-----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, EgktUBY97cggxtlUs8EAYJiTN7RBq1F+/bg2FJn5TEF5GNN8vj3Fq/eEj/o4lQ1s 1ZJLCJoUHDTb/HOF4Eiq+w== 0000077449-98-000006.txt : 19980616 0000077449-98-000006.hdr.sgml : 19980616 ACCESSION NUMBER: 0000077449-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980615 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: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03381 FILM NUMBER: 98648609 BUSINESS ADDRESS: STREET 1: 3111 W ALLEGHENY AVE CITY: PHILADELPHIA STATE: PA ZIP: 19132 BUSINESS PHONE: 2152299000 10-Q 1 FORM 10-Q - 1ST QTR 1998 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 10-Q (Mark One) (x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 2, 1998 OR ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to ----------- ---------- Commission File No. 1-3381 ------ The Pep Boys - Manny, Moe & Jack ------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 23-0962915 ------------------------------- --------------------------- (State or other jurisdiction of (I.R.S. Employer ID number) incorporation or organization) 3111 W. Allegheny Ave. Philadelphia, PA 19132 ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) 215-229-9000 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ( x ) No ( ) As of May 2, 1998 there were 63,775,313 shares of the registrant's Common Stock outstanding. 1 - ------------------------------------------------------------------- Index Page - ------------------------------------------------------------------- PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Condensed Consolidated Financial Statements (Unaudited) Consolidated Balance Sheets - May 2, 1998 and January 31, 1998 3 Consolidated Statements of Earnings - Thirteen weeks ended May 2, 1998 and May 3, 1997 4 Condensed Consolidated Statements of Cash Flows - Thirteen weeks ended May 2, 1998 and May 3, 1997 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 PART II - OTHER INFORMATION 12 - --------------------------- SIGNATURE 13 2 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands, except per share amounts)
May 2, 1998 Jan. 31, 1998* ------------- ------------- (Unaudited) ASSETS Current Assets: Cash....................................................... $ 12,238 $ 10,811 Accounts receivable, net................................... 10,908 13,070 Merchandise inventories.................................... 620,539 655,363 Prepaid expenses........................................... 22,985 27,449 Deferred income taxes...................................... 23,215 23,215 Other...................................................... 43,182 40,308 ------------- ------------- Total Current Assets.................................... 733,067 770,216 Property and Equipment-at cost: Land....................................................... 297,357 296,721 Building and improvements.................................. 934,339 920,522 Furniture, fixtures and equipment.......................... 569,056 542,256 Construction in progress................................... 32,103 21,432 ------------ ------------- 1,832,855 1,780,931 Less accumulated depreciation and amortization............. 426,107 403,182 ------------- ------------- Total Property and Equipment............................ 1,406,748 1,377,749 Other........................................................ 14,655 13,395 ------------- ------------- Total Assets.................................................. $2,154,470 $2,161,360 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable........................................... $ 202,906 $ 409,053 Accrued expenses........................................... 180,224 162,666 Short-term borrowings...................................... 69,000 47,000 Current maturities of long-term debt....................... 160 157 ------------- ------------- Total Current Liabilities............................... 452,290 618,876 Long-Term Debt, less current maturities...................... 551,979 402,021 Deferred Income Taxes........................................ 73,208 73,208 Convertible Subordinated Notes............................... 86,250 86,250 Zero Coupon Convertible Subordinated Notes................... 159,942 158,370 Commitments and Contingencies Stockholders' Equity: Common Stock, par value $1 per share: Authorized 500,000,000 shares - Issued and outstanding 63,775,313 and 63,657,728..................... 63,775 63,658 Additional paid-in capital................................. 175,097 173,107 Retained earnings.......................................... 653,564 647,505 Accumulated other comprehensive income..................... (1,366) (1,366) ------------- ------------ 891,070 882,904 Less: Cost of shares in benefits trust-2,232,500 shares, at cost. 60,269 60,269 ------------- ------------ Total Stockholders' Equity.............................. 830,801 822,635 ------------- ------------ Total Liabilities and Stockholders' Equity.................... $2,154,470 $2,161,360 ============= ============ See notes to condensed consolidated financial statements. *Taken from the audited financial statements at Jan. 31, 1998.
3 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollar amounts in thousands, except per share amounts) UNAUDITED
Thirteen weeks ended ------------------------------- May 2, 1998 May 3, 1997 ------------- ------------- Merchandise Sales.................................... $483,636 $410,321 Service Revenue...................................... 100,588 78,957 ------------- ------------- Total Revenues....................................... 584,224 489,278 Costs of Merchandise Sales........................... 349,977 284,723 Costs of Service Revenue............................. 79,865 62,613 ------------- ------------- Total Costs of Revenues.............................. 429,842 347,336 Gross Profit from Merchandise Sales.................. 133,659 125,598 Gross Profit from Service Revenue.................... 20,723 16,344 ------------- ------------- Total Gross Profit................................... 154,382 141,942 Selling, General and Administrative Expenses......... 126,488 97,837 ------------- ------------- Operating Profit..................................... 27,894 44,105 Nonoperating Income.................................. 333 1,253 Interest Expense..................................... 12,512 8,908 ------------- ------------- Earnings Before Income Taxes 15,715 36,450 Income Taxes......................................... 5,657 13,304 ------------- ------------- Net Earnings......................................... 10,058 23,146 Retained Earnings, beginning of period............... 647,505 612,581 Cash Dividends....................................... 3,999 3,658 ------------- ------------- Retained Earnings, end of period..................... $653,564 $632,069 ============= ============= Basic Earnings per Share............................. $ .16 $ .38 Diluted Earnings per Share........................... $ .16 $ .37 ============= ============= Cash Dividends per Share............................. $ .0650 $ .0600 ============= ============= See notes to condensed consolidated financial statements.
4 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar amounts in thousands) UNAUDITED
Thirteen weeks ended ---------------------------------- May 2, 1998 May 3, 1997 -------------- -------------- Net Cash Used in Operating Activities........................... $(115,980) $(76,919) Cash Flows from Investing Activities: Capital expenditures............................................ (52,541) (59,302) Other, net...................................................... 450 713 ------------- ------------- Net Cash Used in Investing Activities........................... (52,091) (58,589) Cash Flows from Financing Activities: Net borrowings under line of credit agreements.................. 72,000 141,900 Net proceeds from issuance of notes............................. 99,429 - Reduction of long-term debt..................................... (39) (24) Dividends paid.................................................. (3,999) (3,658) Proceeds from exercise of stock options and dividend reinvestment plan................................ 2,107 1,063 ------------- ------------- Net Cash Provided by Financing Activities....................... 169,498 139,281 ------------- ------------- Net Increase in Cash................................................. 1,427 3,773 Cash at Beginning of Period.......................................... 10,811 2,589 ------------- ------------- Cash at End of Period................................................ $ 12,238 $ 6,362 ============= ============= See notes to condensed consolidated financial statements.
5 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Condensed Consolidated Financial Statements The consolidated balance sheet as of May 2, 1998, the consolidated statements of earnings for the thirteen week periods ended May 2, 1998 and May 3, 1997 and the condensed consolidated statements of cash flows for the thirteen week periods ended May 2, 1998 and May 3, 1997 have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows at May 2, 1998 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's January 31, 1998 annual report to shareholders. The results of operations for the thirteen week period ended May 2, 1998 are not necessarily indicative of the operating results for the full year. NOTE 2. Merchandise Inventories Merchandise inventories are valued at the lower of cost (last-in, first-out) or market. If the first-in, first-out method of valuing inventories had been used by the Company, inventories would have been approximately $870,000 higher at both May 2, 1998 and January 31, 1998. NOTE 3. Comprehensive Income Effective February 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and disclosure of comprehensive income and its components in financial statements. Accumulated other comprehensive income in the consolidated balance sheets as of May 2, 1998 and January 31, 1998 consists of a minimum pension liability adjustment. There were no differences between net earnings and comprehensive income for the thirteen week periods ended May 2, 1998 and May 3, 1997. Note 4. Medium-Term Note Program In February 1998, the Company established a Medium-Term Note program which permits the Company to issue up to $200,000,000 of Medium-Term Notes. Under this program the Company has sold $100,000,000 principal amount of senior notes, ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March 2006. The net proceeds of $99,429,000 were used for working capital, the repayment of debt and for general corporate purposes. 6 Note 5. Net Earnings Per Share
Thirteen weeks ended (in thousands, except per share data) ---------------------------------- May 2, 1998 May 3, 1997 -------------- -------------- (a) Net earnings..................................... $10,058 $23,146 Adjustment for interest on 4% convertible subordinated notes, net of income tax effect... - 554 Adjustment for interest on zero coupon convertible subordinated notes, net of income tax effect... - 959 - ------------------------------------------------------------------------------------------- (b) Adjusted net earnings $10,058 $24,659 - ------------------------------------------------------------------------------------------- (c) Average number of common shares outstanding during the period.............................. 61,470 60,924 Common shares assumed issued upon conversion of 4% convertible subordinated notes.............. - 2,104 Common shares assumed issued upon conversion of zero coupon convertible subordinated notes..... - 3,513 Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market price........ 306 671 - ------------------------------------------------------------------------------------------- (d) Average number of common shares assumed outstanding during the period.................. 61,776 67,212 - ------------------------------------------------------------------------------------------- Basic Earnings per Share (a/c)................... $ .16 $ .38 Diluted Earnings per Share (b/d)................. $ .16 $ .37 - -------------------------------------------------------------------------------------------
Adjustments for convertible securities were antidilutive during the thirteen week period ended May 2, 1998 and therefore excluded from the computation of diluted EPS; however, these securities could potentially be dilutive in the future. Options to purchase 2,147,042 shares of common stock at various prices ranging from $23.78 to $37.38 were outstanding at May 2, 1998, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares. 7 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operation - The following table presents for the periods indicated certain items in the consolidated statements of earnings as a percentage of total revenues (except as otherwise provided) and the percentage change in dollar amounts of such items compared to the indicated prior period.
Percentage of Total Revenues Percentage Change - ------------------------------------------------------ ---------------------------------- ----------------- Thirteen weeks ended May 2, 1998 May 3, 1997 Fiscal 1998 vs. (Fiscal 1998) (Fiscal 1997) Fiscal 1997 - ------------------------------------------------------ -------------- -------------- ----------------- Merchandise Sales..................................... 82.8% 83.9% 17.9% Service Revenue (1)................................... 17.2 16.1 27.4 ------ ------ ------ Total Revenues........................................ 100.0 100.0 19.4 Costs of Merchandise Sales (2)........................ 72.4 (3) 69.4 (3) 22.9 Costs of Service Revenue (2).......................... 79.4 (3) 79.3 (3) 27.6 ------ ------ ------ Total Costs of Revenues............................... 73.6 71.0 23.8 Gross Profit from Merchandise Sales................... 27.6 (3) 30.6 (3) 6.4 Gross Profit from Service Revenue..................... 20.6 (3) 20.7 (3) 26.8 ------ ------ ------ Total Gross Profit.................................... 26.4 29.0 8.8 Selling, General and Administrative Expenses.......... 21.7 20.0 29.3 ------ ------ ------ Operating Profit...................................... 4.7 9.0 (36.8) Nonoperating Income................................... .1 .3 (73.4) Interest Expense...................................... 2.1 1.8 40.5 ------ ------ ------ Earnings Before Income Taxes.......................... 2.7 7.5 (56.9) Income Taxes.......................................... 36.0 (4) 36.5 (4) (57.5) ------ ------ ------ Net Earnings.......................................... 1.7 4.7 (56.5) ====== ====== ====== (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.
8 Thirteen Weeks Ended May 2, 1998 vs. Thirteen Weeks Ended May 3, 1997 - ------------------------------------------------------------------------ Total revenues for the first quarter increased 19.4% due to a higher store count (709 at May 2, 1998 compared with 620 at May 3, 1997) coupled with a 7.0% increase in comparable store revenues (revenues generated by stores in operation during the same months of each period). Comparable store merchandise sales increased 5.4% while comparable service revenue increased 15.2%. Gross profit from merchandise sales decreased, as a percentage of merchandise sales, due primarily to significantly lower merchandise margins and an increase in store occupancy costs offset, in part, by a decrease in warehousing costs. Selling, general and administrative expenses increased substantially, as a percentage of total revenues, due primarily to increases in store expenses and media costs. Nonoperating income consisted of the following: (in thousands)
1998 1997 ------ ------ Rental revenue $ 286 $ 415 Investment income 54 806 Other income (7) 32 ------ ------ Total $ 333 $1,253 ====== ======
Interest expense increased, as a percentage of total revenues, due primarily to higher debt levels necessary to fund the Company's store expansion program and related working capital requirements coupled with slightly higher interest rates. Net earnings decreased, as a percentage of total revenues, due primarily to a significant decrease in gross profit from merchandise sales, as a percentage of merchandise sales, substantially higher selling, general and administrative expenses, as a percentage of total revenues, and an increase in interest expense, as a percentage of total revenues. 9 LIQUIDITY AND CAPITAL RESOURCES - May 2, 1998 - ---------------------------------------------- The Company's cash requirements arise principally from the need to finance the acquisition, construction and equipping of new stores and to purchase inventory. During the first quarter of 1998, the Company invested $52,541,000 in property and equipment while net inventory (net inventory includes the decrease in inventory less the change in accounts payable) increased $171,323,000. Working capital increased from $151,340,000 at January 31, 1998 to $280,777,000 at May 2, 1998. At May 2, 1998, the Company had stockholders' equity of $830,801,000 and long-term debt of $798,171,000. The Company's long-term debt was 49% of its total capitalization at May 2, 1998 and 44% at January 31, 1998. The Company plans to open approximately 34 new stores during the balance of the current fiscal year. Management estimates that the cost of this expansion, coupled with expenditures in existing stores, warehouses and offices will be approximately $132,000,000. Funds required to finance the store expansion including related inventory requirements are expected to come primarily from operating activities with the remainder provided by unused lines of credit which totaled $150,000,000 at May 2, 1998, or from accessing traditional lending sources such as the public capital markets. In February 1998, the Company established a Medium-Term Note program which permits the Company to issue up to $200,000,000 of Medium-Term Notes. Under this program the Company has sold $100,000,000 principal amount of senior notes, ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March 2006. The net proceeds of $99,429,000 were used for working capital, the repayment of debt and for general corporate purposes. 10 INFORMATION SYSTEMS AND THE YEAR 2000 - ------------------------------------- The Company recognizes that the arrival of the Year 2000 poses a challenge to the ability of all systems to recognize the date change from December 31, 1999 to January 1, 2000 and, like other companies, has assessed and is modifying its computer applications and business processes to provide for their continued functionality. An assessment of the readiness of external entities which it interfaces with, such as vendors, suppliers, customers and others, is ongoing. The Company expects that the principal costs involved will be those associated with the remediation and testing of its computer applications. This effort is currently underway across the Company. A large portion of these costs will be met from existing resources through a reprioritization of technology development initiatives, with the remainder representing incremental costs. Management estimates that these costs, which will be expensed as incurred, for the remediation and testing of computer applications will range from approximately $12,000,000 to $16,000,000 over the two year period from 1998 through the end of 1999. While the Company does not currently foresee any material problems, there can be no guarantee that the Company and the external entities with which it interfaces will be Year 2000 compliant by January 1, 2000 and that any such non-compliance will not have a material adverse effect on the Company. FORWARD LOOKING STATEMENTS - -------------------------- Certain statements made herein are forward looking and as a result involve risk and uncertainties. Actual results could differ materially from expected results due to factors beyond the control of the Company, including the strength of the national and regional economies and consumers' ability to spend, the health of various segments of the market that the Company serves - particularly the do-it-yourself segment, the weather in geographical regions with a high concentration of the Company's stores, competitive pricing, location and number of competitors' stores, product costs, the ability to attract and retain qualified personnel, the ability to acquire real estate, facilities and equipment and the ability to complete the rollout of the commercial delivery program and reduce inventory levels during 1998. Further risk factors are discussed in the Company's filings with the Securities and Exchange Commission, including its most recent Form 10-K, a copy of which may be obtained from the Company without charge. 11 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (11) Statement Re: Computation of Earnings Per Share (27) Financial Data Schedules (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter for which this report is filed. 12 SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE PEP BOYS - MANNY, MOE & JACK -------------------------------- (Registrant) Date: June 12, 1998 By: /s/ Michael J. Holden ----------------------- ------------------------- Michael J. Holden Executive Vice President & Chief Financial Officer 13 INDEX TO EXHIBITS - ----------------- (11) Computations of Earnings Per Share (27) Financial Data Schedule EX-11 2 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 11 COMPUTATION OF NET EARNINGS PER SHARE (in thousands, except per share data) (UNAUDITED)
- ------------------------------------------------------------------------------------------ Thirteen weeks ended ---------------------------------- May 2, 1998 May 3, 1997 -------------- -------------- (a) Net earnings..................................... $10,058 $23,146 Adjustment for interest on 4% convertible subordinated notes, net of income tax effect... - 554 Adjustment for interest on zero coupon convertible subordinated notes, net of income tax effect... - 959 - ------------------------------------------------------------------------------------------- (b) Adjusted net earnings $10,058 $24,659 - ------------------------------------------------------------------------------------------- (c) Average number of common shares outstanding during the period.............................. 61,470 60,924 Common shares assumed issued upon conversion of 4% convertible subordinated notes.............. - 2,104 Common shares assumed issued upon conversion of zero coupon convertible subordinated notes..... - 3,513 Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market price........ 306 671 - ------------------------------------------------------------------------------------------- (d) Average number of common shares assumed outstanding during the period.................. 61,776 67,212 - ------------------------------------------------------------------------------------------- Basic Earnings per Share (a/c)................... $ .16 $ .38 Diluted Earnings per Share (b/d)................. $ .16 $ .37 - -------------------------------------------------------------------------------------------
EX-27 3 ART 5. FDS FOR 1ST QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MAY 2, 1998 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE THIRTEEN WEEK PERIOD ENDED MAY 2, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-30-1999 MAY-2-1998 12,238 0 11,258 350 620,539 733,067 1,406,748 426,107 2,154,470 452,290 798,171 0 0 63,775 767,026 2,154,470 483,636 584,224 349,977 429,842 0 0 12,512 15,715 5,657 10,058 0 0 0 10,058 .16 .16 -----END PRIVACY-ENHANCED MESSAGE-----