivalents outstanding during the
year. Common Stock equivalents were anti-dilutive for fiscal 1998. The
Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share, in the fourth quarter of fiscal 1998 and has restated all
previously presented earnings per share. Dilutive stock options represent the
only difference between basic and diluted earnings per share.
New Accounting Standards
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.
Reclassifications
Certain reclassifications have been made to prior year statements to conform to
current year presentation.
40
<PAGE> 42
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
NOTE 2 - INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 109, Accounting
for Income Taxes. This standard requires, among other things, recognition of
future tax benefits and liabilities, measured by enacted tax rates,
attributable to deductible temporary differences between financial statement
and income tax bases of assets and liabilities and for tax net operating loss
carryforwards, to the extent that realization of such benefits is more likely
than not.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Years
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ (4,495) $ 1,279 $ 2,474
State (681) 53 477
-------- -------- --------
(5,176) 1,332 2,951
Deferred:
Federal (5,315) (730) 829
State (65) (240) 392
-------- -------- --------
Total provision (benefit) $(10,556) $ 362 $ 4,172
======== ======== ========
</TABLE>
The effective tax rate is reconciled to the Federal statutory rate as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Years
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory rate 34% 34% 35%
Income taxes at Federal statutory rate $ (9,598) $ 492 $ 4,012
Increase (decrease) in taxes
resulting from:
State income taxes, net of Federal
income tax benefit (916) 4 439
Tax exempt municipal bond interest
income (24) (12) (64)
Utilization of former Trak West
net operating loss - (208) (225)
Travel and entertainment 54 26 18
Other (72) 60 (8)
-------- -------- --------
Income taxes $(10,556) $ 362 $ 4,172
======== ======== ========
Effective tax rate 37.4% 25.0% 36.4%
======== ======== ========
</TABLE>
41
<PAGE> 43
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
The effect of each type of temporary difference and carryforward that generates
a significant portion of the net deferred tax assets is as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
January 31, February 1,
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Capitalized leases treated as operating
leases for tax purposes $ 2,401 $ 2,399
Depreciation 2,981 2,344
Uniform capitalization of inventory costs 1,372 2,098
Reserve for stores closings and
restructuring charges 5,980 1,037
Accrued rent 531 616
Preacquisition basis adjustment for Trak West 164 164
Accrued vacation reserve 576 537
Accrued self-insurance reserve 2,717 2,312
Deferred compensation 150 138
Deferred acquisition costs - 81
State tax credit carryforward - 757
Deferred income 49 65
Asset disposal reserve 983 -
Capital loss carryfoward 64 73
Other 246 175
-------- ---------
Deferred tax assets 18,214 12,796
-------- ---------
Deferred tax liability:
Book basis of asset acquired as a
result of involuntary conversion (269) (331)
--------- ---------
Net deferred tax asset $ 17,945 $ 12,465
========= =========
</TABLE>
In the opinion of management, the deferred tax asset will be realized through
future earnings. The Company has a $202,000 capital loss carryforward which
will expire in fiscal year 2012. During the year ended January 31, 1998, the
Company incurred a tax net operating loss of approximately $11.3 million which
can be carried back to prior years.
During the year ended February 3, 1996, the Company entered into a tax sharing
agreement with Dart, which would become effective, if and when the Company is
consolidated with Dart's income tax returns.
NOTE 3 - CLOSED STORE CHARGES
The Company continually evaluates its store operations and the need to close,
relocate, or expand stores or convert existing Classic Trak stores into Super
Trak or Super Trak Warehouse stores. The Company recognizes store closing
costs when management decides to close a store. In prior years, the Company
has also recognized the anticipated costs for closing, relocating, expanding
and
42
<PAGE> 44
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
converting existing stores to the Super Trak and Super Trak Warehouse concept.
The costs associated with store closings are primarily unrecoverable lease
obligations (rent, real estate taxes and common area charges, net of estimated
sublease income) and the book value of leasehold improvements as of the actual
store closing date.
As of January 31, 1998, the Company had a reserve of $12,838,000 for store
closings. The reserve relates to 30 stores that have been closed. The
activity in the closed store reserve during the last two years is as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
1998 1997
------------ ------------
<S> <C> <C>
Reserves, beginning of year $ 2,644 $ 4,491
Net provision recorded/(Charges) 10,194 (1,847)
--------- ---------
Reserves, end of year $ 12,838 $ 2,644
========= =========
</TABLE>
The increase in fiscal 1998 was primarily due to closing 15 stores in the
Pittsburgh , Pennsylvania market as a result of the poor performance of the
stores.
The total unrealizable store lease obligation of Trak Auto of January 31, 1998
is $12,838,000 and the amount of such unrealizable lease obligation allocable
to related party leases is approximately $834,000. The closed store reserve as
of January 31, 1998 is expected to be utilized as follows:
<TABLE>
<CAPTION>
Fiscal (in thousands)
Year Total
------ -------
<S> <C>
1999 $ 2,086
2000 1,434
2001 1,271
2002 1,107
2003 969
2004-2005 5,971
-------
Total $12,838
=======
</TABLE>
The amount recorded for future lease obligations has been estimated at 95% of
the total lease obligation after the closing date because the Company believes
that certain alternatives (subleasing and favorable lease buy-outs) to
abandonment may be available.
The Company will continue to evaluate the performance and future viability of
its stores and may close or convert additional stores in the future.
NOTE 4 - TRANSACTIONS WITH AFFILIATES
Dart Group Corporation ("Dart"), which currently owns 67.1% of the Company's
outstanding common stock, provides the Company with certain general and
administrative services. In addition, the Company provided similar services
43
<PAGE> 45
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
to Dart and its other subsidiaries. In management's opinion, the intercompany
charges for these services were equal to the costs incurred by Dart or the
Company, as the case may be, to provide these functions. It is not practicable
for the Company to estimate the cost it would have incurred for these services
if it had operated as an unaffiliated entity.
In addition to the intercompany charges for general and administrative
services, Dart charged the Company, on a monthly basis, for actual expenses
which related directly to the Company's operations. Substantially all such
charges were supported by invoices from unrelated parties designating the
Company as recipient of the related goods or services or were for matters
related to all of Dart's affiliated companies and were allocated on a
judgmental basis by management. Amounts receivable from or payable to affiliate
relate to transactions made on behalf of the Company by Dart or on behalf of
Dart by the Company.
In the Company's opinion, the methods used for allocating costs described above
constitute a reasonable basis on which to allocate such costs.
The following table summarizes the intercompany transactions:
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Years
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Due to Affiliate,
Beginning of year $ 18 $ 71 $ 185
-------- -------- --------
Expense charges-
Direct rentals (Note 9) 1,826 1,625 1,382
Salaries from Dart 1,873 1,111 865
Salaries to Dart (768) (1,447) (1,235)
Other expenses 4,121 4,529 5,154
-------- -------- --------
7,052 5,818 6,166
-------- -------- --------
Payments (6,893) (5,871) (6,280)
-------- -------- --------
Due to (from) Affiliate, End of year $ 177 $ 18 $ 71
======== ======== ========
</TABLE>
All transactions with Dart included above are free of interest and made under
current payment terms that, in management's opinion, are comparable to those
with unrelated parties. The average balances of amounts due to affiliate were
$163,000, $73,000, and $526,000 for the years ended January 31, 1998, February
1, 1997 and February 3, 1996, respectively.
Dart Group Corporation Loans
On April 28, 1998, the Company amended a loan agreement entered into on January
27, 1998 with Dart to lend Dart $15.0 million. The loan is secured by the
common stock of Trak Auto, bears interest at a rate equal to the prime rate as
44
<PAGE> 46
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
set forth in the Wall Street Journal plus one and one-half percent (1.5%) and
is payable in two equal installments on February 3, 1999 and July 31, 1999.
Also, see Note 9 - Commitments, Related Party Leases and License Agreements.
NOTE 5 - SALE OF CALIFORNIA OPERATIONS
On October 6, 1997, Trak Auto entered into a purchase agreement (the "Purchase
Agreement") with CSK Auto, Inc. ("CSK") pursuant to which Trak Auto agreed to
sell to CSK its interest in its California operations (including inventory,
store fixtures and the assignment of store leases). Trak Auto and CSK closed
the transaction on December 8, 1997 for an aggregate purchase price of
approximately $32.8 million. Ninety percent (90%) of the aggregate purchase
price, or $30.2 million, was paid in cash at the closing. The remaining ten
percent (10%) was paid upon finalization of the inventory valuation. The
Company realized a pre-tax loss of $8.2 million (net of a reduction in the LIFO
reserve of approximately $2.3 million) on the sale to cover losses associated
with the sale of assets and exposure under remaining lease obligations. The
Company has recorded this estimated loss in the accompanying Consolidated
Statements of Operations.
NOTE 6 - BOARD OF DIRECTORS
In January 1994, the Board of Directors of Dart established a Special
Litigation Committee to assess, on behalf of the Company, whether to pursue,
settle or abandon, claims raised in the derivative lawsuits filed against the
Company. See Note 7 for a discussion of the derivative lawsuits.
On September 7, 1994, the Board of Directors of Dart established an Executive
Committee comprised of Dart's outside directors to conduct the affairs of Dart
with respect to matters that were the subject of disputes between the Chairman
of the Board and Chief Executive Officer of Dart, Herbert H. Haft, and the then
President and Chief Operating Officer of Dart, Ronald S. Haft. In October 1994
the Board of Directors of Trak Auto established an Executive Committee
comprised of the same outside directors, with authority parallel to that of
Dart's Executive Committee. The disputes between Herbert H. Haft and Ronald S.
Haft concerning issues involving Dart and Trak Auto were extensive.
Accordingly, the respective Executive Committees assumed day-to-day involvement
in these disputed issues and other matters affecting Dart and Trak Auto, in
particular matters relating to litigation to which Dart or Trak Auto was then a
party. The Executive Committee remains involved in the day-to-day affairs of
Dart. Its continuing role is dependent upon future developments.
Members of the Executive Committee are compensated at a rate of $275 per hour
plus reimbursement of expenses. Members of the Special Litigation Committee of
the Board of Directors, which was established on January 4, 1994, were
compensated at a salary rate of $250 per hour plus reimbursement of expenses.
Compensation paid by Dart and its subsidiaries, including the Company, to
45
<PAGE> 47
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
members of the Executive Committees for their services on those committees
totaled $1,137,000, $1,299,000 and $1,263,000 in fiscal 1998, 1997 and, 1996
respectively ($379,000, $438,000 and $421,000 paid by the Company in fiscal
1998, 1997 and 1996 respectively). There were no fees paid to members of the
Special Litigation Committee in fiscal 1998, 1997 or fiscal 1996.
NOTE 7 - LITIGATION
Resolution of Haft Family and Related Litigation
The litigation discussed below involving Dart, its affiliates, including Trak
Auto and members of the Haft family settled prior to January 31, 1998. On
February 5, 1998, Dart closed the settlement agreement with Herbert H. Haft
(the "HHH Settlement") and a Second Supplemental Settlement Agreement with
Ronald S. Haft ("Second Supplemental Agreement"). The settlements with the
various Haft family members described in Note 8 are referred to as the
"Settlements". As part of the HHH Settlement, Herbert H. Haft (i) sold to Dart
all of his shares of, and options to purchase, Dart Class A Common Stock, and
his capital stock of Dart's subsidiaries Trak Auto and Crown Books Corporation
("Crown Books"),(ii) resigned from all of his positions with Dart and its
subsidiary corporations, (iii) relinquished his claim to voting control of
Dart, and (iv) terminated his employment agreement with Dart. In addition, all
outstanding litigation and disputes between Dart and Herbert H. Haft were
resolved. As consideration for the HHH Settlement, Dart paid Herbert H. Haft
approximately $28 million at the closing. An accrual for the HHH Settlement of
approximately $28.0 million has been reflected in Dart's January 31, 1998
Consolidated Financial Statements. Subsequent to January 31, 1998 and in
connection with the closing of the Settlements, Dart also made a $10 million
loan to a partnership owned by Ronald S. Haft, the proceeds of which were used
to repay a $10 million note to Herbert H. Haft. Consummation of the
Settlements also means that all litigation (discussed below) between Dart and
members of the Haft family has been settled and dismissed, and the Company is
no longer subject to a Standstill Order (discussed below) imposed by the
Delaware Court of Chancery.
Derivative Litigation
In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn Derivative
Plaintiffs"), shareholders of Dart, filed a lawsuit naming as defendants
Herbert H. Haft, Ronald S. Haft, Douglas M. Bregman, Bonita A. Wilson, Combined
Properties, Inc. ("CPI"), Combined Properties Limited Partnership and Capital
Resources Limited Partnership. The suit was brought derivatively and names as
nominal defendants Dart, Trak Auto, Crown Books other affiliated companies.
The complaint, as amended on January 12, 1995, alleged waste, breach of
fiduciary duty, violation of securities laws and entrenchment in connection
with various lease agreements between the CPI defendants and Dart and its
subsidiaries, the termination of Robert M. Haft, the compensation paid to
Ronald S. Haft and Herbert H. Haft, the employment agreement entered into by
Ronald S. Haft and Dart on August 1, 1993 (the "RSH Employment Agreement"), the
sale of 172,730
46
<PAGE> 48
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
shares of Class B Common Stock by Herbert H. Haft to Ronald S. Haft, and the
compensation paid to the Executive Committee. Plaintiffs sought an accounting
of unspecified damages incurred by Dart, voiding of the options sold to Ronald
S. Haft, appointment of a temporary custodian to manage the affairs of Dart or
to oversee its recapitalization or sale and costs and attorneys' fees.
In September 1994, the Special Litigation Committee moved for dismissal of
certain claims in the derivative lawsuit and for realignment of the parties to
permit Dart to prosecute other claims in the derivative lawsuit. Thereafter,
the Special Litigation Committee amended its motion and advised the court that
it had instituted certain lawsuits concerning related party real estate
transactions and was considered asserting additional claims, certain of which
were subsequently asserted in litigation filed against Herbert H. Haft. The
Court did not act upon the amended motion.
As a result of the Settlements, the derivative litigation has been dismissed
with prejudice and Dart paid approximately $3.5 million in attorney's fees to
derivative plaintiffs' counsel (approximately $0.5 million of such fees remain
payable by Dart in December 1998).
Herbert H. Haft Proxy Litigation
Herbert H. Haft sold 172,730 shares of Dart Class B Common Stock to Ronald S.
Haft on July 28, 1993 (the "Stock Sale Agreement") and Ronald S. Haft
purportedly granted Herbert H. Haft an irrevocable proxy (the "Proxy") to vote
these shares of stock. On June 30, 1995, Ronald S. Haft purportedly revoked
the Proxy.
On July 18, 1995, Ronald S. Haft filed a lawsuit against Herbert H. Haft and,
nominally, Dart for Herbert H. Haft's alleged breach of contract and breach of
fiduciary duties to Ronald S. Haft and to Dart in connection with the Proxy.
In this action, Ronald S. Haft sought a declaration that the Proxy was
revocable or would be revocable under certain conditions, as well as costs and
attorneys' fees. Ronald S. Haft also requested that the court require Dart to
refuse to recognize the validity of the Proxy. On August 9, 1995, Herbert H.
Haft filed an Answer and Counterclaim denying liability and requesting
rescission of the Stock Sale Agreement because of Ronald S. Haft's alleged
breach of contract and other grounds. On September 25, 1995, Dart filed its
answer in this action. Both Ronald S. Haft and Herbert H. Haft moved for
summary judgment in this lawsuit. On November 14, 1995, the court denied
Ronald S. Haft's motion for summary judgment; Herbert H. Haft's motion for
summary judgment was not acted upon.
In October 1995, Dart and Ronald S. Haft entered into a settlement of certain
litigation and other related transactions (collectively the "RSH Settlement").
As part of the RSH Settlement, Dart purchased from Ronald S. Haft the 172,730
shares of Class B Common Stock that were subject to the Proxy and placed the
shares in treasury.
47
<PAGE> 49
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
As a result of the Settlements, this litigation has been dismissed with
prejudice.
Challenge to RSH Settlement by Herbert H. Haft
On November 6, 1995, Herbert H. Haft filed a lawsuit naming as defendants Dart,
and certain of its directors. Herbert H. Haft sought a judgment (i) declaring
the RSH Settlement unlawful, hence null and void; (ii) declaring either that
172,730 shares of Class B Common Stock belong to him were wrongfully sold by
Ronald S. Haft to Dart, and that Herbert H. Haft is entitled to restitution of
such shares or, alternatively, that his purportedly irrevocable proxy on the
172,730 shares continues to be valid; (iii) declaring that Herbert H. Haft
retains voting control of Dart or, at a minimum, 34.55% of Dart's voting power;
(iv) declaring that the Trust Shares may not be lawfully voted; and (v) other
matters.
On December 5, 1996, Herbert H. Haft filed a motion for partial summary
judgment. Dart opposed this motion for partial summary judgment and, on March
14, 1997, the court denied Herbert H. Haft's motion in its entirety.
As a result of the Settlements, all claims in this litigation against or on
behalf of Dart have been dismissed with prejudice.
Standstill Order
In connection with the legal challenges to the RSH Settlement raised by RGL and
Herbert H. Haft and others, on December 6, 1995, the court entered a Standstill
Order. Without further order of the court, Dart could not (i) change its
Certificate of Incorporation or Bylaws; (ii) change the current composition of
Dart's Board of Directors or any of its subsidiaries; (iii) change the Haft
family officers of Dart or any of its subsidiaries; or (iv) issue any
additional securities of Dart or any of its subsidiaries (except employee stock
options issued in the ordinary course of business). In addition, the
Standstill Order restricted certain significant corporate actions by Dart
without first giving Herbert H. Haft and the other parties to the Section 225
Action not less than seven days written notice.
As a result of the Settlements and the Delaware Court of Chancery approval in
November 1997. Dart is no longer subject to the Standstill Order.
Other
In January 1998 Trak Auto was named as a defendant in two class action lawsuits
(Richard Amezcua, Augustin Dominquez, and other members of the general public
similarly situated v. Trak Auto Corporation, Superior Court of California.
Action No. BC183900) and (D'Artanyon Tett, Linda Wendt and individuals on
behalf of themselves and all others similarly situated v. Trak Auto
Corporation., Superior Court of the State of California. Action No. BC 186931)
involving former California employees of the Company alleging improper wage and
hour
48
<PAGE> 50
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
practices. The suit claims that former salaried employees should have been
paid overtime. Management and outside legal counsel are in the process of
evaluating these claims. The Company is unable to express an opinion as to the
merit, if any, or potential liability, if any, of these lawsuits as of the
filing date of this report.
In the normal course of business, the Company is involved in various claims and
litigation. In the opinion of management, liabilities, if any, will not have a
material adverse effect, if established, upon the consolidated financial
condition and results of operations of the Company.
The Company recorded legal expenses of approximately $961,000, $1,685,000 and
$780,000 during the years ended January 31, 1998, February 1, 1997 and February
3, 1996, respectively.
NOTE 8 - SETTLEMENT OF LITIGATION
Settlement with Ronald S. Haft
On October 6, 1995, Dart and Ronald S. Haft entered into the RSH Settlement.
The RSH Settlement transactions were subject to legal challenges. See Note 7.
The RSH Settlement transactions were intended to have the effect, by their
terms, of transferring majority control of Dart's voting stock to one or more
voting trustees (the "Voting Trustees") under a Voting Trust Agreement, by and
among Ronald S. Haft, Dart and Larry G. Schafran and Sidney B. Silverman, as
initial Voting Trustees. On December 28, 1995, the initial Voting Trustees
resigned and appointed Richard B. Stone as successor Voting Trustee.
As part of the RSH Settlement, Ronald S. Haft consented to the termination of
all of his outstanding stock options to purchase up to 10,000 shares to Trak
Auto's common stock.
Settlement with Robert, Gloria and Linda Haft
On September 26, 1997, Dart and the Company closed the transactions
contemplated in an agreement, dated August 16, 1997 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 completed by the closing of the RGL Settlement between Dart
and RGL include: the purchase by Dart from RGL (or related parties) of shares
of Dart Class B Common Stock and shares of Dart Class A Common Stock; the
termination of options held or claimed by RGL to purchase shares of Dart Class
A Common Stock; the termination of putative options to purchase shares of
Dart/SFW Corp., and the termination of a small number of options to purchase
shares of common stock of Trak Auto and Crown Books. Dart paid RGL a total of
approximately $41.0 million in connection with these transactions of which Trak
Auto contributed approximately $205,000 for the Trak Auto stock options.
49
<PAGE> 51
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
In addition, Dart acquired all of Robert M. Haft and Linda G. Haft's interests
in partnerships owning Dart's headquarters building in Landover, Maryland and a
distribution center leased by the Trak Auto, in Bridgeview, Illinois for $4.4
million. Trak Auto funded $1.3 million towards the Bridgeview portion of the
payment. The $1.3 million was an advance from Trak Auto to Dart.
The closing of the RGL Settlement, resulted 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. Trak Auto dismissed all of its claims
against each of RGL.
Settlement with Herbert H. Haft and Ronald S. Haft
On October 16, 1997, Dart announced the Settlements with Herbert H. Haft and
Ronald S. Haft. The Settlements were subsequently approved by the Delaware
Court of Chancery on November 24, 1997.
The HHH Settlement Agreement closed on February 5, 1998 and included the
following transactions: the purchase by Dart from Herbert H. Haft of all his
shares of, and options to purchase, Dart Class A Common Stock; that Herbert H.
Haft resigned from all of his positions with Dart and its subsidiary
corporations; that Herbert H. Haft relinquished his claim to voting control of
Dart and that Herbert H. Haft terminated his employment contract with Dart. In
addition, all outstanding litigation and disputes between Dart and Herbert H.
Haft are resolved. As consideration for the Settlements, Dart paid Herbert H.
Haft approximately $28 million upon closing. Dart also made a $10 million loan
to a partnership owned by Herbert H. Haft and Ronald S. Haft, which loan is
personally guaranteed by Ronald S. Haft and is secured by the partnership's
interest in three shopping centers located in suburban Washington, D.C. and by
a one-half indirect interest in an office building in Lanham, Maryland leased
by Shoppers. Dart paid substantially all of these amounts with loans from Trak
Auto ($15 million) and Shoppers ($25 million). In addition, the derivative
litigation (see Note 7) was dismissed with prejudice and Dart paid attorney's
fees of approximately $3.5 million to the derivative plaintiffs' counsel. Trak
Auto's portion of the HHH Settlement Agreement was approximately $1.4 million.
The transactions in the First Supplemental Agreement include: completion of
bankruptcy plans of reorganization for partnerships owning Dart's headquarters
in Landover, Maryland and a distribution center leased to Trak Auto in
Bridgeview, Illinois; payment by Dart of $7 million to reduce outstanding
mortgage loans on these properties, which thereafter are wholly-owned by Dart
and/or its affiliates and Ronald S. Haft paid $2.2 million to Dart from
escrowed funds previously earmarked for Ronald S. Haft.
On November 19, 1997, the transactions contemplated in the First Supplemental
Agreement were closed. Trak Auto advanced to a wholly-owned subsidiary of Dart
$2.0 million for the Bridgeview, Illinois portion of the $7.0 million mortgage
payments. The $2.0 million advance together with the $1.3 million advance
50
<PAGE> 52
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
(discussed above) are in the form of a promissory note. Dart expects to repay
Trak Auto in May 1998.
The Second Supplemental Agreement, closed in February 1998 and Dart required
that the shares now held in Voting Trust for the benefit of Ronald S. Haft to
be transferred to Dart. On February 17, 1998, the Dart Class A and Class B
Common Stock from the Voting Trust was placed in Dart's treasury and Dart's
outstanding Class A Common Stock and Class B Common Stock became Common Stock.
NOTE 9 - COMMITMENTS
Lease Commitments
The Company leases stores, warehouses, leasehold improvements, fixtures and
equipment. Renewal options are available on the majority of leases. In some
instances, store leases require the payment of contingent rentals and license
fees based on sales in excess of specified minimums. Certain properties are
subleased with various expiration dates. Certain capital leases have purchase
options at fair market value at the end of the lease.
Following is a schedule of future minimum payments under capital leases and
non-cancelable operating leases and license agreements which have initial or
remaining terms in excess of one year at January 31, 1998. The imputed
interest rate on capital leases is 14.6% in the aggregate.
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Capital Leases Operating
Year (see Related Party Leases) Leases
------ -------------------------- ---------
<S> <C> <C>
1999 $ 3,917 $ 17,999
2000 3,943 15,814
2001 4,074 13,659
2002 4,185 11,774
2003 4,398 10,487
2004-2017 54,747 29,680
---------- ---------
Total 75,264 $ 99,413
=========
Less-Imputed interest 48,136
----------
Present value of net
minimum lease payments 27,128
Less-Current maturities 282
----------
Long-term capital lease
obligations $ 26,846
==========
</TABLE>
The above table includes $12,628,000 for store operating leases where the store
has been closed and the lease obligation has been accrued in the restructuring
or store closing reserves. Minimum operating lease obligations have not been
reduced by total future minimum sublease rentals of $1,548,000 receivable in
the future under noncancelable leases.
51
<PAGE> 53
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
Rent expense and license fees for operating leases and license agreements are
as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Years
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals $ 23,002 $ 21,963 $ 19,695
Contingent rentals 443 349 363
-------- -------- --------
Total $ 23,445 $ 22,312 $ 20,058
======== ======== ========
</TABLE>
Related Party Leases and License Agreements
Members of the Haft family beneficially owned all the issued and outstanding
voting stock of Dart. Under the RSH Settlement (see Note 8), a majority of
Dart's voting stock was held in a voting trust for Ronald S. Haft as beneficial
owner. On February 17, 1998, the shares in the Voting Trust were placed in
treasury and Haft family members no longer own shares of Dart.
Of the Company's 181 stores and three distribution centers (discussed below) as
of January 31, 1998, 22 stores and the three distribution centers were held
under leases from entities in which Haft family members own substantially all
the beneficial interest. Two stores are subleased from Crown Books. One store
is subleased from Shoppers Food Warehouse Corp., a wholly-owned subsidiary of
Dart. These 25 store lease and sublease agreements provide for various
termination dates which, assuming renewal options are exercised, range from
1998 to 2024, and require the payment of future minimum license fees and
rentals aggregating $42,293,000 at January 31, 1998. These agreements also
require payment of a percentage of sales in excess of a stated minimum, and are
included in the lease and license commitments table above as operating leases.
Annual fees and rentals for licenses, leases and subleases involving the Haft
family were $5,999,000, $6,449,000, and $6,295,000 for fiscal 1998, 1997 and
1996, respectively.
The Company leased a 176,000 square foot distribution centers located in
Bridgeview, Illinois from a private partnership in which Haft family members
own all of the partnership interests. As a result of the various settlements
with members of the Haft family, the Company's lease is now with a subsidiary
of Dart. The lease, which is for 30 years and six months (which commenced in
1984), provides for rental payments increasing approximately 15% every five
years over the term of the lease. The current annual rental is $754,000. The
lease also requires the payment of maintenance, utilities, insurance and taxes
on the warehouse. This lease agreement has been classified as a capital lease
and is included under the Capital Leases caption of the lease commitment table
above.
The Company subleases from Dart 210,000 square feet of a distribution center
and office facility located in Landover, Maryland which it shares with Dart
and Crown Books. The sublease is for 30 years and six months, provides for
rental payments increasing approximately 15% every five years over the term of
the sublease and commenced in 1985. The current annual rental is $1,647,000.
The
52
<PAGE> 54
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
sublease agreement also requires the payment for maintenance, utilities,
insurance and taxes allocable to the space subleased. Dart originally leased
the entire 271,000 square foot distribution center and office facility from a
private partnership in which Haft family members owned all of the partnership
interests. The Company's sublease is on the same terms as Dart's lease and is
classified as a capital lease and is included under the Capital Leases caption
of the lease commitment table above.
Dart had a lease agreement with a Haft family-owned entity for vacant land near
the Company's distribution center in Landover, Maryland. As a result of the
various settlements with members of the Haft family, Dart now owns the land and
the Company no longer pays rent. The lease was for the same period as the
headquarters building and distribution center lease described above and the
Company's current annual rental was $26,000.
The Company has an agreement with Dart to use space in a warehouse facility,
adjacent to the above distribution center and office facility. Dart originally
leased the property from a partnership in which Haft family members owned all
of the partnership interests until the RSH Settlement. The warehouse is now
owned by a Dart subsidiary. The rental is variable dependent on square footage
used. In fiscal 1998 the rental was $ 177,000. The arrangement also requires
the Company to pay a pro-rata share of utilities, real estate taxes and
maintenance.
The Company has a lease agreement with a Haft family-owned entity for a 317,000
square foot distribution center in Ontario, California. The lease is for 20
years, commenced in 1989, and provides for increasing rental payments, based
upon the Consumer Price Index for the Los Angeles area, over the term of the
lease. Current annual rental is $1,516,000 per year. The lease requires the
payment for maintenance, utilities, insurance and taxes. This lease agreement
has been classified as a capital lease and is included under the Capital Leases
caption in the lease commitment table above.
As part of the RSH Settlement, Ronald S. Haft agreed to transfer the real
estate and partnership interests controlled by him in the Ontario, California
distribution center to Dart (or its subsidiaries) and to reduce the rent. The
transfer and rent reduction were subject to contingencies, including bankruptcy
court approval, mortgagee approval and challenges brought by Herbert H. Haft
concerning the extent of Ronald S. Haft's ownership interest in the property.
As a result of the Settlements with Herbert H. Haft and Ronald S. Haft the
contingencies that still remain are agreements with the mortgage and bankruptcy
reorganization plans.
Employment Arrangements
The Company has entered into employment agreements with several key employees.
The employment agreements are for a one-year or two-year terms and are
automatically extended one year or two years at the end of the fiscal year
unless the individual is terminated with cause. The agreements provide for
53
<PAGE> 55
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
annual compensation increases following review and performance appraisal by the
Compensation Committee of the Board of Directors. Total commitments under the
agreements are approximately $1.5 million.
Year 2000 Compliance (Unaudited)
Trak Auto is currently in the process of conducting a review of the impact of
Year 2000 on its information systems, as well as reviewing its impact on
relationships with key customers and vendors. Based on the results to date of
this review, much of the Company's store hardware, and software used to run the
hardware and provide information will have to be replaced in order to be Year
2000 compliant. Additionally, the Company's warehouse distribution and
merchandising system is not Year 2000 compliant and could potentially begin to
affect operations as early as the coming fiscal year. The Company is
considering a plan to ensure minimal disruption to the Company, however, there
can be no guarantee that a plan will be adopted in its current form or that
there will be sufficient time to implement the plan by the Year 2000. The
aggregate costs associated with the plan are currently estimated at $5.7 million
for the store related hardware and software plus unidentified internal and
contracted labor costs to modify and enhance store, warehouse distribution and
merchandising systems.
NOTE 10 - CREDIT AGREEMENT
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 includes an interest rate that
fluctuates with the Company's ratio of funded debt to equity.
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.
54
<PAGE> 56
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
In addition, the Company has a $750,000 commercial letter of credit facility
for use in importing merchandise.
At January 31, 1998, there had been no borrowing under the Facility and no
borrowings under the letters of credit facility.
NOTE 11 - PITTSBURGH MARKET
On January 27, 1996, the Company acquired the inventory and fixed assets of 14
auto part stores in Pittsburgh, Pennsylvania for approximately $6,200,000. The
purchase price included approximately $1,582,000 for favorable lease rights
which is being amortized over the primary term of the leases and any option
periods beginning before February 1999.
After two years of disappointing performance, the Company closed these stores
and one additional store it had opened in the interim on January 31, 1998.
Accordingly, the Company recorded a provision for closed stores of
approximately $14.9 million for the unamortized leasehold improvements and
lease rights and remaining lease obligations (see Note 3).
NOTE 12 - EMPLOYEES' BENEFIT PLANS
The Company maintains a non-contributory profit-sharing plan for all full-time
employees with one year of continuous employment. The Company's annual
contribution to the plan is based on a discretionary percentage of the
Company's consolidated net income, as defined in the plan, and as determined by
the Board of Directors. The Company's contributions were approximately $99,000
and $379,000 in fiscal 1997 and 1996, respectively. There was no contribution
in fiscal 1998.
In June 1995, the Company established a 401(k) Retirement Plan for all
employees projected to work 1,000 hours after 90 days continuous employment.
The Company is obligated to contribute an amount equal to 25% of the employees
deferral up to 6%. The Company's contribution was approximately $330,000,
$346,000 and $250,000 for fiscal 1998, 1997 and 1996, respectively.
In March 1996, the Company established a nonqualified deferred compensation
plan for certain officers and key employees of the Company. The Company
contributes an amount equal to 25% of the employees deferral in the
nonqualified deferred compensation plan and the 401(k) plan together up to 6%.
The contribution was $9,000 and $15,000 in fiscal 1998 and 1997.
NOTE 13 - STOCK OPTION PLANS
The Company has two stock option plans and accounts for the plans under APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for the plans been determined consistent with SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
55
<PAGE> 57
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
<TABLE>
<CAPTION>
(dollars in thousands, except per share data)
Fiscal Year
1998 1997 1996
------------ ------------ ------------
<S> <C> <C>
Net Income (Loss):
As Reported $ (17,673) $ 1,084 $ 7,290
Pro Forma (18,542) 737 7,208
Net Income (Loss) per share (diluted):
As Reported $ (2.99) $ .18 $ 1.23
Pro Forma (3.14) .12 1.22
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995.
The weighted average fair value of options granted was $5.66, $7.49 and $7.21
for options granted during fiscal 1998, 1997 and 1996, respectively. The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 1998, 1997 and 1996, respectively: risk
free rates of approximately 5.4%, 6.0% and 6.0% during fiscal 1998, 1997 and
1996, respectively, no expected dividends; expected lives of 5.0 years; and
expected volatility of 40.0%.
Trak Auto Corporation 1993 Stock Option Plan
The Company may grant options for up to 1,250,000 shares under the Trak Auto
Corporation 1993 Stock Option Plan (the "1993 Option Plan"). The 1993 Option
Plan is for officers, directors and key employees and will terminate June 30,
2003. The option exercise price equals the market price on the date of grant.
Options vest fully after three years and expire after five years.
56
<PAGE> 58
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
Information concerning the 1993 Option Plan:
<TABLE>
<CAPTION>
Number Option Price Weighted Average
Outstanding at of Options per Share Exercise Price
---------- ------------- ----------------
<S> <C> <C> <C>
January 28, 1995 105,849 $12.50-14.00 $ 12.59
Granted 207,925 14.00-16.125 15.29
Exercised (16,132) 12.50-14.00 12.57
Forfeited (29,354) 12.50-16.125 13.24
------- ------------- -------
Outstanding at
February 3, 1996 268,288 12.50-16.125 14.61
Granted 193,800 16.75 16.75
Exercised (10,223) 12.50-16.125 13.13
Forfeited (15,585) 12.50-16.75 14.78
------- ------------- -------
Outstanding at
February 1, 1997 436,280 12.50-16.75 15.59
Granted 212,250 11.25-13.00 12.98
Exercised (400) 12.50 12.50
Forfeited (74,674) 12.50-16.75 12.50
------- ------------- -------
Outstanding at
January 31, 1998 573,456 $11.25-16.75 $ 14.64
======= ============= =======
</TABLE>
Options to purchase 228,543 shares were exercisable at January 31, 1998 and
642,711 options remained available for grant. At January 31, 1998, the
weighted average contractual life of the options outstanding was 3.2 years.
Trak Auto Corporation Stock Option Plan
The Trak Auto Corporation Stock Option Plan (the "Option Plan") provided for
option grants to officers, directors and key employees of Trak Auto and its
parent and subsidiaries. Under the Option Plan no new options could be granted
after January 31, 1993.
57
<PAGE> 59
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
Information concerning the Option Plan:
<TABLE>
<CAPTION>
Number Option Price Weighted Average
of Options per Share Exercise Price
---------- ------------- ----------------
<S> <C> <C> <C>
Outstanding
January 28, 1995 156,271 $ 6.00-13.75 $ 10.89
Exercised (68,468) 6.00-13.75 10.45
Forfeited (3,470) 12.50 12.50
Expired (400) 10.25 10.25
------- ------------- --------
Outstanding
February 3, 1996 83,933 6.00-13.75 11.18
Exercised (11,188) 6.00-12.50 9.47
Forfeited (2,234) 12.50 12.50
------- ------------- --------
Outstanding
February 1, 1997 70,511 6.60-13.75 11.41
Exercised - - -
Forfeited (26,561) 6.60-13.75 8.32
Expired (43,950) 12.50 12.50
------- ------------- ---------
Outstanding
January 31, 1998 - $ - $ -
======= ============= ========
</TABLE>
All outstanding options under the Option Plan expired or were forfeited during
fiscal 1998.
The Board of Directors of the Company has authorized certain officers and
directors of the Company to apply for loans from the Company to exercise their
vested stock options. Under the plan approved by the Board, the loans must
bear interest at the prime rate, adjusted annually, be secured by all of the
stock acquired by exercise of the options, be repaid out of the first proceeds
of sale of the stock or at the end of three years, whichever is earlier, and
the borrower must demonstrate to the Company's chief financial officer both
that it would be difficult to dispose of the number of shares on the open
market and that he or she presents a reasonable credit risk to the Company.
NOTE 14 - SUBSEQUENT EVENT
Planned Merger of Dart
On April 9, 1998, Dart entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Richfood Holdings, Inc. ("Richfood Holdings") and a
subsidiary of Richfood Holdings ("Acquisition Subsidiary") pursuant to which
Dart has agreed to become a wholly owned subsidiary of Richfood Holdings.
Pursuant to the terms of the Merger Agreement, Richfood Holdings will (1) make
a cash tender offer (the "Offer") for all the issued and outstanding shares of
common stock of Dart at a price of $160.00 per share and (2) take all steps
necessary to cause Acquisition Subsidiary to merge with and into Dart (the
"Merger") in a transaction in which Dart will become a wholly owned subsidiary
of Richfood Holdings. As a result of the Merger, Richfood Holdings will
indirectly own 67.1% of the outstanding Common Stock.
58
<PAGE> 60
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years Ended January 31, 1998, February 1, 1997
And February 3, 1996
The Merger is subject to the tender in the offer of a majority of the shares
of common stock of Dart on a fully diluted basis and to other customary
conditions, including the receipt of regulatory approvals and the absence of
material adverse effects on the business or financial conditions of Dart and
its subsidiaries, taken as a whole with certain limited exceptions. There can
be no assurance that either the Offer or the Merger will be consummated.
NOTE 15 - INTERIM FINANCIAL DATA - (UNAUDITED)
Selected interim financial data for the years ended January 31, 1998 and
February 1, 1997 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands, except for per share amounts)
QUARTER ENDED: JANUARY 31, NOVEMBER 1, AUGUST 2, MAY 3,
1998 1997 1997 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 61,640 $ 85,672 $ 90,523 $ 81,605
Gross Profit (1) 13,076 19,738 20,654 19,340
Net Income (Loss)(2) (9,572) (6,460) (943) (698)
Net Income (Loss) Per
Share (Diluted) (3) $ (1.62) $ (1.09) $ (.16) $ (.12)
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands, except for per share amounts)
QUARTER ENDED: FEBRUARY 1, NOVEMBER 2, AUGUST 3, MAY 4,
1997 1996 1996 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 80,587 $ 87,953 $ 90,428 $ 87,016
Gross Profit (1) 18,927 20,691 21,867 22,027
Net Income (Loss)(2) (925) 155 674 1,180
Net Income (Loss) Per
Share (Diluted) (3) $ (.16) $ .03 $ .11 $ .20
</TABLE>
(1) After deduction for cost of sales, store occupancy and warehousing.
(2) After deduction of store closing reserve during the 4th Quarter of
fiscal 1998 and fiscal 1997 and provision for loss on sale of
California operations during the 3rd Quarter of fiscal 1998.
(3) The sum of these amounts may not equal the annual amount because of
changes in the average number of shares outstanding during the year.
59
<PAGE> 61
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
Inapplicable.
60
<PAGE> 62
PART III
The following Items 10 through 13 are incorporated herein by reference to the
Company's definitive Proxy Statement to be filed with the Commission pursuant
to Regulation 14A.
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
61
<PAGE> 63
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a)(1) Financial Statements
See Item 8.
(a)(2) Schedules (Consolidated) -
All schedules are omitted because the required information is
inapplicable or it is presented in the consolidated financial
statements or related notes.
(a)(3) Exhibits
3.1 Certificate of Incorporation of Trak Auto Corporation as
amended by Certificate of Amendment dated October 30, 1987
(incorporated by reference to Exhibit 3a to Trak Auto's 1988
Form 10-K).
3.2 By-laws, amended and restated September 14, 1993 (incorporated
by reference to Exhibit 3b to Trak Auto's 1994 Form 10-K).
10.1 Lease Agreement dated January 1, 1980 between Oxon Hill Plaza,
Inc., Agent and Nominee for Combined Properties Corporation,
and Trak Auto Corporation (incorporated by reference to Trak
Auto's registration statement Form S-1, Reg. No. 2-82430).
(606)
10.2 License Agreement dated March 4, 1983 between Dart Drug
Corporation and Trak Auto Corporation; Addendum to Lease
Agreement dated June 1, 1976 between Kaufman Company S.
Greenhoot Fischer, Carol B. Fisher and Dart Vienna, Inc.;
Lease Agreement dated April 14, 1960 (incorporated by
reference to Trak Auto's registration statement Form S-1, Reg.
No. 2-82430). (616)
10.3 Lease Agreement dated May 26, 1981 between Maryland City
Plaza, Inc., Agent and Nominee for Combined Properties
Corporation, and Trak Auto Corporation (incorporated by
reference to Trak Auto's registration statement Form S-1, Reg.
No. 2-82430). (623)
10.4 Lease Agreement dated May 26, 1981 between Bradlick, Inc.,
Agent and Nominee for Combined Properties Corporation, and
Trak Auto Corporation (incorporated by reference to Trak
Auto's registration statement Form S-1, Reg. No. 2-82430).
(629)
10.5 Agreement, dated March 31, 1983, between Dart Drug Corporation
and Trak Auto East Corporation (incorporated by reference to
Trak Auto's registration statement Form S-1, Reg. No.
2-82430).
62
<PAGE> 64
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
10.6 Lease Agreement dated April 27, 1984, between Trak Chicago
Limited Partnership I and Trak Auto Corporation (incorporated
by reference to Trak Auto's registration statement Form S-1,
Reg. No. 2-82430).
10.7 Sublease Agreement dated December 26, 1984, between Dart Group
Corporation and Trak Auto Corporation (75th Avenue)
(incorporated by reference to Exhibit 10(hhhh) to Trak Auto's
1985 Form 10-K).
10.8 Indemnity Agreement, dated June 9, 1986, by and between Dart
Group Corporation and Trak Auto Corporation (incorporated by
reference to Exhibit 10(pppp) to Trak Auto's 1987 Form 10-K).
10.9 1988 Trak Auto Corporation Deferred Compensation Plan for
Directors, effective January 1, 1988 (incorporated by
reference to Exhibit 10(ssss) to Trak Auto's 1988 Form 10-K).
10.10 Lease Agreement dated February 3, 1989 between Trak Auto
Corporation and Combined Properties/Ontario Limited
Partnership (incorporated by reference to Exhibit 10(tttt) to
Trak Auto's 1989 Form 10-K).
10.11 Lease Agreement dated February 3, 1988 between Trak
Corporation and Haft/Equities - General (incorporated by
reference to Exhibit 10(uuuu) to Trak Auto's 1989 Form 10-K).
10.12 Lease Agreement dated June 17, 1987 between Trak Auto West,
Inc. and Haft/Equities/Rose Hill Limited Partnership
(incorporated by reference to Exhibit 10(vvvv) to Trak Auto's
1989 Form 10-K). (670)
10.13 Lease Agreement dated May 18, 1990 between Retail Lease
Acquisition Limited Partnership and Trak Corporation and
License Termination Agreement date March 31, 1990 between
Retail Lease Acquisition Limited Partnership and Trak
Corporation re: Enterprise (incorporated by reference to
Exhibit 10(ccccc) to Trak Auto's 1991 Form 10-K)(614).
10.14 Lease Agreement dated May 18, 1990 between Retail Lease
Acquisition Limited Partnership and Trak Corporation and
License Termination Agreement date March 31, 1990 between
Retail Lease Acquisition Limited Partnership and Trak
Corporation re: Rolling Valley (incorporated by reference to
Exhibit 10 (ddddd) to Trak Auto's 1991 Form 10-K) (630).
10.15 Lease Agreement dated May 18, 1990 between Combined Properties
Limited Partnership and Trak Corporation and Lease Termination
Agreement date March 31, 1990 between Combined Properties
Limited Partnership, Retail Lease Acquisition Limited
Partnership and Trak Corporation re: White Flint (incorporated
by reference to Exhibit 10(eeeee) to Trak Auto's 1991 Form
10-K) (632).
10.16 Lease Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation and Settlement
Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak
63
<PAGE> 65
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
Corporation re: Aspen Manor (incorporated by reference to
Exhibit 10(fffff) to Trak Auto's 1991 Form 10-K) (615).
10.17 Lease Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation and Settlement
Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation re: Lee and Harrison
(incorporated by reference to Exhibit 10(ggggg) to Trak Auto's
1991 Form 10-K)(633).
10.18 Lease Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation and Settlement
Agreement dated November 6, 1990 between CP Acquisition
Limited Partnership and Trak Corporation re: Penn Daw
(incorporated by reference to Exhibit 10(hhhhh) to Trak Auto's
1991 Form 10-K)(642).
10.19 Lease Agreement dated November 6, 1990 between Combined
Properties Limited Partnership and Trak Corporation and
Settlement Agreement dated November 6, 1990 between Combined
Properties Limited Partnership and Trak Corporation re:
Fairfax Circle (incorporated by reference to Exhibit 10(iiiii)
to Trak Auto's 1991 Form 10-K) (656).
10.20 Lease Agreement dated March 23, 1990 between Combined
Properties/Silver Hill Limited Partnership and Trak
Corporation and Termination Agreement dated April 13, 1990
between Combined Properties/Silver Hill Limited Partnership
and Trak Corporation re: Silver Hill (incorporated by
reference to Exhibit 10 (jjjjj) to Trak Auto's 1991 Form
10-K)(619).
10.21 Lease Agreement dated November 6, 1990 between
Haft/Equities-Bladen Limited Partnership and Trak Corporation
and Lease Termination Agreement dated November 6, 1990 between
Haft/Equities-Bladen Limited Partnership and Trak Corporation
re: Bladen Plaza (incorporated by reference to Exhibit
10(kkkkk) to Trak Auto's 1991 Form 10-K)(662).
10.22 Lease agreement dated December 23, 1991 between Combined
Properties Limited Partnership and Trak Corporation re:
Manaport Plaza Shopping Center (incorporated by reference to
Exhibit 10 (lllll) to Trak Auto's 1992 Form 10-K) (607).
10.23 Amendment of lease dated December 24, 1991 between
Haft/Equities-Bladen Limited Partnership and Trak Corporation
re: Bladen Plaza (incorporated by reference to Exhibit
10(mmmmm) to Trak Auto's 1992 Form 10-K). (662)
10.24 Sublease Agreement dated February 19, 1992 between Crown Books
Corporation and Trak Corporation re: Vienna (incorporated by
reference to Exhibit 10(nnnnn) to Trak Auto's 1992 Form
10-K)(616).
10.25 Sublease agreement dated February 12, 1991 between Crown Books
Corporation and Trak Corporation re: McLean Shopping
Center(incorporated by reference to Exhibit 10(ooooo) to Trak
Auto's 1992 Form 10-K) (627).
64
<PAGE> 66
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
10.26 Amendment of lease dated December 11, 1992 between Combined
Properties Limited Partnership and Super Trak Corporation re:
Oxon Hill (incorporated by reference to Exhibit 10(qqqqq) to
Trak Auto's 1993 Form 10-K). (606)
10.27 Amendment of lease dated December 1, 1992 between
Haft/Equities-Bladen Limited Partnership and Super Trak
Corporation re: Bladen Plaza (incorporated by reference to
Exhibit 10(rrrrr) to Trak Auto's 1993 Form 10-K). (662)
10.28 Amendment of lease dated January 8, 1993 between Retail Lease
Acquisition Limited Partnership and Trak Corporation re:
Chantilly Plaza (incorporated by reference to Exhibit
10(sssss) to Trak Auto's 1992 Form 10-K). (609)
10.29 Trak Auto Corporation 1993 Stock Option Plan (incorporated by
reference to Trak Auto's registration statement Form S-8, Reg.
No. 33-53389).
10.30 Amendment of lease dated February 4, 1993 between Retail Lease
Acquisition Limited Partnership and Super Trak re: College
Plaza (incorporated by reference to Exhibit 10(wwwww) to Trak
Auto's 1994 Form 10-K). (610)
10.31 Amendment of lease dated September 13, 1993 between Combined
Properties Limited Partnership and Super Trak Corporation re:
Fair City Mall (incorporated by reference to Exhibit 10(xxxxx)
to Trak Auto's 1994 Form 10-K). (605)
10.32 Amendment of lease dated September 13, 1993 between Combined
Properties Limited Partnership and Super Trak Corporation re:
Maryland City (incorporated by reference to Exhibit 10(yyyyy)
to Trak Auto's 1994 Form 10-K). (623)
10.33 Second Amendment of lease dated March 31, 1994 between
Combined Properties Limited Partnership and Super Trak
Corporation re: Oxon Hill (incorporated by reference to
Exhibit 10 (zzzzz) to Trak Auto's 1994 Form 10-K) (606).
10.34 Lease Agreement dated September 29, 1993 between Combined
Properties/Reseda Associates Limited Partnership and Super
Trak Corporation re: Reseda (incorporated by reference to
Exhibit 10(c) to Trak Auto's 1994 Form 10-K). (193)
10.35 Amendment of lease dated June 30, 1994 between Combined
Properties Limited Partnership and Super Trak Corporation re:
Bradlick (incorporated by reference to Exhibit 10.42 to Trak
Auto's 1995 Form 10-K)(629).
10.36 Employment Agreement between Trak Auto and R. Keith Green
dated January 25, 1995 (incorporated by reference to Exhibit
10.43 to Trak Auto's 1995 Form 10-K).
65
<PAGE> 67
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
10.37 Tax Allocation Agreement dated December 27, 1994 between Dart
Group Corporation and Trak Auto Corporation (incorporated by
reference to Exhibit 10.44 to Trak Auto's 1995 Form 10-K).
10.38 Employment Agreement between Trak Auto and Robert Brann dated
as of January 24, 1995 (incorporated by reference to Exhibit
10.46 to Trak Auto's 1995 Form 10-K).
10.39 Employment Agreement between Trak Auto and David MacGlashan
dated as of January 24, 1995 (incorporated by reference to
Exhibit 10.48 to Trak Auto's 1995 Form 10-K).
10.40 Standstill Order entered on December 6, 1995 by the Delaware
Chancery Court in Gloria G. Haft, et al. v. Larry G.
Schafran, et al. (Del. Ch. Civ. A. No. 14620) and Herbert H.
Haft v. Dart Group Corporation, et al. (Del. Ch. Civ. A. No.
14685) (incorporated by reference to Exhibit 99.1 to the
Quarterly Report of Trak Auto Corporation on Form 10-Q for the
period ended October 28, 1995).
10.41 Financing Agreement, dated December 18, 1996, between Trak
Auto Corporation and The CIT Group/Business Credit, Inc.
(Incorporated by reference to Exhibit 10.43 to Trak Auto's
1997 Form 10-K).
10.42 Employment Agreement between Trak Auto and Robert H. Thomas
dated as of June 2, 1997.
10.43 Demand Promissory Note between Bridgeview Warehouse, L.L.C., a
Dart subsidiary and Trak Auto dated November 19, 1997.
10.44 Amended and Restated Loan Agreement dated April 28, 1998 and
Pledge Agreement dated January 27, 1998 between Trak Auto and
Dart.
11 Statement on Computation of Per Share Net Income.
21 Subsidiaries of Trak Auto Corporation
23 Consent of Independent Public Accountants
27 Financial Statement Schedules
66
<PAGE> 68
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
(b) Reports on Form 8-K
Trak Auto filed two Current Reports on Form 8-K during the
fourth quarter of the fiscal year ended January 31, 1998
1. Trak Auto filed a Current Report on Form 8-k on
November 5, 1997 reporting under Item 5 (Other
Events) a change in the composition of Trak Auto's
Board of Directors and that Richard B. Stone had
assumed the position of Acting Chief Executive
Officer.
2. Trak Auto filed a Current Report on Form 8-K on
December 23, 1997 reporting under Item 2 (Acquisition
or Disposition of Assets) the closing of the sale of
Trak Auto's California operations and Item 7
(Financial Statements and Exhibits) proforma
financial statements to reflect the sale.
67
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C>
TRAK AUTO CORPORATION
Date: May 13, 1998 By: R. Keith Green
----------------------- ---------------------------------
R. Keith Green
Director and President
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: May 13, 1998 R. Keith Green
----------------------- --------------------------------
R. Keith Green
Director and President
Date: May 13, 1998 Richard B. Stone
----------------------- --------------------------------
Richard B. Stone
Chairman of the Board of Directors
and Chief Executive Officer
Date:
----------------------- --------------------------------
Harry M. Linowes
Director
Date:
----------------------- --------------------------------
Howard M. Metzenbaum
Director
Date: May 13, 1998 David B. MacGlashan
----------------------- --------------------------------
David B. MacGlashan
Senior Vice President and
Chief Financial Officer
</TABLE>
68
<PAGE> 70
TRAK AUTO CORPORATION
Exhibit Index
Exhibit
10.42 Employment Agreement between Trak Auto and Robert
H. Thomas dated as of June 2, 1997.
10.43 Demand Promissory Note between Bridgeview Warehouse,
L.L.C., a Dart subsidiary and Trak Auto dated November
19, 1997.
10.44 Amended and Restated Loan Agreement dated April, 28, 1998 and
Pledge Agreement dated January 27, 1998 between Trak Auto and
Dart.
11 Statement on Computation of Per Share Net Income
21 Subsidiaries of Trak Auto Corporation
23 Consent of Independent Public Accountants
27 Financial Statement Schedules
69
