10-Q 1 rpt-1q01.txt 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 5, 2001 OR ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to ----------- ---------- Commission File No. 1-3381 ------ The Pep Boys - Manny, Moe & Jack ------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 23-0962915 ------------------------------- --------------------------- (State or other jurisdiction of (I.R.S. Employer ID number) incorporation or organization) 3111 W. Allegheny Ave. Philadelphia, PA 19132 ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) 215-430-9000 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ( x ) No ( ) As of June 2, 2001 there were 51,399,517 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 5, 2001 and February 3, 2001 3 Consolidated Statements of Earnings - Thirteen weeks ended May 5, 2001 and April 29, 2000 4 Condensed Consolidated Statements of Cash Flows - Thirteen weeks ended May 5, 2001 and April 29, 2000 5 Notes to Condensed Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Item 3. Quantitative and Qualitative Disclosures 13 About Market Risk PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings 14 Item 2. Changes in Securities and Use of Proceeds 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURE PAGE 15 2 PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Condensed Consolidated Financial Statements (Unaudited) THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands, except per share amounts)
May 5, 2001 Feb. 3, 2001* ------------- ------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents................................... $ 20,779 $ 7,995 Accounts receivable, net.................................... 16,750 16,792 Merchandise inventories..................................... 535,252 547,735 Prepaid expenses............................................ 25,102 28,705 Deferred income taxes....................................... 25,409 25,409 Other....................................................... 45,945 50,401 Assets held for disposal.................................... 22,229 22,629 ------------- ------------- Total Current Assets..................................... 691,466 699,666 Property and Equipment-at cost: Land........................................................ 278,038 278,017 Building and improvements................................... 918,923 918,031 Furniture, fixtures and equipment........................... 617,582 618,959 Construction in progress.................................... 15,750 15,032 ------------ ------------- 1,830,293 1,830,039 Less accumulated depreciation and amortization.............. 656,114 635,804 ------------- ------------- Total Property and Equipment............................. 1,174,179 1,194,235 Other......................................................... 14,532 12,303 ------------- ------------- Total Assets................................................... $1,880,177 $1,906,204 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable............................................ $ 218.215 $ 204,755 Accrued expenses............................................ 237,567 226,952 Current maturities of convertible debt...................... 160,128 158,555 Current maturities of long-term debt........................ 200 197 ------------- ------------- Total Current Liabilities................................ 616,110 590,459 Long-term debt, less current maturities....................... 596,454 654,194 Deferred income taxes......................................... 66,192 66,192 Deferred gain on sale leaseback............................... 650 593 Commitments and Contingencies Stockholders' Equity: Common Stock, par value $1 per share: Authorized 500,000,000 shares; Issued 63,910,577 shares.... 63,911 63,911 Additional paid-in capital.................................. 177,244 177,244 Retained earnings........................................... 586,400 581,668 ------------- ------------ 827,555 822,823 Less: Shares in treasury - 10,375,790 and 10,454,644 shares, at cost............................ 167,520 168,793 Shares in benefits trust - 2,195,270 shares, at cost........ 59,264 59,264 ------------- ------------ Total Stockholders' Equity............................... 600,771 594,766 ------------- ------------ Total Liabilities and Stockholders' Equity..................... $1,880,177 $1,906,204 ============= ============ See notes to condensed consolidated financial statements. *Taken from the audited financial statements at Feb. 3, 2001.
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 5, 2001 April 29, 2000 -------------- ------------- Merchandise Sales.................................... $442,909 $497,720 Service Revenue...................................... 108,474 117,089 ------------- ------------- Total Revenues....................................... 551,383 614,809 Costs of Merchandise Sales........................... 316,049 359,508 Costs of Service Revenue............................. 79,797 95,485 ------------- ------------- Total Costs of Revenues.............................. 395,846 454,993 Gross Profit from Merchandise Sales.................. 126,860 138,212 Gross Profit from Service Revenue.................... 28,677 21,604 ------------- ------------- Total Gross Profit................................... 155,537 159,816 Selling, General and Administrative Expenses......... 128,498 140,315 ------------- ------------- Operating Profit..................................... 27,039 19,501 Nonoperating Income.................................. 817 490 Interest Expense..................................... 13,512 13,104 ------------- ------------- Earnings Before Income Taxes......................... 14,344 6,887 Income Taxes......................................... 5,236 2,480 ------------- ------------- Net Earnings Before Extraordinary Item............... 9,108 4,407 Extraordinary Item, Net of Tax....................... - 2,040 ------------- ------------- Net Earnings......................................... 9,108 6,447 Retained Earnings, beginning of period............... 581,668 649,487 Cash Dividends....................................... 3,460 3,442 Effect of Shares Repurchased from Benefits Trust..... 916 575 ------------- ------------- Retained Earnings, end of period..................... $586,400 $651,917 ============= ============= Basic Earnings per Share: Before Extraordinary item.......................... $ .18 $ .09 Extraordinary item, net of tax..................... - .04 ------------- ------------- Basic Earnings per Share............................. $ .18 $ .13 ============= ============= Diluted Earnings per Share: Before Extraordinary item.......................... $ .18 $ .09 Extraordinary item, net of tax..................... - .04 ------------- ------------- Diluted Earnings per Share........................... $ .18 $ .13 ============= ============= Cash Dividends per Share............................. $ .0675 $ .0675 ============= ============= 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 5, 2001 April 29, 2000 -------------- -------------- Cash Flows from Operating Activities: Net earnings.................................................... $ 9,108 $ 6,447 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Extraordinary item, net of tax............................... - (2,040) Depreciation and amortization................................ 22,022 25,096 Accretion of bond discount................................... 1,573 1,687 Gain from sales of assets.................................... (434) (1,328) Changes in operating assets and liabilities: Decrease in accounts receivable, prepaid expenses and other................................................. 5,872 18,925 Decrease (Increase) in merchandise inventories............... 12,483 (40,856) Increase in accounts payable................................. 13,460 5,276 Increase in accrued expenses................................. 10,615 4,716 ------------- ------------- Net Cash Provided by Operating Activities....................... 74,699 17,923 Cash Flows from Investing Activities: Capital expenditures............................................ (3,931) (16,497) Proceeds from sales of assets................................... 2,856 1,934 ------------- ------------- Net Cash Used in Investing Activities........................... (1,075) (14,563) Cash Flows from Financing Activities: Net (payments) borrowings under line of credit agreements....... (57,737) 4,955 Short-term borrowings........................................... - 13,000 Dividends paid.................................................. (3,460) (3,442) Early extinguishment of debt.................................... - (17,186) Proceeds from dividend reinvestment plan........................ 357 349 ------------- ------------- Net Cash Used in Financing Activities........................... (60,840) (2,324) ------------- ------------- Net Increase in Cash................................................. 12,784 1,036 Cash at Beginning of Period.......................................... 7,995 18,485 ------------- ------------- Cash at End of Period................................................ $ 20,779 $ 19,521 ============= ============= 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 5, 2001, the consolidated statements of earnings for the thirteen week periods ended May 5, 2001 and April 29, 2000 and the consolidated statements of cash flows for the thirteen week periods ended May 5, 2001 and April 29, 2000 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 5, 2001 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 February 3, 2001 annual report to shareholders. The results of operations for the thirteen week period ended May 5, 2001 are not necessarily indicative of the operating results for the full year. NOTE 2. Merchandise Inventories Merchandise inventories are valued at the lower of cost (last-in, first-out) or market. If the first-in, first-out method of valuing inventories had been used by the Company, inventories would have been approximately the same at both May 5, 2001 and February 3, 2001. NOTE 3. Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company has adopted this statement in the first quarter of fiscal 2001 with no material effect on the Company's financial statements. 6 NOTE 4. Profit Enhancement Plan In the third quarter 2000, the Company performed a comprehensive review of its field, distribution, and store support center infrastructure as well as the performance of each store. As a result of this review, the Company implemented a number of changes that it believes will improve its performance. These changes included the closure of 38 underperforming stores and two distribution centers, a decrease of store operating hours and a reduction in the store support center infrastructure. The Company recorded charges to earnings associated with this plan for fiscal year 2001 as follows:
(dollar amounts Non-Reservable Total in thousands) Expense Expense Income Statement Reserve Incurred in Period Ended Classification Adjustments Fiscal 2001 May. 5, 2001 ---------------------------------------------------------------- Costs of Merchandise Sold $453 $484 $ 937 Costs of Service Revenue 89 - 89 Selling, General and Administrative 13 28 41 ---------------------------------------------------------------- Total Expenses $555 $512 $1,067 ----------------------------------------------------------------
The expense incurred in the first quarter of fiscal 2001 for non-reservable items were primarily related to the completion of the exit from the Tracy distribution center including hauling and payroll expenses related to the transportation of inventory and equipment. The balance of the additional expense incurred was due primarily to reserve adjustments related to increases in estimated time to sublease the properties coupled with a change in a sales price estimate offset, in part, by an increase in anticipated sublease income. As of February 3, 2001, the number of employees to be separated was approximately 1,000 of which 97% of these employees had left their positions. The remaining employees left the Company by the end of first quarter 2001. The 1,000 employees were composed of 76% store employees, 13% distribution employees, and 11% store support center and field administrative employees. The total severance paid in connection with the Profit Enhancement Plan was $1,280,000. At the end of the third quarter 2000, the Company set up a reserve liability account which is included in accrued liabilities on the Consolidated Balance Sheet. This liability account tracks all accruals including remaining rent on leases net of sublease income, severance, and on-going expenses for the closed facilities. The following chart reconciles the change in reserve from fiscal year-end February 3, 2001 through the period ended May 5, 2001. (dollar amounts Lease Fixed On-Going in thousands) Expenses Assets Severance Expenses Total ------------------------------------------------------------------------------------------------------------- Reserve Balance at February 3, 2001 $ 7,054 $ - $ 209 $ 2,960 $ 10,223 ------------------------------------------------------------------------------------------------------------- Addition(1) 325 400 - 380 1,105 ------------------------------------------------------------------------------------------------------------- Utilization (1,375) (400) (67) (914) (2,756) ------------------------------------------------------------------------------------------------------------- Adjustments(2) (498) - (52) - (550) ------------------------------------------------------------------------------------------------------------- Reserve Balance at May 5, 2001 $ 5,506 $ - $ 90 $ 2,426 $ 8,022 ------------------------------------------------------------------------------------------------------------- (1) The additions in fiscal 2001 are related to the reevaluation of the sales price of certain properties held for sale to a lower amount and an increase in the estimated on-going and lease expense costs due to an increase in the estimated time to sublease other of the Company's properties. (2) The adjustments in fiscal 2001 are related to an increase in the estimated sublease income the Company anticipates receiving for its rental properties and reduction in the amount of estimated severance.
7 NOTE 5. Net Earnings Per Share
Thirteen weeks ended (in thousands, except per share data) ---------------------------------- May 5, 2001 April 29, 2000 -------------- -------------- (a) Net earnings before extraordinary item........... $ 9,108 $ 4,407 ------------------------------------------------------------------------------------------- (b) Average number of common shares outstanding during the period.............................. 51,266 50,998 Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market price........ - 3 ------------------------------------------------------------------------------------------- (c) Average number of common shares assumed outstanding during the period.................. 51,266 51,001 ------------------------------------------------------------------------------------------- Basic Earinings per Share: Before Extraordinary Item (a/b).................. $ .18 $ .09 Extraordinary Item............................... - .04 ------------------------------------------------------------------------------------------- Basic Earnings per Share $ .18 $ .13 ------------------------------------------------------------------------------------------- Diluted Earnings per Share: Before Extraordinary Item (a/c).................. $ .18 $ .09 Extraordinary Item............................... - .04 ------------------------------------------------------------------------------------------- Diluted Earnings per Share $ .18 $ .13 -------------------------------------------------------------------------------------------
Adjustments for convertible securities were antidilutive during the thirteen week periods ended May 5, 2001 and April 29, 2000 and therefore excluded from the computation of diluted EPS; however, these securities could potentially be dilutive in the future. Options to purchase 6,570,557 and 5,238,272 shares of common stock were outstanding at May 5, 2001 and April 29, 2000, respectively, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES - May 5, 2001 ------------------------------------------------ The Company's cash requirements arise principally from the capital expenditures related to existing stores, offices and warehouses, the need to finance the acquisition, construction and equipping of new stores and to purchase inventory. During the first quarter of 2001, the Company invested $3,931,000 in property and equipment while net inventory (net inventory includes the change in inventory less the change in accounts payable) decreased $25,943,000. Working capital decreased from $109,207,000 at February 3, 2001 to $75,356,000 at May 5, 2001. At May 5, 2001, the Company had stockholders' equity of $600,771,000 and long-term debt of $596,454,000. The Company's long-term debt was 50% of its total capitalization at May 5, 2001 and 52% at February 3, 2001. As of May 5, 2001, the Company had available lines of credit totaling $112,544,000. The Company plans to open two new Supercenters during the balance of the current fiscal year. Management estimates the costs of opening the two Supercenters, coupled with capital expenditures relating to existing stores, warehouses and offices during fiscal 2001, will be approximately $31,000,000. The Company anticipates that its net cash provided by operating activities and its existing lines of credit will exceed its principal cash requirements for capital expenditures and net inventory in fiscal 2001. In September 2000, the Company reclassed the zero coupon convertible Liquid Yield Option Notes (LYONs), which have a put option in September 2001 at the option of the holder, to current liabilities on the Consolidated Balance Sheet. In May 2001 after the end of the first quarter, the Company repurchased $77,600,000 face value of these LYONs with cash from operations for $649 per LYON. The Company expects to repurchase the remaining notes, which will have a value of $110,302,000, with cash from operating activities coupled with the proceeds from the sale of assets held for disposal, its existing lines of credit, and additional financing the Company anticipates obtaining in the second quarter of 2001. The Company has obtained a portion of this financing, with the completion of a sale leaseback transaction, early in the second quarter of 2001 and has received a commitment letter for a term loan facility necessary to complete the additional financing required in its debt extinguishment plan. In the event that the Company does not secure the remaining financing, the Company has the option to redeem the LYONs with issuance of common stock. The final number of shares issued would be determined at the time of issuance based upon any cash shortfall and the then current stock price. PROFIT ENHANCEMENT PLAN ----------------------- In the third quarter 2000, the Company performed a comprehensive review of its field, distribution, and store support center infrastructure as well as the performance of each store. As a result of this review, the Company implemented a number of changes that it believes will improve its performance. These changes included the closure of 38 underperforming stores and two distribution centers, a decrease of store operating hours and a reduction in the store support center infrastructure. The Company recorded charges to earnings associated with this plan for fiscal year 2001 as follows:
(dollar amounts Non-Reservable Total in thousands) Expense Expense Income Statement Reserve Incurred in Period Ended Classification Adjustments Fiscal 2001 May. 5, 2001 ---------------------------------------------------------------- Costs of Merchandise Sold $453 $484 $ 937 Costs of Service Revenue 89 - 89 Selling, General and Administrative 13 28 41 ---------------------------------------------------------------- Total Expenses $555 $512 $1,067 ----------------------------------------------------------------
The expense incurred in the first quarter of fiscal 2001 for non-reservable items were primarily related to the completion of the exit from the Tracy distribution center including hauling and payroll expenses related to the transportation of inventory and equipment. The balance of the additional expense incurred was due primarily to reserve adjustments related to increases in estimated time to sublease the properties coupled with a change in a sales price estimate offset, in part, by an increase in anticipated sublease income. As of February 3, 2001, the number of employees to be separated was approximately 1,000 of which 97% of these employees had left their positions. The remaining employees left the Company by the end of first quarter 2001. The 1,000 employees were composed of 76% store employees, 13% distribution employees, and 11% store support center and field administrative employees. The total severance paid in connection with the Profit Enhancement Plan was $1,280,000. 9 At the end of the third quarter 2000, the Company set up a reserve liability account which is included in accrued liabilities on the Consolidated Balance Sheet. This liability account tracks all accruals including remaining rent on leases net of sublease income, severance, and on-going expenses for the closed facilities. The following chart reconciles the change in reserve from fiscal year-end February 3, 2001 through the period ended May 5, 2001. (dollar amounts Lease Fixed On-Going in thousands) Expenses Assets Severance Expenses Total ------------------------------------------------------------------------------------------------------------- Reserve Balance at February 3, 2001 $ 7,054 $ - $ 209 $ 2,960 $ 10,223 ------------------------------------------------------------------------------------------------------------- Addition(1) 325 400 - 380 1,105 ------------------------------------------------------------------------------------------------------------- Utilization (1,375) (400) (67) (914) (2,756) ------------------------------------------------------------------------------------------------------------- Adjustments(2) (498) - (52) - (550) ------------------------------------------------------------------------------------------------------------- Reserve Balance at May 5, 2001 $ 5,506 $ - $ 90 $ 2,426 $ 8,022 ------------------------------------------------------------------------------------------------------------- (1) The additions in fiscal 2001 are related to the reevaluation of the sales price of certain properties held for sale to a lower amount and an increase in the estimated on-going and lease expense costs due to an increase in the estimated time to sublease other of the Company's properties. (2) The adjustments in fiscal 2001 are related to an increase in the estimated sublease income the Company anticipates receiving for its rental properties and reduction in the amount of estimated severance.
10 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 ------------------------------------------------------ ---------------------------------- ----------------- Thirteen weeks ended May 5, 2001 April 29, 2000 Fiscal 2001 vs. (Fiscal 2001) (Fiscal 2000) Fiscal 2000 ------------------------------------------------------ -------------- -------------- ----------------- Merchandise Sales..................................... 80.3% 81.0% (11.0)% Service Revenue (1)................................... 19.7 19.0 (7.4) ------ ------ ------- Total Revenues........................................ 100.0 100.0 (10.3) Costs of Merchandise Sales (2)........................ 71.4 (3) 72.2 (3) (12.1) Costs of Service Revenue (2).......................... 73.6 (3) 81.5 (3) (16.4) ------ ------ ------- Total Costs of Revenues............................... 71.8 74.0 (13.0) Gross Profit from Merchandise Sales................... 28.6 (3) 27.8 (3) (8.2) Gross Profit from Service Revenue..................... 26.4 (3) 18.5 (3) 32.7 ------ ------ ------- Total Gross Profit.................................... 28.2 26.0 (2.7) Selling, General and Administrative Expenses.......... 23.3 22.8 (8.4) ------ ------ ------- Operating Profit...................................... 4.9 3.2 38.7 Nonoperating Income................................... .2 .1 66.7 Interest Expense...................................... 2.5 2.1 3.1 ------ ------ ------- Earnings Before Income Taxes.......................... 2.6 1.2 108.3 Income Taxes.......................................... 36.5 (4) 36.0 (4) 111.1 ------ ------ ------- Net Earnings Before Extraordinary Item................ 1.7 .7 106.7 Extraordinary Item, Net of Tax........................ - .3 (100.0) ------ ------ ------- Net Earnings 1.7 1.0 41.3 ====== ====== ======= (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.
11 Thirteen Weeks Ended May 5, 2001 vs. Thirteen Weeks Ended April 29, 2000 ------------------------------------------------------------------------ Total revenues for the first quarter decreased 10.3% as the total number of stores decreased from 663 in 2000 to 628 in 2001. Comparable store revenues decreased 7.6% (revenues generated by stores in operation during the same period) as comparable merchandise sales and comparable store service revenue decreased 8.5% and 4.0%, respectively. Gross profit from merchandise sales increased, as a percentage of merchandise sales, due primarily to higher merchandise margins coupled with a decrease in warehousing costs, offset in part by higher store occupancy costs and costs related to the Profit Enhancement Plan. Gross profit from service revenue increased, as a percentage of service revenue, due primarily to a decrease in service payroll. Selling, general and administrative expenses increased, as a percentage of total revenues, due primarily to an increase in media expenses coupled with an increase in employee benefit costs. Interest expense increased, as a percentage of total revenues, due primarily to higher average interest rates on the Company's borrowings. Net earnings increased, as a percentage of total revenues, due primarily to increases in both gross profit from service revenue and merchandise sales, as a percentage of service revenue and merchandise sales, respectively. These increases were offset, in part, by an increase in selling, general and administrative expenses and interest expense, as a percentage of total revenues and the first quarter of 2001 not including an extraordinary gain similar to the one that was recorded in the first quarter of 2000. NEW ACCOUNTING STANDARDS ------------------------ In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company has adopted this statement in the first quarter of fiscal 2001 with no material effect on the Company's financial statements. FORWARD LOOKING STATEMENTS -------------------------- Certain statements made herein, including those discussing management's expectations for future periods, are forward-looking and involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements due to factors beyond the control of the Company, including the strength of the national and regional economies and retail and commercial consumers' ability to spend, the health of the various sectors of the market that the Company serves, the weather in geographical regions with a high concentration of the Company's stores, competitive pricing, location and number of competitors' stores and product and labor costs. Further factors that might cause such a difference include, but are not limited to, the factors described in the Company's filings with the Securities and Exchange Commission. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company does not utilize financial instruments for trading purposes and holds no derivative financial instruments which could expose the Company to significant market risk. The Company's primary market risk exposure with regard to financial instruments is to changes in interest rates. Pursuant to the terms of its revolving credit agreement, changes in the lenders' prime rate or LIBOR could affect the rates at which the Company could borrow funds thereunder. At May 5, 2001, the Company had outstanding borrowings of $70,029,000 against these credit facilities. There have been no material changes to the market risk disclosures as reported in the Company's Form 10-K for the fiscal year ended February 3, 2001. 13 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 (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter for which this report is filed. 14 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 19, 2001 By: /s/ George Babich Jr. ----------------------- ------------------------- George Babich Jr. Executive Vice President & Chief Financial Officer 15 INDEX TO EXHIBITS ----------------- (11) Computations of Earnings Per Share 16