<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 1999
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
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(Address of principal executive offices) (Zip code)
215-430-9000
----------------------------------------------------
(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 July 31, 1999 there were 52,633,879 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 -
July 31, 1999 and January 30, 1999 3
Consolidated Statements of Earnings -
Thirteen and Twenty-six weeks ended
July 31, 1999 and August 1, 1998 4
Consolidated Statements of Cash Flows -
Twenty-six weeks ended July 31, 1999
and August 1, 1998 5
Notes to Condensed Consolidated
Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-14
Item 3. Quantitative and Qualitative Disclosures 15
About Market Risk
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of
Security Holders 16-17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE PAGE 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated Financial Statements (Unaudited)
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands, except per share amounts)
<CAPTION>
July 31, 1999 Jan. 30, 1999*
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 92,193 $ 114,548
Accounts receivable, net................................... 21,999 17,393
Merchandise inventories.................................... 513,070 527,397
Prepaid expenses........................................... 18,964 36,634
Deferred income taxes...................................... 17,073 17,073
Other...................................................... 37,168 41,099
------------- -------------
Total Current Assets.................................... 700,467 754,144
Property and Equipment - at cost:
Land....................................................... 286,048 281,804
Building and improvements.................................. 929,362 907,309
Furniture, fixtures and equipment.......................... 614,512 596,840
Construction in progress................................... 36,658 30,951
------------ -------------
1,866,580 1,816,904
Less accumulated depreciation and amortization............. 533,592 486,648
------------- -------------
Total Property and Equipment............................ 1,332,988 1,330,256
Other........................................................ 14,160 11,712
------------- -------------
$2,047,615 $2,096,112
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $ 256,933 $ 240,391
Accrued expenses........................................... 229,091 199,551
Current maturities of convertible debt..................... 55,794 72,294
Current maturities of long-term debt....................... 176 170
------------- -------------
Total Current Liabilities............................... 541,994 512,406
Long-Term Debt, less current maturities...................... 602,761 526,851
Convertible Debt, less current maturities.................... 168,157 164,863
Deferred Income Taxes........................................ 80,208 80,208
Commitments and Contingencies
Stockholders' Equity:
Common Stock, par value $1 per share:
Authorized 500,000,000 shares - Issued
63,910,577 and 63,847,640................................. 63,911 63,848
Additional paid-in capital................................. 176,715 175,940
Retained earnings.......................................... 659,408 636,475
Accumulated other comprehensive income..................... (4,210) (4,210)
------------- ------------
895,824 872,053
Less shares in treasury - 11,276,698 shares, at cost 182,065 -
Less shares in benefits trust - 2,195,270 and
2,232,500 shares, at cost 59,264 60,269
------------- ------------
Total Stockholders' Equity.............................. 654,495 811,784
------------- ------------
$2,047,615 $2,096,112
============= ============
See notes to condensed consolidated financial statements.
*Taken from the audited financial statements at Jan. 30, 1999.
</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
-------------------------------- ---------------------------------
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Merchandise Sales.................................... $520,686 $530,944 $1,009,384 $1,014,580
Service Revenue...................................... 114,717 104,357 224,335 204,945
-------------- -------------- -------------- --------------
Total Revenues....................................... 635,403 635,301 1,233,719 1,219,525
Costs of Merchandise Sales........................... 368,583 380,559 717,756 730,536
Costs of Service Revenue............................. 90,300 82,334 177,416 162,199
-------------- -------------- -------------- --------------
Total Costs of Revenues.............................. 458,883 462,893 895,172 892,735
Gross Profit from Merchandise Sales.................. 152,103 150,385 291,628 284,044
Gross Profit from Service Revenue.................... 24,417 22,023 46,919 42,746
-------------- -------------- -------------- --------------
Total Gross Profit................................... 176,520 172,408 338,547 326,790
Selling, General and Administrative Expenses......... 132,668 132,040 265,655 258,279
-------------- -------------- -------------- --------------
Operating Profit..................................... 43,852 40,368 72,892 68,511
Nonoperating Income.................................. 762 163 1,070 247
Interest Expense..................................... 13,262 12,868 26,840 25,380
-------------- -------------- -------------- --------------
Earnings Before Income Taxes 31,352 27,663 47,122 43,378
Income Taxes......................................... 11,287 9,959 16,964 15,616
-------------- -------------- -------------- --------------
Net Earnings......................................... 20,065 17,704 30,158 27,762
Retained Earnings, beginning of period............... 642,600 653,564 636,475 647,505
Cash Dividends....................................... 3,257 4,000 6,815 7,999
Effect of Shares Repurchased from Benefits Trust..... - - 410 -
-------------- -------------- -------------- --------------
Retained Earnings, end of period..................... $659,408 $667,268 $659,408 $667,268
============== ============== ============== ==============
Basic Earnings per Share............................. $ .40 $ .29 $ .60 $ .45
Diluted Earnings per Share........................... $ .39 $ .29 $ .59 $ .45
============== ============== ============== ==============
Cash Dividends per Share............................. $ .0675 $ .0650 $ .1350 $ .1300
============== ============== ============== ==============
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
(Unaudited)
<CAPTION>
Twenty-six weeks ended
----------------------------------
July 31, 1999 August 1, 1998
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 30,158 $ 27,762
Adjustments to Reconcile Net Earnings to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and amortization 48,510 47,526
Accretion of bond discount 3,294 3,147
Decrease in deferred income taxes - (2,419)
Gain from sales of assets (592) (395)
Changes in operating assets and liabilities:
Decrease in accounts receivable, prepaid expenses
and other 14,547 18,870
Decrease in merchandise inventories 14,327 77,386
Increase (Decrease) in accounts payable 16,542 (221,066)
Increase in accrued expenses 30,135 49,107
------------- -------------
Net Cash Provided by (Used in) Operating Activities............. 156,921 (82)
Cash Flows from Investing Activities:
Capital expenditures............................................ (52,053) (96,367)
Net proceeds from sales of assets............................... 1,403 820
------------- -------------
Net Cash Used in Investing Activities........................... (50,650) (95,547)
Cash Flows from Financing Activities:
Net payments under line of credit agreements.................... - (102,000)
Net proceeds from issuance of notes............................. 76,000 201,941
Reduction of long-term debt..................................... (84) (77)
Reduction of convertible debt................................... (16,500) -
Dividends paid.................................................. (6,815) (7,999)
Purchase of treasury shares..................................... (182,065) -
Proceeds from exercise of stock options......................... 269 1,853
Proceeds from dividend reinvestment plan........................ 569 753
------------- -------------
Net Cash (Used In) Provided by Financing Activities............. (128,626) 94,471
------------- -------------
Net Decrease in Cash................................................. (22,355) (1,158)
Cash and Cash Equivalents at Beginning of Period..................... 114,548 10,811
------------- -------------
Cash and Cash Equivalents at End of Period........................... $ 92,193 $ 9,653
============= =============
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 July 31, 1999, the consolidated
statements of earnings for the thirteen and twenty-six week periods ended
July 31, 1999 and August 1, 1998 and the consolidated statements of
cash flows for the twenty-six week periods ended July 31, 1999 and
August 1, 1998 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 July 31, 1999 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 annual report
to shareholders for the year ended January 30, 1999. The results of operations
for the thirteen and twenty-six week periods ended July 31, 1999 are not
necessarily indicative of the operating results for the full year.
Certain reclassifications have been made to the prior year's condensed
consolidated financial statements to conform to the current year's
presentation.
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 $0 higher at
both July 31, 1999 and January 30, 1999.
NOTE 3. Comprehensive Income
Comprehensive Income is reported in accordance with Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
Accumulated other comprehensive income in the consolidated balance sheets as
of July 31, 1999 and January 30, 1999 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 July 31, 1999 and
August 1, 1998.
NOTE 4. Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. As amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," this statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000, although early adoption is
encouraged. The Company is still in the process of analyzing the impact of the
adoption of this statement on its consolidated financial statements.
NOTE 5. Dutch Auction Self-Tender Stock Repurchase
On February 1, 1999, the Company repurchased 11,276,698 of its common
shares outstanding pursuant to a Dutch Auction self-tender offer at a price of
$16.00 per share. The repurchased shares included 1,276,698 common shares which
were repurchased as a result of the Company exercising its option to purchase
an additional 2% of its outstanding shares. Prior to the repurchase of the
common shares, the Company had 63,847,640 shares outstanding, with 2,232,500
shares in a benefits trust, at January 30, 1999. As a result of the tender
offer share repurchase, the Company had 52,570,942 shares outstanding, with
2,195,270 shares in the benefits trust, at February 1, 1999. Expenses related
to the share repurchase were approximately $1,638,000 and were included as
part of the cost of the shares acquired. A portion of the treasury shares will
be used by the Company to provide benefits to employees under its compensation
plans and in conjunction with the Company's dividend reinvestment program.
6
<PAGE>
The Company financed the tender offer share repurchase with $110,427,000 in
cash and with the $70,000,000 proceeds received in connection with a private
placement of Senior Notes on February 1, 1999. The Senior Notes were issued in
two series at par, and pay interest semiannually on January 31 and July 31.
Series A Senior Notes, with an aggregate principal balance of $25,000,000,
will mature in 2009 and bear interest at 7.80% per annum. Series B Senior
Notes, with an aggregate principal balance of $45,000,000, will mature in 2011
and bear interest at 7.95% per annum. In addition, the interest rates on the
Senior Notes are subject to a .50% increase for such time as the credit rating
of the Company's long-term unsecured debt securities decreases below investment
grade as rated by both Moody's and Standard & Poor's.
<PAGE>
NOTE 6. Net Earnings Per Share
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
(in thousands, except per share data) ---------------------------------- ----------------------------------
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(a) Net earnings..................................... $20,065 $17,704 $30,158 $27,762
Adjustment for interest on 4% convertible
subordinated notes, net of income tax effect... 403 552 866 -
Adjustment for interest on zero coupon convertible
subordinated notes, net of income tax effect... 1,060 - - -
- ----------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted net earnings $21,528 $18,256 $31,024 $27,762
- ----------------------------------------------------------------------------------------------------------------------------------
(c) Average number of common shares outstanding
during the period.............................. 50,420 61,544 50,466 61,507
Common shares assumed issued upon conversion of
4% convertible subordinated notes.............. 1,525 2,104 1,644 -
Common shares assumed issued upon conversion of
zero coupon convertible subordinated notes..... 3,513 - - -
Common shares assumed issued upon exercise
of dilutive stock options, net of assumed
repurchase, at the average market price........ 380 224 316 265
- ----------------------------------------------------------------------------------------------------------------------------------
(d) Average number of common shares assumed
outstanding during the period.................. 55,838 63,872 52,426 61,772
- ----------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share (a/c)................... $ .40 $ .29 $ .60 $ .45
Diluted Earnings per Share (b/d)................. $ .39 $ .29 $ .59 $ .45
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Adjustments for certain convertible securities were antidilutive during the
twenty-six week period ended July 31, 1999 and the thirteen and twenty-six
week periods ended August 1, 1998, and therefore, excluded from the computation
of diluted EPS; however, these securities could potentially be dilutive in the
future. Options to purchase shares of common stock which were not included in
the computation of diluted EPS because the options' exercise prices were
greater than the average market price of the shares of common stock during the
thirteen and twenty-six week periods ended July 31, 1999 and August 1, 1998
were as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
(in thousands) ---------------------------------- ----------------------------------
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Common shares associated with antidilutive stock
options excluded from computation of diluted EPS ...... 3,679 4,129 3,695 4,010
-------------- -------------- -------------- --------------
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
<TABLE>
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 July 31, 1999 August 1, 1998 Fiscal 1999 vs.
(Fiscal 1999) (Fiscal 1998) Fiscal 1998
- ------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 81.9% 83.6% (1.9)%
Service Revenue (1)................................... 18.1 16.4 9.9
------ ------ ------
Total Revenues........................................ 100.0 100.0 -
Costs of Merchandise Sales (2)........................ 70.8 (3) 71.7 (3) (3.1)
Costs of Service Revenue (2).......................... 78.7 (3) 78.9 (3) 9.7
------ ------ ------
Total Costs of Revenues............................... 72.2 72.9 (.9)
Gross Profit from Merchandise Sales................... 29.2 (3) 28.3 (3) 1.1
Gross Profit from Service Revenue..................... 21.3 (3) 21.1 (3) 10.9
------ ------ ------
Total Gross Profit.................................... 27.8 27.1 2.4
Selling, General and Administrative Expenses.......... 20.9 20.8 .5
------ ------ ------
Operating Profit...................................... 6.9 6.3 8.6
Nonoperating Income................................... .1 .1 367.5
Interest Expense...................................... 2.1 2.0 3.1
------ ------ ------
Earnings Before Income Taxes.......................... 4.9 4.4 13.3
Income Taxes.......................................... 36.0 (4) 36.0 (4) 13.3
------ ------ ------
Net Earnings.......................................... 3.2 2.8 13.3
====== ====== ======
<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 July 31, 1999 vs. Thirteen Weeks Ended August 1, 1998
- ---------------------------------------------------------------------------
Total revenues for the second quarter remained stable despite a lower store
count (650 at July 31, 1999 compared with 723 at August 1, 1998). Comparable
store revenues (revenues generated by stores in operation during the same
months of each period) increased 3.6% in 1999. Comparable store
merchandise sales increased 3.1% while comparable service revenue increased
5.7%.
Gross profit from merchandise sales increased, as a percentage of merchandise
sales, due primarily to higher merchandise margins and a decrease in store
occupancy costs, as a percentage of merchandise sales.
Gross profit from service revenue remained constant, as a percentage of service
revenue, due primarily to a decrease in service center personnel costs offset
by an increase in employee benefit costs, as a percentage of service revenue.
Selling, general and administrative expenses remained constant, as a
percentage of total revenues, due primarily to increases in general office
costs and employee benefit costs offset by decreases in media costs and store
expenses, as a percentage of total revenues.
<TABLE>
Nonoperating income consisted of the following:
(in thousands)
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Net rental revenue $ 201 $ 86
Investment income 481 46
Other income 80 31
------ ------
Total $ 762 $ 163
====== ======
</TABLE>
Net earnings increased, as a percentage of total revenues, due primarily to an
increase in gross profit from merchandise sales.
9
<PAGE>
<TABLE>
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 July 31, 1999 August 1, 1998 Fiscal 1999 vs.
(Fiscal 1999) (Fiscal 1998) Fiscal 1998
- ------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 81.8% 83.2% (.5)%
Service Revenue (1)................................... 18.2 16.8 9.5
------ ------ ------
Total Revenues........................................ 100.0 100.0 1.2
Costs of Merchandise Sales (2)........................ 71.1 (3) 72.0 (3) (1.7)
Costs of Service Revenue (2).......................... 79.1 (3) 79.1 (3) 9.4
------ ------ ------
Total Costs of Revenues............................... 72.6 73.2 .3
Gross Profit from Merchandise Sales................... 28.9 (3) 28.0 (3) 2.7
Gross Profit from Service Revenue..................... 20.9 (3) 20.9 (3) 9.8
------ ------ ------
Total Gross Profit.................................... 27.4 26.8 3.6
Selling, General and Administrative Expenses.......... 21.5 21.2 2.9
------ ------ ------
Operating Profit...................................... 5.9 5.6 6.4
Nonoperating Income................................... .1 .1 333.2
Interest Expense...................................... 2.2 2.1 5.8
------ ------ ------
Earnings Before Income Taxes.......................... 3.8 3.6 8.6
Income Taxes.......................................... 36.0 (4) 36.0 (4) 8.6
------ ------ ------
Net Earnings.......................................... 2.4 2.3 8.6
====== ====== ======
<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.
</FN>
</TABLE>
10
<PAGE>
Twenty-six Weeks Ended July 31, 1999 vs. Twenty-six Weeks Ended August 1, 1998
- -------------------------------------------------------------------------------
Total revenues for the first half increased 1.2% due to a 4.7% increase in
comparable store revenues despite a lower store count (650 at July 31, 1999
compared with 723 at August 1, 1998). Comparable store merchandise
sales increased 4.6% while comparable service revenue increased 5.1%.
Gross profit from merchandise sales increased, as a percentage of merchandise
sales, due primarily to higher merchandise margins and a decrease in store
occupancy costs, as a percentage of merchandise sales.
Selling, general and administrative expenses increased, as a percentage of
total revenues, due primarily to increases in general office costs and employee
benefit costs offset, in part, by a decrease in media costs, as a percentage of
total revenues.
<TABLE>
Nonoperating income consisted of the following:
(in thousands)
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Net rental revenue $ 377 $ 124
Investment income 613 99
Other income 80 24
------ ------
Total $1,070 $ 247
====== ======
</TABLE>
Net earnings increased, as a percentage of total revenues, due primarily to an
increase in gross profit from merchandise sales, as a percentage of merchandise
sales offset, in part, by higher selling, general and administrative
expenses, as a percentage of total revenues.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - July 31, 1999
- ------------------------------------------------
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 1999, the Company invested
$52,053,000 in property and equipment while net inventory (net inventory
includes the decrease in inventory less the change in accounts payable)
decreased $30,869,000. Working capital decreased from $241,738,000 at
January 30, 1999 to $158,473,000 at July 31, 1999. At July 31, 1999, the
Company had stockholders' equity of $654,495,000 and long-term debt of
$770,918,000. The Company's long-term debt was 54% of its total capitalization
at July 31, 1999 and 46% at January 30, 1999. As of July 31, 1999, the Company
had available lines of credit totaling $255,000,000.
On February 1, 1999, the Company repurchased 11,276,698 of its common
shares outstanding. The Company financed the share repurchase with $110,427,000
in cash and with the $70,000,000 proceeds received in connection with a
private placement of Senior Notes issued on February 1, 1999. The Senior Notes
were issued in two series at par and pay interest semiannually on January 31
and July 31. Series A Senior Notes, with an aggregate principal balance of
$25,000,000, will mature in 2009 and bear interest at 7.80% per annum. Series B
Senior Notes, with an aggregate principal balance of $45,000,000, will mature
in 2011 and bear interest at 7.95% per annum. In addition, the interest rates
on the Senior Notes are subject to a .50% increase for such time as the credit
rating of the Company's long-term unsecured debt securities decreases below
investment grade as rated by both Moody's and Standard & Poor's.
The Company plans to open approximately 13 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 $61,000,000. In addition, the Company has cash
requirements for the balance of the current fiscal year to repay debt
maturities totaling $55,880,000, of which $55,794,000 relates to
Convertible Subordinated Notes due in September 1999. During the second
quarter of 1999, the Company redeemed $16,500,000 of the Convertible
Subordinated Notes due in September of 1999, with cash provided by operating
activities. The store expansion including related inventory requirements, the
expenditures in existing stores, warehouses and offices, and the repayment of
debt maturities are expected to be financed primarily from funds from operating
activities.
Certain of the Company's debt agreements require the maintenance of financial
ratios and covenants which were amended during the second quarter of 1999.
The Company was in compliance with all financial ratios and covenants as of
July 31, 1999.
NEW ACCOUNTING STANDARDS
- ------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives), and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. As amended
by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," this
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000, although early adoption is encouraged. The Company is still in
the process of analyzing the impact of the adoption of this statement on its
consolidated financial statements.
12
<PAGE>
INFORMATION SYSTEMS AND THE YEAR 2000
- -------------------------------------
During 1997, the Company initiated a project to assess the impact of
Year 2000 issues on a corporate-wide basis. A Year 2000 Project Director,
reporting directly to the Chief Information Officer, was assigned to lead the
project and, in conjunction with senior management of the Company, has
formulated a project plan to address Year 2000 compliance issues. The Project
Director monitors and coordinates the project plan through regular meetings
with operational managers who execute the specifics of the project plan. The
Project Director regularly updates senior management, including the Company's
Chief Financial Officer. In addition, the Board of Directors is periodically
updated by the Company's senior management.
The project plan is comprehensive and focuses on both information
technology (IT) systems and non-IT systems. Execution of the project plan has
been divided into five key phases: inventory, assessment, remediation, testing,
and implementation. The Company is utilizing both internal and external
resources to complete its Year 2000 project plan initiatives.
IT systems include the Company's application software, both proprietary
and third party, as well as the hardware infrastructure. Specifically, this
includes all software and related hardware for the Company's systems, namely:
mainframe, store, personal computer, local area network, and data
communication. The inventory, assessment, remediation, testing, and
implementation phases for the IT systems are substantially complete. The
Company estimates that approximately 95% of its IT systems are currently
Year 2000 compliant and expects to have substantially all of its IT systems
Year 2000 compliant by October 1999.
The non-IT systems include equipment and systems that contain embedded
computer chips, such as energy management, HVAC, telephone and the Company's
service center equipment, which specifically includes its engine diagnostic,
wheel alignment and emission testing equipment. The Company estimates that 80%
of its non-IT systems are Year 2000 compliant and expects to have substantially
all of its non-IT systems Year 2000 compliant by October 1999.
The Company's critical third party vendor relationships (other than
those relating to IT and non-IT systems), such as relationships with critical
merchandise, transportation, utility, financial institutions and other general
service providers, are currently being reviewed for Year 2000 compliance. The
Company will use the information obtained in its review of third party vendor
relationships in its contingency plan development.
The Company is in the process of developing contingency plans. These
plans will identify what actions would need to be taken if a critical system or
third party service provider were not Year 2000 compliant. The Company expects
such plans to be completed by October 1999.
13
<PAGE>
Although the Company is making significant progress to ensure that its
systems and facilities are Year 2000 compliant, the ability of third party
service providers, merchandise vendors and certain other third parties,
including communications and utility companies, to be Year 2000 compliant is
beyond the Company's control. Therefore, the Company can offer no assurances
that the systems of other entities on which the Company's systems may rely will
be modified to be Year 2000 compliant or, if so modified, will be compatible
with the Company's systems. The failure of these entities to achieve Year 2000
compliance on a timely basis could have a material adverse effect on the
Company. At this time, the Company does not expect any Year 2000 issues to
materially affect its operations, merchandise sales, service revenues,
competitive position or financial performance.
The Company estimates that total costs associated with the Year 2000
effort will range from approximately $10,000,000 to $12,000,000, of which
approximately $7,800,000 has been incurred through July 31, 1999. The
Company's Year 2000 costs have been and are expected to be funded out of cash
flows from operating activities.
The foregoing statements as to costs and dates relating to the Year
2000 effort are forward-looking and as a result involve risks and
uncertainties. They are based on the Company's best estimates which may be
updated as additional information becomes available. The Company's
forward-looking statements are also based on assumptions about many important
factors, including the technical skills of employees and independent
contractors, the representations and preparedness of third parties, the ability
or failure of vendors to deliver merchandise or perform services required by
the Company and the collateral effects of Year 2000 issues on the Company's
business partners and customers. While the Company believes its assumptions are
reasonable, it cautions that it is impossible to predict the impact of certain
factors that could cause actual costs or timetables to differ materially from
the expected results.
FORWARD LOOKING STATEMENTS
- --------------------------
Certain statements made herein are forward-looking which involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements due to factors beyond the
control of the Company, including the strength of the national and regional
economies and consumers' ability to spend, the health of the various sectors of
the market that the Company serves, the weather in geographical regions with a
high concentration of the Company's stores, competitive pricing, location and
number of competitors' stores, product costs, and the ability to enhance the
profitability of the commercial delivery program. Further factors that might
cause such a difference include, but are not limited to, the factors described
in the Company's filings with the Securities and Exchange Commission.
14
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not utilize financial instruments for trading purposes
and holds no derivative financial instruments which could expose the Company to
significant market risk. The Company's primary market risk exposure with regard
to financial instruments is to changes in interest rates. Pursuant to the terms
of certain revolving credit agreements, changes in the federal funds rate, the
lenders' prime rate or LIBOR could affect the rates at which the Company could
borrow funds thereunder. At July 31, 1999, the Company had no outstanding
borrowings under these credit facilities. There have been no material changes
to the market risk disclosures as reported in the Company's Form 10-K for the
fiscal year ended January 30, 1999.
15
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
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 2, 1999. The
shareholders approved the election of directors shown below.
Directors Elected at Annual Meeting of Shareholders
---------------------------------------------------
Name Votes For Votes Withheld
---- --------- --------------
Mitchell G. Leibovitz 43,205,794 1,030,210
Lester Rosenfeld 43,193,455 1,042,549
Lennox K. Black 43,183,962 1,052,042
..................................................................
Directors whose term of office continued after the Annual Meeting
of Shareholders
-----------------------------------------------------------------
Name
----
Bernard J. Korman
J. Richard Leaman, Jr.
Benjamin Strauss
Myles H. Tanenbaum
Malcolmn D. Pryor
..................................................................
The shareholders also approved the 1999 Stock Incentive Plan
with 37,018,836 affirmative votes, 6,905,151 negative votes and
312,017 abstentions.
..................................................................
16
<PAGE>
The shareholders also approved the appointment of the independent
auditors Deloitte & Touche LLP with 43,624,157 affirmative votes,
382,790 negative votes and 229,057 abstentions.
..................................................................
The shareholders also approved the shareholder proposal recommending
that the Board of Directors consider declassification of the Board
of Directors with 23,365,014 affirmative votes, 12,863,069 negative
votes, 588,086 abstentions, and 7,419,835 broker non-votes.
..................................................................
The shareholders disapproved the shareholder proposal
regarding the sale of the Company to the highest bidder with
34,535,670 negative votes, 1,815,221 affirmative votes,
435,279 abstentions, and 7,449,834 broker non-votes.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C> <C>
(10.51) 1999 Stock Incentive Plan Incorporated by reference
from the Schedule 14A filed
on April 26, 1999
(10.52) Amendment No. 5 dated as of July 23, 1999
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.
(11) Statement Re: Computation of Earnings Per
Share
(27) Financial Data Schedules
</TABLE>
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter for which this report is filed.
17
<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 10, 1999 By: /s/ Michael J. Holden
----------------------- -------------------------
Michael J. Holden
Executive Vice President &
Chief Financial Officer
18
<PAGE>
INDEX TO EXHIBITS
- -----------------
(10.52) Amendment No. 5 dated as of July 23, 1999
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.
(11) Computations of Earnings Per Share
(27) Financial Data Schedule
Exhibit 10.52
AMENDMENT NO. 5
AMENDMENT NO. 5 dated as of July 23, 1999 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 hereinafter 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:
Section 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.
Section 2. Amendments to the Agreement.
2.1 Section 1.01 of the Credit Agreement is hereby amended
by inserting the new following definitions in the
appropriate alphabetical order:
"Amendment No. 5" shall mean Amendment No. 5 dated as of
July 23, 1999 to this Agreement.
"Amendment No. 5 Effective Date " shall mean the effective
date of Amendment No. 5.
1
<PAGE>
"EBITDA" shall mean , for any period, the sum, for the
Company and its Subsidiaries (determined on a consolidated
basis without duplication in accordance with GAAP), of the
following for such period: (a) net income for such period
plus (b) to the extent deducted in computing such net
income, the sum of (i) income tax expense, plus (ii)
depreciation and amortization for such period (including
amortization of any goodwill or other intangibles), plus
(iii) Interest Expense for such period plus (iv) all other
non-cash, extraordinary charges minus (c) to the extent
added in computing such net income, the sum of (i) any gains
and losses attributable to any fixed asset sales plus (ii)
any non-cash, extraordinary gains.
"Interest Coverage Ratio" means, as at any date, the ratio
of (a) EBITDA for the period of four consecutive fiscal
quarters ending on or most recently ended prior to such date
to (b) Interest Expense for such period; provided that in
calculating the Interest Coverage Ratio at any date prior to
April 29, 2000, each component of the Interest Coverage
Ratio shall be determined only for the period commencing on
January 31, 1999 and ending on July 31, 1999, October 30,
1999 and January 29, 2000, as applicable.
2.2 The following definition in Section 1.01 of the Credit
Agreement is hereby amended and restated in its entirety:
"Leverage Ratio" shall mean, as at any date of
determination thereof, the ratio of (a) all Indebtedness of
the Company and its Subsidiaries (determined on a
consolidated basis, without duplication, in accordance with
GAAP) as at such date to (b) EBITDA for the period of four
fiscal quarters ending on or most recently ended prior to
such date; provided that for the purposes of determining the
Leverage Ratio for the fiscal quarters ending July 31, 1999
and October 30, 1999, EBITDA for the relevant period shall
be deemed to equal EBITDA for the period from the beginning
of the current fiscal year to the end of such fiscal quarter
multiplied by 2 and 4/3, respectively.
2.3 Section 1.01 of the Credit Agreement is hereby amended
by deleting in their entirety the following definitions:
"Debt to Capital Ratio", "Net Earnings", "Net Operating
Profit", "NOP/Interest Charges Ratio", "Senior Funded Debt",
"Tangible Net Worth" and "Total Liabilities".
2
<PAGE>
2.4 Section 2.05 of the Credit Agreement is hereby amended
and restated in its entirety to read as follows:
"2.05 Facility Fee. (a) The Company shall pay to the Agent
for the account of each Bank a facility fee on the daily
average (whether used or unused) amount of such Bank's
Commitment for the period from and including the Amendment
No. 5 Effective Date to but not including the earlier of the
date the Commitments are terminated or the Commitment
Termination Date, at a rate per annum in accordance with the
Pricing Schedule.
(b) Accrued facility fee shall be payable on each Quarterly
Date and on the earlier of the date the Commitments are
terminated or the Commitment Termination Date.
(c) Notwithstanding anything herein to the contrary, all
accrued and unpaid facility fee pursuant to Section 2.05 of
this Agreement (as in effect immediately prior to the
Amendment No. 5 Effective Date) shall be payable on the
Quarterly Date immediately following such date."
2.5 Section 2.11 of the Credit Agreement is hereby
deleted in its entirety.
2.6 Section 9.07 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
"9.07 Leverage Ratio. The Company will not permit the
Leverage Ratio to exceed the following respective ratios at
any time during the following respective periods:
Period Ratio
------ -----
From July 31, 1999
through July 28, 2000 4.50:1.0
From July 29, 2000 through
February 2, 2001 4.25:1.0
From February 3, 2001 through
August 3, 2001 4.00:1.0
From August 4, 2001 through
February 1, 2002 3.75:1.0
From February 2, 2002 and 3.50:1.0"
thereafter
3
<PAGE>
2.7 Section 9.08 of the Credit Agreement shall be deleted
in its entirety and replaced with "[Intentionally Omitted]",
and each reference thereto in the Credit Agreement shall be
deleted.
2.8 Section 9.09 of the Credit Agreement shall be deleted
in its entirety and replaced with "[Intentionally Omitted]",
and each reference thereto in the Credit Agreement shall be
deleted.
2.9 Section 9.10 of the Credit Agreement is hereby amended
in its entirety to read as follows:
"9.10 Interest Coverage Ratio. The Company will not
permit the Interest Coverage Ratio to be less than the
following respective ratios as at the last day of any fiscal
quarter ending during the following respective periods:
Period Ratio
------ -----
From July 31, 1999
through February 2, 2001 3.50:1.0
From February 3, 2001 through
August 3, 2001 3.75:1.0
From August 4, 2001 through
February 1, 2002 4.00:1.0
From February 2, 2002 and 4.25:1.0
thereafter
4
<PAGE>
2.10 The Pricing Schedule is hereby amended in its entirety
to read as follows:
"PRICING SCHEDULE
Each of the "Applicable Margin for Eurodollar Loans,"
"Applicable Margin for Base Rate Loans" and "Facility Fee"
shall mean, for any day, the per annum rates set forth below
in the column under such term and in the row corresponding
to the "Leverage Ratio", based upon the Leverage Ratio as of
the most recent determination date; provided that for the
period from and after the Amendment No. 5 Effective Date
until the third Business Day after delivery of the Company's
unaudited consolidated financial statements for the fiscal
quarter ending July 31, 1999, the "Applicable Margin for
Eurodollar Loans," "Applicable Margin for Base Rate Loans"
and "Facility Fee" shall be the applicable rate per annum
set forth below in the row corresponding to the "Leverage
Ratio" in the range of > 3.50:1 < or = 4.00:1:
Leverage Ratio Applicable Applicable
Margin for Margin for
Eurodollar Loans Base Rate Loans Facility Fee
>4.00:1 1.50% 0.50% 0.50%
> 3.50:1 < or = 4.00:1 1.30% 0.30% 0.45%
> or = 3.00:1 < or = 3.50:1 1.125% 0.125% 0.375%
< 3.00:1 0.95% 0 0.30%
For purposes of the foregoing (but subject to the proviso
above), (a) the Leverage Ratio shall be determined as of the
end of each fiscal quarter of the Company's fiscal year
based upon the Company's consolidated financial statements
delivered pursuant to Section 9.01(a) or (b) hereof and
(b) each change in the "Applicable Margin for Eurodollar
Loans," "Applicable Margin for Base Rate Loans" and
"Facility Fee" resulting from a change in the Leverage Ratio
shall be effective during the period commencing on and
including the date three Business Days after delivery to the
Agent of such consolidated financial statements indicating
such change and ending on the date immediately preceding the
effective date of the next such change. Notwithstanding the
foregoing, for each day during any period that the Company's
senior unsecured long-term debt that is not guaranteed by
any other Person or subject to any credit enhancement shall
be rated Ba2 or lower by Moody's Investors Service, Inc. and
BB or lower by Standard & Poor's Ratings Services, the
"Applicable Margin for Eurodollar Loans" and "Applicable
Margin for Base Rate Loans" then in effect shall be
increased by 0.40% per annum and the "Facility Fee" then in
effect shall be increased by 0.10% per annum."
5
<PAGE>
3. Representations and Warranties.
In order to induce the Majority Banks and the Agent 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
Amendment No. 5 Effective Date (as hereinafter defined) as
if they were being made on such date and as if reference
therein to the Credit Agreement (or words of similar import)
referred to the Credit Agreement as amended hereby and to
this Amendment; 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 Amendment No.
5 Effective Date.
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 "Amendment
No. 5 Effective Date":
(a) Counterparts of this Amendment shall have been
executed by the Company, the Majority Banks and the Agent;
6
<PAGE>
(b) The Agent shall have received a certificate dated
the Amendment No. 5 Effective Date specifying the names and
titles and including specimen signatures of the officers
authorized to sign this Amendment.
(c) The Agent shall have received such legal opinions,
documents and other instruments with respect to this
Amendment and the transactions contemplated hereby as it may
reasonably request.
(d) The Company shall have paid to the Agent for the
account of each Bank that has executed and delivered a
counterpart of this Amendment on or prior to 5:00 p.m. (New
York time) on July 23, 1999 (or has advised the Agent in a
manner satisfactory to the Agent that such Bank has executed
this Amendment on or prior to such time) an amendment fee
equal to 0.20% 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 unchanged
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 Amendment No. 5 Effective Date.
(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.
THE PEP BOYS - MANNY, MOE & JACK
By /s/ Michael J. Holden
------------------------------
Title:
7
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK
OF CALIFORNIA,
as a Guarantor
By /s/ Michael J. Holden
-------------------------------
Title:
PBY CORPORATION,
as a Guarantor
By /s/ Michael J. Holden
-------------------------------
Title:
PEP BOYS - MANNY, MOE & JACK
OF DELAWARE, INC.,
as a Guarantor
By /s/ Michael J. Holden
-------------------------------
Title:
PEP BOYS - MANNY, MOE & JACK
OF PUERTO RICO, INC.,
as a Guarantor
By /s/ Michael J. Holden
-------------------------------
Title:
CARRUS SUPPLY CORPORATION,
as a Guarantor
By /s/ Michael J. Holden
-------------------------------
Title:
8
<PAGE>
BANKS
THE CHASE MANHATTAN BANK,
as Agent and a Bank
By /s/ Lee Brennan
-------------------------------
Title: Vice President
BANK OF AMERICA NT&SA
By /s/ Timothy H. Spanos
-------------------------------
Title: Senior Vice President
SUN TRUST BANKS INC.
By /s/ Laura G. Harrison
-------------------------------
Title: Assistant Vice President
FIRST UNION NATIONAL BANK
By /s/ Irene Rosen Marks
-------------------------------
Title: Vice President
PNC BANK
By /s/ Brennan T. Danile
-------------------------------
Title: Assistant Vice President
FLEET BANK
By /s/ Thomas J. Bullard
-------------------------------
Title: Vice President
9
<PAGE>
UNION BANK OF CALIFORNIA
By /s/ Cecilia M. Valente
--------------------------------
Title: Senior Vice President
CREDIT SUISSE FIRST BOSTON
By /s/ Jay Chall
-------------------------------
Title: Director
By /s/ James H. Lee
-------------------------------
Title: Assistant Vice President
10
<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
---------------------------------- ----------------------------------
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(a) Net earnings..................................... $20,065 $17,704 $30,158 $27,762
Adjustment for interest on 4% convertible
subordinated notes, net of income tax effect... 403 552 866 -
Adjustment for interest on zero coupon convertible
subordinated notes, net of income tax effect... 1,060 - - -
- ---------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted net earnings $21,528 $18,256 $31,024 $27,762
- ---------------------------------------------------------------------------------------------------------------------------------
(c) Average number of common shares outstanding
during the period.............................. 50,420 61,544 50,466 61,507
Common shares assumed issued upon conversion of
4% convertible subordinated notes.............. 1,525 2,104 1,644 -
Common shares assumed issued upon conversion of
zero coupon convertible subordinated notes..... 3,513 - - -
Common shares assumed issued upon exercise
of dilutive stock options, net of assumed
repurchase, at the average market price........ 380 224 316 265
- ---------------------------------------------------------------------------------------------------------------------------------
(d) Average number of common shares assumed
outstanding during the period.................. 55,838 63,872 52,426 61,772
- ---------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share (a/c)................... $ .40 $ .29 $ .60 $ .45
Diluted Earnings per Share (b/d)................. $ .39 $ .29 $ .59 $ .45
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE
SHEET AS OF JULY 31, 1999 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE TWENTY-SIX WEEK
PERIOD ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JUL-31-1999
<CASH> 92,193
<SECURITIES> 0
<RECEIVABLES> 23,297
<ALLOWANCES> 1,298
<INVENTORY> 513,070
<CURRENT-ASSETS> 700,467
<PP&E> 1,866,580
<DEPRECIATION> 533,592
<TOTAL-ASSETS> 2,047,615
<CURRENT-LIABILITIES> 541,994
<BONDS> 770,918
0
0
<COMMON> 63,911
<OTHER-SE> 590,584
<TOTAL-LIABILITY-AND-EQUITY> 2,047,615
<SALES> 1,009,384
<TOTAL-REVENUES> 1,233,719
<CGS> 717,756
<TOTAL-COSTS> 895,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,840
<INCOME-PRETAX> 47,122
<INCOME-TAX> 16,964
<INCOME-CONTINUING> 30,158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,158
<EPS-BASIC> .60
<EPS-DILUTED> .59
