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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-K
(Mark One)
(x) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended February 3,2001
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (NO FEE REQUIRED)
For the transition period from to
------ ------
Commission file number 1-3381
------
The Pep Boys - Manny, Moe & Jack
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0962915
------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3111 West Allegheny Avenue, Philadelphia, PA 19132
- --------------------------------------------- ---------
(Address of principal executive office) (Zip code)
215-430-9000
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $1.00 par value New York Stock Exchange
Liquid Yield Option Notes
due September 20, 2011 New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
1
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
Yes No X
----- -----
As of the close of business on April 6, 2001, the aggregate market value of the
voting stock held by nonaffiliates of the registrant was approximately
$238,789,201.
As of April 6, 2001, there were 53,455,933 shares of the registrant's common
stock outstanding.
2
This Annual Report on Form 10-K contains "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Readers are cautioned that such forward looking statements involve risks and
uncertainties which could cause actual results to materially differ from those
expressed in any such forward looking statements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation - Forward Looking
Statements."
3
DOCUMENTS INCORPORATED BY REFERENCE
PART III Portions of the registrant's definitive proxy statement, which will be
filed with the Commission pursuant to Regulation 14A not later than
120 days after the end of the Company's fiscal year, for the Company's
Annual Meeting of Shareholders presently scheduled to be held on
May 30, 2001.
4
This Annual Report on Form 10-K for the year ended February 3,2001 at
the time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities on or after the date of such filing, pursuant to any Registration
Statement or Prospectus filed pursuant to the Securities Act of 1933 which
incorporates by reference this Annual Report.
5
PART I
ITEM 1 BUSINESS
GENERAL
The Pep Boys - Manny, Moe & Jack and Subsidiaries (the "Company") is a
leading automotive retail and service chain. The Company operates in one
industry, the automotive aftermarket. The Company is engaged principally
in the retail sale of automotive parts, tires and accessories,
automotive maintenance and service and the installation of parts. The
Company's primary operating unit is its SUPERCENTER format. As of February 3,
2001, the Company operated 628 stores consisting of 615 SUPERCENTERS and one
SERVICE & TIRE CENTER, having an aggregate of 6,498 service bays, as well as 12
non-service/non-tire format PEP BOYS EXPRESS stores. The Company operates
approximately 12,836,000 gross square feet of retail space, including service
bays. The SUPERCENTERS average approximately 20,700 square feet and the 12 PEP
BOYS EXPRESS stores average approximately 9,600 square feet. The Company
believes that its unique SUPERCENTER format offers the broadest capabilities
in the industry and positions the Company to gain market share and increase
its profitability by serving the "do-it-yourself," automotive service, tire
and "buy-for-resale" customer sectors with the highest quality merchandise
and service.
6
As of February 3,2001 the Company operated its stores in 36 states
and Puerto Rico. The following table indicates by state the number of stores
of the Company in operation at the end of fiscal 1997, 1998, 1999 and 2000 and
the number of stores opened and closed by the Company during each of the last
three fiscal years:
NUMBER OF STORES AT END OF FISCAL YEARS 1997 THROUGH 2000
1997 1998 1999 2000
Year Year Year Year
State End Opened Closed End Opened Closed End Opened Closed End
- ------ --- ------ ------ --- ------ ------ --- ------ ------ ---
Alabama 1 - - 1 - - 1 - - 1
Arizona 24 - 1 23 - - 23 - - 23
Arkansas 1 - - 1 - - 1 - - 1
California 156 6 30 132 4 - 136 - 1 135
Colorado 8 - - 8 - - 8 - - 8
Connecticut 9 1 1 9 - - 9 - 1 8
Delaware 6 - - 6 - - 6 - - 6
District of Columbia 5 - 5 - - - - - - -
Florida 51 2 5 48 - - 48 - 1 47
Georgia 26 - - 26 - - 26 - - 26
Illinois 32 1 8 25 - - 25 - 1 24
Indiana 12 4 4 12 1 - 13 - 4 9
Kansas 2 - - 2 - - 2 - - 2
Kentucky 4 - - 4 - - 4 - - 4
Louisiana 12 - - 12 - - 12 - 2 10
Maine - 1 - 1 - - 1 - - 1
Maryland 23 - 4 19 - - 19 - - 19
Massachusetts 11 3 6 8 2 - 10 - 2 8
Michigan 17 4 6 15 2 - 17 - 10 7
Minnesota - 2 - 2 1 - 3 - - 3
Missouri 1 - - 1 - - 1 - - 1
Nevada 10 2 - 12 - - 12 - - 12
New Hampshire 4 - - 4 - - 4 - - 4
New Jersey 34 - 9 25 3 - 28 - - 28
New Mexico 8 - - 8 - - 8 1 1 8
New York 46 2 18 30 3 - 33 1 5 29
North Carolina 11 - - 11 - - 11 - - 11
Ohio 14 1 - 15 - - 15 - 2 13
Oklahoma 6 - - 6 - - 6 - - 6
Oregon - 1 - 1 2 - 3 - 3 -
Pennsylvania 50 4 8 46 - - 46 - - 46
Puerto Rico 21 2 - 23 2 - 25 2 - 27
Rhode Island 4 - 1 3 - - 3 - - 3
South Carolina 6 - - 6 - - 6 - - 6
Tennessee 7 - - 7 - - 7 - - 7
Texas 65 - 4 61 - - 61 - 1 60
Utah 6 - - 6 - - 6 - - 6
Virginia 18 - 2 16 1 - 17 - - 17
Washington - 3 - 3 3 - 6 1 5 2
---- --- -- --- ---- -- ---- ---- -- ----
Total 711 39 112 638 24 - 662 5 39 628
- 628
=== == == === == == === == === ===
7
STORE DEVELOPMENT AND EXPANSION
The Company's primary focus in fiscal 2000 was the development of its
existing stores. During fiscal 2000, the Company opened 5 SUPERCENTERS, all of
which include service bays and closed 39 SUPERCENTERS of which 38 were
associated with the Profit Enhancement Plan and one was relocated.
The Company's typical SUPERCENTER is a free standing, "one-stop"
shopping automotive warehouse that features state-of-the-art service bays. Each
SUPERCENTER carries an average of approximately 26,000 stock-keeping units and
serves the automotive aftermarket needs of the "do-it-yourself," the
"do-it-for-me" (automotive service), tire and "buy-for-resale" customer
sectors. The Company's primary SUPERCENTER prototype is approximately 18,200
square feet and generally features 12 service bays. The Company currently
intends to continue to utilize this prototype in fiscal 2001.
The Company completed the rollout of its commercial automotive parts
delivery program during fiscal 1998. This program was established to increase
the Company's market share with the professional installer. The program has
strengthened the Company's position with the "buy-for-resale" customer by
taking greater advantage of the breadth and quality of its parts inventory as
well as its experience supplying its own service bays and mechanics. As of
February 3, 2001, 490 of the Company's stores provide commercial parts
delivery, which represents approximately 78% of its stores.
8
In fiscal 2001, the Company plans to continue to focus much of its
energy on improving the performance of its existing stores. As a result, the
Company plans to open only two new stores, both of which will be SUPERCENTERS.
If the two stores are opened, the Company anticipates spending approximately
$2,496,025 in addition to the $5,681,397 it has already spent as of February
3, 2001 in connection with certain of these locations. The Company expects to
fund the new stores from net cash generated by operating activities.
The most important factors considered by the Company when deciding to
open new stores are vehicle and population demographics, market penetration,
competitive positioning and site development costs. The most important factors
considered by the Company when deciding whether to close a store are
profitability and whether the store is outmoded by virtue of store size or
number of service bays, number of other stores within the same market area and
the cost/benefit of establishing a replacement store rather than expanding or
otherwise upgrading an older store.
The Company's ability to meet its limited expansion goals will
depend, in large measure, upon the availability of suitable sites, prevailing
economic conditions, its success in completing negotiations to purchase or
lease properties, and its ability to obtain governmental approvals and meet
construction deadlines.
MERCHANDISING
Each Pep Boys SUPERCENTER and PEP BOYS EXPRESS store carries the same
basic product line, with variations based on the number and type of cars
registered in the different markets. A full complement of inventory at a
typical SUPERCENTER includes an average of approximately 26,000 items
(approximately 25,000 items are in a PEP BOYS EXPRESS store). The Company's
automotive product line includes: tires (not stocked at PEP BOYS EXPRESS
locations); batteries; new and remanufactured parts for domestic and imported
cars, including suspension parts, ignition parts, exhaust systems, engines and
engine parts, oil and air filters, belts, hoses, air conditioning parts,
lighting, wiper blades and brake parts; chemicals, including oil, antifreeze,
polishes, additives, cleansers and paints; mobile electronics, including sound
systems, alarms, and remote vehicle starters; car accessories, including seat
covers, floor mats, and exterior accessories; hand tools, including sockets,
wrenches, ratchets, paint and body tools, jacks and lift equipment, automotive
specialty tools and test gauges; as well as a selection of truck, van and sport
utility vehicle accessories.
In addition to offering a wide variety of high quality, branded
products, the Company sells an array of high quality products under the Pep
Boys and various other private label names. The Company sells chemicals, oil,
oil treatments, air filters, oil filters, transmission fluids, anti-freeze,
wiper blades, wheels and lubricants under the name PROLINE (R). The Company
also sells paints under the name VARSITY (R), starters, batteries, battery
booster packs and alternators under the name PROSTART (R), water pumps and
cooling system parts under the name PROCOOL (R), wheel covers under the name
FUTURA (R) and temperature gauges under the name PROTEMP (R). Brakes are sold
under the names SHUR GRIP (R), PROSTOP (R) and ELITE (tm) and tires under the
names CORNELL (R) and FUTURA (R). The Company also sells shock absorbers under
9
the name PRO RYDER (R), and trunk and hatchback lift supports under the name
PROLIFT (R). All products sold by the Company under the Pep Boys and the
various other private label names accounted for approximately 36% of the
Company's merchandise sales in fiscal 2000. The remaining merchandise is sold
under the brand names of others. Revenues from maintaining or repairing
automobiles and installing products, accounted for approximately 19.1%, 18.4%
and 17.0% of the Company's total revenues in fiscal years 2000, 1999 and 1998,
respectively. Revenues from the sale of tires accounted for approximately
17.0%, 16.0% and 14.2% of the Company's total revenues in fiscal years 2000,
1999 and 1998, respectively. No other class of products or services accounted
for as much as 10% of the Company's total revenues.
The Company has a point-of-sale system in all of its stores which
gathers sales and gross profit data by stock-keeping unit from each store on a
daily basis. This information is then used by the Company to help formulate its
pricing, marketing and merchandising strategies.
The Company has an electronic parts catalog in all of its stores and
an electronic commercial invoicing system in all of its stores that offer
commercial parts delivery.
The Company has an electronic work order system in all of its service
centers. This system creates a service history for each vehicle, provides
customers with a comprehensive sales document and enables the Company to
maintain a service customer database.
The Company uses an "Everyday Low Price" (EDLP) strategy in
establishing its selling prices. Management believes that EDLP provides better
value to its customers on a day-to-day basis, helps level customer demand and
allows more efficient management of inventories.
The Company uses various forms of advertising to promote its category-
dominant product offering, its state-of-the-art automotive service and repair
capabilities and its commitment to customer service and satisfaction. The
Company's advertising vehicles include, but are not limited to, multi-page
catalogs, television and radio commercials, newspaper advertisements and
various in-store promotions. All or most of the gross cost of the advertising
directed by the Company is customarily borne by the suppliers of the products
advertised.
In fiscal 2000, approximately 56% of the Company's total revenues were
cash transactions (including personal checks), and the remainder were credit
and debit card transactions and commercial credit accounts.
The Company does not experience significant seasonal fluctuation in
the generation of its revenues.
STORE OPERATIONS AND MANAGEMENT
All Pep Boys stores are open seven days a week. Each SUPERCENTER has a
manager, a service manager and one or more assistant managers. Each PEP BOYS
EXPRESS store has a manager and one or more assistant managers. Stores with the
auto parts delivery program have a commercial sales manager in addition to the
management previously mentioned. A store manager's average length of service
with the Company is approximately seven years.
The Company has service bays in 616 of its 628 locations. Each service
department can perform a variety of services which generally include: engine
diagnosis and tune-ups, wheel and front end alignments, state inspection and
emission services, air conditioning service, heating and cooling system
service, fuel injection and throttle body service, and battery and electrical
10
service; the repair and installation of parts and accessories including brake
parts, suspension parts, exhaust systems, front end parts, ignition parts,
belts, hoses, clutches, filters, stereos and speakers, alarms, remote starters
and various other merchandise sold in the Company's stores; installation and
balancing of tires; and oil and lubrication services.
The Company coordinates the operation and merchandising of each store
through a network of district and regional managers. The regional managers
report to the Divisional Vice Presidents of Operations, who report to the
Company's Vice President of Customer Satisfaction, who reports to the Company's
Senior Vice President - Store Operations, who reports to the Company's Chairman
of the Board, President & Chief Executive Officer. Supervision and control over
the individual stores are facilitated by means of the Company's computer
system, operational handbooks and regular visits to the individual stores by
the district operations managers and loss prevention personnel.
All of the Company's advertising, accounting, purchasing and most of
its management information systems and administrative functions are conducted
at its corporate headquarters in Philadelphia, Pennsylvania. Certain
administrative functions for the Company's western, southwestern, southeastern,
midwestern and Puerto Rico operations are performed at various regional offices
of the Company. See "Properties."
INVENTORY CONTROL AND DISTRIBUTION
Most of the Company's merchandise is distributed to its stores
from its warehouses primarily by dedicated and contract carriers and also by
Company-owned or leased trucks. Target levels of inventory for each product
have been established for each of the Company's warehouses and stores and are
based upon prior shipment history, sales trends and seasonal demand. Inventory
on hand is compared to the target levels on a weekly basis at each warehouse.
If the inventory on hand at a warehouse is below the target levels, the
Company's buyers order merchandise from its suppliers.
Each Pep Boys store has an automatic inventory replenishment system
that automatically orders additional inventory when a store's inventory on hand
falls below the target level. In addition, the Company's centralized buying
system, coupled with continued advancement in its warehouse and distribution
systems, has enhanced the Company's ability to control its inventory.
SUPPLIERS
During fiscal 2000, the Company's ten largest suppliers accounted for
approximately 47% of the merchandise purchased by the Company. No single
supplier accounted for more than 15% of the Company's purchases. The Company
has no long-term contracts under which the Company is required to purchase
merchandise. Management believes that the relationships the Company has
established with its suppliers are generally good.
In the past, the Company has not experienced difficulty in obtaining
satisfactory sources of supply and believes that adequate alternative sources
of supply exist, at substantially similar cost, for virtually all types of
merchandise sold in its stores.
11
COMPETITION
The business of the Company is generally highly competitive. The
Company encounters competition from nationwide and regional chains and from
local independent merchants. Some of the Company's competitors are general,
full range, discount or traditional department stores which carry automotive
parts and accessories and/or have automotive service centers, and others,
similar to the Company, are specialized automotive service retailers.
Certain of its competitors are larger in terms of sales volume, store size,
and/or number of stores, have access to greater capital and management
resources and have been operating longer in particular geographic areas
than the Company.
Although the Company's competition varies by geographic area, the
Company believes that it generally has a favorable competitive position in
terms of depth and breadth of product line, price, quality of personnel and
customer service.
In addition, the Company believes that its operation of service bays
in its SUPERCENTERS positively differentiates it from most of its competitors
by providing its customers with the ability to purchase parts and have them
installed at the same location. The Company believes that the warranty policies
in connection with the higher priced items it sells, such as tires, batteries,
brake linings and other major automotive parts and accessories, are comparable
or superior to those of its competitors.
EMPLOYEES
At February 3, 2001, the Company employed 23,136 persons as follows:
Full-time Part-time Total
Description Numbers % Numbers % Numbers %
------- ---- ------- ---- ------- ----
Store Sales 7,952 46.6 4,384 72.4 12,336 53.3
Store Service 6,980 40.9 1,515 25.0 8,495 36.7
------- ----- ----- ----- ------- -----
STORE TOTAL 14,932 87.5 5,899 97.4 20,831 90.0
Warehouses 999 5.8 134 2.2 1,133 4.9
Offices 1,151 6.7 21 .4 1,172 5.1
------- ------ ------- ------- ------- ------
TOTAL EMPLOYEES 17,082 100.0 6,054 100.0 23,136 100.0
====== ===== ===== ===== ====== =====
The Company had no union employees as of February 3, 2001. At the end
of fiscal 1999, the Company employed approximately 20,544 full-time
and 7,443 part-time employees and at the end of fiscal 1998, the Company
employed approximately 19,754 full-time and 7,706 part-time employees.
12
EXECUTIVE OFFICERS OF THE COMPANY
The following table indicates the names, ages, years with the Company
and positions (together with the year of election to such positions) of the
executive officers of the Company:
- -----------------------------------------------------------------------------------------------------------------------------------
Years with Position with the Company and
Name Age Company Date of Election to Position
- ----- --- ------- ----------------------------
Mitchell G. Leibovitz 55 22 Chairman of the Board since 1994;
Chief Executive Officer
since 1990; President since 1986
George Babich Jr. 49 5 Executive Vice President since
2001; Senior Vice President since
2000; Chief Financial Officer
since 2000; Vice President of
Finance and Treasurer since 1996
Mark L. Page 44 25 Senior Vice President - Store
Operations since 1993
Frederick A. Stampone 45 18 Senior Vice President since 1987;
Chief Administrative Officer
since 1993; Secretary since 1988
Don Casey 49 1 Senior Vice President -
Merchandising since July 2000
Messrs. Leibovitz, Page and Stampone have been executive officers of
the Company for more than the past five years.
Mr. Babich was appointed Executive Vice President on March 27, 2001.
Mr. Babich joined the Company as Vice President-Finance & Treasurer in
September 1996 and was elected to Senior Vice President & Chief Financial
Officer of the Company on March 28, 2000 prior to being promoted to his current
position. Prior to joining Pep Boys, Mr. Babich was the Senior Financial
Executive of Morgan, Lewis & Bockius from 1991 to 1996; Vice President & CFO -
North America and then Vice President Corporate Business & Strategic Planning
of The Franklin Mint from 1989 to 1991; and held numerous management positions
of increasing responsibility at PepsiCo Inc., from 1982 to 1989 and also at
Ford Motor Company, from 1978 to 1982.
Mr. Casey rejoined the Company as Senior Vice President-Merchandising in
July 2000. From June 1999 through June 2000, Mr. Casey was Vice President of
Purchasing and Supply Chain for Discount Auto Parts, Inc. From February 1987
through May 1999, Mr. Casey served in various merchandising positions of
increasing seniority with the Company.
Each of the officers serves at the pleasure of the Board of Directors
of the Company.
13
ITEM 2 PROPERTIES
The Company owns its five-story, approximately 300,000 square foot
corporate headquarters in Philadelphia, Pennsylvania. The Company also owns the
following administrative regional offices -- approximately 4,000 square feet of
space in each of Melrose Park, Illinois and Bayamon, Puerto Rico. In addition,
the Company leases approximately 4,000 square feet of space for administrative
regional offices in each of Decatur, Georgia and Richardson, Texas. The
Company owns a three-story, approximately 60,000 square foot structure in Los
Angeles, California, which it anticipates to sell by fiscal 2002.
Of the 628 store locations operated by the Company at
February 3, 2001, 343 are owned and 285 are leased. Of the 285 leased store
locations, 185 are ground leases.
The following table sets forth certain information regarding the owned
and leased warehouse space utilized by the Company for its 628 store locations
at February 3, 2001.
Warehouse Products Square Owned or Stores States
Location Warehoused Footage Leased Serviced Serviced
- --------- ---------- ------- ------ -------- -------
Los Angeles, CA All except 216,000 Owned 165 AZ, CA, NV,
tires NM, UT, WA
Los Angeles, CA Tires 73,000 Leased 165 AZ, CA, NV,
NM, UT, WA
Los Angeles, CA All except 137,000 Leased 165 AZ, CA, NV,
tires NM, UT, WA
Atlanta, GA All 392,000 Owned 134 AL, FL, GA,
LA, NC, PR,
SC, TN, VA
Mesquite, TX All 244,000 Owned 96 AR, CO, LA,
NM, OK, TX
Plainfield, IN All 403,000 Leased 95 IL, IN, KY,
KS, MI, MN,
MO, NY, OH,
OK, PA, TN
VA
Chester, NY All 400,400 Leased 138 CT, DE, MA,
---------- MD, ME, NH,
NJ, NY, PA,
RI, VA
Total 1,865,400
==========
As part of its Profit Enhancement Plan, the Company closed the Tracey
California distribution center and completed the transition of its New Jersey
distribution centers to the state of the art New York distribution center. In
early 2001, the Company completed the sale of its New Jersey distribution
center. The Company plans to allow the lease term in the other New Jersey
distribution center to expire in May 2001. In addition, the Company is in the
process of seeking a tenant to sublease the Tracey California facility.
14
The Company anticipates that its existing warehouse space
will accommodate inventory necessary to support store expansion and any
increase in stock-keeping units through the end of fiscal 2001.
The Company is subject to federal, state and local provisions relating
to the protection of the environment, including provisions with respect to the
disposal of oil at its store locations. Estimated capital expenditures relating
to compliance with such environmental provisions are not deemed material.
ITEM 3 LEGAL PROCEEDINGS
The Company is a defendant in an action entitled "Coalition for a
Level Playing Field, L.L.C., et al. v. AutoZone, Inc., et al.," in the United
States District Court for the Eastern District of New York. There are over 100
plaintiffs, consisting of automotive jobbers, warehouse distributors and a
coalition of several trade associations; the defendants are AutoZone, Inc.,
Wal-Mart Stores, Inc., Advance Stores Company, Inc., CSK Auto, Inc., the
Company, Discount Auto Parts, Inc., O'Reilly Automotive, Inc. and Keystone
Automotive Operations, Inc. The plaintiffs allege that the defendants violated
various provisions of the Robinson-Patman Act by, among other things, knowingly
inducing and receiving various forms of discriminatory prices from automotive
parts manufacturers. The plaintiffs are seeking compensatory damages, which
would be trebled under applicable law, as well as injunctive and other
equitable relief. The Company believes the claims are without merit and intends
to vigorously defend this action.
The Company is also party to various other lawsuits and claims,
including purported class actions, arising in the normal course of business. In
the opinion of management, these lawsuits and claims, including the cases
above, are not, singularly or in the aggregate, material to the Company's
financial position or results of operations.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended February 3, 2001.
15
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of The Pep Boys - Manny, Moe & Jack is listed on the
New York Stock Exchange under the symbol "PBY". There were 3,453 registered
shareholders as of February 3, 2001. The following table sets forth for the
periods listed, the high and low sale prices and the cash dividends paid on the
Company's common stock.
- ---------------------------------------------------------------------------------------------------------------
MARKET PRICE PER SHARE
Market Price Per Share Cash Dividends
Fiscal year ended February 3,2001 High Low Per Share
- ----------------------------------- ---- --- ---------
First Quarter 7 11/16 5 1/2 $.0675
Second Quarter 7 5/8 5 5/8 .0675
Third Quarter 6 7/16 4 3/16 .0675
Fourth Quarter 5 3/8 3 5/16 .0675
Fiscal year ended January 29, 2000
- ----------------------------------
First Quarter 20 3/16 14 1/4 .0675
Second Quarter 21 5/8 14 3/16 .0675
Third Quarter 17 7/16 11 5/16 .0675
Fourth Quarter 13 7 1/8 .0675
It is the present intention of the Company's Board of Directors to continue to
pay regular quarterly cash dividends; however, the declaration and payment of
future dividends will be determined by the Board of Directors in its sole
discretion and will depend upon the earnings, financial condition and capital
needs of the Company and other factors which the Board of Directors deems
relevant.
16
ITEM 6 SELECTED FINANCIAL DATA
The following tables sets forth the selected financial data for the Company and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included elsewhere herein.
SELECTED FINANCIAL DATA (UNAUDITED)
(dollar amounts in thousands, except per share amounts)
Year ended Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999 Jan.31, 1998 Feb. 1, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA
Merchandise sales $ 1,957,480 $ 1,954,010 $ 1,991,340 $ 1,720,670 $ 1,554,757
Service revenue 460,988 440,523 407,368 335,850 273,782
Total revenues 2,418,468 2,394,533 2,398,708 2,056,520 1,828,539
Gross profit from merchandise sales 452,038(2) 538,957 492,443(3) 474,239(4) 484,494
Gross profit from service revenue 79,813(2) 84,078 79,453 66,081 53,025
Total gross profit 531,851(2) 623,035 571,896(3) 540,320(4) 537,519
Selling, general and
administrative expenses 559,883(2) 528,838 517,827(3) 429,523(4) 349,353
Operating (loss) profit (28,032)(2) 94,197 54,069(3) 110,797(4) 188,166
Nonoperating income 2,245 2,327 2,145 4,315 1,369
Interest expense 57,882 51,557 48,930 39,656 30,306
(Loss) earnings before income taxes and
extraordinary items (83,669)(2) 44,967 7,284(3) 75,456(4) 159,229
(Loss) earnings before extraordinary items (53,148) 29,303 4,974(3) 49,611(4) 100,824
Extraordinary items 2,054 - - - -
Net (loss) earnings (51,094)(2) 29,303 4,974(3) 49,611(4) 100,824
BALANCE SHEET DATA
Working capital $ 109,207 $ 172,332 $ 241,738 $ 151,340 $ 70,691
Current ratio 1.18 to 1 1.31 to 1 1.47 to 1 1.24 to 1 1.13 to 1
Merchandise inventories $ 547,735 $ 582,898 $ 527,397 $ 655,363 $ 520,082
Property and equipment-net 1,194,235 1,335,749 1,330,256 1,377,749 1,189,734
Total assets 1,906,204 2,072,672 2,096,112 2,161,360 1,818,365
Long-term debt (includes
all convertible debt) 654,194 784,024 691,714 646,641 455,665
Stockholders' equity 594,766 658,284 811,784 822,635 778,091
DATA PER COMMON SHARE
Basic (loss) earnings before
extraordinary items (1) $ (1.04)(2) $ .58 $ .08(3) $ .81(4) $ 1.67
Basic (loss) earnings (1) (1.00)(2) .58 .08(3) .81(4) 1.67
Diluted (loss) earnings before
extraordinary items (1) (1.04)(2) .58 .08(3) .80(4) 1.62
Diluted (loss) earnings(1) (1.00)(2) .58 .08(3) .80(4) 1.62
Cash dividends .27 .27 .26 .24 .21
Stockholders' equity 11.60 12.91 13.18 13.39 12.78
Common share price range:
high 7 11/16 21 5/8 26 11/16 35 5/8 38 1/4
low 3 5/16 7 1/8 12 3/8 21 9/16 27 7/8
OTHER STATISTICS
Return on average
stockholders' equity (8.2)% 4.0% 0.6% 6.2% 14.0%
Common shares issued and outstanding 51,260,663 50,994,099 61,615,140 61,425,228 60,886,991
Capital expenditures $ 57,336 $ 104,446 $ 167,876 $ 284,084 $ 245,246
Number of retail outlets 628 662 638 711 604
Number of service bays 6,498 6,895 6,608 6,208 5,398
- ----------------------------------------------------------------------------------------------------------------------------------
(1) All data per common share for the year ended February 1, 1997 has been
restated to reflect the adoption of Statement of Financial Accounting
Standards No. 128 "Earnings per Share."
(2) Includes pretax charges of $76,945 related to the Profit Enhancement Plan
of which $67,085 reduced the gross profit from merchandise sales, $5,232
reduced gross profit from service revenue and $2,628 was included in
selling, general and administrative expenses.
(3) Includes pretax charges of $29,451 ($20,109 net of tax or $.33 per
share-basic and diluted), $27,733 of which reduced gross profit from
merchandise sales with the remaining $1,718 included in selling, general
and administrative expenses. These charges were associated with the closure
and sale of 109 Express stores.
(4) Includes pretax charges of $28,012 ($18,418 net of tax or $.30 per
share-basic and diluted), $16,330 of which reduced gross profit from
merchandise sales with the remaining $11,682 included in selling, general
and administrative expenses. These charges were associated with closing
nine stores, reducing the store expansion program, converting all Parts USA
stores to the Pep Boys Express format, certain equipment write-offs, and
severance and other non-recurring expenses.
17
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements arise principally from the need to
finance the renovation of its existing stores, the acquisition, construction
and equipping of new stores and to purchase inventory. The Company decreased the
amount of store openings to 5 new stores in fiscal 2000 compared to 24 stores
in fiscal 1999 and 39 stores in fiscal 1998. In fiscal 2000, the Company
decreased its level of capital expenditures by 45.1% as compared to fiscal
1999. In fiscal 2000, with an increase in net inventory levels offset, in part,
by decreased levels of capital expenditures, the Company increased its debt by
$28,739,000 and decreased its cash and cash equivalents by $10,490,000. In
fiscal 1999, the Company decreased its level of capital expenditures by 37.8%
as compared to fiscal 1998. In fiscal 1999, with decreased levels of capital
expenditures, the use of cash to repurchase 11,276,698 common shares of stock
(partially offset by a decrease in net inventory levels), the Company increased
its debt by $20,029,000 and decreased its cash and cash equivalents by
$96,063,000. In fiscal 1998, with decreased levels of capital expenditures and
the cash generated from its sale of real estate assets (partially offset by an
increase in net inventory levels), the Company increased its debt by
$70,380,000 and increased its cash and cash equivalents by $103,737,000.
The following table indicates the Company's principal cash requirements for the past three years.
(dollar amounts Fiscal Fiscal Fiscal
in thousands) 2000 1999 1998 Total
- ---------------------------------------------------------------------------------------------------------------
Cash Requirements:
Capital expenditures $ 57,336 $104,446 $167,876 $329,658
Net inventory
increase (decrease)(1) 80,148 (24,174) 40,696 96,670
- ---------------------------------------------------------------------------------------------------------------
Total $137,484 $ 80,272 $208,572 $426,328
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities
(excluding the change
in net inventory) $ 99,739 $155,207 $160,713 $415,659
- ---------------------------------------------------------------------------------------------------------------
(1) Net inventory increase (decrease) is the change in inventory less the
change in accounts payable.
In fiscal 2000, merchandise inventories decreased as the Company
decreased its net store count by 34 and closed two distribution centers. The
average number of stockkeeping units per store was approximately 26,000 in
fiscal year 2000 and 25,000 in fiscal years 1999, and 1998.In fiscal 1999,
merchandise inventories increased as the Company added an additional 24 stores
and a new distribution center in Chester, New York. In fiscal 1998, merchandise
inventories decreased as the Company reduced its warehouse inventories,
closed one distribution center, better tailored its store inventories and
decreased its net store count by 73 stores.
18
The Company's working capital was $109,207,000 at February 3, 2001,
$172,332,000 at January 29, 2000 and $241,738,000 at January 30, 1999. The
Company's long-term debt, as a percentage of its total capitalization, was
52% at February 3, 2001, 54% at January 29, 2000 and 46% at January 30, 1999.
As of February 3, 2001, the Company had available lines of credit totaling
$67,915,000.
The Company currently plans to open two new Supercenters in fiscal
2001. Management estimates the costs of opening the two Supercenters, coupled
with capital expenditures relating to existing stores, warehouses and offices
during fiscal 2001, will be approximately $35,000,000. The Company anticipates
that its net cash provided by operating activities and its existing lines of
credit will exceed its principal cash requirements for capital expenditures
and net inventory in fiscal 2001.
In September 2000, the Company reclassed the zero coupon convertible
Liquid Yield Option Notes (LYONs), which have a put option, at the option
of the holder, in September 2001, to current liabilities on the Consolidated
Balance Sheet. The Company expects to repurchase these notes, which will have a
value of $162,525,000, with cash from operating activities coupled with the
proceeds from the sale of assets held for disposal, its existing lines of
credit, and additional financing the Company anticipates obtaining in early
2001. In the event that the Company does not secure the financing, the Company
has the option to redeem the LYONs with issuance of common stock. The final
number of shares issued would be determined at the time of issuance based upon
any cash shortfall and the then current stock price.
In September 2000, the Company entered into a new revolving credit
agreement and a new operating lease facility. The new revolving credit
agreement provides up to $225,000,000 of borrowing availability, which is
collateralized by inventory and accounts receivable. Funds may be drawn and
repaid anytime prior to September 10, 2004. Sixty days prior to each anniversary
date, the Company may request and, upon agreement with the bank, extend the
maturity of this facility an additional year. The interest rate on any loan is
equal to the London Interbank Offered Rate ("LIBOR") plus 1.75%, and increases
in 0.25% increments as the excess availability falls below $50,000,000. The
revolver is subject to a financial covenant for minimum adjusted tangible net
worth. This revolver replaces the revolver the Company had with nine major
banks, which provided up to $200 million in borrowings. The Company recorded
an after-tax extraordinary charge related to the extinguishment of its previous
revolving credit agreement of $931,000.
The new $143,000,000 of operating leases, which have an interest rate
of LIBOR plus 1.85% replaces $143,000,000 of operating leases, which had an
interest rate of LIBOR plus 2.27%. The Company, as a result of replacing the
existing operating leases, recorded a pretax charge to earnings of $1,630,000
of unamortized lease costs, which was recorded in the costs of merchandise sold
section of the Consolidated Statement of Operations.
In September 2000, the Company retired $70,000,000 of Senior Notes,
at par, using the proceeds from its new $225,000,000 revolving line of credit.
The retired notes were issued in a private placement in February 1999 in two
tranches. The first tranche was for $45,000,000 and had a coupon of 8.45% with
a maturity of 2011. The second tranche was for $25,000,000 and had a coupon of
8.30% with a maturity of 2009.
In June 2000, the Company repurchased $5,995,000 face value of the
$49,000,000 medium-term note which was redeemable at the option of the holder
on September 19, 2002. The after-tax extraordinary gain was $960,000.
In April 2000, the Company repurchased $30,200,000 face value of its
LYONs at a price of $520 per LYON. The book value of the repurchased LYONs were
$19,226,000 and the after-tax extraordinary gain was $2,025,000.
On February 1, 1999, the Company repurchased 11,276,698 of its common
shares outstanding. The Company financed the share repurchase with $110,427,000
in cash and with the $70,000,000 proceeds received in connection with the
private placement of Senior Notes issued on February 1, 1999. The Senior Notes
were issued in two series at par and paid interest semiannually on January 31
and July 31, commencing July 31, 1999. Series A Senior Notes, with an aggregate
principal balance of $25,000,000, were scheduled to mature in 2009 and bore
interest at 7.80% per annum. Series B Senior Notes, with an aggregate principal
balance of $45,000,000, were scheduled to mature in 2011 and bore interest at
7.95% per annum. In addition, the interest rates on the Senior Notes are
subject to a .50% increase for such time as the credit rating of the Company's
long-term unsecured debt securities decreases below investment grade as rated
by both Moody's and Standard & Poor's. These notes were retired in September
2000 as previously stated.
In February 1998, the Company established a Medium-Term Note program
which permitted the Company to issue up to $200,000,000 of Medium-Term Notes.
Under this program the Company sold $100,000,000 principal amount of senior
notes, ranging in annual interest rates from 6.7% to 6.9% and due March 2004
and March 2006. The net proceeds of $99,429,000 were used for working capital,
the repayment of debt and for general corporate purposes. Additionally, in July
1998, under this note program, the Company sold $100,000,000 of Term Enhanced
ReMarketable Securities with a stated maturity date of July 2017. The Company
also sold a call option with the securities, which allows the securities to be
remarketed to the public in July 2006 under certain circumstances. If the
securities are not remarketed, the Company will be obligated to repay the
principal amount in full in July 2017. The level yield to maturity on the
securities is approximately 6.85% and the coupon rate is 6.92%. The net
proceeds of $101,923,500 from the sale of the securities and the call option
were used for working capital, the repayment of debt and for general corporate
purposes.
19
EFFECTS OF INFLATION
The Company uses the LIFO method of inventory valuation. Thus, the
cost of merchandise sold approximates current cost. Although the Company cannot
accurately determine the precise effect of inflation on its operations, it does
not believe inflation has had a material effect on revenues or results of
operations during fiscal 2000, fiscal 1999 or fiscal 1998.
IMPAIRMENT CHARGES
During fiscal year 2000, the Company, as a result of its ongoing
review of the performance of its stores, identified certain stores whose cash
flow trend indicated that the carrying value may not be fully recoverable. An
impairment charge of $5,735,000 was recorded for these stores in costs of
merchandise sold on the Consolidated Statement of Operations. The charge
reflects the difference between carrying value and fair value. Fair value was
based on sales of similar assets or other estimates of fair value developed by
Company management. Management judgment is necessary to estimate fair value.
Accordingly, actual results could vary from such estimates.
PROFIT ENHANCEMENT PLAN
In the third quarter 2000, the Company performed a comprehensive
review of its field, distribution, and store support center infrastructure as
well as the performance of each store. As a result of this review, the Company
implemented a number of changes that it believes will improve its performance.
These changes included the closure of 38 underperforming stores and two
distribution centers, a decrease of store operating hours and a reduction in
the store support center infrastructure. The Company recorded a pretax charge
to earnings for fiscal year 2000 as follows:
(dollar amounts Non-Reservable Total
in thousands) Expense Expense
Income Statement Original Reserve Incurred in Year Ended
Classification Charge Adjustments 4th Quarter Feb. 3, 2001
- -----------------------------------------------------------------------------
Costs of
Merchandise Sold $62,665 $ 939 $3,481 $67,085
Costs of
Service Revenue 5,661 (177) (252) 5,232
Selling, General and
Administrative 2,908 (661) 381 2,628
- -----------------------------------------------------------------------------
Total Expenses $71,234 $ 101 $3,610 $74,945
- -----------------------------------------------------------------------------
The original third quarter charge totaled $71,234,000 of which
$62,665,000 was recorded in costs of merchandise sold on the Company's
Consolidated Statement of Operations and includes expenses associated with
the closure of 38 stores and two distribution centers, certain equipment
write-offs and severance costs associated with the contraction of the special
order department. The remaining $8,569,000 was divided with $5,661,000 recorded
as costs of service revenue, which includes service department expenses
associated with the store closures, and $2,908,000 recorded as selling, general
and administrative which includes expenses associated with the closure of the
two regional offices, the abandonment of future development projects and
severance for the reduction of the store support center infrastructure.
The fourth quarter reserve adjustments increased by $101,000 due to
additional expenses which were recorded in costs of merchandise sold on the
Company's Consolidated Statement of Operations. These additional expenses
included write-downs of certain equipment, the on-going expenses associated
with the change in estimated time to sublease the properties offset, in part,
by decreases in rent expense related to the change in Company's estimated time
to sublease the properties, the change in estimated sublease value and a
present value interest adjustment, coupled with a reduction in estimated
warehouse severance. The increase in reserve adjustment was offset, in part, by
a decrease in cost of service revenue related to the reduction of the estimated
employee severance and the decrease in rent expense related to the change in
the Company's estimated time to sublease the properties, the change in the
estimated sublease value, and a present value interest adjustment offset, in
part, by an increase in on-going expenses associated with the changes in
estimated time to sublease the properties. In addition, selling, general and
administrative expense was reduced due to a change in estimated cost to exit
leases for abandoned projects coupled with a reduction of employee severance.
20
In the fourth quarter of 2000, the Company incurred expenses related
to the closure of the 38 stores and two distribution centers, for inventory and
equipment handling which was offset, in part, by a recovery of certain
benefits expenses related to the reduction of workforce. These expenses which
totaled $3,610,000 were not reserved and were recorded as incurred. The Company
estimates additional expenses of approximately $1,200,000 to be incurred during
first quarter of 2001.
The Company, as a result of the Profit Enhancement Plan, anticipates
annualized savings of approximately $70,000,000. These anticipated savings
are expected to result from a reduction in the store and field infrastructure,
store operating hours and positions within the store support center, as well as
the closure of the 38 stores and two distribution centers.
Approximately 1,300 of the Company's employees were notified of their
separation from the Company prior to the end of the third quarter. As of
February 3, 2001, the number of employees to be separated was reduced to
approximately 1,000 of which 97% have left their positions and the remaining 3%
are anticipated to leave the Company during the first quarter of 2001. The
1,000 employees were composed of 76% store employees,13% distribution
employees, and 11% store support center and field administrative employees. The
reduction in employees to be separated was primarily a result of some of the
notified store employees being transferred to other stores within the Company.
The total severance paid during fiscal 2000 in connection with the Profit
Enhancement Plan was $1,213,000.
At the end of the third quarter 2000, the Company set up a reserve
liability account which is included in accrued liabilities on the Consolidated
Balance Sheet. This liability account will track all accruals including
remaining rent on leases net of sublease income, severance, and on-going
expenses for the closed facilities. The following chart reconciles the charge
since its initial recording to the reserve balance at February 3,2001.
(dollar amounts Lease Fixed On-Going
in thousands) Expenses Assets(3) Severance Expenses Total
- -------------------------------------------------------------------------------------------------------------
Original Charges $ 7,916 $ 57,680 $ 1,694 $ 3,944 $ 71,234
- -------------------------------------------------------------------------------------------------------------
Addition(1) - 1,074 - 361 1,435
- -------------------------------------------------------------------------------------------------------------
Utilization (975) (58,754) (1,213) (1,345) (62,287)
- -------------------------------------------------------------------------------------------------------------
Adjustments(2) 113 - (272) - (159)
- -------------------------------------------------------------------------------------------------------------
Reserve Balance at
February 3, 2001 $ 7,054 $ - $ 209 $ 2,960 $ 10,223
- -------------------------------------------------------------------------------------------------------------
(1) Additions are composed of additional equipment write-offs and an increase
in on-going expenses related to the change in estimated time required to
sublet or sell the properties held for disposal.
(2) Adjustments are composed of a decrease in employee severance offset, in
part, by an increase in lease expenses due to a reclass of a portion of the
reserve to offset a lease liability previously accrued of $1,176 offset,
in part, by a decrease in estimated lease expenses of $1,063 due to a change
in fair value of the sublease payments offset, in part, by a change in
estimated time required to sublet properties and a change in present value
interest on the lease expenses.
(3) The total carrying costs related to assets held for disposal or written-off
were $81,384 of which the Company recorded a loss of $58,754.
21
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items in the
consolidated statements of operations as a percentage of total revenues (except
as otherwise provided) and the percentage change in dollar amounts of such
items compared to the indicated prior period.
Percentage of Total Revenues Percentage Change
- -----------------------------------------------------------------------------------------------------------------------------------
Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999 Fiscal 2000 vs. Fiscal 1999 vs.
Year ended (Fiscal 2000) (Fiscal 1999) (Fiscal 1998) Fiscal 1999 Fiscal 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Merchandise Sales 80.9% 81.6% 83.0% 0.2 % (1.9)%
Service Revenue(1) 19.1 18.4 17.0 4.6 8.1
- -----------------------------------------------------------------------------------------------------------------------------------
Total Revenues 100.0 100.0 100.0 1.0 (0.2)
- -----------------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales(2) 76.9(3) 72.4(3) 75.3(3) 6.4 (5.6)
Costs of Service Revenue(2) 82.7(3) 80.9(3) 80.5(3) 6.9 8.7
- -----------------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 78.0 74.0 76.2 6.5 (3.0)
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 23.1(3) 27.6(3) 24.7(3) (16.1) 9.4
Gross Profit from Service Revenue 17.3(3) 19.1(3) 19.5(3) (5.1) 5.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total Gross Profit 22.0 26.0 23.8 (14.6) 8.9
- -----------------------------------------------------------------------------------------------------------------------------------
Selling, General and
Administrative Expenses 23.2 22.1 21.6 5.9 2.1
- -----------------------------------------------------------------------------------------------------------------------------------
Operating (Loss) Profit (1.2) 3.9 2.2 (129.8) 74.2
Nonoperating Income 0.1 0.1 0.1 (3.5) 8.5
Interest Expense 2.4 2.1 2.0 12.3 5.4
- -----------------------------------------------------------------------------------------------------------------------------------
(Loss) Earnings Before Income Taxes (3.5) 1.9 0.3 (286.1) 517.3
- -----------------------------------------------------------------------------------------------------------------------------------
Income Taxes 36.5(4) 34.8(4) 31.7(4) (294.8) 578.1
- -----------------------------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings Before Extraordinary Items (2.2) 1.2 0.2 (281.4) 489.1
- -----------------------------------------------------------------------------------------------------------------------------------
Extraordinary Items 0.1 - - N/A -
- -----------------------------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings (2.1) 1.2 0.2 (274.4) 489.1
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Service revenue consists of the labor charge for installing merchandise or
maintaining or repairing vehicles, excluding the sale of any installed
parts or materials.
(2) Costs of merchandise sales include the cost of products sold, buying,
warehousing and store occupancy costs. Costs of service revenue include
service center payroll and related employee benefits and service center
occupancy costs. Occupancy costs include utilities, rents, real estate and
property taxes, repairs and maintenance and depreciation and amortization
expenses.
(3) As a percentage of related sales or revenue, as applicable.
(4) As a percentage of earnings before income taxes.
22
FISCAL 2000 VS. FISCAL 1999
Total revenues for fiscal 2000, which included 53 weeks, increased
1% over fiscal 1999, due primarily to the extra week of operation during fiscal
2000 vs. 1999. Comparable store revenues (revenues generated by stores in
operation during the same months of each period) decreased by 1%. Total
revenues for fiscal 2000, excluding the extra week, decreased by 1% on an
overall basis and were unchanged on a comparable store basis. Comparable store
merchandise sales decreased 2% while comparable store service revenue increased
2% over fiscal 1999 on a 52 week basis.
The decrease in gross profit from merchandise sales, as a percentage
of merchandise sales, was due primarily to the pretax charge from the Profit
Enhancement Plan of $67,085,000 coupled with the impairment charge, increases
in warehousing and store occupancy costs offset, in part, by higher
merchandise margins, as a percentage of merchandise sales.
The decrease in gross profit from service revenue, as a percentage of
service revenue, was due to a $5,232,000 pretax charge from the Profit
Enhancement Plan and an increase in service center personnel costs, as a
percentage of service revenue.
The increase in selling, general and administrative expenses, as a
percentage of total revenues, was due primarily to increases in store and
general office expenses coupled with a pretax charge from the Profit
Enhancement Plan of $2,628,000, as a percentage of total revenues.
The increase in interest expense, as a percentage of total revenues,
was due primarily to higher interest rates coupled with slightly higher
average debt levels incurred during the year to fund the Company's capital
expenditures.
The Company's net loss in fiscal 2000, as compared with net earnings
in fiscal 1999, was due primarily to decreases in gross profit from merchandise
sales, as a percentage of merchandise sales, and gross profit from service
revenue, as a percentage of service revenue, and an increase in selling,
general and administrative expenses, as a percentage of total revenues, all
of which included the effects of the Profit Enhancement Plan, coupled with an
increase in interest expense, as a percentage of total revenues.
FISCAL 1999 VS. FISCAL 1998
Total revenues for fiscal 1999 decreased 0.2% from fiscal 1998 due
primarily to the sale and closure of 115 stores in fiscal 1998. This decrease
was offset, in part, by an increase in comparable store revenues (revenues
generated by stores in operation during the same months of each period) of 1.5%
in fiscal 1999. Comparable store merchandise sales increased 0.9% while
comparable service revenue increased 4.4%.
During fiscal 1998, the Company recorded pretax charges to earnings of
$29,451,000 ($20,109,000 net of tax) related to the sale and closure of 115
stores. The total pretax charges were comprised of $27,733,000 recorded as
costs of merchandise sales and $1,718,000 of selling, general and
administrative expenses. There were no such charges in fiscal 1999.
Gross profit from merchandise sales increased, as a percentage of
merchandise sales, due primarily to higher merchandise margins coupled with the
absence of $27,733,000 in pretax charges recorded in fiscal 1998 offset, in
part, by an increase in store occupancy costs.
Selling, general and administrative expenses increased, as a
percentage of total revenues, due primarily to increases in general office
costs and store expenses offset, in part, by a decrease in media costs and the
absence of $1,718,000 in pretax charges recorded in fiscal 1998.
The increase in net earnings, as a percentage of total revenues, was
due primarily to an increase in gross profit from merchandise sales, as a
percentage of merchandise sales, and the absence of after tax charges of
$20,109,000 recorded in fiscal 1998 offset, in part, by an increase in selling,
general and administrative expenses, as a percentage of total revenues.
23
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. As amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities (an amendment of FASB
statement No. 133)" this statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. The Company has analyzed the
impact of the adoption of this statement and it will not have a material effect
on the Company upon its adoption on February 4, 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not utilize financial instruments for trading purposes
and holds no derivative financial instruments which could expose the Company to
significant market risk. The Company's primary market risk exposure with regard
to financial instruments is to changes in interest rates. Pursuant to the terms
of its revolving credit agreement, changes in the lenders' prime rate or LIBOR
could affect the rates at which the Company could borrow funds thereunder. At
February 3, 2001, the Company had outstanding borrowings of $127,718,000
against these credit facilities. The table below summarizes the fair value and
contract terms of fixed rate debt instruments held by the Company at
February 3, 2001:
(dollar amounts Average
in thousands) Amount Interest Rate
- ----------------------------------------------------------------
Fair value at
February 3, 2001 $472,770
Expected maturities:
2001 162,710 4.0%
2002 93,103 6.5
2003 81,000 6.6
2004 108,000 6.7
2005 100,000 7.0
- -----------------------------------------------------------------
At January 29, 2000, the Company held fixed rate debt instruments with an
aggregate fair value of $489,824.
FORWARD-LOOKING STATEMENTS
Certain statements made herein, including those discussing management's
expectations for future periods, are forward-looking and involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements due to factors beyond the
control of the Company, including the strength of the national and regional
economies and retail and commercial consumers' ability to spend, the health of
the various sectors of the market that the Company serves, the weather in
geographical regions with a high concentration of the Company's stores,
competitive pricing, location and number of competitors' stores and product and
labor costs. Further factors that might cause such a difference include, but
are not limited to, the factors described in the Company's filings with the
Securities and Exchange Commission.
ITEM 7A QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The material in Item 7 of this filing titled "Quantitive and
Qualitative Disclosures about Market Risk" are hereby incorporated herein by
reference.
24
ITEM 8 FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
The Pep Boys - Manny, Moe & Jack
We have audited the accompanying consolidated balance sheets of The Pep Boys -
Manny, Moe & Jack and subsidiaries as of February 3, 2001 and January 29, 2000,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended February 3,
2001. Our audits also included the financial statement schedule listed in the
Index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of The Pep Boys - Manny, Moe & Jack
and subsidiaries at February 3, 2001 and January 29, 2000, and the results of
their operations and their cash flows for each of the three years in the
period ended February 3, 2001 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 22, 2001
25
CONSOLIDATED BALANCE SHEETS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
February 3, January 29,
2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 7,995 $ 18,485
Accounts receivable, less allowance for
uncollectible accounts of $639 and $826 16,792 17,281
Merchandise inventories 547,735 582,898
Prepaid expenses 28,705 39,184
Deferred income taxes 25,409 16,606
Other 50,401 46,278
Assets held for disposal 22,629 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 699,666 720,732
- ----------------------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost:
Land 278,017 287,039
Building and improvements 918,031 954,638
Furniture, fixtures and equipment 618,959 647,557
Construction in progress 15,032 25,763
- ----------------------------------------------------------------------------------------------------------------------------------
1,830,039 1,914,997
Less accumulated depreciation and amortization 635,804 579,248
- ----------------------------------------------------------------------------------------------------------------------------------
Total Property and Equipment 1,194,235 1,335,749
- ----------------------------------------------------------------------------------------------------------------------------------
Other 12,303 16,191
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,906,204 $ 2,072,672
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 204,755 $ 320,066
Accrued expenses 226,952 228,151
Current maturities of convertible debt 158,555 -
Current maturities of long-term debt 197 183
- ----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 590,459 548,400
- ----------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt, less current maturities 654,194 612,668
Convertible Debt, less current maturities - 171,356
Deferred Income Taxes 66,192 81,964
Deferred Gain on Sale Leaseback 593 -
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $1 per share: Authorized 500,000,000 shares;
Issued 63,910,577 63,911 63,911
Additional paid-in capital 177,244 177,247
Retained earnings 581,668 649,487
----------------------------------------------------------------------------------------------------------------------------------
822,823 890,645
Less shares in treasury - 10,454,644 and 10,721,208 shares, at cost 168,793 173,097
Less cost of shares in benefits trust - 2,195,270 shares, at cost 59,264 59,264
- ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 594,766 658,284
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,906,204 $ 2,072,672
- ----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
26
CONSOLIDATED STATEMENTS OF OPERATIONS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
February 3, January 29, January 30,
Year ended 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Merchandise Sales $1,957,480 $1,954,010 $ 1,991,340
Service Revenue 460,988 440,523 407,368
- ----------------------------------------------------------------------------------------------------------------------------------
Total Revenues 2,418,468 2,394,533 2,398,708
- ----------------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales 1,505,442 1,415,053 1,498,897
Costs of Service Revenue 381,175 356,445 327,915
- ----------------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 1,886,617 1,771,498 1,826,812
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 452,038 538,957 492,443
Gross Profit from Service Revenue 79,813 84,078 79,453
- ----------------------------------------------------------------------------------------------------------------------------------
Total Gross Profit 531,851 623,035 571,896
- ----------------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative
Expenses 559,883 528,838 517,827
- ----------------------------------------------------------------------------------------------------------------------------------
Operating (Loss) Profit (28,032) 94,197 54,069
Nonoperating Income 2,245 2,327 2,145
Interest Expense 57,882 51,557 48,930
- ----------------------------------------------------------------------------------------------------------------------------------
(Loss) Earnings Before Income Taxes (83,669) 44,967 7,284
Income Tax (Benefit) Expense (30,521) 15,664 2,310
- ----------------------------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings Before Extraordinary Items (53,148) 29,303 4,974
Extraordinary Items, Net of Tax of $1,180 2,054 - -
Net (Loss) Earnings $ (51,094) $ 29,303 $ 4,974
- ----------------------------------------------------------------------------------------------------------------------------------
Basic (Loss) Earnings per Share:
Before Extraordinary Items $ (1.04) $ .58 $ .08
Extraordinary Items, Net of Tax .04 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Basic (Loss) Earnings per Share: $ (1.00) $ .58 $ .08
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted (Loss) Earnings per Share:
Before Extraordinary Items $ (1.04) $ .58 $ .08
Extraordinary Items, Net of Tax .04 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Diluted (Loss) Earnings per Share: $ (1.00) $ .58 $ .08
- ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
27
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
Accumulated
Additional Other Total
Common Stock Paid-in Retained Treasury Stock Comprehensive Benefits Stockholders'
Shares Amount Capital Earnings Shares Amount Income Trust Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998 63,657,728 $63,658 $173,107 $647,505 $(1,366) $(60,269) $822,635
Comprehensive Income
Net earnings 4,974
Minimum pension liability
adjustment, net of tax (2,844)
Total Comprehensive Income 2,130
Cash dividends ($.26 per share) (16,004) (16,004)
Exercise of stock options
and related tax benefits 107,825 108 1,369 1,477
Dividend reinvestment plan 82,087 82 1,369 1,451
Acquisitions and transfers of
75,000 shares to employees'
savings plan 95 95
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 30, 1999 63,847,640 63,848 175,940 636,475 (4,210) (60,269) 811,784
Comprehensive Income
Net earnings 29,303
Minimum pension liability
adjustment, net of tax 4,210
Total Comprehensive Income 33,513
Cash dividends ($.27 per share) (13,693) (13,693)
Repurchase of Treasury Stock (410) (11,276,698) $(182,065) 1,005 (181,470)
Exercise of stock options
and related tax benefits 27,630 28 774 (1,795) 495,000 7,991 6,998
Dividend reinvestment plan 35,307 35 533 (393) 60,490 977 1,152
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 29, 2000 63,910,577 63,911 177,247 649,487 (10,721,208) (173,097) - (59,264) 658,284
Comprehensive Income-Net loss (51,094) (51,094)
Cash dividends ($.27 per share) (13,793) (13,793)
Dividend reinvestment plan (3) (2,932) 266,564 4,304 1,369
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, February 3, 2001 63,910,577 $63,911 $177,244 $581,668 (10,454,644) $(168,793) $ - $(59,264) $594,766
See notes to consolidated financial statements.
28
CONSOLIDATED STATEMENTS OF CASH FLOWS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
February 3, January 29, January 30,
Year ended 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net (Loss) Earnings $ (51,094) $ 29,303 $ 4,974
Adjustments to Reconcile Net (Loss) Earnings to Net Cash
Provided by Operating Activities:
Extraordinary items, net of tax (2,054) - -
Depreciation and amortization 99,308 97,012 96,856
Accretion of bond discount 6,425 6,493 6,493
(Decrease) increase in deferred income taxes (24,575) 2,223 13,142
Loss on assets held for disposal 53,740 - -
Loss on asset impairment 5,735 - -
Loss (Gain) from sales of assets 3,651 (538) 19,968
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, prepaid expenses
and other 9,802 (12,096) (14,857)
Decrease (increase) in merchandise inventories 35,163 (55,501) 127,966
(Decrease) increase in accounts payable (115,311) 79,675 (168,662)
(Decrease) increase in accrued expenses (1,199) 32,810 34,137
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 19,591 179,381 120,017
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (57,336) (104,446) (167,876)
Proceeds from sales of assets 14,380 2,479 98,545
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (42,956) (101,967) (69,331)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net borrowings (payments) under line of credit
agreements 117,535 10,000 (122,000)
Net proceeds from issuance of notes - 76,000 202,241
Reduction of long-term debt (70,000) (170) (158)
Reduction of convertible debt - (72,294) (13,956)
Early extinguishment of debt (22,236) - -
Dividends paid (13,793) (13,693) (16,004)
Purchase of Treasury Shares - (181,470) -
Proceeds from exercise of stock options - 6,998 1,477
Proceeds from dividend reinvestment plan 1,369 1,152 1,451
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 12,875 (173,477) 53,051
- -----------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash (10,490) (96,063) 103,737
Cash and Cash Equivalents at Beginning of Period 18,485 114,548 10,811
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 7,995 $ 18,485 $ 114,548
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ - $ - $ -
Interest paid, net of amounts capitalized 53,415 43,449 39,966
- -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
29
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended February 3, 2001, January 29, 2000 and January 30, 1999 (dollar
amounts in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS The Pep Boys - Manny, Moe & Jack and subsidiaries (the "Company") is
engaged principally in the retail sale of automotive parts and accessories,
automotive maintenance and service and the installation of parts through a
chain of stores at February 3, 2001. The Company currently operates stores
in 36 states and Puerto Rico.
FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest to
January 31. Fiscal year 2000 was comprised of 53 weeks, while Fiscal years 1999
and 1998 were comprised of 52 weeks.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
USE OF ESTIMATES The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
MERCHANDISE INVENTORIES Merchandise inventories are valued at the lower of cost
(last-in, first-out method) or market. If the first-in, first-out method of
valuing inventories had been used, inventories would have been approximately
the same as using the last-in, first-out method for both fiscal years 2000 and
1999.
CASH AND CASH EQUIVALENTS Cash equivalents include all short-term, highly
liquid investments that are readily convertible to known amounts of cash and so
near maturity that they present an insignificant risk to changes in value
because of changes in interest rates.
PROPERTY AND EQUIPMENT Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
the following estimated useful lives: building and improvements, 5 to 40 years;
furniture, fixtures and equipment, 3 to 10 years.
SOFTWARE CAPITALIZATION In 1998, the Company adopted Statement of Position(SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." In accordance with this standard, certain direct development
costs associated with internal-use software are capitalized, including external
direct costs of material and services, and payroll costs for employees devoting
time to the software projects. These costs are amortized over a period not to
exceed five years beginning when the asset is substantially ready for use.
Costs incurred during the preliminary project stage, as well as maintenance and
training costs, are expensed as incurred.
CAPITALIZED INTEREST Interest on borrowed funds is capitalized in connection
with the construction of certain long-term assets. Capitalized interest
amounted to $489, $1,098 and $1,020 in fiscal years 2000, 1999 and 1998,
respectively.
REVENUE RECOGNITION The Company recognizes revenue from the sale of merchandise
at the time merchandise is sold. Service revenues are recognized upon
completion of the service. The Company records revenue net of an allowance for
estimated future returns. Return activity is immaterial to revenue and results
of operations in all periods presented.
SERVICE REVENUE Service revenue consists of the labor charge for installing
merchandise or maintaining or repairing vehicles, excluding the sale of any
installed parts or materials.
COSTS OF REVENUES Costs of merchandise sales include the cost of products sold,
buying, warehousing and store occupancy costs. Costs of service revenue include
service center payroll and related employee benefits and service center
occupancy costs. Occupancy costs include utilities, rents, real estate and
property taxes, repairs and maintenance and depreciation and amortization
expenses.
PENSION EXPENSE The Company reports all information on its pension and savings
plan benefits in accordance with Statement of Financial Accounting Standards
(SFAS) No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits."
INCOME TAXES The Company uses the liability method of accounting for income
taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under the
liability method, deferred income taxes are determined based upon enacted tax
laws and rates applied to the differences between the financial statement and
tax bases of assets and liabilities.
ADVERTISING The Company expenses the production costs of advertising the first
time the advertising takes place. The Company nets cooperative advertising
reimbursements against costs incurred. In fiscal year 2000, the Company's net
advertising netted to zero. Net advertising expense for fiscal years 1999, 1998
was $346 and $6,378, respectively. No advertising costs were recorded as
assets as of February 3, 2001 or January 29, 2000.
STORE OPENING COSTS The costs of opening new stores are expensed as incurred.
30
IMPAIRMENT OF LONG-LIVED ASSETS The Company accounts for impaired long-lived
assets in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This standard
prescribes the method for asset impairment evaluation for long-lived assets and
certain identifiable intangibles that are either held and used or to be
disposed of. The Company evaluates the ability to recover long-lived assets
whenever events or circumstances indicate that the carrying value of the asset
may not be recoverable. In the event assets are impaired, losses are recognized
to the extent the carrying value exceeds the fair value. In addition, the
Company reports assets to be disposed of at the lower of the carrying amount
or the fair market value less selling costs.
During fiscal year 2000, the Company, as a result of its ongoing review of the
performance of its stores, identified certain stores whose cash flow trend
indicated that the carrying value may not be fully recoverable. An impairment
charge of $5,735 was recorded for these stores in cost of merchandise sold on
the Consolidated Statement of Operations. The charge reflects the difference
between carrying value and fair value. Fair value was based on sales of similar
assets or other estimates of fair value developed by Company management.
EARNINGS PER SHARE Earnings per share for all periods have been computed in
accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share is
computed by dividing earnings by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is computed by dividing
earnings by the weighted average number of common shares outstanding during the
year plus the assumed conversion of dilutive convertible debt and incremental
shares that would have been outstanding upon the assumed exercise of dilutive
stock options.
ACCOUNTING FOR STOCK-BASED COMPENSATION The Company adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." As
permitted by SFAS No. 123, the Company is accounting for employee stock-based
compensation plans in accordance with Accounting Principles Board (APB) opinion
No. 25, "Accounting for Stock Issued to Employees," and has provided
disclosures required by SFAS No. 123.
COMPREHENSIVE INCOME Comprehensive income is reported in accordance with SFAS
No. 130, "Reporting Comprehensive Income." Other comprehensive income includes
minimum pension liability adjustments.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the
Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
As amended by SFAS No. 137,"Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities (an amendment of FASB statement No. 133)," this statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company has analyzed the impact of the adoption of this statement and
it will not have a material effect on the Company upon its adoption on
February 4, 2001.
SEGMENT INFORMATION The Company reports segment information in accordance with
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." The Company operates in one industry, the automotive aftermarket.
In accordance with SFAS No. 131, the Company aggregates all of its stores and
reports one operating segment. Sales by major product categories are as
follows:
Year ended Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999
- ----------------------------------------------------------------------------------------
Parts and Accessories $1,547,020 $1,571,445 $1,649,599
Tires 410,460 382,565 341,741
- ----------------------------------------------------------------------------------------
Total Merchandise Sales 1,957,480 1,954,010 1,991,340
Service 460,988 440,523 407,368
- ----------------------------------------------------------------------------------------
Total Revenues $2,418,468 $2,394,533 $2,398,708
========================================================================================
Parts and accessories includes batteries, new and rebuilt parts, chemicals,
mobile electronics, tools, and various car, truck, van and sport utility
vehicle accessories as well as other automotive related items. Service consists
of the labor charge for installing merchandise or maintaining or repairing
vehicles.
RECENT ACCOUNTING PRONOUNCEMENTS In November 1999, the staff of the Securities
and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial statements." SAB 101 summarizes certain of
the staff's views in applying Generally Accepted Accounting Principles to
revenue recognition issues. The Company has implemented this bulletin in the
fourth quarter of fiscal year 2000 with no material effect on its financial
statements.
NOTE 2 - DEBT
SHORT-TERM BORROWINGS In the third quarter of fiscal 2000, the Company in
conjunction with the acquiring of a new long-term revolving credit agreement
terminated its short-term borrowing line. The Company did have short-term
borrowing during the year and the average and maximum month end balances were
$4,232 and $13,000, respectively, during fiscal 2000. The Company had no
short-term borrowings outstanding at January 29, 2000. The Company had
available a short-term line of credit of $15,000 at January 29, 2000. The
interest rates on these lines were negotiated based upon market conditions.
The average and maximum month end balances on these borrowings were $2,556 and
$16,366, respectively, during fiscal 1999.
31
LONG-TERM DEBT
- ------------------------------------------------------------------------------------------------------------
February 3, 2001 January 29, 2000
- ------------------------------------------------------------------------------------------------------------
Medium-term notes, 6.4% to 6.7%, due
November 2004 through September 2007 $144,005 $150,000
Medium-term notes, 6.7% to 6.9%, due
March 2004 through March 2006 100,000 100,000
7% notes due June 2005 100,000 100,000
6.92% Term Enhanced ReMarketable Securities,
Due July 2017 100,000 100,000
Revolving credit agreement 127,718 10,000
6 5/8% notes due May 2003 75,000 75,000
Senior Notes, 7.8% and 7.95%, due
January 2009 and January 2011 - 70,000
Other notes payable, 5.8% to 8% 7,668 7,851
- ------------------------------------------------------------------------------------------------------------
654,391 612,851
Less current maturities 197 183
- ------------------------------------------------------------------------------------------------------------
Total long-term debt $654,194 $612,668
- ------------------------------------------------------------------------------------------------------------
In September 2000, the Company entered into a new revolving credit
agreement. The new revolving credit agreement provides up to $225,000 of
borrowing availability, which is collateralized by inventory and accounts
receivable. Funds may be drawn and repaid any time prior to September 10, 2004.
Sixty days prior to each anniversary date, the Company may request and, upon
agreement with the bank, extend the maturity of this facility an additional
year. The interest rate on any loan is equal to the London Interbank Offered
Rate ("LIBOR") plus 1.75%, and increases in 0.25% increments as the excess
availability falls below $50,000. The revolver is subject to a financial
covenant for minimum adjusted tangible net worth. This revolver replaces the
previous revolver the Company had with nine major banks, which provided up to
$200,000 in borrowings. The Company recorded an after-tax extraordinary charge
related to the extinguishment of its previous revolving credit agreement of
$931. The weighted average interest rate on borrowings under the revolving
credit agreement was 8.5% at February 3, 2001. In fiscal 1999, the Company
had a revolving credit agreement with nine major banks providing for borrowings
of up to $200,000. The weighted average interest rate on borrowings under the
revolving credit agreement was 6.6% at January 29, 2000.
The other notes payable have a weighted average interest rate of 5.4%
at February 3, 2001 and 6.2% at January 29, 2000, and mature at various times
through August 2016. Certain of these notes are collateralized by land and
buildings with an aggregate carrying value of approximately $7,398 and $7,446
at February 3, 2001 and January 29, 2000, respectively.
In September 2000, the Company retired $70,000 of Senior notes issued
as part of the private placement in February 1999,at par, using the proceeds
from its new $225,000 revolving credit agreement. The Senior Notes were issued
in two series at par, and pay interest semiannually on January 31 and July 31.
The Series A 7.8% Senior Notes, with an aggregate principal balance of $25,000,
were scheduled to begin repaying principal in equal installments from January
2003 until maturity in January 2009. The Series B 7.95% Senior Notes, with an
aggregate principal balance of $45,000, were scheduled to begin repaying
principal in equal installments from January 2007 until maturity in January
2011. In addition, the interest rates on the Senior Notes were subject to a
0.50% increase for such time as the credit rating of the Company's long-term
unsecured debt securities decreases below investment grade as rated by both
Moody's (Ba1) and Standard & Poor's (BB+). The proceeds from the issuance of
the notes were used to finance the Company's share repurchase (see Note 4).
In February 1998, the Company established a Medium-Term Note program
which permitted the Company to issue up to $200,000 of Medium-Term Notes. Under
this program the Company sold $100,000 principal amount of Senior Notes,
ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and
March 2006. Additionally, in July 1998, under this note program, the Company
sold $100,000 of Term Enhanced ReMarketable Securities with a stated maturity
date of July 2017. The Company also sold a call option with the securities,
which allows the securities to be remarketed to the public in July 2006 under
certain circumstances. If the securities are not remarketed, the Company will
be obligated to repay the principal amount in full in July 2017. The level
yield to maturity on the securities is approximately 6.85% and the coupon rate
is 6.92%.
Between July and October 1997, the Company issued $150,000 in Medium
Term Notes with interest rates of 6.4% to 6.7% and maturity dates from November
2004 through September 2007. $50,000 of this debt is redeemable at the option of
the holder on July 16, 2002 and $49,000 is redeemable at the option of the
holder on September 19, 2002.
In June 2000,the Company repurchased $5,995 face value of the $49,000
medium-term note, which was redeemable at the option of the holder on September
19, 2002. The after-tax extraordinary gain was $960.
32
CONVERTIBLE DEBT
- ------------------------------------------------------------------------------------------------------------
February 3, 2001 January 29, 2000
- ------------------------------------------------------------------------------------------------------------
Zero Coupon Convertible Subordinated Notes $158,555 $171,356
- ------------------------------------------------------------------------------------------------------------
158,555 171,356
Less current maturities 158,555 -
- ------------------------------------------------------------------------------------------------------------
Total long-term convertible debt $ - $171,356
- ------------------------------------------------------------------------------------------------------------
On September 20, 1996, the Company issued $271,704 principal amount (at
maturity) of Liquid Yield Option Notes (LYONs) with a price to the public of
$150,000. The net proceeds to the Company were $146,250. The issue price of
each such LYON was $552.07 and there will be no periodic payments of interest.
The LYONs will mature on September 20, 2011, at $1,000 per LYON, representing a
yield to maturity of 4.0% per annum (computed on a semiannual bond equivalent
basis).
In April 2000, the Company repurchased $30,200 face value of its LYONs
at a price of $520 per LYON. The book value of the repurchased LYONs were
$19,226 and the after-tax extraordinary gain was $2,025.
Each LYON is convertible at the option of the holder at any time on or
prior to maturity, unless previously redeemed or otherwise purchased, into
common stock of the Company at a conversion rate of 12.929 shares per LYON. The
LYONs are redeemable at the option of the holder on September 20, 2001 and
September 20, 2006 at the issue price plus accrued original issue discount. The
Company, at its option, may elect to pay the purchase price on any such
purchase date in cash or common stock, or any combination thereof. As of
February 3, 2001, no LYONs have been converted. On or prior to September 20,
2001, the Company will purchase for cash any LYON, at the option of the holder,
in the event of a change in control of the Company. The LYONs are subordinated
to all existing and future senior indebtedness of the Company.
In September 2000, the Company reclassed the LYONs to current
liabilities on the Consolidated Balance Sheet. The Company expects to
repurchase these notes, which will have a value of $162,525, with cash from
operating activities coupled with the proceeds from the sale of assets held for
disposal, its existing lines of credit, and additional financing the Company
anticipates obtaining in early 2001. In the event that the Company does not
secure the financing, the Company has the option to redeem the LYONs with the
issuance of common stock. The final number of shares issued would be determined
at the time of issuance based upon any cash shortfall and the then current stock
price.
Several of the Company's debt agreements require the maintenance of
a certain level of minimum adjusted tangible net worth. The Company was in
compliance with all debt covenants at February 3, 2001.
The annual maturities, including accreted value, of all long-term and
convertible debt for the next five years are $162,722 in 2001, $93,116 in 2002,
$81,014 in 2003, $235,734 in 2004 and $100,017 in 2005. These maturities
include amounts for early redemption, which is at the option of the holders.
Any compensating balance requirements related to all revolving credit
agreements and debt were satisfied by balances available from normal business
operations.
The Company was contingently liable for outstanding letters of credit
in the amount of approximately $20,571 at February 3, 2001.
33
NOTE 3 - LEASE COMMITMENTS
In January 2001, the Company sold certain assets for $10,464. The
assets were leased back from the purchaser on a month to month renewable
term basis with a residual guarantee given by the Company at the end of the
lease term. The resulting lease is being accounted for as an operating lease
and the gain of $593 from the sale of the certain assets is deferred until
the lease term is completed and the residual guarantee is satisfied, at which
time the gain will be recorded in cost of merchandise sold.
In September 2000, the Company entered into a new operating lease for
certain real estate properties. The new $143,000 of real estate operating
leases, which have an interest rate of LIBOR plus 1.85% replaces $143,000 of
real estate operating leases, which had an interest rate of LIBOR plus 2.27%.
The company, as a result of replacing the existing real estate operating
leases, recorded a pretax charge to earnings of $1,630 of unamortized lease
costs, which was recorded in the cost of merchandise sold section of the
Consolidated Statement of Operations.
The Company leases certain property and equipment under operating
leases which contain renewal and escalation clauses. Aggregate minimum rental
commitments for leases having noncancelable lease terms of more than one year
are approximately: 2001 - $47,453; 2002 - $47,381; 2003 - $40,248; 2004 -
$38,895; 2005- $39,002; thereafter - $405,663. Rental expenses incurred for
operating leases in 2000, 1999 and 1998 were $63,206, $59,890 and $57,157,
respectively.
NOTE 4 - STOCKHOLDERS' EQUITY
SHARE REPURCHASE - TREASURY STOCK On February 1, 1999, the Company repurchased
11,276,698 of its common shares outstanding pursuant to a Dutch Auction self-
tender offer at a price of $16.00 per share. The repurchased shares included
1,276,698 common shares which were repurchased as a result of the Company
exercising its option to purchase an additional 2% of its outstanding shares.
Expenses related to the share repurchase were approximately $1,638 and were
included as part of the cost of the shares acquired. A portion of the treasury
shares will be used by the Company to provide benefits to employees under its
compensation plans and in conjunction with the Company's dividend reinvestment
program. At February 3, 2001, the Company has reflected 10,454,644 shares of
its common stock at a cost of $168,793 as "Shares in treasury" on the Company's
Consolidated Balance Sheet.
RIGHTS AGREEMENT On December 31, 1997, the Company distributed as a dividend
one common share purchase right on each of its common shares. The rights will
not be exercisable or transferable apart from the Company's common stock until
a person or group, as defined in the rights agreement (dated December 5,1997),
without the proper consent of the Company's Board of Directors, acquires 15%
or more, or makes an offer to acquire 15% or more of the Company's outstanding
stock. When exercisable, the rights entitle the holder to purchase one share
of the Company's common stock for $125. Under certain circumstances, including
the acquisition of 15% of the Company's stock by a person or group, the rights
entitle the holder to purchase common stock of the Company or common stock of
an acquiring company having a market value of twice the exercise price of the
right. The rights do not have voting power and are subject to redemption by the
Company's Board of Directors for $.01 per right anytime before a 15% position
has been acquired and for 10 days thereafter, at which time the rights become
nonredeemable. The rights expire on December 31, 2007.
BENEFITS TRUST On April 29, 1994, the Company established a flexible employee
benefits trust with the intention of purchasing up to $75,000 worth of the
Company's common shares. The repurchased shares will be held in the trust and
will be used to fund the Company's existing benefit plan obligations including
healthcare programs, savings and retirement plans and other benefit
obligations. The trust will allocate or sell the repurchased shares through
2023 to fund these benefit programs. As shares are released from the trust, the
Company will charge or credit additional paid-in capital for the difference
between the fair value of shares released and the original cost of the shares
to the trust. For financial reporting purposes, the trust is consolidated with
the accounts of the Company. All dividend and interest transactions between the
trust and the Company are eliminated. In connection with the Dutch Auction
self-tender offer, 37,230 shares were tendered at a price of $16.00 per share
in fiscal 1999. At February 3, 2001, the Company has reflected 2,195,270 shares
of its common stock at a cost of $59,264 as "Shares in benefits trust" on the
Company's Consolidated Balance Sheet.
NOTE 5 - SIGNIFICANT CHARGES
During fiscal 1998, the Company recorded pretax charges of $29,451
($20,109 net of tax), $27,733 of which was recorded as costs of merchandise
sales on the Company's Consolidated Statements of Operations and includes the
costs associated with the closure and sale of 109 Pep Boys Express stores.
The remaining $1,718 of these expenses have been included in Selling,
General and Administrative Expenses on the Company's Consolidated
Statements of Operations.
34
NOTE 6 - PROFIT ENHANCEMENT PLAN
In the third quarter 2000, the Company performed a comprehensive
review of its field, distribution, and store support center infrastructure as
well as the performance of each store. As a result of this review, the Company
implemented a number of changes that it believes will improve its performance.
These changes included the closure of 38 underperforming stores and two
distribution centers, a decrease of store operating hours and a reduction in
the store support center infrastructure. The Company recorded a pretax charge
to earnings for fiscal year 2000 as follows:
Non-reservable Total
Expense Expense
Income Statement Original Reserve Incurred in Year Ended
Classification Charge Adjustments 4th Quarter Feb. 3, 2001
- -----------------------------------------------------------------------------
Costs of
Merchandise Sold $62,665 $ 939 $3,481 $67,085
Costs of
Service Revenue 5,661 (177) (252) 5,232
Selling, General and
Administrative 2,908 (661) 381 2,628
- -----------------------------------------------------------------------------
Total Expenses $71,234 $ 101 $3,610 $74,945
- -----------------------------------------------------------------------------
The original third quarter charge totaled $71,234 of which $62,665
was recorded in costs of merchandise sold on the Company's Consolidated
Statement of Operations and includes expenses associated with the closure of 38
stores and two distribution centers, certain equipment write-offs and severance
costs associated with the contraction of the special order department. The
remaining $8,569 was divided with $5,661 recorded as costs of service revenue,
which includes service department expenses associated with the store closures,
and $2,908 recorded as selling, general and administrative which includes
expenses associated with the closure of the two regional offices, the
abandonment of future development projects and severance for the reduction
of the store support center infrastructure.
The fourth quarter reserve adjustments increased by $101 due to
additional expenses which were recorded in costs of merchandise sold on the
Company's Consolidated Statement of Operations. These additional expenses
included write-downs of certain equipment, the on-going expenses associated
with the change in estimated time to sublease the properties offset, in part,
by decreases in rent expense related to the change in Company's estimated time
to sublease the properties, the change in estimated sublease value and a
present value interest adjustment, coupled with a reduction in estimated
warehouse severance. The increase in reserve adjustment was offset, in part, by
a decrease in cost of service revenue related to the reduction of the estimated
employee severance and the decrease in rent expense related to the change in
the Company's estimated time to sublease the properties, the change in the
estimated sublease value, and a present value interest adjustment offset, in
part, by an increase in on-going expenses associated with the changes in
estimated time to sublease the properties. In addition, selling, general and
administrative expense was reduced due to a change in estimated cost to exit
leases for abandoned projects coupled with a reduction of employee severance.
In the fourth quarter of 2000, the Company incurred expenses related
to the closure of the 38 stores and two distribution centers, for inventory and
equipment handling which was offset, in part, by a recovery of certain
benefits expenses related to the reduction of workforce. These expenses which
totaled $3,610 were not reserved and were recorded as incurred. The Company
estimates additional expenses of approximately $1,200 to be incurred during
first quarter of 2001.
Approximately 1,300 of the Company's employees were notified of their
separation from the Company prior to the end of the third quarter. As of
February 3, 2001, the number of employees to be separated was reduced to
approximately 1,000 of which 97% have left their positions and the remaining 3%
are anticipated to leave the Company during the first quarter of 2001. The
1,000 employees were composed of 76% store employees, 13% distribution center
employees, and 11% store support center and field administrative employees. The
reduction in employees to be separated was primarily a result of some of the
notified store employees being transferred to other stores within the Company.
The total severance paid during fiscal 2000 in connection with the Profit
Enhancement Plan was $1,213.
35
At the end of the third quarter 2000, the Company set up a reserve
liability account which is included in accrued liabilities on the Consolidated
Balance Sheet. This liability account will track all accruals including
remaining rent on leases net of sublease income, severance and on-going expenses
for the closed facilities. The following chart reconciles the charge since its
initial recording to the reserve balance at February 3, 2001.
Lease Fixed On-Going
Expenses Assets(3) Severance Expenses Total
- -------------------------------------------------------------------------------------------------------------
Original Charges $ 7,916 $57,680 $ 1,694 $ 3,944 $71,234
- -------------------------------------------------------------------------------------------------------------
Addition(1) - 1,074 - 361 1,435
- -------------------------------------------------------------------------------------------------------------
Utilization (975) (58,754) (1,213) (1,345) (62,287)
- -------------------------------------------------------------------------------------------------------------
Adjustments(2) 113 - (272) - (159)
- -------------------------------------------------------------------------------------------------------------
Reserve Balance at
February 3,2001 $ 7,054 $ - $ 209 $ 2,960 $10,223
- -------------------------------------------------------------------------------------------------------------
(1) Additions are composed of additional equipment write-offs and an increase
in on-going expenses related to the change in estimated time required to
sublet or sell the properties held for disposal.
(2) Adjustments are composed of a decrease in employee severance offset, in
part, by an increase in lease expenses due to a reclass of a portion of the
reserve to offset a lease liability previously accrued of $1,176 offset, in
part, by a decrease in estimated lease expenses of $1,063 due to a change
in fair value of the sublease payments offset, in part, by a change in
estimated time required to sublet properties and a change in present value
interest on the lease expenses.
(3) The total carrying costs related to assets held for disposal or written-off
were $81,384 of which the Company recorded a loss of $58,754.
NOTE 7 - PENSION AND SAVINGS PLANS
The Company has a defined benefit pension plan covering substantially
all of its full-time employees hired on or before February 1, 1992. Normal
retirement age is 65. Pension benefits are based on salary and years of
service. The Company's policy is to fund amounts as are necessary on an
actuarial basis to provide assets sufficient to meet the benefits to be paid to
plan members in accordance with the requirements of ERISA.
The actuarial computations are made using the "projected unit credit
method." Variances between actual experience and assumptions for costs and
returns on assets are amortized over the remaining service lives of employees
under the plan.
As of December 31, 1996, the Company froze the accrued benefits under
the plan and active participants became fully vested. The plan's trustee will
continue to maintain and invest plan assets and will administer benefit
payments.
Pension expense (income) includes the following:
Feb. 3, Jan. 29, Jan. 30,
Year ended 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Interest cost $ 1,848 $ 1,826 $ 1,711
Expected return on plan assets (2,261) (1,915) (1,703)
Amortization of transition asset (214) (214) (214)
Recognized actuarial loss 890 597 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total pension expense (income) $ 263 $ 294 $ (206)
- -----------------------------------------------------------------------------------------------------------------------------------
Pension plan assets are stated at fair market value and are composed
primarily of money market funds, stock index funds, fixed income investments
with maturities of less than five years and the Company's common stock.
36
The following table sets forth the reconciliation of the benefit
obligation, fair value of plan assets and funded status of the Company's
defined benefit plan.
Feb. 3, Jan. 29,
2001 2000
- --------------------------------------------------------------------------------------------------------------
Change in Benefit Obligation
Benefit obligation at beginning of year $26,955 $28,615
Interest cost 1,848 1,826
Actuarial gain (2,041) (2,213)
Benefits paid (1,036) (1,273)
- ---------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $25,726 $26,955
- ---------------------------------------------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at beginning of year $26,974 $20,236
Actual return on plan assets (net of expenses) (84) 2,077
Employer contributions - 5,934
Benefits paid (1,036) (1,273)
- ---------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $25,854 $26,974
- ---------------------------------------------------------------------------------------------------------------
Reconciliation of the Funded Status
Funded status $ 128 $ 19
Unrecognized transition asset (214) (428)
Unrecognized actuarial loss 3,663 4,249
- ---------------------------------------------------------------------------------------------------------------
Net amount recognized at year-end
as prepaid benefit cost $ 3,577 $ 3,840
- ---------------------------------------------------------------------------------------------------------------
Weighted-Average Assumptions
Discount rate: 7.40% 6.90%
Expected return on plan assets: 8.50% 8.50%
- ---------------------------------------------------------------------------------------------------------------
The Company had no comprehensive income attributable to the change in the
minimum pension liability in fiscal year 2000. The Company recorded other
comprehensive income (expense), net of tax, attributable to the change in the
minimum pension liability of $4,210 and $(2,844) in fiscal years 1999 and 1998,
respectively.
The Company has 401(k) savings plans which covers all full-time employees who
are at least 21 years of age with one or more years of service. The Company
contributes the lesser of 50% of the first 6% of a participant's contributions
or 3% of the participant's compensation. The Company's savings plans'
contribution expense was $4,947, $5,644 and $5,274 in fiscal years 2000, 1999
and 1998, respectively.
37
NOTE 8 - NET EARNINGS PER SHARE
For fiscal years 2000, 1999 and 1998, basic earnings per share are
based on net earnings divided by the weighted average number of shares
outstanding during the period. Diluted earnings per share assumes conversion of
convertible subordinated notes, zero coupon convertible subordinated notes and
the dilutive effects of stock options. Adjustments for convertible securities
were antidilutive in 2000, 1999 and 1998, and therefore excluded from the
computation of diluted EPS; however, these securities could potentially be
dilutive in the future. Options to purchase 5,032,772, 4,755,657 and 3,572,946
shares of common stock were outstanding at February 3, 2001, January 29, 2000
and January 30, 1999, respectively, but were not included in the computation
of diluted EPS because the options' exercise prices were greater than the
average market prices of the common shares on such dates.
The following schedule presents the calculation of basic and diluted earnings
per share for income from continuing operations:
- -------------------------------------------------------------------------------
(In thousands, except per share amounts)
Fiscal 2000 Fiscal 1999 Fiscal 1998
---------------------------------- ---------------------------------- ---------------------------------
Earnings Shares Per share Earnings Shares Per share Earnings Shares Per share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator)(Denominator) Amount
----------- ------------ ------ ----------- ------------ ------ ---------- ------------ ------
Basic EPS
Earnings available to
common stockholders $(53,148) 51,088 $(1.04) $ 29,303 50,665 $.58 $ 4,974 61,543 $.08
==== ==== ====
Effect of Dilutive
Securities
Common shares assumed
issued upon exercise of
dilutive stock options - - - 175 - 197
------- ------ ------- ------ ------- ------
Diluted EPS
Earnings available to
common stockholders
assuming conversion $(53,148) 51,088 $(1.04) $ 29,303 50,840 $.58 $ 4,974 61,740 $.08
========= ====== ======= ======== ====== ==== ======= ====== ====
NOTE 9 - INCOME TAXES
The provision for income taxes includes the following:
Feb. 3, Jan. 29, Jan. 30,
Year ended 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Current:
Federal $ (6,300) $ 12,653 $ (10,295)
State 353 788 (537)
Deferred:
Federal (22,776) 2,074 12,266
State (1,798) 149 876
- ----------------------------------------------------------------------------------------------------------------------------------
$(30,521) $ 15,664 $ 2,310
- ----------------------------------------------------------------------------------------------------------------------------------
A reconciliation of the statutory federal income tax rate to the
effective rate of the provision for income taxes follows:
Feb. 3, Jan. 29, Jan. 30,
Year ended 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal
tax benefits 1.2 1.4 3.0
Job credits 0.3 (1.1) (5.8)
Other, net - (0.5) (0.5)
- -----------------------------------------------------------------------------------------------------------------------------------
36.5% 34.8% 31.7%
- -----------------------------------------------------------------------------------------------------------------------------------
38
Items that gave rise to significant portions of the deferred tax
accounts are as follows:
Feb. 3, Jan. 29,
2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Inventories $ 8,431 $ 7,851
Vacation accrual 5,014 5,542
Minimum pension liability adjustment 820 (1,548)
Store closing reserves 5,661 2,238
Other, net 5,483 2,523
- -----------------------------------------------------------------------------------------------------------------------------------
$ 25,409 $16,606
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 89,706 $82,908
Other, net (23,514) (944)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 66,192 $81,964
- -----------------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 40,783 $65,358
- -----------------------------------------------------------------------------------------------------------------------------------
At February 3, 2001 the company has state net operating losses of approximately
$5,000 that begin to expire in 2006. In addition the company has general
business credits of $1,083 which expire beginning in 2019 and minimum tax
credits of $1,381 which have no expiration date.
NOTE 10 - STOCK OPTION PLANS
Options to purchase the Company's common stock have been granted to key
employees and members of the Board of Directors. The option prices are at least
100% of the fair market value of the common stock on the grant date.
On May 21, 1990, the stockholders approved the 1990 Stock Incentive
Plan which authorized the issuance of restricted stock and/or options to
purchase up to 1,000,000 shares of the Company's common stock. Additional
shares in the amounts of 2,000,000, 1,500,000 and 1,500,000 were authorized by
stockholders on June 4, 1997, May 31, 1995 and June 1, 1993, respectively.
Under this plan, both incentive and nonqualified stock options may be granted
to eligible participants. Incentive stock options are fully exercisable
on the second or third anniversary of the grant date or become exercisable over
a four-year period with one-fifth exercisable on the grant date and one-fifth
on each anniversary date for the four years following the grant date.
Nonqualified options become exercisable over a four-year period with one-fifth
exercisable on the grant date and one-fifth on each anniversary date for the
four years following the grant date. Options cannot be exercised more than ten
years after the grant date. As of February 3, 2001, no shares remain
available for grant.
On June 2, 1999 the stockholders approved the 1999 Stock Incentive Plan
which authorized the issuance of restricted stock and/or options to purchase up
to 2,000,000 shares of the Company's common stock. Under this plan, both
incentive and nonqualified stock options may be granted to eligible
participants. The incentive stock options and nonqualified stock options are
fully exercisable on the third anniversary of the grant date or become
exercisable over a four-year period with one-fifth exercisable on the grant
date and one-fifth on each anniversary date for the four years following the
grant date. Options cannot be exercised more than ten years after the grant
date. As of February 3, 2001, 383,000 shares remain available for grant.
39
Stock option transactions for the Company's stock option plans are
summarized as follows:
Fiscal 2000 Fiscal 1999 Fiscal 1998
------------------------ ----------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding - beginning of year 5,413,622 $22.05 4,982,761 $23.02 3,465,194 $25.40
Granted 1,160,450 6.34 1,558,450 16.08 2,515,150 21.06
Exercised - - (519,850) 12.50 (107,825) 17.09
Canceled (1,534,300) 18.10 (607,739) 22.75 (889,758) 27.23
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year 5,039,772 19.63 5,413,662 22.05 4,982,761 23.02
- ---------------------------------------------------------------------------------------------------------------------------
Options exercisable - at year end 2,501,678 24.93 2,489,162 24.66 2,359,724 21.94
Weighted average estimated fair value
of options granted 2.54 6.60 8.44
- ---------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options
outstanding at February 3, 2001:
Options Outstanding Options Exercisable
---------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 2/3/01 Life Price at 2/3/01 Price
- ----------------------------------------------------------------------------------------------------------------------------------
$ 5.31 to $20.00 2,447,215 9 years $12.00 562,885 $14.16
$20.01 to $25.00 1,384,325 6 years 22.93 747,251 22.86
$25.01 to $30.00 115,967 3 years 27.98 115,967 27.98
$30.01 to $37.38 1,092,265 5 years 31.68 1,075,575 31.68
- ----------------------------------------------------------------------------------------------------------------------------------
$ 5.31 to $37.38 5,039,772 2,501,678
- ----------------------------------------------------------------------------------------------------------------------------------
The Company applies APB No. 25, "Accounting for Stock Issued to
Employees," in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for its stock option plans. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant dates and recognized as compensation expense on a
straight-line basis over the vesting period of the grant consistent with the
method of SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net (loss) earnings and net (loss) earnings per share would have been
reduced to the pro forma amounts indicated as follows:
- -----------------------------------------------------------------------------------------------------------
Fiscal 2000 Fiscal 1999 Fiscal 1998
- -----------------------------------------------------------------------------------------------------------
Net (loss) earnings:
(Loss)income before extraordinary items $(57,365) $24,450 $ (757)
Extraordinary items 2,054 - -
- -----------------------------------------------------------------------------------------------------------
Net (loss) income $(55,311) $24,450 $ (757)
- -----------------------------------------------------------------------------------------------------------
(Loss)earnings per share - basic:
(Loss)income before extraordinary items $ (1.12) $ .48 $ (.01)
Extraordinary items .04 - -
- -----------------------------------------------------------------------------------------------------------
Net (loss) income $ (1.08) $ .48 $ (.01)
- -----------------------------------------------------------------------------------------------------------
(Loss)earnings per share - diluted:
(Loss)income before extraordinary items $ (1.12) $ .48 $ (.01)
Extraordinary items .04 - -
- -----------------------------------------------------------------------------------------------------------
Net (loss) income $ (1.08) $ .48 $ (.01)
- -----------------------------------------------------------------------------------------------------------
The pro forma effects on net earnings for fiscal years 2000, 1999 and
1998 are not representative of the pro forma effect on net earnings in future
years because it does not take into consideration pro forma compensation
expense related to grants made prior to 1995.
The fair value of each option granted during fiscal years 2000, 1999
and 1998 is estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions: (i) dividend
yield of 0.90%,0.78% and 0.70%, respectively, (ii) expected volatility of 40%,
34% and 35%,respectively, (iii) risk-free interest rate ranges of 5.8% to 6.7%,
5.0% to 6.5% and 4.0% to 5.7%, respectively, and (iv) ranges of expected
lives of 4 years to 8 years for fiscal years 2000, 1999 and 1998.
40
NOTE 11 - CONTINGENCIES
The Company is a defendant in an action entitled "Coalition for a
Level Playing Field, L.L.C., et al. v. AutoZone, Inc., et al.," in the United
States District Court for the Eastern District of New York. There are over 100
plaintiffs, consisting of automotive jobbers, warehouse distributors and a
coalition of several trade associations; the defendants are AutoZone, Inc.,
Wal-Mart Stores, Inc., Advance Stores Company, Inc., CSK Auto, Inc., the
Company, Discount Auto Parts, Inc., O'Reilly Automotive, Inc. and Keystone
Automotive Operations, Inc. The plaintiffs allege that the defendants violated
various provisions of the Robinson-Patman Act by, among other things, knowingly
inducing and receiving various forms of discriminatory prices from automotive
parts manufacturers. The plaintiffs are seeking compensatory damages, which
would be trebled under applicable law, as well as injunctive and other
equitable relief. The Company believes the claims are without merit and intends
to vigorously defend this action.
The Company is also party to various other lawsuits and claims,
including purported class actions, arising in the normal course of business. In
the opinion of management, these lawsuits and claims, including the cases above,
are not, singularly or in the aggregate, material to the Company's financial
position or results of operations.
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are
as follows:
February 3, 2001 January 29, 2000
------------------------ ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 7,995 $ 7,995 $ 18,485 $ 18,485
Accounts receivable 16,792 16,792 17,281 17,281
Liabilities:
Accounts payable 204,755 204,755 320,066 320,066
Long-term debt including
current maturities 654,391 472,770 612,851 489,824
Zero coupon
convertible
subordinated notes 158,555 148,525 171,356 148,079
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, AND ACCOUNTS PAYABLE
The carrying amounts approximate fair value because of the short
maturity of these items.
LONG-TERM DEBT INCLUDING CURRENT MATURITIES AND ZERO COUPON CONVERTIBLE
SUBORDINATED NOTES INCLUDING CURRENT MATURITIES
Interest rates that are currently available to the Company for
issuance of debt with similar terms and remaining maturities are used to
estimate fair value for debt issues that are not quoted on an exchange.
The fair value estimates presented herein are based on pertinent
information available to management as of February 3, 2001 and January 29,
2000. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since those
dates, and current estimates of fair value may differ significantly from
amounts presented herein.
41
QUARTERLY FINANCIAL DATA (UNAUDITED) The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Earnings(Loss) Net
Earnings Per Share Before Earnings
Operating (Loss) Before Net Extraordinary (Loss) Cash Market Price
Year Ended Total Gross Profit Extraordinary Earnings Gain (Loss) Per Share Dividends Per Share
Feb. 3, 2001 Revenues Profit (Loss) Gain (Loss) (Loss) Basic Diluted Basic Diluted Per Share High Low
- -----------------------------------------------------------------------------------------------------------------------------------
1st Quarter $614,809 $159,816 $19,501 $ 4,407 $6,447 $ .09 $ .09 $ .13 $ .13 $.0675 $ 7 11/16 5 1/2
2nd Quarter 633,887 157,622 18,593 3,409 4,376 .07 .07 .09 .09 .0675 7 5/8 5 5/8
3rd Quarter 622,382 66,358 (82,571) (62,271) (63,209) (1.22) (1.22) (1.24) (1.24) .0675 6 7/16 4 3/16
4th Quarter(1) 547,390 148,055 16,445 1,292 1,292 .03 .03 .03 .03 .0675 5 3/8 3 5/16
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
Jan. 29, 2000
- -----------------------------------------------------------------------------------------------------------------------------------
1st Quarter $598,316 $162,027 $29,040 $ 10,093 $10,093 $ .20 $ .20 $ .20 $ .20 $.0675 20 3/16 14 1/4
2nd Quarter 635,403 176,520 43,852 20,065 20,065 .40 .39 .40 .39 .0675 21 5/8 14 3/16
3rd Quarter 605,833 157,769 27,575 9,930 9,930 .20 .20 .20 .20 .0675 17 7/16 11 5/16
4th Quarter 554,981 126,719 (6,270) (10,785) (10,785) (.21) (.21) (.21) (.21) .0675 13 7 1/8
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Included 14 weeks due to 53 week fiscal year
Under the Company's present accounting system, actual gross profit from
merchandise sales can be determined only at the time of physical inventory,
which is taken at the end of the fiscal year. Gross profit from merchandise
sales for the first, second and third quarters is estimated by the Company
based upon recent historical gross profit experience and other appropriate
factors. Any variation between estimated and actual gross profit from
merchandise sales for the first three quarters is reflected in the fourth
quarter's results.
42
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The material contained in the registrant's definitive proxy statement,
which will be filed pursuant to Regulation 14A not later than 120 days after
the end of the Company's fiscal year (the "Proxy Statement"), under the caption
"Election of Directors" is hereby incorporated herein by reference. The
information regarding executive officers called for by Item 401 of Regulation
S-K is included in Part I, in accordance with General Instruction G(3) to Form
10-K.
ITEM 11 EXECUTIVE COMPENSATION
The material in the Proxy Statement under the caption "Executive
Compensation" other than the material under the caption "Executive
Compensation - Report of Compensation Committee of the Board of Directors on
Executive Compensation" and "Executive Compensation - Performance Graph" is
hereby incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The material in the Proxy Statement under the caption "Outstanding
Shares, Voting Rights and Shareholdings of Certain Persons - Share Ownership
of Certain Beneficial Owners and Management" is hereby incorporated herein by
reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The material in the Proxy Statement under the caption "Executive
Compensation - Certain Relationships and Related Transactions" is hereby
incorporated herein by reference.
43
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a). Page
----
1. The following consolidated financial statements
of The Pep Boys - Manny, Moe & Jack are included in Item 8.
Independent Auditors' Report 25
Consolidated Balance Sheets - February 3, 2001
and January 29, 2000 26
Consolidated Statements of Operations - Years ended February 3, 2001,
January 29, 2000 and January 30, 1999 27
Consolidated Statements of Stockholders' Equity Years ended February
3, 2001, January 29, 2000 and January 30, 1999 28
Consolidated Statements of Cash Flows - Years ended February 3, 2001,
January 29, 2000, and January 30, 1999 29
Notes to Consolidated Financial Statements 30
2. The following consolidated financial statement schedule of The Pep
Boys - Manny, Moe & Jack is included.
Schedule II Valuation and Qualifying Accounts and Reserves 51
All other schedules have been omitted because they are not applicable
or not required or the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits
(3.1) Articles of Incorporation, Incorporated by reference from
as amended the Company's Form 10-K for the
fiscal year ended January 30,
1988.
(3.2) By-Laws, as amended Incorporated by reference from
the Registration Statement on
Form S-3 (File No. 33-39225).
(3.3) Amendment to By-Laws Incorporated by reference from
(Declassification of Board of Directors) the Company's Form 10-K for the
fiscal year ended January 29,
2000.
(4.1) Indenture, dated as of March 22, Incorporated by reference from
1991 between the Company and the Registration Statement on
Bank America Trust Company of Form S-3 (File No. 33-39225).
New York as Trustee, including
Form of Debt Security
44
(4.2) Indenture, dated as of August Incorporated by reference from
31, 1994, between the Company the Registration Statement on
and First Fidelity Bank, Form S-3 (File No. 33-55115).
National Association as Trustee,
including Form of Debenture
(4.3) Indenture, dated as of June Incorporated by reference from
12, 1995, between the Company the Registration Statement on
and First Fidelity Bank, Form S-3 (File No. 33-59859).
National Association as Trustee,
including Form of Debenture
(4.4) Indenture, dated as of September Incorporated by reference from
20, 1996, between the Company and the Registration Statement on
the Trustee, providing for the Form S-3 (File No. 333-00985).
Issuance of the LYONs
(4.5) Indenture, dated as of July 15, 1997, Incorporated by reference from
between the Company and PNC the Registration Statement on
Bank, National Association, as Form S-3 (File No. 333-30295).
Trustee, providing for the issuance
of Senior Debt Securities, and form
of security
(4.6) Indenture, dated as of July 15, 1997, Incorporated by reference from
between the Company and PNC the Registration Statement on
Bank, National Association, as Form S-3 (File No. 333-30295)
Trustee, providing for the issuance
of Subordinated Debt Securities, and
form of security
(10.1)* Medical Reimbursement Plan of Incorporated by reference from
the Company the Company's Form 10-K for the
fiscal year ended January 31,
1982.
(10.2) Rights Agreement dated as of Incorporated by reference from
December 5, 1997 between the the Company's Form 8-K dated
Company and First Union December 8, 1997.
National Bank
(10.3)* Directors' Deferred Compensation Incorporated by reference from
Plan, as amended the Company's Form 10-K for the
fiscal year ended January 30,
1988.
(10.4) Dividend Reinvestment and Stock Purchase Incorporated by reference from
Plan dated January 4, 1990 the Registration Statement on
Form S-3 (File No. 33-32857).
(10.5)* The Pep Boys - Manny, Moe & Incorporated by reference from
Jack Trust Agreement for the the Company's Form 10-K for the
Executive Supplemental Pension fiscal year ended February 1,
Plan and Certain Contingent 1992.
Compensation Arrangements,
dated as of February 13, 1992
(10.6)* Amendment to the Executive Incorporated by reference from
Supplemental Pension Plan the Company's Form 10-K for the
(amended and restated effective fiscal year ended February 1,
January 1, 1988), dated as of 1992.
February 13, 1992
(10.7)* Consulting and Retirement Incorporated by reference from
Agreement by and between the the Company's Form 10-K for the
Company and Benjamin Strauss, fiscal year ended February 1,
dated as of February 2, 1992 1992.
45
(10.8) Flexible Employee Benefits Trust Incorporated by reference from
the Company's Form 8-K dated May
6, 1994.
(10.9) Credit Agreement dated as of Incorporated by reference from
April 21, 1995 between the the Company's Form 10-Q for the
Company and The Chase Manhattan quarter ended April 29, 1995.
Bank (Agent)
(10.10) Transaction Agreement, including Incorporated by reference from
amendments, among The Pep Boys - the Company's Form 10-K for the
Manny, Moe & Jack, State Street year ended February 1, 1997.
Bank and Trust Company (Trustee) and
Citicorp Leasing, Inc., dated as of
November 13, 1995
(10.11) Master Lease, including amendments, Incorporated by reference from
between State Street Bank and Trust the Company's Form 10-K for the
Company (Trustee) and The Pep Boys - Manny, year ended February 1, 1997.
Moe & Jack, dated as of November 13,
1995
(10.12) Master Lease, including amendments, Incorporated by reference from
between State Street Bank and Trust the Company's Form 10-K for the
Company (Trustee) and The Pep Boys - Manny, year ended January 31, 1998.
Moe & Jack dated as of February 28,
1997
(10.13) Transaction Agreement, including Incorporated by reference from
amendments, between State Street the Company's Form 10-K for the
Bank and Trust Company (Trustee) and The year ended January 31, 1998.
Pep Boys - Manny, Moe & Jack dated as
of February 28, 1997
(10.14) Amendment No. 1 to the Credit Incorporated by reference from
Agreement dated as of April 21, 1995 the Company's Form 10-K for the
between the Company and The Chase year ended January 31, 1998.
Manhattan Bank (Agent)
(10.15)* The Pep Boys - Manny, Moe & Jack Incorporated by reference from
Pension Plan the Company's Form 10-K for the
year ended January 31, 1998.
(10.16)* The Pep Boys Savings Plan Incorporated by reference from
the Company's Form 10-K for the
year ended January 31, 1998.
(10.17)* The Pep Boys Savings Plan - Puerto Rico Incorporated by reference from
the Company's Form 10-K for the
year ended January 31, 1998.
(10.18) Amendment No. 2 dated as of July 31,1998 Incorporated by reference from
to the Credit Agreement dated as of April the Company's Form 10-Q for the
21, 1995 between the Company, the Banks quarter ended August 1, 1998.
signatory thereto and The Chase Manhattan
Bank (Agent)
(10.19) Amendment to Transaction Agreement between Incorporated by reference from
the Company and State Street Bank and Trust the Company's Form 10-Q for the
Company (Trustee) dated as of February 28, 1997 quarter ended August 1, 1998.
(10.20) Amendment dated as of July 31, 1998 to Master Incorporated by reference from
Lease between the Company and State Street the Company's Form 10-Q for the
Bank and Trust Company (Trustee) dated as of quarter ended August 1, 1998.
November 13, 1995
(10.21) Amendment dated as of July 31, 1998 to Master Incorporated by reference from
Lease between the Company and State Street the Company's Form 10-Q for the
Bank and Trust Company (Trustee) dated as of quarter ended August 1, 1998.
February 28, 1997
(10.22) Amendment No. 3 dated as of October 31, 1998 Incorporated by reference from
to the Amended and Restated Credit Agreement the Company's Form 10-Q for the
dated as of April 21, 1995 among the Company, quarter ended October 31, 1998.
the Banks signatory thereto and The Chase
Manhattan Bank, as Agent.
(10.23) Third Amendment dated as of October 31, 1998 Incorporated by reference from
to Transaction Agreement between the Company and the Company's Form 10-Q for the
State Street Bank and Trust Company (Trustee) dated quarter ended October 31, 1998.
as of February 28, 1997.
(10.24) Third Amendment dated as of October 31, 1998 Incorporated by reference from
to Master Lease between the Company and State the Company's Form 10-Q for the
Street Bank and Trust Company (Trustee) dated as of quarter ended October 31, 1998.
November 13, 1995.
(10.25) Second Amendment dated as of October 31, 1998 Incorporated by reference from
to Master Lease between the Company and State the Company's Form 10-Q for the
Street Bank and Trust Company (Trustee) dated as of quarter ended October 31, 1998.
February 28, 1997.
(10.26) Fourth Amendment dated as of October 31, 1998 Incorporated by reference from
to Transaction Agreement between the Company the Company's Form 10-Q for the
and State Street Bank and Trust Company (Trustee) quarter ended October 31, 1998.
dated as of November 13, 1995.
(10.27)* Form of Employment Agreement dated as of Incorporated by reference from
June 1998 between the Company and certain the Company's Form 10-Q for the
officers of the Company. quarter ended October 31, 1998.
46
(10.28)* Employment Agreement between Mitchell G. Leibovitz Incorporated by reference from
and the Company dated as of June 3, 1998. the Company's Form 10-Q for the
quarter ended October 31, 1998.
(10.29) Third Amendment dated as of January 21, 1999 Incorporated by reference from
to Master Lease between the Company and State the Company's Form 10-K for the
Street Bank and Trust Company (Trustee) dated as of year ended January 30, 1999.
February 28, 1997.
(10.30) Fourth Amendment dated as of January 21, 1999 Incorporated by reference from
to Transaction Agreement between the Company the Company's Form 10-K for the
and State Street Bank and Trust Company (Trustee) year ended January 30, 1999.
dated as of February 28, 1997.
(10.31) Fifth Amendment dated as of January 21, 1999 Incorporated by reference from
to Transaction Agreement between the Company the Company's Form 10-K for the
and State Street Bank and Trust Company (Trustee) year ended January 30, 1999.
dated as of November 13, 1995.
(10.32) Fourth Amendment dated as of January 21, 1999 Incorporated by reference from
to Master Lease between the Company and State the Company's Form 10-K for the
Street Bank and Trust Company (Trustee) dated year ended January 30, 1999.
as of November 13, 1995.
(10.33) Amendment No. 4 dated as of January 22, 1999 Incorporated by reference from
to the Amended and Restated Credit Agreement the Company's Form 10-K for the
dated as of April 21, 1995 among the Company, year ended January 30, 1999.
the Banks signatory thereto and The Chase
Manhattan Bank, as Agent.
(10.34) Note purchase agreement dated January 26, 1999 The Company hereby agrees to
relating to the sale of the Company's Series A file such document upon request
and Series B Senior Notes used for the financing of the Securities and Exchange
of the Company's self tender offer. Commission.
(10.35) The Pep Boys - Manny, Moe & Jack Incorporated by reference from
Annual Incentive Bonus Plan, as amended and restated. the Company's Form 10-K for the
year ended January 30, 1999.
(10.36) Amendments to The Pep Boys Savings Plan Incorporated by reference from
the Company's Form 10-Q for the
quarter ended May 1, 1999.
(10.37) Amendments to The Pep Boys Savings Plan - Puerto Rico Incorporated by reference from
the Company's Form 10-Q for the
quarter ended May 1, 1999.
(10.38) Amendment No. 5 dated as of July 23, 1999 Incorporated by reference from
to the Amended and Restated Credit the Company's Form 10-Q for the
Agreement dated as of April 21, 1995 among quarter ended July 31, 1999.
the Pep Boys - Manny, Moe & Jack, the Banks
signatory thereto and the Chase Manhattan
Bank, as Agent.
(10.39)* The Pep Boys - Manny, Moe and Jack Incorporated by reference from
1999 Stock Incentive Plan - Amended the Company's Form 10-Q for the
and Restated as of August 31, 1999. quarter ended October 30, 1999.
(10.40) Amendment No. 6 and waiver dated as of July 28, 2000 Incorporated by reference from
to the amended and restated credit agreement dated the Company's Form 10-Q for the
as of April 21, 1995 between the Company, the quarter ended July 29, 2000.
guarantors signatory thereto, the banks signatory
thereto and The Chase Manhattan Bank, as agent.
(10.41) Amendment and waiver dated as of August 10, 2000 to Incorporated by reference from
Master Lease between the Company and State Street the Company's Form 10-Q for the
Bank and Trust Company dated as of November 13, 1995. quarter ended July 29, 2000.
(10.42) Amendment and waiver dated as of August 10, 2000 to Incorporated by reference from
Master Lease between the Company and State Street the Company's Form 10-Q for the
Bank and Trust Company dated as of February 28, 1997. quarter ended July 29, 2000.
(10.43) Loan and Security Agreement between the Company and Incorporated by reference from
Congress Financial Corporation dated September 22, 2000. the Company's Form 8-K filed
October 18, 2000.
(10.44) Participation Agreement between the Company and Incorporated by reference from
The State Street Bank and Trust (Trustee) dated the Company's Form 8-K filed
September 22, 2000. October 18, 2000.
(10.45) Master Lease Agreement between the Company and Incorporated by reference from
The State Street Bank and Trust (Trustee) dated the Company's Form 8-K filed
September 22, 2000. October 18, 2000.
(10.46)* The Pep Boys - Manny, Moe and Jack
1990 Stock Incentive Plan - Amended
and Restated as of March 26, 2001.
(11) Computation of Earnings per Share
(12) Computation of Ratio of Earnings
to Fixed Charges
(21) Subsidiaries of the Company
(23) Independent Auditors' Consent
(b) None
* Management contract or compensatory plan or arrangement.
47
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.
THE PEP BOYS - MANNY, MOE & JACK
(Registrant)
Dated: May 4, 2001 by: /s/ George Babich Jr.
-------------- ---------------------
George Babich Jr.
Executive Vice President and
Chief Financial Officer
48
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.
SIGNATURE CAPACITY DATE
- ---------- -------- ----
/s/ Mitchell G. Leibovitz Chairman of the Board, President May 4, 2001
Mitchell G. Leibovitz and Chief Executive Officer
(Principal Executive Officer)
/s/ George Babich Jr. Executive Vice President - May 4, 2001
George Babich Jr. Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Lennox K. Black Director May 4, 2001
Lennox K. Black
/s/ Bernard J. Korman Director May 4, 2001
Bernard J. Korman
/s/ J. Richard Leaman, Jr. Director May 4, 2001
J. Richard Leaman, Jr.
/s/ Malcolmn D. Pryor Director May 4, 2001
Malcolmn D. Pryor
/s/ Lester Rosenfeld Director May 4, 2001
Lester Rosenfeld
/s/ Benjamin Strauss Director May 4, 2001
Benjamin Strauss
/s/ Myles H. Tanenbaum Director May 4, 2001
Myles H. Tanenbaum
49
FINANCIAL STATEMENT SCHEDULES FURNISHED PURSUANT
TO THE REQUIREMENTS OF FORM 10-K
50
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
(in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Descriptions Period Expenses Accounts Deductions* Period
- ----------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended February 3, 2001 $826 $1,859 $ - $2,046 $639
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended January 29, 2000 $996 $3,254 $ - $3,424 $826
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended January 30, 1999 $265 $1,643 $ - $912 $996
- ----------------------------------------------------------------------------------------------------------------------------
*Uncollectible accounts written off.
51
INDEX TO EXHIBITS
Index of Financial Statements, Financial Statement Schedule and Exhibits
Page
----
1. The following consolidated financial statements
of The Pep Boys - Manny, Moe & Jack are included in Item 8.
Independent Auditors' Report 25
Consolidated Balance Sheets - February 3, 2001
and January 29, 2000 26
Consolidated Statements of Operations- Years ended February 3,
2001, January 29, 2000 and January 30, 1999 27
Consolidated Statements of Stockholders' Equity Years ended
February 3, 2001, January 29, 2000 and January 30, 1999 28
Consolidated Statements of Cash Flows - Years ended February 3,
2001, January 29, 2000 and January 30, 1999 29
Notes to Consolidated Financial Statements 30
2. The following consolidated financial statement schedule of The Pep
Boys - Manny, Moe & Jack
is included.
Schedule II Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted because they are not
applicable or not required or the required information is included
in the consolidated financial statements or notes thereto.
3. Exhibits
(10.46) The Pep Boys - Manny, Moe and Jack
1990 Stock Incentive Plan - Amended
and Restated as of March 26, 2001.
(11) Computation of Earnings per Share
(12) Computation of Ratio of Earnings to Fixed Charges
(21) Subsidiaries of the Company
(23) Independent Auditors' Consent
52