-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kqh2VCxHDdRYKR+aGlaoJVe4H2mejYmi2afnMJC+afSYWnq5r0D+YiARicob40wW 6ATRml5BXce5xpn5KVHn/g== 0000077449-96-000001.txt : 19960506 0000077449-96-000001.hdr.sgml : 19960506 ACCESSION NUMBER: 0000077449-96-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960203 FILED AS OF DATE: 19960502 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEP BOYS MANNY MOE & JACK CENTRAL INDEX KEY: 0000077449 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 230962915 STATE OF INCORPORATION: PA FISCAL YEAR END: 0203 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03381 FILM NUMBER: 96555672 BUSINESS ADDRESS: STREET 1: 3111 W ALLEGHENY AVE CITY: PHILADELPHIA STATE: PA ZIP: 19132 BUSINESS PHONE: 2152299000 10-K 1 FORM 10-K YEAR ENDED FEBRUARY 3, 1996 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - ------------------------------------------------------------------------------- FORM 10-K (Mark One) (x) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (FEE REQUIRED) For the fiscal year ended February 3, 1996 or ( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (NO FEE REQUIRED) For the transition period from to . ----- ----- Commission file number 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 identification no.) incorporation or organization) 3111 West Allegheny Avenue, Philadelphia, PA 19132 -------------------------------------------- ------------ (Address of principal executive office) (Zip code) Registrant's telephone number, including area code 215-229-9000 ------------ Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ----------------------------- ----------------------------------------- Common Stock, $1.00 par value New York Stock Exchange 4% Convertible Subordinated Notes due September 1, 1999 New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 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 ______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) As of the close of business on April 5, 1996, the aggregate market value of the voting stock held by nonaffiliates of the registrant was not less than $1,788,839,194. As of April 5, 1996 there were 62,176,766 shares of the registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE PART III Portions of the registrant's definitive proxy statement, which will be filed with the commission pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year, for the Company's Annual Meeting of Shareholders presently scheduled to be held on May 29, 1996. This Annual Report on Form 10-K for the year ended February 3, 1996, at the time of filing with the Securities and Exchange Commission, modifies and supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 for purposes of any offers or sales of any securities on or after the date of such filing, pursuant to any Registration Statement or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by reference this Annual Report. PART I ITEM 1 BUSINESS GENERAL The Pep Boys - Manny, Moe & Jack and Subsidiaries (the "Company") is engaged principally in the retail sale of automotive parts and accessories, automotive maintenance and service and the installation of parts sold by it through its chain 506 stores (as of February 3, 1996) which consists of 475 Pep Boys "SUPERCENTERS", having an aggregate of 4,727 service bays, and 31 PARTS USA stores. The Company operates approximately 10,255,000 gross square feet of retail space, which includes service bays. The "SUPERCENTERS", including service bays, average 20,800 square feet and the PARTS USA stores average 11,900 square feet. As of February 3, 1996, the Company operated its stores in 33 states, the District of Columbia and Puerto Rico. The following table indicates by state the number of stores of the Company in operation at the end of fiscal 1992, 1993, 1994 and 1995 and the number of stores opened and closed by the Company during each of the last three fiscal years: NUMBER OF STORES AT END OF FISCAL YEARS 1992 THROUGH 1995
1993 1994 1995 1992 -------------------------- -------------------------- -------------------------- State YEAR END Opened Closed Year End Opened Closed Year End Opened Closed Year End - -------------------- -------- ------ ------ -------- ------ ------ -------- ------ ------ -------- Alabama 1 - - 1 - - 1 - - 1 Arizona 24 - - 24 - - 24 - - 24 Arkansas - 1 - 1 - - 1 - - 1 California 92 8 7* 93 11* 2 102 17 1 118 Colorado - - - - 5 - 5 1 - 6 Connecticut - - - - - - - 2 - 2 Delaware 5 - - 5 - - 5 - - 5 District of Columbia - - - - - - - 2 - 2 Florida 27 6 - 33 1 - 34 4 - 38 Georgia 20 - - 20 - - 20 2 - 22 Illinois - 3 - 3 10 - 13 4 - 17 Indiana - 1 - 1 - - 1 2 - 3 Kansas - 1 - 1 1 - 2 - - 2 Kentucky - 1 - 1 2 - 3 1 - 4 Louisiana 9 3 - 12 - - 12 - - 12 Maryland 15 1 - 16 - - 16 3 1 18 Massachusetts - 2 - 2 1 - 3 2 - 5 Michigan - - - - 1 - 1 5 - 6 Missouri - 1 - 1 - - 1 - - 1 Nevada 8 - - 8 - - 8 - - 8 New Hampshire - - - - 1 - 1 - - 1 New Jersey 13 1 - 14 2 1 15 3 - 18 New Mexico 8 - - 8 - - 8 - - 8 New York 7 2 - 9 2 - 11 3 - 14 North Carolina 11 - - 11 - - 11 - - 11 Ohio - - - - 9 - 9 1 - 10 Oklahoma 6 - - 6 - - 6 - - 6 Pennsylvania 30 2 1 31 3 - 34 8 2 40 Puerto Rico - - - - - - - 7 - 7 Rhode Island - 1 - 1 - - 1 - - 1 South Carolina 6 - - 6 - - 6 - - 6 Tennessee 7 - - 7 - - 7 - - 7 Texas 49 3 - 52 3 - 55 8 - 63 Utah 6 - - 6 - - 6 - - 6 Virginia 13 - - 13 - - 13 - - 13 --- --- --- --- --- --- --- --- --- --- Total 357 37 8 386 52 3 435 75 4 506 === === === === === === === === === === * Included in this number is the Company's Santa Monica store which was temporarily closed in fiscal 1993 and re-opened in fiscal 1994.
NEW STORES AND EXPANSION STRATEGY The most important factors considered by the Company when deciding to open new stores are the population density of the target area and the automotive traffic count at the site of the proposed store. The most important factors considered by the Company when deciding whether to close a store are profitability and whether the store is outmoded by virtue of store size, location and surroundings, number of service bays, number of other stores within the same market area and the cost/benefit of establishing a replacement store rather than expanding or otherwise upgrading an older store. The Company introduced a new supplemental store format in fiscal 1994, which operates under the name PARTS USA. At the end of fiscal 1995, the Company operated 31 PARTS USA stores. This store format carries over 22,000 stock-keeping units, excludes tires, and does not have service bays ("SUPERCENTERS" carry approximately 26,000 stock-keeping units). PARTS USA stores are generally located in certain urban areas and areas located between "SUPERCENTERS." The Company believes the utilization of this secondary format will enable it to grow at a faster rate and achieve greater economies of scale by providing more retail outlets as well as increase its market penetration and share. In 1996, a new PARTS USA prototype will average approximately 8,000 square feet and a new "SUPERCENTER" prototype will average approximately 19,500 square feet. While the overall size of both formats will be reduced, the number of stock-keeping units offered in each format will not decrease. The Company expects to open approximately 100 new stores in 1996: 50 PARTS USA stores and 50 "SUPERCENTERS", all of which are expected to be in existing markets. If all 100 stores are opened, the Company anticipates spending approximately $177,000,000 in addition to the $10,223,000 it had already spent as of February 3, 1996 in connection with certain of these locations. Funds required to finance this expansion are expected to come primarily from operating activities with the remainder provided by unused lines of credit or from accessing traditional lending sources which may include the public capital markets. During fiscal 1995, the Company opened 46 "SUPERCENTERS", all of which include service bays, and 29 PARTS USA stores. Four units were closed, two of which were replaced by PARTS USA stores and two of which were replaced by new "SUPERCENTERS." The Company's ability to meet its expansion goals will depend, in large measure, upon the availability of suitable sites, prevailing economic conditions , its success in completing negotiations to purchase or lease properties, and its ability to obtain governmental approvals and meet construction deadlines. MERCHANDISING Each Pep Boys' automotive "SUPERCENTER" and PARTS USA store carries the same basic product line, with variations based on the number and type of cars registered in the different markets. A full complement of a SUPERCENTER and a PARTS USA store's inventory currently includes approximately 26,000 and 22,000 items, respectively. The Company's automotive product line includes: tires (not included in PARTS USA stores); batteries; new and rebuilt parts for domestic and imported cars, including suspension parts, ignition parts, mufflers, engines and engine parts, oil and air filters, belts, hoses, air conditioning parts, and brake parts; chemicals, including oil, antifreeze, polishes, additives, cleansers and paints; mobile electronics, including sound systems, alarms and cellular telephones; car accessories, including seat covers, floor mats, gauges, mirrors and booster cables; and a large selection of truck and van accessories. In addition to offering a wide variety of high quality, branded products, the Company sells an array of high quality products under the Pep Boys and various other private label names. The Company sells oil, transmission fluid, chemicals, and paints under the Pep Boys name. The Company sells antifreeze under the name PURE AS GOLD(R). The Company sells starters and alternators under the name PRO-START(R), water pumps under the name PRO-COOL(tm) and batteries under the name PROSTART(R). Brakes are sold under the names SHUR GRIP(R), PROSTOP(tm) and ELITE(tm) and tires under the names CORNELL(R) and FUTURA(R). The Company also sells shock absorbers under the name "ProRyder", and trunk and hatchback lift supports under the name PROLIFT(tm). All products sold by the Company under the Pep Boys and various other private label names accounted for approximately 25.2% of the Company's merchandise sales in fiscal 1995. The remaining merchandise is sold under the brand names of others. Except for revenues from maintaining or repairing automobiles and installing products, which accounted for approximately 13.3%, 13.9% and 15.0% of the Company's total revenues in fiscal years 1993, 1994 and 1995, respectively, no class of products or services accounted for as much as 10% of the Company's total revenues. The Company has a point-of-sale system in all of its stores which gathers sales and gross profit data by stock-keeping unit from each store on a daily basis. This information is then used by the Company to help formulate its pricing, marketing and merchandising strategies. The Company has an electronic work order system in all of its service centers. This system creates a service history for each vehicle, provides customers with a comprehensive, professional sales document and has enabled the Company to establish a service customer database. The Company uses an "Everyday Low Price" (EDLP) strategy in establishing its selling prices. Management believes that EDLP provides better value to its customers on a day-to-day basis, helps level customer demand and allows more efficient management of inventories. The Company uses various forms of advertising to promote its category dominant product offering, its state-of-the-art automotive service and repair capabilities and its commitment to customer service and satisfaction. The Company's advertising vehicles include, but are not limited to, multipage catalogs, television and radio commercials and in-store promotions. A large portion of the gross cost of the advertising directed by the Company is customarily borne by the suppliers of the products advertised. In fiscal 1995, approximately 67% of the Company's total revenues were cash transactions (including personal checks), and the remainder were credit and charge card sales. The Company does not experience significant seasonal fluctuation in the generation of its revenues. STORE OPERATIONS AND MANAGEMENT All Pep Boys' stores are open seven days a week. Each "SUPERCENTER" has a manager, a service manager, a parts manager and two or more assistant managers. Each PARTS USA store has a manager, a parts manager and two or more assistant managers. A store manager's average length of service with the Company is approximately seven years. The Company has service bays in 469 of its 506 locations. Each service department can perform a variety of services which include: engine tune-ups, wheel alignments, state inspections, air conditioning service; the repair and installation of parts and accessories including brake parts, suspension parts, exhaust systems, front end parts, ignition parts, belts, hoses, clutches, filters, radios, alarms, sun roofs, cruise controls, and various other merchandise sold in Pep Boys' stores; installation and balancing of tires, and oil and lubrication services. The Company coordinates the operation and merchandising of each store through a network of district and regional managers. The regional managers report to one of three Vice Presidents - Store Operations who report to the Company's Senior Vice President - Store Operations who reports to the Company's Executive Vice President & Chief Operating Officer. Supervision and control over the individual stores are facilitated by means of the Company's computer system, operational handbooks and regular visits to the individual stores by the district operations managers and loss prevention personnel. All of the Company's advertising, accounting, management information systems, purchasing and most administrative functions are conducted at its corporate headquarters in Philadelphia, Pennsylvania. Certain administrative functions for the Company's western, southwestern, southeastern and Puerto Rico operations are performed at various regional offices of the Company. See "Properties." INVENTORY CONTROL AND DISTRIBUTION Almost all of the Company's merchandise is distributed to its stores from its warehouses by Company-owned or leased trucks. Target levels of inventory for each product have been established for each of the Company's warehouses and stores and are based upon prior shipment history, sales trends and seasonal demand. Inventory on hand is compared to the target levels on a weekly basis at each warehouse. If the inventory on hand at a warehouse is below the target levels, the Company's buyers order merchandise from its suppliers. Each Pep Boys store has an automatic inventory replenishment system that automatically orders additional inventory when a store's inventory on hand falls below the target level. In addition, the Company's centralized buying system, coupled with continued advancement in its warehouse and distribution systems has greatly enhanced the Company's ability to control its inventory. SUPPLIERS During fiscal 1995, the Company's ten largest suppliers accounted for approximately 33% of the merchandise purchased by the Company. No single supplier accounted for more than 8% of the Company's purchases. The Company has no long-term contracts for the purchase of merchandise. Management believes that the relationships the Company has established with its suppliers are generally good. In the past, the Company has not experienced difficulty in obtaining satisfactory sources of supply and believes that adequate alternative sources of supply exist, at substantially similar cost, for virtually all types of merchandise sold in its stores. COMPETITION The business of the Company is generally highly competitive. The Company encounters competition from nationwide and regional chains and from local independent merchants. Some of the Company's competitors are general, full range, discount or traditional department stores which carry automotive parts and accessories and/or have automotive service centers, and others, similar to the Company, are specialized automotive service retailers. Certain of its competitors are larger in terms of sales volume, store size, and/or number of stores, have access to greater capital and management resources and have been operating longer in particular geographic areas than the Company. Although the Company's competition varies by geographical area, the Company believes that it generally has a favorable competitive position in terms of depth and breadth of product line, price, quality of personnel and customer service. In addition, the Company believes that its operation of service bays in its "SUPERCENTERS'" automotive service centers positively differentiates it from most of its competitors. The Company believes that the warranty policies in connection with the higher priced items it sells, such as tires, batteries, brake linings and other major automotive parts and accessories, are comparable or superior to those of its competitors. EMPLOYEES At February 3, 1996, the Company employed 17,591 persons as follows:
Full-time Part-time Total Description Numbers % Numbers % Numbers % - ------------------------------------------------------------------------------------------------------------------------------------ Store Sales 5,776 43.9 3,319 75.3 9,095 51.7 Store Service 5,502 41.7 872 19.8 6,374 36.2 Store Regional Management 84 .6 - - 84 .5 ------ ----- ----- ----- ------ ----- STORE TOTAL 11,362 86.2 4,191 95.1 15,553 88.4 Warehouses 929 7.0 190 4.3 1,119 6.4 Offices 895 6.8 24 .6 919 5.2 ------ ----- ----- ----- ------ ----- TOTAL EMPLOYEES 13,186 100.0 4,405 100.0 17,591 100.0 ====== ===== ===== ===== ====== =====
Of the 1,119 full-time warehouse employees referred to above, 244 employees at the Company's New Jersey warehouse facilities are members of a union. The Company believes employee relations are generally good. At the end of fiscal 1994, the Company employed approximately 11,804 full- time and 4,070 part-time employees and at the end of fiscal 1993, the Company employed approximately 10,509 full-time and 4,386 part-time employees. ITEM 2 PROPERTIES The Company's headquarters in Philadelphia, Pennsylvania, which also serves as an administrative regional office for its eastern operations, occupies approximately 281,500 square feet of a five-story structure owned by the Company with approximately 300,000 square feet of floor space. The Company occupies approximately 30,000 square feet of a 60,000 square foot, three-story structure, which the Company owns located in Los Angeles, California which serves as an administrative regional office for its western operations. The Company leases approximately 4,000 square feet of office space in each of Decatur, Georgia and Richardson, Texas and 1,200 square feet of office space in Puerto Rico all of which serve as administrative regional offices. Of the 506 store locations operated by the Company at February 3, 1996, 318 are owned and 188 are leased. Of the 188 leased store locations, 74 are fully leased and 114 are ground leases only. The following table sets forth certain information regarding the owned and leased warehouse space utilized by the Company at February 3, 1996.
Warehouse Products Square Owned or Stores States Location Warehoused Footage Leased Serviced Serviced - --------------------------------------------------------------------------- Los Angeles, CA All except 216,000 Owned 121 AZ, CA, NV tires Los Angeles, CA Tires 73,000 Leased 121 AZ, CA, NV Los Angeles, CA All except 137,000 Leased 121 AZ, CA, NV tires Phoenix, AZ All except 100,000 Owned 55 AZ, CO, NM, batteries, NV, TX, UT tires and chemicals Phoenix, AZ Tires, 57,000 Leased 55 AZ, CO, NM, chemicals NV, TX, UT and batteries Bridgeport, NJ All except 195,000 Owned 124 CT, DE, DC, tires MA, MD, MI, NH, NJ, NY, OH, PA, PR, RI, VA Bridgeport, NJ Tires and 273,000 Leased 124 CT, DE, DC, chemicals MA, MD, MI, NH, NJ, NY, OH, PA, PR, RI, VA Atlanta, GA All 392,000 Owned 127 AL, FL, GA, IL, IN, KY, NC, OH, SC, TN, VA Mesquite, TX All 244,000 Owned 79 AR, KS, LA, MO, OK, TX --------- Total 1,687,000 506
The Company anticipates that during fiscal 1996 it will utilize leased warehouse space to accomodate inventory necessary to support store expansion and any increase in stock-keeping units. The Company is subject to federal, state and local provisions relating to the protection of the environment, including provisions with respect to the disposal of oil at its store locations. Estimated capital expenditures relating to compliance with such environmental provisions are not deemed material. ITEM 3 LEGAL PROCEEDINGS The Company is involved in a number of lawsuits arising in the ordinary course of business. Management is of the opinion that such lawsuits will not result in any material liability to the Company. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended February 3, 1996. ITEM A EXECUTIVE OFFICERS OF THE COMPANY The following table indicates the names, ages, years with the Company and positions (together with the year of election to such positions) of the executive officers of the Company: Years with Position with the Company and Name Age Company Year of Election to Position - --------------------- ---- ---------- ----------------------------- Mitchell G. Leibovitz 50 17 Chairman of the Board since March 1994; Chief Executive Officer since March 1990; President since 1986 Wendel H. Province 48 6 Executive Vice President since November 1994; Chief Operating Officer since March 1993 Michael J. Holden 44 16 Executive Vice President since March 1996; Chief Financial Officer since March 1987; Treasurer since 1984 Frederick A. Stampone 40 14 Senior Vice President since March 1987; Chief Administrative Officer since March 1993; Secretary since December 1988 Mark L. Page 39 20 Senior Vice President - Store Operations since March 1993 Messrs. Leibovitz, Province, Holden and Stampone have been executive officers of the Company for more than the past five years. Mr. Page has been an executive officer of the Company for less than the past five years. Mr. Page was a regional manager for the Company from February 1987 until February 1991 when he was elected Vice President - Western Store Operations. On March 14, 1993 Mr. Page became Senior Vice President - Store Operations. Each of the officers serves at the pleasure of the Board of Directors of the Company. There are no arrangements or understandings pursuant to which any officer was elected to office. PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of The Pep Boys - Manny, Moe & Jack is listed on the New York Stock Exchange under the symbol "PBY". There were 4,638 registered shareholders as of February 3, 1996. The following table sets forth for the periods listed the high and low sale prices and the cash dividends paid on the Company's common stock. MARKET PRICE PER SHARE
Market Price Per Share Cash Dividends Fiscal year ended February 3, 1996 High Low Per Share - ---------------------------------- First Quarter 34 3/4 24 3/8 $.0475 Second Quarter 32 1/4 25 1/8 .0475 Third Quarter 29 1/8 22 1/2 .0475 Fourth Quarter 29 1/2 21 7/8 .0475 Fiscal year ended January 28, 1995 - ---------------------------------- First Quarter 31 26 $.0425 Second Quarter 33 3/4 29 1/4 .0425 Third Quarter 36 29 1/8 .0425 Fourth Quarter 36 7/8 28 1/2 .0425
It is the present intention of the Company's Board of Directors to continue to pay regular quarterly cash dividends; however, the declaration and payment of future dividends will be determined by the Board of Directors in its sole discretion and will depend upon the earnings, financial condition and capital needs of the Company and other factors which the Board of Directors deems relevant. ITEM 6 SELECTED FINANCIAL DATA The following tables sets forth the selected financial data for the Company and should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere herein. SELECTED FINANCIAL DATA (UNAUDITED) (dollar amounts in thousands, except per share amounts)
Year ended Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Feb. 1, 1992 - ------------------------------------------------------------------------------------------------------------------------------------ STATEMENT OF EARNINGS DATA Merchandise sales $1,355,008 $1,211,536 $1,076,543 $1,008,191 $ 873,381 Service revenue 239,332 195,449 164,590 147,403 128,127 Total revenues 1,594,340 1,406,985 1,241,133 1,155,594 1,001,508 Gross profit from merchandise sales 411,133 364,378 307,861 272,412 240,199 Gross profit from service revenue 44,390 32,417 27,457 24,528 19,726 Total gross profit 455,523 396,795 335,318 296,940 259,925 Selling, general and administrative expenses 296,089 247,872 214,710 194,160 176,275 Operating profit 159,434 148,923 120,608 102,780 83,650 Nonoperating income 2,090 3,490 3,601 3,015 1,933 Interest expense 32,072 25,931 19,701 20,180 25,071 Earnings before income taxes and cumulative effect of change in accounting principle 129,452 126,482 104,508 85,615 60,512 Earnings before cumulative effect of change in accounting principle 81,494 80,008 65,512 54,579 38,872 Cumulative effect of change in accounting principle - (4,300) - - - Net earnings 81,494 75,708 65,512 54,579 38,872 BALANCE SHEET DATA Working capital $ 39,868 $ 121,858 $ 92,518 $ 104,622 $ 81,935 Current ratio 1.09 to 1 1.42 to 1 1.37 to 1 1.47 to 1 1.46 to 1 Merchandise inventories $ 417,852 $ 366,843 $ 305,872 $ 295,179 $ 230,894 Property and equipment-net 1,014,052 861,910 723,452 628,918 588,593 Total assets 1,500,008 1,291,019 1,078,518 967,813 856,925 Long-term debt (including convertible subordinated notes) 367,043 380,787 253,000 209,347 279,250 Stockholders' equity 665,460 586,253 547,759 509,763 378,514 DATA PER COMMON SHARE Earnings before cumulative effect of change in accounting principle $ 1.34 $ 1.32 $ 1.06 $ .90 $ .69 Cumulative effect of change in accounting principle - (.07) - Net earnings 1.34 1.25 1.06 .90 .69 Cash dividends .19 .17 .15 .1375 .1275 Stockholders' equity 10.72 9.53 8.97 8.40 6.79 Common share price range: high-low 34 3/4-21 7/8 36 7/8-26 27 1/2-20 1/2 27 3/8-17 1/8 19 1/2-10 3/8 OTHER STATISTICS Return on average stockholders' equity 13.0% 13.4% 12.4% 12.3% 10.8% Common shares outstanding 62,084,021 61,501,679 61,060,055 60,669,102 55,773,813 Capital expenditures $ 205,913 $ 185,072 $ 135,165 $ 78,025 $ 65,801 Number of retail outlets 506 435 386 357 337 /TABLE ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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.
Percentage of Total Revenues Percentage Change -------------------------------------------- ------------------------------- Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994 Fiscal 1995 vs. Fiscal 1994 vs. Year ended (Fiscal 1995) (Fiscal 1994) (Fiscal 1993) Fiscal 1994 Fiscal 1993 - --------------------------------------- ------------- ------------- ------------ ----------- ----------- Merchandise Sales...................... 85.0% 86.1% 86.7% 11.8% 12.5% Service Revenue(1)..................... 15.0 13.9 13.3 22.5 18.7 ------------- ------------- ------------ ----------- ----------- Total Revenues 100.0 100.0 100.0 13.3 13.4 Costs of Merchandise Sales(2).......... 69.7(3) 69.9(3) 71.4(3) 11.4 10.2 Costs of Service Revenue(2)............ 81.5(3) 83.4(3) 83.3(3) 19.6 18.9 ------------- ------------- ------------ ----------- ----------- Total Costs of Revenues................ 71.4 71.8 73.0 12.7 11.5 Gross Profit from Merchandise Sales.... 30.3(3) 30.1(3) 28.6(3) 12.8 18.4 Gross Profit from Service Revenue...... 18.5(3) 16.6(3) 16.7(3) 36.9 18.1 ------------- ------------- ------------ ----------- ----------- Total Gross Profit..................... 28.6 28.2 27.0 14.8 18.3 Selling, General and Administrative Expenses.............. 18.6 17.6 17.3 19.5 15.4 ------------- ------------- ------------ ----------- ----------- Operating Profit....................... 10.0 10.6 9.7 7.1 23.5 Nonoperating Income.................... .1 .2 .3 (40.1) (3.1) Interest Expense....................... 2.0 1.8 1.6 23.7 31.6 ------------- ------------- ------------ ----------- ----------- Earnings Before Income Taxes and Cumulative Effect of Change in Accounting Principle................. 8.1 9.0 8.4 2.3 21.0 Income Taxes........................... 37.0(4) 36.7(4) 37.3(4) 3.2 19.2 ------------- ------------- ------------ ----------- ----------- Earnings Before Cumulative Effect of Change in Accounting Principle....... 5.1 5.7 5.3 1.9 22.1 Cumulative Effect of Change in Accounting Principle................. - (.3) - - - ------------- ------------- ------------ ----------- ----------- Net Earnings 5.1 5.4 5.3 7.6 15.6 ============= ============= ============ =========== =========== (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 and cumulative effect of change in accounting principle. /TABLE FISCAL 1995 vs. FISCAL 1994 Total revenues for fiscal 1995, which included 53 weeks, increased 13% over fiscal 1994 due to a higher store count (506 at February 3, 1996 compared with 435 at January 28, 1995). Comparable store revenues (revenues generated by stores in operation during the same months of each period) increased 1%. Total revenues for fiscal 1995, excluding the extra week, increased 11% on an overall basis and were unchanged on a comparable store basis. Comparable store merchandise sales decreased 1% while comparable store service revenue increased 7% over fiscal 1994 on a 52 week basis. The increase in gross profit from merchandise sales, as a percentage of merchandise sales, was due primarily to higher merchandise margins offset, in part, by increases in store occupancy and warehousing costs. The increase in gross profit from service revenue, as a percentage of service revenue, was due primarily to decreases in service payroll and service center occupancy costs. The increase in selling, general and administrative expenses, as a percentage of total revenues, was due primarily to increases in store, general office and employee benefits expenses offset, in part, by a decrease in media costs. The 24% increase in interest expense was due to higher debt levels incurred during the year to fund the Company's store expansion program coupled with higher interest rates. The 2% increase in earnings before the cumulative effect of a change in accounting principle in fiscal 1995, as compared with fiscal 1994, was due primarily to an increase in total revenues due to a higher store count, and increases in gross profit from merchandise sales, as a percentage of merchandise sales, and gross profit from service revenue, as a percentage of service revenue, mostly offset by increases in selling, general and administrative expenses and interest expense, as a percentage of total revenues. FISCAL 1994 vs. FISCAL 1993 Total revenues for fiscal 1994 increased 13% over fiscal 1993 due to a higher store count (435 at January 28, 1995 compared with 386 at January 29, 1994) coupled with a 5% increase in comparable store revenues (revenues generated by stores in operation during the same months of each period). Comparable store merchandise sales increased 5% while comparable store service revenue increased 8% over fiscal 1993. The increase in gross profit from merchandise sales, as a percentage of merchandise sales, was due primarily to significantly higher merchandise margins and a slight decrease in store occupancy costs. The small decrease in gross profit from service revenue, as a percentage of service revenue, was due primarily to an increase in service payroll costs, offset, in part, by a decrease in service employee benefits costs. The increase in selling, general and administrative expenses, as a percentage of total revenues, was due primarily to an increase in store expenses, offset, in part, by a decrease in employee benefits costs. The 32% increase in interest expense was due to higher debt levels incurred to fund the Company's store expansion program coupled with higher interest rates. The 22% increase in earnings before the cumulative effect of a change in accounting principle in fiscal 1994, as compared with fiscal 1993, was due to increases in comparable store revenues and gross profit from merchandise sales, as a percentage of merchandise sales, offset, in part, by increases in selling, general and administrative expenses and interest expense, as a percentage of total revenues. EFFECTS OF INFLATION The Company uses the LIFO method of inventory valuation. Thus, the cost of merchandise sold approximates current cost. Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on revenues or results of operations during fiscal 1995, fiscal 1994 or fiscal 1993. LIQUIDITY AND CAPITAL RESOURCES The Company's cash requirements arise principally from the need to finance the acquisition, construction and equipping of new stores and to purchase inventory. The Company opened 75 stores in fiscal 1995, 51 stores in fiscal 1994 and 37 stores in fiscal 1993. In fiscal 1995, with an increase in cash from operating activities, the Company decreased its debt by $22,507,000. In fiscal 1994, with increased levels of capital expenditures, coupled with cash utilized to purchase its stock for transfer to the flexible employee benefits trust (established on April 29, 1994 to fund a portion of the Company's obligations arising from various employee compensation and benefit plans), the Company increased its debt by $182,859,000. In fiscal 1993, with increased levels of capital expenditures coupled with cash utilized to purchase its stock for transfer to the benefits trust, the Company increased its debt by $77,525,000. The following table indicates the Company's principal cash requirements for the past three years.
(dollar amounts Fiscal Fiscal Fiscal in thousands) 1995 1994 1993 Total - ---------------------------------------------------------------------------- Cash Requirements Capital expenditures $205,913 $185,072 $135,165 $526,150 (Decrease) increase in net inventory(1) (71,351) 87,248 26,487 42,384 - ---------------------------------------------------------------------------- Total $134,562 $272,320 $161,652 $568,534 - ---------------------------------------------------------------------------- Net cash provided by operating activities (excluding the change in net inventory) $159,968 $124,368 $111,704 $396,040 -------------------------------------------------------------------------- (1) Net inventory includes the increase in inventory less the change in accounts payable.
Inventories have increased in the past three years as the Company added a net of 149 stores while stock-keeping units per store rose during the period from approximately 24,000 to approximately 26,000, many of which are higher cost hard parts. The Company currently plans to open approximately 100 new stores in fiscal 1996. Management estimates that the cost to open all 100 stores, coupled with capital expenditures relating to existing stores, warehouses and offices during fiscal 1996, will be approximately $200,000,000. In addition to the funds required to finance the Company's store expansion, the Company has $107,040,000 in debt that matures on April 15, 1996. Funds required to finance the store expansion, including related inventory requirements, and to repay the debt maturing on April 15, 1996 are expected to come from operating activities, with the remainder provided by unused lines of credit which totalled $249,500,000 at February 3, 1996, or from accessing traditional lending sources which may include the public capital markets. On August 25, 1994, the Company sold $86,250,000 of 4% convertible subordinated notes due September 1, 1999. Proceeds were used to repay portions of the Company's short-term variable rate bank debt. On April 21, 1995, the Company amended and restated a revolving credit agreement with several major banks to increase the amount of borrowings provided from up to $100,000,000 to up to $200,000,000. On June 12, 1995, the Company sold $100,000,000 of 7% Notes due June 1, 2005. Proceeds were used to repay portions of the Company's long-term variable rate bank debt, and for general corporate purposes. The Company's working capital decreased to $39,868,000 at February 3, 1996 from $121,858,000 at January 28, 1995. The Company's long-term debt decreased, as a percentage of its total capitalization, to 36% at February 3, 1996 from 39% at January 28, 1995. FUTURE ACCOUNTING STANDARDS SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," will be adopted by the Company in fiscal year 1996 as required by this statement. This statement requires that long- lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Also, in general, long-lived assets and certain identifiable intangibles to be disposed of should be reported at the lower of carrying amount or fair value less cost to sell. The impact of this new standard is not expected to have a material effect on the Company's financial position or results of operations. SFAS No. 123, "Accounting for Stock-Based Compensation," will be adopted by the Company in fiscal year 1996 as required by this statement. The Company has elected to continue to measure such compensation expense using the method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS No. 123. When adopted, SFAS No. 123 will not have any effect on the Company's financial position or results of operations, but will require the Company to provide expanded disclosure regarding its stock-based employee compensation plans. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders The Pep Boys - Manny, Moe & Jack We have audited the accompanying consolidated balance sheets of The Pep Boys - Manny, Moe & Jack and subsidiaries as of February 3, 1996 and January 28, 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended February 3, 1996. Our audits also include the financial statement schedule listed in the index at Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Pep Boys - Manny, Moe & Jack and subsidiaries at February 3, 1996 and January 28, 1995, and the results of their operations and their cash flows for each of the three years in the period ended February 3, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note A to the consolidated financial statements, in 1994 the Company changed its method of accounting for postemployment benefits to conform with Statement of Financial Accounting Standards No. 112. Deloitte & Touche LLP Philadelphia, Pennsylvania March 20, 1996 CONSOLIDATED BALANCE SHEETS THE PEP BOYS - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts)
February 3, January 28, 1996 1995 ---------- ---------- ASSETS Current Assets: Cash ......................................................... $ 11,487 $ 11,748 Accounts receivable, less allowance for uncollectible accounts of $251 and $126.................................... 4,832 3,804 Merchandise inventories....................................... 417,852 366,843 Deferred income taxes......................................... 16,338 12,000 Other......................................................... 15,964 16,914 ---------- ---------- Total Current Assets....................................... 466,473 411,309 Property and Equipment - at cost: Land.......................................................... 243,738 215,623 Building and improvements..................................... 695,029 592,748 Furniture, fixtures and equipment............................. 356,605 283,317 Construction in progress...................................... 12,431 13,287 ---------- ---------- 1,307,803 1,104,975 Less accumulated depreciation and amortization................ 293,751 243,065 ---------- ---------- Total Property and Equipment............................... 1,014,052 861,910 Other.............................................................. 19,483 17,800 ---------- ---------- $1,500,008 $1,291,019 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.............................................. $222,524 $100,164 Accrued expenses.............................................. 95,875 72,318 Short-term borrowings......................................... - 97,200 Current maturities of long-term debt.......................... 108,206 19,769 ---------- ---------- Total Current Liabilities.................................. 426,605 289,451 Long-Term Debt, less current maturities............................ 280,793 294,537 Deferred Income Taxes.............................................. 40,900 34,528 Convertible Subordinated Notes..................................... 86,250 86,250 Commitments and Contingencies Stockholders' Equity: Common Stock, par value $1 per share: Authorized 500,000,000 shares; Issued and outstanding 62,084,021 and 61,501,679............ 62,084 61,502 Additional paid-in capital.................................... 139,202 130,732 Retained earnings............................................. 524,443 454,288 ---------- ---------- 725,729 646,522 Less cost of shares in benefits trust - 2,232,500 shares, at cost 60,269 60,269 ---------- ---------- Total Stockholders' Equity................................. 665,460 586,253 ---------- ---------- $1,500,008 $1,291,019 ========== ========== See notes to consolidated financial statements. /TABLE CONSOLIDATED STATEMENTS OF EARNINGS THE PEP BOYS - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts)
February 3, January 28, January 29, Year ended 1996 1995 1994 - ------------------------------------------------------ ---------- ---------- ---------- Merchandise Sales..................................... $1,355,008 $1,211,536 $1,076,543 Service Revenue....................................... 239,332 195,449 164,590 ---------- ---------- ---------- Total Revenues........................................ 1,594,340 1,406,985 1,241,133 ---------- ---------- ---------- Costs of Merchandise Sales............................ 943,875 847,158 768,682 Costs of Service Revenue.............................. 194,942 163,032 137,133 ---------- ---------- ---------- Total Costs of Revenues............................... 1,138,817 1,010,190 905,815 ---------- ---------- ---------- Gross Profit from Merchandise Sales................... 411,133 364,378 307,861 Gross Profit from Service Revenue..................... 44,390 32,417 27,457 ---------- ---------- ---------- Total Gross Profit.................................... 455,523 396,795 335,318 Selling, General and Administrative Expenses.......... 296,089 247,872 214,710 ---------- ---------- ---------- Operating Profit...................................... 159,434 148,923 120,608 Nonoperating Income................................... 2,090 3,490 3,601 Interest Expense...................................... 32,072 25,931 19,701 ---------- ---------- ---------- Earnings Before Income Taxes and Cumulative Effect of Change in Accounting Principle................... 129,452 126,482 104,508 Income Taxes.......................................... 47,958 46,474 38,996 ---------- ---------- ---------- Earnings Before Cumulative Effect of Change in Accounting Principle................................ 81,494 80,008 65,512 Cumulative Effect of Change in Accounting Principle.. - (4,300) - ---------- ---------- ---------- Net Earnings $ 81,494 $ 75,708 $ 65,512 ========== ========== ========== Earnings Per Share Before Cumulative Effect of Change in Accounting Principle............................. $ 1.34 $ 1.32 $ 1.06 Cumulative Effect of Change in Accounting Principle... - (.07) - ---------- ---------- ---------- Net Earnings per Share $ 1.34 $ 1.25 $ 1.06 ========== ========== ========== See notes to consolidated financial statements. /TABLE CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts)
Common Stock -------------------- Additional Retained Treasury Benefits Total Stock- Shares Amount Paid-in Capital Earnings Stock Trust holders' Equity ---------- ------- --------------- --------- -------- -------- --------------- Balance, January 30, 1993.................. 60,669,102 $60,669 $116,833 $332,261 $ - $ - $509,763 Net earnings............................... 65,512 65,512 Cash dividends ($.15 per share)............ (9,120) (9,120) Exercise of stock options and related tax benefits............................. 377,569 378 5,744 6,122 Dividend reinvestment plan................. 13,384 13 291 304 Acquisitions and transfers of 80,000 shares to employees' savings plan........ 109 109 Acquisition of 948,200 shares of treasury stock............................ (24,931) (24,931) ---------- ------- --------------- -------- --------- -------- --------------- Balance, January 29, 1994.................. 61,060,055 61,060 122,977 388,653 (24,931) - 547,759 Net earnings............................... 75,708 75,708 Cash dividends ($.17 per share)............ (10,073) (10,073) Exercise of stock options and related tax benefits............................. 427,543 428 7,568 7,996 Dividend reinvestment plan................. 14,081 14 421 435 Acquisitions and transfers of 75,000 shares to employees' savings plan........ (122) 807 685 Acquisitions and transfers of 2,232,500 shares of treasury stock to benefits trust.................................... (112) 24,124 (60,269) (36,257) ---------- ------- --------------- --------- --------- ---------- --------------- Balance, January 28, 1995.................. 61,501,679 61,502 130,732 454,288 - (60,269) 586,253 Net earnings............................... 81,494 81,494 Cash dividends ($.19 per share)............ (11,339) (11,339) Exercise of stock options and related tax benefits............................. 555,471 555 7,829 8,384 Dividend reinvestment plan................. 26,871 27 662 689 Acquisitions and transfers of 140,000 shares to employees' savings plan........ (21) (21) ---------- ------- --------------- -------- --------- ---------- --------------- Balance, February 3, 1996.................. 62,084,021 $62,084 $139,202 $524,443 $ - $(60,269) $665,460 ========== ======= =============== ======== ========= ========== =============== See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands)
February 3, January 28, January 29, Year ended 1996 1995 1994 - -------------------------------------------------------------------------- ----------- ----------- ----------- Cash Flows from Operating Activities: Net earnings......................................................... $ 81,494 $ 75,708 $ 65,512 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Depreciation and amortization......................................... 53,456 44,402 39,125 Cumulative effect of accounting change................................ - 4,300 - Increase in deferred income taxes..................................... 2,034 5,611 680 Loss (gain) from sales of assets...................................... 201 (1,406) (297) Increase in accounts receivable and other............................. (2,445) (7,854) (2,023) Increase in merchandise inventories................................... (51,009) (60,971) (10,693) Increase (decrease) in accounts payable............................... 122,360 (26,277) (15,794) Increase in accrued expenses.......................................... 19,555 6,577 8,434 Increase (decrease) in income taxes payable........................... 5,673 (2,970) 273 ----------- ----------- ----------- Total Adjustments........................................... 149,825 (38,588) 19,705 ----------- ----------- ----------- Net Cash Provided by Operating Activities................... 231,319 37,120 85,217 ----------- ----------- ----------- Cash Flows from Investing Activities: Capital expenditures.................................................. (205,913) (183,872) (135,165) Proceeds from sales of assets......................................... 114 3,437 1,494 Other, net............................................................ - 116 68 ----------- ----------- ----------- Net Cash Used in Investing Activities....................... (205,799) (180,319) (133,603) ----------- ----------- ----------- Cash Flows from Financing Activities: Net (payments) borrowings under line of credit agreements............. (102,700) 117,700 44,500 Reduction of long-term debt........................................... (19,807) (22,291) (41,975) Net proceeds from issuance of notes................................... 98,992 85,387 73,892 Acquisitions of treasury stock........................................ - (36,257) (24,931) Dividends paid........................................................ (11,339) (10,073) (9,120) Proceeds from exercise of stock options............................... 8,384 7,996 6,122 Proceeds from dividend reinvestment plan.............................. 689 435 304 ----------- ----------- ----------- Net Cash (Used in) Provided by Financing Activities......... (25,781) 142,897 48,792 ----------- ----------- ----------- Net (Decrease) Increase in Cash........................................... (261) (302) 406 Cash at Beginning of Year................................................. 11,748 12,050 11,644 ----------- ----------- ----------- Cash at End of Year....................................................... $ 11,487 $ 11,748 $ 12,050 =========== =========== =========== .................................................................................................................................... Supplemental Disclosure of Cash Flow Information: Income taxes paid.................................................... $ 40,251 $ 46,384 $38,043 Interest paid, net of amounts capitalized............................ 30,155 23,959 19,110 .................................................................................................................................... Supplemental Disclosure of Noncash Financing Activities: Mortgage note assumed in property acquisition....................... $ - $ 1,200 $ - .................................................................................................................................... See notes to consolidated financial statements.
THE PEP BOYS- MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended February 3, 1996, January 28, 1995 and January 29, 1994 (dollar amounts in thousands, except per share amounts) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS The Pep Boys-Manny, Moe & Jack and Subsidiaries (the "Company") is engaged principally in the retail sale of automotive parts and accessories, automotive maintenance and service and the installation of parts through a chain of 506 stores at February 3, 1996. The Company currently operates stores in 33 states, Washington D.C. and Puerto Rico. FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest to January 31. Fiscal years 1995, 1994 and 1993 were comprised of 53 weeks, 52 weeks and 52 weeks, respectively. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. USE OF ESTIMATES The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MERCHANDISE INVENTORIES Merchandise inventories are valued at the lower of cost (last-in, first-out method) or market. If the first-in, first-out method of valuing inventories had been used, inventories would have been approximately $10,491 and $15,319 higher at February 3, 1996 and January 28, 1995, respectively. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives: building and improvements, 5 1/2 to 40 years; furniture, fixtures and equipment, 3 to 10 years. CAPITALIZED INTEREST Interest on borrowed funds is capitalized in connection with the construction of certain long-term assets. Capitalized interest amounted to $1,407, $1,850 and $1,254 in fiscal years 1995, 1994 and 1993, respectively. SERVICE REVENUE Service revenue consists of the labor charge for installing merchandise or maintaining or repairing vehicles, excluding the sale of any installed parts or materials. COSTS OF REVENUES 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. PENSION EXPENSE Annual pension expense is actuarially computed using the "projected unit credit method" which attributes an equal portion of total projected benefits to each year of employee service. INCOME TAXES The Company uses the liability method of accounting for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under the liability method, deferred income taxes are determined based upon enacted tax laws and rates applied to the differences between the financial statement and tax basis of assets and liabilities. ADVERTISING The Company expenses the production costs of advertising the first time the advertising takes place. No advertising costs were reported as an asset as of February 3, 1996. Net advertising expense for fiscal years 1995, 1994 and 1993 was $973, $2,999 and $2,665, respectively. POSTEMPLOYMENT BENEFITS Effective January 30, 1994 the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This statement establishes accrual accounting standards for employer-provided benefits which cover former or inactive employees after employment, but before retirement. As a result of adopting this standard, the Company recognized a charge to earnings in fiscal 1994 of $4,300, net of income tax benefit of $2,552. IMPAIRMENT OF LONG-LIVED ASSETS SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," is effective for fiscal years beginning after December 15, 1995. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Also, in general, long-lived assets and certain identifiable intangibles to be disposed of should be reported at the lower of carrying amount or fair value less cost to sell. The impact of this new standard is not expected to have a material effect on the Company's financial position or results of operations. ACCOUNTING FOR STOCK-BASED COMPENSATION SFAS No. 123, "Accounting for Stock- Based Compensation," will be adopted by the Company in fiscal year 1996 as required by this statement. The Company has elected to continue to measure such compensation expense using the method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS No. 123. When adopted, SFAS No. 123 will not have any effect on the Company's financial position or results of operations, but will require the Company to provide expanded disclosure regarding its stock-based employee compensation plans. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the current year's presentation. NOTE B - DEBT SHORT-TERM BORROWINGS The Company had short-term borrowings of $97,200 at January 28, 1995. The Company had short-term lines of credit with several banks totalling $194,000 at January 28, 1995. The interest rates on these lines were negotiated based upon market conditions. The weighted average interest rate on borrowings from these lines was 4.7% during 1994 and 5.9% at January 28, 1995. The average and maximum month end balances on these borrowings were $78,488 and $97,200 in 1994. There were no borrowings classified as short-term at February 3, 1996. LONG-TERM DEBT ............................................................................... Feb. 3, Jan. 28, 1996 1995 -------- -------- 8 7/8% notes due April 15, 1996 .................... $107,040 $110,650 7% notes due June 1, 2005 .......................... 100,000 - Indebtedness to banks under revolving credit agreement dated April 21, 1995 (a)............................... 80,000 100,000 6 5/8% notes due May 15, 2003 ...................... 75,000 75,000 Other revolving lines of credit (b)................. 24,500 10,000 9.3% senior notes (c)............................... - 16,071 Mortgage notes payable at annual interest rates ranging from 5.8% to 8.0% (d)...................................... 2,459 2,585 -------- -------- 388,999 314,306 Less current maturities.......................... 108,206 19,769 -------- -------- Total long-term debt................................ $280,793 $294,537 ======== ======== ............................................................................. (a) In fiscal 1994, the Company had a revolving credit agreement with seven major banks providing for borrowings of up to $100,000. On April 21, 1995, the Company amended and restated this agreement with ten major banks to increase the amount of borrowings provided from up to $100,000 to up to $200,000. Funds may be drawn and repaid anytime prior to March 31, 2000. Sixty days prior to each anniversary date, the Company may request and upon agreement of each bank, extend the maturity of this facility an additional year. If one of the banks fails to agree to this extension, the Company has the right to replace that bank. At the Company's option, the interest rate on any loan may be based on (i) the higher of the federal funds rate plus 1/4% or the prime rate, (ii) LIBOR plus up to .63% or (iii) a negotiated rate based upon market conditions. The interest rate on these borrowings at February 3, 1996 was a negotiated rate based upon market conditions. The weighted average interest rate was 5.8% at February 3, 1996 and 6.1% at January 28, 1995. (b) The Company has short-term lines of credit with several banks totaling $144,000 at February 3, 1996. Borrowings under these lines of credit at February 3, 1996 totaling $24,500 have been classified as long-term debt. The Company has both the intent and ability, through its revolving credit agreement, to refinance these amounts on a long-term basis. The weighted average interest rate on borrowings from these lines was 6.1% during 1995 and 5.5% at February 3, 1996. The interest rates on these lines were negotiated based upon market conditions. The average and maximum month end balances on these borrowings were $44,400 and $102,300 in 1995. The Company has a revolving credit agreement with a bank which permits the Company to borrow an aggregate of $10,000. Upon the bank's demand, this line is due and payable in 13 months. Borrowings outstanding under this revolving credit agreement totaled $10,000 at January 28, 1995. There were no borrowings outstanding under this agreement at February 3, 1996. The interest rate on this line, at the Company's election, is based on the prime rate, a "CD-based" rate, a "LIBOR-based" rate or a negotiated rate based upon market conditions. The weighted average interest rate was 6.2% at January 28, 1995. (c) The 9.3% senior notes were extinguished on May 30, 1995. (d) The weighted average interest rate on the mortgage notes payable was 6.9% at February 3, 1996 and January 28, 1995. These notes, which mature at various times through August 2016, are collateralized by land and building with an aggregate carrying value of approximately $8,005 at February 3, 1996. CONVERTIBLE SUBORDINATED NOTES On August 24, 1994, the Company sold $86,250 of 4% convertible subordinated notes. These notes are convertible by the holders into the common stock of the Company anytime on or before September 1, 1999 (the maturity date) at a conversion price of $41 per share subject to adjustment in certain events. The notes are redeemable, in whole or in part, at the option of the Company at any time on or after September 15, 1997, at a redemption price of 101% of the principal amount and at par on or after September 1, 1998. Several of the Company's debt agreements require the maintenance of certain financial ratios and covenants. Approximately $109,095 of the Company's net worth was not restricted by these covenants at fiscal year end. The Company is in compliance with all debt covenants at February 3, 1996. The annual maturities of all long-term debt for the next five years are $108,206 in 1996, $146 in 1997, $157 in 1998, $86,420 in 1999 and $80,183 in 2000. Any compensating balance requirements related to all revolving credit agreements and debt were satisfied by balances available from normal business operations. The Company was contingently liable for outstanding letters of credit in the amount of approximately $28,583 at February 3, 1996. NOTE C - LEASE COMMITMENTS The Company leases certain property and equipment under operating leases which contain renewal and escalation clauses. Aggregate minimum rental commitments for leases having noncancelable lease terms of more than one year are approximately: 1996 - $23,223; 1997 - $22,152; 1998 - $21,132; 1999 - $20,551; 2000 - $20,530; thereafter - $259,287. Rental expenses incurred for operating leases in 1995, 1994 and 1993 were $22,302, $18,474 and $16,786, respectively. NOTE D - STOCKHOLDERS' EQUITY RIGHTS AGREEMENT On December 31, 1987, the Company distributed as a dividend one common share purchase right on each of its common shares. The rights will not be exercisable or transferable apart from the Company's common stock until a person or group, as defined in the rights agreement (dated December 17, 1987 and as amended on June 6, 1989), without the proper consent of the Company's Board of Directors, acquires 20% or more, or makes an offer to acquire 30% or more of the Company's outstanding stock, exclusive of stock holdings as of December 17, 1987. When exercisable, the rights entitle the holder to purchase one share of the Company's common stock for $55. Under certain circumstances, including the acquisition of 20% of the Company's stock by a person or group, the rights entitle the holder to purchase common stock of the Company or common stock of an acquiring company having a market value of twice the exercise price of the right. The rights do not have voting power and are subject to redemption by the Company's Board of Directors for $.02 per right anytime before a 20% position has been acquired and for 15 days thereafter, at which time the rights become nonredeemable. The rights expire on December 31, 1997. BENEFITS TRUST On April 29, 1994 the Company established a flexible employee benefits trust with the intention of purchasing up to $75,000 worth of the Company's common shares. The repurchased shares will be held in the trust and will be used to fund the Company's existing benefit plan obligations including healthcare programs, savings and retirement plans and other benefit obligations. The trust will allocate or sell the repurchased shares over the next 15 years to fund these benefit programs. As shares are released from the trust, the Company will charge or credit additional paid-in capital for the difference between the fair value of shares released and the original cost of the shares to the trust. For financial reporting purposes, the trust is consolidated with the accounts of the Company. All dividend and interest transactions between the trust and the Company are eliminated. As of February 3, 1996, the Company has repurchased 2,232,500 shares of its common stock at a cost of $60,269 which is shown as "Cost of shares in benefits trust" on the Company's consolidated balance sheets. NOTE E - PENSION AND SAVINGS PLANS The Company has a pension plan covering substantially all of its full-time employees hired on or before February 1, 1992. Normal retirement age is 65. Pension benefits are based on salary and years of service. The Company's policy is to fund amounts as are necessary on an actuarial basis to provide assets sufficient to meet the benefits to be paid to plan members in accordance with the requirements of ERISA. The actuarial computations using the "projected unit credit method" assumed a discount rate on benefit obligations of 8.5% in 1995 and 7.8% in 1994 and 8% in 1993, and an expected long-term rate of return on plan assets of 8.5%. The assumption for annual salary increases over the average remaining service lives of employees under the plan was 4% in 1995, 1994 and 1993. Variances between actual experience and assumptions for costs and returns on assets are amortized over the remaining service lives of employees under the plan. Pension expense includes the following: ............................................................................. Feb. 3, Jan. 28, Jan. 29, 1996 1995 1994 -------- -------- ------- Normal service costs................ $ 968 $ 1,516 $ 1,478 Interest cost on projected benefit obligation................ 1,382 1,413 1,250 Actual return on plan assets........ (720) (1,706) (1,361) Net amortization of transition asset and unrecognized net gain... (759) (214) (257) Prior service cost.................. 19 19 23 Asset (gain) loss deferred.......... (1,013) 56 (217) -------- -------- ------- Total pension (income) expense...... $ (123) $ 1,084 $ 916 ======== ======== ======= ............................................................................. Pension plan assets are stated at fair market value and are composed primarily of money market funds, fixed income investments with maturities of less than five years and the Company's common stock. The following table sets forth the reconciliation of the plan's funded status as of December 31 of each year. The actuarial present value of benefit obligation assumed a discount rate of 7.5% at December 31, 1995 and 8.5% at December 31, 1994. ............................................................................. Dec. 31, Dec. 31, 1995 1994 ---------- ---------- Actuarial present value of benefit obligation: Vested benefit obligation....................... $(18,532) $(13,855) ---------- ---------- Accumulated benefit obligation.................. $(19,389) $(14,840) ---------- ---------- Projected benefit obligation for service rendered to date..................... $(21,931) $(17,912) Plan assets at fair value....................... 20,501 20,625 ---------- ---------- Assets (less than) in excess of projected benefit obligation................. (1,430) 2,713 Unrecognized net asset (at date of transition).. (1,285) (1,500) Unrecognized net gain from past experience different from previous assumption................................... (384) (4,454) Unrecognized prior service cost................. 66 85 ---------- ---------- Accrued pension expense as of February 3, 1996 and January 28, 1995, respectively............... $ (3,033) $ (3,156) ========== ========== ............................................................................. The Company has a 401(k) savings plan which covers all full-time employees who are at least 21 years of age with one or more years of service. The Company contributes the lesser of 50% of the first 6% of a participant's contributions or 3% of the participant's compensation. The Company's savings plan contribution expense was $3,150 in 1995, $2,563 in 1994 and $2,277 in 1993. NOTE F - INCOME TAXES The provision for income taxes includes the following: ............................................................................. Feb. 3, Jan. 28, Jan. 29, Year ended 1996 1995 1994 - -------------------------------- --------- --------- --------- Current: Federal...................... $42,276 $39,210 $34,234 State........................ 3,648 4,205 3,587 Deferred: Federal...................... 1,905 2,865 2,527 State........................ 129 194 (1,352) --------- --------- --------- $47,958 $46,474 $38,996 ========= ========= ========= ............................................................................. A reconciliation of the statutory federal income tax rate to the effective rate of the provision for income taxes follows: ............................................................................. Feb. 3, Jan. 28, Jan. 29, Year ended 1996 1995 1994 - -------------------------------- --------- --------- --------- Statutory tax rate.............. 35.0% 35.0% 35.0% State income taxes, net of federal tax benefits................. 1.9 2.3 2.3 Other, net...................... .1 (.6) - --------- --------- --------- 37.0% 36.7% 37.3% ========= ========= ========= ............................................................................. Deferred income taxes relate to the following temporary differences: ............................................................................. Feb. 3, Jan. 28, Jan. 29, Year ended 1996 1995 1994 - -------------------------------- --------- --------- --------- Depreciation.................... $ 6,420 $ 4,594 $ 2,293 Inventories..................... (2,551) 257 (2,244) Vacation accrual................ (522) (259) (189) Pension accrual................. 47 (406) (344) Casualty gain................... - 1,289 544 Insurance....................... (1,143) (2,459) 680 All other....................... (217) 43 435 --------- --------- --------- $ 2,034 $ 3,059 $ 1,175 ========= ========= ========= ............................................................................. The following are components of the net deferred tax accounts as of February 3, 1996: ............................................................................... Federal State Total ------- ------ ------ Deferred tax assets: Current...................... $22,191 $1,504 $23,695 Long-term.................... 15,171 1,028 16,199 Deferred tax liabilities: Current...................... 6,890 467 7,357 Long-term.................... 53,475 3,624 57,099 ............................................................................... The following are components of the net deferred tax accounts as of January 28, 1995: ............................................................................... Federal State Total ------- ------ ------- Deferred tax assets: Current....................... $16,288 $1,103 $17,391 Long-term..................... 12,995 882 13,877 Deferred tax liabilities: Current....................... 5,049 342 5,391 Long-term..................... 45,333 3,072 48,405 ............................................................................. Items that gave rise to significant portions of the deferred tax accounts are as follows: ............................................................................. Feb. 3, Jan. 28, Year ended 1996 1995 - -------------------------- --------- -------- Deferred tax assets: Inventories................. $ 8,911 $ 6,421 Vacation accrual............ 2,999 2,423 Other....................... 4,428 3,156 --------- -------- $16,338 $ 12,000 ========= ======== Deferred tax liabilities: Depreciation................ $38,998 $32,628 Other....................... 1,902 1,900 --------- -------- $40,900 $34,528 ========= ======== .............................................................................. NOTE G - NET EARNINGS PER SHARE Net earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding after reduction for treasury shares and shares held in benefits trust and assuming exercise of dilutive stock options computed by the treasury stock method using the average market price during the period. Primary and fully diluted earnings per share are essentially the same. The weighted average number of shares and share equivalents used in computing net earnings per share were: 62,588,000 in 1995, 60,565,000 in 1994 and 61,891,000 in 1993. NOTE H - STOCK OPTIONS AND AWARDS Options to purchase the Company's common stock have been granted to key employees and certain members of the Board of Directors. The option prices are at least 100% of the fair market value of the common stock on the grant date. Under the terms of the Company's Incentive Stock Option Plan adopted in 1982, options to purchase up to 3,600,000 shares of the Company's common stock were authorized. Options granted prior to 1988 are exercisable from the date of grant. Options granted in 1988 and thereafter are exercisable on the second anniversary of the grant date. All options under this plan cannot be exercised more than ten years from the grant date. As of May 21, 1990, no additional options will be granted under this plan. Under the terms of the Company's Nonqualified Stock Option Plans, adopted in 1984 and 1985, options to purchase up to 3,300,000 shares of the Company's common stock were authorized. The options became exercisable over a five-year period with one-fifth exercisable on the grant date and one-fifth on each anniversary date for the four years following the grant date. Options granted cannot be exercised more than ten and one-half years after the grant date. As of May 21, 1990, no additional options will be granted under these plans. On May 21, 1990, the stockholders approved the 1990 Stock Incentive Plan which authorized the issuance of restricted stock and/or options to purchase up to 1,000,000 shares of the Company's common stock. An additional 1,500,000 shares were authorized by stockholders on each of May 31, 1995 and June 1, 1993. Under this plan, both incentive and nonqualified stock options may be granted to eligible participants. Incentive stock options are exercisable on the second or third anniversary of the grant date and nonqualified options become exercisable over a five-year period with one-fifth exercisable on the grant date and one-fifth on each anniversary date for the four years following the grant date. Options cannot be exercised more than ten years after the grant date. As of February 3, 1996, 1,191,319 shares remain available for grant. The Company has reserved sufficient shares of common stock to meet its stock option plans' obligations. ............................................................................ Stock option transactions are summarized as follows: ............................................................................. Incentive Nonqualified Fiscal 1994 Stock Options Stock Options - ----------------------------------------------------------------------------- Outstanding--beginning of year................................ 812,980 2,900,725 Granted................................ 272,050 197,301 Exercised.............................. (209,215) (216,587) Canceled............................... (87,600) (6,875) - ---------------------------------------------------------------------------- Outstanding--end of year............... 788,215 2,874,564 - ---------------------------------------------------------------------------- Exercisable--end of year............... 399,215 2,445,716 Price range of options exercised...... $3.97 to $21.81 $3.97 to $27.94 Price range of options outstanding--end of year............ $6.19 to $34.88 $5.91 to $32.69 ............................................................................. Fiscal 1995 - ------------------------------------------------------------------------------ Outstanding--beginning of year 788,215 2,874,564 Granted 485,207 557,763 Exercised (129,530) (452,940) Canceled (91,950) - - ------------------------------------------------------------------------------ Outstanding--end of year 1,051,942 2,979,387 - ------------------------------------------------------------------------------ Exercisable--end of year 446,342 2,278,265 Price range of options exercised $6.19 to $23.13 $5.91 to $14.69 Price range of options outstanding--end of year $9.00 to $34.06 $10.94 to $34.88 - ------------------------------------------------------------------------------- NOTE I - CONTINGENCIES The Company is party to various lawsuits and claims arising in the normal course of business which, in the opinion of management, are not singularly or in aggregate, material to the Company's financial position or results of operations. NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows: February 3, 1996 January 28, 1995 ---------------------- --------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ---------- ---------- -------- ---------- Assets: Cash..................... $ 11,487 $11,487 $ 11,748 $ 11,748 Accounts receivable...... 4,832 4,832 3,804 3,804 Liabilities: Accounts payable......... 222,524 222,524 100,164 100,164 Short-term borrowings.... - - 97,200 97,200 Long-term debt including current maturities...... 388,999 395,222 314,306 309,228 Convertible subordinated notes................... 86,250 83,555 86,250 83,231 ............................................................................... CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND SHORT-TERM BORROWINGS The carrying amounts approximate fair value because of the short maturity of these items. LONG-TERM DEBT INCLUDING CURRENT MATURITES AND CONVERTIBLE SUBORDINATED NOTES Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not quoted on an exchange. The fair value estimates presented herein are based on pertinent information available to management as of February 3, 1996 and January 28, 1995. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from amounts presented herein. QUARTERLY FINANCIAL DATA (UNAUDITED) The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts)
.................................................................................................................................... Net Cash Market Price Year ended Total Gross Operating Net Earnings Dividends Per Share Feb. 3, 1996 Revenues Profit Profit Earnings Per Share Per Share High Low - ------------------------------------------------------------------------------------------------------------------------------------ 1st Quarter $361,209 $100,387 $33,332 $16,204 $.27 $.0475 34 3/4 24 3/8 2nd Quarter 410,838 119,743 47,240 25,234 .41 .0475 32 1/4 25 1/8 3rd Quarter 411,787 115,974 41,462 21,436 .35 .0475 29 1/8 22 1/2 4th Quarter 410,506 119,419 37,400 18,620 .31 .0475 29 1/2 21 7/8 - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Market Price Year ended Total Gross Operating Net Earnings Dividends Per Share Jan. 28, 1995 Revenues Profit Profit Earnings Per Share Per Share High Low - ------------------------------------------------------------------------------------------------------------------------------------ 1st Quarter $337,700 $90,527 $32,601 $17,557 (1) $.29 (1) $.0425 31 26 2nd Quarter 370,395 102,885 42,448 23,518 .39 .0425 33 3/4 29 1/4 3rd Quarter 363,229 100,195 38,311 20,640 .34 .0425 36 29 1/8 4th Quarter 335,661 103,188 35,563 18,293 .30 .0425 36 7/8 28 1/2 - ------------------------------------------------------------------------------------------------------------------------------------ .................................................................................................................................... (1) Does not include a $4,300 ($.07 per share) charge from a cumulative effect of an accounting change for postemployment benefits. Under the Company's present accounting system, actual gross profit from merchandise sales can be determined only at the time of physical inventory, which is taken at the end of the fiscal year. Gross profit from merchandise sales for the first, second and third quarters is estimated by the Company based upon recent historical gross profit experience and other appropriate factors. Any variation between estimated and actual gross profit from merchandise sales for the first three quarters is reflected in the fourth quarter's results.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The material contained in the registrant's definitive proxy statement, which will be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year (the "Proxy Statement"), under the caption "Election of Directors" is hereby incorporated herein by reference. The information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I as Item A, in accordance with General Instruction G(3) to Form 10-K. ITEM 11 EXECUTIVE COMPENSATION The material in the Proxy Statement under the caption "Executive Compensation" other than the material under the caption "Executive Compensation - - Report of Compensation Committee of the Board of Directors on Executive Compensation" and "Executive Compensation - Performance Graph" is hereby incorporated herein by reference. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The material in the Proxy Statement under the caption "Share Ownership of Certain Beneficial Owners and Management" is hereby incorporated herein by reference. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The material in the Proxy Statement under the caption "Executive Compensation - Certain Relationships and Related Transactions" is hereby incorporated herein by reference. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a). 1. The following consolidated financial statements of The Pep Boys - Manny, Moe & Jack are included in Item 8. Consolidated Balance Sheets - February 3, 1996 and January 28, 1995 Consolidated Statements of Earnings - Years ended February 3, 1996, January 28, 1995 and January 29, 1994 Consolidated Statements of Stockholders' Equity - Years ended February 3, 1996, January 28, 1995 and January 29, 1994 Consolidated Statements of Cash Flows - Years ended February 3, 1996, January 28, 1995 and January 29, 1994 Notes to Consolidated Financial Statements Independent Auditors' Report 2. The following consolidated financial statement schedule of The Pep Boys - Manny, Moe & Jack is included. Schedule II Valuation and Qualifying Accounts and Reserves All other schedules have been omitted because they are not applicable or not required or the required information is included in the consolidated financial statements or notes thereto. 3. Exhibits (3.1) Articles of Incorporation, Incorporated by reference from as amended the Company's Form 10-K for the fiscal year ended January 30, 1988. (3.2) By-Laws, as amended Incorporated by reference from the Registration Statement on Form S-3 (File No. 33-39225). (4.1) Indenture dated as of March 22, Incorporated by reference from 1991 between the Company and the Registration Statement on Bank America Trust Company of Form S-3 (File No. 33-39225). New York as Trustee, including Form of Debt Security (4.2) Indenture, dated as of August Incorporated by reference from the 31, 1994, between the Company Registration Statement on Form S-3 and First Fidelity Bank, (File No. 33-55115) filed August National Association as Trustee, 17, 1994. including Form of Debenture (4.3) Indenture, dated as of June Incorporated by reference from the 12, 1995, between the Company Registration Statement on Form S-3 and First Fidelity Bank, (File No. 33-59859) file June 6, National Association as Trustee, 1995 including Form of Debenture (10.1) Medical Reimbursement Plan of Incorporated by reference from the Company the Company's Form 10-K for the fiscal year ended January 31, 1982. (10.2)* 1982 Incentive Stock Option Plan Incorporated by reference from of the Company the Company's Form 10-K for the fiscal year ended January 31, 1982. (10.3)* 1984 Non-Qualified Stock Option Incorporated by reference from Plan the Company's Form 10-K for the fiscal year ended February 2, 1985. (10.4)* 1985 Non-Qualified Stock Option Incorporated by reference from Plan the Company's Form 10-K for the fiscal year ended February 2, 1985. (10.5) Rights Agreement dated as of Incorporated by reference from December 17, 1987 between the the Company's Form 8-K dated Company and the Philadelphia December 17, 1987. National Bank (10.6)* Directors' Deferred Compensation Incorporated by reference from Plan, as amended the Company's Form 10-K for the fiscal year ended January 30, 1988. (10.7)* Form of Employment Agreement, as Incorporated by reference from amended, dated as of December 12, the Company's Form 10-K for the 1989 fiscal year ended February 3, 1990. (10.8)* Amendment No. 1 to the 1985 Incorporated by reference from Non-Qualified Stock Option Plan the Company's Form 10-K for the fiscal year ended January 28, 1989. (10.9)* Amendment No. 1 to the 1982 Incorporated by reference from Incentive Stock Option Plan the Company's Form 10-K for the fiscal year ended January 28, 1989. (10.10) Amendment dated June 6, 1989 Incorporated by reference from to Rights Agreement dated as of the Company's Report on Form 8 December 17, 1987 between the filed July 6, 1989. Company and the Philadelphia National Bank (10.11) Dividend Reinvestment and Stock Incorporated by reference from Purchase Plan dated January 4, the Registration Statement on 1990 Form S-3 (File No. 33-32857) filed January 5, 1990. (10.12)* 1990 Stock Incentive Plan Incorporated by reference from the Company's Form 10-Q for the quarter ended November 3, 1990. (10.13)* Amendment No. 1 to 1990 Stock Incorporated by reference from Incentive Plan the Company's Form 10-K for the fiscal year ended February 1, 1992. (10.14)* The Pep Boys - Manny, Moe & Incorporated by reference from Jack Trust Agreement for the the Company's Form 10-K for the Executive Supplemental Pension fiscal year ended February 1, Plan and Certain Contingent 1992. Compensation Arrangements, dated as of February 13, 1992 (10.15)* Amendment to the Executive Incorporated by reference from Supplemental Pension Plan the Company's Form 10-K for the (amended and restated effective fiscal year ended February 1, January 1, 1988), dated as of 1992. February 13, 1992 (10.16)* Consulting and Retirement Incorporated by reference from Agreement by and between the the Company's Form 10-K for the Company and Benjamin Strauss, fiscal year ended February 1, dated as of February 2, 1992 1992. (10.17)* Amendment No. 2 to the 1982 Incorporated by reference from Incentive Stock Option Plan the Company's Form 10-Q for the quarter ended October 31, 1992. (10.18)* Amendment No. 3 to the Non- Incorporated by reference from Qualified Stock Option Plan the Company's Form 10-Q for the quarter ended October 31, 1992. (10.19)* Amendment No. 2 to the 1990 Incorporated by reference from Stock Incentive Plan the Company's Form 10-Q for the quarter ended October 31, 1992. (10.20)* President's Merit Award Program Incorporated by reference from of the Company, as amended, the Company's Form 10-K for the dated as of April 1, 1992 year ended January 30, 1993. (10.21) Flexible Employee Benefits Trust Incorporated by reference from the Company's Form 8-K dated May 6, 1994. (10.22)* The Pep Boys- Manny, Moe & Jack Incorporated by reference from Pension Plan, as amended, dated the Company's Form 10-K for the December 28, 1994 year ended January 28, 1995. (10.23)* The Pep Boys Savings Plan, as Incorporated by reference from amended, dated December 28, 1994 the Company's Form 10-K for the year ended January 28, 1995. (10.24)* Executive Incentive Bonus Plan Incorporated by reference from of the Company, as amended and the Company's Form 10-Q for the restated as of March 31, 1995. quarter ended July 29, 1995. (10.25) Credit Agreement dated as of Incorporated by reference from April 21, 1995 between the the Company's Form 10-Q for the Company and the Chase Manhattan quarter ended April 29, 1995. Bank (Agent) (10.26)* Amendment to the Excutive Supplemental Pension Plan effective March 31, 1995 (10.27)* Amendment No. 3 to the 1990 Stock Incentive Plan (11) Computation of Earnings per Share (12) Computation of Ratio of Earnings to Fixed Charges (21) Subsidiaries of the Company (23) Independent Auditors' Consent (27) Financial Data Schedules (b) No Form 8-K was filed for the fourth quarter of the year ended February 3, 1996. *Management contract or compensatory plan or arrangement. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) Dated: May 2, 1996 by: /s/Michael J. Holden ----------- -------------------------- Michael J. Holden Executive Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE CAPACITY DATE /s/Mitchell G. Leibovitz Chairman of the Board, President May 2, 1996 - ------------------------ and Chief Executive Officer ---------------- Mitchell G. Leibovitz (Principal Executive Officer) /s/Michael J. Holden Executive Vice President, Chief May 2, 1996 - ------------------------ Financial Officer & Treasurer ---------------- Michael J. Holden (Principal Financial and Accounting Officer) /s/Lennox K. Black Director April 26, 1996 - ------------------------ ---------------- Lennox K. Black /s/Pemberton Hutchinson Director April 26, 1996 - ------------------------ ---------------- Pemberton Hutchinson /s/Bernard J. Korman Director April 26, 1996 - ------------------------ ---------------- Bernard J. Korman /s/J. Richard Leaman, Jr. Director April 26, 1996 - ------------------------ ---------------- J. Richard Leaman, Jr. /s/Malcolmn D. Pryor Director April 29, 1996 - ------------------------ ---------------- Malcolmn D. Pryor /s/Lester Rosenfeld Director April 27, 1996 - ------------------------ ---------------- Lester Rosenfeld /s/Benjamin Strauss Director April 27, 1996 - ------------------------ ---------------- Benjamin Strauss /s/Myles H. Tanenbaum Director April 26, 1996 - ------------------------ ---------------- Myles H. Tanenbaum /s/David V. Wachs Director April 26, 1996 - ------------------------ ---------------- David V. Wachs FINANCIAL STATEMENT SCHEDULES FURNISHED PURSUANT TO THE REQUIREMENTS OF FORM 10-K THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands) - ---------------------------------------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - ---------------------------------------------------------------------------------------------------------------------------------- Additions Additions Balance at Charged to Charged to Balance at Beginning of Costs and Other End of Descriptions Period Expenses Accounts Deductions-* Period - ---------------------------------------------------------------------------------------------------------------------------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year Ended February 3, 1996 $126 $140 $ - $15 $251 - ---------------------------------------------------------------------------------------------------------------------------------- Year Ended January 28, 1995 $50 $114 $ - $38 $126 - ---------------------------------------------------------------------------------------------------------------------------------- Year Ended January 29, 1994 $85 $4 $ - $39 $50 - ---------------------------------------------------------------------------------------------------------------------------------- *Uncollectible accounts written off. /TABLE INDEX TO EXHIBITS (10.26) Amendment to the Executive Supplemental Pension Plan (10.27) Amendment to the Pep Boys - Manny, Moe & Jack 1990 Stock Incentive Paln (11) Computation of Earnings per Share (12) Computation of Ratio of Earnings to Fixed Charges (21) Subsidiaries of the Company (23) Independent Auditors' Consent (27) Financial Data Schedules EX-11 2 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 11 - Computation of Earnings per Share
(in thousands, except per share data) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal Year 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------------- (a) Earnings before cumulative effect of change in accounting principle................................. $81,494 $80,008 $65,512 $54,579 $38,872 Adjustment for interest on $86,250, 4% convertible subordinated notes, net of income tax effect.............................................. 2,200 - - - - (b) Cumulative effect of change in accounting principle..... - (4,300) - - - - ---------------------------------------------------------------------------------------------------------------------------------- (c) Adjusted net earnings................................... $ 83,694 $75,708 $65,512 $54,579 $38,872 - ---------------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding during the year........................................ 59,581 59,252 60,805 59,297 55,675 Common shares assumed issued upon conversion of 4% convertible subordinated notes...................... 2,104 - - - - Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market price, using the treasury stock method (1).................... 903 1,313 1,086 1,339 819 - ---------------------------------------------------------------------------------------------------------------------------------- (d) Average number of common shares outstanding during the year........................................ 62,588 60,565 61,891 60,636 56,494 - ---------------------------------------------------------------------------------------------------------------------------------- (e) Earnings per share before cumulative effect of change in accounting principle (a/d) $ 1.34 $ 1.32 $ 1.06 $ .90 $ .69 - ---------------------------------------------------------------------------------------------------------------------------------- (f) Cumulative effect of change in accounting principle (b/d) - (.07) - - - - ---------------------------------------------------------------------------------------------------------------------------------- (g) Net earnings per share (c/d) $ 1.34 $ 1.25 $ 1.06 $ .90 $ .69 - ---------------------------------------------------------------------------------------------------------------------------------- (1) The number of shares assumed issued upon exercise of dilutive stock options is essentially the same for fully diluted earnings per share.
EX-12 3 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 12 - Statement Regarding Computation of Ratios Ratios of Earnings to Fixed Charges
(in thousands, except ratios) - ------------------------------------------------------------------------------------------------------------------------------------ February 3, January 28, January 29, January 30, February 1, Fiscal year 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Interest $ 32,072 $25,931 $19,701 $20,180 $25,071 Interest factor in rental expense 7,743 6,157 5,595 4,698 3,456 Capitalized interest 1,407 1,850 1,254 852 602 - ------------------------------------------------------------------------------------------------------------------------------------ (a) Fixed charges, as defined $ 41,222 $33,938 $26,550 $25,730 $29,129 Earnings before income taxes and cumulative effect of change in accounting principle $129,452 $126,482 $104,508 $85,615 $60,512 Fixed charges 41,222 33,938 26,550 25,730 29,129 Capitalized interest (1,407) (1,850) (1,254) (852) (602) - ------------------------------------------------------------------------------------------------------------------------------------ (b) Earnings, as defined $169,267 $158,570 $129,804 $110,493 $89,039 - ------------------------------------------------------------------------------------------------------------------------------------ (c) Ratio of earnings to fixed charges (b/a) 4.1x 4.7x 4.9x 4.3x 3.1x - ------------------------------------------------------------------------------------------------------------------------------------
EX-21 4 SUBSIDIARIES OF THE COMPANY SUBSIDIARIES OF THE COMPANY % OF SHARES NAME WHERE INCORPORATED OWNED - ------------------------------- ------------------ ----------- The Pep Boys-Manny, Moe & Jack Jack of California 1122 W. Washington Blvd. Los Angeles, CA 90015 California 100% Pep Boys- Manny, Moe & Jack of Delaware, Inc. 3111 W. Allegheny Avenue Philadelphia, PA 19132 Delaware 100% Pep Boys- Manny, Moe & Jack of Puerto Rico, Inc. 3111 W. Allegheny Avenue Philadelphia, PA 19132 Delaware 100% Colchester Insurance Company 7 Burlington Square Burlington, VT 05401 Vermont 100% PBY Corporation Suite 946 1105 North Market Street Wilmington, DE 19899 Delaware 100% MMJ Corporation Suite 946 1105 North Market Street Wilmington, DE 19899 Delaware 100% Carrus Supply Corporation 32 Loockerman Square Suite L-100 Dover, DE 19901 Delaware 100% EX-10.26 5 [DESCRIPTION]AMENDMENT TO THE PEP BOYS- MANNY, MOE & JACK EXECUTIVE SUPPLEMENTAL PENSION PLAN WHEREAS, The Pep Boys - Manny, Moe & Jack (the "Company") has adopted The Pep Boys - Manny, Moe & Jack Executive Supplemental Pension Plan (the "Plan"), effective as of January 1, 1982, which was subsequently amended and restated effective January 1, 1988 and further amended effective February 13, 1992; and WHEREAS, the Company desires to further amend the Plan to include bonus renumeration received by the Plan participants in the definition of "Compensation" pursuant to the Plan and to change the computation of "Average Monthly compensation" for the Chief Executive Officer; and WHEREAS, Section 6.1 of the Plan authorizes the Board of Directors of the Company (the "board") to amend the Plan; and WHEREAS, the Board has taken action to so amend the Plan. NOW THEREFORE, the Plan is hereby amended, effective March 31, 1995, as follows: Article I, Section 1.5 of the Plan is hereby amended by excluding the words "but excluding amounts paid under any written executive bonus" and substituting therefor the words "; provided, however, that prior to March 31, 1995 Compensation shall exclude amounts paid under any written executive bonus plan, and on and after March 31, 1995 Compensation shall include such amounts." Article I, Section 1.3 of the Plan is hereby amended by adding the end thereto "; provided, however, that for the Chief Executive Officer of the Company, "Average Monthly Compensation" shall mean one-twelfth (1/12) of the average of his Compensation for the three Plan Years which yield the highest average." IN WITNESS WHEREOF, this amendment is hereby executed effective as of the 31st day of March, 1995. THE PEP BOYS - MANNY, MOE & JACK by: /s/Mitchell G. Leibovitz ---------------------------- EX-23 6 INDEPENDENT AUDITORS' CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Numbers 2-81733, 33-3420, 33-31765, 33-64248, 33-35592 and 33-61429 of The Pep Boys - Manny, Moe & Jack and subsidiaries on Forms S-8 and Registration Statement Number 333-00985 of The Pep Boys - Manny, Moe & Jack and subsidiaries on Form S-3 of our report dated March 20, 1996, appearing in the Annual Report on Form 10-K of The Pep Boys - Manny, Moe & Jack and subsidiaries for the year ended February 3, 1996. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania May 1, 1996 EX-10.27 7 [DESCRIPTION]AMENDMENT TO THE PEP BOYS - MANNY, MOE & JACK 1990 STOCK INCENTIVE PLAN Pursuant to the resolutions of the Board of Directors of The Pep Boys - Manny, Moe & Jack (the "Company"), dated March 31, 1995, and subject to approval by the shareholders of the Company at its Annual Meeting to be hel on May 31, 1995, the Company's 1990 Stock Incentive Plan (the "Plan") is hereby amended as follows: (1) The first sentence of Section 6 of the Plan, entitled "Shares Subject to Plan," shall be amended to read as follows: "The aggregate maximum number of Shares for which Awards may be granted pursuant to the Plan is 400,000 adjusted as provided in Section 11 of the Plan." (2) The following sentence shall be added immediately following the first sentence in Section 6 of the Plan: "Awards covering no more than 500,000 Shares may be granted to any individual during any calendar year that the Plan is in effect, as such number of Shares shall be adjusted in accordance with the provisions of Section 11 of the Plan. (3) The first sentence of Section 11 of the Plan, entitled "Adjustments on Changes in Capitalization," shall be amended to read as follows: "The aggregate number of Shares and class 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 fo Options, shall be appropriately adjusted in the event of a stock dividend, stock split, recapitalization, or 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 out- standing 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." This amendment shall be effective as of the date of its approval by the shareholders of the Company. EX-27 8 ART. 5 FDS FISCAL 1995 10K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 3, 1996 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE FIFTY-THREE WEEK PERIOD ENDED FEBRUARY 3, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS FEB-3-1996 FEB-3-1996 11,487 0 5,083 251 417,852 466,473 1,307,803 293,751 1,500,008 426,605 367,043 0 0 62,084 603,376 1,500,008 1,355,008 1,594,340 943,875 1,138,817 0 0 32,072 129,452 47,958 81,494 0 0 0 81,494 1.34 1.34 -----END PRIVACY-ENHANCED MESSAGE-----