<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 29, 2000
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 September 5, 2000 there were 53,302,123 shares of the registrant's Common
Stock outstanding.
1
<PAGE>
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Index Page
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PART I - FINANCIAL INFORMATION:
Item 1. Condensed Consolidated
Financial Statements (Unaudited)
Consolidated Balance Sheets -
July 29, 2000 and January 29, 2000 3
Consolidated Statements of Earnings -
Thirteen and Twenty-six weeks ended
July 29, 2000 and July 31, 1999 4
Consolidated Statements of Cash Flows -
Twenty-six weeks ended July 29, 2000
and July 31, 1999 5
Notes to Condensed Consolidated
Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-12
Item 3. Quantitative and Qualitative Disclosures 13
About Market Risk
PART II - OTHER INFORMATION:
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE PAGE 15
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 29, 2000 Jan. 29, 2000*
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 14,261 $ 18,485
Accounts receivable, net................................... 19,535 17,281
Merchandise inventories.................................... 605,996 582,898
Prepaid expenses........................................... 17,972 39,184
Deferred income taxes...................................... 16,715 16,606
Other...................................................... 38,746 46,278
------------- -------------
Total Current Assets.................................... 713,225 720,732
Property and Equipment - at cost:
Land....................................................... 290,185 287,039
Building and improvements.................................. 966,438 954,638
Furniture, fixtures and equipment.......................... 661,955 647,557
Construction in progress................................... 26,253 25,763
------------ -------------
1,944,831 1,914,997
Less accumulated depreciation and amortization............. 626,818 597,248
------------- -------------
Total Property and Equipment............................ 1,318,013 1,335,749
Other........................................................ 16,725 16,191
------------- -------------
Total Assets.................................................. $2,047,963 $2,072,672
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $ 286,312 $ 320,066
Accrued expenses........................................... 222,700 228,151
Short-term borrowings...................................... 12,000 -
Current maturities of long-term debt....................... 187 183
------------- -------------
Total Current Liabilities............................... 521,199 548,400
Long-Term Debt, less current maturities...................... 626,579 612,668
Convertible Debt, less current maturities.................... 155,332 171,356
Deferred Income Taxes........................................ 81,964 81,964
Commitments and Contingencies
Stockholders' Equity:
Common Stock, par value $1 per share:
Authorized 500,000,000 shares - Issued 63,910,577......... 63,911 63,911
Additional paid-in capital................................. 177,247 177,247
Retained earnings.......................................... 652,271 649,487
------------- ------------
893,429 890,645
Less shares in treasury - 10,608,454 and
10,721,208 shares, at cost................................ 171,276 173,097
Less shares in benefits trust - 2,195,270 shares, at cost.. 59,264 59,264
------------- ------------
Total Stockholders' Equity.............................. 662,889 658,284
------------- ------------
Total Liabilities and Stockholders' Equity.................... $2,047,963 $2,072,672
============= ============
See notes to condensed consolidated financial statements.
*Taken from the audited financial statements at Jan. 29, 2000.
</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 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Merchandise Sales.................................... $516,763 $520,686 $1,014,483 $1,009,384
Service Revenue...................................... 117,124 114,717 234,213 224,335
-------------- -------------- -------------- --------------
Total Revenues....................................... 633,887 635,403 1,248,696 1,233,719
Costs of Merchandise Sales........................... 378,145 368,583 737,653 717,756
Costs of Service Revenue............................. 98,120 90,300 193,605 177,416
-------------- -------------- -------------- --------------
Total Costs of Revenues.............................. 476,265 458,883 931,258 895,172
Gross Profit from Merchandise Sales.................. 138,618 152,103 276,830 291,628
Gross Profit from Service Revenue.................... 19,004 24,417 40,608 46,919
-------------- -------------- -------------- --------------
Total Gross Profit................................... 157,622 176,520 317,438 338,547
Selling, General and Administrative Expenses......... 139,029 132,668 279,344 265,655
-------------- -------------- -------------- --------------
Operating Profit..................................... 18,593 43,852 38,094 72,892
Nonoperating Income.................................. 535 762 1,025 1,070
Interest Expense..................................... 13,802 13,262 26,906 26,840
-------------- -------------- -------------- --------------
Earnings Before Income Taxes 5,326 31,352 12,213 47,122
Income Taxes......................................... 1,917 11,287 4,397 16,964
-------------- -------------- -------------- --------------
Net Earnings Before Extraordinary Gain............... 3,409 20,065 7,816 30,158
Extraordinary Gain, Net of Tax....................... 967 - 3,007 -
-------------- -------------- -------------- --------------
Net Earnings......................................... 4,376 20,065 10,823 30,158
Retained Earnings, beginning of period............... 651,917 642,600 649,487 636,475
Cash Dividends....................................... 3,446 3,257 6,888 6,815
Dividend Reinvestment Plan........................... 576 - 1,151 -
Effect of Shares Repurchased from Benefits Trust..... - - - 410
-------------- -------------- -------------- --------------
Retained Earnings, end of period..................... $652,271 $659,408 $652,271 $659,408
============== ============== ============== ==============
Basic Earnings per Share:
Before Extraordinary Gain.......................... $ .07 $ .40 $ .15 $ .60
Extraordinary Gain on Extinguishment
of Debt, Net of Tax.............................. .02 - .06 -
------------- ------------- ------------- -------------
Basic Earnings per Share............................. $ .09 $ .40 $ .21 $ .60
============= ============= ============= =============
Diluted Earnings per Share:
Before Extraordinary Gain.......................... $ .07 $ .39 $ .15 $ .59
Extraordinary Gain on Extinguishment
of Debt, Net of Tax.............................. .02 - .06 -
------------- ------------- ------------- -------------
Diluted Earnings per Share........................... $ .09 $ .39 $ .21 $ .59
============= ============= ============= =============
Cash Dividends per Share............................. $ .0675 $ .0675 $ .1350 $ .1350
============= ============= ============= =============
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 29, 2000 July 31, 1999
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings.................................................... $ 10,823 $ 30,158
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Extraordinary gain on extinguishment of debt, net of tax..... (3,007) -
Depreciation and amortization................................ 50,531 48,510
Accretion of bond discount................................... 3,201 3,294
Increase in deferred income taxes............................ (109) -
Gain from sale of assets..................................... (1,262) (592)
Changes in operating assets and liabilities:
Decrease in accounts receivable, prepaid expenses
and other................................................. 25,956 14,547
(Increase) Decrease in merchandise inventories................ (23,098) 14,327
(Decrease) Increase in accounts payable....................... (33,754) 16,542
(Decrease) Increase in accrued expenses....................... (5,451) 30,135
------------- -------------
Net Cash Provided by Operating Activities....................... 23,830 156,921
Cash Flows from Investing Activities:
Capital expenditures............................................ (33,626) (52,053)
Net proceeds from sales of assets............................... 2,093 1,403
------------- -------------
Net Cash Used in Investing Activities........................... (31,533) (50,650)
Cash Flows from Financing Activities:
Net borrowings under line of credit agreements.................. 19,910 -
Short-term borrowings........................................... 12,000 -
Reduction of long-term debt..................................... - (84)
Reduction of convertible debt................................... - (16,500)
Dividends paid.................................................. (6,888) (6,815)
Net proceeds from issuance of notes............................. - 76,000
Early extinguishment of debt.................................... (22,213) -
Repurchase of treasury shares................................... - (182,065)
Proceeds from exercise of stock options......................... - 269
Proceeds from dividend reinvestment plan........................ 670 569
------------- -------------
Net Cash Provided by (Used in) Financing Activities............. 3,479 (128,626)
------------- -------------
Net Decrease in Cash................................................. (4,224) (22,355)
Cash and Cash Equivalents at Beginning of Period..................... 18,485 114,548
------------- -------------
Cash and Cash Equivalents at End of Period........................... $ 14,261 $ 92,193
============= =============
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 29, 2000, the consolidated
statements of earnings for the thirteen and twenty-six week periods ended
July 29, 2000 and July 31, 1999 and the consolidated statements of
cash flows for the twenty-six week periods ended July 29, 2000 and
July 31, 1999 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 29, 2000 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 29, 2000. The results of operations
for the thirteen and twenty-six week periods ended July 29, 2000 are not
necessarily indicative of the operating results for the full year.
NOTE 2. Merchandise Inventories
Merchandise inventories are valued at the lower of cost (last-in, first-out)
or market. If the first-in, first-out method of valuing inventories had been
used by the Company, inventories would have been approximately the same at both
July 29, 2000 and January 29, 2000.
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 29, 2000 and January 29, 2000 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 29, 2000 and
July 31, 1999.
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. Debt and Financing Arrangements
As of the balance sheet date, the Company was not in compliance with certain
financial convenants in its revolving credit agreement and operating leases
for certain properties. The Company has obtained waivers for such
noncompliance and amended its credit facilities. The waiver for the
revolving credit agreement extends through the third fiscal quarter. The
waivers for the operating leases extend through October 10, 2000. As of
August 10, 2000, the revolving credit agreement was amended to reduce the
Company's availability from $200,000,000 to $125,000,000; had this amendment to
the revolving line of credit been in place on the balance sheet date, the
availability would have been $98,000,000. In addition, the amendments restrict
any cash payments for the Company's Liquid Yield Option Notes (LYONs) at any
time prior to September 20, 2001.
The Company has obtained firm commitments from lenders to enter into a new
revolving credit agreement and operating lease facility. The new facilities
will provide up to $368,000,000 of available credit and will be secured by
certain assets of the Company. The Company expects to close these facilities
in the third fiscal quarter.
In April 2000, the Company repurchased $30,200,000 face value of its LYONs at
a price of $520 per LYON. The book value of the LYONs were $19,226,000 and the
after-tax extraordinary gain was $2,040,000.
In June 2000, the Company repurchased $5,995,000 face value of the $49,000,000
medium-term note which was redeemable at the option of the holder on September
19, 2002. The after-tax extraordinary gain was $967,000.
6
<PAGE>
NOTE 6. Net Earnings Per Share
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
(in thousands, except per share data) ---------------------------------- ----------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(a) Net earnings before extraordinary gain........... $ 3,409 $20,065 $ 7,816 $30,158
Adjustment for interest on 4% convertible
subordinated notes, net of income tax effect... - 403 - 866
Adjustment for interest on zero coupon convertible
subordinated notes, net of income tax effect... - 1,060 - -
----------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted net earnings before extraordinary gain.. $ 3,409 $21,528 $ 7,816 $31,024
----------------------------------------------------------------------------------------------------------------------------------
(c) Average number of common shares outstanding
during the period.............................. 51,055 50,420 51,026 50,466
Common shares assumed issued upon conversion of
4% convertible subordinated notes.............. - 1,525 - 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........ 20 380 12 316
----------------------------------------------------------------------------------------------------------------------------------
(d) Average number of common shares assumed
outstanding during the period.................. 51,075 55,838 51,038 52,426
----------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share:
Before Extraordinary Gain (a/c).................. $ .07 $ .40 $ .15 $ .60
Extraordinary Gain............................... .02 - .06 -
----------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share: $ .09 $ .40 $ .21 $ .60
----------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings per Share:
Before Extraordinary Gain (b/d).................. $ .07 $ .39 $ .15 $ .59
Extraordinary Gain............................... .02 - .06 -
----------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings per Share: $ .09 $ .39 $ .21 $ .59
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Adjustments for certain convertible securities were antidilutive during the
thirteen and twenty-six week periods ended July 29, 2000 and the twenty-six
week period ended July 31, 1999, 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 29, 2000 and July 31, 1999 were
as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
(in thousands) ---------------------------------- ----------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Common shares associated with antidilutive stock
options excluded from computation of diluted EPS ...... 4,787 3,679 4,787 3,695
-------------- -------------- -------------- --------------
</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 29, 2000 July 31, 1999 Fiscal 2000 vs.
(Fiscal 2000) (Fiscal 1999) Fiscal 1999
------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 81.5% 81.9% (0.8)%
Service Revenue (1)................................... 18.5 18.1 2.1
------ ------ ------
Total Revenues........................................ 100.0 100.0 (.2)
Costs of Merchandise Sales (2)........................ 73.2 (3) 70.8 (3) 2.6
Costs of Service Revenue (2).......................... 83.8 (3) 78.7 (3) 8.7
------ ------ ------
Total Costs of Revenues............................... 75.1 72.2 3.8
Gross Profit from Merchandise Sales................... 26.8 (3) 29.2 (3) (8.8)
Gross Profit from Service Revenue..................... 16.2 (3) 21.3 (3) (22.2)
------ ------ ------
Total Gross Profit.................................... 24.9 27.8 (10.7)
Selling, General and Administrative Expenses.......... 22.0 20.9 4.8
------ ------ ------
Operating Profit...................................... 2.9 6.9 (57.6)
Nonoperating Income................................... .1 .1 (29.8)
Interest Expense...................................... 2.2 2.1 4.1
------ ------ ------
Earnings Before Income Taxes.......................... .8 4.9 (83.0)
Income Taxes.......................................... 36.0 (4) 36.0 (4) (83.0)
------ ------ ------
Net Earnings Before Extraordinary Gain................ .5 3.2 (83.0)
Extraordinary Gain, Net of Tax........................ .2 .0 N/A
------ ------ ------
Net Earnings.......................................... .7 3.2 (78.2)
====== ====== ======
<FN>
(1) Service revenue consists of the labor charge for installing merchandise or
maintaining or repairing vehicles, excluding the sale of any installed parts or
materials.
(2) Costs of merchandise sales include the cost of products sold, buying,
warehousing and store occupancy costs. Costs of service revenue include service
center payroll and related employee benefits and service center occupancy costs.
Occupancy costs include utilities, rents, real estate and property taxes, repairs
and maintenance and depreciation and amortization expenses.
(3) As a percentage of related sales or revenue, as applicable.
(4) As a percentage of earnings before income taxes.
</FN>
</TABLE>
8
<PAGE>
Thirteen Weeks Ended July 29, 2000 vs. Thirteen Weeks Ended July 31, 1999
---------------------------------------------------------------------------
Total revenues for the second quarter fell 0.2% led by a 0.8% decrease in
merchandise sales offset, in part, by a 2.1% increase in service revenue.
Revenues fell despite an increase in total stores from 650 in 1999 to 655
in 2000. This decrease was driven by a decrease in comparable store revenues
of 2.0% in 2000. Comparable store merchandise sales decreased 2.6% while
comparable service revenue increased 0.4%.
Gross profit from merchandise sales decreased, as a percentage of merchandise
sales, due primarily to lower merchandise margins, an increase in store
occupancy costs, as a percentage of merchandise sales and an increase in
warehousing 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 service center personnel costs and an
an increase in store occupancy costs, as a percentage of service revenue.
Selling, general and administrative expenses increased, as a percentage of
total revenues, due primarily to increases in store payroll expenses and
general office expenses, as a percentage of total revenues.
<TABLE>
Nonoperating income consisted of the following:
(in thousands)
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Net rental revenue $ 450 $ 201
Investment income 88 481
Other income (3) 80
------ ------
Total $ 535 $ 762
====== ======
</TABLE>
Net earnings decreased, as a percentage of total revenues, due primarily to a
decrease in gross profit from merchandise sales, in addition to a decrease in
gross profit from service revenues and an increase in selling, general and
administrative expenses offset, in part, by an extraordinary gain on the early
extinguishment of debt.
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 29, 2000 July 31, 1999 Fiscal 2000 vs.
(Fiscal 2000) (Fiscal 1999) Fiscal 1999
------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 81.2% 81.8% .5 %
Service Revenue (1)................................... 18.8 18.2 4.4
------ ------ ------
Total Revenues........................................ 100.0 100.0 1.2
Costs of Merchandise Sales (2)........................ 72.7 (3) 71.1 (3) 2.8
Costs of Service Revenue (2).......................... 82.7 (3) 79.1 (3) 9.1
------ ------ ------
Total Costs of Revenues............................... 74.6 72.6 4.0
Gross Profit from Merchandise Sales................... 27.3 (3) 28.9 (3) (5.1)
Gross Profit from Service Revenue..................... 17.3 (3) 20.9 (3) (13.5)
------ ------ ------
Total Gross Profit.................................... 25.4 27.4 (6.2)
Selling, General and Administrative Expenses.......... 22.3 21.5 5.2
------ ------ ------
Operating Profit...................................... 3.1 5.9 (47.7)
Nonoperating Income................................... .1 .1 (4.2)
Interest Expense...................................... 2.2 2.2 .3
------ ------ ------
Earnings Before Income Taxes.......................... 1.0 3.8 (74.1)
Income Taxes.......................................... 36.0 (4) 36.0 (4) (74.1)
------ ------ ------
Net Earnings Before Extraordinary Gain................ .6 2.4 (74.1)
Extraordinary Gain, Net of Tax........................ .2 .0 N/A
------ ------ ------
Net Earnings.......................................... .9 2.4 (64.1)
====== ====== ======
<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 29, 2000 vs. Twenty-six Weeks Ended July 31, 1999
-------------------------------------------------------------------------------
Total revenues for the first half increased 1.2% due to an increase in store
count from 650 stores in 1999 to 665 in 2000. This increase was offset, in
part, by a decrease in total comparable store sales of 0.8%. Comparable store
merchandise sales decreased 1.5% while comparable service revenue increased
2.4%.
Gross profit from merchandise sales decreased, as a percentage of merchandise
sales, due primarily to lower merchandise margins and an increase in
warehousing 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 service payroll, as a percentage of service
revenue.
Selling, general and administrative expenses increased, as a percentage of
total revenues, due primarily to an increase in store expenses, as a percentage
of total revenues.
<TABLE>
Nonoperating income consisted of the following:
(in thousands)
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Net rental revenue $ 897 $ 377
Investment income 151 613
Other income (23) 80
------ ------
Total $1,025 $1,070
====== ======
</TABLE>
Net earnings decreased, as a percentage of total revenues, due primarily to a
decrease in gross profit from merchandise sales, as a percentage of merchandise
sales, coupled with a decrease in gross profit from service revenue, as a
percentage of service revenue and higher selling, general and administrative
expenses, as a percentage of total revenues offset, in part, by an
extraordinary gain on the early extinguishment of debt.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - July 29, 2000
------------------------------------------------
The Company's cash requirements arise principally from the need to finance
the acquisition, construction and equipping of new stores, to renovate existing
stores, and to purchase inventory. During the first six months of 2000, the
Company invested $33,626,000 in property and equipment while net inventory (net
inventory includes the change in inventory less the change in accounts payable)
increased $56,852,000. Working capital increased from $172,332,000 at
January 29, 2000 to $192,026,000 at July 29, 2000. At July 29, 2000, the
Company had stockholders' equity of $662,889,000 and long-term debt of
$781,911,000. The Company's long-term debt was 54% of its total capitalization
at July 29, 2000 and 54% at January 29, 2000. As of July 29, 2000, the Company
had available lines of credit totaling $173,000,000.
As of the balance sheet date, the Company was not in compliance with certain
financial convenants in its revolving credit agreement and operating leases
for certain properties. The Company has obtained waivers for such
noncompliance and amended its credit facilities. The waiver for the
revolving credit agreement extends through the third fiscal quarter. The
waivers for the operating leases extend through October 10, 2000. As of
August 10, 2000, the revolving credit agreement was amended to reduce the
Company's availability from $200,000,000 to $125,000,000; had this amendment to
the revolving line of credit been in place on the balance sheet date, the
availability would have been $98,000,000. In addition, the amendments restrict
any cash payments for the Company's Liquid Yield Option Notes (LYONs) at any
time prior to September 20, 2001.
The Company has obtained firm commitments from lenders to enter into a new
revolving credit agreement and operating lease facility. The new facilities
will provide up to $368,000,000 of available credit and will be secured by
certain assets of the Company. The Company expects to close these facilities
in the third fiscal quarter.
The Company plans to open 2 new stores during the balance of the current fiscal
year. Management estimates that the cost of the expansion, coupled with
expenditures in renovating existing stores, and expenditures for warehouses and
offices will be approximately $26,374,000. Funds required to finance the store
expansion including related inventory requirements, to finance the renovation
project of existing stores and to repay its debt maturities are expected to
come primarily from operating activities and the Company's lines of credit.
In April 2000, the Company repurchased $30,200,000 face value of its LYONs at
a price of $520 per LYON. The book value of the LYONs were $19,226,000 and the
after-tax extraordinary gain was $2,040,000.
In June 2000, the Company repurchased $5,995,000 face value of the $49,000,000
medium-term note which was redeemable at the option of the holder on September
19, 2002. The after-tax extraordinary gain was $967,000.
NEW ACCOUNTING STANDARDS
------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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.
FORWARD LOOKING STATEMENTS
--------------------------
Certain statements made herein, including those discussing management's
expectations for future periods, are forward-looking and involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements due to factors beyond the
control of the Company, including the strength of the national and regional
economies and retail and commercial consumers' ability to spend, the health of
the various sectors of the market that the Company serves, the weather in
geographical regions with a high concentration of the Company's stores,
competitive pricing, location and number of competitors' stores and product and
labor costs. Further factors that might cause such a difference include, but
are not limited to, the factors described in the Company's filings with the
Securities and Exchange Commission.
12
<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 29, 2000, the Company had $42,000,000
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 29, 2000.
13
<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 May 31, 2000. The
shareholders approved the election of directors shown below.
Directors Elected at Annual Meeting of Shareholders
---------------------------------------------------
Name Votes For Votes Withheld
---- --------- --------------
Bernard J. Korman 43,156,311 4,729,577
J. Richard Leaman, Jr. 43,164,060 4,721,828
..................................................................
Directors whose term of office continued after the Annual Meeting
of Shareholders
-----------------------------------------------------------------
Name
----
Lennox K. Black
Mitchell G. Leibovitz
Lester Rosenfeld
Benjamin Strauss
Myles H. Tanenbaum
Malcolmn D. Pryor
..................................................................
The shareholders also approved the appointment of the independent
auditors Deloitte & Touche LLP with 47,091,932 affirmative votes,
639,268 negative votes and 154,688 abstentions.
..................................................................
The shareholders disapproved the shareholder proposal
regarding the sale of the Company to the highest bidder with
27,589,361 negative votes, 6,689,146 affirmative votes,
1,340,253 abstentions, and 12,267,128 broker non-votes.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C> <C>
(10.53) AMENDMENT NO. 6 AND WAIVER dated as of July 28, 2000
to the AMENDED AND RESTATED CREDIT AGREEMENT dated
as of April 21, 1995 between THE PEP BOYS - MANNY, MOE
& JACK, the guarantors signatory thereto, the banks
signatory thereto and THE CHASE MANHATTAN BANK, as
agent.
(10.54) Amendment and waiver dated as of August 10, 2000 to
Master Lease between the Company and State Street
Bank and Trust Company dated as of November 13, 1995.
(10.55) Amendment and waiver dated as of August 10, 2000 to
Master Lease between the Company and State Street
Bank and Trust Company dated as of February 28, 1997.
(11) Statement Re: Computation of Earnings Per
Share
(27) Financial Data Schedules
</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.
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEP BOYS - MANNY, MOE & JACK
--------------------------------
(Registrant)
Date: September 12, 2000 By: /s/ George Babich Jr.
----------------------- -------------------------
George Babich Jr.
Senior Vice President &
Chief Financial Officer
15
<PAGE>
INDEX TO EXHIBITS
-----------------
(10.53) AMENDMENT NO. 6 AND WAIVER dated as of July 28, 2000
to the AMENDED AND RESTATED CREDIT AGREEMENT dated
as of April 21, 1995 between THE PEP BOYS - MANNY, MOE
& JACK, the guarantors signatory thereto, the banks
signatory thereto and THE CHASE MANHATTAN BANK, as
agent.
(10.54) Amendment and waiver dated as of August 10, 2000 to
Master Lease between the Company and State Street
Bank and Trust Company dated as of November 13, 1995.
(10.55) Amendment and waiver dated as of August 10, 2000 to
Master Lease between the Company and State Street
Bank and Trust Company dated as of February 28, 1997.
(11) Computations of Earnings Per Share
(27) Financial Data Schedule
