<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 October 30, 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
---------------------------------------- ----------
(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 October 30, 1999 there were 53,151,847 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 -
October 30, 1999 and January 30, 1999 3
Consolidated Statements of Operations -
Thirteen and Thirty-nine weeks ended
October 30, 1999 and October 31, 1998 4
Consolidated Statements of Cash Flows -
Thirty-nine weeks ended October 30, 1999
and October 31, 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
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE PAGE 17
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>
October 30, 1999 January 30, 1999*
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 46,835 $ 114,548
Accounts receivable, net................................... 20,476 17,393
Merchandise inventories.................................... 544,612 527,397
Prepaid expenses........................................... 14,116 36,634
Deferred income taxes...................................... 17,073 17,073
Other...................................................... 34,304 41,099
------------- -------------
Total Current Assets.................................... 677,416 754,144
Property and Equipment - at cost:
Land....................................................... 288,171 281,804
Building and improvements.................................. 939,977 907,309
Furniture, fixtures and equipment.......................... 624,225 596,840
Construction in progress................................... 39,463 30,951
------------ -------------
1,891,836 1,816,904
Less accumulated depreciation and amortization............. 557,261 486,648
------------- -------------
Total Property and Equipment............................ 1,334,575 1,330,256
Other........................................................ 15,690 11,712
------------- -------------
$2,027,681 $2,096,112
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $ 276,381 $ 240,391
Accrued expenses........................................... 230,841 199,551
Current maturities of convertible debt..................... - 72,294
Current maturities of long-term debt....................... 179 170
------------- -------------
Total Current Liabilities............................... 507,401 512,406
Long-Term Debt, less current maturities...................... 602,715 526,851
Convertible Debt, less current maturities.................... 169,829 164,863
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................................. 176,770 175,940
Retained earnings.......................................... 664,025 636,475
Accumulated other comprehensive income..................... (4,210) (4,210)
------------- ------------
900,496 872,053
Less shares in treasury - 10,758,730 shares, at cost 173,704 -
Less shares in benefits trust - 2,195,270 and
2,232,500 shares, at cost 59,264 60,269
------------- ------------
Total Stockholders' Equity.............................. 667,528 811,784
------------- ------------
$2,027,681 $2,096,112
============= ============
See notes to condensed consolidated financial statements.
*Taken from the audited financial statements at January 30, 1999.
</TABLE>
3
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
-------------------------------- ---------------------------------
October 30, 1999 October 31, 1998 October 30, 1999 October 31, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Merchandise Sales.................................... $493,838 $512,912 $1,503,222 $1,527,492
Service Revenue...................................... 111,995 103,055 336,330 308,000
-------------- -------------- -------------- --------------
Total Revenues....................................... 605,833 615,967 1,839,552 1,835,492
Costs of Merchandise Sales........................... 357,180 393,000 1,074,936 1,123,536
Costs of Service Revenue............................. 90,884 82,890 268,300 245,089
-------------- -------------- -------------- --------------
Total Costs of Revenues.............................. 448,064 475,890 1,343,236 1,368,625
Gross Profit from Merchandise Sales.................. 136,658 119,912 428,286 403,956
Gross Profit from Service Revenue.................... 21,111 20,165 68,030 62,911
-------------- -------------- -------------- --------------
Total Gross Profit................................... 157,769 140,077 496,316 466,867
Selling, General and Administrative Expenses......... 130,194 134,442 395,849 392,721
-------------- -------------- -------------- --------------
Operating Profit..................................... 27,575 5,635 100,467 74,146
Nonoperating Income.................................. 731 469 1,801 716
Interest Expense..................................... 12,790 12,230 39,630 37,610
-------------- -------------- -------------- --------------
Earnings (Loss) Before Income Taxes 15,516 (6,126) 62,638 37,252
Income Tax Expense (Benefit)......................... 5,586 (2,205) 22,550 13,411
-------------- -------------- -------------- --------------
Net Earnings (Loss).................................. 9,930 (3,921) 40,088 23,841
Retained Earnings, beginning of period............... 659,408 667,268 636,475 647,505
Cash Dividends....................................... 3,439 4,002 10,254 12,001
Effect of Shares Repurchased from Benefits Trust..... - - 410 -
Effect of Issuance of Treasury Shares................ 1,874 - 1,874 -
-------------- -------------- -------------- --------------
Retained Earnings, end of period..................... $664,025 $659,345 $664,025 $659,345
============== ============== ============== ==============
Basic Earnings (Loss) per Share...................... $ .20 $ (.06) $ .79 $ .39
Diluted Earnings (Loss) per Share.................... $ .20 $ (.06) $ .79 $ .39
============== ============== ============== ==============
Cash Dividends per Share............................. $ .0675 $ .0650 $ .2025 $ .1950
============== ============== ============== ==============
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>
Thirty-nine weeks ended
----------------------------------
October 30, 1999 October 31, 1998
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 40,088 $ 23,841
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation and amortization 73,230 72,595
Accretion of bond discount 4,966 4,748
Decrease in deferred income taxes - (2,256)
(Gain) loss from sales of assets (441) 20,312
Changes in operating assets and liabilities:
Decrease in accounts receivable, prepaid expenses
and other 22,252 18,771
(Increase) Decrease in merchandise inventories (17,215) 106,400
Increase (Decrease) in accounts payable 35,990 (248,388)
Increase in accrued expenses 31,936 47,405
------------- -------------
Net Cash Provided by Operating Activities....................... 190,806 43,428
Cash Flows from Investing Activities:
Capital expenditures............................................ (78,590) (126,966)
Net proceeds from sales of assets............................... 1,482 99,203
------------- -------------
Net Cash Used in Investing Activities........................... (77,108) (27,763)
Cash Flows from Financing Activities:
Net payments under line of credit agreements.................... - (122,000)
Net proceeds from issuance of notes............................. 76,000 202,241
Reduction of long-term debt..................................... (127) (118)
Reduction of convertible debt................................... (72,294) -
Dividends paid.................................................. (10,254) (12,001)
Purchase of treasury shares..................................... (182,065) -
Proceeds from exercise of stock options......................... 6,471 1,760
Proceeds from dividend reinvestment plan........................ 858 1,112
------------- -------------
Net Cash (Used In) Provided by Financing Activities............. (181,411) 70,994
------------- -------------
Net (Decrease) Increase in Cash...................................... (67,713) 86,659
Cash and Cash Equivalents at Beginning of Period..................... 114,548 10,811
------------- -------------
Cash and Cash Equivalents at End of Period........................... $ 46,835 $ 97,470
============= =============
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 October 30, 1999, the consolidated
statements of operations for the thirteen and thirty-nine week periods ended
October 30, 1999 and October 31, 1998 and the consolidated statements of
cash flows for the thirty-nine week periods ended October 30, 1999 and
October 31, 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 October 30, 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 thirty-nine week periods ended October 30, 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 October 30, 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 October 30, 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 thirty-nine week periods ended October 30, 1999 and
October 31, 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 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 (Loss) Per Share
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
(in thousands, except per share data) ------------------------------------ ------------------------------------
October 30, 1999 October 31, 1998 October 30, 1999 October 31, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
(a) Net earnings (loss).............................. $9,930 $(3,921) $40,088 $23,841
Adjustment for interest on 4% convertible
subordinated notes, net of income tax effect... - - 968 -
Adjustment for interest on zero coupon convertible
subordinated notes, net of income tax effect... - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted net earnings (loss) $9,930 $(3,921) $41,056 $23,841
- ---------------------------------------------------------------------------------------------------------------------------------
(c) Average number of common shares outstanding
during the period.............................. 50,771 61,567 50,567 61,527
Common shares assumed issued upon conversion of
4% convertible subordinated notes.............. - - 1,251 -
Common shares assumed issued upon conversion of
zero coupon convertible subordinated notes..... - - - -
Common shares assumed issued upon exercise
of dilutive stock options, net of assumed
repurchase, at the average market price........ 68 - 233 220
- ---------------------------------------------------------------------------------------------------------------------------------
(d) Average number of common shares assumed
outstanding during the period.................. 50,839 61,567 52,051 61,747
- ---------------------------------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) per Share (a/c)............ $ .20 $ (.06) $ .79 $ .39
Diluted Earnings (Loss) per Share (b/d).......... $ .20 $ (.06) $ .79 $ .39
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Adjustments for certain convertible securities were antidilutive during the
thirteen and thirty-nine week periods ended October 30, 1999 and October 31,
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
thirty-nine week periods ended October 30, 1999 and October 31, 1998 were
as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
(in thousands) ---------------------------------- ----------------------------------
October 30, 1999 October 31, 1998 October 30, 1999 October 31, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Common shares associated with antidilutive stock
options excluded from computation of diluted EPS ...... 4,944 3,803 3,608 3,716
-------------- -------------- -------------- --------------
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
<TABLE>
Results of Operations -
The following table presents for the periods indicated certain items in the
consolidated statements of operations as a percentage of total revenues (except
as otherwise provided) and the percentage change in dollar amounts of such items
compared to the indicated prior period.
<CAPTION>
Percentage of Total Revenues Percentage Change
- ------------------------------------------------------ ---------------------------------- -----------------
Thirteen weeks ended October 30, 1999 October 31, 1998 Fiscal 1999 vs.
(Fiscal 1999) (Fiscal 1998) Fiscal 1998
- ------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 81.5% 83.3% (3.7)%
Service Revenue (1)................................... 18.5 16.7 8.7
------ ------ ------
Total Revenues........................................ 100.0 100.0 (1.6)
Costs of Merchandise Sales (2)........................ 72.3 (3) 76.6 (3) (9.1)
Costs of Service Revenue (2).......................... 81.2 (3) 80.4 (3) 9.6
------ ------ ------
Total Costs of Revenues............................... 74.0 77.3 (5.8)
Gross Profit from Merchandise Sales................... 27.7 (3) 23.4 (3) 14.0
Gross Profit from Service Revenue..................... 18.8 (3) 19.6 (3) 4.7
------ ------ ------
Total Gross Profit.................................... 26.0 22.7 12.6
Selling, General and Administrative Expenses.......... 21.4 21.8 (3.2)
------ ------ ------
Operating Profit...................................... 4.6 .9 389.4
Nonoperating Income................................... .1 .1 55.9
Interest Expense...................................... 2.1 2.0 4.6
------ ------ ------
Earnings (Loss) Before Income Taxes................... 2.6 (1.0) 353.3
Income Taxes.......................................... 36.0 (4) 36.0 (4) 353.3
------ ------ ------
Net Earnings (Loss)................................... 1.6 (.6) 353.3
====== ====== ======
<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 (loss) before income taxes.
</FN>
</TABLE>
8
<PAGE>
Thirteen Weeks Ended October 30, 1999 vs. Thirteen Weeks Ended October 31, 1998
- ---------------------------------------------------------------------------
Total revenues for the third quarter decreased 1.6% due to the sale and closure
of 109 non-tire/non-service format Pep Boys Express stores during the thirteen
week period ended October 31, 1998. This decrease was offset, in part, by a
slight increase in comparable store revenues (revenues generated by stores in
operation during the same months of each period) which increased 0.5% in 1999
and revenues generated from new stores opened subsequent to October 31, 1998.
Comparable store merchandise sales decreased 0.5% while comparable service
revenue increased 5.2%.
During the thirteen week period ended October 31, 1998, the Company recorded
pretax charges to earnings of $25,251,000 ($16,160,000 net of tax) related to
the sale and closure of 109 non-tire/non-service format Pep Boys Express
stores. The total pretax charges were comprised of $23,769,000 recorded as cost
of merchandise sales which included various building, leasehold improvement,
fixture, and equipment write-offs, as well as lease commitment charges and the
costs associated with handling the related merchandise inventories. The
remaining $1,482,000 of related costs, which included store and general
office payroll and travel expenses, were included in selling, general, and
administrative expenses.
Gross profit from merchandise sales increased, as a percentage of merchandise
sales, due primarily to the $23,769,000 in pretax charges recorded during the
thirteen week period ended October 31, 1998 coupled with higher merchandise
margins offset, in part, by an increase in store occupancy costs, as a
percentage of merchandise sales.
Gross profit from service revenue decreased, as a percentage of service
revenue, due primarily to an increase in employee benefit costs offset, in
part, by a decrease in service center personnel costs, as a percentage of
service revenue.
Selling, general and administrative expenses decreased, as a percentage of
total revenues, due primarily to the $1,482,000 in pretax charges recorded
during the thirteen week period ended October 31, 1998 and 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 $ 263 $ 147
Investment income 477 220
Other income (Expense) (9) 102
------ ------
Total $ 731 $ 469
====== ======
</TABLE>
The increase in net earnings, as a percentage of total revenues,
was due primarily to the after tax charges of $16,160,000 recorded during the
thirteen week period ended October 31, 1998 offset, in part, by a decrease in
gross profit from merchandise sales, as a percentage of merchandise sales.
9
<PAGE>
<TABLE>
Results of Operations -
The following table presents for the periods indicated certain items in the
consolidated statements of earnings as a percentage of total revenues (except
as otherwise provided) and the percentage change in dollar amounts of such items
compared to the indicated prior period.
<CAPTION>
Percentage of Total Revenues Percentage Change
- ------------------------------------------------------ ---------------------------------- -----------------
Thirty-nine weeks ended October 30, 1999 October 31, 1998 Fiscal 1999 vs.
(Fiscal 1999) (Fiscal 1998) Fiscal 1998
- ------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 81.7% 83.2% (1.6)%
Service Revenue (1)................................... 18.3 16.8 9.2
------ ------ ------
Total Revenues........................................ 100.0 100.0 .2
Costs of Merchandise Sales (2)........................ 71.5 (3) 73.6 (3) (4.3)
Costs of Service Revenue (2).......................... 79.8 (3) 79.6 (3) 9.5
------ ------ ------
Total Costs of Revenues............................... 73.0 74.6 (1.9)
Gross Profit from Merchandise Sales................... 28.5 (3) 26.4 (3) 6.0
Gross Profit from Service Revenue..................... 20.2 (3) 20.4 (3) 8.1
------ ------ ------
Total Gross Profit.................................... 27.0 25.4 6.3
Selling, General and Administrative Expenses.......... 21.5 21.4 .8
------ ------ ------
Operating Profit...................................... 5.5 4.0 35.5
Nonoperating Income................................... .1 - 151.5
Interest Expense...................................... 2.2 2.0 5.4
------ ------ ------
Earnings Before Income Taxes.......................... 3.4 2.0 68.2
Income Taxes.......................................... 36.0 (4) 36.0 (4) 68.2
------ ------ ------
Net Earnings.......................................... 2.2 1.3 68.2
====== ====== ======
<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>
10
<PAGE>
Thirty-nine Weeks Ended October 30, 1999 vs. Thirty-nine Weeks Ended
October 31, 1998
- ---------------------------------------------------------------------------
Total revenues for the thirty-nine weeks ended October 30, 1999 increased 0.2%
due to a 3.3% increase in comparable store sales and sales generated by new
stores opened subsequent to October 31, 1998 offset by the effect of the sale
and closure of 109 non-tire/non-service format Pep Boys Express stores during
the thirty-nine week period ended October 31, 1998. Comparable store
merchandise sales increased 2.9%, while comparable service revenue increased
5.1%.
During the thirty-nine week period ended October 31, 1998, the Company recorded
pretax charges to earnings of $25,251,000 ($16,160,000 net of tax) related to
the sale and closure of 109 non-tire/non-service format Pep Boys Express stores.
The total pretax charges were comprised of $23,769,000 recorded as cost of
merchandise sales which included various building, leasehold improvement,
fixture, and equipment write-offs, as well as lease commitment charges and the
costs associated with handling the related merchandise inventories. The
remaining $1,482,000 of related costs, which included mainly store and general
office payroll and travel expenses, were included in selling, general, and
administrative expenses.
Gross profit from merchandise sales increased, as a percentage of merchandise
sales, due primarily to the $23,769,000 in pretax charges recorded during the
thirty-nine week period ended October 31, 1998, coupled with higher merchandise
margins.
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, and the $1,482,000 of pretax charges recorded during the
thirty-nine week period ended October 31, 1998.
<TABLE>
Nonoperating income consisted of the following:
(in thousands)
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Net rental revenue $ 640 $ 271
Investment income 1,090 319
Other income 71 126
------ ------
Total $1,801 $ 716
====== ======
</TABLE>
The increase in net earnings, as a percentage of total revenues, was due
primarily to the after tax charges of $16,160,000 recorded during the
thirty-nine week period ended October 31, 1998 and an increase in gross profit
from merchandise sales, as a percentage of merchandise sales offset, in part,
by an increase in selling, general and administrative expenses, as a
percentage of total revenues.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - October 30, 1999
- ------------------------------------------------
The Company's cash requirements arise principally from the need to finance
the acquisition, construction and equipping of new stores, improvements to
existing stores and to purchase inventory. During the first thirty-nine
weeks of 1999, the Company invested $78,590,000 in property and equipment
while net inventory (net inventory includes the increase in inventory less
the change in accounts payable) decreased $18,775,000. Working capital
decreased from $241,738,000 at January 30, 1999 to $170,015,000 at
October 30, 1999. At October 30, 1999, the Company had stockholders' equity
of $667,528,000 and long-term debt of $772,544,000. The Company's long-term
debt was 54% of its total capitalization at October 30, 1999 and 46% at
January 30, 1999. As of October 30, 1999, the Company had available lines
of credit totaling $260,000,000.
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.
During the third quarter of 1999, the Company repaid the remaining principal
balance of its Convertible Subordinated Notes totaling $55,794,000. During
the second quarter of 1999, the Company redeemed $16,500,000 of the
Convertible Subordinated Notes. The repayment of the Company's debt was
financed with cash provided by operating activities.
The Company plans to open approximately 7 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 $21,000,000. The store expansion, including
related inventory requirements and the expenditures in existing stores,
warehouses and offices 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
October 30, 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 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's management believes that substantially all of its IT systems are
currently Year 2000 compliant.
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's management
believes that substantially all of its non-IT systems are Year 2000 compliant.
The Company has developed contingency plans for Year 2000 related business
interruptions which identify what actions would need to be taken if a critical
system or third party service provider were not Year 2000 compliant. These
plans include, but are not limited to, the replacement of electronic
applications with manual processes, back-up power supplies, additional staffing
of support personnel to react to unforeseen events, and a formal disaster
recovery procedure.
In conjunction with the development of contingency plans, 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, have been reviewed for Year 2000 compliance. The Company believes
that should a vendor or service provider become unable to deliver merchandise
or services, substitutes for many of the goods the Company sells and services
it receives can be obtained from alternate sources.
13
<PAGE>
Although the Company has made significant progress to ensure that its
systems and facilities are Year 2000 compliant, the ability of 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 $9,000,000 to $11,000,000, of which
approximately $8,700,000 has been incurred through October 30, 1999. The
Company's Year 2000 costs have been and are expected to continue to be funded
out of cash flows from operating activities.
Certain of the foregoing statements 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 or service providers 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 October 30, 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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C> <C>
(10.53) The Pep Boys - Manny, Moe and Jack
1999 Stock Incentive Plan - Amended
and Restated as of August 31, 1999
(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.
16
<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: December 13, 1999 By: /s/ Michael J. Holden
----------------------- -------------------------
Michael J. Holden
Executive Vice President &
Chief Financial Officer
17
<PAGE>
INDEX TO EXHIBITS
- -----------------
(10.53) The Pep Boys - Manny, Moe and Jack
1999 Stock Incentive Plan - Amended
and Restated as of August 31, 1999.
(11) Statement Re: Computation of Earnings Per
Share
(27) Financial Data Schedule
Exhibit 10.53
EXECUTION VERSION
THE PEP BOYS - MANNY, MOE & JACK
1999 STOCK INCENTIVE PLAN
AMENDED AND RESTATED
AS OF AUGUST 31, 1999
1. Purpose. THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania
corporation, hereby amends and restates The Pep Boys - Manny, Moe
& Jack 1999 Stock Incentive Plan, effective as of August 31, 1999
(the "Plan"). The Plan is intended to recognize the
contributions made to the Company by key employees and members of
the Board of Directors of the Company or any Affiliate, to
provide such persons with additional incentive to devote
themselves to the future success of the Company or an Affiliate,
and to improve the ability of the Company or an Affiliate to
attract, retain, and motivate individuals upon whom the Company's
sustained growth and financial success depends, by providing such
persons with an opportunity to acquire or increase their
proprietary interest in the Company.
2. Definitions. Unless the context clearly indicates
otherwise, the following terms shall have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Affiliate" means a corporation which is a parent
1
<PAGE>
corporation or a subsidiary corporation with respect to the
Company within the meaning of Section 424 of the Code.
(c) "Award" means an award granted to an Optionee or a
participant under the Plan in the form of an Option or Restricted
Stock, or any combination thereof.
(d) "Board of Directors" means the Board of Directors of the
Company.
(e) "Change of Control" shall have the meaning as set forth in
Section 10 of the Plan.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Board of Directors or a committee of
two or more members of the Board of Directors, each of whom, at
the time he takes action with respect to the Plan, is both (i) a
"non-employee director" within the meaning of Rule 16b-3 and
(ii) an "outside director" within the meaning of Section 162(m)
of the Code; provided, however that the Board of Directors may
appoint any other individual or individuals to administer the
Plan with respect to Optionees and Participants who are neither
(i) "insiders" within the meaning of Section 16 under the
Securities Exchange Act of 1934, as amended, nor (ii) "covered
employees" within the meaning of Section 162(m) of the Code.
(h) "Company" means The Pep Boys - Manny, Moe & Jack, a
Pennsylvania corporation.
2
<PAGE>
(i) "Disability" shall have that meaning as set forth in
Section 22(e)(3) of the Code.
(j) "Fair Market Value" shall have the meaning as set forth in
Section 8(b) of the Plan.
(k) "ISO" means an Option granted under the Plan which is
intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code.
(l) "Non-management Director" means a member of the Board of
Directors who is not an employee of the Company or any Affiliate.
(m) "Non-management Director Option Formula" shall have the
meaning set forth in Section 3(b) of the Plan.
(n) "Non-qualified Stock Option" means an Option granted under
the Plan which is not intended to qualify as an "incentive stock
option" within the meaning of Section 422 of the Code.
(o) "Option" means either an ISO or a Non-qualified Stock Option
granted under Section 8 of the Plan.
(p) "Option Document" means the document described in Section 8
which sets forth the terms and conditions of each grant of
Options.
(q) "Option Price" means the price at which Shares may be
purchased, as calculated pursuant to Section 8(b).
(r) "Optionee" means a person to whom an Option has been granted
under the Plan, which Option has not been exercised and has not
expired or terminated.
(s) "Participant" means a person to whom Restricted Stock has
been awarded under the Plan, which Restricted Stock has not yet
vested in full.
3
<PAGE>
(t) "Restricted Period" means the period of time during which
the Shares subject to the Restricted Stock granted to a
Participant remain subject to the restrictions and conditions
imposed on such Shares, as determined by the Committee.
(u) "Restricted Stock" means any Shares which are awarded
pursuant to the terms of Section 9 hereof and which are subject
to the restrictions and conditions set forth in Section 9 hereof
for the Restricted Period.
(v) "Restricted Stock Agreement" means the document described in
Section 9 which sets forth the terms and conditions of each grant
of Restricted Stock.
(w) "Rule 16b-3" means Rule 16b-3 promulgated pursuant to the
Securities Exchange Act of 1934, as amended.
(x) "Shares" means the shares of Common Stock, par value $1.00
per share, of the Company which are the subject of Awards.
4
<PAGE>
(y) "Vest", "Vested" or "Vesting", whether or not used with an
initial capital letter, means the time at which Restricted Stock
granted under the Plan will no longer be subject to forfeiture,
based upon the expiration of the Restricted Period and the
satisfaction of other restrictions and conditions imposed on the
Shares relating to such Restricted Stock. Upon Vesting, the
restrictions and conditions imposed on the Restricted Stock will
lapse.
3. Administration of the Plan. The Committee shall administer
the Plan.
(a) Meetings. The Committee shall hold meetings at such times
and places as it may determine. Acts approved at a meeting by a
majority of the members of the Committee or acts approved in
writing by the unanimous consent of the members of the Committee
shall be the valid acts of the Committee.
(b) Grants.
(i) The Committee shall from time to time at its discretion
grant Awards pursuant to the terms of the Plan. The Committee
shall have plenary authority and absolute discretion to (A)
determine the key employees and members of the Board of Directors
(including Non-management Directors) to whom and the times and
the prices at which Awards shall be granted, (B) determine the
type of Award to be granted and the number of Shares subject
thereto, (C) determine the vesting conditions with respect to
Awards of Restricted Stock and the time or times after which
Options will become exercisable, (D) determine whether or not an
Option is intended to be an ISO, (E) determine the duration of
the Restricted Period and the restrictions and conditions to be
imposed with respect to each Award; and (F) approve the form and
5
<PAGE>
terms and conditions of the Option Documents or the Restricted
Stock Agreements, as the case may be, between the Company and the
Optionee or Participant; all subject, however, to the express
provisions of the Plan. In making such determinations, the
Committee may take into account the nature of the Optionee's or
Participant's services and responsibilities, the Optionee's or
Participant's present and potential contribution to the Company's
success and such other factors as it may deem relevant. The
interpretation and construction by the Committee of any provision
of the Plan or of any Award granted under it shall be final,
binding and conclusive.
(ii) Unless otherwise determined by the Committee, Options
shall be automatically granted, without any further action by the
Committee, to each Non-management Director in accordance with the
following subc1auses of this subsection (ii):
A. As used herein, the term "Non-management Director Option
Formula" means (1) 2,500 Shares; plus (2) an additional 5,000
Shares per committee of the Board of Directors on which such Non-
management Director serves on the date of such grant; plus (3) an
additional 2,500 Shares per committee of the Board of Directors
on which such Non-management Director serves as chairman on the
date of such grant.
6
<PAGE>
B. On August 19, 1999, each Non-management Director then
serving on the Board of Directors was granted an Option to
purchase, at Fair Market Value on the date of the grant, that
number of Shares determined according to the Non-management
Director Option Formula.
C. After August 19, 1999, each new Non-management Director
shall, on the date such Non-management Director becomes a Non-
management Director, be granted an Option to purchase, at Fair
Market Value on the date of the grant, that number of Shares
determined according to the Non-management Director Option
Formula.
D. Each Non-management Director who was granted an Option on
August 19, 1999, shall, on the fourth anniversary of such grant,
and on each fourth anniversary thereafter, be granted an Option
to purchase, at Fair Market Value on the date of the grant, that
number of Shares determined according to the Non-management
Director Option Formula. Each new Non-management Director shall,
on the fourth anniversary of the initial grant to him of an
Option under the Plan upon his becoming a Non-management
Director, and on each fourth anniversary thereafter, be granted
an Option to purchase, at Fair Market Value on the date of the
grant, that number of Shares determined according to the Non-
management Director Option Formula.
7
<PAGE>
E. Each Option granted under subsections B, C and D of this
subsection (ii) shall be exercisable in cumulative installments
of (I) one-fifth of the number of Shares granted under the Option
on and after the date of grant, and (II) one-fifth of the number
of Shares granted under the Option on and after each of the next
four anniversary dates of the date of grant.
F. The Committee may, in its discretion, make additional grants
of Options to Non-management Directors upon the recommendation of
the Chief Executive Officer of the Company.
(c) Exculpation. No individual acting with the authority to
administer the Plan shall be personally liable for monetary
damages as such for any action taken or any failure to take any
action in connection with the administration of the Plan or the
granting of Awards thereunder unless (i) such individual has
breached or failed to perform the duties of his office under
Section 511 of the General Association Act of 1988, as amended
(relating to standard of care and justifiable reliance), and (ii)
the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness; provided, however, that the
provisions of this subsection 3(c) shall not apply to the
responsibility or liability of a member of the Committee pursuant
to any criminal statute or to the liability of a member of the
Committee for the payment of taxes pursuant to local, state or
federal law.
(d) Indemnification. Service on the Committee shall constitute
service as a member of the Board of Directors of the Company.
Each member of the Committee shall be entitled without further
8
<PAGE>
act on his part to indemnity from the Company to the fullest
extent provided by applicable law and the Company's Articles of
Incorporation and/or By-laws in connection with or arising out of
any action, suit or proceeding with respect to the administration
of the Plan or the granting of Awards thereunder in which he or
she may be involved by reason of his or her being or having been
a member of the Committee, whether or not he or she continues to
be such member of the Committee at the time of the action, suit
or proceeding.
4. Awards under the Plan. Awards granted under the Plan may be
in the form of a Non-qualified Stock Option, an ISO or Restricted
Stock, or a combination thereof, at the discretion of the
Committee; provided, however, that ISOs may be granted only to
individuals who are employees of the Company or an Affiliate.
5. Eligibility. All key employees and members of the Board of
Directors of the Company or its Affiliates shall be eligible to
receive Awards hereunder. The Committee, in its sole discretion,
shall determine whether an individual qualifies as a key
employee.
9
<PAGE>
6. Shares Subject to Plan. The aggregate maximum number of
Shares for which Awards may be granted pursuant to the Plan is
2,000,000, adjusted as provided in Section 11 of the Plan. The
Shares to be issued may be from authorized and unissued shares of
Common Stock of the Company or previously issued shares of Common
Stock of the Company reacquired by the Company. Awards covering
no more than 500,000 Shares may be granted to any individual
during any calendar year that the Plan is in effect, except as
such number of Shares shall be adjusted in accordance with the
provisions of Section 11 of the Plan. If an Option terminates or
expires without having been fully exercised for any reason, or if
any Shares with respect to an award of Restricted Stock shall be
forfeited for any reason, the Shares subject thereto may again be
the subject of an Award granted pursuant to the Plan.
7. Term of the Plan. The Plan has been effective since March
23, 1999, the date on which it was adopted by the Board of
Directors, subject to the approval by a majority of the votes
cast at a duly called meeting of the shareholders, which approval
was obtained. No Award may be granted under the Plan after
March 23, 2009.
10
<PAGE>
8. Option Documents and Terms. Each Option granted under the
Plan shall be a Non-qualified Stock Option unless the Option
shall be specifically designated at the time of grant to be an
ISO for federal income tax purposes. Options granted pursuant to
the Plan shall be evidenced by the Option Documents in such form
as the Committee shall from time to time approve, which Option
Documents shall comply with and be subject to the following terms
and conditions and such other terms and conditions as the
Committee shall from time to time require which are not
inconsistent with the terms of the Plan.
(a) Number of Option Shares. Each Option Document shall state
the number of Shares to which it pertains. An Optionee may
receive more than one Option, which may include both Options
which are intended to be ISOs and Options that are not intended
to be ISOs, but only on the terms and subject to the conditions
and restrictions of the Plan.
(b) Option Price. Each Option Document shall state the Option
Price, which, for all Options, shall be at least 100% of the Fair
Market Value of the Shares on the date the Option is granted as
determined by the Committee; provided, however, that if an ISO is
granted to an Optionee who then owns, directly or by attribution
under Section 424(d) of the Code, shares possessing more than 10%
of the total combined voting power of all classes of stock of the
Company or an Affiliate, then the Option Price shall be at least
110% of the Fair Market Value of the Shares on the date the
Option is granted. If the Shares are traded in a public market,
then the Fair Market Value per share shall be, if the Shares are
11
<PAGE>
listed on a national securities exchange, the mean between the
highest and lowest quoted selling prices thereof, or, if the
Shares are not so listed, the mean between the closing "bid" and
"asked" prices thereof, as applicable and as the Committee
determines, on the day the Option is granted, as reported in
customary financial reporting services.
(c) Exercise. No Option shall be exercised prior to the receipt
by the Company of written notice of such exercise and of payment
in full of the Option Price for the Shares to be purchased. Each
such notice shall specify the number of Shares to be purchased
and shall (unless the Shares are covered by a then current
registration statement or a Notification under Regulation A under
the Act) contain the Optionee's acknowledgment in form and
substance satisfactory to the Company that (a) such Shares are
being purchased for investment and not for distribution or resale
(other than a distribution or resale which, in the opinion of
counsel satisfactory to the Company, may be made without
violating the registration provisions of the Act), (b) the
Optionee has been advised and understands that (i) the Shares
have not been registered under the Act and are "restricted
securities" within the meaning of Rule 144 under the Act and are
subject to restrictions on transfer and (ii) the Company is under
12
<PAGE>
no obligation to register the Shares under the Act or to take any
action which would make available to the Optionee any exemption
from such registration, (c) such Shares may not be transferred
without compliance with all applicable federal and state
securities laws, and (d) an appropriate legend referring to the
foregoing restrictions on transfer and any other restrictions
imposed under the Option Documents may be endorsed on the
certificates. Notwithstanding the above, should the Company be
advised by counsel that issuance of Shares should be delayed
pending (A) registration under federal or state securities laws
or (B) the receipt of an opinion that an appropriate exemption
therefrom is available, the Company may defer exercise of any
Option granted hereunder until either such event in (A) or (B)
has occurred.
(d) Medium of Payment. An Optionee shall pay for Shares subject
to an Option (i) in cash, (ii) by certified check payable to the
order of the Company, or (iii) by such other mode of payment as
the Committee may approve, including payment through a broker in
accordance with procedures permitted by Regulation T of the
Federal Reserve Board. Furthermore, the Committee may provide in
an Option Document issued to an employee (and shall provide in
the case of Option Documents issued to Non-management Directors)
that payment may be made all or in part in shares of the
Company's Common Stock held by the Optionee for at least six
13
<PAGE>
months, subject to such limitations and prohibitions as the
Committee deems appropriate. If payment is made in whole or in
part in shares of the Company's Common Stock, then such Optionee
shall deliver to the Company certificates registered in the name
of such Optionee representing such shares of the Company's Common
Stock owned by such Optionee, free of all liens, claims and
encumbrances of every kind and having an aggregate Fair Market
Value on the date of delivery that is equal to but not greater
than the Option Price of the Shares with respect to which such
Option is to be exercised, accompanied by stock powers duly
endorsed in blank by the Optionee. The Committee may impose from
time to time such limitations and prohibitions on the use of
shares of the Company's Common Stock to exercise an Option as it
deems appropriate.
(e) Termination of Options. No Option shall be exercisable
after the first to occur of the following:
(i) Expiration of the Option term specified in the Option
Document, which shall not exceed (A) ten years from the date of
grant, or (B), with respect to ISOs, five years from the date of
grant if the Optionee on the date of grant owns, directly or by
attribution under Section 424(d) of the Code, shares possessing
more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or of an Affiliate;
14
<PAGE>
(ii) Expiration of sixty (60) days from the date the
Optionee's employment or service with the Company or its
Affiliates terminates for any reason other than Disability, death
or as specified in subsection 8(e)(iv), (v) or (vi) or Section
10, below;
(iii) Expiration of one hundred and eighty days from the
date the Optionee's employment or service with the Company or its
Affiliates terminates due to the Optionee's Disability or death;
(iv) The date that the employment of an Optionee who is an
employee terminates for cause, as determined by the Committee;
(v) Immediately upon the occurrence of an act or omission by an
Optionee who is an employee which constitutes either (i) the
willful breach of his employment agreement with the Company or an
Affiliate, or his engagement in any sort of disloyalty to the
Company or an Affiliate, including, without limitation, fraud,
embezzlement, theft, commission of a felony or dishonesty in the
course of his employment; or (ii) the disclosure or misuse by
Optionee of trade secrets or confidential information of the
Company or an Affiliate. The employment of such Optionee shall
be deemed to have terminated for cause as of the date of such act
or omission, and any Option granted by the Company to said
Optionee and held by such Optionee shall, without the requirement
of any notice, terminate as of the date of such act or omission,
15
<PAGE>
so long as within 90 days after the Company has obtained
sufficient information as to such act or omission, including
investigatory confirmation in proper circumstances, to make
evaluation by the Committee appropriate, there has been a finding
by the Committee, after full consideration of the facts, that
there has been an act or omission by the Optionee the nature of
which is as set forth in clauses (i) or (ii) above. In addition
to such immediate termination of Options, the Optionee shall
forfeit all Shares for any exercised portion of the Option for
which the Company has not yet delivered the share certificates to
the Optionee, upon refund by the Company of any option price paid
by the Optionee.
(vi) Immediately, without the requirement of any notice,
upon the occurrence of an act by an Optionee who is a Non-
management Director which act is, with respect to the Company or
an Affiliate, a fraud, intentional misrepresentation,
embezzlement, misappropriation or conversion of the Company's or
an Affiliate's assets or opportunities.
(f) Transfers. Generally, an Option granted under the Plan
shall not be transferable, except by will or by the laws of
descent and distribution, and may be exercised, during the
lifetime of an Optionee, only by the Optionee or, in the event of
his or her incompetence, by the Optionee's legal representative;
16
<PAGE>
provided, however, that the Committee may, in its sole
discretion, at the time of grant or at any time thereafter, allow
for the transfer of Options that are not ISOs to other persons or
entities, subject to such conditions or limitations as the
Committee may establish. No Option granted under the Plan shall
be subject to execution, attachment or other process.
(g) Other Provisions. The Option Documents may contain such
other provisions including, without limitation, provisions
authorizing the Committee to accelerate the exercisability of all
or any portion of an Option granted pursuant to the Plan,
additional restrictions upon the exercise of the Option or
additional limitations upon the term of the Option, as the
Committee shall deem advisable.
(h) Amendment. The Committee shall have the right to amend
Option Documents issued to an Optionee subject to his consent,
except as limited by Section 12 of the Plan, and except that the
consent of the Optionee shall not be required for any amendment
made under Section 10 of the Plan.
9. Restricted Stock Agreements and Terms. Restricted Stock
granted pursuant to the Plan shall be evidenced by a Restricted
Stock Agreement in such form as the Committee shall from time to
time approve, which Restricted Stock Agreement shall comply with
and be subject to the following terms and conditions and such
other terms and conditions which the Committee shall from time to
time require which are not inconsistent with the terms of the
Plan.
17
<PAGE>
(a) Issuance of Shares. Upon an award of Restricted Stock to a
Participant and receipt by the Company of a fully executed
Restricted Stock Agreement, accompanied by such additional
documentation as specified therein, the stock certificate
representing the Restricted Stock shall be issued, transferred to
and registered in the name of the Participant with such legend
thereon as the Committee shall deem appropriate. Such stock
certificate shall be held by the Company until the Restricted
Stock Vests or is forfeited. The Company shall not be obligated
to deliver any stock certificates until such Shares have been
listed (or authorized for listing upon official notice of
issuance) upon each stock exchange upon which outstanding Shares
of such class at the time of the Award are listed nor until there
has been compliance with such laws or regulations as the Company
may deem applicable, including without limitation registration or
qualification of such Shares under any federal or state law.
18
<PAGE>
(b) Dividends and Voting Rights. Unless the Committee
determines otherwise, during the period from the date the
Restricted Stock is awarded to the date the Restricted Period
expires, the Participant will be entitled to all rights of a
stockholder of the Company, including the right to vote the
Shares and receive dividends and other distributions declared on
such Shares from time to time, as distributed. Notwithstanding
the foregoing, the Committee shall determine whether dividends of
stock and other non-cash distributions with respect to the
Restricted Stock shall be withheld by the Company for the account
of the Participant and whether they shall be subject to the
Vesting and forfeiture provisions applicable to the related
Restricted Stock. The Committee shall determine whether interest
shall be paid on such amounts withheld, the rate of any such
interest, and the other terms applicable to such withheld
amounts.
(c) Restricted Period and Vesting Schedule. The Committee shall
have the plenary authority and absolute discretion to determine
the Restricted Period for the Restricted Stock granted to a
Participant and the times at which the Shares subject to such
Restricted Stock shall Vest, which may be different for each
award of Restricted Stock, provided, however that no Shares shall
Vest prior to one year from the date of grant of the Restricted
Stock. Notwithstanding the foregoing, only whole Shares shall
Vest. In the event that a Participant shall become entitled to a
fractional Share, such fractional Share shall not Vest unless and
until the Participant becomes entitled to such number of
fractional Shares as shall be equal in sum to a whole Share.
19
<PAGE>
(d) Forfeiture of Shares.
(i) Except as otherwise provided by the Committee, in the event
the Participant's employment or service with the Company
terminates for any reason other than Disability or death, or as
specified in Section 10 of the Plan, any Shares subject to the
Participant's Restricted Stock which has not Vested shall be
automatically forfeited by the Participant. Shares which are
forfeited may be canceled by the Company without any action by
the Participant.
(ii) Except as otherwise provided by the Committee, in the
event the Participant's employment or service with the Company
terminates due to the Participant's Disability or death, any of
the Participant's Restricted Stock which has not Vested shall, if
such termination occurs more than one year after the date of the
award of such Restricted Stock, vest in the prorated amount equal
to the ratio of (A) the number of whole years between the date of
the Award and the date of such termination to (B) the total
Restricted Period to which the Award is subject, and the balance
of the Restricted Stock shall be forfeited. If such termination
occurs less than one year after the date of grant of the Award,
the Participant's Restricted Stock shall be automatically
forfeited by the Participant and may be canceled by the Company
without any action by the Participant.
20
<PAGE>
(e) Transfers. During the Restricted Period, no Restricted
Stock awarded under the Plan or any interest therein may be
transferred, except by will or by the laws of descent and
distribution. During the lifetime of the person to whom
Restricted Stock is granted, the rights of such Restricted Stock
may be exercised only by him or, in the event of his
incompetence, by his legal representative. Upon the death of a
Participant, the person to whom the rights shall have passed by
will or the laws of descent and distribution shall become
entitled to the Restricted Stock only in accordance with the
provisions of subsection (d) above.
(f) Other Provisions. The Restricted Stock Agreements shall
contain such other provisions as the Committee shall deem
advisable.
(g) Amendment. The Committee shall have the right to amend the
Restricted Stock Agreements issued to a Participant subject to
his consent, except that the consent of the Participant shall not
be required for any amendment made under Section 10 of the Plan.
10. Change of Control. For purposes of this Section, a "Change
of Control" shall be deemed to have taken place if:
21
<PAGE>
(a) individuals who, on the date hereof, constitute the Board of
Directors (the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board of Directors,
provided that any person becoming a director subsequent to the
date hereof, whose election or nomination for election was
approved by a vote of at least two-thirds of the Incumbent
Directors then on the Board of Directors (either by a specific
vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director, without
written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected
or nominated as a director of the Company as a result of an
actual or threatened election contest with respect to directors
or as a result of any other actual or threatened solicitation of
proxies or consents by or on behalf of any person other than the
Board of Directors shall be deemed to be an Incumbent Director;
(b) any "Person" (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934 (the "Exchange Act") and as
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of
the Company's then outstanding securities eligible to vote for
the election of the Board of Directors (the "Voting Securities");
22
<PAGE>
provided, however, that the event described in this paragraph (b)
shall not be deemed to be a Change of Control by virtue of any of
the following acquisitions: (i) by the Company or any subsidiary
of the Company in which the Company owns more than 50% of the
combined voting power of such entity (a "Subsidiary"), (ii) by
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (iii) by any
underwriter temporarily holding the Company's Voting Securities
pursuant to an offering of such Voting Securities, or (iv)
pursuant to a Non-Qualifying Transaction (as defined in paragraph
(c));
(c) a merger, consolidation, statutory share exchange or similar
form of corporate transaction is consummated involving the
Company or any of its Subsidiaries that requires the approval of
the Company's stockholders, whether for such transaction or the
issuance of securities in the transaction (a "Business
Combination"), unless immediately following such Business
Combination: (i) more than 50% of the total voting power of (A)
the corporation resulting from such Business Combination (the
"Surviving Corporation"), or (B) if applicable, the ultimate
parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect
directors of the Surviving Corporation (the "Parent
Corporation"), is represented by the Company's Voting Securities
that were outstanding immediately prior to such Business
Combination (or, if applicable, is represented by shares into
23
<PAGE>
which the Company's Voting Securities were converted pursuant to
such Business Combination), and such voting power among the
holders thereof is in substantially the same proportion as the
voting power of the Company's Voting Securities among the holders
thereof immediately prior to the Business Combination, (ii) no
person (other than any employee benefit plan (or related trust)
sponsored or maintained by the Surviving Corporation or the
Parent Corporation), is or becomes the beneficial owner, directly
or indirectly, of 20% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the
Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) and (iii) at least a majority of the
members of the board of directors of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation)
following the consummation of the Business Combination were
Incumbent Directors at the time of the Board of Directors'
approval of the execution of the initial agreement providing for
such Business Combination (any Business Combination which
satisfies all of the criteria specified in (i), (ii) and (iii)
above shall be deemed to be a "Non-Qualifying Transaction");
(d) a sale of all or substantially all of the Company's assets
is consummated;
24
<PAGE>
(e) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company; or
(f) there occur such other events as the Board of Directors may
designate.
Notwithstanding the foregoing, a Change of Control of
the Company shall not be deemed to occur solely because any
person acquires beneficial ownership of more than 20% of the
Company's Voting Securities as a result of the acquisition of the
Company's Voting Securities by the Company which reduces the
number of the Company's Voting Securities outstanding; provided,
that if after such acquisition by the Company such person becomes
the beneficial owner of additional Company Voting Securities that
increases the percentage of outstanding Company Voting Securities
beneficially owned by such person, a Change of Control of the
Company shall then occur.
11. Adjustments on Changes in Capitalization. The aggregate
number of Shares as to which Awards may be granted hereunder, the
maximum number of Shares for which Awards may be granted to any
individual during any calendar year, the number of Shares covered
by each outstanding Award and the Option Price, in the case of
grants of Options, shall be appropriately adjusted in the event
of a stock dividend, stock split, spin-off, recapitalization or
25
<PAGE>
other change in the number or class of issued and outstanding
equity securities of the Company resulting from a subdivision or
consolidation of the Common Stock and/or other outstanding equity
security or a recapitalization or other capital adjustment (not
including the issuance of Common Stock on the conversion of other
securities of the Company which are convertible into Common
Stock) affecting the Common Stock which is effected without
receipt of consideration by the Company. The Committee, in its
sole discretion, shall have authority to determine the
adjustments to be made under this Section and any such
determination by the Committee shall be final, binding and
conclusive; provided, however, that no adjustment shall be made
which will cause an ISO to lose its status as such without the
consent of the Optionee.
12. Amendment of the Plan. The Board of Directors may amend the
Plan from time to time in such manner as it may deem advisable.
Nevertheless, the Board of Directors may not, without obtaining
approval by vote of a majority of the votes cast at a duly called
meeting of the shareholders at which a quorum representing a
majority of all outstanding voting stock of the Company is,
either in person or by proxy, present and voting on the matter,
within twelve months before or after such action, change the
class of individuals eligible to receive an ISO, extend the
26
<PAGE>
expiration date for the grant of ISOs under the Plan, decrease
the minimum Option Price of an ISO granted under the Plan or
increase the maximum number of Shares as to which Options may be
granted or the maximum number which may be granted to any
individual in any calendar year. No amendment to the Plan shall
adversely affect any outstanding Option, however, without the
consent of the Optionee.
13. No Continued Employment. The grant of an Award pursuant to
the Plan shall not be construed to imply or to constitute
evidence of any agreement, express or implied, on the part of the
Company or any Affiliate to retain the Optionee or Participant in
the employ of the Company or an Affiliate and/or as a member of
the Company's Board of Directors or in any other capacity.
14. Withholding of Taxes. Whenever the Company proposes or is
required to deliver or transfer Shares in connection with the
exercise of an Option or in connection with the Vesting of
Restricted Stock, the Company shall have the right to (a) require
the recipient to remit or otherwise make available to the Company
an amount sufficient to satisfy any federal, state and/or local
withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for such Shares or (b) take
whatever action it deems necessary to protect its interests with
respect to tax liabilities, including without limitation allowing
the Optionee or Participant to surrender, or have the Company
retain from Shares which are otherwise issuable or deliverable in
connection with an Award a number of Shares which have a Fair
27
<PAGE>
Market Value equal to such tax liability. The Company's
obligation to make any delivery or transfer of Shares shall be
conditioned on the Optionee's or Participant's compliance, to the
Company's satisfaction, with any withholding requirement.
15. Interpretation. The Plan is intended to enable transactions
under the Plan with respect to directors and officers (within the
meaning of Section 16(a) under the Securities Exchange Act of
1934, as amended) to satisfy the conditions of Rule 16b-3; to the
extent that any provision of the Plan, or any provisions of any
Option or Restricted Stock granted pursuant to the Plan, would
cause a conflict with such conditions or would cause the
administration of the Plan as provided in Section 3 to fail to
satisfy the conditions of Rule 16b-3, such provision shall be
deemed null and void to the extent permitted by applicable law.
Subject to the foregoing, the Committee's determinations under
the Plan need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, Awards
under the Plan.
* * * *
As originally adopted by the THE PEP BOYS-
Board of Directors on March 23, MANNY, MOE & JACK
1999; and as Amended and Restated
by the Board of Directors
on August 31, 1999
By:/s/ Mitchell G. Leibovitz
-------------------------
Mitchell G. Leibovitz
Chairman of the Board
28
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 11
COMPUTATION OF NET EARNINGS (LOSS) PER SHARE
(in thousands, except per share data)
(UNAUDITED)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Thirteen weeks ended Thirty-nine weeks ended
---------------------------------- ----------------------------------
October 30, 1999 October 31, 1998 October 30, 1999 October 31, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(a) Net earnings (loss)............................... $9,930 $(3,921) $40,088 $23,841
Adjustment for interest on 4% convertible
subordinated notes, net of income tax effect... - - 968 -
Adjustment for interest on zero coupon convertible
subordinated notes, net of income tax effect... - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted net earnings (loss) $9,930 $(3,921) $41,056 $23,841
- ---------------------------------------------------------------------------------------------------------------------------------
(c) Average number of common shares outstanding
during the period.............................. 50,771 61,567 50,567 61,527
Common shares assumed issued upon conversion of
4% convertible subordinated notes.............. - - 1,251 -
Common shares assumed issued upon conversion of
zero coupon convertible subordinated notes..... - - - -
Common shares assumed issued upon exercise
of dilutive stock options, net of assumed
repurchase, at the average market price........ 68 - 233 220
- ---------------------------------------------------------------------------------------------------------------------------------
(d) Average number of common shares assumed
outstanding during the period.................. 50,839 61,567 52,051 61,747
- ---------------------------------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) per Share (a/c)............ $ .20 $ (.06) $ .79 $ .39
Diluted Earnings (Loss) per Share (b/d).......... $ .20 $ (.06) $ .79 $ .39
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE
SHEET AS OF OCTOBER 30, 1999 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE THIRTY-NINE WEEK
PERIOD ENDED OCTOBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> OCT-30-1999
<CASH> 46,835
<SECURITIES> 0
<RECEIVABLES> 21,520
<ALLOWANCES> 1,044
<INVENTORY> 544,612
<CURRENT-ASSETS> 677,416
<PP&E> 1,891,836
<DEPRECIATION> 557,261
<TOTAL-ASSETS> 2,027,681
<CURRENT-LIABILITIES> 507,401
<BONDS> 772,544
0
0
<COMMON> 63,911
<OTHER-SE> 603,617
<TOTAL-LIABILITY-AND-EQUITY> 2,027,681
<SALES> 1,503,222
<TOTAL-REVENUES> 1,839,552
<CGS> 1,074,936
<TOTAL-COSTS> 1,343,236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,630
<INCOME-PRETAX> 62,638
<INCOME-TAX> 22,550
<INCOME-CONTINUING> 40,088
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,088
<EPS-BASIC> .79
<EPS-DILUTED> .79
