UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended August 1, 1998
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from to
----------- ----------
Commission File No. 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 ID number)
incorporation or organization)
3111 W. Allegheny Ave. Philadelphia, PA 19132
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
215-229-9000
----------------------------------------------------
(Registrant's telephone number, including area code)
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 and 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 ( )
As of August 1, 1998 there were 63,797,703 shares of the registrant's Common
Stock outstanding.
1
<PAGE>
- -------------------------------------------------------------------
Index Page
- -------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated
Financial Statements (Unaudited)
Consolidated Balance Sheets -
August 1, 1998 and January 31, 1998 3
Consolidated Statements of Earnings -
Thirteen and Twenty-six weeks ended
August 1, 1998 and August 2, 1997 4
Condensed Consolidated Statements of
Cash Flows - Twenty-six weeks ended
August 1, 1998 and August 2, 1997 5
Notes to Condensed Consolidated
Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-13
PART II - OTHER INFORMATION 14
- ---------------------------
SIGNATURE 15
2
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands, except per share amounts)
<CAPTION>
Aug. 1, 1998 Jan. 31, 1998*
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash....................................................... $ 9,653 $ 10,811
Accounts receivable, net................................... 13,110 13,070
Merchandise inventories.................................... 577,977 655,363
Prepaid expenses........................................... 13,109 27,449
Deferred income taxes...................................... 23,215 23,215
Other...................................................... 34,519 40,308
------------- -------------
Total Current Assets.................................... 671,583 770,216
Property and Equipment-at cost:
Land....................................................... 296,835 296,721
Building and improvements.................................. 954,304 920,522
Furniture, fixtures and equipment.......................... 588,354 542,256
Construction in progress................................... 36,723 21,432
------------ -------------
1,876,216 1,780,931
Less accumulated depreciation and amortization............. 450,052 403,182
------------- -------------
Total Property and Equipment............................ 1,426,164 1,377,749
Other........................................................ 12,674 13,395
------------- -------------
Total Assets.................................................. $2,110,421 $2,161,360
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $ 187,987 $ 409,053
Accrued expenses........................................... 211,773 162,666
Short-term borrowings...................................... - 47,000
Current maturities of long-term debt....................... 164 157
------------- -------------
Total Current Liabilities............................... 399,924 618,876
Long-Term Debt, less current maturities...................... 546,937 402,021
Deferred Income Taxes........................................ 70,789 73,208
Convertible Subordinated Notes............................... 86,250 86,250
Zero Coupon Convertible Subordinated Notes................... 161,517 158,370
Commitments and Contingencies
Stockholders' Equity:
Common Stock, par value $1 per share:
Authorized 500,000,000 shares - Issued and
outstanding 63,797,703 and 63,657,728..................... 63,798 63,658
Additional paid-in capital................................. 175,573 173,107
Retained earnings.......................................... 667,268 647,505
Accumulated other comprehensive income..................... (1,366) (1,366)
------------- ------------
905,273 882,904
Less:
Cost of shares in benefits trust-2,232,500 shares, at cost. 60,269 60,269
------------- ------------
Total Stockholders' Equity.............................. 845,004 822,635
------------- ------------
Total Liabilities and Stockholders' Equity.................... $2,110,421 $2,161,360
============= ============
See notes to condensed consolidated financial statements.
*Taken from the audited financial statements at January 31, 1998.
</TABLE>
3
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollar amounts in thousands, except per share amounts)
UNAUDITED
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
-------------------------------- ---------------------------------
August 1, 1998 August 2, 1997 August 1, 1998 August 2, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Merchandise Sales.................................... $530,944 $452,697 $1,014,580 $863,018
Service Revenue...................................... 104,357 86,601 204,945 165,558
-------------- -------------- -------------- --------------
Total Revenues....................................... 635,301 539,298 1,219,525 1,028,576
Costs of Merchandise Sales........................... 380,559 311,702 730,536 596,425
Costs of Service Revenue............................. 82,334 67,131 162,199 129,744
-------------- -------------- -------------- --------------
Total Costs of Revenues.............................. 462,893 378,833 892,735 726,169
Gross Profit from Merchandise Sales.................. 150,385 140,995 284,044 266,593
Gross Profit from Service Revenue.................... 22,023 19,470 42,746 35,814
-------------- -------------- -------------- --------------
Total Gross Profit................................... 172,408 160,465 326,790 302,407
Selling, General and Administrative Expenses......... 132,306 104,957 258,794 202,794
-------------- -------------- -------------- --------------
Operating Profit..................................... 40,102 55,508 67,996 99,613
Nonoperating Income.................................. 429 1,356 762 2,609
Interest Expense..................................... 12,868 9,481 25,380 18,389
-------------- -------------- -------------- --------------
Earnings Before Income Taxes 27,663 47,383 43,378 83,833
Income Taxes......................................... 9,959 17,295 15,616 30,599
-------------- -------------- -------------- --------------
Net Earnings......................................... 17,704 30,088 27,762 53,234
Retained Earnings, beginning of period............... 653,564 632,069 647,505 612,581
Cash Dividends....................................... 4,000 3,672 7,999 7,330
-------------- -------------- -------------- --------------
Retained Earnings, end of period..................... $667,268 $658,485 $667,268 $658,485
============== ============== ============== ==============
Basic Earnings per Share............................. $ .29 $ .49 $ .45 $ .87
Diluted Earnings per Share........................... $ .29 $ .47 $ .45 $ .84
============== ============== ============== ==============
Cash Dividends per Share............................. $ .0650 $ .0600 $ .1300 $ .1200
============== ============== ============== ==============
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
UNAUDITED
<CAPTION>
Twenty-six weeks ended
----------------------------------
August 1, 1998 August 2, 1997
-------------- --------------
<S> <C> <C>
Net Cash Used in Operating Activities........................... $ (82) $ (25,168)
Cash Flows from Investing Activities:
Capital expenditures............................................ (96,367) (133,863)
Other, net...................................................... 820 684
------------- -------------
Net Cash Used in Investing Activities........................... (95,547) (133,179)
Cash Flows from Financing Activities:
Net borrowings (payments) under line of credit agreements....... (102,000) 113,000
Net proceeds from issuance of notes............................. 201,941 49,750
Reduction of long-term debt..................................... (77) (212)
Dividends paid.................................................. (7,999) (7,330)
Proceeds from exercise of stock options
and dividend reinvestment plan................................ 2,606 5,116
------------- -------------
Net Cash Provided by Financing Activities....................... 94,471 160,324
------------- -------------
Net (Decrease) Increase in Cash...................................... (1,158) 1,977
Cash at Beginning of Period.......................................... 10,811 2,589
------------- -------------
Cash at End of Period................................................ $ 9,653 $ 4,566
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Condensed Consolidated Financial Statements
The consolidated balance sheet as of August 1, 1998, the consolidated
statements of earnings for the thirteen and twenty-six week periods ended
August 1, 1998 and August 2, 1997 and the condensed consolidated statements of
cash flows for the twenty-six week periods ended August 1, 1998 and
August 2, 1997 have been prepared by the Company without audit. In the opinion
of management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at August 1, 1998 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's January 31,
1998 annual report to shareholders. The results of operations for the
thirteen and twenty-six week period ended August 1, 1998 are not necessarily
indicative of the operating results for the full year.
NOTE 2. Merchandise Inventories
Merchandise inventories are valued at the lower of cost (last-in, first-out)
or market. If the first-in, first-out method of valuing inventories had been
used by the Company, inventories would have been approximately $870,000
higher at both August 1, 1998 and January 31, 1998.
NOTE 3. Comprehensive Income
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and disclosure of comprehensive
income and its components in financial statements. Accumulated other
comprehensive income in the consolidated balance sheets as of August 1, 1998
and January 31, 1998 consists of a minimum pension liability adjustment. There
were no differences between net earnings and comprehensive income for the
thirteen and twenty-six week periods ended August 1, 1998 and August 2, 1997.
NOTE 4. Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for fiscal years
beginning after June 15, 1999, although early adoption is encouraged. The
Company does not believe that adoption of this statement will have a material
impact on its consolidated financial position or results of operations.
NOTE 5. Medium-Term Note Program
In February 1998, the Company established a Medium-Term Note program which
permitted the Company to issue up to $200,000,000 of Medium-Term Notes. Under
this program the Company sold $100,000,000 principal amount of senior notes,
ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March
2006. The net proceeds of $99,429,000 were used for working capital, the
repayment of debt and for general corporate purposes. Additionally, in July
1998, under this program, the Company sold $100,000,000 principal amount of
Term Enhanced ReMarketable Securities with a stated maturity date of July
2017. If the securities are not remarketed, the Company will be obligated to
repay the principal amount in full in July 2017. The Company sold a call
option with the securities, which allows the securities to be remarketed to the
public in July 2006 under certain circumstances. The level
yield to maturity on the notes is approximately 6.85% and the coupon rate is
6.92%. The net proceeds of $101,923,500 from the sale of the securities and
the call option were used for working capital, the repayment of debt and for
general corporate purposes.
6
<PAGE>
NOTE 6. Net Earnings Per Share
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
(in thousands, except per share data) ---------------------------------- ----------------------------------
August 1, 1998 August 2, 1997 August 1, 1998 August 2, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(a) Net earnings..................................... $17,704 $30,088 $27,762 $53,234
Adjustment for interest on 4% convertible
subordinated notes, net of income tax effect... 552 554 - 1,108
Adjustment for interest on zero coupon convertible
subordinated notes, net of income tax effect... - 961 - 1,920
- ---------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted net earnings $18,256 $31,603 $27,762 $56,262
- ---------------------------------------------------------------------------------------------------------------------------------
(c) Average number of common shares outstanding
during the period.............................. 61,544 61,074 61,507 60,999
Common shares assumed issued upon conversion of
4% convertible subordinated notes.............. 2,104 2,104 - 2,104
Common shares assumed issued upon conversion of
zero coupon convertible subordinated notes..... - 3,513 - 3,513
Common shares assumed issued upon exercise
of dilutive stock options, net of assumed
repurchase, at the average market price........ 224 665 265 668
- ---------------------------------------------------------------------------------------------------------------------------------
(d) Average number of common shares assumed
outstanding during the period.................. 63,872 67,356 61,772 67,284
- ---------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share (a/c)................... $ .29 $ .49 $ .45 $ .87
Diluted Earnings per Share (b/d)................. $ .29 $ .47 $ .45 $ .84
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Adjustments for certain convertible securities were antidilutive during the
thirteen and twenty-six week periods ended August 1, 1998 and have therefore
been excluded from the computation of diluted EPS; however, these securities
could potentially be dilutive in the future. Options to purchase 4,243,096
shares of common stock at various prices ranging from $21.81 to $37.38 were
outstanding at August 1, 1998, but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the average
market price of the common shares.
7
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operation -
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
- ------------------------------------------------------ ---------------------------------- -----------------
Thirteen weeks ended August 1, 1998 August 2, 1997 Fiscal 1998 vs.
(Fiscal 1998) (Fiscal 1997) Fiscal 1997
- ------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 83.6% 83.9% 17.3%
Service Revenue (1)................................... 16.4 16.1 20.5
------ ------ ------
Total Revenues........................................ 100.0 100.0 17.8
Costs of Merchandise Sales (2)........................ 71.7 (3) 68.9 (3) 22.1
Costs of Service Revenue (2).......................... 78.9 (3) 77.5 (3) 22.6
------ ------ ------
Total Costs of Revenues............................... 72.9 70.2 22.2
Gross Profit from Merchandise Sales................... 28.3 (3) 31.1 (3) 6.7
Gross Profit from Service Revenue..................... 21.1 (3) 22.5 (3) 13.1
------ ------ ------
Total Gross Profit.................................... 27.1 29.8 7.4
Selling, General and Administrative Expenses.......... 20.8 19.5 26.1
------ ------ ------
Operating Profit...................................... 6.3 10.3 (27.8)
Nonoperating Income................................... .1 .3 (68.4)
Interest Expense...................................... 2.0 1.8 35.7
------ ------ ------
Earnings Before Income Taxes.......................... 4.4 8.8 (41.6)
Income Taxes.......................................... 36.0 (4) 36.5 (4) (42.4)
------ ------ ------
Net Earnings.......................................... 2.8 5.6 (41.2)
====== ====== ======
<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.
</FN>
</TABLE>
8
<PAGE>
Thirteen Weeks Ended August 1, 1998 vs. Thirteen Weeks Ended August 2, 1997
- ---------------------------------------------------------------------------
Total revenues for the second quarter increased 17.8% due to a higher store
count (723 at August 1, 1998 compared with 646 at August 2, 1997) coupled with
a 6.8% increase in comparable store revenues (revenues generated by stores in
operation during the same months of each period). Comparable store
merchandise sales increased 6.2% while comparable service revenue increased
9.7%.
Gross profit from merchandise sales decreased, as a percentage of merchandise
sales, due primarily to significantly lower merchandise margins offset, in
part, by a decrease in warehousing costs.
Gross profit from service revenue decreased, as a percentage of service revenue,
due primarily to an increase in service center personnel costs.
Selling, general and administrative expenses increased substantially, as a
percentage of total revenues, due primarily to increases in store expenses and
media costs offset, in part, by a decrease in general office costs, as a
percentage of total revenues.
<TABLE>
Nonoperating income consisted of the following:
(in thousands)
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Rental revenue $ 352 $ 492
Investment income 46 855
Other income 31 9
------ ------
Total $ 429 $1,356
====== ======
</TABLE>
Interest expense increased, as a percentage of total revenues, due primarily to
higher debt levels necessary to fund the Company's store expansion program and
related working capital requirements coupled with slightly higher interest
rates.
Net earnings decreased, as a percentage of total revenues, due primarily to a
significant decrease in gross profit from merchandise sales, as a percentage of
merchandise sales, a decrease in gross profit from service revenue, as a
percentage of service revenue, substantially higher selling, general and
administrative expenses, as a percentage of total revenues, and an increase in
interest expense, as a percentage of total revenues.
9
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operation -
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
- ------------------------------------------------------ ---------------------------------- -----------------
Twenty-six weeks ended August 1, 1998 August 1, 1997 Fiscal 1998 vs.
(Fiscal 1998) (Fiscal 1997) Fiscal 1997
- ------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 83.2% 83.9% 17.6%
Service Revenue (1)................................... 16.8 16.1 23.8
------ ------ ------
Total Revenues........................................ 100.0 100.0 18.6
Costs of Merchandise Sales (2)........................ 72.0 (3) 69.1 (3) 22.5
Costs of Service Revenue (2).......................... 79.1 (3) 78.4 (3) 25.0
------ ------ ------
Total Costs of Revenues............................... 73.2 70.6 22.9
Gross Profit from Merchandise Sales................... 28.0 (3) 30.9 (3) 6.5
Gross Profit from Service Revenue..................... 20.9 (3) 21.6 (3) 19.4
------ ------ ------
Total Gross Profit.................................... 26.8 29.4 8.1
Selling, General and Administrative Expenses.......... 21.2 19.7 27.6
------ ------ ------
Operating Profit...................................... 5.6 9.7 (31.7)
Nonoperating Income................................... .1 .3 (70.8)
Interest Expense...................................... 2.1 1.8 38.0
------ ------ ------
Earnings Before Income Taxes.......................... 3.6 8.2 (48.3)
Income Taxes.......................................... 36.0 (4) 36.5 (4) (49.0)
------ ------ ------
Net Earnings.......................................... 2.3 5.2 (47.8)
====== ====== ======
<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.
</FN>
</TABLE>
10
<PAGE>
Twenty-six Weeks Ended August 1, 1998 vs. Twenty-six Weeks Ended August 2, 1997
- -------------------------------------------------------------------------------
Total revenues for the first half increased 18.6% due to a higher store
count (723 at August 1, 1998 compared with 646 at August 2, 1997) coupled with
a 6.9% increase in comparable store revenues. Comparable store merchandise
sales increased 5.8% while comparable service revenue increased 12.3%.
Gross profit from merchandise sales decreased, as a percentage of merchandise
sales, due primarily to significantly lower merchandise margins and an
increase in store occupancy costs offset, in part, by a decrease in warehousing
costs.
Selling, general and administrative expenses increased substantially, as a
percentage of total revenues, due primarily to increases in store expenses and
media costs, offset, in part, by a decrease in general office costs, as a
percentage of total revenues.
<TABLE>
Nonoperating income consisted of the following:
(in thousands)
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Rental revenue $ 639 $ 908
Investment income 99 1,661
Other income 24 40
------ ------
Total $ 762 $2,609
====== ======
</TABLE>
Interest expense increased, as a percentage of total revenues, due primarily to
higher debt levels necessary to fund the Company's store expansion program and
related working capital requirements coupled with slightly higher interest
rates.
Net earnings decreased, as a percentage of total revenues, due primarily to a
significant decrease in gross profit from merchandise sales, as a percentage of
merchandise sales, substantially higher selling, general and administrative
expenses, as a percentage of total revenues, and an increase in interest
expense, as a percentage of total revenues.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - August 1, 1998
- ------------------------------------------------
The Company's cash requirements arise principally from the need to finance
the acquisition, construction and equipping of new stores and to purchase
inventory. During the first twenty-six weeks of 1998, the Company invested
$96,367,000 in property and equipment while net inventory (net inventory
includes the decrease in inventory less the change in accounts payable)
increased $143,680,000. Working capital increased from $151,340,000 at
January 31, 1998 to $271,659,000 at August 1, 1998. At August 1, 1998, the
Company had stockholders' equity of $845,004,000 and long-term debt of
$794,704,000. The Company's long-term debt was 48.5% of its total capitalization
at August 1, 1998 and 44% at January 31, 1998.
The Company plans to open approximately 20 new stores during the balance of
the current fiscal year. Management estimates that the cost of this
expansion, coupled with expenditures in existing stores, warehouses and
offices will be approximately $88,000,000. Funds required to finance the
store expansion including related inventory requirements are expected to come
primarily from operating activities with the remainder provided by unused
lines of credit which totaled $329,000,000 at August 1, 1998, or from accessing
traditional lending sources such as the public capital markets.
In February 1998, the Company established a Medium-Term Note program which
permited the Company to issue up to $200,000,000 of Medium-Term Notes. Under
this program the Company sold $100,000,000 principal amount of senior notes,
ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March
2006. The net proceeds of $99,429,000 were used for working capital, the
repayment of debt and for general corporate purposes. Additionally, in July
1998, under this program, the Company sold $100,000,000 principal amount of
Term Enhanced ReMarketable Securities with a stated maturity date of July
2017. If the securities are not remarketed, the Company will be obligated to
repay the principal amount in full in July 2017. The Company sold a call
option with the securities, which allows the securities to be
remarketed to the public in July 2006 under certain circumstances. The level
yield to maturity on the notes is approximately 6.85% and the coupon rate is
6.92%. The net proceeds of $101,923,500 from the sale of the securities and
the call option were used for working capital, the repayment of debt and for
general corporate purposes.
New Accounting Standards
- ------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for fiscal years
beginning after June 15, 1999, although early adoption is encouraged. The
Company does not believe that adoption of this statement will have a material
impact on its consolidated financial position or results of operations.
12
<PAGE>
INFORMATION SYSTEMS AND THE YEAR 2000
- -------------------------------------
The Company recognizes that the arrival of the Year 2000 poses a challenge to
the ability of all systems to recognize the date change from December 31, 1999
to January 1, 2000 and, like other companies, has assessed and is modifying its
computer applications and business processes to provide for their continued
functionality. An assessment of the readiness of external entities which it
interfaces with, such as vendors, suppliers, customers and others, is ongoing.
The Company expects that the principal costs involved will be those associated
with the remediation and testing of its computer applications. This effort is
currently underway across the Company. A large portion of these costs will be
met from existing resources through a reprioritization of technology development
initiatives, with the remainder representing incremental costs. Management
estimates that these costs, which will be expensed as incurred, for the
remediation and testing of computer applications will range from approximately
$12,000,000 to $16,000,000 over the two year period from 1998 through the end
of 1999.
While the Company does not currently foresee any material problems, there can
be no guarantee that the Company and the external entities with which it
interfaces will be Year 2000 compliant by January 1, 2000 and that any such
non-compliance will not have a material adverse effect on the Company.
FORWARD LOOKING STATEMENTS
- --------------------------
Certain statements made herein are forward looking and as a result involve
risk and uncertainties. Actual results could differ materially from expected
results due to factors beyond the control of the Company, including the strength
of the national and regional economies and consumers' ability to spend, the
health of various segments of the market that the Company serves - particularly
the do-it-yourself segment, the weather in geographical regions with a high
concentration of the Company's stores, competitive pricing, location and number
of competitors' stores, product costs, the ability to attract and retain
qualified personnel, the ability to acquire real estate, facilities and
equipment and the ability to complete the rollout of the commercial delivery
program and reduce inventory levels during 1998. Further risk factors are
discussed in the Company's filings with the Securities and Exchange Commission,
including its most recent Form 10-K, a copy of which may be obtained from the
Company without charge.
13
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of shareholders was held on June 3, 1998. The
shareholders approved the election of directors shown below.
Directors Elected at Annual Meeting of Shareholders
---------------------------------------------------
Name Votes For Votes Withheld
---- --------- --------------
Benjamin Strauss 47,732,182 2,029,695
Myles H. Tanenbaum 47,775,129 1,986,748
Malcolmn D. Pryor 47,775,368 1,986,509
..................................................................
Directors whose term of office continued after the Annual Meeting
of Shareholders
-----------------------------------------------------------------
Name
----
Bernard J. Korman
J. Richard Leaman, Jr.
Mitchell G. Leibovitz
Lester Rosenfeld
Lennox K. Black
..................................................................
The shareholders also approved the appointment of the independent
auditors Deloitte & Touche, LLP with 49,499,235 affirmative votes,
163,951 negative votes and 98,691 abstentions.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Amendment No. 2 dated as of July 31,1998
to the Credit Agreement dated as of April
21, 1995 between the Company, the Banks
signatory thereto and the Chase Manhattan
Bank (Agent)
(10.2) Amendment to Transaction Agreement between
the Company and State Street Bank and Trust
Company dated as of February 28, 1997
(10.3) Amendment dated as of July 31, 1998 to Master
Lease between the Company and State Street
Bank and Trust Company dated as of November
13, 1995
(10.4) Amendment dated as of July 31, 1998 to Master
Lease between the Company and State Street
Bank and Trust Company dated as of February
28, 1997
(11) Statement Re: Computation of Earnings Per
Share
(27) Financial Data Schedules
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter for which this report is filed.
14
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEP BOYS - MANNY, MOE & JACK
--------------------------------
(Registrant)
Date: September 14, 1998 By: /s/ Micheal J. Holden
----------------------- -------------------------
Michael J. Holden
Executive Vice President &
Chief Financial Officer
15
<PAGE>
INDEX TO EXHIBITS
- -----------------
(10.1) Amendment No. 2 dated as of July 31,1998 to the Credit Agreement dated
as of April 21, 1995 between the Company, the Banks signatory thereto
and the Chase Manhattan Bank (Agent)
(10.2) Amendment to Transaction Agreement between the Company and State
Street Bank and Trust Company dated as of February 28, 1997
(10.3) Amendment dated as of July 31, 1998 to Master Lease between the
Company and State Street Bank and Trust Company dated as of November
13, 1995
(10.4) Amendment dated as of July 31, 1998 to Master Lease between the
Company and State Street Bank and Trust Company dated as of February
28, 1997
(11) Computations of Earnings Per Share
(27) Financial Data Schedule
Exhibit 10.1
AMENDMENT NO. 2
AMENDMENT NO. 2 dated as of July 31, 1998 to the AMENDED AND RESTATED
CREDIT AGREEMENT dated as of April 21, 1995 among THE PEP BOYS - MANNY, MOE &
JACK, the Banks signatory thereto and THE CHASE MANHATTAN BANK, as Agent.
W I T N E S S E T H:
WHEREAS, the Company, the Banks and the Agent are parties to the Amended
and Restated Credit Agreement referred to above (as heretofore amended, the
"Credit Agreement") pursuant to which the Banks have agreed to extend credit to
the Company as provided therein;
WHEREAS, the Company has requested the Banks and the Agent to amend the
Credit Agreement as herein after set forth;
WHEREAS, the Majority Banks and the Agent are agreeable to such amendment
on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein it is hereby agreed as follows:
1. Definitions.
All terms defined in the Credit Agreement shall be used herein as defined
in the Credit Agreement unless otherwise defined herein or the context
otherwise requires.
2. Amendments to the Agreement.
(a) Section 1.01 of the Credit Agreement is hereby amended by
restating the definition of "NOP/Interest Charges Ratio" in its entirety to
read as follows:
"'NOP/Interest Charges Ratio' shall mean, (a) as
at the end of each fiscal quarter occurring during fiscal
year ending January 30, 1999 of the Company, the ratio of
(i) Net Operating Profit for the period of such fiscal
quarter and including any 1999 fiscal quarters prior thereto
to (ii) Interest Expense for such period; and (b) as at any
date of determination after fiscal year ending January 30,
1999, the ratio of (i) Net Operating Profit for the period
of four consecutive fiscal quarters of the Company ending on
or most recently ended prior to such date of determination
to (ii) Interest Expense for such period."
(b) Section 9.10 of the Agreement is hereby amended by restating it in
its entirety to read as follows:
"9.10 NOP/Interest Charges Ratio. The Company will
not at any time permit the NOP/Interest Charges Ratio to be
less than 2.25 to 1.0."
1
<PAGE>
(c) The first paragraph of the Pricing Schedule is hereby amended in
its entirety to read as follows:
"Each of the 'Applicable Margin,' 'Commitment Fee Rate' and
'Facility Fee Rate' means, for any day, the per annum rates
set forth below in the column under such term and in the row
corresponding to the 'Debt to Capital Ratio' that exists on
such day; provided that for each day after the first quarter
of the Company's fiscal year ending January 30, 1999 on which
the NOP/Interest Charges Ratio is less than 2.5 to 1, the
Facility Fee Rate shall increase by 0.01%."
3. Representations and Warranties.
In order to induce the Majority Banks and the Agents to make this
Amendment, the Company hereby represents that:
(a) the execution and delivery of this Amendment and the performance
of the Company thereunder and under the Credit Agreement as amended hereby (i)
have been duly authorized by all necessary corporate action, will not violate
any provision of law, or the Company's charter or by-laws, or result in the
breach of or constitute a default, or require a consent, under any indenture or
other agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries or their
respective property may be bound or affected, and (ii) each of this Amendment
and the Credit Agreement as amended hereby constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms;
(b) the representations and warranties in Section 8 of the Credit
Agreement are true and correct as of the Closing Date (hereinafter defined) as
if they were being made on such date; and
(c) no Event of Default or event which with notice or lapse of time,
or both, would constitute an Event of Default, has occurred and is continuing
on the Closing Date.
2
<PAGE>
4. Conditions of Effectiveness.
This Amendment shall be effective (as of the date hereof) on the date when
all of the following conditions shall have been met, and such date shall be the
"Closing Date":
(a) Counterparts of this Amendment shall have been executed by the
Company, the Banks and the Agent;
(b) The Agent shall have received a certificate dated the Closing Date
specifying the names and titles and including specimen signatures of the
officers authorized to sign this Amendment.
(c) The Borrower shall have paid an amendment fee to the Agent for the
account of each Bank equal to 0.05% of the amount of such Bank's Commitment.
5. Miscellaneous.
(a) Except as specifically amended hereby, all the provisions of the
Credit Agreement shall remain unamended and in full force and effect, and the
term "Credit Agreement", and words of like import shall be deemed to refer to
the Credit Agreement as amended by this Amendment unless otherwise provided
herein or the context otherwise requires. Nothing herein shall affect the
obligations of the Company under the Credit Agreement with respect to any
period prior to the effective date hereof.
(b) This Amendment shall be governed by and construed and interpreted
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
3
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK
By______________________________
Title:
THE CHASE MANHATTAN BANK,
as Agent and a Bank
By______________________________
Title:
PBY CORPORATION, as a Guarantor
By______________________________
Title:
CARRUS SUPPLY CORPORATION,
as a Guarantor
By______________________________
Title:
4
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK
OF CALIFORNIA, as a Guarantor
By______________________________
Title:
THE PEP BOYS - MANNY, MOE & JACK
OF DELAWARE, INC., as a Guarantor
By______________________________
Title:
THE PEP BOYS - MANNY, MOE & JACK
OF PUERTO RICO, INC., as a Guarantor
By______________________________
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By______________________________
Title:
5
<PAGE>
CREDIT SUISSE FIRST BOSTON
By______________________________
Title:
By______________________________
Title:
FIRST UNION NATIONAL BANK
By______________________________
Title:
[Fleet Bank]
By______________________________
Title:
NATIONSBANK, N.A. (CAROLINAS)
By______________________________
Title:
6
<PAGE>
PNC BANK, N.A.
By______________________________
Title:
SUNTRUST BANK, ATLANTA
By______________________________
Title:
By______________________________
Title:
UNION BANK OF CALIFORNIA, N.A.
By______________________________
Title:
7
<PAGE>
Exhibit 10.2
THIRD AMENDMENT TO TRANSACTION AGREEMENT
(Pep Boys II Leased Property Facility)
This THIRD AMENDMENT TO TRANSACTION AGREEMENT dated as of the 12th day of
August, 1998 (this "Amendment"), is entered into by and among THE PEP BOYS -
MANNY, MOE & JACK, a Pennsylvania corporation ("Lessee" and "Lease Guarantor");
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, not in its
individual capacity except as expressly stated in the Transaction Agreement,
but solely as Trustee under the Declaration of Trust (State Street Bank and
Trust Company, when acting in its respective capacities as such Trustee,
together with any successor trustee under the Declaration of Trust, is herein
referred to as the "Trustee" and State Street Bank and Trust Company, when
acting in its individual capacity, is herein referred to as "Trust Company");
CITICOPR LEASING, INC., a Delaware corporation ("CLI"), on behalf of itself as
a Purchaser and Instrument Holder under the Transaction Agreement and on
behalf of the other financial institutions that may, from time to time, become
Purchasers or Instrument Holders thereunder; BANK OF MONTREAL ("Bank of
Montreal"); as a Purchaser and Instrument Holder under the Transaction
Agreement; and CITICORP LEASING, INC., a Delaware corporation ("Agent"), in its
capacity as the administrative agent for the Instrument Holders under the
Transaction Agreement. Capitalized terms used but not otherwise defined in
this Amendment shall have the meanings set forth in the Transaction Agreement.
1
<PAGE>
RECITALS
A. Effective as of February 28, 1997, Lessee, Trustee, CLI, Bank of
Montreal, and Agent entered into that certain Transaction Agreement (as
heretofore amended, supplemented or otherwise modified from time to time, the
"Transaction Agreement") pursuant to the terms of which Trustee will acquire or
has acquired the Property. The Property will be or has been leased to Lessee
(and, where applicable, certain Additional Lessees that are wholly-owned
subsidiaries of Lessee) by Trustee (and in certrain cases by a co-trustee
appointed pursuant to the terms of Section 8.04 of the Declaration of Trust)
under that certain Master Lease of even date with the Transaction Agreement
between Trustee, as lessor, and Lessee, as lessee (as heretofore amended,
supplemented or otherwise modified from time to time, the "Lease").
B. Pursuant to the terms and provisions of that certain Lease
Guarantee dated of even date with the Lease ("Lease Guarantee"), the
Obligations (as defined in the Lease Guarantee) of the Lessee under the Lease
have been guaranteed by Lease Guarantor.
C. The Transaction Agreement presently provides for an "Outside
Funding Date" of December 31, 1998, with respect to any Parcel added to the
Property on or after October 1, 1997. Lessee and Trustee desire to modify such
"Outside Funding Date" solely with respect to the Parcel located in Chester,
New York.
2
<PAGE>
NOW, THEREFORE, in consideration of the premises and agreements set forth
herein and therein, the parties agree as follows:
1. CLI, Bank of Montreal, Agent, Lessee, and Trustee hereby agree that
the "Outside Funding Date" with respect only to the Parcel located in Chester,
New York, is hereby extended to the earlier of (i) December 31, 1999, or (ii)
the Completion Date for such Parcel provided for in that certain Sale Agreement
dated as of November 3, 1997, by and among Orange County Industrial Development
Agency, Trustee and Pep Boys - Manny, Moe & Jack of Delaware, Inc., as the same
may be amended from time to time.
2. Except as amended hereby, the terms and provisions of the
Transaction Agreement shall be and remain in full force and effect and are
hereby ratified and affirmed. By its execution hereof Lessee Parent hereby
ratifies and affirms each and every representation, warranty, covenant,
obligation and indemnity contained in the Transaction Agreement as of the date
hereof.
3. By its execution hereof, Lease Guarantor hereby ratifies and
affirms each and every representation, warranty, covenant, obligation and
indemnity contained in the Lease Guarantee as of the date hereof and
acknowledges that the Lease Guarantee remains in full force and effect.
4. By their execution hereof, Lessee, Pep Boys - Manny, Moe & Jack of
Delaware, Inc., a Delaware corporation ("Pep Boys-Delaware"), and The Pep Boys
Manny, Moe & Jack of California, a California corporation ("Pep Boys-
California"), as Indemnitors, hereby ratify and affirm each and every
representation, warranty, covenant, obligation and indemnity contained in that
certain Environmental Indemnity Agreement dated of even date with the
Transaction Agreement as of the date hereof and acknowledge that the
Environmental Indemnity Agreement remains in full force and effect.
5. By their execution hereof, Pep Boys-Delaware and Pep Boys-
California, in their capacity as Additional Lessees under the Lease, along with
Lessee Parent in its capacity as Lessee under the Lease, hereby ratify and
affirm each and every representation, warranty, covenant, obligation and
indemnity contained in the Lease as of the date hereof and acknowledge that the
Lease remains in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date first above written.
3
<PAGE>
Exhibit 10.3
July 31, 1998
The Pep Boys - Manny, Moe & Jack
3111 West Allegheny Avenue
Philadelphia, PA 19132
Gentlemen:
Effective as of November 13, 1995, State Street Bank and Trust Company, a
Massachusetts trust company, not in its individual capacity, but solely as
Trustee under Declaration of Trust dated November 13, 1995 ("Lessor"), and The
Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation ("Guarantor"), entered
into that certain Lease Guarantee pursuant to which Guarantor guaranteed
certain obligations of Guarantor, The Pep Boys Manny, Moe & Jack of California,
a California corporation, and Pep Boys - Manny, Moe & Jack of Delaware, Inc., a
Delaware corporation (collectively, "Lessee"), under that certain Master Lease
(as amended, supplemented or otherwise modified from time to time, the "Lease")
dated effective as of November 13, 1995, between Lessor and Lessee, with
respect to certain property more particularly described therein. Such Lease
Guarantee, as heretofore modified by a certain amendment letter dated as of
January 31, 1998, is herein referred to as the "Guarantee". All terms used
herein and not otherwise defined shall have the meanings ascribed thereto in
the Lease.
1. The modifications set out below with respect to Section 8(e) of the
Guarantee (relating to the required NOP/Interest Charges Ratio) have been
agreed to between Lessor and Guarantor, with the consent of Citicorp Leasing,
Inc., a Delaware corporation, as Agent for Noteholders ("Agent"), and shall be
effective as of the second fiscal quarter of fiscal year 1998. Accordingly,
Section 8(e) of the Guarantee shall read as follows:
"(e) NOP/Interest Charges Ratio. At any time permit the NOP/
Interest Charges Ratio to be less than 2.25 to 1.0; provided, however,
that for purposes of computing the NOP/Interest Charges Ratio for the
respective fiscal quarters ending August 1, 1998, and October 31,
1998, only, the NOP/Interest Charges Ratio shall be measured not on a
four (4) consecutive fiscal quarter basis as provided for in the
definition of the term NOP/Interest Charges Ratio, but rather on the
basis of the period elapsed in fiscal year 1998 (e.g., the ratio for
the second quarter of 1998 shall compare Net Operating Profit for the
first two quarters of fiscal year 1998 to Interest Expense for the
same period, and the ratio for the third quarter shall compare Net
Operating Profit for the first three quarters of fiscal year 1998 to
Interest Expense for the same period)."
For periods prior to the second fiscal quarter of 1998, the NOP/Interest
Charges Ratio shall be determined based on the provisions of the Guarantee (as
heretofore amended) without regard to the foregoing restatement of Section 8(e).
In consideration of the modification set out above with respect to Section
8(e) of the Guarantee, simultaneously herewith Guarantor shall pay to Agent, on
behalf of itself as a Purchaser and Instrument Holder and the other Purchasers
and Instrument Holders, a fee in the amount of 5.0 basis points (.05%) times
the aggregate outstanding balance of the Instruments held by each such
Instrument Holder.
1
<PAGE>
2. The Guarantee currently provides for written notice by Lessor or
Agent to Guarantor, and opportunity to cure, in the event of certain defaults
under the Guarantee. Lessor and Guarantor hereby agree, with the consent of
Agent, to modify such requirements and certain other provisions of the
Guarantee as follows:
(a) Clause (iv) of Section 7(d) of the Guarantee is hereby amended
in its entirety to be and read as follows:
"(iv) promptly after Guarantor learns or has reason to
believe that an Event of Default (or an event or circumstances
which with notice and/or the passage of time could mature into
an Event of Default) has occurred under the Lease, this
Guarantee, and/or the Environmental Indemnity Agreement of even
date herewith executed by Guarantor, a notice of such Event of
Default (or other event or circumstance, as applicable)
describing the same in reasonable detail and, together with
such notice or as soon thereafter as possible, as description
of the action that Guarantor has taken and proposes to take
with respect thereto;..."
(b) Subsection (iv) of Section 14(a) of the Guarantee is hereby
deleted in its entirety, and in lieu thereof there is hereby inserted new
subsections (iv) and (v), to be and read as follows (with the subsequent
subsections of Section 14[a] being re-lettered accordingly):
"(iv) If there shall be a default in the performance of
any of its obligations under any of Sections 7(a), 7(b),
7(d)(iv), or 8(b) through 8(e), of this Guarantee.
"(v) If there shall be a defualt in the performance of
any of its other obligations or observance of any term,
condition or covenant contained in this Guarantee other than
defaults described in other subsections of this Section 14(a)
and such default shall continue unremedied for a period of
thirty (30) days after written notice thereof has been given
to Guarantor by the Lessor or Agent."
3. Except as specifically amended hereby, the Guarantee (as previously
amended) shall remain unchanged and in full force and effect, and Guarantor and
Lessor ratify and confirm the terms thereof, as amended hereby.
Very truly yours,
STATE STREET BANK AND TRUST COMPANY,
not in its individual capacity, but
solely as Trustee under Declaration
of Trust, Lessor
By:_________________________________
AGREED TO AND ACCEPTED:
THE PEP BOYS - MANNY, MOE & JACK, Guarantor
By:__________________________
Name:________________________
Title:_______________________
APPROVED:
CITICORP LEASING, INC., Agent
By:__________________________
Name:________________________
Title:_______________________
2
<PAGE>
Exhibit 10.4
July 31, 1998
The Pep Boys - Manny, Moe & Jack
3111 West Allegheny Avenue
Philadelphia, PA 19132
Gentlemen:
Effective as of February 28, 1997, State Street Bank and Trust Company, a
Massachusetts trust company, not in its individual capacity, but solely as
Trustee under Declaration of Trust dated February 28, 1997 ("Lessor"), and The
Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation ("Guarantor"), entered
into that certain Lease Guarantee pursuant to which Guarantor guaranteed
certain obligations of Guarantor, The Pep Boys Manny, Moe & Jack of California,
a California corporation, and Pep Boys - Manny, Moe & Jack of Delaware, Inc., a
Delaware corporation (collectively, "Lessee"), under that certain Master Lease
(as amended, supplemented or otherwise modified from time to time, the "Lease")
dated effective as of February 28, 1997, between Lessor and Lessee, with
respect to certain property more particularly described therein. Such Lease
Guarantee, as heretofore modified by a certain amendment letter dated as of
January 31, 1998, is herein referred to as the "Guarantee". All terms used
herein and not otherwise defined shall have the meanings ascribed thereto in
the Lease.
1. The modifications set out below with respect to Section 8(e) of the
Guarantee (relating to the required NOP/Interest Charges Ratio) have been
agreed to between Lessor and Guarantor, with the consent of Citicorp Leasing,
Inc., a Delaware corporation, as Agent for Noteholders ("Agent"), and shall be
effective as of the second fiscal quarter of fiscal year 1998. Accordingly,
Section 8(e) of the Guarantee shall read as follows:
"(e) NOP/Interest Charges Ratio. At any time permit the NOP/
Interest Charges Ratio to be less than 2.25 to 1.0; provided, however,
that for purposes of computing the NOP/Interest Charges Ratio for the
respective fiscal quarters ending August 1, 1998, and October 31,
1998, only, the NOP/Interest Charges Ratio shall be measured not on a
four (4) consecutive fiscal quarter basis as provided for in the
definition of the term NOP/Interest Charges Ratio, but rather on the
basis of the period elapsed in fiscal year 1998 (e.g., the ratio for
the second quarter of 1998 shall compare Net Operating Profit for the
first two quarters of fiscal year 1998 to Interest Expense for the
same period, and the ratio for the third quarter of shall compare Net
Operating Profit for the first three quarters of fiscal year 1998 to
Interest Expense for the same period)."
For periods prior to the second fiscal quarter of 1998, the NOP/Interest
Charges Ratio shall be determined based on the provisions of the Guarantee (as
heretofore amended) without regard to the foregoing restatement of Section 8(e).
In consideration of the modification set out above with respect to Section
8(e) of the Guarantee, simultaneously herewith Guarantor shall pay to Agent, on
behalf of itself as a Purchaser and Instrument Holder and the other Purchasers
and Instrument Holders, a fee in the amount of 5.0 basis points (.05%) times
the aggregate outstanding balance of the Instruments held by each such
Instrument Holder plus, in the case of Agent and each Purchaser, 5.0 basis
points (.05%) times the aggregate unfunded amount of such Purchaser's
Commitment.
1
<PAGE>
2. The Guarantee currently provides for written notice by Lessor or
Agent to Guarantor, and opportunity to cure, in the event of certain defaults
under the Guarantee. Lessor and Guarantor hereby agree, with the consent of
Agent, to modify such requirements and certain other provisions of the
Guarantee as follows:
(a) Clause (iv) of Section 7(d) of the Guarantee is hereby amended
in its entirety to be and read as follows:
"(iv) promptly after Guarantor learns or has reason to
believe that an Event of Default (or an event or circumstances
which with notice and/or the passage of time could mature into
an Event of Default) has occurred under the Lease, this
Guarantee, and/or the Environmental Indemnity Agreement of even
date herewith executed by Guarantor, a notice of such Event of
Default (or other event or circumstance, as applicable)
describing the same in reasonable detail and, together with
such notice or as soon thereafter as possible, as description
of the action that Guarantor has taken and proposes to take
with respect thereto;..."
(b) Subsection (iv) of Section 14(a) of the Guarantee is hereby
deleted in its entirety, and in lieu thereof there is hereby inserted new
subsections (iv) and (v), to be and read as follows (with the subsequent
subsections of Section 14[a] being re-lettered accordingly):
"(iv) If there shall be a default in the performance of
any of its obligations under any of Sections 7(a), 7(b),
7(d)(iv), or 8(b) through 8(e), of this Guarantee.
"(v) If there shall be a defualt in the performance of
any of its other obligations or observance of any term,
condition or covenant contained in this Guarantee other than
defaults described in other subsections of this Section 14(a)
and such default shall continue unremedied for a period of
thirty (30) days after written notice thereof has been given
to Guarantor by the Lessor or Agent."
3. Except as specifically amended hereby, the Guarantee (as previously
amended) shall remain unchanged and in full force and effect, and Guarantor and
Lessor ratify and confirm the terms thereof, as amended hereby.
Very truly yours,
STATE STREET BANK AND TRUST COMPANY,
not in its individual capacity, but
solely as Trustee under Declaration
of Trust, Lessor
By:_________________________________
AGREED TO AND ACCEPTED:
THE PEP BOYS - MANNY, MOE & JACK, Guarantor
By:__________________________
Name:________________________
Title:_______________________
APPROVED:
CITICORP LEASING, INC., Agent
By:__________________________
Name:________________________
Title:_______________________
2
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 11
COMPUTATION OF NET EARNINGS PER SHARE
(in thousands, except per share data)
(UNAUDITED)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Thirteen weeks ended Twenty-six weeks ended
---------------------------------- ----------------------------------
August 1, 1998 August 2, 1997 August 1, 1998 August 2, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(a) Net earnings..................................... $17,704 $30,088 $27,762 $53,234
Adjustment for interest on 4% convertible
subordinated notes, net of income tax effect... 552 554 - 1,108
Adjustment for interest on zero coupon convertible
subordinated notes, net of income tax effect... - 961 - 1,920
- ---------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted net earnings $18,256 $31,603 $27,762 $56,262
- ---------------------------------------------------------------------------------------------------------------------------------
(c) Average number of common shares outstanding
during the period.............................. 61,544 61,074 61,507 60,999
Common shares assumed issued upon conversion of
4% convertible subordinated notes.............. 2,104 2,104 - 2,104
Common shares assumed issued upon conversion of
zero coupon convertible subordinated notes..... - 3,513 - 3,513
Common shares assumed issued upon exercise
of dilutive stock options, net of assumed
repurchase, at the average market price........ 224 665 265 668
- ---------------------------------------------------------------------------------------------------------------------------------
(d) Average number of common shares assumed
outstanding during the period.................. 63,872 67,356 61,772 67,284
- ---------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share (a/c)................... $ .29 $ .49 $ .45 $ .87
Diluted Earnings per Share (b/d)................. $ .29 $ .47 $ .45 $ .84
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE
SHEET AS OF August 1, 1998 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE TWENTY-SIX WEEK
PERIOD ENDED August 1, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> AUG-1-1998
<CASH> 9,653
<SECURITIES> 0
<RECEIVABLES> 13,533
<ALLOWANCES> 423
<INVENTORY> 577,977
<CURRENT-ASSETS> 671,583
<PP&E> 1,426,164
<DEPRECIATION> 450,052
<TOTAL-ASSETS> 2,110,421
<CURRENT-LIABILITIES> 399,924
<BONDS> 794,704
0
0
<COMMON> 63,798
<OTHER-SE> 781,206
<TOTAL-LIABILITY-AND-EQUITY> 2,110,421
<SALES> 1,014,580
<TOTAL-REVENUES> 1,219,525
<CGS> 730,536
<TOTAL-COSTS> 892,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,380
<INCOME-PRETAX> 43,378
<INCOME-TAX> 15,616
<INCOME-CONTINUING> 27,762
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,762
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
