Item 1. Business
Trak Auto Corporation ("Trak Auto" or the "Company") was incorporated in Delaware in 1983 and operates retail discount auto parts stores in the United States. The terms "Trak Auto" and the "Company" refer collectively to Trak Auto Corporation and its wholly-owned subsidiaries, including Trak Corporation, Super Trak Corporation ("Super Trak"), Trak DHC Corporation and Riverdale Trak Acquisition, Inc. Richfood Holdings, Inc. ("Richfood"), through its wholly-owned subsidiary Dart Group Corporation ("Dart"), owns approximately 67.1% of Trak Auto's outstanding common stock, par value $.01 per share (the "Common Stock").
On April 9, 1998, Dart entered into an Agreement and Plan of Merger with Richfood and a subsidiary of Richfood ("Acquisition Subsidiary"). Pursuant to the terms of the Agreement and Plan of Merger, Richfood (i) made 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, net to the seller in cash, and (ii) caused Acquisition Subsidiary to merge with and into Dart in a transaction in which Dart became a wholly owned subsidiary of Richfood. The Offer closed on May 13, 1998 and the merger was effective on May 18, 1998. Richfood expressed its intention to cause Dart to divest its ownership of the Company as soon as practicable.
On March 11, 1999, the Company entered into a merger agreement with HalArt, L.L.C. ("HalArt") which provides for the merger of a wholly-owned subsidiary of HalArt with and into the Company (the "Trak Merger"). As a result of the Trak Merger, the Company will become a wholly-owned subsidiary of HalArt and shares of the Company's Common Stock (with the exception of all shares owned by the Company, HalArt or any of HalArt's direct or indirect wholly-owned subsidiaries and dissenting shares) will be converted into the right to receive $9.00 per share in cash, without interest, representing an aggregate value of approximately $53.2 million. The Company's Board of Directors has unanimously
Item 1. Business (Continued)
approved the Trak Merger and has recommended that stockholders approve and adopt the merger agreement and the merger.
The Trak Merger is subject to customary conditions including approval by the Company's stockholders and receipt of regulatory approvals. On April 28, 1999, the Company filed a definitive proxy statement with the Securities and Exchange Commission in order to solicit proxies for use at a May 27, 1999 special meeting of stockholders, and at any adjournments of the special meeting. At the special meeting, the stockholders will vote on a proposal to approve and adopt the merger agreement, the Trak Merger, and the other transactions contemplated in the merger agreement. Dart has entered into a voting agreement with HalArt which provides that, in the absence of certain events, Dart will vote in favor of the proposal at the special meeting. Except as specifically indicated in this annual report, the impact, if any, resulting from the Trak Merger has not been considered in this annual report.
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 fiscal 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.
Super Trak stores are typically between 6,000 and 11,000 square feet and utilize the additional square feet to carry a broader selection of hard parts. 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 more product items than either Classic Trak or Super Trak stores.
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 2.0% to the Company's consolidated sales during the year ended January 30, 1999 ("fiscal 1999").
Item 1. Business (Continued)
Trak Auto believes that Super Trak stores represent the strongest segment of its business. Since 1993, Trak Auto has successfully opened or converted 91 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.
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 POS 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. As these systems are subject to the Year 2000 issue (the "Y2K Issue"), the Company will need to make additional capital expenditures to ensure that the systems are operational as of January 1, 2000.
The Y2K Issue is the result of computer systems and computer software using only two digits rather than four to define a year. As a result, systems that are date-sensitive may recognize the year "00" as the year 1900 rather than the year 2000. Unless remedied, the Y2K Issue could result in system failures, miscalculations and the inability to process necessary transactions or engage in normal business activity. In addition to computer systems and computer software, any equipment using embedded microchips, such as controllers and telephone exchanges, could also be at risk.
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.
Item 1. Business (Continued)
The following tables set forth the number of stores of each of Classic Trak, Super Trak, and Super Trak Warehouse stores, respectively, 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 the last five fiscal years.
Sales and Closing of Stores
Pursuant to an October 6, 1997, purchase agreement between the Company and CSK Auto, Inc. ("CSK"), the Company sold its interest in its California operations, including inventory, store fixtures and store leases to CSK. Trak Auto and CSK consummated the transaction in December 1997 for an aggregate purchase price of approximately $32.8 million. 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. While the Company remains liable as a party to store leases that it assigned to CSK, CSK has agreed to honor the terms of the leases.
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. During fiscal 1999 the Company reversed approximately $6.8 million of this reserve as a result of negotiating favorable lease terminations.
Relationship with Dart
Dart currently provides the Company with in-house legal and financial reporting services. The Company compensates Dart for those services on a negotiated basis. Prior to the Dart Acquisition, Dart also provided additional services
Item 1. Business (Continued)
to the Company. In addition, the Company provides services to Dart including payroll and building security on a negotiated basis. Dart also pays certain "common expenses" for the Company, including, but not limited to, repairs and maintenance, utilities, and real estate taxes for the Company's headquarters in Landover, Maryland, telecommunications, and certain information technology systems, as well as casualty, liability and property insurance. As a result of Richfood's acquisition of Dart, these charges are being eliminated as the Company contracts for these services directly with third parties. See Note 5 to the Consolidated Financial Statements and Item 2.
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 Corporation ("Crown Books"), a majority-owned subsidiary of Dart. The original sublease commenced in 1985 with a term of 30 years and six months and provides for rent increases of approximately 15% every five years over the term of the sublease. The Company's current annual rental is $1,647,000. In addition, the sublease requires the payment of maintenance, utilities, insurance and real estate taxes allocable to the space subleased. Under the terms of an amendment to the sublease that will only become effective if the Trak Merger is consummated, the Company agreed to vacate the warehouse and the lease will be terminated six months after the effective time of the Trak Merger. Dart will defer receipt of rent and other payments otherwise due under the sublease for a period of twelve months from the effective time of the Trak Merger. In addition to the rent and other payments that Dart deferred, HalArt will cause the Company to pay Dart a lease termination fee equal to six months of base rent on the first anniversary of the effective time of the Trak Merger.
The Company has an agreement with Dart to use space in a warehouse facility located adjacent to the above described distribution center and office facility on a month-to-month basis. The warehouse is owned by a wholly-owned subsidiary of Dart. The rental is variable and depends on the amount of square footage utilized by the Company. In fiscal 1999, the rental was approximately $207,000. The arrangement also requires the Company to pay its pro-rata share of utilities, real estate taxes and maintenance.
The Company leases a 176,000 square foot distribution center located in Bridgeview, Illinois from a wholly-owned subsidiary of Dart. The original lease, which commenced in 1984, is for thirty years and six months and provides for rent increases of approximately 15% every five years over the term of the lease. 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. If the Trak Merger is consummated, the lease for the Bridgeview facility will be amended. The amendment provides that the rent shall become fixed at $754,000 per year for the remainder of the term of the lease and the Company will vacate the premises on six months notice.
The Company leases a 317,000 square foot distribution center located in Ontario, California from a partnership that Ronald S. Haft, a former Dart shareholder, controls. The property has been vacant since April 1998 as a result of the sale of the Company's California operations in December 1997. The lease, which commenced in 1989, 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 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 a settlement with Ronald S. Haft, Mr. Haft agreed to transfer the Ontario, California office and distribution center to Dart (or a subsidiary). The transfer is subject to contingencies, including bankruptcy court and mortgagee approval. Dart and the Company have executed an agreement whereby Dart will indemnify the Company against any and all liabilities and obligations including, without limitation, obligations to pay rent, perform maintenance, make repairs or otherwise perform any non-rent obligations, provided the Company: (1) vacates the warehouse and (2) transfers to Dart any economic benefits derived from any sublease or license with a third
Item 2. Properties (Continued)
party related to the property as an offset against Dart's indemnification obligation. In the event that a wholly-owned subsidiary of Dart acquires title to the warehouse and prepays or refinances a mortgage note executed by the current owner of the warehouse, the lease will be terminated. HalArt has agreed to cause the Company to pay Dart a lease termination fee in an amount equal to twelve months of current base rent on the first anniversary of the effective time of the Trak Merger. The agreement provides that the agreement will in no way impair the value of the lease as a source of security for a successor lender to the current mortgage holder in the event that the note has not been prepaid in full prior to its maturity date. The agreement will only become effective if the Trak Merger is consummated.
The Company leases, or has license agreements covering, the spaces where its 175 retail stores are located. As of January 30, 1999, the total remaining minimum annual payments for the Company's retail stores (excluding closed stores) were $82,995,000 to the lease expiration dates and (including closed stores) were $86,495,000 to the lease expiration dates. The lease and license expiration dates (without regard to renewal options) range from 1999 to 2013.
One of the Company's stores is subleased from Crown Books and one is subleased from Shoppers Food Warehouse Corp., a wholly-owned subsidiary of Dart. These two subleases provide for various termination dates that range from 1999 to 2020 and require payment of future minimum rentals aggregating $3,890,000 (including renewal options) at January 30, 1999. These sublease agreements also require payment of a percentage of sales in excess of a stated minimum.
Annual fees and rentals paid to Dart and/or its subsidiaries for stores and office and warehouse space was $4,304,000 in the fiscal year ended January 30, 1999.
Item 3.
Item 3. Legal Proceedings
In January 1998, the Company was named as a defendant in two class action lawsuits (Amezcua v. Trak Auto Corporation, Superior Court of the State of California, Action No. BC183900 and Tett, v. Trak Auto Corporation, Superior Court of the State of California, Action No. BC186931) involving former California employees of the Company who alleged that the Company engaged in improper wage-and-hour practices. The suits claimed that former salaried employees should have been paid overtime.
The Company entered into a settlement agreement pursuant to which the Company's maximum exposure to members of the classes in both class action lawsuits was $4.5 million. During August 1998, the Company funded $4.5 million to an escrow account for payments to class members of these lawsuits and, after payments to class members, approximately $183,000 of the escrow remains as of January 30, 1999. This amount is classified on the Consolidated Balance Sheets as Restricted Escrow Funds. In addition, the Company recorded a receivable of approximately $3.8 million at January 30, 1999 for recovery of these amounts from its insurance carriers and recorded a net provision of approximately $0.5 million during fiscal 1999 for the settlement which has been recorded as Selling and Administrative Expenses on the Consolidated Statements of Operations. In March 1999, the Company received the $3.8 million insurance receivable.
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 Company's consolidated financial condition and results of operations.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
Part II
Item 5.
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.
There were approximately 100 record holders of the Common Stock as of March 24, 1999.
The Company has not paid dividends during the past two fiscal years and does not expect to pay dividends in the foreseeable future.
Item 6.
Item 6. Selected Financial Data
INCOME STATEMENT DATA: (in thousands, except per share and sales % data)
(a) The Company sold its California operations and closed its Pittsburgh, Pennsylvania operations during fiscal 1998. These stores represented approximately $85 million in sales in fiscal 1998. The Company has not restated its results of operations or provided proforma financial statements for fiscal 1998.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Conditions 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, without limitation, the consummation of the Trak Merger, the Company's ability 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 any revisions to these forward-looking statements that may be made to reflect future events or circumstances.
In connection with its acquisition of Dart, Richfood expressed its intent to cause Dart to divest its ownership of the Company as soon as practicable. Accordingly, on March 11, 1999, the Company entered into a merger agreement with HalArt, L.L.C. ("HalArt") which provides for the merger of a wholly-owned subsidiary of HalArt with and into the Company (the "Trak Merger"). As a result of the Trak Merger, the Company will become a wholly-owned subsidiary of HalArt and shares of the Company's Common Stock (with the exception of all shares owned by the Company, HalArt or any of HalArt's direct or indirect wholly-owned subsidiaries and dissenting shares) will be converted into the right to receive $9.00 per share in cash, without interest, representing an aggregate value of approximately $53.2 million. The Company's Board of Directors has unanimously approved the Trak Merger and has recommended that stockholders approve and adopt the merger agreement and the merger.
The Trak Merger is subject to customary conditions including approval by the Company's stockholders and receipt of regulatory approvals. On April 28, 1999, the Company filed a definitive proxy statement with the Securities and Exchange Commission in order to solicit proxies for use at a May 27, 1999 special meeting of stockholders, and at any adjournments of the special meeting. At the special meeting, the stockholders will vote on a proposal to approve and adopt the merger agreement, the Trak Merger, and the other transactions contemplated in the merger agreement. Dart has entered into a voting agreement with HalArt which provides that, in the absence of certain events, Dart will vote in favor of the proposal at the special meeting. Except as specifically indicated in this annual report, the impact, if any, resulting from the Trak Merger has not been considered in this annual report.
The automotive aftermarket is highly competitive. As a result, the industry is consolidating with independent operators and small chains that are 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, the increased incidence of leasing, and the availability of well maintained leased vehicles entering the used car market. Management believes that the markets in which the Company operates will remain highly competitive in the foreseeable future.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued)
Reference to "fiscal 1999" means the 52 weeks ended January 30, 1999, "fiscal 1998" means the 52 weeks ended January 31, 1998, "fiscal 1997" means the 52 weeks ended February 1, 1997 and "fiscal 1996" means the 53 weeks ended February 3, 1996.
Liquidity and Capital Resources
Cash, including short-term instruments, is the Company's primary source of liquidity. Cash, including short-term instruments, decreased by $0.9 million to $17.0 million at January 30, 1999 from $17.9 million at January 31, 1998. The decrease was primarily due to funding $4.5 million in escrow for settlement of class action litigation involving employees of the Company's former California operations and payments on fiscal 1998 year-end accounts payable balances related to the Company's former operations in the California and Pittsburgh, Pennsylvania markets. The decrease was partially offset by funds received from Dart for loan repayments (see Note 5 to the Consolidated Financial Statements).
Operating activities used $6.8 million of the Company's funds during fiscal 1999 compared to using $7.7 million during fiscal 1998. The $6.8 million consisted of $4.5 million deposited in escrow for settlement of the California class action litigation and final payments on fiscal 1998 year-end accounts payable balances related to the Company's operations in the former California and Pittsburgh, Pennsylvania markets.
Investing activities provided $6.1 million to the Company during fiscal 1999 compared to providing $14.1 million during fiscal 1998. The $6.1 million consisted primarily of Dart's repayments of loans from the Company of approximately $7.2 million during fiscal 1999 partially offset by capital expenditures of $1.2 million. The $14.1 million resulted primarily from proceeds of the sale of the Company's California operations partially offset by loans to Dart and capital expenditures.
Financing activities used $172,000 of the Company's funds during fiscal 1999 compared to $211,000 during fiscal 1998. These amounts were used for principal payments on capital lease obligations.
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 30, 1999, the Company had entered into an amendment to an existing store lease for additional space and had not entered into any agreements for new store locations. The Company funds its requirements for working capital and capital expenditures with net cash generated from operations, existing cash resources and, if necessary, borrowings under a revolving credit facility. Working capital increased $9.6 million to $53.5 million during fiscal 1999. The increase was primarily due to the reclassification to a current asset of the remaining $11.0 million balance due on the Dart loan. Working capital decreased $12.5 million to $44.0 million during fiscal 1998. The decrease was primarily due to funding the $15.0 million loan to Dart and was partially offset by cash received from the sale of the California operations.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued)
On February 3, 1999, the Company received $7.5 million from Dart as a principal payment on the Dart loan and on March 12, 1999, the Company received the remaining $3.5 million principal balance of the Dart loan. In addition, the Company received approximately $3.8 million from insurance carriers in March 1999 as a recovery of substantially all of the amounts expended pursuant to the settlement of the California class action litigation.
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 Company had not borrowed under the credit facility as of January 30, 1999.
Results of Operations
Adjusted operating income (loss) has been included to reflect management's view of the run-rate operating income (loss) of the Company for fiscal 1999. Adjusted operating income (loss) equals operating income (loss) revised to reflect unusual settlements with vendors and changes in estimates which increased the Company's operating results during fiscal 1999. These one-time items net to $4.1 million in fiscal 1999 and consist of (1) settlements with merchandise vendors of $0.8 million and (2) $3.8 million, which includes settlements of real estate related issues, amounts due to non-merchandise vendors and a revision of the estimated cost to exit the Ontario, California warehouse partially offset by $0.5 million of litigation expenses, as further discussed in this Management's Discussion and Analysis of Financial Conditions and Results of Operations. Fiscal 1998's adjusted operating income (loss) reflects the elimination of $1.6 million of settlements of litigation involving the Company and the members of the Haft family, former Dart shareholders.
Fiscal 1999 compared to Fiscal 1998
During fiscal 1999, the Company opened six Super Trak stores, closed two Super Trak stores and closed or converted ten Classic Trak stores to the Super Trak format. As of January 30, 1999, Trak Auto had 175 stores, including 91 Super Trak stores and 26 Super Trak Warehouse stores.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued)
For fiscal 1999, sales decreased by $97.8 million, or 30.6%, to $221.6 million compared to fiscal 1998 sales of $319.4 million. The decrease was primarily due to the Company's sale of its California operations (82 stores) in December 1997 and the closing of the Company's stores located in the Pittsburgh, Pennsylvania market (15 stores) on January 31, 1998. Comparable sales (stores open more than one year) decreased 2.2% in fiscal 1999 compared to fiscal 1998. The decrease in comparable sales was primarily due to an increase in competition in the markets in which the Company operates combined with unusually mild weather conditions during the first quarter of fiscal 1999. Sales for Super Trak and Super Trak Warehouse stores represented 73.6% of total sales during fiscal 1999 compared to 69.8% of total sales for fiscal 1998.
Interest and other income increased by $0.1 million to $2.3 million during fiscal 1999 compared to fiscal 1998. The increase was primarily due to interest received from Dart on outstanding loan balances (see Note 5 to the Consolidated Financial Statements).
Cost of sales, store occupancy and warehousing expenses as a percentage of sales were 77.2% in fiscal 1999 and fiscal 1998. During fiscal 1999 a decrease in store margins was offset by $0.8 million from settlements negotiated with merchandise vendors.
Selling and administrative expenses as a percentage of sales were 21.9% in fiscal 1999 compared to 21.6% in fiscal 1998. The increase was primarily due to increased net advertising costs, the settlement of legal matters and $0.5 million of net cost to the Company to settle the California class action litigation partially offset by approximately $3.8 million, which includes settlements of real estate related issues, amounts due to non-merchandise vendors and a revision of the estimated cost to exit the Ontario, California warehouse that the Company vacated subsequent to the sale of its California operations. In addition, although actual corporate expenses were less than the prior year, corporate expenses increased as a percentage of sales.
Operating loss totaled $2.2 million in fiscal 1999, compared to an operating loss of $4.5 million in fiscal 1998. The decrease was primarily attributable to unusual settlements with vendors and changes in estimates, which reduced the Company's operating loss during fiscal 1999, partially offset by reduced sales, discussed above, and higher net advertising costs.
Depreciation and amortization expenses decreased $4.3 million, or 50.6%, in fiscal 1999 compared to fiscal 1998. The decrease was primarily due to a decrease in depreciation expense related to the reduction in fixed assets as a result of the sale of the California operations and the closing of the stores located in the Pittsburgh, Pennsylvania market.
During fiscal 1999, the Company reversed approximately $6.8 million of its closed store reserve as a result of negotiating favorable lease terminations for stores that it closed in the Pittsburgh, Pennsylvania market compared to recording a closed store expense of approximately $13.9 million in fiscal 1998.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued)
The Company recorded an impairment of fixed assets of approximately $1.2 million during fiscal 1999 for the net book value of the fixed assets at under performing stores.
During fiscal 1999 the Company's effective income tax rate was 37.3%. The Company generated a net operating loss of approximately $13.6 million during fiscal 1999 of which $1.1 million can be carried back to prior tax years, subject to Alternative Minimum Tax limitations, and $12.5 million will be carried forward. The net operating loss carryforward will expire in fiscal year 2019. As a result of Richfood's acquisition of Dart, utilization of the Company's net operating loss carryforwards may be limited. If the Trak Merger is consummated the tax carryforwards may be further limited as a result of the change in control. Management believes that it is more likely than not that all tax carryforwards are realizable.
The Company recorded net income for fiscal 1999 of $1.2 million compared to a net loss of $17.7 million during fiscal 1998. The net income for fiscal 1999 was primarily due to the reversal of the Company's closed store reserve partially offset by operating losses.
Fiscal 1998 Compared to Fiscal 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 $319.4 million for fiscal 1998 decreased by $26.5 million or 7.7% compared to fiscal 1997. The decrease was primarily due to the mild winter conditions in the Midwest and East coast markets during the first quarter of fiscal 1998 as well as the sale of the Company's California operations and weak performance of the stores in the highly competitive Los Angeles market prior to the sale. 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 $0.6 million in fiscal 1998 when compared to fiscal 1997. The increase was primarily due to recoveries resulting from audits of prior year 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
Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued)
leases, and increased distribution costs due to broader geographical delivery areas and increased product items 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 payments for settlements with former stockholders of Dart and the Company (certain members of the Haft family) (see Note 9 to the Consolidated Financial Statements).
Operating loss totaled $4.5 million in fiscal 1998 compared to operating income of $4.0 million in fiscal 1997. The loss was primarily attributable to lower sales, as discussed above, resulting in reduced gross profit partially offset by reduced operating expenses.
The provision for loss on the sale of the Company's California operations of $8.2 million represents the loss associated with the sale of the Company's California assets (see Note 7 to the Consolidated Financial Statements).
Depreciation and amortization expenses increased $1.0 million 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, Pennsylvania stores and was partially offset by a reduction in depreciation as a result of fixed assets becoming fully depreciated, sold or taken out of service.
Interest expense increased $48,000 in fiscal 1998 compared to fiscal 1997.
The Company recorded a closed store provision of $13.9 million in fiscal 1998 primarily for the stores closed in the Pittsburgh, Pennsylvania market.
The net loss of $17.7 million in fiscal 1998 compared to net income of $1.1 million 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 2000 Compliance
The Y2K Issue is the result of computer systems and computer software using only two digits rather than four to define a year. As a result, systems that are date-sensitive may recognize the year "00" as the year 1900 rather than the year 2000. Unless remedied, the Y2K Issue could result in system failures, miscalculations and the inability to process necessary transactions or engage in normal business activity. In addition to computer systems and computer software, any equipment using embedded microchips, such as controllers and telephone exchanges, also could be at risk.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued)
The Company is currently conducting a review of the Y2K compliance of its computer systems and software and its impact on the Company's operations. The review has focused on three major areas: information technology systems ("IT"), embedded technology and other systems ("Non-IT"), and key third party relationships.
Based on the results of this review to date, with respect to IT systems, the Company believes that its general ledger and accounts payable systems are Y2K compliant. The Company's warehouse distribution and merchandising system is not yet Y2K compliant and modification is required. The Company's point of sale system, both software and hardware, is not Y2K compliant and will need to be replaced. Based on discussions with its vendors, the Company believes that the remainder of its IT systems are Y2K compliant, including its primary computer hardware (AS400's) and related operating systems that process the software applications discussed above.
The Company has plans to provide minimal disruption to its operations with respect to its IT Y2K compliance. The aggregate costs associated with the plans are estimated to be approximately $6.7 million. The Company has spent approximately $192,000, as of January 30, 1999, none of which has been capitalized. The plans include: (1) replacing store related hardware and software and (2) utilizing internal and third party contractors to modify for Y2K compliance and enhance the warehouse distribution and merchandising system. Accordingly, the Company has engaged a consulting firm to complete and test Y2K modifications and enhancements to the warehouse distribution and merchandising system, completion of which is in two phases, the first was completed in mid- January 1999, prior to the start of the Company's current fiscal year and the second is anticipated to be completed in the fall of 1999.
The Company and HalArt have agreed to conduct testing on systems that the respective companies have obtained that are designed to remedy the Y2K Issue for store systems. The result of this testing will determine whether the Company implements its Y2K solution or HalArt's solution. The Company and HalArt have entered into an arrangement whereby HalArt will fund increased expenditures that result if the Company implements HalArt's solution rather than its own. HalArt has agreed to indemnify the Company against losses that may result from the Company's implementation of HalArt's system. The Company expects to fund any expenditures that it must make in order for it to become Y2K compliant by using cash flow from operations. No material information technology projects have been deferred as a result of the Company's Y2K plans.
While management believes that it has taken appropriate steps to ensure that the Company becomes Y2K Compliant even in the event that the Trak Merger is not consummated, there is no guarantee that the Company will be successful in adopting its store systems plan or that such plan will be adopted in sufficient time to allow for the plan to be fully implemented and tested by January 1, 2000.
The aforementioned costs are based on management's best estimates, which were derived from assumptions of future events, including the availability of resources, third parties and other factors. There can be no assurance that
Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations (Continued)
these estimates will prove to be accurate, and actual results could vary due to uncertainties. There can be no guarantee that there will be sufficient time to fully implement the plans and complete testing by the year 2000. The Company currently has no contingency plans if the implementation is not complete.
The Company believes that the majority of its Non-IT systems are currently Y2K compliant. Testing of all Non-IT systems is approximately 75% complete and is expected to be completed by the summer of 1999.
The Company's review of Y2K compliance issues with key vendors, suppliers, customers and other third parties has not identified any providers that, in the event of their failure to become Y2K compliant, could materially impact the Company's results of operations. However, there can be no assurance that the failure of any unrelated third parties to become Y2K compliant in a timely manner would not have a material adverse effect on the Company's result of operations or financial condition. The Company uses third party vendors to process payroll and human resources functions. Through discussions with its payroll and human resource provider, the Company has determined that the current systems that the provider is using are not Y2K compliant and will require replacement. During 1999, the Company and the provider plan to convert these processes to a system that is Y2K compliant and is currently available from the provider.
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.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk related to changes in interest rates. The Company had no derivative financial instruments held for speculative or trading purposes or any agreements for interest rates swaps during fiscal 1999.
Interest Rate Sensitivity. The Company is exposed to market risk from changes in interest rates, which could impact its results of operations and financial condition. The Company manages its exposure to these risks through its normal operating and financing activities. The Company currently invests its temporary cash in money market funds, United States Treasury Notes, and United States Agency Securities, which are sensitive to interest rate changes. Although the Company currently has no outstanding long-term debt, if the Company were to borrow against its outstanding credit facility, the resulting variable rate debt also would be sensitive to interest rate changes. If market interest rates average 1% less during fiscal 2000 than they did during fiscal 1999, the Company's interest income before income taxes would decrease by approximately $84,000. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. The sensitivity analysis assumes no changes in the Company's financial structure and does not take into account the impact that would result from consummation of the Trak Merger.
Item 8.
Item 8. Financial Statements and Supplementary Data
Financial Statements Page Report of Independent Public Accountants 25
Consolidated Balance Sheets 26-27
Consolidated Statements of Operations 28
Consolidated Statements of Stockholders' Equity 29
Consolidated Statements of Cash Flows 30-31
Notes to Consolidated Financial Statements 32-48
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 indirect subsidiary of Richfood Holdings, Inc.) and subsidiaries as of January 30, 1999 and January 31, 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended January 30, 1999. 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 30, 1999 and January 31, 1998, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 30, 1999, in conformity with generally accepted accounting principles.
As discussed in Note 2 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.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C. April 20, 1999
TRAK AUTO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
The accompanying notes are an integral part of these consolidated balance sheets.
TRAK AUTO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
The accompanying notes are an integral part of these consolidated balance sheets.
TRAK AUTO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
The accompanying notes are an integral part of these consolidated statements.
TRAK AUTO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
The accompanying notes are an integral part of these consolidated statements.
TRAK AUTO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
(continued on next page)
TRAK AUTO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (in thousands)
The accompanying notes are an integral part of these consolidated statements.
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The accompanying consolidated financial statements reflect the accounts of Trak Auto Corporation ("Trak Auto") and its wholly-owned subsidiaries for the fiscal year ended January 30, 1999 ("fiscal 1999"), the fiscal year ended January 31, 1998 ("fiscal 1998") and the fiscal year ended February 1, 1997 ("fiscal 1997"). 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.
On April 9, 1998, Dart Group Corporation ("Dart"), which owns approximately 67.1% of the Company's outstanding common stock, entered into an Agreement and Plan of Merger with Richfood Holdings, Inc. ("Richfood") and a subsidiary of Richfood ("Acquisition Subsidiary"). Pursuant to the terms of the Agreement and Plan of Merger, Richfood (i) made 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, net to the seller in cash, and (ii) caused Acquisition Subsidiary to merge with and into Dart in a transaction in which Dart became a wholly owned subsidiary of Richfood. The Offer closed on May 13, 1998 and the merger was effective on May 18, 1998. Richfood expressed its intention to cause Dart to divest its ownership of the Company as soon as practicable.
On March 11, 1999, the Company entered into a definitive merger agreement with HalArt, L.L.C. ("HalArt") for HalArt to acquire the Company (the "Trak Merger"). The merger agreement provides for the acquisition by HalArt of all the outstanding shares of the Company's Common Stock (with the exception of all shares owned by the Company, HalArt or any of HalArt's direct or indirect wholly-owned subsidiaries and dissenting shares) at $9.00 per share in cash, representing an aggregate value of approximately $53.2 million. The Company's Board of Directors has unanimously approved the Trak Merger and has recommended that stockholders approve and adopt the merger agreement and the merger.
The Trak Merger is subject to customary conditions including approval by the Company's stockholders and receipt of regulatory approvals. On April 28, 1999, the Company filed a definitive proxy statement with the Securities and Exchange Commission in order to solicit proxies for use at a May 27, 1999 special meeting of stockholders, and at any adjournments of the special meeting. At the special meeting, the stockholders will vote on a proposal to approve and adopt the merger agreement, the Trak Merger, and the other transactions contemplated in the merger agreement. Dart has entered into a voting agreement with HalArt which provides that, in the absence of certain events, Dart will vote in favor of the proposal at the special meeting. Except as specifically indicated in this annual report, the impact, if any, resulting from the Trak Merger has not been considered in this annual report.
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
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. All fiscal years presented include 52 weeks.
Cash and Equivalents
Effective in fiscal 1997, 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
At January 30, 1999, the Company's short-term instruments are all money market funds. Marketable debt securities include 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 classified as 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 January 30, 1999, market value was $5,000 greater than cost, net of income taxes. At January 30, 1999, 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 securities have a contractual maturity of one year or less.
Expected maturities may differ from contractual maturities because the issuers of securities may have the right to prepay obligations without prepayment penalties.
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 30, 1999, and January 31, 1998 inventories determined on a first-in, first-out ("FIFO") basis would have been greater by $3,333,000, and $3,815,000, respectively. If inventories were determined on a FIFO basis, cost of goods sold would be greater by approximately $482,000 and $318,000 for fiscal 1999 and fiscal 1998, respectively, and would be reduced by $75,000 for fiscal 1997.
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 30, 1999.
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 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 fiscal 1999, the Company recorded amortization of purchased computer software of approximately $15,000 and during fiscal 1998, the Company did not record any amortization of purchased computer software as no new computer software was placed in service. The effect of capitalizing purchased computer software was to increase the Company's net income by approximately $5,000 for fiscal 1999 and reduce the Company's net loss by approximately $198,000 ($.03 per share), for fiscal 1998, respectively, net of income taxes. 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 $10,093,000 and $9,173,000 as of January 30,1999 and January 31, 1998, 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
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
disposition. The Company has determined that as of January 30, 1999, there was approximately $1,203,000 of net book value of fixed assets at underperforming stores that had been impaired. Accordingly, the Company wrote-off $1,203,000 for these assets in the accompanying statement of operations in fiscal 1999.
Preopening Expenses
All costs of a non-capital 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 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. The Company periodically reviews outstanding balances and records allowances for accounts receivable deemed uncollectible.
Earnings Per Share
The computation of diluted earnings per share is based on the weighted average number of shares of the Company's common stock and common stock equivalents outstanding during the periods presented. Common stock equivalents were anti-dilutive for fiscal 1999 and 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 data. Dilutive stock options represent the only difference between basic and diluted earnings per share.
Comprehensive Income
The Company adopted SFAS No. 130 Reporting Comprehensive Income in the first quarter of fiscal 1999. SFAS No. 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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.
Reclassifications
Certain reclassifications have been made to prior year statements to conform to current year presentation.
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 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:
The effective income tax rate is reconciled to the Federal statutory rate as follows:
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effect of each type of temporary difference and carryforward that generates a significant portion of the net deferred tax assets is as follows:
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 2011. During fiscal 1999, the Company incurred a tax net operating loss of approximately $13.6 million of which $1.1 million, subject to alternative minimum tax limitations, can be carried back to prior years and $12.5 million will be carried forward. The net operating loss carryforward will expire in fiscal year 2019. As a result of Richfood's acquisition of Dart, utilization of the Company's net operating loss carryforwards is limited. Management believes that it is more likely than not that all tax carryforwards are realizable. If the Trak Merger is consummated the tax carryforwards may be further limited as a result of the change in control.
NOTE 4 - 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 AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Trak or Super Trak Warehouse stores. The Company recognizes store closing costs when management decides to close a store. In prior years, the Company also has recognized the anticipated costs for closing, relocating, expanding and 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 30, 1999, the Company had a reserve of $2,568,000 for store closings. The reserve relates to eight stores that have been closed. The activity in the closed store reserve during the last two years is as follows:
The increase in the closed store reserve during fiscal 1998 was primarily due to closing 15 stores in the Pittsburgh, Pennsylvania market as a result of the poor performance of the stores. During fiscal 1999, the Company was able to negotiate favorable lease terminations resulting in a reduction of the related reserves (see Note 7 - California and Pittsburgh, Pennsylvania Operations).
The closed store reserve as of January 30, 1999 is expected to be utilized as follows:
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.
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - TRANSACTIONS WITH AFFILIATES
Dart provided the Company with certain general and administrative services. In addition, the Company provided similar services 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 that 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 pro rata based on usage or square footage. 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. As a result of Richfood's acquisition of Dart, these charges are being eliminated as the Company contracts for these services directly with third parties.
The following table summarizes the intercompany transactions:
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 $248,000, $163,000, and $73,000 for fiscal 1999, fiscal 1998 and fiscal 1997, respectively.
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dart Group Corporation Loans
The Company entered into a loan agreement on January 27, 1998 with Dart which was subsequently amended on April 28, 1998. Under the terms of the loan agreement, as amended, Dart borrowed $15.0 million from Trak Auto, the repayment of which was secured by the common stock of Trak Auto owned by Dart. Interest on the loan was at a rate equal to the prime rate as set forth in The Wall Street Journal, plus one and one-half percent (1.5%). Interest was payable monthly and the principal was payable in two equal installments on February 3, 1999 and July 31, 1999. During August 1998, Dart paid the Company $4.0 million of the principal amount of this loan. On February 3, 1999 Dart paid the $7.5 million principal payment due on the loan, and on March 12, 1999, Dart paid the $3.5 million remaining balance of the loan.
In addition, the Company advanced Dart approximately $3.2 million in November 1997, which was evidenced by a promissory note. Dart repaid this $3.2 million advance in August 1998.
Also, see Note 6 - Commitments - Related Party Leases and License Agreements.
NOTE 6 - 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.
The following is a schedule of future minimum payments under capital leases and non-cancelable operating leases and license agreements that have initial or remaining terms in excess of one year at January 30, 1999. The imputed interest rate on capital leases is 15.0% in the aggregate.
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The above table includes $3,500,000 for store operating leases where the store has been closed and a portion of the lease obligation has been accrued in the store closing reserve. Minimum operating lease obligations have not been reduced by total future minimum sublease rentals of $929,000 under noncancelable leases.
Rent expense for store operating leases and license agreements are as follows:
Related Party Leases and License Agreements
One of the Company's stores is subleased from Crown Books Corporation ("Crown Books"), a majority-owned subsidiary of Dart and one store is subleased from Shoppers Food Warehouse Corp., a wholly-owned subsidiary of Dart. These two sublease agreements provide for various termination dates which, assuming renewal options are exercised, range from 1999 to 2020, and require the payment of future minimum rentals aggregating $3,890,000 at January 30, 1999. These sublease 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 rentals for these subleases with Dart's subsidiaries was $180,000 in each of fiscal 1999, 1998, and 1997.
The Company leases a 176,000 square foot distribution center located in Bridgeview, Illinois from Bridgeview Warehouse L.L.C., a wholly-owned subsidiary of Dart. The original lease, which commenced in 1984, is for thirty years and six months and provides for rent increases of 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 real estate 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. If the Trak Merger is consummated, the lease for the Bridgeview facility will be amended. The amendment provides that the rent shall become fixed at $754,000 per year for the remainder of the term of the lease and that the Company will vacate the premises on six months notice.
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 original sublease commenced in 1985 with a term of thirty years and six months and provides for rent increases of approximately 15% every five years over the term of the sublease. The Company's current annual rental is $1,647,000. In addition, the sublease requires the payment of maintenance, utilities, insurance and real estate taxes allocable to the space subleased. This lease agreement has been classified as a capital lease and is included under the Capital Leases caption of the lease commitment table above. Under
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the terms of an amendment to the sublease that will only become effective if the Trak Merger is consummated, the Company agreed to vacate the warehouse and the lease will be terminated six months after the effective time of the Trak Merger. Dart will defer receipt of rent and other payments otherwise due under the sublease for a period of twelve months from the effective time of the Trak Merger. In addition to the rent and other payments that Dart deferred, HalArt will cause the Company to pay Dart a lease termination fee equal to six months of base rent on the first anniversary of the effective time of the Trak Merger.
The Company has an agreement with Dart to use space in a warehouse facility located adjacent to the above described distribution center and office facility on a month-to-month basis. The warehouse is owned by a wholly-owned subsidiary of Dart. The rental is variable and depends on the amount of on square footage utilized by the Company. In fiscal 1999, the rental was approximately $207,000. The arrangement also requires the Company to pay a pro-rata share of utilities, real estate taxes and maintenance.
The Company leases a 317,000 square foot distribution center located in Ontario, California from a partnership that Ronald S. Haft, a former Dart shareholder controls. The property has been vacant since April 1998 as a result of the sale of the Company's California operations in December 1997. The lease, which commenced in 1989, 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 current annual rental is $1,516,000. The lease also requires the Company to pay for maintenance, utilities, insurance and real estate 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 a settlement with Ronald S. Haft (see Note 9 - Litigation), Mr. Haft agreed to transfer the Ontario, California distribution center to Dart (or a subsidiary). The transfer is subject to contingencies, including bankruptcy court and mortgagee approval. Dart and the Company have executed an agreement whereby Dart will indemnify the Company against any and all liabilities and obligations including, without limitation, obligations to pay rent, perform maintenance, make repairs or otherwise perform any non-rent obligations, provided the Company: (1) vacates the warehouse and (2) transfers to Dart any economic benefits derived from any sublease or license with a third party related to the property as an offset against Dart's indemnification obligation. In the event that a wholly-owned subsidiary of Dart acquires title to the warehouse and prepays or refinances a mortgage note executed by the current owner of the warehouse, the lease will be terminated. In consideration of Dart's indemnity and agreement to terminate the lease, HalArt has agreed to cause the Company to pay Dart a lease termination fee in an amount equal to twelve months of current base rent on the first anniversary of the effective time of the Trak Merger. The agreement will only become effective if the Trak Merger is consummated.
Employment Arrangements
The Company has entered into employment agreements with several key employees. The employment agreements are for 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 for cause. The agreements provide for
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
annual compensation increases following review and performance appraisal by the Compensation Committee of the Board of Directors. Total commitments under employment agreements are approximately $1,207,000 at January 30, 1999.
NOTE 7 - CALIFORNIA AND PITTSBURGH, PENNSYLVANIA OPERATIONS
Sale of California Operations
Pursuant to an October 6, 1997, purchase agreement between the Company and CSK Auto, Inc. ("CSK"), the Company sold its interest in its California operations, including inventory, store fixtures and store leases to CSK. The Company and CSK consummated the transaction in December 1997 for an aggregate purchase price of approximately $32.8 million. 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 loss in the accompanying Consolidated Statements of Operations. The Company remains liable as a party to certain store leases that it assigned to CSK, however CSK has agreed to honor the terms of these leases. The total obligation for these leases was approximately $22.4 million at December 8, 1997 through the end of the then earliest termination date.
Closure of Pittsburgh, Pennsylvania Operations
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 was 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, 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 (discussed above) and remaining lease obligations (see Note 4 - Closed Store Charges). During fiscal 1999, the Company was able to negotiate favorable early terminations for a number of the store leases. Accordingly, during fiscal 1999, the Company reversed approximately $6.8 million of the closed store reserve.
NOTE 8 - BOARD OF DIRECTORS
In October 1994, the Board established an Executive Committee comprised of the outside directors, to conduct the affairs of the Company with respect to matters that were the subject of disputes between the then Chairman of the Board and Chief Executive Officer of the Company, Herbert H. Haft, and the then President and Chief Operating Officer of Dart, Ronald S. Haft. In September 1994, Dart's Board of Directors had established an Executive Committee at Dart with membership and authority similar to that of the Company's Executive Committee. The disputes between Herbert H. Haft and Ronald S. Haft concerning issues involving both 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
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
litigation to which Dart or Trak Auto was then a party. As a result of the settlement of litigation with certain members of the Haft family (see Note 9 Litigation), the Executive Committee no longer exists.
Members of the Executive Committee were compensated at a rate of $275 per hour plus reimbursement of expenses. Compensation paid by Dart and its subsidiaries, including the Company, to members of the Executive Committees for their services on those committees were approximately $150,000, $1,137,000, and $1,299,000 in fiscal 1999, fiscal 1998 and fiscal 1997, respectively ($39,000, $379,000 and $438,000 paid by the Company in fiscal 1999, fiscal 1998 and fiscal 1997 respectively).
NOTE 9 - LITIGATION
Employment Litigation
In January 1998, the Company was named as a defendant in two class action lawsuits (Amezcua v. Trak Auto Corporation, Superior Court of the State of California, Action No. BC183900 and Tett, v. Trak Auto Corporation, Superior Court of the State of California, Action No. BC186931) involving former California employees of the Company who alleged that the Company engaged in improper wage-and-hour practices. The suits claimed that former salaried employees should have been paid overtime.
The Company has entered into a settlement agreement pursuant to which the maximum exposure of the Company to members of the classes in both class action lawsuits was $4.5 million. During August 1998, the Company funded $4.5 million to an escrow account for payments to class members of these lawsuits, and after payments to class members, approximately $183,000 of the escrow remains as of January 30, 1999. This amount is classified on the Consolidated Balance Sheets as Restricted Escrow Funds. In addition, the Company recorded a receivable of approximately $3.8 million at January 30, 1999 for recovery of the amounts from its insurance carriers and recorded a net provision of approximately $0.5 million during fiscal 1999 for the settlement, which has been recorded as Selling and Administrative Expenses on the Consolidated Statements of Operations. In March 1999, the Company received the $3.8 million insurance receivable.
Shareholder Litigation
During fiscal 1998 Dart and the Company settled all litigation and disputes between Dart and the Company on the one hand and members of the Haft family (former stockholders of Dart and the Company) on the other hand and all related claims and litigation.
As a result of these settlements, members of the Haft family no longer own common stock or options for common stock of Dart or the Company. In fiscal 1998, the Company paid approximately $1.6 million for its portion of these settlements.
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 upon the Company's consolidated financial condition and results of operations.
The Company recorded legal expenses of approximately $1.2 million, $1.0 million and $1.7 million during fiscal 1999, fiscal 1998 and fiscal 1997, respectively.
NOTE 10 - CREDIT AGREEMENT
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. As of January 30, 1999, the Company had not borrowed under the credit facility. Borrowings under the credit 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 credit facility contains certain restrictive covenants including limitations on additional indebtedness and advances to affiliates.
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 vice versa. The credit 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. Pursuant to a provision of the credit facility that allows the Company to terminate the credit facility upon 60-days prior written notice to the lender, the Company has notified the lender of its intent to terminate the credit facility. In the event that the facility is not terminated, 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.
NOTE 11 - EMPLOYEES' BENEFIT PLANS
The Company has a 401(k) Retirement Plan for all employees projected to work 1,000 hours per year after 90 days of continuous employment. The Company is obligated to contribute an amount equal to 25% of each employee's deferral up to 6% of the deferral. The Company's contributions were approximately $187,000, $330,000 and $346,000 for fiscal 1999, 1998 and 1997, 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% of each individual's deferral. The contributions were $10,000, $9,000 and $15,000 in fiscal 1999, fiscal 1998 and fiscal 1997.
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 contribution was approximately $99,000 in fiscal 1997. There were no contributions in either fiscal 1999 or fiscal 1998.
NOTE 12 - STOCK OPTION PLANS
The Company has a stock option plan and accounts for the plan under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for the plan 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:
(dollars in thousands, except per share data)
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 granted prior to 1995.
The weighted average fair value of options granted was $5.66 for options granted during both fiscal 1999 and fiscal 1998. 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 1999, and 1998, respectively: risk free rates of approximately 5.5%, and 5.4% during fiscal 1999 and fiscal 1998, respectively; no expected dividends; expected lives of 5.0 years; and expected volatility of 60.0% and 40% during fiscal 1999 and fiscal 1998, respectively.
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.
TRAK AUTO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information concerning the 1993 Option Plan:
Options to purchase 212,737 shares were exercisable at January 30, 1999 and 881,606 options remained available for grant. At January 30, 1999, the weighted average contractual life of the options outstanding was 2.5 years.
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.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
PART III
The following Items 10 through 13 are incorporated herein by reference to the Company's definitive Proxy Statement related to the Company's annual meeting of stockholders to be filed with the Commission pursuant to Regulation 14A.
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Item 11.
Item 11. Executive Compensation
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13.
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14.
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
2.1 Agreement and Plan of Merger, dated as of March 11, 1999, by and among Trak Auto Corporation, HalArt, L.L.C. and HalArt (Delaware), Inc. (incorporated by reference to Exhibit 2.1 to Trak Auto's Current Report on Form 8-K filed with the Commission on March 18, 1999).
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).
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
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
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).
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).
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 David MacGlashan dated as of January 24, 1995 (incorporated by reference to Exhibit 10.48 to Trak Auto's 1995 Form 10-K).
10.39 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).
10.40 Employment Agreement between Trak Auto and Robert H. Thomas dated as of June 2, 1997.
10.41 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
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)
(b) Reports on Form 8-K
Trak Auto did not file any Current Reports on Form 8-K during the fourth quarter of the fiscal year ended January 30, 1999.
Subsequent to the fiscal year ended January 30, 1999 Trak Auto filed one Current Report on Form 8-K.
1. Trak Auto filed a Current Report on Form 8-K on March 18, 1999 reporting under Item 5 (Other Events) and Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits) that Trak Auto had entered into an agreement of merger with HalArt L.L.C.
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.
TRAK AUTO CORPORATION
Date: April 28, 1999 By: /s/ R. Keith Green ----------------------- -------------------------------- R. Keith Green Director and President
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.
Date: April 28, 1999 /s/ R. Keith Green ----------------------- -------------------------------- R. Keith Green Director and President
Date: April 28, 1999 /s/ John E. Stokely ----------------------- -------------------------------- John E. Stokely Director
Date: April 28, 1999 /s/ John C. Belknap ----------------------- -------------------------------- John C. Belknap Director
Date: April 28, 1999 /s/ Alec C. Covington ----------------------- -------------------------------- Alec C. Covington Director
Date: April 28, 1999 /s/ Ben Holcomb ----------------------- -------------------------------- Ben Holcomb Director
Date: April 28, 1999 /s/ Harlan Seymour ----------------------- -------------------------------- Harlan Seymour Director
Date: April 28, 1999 /s/ David B. MacGlashan ----------------------- -------------------------------- David B. MacGlashan Senior Vice President and Chief Financial Officer
TRAK AUTO CORPORATION
Exhibit Index
Exhibit
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