<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 April 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
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Commission File No. 1-3381
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The Pep Boys - Manny, Moe & Jack
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0962915
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(State or other jurisdiction of (I.R.S. Employer ID number)
incorporation or organization)
3111 W. Allegheny Ave. Philadelphia, PA 19132
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(Address of principal executive offices) (Zip code)
215-430-9000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports); and (2) has been subject
to such filing requirements for the past 90 days. Yes ( x ) No ( )
As of May 27, 2000 there were 53,246,586 shares of the registrant's Common
Stock outstanding.
1
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Index Page
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PART I - FINANCIAL INFORMATION
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Item 1. Condensed Consolidated
Financial Statements (Unaudited)
Consolidated Balance Sheets -
April 29, 2000 and January 29, 2000 3
Consolidated Statements of Earnings -
Thirteen weeks ended April 29, 2000
and May 1, 1999 4
Condensed Consolidated Statements of
Cash Flows - Thirteen weeks ended
April 29, 2000 and May 1, 1999 5
Notes to Condensed Consolidated
Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-10
Item 3. Quantitative and Qualitative Disclosures 11
About Market Risk
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 13
2
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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>
Apr. 29, 2000 Jan. 29, 2000*
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 19,521 $ 18,485
Accounts receivable, net.................................... 18,921 17,281
Merchandise inventories..................................... 623,754 582,898
Prepaid expenses............................................ 21,903 39,184
Deferred income taxes....................................... 16,606 16,606
Other....................................................... 42,786 46,278
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Total Current Assets..................................... 743,491 720,732
Property and Equipment-at cost:
Land........................................................ 288,755 287,039
Building and improvements................................... 959,873 954,638
Furniture, fixtures and equipment........................... 652,218 647,557
Construction in progress.................................... 28,504 25,763
------------ -------------
1,929,350 1,914,997
Less accumulated depreciation and amortization.............. 602,806 579,248
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Total Property and Equipment............................. 1,326,544 1,335,749
Other......................................................... 16,399 16,191
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Total Assets................................................... $2,086,434 $2,072,672
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................ $ 325,342 $ 320,066
Accrued expenses............................................ 232,867 228,151
Short-term borrowings....................................... 13,000 -
Current maturities of long-term debt........................ 184 183
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Total Current Liabilities................................ 571,393 548,400
Long-Term Debt, less current maturities....................... 617,622 612,668
Convertible Debt.............................................. 153,817 171,356
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 shares... 63,911 63,911
Additional paid-in capital.................................. 177,247 177,247
Retained earnings........................................... 651,917 649,487
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893,075 890,645
Less:
Cost of shares in treasury - 10,663,991
and 10,721,208 shares, at cost............................ 172,173 173,097
Cost of shares in benefits trust - 2,195,270 shares, at cost 59,264 59,264
------------- ------------
Total Stockholders' Equity............................... 661,638 658,284
------------- ------------
Total Liabilities and Stockholders' Equity..................... $2,086,434 $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
-------------------------------
April 29, 2000 May 1, 1999
-------------- -------------
<S> <C> <C>
Merchandise Sales.................................... $497,720 $488,698
Service Revenue...................................... 117,089 109,618
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Total Revenues....................................... 614,809 589,316
Costs of Merchandise Sales........................... 359,508 349,173
Costs of Service Revenue............................. 95,485 87,116
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Total Costs of Revenues.............................. 454,993 436,289
Gross Profit from Merchandise Sales.................. 138,212 139,525
Gross Profit from Service Revenue.................... 21,604 22,502
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Total Gross Profit................................... 159,816 162,027
Selling, General and Administrative Expenses......... 140,315 132,987
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Operating Profit..................................... 19,501 29,040
Nonoperating Income.................................. 490 308
Interest Expense..................................... 13,104 13,578
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Earnings Before Income Taxes......................... 6,887 15,770
Income Taxes......................................... 2,480 5,677
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Net Earnings Before Extraordinary Gain............... 4,407 10,093
Extraordinary Gain, Net of Tax....................... 2,040 -
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Net Earnings......................................... 6,447 10,093
Retained Earnings, beginning of period............... 649,487 636,475
Cash Dividends....................................... 3,442 3,558
Effect of Shares Repurchased from Benefits Trust..... 575 410
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Retained Earnings, end of period..................... $651,917 $642,600
============= =============
Basic Earnings per Share:
Before Extraordinary Gain.......................... $ .09 $ .20
Extraordinary Gain on Extinguishment
of Debt, Net of Tax.............................. .04 -
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Basic Earnings per Share............................. $ .13 $ .20
============= =============
Diluted Earnings per Share:
Before Extraordinary Gain.......................... $ .09 $ .20
Extraordinary Gain on Extinguishment
of Debt, Net of Tax.............................. .04 -
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Diluted Earnings per Share........................... $ .13 $ .20
============= =============
Cash Dividends per Share............................. $ .0675 $ .0675
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
4
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<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
UNAUDITED
<CAPTION>
Thirteen weeks ended
----------------------------------
April 29, 2000 May 1, 1999
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings.................................................... $ 6,447 $ 10,093
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Extraordinary gain on extinguishment of debt, net of tax..... (2,040) -
Depreciation and amortization................................ 25,096 24,055
Accretion of bond discount................................... 1,687 1,638
Gain from sales of assets.................................... (1,328) (141)
Changes in operating assets and liabilities:
Decrease in accounts receivable, prepaid expenses
and other................................................. 18,925 12,229
(Increase) Decrease in merchandise inventories............... (40,856) 963
Increase (Decrease) in accounts payable...................... 5,276 (9,546)
Increase in accrued expenses................................. 4,716 10,202
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Net Cash Provided by Operating Activities....................... 17,923 49,493
Cash Flows from Investing Activities:
Capital expenditures............................................ (16,497) (27,706)
Proceeds from sales of assets................................... 1,934 2,055
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Net Cash Used in Investing Activities........................... (14,563) (25,651)
Cash Flows from Financing Activities:
Net borrowings under line of credit agreements.................. 4,955 -
Short-term borrowings........................................... 13,000 -
Reduction of long-term debt..................................... - (42)
Dividends paid.................................................. (3,442) (3,558)
Net proceeds from issuance of notes............................. - 76,000
Early extinguishment of debt.................................... (17,186) -
Repurchase of treasury shares................................... - (180,889)
Proceeds from exercise of stock options......................... - 494
Proceeds from dividend reinvestment plan........................ 349 -
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Net Cash Used in Financing Activities........................... (2,324) (107,995)
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Net Increase (Decrease) in Cash...................................... 1,036 (84,153)
Cash and Cash Equivalents at Beginning of Period..................... 18,485 114,548
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Cash and Cash Equivalents at End of Period........................... $ 19,521 $ 30,395
============= =============
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 April 29, 2000, the consolidated
statements of earnings for the thirteen week periods ended April 29, 2000 and
May 1, 1999 and the consolidated statements of cash flows for the thirteen week
periods ended April 29, 2000 and May 1, 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
April 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 January 29,
2000 annual report to shareholders. The results of operations for the
thirteen week period ended April 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
April 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 April 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 week periods ended April 29, 2000 and May 1, 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
In April 2000, the Company repurchased $30,200,000 face value of its Liquid
Yield Option Notes (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.
6
<PAGE>
NOTE 6. Net Earnings Per Share
<TABLE>
<CAPTION>
Thirteen weeks ended
(in thousands, except per share data) ----------------------------------
April 29, 2000 May 1, 1999
-------------- --------------
<S> <C> <C>
(a) Net earnings before extraordinary gain........... $ 4,407 $10,093
Adjustment for interest on zero coupon convertible
subordinated notes, net of income tax effect... - -
-------------------------------------------------------------------------------------------
(b) Adjusted net earnings $ 4,407 $10,093
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(c) Average number of common shares outstanding
during the period.............................. 50,998 50,511
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........ 3 252
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(d) Average number of common shares assumed
outstanding during the period.................. 51,001 50,763
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Basic Earinings per Share:
Before Extraordinary Gain (a/c).................. $ .09 $ .20
Extraordinary Gain............................... .04 -
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Basic Earnings per Share: $ .13 $ .20
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Diluted Earnings per Share:
Before Extraordinary Gain (b/d).................. $ .09 $ .20
Extraordinary Gain............................... .04 -
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Diluted Earnings per Share: $ .13 $ .20
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</TABLE>
Adjustments for convertible securities were antidilutive during the thirteen
week periods ended April 29, 2000 and May 1, 1999 and therefore excluded from
the computation of diluted EPS; however, these securities could potentially be
dilutive in the future. Options to purchase 5,238,272 and 3,565,257 shares
of common stock were outstanding at April 29, 2000 and May 1, 1999,
respectively, but were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market price of the
common shares.
NOTE 7. Reclassifications
Certain reclassifications have been made to the prior year's consolidated
financial statements to conform to the current year's presentation.
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 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 April 29, 2000 May 1, 1999 Fiscal 2000 vs.
(Fiscal 2000) (Fiscal 1999) Fiscal 1999
------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 81.0% 81.7% 1.9%
Service Revenue (1)................................... 19.0 18.3 6.8
------ ------ ------
Total Revenues........................................ 100.0 100.0 2.8
Costs of Merchandise Sales (2)........................ 72.2 (3) 71.4 (3) 3.0
Costs of Service Revenue (2).......................... 81.5 (3) 79.5 (3) 9.6
------ ------ ------
Total Costs of Revenues............................... 74.0 72.9 4.3
Gross Profit from Merchandise Sales................... 27.8 (3) 28.6 (3) (.9)
Gross Profit from Service Revenue..................... 18.5 (3) 20.5 (3) (4.0)
------ ------ ------
Total Gross Profit.................................... 26.0 27.1 (1.4)
Selling, General and Administrative Expenses.......... 22.8 22.2 5.5
------ ------ ------
Operating Profit...................................... 3.2 4.9 (32.9)
Nonoperating Income................................... .1 .1 59.1
Interest Expense...................................... 2.1 2.3 (3.5)
------ ------ ------
Earnings Before Income Taxes.......................... 1.2 2.7 (56.3)
Income Taxes.......................................... 36.0 (4) 36.0 (4) (56.3)
------ ------ ------
Net Earnings Before Extraordinary Gain................ .7 1.7 (56.3)
Extraordinary Gain, Net of Tax........................ .3 .0 N/A
------ ------ ------
Net Earnings 1.0 1.7 (36.1)
====== ====== ======
<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>
8
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Thirteen Weeks Ended April 29, 2000 vs. Thirteen Weeks Ended May 1, 1999
------------------------------------------------------------------------
Total revenues for the first quarter increased 2.8% as total stores increased
from 645 in 1999 to 663 in 2000. Comparable store revenues increased 0.6%
(revenues generated by stores in operation during the same months of each
period) due primarily to a comparable store service revenue increase of 4.6%,
offset in part by a comparable merchandise sale decrease of 0.3%.
Gross profit from merchandise sales decreased, as a percentage of merchandise
sales, due primarily to increased warehousing costs coupled with an increase in
store occupancy costs, offset in part by higher merchandise margins.
Gross profit from service revenue decreased, as a percentage of service
revenue, due primarily to increased in service payroll coupled with an
increase in service occupancy costs, offset in part by a decrease in service
employee benefit costs.
Selling, general and administrative expenses increased, as a percentage of
total revenues, due primarily to an increase in store expenses offset, in part,
by a decrease in media and general office expenses.
<TABLE>
Nonoperating income consisted of the following:
(in thousands)
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Net rental revenue $ 447 $ 176
Investment income 63 132
Other income (20) -
------ ------
Total $ 490 $ 308
====== ======
</TABLE>
Interest expense decreased slightly, as a percentage of total revenues, due
primarily to lower debt levels, offset, in part, by higher weighted average
interest rates on the Company's borrowings.
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 an increase in selling, general and administrative expenses,
as a percentage of total revenues and a decrease in gross profit from service
revenues, as a percentage of service revenue, offset, in part, by the
extraordinary gain from the repurchase of a portion of the Company's LYONs and
a decrease in interest expense, as a percentage of total revenues.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - April 29, 2000
------------------------------------------------
The Company's cash requirements arise principally from the need to finance
the acquisition, construction and equipping of new stores and to purchase
inventory. During the first quarter of 2000, the Company invested $16,497,000
in property and equipment while net inventory (net inventory includes the
change in inventory less the change in accounts payable) increased
$35,580,000. Working capital decreased from $172,332,000 at January 29, 2000
to $172,098,000 at April 29, 2000. At April 29, 2000, the Company had
stockholders' equity of $661,638,000 and long-term debt of $771,439,000. The
Company's long-term debt was 54% of its total capitalization at April 29, 2000
and 54% at January 29, 2000. As of April 29, 2000, the Company had available
lines of credit totaling $187,000,000.
The Company plans to open approximately 4 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 $55,491,821. Funds required to finance the store
expansion including related inventory requirements and to repay its debt
maturities are expected to come primarily from operating activities.
In April 2000, the Company repurchased $30,200,000 face value of its Liquid
Yield Option Notes (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.
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.
10
<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 April 29, 2000, the Company had outstanding
borrowings of $28,000,000 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.
11
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement Re: Computation of Earnings Per
Share
(27) Financial Data Schedules
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter for which this report is filed.
12
<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: June 12, 2000 By: /s/ George Babich Jr.
----------------------- -------------------------
George Babich Jr.
Senior Vice President &
Chief Financial Officer
13
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INDEX TO EXHIBITS
-----------------
(11) Computations of Earnings Per Share
(27) Financial Data Schedule
