<PAGE>
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 (FEE REQUIRED)
For the fiscal year ended February 3, 1996
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)
Registrant's telephone number, including area code 215-229-9000
------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ----------------------------- -----------------------------------------
Common Stock, $1.00 par value New York Stock Exchange
4% Convertible Subordinated
Notes due September 1, 1999 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 ______
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. ( )
As of the close of business on April 5, 1996, the aggregate market value of the
voting stock held by nonaffiliates of the registrant was not less than
$1,788,839,194.
As of April 5, 1996 there were 62,176,766 shares of the registrant's common
stock outstanding.
<PAGE>
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 29,
1996.
<PAGE>
This Annual Report on Form 10-K for the year ended February 3, 1996, 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.
<PAGE>
PART I
ITEM 1 BUSINESS
GENERAL
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 sold by it through its
chain 506 stores (as of February 3, 1996) which consists of 475 Pep Boys
"SUPERCENTERS", having an aggregate of 4,727 service bays, and 31 PARTS USA
stores. The Company operates approximately 10,255,000 gross square feet of
retail space, which includes service bays. The "SUPERCENTERS", including service
bays, average 20,800 square feet and the PARTS USA stores average 11,900 square
feet.
<PAGE>
<TABLE>
As of February 3, 1996, the Company operated its stores in 33 states, the District of Columbia and Puerto Rico.
The following table indicates by state the number of stores of the Company in operation at the end of fiscal 1992, 1993, 1994 and
1995 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 1992 THROUGH 1995
<CAPTION>
1993 1994 1995
1992 -------------------------- -------------------------- --------------------------
State YEAR END Opened Closed Year End Opened Closed Year End Opened Closed Year End
- -------------------- -------- ------ ------ -------- ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama 1 - - 1 - - 1 - - 1
Arizona 24 - - 24 - - 24 - - 24
Arkansas - 1 - 1 - - 1 - - 1
California 92 8 7* 93 11* 2 102 17 1 118
Colorado - - - - 5 - 5 1 - 6
Connecticut - - - - - - - 2 - 2
Delaware 5 - - 5 - - 5 - - 5
District of Columbia - - - - - - - 2 - 2
Florida 27 6 - 33 1 - 34 4 - 38
Georgia 20 - - 20 - - 20 2 - 22
Illinois - 3 - 3 10 - 13 4 - 17
Indiana - 1 - 1 - - 1 2 - 3
Kansas - 1 - 1 1 - 2 - - 2
Kentucky - 1 - 1 2 - 3 1 - 4
Louisiana 9 3 - 12 - - 12 - - 12
Maryland 15 1 - 16 - - 16 3 1 18
Massachusetts - 2 - 2 1 - 3 2 - 5
Michigan - - - - 1 - 1 5 - 6
Missouri - 1 - 1 - - 1 - - 1
Nevada 8 - - 8 - - 8 - - 8
New Hampshire - - - - 1 - 1 - - 1
New Jersey 13 1 - 14 2 1 15 3 - 18
New Mexico 8 - - 8 - - 8 - - 8
New York 7 2 - 9 2 - 11 3 - 14
North Carolina 11 - - 11 - - 11 - - 11
Ohio - - - - 9 - 9 1 - 10
Oklahoma 6 - - 6 - - 6 - - 6
Pennsylvania 30 2 1 31 3 - 34 8 2 40
Puerto Rico - - - - - - - 7 - 7
Rhode Island - 1 - 1 - - 1 - - 1
South Carolina 6 - - 6 - - 6 - - 6
Tennessee 7 - - 7 - - 7 - - 7
Texas 49 3 - 52 3 - 55 8 - 63
Utah 6 - - 6 - - 6 - - 6
Virginia 13 - - 13 - - 13 - - 13
--- --- --- --- --- --- --- --- --- ---
Total 357 37 8 386 52 3 435 75 4 506
=== === === === === === === === === ===
<FN>
* Included in this number is the Company's Santa Monica store which was temporarily closed in fiscal 1993 and re-opened in fiscal
1994.
</TABLE>
<PAGE>
NEW STORES AND EXPANSION STRATEGY
The most important factors considered by the Company when deciding to
open new stores are the population density of the target area and the
automotive traffic count at the site of the proposed store. 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, location and surroundings, 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 introduced a new supplemental store format in fiscal 1994,
which operates under the name PARTS USA. At the end of fiscal 1995, the
Company operated 31 PARTS USA stores. This store format carries
over 22,000 stock-keeping units, excludes tires, and does not have service bays
("SUPERCENTERS" carry approximately 26,000 stock-keeping units). PARTS USA
stores are generally located in certain urban areas and areas located between
"SUPERCENTERS." The Company believes the utilization of this secondary format
will enable it to grow at a faster rate and achieve greater economies of scale
by providing more retail outlets as well as increase its market penetration and
share.
In 1996, a new PARTS USA prototype will average approximately 8,000
square feet and a new "SUPERCENTER" prototype will average approximately 19,500
square feet. While the overall size of both formats will be reduced, the number
of stock-keeping units offered in each format will not decrease. The Company
expects to open approximately 100 new stores in 1996: 50 PARTS USA stores
and 50 "SUPERCENTERS", all of which are expected to be in existing markets.
If all 100 stores are opened, the Company anticipates spending approximately
$177,000,000 in addition to the $10,223,000 it had already spent as of
February 3, 1996 in connection with certain of these locations. Funds
required to finance this expansion are expected to come primarily from
operating activities with the remainder provided by unused lines of credit
or from accessing traditional lending sources which may include the public
capital markets.
During fiscal 1995, the Company opened 46 "SUPERCENTERS", all of which
include service bays, and 29 PARTS USA stores. Four units were closed, two of
which were replaced by PARTS USA stores and two of which were replaced by new
"SUPERCENTERS."
The Company's ability to meet its 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.
<PAGE>
MERCHANDISING
Each Pep Boys' automotive "SUPERCENTER" and PARTS USA 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 a SUPERCENTER
and a PARTS USA store's inventory currently includes approximately 26,000 and
22,000 items, respectively. The Company's automotive product line includes:
tires (not included in PARTS USA stores); batteries; new and rebuilt parts for
domestic and imported cars, including suspension parts, ignition parts,
mufflers, engines and engine parts, oil and air filters, belts, hoses,
air conditioning parts, and brake parts; chemicals, including oil, antifreeze,
polishes, additives, cleansers and paints; mobile electronics, including
sound systems, alarms and cellular telephones; car accessories, including
seat covers, floor mats, gauges, mirrors and booster cables; and a large
selection of truck and van 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 oil,
transmission fluid, chemicals, and paints under the Pep Boys name. The
Company sells antifreeze under the name PURE AS GOLD(R). The Company sells
starters and alternators under the name PRO-START(R), water pumps under the
name PRO-COOL(tm) and batteries under the name PROSTART(R). Brakes are sold
under the names SHUR GRIP(R), PROSTOP(tm) and ELITE(tm) and tires under the
names CORNELL(R) and FUTURA(R). The Company also sells shock absorbers under
the name "ProRyder", and trunk and hatchback lift supports under the name
PROLIFT(tm). All products sold by the Company under the Pep Boys and various
other private label names accounted for approximately 25.2% of the Company's
merchandise sales in fiscal 1995. The remaining merchandise is sold under the
brand names of others. Except for revenues from maintaining or repairing
automobiles and installing products, which accounted for approximately 13.3%,
13.9% and 15.0% of the Company's total revenues in fiscal years 1993, 1994 and
1995, respectively, no 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 work order system in all of its service
centers. This system creates a service history for each vehicle, provides
customers with a comprehensive, professional sales document and has enabled
the Company to establish 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,
multipage catalogs, television and radio commercials and in-store
promotions. A large portion of the gross cost of the advertising directed
by the Company is customarily borne by the suppliers of the products
advertised.
In fiscal 1995, approximately 67% of the Company's total revenues were
cash transactions (including personal checks), and the remainder were credit
and charge card sales.
The Company does not experience significant seasonal fluctuation in the
generation of its revenues.
<PAGE>
STORE OPERATIONS AND MANAGEMENT
All Pep Boys' stores are open seven days a week. Each "SUPERCENTER"
has a manager, a service manager, a parts manager and two or more assistant
managers. Each PARTS USA store has a manager, a parts manager and two or more
assistant managers. A store manager's average length of service with the
Company is approximately seven years.
The Company has service bays in 469 of its 506 locations. Each service
department can perform a variety of services which include: engine tune-ups,
wheel alignments, state inspections, air conditioning 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, radios, alarms, sun roofs, cruise controls, and various
other merchandise sold in Pep Boys' 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 one of three Vice Presidents - Store Operations who report to the
Company's Senior Vice President - Store Operations who reports to the
Company's Executive Vice President & Chief Operating 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, management information
systems, purchasing and most administrative functions are conducted at its
corporate headquarters in Philadelphia, Pennsylvania. Certain
administrative functions for the Company's western, southwestern, southeastern
and Puerto Rico operations are performed at various regional offices of the
Company. See "Properties."
INVENTORY CONTROL AND DISTRIBUTION
Almost all of the Company's merchandise is distributed to its stores
from its warehouses 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 greatly enhanced the Company's ability to control
its inventory.
SUPPLIERS
During fiscal 1995, the Company's ten largest suppliers accounted for
approximately 33% of the merchandise purchased by the Company. No single
supplier accounted for more than 8% of the Company's purchases. The Company
has no long-term contracts for the purchase of 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.
<PAGE>
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 geographical 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'" automotive service centers positively differentiates it
from most of its competitors. 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, 1996, the Company employed 17,591 persons as follows:
<TABLE>
<CAPTION>
Full-time Part-time Total
Description Numbers % Numbers % Numbers %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Store Sales 5,776 43.9 3,319 75.3 9,095 51.7
Store Service 5,502 41.7 872 19.8 6,374 36.2
Store Regional Management 84 .6 - - 84 .5
------ ----- ----- ----- ------ -----
STORE TOTAL 11,362 86.2 4,191 95.1 15,553 88.4
Warehouses 929 7.0 190 4.3 1,119 6.4
Offices 895 6.8 24 .6 919 5.2
------ ----- ----- ----- ------ -----
TOTAL EMPLOYEES 13,186 100.0 4,405 100.0 17,591 100.0
====== ===== ===== ===== ====== =====
</TABLE>
Of the 1,119 full-time warehouse employees referred to above, 244
employees at the Company's New Jersey warehouse facilities are members of a
union. The Company believes employee relations are generally good.
At the end of fiscal 1994, the Company employed approximately 11,804 full-
time and 4,070 part-time employees and at the end of fiscal 1993, the Company
employed approximately 10,509 full-time and 4,386 part-time employees.
<PAGE>
ITEM 2 PROPERTIES
The Company's headquarters in Philadelphia, Pennsylvania, which also
serves as an administrative regional office for its eastern operations,
occupies approximately 281,500 square feet of a five-story structure owned by
the Company with approximately 300,000 square feet of floor space. The Company
occupies approximately 30,000 square feet of a 60,000 square foot, three-story
structure, which the Company owns located in Los Angeles, California which
serves as an administrative regional office for its western operations. The
Company leases approximately 4,000 square feet of office space in each of
Decatur, Georgia and Richardson, Texas and 1,200 square feet of office space
in Puerto Rico all of which serve as administrative regional offices.
Of the 506 store locations operated by the Company at February 3, 1996,
318 are owned and 188 are leased. Of the 188 leased store locations, 74 are
fully leased and 114 are ground leases only.
<PAGE>
The following table sets forth certain information regarding the owned and
leased warehouse space utilized by the Company at February 3, 1996.
<TABLE>
<CAPTION>
Warehouse Products Square Owned or Stores States
Location Warehoused Footage Leased Serviced Serviced
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Los Angeles, CA All except 216,000 Owned 121 AZ, CA, NV
tires
Los Angeles, CA Tires 73,000 Leased 121 AZ, CA, NV
Los Angeles, CA All except 137,000 Leased 121 AZ, CA, NV
tires
Phoenix, AZ All except 100,000 Owned 55 AZ, CO, NM,
batteries, NV, TX, UT
tires and
chemicals
Phoenix, AZ Tires, 57,000 Leased 55 AZ, CO, NM,
chemicals NV, TX, UT
and batteries
Bridgeport, NJ All except 195,000 Owned 124 CT, DE, DC,
tires MA, MD, MI,
NH, NJ, NY,
OH, PA, PR,
RI, VA
Bridgeport, NJ Tires and 273,000 Leased 124 CT, DE, DC,
chemicals MA, MD, MI,
NH, NJ, NY,
OH, PA, PR,
RI, VA
Atlanta, GA All 392,000 Owned 127 AL, FL, GA,
IL, IN, KY,
NC, OH, SC,
TN, VA
Mesquite, TX All 244,000 Owned 79 AR, KS, LA,
MO, OK, TX
---------
Total 1,687,000 506
</TABLE>
The Company anticipates that during fiscal 1996 it will utilize leased
warehouse space to accomodate inventory necessary to support store expansion and
any increase in stock-keeping units.
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.<PAGE>
ITEM 3 LEGAL PROCEEDINGS
The Company is involved in a number of lawsuits arising in the ordinary
course of business. Management is of the opinion that such lawsuits will not
result in any material liability to the Company.
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, 1996.
ITEM A 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 Year of Election to Position
- --------------------- ---- ---------- -----------------------------
Mitchell G. Leibovitz 50 17 Chairman of the Board since
March 1994; Chief Executive
Officer since March 1990;
President since 1986
Wendel H. Province 48 6 Executive Vice President
since November 1994; Chief
Operating Officer since
March 1993
Michael J. Holden 44 16 Executive Vice President
since March 1996; Chief
Financial Officer since March
1987; Treasurer since 1984
Frederick A. Stampone 40 14 Senior Vice President since
March 1987; Chief
Administrative Officer since
March 1993; Secretary since
December 1988
Mark L. Page 39 20 Senior Vice President - Store
Operations since March 1993
Messrs. Leibovitz, Province, Holden and Stampone have been executive officers
of the Company for more than the past five years. Mr. Page has been an
executive officer of the Company for less than the past five years. Mr. Page
was a regional manager for the Company from February 1987 until February 1991
when he was elected Vice President - Western Store Operations. On March 14,
1993 Mr. Page became Senior Vice President - Store Operations. Each of the
officers serves at the pleasure of the Board of Directors of the Company. There
are no arrangements or understandings pursuant to which any officer was elected
to office.
<PAGE>
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 4,638 registered
shareholders as of February 3, 1996. 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.
<TABLE>
MARKET PRICE PER SHARE
<CAPTION>
Market Price Per Share Cash Dividends
Fiscal year ended February 3, 1996 High Low Per Share
- ----------------------------------
<S> <C> <C> <C>
First Quarter 34 3/4 24 3/8 $.0475
Second Quarter 32 1/4 25 1/8 .0475
Third Quarter 29 1/8 22 1/2 .0475
Fourth Quarter 29 1/2 21 7/8 .0475
Fiscal year ended January 28, 1995
- ----------------------------------
First Quarter 31 26 $.0425
Second Quarter 33 3/4 29 1/4 .0425
Third Quarter 36 29 1/8 .0425
Fourth Quarter 36 7/8 28 1/2 .0425
</TABLE>
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.<PAGE>
<TABLE>
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)
<CAPTION>
Year ended Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Merchandise sales $1,355,008 $1,211,536 $1,076,543 $1,008,191 $ 873,381
Service revenue 239,332 195,449 164,590 147,403 128,127
Total revenues 1,594,340 1,406,985 1,241,133 1,155,594 1,001,508
Gross profit from merchandise sales 411,133 364,378 307,861 272,412 240,199
Gross profit from service revenue 44,390 32,417 27,457 24,528 19,726
Total gross profit 455,523 396,795 335,318 296,940 259,925
Selling, general and
administrative expenses 296,089 247,872 214,710 194,160 176,275
Operating profit 159,434 148,923 120,608 102,780 83,650
Nonoperating income 2,090 3,490 3,601 3,015 1,933
Interest expense 32,072 25,931 19,701 20,180 25,071
Earnings before income taxes
and cumulative effect of change
in accounting principle 129,452 126,482 104,508 85,615 60,512
Earnings before cumulative effect
of change in accounting principle 81,494 80,008 65,512 54,579 38,872
Cumulative effect of change in
accounting principle - (4,300) - - -
Net earnings 81,494 75,708 65,512 54,579 38,872
BALANCE SHEET DATA
Working capital $ 39,868 $ 121,858 $ 92,518 $ 104,622 $ 81,935
Current ratio 1.09 to 1 1.42 to 1 1.37 to 1 1.47 to 1 1.46 to 1
Merchandise inventories $ 417,852 $ 366,843 $ 305,872 $ 295,179 $ 230,894
Property and equipment-net 1,014,052 861,910 723,452 628,918 588,593
Total assets 1,500,008 1,291,019 1,078,518 967,813 856,925
Long-term debt (including convertible
subordinated notes) 367,043 380,787 253,000 209,347 279,250
Stockholders' equity 665,460 586,253 547,759 509,763 378,514
DATA PER COMMON SHARE
Earnings before cumulative effect
of change in accounting principle $ 1.34 $ 1.32 $ 1.06 $ .90 $ .69
Cumulative effect of change in
accounting principle - (.07) -
Net earnings 1.34 1.25 1.06 .90 .69
Cash dividends .19 .17 .15 .1375 .1275
Stockholders' equity 10.72 9.53 8.97 8.40 6.79
Common share price range: high-low 34 3/4-21 7/8 36 7/8-26 27 1/2-20 1/2 27 3/8-17 1/8 19 1/2-10 3/8
OTHER STATISTICS
Return on average
stockholders' equity 13.0% 13.4% 12.4% 12.3% 10.8%
Common shares outstanding 62,084,021 61,501,679 61,060,055 60,669,102 55,773,813
Capital expenditures $ 205,913 $ 185,072 $ 135,165 $ 78,025 $ 65,801
Number of retail outlets 506 435 386 357 337
<FN>
/TABLE
<PAGE>
<TABLE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents for the periods indicated certain items in the consolidated statements of earnings 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.
<CAPTION>
Percentage of Total Revenues Percentage Change
-------------------------------------------- -------------------------------
Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994 Fiscal 1995 vs. Fiscal 1994 vs.
Year ended (Fiscal 1995) (Fiscal 1994) (Fiscal 1993) Fiscal 1994 Fiscal 1993
- --------------------------------------- ------------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Merchandise Sales...................... 85.0% 86.1% 86.7% 11.8% 12.5%
Service Revenue(1)..................... 15.0 13.9 13.3 22.5 18.7
------------- ------------- ------------ ----------- -----------
Total Revenues 100.0 100.0 100.0 13.3 13.4
Costs of Merchandise Sales(2).......... 69.7(3) 69.9(3) 71.4(3) 11.4 10.2
Costs of Service Revenue(2)............ 81.5(3) 83.4(3) 83.3(3) 19.6 18.9
------------- ------------- ------------ ----------- -----------
Total Costs of Revenues................ 71.4 71.8 73.0 12.7 11.5
Gross Profit from Merchandise Sales.... 30.3(3) 30.1(3) 28.6(3) 12.8 18.4
Gross Profit from Service Revenue...... 18.5(3) 16.6(3) 16.7(3) 36.9 18.1
------------- ------------- ------------ ----------- -----------
Total Gross Profit..................... 28.6 28.2 27.0 14.8 18.3
Selling, General and
Administrative Expenses.............. 18.6 17.6 17.3 19.5 15.4
------------- ------------- ------------ ----------- -----------
Operating Profit....................... 10.0 10.6 9.7 7.1 23.5
Nonoperating Income.................... .1 .2 .3 (40.1) (3.1)
Interest Expense....................... 2.0 1.8 1.6 23.7 31.6
------------- ------------- ------------ ----------- -----------
Earnings Before Income Taxes and
Cumulative Effect of Change in
Accounting Principle................. 8.1 9.0 8.4 2.3 21.0
Income Taxes........................... 37.0(4) 36.7(4) 37.3(4) 3.2 19.2
------------- ------------- ------------ ----------- -----------
Earnings Before Cumulative Effect of
Change in Accounting Principle....... 5.1 5.7 5.3 1.9 22.1
Cumulative Effect of Change in
Accounting Principle................. - (.3) - - -
------------- ------------- ------------ ----------- -----------
Net Earnings 5.1 5.4 5.3 7.6 15.6
============= ============= ============ =========== ===========
<FN>
(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 and cumulative effect of change in accounting principle.
/TABLE
<PAGE>
FISCAL 1995 vs. FISCAL 1994
Total revenues for fiscal 1995, which included 53 weeks, increased 13%
over fiscal 1994 due to a higher store count (506 at February 3, 1996 compared
with 435 at January 28, 1995). Comparable store revenues (revenues generated
by stores in operation during the same months of each period) increased 1%.
Total revenues for fiscal 1995, excluding the extra week, increased 11% on an
overall basis and were unchanged on a comparable store basis. Comparable store
merchandise sales decreased 1% while comparable store service revenue increased
7% over fiscal 1994 on a 52 week basis.
The increase in gross profit from merchandise sales, as a percentage of
merchandise sales, was due primarily to higher merchandise margins offset, in
part, by increases in store occupancy and warehousing costs.
The increase in gross profit from service revenue, as a percentage of
service revenue, was due primarily to decreases in service payroll and service
center occupancy costs.
The increase in selling, general and administrative expenses, as a
percentage of total revenues, was due primarily to increases in store, general
office and employee benefits expenses offset, in part, by a decrease in media
costs.
The 24% increase in interest expense was due to higher debt levels
incurred during the year to fund the Company's store expansion program coupled
with higher interest rates.
The 2% increase in earnings before the cumulative effect of a change
in accounting principle in fiscal 1995, as compared with fiscal 1994, was due
primarily to an increase in total revenues due to a higher store count, and
increases in gross profit from merchandise sales, as a percentage of
merchandise sales, and gross profit from service revenue, as a percentage of
service revenue, mostly offset by increases in selling, general and
administrative expenses and interest expense, as a percentage of total
revenues.
FISCAL 1994 vs. FISCAL 1993
Total revenues for fiscal 1994 increased 13% over fiscal 1993 due to a
higher store count (435 at January 28, 1995 compared with 386 at January 29,
1994) coupled with a 5% increase in comparable store revenues (revenues
generated by stores in operation during the same months of each period).
Comparable store merchandise sales increased 5% while comparable store service
revenue increased 8% over fiscal 1993.
The increase in gross profit from merchandise sales, as a percentage of
merchandise sales, was due primarily to significantly higher merchandise
margins and a slight decrease in store occupancy costs.
The small decrease in gross profit from service revenue, as a percentage
of service revenue, was due primarily to an increase in service payroll costs,
offset, in part, by a decrease in service employee benefits costs.
The increase in selling, general and administrative expenses, as a
percentage of total revenues, was due primarily to an increase in store
expenses, offset, in part, by a decrease in employee benefits costs.
The 32% increase in interest expense was due to higher debt levels
incurred to fund the Company's store expansion program coupled with higher
interest rates.
The 22% increase in earnings before the cumulative effect of a change in
accounting principle in fiscal 1994, as compared with fiscal 1993, was due to
increases in comparable store revenues and gross profit from merchandise sales,
as a percentage of merchandise sales, offset, in part, by increases in selling,
general and administrative expenses and interest expense, as a percentage of
total revenues.
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 1995, fiscal 1994 or fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements arise principally from the need to finance
the acquisition, construction and equipping of new stores and to purchase
inventory. The Company opened 75 stores in fiscal 1995, 51 stores in fiscal
1994 and 37 stores in fiscal 1993. In fiscal 1995, with an increase in cash
from operating activities, the Company decreased its debt by $22,507,000. In
fiscal 1994, with increased levels of capital expenditures, coupled with cash
utilized to purchase its stock for transfer to the flexible employee benefits
trust (established on April 29, 1994 to fund a portion of the Company's
obligations arising from various employee compensation and benefit plans), the
Company increased its debt by $182,859,000. In fiscal 1993, with increased
levels of capital expenditures coupled with cash utilized to purchase its stock
for transfer to the benefits trust, the Company increased its debt by
$77,525,000.
<TABLE>
The following table indicates the Company's principal cash requirements
for the past three years.
<CAPTION>
(dollar amounts Fiscal Fiscal Fiscal
in thousands) 1995 1994 1993 Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Requirements
Capital expenditures $205,913 $185,072 $135,165 $526,150
(Decrease) increase
in net inventory(1) (71,351) 87,248 26,487 42,384
- ----------------------------------------------------------------------------
Total $134,562 $272,320 $161,652 $568,534
- ----------------------------------------------------------------------------
Net cash provided by
operating activities
(excluding the change
in net inventory) $159,968 $124,368 $111,704 $396,040
--------------------------------------------------------------------------
(1) Net inventory includes the increase in inventory less the
change in accounts payable.
</TABLE>
Inventories have increased in the past three years as the Company added a
net of 149 stores while stock-keeping units per store rose during the period
from approximately 24,000 to approximately 26,000, many of which are higher
cost hard parts.
The Company currently plans to open approximately 100 new stores in fiscal
1996. Management estimates that the cost to open all 100 stores, coupled with
capital expenditures relating to existing stores, warehouses and offices during
fiscal 1996, will be approximately $200,000,000. In addition to the funds
required to finance the Company's store expansion, the Company has $107,040,000
in debt that matures on April 15, 1996. Funds required to finance the store
expansion, including related inventory requirements, and to repay the debt
maturing on April 15, 1996 are expected to come from operating activities, with
the remainder provided by unused lines of credit which totalled $249,500,000 at
February 3, 1996, or from accessing traditional lending sources which may
include the public capital markets.
On August 25, 1994, the Company sold $86,250,000 of 4% convertible
subordinated notes due September 1, 1999. Proceeds were used to repay portions
of the Company's short-term variable rate bank debt.
On April 21, 1995, the Company amended and restated a revolving credit
agreement with several major banks to increase the amount of borrowings
provided from up to $100,000,000 to up to $200,000,000.
On June 12, 1995, the Company sold $100,000,000 of 7% Notes due June 1,
2005. Proceeds were used to repay portions of the Company's long-term variable
rate bank debt, and for general corporate purposes.
The Company's working capital decreased to $39,868,000 at February 3, 1996
from $121,858,000 at January 28, 1995. The Company's long-term debt decreased,
as a percentage of its total capitalization, to 36% at February 3, 1996 from
39% at January 28, 1995.
FUTURE ACCOUNTING STANDARDS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," will be adopted by the Company in fiscal
year 1996 as required by this statement. This statement requires that long-
lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Also, in
general, long-lived assets and certain identifiable intangibles to be disposed
of should be reported at the lower of carrying amount or fair value less cost
to sell. The impact of this new standard is not expected to have a material
effect on the Company's financial position or results of operations.
SFAS No. 123, "Accounting for Stock-Based Compensation," will be adopted
by the Company in fiscal year 1996 as required by this statement. The Company
has elected to continue to measure such compensation expense using the method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," as permitted by SFAS No. 123. When adopted, SFAS No. 123
will not have any effect on the Company's financial position or results of
operations, but will require the Company to provide expanded disclosure
regarding its stock-based employee compensation plans.
<PAGE>
ITEM 8 FINANCIAL STATEMENTS 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, 1996
and January 28, 1995, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years in the
period ended February 3, 1996. Our audits also include 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 based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1996 and January 28, 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended February 3, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note A to the consolidated financial statements, in 1994
the Company changed its method of accounting for postemployment benefits to
conform with Statement of Financial Accounting Standards No. 112.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 20, 1996
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS THE PEP BOYS - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
<CAPTION>
February 3, January 28,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash ......................................................... $ 11,487 $ 11,748
Accounts receivable, less allowance for uncollectible
accounts of $251 and $126.................................... 4,832 3,804
Merchandise inventories....................................... 417,852 366,843
Deferred income taxes......................................... 16,338 12,000
Other......................................................... 15,964 16,914
---------- ----------
Total Current Assets....................................... 466,473 411,309
Property and Equipment - at cost:
Land.......................................................... 243,738 215,623
Building and improvements..................................... 695,029 592,748
Furniture, fixtures and equipment............................. 356,605 283,317
Construction in progress...................................... 12,431 13,287
---------- ----------
1,307,803 1,104,975
Less accumulated depreciation and amortization................ 293,751 243,065
---------- ----------
Total Property and Equipment............................... 1,014,052 861,910
Other.............................................................. 19,483 17,800
---------- ----------
$1,500,008 $1,291,019
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................. $222,524 $100,164
Accrued expenses.............................................. 95,875 72,318
Short-term borrowings......................................... - 97,200
Current maturities of long-term debt.......................... 108,206 19,769
---------- ----------
Total Current Liabilities.................................. 426,605 289,451
Long-Term Debt, less current maturities............................ 280,793 294,537
Deferred Income Taxes.............................................. 40,900 34,528
Convertible Subordinated Notes..................................... 86,250 86,250
Commitments and Contingencies
Stockholders' Equity:
Common Stock, par value $1 per share:
Authorized 500,000,000 shares;
Issued and outstanding 62,084,021 and 61,501,679............ 62,084 61,502
Additional paid-in capital.................................... 139,202 130,732
Retained earnings............................................. 524,443 454,288
---------- ----------
725,729 646,522
Less cost of shares in benefits trust - 2,232,500 shares, at cost 60,269 60,269
---------- ----------
Total Stockholders' Equity................................. 665,460 586,253
---------- ----------
$1,500,008 $1,291,019
========== ==========
<FN>
See notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS THE PEP BOYS - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
<CAPTION>
February 3, January 28, January 29,
Year ended 1996 1995 1994
- ------------------------------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Merchandise Sales..................................... $1,355,008 $1,211,536 $1,076,543
Service Revenue....................................... 239,332 195,449 164,590
---------- ---------- ----------
Total Revenues........................................ 1,594,340 1,406,985 1,241,133
---------- ---------- ----------
Costs of Merchandise Sales............................ 943,875 847,158 768,682
Costs of Service Revenue.............................. 194,942 163,032 137,133
---------- ---------- ----------
Total Costs of Revenues............................... 1,138,817 1,010,190 905,815
---------- ---------- ----------
Gross Profit from Merchandise Sales................... 411,133 364,378 307,861
Gross Profit from Service Revenue..................... 44,390 32,417 27,457
---------- ---------- ----------
Total Gross Profit.................................... 455,523 396,795 335,318
Selling, General and Administrative Expenses.......... 296,089 247,872 214,710
---------- ---------- ----------
Operating Profit...................................... 159,434 148,923 120,608
Nonoperating Income................................... 2,090 3,490 3,601
Interest Expense...................................... 32,072 25,931 19,701
---------- ---------- ----------
Earnings Before Income Taxes and Cumulative Effect
of Change in Accounting Principle................... 129,452 126,482 104,508
Income Taxes.......................................... 47,958 46,474 38,996
---------- ---------- ----------
Earnings Before Cumulative Effect of Change in
Accounting Principle................................ 81,494 80,008 65,512
Cumulative Effect of Change in Accounting Principle.. - (4,300) -
---------- ---------- ----------
Net Earnings $ 81,494 $ 75,708 $ 65,512
========== ========== ==========
Earnings Per Share Before Cumulative Effect of Change
in Accounting Principle............................. $ 1.34 $ 1.32 $ 1.06
Cumulative Effect of Change in Accounting Principle... - (.07) -
---------- ---------- ----------
Net Earnings per Share $ 1.34 $ 1.25 $ 1.06
========== ========== ==========
<FN>
See notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
<CAPTION>
Common Stock
-------------------- Additional Retained Treasury Benefits Total Stock-
Shares Amount Paid-in Capital Earnings Stock Trust holders' Equity
---------- ------- --------------- --------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 30, 1993.................. 60,669,102 $60,669 $116,833 $332,261 $ - $ - $509,763
Net earnings............................... 65,512 65,512
Cash dividends ($.15 per share)............ (9,120) (9,120)
Exercise of stock options and related
tax benefits............................. 377,569 378 5,744 6,122
Dividend reinvestment plan................. 13,384 13 291 304
Acquisitions and transfers of 80,000
shares to employees' savings plan........ 109 109
Acquisition of 948,200 shares of
treasury stock............................ (24,931) (24,931)
---------- ------- --------------- -------- --------- -------- ---------------
Balance, January 29, 1994.................. 61,060,055 61,060 122,977 388,653 (24,931) - 547,759
Net earnings............................... 75,708 75,708
Cash dividends ($.17 per share)............ (10,073) (10,073)
Exercise of stock options and related
tax benefits............................. 427,543 428 7,568 7,996
Dividend reinvestment plan................. 14,081 14 421 435
Acquisitions and transfers of 75,000
shares to employees' savings plan........ (122) 807 685
Acquisitions and transfers of 2,232,500
shares of treasury stock to benefits
trust.................................... (112) 24,124 (60,269) (36,257)
---------- ------- --------------- --------- --------- ---------- ---------------
Balance, January 28, 1995.................. 61,501,679 61,502 130,732 454,288 - (60,269) 586,253
Net earnings............................... 81,494 81,494
Cash dividends ($.19 per share)............ (11,339) (11,339)
Exercise of stock options and related
tax benefits............................. 555,471 555 7,829 8,384
Dividend reinvestment plan................. 26,871 27 662 689
Acquisitions and transfers of 140,000
shares to employees' savings plan........ (21) (21)
---------- ------- --------------- -------- --------- ---------- ---------------
Balance, February 3, 1996.................. 62,084,021 $62,084 $139,202 $524,443 $ - $(60,269) $665,460
========== ======= =============== ======== ========= ========== ===============
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands)
<CAPTION>
February 3, January 28, January 29,
Year ended 1996 1995 1994
- -------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings......................................................... $ 81,494 $ 75,708 $ 65,512
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation and amortization......................................... 53,456 44,402 39,125
Cumulative effect of accounting change................................ - 4,300 -
Increase in deferred income taxes..................................... 2,034 5,611 680
Loss (gain) from sales of assets...................................... 201 (1,406) (297)
Increase in accounts receivable and other............................. (2,445) (7,854) (2,023)
Increase in merchandise inventories................................... (51,009) (60,971) (10,693)
Increase (decrease) in accounts payable............................... 122,360 (26,277) (15,794)
Increase in accrued expenses.......................................... 19,555 6,577 8,434
Increase (decrease) in income taxes payable........................... 5,673 (2,970) 273
----------- ----------- -----------
Total Adjustments........................................... 149,825 (38,588) 19,705
----------- ----------- -----------
Net Cash Provided by Operating Activities................... 231,319 37,120 85,217
----------- ----------- -----------
Cash Flows from Investing Activities:
Capital expenditures.................................................. (205,913) (183,872) (135,165)
Proceeds from sales of assets......................................... 114 3,437 1,494
Other, net............................................................ - 116 68
----------- ----------- -----------
Net Cash Used in Investing Activities....................... (205,799) (180,319) (133,603)
----------- ----------- -----------
Cash Flows from Financing Activities:
Net (payments) borrowings under line of credit agreements............. (102,700) 117,700 44,500
Reduction of long-term debt........................................... (19,807) (22,291) (41,975)
Net proceeds from issuance of notes................................... 98,992 85,387 73,892
Acquisitions of treasury stock........................................ - (36,257) (24,931)
Dividends paid........................................................ (11,339) (10,073) (9,120)
Proceeds from exercise of stock options............................... 8,384 7,996 6,122
Proceeds from dividend reinvestment plan.............................. 689 435 304
----------- ----------- -----------
Net Cash (Used in) Provided by Financing Activities......... (25,781) 142,897 48,792
----------- ----------- -----------
Net (Decrease) Increase in Cash........................................... (261) (302) 406
Cash at Beginning of Year................................................. 11,748 12,050 11,644
----------- ----------- -----------
Cash at End of Year....................................................... $ 11,487 $ 11,748 $ 12,050
=========== =========== ===========
....................................................................................................................................
Supplemental Disclosure of Cash Flow Information:
Income taxes paid.................................................... $ 40,251 $ 46,384 $38,043
Interest paid, net of amounts capitalized............................ 30,155 23,959 19,110
....................................................................................................................................
Supplemental Disclosure of Noncash Financing Activities:
Mortgage note assumed in property acquisition....................... $ - $ 1,200 $ -
....................................................................................................................................
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
THE PEP BOYS- MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended February 3, 1996, January 28, 1995 and January 29, 1994
(dollar amounts in thousands, except per share amounts)
NOTE A - 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 506 stores at February 3, 1996. The Company currently operates stores
in 33 states, Washington D.C. and Puerto Rico.
FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest to
January 31. Fiscal years 1995, 1994 and 1993 were comprised of 53 weeks, 52
weeks and 52 weeks, respectively.
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
$10,491 and $15,319 higher at February 3, 1996 and January 28, 1995,
respectively.
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 1/2 to 40
years; furniture, fixtures and equipment, 3 to 10 years.
CAPITALIZED INTEREST Interest on borrowed funds is capitalized in connection
with the construction of certain long-term assets. Capitalized interest
amounted to $1,407, $1,850 and $1,254 in fiscal years 1995, 1994 and 1993,
respectively.
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 Annual pension expense is actuarially computed using the
"projected unit credit method" which attributes an equal portion of total
projected benefits to each year of employee service.
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 basis of assets and liabilities.
ADVERTISING The Company expenses the production costs of advertising the first
time the advertising takes place. No advertising costs were reported as an
asset as of February 3, 1996. Net advertising expense for fiscal years 1995,
1994 and 1993 was $973, $2,999 and $2,665, respectively.
POSTEMPLOYMENT BENEFITS Effective January 30, 1994 the Company adopted SFAS
No. 112, "Employers' Accounting for Postemployment Benefits." This statement
establishes accrual accounting standards for employer-provided benefits which
cover former or inactive employees after employment, but before retirement. As
a result of adopting this standard, the Company recognized a charge to earnings
in fiscal 1994 of $4,300, net of income tax benefit of $2,552.
IMPAIRMENT OF LONG-LIVED ASSETS SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," is effective
for fiscal years beginning after December 15, 1995. This statement requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Also, in general, long-lived assets and certain identifiable
intangibles to be disposed of should be reported at the lower of carrying
amount or fair value less cost to sell. The impact of this new standard is not
expected to have a material effect on the Company's financial position or
results of operations.
ACCOUNTING FOR STOCK-BASED COMPENSATION SFAS No. 123, "Accounting for Stock-
Based Compensation," will be adopted by the Company in fiscal year 1996 as
required by this statement. The Company has elected to continue to measure
such compensation expense using the method prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted
by SFAS No. 123. When adopted, SFAS No. 123 will not have any effect on the
Company's financial position or results of operations, but will require the
Company to provide expanded disclosure regarding its stock-based employee
compensation plans.
RECLASSIFICATIONS Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the current year's
presentation.
<PAGE>
NOTE B - DEBT
SHORT-TERM BORROWINGS The Company had short-term borrowings of $97,200 at
January 28, 1995. The Company had short-term lines of credit with several
banks totalling $194,000 at January 28, 1995. The interest rates on these
lines were negotiated based upon market conditions. The weighted average
interest rate on borrowings from these lines was 4.7% during 1994 and 5.9% at
January 28, 1995. The average and maximum month end balances on these
borrowings were $78,488 and $97,200 in 1994. There were no borrowings
classified as short-term at February 3, 1996.
LONG-TERM DEBT
...............................................................................
Feb. 3, Jan. 28,
1996 1995
-------- --------
8 7/8% notes due April 15, 1996 .................... $107,040 $110,650
7% notes due June 1, 2005 .......................... 100,000 -
Indebtedness to banks under revolving
credit agreement dated
April 21, 1995 (a)............................... 80,000 100,000
6 5/8% notes due May 15, 2003 ...................... 75,000 75,000
Other revolving lines of credit (b)................. 24,500 10,000
9.3% senior notes (c)............................... - 16,071
Mortgage notes payable at annual
interest rates ranging from 5.8%
to 8.0% (d)...................................... 2,459 2,585
-------- --------
388,999 314,306
Less current maturities.......................... 108,206 19,769
-------- --------
Total long-term debt................................ $280,793 $294,537
======== ========
.............................................................................
(a) In fiscal 1994, the Company had a revolving credit agreement with seven
major banks providing for borrowings of up to $100,000. On April 21, 1995,
the Company amended and restated this agreement with ten major banks to
increase the amount of borrowings provided from up to $100,000 to up to
$200,000. Funds may be drawn and repaid anytime prior to March 31, 2000.
Sixty days prior to each anniversary date, the Company may request and upon
agreement of each bank, extend the maturity of this facility an additional
year. If one of the banks fails to agree to this extension, the Company
has the right to replace that bank. At the Company's option, the interest
rate on any loan may be based on (i) the higher of the federal funds rate
plus 1/4% or the prime rate, (ii) LIBOR plus up to .63% or (iii) a
negotiated rate based upon market conditions. The interest rate on these
borrowings at February 3, 1996 was a negotiated rate based upon market
conditions. The weighted average interest rate was 5.8% at February 3,
1996 and 6.1% at January 28, 1995.
(b) The Company has short-term lines of credit with several banks totaling
$144,000 at February 3, 1996. Borrowings under these lines of credit at
February 3, 1996 totaling $24,500 have been classified as long-term debt.
The Company has both the intent and ability, through its revolving credit
agreement, to refinance these amounts on a long-term basis. The weighted
average interest rate on borrowings from these lines was 6.1% during 1995
and 5.5% at February 3, 1996. The interest rates on these lines were
negotiated based upon market conditions. The average and maximum month end
balances on these borrowings were $44,400 and $102,300 in 1995. The
Company has a revolving credit agreement with a bank which permits the
Company to borrow an aggregate of $10,000. Upon the bank's demand, this
line is due and payable in 13 months. Borrowings outstanding under this
revolving credit agreement totaled $10,000 at January 28, 1995. There were
no borrowings outstanding under this agreement at February 3, 1996. The
interest rate on this line, at the Company's election, is based on the
prime rate, a "CD-based" rate, a "LIBOR-based" rate or a negotiated rate
based upon market conditions. The weighted average interest rate was 6.2%
at January 28, 1995.
(c) The 9.3% senior notes were extinguished on May 30, 1995.
(d) The weighted average interest rate on the mortgage notes payable was 6.9%
at February 3, 1996 and January 28, 1995. These notes, which mature at
various times through August 2016, are collateralized by land and building
with an aggregate carrying value of approximately $8,005 at February 3,
1996.
CONVERTIBLE SUBORDINATED NOTES On August 24, 1994, the Company sold $86,250 of
4% convertible subordinated notes. These notes are convertible by the holders
into the common stock of the Company anytime on or before September 1, 1999
(the maturity date) at a conversion price of $41 per share subject to
adjustment in certain events. The notes are redeemable, in whole or in part,
at the option of the Company at any time on or after September 15, 1997, at a
redemption price of 101% of the principal amount and at par on or after
September 1, 1998.
Several of the Company's debt agreements require the maintenance of certain
financial ratios and covenants. Approximately $109,095 of the Company's net
worth was not restricted by these covenants at fiscal year end. The Company is
in compliance with all debt covenants at February 3, 1996.
The annual maturities of all long-term debt for the next five years are
$108,206 in 1996, $146 in 1997, $157 in 1998, $86,420 in 1999 and $80,183 in
2000. 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 $28,583 at February 3, 1996.
NOTE C - LEASE COMMITMENTS
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: 1996 - $23,223; 1997 - $22,152; 1998 - $21,132; 1999 -
$20,551; 2000 - $20,530; thereafter - $259,287. Rental expenses incurred for
operating leases in 1995, 1994 and 1993 were $22,302, $18,474 and $16,786,
respectively.
<PAGE>
NOTE D - STOCKHOLDERS' EQUITY
RIGHTS AGREEMENT On December 31, 1987, 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 17, 1987
and as amended on June 6, 1989), without the proper consent of the Company's
Board of Directors, acquires 20% or more, or makes an offer to acquire 30% or
more of the Company's outstanding stock, exclusive of stock holdings as of
December 17, 1987. When exercisable, the rights entitle the holder to purchase
one share of the Company's common stock for $55. Under certain circumstances,
including the acquisition of 20% 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 $.02 per right anytime
before a 20% position has been acquired and for 15 days thereafter, at which
time the rights become nonredeemable. The rights expire on December 31, 1997.
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 over the
next 15 years 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. As of February
3, 1996, the Company has repurchased 2,232,500 shares of its common stock at a
cost of $60,269 which is shown as "Cost of shares in benefits trust" on the
Company's consolidated balance sheets.
NOTE E - PENSION AND SAVINGS PLANS
The Company has a 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 using the "projected unit credit method" assumed
a discount rate on benefit obligations of 8.5% in 1995 and 7.8% in 1994 and 8%
in 1993, and an expected long-term rate of return on plan assets of 8.5%. The
assumption for annual salary increases over the average remaining service lives
of employees under the plan was 4% in 1995, 1994 and 1993. Variances between
actual experience and assumptions for costs and returns on assets are amortized
over the remaining service lives of employees under the plan.
Pension expense includes the following:
.............................................................................
Feb. 3, Jan. 28, Jan. 29,
1996 1995 1994
-------- -------- -------
Normal service costs................ $ 968 $ 1,516 $ 1,478
Interest cost on projected
benefit obligation................ 1,382 1,413 1,250
Actual return on plan assets........ (720) (1,706) (1,361)
Net amortization of transition
asset and unrecognized net gain... (759) (214) (257)
Prior service cost.................. 19 19 23
Asset (gain) loss deferred.......... (1,013) 56 (217)
-------- -------- -------
Total pension (income) expense...... $ (123) $ 1,084 $ 916
======== ======== =======
.............................................................................
Pension plan assets are stated at fair market value and are composed primarily
of money market funds, fixed income investments with maturities of less than
five years and the Company's common stock.
The following table sets forth the reconciliation of the plan's funded status
as of December 31 of each year. The actuarial present value of benefit
obligation assumed a discount rate of 7.5% at December 31, 1995 and 8.5% at
December 31, 1994.
.............................................................................
Dec. 31, Dec. 31,
1995 1994
---------- ----------
Actuarial present value of benefit
obligation:
Vested benefit obligation....................... $(18,532) $(13,855)
---------- ----------
Accumulated benefit obligation.................. $(19,389) $(14,840)
---------- ----------
Projected benefit obligation for
service rendered to date..................... $(21,931) $(17,912)
Plan assets at fair value....................... 20,501 20,625
---------- ----------
Assets (less than) in excess of
projected benefit obligation................. (1,430) 2,713
Unrecognized net asset (at date of transition).. (1,285) (1,500)
Unrecognized net gain from past
experience different from previous
assumption................................... (384) (4,454)
Unrecognized prior service cost................. 66 85
---------- ----------
Accrued pension expense
as of February 3, 1996 and
January 28, 1995, respectively............... $ (3,033) $ (3,156)
========== ==========
.............................................................................
The Company has a 401(k) savings plan 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
plan contribution expense was $3,150 in 1995, $2,563 in 1994 and $2,277 in
1993.
<PAGE>
NOTE F - INCOME TAXES
The provision for income taxes includes the following:
.............................................................................
Feb. 3, Jan. 28, Jan. 29,
Year ended 1996 1995 1994
- -------------------------------- --------- --------- ---------
Current:
Federal...................... $42,276 $39,210 $34,234
State........................ 3,648 4,205 3,587
Deferred:
Federal...................... 1,905 2,865 2,527
State........................ 129 194 (1,352)
--------- --------- ---------
$47,958 $46,474 $38,996
========= ========= =========
.............................................................................
A reconciliation of the statutory federal income tax rate to the effective
rate of the provision for income taxes follows:
.............................................................................
Feb. 3, Jan. 28, Jan. 29,
Year ended 1996 1995 1994
- -------------------------------- --------- --------- ---------
Statutory tax rate.............. 35.0% 35.0% 35.0%
State income taxes,
net of federal
tax benefits................. 1.9 2.3 2.3
Other, net...................... .1 (.6) -
--------- --------- ---------
37.0% 36.7% 37.3%
========= ========= =========
.............................................................................
Deferred income taxes relate to the following temporary differences:
.............................................................................
Feb. 3, Jan. 28, Jan. 29,
Year ended 1996 1995 1994
- -------------------------------- --------- --------- ---------
Depreciation.................... $ 6,420 $ 4,594 $ 2,293
Inventories..................... (2,551) 257 (2,244)
Vacation accrual................ (522) (259) (189)
Pension accrual................. 47 (406) (344)
Casualty gain................... - 1,289 544
Insurance....................... (1,143) (2,459) 680
All other....................... (217) 43 435
--------- --------- ---------
$ 2,034 $ 3,059 $ 1,175
========= ========= =========
.............................................................................
<PAGE>
The following are components of the net deferred tax accounts as of
February 3, 1996:
...............................................................................
Federal State Total
------- ------ ------
Deferred tax assets:
Current...................... $22,191 $1,504 $23,695
Long-term.................... 15,171 1,028 16,199
Deferred tax liabilities:
Current...................... 6,890 467 7,357
Long-term.................... 53,475 3,624 57,099
...............................................................................
The following are components of the net deferred tax accounts as of
January 28, 1995:
...............................................................................
Federal State Total
------- ------ -------
Deferred tax assets:
Current....................... $16,288 $1,103 $17,391
Long-term..................... 12,995 882 13,877
Deferred tax liabilities:
Current....................... 5,049 342 5,391
Long-term..................... 45,333 3,072 48,405
.............................................................................
Items that gave rise to significant portions of the deferred tax accounts
are as follows:
.............................................................................
Feb. 3, Jan. 28,
Year ended 1996 1995
- -------------------------- --------- --------
Deferred tax assets:
Inventories................. $ 8,911 $ 6,421
Vacation accrual............ 2,999 2,423
Other....................... 4,428 3,156
--------- --------
$16,338 $ 12,000
========= ========
Deferred tax liabilities:
Depreciation................ $38,998 $32,628
Other....................... 1,902 1,900
--------- --------
$40,900 $34,528
========= ========
..............................................................................
<PAGE>
NOTE G - NET EARNINGS PER SHARE
Net earnings per share is computed by dividing net earnings by the weighted
average number of common shares outstanding after reduction for treasury shares
and shares held in benefits trust and assuming exercise of dilutive stock
options computed by the treasury stock method using the average market price
during the period. Primary and fully diluted earnings per share are
essentially the same.
The weighted average number of shares and share equivalents used in
computing net earnings per share were: 62,588,000 in 1995, 60,565,000 in 1994
and 61,891,000 in 1993.
NOTE H - STOCK OPTIONS AND AWARDS
Options to purchase the Company's common stock have been granted to key
employees and certain 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.
Under the terms of the Company's Incentive Stock Option Plan adopted in
1982, options to purchase up to 3,600,000 shares of the Company's common stock
were authorized. Options granted prior to 1988 are exercisable from the date
of grant. Options granted in 1988 and thereafter are exercisable on the second
anniversary of the grant date. All options under this plan cannot be exercised
more than ten years from the grant date. As of May 21, 1990, no additional
options will be granted under this plan.
Under the terms of the Company's Nonqualified Stock Option Plans, adopted in
1984 and 1985, options to purchase up to 3,300,000 shares of the Company's
common stock were authorized. The options became exercisable over a five-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 granted
cannot be exercised more than ten and one-half years after the grant date. As
of May 21, 1990, no additional options will be granted under these plans.
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. An additional 1,500,000
shares were authorized by stockholders on each of May 31, 1995 and June 1,
1993. Under this plan, both incentive and nonqualified stock options may be
granted to eligible participants. Incentive stock options are exercisable on
the second or third anniversary of the grant date and nonqualified options
become exercisable over a five-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, 1996, 1,191,319 shares remain available for
grant.
<PAGE>
The Company has reserved sufficient shares of common stock to meet its stock
option plans' obligations.
............................................................................
Stock option transactions are summarized as follows:
.............................................................................
Incentive Nonqualified
Fiscal 1994 Stock Options Stock Options
- -----------------------------------------------------------------------------
Outstanding--beginning of
year................................ 812,980 2,900,725
Granted................................ 272,050 197,301
Exercised.............................. (209,215) (216,587)
Canceled............................... (87,600) (6,875)
- ----------------------------------------------------------------------------
Outstanding--end of year............... 788,215 2,874,564
- ----------------------------------------------------------------------------
Exercisable--end of year............... 399,215 2,445,716
Price range of options exercised...... $3.97 to $21.81 $3.97 to $27.94
Price range of options
outstanding--end of year............ $6.19 to $34.88 $5.91 to $32.69
.............................................................................
Fiscal 1995
- ------------------------------------------------------------------------------
Outstanding--beginning of year 788,215 2,874,564
Granted 485,207 557,763
Exercised (129,530) (452,940)
Canceled (91,950) -
- ------------------------------------------------------------------------------
Outstanding--end of year 1,051,942 2,979,387
- ------------------------------------------------------------------------------
Exercisable--end of year 446,342 2,278,265
Price range of options exercised $6.19 to $23.13 $5.91 to $14.69
Price range of options
outstanding--end of year $9.00 to $34.06 $10.94 to $34.88
- -------------------------------------------------------------------------------
NOTE I - CONTINGENCIES
The Company is party to various lawsuits and claims arising in the normal
course of business which, in the opinion of management, are not singularly or
in aggregate, material to the Company's financial position or results of
operations.
<PAGE>
NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
February 3, 1996 January 28, 1995
---------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- -------- ----------
Assets:
Cash..................... $ 11,487 $11,487 $ 11,748 $ 11,748
Accounts receivable...... 4,832 4,832 3,804 3,804
Liabilities:
Accounts payable......... 222,524 222,524 100,164 100,164
Short-term borrowings.... - - 97,200 97,200
Long-term debt including
current maturities...... 388,999 395,222 314,306 309,228
Convertible subordinated
notes................... 86,250 83,555 86,250 83,231
...............................................................................
CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND SHORT-TERM BORROWINGS
The carrying amounts approximate fair value because of the short maturity of
these items.
LONG-TERM DEBT INCLUDING CURRENT MATURITES AND CONVERTIBLE SUBORDINATED NOTES
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, 1996 and January 28, 1995. 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 that date, and
current estimates of fair value may differ significantly from amounts presented
herein.
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED) The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
<CAPTION>
....................................................................................................................................
Net Cash Market Price
Year ended Total Gross Operating Net Earnings Dividends Per Share
Feb. 3, 1996 Revenues Profit Profit Earnings Per Share Per Share High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $361,209 $100,387 $33,332 $16,204 $.27 $.0475 34 3/4 24 3/8
2nd Quarter 410,838 119,743 47,240 25,234 .41 .0475 32 1/4 25 1/8
3rd Quarter 411,787 115,974 41,462 21,436 .35 .0475 29 1/8 22 1/2
4th Quarter 410,506 119,419 37,400 18,620 .31 .0475 29 1/2 21 7/8
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Market Price
Year ended Total Gross Operating Net Earnings Dividends Per Share
Jan. 28, 1995 Revenues Profit Profit Earnings Per Share Per Share High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $337,700 $90,527 $32,601 $17,557 (1) $.29 (1) $.0425 31 26
2nd Quarter 370,395 102,885 42,448 23,518 .39 .0425 33 3/4 29 1/4
3rd Quarter 363,229 100,195 38,311 20,640 .34 .0425 36 29 1/8
4th Quarter 335,661 103,188 35,563 18,293 .30 .0425 36 7/8 28 1/2
- ------------------------------------------------------------------------------------------------------------------------------------
....................................................................................................................................
<FN>(1) Does not include a $4,300 ($.07 per share) charge from a cumulative effect of an accounting change for postemployment
benefits.
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.
</TABLE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
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 as Item A, 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 "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.
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a).
1. The following consolidated financial statements
of The Pep Boys - Manny, Moe & Jack are included
in Item 8.
Consolidated Balance Sheets - February 3, 1996
and January 28, 1995
Consolidated Statements of Earnings - Years
ended February 3, 1996, January 28, 1995 and
January 29, 1994
Consolidated Statements of Stockholders' Equity -
Years ended February 3, 1996, January 28, 1995
and January 29, 1994
Consolidated Statements of Cash Flows - Years
ended February 3, 1996, January 28, 1995
and January 29, 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
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
(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).
(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
(4.2) Indenture, dated as of August Incorporated by reference from the
31, 1994, between the Company Registration Statement on Form S-3
and First Fidelity Bank, (File No. 33-55115) filed August
National Association as Trustee, 17, 1994.
including Form of Debenture
<PAGE>
(4.3) Indenture, dated as of June Incorporated by reference from the
12, 1995, between the Company Registration Statement on Form S-3
and First Fidelity Bank, (File No. 33-59859) file June 6,
National Association as Trustee, 1995
including Form of Debenture
(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)* 1982 Incentive Stock Option Plan Incorporated by reference from
of the Company the Company's Form 10-K for the
fiscal year ended January 31,
1982.
(10.3)* 1984 Non-Qualified Stock Option Incorporated by reference from
Plan the Company's Form 10-K for the
fiscal year ended February 2,
1985.
(10.4)* 1985 Non-Qualified Stock Option Incorporated by reference from
Plan the Company's Form 10-K for the
fiscal year ended February 2,
1985.
(10.5) Rights Agreement dated as of Incorporated by reference from
December 17, 1987 between the the Company's Form 8-K dated
Company and the Philadelphia December 17, 1987.
National Bank
(10.6)* Directors' Deferred Compensation Incorporated by reference from
Plan, as amended the Company's Form 10-K for the
fiscal year ended January 30,
1988.
(10.7)* Form of Employment Agreement, as Incorporated by reference from
amended, dated as of December 12, the Company's Form 10-K for the
1989 fiscal year ended February 3,
1990.
(10.8)* Amendment No. 1 to the 1985 Incorporated by reference from
Non-Qualified Stock Option Plan the Company's Form 10-K for the
fiscal year ended January 28,
1989.
(10.9)* Amendment No. 1 to the 1982 Incorporated by reference from
Incentive Stock Option Plan the Company's Form 10-K for the
fiscal year ended January 28,
1989.
(10.10) Amendment dated June 6, 1989 Incorporated by reference from
to Rights Agreement dated as of the Company's Report on Form 8
December 17, 1987 between the filed July 6, 1989.
Company and the Philadelphia
National Bank
(10.11) Dividend Reinvestment and Stock Incorporated by reference from
Purchase Plan dated January 4, the Registration Statement on
1990 Form S-3 (File No. 33-32857)
filed January 5, 1990.
<PAGE>
(10.12)* 1990 Stock Incentive Plan Incorporated by reference from
the Company's Form 10-Q for the
quarter ended November 3, 1990.
(10.13)* Amendment No. 1 to 1990 Stock Incorporated by reference from
Incentive Plan the Company's Form 10-K for the
fiscal year ended February 1,
1992.
(10.14)* 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
(10.15)* 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
(10.16)* 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.
(10.17)* Amendment No. 2 to the 1982 Incorporated by reference from
Incentive Stock Option Plan the Company's Form 10-Q for the
quarter ended October 31, 1992.
(10.18)* Amendment No. 3 to the Non- Incorporated by reference from
Qualified Stock Option Plan the Company's Form 10-Q for the
quarter ended October 31, 1992.
<PAGE>
(10.19)* Amendment No. 2 to the 1990 Incorporated by reference from
Stock Incentive Plan the Company's Form 10-Q for the
quarter ended October 31, 1992.
(10.20)* President's Merit Award Program Incorporated by reference from
of the Company, as amended, the Company's Form 10-K for the
dated as of April 1, 1992 year ended January 30, 1993.
(10.21) Flexible Employee Benefits Trust Incorporated by reference from the
Company's Form 8-K dated May 6,
1994.
(10.22)* The Pep Boys- Manny, Moe & Jack Incorporated by reference from
Pension Plan, as amended, dated the Company's Form 10-K for the
December 28, 1994 year ended January 28, 1995.
(10.23)* The Pep Boys Savings Plan, as Incorporated by reference from
amended, dated December 28, 1994 the Company's Form 10-K for the
year ended January 28, 1995.
(10.24)* Executive Incentive Bonus Plan Incorporated by reference from
of the Company, as amended and the Company's Form 10-Q for the
restated as of March 31, 1995. quarter ended July 29, 1995.
(10.25) 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)
(10.26)* Amendment to the Excutive
Supplemental Pension Plan
effective March 31, 1995
(10.27)* Amendment No. 3 to the 1990
Stock Incentive Plan
(11) Computation of Earnings per Share
(12) Computation of Ratio of Earnings
to Fixed Charges
(21) Subsidiaries of the Company
(23) Independent Auditors' Consent
(27) Financial Data Schedules
(b) No Form 8-K was filed for the fourth quarter of the year ended
February 3, 1996.
*Management contract or compensatory plan or arrangement.
<PAGE>
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 2, 1996 by: /s/Michael J. Holden
----------- --------------------------
Michael J. Holden
Executive Vice President,
Chief Financial Officer and
Treasurer
<PAGE>
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 2, 1996
- ------------------------ and Chief Executive Officer ----------------
Mitchell G. Leibovitz (Principal Executive Officer)
/s/Michael J. Holden Executive Vice President, Chief May 2, 1996
- ------------------------ Financial Officer & Treasurer ----------------
Michael J. Holden (Principal Financial and
Accounting Officer)
/s/Lennox K. Black Director April 26, 1996
- ------------------------ ----------------
Lennox K. Black
/s/Pemberton Hutchinson Director April 26, 1996
- ------------------------ ----------------
Pemberton Hutchinson
/s/Bernard J. Korman Director April 26, 1996
- ------------------------ ----------------
Bernard J. Korman
/s/J. Richard Leaman, Jr. Director April 26, 1996
- ------------------------ ----------------
J. Richard Leaman, Jr.
/s/Malcolmn D. Pryor Director April 29, 1996
- ------------------------ ----------------
Malcolmn D. Pryor
/s/Lester Rosenfeld Director April 27, 1996
- ------------------------ ----------------
Lester Rosenfeld
/s/Benjamin Strauss Director April 27, 1996
- ------------------------ ----------------
Benjamin Strauss
/s/Myles H. Tanenbaum Director April 26, 1996
- ------------------------ ----------------
Myles H. Tanenbaum
/s/David V. Wachs Director April 26, 1996
- ------------------------ ----------------
David V. Wachs
<PAGE>
FINANCIAL STATEMENT SCHEDULES FURNISHED PURSUANT TO THE REQUIREMENTS OF FORM
10-K
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
<CAPTION>
(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
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended February 3, 1996 $126 $140 $ - $15 $251
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended January 28, 1995 $50 $114 $ - $38 $126
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended January 29, 1994 $85 $4 $ - $39 $50
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Uncollectible accounts written off.
/TABLE
<PAGE>
INDEX TO EXHIBITS
(10.26) Amendment to the Executive Supplemental Pension Plan
(10.27) Amendment to the Pep Boys - Manny, Moe & Jack
1990 Stock Incentive Paln
(11) Computation of Earnings per Share
(12) Computation of Ratio of Earnings to Fixed Charges
(21) Subsidiaries of the Company
(23) Independent Auditors' Consent
(27) Financial Data Schedules
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 11 - Computation of Earnings per Share
<CAPTION>
(in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(a) Earnings before cumulative effect of change
in accounting principle................................. $81,494 $80,008 $65,512 $54,579 $38,872
Adjustment for interest on $86,250, 4%
convertible subordinated notes, net of income
tax effect.............................................. 2,200 - - - -
(b) Cumulative effect of change in accounting principle..... - (4,300) - - -
- ----------------------------------------------------------------------------------------------------------------------------------
(c) Adjusted net earnings................................... $ 83,694 $75,708 $65,512 $54,579 $38,872
- ----------------------------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding
during the year........................................ 59,581 59,252 60,805 59,297 55,675
Common shares assumed issued upon conversion of
4% convertible subordinated notes...................... 2,104 - - - -
Common shares assumed issued upon exercise
of dilutive stock options, net of assumed
repurchase, at the average market price,
using the treasury stock method (1).................... 903 1,313 1,086 1,339 819
- ----------------------------------------------------------------------------------------------------------------------------------
(d) Average number of common shares outstanding
during the year........................................ 62,588 60,565 61,891 60,636 56,494
- ----------------------------------------------------------------------------------------------------------------------------------
(e) Earnings per share before cumulative effect of
change in accounting principle (a/d) $ 1.34 $ 1.32 $ 1.06 $ .90 $ .69
- ----------------------------------------------------------------------------------------------------------------------------------
(f) Cumulative effect of change in accounting principle (b/d) - (.07) - - -
- ----------------------------------------------------------------------------------------------------------------------------------
(g) Net earnings per share (c/d) $ 1.34 $ 1.25 $ 1.06 $ .90 $ .69
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The number of shares assumed issued upon exercise of dilutive stock options is essentially the same for fully diluted earnings
per share.
</TABLE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 12 - Statement Regarding Computation of Ratios
Ratios of Earnings to Fixed Charges
<CAPTION> (in thousands, except ratios)
- ------------------------------------------------------------------------------------------------------------------------------------
February 3, January 28, January 29, January 30, February 1,
Fiscal year 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest $ 32,072 $25,931 $19,701 $20,180 $25,071
Interest factor in rental expense 7,743 6,157 5,595 4,698 3,456
Capitalized interest 1,407 1,850 1,254 852 602
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Fixed charges, as defined $ 41,222 $33,938 $26,550 $25,730 $29,129
Earnings before income taxes and
cumulative effect of change in
accounting principle $129,452 $126,482 $104,508 $85,615 $60,512
Fixed charges 41,222 33,938 26,550 25,730 29,129
Capitalized interest (1,407) (1,850) (1,254) (852) (602)
- ------------------------------------------------------------------------------------------------------------------------------------
(b) Earnings, as defined $169,267 $158,570 $129,804 $110,493 $89,039
- ------------------------------------------------------------------------------------------------------------------------------------
(c) Ratio of earnings to fixed charges (b/a) 4.1x 4.7x 4.9x 4.3x 3.1x
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUBSIDIARIES OF THE COMPANY
% OF SHARES
NAME WHERE INCORPORATED OWNED
- ------------------------------- ------------------ -----------
The Pep Boys-Manny, Moe & Jack
Jack of California
1122 W. Washington Blvd.
Los Angeles, CA 90015 California 100%
Pep Boys- Manny, Moe & Jack
of Delaware, Inc.
3111 W. Allegheny Avenue
Philadelphia, PA 19132 Delaware 100%
Pep Boys- Manny, Moe & Jack
of Puerto Rico, Inc.
3111 W. Allegheny Avenue
Philadelphia, PA 19132 Delaware 100%
Colchester Insurance Company
7 Burlington Square
Burlington, VT 05401 Vermont 100%
PBY Corporation
Suite 946
1105 North Market Street
Wilmington, DE 19899 Delaware 100%
MMJ Corporation
Suite 946
1105 North Market Street
Wilmington, DE 19899 Delaware 100%
Carrus Supply Corporation
32 Loockerman Square
Suite L-100
Dover, DE 19901 Delaware 100%
[DESCRIPTION]AMENDMENT TO THE PEP BOYS- MANNY, MOE & JACK EXECUTIVE SUPPLEMENTAL
PENSION PLAN
WHEREAS, The Pep Boys - Manny, Moe & Jack (the "Company") has adopted The
Pep Boys - Manny, Moe & Jack Executive Supplemental Pension Plan (the "Plan"),
effective as of January 1, 1982, which was subsequently amended and restated
effective January 1, 1988 and further amended effective February 13, 1992; and
WHEREAS, the Company desires to further amend the Plan to include bonus
renumeration received by the Plan participants in the definition of
"Compensation" pursuant to the Plan and to change the computation of "Average
Monthly compensation" for the Chief Executive Officer; and
WHEREAS, Section 6.1 of the Plan authorizes the Board of Directors of the
Company (the "board") to amend the Plan; and
WHEREAS, the Board has taken action to so amend the Plan.
NOW THEREFORE, the Plan is hereby amended, effective March 31, 1995, as
follows:
Article I, Section 1.5 of the Plan is hereby amended by excluding the words
"but excluding amounts paid under any written executive bonus" and substituting
therefor the words "; provided, however, that prior to March 31, 1995
Compensation shall exclude amounts paid under any written executive bonus plan,
and on and after March 31, 1995 Compensation shall include such amounts."
Article I, Section 1.3 of the Plan is hereby amended by adding the end
thereto "; provided, however, that for the Chief Executive Officer of the
Company, "Average Monthly Compensation" shall mean one-twelfth (1/12) of the
average of his Compensation for the three Plan Years which yield the highest
average."
IN WITNESS WHEREOF, this amendment is hereby executed effective as of the
31st day of March, 1995.
THE PEP BOYS - MANNY, MOE & JACK
by: /s/Mitchell G. Leibovitz
----------------------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Numbers
2-81733, 33-3420, 33-31765, 33-64248, 33-35592 and 33-61429 of The Pep Boys -
Manny, Moe & Jack and subsidiaries on Forms S-8 and Registration Statement
Number 333-00985 of The Pep Boys - Manny, Moe & Jack and subsidiaries on
Form S-3 of our report dated March 20, 1996, appearing in the Annual Report
on Form 10-K of The Pep Boys - Manny, Moe & Jack and subsidiaries for the
year ended February 3, 1996.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
May 1, 1996
[DESCRIPTION]AMENDMENT TO THE PEP BOYS - MANNY, MOE & JACK 1990 STOCK INCENTIVE
PLAN
Pursuant to the resolutions of the Board of Directors of The Pep Boys -
Manny, Moe & Jack (the "Company"), dated March 31, 1995, and subject to approval
by the shareholders of the Company at its Annual Meeting to be hel on May 31,
1995, the Company's 1990 Stock Incentive Plan (the "Plan") is hereby amended as
follows:
(1) The first sentence of Section 6 of the Plan, entitled "Shares Subject
to Plan," shall be amended to read as follows:
"The aggregate maximum number of Shares for which Awards may be
granted pursuant to the Plan is 400,000 adjusted as provided in
Section 11 of the Plan."
(2) The following sentence shall be added immediately following the first
sentence in Section 6 of the Plan:
"Awards covering no more than 500,000 Shares may be granted to any
individual during any calendar year that the Plan is in effect,
as such number of Shares shall be adjusted in accordance with the
provisions of Section 11 of the Plan.
(3) The first sentence of Section 11 of the Plan, entitled "Adjustments
on Changes in Capitalization," shall be amended to read as follows:
"The aggregate number of Shares and class of Shares as to which Awards
may be granted hereunder, the maximum number of Shares for which
Awards may be granted to any individual during any calendar year,
the number of Shares covered by each outstanding Award and the Option
Price, in the case of grants fo Options, shall be appropriately
adjusted in the event of a stock dividend, stock split,
recapitalization, or other change in the number or class of issued
and outstanding equity securities of the Company resulting from a \
subdivision or consolidation of the Common Stock and/or other out-
standing equity security or a recapitalization or other capital
adjustment (not including the issuance of Common Stock on the
conversion of other securities of the Company which are convertible
into Common Stock) affecting the Common Stock which is effected
without receipt of consideration by the Company."
This amendment shall be effective as of the date of its approval by the
shareholders of the Company.
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 3, 1996 AND THE CONSOLIDATED
STATEMENT OF EARNINGS FOR THE FIFTY-THREE WEEK PERIOD ENDED FEBRUARY 3, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-END> FEB-3-1996
<CASH> 11,487
<SECURITIES> 0
<RECEIVABLES> 5,083
<ALLOWANCES> 251
<INVENTORY> 417,852
<CURRENT-ASSETS> 466,473
<PP&E> 1,307,803
<DEPRECIATION> 293,751
<TOTAL-ASSETS> 1,500,008
<CURRENT-LIABILITIES> 426,605
<BONDS> 367,043
0
0
<COMMON> 62,084
<OTHER-SE> 603,376
<TOTAL-LIABILITY-AND-EQUITY> 1,500,008
<SALES> 1,355,008
<TOTAL-REVENUES> 1,594,340
<CGS> 943,875
<TOTAL-COSTS> 1,138,817
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,072
<INCOME-PRETAX> 129,452
<INCOME-TAX> 47,958
<INCOME-CONTINUING> 81,494
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,494
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
