1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED July 31, 1996
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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 0-1946
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DART GROUP CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 53-0242973
- -------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 75th Avenue, Landover, Maryland, 20785
---------------------------------------------
(Address of principal executive offices)
(Zip Code)
(301) 731-1200
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
----- -----
At September 13, 1996, the registrant had 1,758,381 shares outstanding of Class
A Common Stock, $1.00 par value per share, and 327,270 shares outstanding of
Class B Common Stock, $1.00 par value per share. The Class B Stock is the only
voting stock and is not publicly traded.
Page 1 of 24 pages
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Certain consolidated financial statements included herein have been
prepared by Dart Group Corporation ("Dart"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although Dart
believes that the disclosures are adequate to make the information presented
not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in Dart's annual report on Form 10-K for the fiscal year ended January
31, 1996.
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DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
(Unaudited)
Three Months Six Months
Ended July 31 Ended July 31
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
Sales $163,798 $156,777 $320,326 $302,158
Real estate revenue - 4,906 - 9,746
Other interest and other income 1,333 2,806 2,741 5,415
-------- -------- -------- --------
165,131 164,489 323,067 317,319
-------- -------- -------- --------
Expenses:
Cost of sales, store occupancy
and warehousing 128,805 122,926 250,611 235,821
Selling and administrative 35,102 33,971 69,308 66,426
Depreciation and amortization 3,499 4,062 6,930 8,053
Interest 2,161 4,069 4,336 8,026
Closed store reversal - (3,108) - (3,108)
Restructuring reversal - (566) - (566)
-------- -------- -------- --------
169,567 161,354 331,185 314,652
-------- -------- -------- --------
Income (loss) before income
taxes, equity in affiliate and
minority interests (4,436) 3,135 (8,118) 2,667
Income taxes (benefit) (871) 1,802 (1,217) 2,250
-------- -------- -------- --------
Income before equity in
affiliate and minority
interests (3,565) 1,333 (6,901) 417
Equity in affiliate 2,740 1,454 5,124 3,605
Minority interests in (income)
loss of consolidated
subsidiaries and partnerships 527 (1,295) 1,012 (1,617)
-------- -------- -------- --------
Net income (loss) $ (298) $ 1,492 $ (765) $ 2,405
======== ======== ======== ========
Earnings per common share and
common share equivalents:
Net income (loss) $ (.30) $ .66 $ (.66) $ .97
======== ======== ======== ========
Weighted average common share and
common share equivalents
outstanding 2,195 1,890 2,200 1,889
======== ======== ======== ========
Dividends per share of Class
A Common Stock $ .033 $ .033 $ .066 $ .066
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
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DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS (Unaudited)
July 31, January 31,
1996 1996
----------- ----------
Current Assets:
Cash $ 15,919 $ 13,967
Short-term instruments 38,806 50,817
Marketable debt securities 31,189 22,544
Accounts receivable 13,155 8,965
Merchandise inventories 218,667 205,615
Income taxes refundable 3,050 -
Deferred income tax benefit 13,942 13,915
Other current assets 6,332 2,199
---------- ----------
Total Current Assets 341,060 318,022
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Property and Equipment, at cost:
Furniture, fixtures and equipment 97,907 91,311
Buildings and leasehold improvements 28,707 28,105
Land 1,034 1,034
Property under capital leases 24,472 24,472
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152,120 144,922
Accumulated Depreciation and Amortization 74,863 68,559
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77,257 76,363
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Other Assets 3,095 3,145
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Note Receivable - Ronald S. Haft - 11,621
---------- ----------
Share of Equity in Shoppers Food
Warehouse Corp. 51,521 46,397
---------- ----------
Retained interest in Cabot-Morgan Real
Estate Joint Venture - 2,000
---------- ----------
Excess of Purchase Price Over Net Assets
Acquired net of accumulated
amortization of $271,000 1,639 1,735
---------- ----------
Deferred Income Tax Benefit 12,229 11,282
---------- ----------
Total Assets $ 486,801 $ 470,565
========== ==========
The accompanying notes are an integral part of these balance sheets.
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DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
July 31, January 31,
1996 1996
------------ ------------
Current Liabilities:
Current portion of mortgages payable $ 1,048 $ 1,028
Accounts payable, trade 105,588 89,095
Income taxes payable 3,318 967
Accrued salaries and employee benefits 18,611 18,456
Accrued taxes other than income taxes 8,647 7,669
Accrued judgement in favor of
Robert M. Haft 35,613 34,579
Current portion of reserve for closed
facilities and restructuring 6,752 6,970
Other accrued liabilities 39,097 40,056
Current portion of obligations under
capital leases 101 101
------------ ------------
Total Current Liabilities 218,775 198,921
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Mortgages Payable 529 660
------------ ------------
Obligations Under Capital Leases 30,370 30,165
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Reserve for Closed Facilities and
Restructuring 34,232 36,816
------------ ------------
Minority Interests 68,583 69,427
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Stockholders' Equity
Class A common stock, non-voting,
par value $1.00 per share; 3,000,000
shares authorized; 1,959,248 and
1,949,223 shares issued, respectively 1,959 1,949
Class B common stock, voting par value
$1.00 per share; 500,000 shares
authorized and issued 500 500
Paid-in capital 78,544 77,879
Notes receivable-shareholder (65,130) (65,130)
Unrealized gains on short-term investments 188 246
Retained earnings 120,288 121,169
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DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
(Continued) July 31, January 31,
1996 1996
----------- ------------
Treasury Stock, 202,340 shares of Class
A common stock, at cost (1,749) (1,749)
Treasury Stock, 172,730 shares of Class
B common stock, at cost (288) (288)
----------- -------------
Total Stockholders' Equity 134,312 134,576
----------- -------------
Total Liabilities and Stockholders' Equity $ 486,801 $ 470,565
=========== =============
The accompanying notes are an integral part of these balance sheets.
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DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Six Months
Ended July 31,
--------------------
1996 1995
--------- ---------
Cash Flows from Operating Activities:
Net income (loss) $ (765) $ 2,405
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,930 8,053
Equity in affiliate (5,124) (3,598)
Provision (reversal) of closed stores and
restructuring charges 966 (2,709)
Change in assets and liabilities:
Accounts receivable (4,137) 3,239
Merchandise inventories (13,052) 10,808
Income tax refundable (3,050) -
Other current assets (4,133) (413)
Deferred tax benefits (1,047) 2,310
Other assets 116 61
Accounts payable, trade 16,493 (17,789)
Income taxes payable 2,351 (2,909)
Accrued salaries and employee benefits 1,189 965
Accrued taxes other than income taxes 978 3,421
Other accrued liabilities (672) (8,346)
Reserve for closed facilities (3,565) (4,432)
Minority interests (881) 2,200
--------- ---------
Net cash used in
operating activities $ (7,403) $ (6,734)
--------- --------
Cash Flows from Securities and Capital
Investment Activities:
Capital expenditures $ (7,997) $ (8,490)
Proceeds from sale of Cabot-Morgan
Real Estate joint ventures 2,000 -
Acquisition of treasury shares by subsidiary - (6,904)
Purchases of United States Treasury Bills (40,152) (17,604)
Sales of United States Treasury Bills 1,989 -
Maturities of United States Treasury Bills 23,169 22,810
Sales of marketable debt securities 417 20,120
Maturities of marketable debt securities 5,894 4,450
--------- -------
Net cash provided by (used in)
securities and capital
investment activities $ (14,680) $ 14,382
--------- --------
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DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(dollars in thousands)
(Unaudited)
Six Months
Ended July 31,
--------------------
1996 1995
--------- --------
Cash Flows from Financing Activities:
Cash dividends $ (116) $ (97)
Proceeds from Note Receivable - Ronald S. Haft 11,621 -
Proceeds from stock options 717 -
Distributions paid to minority partner - (2,988)
Principal payments under mortgage
obligations (148) (604)
Principal payments under capital
lease obligations (50) (184)
-------- --------
Net cash provided by (used in)
financing activities $ 12,024 $ (3,873)
-------- --------
Net Increase (Decrease) in Cash and Equivalents $(10,059) $ 3,775
Cash and Equivalents at Beginning of Year 64,784 102,374
-------- --------
Cash and Equivalents at End of Period $ 54,725 $106,149
======== ========
Supplemental Disclosures of Cash Flow on:
Cash paid during the period for:
Interest $ 3,282 $ 6,071
Income taxes 673 2,916
Reconciliation of Cash and Equivalents
to Balance Sheet Captions:
Cash $ 15,919 $ 15,652
Short-term investments 38,806 90,497
-------- --------
$ 54,725 $106,149
======== ========
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DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
(Unaudited)
(1) General:
The accompanying consolidated financial statements reflect the
accounts of Dart Group Corporation ("Dart") and its direct and indirect
wholly-owned and majority-owned subsidiaries and majority-owned partnerships,
including Trak Auto Corporation ("Trak Auto"), Crown Books Corporation ("Crown
Books"), Total Beverage Corporation ("Total Beverage") and Cabot-Morgan Real
Estate Company ("CMREC"). Dart's investment in Shoppers Food Warehouse Corp.
("Shoppers Food") is reflected in the financial statements using the equity
method of accounting. The accounts of CMREC's real estate joint ventures were
consolidated with Dart's financial statements through October 5, 1995, but not
thereafter, as a result of a settlement of certain litigation between Dart and
Ronald S. Haft (the "RSH Settlement"). Dart, Trak Auto, Crown Books, Total
Beverage and CMREC and Dart's other direct and indirect wholly-owned and
majority-owned subsidiaries and majority-owned partnerships are referred to
collectively as the "Company". All significant intercompany accounts and
transactions have been eliminated. The unaudited statements as of July 31,
1996 and 1995 reflect, in the opinion of management, all adjustments (normal
and recurring in nature) necessary to present fairly the consolidated financial
position as of July 31, 1996 and 1995 and the results of operations and cash
flows for the periods indicated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results could differ
from those estimates.
The results of operations for the three months ended July 31, 1996 are
not necessarily indicative of the results to be achieved for the full fiscal
year.
Certain reclassifications have been made to prior year income
statements to conform to current presentations.
(2) Earnings Per Common Share and Common Share Equivalents:
Earnings per share is based on the weighted average number of Dart's
Class A and Class B common stock and common stock equivalents (certain stock
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DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
(Unaudited)
options) outstanding during the period. In reporting earnings per share,
Dart's interest in the earnings of its majority-owned subsidiaries is adjusted
for the dilutive effect, if any, of these subsidiaries' outstanding stock
options. The difference between primary earnings per share and fully diluted
earnings per share is not significant for either period.
(3) Short-term Instruments and Marketable Debt Securities:
At July 31, 1996, the Company's short-term instruments included money
market funds and United States Treasury Bills held by Crown Books and Trak
Auto. The Company considers short-term instruments, consisting of United
States Treasury Bills, purchased with a maturity of less than one year to be
cash equivalents. The Company's United States Treasury Bills primarily consist
of instruments with a maturity of less than four months. Marketable debt
securities included United States Treasury Notes, corporate notes, municipal
securities, United States Agency Securities Acceptances and United States
Treasury Bills held by Dart.
Management determines the appropriate classification of its
investments in debt securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt securities for which the
Company does not have the intent or ability to hold to maturity are classified
as available for sale. Securities available for sale are carried at fair
value, with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. At July 31, 1996, market value of
short-term instruments and marketable debt securities was $188,000 greater than
cost (adjusted for income taxes). At July 31, 1996, the Company had no
investments that qualified as trading or held to maturity.
The amortized cost of debt securities classified as available for sale
is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and interest are included in interest income.
Realized gains and losses are included in other income or expense. The cost of
securities sold is based on the specific identification method.
Included in short-term instruments and marketable debt securities were
$36,721,000 and $46,091,000 held by majority-owned subsidiaries at July 31,
1996 and January 31, 1996, respectively.
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DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
(Unaudited)
(4) Interim Inventory Estimates:
Trak Auto inventories are priced at the lower of last-in, first-out
("LIFO") cost or market. At July 31, 1996 and January 31, 1996, Trak Auto
inventories determined on a lower of first-in, first-out ("FIFO") cost or
market basis would have been greater by $6,624,000 and $6,579,000,
respectively. Crown Books' and Total Beverage's inventories are priced at the
lower of FIFO cost or market.
Trak Auto and Total Beverage take a physical count of their store
inventories semi-annually. Crown Books takes a physical count of its
inventories annually. Complete physical inventories were taken by Trak Auto
and Total Beverage for the quarter ended July 31, 1996 and Crown Books took a
physical count of approximately 20 stores. The Company uses a gross profit
method combined with available perpetual inventory information to determine
Trak Auto's, Crown Books', and Total Beverage's inventories for quarters when
complete physical counts are not taken.
(5) Credit Agreement:
On February 27, 1996, the boards of directors of Dart and Trak Auto
approved a resolution authorizing a credit facility. As of September 14, 1996,
Dart and Trak Auto have not established the facility pending a reconsideration
of its needs. If Dart and Trak Auto establish the credit facility as
authorized on February 27, 1996, Dart would be able to borrow up to $15 million
from Trak Auto on a short-term, secured basis. The credit facility would
expire March 31, 1998. Trak Auto expects that it would fund any loans under
the credit facility from cash on hand. Any advances under the credit facility
would bear interest at an annual rate equal to the prime rate as set forth in
the "Money Rates" column of The Wall Street Journal, as such rate may change
from time to time, plus one percent. Any advances under the credit facility
would be secured by a pledge of shares of Trak Auto owned by Dart.
Trak Auto currently has a $750,000 commercial letter of credit
facility with NationsBank for importing merchandise.
At July 31, 1996, there had been no borrowings under these existing or
proposed credit agreements.
On September 12, 1996, Crown Books entered into a $50 million
revolving
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DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
(Unaudited)
credit facility with a finance company and borrowed approximately $6.0 million
under the credit facility. Crown Books intends to use proceeds from
draw-downs under the credit facility for working capital and other corporate
purposes. Loans under the credit facility bear interest at a rate equal to the
prime rate (as defined in the agreement) or, at the option of Crown Books, at
LIBOR plus 2.25%. Borrowings under the credit facility are secured by the
inventory, accounts receivable and proceeds from the sale of such assets of
Crown Books. The credit facility contains certain restrictive covenants,
including a limitation on incurrence of additional indebtedness. There are
additional covenants related to tangible net worth if the Company's borrowing
exceeds $25 million under the facility. In addition, loans under the credit
facility are subject to limitations based upon inventory levels as defined in
the agreement. Crown Books may terminate the credit facility upon 60-days
prior written notice to the lender and the lender may terminate it as of
September 12, 1999 or any time thereafter upon 60-days prior written notice to
Crown Books.
(6) Minority Interests:
The $68,583,000 of minority interests reflected in the Consolidated
Balance Sheet as of July 31, 1996 represents the minority portion of Trak Auto
and Crown Books equity owned by the public shareholders of Trak Auto and Crown
Books. The minority interest reflected in the Consolidated Balance Sheet as of
July 31, 1995, also included the portion of real estate joint ventures equity
owned by Haft family partnerships (CMREC owned the majority interest in these
partnerships). No such minority interest for CMREC are included as of January
31, 1996 or July 31, 1996. The accounts of CMREC's real estate joint ventures
were consolidated with Dart's financial statements through October 5, 1995, but
not thereafter, as a result of the RSH Settlement. Income attributed to the
minority shareholders of Trak Auto was $607,000 and $1,290,000 for the six
months ended July 31, 1996 and 1995, respectively, and $221,000 and $920,000
for the three months ended July 31, 1996 and 1995, respectively. Income (loss)
attributed to the minority shareholders of Crown Books was $(1,619,000) and
$(65,000) for the six months ended July 31, 1996 and 1995, respectively and
$(748,000) and $122,000 for the three months ended July 31, 1996 and 1995,
respectively. Income attributed to the minority ownership of the real estate
partnerships was $392,000 and $253,000 for the six months and three months
ended July 31, 1995, respectively.
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DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
(Unaudited)
(7) Sale of CMREC Joint Ventures:
During the three months ended July 31, 1996, five properties owned by
the CMREC real estate joint ventures were sold pursuant to the terms of the RSH
Settlement. As a result of the sale and pursuant to the terms of the RSH
Settlement, Dart received $2.0 million of the proceeds for its retained
interest in the joint ventures and Ronald S. Haft repaid a $11.6 million note
to Dart plus accrued interest. In addition, approximately $32.6 million of
CMREC's share of the net proceeds from the sale of the properties are held in
escrow and will be payable to Ronald S. Haft if certain transactions
contemplated by the RSH Settlement are effected.
(8) Payment to Robert M. Haft:
Subsequent to July 31, 1996, Dart and Crown Books paid approximately
$20,977,000 and $16,895,000 (including interest), respectively, to Robert M.
Haft for satisfaction of a judgment awarded to him in March 1995 (the "RMH
Judgment"). The company accrued approximately $32,199,000 of the RMH Judgment
in fiscal 1995 and accrued interest monthly at rates set forth in the RMH
Judgment. Pursuant to the RMH Judgment, Crown Books paid $2,146,250 to Robert
M. Haft for 100,000 shares of Crown Books common stock. Crown Books will
record these shares as treasury shares.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Outlook
Except for historical information, statements in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking. Actual results may differ materially due to a variety of
factors, including the results of ongoing litigation affecting the Company, the
Company's ability to open new stores and close other stores, the effect of
national and regional economic conditions, and the availability of capital to
fund operations. The Company undertakes no obligation and does not intend to
update, revise or otherwise publicly release the result of any revisions to
these forward-looking statements that may be made to reflect future events or
circumstances.
The litigation involving the Haft family members could pose a threat
to Dart's liquidity. See "Liquidity and Capital Resources" below.
Dart has retained an investment banking firm to provide advice
concerning issues of shareholder value. The investment banking firm has
reviewed with members of Dart's Executive Committee potential types of
transactions that might enhance value for Dart's stockholders. No final
decision has been made whether or not Dart will engage in any such
transactions, and there can be no assurance as to the timing or terms of such
transactions, if they occur. Any such transaction may require further order of
the Delaware Court of Chancery under a Standstill Order by the court and may be
opposed by Herbert H. Haft or certain other parties to the litigation pending
before the court.
Trak Auto and Crown Books believe that their superstore concepts
present significant growth opportunities and intend to open new superstores in
existing and possibly new markets. In the past, superstores have generated
higher sales at converted locations as well as higher gross margins as a result
of a change in product mix. In addition, Trak Auto may from time to time
expand its retail operations through acquisitions of existing stores from third
parties in existing or new markets.
Trak Auto, Crown Books and Total Beverage intend to continue their
practice of reviewing the profitability trends and prospects of existing
stores. These companies may from time to time close, relocate or sell stores
(or groups of stores) that are not satisfying certain performance objectives.
Crown Books closed 16 Classic Crown Books stores and one Super Crown Books
store during the six months ended July 31, 1996 and currently anticipates
closing approximately 19 additional Classic Crown Books stores and one Super
Crown Books store during the remainder of fiscal 1997.
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Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Liquidity and Capital Resources
Cash, including short-term instruments and U.S. government and other
securities, is the Company's primary source of liquidity. Cash, including
short-term instruments and U.S. government and other marketable debt securities
decreased by $1,414,000 to $85,914,000 at July 31, 1996 from $87,328,000 at
January 31, 1996. This decrease was primarily due to funding loss operations at
Dart and Crown Books and to capital expenditures of Trak Auto and Crown Books
and was partially offset by cash received from Ronald S. Haft as a result of
the sale of the CMREC joint venture properties.
For the quarter ended July 31, 1996, the Company realized a pre-tax
yield of approximately 5.2% on United States Treasury Bills and approximately
6.3% on the marketable debt securities.
Operating activities used $7,403,000 of the Company's funds for the
six months ended July 31, 1996 compared to $6,734,000 for the same period one
year ago. The primary use of cash for the three months ended July 31, 1996 was
for funding loss operations at Dart and Crown Books and payments for lease
obligations at closed Trak Auto and Crown Books stores.
Investing activities used $14,680,000 of the Company's funds for the
six months ended July 31, 1996, compared to providing $14,382,000 to the
Company for the same period last year. The primary use of funds was for the
net increase in United States Treasury Bills with the funds received from
Ronald S. Haft.
Financing activities provided $12,024,000 to the Company during the
six months ended July 31, 1996 primarily as a result of the repayment of Ronald
S. Haft's note receivable.
Historically, Dart and each of its subsidiaries generally funded their
respective requirements for working capital and capital expenditures with net
cash generated from operations and existing cash resources. However, the
Company's cash, including marketable debt securities, decreased by
approximately $1.4 million in the first half of fiscal 1997 and $104.4 million
in fiscal 1996.
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Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
In May 1996, the five properties owned by the CMREC real estate joint
ventures were sold pursuant to the terms of the RSH Settlement. Accordingly,
Dart received $2.0 million for its remaining interest in the joint ventures and
$11.6 million for repayment of Ronald S. Haft's loan from Dart. These funds
and existing cash resources will be sufficient to fund Dart's fiscal 1997
working capital needs, including its share of the payment of a $32.0 million
judgment (plus interest) entered against the Company in favor of Robert M. Haft
(the "RMH Judgment"). See Part II Item 1 - Legal Proceedings. Dart paid
approximately $21.0 million in satisfaction of the RMH Judgment on August 21,
1996 which reduced the balance of Dart's cash, short-term instruments and
marketable debt securities to approximately $13.0 million.
If Dart does not obtain other sources of funds, then it may need
additional cash in fiscal 1998 to fund its working capital needs, which
primarily consist of funding any operating losses of Total Beverage, payroll
and legal fees. While Dart has considered various potential transactions to
generate additional funds, including the liquidation of its interest in
Shoppers Food, Dart presently has no definitive financing plans and there can
be no assurance that Dart will obtain sufficient working capital for fiscal
1998. Any financing transaction or other extraordinary transaction that would
generate cash may require further order of the Delaware Court of Chancery under
the Standstill Order and may be opposed by Herbert H. Haft or certain other
parties to the litigation pending before the court.
The primary capital requirements of Crown Books relate to new store
openings, remodelings and investments in management information systems. Crown
Books believes that the costs incurred in opening a new store generally
approximate $1.1 million, including purchases of inventory and the costs of
store fixtures and leasehold improvements. During fiscal 1997, Crown Books
expects to open approximately 30 Super Crown Books stores and that capital
expenditures would approximate $8.5 million. As of August 3, 1996, Crown Books
had entered into lease agreements to open 17 new Super Crown Books stores and
lease amendments for additional space in three existing stores. In fiscal
1997, Crown Books expects to make cash expenditures of approximately $4.0
million related to actual and planned store closings.
Trak Auto funds its requirements for working capital and capital
expenditures with net cash generated from operations and existing cash
resources. Trak Auto's primary capital requirements relate to remodelings, new
store openings (including purchases of inventory and the costs of store
fixtures and leasehold improvements), and acquisitions. As of August 3, 1996,
Trak Auto had entered into lease agreements to open 16 new stores and
amendments to existing lease agreements to convert three stores into Super Trak
or Super Trak Warehouse stores.
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Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Total Beverage is considering locations for new stores and, to the
extent sufficient capital becomes available, may open one or more new stores in
fiscal 1997.
Results of Operations
Trak Auto
During the twenty-six weeks ended August 3, 1996, Trak Auto opened
four new Super Trak or Super Trak Warehouse stores and closed or converted two
Super Trak stores and five classic Trak stores. At August 3, 1996, Trak Auto
had 273 stores, including 114 Super Trak stores and 31 Super Trak Warehouse
stores.
Sales of $177,444,000 during the twenty-six weeks ended August 3, 1996
increased by $11,426,000 or 6.9% over the twenty-six weeks ended July 29, 1995
while sales of $90,428,000 during the thirteen weeks ended August 3, 1996
increased $4,021,000 or 4.7% compared to the same period one year ago. The
sales increases were primarily due to Trak Auto's continuing conversion to
Super Trak and Super Trak Warehouse stores and to the acquisition of new stores
in Pennsylvania in January 1996. Comparable sales (stores open more than one
year) increased 2.9% and 1.0% for the twenty-six and thirteen weeks ended
August 3, 1996. Sales for comparable Super Trak Stores increased 2.3% for the
twenty-six weeks ended August 3, 1996 and remained unchanged during the
thirteen weeks ended August 3, 1996. Sales for comparable Super Trak Warehouse
stores increased 8.7% and 4.1% and sales for comparable classic Trak stores
increased 2.6% and 2.3% for the twenty-six and thirteen weeks ended August 3,
1996, respectively. Sales for Super Trak and Super Trak Warehouse stores
represented 63.7% and 64.5% of total sales during the twenty-six and thirteen
weeks ended August 3, 1996 compared to 54.1% and 55.4% for the twenty-six and
thirteen weeks ended July 29, 1995, respectively.
Interest and other income decreased by $391,000 and $346,000 for the
twenty-six and thirteen weeks ended August 3, 1996, respectively, when compared
to the prior year, largely due to reduced interest income as a result of less
funds available for short-term investments.
Cost of sales, store occupancy and warehousing expenses as a
percentage of sales were 75.3% and 75.8% for the twenty-six and thirteen weeks
ended August 3, 1996 compared to 74.0% and 73.7% for the same periods in the
prior year. The increases were primarily due to increased store occupancy
costs and to a decrease in store margins largely as a result of grand openings
in the Pittsburgh market.
17
18
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Selling and administrative expenses were 20.4% as a percentage of
sales for the twenty-six and thirteen weeks ended August 3, 1996 compared to
20.2% and 19.3% for the twenty-six and thirteen weeks ended July 29, 1995. The
increases were due primarily to increased payroll costs.
Depreciation and amortization expenses increased $1,120,000 and
$567,000 for the twenty-six and thirteen weeks ended August 3, 1996,
respectively, compared to the same periods one year ago. The increases were
due to increases in store fixed assets resulting from the opening of Super Trak
and Super Trak Warehouse stores.
The effective income tax rate was 34.0% for the twenty-six weeks ended
August 3, 1996 compared to 36.7% for the twenty-six weeks ended July 29, 1995.
The decrease in the effective rate was primarily due to reduced taxable income
as a result of certain permanent book/tax differences.
Crown Books
During the twenty-six weeks ended August 3, 1996, Crown Books opened
nine Super Crown Books stores and closed 16 classic Crown Books stores and one
Super Crown Books store. At August 3, 1996, Crown Books had 164 stores,
including 92 Super Crown Books stores.
Sales of $129,025,000 for the twenty-six weeks ended August 3, 1996
increased by $4,114,000 or 3.3% compared to the twenty-six weeks ended July 29,
1995 while sales of $66,533,000 for the thirteen weeks ended August 3, 1996
increased by $2,660,000 or 4.2% compared to the thirteen weeks ended July 29,
1995. Comparable sales (sales for stores open for thirteen months) increased
0.7% and 0.5% during the twenty-six and thirteen weeks, respectively. Sales
for Super Crown Books stores represented 74.7% and 75.9% of total sales for the
twenty-six and thirteen weeks ended August 3, 1996, respectively, compared to
62.7% and 63.4% for the twenty-six and thirteen weeks ended July 29, 1995,
respectively. Super Crown Books stores' sales of $96,373,000 and $50,489,000
for the twenty-six and thirteen weeks ended August 3, 1996 increased 24.1% and
25.8% over the prior year and sales for comparable Super Crown Books stores
increased 1.2% and .9%. Comparable sales for the new superstore prototype
increased 15.0% and 14.0% for the twenty-six and thirteen weeks ended August 3,
1996. Crown Books' superstores consist of the original superstores of 6,000 to
10,000 square feet and the new superstore prototype targeted to occupy 15,000
square feet.
Interest and other income decreased by $582,000 and $233,000 during
the twenty-six and thirteen weeks ended August 3, 1996 when compared to the
same
18
19
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
periods one year ago. The decreases were primarily due to reduced interest
income as a result of decreased funds available for short-term investment.
Cost of sales, store occupancy and warehousing as a percentage of
sales were 82.0% and 82.1% for the twenty-six and thirteen weeks ended August
3, 1996 compared to 83.2% and 84.4% for the same periods one year ago. The
decreases were due to increased store margins as a result of continuing
improvements in shrink control and merchandising and was partially offset by
increased store occupancy costs.
Selling and administrative expenses as a percentage of sales were
20.2% and 19.8% for the twenty-six and thirteen weeks ended August 3, 1996
compared to 18.4% and 19.1% for the same periods one year ago. The increases
were due primarily to increased store and administrative payroll costs and was
partially offset by a decrease in advertising.
Depreciation and amortization expense increased $76,000 for the
twenty-six weeks ended August 3, 1996 compared to the same period one year ago
primarily due to an increase in store fixed assets as a result of new Super
Crown openings.
Interest expense was $691,000 during the twenty-six weeks ended August
3, 1996 primarily due to interest accrued for the RMH Judgment.
Crown Books has recorded a tax benefit on the net operating loss for
the twenty-six weeks ended August 3, 1996 of $2,174,000.
Total Beverage
During the six months ended July 31, 1996, Total Beverage closed one
store due to disappointing sales volume. At August 3, 1996, Total Beverage had
three stores.
Total Beverage sales were $13,857,000 and $6,837,000 during the
twenty-six and thirteen weeks ended August 3, 1996 compared to $11,229,000 and
$6,496,000 for the twenty-six and thirteen weeks ended July 29, 1995. The
increases were due to three stores open the entire period this year while the
increase for the thirteen weeks was due to the better performance of a store in
McLean, Virginia compared to the underperforming store closed earlier this
year.
Cost of sales and store occupancy as a percentage of sales were 81.7%
and 82.0% during the twenty-six and thirteen weeks ended August 3, 1996
compared to 81.3% and 82.4% for the same periods one year ago.
19
20
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Selling and administrative expenses as a percentage of sales were
23.5% and 21.4% during the twenty-six and thirteen weeks ended August 3, 1996
compared to 23.6% and 21.1% for the twenty-six and thirteen weeks ended July
29, 1995. Selling and administrative expenses, as a percentage of sales, were
less than the prior year, except for consulting fees discussed below.
Total Beverage recorded net operating losses of $871,000 and $292,000
during the twenty-six and thirteen weeks ended August 3, 1996 compared to net
operating losses of $682,000 and $310,000 during the twenty-six and thirteen
weeks ended July 29, 1995. The net operating loss for the twenty-six weeks and
thirteen weeks ended August 3, 1996 included approximately $610,000 and
$270,000 paid to outside consultants who have been retained to assist in the
development and implementation of a strategic business plan.
Dart Group and Other Corporate
Interest and other income decreased $2,285,000 during the six months
ended July 31, 1996 when compared to the same period in the prior year. The
decrease was primarily due to reduced funds available for short-term investment
as a result of funds disbursed pursuant to the RSH Settlement.
Administrative expenses decreased $929,000 during the quarter ended
July 31, 1996, primarily due to lower payroll costs. Dart's former Chief
Financial Officer, Robert A. Marmon, resigned effective February 29, 1996 and
was not replaced until September 1996.
Interest expense increased by $52,000 during the quarter ended July
31, 1996 when compared to the same period in the prior year.
Trak Auto, Crown Books and Shoppers Food file separate income tax
returns. CMREC and Total Beverage are included in Dart's income tax returns.
Dart's current net operating loss was not tax benefitted as a result of the
complete utilization of all available carrybacks.
As a result of Dart's operating loss for the six months ended July 31,
1996, a net tax operating loss carryforward of $23,787,000 was created. Dart's
cumulative total net tax operating loss carryforward is $68,261,000. All net
operating loss carryforwards will expire by fiscal 2012. In addition, Dart has
an Alternative Minimum Tax credit carryforward of approximately $1,010,000.
Dart has a deferred tax valuation allowance of $30,286,000 as of July 31, 1996.
Management will continue to evaluate the need for a valuation allowance on a
periodic basis.
20
21
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Effect of New Financial Accounting Standard
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for Long Lived Assets and Long-Lived Assets to be
Disposed of. Adoption of the standard has not had a material impact on the
Company's consolidated financial statements.
The Company adopted SFAS No. 123, Accounting for Stock Based
Compensation. The Company expects to disclose the fair value of options
granted in a footnote to its annual consolidated statements.
21
22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Material legal proceedings pending against Dart or its subsidiaries
are described in Dart's Annual Report on Form 10-K for the year ended January
31, 1996 (the "Annual Report") and, with respect to material developments in
such earlier reported legal proceedings, see below.
Robert M. Haft Employment Litigation
As reported in the Annual Report, in October 1995, Dart, Crown Books
and Trak Auto filed a notice of appeal with the U.S. Court of Appeals for the
Third Circuit with respect to a judgment that the U.S. District Court for the
District of Delaware had entered in a lawsuit brought by Robert M. Haft for
breach of employment contract. Among other things, the district court had
awarded Robert M. Haft damages against Dart and Crown Books in the amount of
$18,856,964 (plus interest) and $14,947,160 (plus interest), respectively.
On May 30, 1996, the U.S. Court of Appeals for the Third Circuit
affirmed the judgment of the district court.
On July 18, 1996, Robert M. Haft filed with the court a motion seeking
an order against Dart and Crown Books that would award him attorneys' fees and
expenses of $3,563,157.
On August 21, 1996, Dart and Crown Books paid $20,976,945 and
$16,895,295, respectively, to Robert M. Haft in satisfaction of the monetary
damages component of the judgment.
Rollerson Litigation
As reported in the Annual Report, Dart and Trak Auto had filed a
motion for summary judgment in a case involving a former employee of Trak Auto
who has alleged sexual harassment (Rollerson v. Dart Group Corporation, et
al.). On June 25, 1996, the court denied the motion for summary judgment.
22
23
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit
Number Document
------ --------
10.1 Financing Agreement, dated as of September 12, 1996, between Crown Books Corporation and The CIT
Group/Business Credit, Inc. (incorporated by reference to Exhibit 10.1 to the Quarterly Report of
Crown Books Corporation on Form 10-Q for the period ended August 3, 1996).
10.2 Employment Agreement, dated as of September 16, 1996, between Mark A. Flint and Dart Group
Corporation.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
23
24
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DART GROUP CORPORATION
Date September 16, 1996 By Herbert H. Haft
-------------------- ------------------------------
HERBERT H. HAFT
Chief Executive Officer
Date September 16, 1996 Ronald T. Rice
-------------------- -----------------------------
RONALD T. RICE
Assistant Vice President
and Controller
Date September 16, 1996 Kenneth M. Sobien
--------------------- -----------------------------
KENNETH M. SOBIEN
Assistant Treasurer