-----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, H4RuqwaA+scahxwGOx7aAjRbcdpEHXB/pi1M4vKorKIaTDVJrxgyt7g8mv2+4sdQ N7lm5iROJiqPSxSaULHFeQ== 0000077449-02-000010.txt : 20020816 0000077449-02-000010.hdr.sgml : 20020816 20020816124257 ACCESSION NUMBER: 0000077449-02-000010 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020731 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020816 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03381 FILM NUMBER: 02740852 BUSINESS ADDRESS: STREET 1: 3111 W ALLEGHENY AVE CITY: PHILADELPHIA STATE: PA ZIP: 19132 BUSINESS PHONE: 2152299000 8-K 1 r8k2q02.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: July 31, 2002 Date of Earliest Event Reported: May 21, 2002 The Pep Boys - Manny, Moe & Jack ------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 1-3381 23-0962915 ------------------------------- ----------- --------------------------- (State or other jurisdiction of (Commission (I.R.S. Employer ID number) incorporation or organization) File No.) 3111 W. Allegheny Ave. Philadelphia, PA 19132 ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) 215-430-9000 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable -------------- (Former name or former address, if changed from last report) Item 5. Other Events On May 21, 2002, The Pep Boys - Manny, Moe & Jack (the "Company") issued and sold $150,000,000 principal amount of 4.25% convertible senior notes due June 1, 2007 (the "Notes") in private transactions to qualified institutional buyers. The Company intends to file a registration statement on Form S-3 to register the resale of the Notes and the common stock issuable upon conversion of the Notes. Rule 3-10 of Regulation S-X will require the Company's financial statements incorporated by reference into that filing to include certain financial information regarding the subsidiaries of the Company that have guaranteed the Notes. The Company has reissued its consolidated balance sheets as of February 2, 2002 and February 3, 2001 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended February 2, 2002 to add "Note 12- Supplemental Guarantor Information- Convertible Senior Notes" to include, among other things, the guarantor financial information that will be required for the Company's Form S-3 registration statement. The reissued financial statements are filed as an exhibit to this Current Report. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (c) Exhibits. The following exhibits are filed with this report. Exhibit No. 23.1 Consent of Deloitte & Touche LLP Exhibit No. 99.1 Consolidated balance sheets as of February 2, 2002 and February 3, 2001 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended February 2, 2002, Financial Schedule II - Valuation and Qualifying Accounts and Reserves and Independent Auditors' Report 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 hereunto duly authorized. THE PEP BOYS - MANNY, MOE & JACK By: /s/ George Babich, Jr. -------------------------------------- George Babich, Jr. President and Chief Financial Officer Date: July 31, 2002 CERTIFICATION Each of the undersigned certifies that this report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the issuer. /s/ Mitchell G. Leibovitz ---------------------------------- Mitchell G. Leibovitz, Chief Executive Officer /s/ George Babich, Jr. ---------------------------------- George Babich, Jr., Chief Financial Officer Date: July 31, 2002 EXHIBIT INDEX Exhibit Number Description - ------- -------------- 23.1 Consent of Deloitte & Touche LLP 99.1 Consolidated balance sheets as of February 2, 2002 and February 3, 2001 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended February 2, 2002, Financial Schedule II - Valuation and Qualifying accounts and Reserves and Independent Auditors' Report EX-23 3 exh231.txt INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Numbers 33-31765, 33-64248, 33-35592, 33-61429, 33-32857, 333-40363, 333-51585, 333-81351 and 333-89280 of The Pep Boys - Manny, Moe & Jack and subsidiaries on Form S-8 of our report dated March 21, 2002 (July 31, 2002 as to Note 12), appearing in this Current Report on Form 8-K dated August 16, 2002. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania August 16, 2002 EX-99 4 exh991.txt 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 2, 2002 and February 3, 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended February 2, 2002. Our audits also included the financial statement schedule, Valuation and Qualifying Accounts and Reserves, for the three years ended February 2, 2002. These financial statements and financial schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 as of February 2, 2002 and February 3, 2001, and the results of their operations and their cash flows for each of the three years in the period ended February 2, 2002, in conformity with accounting principles generally accepted in the United States of America. 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. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania March 21, 2002 (July 31, 2002 As to Note 12) 1
CONSOLIDATED BALANCE SHEETS The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts) February 2, February 3, 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 15,981 $ 7,995 Accounts receivable, less allowance for uncollectible accounts of $725 and $639 18,052 16,792 Merchandise inventories 519,473 547,735 Prepaid expenses 42,170 28,705 Deferred income taxes 15,820 25,409 Other 52,308 50,401 Assets held for disposal 16,007 22,629 - ---------------------------------------------------------------------------------------------------------------------------------- Total Current Assets 679,811 699,666 - ---------------------------------------------------------------------------------------------------------------------------------- Property and Equipment - at cost: Land 277,726 278,017 Buildings and improvements 922,065 918,031 Furniture, fixtures and equipment 583,918 618,959 Construction in progress 10,741 15,032 - ---------------------------------------------------------------------------------------------------------------------------------- 1,794,450 1,830,039 Less accumulated depreciation and amortization 676,964 635,804 - ---------------------------------------------------------------------------------------------------------------------------------- Total Property and Equipment 1,117,486 1,194,235 - ---------------------------------------------------------------------------------------------------------------------------------- Other 15,355 12,303 - ---------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,812,652 $ 1,906,204 - ---------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 216,085 $ 204,755 Accrued expenses 241,273 226,952 Current maturities of convertible debt - 158,555 Current maturities of long-term debt 124,615 197 - ---------------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 581,973 590,459 - ---------------------------------------------------------------------------------------------------------------------------------- Long-term debt, less current maturities 544,418 654,194 Deferred income taxes 64,027 66,192 Deferred gain on sale leaseback 4,444 593 Commitments and Contingencies Stockholders' Equity: Common stock, par value $1 per share: Authorized 500,000,000 shares; Issued 63,910,577 63,911 63,911 Additional paid-in capital 177,244 177,244 Retained earnings 601,944 581,668 ---------------------------------------------------------------------------------------------------------------------------------- 843,099 822,823 Less cost of shares in treasury - 10,284,446 and 10,454,644 shares 166,045 168,793 Less cost of shares in benefits trust - 2,195,270 shares 59,264 59,264 - ---------------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 617,790 594,766 - ---------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 1,812,652 $ 1,906,204 - ----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 2
CONSOLIDATED STATEMENTS OF OPERATIONS The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts) February 2, February 3, January 29, Year ended 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Merchandise Sales $1,765,314 $1,957,480 $1,954,010 Service Revenue 418,401 460,988 440,523 - ---------------------------------------------------------------------------------------------------------------------------------- Total Revenues 2,183,715 2,418,468 2,394,533 - ---------------------------------------------------------------------------------------------------------------------------------- Costs of Merchandise Sales 1,250,408 1,505,442 1,415,053 Costs of Service Revenue 315,911 381,175 356,445 - ---------------------------------------------------------------------------------------------------------------------------------- Total Costs of Revenues 1,566,319 1,886,617 1,771,498 - ---------------------------------------------------------------------------------------------------------------------------------- Gross Profit from Merchandise Sales 514,906 452,038 538,957 Gross Profit from Service Revenue 102,490 79,813 84,078 - ---------------------------------------------------------------------------------------------------------------------------------- Total Gross Profit 617,396 531,851 623,035 - ---------------------------------------------------------------------------------------------------------------------------------- Selling, General and Administrative Expenses 513,946 559,883 528,838 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Profit (Loss) 103,450 (28,032) 94,197 Non-operating Income 4,289 2,245 2,327 Interest Expense 51,335 57,882 51,557 - ---------------------------------------------------------------------------------------------------------------------------------- Earnings (Loss) Before Income Taxes 56,404 (83,669) 44,967 Income Tax Expense (Benefit) 20,304 (30,521) 15,664 - ---------------------------------------------------------------------------------------------------------------------------------- Net Earnings (Loss) Before Extraordinary Items 36,100 (53,148) 29,303 Extraordinary Items, Net of Tax of $(430) and $1,180 (765) 2,054 - Net Earnings (Loss) $ 35,335 $ (51,094) $ 29,303 - ---------------------------------------------------------------------------------------------------------------------------------- Basic Earnings (Loss) per Share: Before Extraordinary Items $ .70 $ (1.04) $ .58 Extraordinary Items, Net of Tax (.01) .04 - - --------------------------------------------------------------------------------------------------------------------------------- Basic Earnings (Loss) per Share $ .69 $ (1.00) $ .58 - --------------------------------------------------------------------------------------------------------------------------------- Diluted Earnings (Loss) per Share: Before Extraordinary Items $ .69 $ (1.04) $ .58 Extraordinary Items, Net of Tax (.01) .04 - - --------------------------------------------------------------------------------------------------------------------------------- Diluted Earnings (Loss) per Share $ .68 $ (1.00) $ .58 - ---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts) Accumulated Additional Other Total Common Stock Paid-in Retained Treasury Stock Comprehensive Benefits Stockholders' Shares Amount Capital Earnings Shares Amount Income Trust Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance, January 30, 1999 63,847,640 $63,848 $175,940 $636,475 $(4,210) $(60,269) $811,784 Comprehensive income - Net earnings 29,303 Minimum pension liability adjustment, net of tax 4,210 Total comprehensive income 33,513 Cash dividends ($.27 per share) (13,693) (13,693) Repurchase of treasury stock (410) (11,276,698) $(182,065) 1,005 (181,470) Exercise of stock options and related tax benefits 27,630 28 774 (1,795) 495,000 7,991 6,998 Dividend reinvestment plan 35,307 35 533 (393) 60,490 977 1,152 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, January 29, 2000 63,910,577 63,911 177,247 649,487 (10,721,208) (173,097) - (59,264) 658,284 Comprehensive income - Net loss (51,094) (51,094) Cash dividends ($.27 per share) (13,793) (13,793) Dividend reinvestment plan (3) (2,932) 266,564 4,304 1,369 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, February 3, 2001 63,910,577 63,911 177,244 581,668 (10,454,644) (168,793) - (59,264) 594,766 Comprehensive income - Net earnings 35,335 35,335 Cash dividends ($.27 per share) (13,864) (13,864) Exercise of stock options and related tax benefits (94) 17,000 275 181 Dividend reinvestment plan (1,101) 153,198 2,473 1,372 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, February 2, 2002 63,910,577 $63,911 $177,244 $601,944 (10,284,446) $(166,045) $ - $(59,264) $617,790 - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts) February 2, February 3, January 29, Year ended 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Earnings (Loss) $ 35,335 $ (51,094) $ 29,303 Adjustments to Reconcile Net Earnings (Loss) to Net Cash Provided by Operating Activities: Extraordinary item, net of tax 765 (2,054) - Depreciation and amortization 84,693 99,308 97,012 Deferred income taxes 7,424 (24,575) 2,223 Accretion of bond discount 3,256 6,425 6,493 Loss on assets held for disposal 2,349 53,740 - Loss on asset impairment - 5,735 - (Gain) loss from sale of assets (1,116) 3,651 (538) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable, prepaid expenses and other (18,726) 9,802 (12,096) Decrease (increase) in merchandise inventories 28,262 35,163 (55,501) Increase (decrease) in accounts payable 11,330 (115,311) 79,675 Increase (decrease) in accrued expenses 14,321 (1,199) 32,810 - ----------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 167,893 19,591 179,381 - ----------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Capital expenditures (25,464) (57,336) (104,446) Proceeds from sales of assets 26,760 14,380 2,479 - ----------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Investing Activities 1,296 (42,956) (101,967) - ----------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Net (payments) borrowings under line of credit agreements (56,876) 117,535 10,000 Reduction of long-term debt (18,482) (75,028) (170) Reduction of convertible debt (161,056) (17,208) (72,294) Net proceeds from issuance of notes 87,522 - 76,000 Dividends paid (13,864) (13,793) (13,693) Purchase of treasury shares - - (181,470) Proceeds from exercise of stock options 181 - 6,998 Proceeds from dividend reinvestment plan 1,372 1,369 1,152 - ----------------------------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Financing Activities (161,203) 12,875 (173,477) - ----------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash 7,986 (10,490) (96,063) Cash and Cash Equivalents at Beginning of Year 7,995 18,485 114,548 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 15,981 $ 7,995 $ 18,485 - ----------------------------------------------------------------------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information: Income taxes paid $ 6,570 $ - $ - Interest paid, net of amounts capitalized 47,081 53,415 43,449 - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 5 THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended February 2, 2002, February 3, 2001 and January 29, 2000 (dollar amounts in thousands, except per share amounts) NOTE 1 - 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 stores at February 2, 2002. The Company currently operates stores in 36 states and Puerto Rico. FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest to January 31. Fiscal years 2001 and 1999 were comprised of 52 weeks, while fiscal year 2000 was comprised of 53 weeks. 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 accounting principles generally accepted in the United States 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 consolidated 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) or market. If the first-in, first-out method of valuing inventories had been used by the Company, the inventory valuation difference would have been immaterial on both February 2, 2002 and February 3, 2001. CASH AND CASH EQUIVALENTS Cash equivalents include all short-term, highly liquid investments with a maturity of three months or less when purchased. 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 to 40 years; furniture, fixtures and equipment, 3 to 10 years. SOFTWARE CAPITALIZATION In 1998, the Company adopted Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." In accordance with this standard, certain direct development costs associated with internal-use software are capitalized, including external direct costs of material and services, and payroll costs for employees devoting time to the software projects. These costs are amortized over a period not to exceed five years beginning when the asset is substantially ready for use. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred. CAPITALIZED INTEREST Interest on borrowed funds is capitalized in connection with the construction of certain long-term assets. Capitalized interest amounted to $1, $489 and $1,098 in fiscal years 2001, 2000 and 1999, respectively. REVENUE RECOGNITION The Company recognizes revenue from the sale of merchandise at the time the merchandise is sold. Service revenues are recognized upon completion of the service. The Company records revenue net of an allowance for estimated future returns. Return activity is immaterial to revenue and results of operations in all periods presented. 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. 6 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 The Company reports all information on its pension and savings plan benefits in accordance with Statement of Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits." 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 bases of assets and liabilities. ADVERTISING The Company expenses the production costs of advertising the first time the advertising takes place. The Company nets cooperative advertising reimbursements against costs incurred. Net advertising expense for fiscal years 2001, 2000 and 1999 was $6,828, $0 and $346, respectively. No advertising costs were recorded as assets as of February 2, 2002 or February 3, 2001. STORE OPENING COSTS The costs of opening new stores are expensed as incurred. IMPAIRMENT OF LONG-LIVED ASSETS The Company accounts for impaired long-lived assets in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This standard prescribes the method for asset impairment evaluation for long-lived assets and certain identifiable intangibles that are either held and used or to be disposed of. The Company evaluates the ability to recover long-lived assets whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. In the event assets are impaired, losses are recognized to the extent the carrying value exceeds the fair value. In addition, the Company reports assets to be disposed of at the lower of the carrying amount or the fair market value less selling costs. During fiscal year 2000, the Company, as a result of its ongoing review of the performance of its stores, identified certain stores whose cash flow trend indicated that the carrying value may not be fully recoverable. An impairment charge of $5,735 was recorded for these stores in costs of merchandise sales on the consolidated statement of operations. The charge reflects the difference between carrying value and fair value. Fair value was based on sales of similar assets or other estimates of fair value developed by Company management. EARNINGS PER SHARE Earnings per share for all periods have been computed in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding during the year plus the assumed conversion of dilutive convertible debt and incremental shares that would have been outstanding upon the assumed exercise of dilutive stock options. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the Company is accounting for employee stock-based compensation plans in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," incorporating the guidance of Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 44 "Accounting for Certain Transactions involving Stock Compensation" and Emerging Issues Task Force (EITF) 00-23 "Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FIN 44" and has provided disclosures required by SFAS No. 123. 7 COMPREHENSIVE INCOME Comprehensive income is reported in accordance with SFAS No. 130, "Reporting Comprehensive Income." Other comprehensive income includes minimum pension liability adjustments. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the 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 its consolidated financial statements. SEGMENT INFORMATION The Company reports segment information in accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." The Company operates in one industry, the automotive aftermarket. In accordance with SFAS No. 131, the Company aggregates all of its stores and reports one operating segment. Sales by major product categories are as follows:
Year ended Feb. 2, 2002 Feb. 3, 2001 Jan. 29, 2000 - ---------------------------------------------------------------------------------------- Parts and Accessories $1,403,775 $1,547,020 $1,571,445 Tires 361,539 410,460 382,565 - ---------------------------------------------------------------------------------------- Total Merchandise Sales 1,765,314 1,957,480 1,954,010 Service 418,401 460,988 440,523 - ---------------------------------------------------------------------------------------- Total Revenues $2,183,715 $2,418,468 $2,394,533 ========================================================================================
Parts and accessories includes batteries, new and rebuilt parts, chemicals, mobile electronics, tools, and various car, truck, van and sport utility vehicle accessories as well as other automotive related items. Service consists of the labor charge for installing merchandise or maintaining or repairing vehicles. RECENT ACCOUNTING PRONOUNCEMENTS In 2001, the EITF issued EITF 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)." This pronouncement deals with accounting for certain types of sales incentives and other consideration offered by companies to their customers. This guidance is effective in fiscal years beginning after December 15, 2001. The Company has analyzed the impact of the adoption of this statement and it will not have a material effect on the Company's consolidated financial statements upon its adoption on February 3, 2002. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This SFAS supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the Disposal of a Segment of a Business." SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company has analyzed the impact of the adoption of this statement and it will not have a material effect on the Company's consolidated financial statements upon its adoption on February 3, 2002. 8 In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses accounting standards for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and is effective for fiscal years beginning after June 15, 2002. The Company is in the process of analyzing the impact of the adoption of this statement on its consolidated financial statements. In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS 141, all business combinations should be accounted for using the purchase method of accounting; use of the pooling-of-interests method is prohibited. The provisions of the statement apply to all business combinations initiated after June 30, 2001. SFAS 142 applies to all acquired intangible assets whether acquired singly, as part of a group, or in a business combination. Adoption of SFAS 142 will result in ceasing amortization of goodwill. All of the provisions of the statement are effective in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. The Company has analyzed the impact of the adoption of this statement and it will not have a material effect on the Company's consolidated financial statements upon its adoption on February 3, 2002. In September 2000, the EITF issued EITF 00-23, "Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FIN 44." This pronouncement addressed practice issues and questions related to accounting for stock compensation primarily under APB No. 25 and FIN 44. The Company has incorporated the guidance provided by the interpretation with no material effect on its consolidated financial statements. In June 2000, the FASB issued FIN 44, "Accounting for Certain Transactions involving Stock Compensation." This interpretation provides additional guidance for APB No. 25, "Accounting for Stock Issued to Employees." The Company has incorporated the guidance provided by the interpretation with no material effect on its consolidated financial statements. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' consolidated financial statements to provide comparability with the current year's presentation. NOTE 2 - DEBT SHORT-TERM BORROWINGS In fiscal 2001, the Company had no short-term borrowing lines. In the third quarter of fiscal 2000, the Company, in conjunction with the acquiring of a new long-term revolving credit agreement, terminated its short-term borrowing line. The Company did have short-term borrowings during fiscal 2000 and the average and maximum month end balances were $4,232 and $13,000, respectively. 9
LONG-TERM DEBT - ------------------------------------------------------------------------------------------------------------ February 2, 2002 February 3, 2001 - ------------------------------------------------------------------------------------------------------------ Medium-term notes, 6.4% to 6.7%, due November 2004 through September 2007 $144,005 $144,005 Medium-term notes, 6.7% to 6.9%, due March 2004 through March 2006 100,000 100,000 7% notes due June 2005 100,000 100,000 6.92% Term Enhanced ReMarketable Securities, due July 2017 100,000 100,000 6.625% notes due May 2003 75,000 75,000 Senior Secured Credit Facility, due July 2003 and July 2006 71,625 - Revolving credit agreement 70,842 127,718 Other notes payable, 3.8% to 8% 7,561 7,668 - ------------------------------------------------------------------------------------------------------------ 669,033 654,391 Less current maturities 124,615 197 - ------------------------------------------------------------------------------------------------------------ Total long-term debt $544,418 $654,194 - ------------------------------------------------------------------------------------------------------------
In June 2001, the Company obtained $90,000 in a Senior Secured Credit Facility. The Facility, which is secured by certain equipment and real estate with a total book value as of February 2, 2002 of $108,633, was issued in two tranches. Tranche A is a term loan for $45,000 with an interest rate based on London Interbank Offered Rate (LIBOR) plus 3.65%. Tranche A is structured as a two-year term loan payable in equal installments with the final payment due in 2003. The weighted average interest rate on Tranche A was 6.7% at February 2, 2002. Tranche B is a term loan for $45,000 with an interest rate of LIBOR plus 3.95%. Tranche B is structured as a five-year term loan payable in equal installments with the final payment due in 2006. The weighted average interest rate on Tranche B was 6.9% at February 2, 2002. The Senior Secured Credit Facility is subject to certain financial covenants. In September 2000, the Company entered into a new revolving credit agreement. The new revolving credit agreement provides up to $225,000 of borrowing availability, which is collateralized by inventory and accounts receivable. Funds may be drawn and repaid anytime prior to September 10, 2004. Sixty days prior to each anniversary date, the Company may request and, upon agreement with the bank, extend the maturity of this facility an additional year. The interest rate on any loan is equal to the LIBOR plus 1.75%, and increases in 0.25% increments as the excess availability falls below $50,000. The revolver is subject to certain financial covenants. This revolver replaces the previous revolver the Company had with nine major banks, which provided up to $200,000 in borrowings. The Company recorded an after-tax extraordinary charge related to the extinguishment of its previous revolving credit agreement of $931. The weighted average interest rate on borrowings under the revolving credit agreement was 6.2% and 8.5% at February 2, 2002 and February 3, 2001, respectively. 10 In February 1998, the Company established a Medium-Term Note program which permitted the Company to issue up to $200,000 of Medium-Term Notes. Under this program the Company sold $100,000 principal amount of Senior Notes, ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March 2006. Additionally, in July 1998, under this note program, the Company sold $100,000 of Term Enhanced ReMarketable Securities with a stated maturity date of July 2017. The Company also sold a call option with the securities, which allows the securities to be remarketed to the public in July 2006 under certain circumstances. If the securities are not remarketed, the Company will be obligated to repay the principal amount in full in July 2017. The level yield to maturity on the securities is approximately 6.85% and the coupon rate is 6.92%. Between July and October 1997, the Company issued $150,000 in Medium-Term Notes with interest rates of 6.4% to 6.7% and maturity dates from November 2004 through September 2007. $50,000 of this debt is redeemable at the option of the holder on July 16, 2002 and $49,000 is redeemable at the option of the holder on September 19, 2002. In June 2000, the Company repurchased $5,995 face value of the $49,000 Medium-Term Note, which was redeemable at the option of the holder on September 19, 2002. The after-tax extraordinary gain was $960. In the third quarter of 2001, the Company reclassed the $50,000 Medium-Term Note and the remaining $43,005 of the $49,000 Medium-Term Note to current liabilities on the consolidated balance sheet. These Medium-Term Notes are redeemable at the option of the holder on July 16, 2002 and September 19, 2002, respectively. The other notes payable have a weighted average interest rate of 4.9% at February 2, 2002 and 5.4% at February 3, 2001, and mature at various times through August 2016. Certain of these notes are collateralized by land and buildings with an aggregate carrying value of approximately $7,260 and $7,398 at February 2, 2002 and February 3, 2001, respectively.
CONVERTIBLE DEBT - ------------------------------------------------------------------------------------------------------------ February 2, 2002 February 3, 2001 - ------------------------------------------------------------------------------------------------------------ Zero Coupon Convertible Subordinated Notes $ - $158,555 - ------------------------------------------------------------------------------------------------------------ - 158,555 Less current maturities - 158,555 - ------------------------------------------------------------------------------------------------------------ Total long-term convertible debt $ - $ - - ------------------------------------------------------------------------------------------------------------
On September 20, 1996, the Company issued $271,704 principal amount (at maturity) of Liquid Yield Option Notes (LYONs) with a price to the public of $150,000. The net proceeds to the Company were $146,250. The issue price of each such LYON was $552.07 and required no periodic payments of interest. The LYONs had a maturity date of September 20, 2011, at $1,000 per LYON, representing a yield to maturity of 4.0% per annum (computed on a semiannual bond equivalent basis). 11 In April 2000, the Company repurchased $30,200 face value of its LYONs at a price of $520 per LYON. The book value of the repurchased LYONs was $19,226 and the after-tax extraordinary gain was $2,025. In May 2001, the Company repurchased $77,600 face value of its LYONs at a price of $649 per LYON. The book value of the repurchased LYONs was $51,517 and the after-tax extraordinary gain was $228. In July 2001, the Company repurchased $3,000 face value of its LYONs at a price of $656 per LYON. The book value of the repurchased LYONs was $2,006. In September 2001, the Company repurchased $159,702 face value of its LYONs which were redeemed at the option of the holder at a price of $673 per LYON. The book value of the repurchased LYONs was $107,475 and the after-tax extraordinary loss was $993. In November 2001, the Company repurchased the remaining $1,202 face value of its LYONs which were redeemed for a price of $677 per LYON. The book value of the repurchased LYONs was $814. Several of the Company's debt agreements require the maintenance of certain financial ratios and compliance with covenants. Approximately $36,133 of the Company's net worth was not restricted by these covenants as of February 2, 2002. The Company was in compliance with all such ratios and covenants at February 2, 2002. The annual maturities, of all long-term debt for the next five years are $124,615 in 2002, $98,714 in 2003, $187,869 in 2004, $109,016 in 2005 and $148,548 in 2006. These maturities include amounts for early redemption, which is at the option of the holders. 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 $37,887 at February 2, 2002. NOTE 3 - LEASE AND OTHER COMMITMENTS In May 2001, the Company sold certain operating assets for $14,000. The assets were leased back from the purchaser in a lease structured as a one-year term with three one-year renewal options. The resulting lease is being accounted for as an operating lease and the gain of $3,817 from the sale of the certain operating assets is deferred until the lease term is completed and the residual guarantee is satisfied, at which time the gain will be recorded in costs of merchandise sales and costs of service revenue. In January 2001, the Company sold certain assets for $10,464. The assets were leased back from the purchaser on a month to month renewable term basis with a residual guarantee given by the Company at the end of the lease term. The resulting lease is being accounted for as an operating lease and the gain of $593 from the sale of the certain assets is deferred until the lease term is completed and the residual guarantee is satisfied, at which time the gain will be recorded in costs of merchandise sales. 12 In September 2000, the Company entered into a $143,000 real estate operating lease facility with leased property trusts, established as an unconsolidated special-purpose entity. The real estate operating lease facility, which has an interest rate of LIBOR plus 1.85%, replaces $143,000 of leases, which had an interest rate of LIBOR plus 2.27%. The Company, as a result of replacing the existing operating leases, recorded a pretax charge to fiscal 2000 earnings of $1,630 of unamortized lease costs, which was recorded in the costs of merchandise sales section of the consolidated statement of operations. The $143,000 real estate operating lease facility has a four-year term with a guaranteed residual value. At February 2, 2002, the maximum amount of the residual guarantee relative to the real estate under the lease is approximately $92,372. The Company expects the fair market value of the leased real estate, subject to the purchase option or sale to a third party, to substantially reduce or eliminate the Company's payment under the residual guarantee at the end of the lease term. The Company leases certain property and equipment under operating leases which contain renewal and escalation clauses. Future minimum rental commitments for noncancelable operating leases in effect as of February 2, 2002 are shown below. All amounts are exclusive of lease obligations and sublease rentals applicable to stores for which reserves in conjunction with the Profit Enhancement Plan have previously been established. The aggregate minimum rental commitments for such leases having terms of more than one year are approximately: 2002-$51,887; 2003-$44,925; 2004-$41,880; 2005-$35,888; 2006-$36,037; thereafter-$328,786. Rental expenses incurred for operating leases in 2001, 2000 and 1999 were $64,434, $63,206 and $59,890. In October 2001, the Company entered into a contractual commitment to purchase media advertising services with equal annual purchase requirements totaling $39,773 over the next four years. As of February 2, 2002, the remaining balance for this commitment was $34,705. NOTE 4 - STOCKHOLDERS' EQUITY SHARE REPURCHASE - TREASURY STOCK On February 1, 1999, the Company repurchased 11,276,698 of its common shares outstanding pursuant to a Dutch Auction self-tender offer at a price of $16.00 per share. The repurchased shares included 1,276,698 common shares which were repurchased as a result of the Company exercising its option to purchase an additional 2% of its outstanding shares. Expenses related to the share repurchase were approximately $1,638 and were included as part of the cost of the shares acquired. A portion of the treasury shares will be used by the Company to provide benefits to employees under its compensation plans and in conjunction with the Company's dividend reinvestment program. As of February 2, 2002, the Company has reflected 10,284,446 shares of its common stock at a cost of $166,045 as "cost of shares in treasury" on the Company's consolidated balance sheet. RIGHTS AGREEMENT On December 31, 1997, 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 5, 1997), without the proper consent of the Company's Board of Directors, acquires 15% or more, or makes an offer to acquire 15% or more of the Company's outstanding stock. When exercisable, the rights entitle the holder to purchase one share of the Company's common stock for $125. Under certain circumstances, including the acquisition of 15% 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 $.01 per right anytime before a 15% position has been acquired and for 10 days thereafter, at which time the rights become nonredeemable. The rights expire on December 31, 2007. 13 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 through 2023 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. In connection with the Dutch Auction self-tender offer, 37,230 shares were tendered at a price of $16.00 per share in fiscal 1999. At February 2, 2002, the Company has reflected 2,195,270 shares of its common stock at a cost of $59,264 as "cost of shares in benefits trust" on the Company's consolidated balance sheet. NOTE 5 - 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 believed would improve its performance and recorded a charge of $71,234. The charges included expenses related to the closure of the 38 under-performing stores and two distribution centers, certain equipment write-offs, the abandonment of two development parcels and severance costs. The charges were recorded in costs of merchandise sales, costs of service revenue and selling, general and administrative expenses on the consolidated statement of operations as $62,665, $5,661 and $2,908, respectively. PLAN UPDATE The Profit Enhancement Plan has been progressing closely to the schedule originally estimated by the Company. Each of the 38 stores and one of the distribution centers identified for closure were closed on or before October 28, 2000. The second distribution center was closed on November 30, 2000. All employees were notified of their separation on or before October 28, 2000. The assets held for disposal were reclassed and depreciation was stopped on October 28, 2000 which was concurrent with the announcement of the Profit Enhancement Plan and the closure of the stores. The Company is progressing towards the disposal of the 38 stores, 11 of which were owned and 27 were leased by the Company, two distribution centers and two development parcels which were closed or abandoned in connection with the Profit Enhancement Plan. As of the end of fiscal 2001, the Company had successfully disposed of ten of the closed stores, the two distribution centers and one of the development parcels. The Company estimates the remaining closed or abandoned properties will be disposed of by the end of fiscal 2002. ASSETS HELD FOR DISPOSAL The assets held for disposal as of the end of fiscal 2001 and 2000 included the building and land of the remaining closed stores owned by the Company, additional development parcels, and equipment from the remaining closed stores. The carrying values of the building, land and equipment were $16,007 and $22,629 for fiscal years 2001 and 2000, respectively. In fiscal 2001, the Company was able to sell three of the 13 owned properties for net proceeds of $4,103. The sales resulted in a loss of $691 which was recorded in costs of merchandise sales and selling, general and administrative expenses on the consolidated statement of operations. Additionally, the Company recorded a downward revision in the estimated values for certain properties of $1,496 in fiscal 2001. This expense was recorded in costs of merchandise sales on the consolidated statement of operations. In fiscal 2001, the Company recorded a loss for equipment held for disposal of $162, which was due primarily to a reduction in the Company's estimated proceeds. 14 The Company is actively marketing the remaining ten owned properties and has made adjustments to property values in accordance with the change in market values. As a result, the Company has extended the original estimated time needed for selling the owned properties. It is expected that seven of these properties with a carrying value of $10,663 will be disposed of by the second quarter 2002, with the remaining three properties with a carrying value of $4,746 expected to be disposed of by the end of the third quarter 2002. The Company will continue to monitor the status for disposing of its owned properties and make any necessary adjustments. An adjustment was reflected in on-going expenses for the increased time required to maintain these properties. LEASE RESERVE As of the end of fiscal 2001, the Company was able to sublease three and exit the lease of an additional five leased properties. The Company expects the remaining 19 leased properties to be subleased or otherwise disposed of by the end of fiscal 2002. The Company increased the reserve for leases $1,644 during fiscal 2001. These changes in the reserve were a result of a $3,834 increase due primarily to an increase in the estimated amount of time it will take the Company to sublease certain properties and a decrease in estimated sublease rates. The reserve increase was offset, in part, by a $2,190 decrease due primarily to lower than estimated commissions and lease exit costs on subleases for certain properties. The effects of these adjustments were recorded in costs of merchandise sales and costs of service revenue. In fiscal 2000, the Company increased the lease reserve by $113. These changes in the reserve were a result of a $1,176 increase due to an increase in the estimated lease payments related to the closed stores. The increase was offset, in part, by a $1,063 decrease due primarily to an increase in the estimated sublease rates coupled with lower lease related expenses. ON-GOING EXPENSES The on-going expense reserve represents exit activity costs which are not associated with or do not benefit activities that will be continued. These costs are necessary to maintain the remaining closed stores until sold, sublet or otherwise disposed of. The on-going costs reserve includes general maintenance costs such as utilities, security, telephone, real estate taxes and personal property taxes which will be incurred until the properties are disposed. The reserve for on-going costs will diminish as sites are sold, sublet or otherwise disposed of and such activities are estimated to be completed by the end of fiscal 2002. In fiscal 2001, the Company increased the on-going expense reserve $595. This change was a result of a $1,214 increase in the reserve due to an increase in the estimated time it is expected to take to sublease, sell or otherwise dispose of the remaining properties offset, in part, by a $619 decrease due to lower than anticipated cost for utilities and security costs. In fiscal 2000, the Company increased the on-going expense reserve $361. This change was due to an increase in the estimated time it is expected to take to sublease, sell or otherwise dispose of the remaining properties. SEVERANCE RESERVE The total number of employees separated due to the Profit Enhancement Plan was approximately 1,000. 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 $1,353. In fiscal 2001, the Company reversed $69 of severance due primarily to certain employees originally expected to be receiving severance failing to qualify to receive payments and lower than estimated final payments. Each reversal was recorded through the line it was originally charged in the consolidated statements of operations. 15 In fiscal 2000, the Company reversed $272 of severance due to employees being accepted into positions in other locations of the Company and employees failing to qualify to receive payments. Each reversal was recorded through the line it was originally charged in the consolidated statements of operations. NON-RESERVABLE EXPENSES Non-reservable expenses are those costs which could not be reserved, but were incurred as a result of the Profit Enhancement Plan. These expenses related to costs incurred which had a future economic benefit to the Company such as the transferring of inventory and equipment out of properties closed by the Profit Enhancement Plan. The expenses of this nature incurred were $678 and $3,611 for fiscal 2001 and fiscal 2000, respectively. The fiscal 2001 expenses incurred related to the completion of the removal of inventory and equipment from the closed distribution centers. The fiscal 2000 expenses were incurred for inventory and equipment handling related to the closure of the 38 stores and two distribution centers. The fiscal 2000 expenses were offset by a recovery of certain benefit expenses related to the reduction in workforce. 16 PROFIT ENHANCEMENT PLAN EXPENSE SUMMARY Below are tables summarizing expenses related to the Profit Enhancement Plan for fiscal 2001 and fiscal 2000. The details and reasons for the original charge and changes to the charge are as described above in the respective reserve categories.
FISCAL 2001 Non-Reservable Income Statement Reserve Expense Total Classification Adjustments Incurred Expense - ----------------------------------------------------------------- Costs of merchandise sales $3,528 $ 641 $4,169 Costs of service revenue 804 9 813 Selling, general and administrative 187 28 215 - ----------------------------------------------------------------- Total expenses $4,519 $ 678 $5,197 - -----------------------------------------------------------------
FISCAL 2000 Non-Reservable Income Statement Original Reserve Expense Total Classification Charge Adjustments Incurred Expense - ----------------------------------------------------------------------------- Costs of merchandise sales $62,665 $ 939 $3,481 $67,085 Costs of service revenue 5,661 (177) (252) 5,232 Selling, general and administrative 2,908 (662) 382 2,628 - ----------------------------------------------------------------------------- Total expenses $71,234 $ 100 $3,611 $74,945 - -----------------------------------------------------------------------------
17 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 properties. The following chart reconciles the change in reserve from the origination of the charge through the fiscal year ended February 2, 2002. All additions and adjustments were charged or credited through the appropriate line items on the statement of operations.
Lease Fixed On-going Expenses Assets Severance Expenses Total - ----------------------------------------------------------------------------------------- Original charges $ 7,916 $57,680 $ 1,694 $ 3,944 $71,234 Addition 1,176 1,074 - 361 2,611 Utilization (975) (58,754) (1,213) (1,345) (62,287) Adjustment (1,063) - (272) - (1,335) - ----------------------------------------------------------------------------------------- Reserve balance at Feb. 3, 2001 7,054 - 209 2,960 10,223 - ----------------------------------------------------------------------------------------- Addition 3,834 2,440 - 1,214 7,488 Utilization (5,548) (2,349) (140) (2,235) (10,272) Adjustment (2,190) (91) (69) (619) (2,969) - ----------------------------------------------------------------------------------------- Reserve balance at Feb. 2, 2002 $ 3,150 $ - $ - $ 1,320 $ 4,470 - -----------------------------------------------------------------------------------------
NOTE 6 - PENSION AND SAVINGS PLANS The Company has a defined benefit 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 are made using the "projected unit credit method." Variances between actual experience and assumptions for costs and returns on assets are amortized over the remaining service lives of employees under the plan. 18 As of December 31, 1996, the Company froze the accrued benefits under the plan and active participants became fully vested. The plan's trustee will continue to maintain and invest plan assets and will administer benefit payments. Pension expense (income) includes the following:
Feb. 2, Feb. 3, Jan. 29, Year ended 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Interest cost $ 1,895 $ 1,848 $ 1,826 Expected return on plan assets (2,162) (2,261) (1,915) Amortization of transition asset (214) (214) (214) Recognized actuarial loss 992 890 597 - ----------------------------------------------------------------------------------------------------------------------------- Total pension expense $ 511 $ 263 $ 294 - -----------------------------------------------------------------------------------------------------------------------------
Pension plan assets are stated at fair market value and are composed primarily of money market funds, stock index funds, fixed income investments with maturities of less than five years, and the Company's common stock. 19 The following table sets forth the reconciliation of the benefit obligation, fair value of plan assets and funded status of the Company's defined benefit plan:
Feb. 2, Feb. 3, Year ended 2002 2001 - -------------------------------------------------------------------------------------------------------------- Change in Benefit Obligation: Benefit obligation at beginning of year $25,726 $26,955 Interest cost 1,895 1,848 Actuarial loss (gain) 944 (2,041) Benefits paid (1,056) (1,036) - --------------------------------------------------------------------------------------------------------------- Benefit obligation at end of year $27,509 $25,726 - --------------------------------------------------------------------------------------------------------------- Change in Plan Assets: Fair value of plan assets at beginning of year $25,854 $26,974 Actual return on plan assets (net of expenses) 1,816 (84) Employer contributions 895 - Benefits paid (1,056) (1,036) - --------------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year $27,509 $25,854 - --------------------------------------------------------------------------------------------------------------- Reconciliation of the Funded Status: Funded status $ - $ 128 Unrecognized transition asset - (214) Unrecognized actuarial loss 3,960 3,663 - --------------------------------------------------------------------------------------------------------------- Net amount recognized at year-end as prepaid benefit cost $ 3,960 $ 3,577 - --------------------------------------------------------------------------------------------------------------- Weighted-Average Assumptions: Discount rate 7.25% 7.40% Expected return on plan assets 8.50% 8.50% - ---------------------------------------------------------------------------------------------------------------
The Company had no comprehensive income attributable to the change in the minimum pension liability in fiscal years 2001 and 2000. The Company recorded other comprehensive income, net of tax, attributable to the change in the minimum pension liability of $4,210 in fiscal year 1999. The Company has 401(k) savings plans which cover 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 plans' contribution expense was $4,516, $4,947 and $5,644 in fiscal years 2001, 2000 and 1999, respectively. 20 NOTE 7 - NET EARNINGS PER SHARE For fiscal years 2001, 2000 and 1999, basic earnings per share are based on net earnings divided by the weighted average number of shares outstanding during the period. Diluted earnings per share assumes conversion of convertible subordinated notes, zero coupon convertible subordinated notes and the dilutive effects of stock options. Adjustments for convertible securities were antidilutive in 2001, 2000 and 1999, and therefore excluded from the computation of diluted EPS; all of these securities were retired as of the end of fiscal 2001 and will not effect future calculations. Options to purchase 3,940,587, 5,032,772 and 4,755,657 shares of common stock were outstanding at February 2, 2002, February 3, 2001 and January 29, 2000, respectively, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market prices of the common shares on such dates. The following schedule presents the calculation of basic and diluted earnings per share for income before extraordinary items: (In thousands, except per share amounts)
Fiscal 2001 Fiscal 2000 Fiscal 1999 ---------------------------------- ---------------------------------- --------------------------------- Earnings Shares Per share Earnings Shares Per share Earnings Shares Per share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator)(Denominator) Amount ----------- ------------ ------ ----------- ------------- ------ ---------- ------------ ------ Basic EPS Before Extraordinary Items Earnings available to common shareholders $36,100 51,348 $ .70 $(53,148) 51,088 $(1.04) $ 29,303 50,665 $.58 ====== ====== ==== Effect of Dilutive Securities Common shares assumed issued upon exercise of dilutive stock options - 687 - - - 175 ------- ------ ------- ------ ------- ------ Diluted EPS Before Extraordinary Items Earnings available to common shareholders assuming conversion $36,100 52,035 $ .69 $(53,148) 51,088 $(1.04) $ 29,303 50,840 $.58 ======= ====== ====== ======== ====== ====== ======== ====== ====
21 NOTE 8 - STOCK OPTION PLANS Options to purchase the Company's common stock have been granted to key employees and 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. 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. Additional shares in the amounts of 2,000,000, 1,500,000 and 1,500,000 were authorized by stockholders on June 4, 1997, May 31, 1995 and June 1, 1993, respectively. In April 2001, the Board of Directors amended the 1990 Stock Incentive Plan to extend the expiration date for the grant of non-qualified stock options and restricted stock thereunder to directors, officers and employees until March 31, 2005. Under this plan, both incentive and nonqualified stock options may be granted to eligible participants. Incentive stock options are fully exercisable on the second or third anniversary of the grant date or become exercisable over a four-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. Nonqualified options are fully exercisable on the third anniversary of their grant date or become exercisable over a four-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 2, 2002, 478,367 remain available for grant. On June 2, 1999 the stockholders approved the 1999 Stock Incentive Plan which authorized the issuance of restricted stock and/or options to purchase up to 2,000,000 shares of the Company's common stock. Under this plan, both incentive and nonqualified stock options may be granted to eligible participants. The incentive stock options and nonqualified stock options are fully exercisable on the third anniversary of the grant date or become exercisable over a four-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 2, 2002, 102,000 shares remain available for grant.
Equity Equity compensation compensation plans approved plans not approved by shareholders by shareholders Total - -------------------------------------------------------------------------------------- Number of securities to be issued upon exercise of outstanding options 6,316,787 - 6,316,787 Weighted average exercise price of outstanding options $ 16.48 $ - $ 16.48 Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in top row) 580,367 - 580,367 - --------------------------------------------------------------------------------------
22 Stock option transactions for the Company's stock option plans are summarized as follows:
Fiscal 2001 Fiscal 2000 Fiscal 1999 ------------------------ ----------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - --------------------------------------------------------------------------------------------------------------------------- Outstanding - beginning of year 5,039,772 $19.63 5,413,622 $22.05 4,982,761 $23.02 Granted 1,757,000 6.75 1,160,450 6.34 1,558,450 16.08 Exercised (19,400) 8.77 - - (519,850) 12.50 Cancelled (460,585) 14.26 (1,534,300) 18.10 (607,739) 22.75 - --------------------------------------------------------------------------------------------------------------------------- Outstanding - end of year 6,316,787 16.48 5,039,772 19.63 5,413,622 22.05 - --------------------------------------------------------------------------------------------------------------------------- Options exercisable at year end 3,422,187 22.29 2,501,678 24.93 2,489,162 24.66 Weighted average estimated fair value of options granted 2.85 2.54 6.60 - ---------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at February 2, 2002:
Options Outstanding Options Exercisable ------------------------------------------------- ------------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at Feb. 2, 2002 Life Price at Feb.2, 2002 Price - --------------------------------------------------------------------------------------------------------------------------- $ 5.31 to $13.00 2,447,200 9 years $ 6.56 379,200 $ 6.56 $13.01 to $21.00 1,397,230 7 years 15.58 747,630 15.53 $21.01 to $29.00 1,436,792 5 years 23.30 1,259,792 23.34 $29.01 to $37.38 1,035,565 4 years 31.65 1,035,565 31.65 - --------------------------------------------------------------------------------------------------------------------------- $ 5.31 to $37.38 6,316,787 3,422,187 - ---------------------------------------------------------------------------------------------------------------------------
23 The Company applies APB No. 25, "Accounting for Stock Issued to Employees," and the guidance of FIN 44 "Accounting for Certain Transactions involving Stock Compensation" and EITF 00-23 "Issues Related to Accounting for Stock Compensation under APB Opinion No. 25 and FIN 44" in accounting for its stock option plans. Accordingly, no compensation expense has been recognized for its stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates and recognized as compensation expense on a straight-line basis over the vesting period of the grant consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net earnings (loss) and net earnings (loss) per share would have been reduced to the pro forma amounts indicated as follows:
- ----------------------------------------------------------------------------------------------------------- Fiscal 2001 Fiscal 2000 Fiscal 1999 - ----------------------------------------------------------------------------------------------------------- Net earnings (loss): Income (loss) before extraordinary items $32,208 $(57,365) $24,450 Extraordinary items (765) 2,054 - - ----------------------------------------------------------------------------------------------------------- Net income (loss) $31,443 $(55,311) $24,450 - ----------------------------------------------------------------------------------------------------------- Earnings (loss) per share - basic: Income (loss) before extraordinary items $ .63 $ (1.12) $ .48 Extraordinary items (.01) .04 - - ----------------------------------------------------------------------------------------------------------- Net income (loss) $ .62 $ (1.08) $ .48 - ----------------------------------------------------------------------------------------------------------- Earnings (loss) per share - diluted: Income (loss) before extraordinary items $ .62 $ (1.12) $ .48 Extraordinary items (.01) .04 - - ----------------------------------------------------------------------------------------------------------- Net income (loss) $ .61 $ (1.08) $ .48 - -----------------------------------------------------------------------------------------------------------
The pro forma effects on net earnings for fiscal years 2001, 2000 and 1999 are not representative of the pro forma effect on net earnings in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. The fair value of each option granted during fiscal years 2001, 2000 and 1999 is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: (i) dividend yield of 1.29%, 0.90% and 0.78%, respectively; (ii) expected volatility of 39%, 40% and 34%, respectively; (iii) risk-free interest rate ranges of 2.8% to 5.5%, 5.8% to 6.7% and 5.0% to 6.5%, respectively; and (iv) ranges of expected lives of 4 years to 8 years for fiscal years 2001, 2000 and 1999. 24 NOTE 9 - INCOME TAXES The provision for income taxes includes the following:
Feb. 2, Feb. 3, Jan. 29, Year ended 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Current: Federal $ 12,640 $ (6,300) $ 12,653 State 240 353 788 Deferred: Federal 6,680 (22,776) 2,074 State 744 (1,798) 149 - ---------------------------------------------------------------------------------------------------------------------------------- $ 20,304 $(30,521) $ 15,664 - ---------------------------------------------------------------------------------------------------------------------------------- A reconciliation of the statutory federal income tax rate to the effective rate of the provision for income taxes follows: Feb. 2, Feb. 3, Jan. 29, Year ended 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Statutory tax rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefits 1.2 1.2 1.4 Job credits (0.3) 0.3 (1.1) Other, net 0.1 - (0.5) - ----------------------------------------------------------------------------------------------------------------------------------- 36.0% 36.5% 34.8% - -----------------------------------------------------------------------------------------------------------------------------------
Items that gave rise to significant portions of the deferred tax accounts are as follows: Feb. 2, Feb. 3, 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Inventories $ 3,841 $ 8,431 Vacation accrual 4,990 5,014 Store closing reserves 1,968 5,661 Accrued leases 7,737 7,966 Real estate tax (2,188) (2,091) Insurance 4,621 4,009 Benefit accruals (5,693) (2,347) Carry forward credits - (2,401) Other 544 1,167 - ----------------------------------------------------------------------------------------------------------------------------------- $ 15,820 $ 25,409 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation $ 69,093 $ 68,709 State taxes (2,643) (2,040) Legal (2,438) - Other 15 (477) - ----------------------------------------------------------------------------------------------------------------------------------- $ 64,027 $ 66,192 - ----------------------------------------------------------------------------------------------------------------------------------- Net deferred tax liability $ 48,207 $ 40,783 - -----------------------------------------------------------------------------------------------------------------------------------
25 NOTE 10 - CONTINGENCIES The Company is a defendant in an action entitled "Coalition for a Level Playing Field, L.L.C., et al. v. AutoZone, Inc., et al.," in the United States District Court for the Eastern District of New York. There are over 100 plaintiffs, consisting of automotive jobbers, warehouse distributors and a coalition of several trade associations; the defendants are AutoZone, Inc., Wal-Mart Stores, Inc., Advance Stores Company, Inc., CSK Auto, Inc., the Company, Discount Auto Parts, Inc., O'Reilly Automotive, Inc. and Keystone Automotive Operations, Inc. The plaintiffs allege that the defendants violated various provisions of the Robinson-Patman Act by, among other things, knowingly inducing and receiving various forms of discriminatory prices from automotive parts manufacturers. The plaintiffs are seeking compensatory damages, which would be trebled under applicable law, as well as injunctive and other equitable relief. The Company believes the claims are without merit and intends to vigorously defend this action. The Company is also party to various other lawsuits and claims, including purported class actions, arising in the normal course of business. In the opinion of management, these lawsuits and claims, including the cases above, are not, singularly or in the aggregate, material to the Company's financial position or results of operations. NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows:
February 2, 2002 February 3, 2001 ------------------------ ----------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - -------------------------------------------------------------------------------------------------------------------------- Assets: Cash and cash equivalents $ 15,981 $ 15,981 $ 7,995 $ 7,995 Accounts receivable 18,052 18,052 16,792 16,792 Liabilities: Accounts payable 216,085 216,085 204,755 204,755 Long-term debt including current maturities 669,033 635,080 654,391 472,770 Zero coupon convertible subordinated notes - - 158,555 148,525 - --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE The carrying amounts approximate fair value because of the short maturity of these items. LONG-TERM DEBT INCLUDING CURRENT MATURITIES AND ZERO COUPON CONVERTIBLE SUBORDINATED NOTES INCLUDING CURRENT MATURITIES 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 2, 2002 and February 3, 2001. 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 those dates, and current estimates of fair value may differ significantly from amounts presented herein. 26 NOTE 12 - SUPPLEMENTAL GUARANTOR INFORMATION- CONVERTIBLE SENIOR NOTES In May 2002, the Company sold 4.25% Convertible Senior Notes for $150,000,000. The notes are fully and unconditionally, and jointly and severally, guaranteed by the Company's wholly-owned direct and indirect operating subsidiaries ("subsidiary guarantors"), The Pep Boys Manny Moe & Jack of California, Pep Boys-Manny, Moe & Jack of Delaware, Inc. and Pep Boys- Manny, Moe & Jack of Puerto Rico, Inc. The following are consolidating balance sheets of the Company as of February 2, 2002 and February 3, 2001 and the related consolidating statements of operations and cash flows for the years ended February 2, 2002, February 3, 2001 and January 29, 2000:
CONSOLIDATING BALANCE SHEET Non- Subsidiary guarantor Year ended February 2, 2002 Pep Boys Guarantors Subsidiaries Elimination Consolidated - ---------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents....................... $ 4,796 $ 10,874 $ 311 $ - $ 15,981 Accounts receivable............................. 17,124 928 - - 18,052 Merchandise inventories......................... 176,696 342,777 - - 519,473 Prepaid expenses................................ 42,384 (15,815) 17,851 (2,250) 42,170 Deferred income taxes........................... 8,395 483 6,942 - 15,820 Other........................................... 3 - 67,305 (15,000) 52,308 Assets held for disposal........................ 2,755 13,252 - - 16,007 - ---------------------------------------------------------------------------------------------------------------------------- Total Current Assets..................... 252,153 352,499 92,409 (17,250) 679,811 - ---------------------------------------------------------------------------------------------------------------------------- Property and Equipment - at cost: Land............................................. 92,661 185,065 - - 277,726 Buildings and improvements....................... 308,444 613,621 - - 922,065 Furniture, fixtures and equipment................ 273,028 310,890 - - 583,918 Construction in progress......................... 5,380 5,361 - - 10,741 --------- ---------- -------- -------- --------- 679,513 1,114,937 - - 1,794,450 Less accumulated depreciation and amortization... 293,704 383,260 - - 676,964 --------- ---------- -------- -------- ---------- Total Property and Equipment.................. 385,809 731,677 - - 1,117,486 Investment in subsidiaries........................ 1,367,117 - 1,050,494 (2,417,611) - Intercompany receivable........................... - 575,377 279,714 (855,091) - Other............................................. 13,355 2,000 - - 15,355 - ---------------------------------------------------------------------------------------------------------------------------- Total Assets............................. $ 2,018,434 $1,661,553 $1,422,617 $(3,289,952) $1,812,652 - ---------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................................ $ 216,076 $ 9 $ - $ - $ 216,085 Accrued expenses................................ 84,009 65,636 130,485 (38,857) 241,273 Current maturities of convertible debt.......... - - - - - Current maturities of long-term debt............ 124,615 - - - 124,615 - ---------------------------------------------------------------------------------------------------------------------------- Total current liabilities................ 424,700 65,645 130,485 (38,857) 581,973 - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt, less current maturities........... 497,603 46,815 - - 544,418 Intercompany liabilities.......................... 466,460 388,631 - (855,091) - Deferred income taxes............................. 32,172 31,855 - - 64,027 Deferred gain on sale leaseback................... 1,316 3,128 - - 4,444 Stockholders' Equity: Common stock.................................... 63,911 1,501 101 (1,602) 63,911 Additional paid-in capital...................... 177,244 240,359 200,398 (440,757) 177,244 Retained earnings............................... 580,337 883,619 1,091,633 (1,953,645) 601,944 Less: Cost of shares in treasury...................... 166,045 - - - 166,045 Cost of shares in benefits trust................ 59,264 - - - 59,264 - ---------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity............... 596,183 1,125,479 1,292,132 (2,396,004) 617,790 - ---------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 2,018,434 $1,661,553 $1,422,617 $(3,289,952) $1,812,652 - ----------------------------------------------------------------------------------------------------------------------------
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CONSOLIDATING BALANCE SHEET Non- Subsidiary guarantor Year ended February 3, 2001 Pep Boys Guarantors Subsidiaries Elimination Consolidated - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents....................... $ 482 $ 7,038 $ 475 $ - $ 7,995 Accounts receivable............................. 6,664 10,128 - - 16,792 Merchandise inventories......................... 186,370 361,365 - - 547,735 Prepaid expenses................................ 20,117 10,491 16,672 (18,575) 28,705 Deferred income taxes........................... 11,344 7,539 6,526 - 25,409 Other........................................... 2 - 50,399 - 50,401 Assets held for disposal........................ 4,825 17,804 - - 22,629 - ----------------------------------------------------------------------------------------------------------------------------- Total Current Assets..................... 229,804 414,365 74,072 (18,575) 699,666 - ----------------------------------------------------------------------------------------------------------------------------- Property and Equipment - at cost: Land............................................. 92,676 185,341 - - 278,017 Buildings and improvements....................... 305,676 612,355 - - 918,031 Furniture, fixtures and equipment................ 279,690 339,269 - - 618,959 Construction in progress......................... 3,481 11,551 - - 15,032 ----------- ---------- -------- -------- ----------- 681,523 1,148,516 - - 1,830,039 Less accumulated depreciation and amortization... 269,522 366,282 - - 635,804 ----------- ---------- -------- -------- ----------- Total Property and Equipment.................. 412,001 782,234 - - 1,194,235 Investment in subsidiaries........................ 1,302,007 - 976,585 (2,278,592) - Intercompany receivable........................... - 452,553 276,545 (729,098) - Other............................................. 10,554 1,749 - - 12,303 - ----------------------------------------------------------------------------------------------------------------------------- Total Assets............................. $ 1,954,366 $1,650,901 $1,327,202 $(3,026,265) $1,906,204 - ----------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................................ $ 204,746 $ 9 $ - $ - $ 204,755 Accrued expenses................................ 100,338 45,375 121,421 (40,182) 226,952 Current maturities of convertible debt.......... 158,555 - - - 158,555 Current maturities of long-term debt............ 197 - - - 197 - ----------------------------------------------------------------------------------------------------------------------------- Total current liabilities................ 463,836 45,384 121,421 (40,182) 590,459 - ----------------------------------------------------------------------------------------------------------------------------- Long-term debt, less current maturities........... 569,650 84,544 - - 654,194 Intercompany liabilities.......................... 313,497 415,601 - (729,098) - Deferred income taxes............................. 34,011 32,181 - - 66,192 Deferred gain on sale leaseback................... 213 380 - - 593 Stockholders' Equity: Common stock.................................... 63,911 1,501 101 (1,602) 63,911 Additional paid-in capital...................... 177,243 240,357 200,401 (440,757) 177,244 Retained earnings............................... 560,062 830,953 1,005,279 (1,814,626) 581,668 Less: Cost of shares in treasury...................... 168,793 - - - 168,793 Cost of shares in benefits trust................ 59,264 - - - 59,264 - ----------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity............... 573,159 1,072,811 1,205,781 (2,256,985) $ 594,766 - ----------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 1,954,366 $1,650,901 $1,327,202 $(3,026,265) $1,906,204 - -----------------------------------------------------------------------------------------------------------------------------
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CONSOLIDATING STATEMENT OF OPERATIONS Non- Subsidiary guarantor Year ended February 2, 2002 Pep Boys Guarantors Subsidiaries Elimination Consolidated - ----------------------------------------------------------------------------------------------------------------------------- Merchandise sales............................. $ 605,220 $1,160,094 $ - $ - $1,765,314 Service revenue............................... 148,146 270,255 - - 418,401 Other revenue................................. - - 22,588 (22,588) - ------------ ---------- ---------- ----------- ----------- Total revenues................................ 753,366 l,430,349 22,588 (22,588) 2,183,715 Costs of merchandise sales.................... 429,108 821,300 - - 1,250,408 Costs of service revenue...................... 110,145 205,766 - - 315,911 Costs of other revenue........................ - - 26,118 (26,118) - ------------ ---------- ---------- ----------- ----------- Total costs of revenues....................... 539,253 1,027,066 26,118 (26,118) 1,566,319 Gross profit from merchandise sales........... 176,112 338,794 - - 514,906 Gross profit from service revenue............. 38,001 64,489 - - 102,490 Gross (loss) profit from other revenue........ - - (3,530) 3,530 - ------------ ---------- ---------- ----------- ----------- Total gross profit (loss)..................... 214,113 403,283 (3,530) 3,530 617,396 Selling, general and administrative expenses.. 172,529 337,583 304 3,530 513,946 ------------ ---------- ---------- ----------- ----------- Operating profit (loss)....................... 41,584 65,700 (3,834) - 103,450 Equity in earnings of subsidiaries............ 65,109 - 73,910 (139,019) - Non-operating (expense) income................ (16,390) 50,402 22,979 (52,702) 4,289 Interest expense.............................. 72,243 31,794 - (52,702) 51,335 ------------ ---------- ---------- ----------- ----------- Earnings before income taxes.................. 18,060 84,308 93,055 (139,019) 56,404 Income tax (benefit) expense.................. (18,040) 31,643 6,701 - 20,304 Net earnings before extraordinary item........ 36,100 52,665 86,354 (139,019) 36,100 Extraordinary item (765) - - - (765) ------------ ---------- ---------- ----------- ----------- Net earnings (loss)........................... $ 35,335 $ 52,665 $ 86,354 $ (139,019) $ 35,335 ============ ========== ========== =========== ===========
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CONSOLIDATING STATEMENT OF OPERATIONS Non- Subsidiary guarantor Year ended February 3, 2001 Pep Boys Guarantors Subsidiaries Elimination Consolidated - ----------------------------------------------------------------------------------------------------------------------------- Merchandise sales............................. $ 670,807 $1,286,673 $ - $ - $1,957,480 Service revenue............................... 164,097 296,891 - - 460,988 Other revenue................................. - - 22,672 (22,672) - ------------ ---------- ---------- ----------- ----------- Total revenues................................ 834,904 l,583,564 22,672 (22,672) 2,418,468 Costs of merchandise sales.................... 507,069 998,373 - - 1,505,442 Costs of service revenue...................... 132,944 248,231 - - 381,175 Costs of other revenue........................ - - 24,097 (24,097) - ------------ ---------- ----------- ----------- ----------- Total costs of revenues....................... 640,013 1,246,604 24,097 (24,097) 1,886,617 Gross profit from merchandise sales........... 163,738 288,300 - - 452,038 Gross profit from service revenue............. 31,153 48,660 - - 79,813 Gross (loss) profit from other revenue........ - - (1,425) 1,425 - ------------ ---------- ---------- ----------- ----------- Total gross profit (loss)..................... 194,891 336,960 (1,425) 1,425 531,851 Selling, general and administrative expenses.. 246,171 311,978 309 1,425 559,883 ------------ ---------- ---------- ----------- ----------- Operating (loss) profit....................... (51,280) 24,982 (1,734) - (28,032) Equity in earnings of subsidiaries............ 52,268 - 85,390 (137,658) Non-operating (expense) income................ (19,742) 68,461 23,977 (70,451) 2,245 Interest expense.............................. 93,812 34,521 - (70,451) 57,882 ------------ ---------- ---------- ----------- ----------- (Loss) Earnings before income taxes........... (112,566) 58,922 107,633 (137,658) (83,669) Income tax (benefit) expense.................. (59,418) 21,112 7,785 - (30,521) Net (loss) earnings before extraordinary item. (53,148) 37,810 99,848 (137,658) (53,148) Extraordinary item............................ 2,054 - - - 2,054 ------------ ---------- ---------- ----------- ----------- Net loss...................................... $ (51,094) $ 37,810 $ 99,848 $ (137,658) $ (51,094) ============ ========== ========== =========== ===========
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CONSOLIDATING STATEMENT OF OPERATIONS Non- Subsidiary guarantor Year ended January 29, 2000 Pep Boys Guarantors Subsidiaries Elimination Consolidated - --------------------------------------------------------------------------------------------------------------------------- Merchandise sales............................. $ 679,405 $1,274,605 $ - $ - $1,954,010 Service revenue............................... 158,648 281,875 - - 440,523 Other revenue................................. - - 20,521 (20,521) - ------------ ---------- --------- --------- ---------- Total revenues................................ 838,053 1,556,480 20,521 (20,521) 2,394,533 Costs of merchandise sales.................... 494,927 920,126 - - 1,415,053 Costs of service revenue...................... 123,698 232,747 - - 356,445 Costs of other revenue........................ - - 17,989 (17,989) - ------------ ---------- --------- --------- ---------- Total costs of revenues....................... 618,625 1,152,873 17,989 (17,989) 1,771,498 Gross profit from merchandise sales........... 184,478 354,479 - - 538,957 Gross profit from service revenue............. 34,950 49,128 - - 84,078 Gross profit (loss) from other revenue........ - - 2,532 (2,532) - ------------ ---------- --------- --------- ---------- Total gross profit (loss)..................... 219,428 403,607 2,532 (2,532) 623,035 Selling, general and administrative expenses.. 249,601 281,471 298 (2,532) 528,838 ------------ ---------- --------- --------- ---------- Operating (loss) profit....................... (30,173) 122,136 2,234 - 94,197 Equity in earnings of subsidiaries............ 104,259 - 96,183 (200,442) - Non-operating (expense) income................ (23,304) 47,622 19,822 (41,813) 2,327 Interest expense.............................. 61,461 31,909 - (41,813) 51,557 ------------ ---------- -------- --------- ---------- (Loss) Earnings before income taxes........... (10,679) 137,849 118,239 (200,442) 44,967 Income tax (benefit) expense.................. (39,982) 47,927 7,719 - 15,664 ------------ ---------- --------- --------- ---------- Net earnings ................................. $ 29,303 $ 89,922 $ 110,520 $(200,442) $ 29,303 ============ ========== ========= ========== ==========
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CONSOLIDATING STATEMENT OF CASH FLOWS Non- Subsidiary guarantor Year ended February 2, 2002 Pep Boys Guarantors Subsidiaries Elimination Consolidated - ------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Earnings (Loss)........................... $ 35,335 $ 52,665 $ 86,354 $(139,019) $35,335 Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Extraordinary item, net of tax............. 765 - - - 765 Depreciation and amortization.............. 36,676 48,017 - - 84,693 Deferred income taxes...................... 1,110 6,730 (416) - 7,424 Equity in earnings of subsidiaries......... (65,109) - (73,910) 139,019 - Accretion of bond discount................. 3,256 - - - 3,256 Loss on assets held for disposal........... 24 2,325 - - 2,349 Gain from sale of assets................... (59) (1,057) - - (1,116) Change in current assets and liabilities (Increase) Decrease in accounts receivable, prepaid expenses and other... (34,572) 35,258 (18,087) (1,325) (18,726) Decrease in merchandise inventories........ 9,674 18,588 - - 28,262 Increase in accounts payable............... 11,330 - - - 11,330 (Decrease) Increase in accrued expenses.... (16,329) 20,261 9,064 1,325 14,321 - ------------------------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Operating Activities (17,899) 182,787 3,005 - 167,893 - ------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Capital expenditures....................... (14,481) (10,983) - - (25,464) Proceeds from sales of assets.............. 7,205 19,555 - - 26,760 - ------------------------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Investing Activities (7,276) 8,572 - - 1,296 - ------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Net payments under line of credit agreements............................... (19,147) (37,729) - - (56,876) Reduction of long-term debt................ (18,482) - - - (18,482) Reduction of convertible debt.............. (161,056) - - - (161,056) Net proceeds from issuance of notes........ 87,522 - - - 87,522 Intercompany loan.......................... 152,963 (149,794) (3,169) - - Dividends paid............................. (13,864) - - - (13,864) Proceeds from excercise of stock options... 181 - - - 181 Proceeds from dividend reinvestment plan... 1,372 - - - 1,372 - ------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities 29,489 (187,523) (3,169) - (161,203) - ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash.................... 4,314 3,836 (164) - 7,986 Cash and Cash Equivalents at Beginning of Year..... 482 7,038 475 - 7,995 - ------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year........... $ 4,796 $ 10,874 $ 311 $ - $15,981 - -------------------------------------------------------------------------------------------------------------------------------
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CONSOLIDATING STATEMENT OF CASH FLOWS Non- Subsidiary guarantor Year ended February 3, 2001 Pep Boys Guarantors Subsidiaries Elimination Consolidated - -------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net (Loss) Earnings........................... $(51,094) $ 37,810 $ 99,848 $(137,658) $(51,094) Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Extraordinary item, net of tax............. (2,054) - - - (2,054) Depreciation and amortization.............. 41,455 57,853 - - 99,308 Deferred income taxes...................... (4,459) (19,657) (459) - (24,575) Equity in earnings of subsidiaries......... (52,268) - (85,390) 137,658 - Accretion of bond discount................. 6,425 - - - 6,425 Loss on assets held for disposal........... 4,527 49,213 - - 53,740 Loss on asset impairment................... 2,469 3,266 - - 5,735 Loss from sale of assets................... 745 2,906 - - 3,651 Change in current assets and liabilities Decrease (Increase) in accounts receivable, prepaid expenses and other... 13,162 (171) (3,339) 150 9,802 Decrease in merchandise inventories........ 324 34,839 - - 35,163 Decrease in accounts payable............... (114,964) - (347) - (115,311) Increase (Decrease) in accrued expenses.... 3,934 (11,214) 6,231 (150) (1,199) - -------------------------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Operating Activities (151,798) 154,845 16,544 - 19,591 - -------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Capital expenditures....................... (24,296) (33,040) - - (57,336) Proceeds from sales of assets.............. 4,803 9,577 - - 14,380 - -------------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (19,493) (23,463) - - (42,956) - -------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Net borrowings under line of credit agreements............................... 33,446 84,089 - - 117,535 Reduction of long-term debt................ (75,028) - - - (75,028) Reduction of convertible debt.............. (17,208) - - - (17,208) Intercompany loan.......................... 233,972 (217,590) (16,382) - - Dividends paid............................. (13,793) - - - (13,793) Proceeds from excercise of stock options... - - - - - Proceeds from dividend reinvestment plan... 1,369 - - - 1,369 - -------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities 162,758 (133,501) (16,382) - 12,875 - -------------------------------------------------------------------------------------------------------------------------------- Net (Decrease) Increase in Cash.................... (8,533) (2,119) 162 - (10,490) Cash and Cash Equivalents at Beginning of Year..... 9,015 9,157 313 - 18,485 - -------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year........... $ 482 $ 7,038 $ 475 $ - $7,995 - --------------------------------------------------------------------------------------------------------------------------------
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CONSOLIDATING STATEMENT OF CASH FLOWS Non- Subsidiary guarantor Year ended January 29, 2000 Pep Boys Guarantors Subsidiaries Elimination Consolidated - -------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Earnings (Loss)........................... $ 29,303 $ 89,922 $ 110,520 $(200,442) $ 29,303 Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Depreciation and amortization.............. 39,888 57,124 - - 97,012 Deferred income taxes...................... 3,203 (679) (301) - 2,223 Equity in earnings of subsidiaries......... (104,259) - (96,183) 200,442 - Accretion of bond discount................. 6,493 - - - 6,493 Gain from sale of assets................... (286) (252) - - (538) Change in current assets and liabilities (Increase) Decrease in accounts receivable, prepaid expenses and other... (8,654) 384 (6,195) 2,369 (12,096) Increase in merchandise inventories........ (11,745) (43,756) - - (55,501) Increase in accounts payable............... 79,328 - 347 - 79,675 (Decrease) Increase in accrued expenses.... (13,203) 26,268 22,114 (2,369) 32,810 - -------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 20,068 129,011 30,302 - 179,381 - -------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Capital expenditures....................... (27,009) (77,437) - - (104,446) Proceeds from sales of assets.............. - 2,479 - - 2,479 - -------------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (27,009) (74,958) - - (101,967) - -------------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Net borrowings under line of credit agreements............................... 10,000 - - - 10,000 Net proceeds from issuance of notes........ 76,000 - - - 76,000 Reduction of long-term debt................ (11) (159) - - (170) Reduction of convertible debt.............. (72,294) - - - (72,294) Intercompany loan.......................... 118,189 (87,898) (30,291) - - Capital Contribution....................... (30,000) 30,000 - - - Dividends paid............................. (13,693) - - - (13,693) Purchase of treasury shares................ (181,470) - - - (181,470) Proceeds from excercise of stock options... 6,998 - - - 6,998 Proceeds from dividend reinvestment plan... 1,152 - - - 1,152 - -------------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Financing Activities (85,129) (58,057) (30,291) - (173,477) - -------------------------------------------------------------------------------------------------------------------------------- Net (Decrease) Increase in Cash.................... (92,070) (4,004) 11 - (96,063) Cash and Cash Equivalents at Beginning of Year 101,085 13,161 302 - 114,548 - -------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year........... $ 9,015 $ 9,157 $ 313 $ - $ 18,485 - --------------------------------------------------------------------------------------------------------------------------------
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QUARTERLY FINANCIAL DATA (UNAUDITED) The Pep Boys - Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share amounts) - ----------------------------------------------------------------------------------------------------------------------------------- Net Earnings(Loss) Net Net Earnings Per Share Before Earnings Operating (Loss) Before Net Extraordinary (Loss) Cash Market Price Year Ended Total Gross Profit Extraordinary Earnings Items Per Share Dividends Per Share Feb. 2, 2002 Revenues Profit (Loss) Items (Loss) Basic Diluted Basic Diluted Per Share High Low - ----------------------------------------------------------------------------------------------------------------------------------- 1st Quarter $551,383 $155,537 $27,039 $ 9,108 $ 9,108 $ .18 $ .18 $ .18 $ .18 $.0675 $ 7.00 $ 4.40 2nd Quarter 572,874 164,104 31,964 12,285 12,519 .24 .24 .24 .24 .0675 13.97 5.35 3rd Quarter 551,255 155,706 27,362 11,016 10,022 .21 .21 .19 .19 .0675 13.70 8.80 4th Quarter 508,203 142,049 17,085 3,691 3,686 .07 .07 .07 .07 .0675 18.48 11.88 - ----------------------------------------------------------------------------------------------------------------------------------- Year Ended Feb. 3, 2001 - ----------------------------------------------------------------------------------------------------------------------------------- 1st Quarter $614,809 $159,816 $19,501 $ 4,407 $6,447 $ .09 $ .09 $ .13 $ .13 $.0675 $ 7.69 $ 5.50 2nd Quarter 633,887 157,622 18,593 3,409 4,376 .07 .07 .09 .09 .0675 7.63 5.63 3rd Quarter 622,382 66,358 (82,571) (62,271) (63,209) (1.22) (1.22) (1.24) (1.24) .0675 6.44 4.19 4th Quarter(1) 547,390 148,055 16,445 1,292 1,292 .03 .03 .03 .03 .0675 5.38 3.31 - -----------------------------------------------------------------------------------------------------------------------------------
(1) Included 14 weeks due to the 53 week fiscal year 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. 35
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 2, 2002 $639 $1,674 $ - $1,588 $725 - ---------------------------------------------------------------------------------------------------------------------------- Year Ended February 3, 2001 $826 $1,859 $ - $2,046 $639 - ---------------------------------------------------------------------------------------------------------------------------- Year Ended January 29, 2000 $996 $3,254 $ - $3,424 $826 - ----------------------------------------------------------------------------------------------------------------------------
*Uncollectible accounts written off. 36 -----END PRIVACY-ENHANCED MESSAGE-----