Table of Contents
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q
(Mark One)
x
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Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
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For the
quarterly period ended October 31, 2009
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OR
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o
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Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
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For the
transition period from
to
Commission
File No. 1-3381
The Pep
Boys - Manny, Moe & Jack
(Exact name of registrant as specified in
its charter)
Pennsylvania
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23-0962915
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(State or other jurisdiction of
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(I.R.S. Employer ID number)
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incorporation or organization)
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3111 W. Allegheny Ave. Philadelphia, PA
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19132
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(Address of principal executive offices)
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(Zip code)
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215-430-9000
(Registrants
telephone number, including area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities and Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports); and
(2) has been subject to such filing requirements for the past 90
days. Yes
x
No
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
o
No
o
Indicate by checkmark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
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Smaller reporting company
o
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Indicate by check mark whether the registrant is
a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
o
No
x
As of November 27, 2009, there were
52,349,520 shares of the registrants Common Stock outstanding.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial
Statements
THE PEP BOYS - MANNY, MOE & JACK
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
(dollar amounts in thousands, except
share data)
UNAUDITED
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|
October 31,
2009
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January 31,
2009
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ASSETS
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Current
Assets:
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Cash
and cash equivalents
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$
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40,843
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$
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21,332
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Accounts
receivable, less allowance for uncollectible accounts of $1,853 and $1,912
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20,461
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28,831
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Merchandise
inventories
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571,789
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564,931
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Prepaid
expenses
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14,946
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25,390
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Other
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50,205
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62,421
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Assets
held for disposal
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6,616
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12,653
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Total
Current Assets
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704,860
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715,558
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Property
and Equipment - net
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708,972
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740,331
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Deferred
income taxes
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72,970
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77,708
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Other
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20,118
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18,792
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Total
Assets
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$
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1,506,920
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$
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1,552,389
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current
Liabilities:
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Accounts
payable
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$
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219,205
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$
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212,340
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Trade
payable program liability
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26,459
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31,930
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Accrued
expenses
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231,468
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254,754
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Deferred
income taxes
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39,170
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35,848
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Current
maturities of long-term debt and obligations under capital leases
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1,079
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1,453
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Total
Current Liabilities
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517,381
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536,325
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Long-term
debt and obligations under capital leases, less current maturities
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306,471
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352,382
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Other
long-term liabilities
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72,164
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70,322
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Deferred
gain from asset sales
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168,243
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170,204
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Commitments
and Contingencies
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Stockholders
Equity:
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Common
Stock, par value $1 per share: Authorized 500,000,000 shares;
Issued 68,557,041 shares
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68,557
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68,557
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Additional
paid-in capital
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293,330
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292,728
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Retained
earnings
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374,461
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358,670
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Accumulated
other comprehensive loss
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(16,739
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)
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(18,075
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)
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Less
cost of shares in treasury 14,014,018 shares and 14,124,021 shares
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217,684
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219,460
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Less
cost of shares in benefits trust 2,195,270 shares
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59,264
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59,264
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Total
Stockholders Equity
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442,661
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423,156
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Total
Liabilities and Stockholders Equity
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$
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1,506,920
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$
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1,552,389
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See
notes to condensed consolidated financial statements.
3
Table of Contents
THE PEP BOYS - MANNY, MOE & JACK
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
AND CHANGES IN RETAINED EARNINGS
(dollar amounts in thousands, except per
share amounts)
UNAUDITED
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Thirteen Weeks Ended
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Thirty-Nine Weeks Ended
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October 31,
2009
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November 1,
2008
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October 31,
2009
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November 1,
2008
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Merchandise
Sales
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$
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378,860
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$
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378,461
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$
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1,169,108
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$
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1,189,872
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Service
Revenue
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93,783
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85,705
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288,934
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272,380
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Total
Revenues
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472,643
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464,166
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1,458,042
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1,462,252
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Costs
of Merchandise Sales
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269,604
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268,235
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826,429
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838,574
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Costs
of Service Revenue
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84,770
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81,087
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255,553
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250,434
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Total
Costs of Revenues
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354,374
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349,322
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1,081,982
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1,089,008
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Gross
Profit from Merchandise Sales
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109,256
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110,226
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342,679
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351,298
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Gross
Profit from Service Revenue
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9,013
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4,618
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33,381
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21,946
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Total
Gross Profit
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118,269
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114,844
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376,060
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373,244
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Selling,
General and Administrative Expenses
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109,545
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119,827
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327,080
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361,445
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Net Gain
(Loss) from Dispositions of Assets
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1,332
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(53
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)
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1,319
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9,555
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Operating
Profit (Loss)
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10,056
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(5,036
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)
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50,299
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21,354
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Non-operating
Income
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724
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305
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1,666
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1,797
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Interest
Expense
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6,922
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7,098
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15,324
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18,977
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Earnings
(Loss) From Continuing Operations Before Income Taxes
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3,858
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(11,829
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)
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36,641
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4,174
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Income
Tax Expense (Benefit)
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1,501
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|
(4,775
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)
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15,363
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|
185
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|
Net
Earnings (Loss)From Continuing Operations
|
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2,357
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|
(7,054
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)
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21,278
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3,989
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Discontinued
Operations, Net of Tax
|
|
(233
|
)
|
(228
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)
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(510
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)
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(1,151
|
)
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Net
Earnings (Loss)
|
|
2,124
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|
(7,282
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)
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20,768
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|
2,838
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|
|
|
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Retained
Earnings, beginning of period
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373,963
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408,351
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358,670
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406,819
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Cumulative
effect of change in method of accounting for split dollar life insurance, net
of tax
|
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|
|
|
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(1,165
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)
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Cash
Dividends
|
|
(1,557
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)
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(3,523
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)
|
(4,709
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)
|
(10,551
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)
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Dividend
Reinvested and Other
|
|
(69
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)
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(849
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)
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(268
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)
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(1,244
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)
|
Retained
Earnings, end of period
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$
|
374,461
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|
$
|
396,697
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|
$
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374,461
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|
$
|
396,697
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|
|
|
|
|
|
|
|
|
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|
Basic
Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net
Earnings (Loss) from Continuing Operations
|
|
$
|
0.05
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|
$
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(0.13
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)
|
$
|
0.41
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|
$
|
0.08
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|
Discontinued
Operations, Net of Tax
|
|
(0.01
|
)
|
(0.01
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)
|
(0.01
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)
|
(0.03
|
)
|
Basic
Earnings (Loss) Per Share
|
|
$
|
0.04
|
|
$
|
(0.14
|
)
|
$
|
0.40
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings (Loss) from Continuing Operations
|
|
$
|
0.04
|
|
$
|
(0.13
|
)
|
$
|
0.40
|
|
$
|
0.08
|
|
Discontinued
Operations, Net of Tax
|
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
Diluted
Earnings (Loss) Per Share
|
|
$
|
0.04
|
|
$
|
(0.14
|
)
|
$
|
0.40
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Per Share
|
|
$
|
0.0300
|
|
$
|
0.0675
|
|
$
|
0.0900
|
|
$
|
0.2025
|
|
See
notes to condensed consolidated financial statements.
4
Table of Contents
THE PEP BOYS -
MANNY, MOE & JACK AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts
in thousands)
UNAUDITED
Thirty-Nine Weeks Ended
|
|
October 31,
2009
|
|
November 1,
2008
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
Net
Earnings
|
|
$
|
20,768
|
|
$
|
2,838
|
|
Adjustments
to reconcile net earnings to net cash provided by (used in) continuing
operations:
|
|
|
|
|
|
Net
loss from discontinued operations
|
|
510
|
|
1,151
|
|
Depreciation
and amortization
|
|
53,248
|
|
55,109
|
|
Amortization
of deferred gain from asset sales
|
|
(9,186
|
)
|
(7,305
|
)
|
Stock
compensation expense
|
|
1,930
|
|
2,314
|
|
Gain
from debt retirement
|
|
(6,248
|
)
|
(3,460
|
)
|
Deferred
income taxes
|
|
7,270
|
|
(3,603
|
)
|
Gain
from dispositions of assets
|
|
(1,319
|
)
|
(9,555
|
)
|
Loss
from asset impairment
|
|
3,117
|
|
370
|
|
Other
|
|
267
|
|
441
|
|
Changes
in Operating Assets and Liabilities:
|
|
|
|
|
|
Decrease
in accounts receivable, prepaid expenses and other
|
|
33,241
|
|
39,759
|
|
Increase
in merchandise inventories
|
|
(5,806
|
)
|
(23,548
|
)
|
Increase
(decrease) in accounts payable
|
|
6,455
|
|
(23,560
|
)
|
Decrease
in accrued expenses
|
|
(23,922
|
)
|
(37,077
|
)
|
Increase
(decrease) in other long-term liabilities
|
|
2,230
|
|
(3,818
|
)
|
Net
cash provided by (used in) continuing operations
|
|
82,555
|
|
(9,944
|
)
|
Net
cash used in discontinued operations
|
|
(594
|
)
|
(880
|
)
|
Net
Cash Provided by (Used in) Operating Activities
|
|
81,961
|
|
(10,824
|
)
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
Cash
paid for master lease properties
|
|
|
|
(117,121
|
)
|
Cash
paid for property and equipment
|
|
(27,775
|
)
|
(22,653
|
)
|
Proceeds
from dispositions of assets
|
|
12,093
|
|
209,085
|
|
Acquisition
of Florida Tire Inc.
|
|
(2,610
|
)
|
|
|
Other
|
|
(500
|
)
|
|
|
Net
cash (used in) provided by continuing operations
|
|
(18,792
|
)
|
69,311
|
|
Net
cash provided by discontinued operations
|
|
1,762
|
|
2,558
|
|
Net
Cash (Used in) Provided by Investing Activities
|
|
(17,030
|
)
|
71,869
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
Borrowings
under line of credit agreements
|
|
244,011
|
|
99,888
|
|
Payments
under line of credit agreements
|
|
(267,873
|
)
|
(141,413
|
)
|
Borrowings
on trade payable program liability
|
|
122,914
|
|
154,886
|
|
Payments
on trade payable program liability
|
|
(128,385
|
)
|
(130,824
|
)
|
Payment
for finance issuance cost
|
|
|
|
(182
|
)
|
Proceeds
from lease financing
|
|
|
|
8,661
|
|
Long-term
debt and capital lease obligations payments
|
|
(11,720
|
)
|
(24,696
|
)
|
Dividends
paid
|
|
(4,709
|
)
|
(10,551
|
)
|
Other
|
|
342
|
|
631
|
|
Net
Cash Used in Financing Activities
|
|
(45,420
|
)
|
(43,600
|
)
|
Net
Increase in Cash and Cash Equivalents
|
|
19,511
|
|
17,445
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
21,332
|
|
20,926
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
40,843
|
|
$
|
38,371
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
4,046
|
|
$
|
1,070
|
|
Cash
paid for interest
|
|
$
|
15,492
|
|
$
|
17,043
|
|
Accrued
purchases of property and equipment
|
|
$
|
1,575
|
|
$
|
1,435
|
|
See notes to condensed consolidated financial
statements.
5
Table of
Contents
THE PEP BOYS - MANNY, MOE & JACK AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
NOTE 1. Condensed Consolidated Financial
Statements
The condensed consolidated balance sheet as of October 31,
2009, the condensed consolidated statements of operations and changes in
retained earnings for the thirteen and thirty-nine week periods ended October 31,
2009 and November 1, 2008 and the condensed consolidated statements of
cash flows for the thirty-nine week periods ended October 31, 2009 and November 1,
2008 are unaudited. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations and cash flows at October 31,
2009 and for all periods presented have been made.
Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been condensed or omitted, as permitted by Rule 10-01 of the Securities
and Exchange Commissions Regulation S-X, Interim Financial Statements. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Companys Annual Report on Form 10-K for the fiscal year ended January 31,
2009. The results of operations for the thirteen and thirty-nine week periods
ended October 31, 2009 are not necessarily indicative of the operating
results for the full fiscal year.
The Companys fiscal year ends on the Saturday
nearest January 31. Accordingly, references to fiscal years 2008 and 2009
refer to the years ended January 31, 2009 and January 30, 2010,
respectively.
The Company has evaluated subsequent events and
transactions for recognition or disclosure that occurred after the balance
sheet date of October 31, 2009, through the filing of these financial
statements, which occurred on December 9, 2009.
NOTE 2. New Accounting Standards
On December 30, 2008 the Financial Accounting
Standards Board (FASB) issued FASB Staff Position No. 132(R)-1, Employers
Disclosures about Postretirement Benefit Plan Assets (FSP FAS 132(R)-1). This pronouncement
provides additional guidance on an employers disclosures about plan assets of
a defined benefit pension or other postretirement plan and is effective for
fiscal years ending after December 15, 2009. The Company does not expect
the adoption of FSP FAS 132(R)-1 to have a material impact on its consolidated
financial statements.
In October 2009, the
FASB issued Accounting Standards Update 2009-13 Revenue Recognition (Topic
605) Multiple-Deliverable Revenue Arrangements a consensus of the FASB
Emerging Issues Task Force, (ASU 2009-13). This update eliminates the residual
method of allocation and requires that consideration be allocated to all
deliverables using the relative selling price method. ASU 2009-13 is effective
for material revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. The Company is currently
evaluating the impact ASU 2009-13 will have on its consolidated financial
statements.
NOTE 3. Business Combinations
On October 31, 2009
the Company acquired substantially all of the assets (other than real property)
of Florida Tire, Inc. (Florida Tire), a privately held automotive
service and tire business located in the Orlando Florida area consisting of 10
service locations. The Company agreed to pay up to $4,350 for Florida Tire and
assume certain liabilities. The Company has completed the preliminary purchase
accounting for the Florida Tire acquisition and has recorded net assets of
$4,198, including goodwill of $2,565 and contingent consideration of $1,660
which could result in future payments through November 2013.
NOTE 4. Merchandise Inventories
Merchandise inventories are valued at the lower
of cost or market. Cost is determined by using the last-in, first-out (LIFO)
method. An actual valuation of inventory under the LIFO method can be made only
at the end of each fiscal year based on inventory and costs at that time.
Accordingly, interim LIFO calculations must be based on managements estimates
of expected fiscal year-end inventory levels and costs. If the first-in,
first-out (FIFO) method of costing inventory had been used by the Company,
inventory would have been $508,637 and $493,886 as of October 31, 2009 and
January 31, 2009, respectively.
6
Table of
Contents
The Company provides for estimated inventory
shrinkage based upon historical levels and the results of its cycle counting
program.
The Company also provides for potentially excess
and obsolete inventories based on current inventory levels, the historical
analysis of product sales and current market conditions. The nature of the
Companys inventory is such that the risk of obsolescence is minimal and excess
inventory has historically been returned to the Companys vendors for credit.
The Company records a provision when less than full credit is expected from a
vendor or when market is lower than recorded costs. These provisions are
reviewed on a quarterly basis for adequacy. The Companys inventory is recorded
net of provisions for these matters, which were $16,424 and $15,874 at October 31,
2009 and January 31, 2009, respectively.
NOTE 5. Property and Equipment
The Companys property and equipment as of October 31,
2009 and January 31, 2009, respectively, was as follows:
(dollar amounts in thousands)
|
|
October 31,
2009
|
|
January 31,
2009
|
|
|
|
|
|
|
|
Property
and Equipment - at cost:
|
|
|
|
|
|
Land
|
|
$
|
204,762
|
|
$
|
207,608
|
|
Buildings
and improvements
|
|
822,955
|
|
822,950
|
|
Furniture,
fixtures and equipment
|
|
704,446
|
|
685,707
|
|
Construction
in progress
|
|
1,795
|
|
2,576
|
|
Accumulated
depreciation and amortization
|
|
(1,024,986
|
)
|
(978,510
|
)
|
Property
and Equipment net
|
|
$
|
708,972
|
|
$
|
740,331
|
|
The Company has classified certain closed store
properties as assets held for disposal on its balance sheets. A store location
is classified as held for disposal when (i) the Company has committed to
a plan to sell the store location, (ii) the store location is vacant and
is available for sale, (iii) the Company is actively marketing the store
location for sale, (iv) the sale price is reasonable in relation to its
current fair value and (v) the Company expects to complete the sale within
one year. No depreciation expense is recognized during the period the asset is
held for disposal.
The carrying values of
these assets follow:
(dollar amounts in thousands)
|
|
October 31,
2009
|
|
January 31,
2009
|
|
|
|
|
|
|
|
Land
|
|
$
|
4,331
|
|
$
|
7,332
|
|
Buildings
and improvements
|
|
6,878
|
|
11,265
|
|
Accumulated
depreciation and amortization
|
|
(4,593
|
)
|
(5,944
|
)
|
Assets
held for disposal
|
|
$
|
6,616
|
|
$
|
12,653
|
|
The Company held thirteen properties that were
classified as held for disposal on January 31, 2009. During the
thirty-nine week period ended October 31, 2009, the Company sold three of
these properties for net proceeds of $2,783 and recognized a net gain of $89.
Of the remaining ten properties held for disposal on October 31, 2009,
three of the properties were then under contract. The Company recorded a loss
on these three properties of $204 in the third quarter of 2009. The Company
took an additional asset impairment charge of $3,139 on the remaining
properties reflecting further declines in the commercial real estate market for
vacant properties. Of the entire $3,343 impairment, $2,454 was charged to
merchandise cost of sales, $663 was charged to service cost of sales and $226
was charged to discontinued operations.
NOTE 6. Income Taxes
The Company recognizes taxes payable for the
current year, as well as deferred tax assets and liabilities for the future tax
consequences of events that have been recognized in the Companys financial
statements or tax returns. The Company must assess the likelihood that any
recorded deferred tax assets will be recovered against future taxable income.
To the extent the Company believes it is more likely than not that the asset
will not be recoverable, a valuation allowance must be established. Cumulative
losses in recent
7
Table of Contents
years constitute negative evidence that a
recovery is not more likely than not, which must be rebutted by positive
evidence to avoid establishing a valuation allowance. To establish this
positive evidence, the Company considers various tax planning strategies for
generating income sufficient to utilize the deferred tax assets, including the
potential sale of real estate and the conversion of the Companys accounting
policy for its inventory from LIFO to FIFO. After considering all this
evidence, the Company did not have any material change to its valuation
allowance for the thirteen weeks ending October 31, 2009.
For income tax benefits related to uncertain tax
positions to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities. The amount recognized is
measured as the largest amount of benefit that is greater than 50 percent
likely of being realized upon ultimate settlement.
During the thirteen weeks ended October 31,
2009, the Company reduced its gross unrecognized income tax benefits by
approximately $572, of which $242 was interest, due to settlement of a
previously established liability with the applicable taxing authority.
NOTE 7. Pension and Savings Plan
Pension expense includes the following:
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
(dollar amounts in thousands)
|
|
October
31, 2009
|
|
November
1, 2008
|
|
October
31, 2009
|
|
November
1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
$
|
30
|
|
$
|
|
|
$
|
90
|
|
Interest cost
|
|
635
|
|
858
|
|
1,904
|
|
2,602
|
|
Expected return on plan assets
|
|
(451
|
)
|
(612
|
)
|
(1,353
|
)
|
(1,837
|
)
|
Amortization of transition obligation
|
|
|
|
40
|
|
|
|
122
|
|
Amortization of prior service cost
|
|
3
|
|
92
|
|
10
|
|
277
|
|
Amortization of net loss
|
|
442
|
|
255
|
|
1,326
|
|
763
|
|
Net periodic benefit cost
|
|
$
|
629
|
|
$
|
663
|
|
$
|
1,887
|
|
$
|
2,017
|
|
The Companys expense for its Account Plan
(Defined Contribution SERP) was approximately $168 for the thirteen weeks ended
October 31, 2009, whereas the Company recorded a benefit of $248 for the
thirteen weeks ended November 1, 2008. The Companys expense was
approximately $695 and $59 for the thirty-nine weeks ended October 31,
2009 and November 1, 2008, respectively.
The Company has two qualified savings plans that
cover all full-time employees who are at least 21 years of age with one or more
years of service. Generally, the Company contributes the lesser of 50% of the
first 6% of a participants contributions or 3% of the participants compensation.
The Companys savings plans expense was approximately $645 and $927 for the
thirteen weeks ended October 31, 2009 and November 1, 2008,
respectively, and approximately $2,442 and $2,971 for the thirty-nine weeks
ended October 31, 2009 and November 1, 2008, respectively. The
Companys contribution to these plans for fiscal year 2009 is contingent upon
meeting certain performance metrics. The company currently estimates that these
performance metrics will be achieved and has recorded expense accordingly.
NOTE 8.
Sale-Leaseback Transactions
During the third quarter of fiscal year 2009,
the Company sold three properties to unrelated third parties. Net proceeds from
these sales were $10,986. Concurrent with these sales, the Company entered into
agreements to lease the properties back from the purchasers over minimum lease
terms of 15 years. The Company classified these leases as operating
leases. The Company actively uses these properties and considers the leases as
normal leasebacks. A $1,365 gain on the sale of these properties was recognized
immediately upon execution of the sale and a $6,483 gain was deferred. The
deferred gain is being recognized over the minimum term of these leases.
During the first half of fiscal year 2008, the
Company sold 63 owned properties to unrelated third parties. Net proceeds from
these sales were $211,470. Concurrent with the sale, the Company entered into
agreements to lease the properties back from the purchaser over a minimum lease
term of 15 years. The Company classified 61 of these leases as operating
leases. The Company actively uses these properties and considers the leases as
normal leasebacks. A $7,655 gain on the sale of these properties was recognized
8
Table of Contents
immediately upon execution of the sale and an
$89,930 gain was deferred. The deferred gain is being recognized over the
minimum term of these leases. The Company initially had continuing involvement
in two properties and, accordingly, recorded $8,479 of the transactions total
net proceeds as a borrowing and as a financing activity in the Condensed
Consolidated Statement of Cash Flows. The Company provided the necessary
documentation to satisfy its indemnity and remove its continuing involvement
with these properties by the end of the third quarter 2008. The Company then
recorded the sale of these properties as a sale-leaseback transaction, removing
the assets and related lease financing and recorded a $3,963 deferred gain that
is being recognized over the remaining minimum term of these leases.
Of the 581 store locations operated by the
Company at October 31, 2009, 232 are owned and 349 are leased.
NOTE 9. Debt and Financing Arrangements
(dollar amounts in thousands)
|
|
October 31,
2009
|
|
January 31,
2009
|
|
7.50% Senior Subordinated Notes, due
December 2014
|
|
$
|
157,565
|
|
$
|
174,535
|
|
Senior Secured Term Loan, due October 2013
|
|
149,985
|
|
150,794
|
|
Lease financing obligations
|
|
|
|
4,515
|
|
Capital lease obligations
|
|
|
|
129
|
|
Revolving Credit Agreement, expiring
January 2014
|
|
|
|
23,862
|
|
|
|
307,550
|
|
353,835
|
|
Less current maturities
|
|
1,079
|
|
1,453
|
|
Long-term debt and obligations under capital leases,
less current maturities
|
|
$
|
306,471
|
|
$
|
352,382
|
|
On January 16, 2009, the Company entered
into a new Revolving Credit Agreement with available borrowings up to $300,000.
The Companys ability to borrow under the Revolving Credit Agreement is based
on a specific borrowing base consisting of inventory and accounts receivable.
The interest rate on this credit line is LIBOR or Prime plus 2.75% to 3.25%
based upon the then current availability under the facility.
During the thirty-nine week periods ending October 31,
2009 and November 1, 2008, the Company repurchased $16,970 and $25,465,
respectively of its outstanding 7.5% Senior Subordinated Notes for $10,722 and
$22,005, respectively resulting in a pre-tax gain of $6,248 and $3,460,
respectively. The gain is reflected in interest expense on the accompanying
Condensed Consolidated Statement of Operations and Changes in Retained
Earnings.
As of October 31, 2009, 126 of the 232
owned stores are used as collateral under our Senior Secured Term Loan
agreement due October 2013. The estimated fair market value of these
collateralized properties was $300,965 as of the end of the second quarter
2009, based on an appraisal which is conducted every twenty months in
accordance with the agreement.
Several of the Companys debt agreements require
compliance with covenants. The most restrictive of which is contained in the
Companys Revolving Credit Agreement. During any period that the Companys
availability under its Revolving Credit Agreement drops below $50,000, the
Company is required to maintain a consolidated fixed charge coverage ratio, of
at least 1.1:1.0, calculated as the ratio of (a) EBITDA (net income plus
interest charges, provision for taxes, depreciation and amortization expense,
non-cash stock compensation expenses and other non-recurring, non-cash items)
minus capital expenditures and income taxes paid to (b) the sum of debt
service charges and restricted payments made. The failure to satisfy this
covenant would constitute an event of default under the Companys Revolving
Credit Agreement, which would result in a cross-default under the Companys
7.5% Senior Subordinated Notes and Senior Secured Term Loan. As of October 31,
2009, the Company had availability under the Revolving Credit Agreement of
approximately $133,693 and was in compliance with its financial covenants.
The Company determines fair value on its fixed
rate debt by using quoted market prices and current interest rates. For debt
issues that are not quoted on an exchange, the Company determines fair value by
reference to debt issues with similar terms and maturities. The estimated fair
value of long-term debt including current maturities was $287,680 and $200,276
as of October 31, 2009 and January 31, 2009, respectively.
NOTE 10. Warranty Reserve
The Company provides warranties for both its
merchandise sales and service labor. Warranties for merchandise are generally
covered by the respective vendors, with the Company covering any costs above
the vendors stipulated allowance. Service labor warranties are covered in full
by the Company on a limited lifetime basis. The Company establishes its
warranty reserves based on historical data of
9
Table of Contents
warranty transactions.
The reserve for warranty cost activity follows:
|
|
Thirty-Nine Weeks Ended
|
|
(dollar amounts in thousands)
|
|
October
31, 2009
|
|
November
1, 2008
|
|
Beginning Balance
|
|
$
|
797
|
|
$
|
247
|
|
|
|
|
|
|
|
Additions related to current period sales
|
|
12,056
|
|
9,188
|
|
|
|
|
|
|
|
Warranty costs incurred in current period
|
|
(12,159
|
)
|
(8,790
|
)
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
694
|
|
$
|
645
|
|
NOTE 11. Earnings Per Share
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
(in thousands, except per share amounts)
|
|
October 31,
2009
|
|
November 1,
2008
|
|
October 31,
2009
|
|
November 1,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Net Earnings
(Loss) From Continuing Operations
|
|
$
|
2,357
|
|
$
|
(7,054
|
)
|
$
|
21,278
|
|
$
|
3,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations, Net of Tax
|
|
(233
|
)
|
(228
|
)
|
(510
|
)
|
(1,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss)
|
|
$
|
2,124
|
|
$
|
(7,282
|
)
|
$
|
20,768
|
|
$
|
2,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
|
Basic average number of common shares outstanding
during period
|
|
52,419
|
|
52,099
|
|
52,379
|
|
52,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares assumed issued upon exercise of
dilutive stock options, net of assumed repurchase, at the average market
price
|
|
367
|
|
|
|
242
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
Diluted average number of common shares assumed
outstanding during period
|
|
52,786
|
|
52,099
|
|
52,621
|
|
52,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) per Share:
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) From Continuing Operations (a/b)
|
|
$
|
0.05
|
|
$
|
(0.13
|
)
|
$
|
0.41
|
|
$
|
0.08
|
|
|
|
Discontinued Operations, Net of Tax
|
|
(0.01
|
)
|
(0.01
|
)
|
(0.01
|
)
|
(0.03
|
)
|
|
|
Basic Earnings (Loss) per Share
|
|
$
|
0.04
|
|
$
|
(0.14
|
)
|
$
|
0.40
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Share:
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) From Continuing Operations (a/c)
|
|
$
|
0.04
|
|
$
|
(0.13
|
)
|
$
|
0.40
|
|
$
|
0.08
|
|
|
|
Discontinued Operations, Net of Tax
|
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
Diluted Earnings (Loss) per Share
|
|
$
|
0.04
|
|
$
|
(0.14
|
)
|
$
|
0.40
|
|
$
|
0.05
|
|
At October 31, 2009 and November 1,
2008, respectively, there were 1,949,000 and 1,339,000 outstanding options and
restricted stock units. Certain stock options were excluded from the
calculation of diluted earnings per share because their exercise prices were
greater than the average market price of the common shares for the periods then
ended and therefore would be anti-dilutive. The total number of such shares excluded
from the diluted earnings per share calculation are 901,000 and 1,059,000 for
the thirteen weeks ended October 31, 2009 and November 1, 2008,
respectively. The total number of such shares excluded from the diluted
earnings per share calculation are 1,203,000 and 1,059,000 for the thirty-nine weeks
ended October 31, 2009 and November 1, 2008, respectively.
10
Table of Contents
NOTE 12. Supplemental Guarantor Information
The Companys 7.50% Senior Subordinated Notes
(the Notes) are fully and unconditionally and joint and severally guaranteed
by certain of the Companys direct and indirectly wholly-owned subsidiaries -
namely, The Pep Boys Manny Moe & Jack of California, Pep Boys Manny
Moe & Jack of Delaware, Inc., Pep Boys Manny Moe &
Jack of Puerto Rico, Inc. and PBY Corporation, (collectively, the Subsidiary
Guarantors). The Notes are not guaranteed by the Companys wholly owned
subsidiary, Colchester Insurance Company.
The following condensed consolidating
information presents, in separate columns, the condensed consolidating balance
sheets as of October 31, 2009 and January 31, 2009 and the related
condensed consolidating statements of operations for the thirteen and
thirty-nine weeks ended October 31, 2009 and November 1, 2008 and
condensed consolidating statements of cash flows for the thirty-nine weeks
ended October 31, 2009 and November 1, 2008 for (i) the Company
(Pep Boys) on a parent only basis, with its investment in subsidiaries
recorded under the equity method, (ii) the Subsidiary Guarantors on a
combined basis including the consolidation by PBY Corporation of its wholly
owned subsidiary, The Pep Boys Manny Moe & Jack of California, (iii) the
subsidiary of the Company that does not guarantee the Notes, and (iv) the
Company on a consolidated basis.
CONDENSED CONSOLIDATING BALANCE SHEETS
(dollars in thousands)
(unaudited)
As of October 31, 2009
|
|
Pep Boys
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Non-
Guarantors
|
|
Consolidation /
Elimination
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26,035
|
|
$
|
8,734
|
|
$
|
6,074
|
|
$
|
|
|
$
|
40,843
|
|
Accounts receivable, net
|
|
8,956
|
|
11,505
|
|
|
|
|
|
20,461
|
|
Merchandise inventories
|
|
200,095
|
|
371,694
|
|
|
|
|
|
571,789
|
|
Prepaid expenses
|
|
7,410
|
|
7,395
|
|
2,621
|
|
(2,480
|
)
|
14,946
|
|
Other
|
|
886
|
|
8
|
|
54,208
|
|
(4,897
|
)
|
50,205
|
|
Assets held for disposal
|
|
1,045
|
|
5,571
|
|
|
|
|
|
6,616
|
|
Total Current Assets
|
|
244,427
|
|
404,907
|
|
62,903
|
|
(7,377
|
)
|
704,860
|
|
Property and EquipmentNet
|
|
233,016
|
|
463,672
|
|
31,714
|
|
(19,430
|
)
|
708,972
|
|
Investment in subsidiaries
|
|
1,743,091
|
|
|
|
|
|
(1,743,091
|
)
|
|
|
Intercompany receivables
|
|
|
|
1,041,684
|
|
67,534
|
|
(1,109,218
|
)
|
|
|
Deferred income taxes
|
|
20,948
|
|
52,022
|
|
|
|
|
|
72,970
|
|
Other
|
|
19,296
|
|
822
|
|
|
|
|
|
20,118
|
|
Total Assets
|
|
$
|
2,260,778
|
|
$
|
1,963,107
|
|
$
|
162,151
|
|
$
|
(2,879,116
|
)
|
$
|
1,506,920
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
219,196
|
|
$
|
9
|
|
$
|
|
|
$
|
|
|
$
|
219,205
|
|
Trade payable program liability
|
|
26,459
|
|
|
|
|
|
|
|
26,459
|
|
Accrued expenses
|
|
33,109
|
|
63,410
|
|
137,429
|
|
(2,480
|
)
|
231,468
|
|
Deferred income taxes
|
|
14,894
|
|
29,173
|
|
|
|
(4,897
|
)
|
39,170
|
|
Current maturities of long-term debt and obligations
under capital leases
|
|
1,079
|
|
|
|
|
|
|
|
1,079
|
|
Total Current Liabilities
|
|
294,737
|
|
92,592
|
|
137,429
|
|
(7,377
|
)
|
517,381
|
|
Long-term debt and obligations under capital leases, less
current maturities
|
|
306,471
|
|
|
|
|
|
|
|
306,471
|
|
Other long-term liabilities
|
|
36,915
|
|
35,249
|
|
|
|
|
|
72,164
|
|
Deferred gain from asset sales
|
|
70,776
|
|
116,897
|
|
|
|
(19,430
|
)
|
168,243
|
|
Intercompany liabilities
|
|
1,109,218
|
|
|
|
|
|
(1,109,218
|
)
|
|
|
Total Stockholders Equity
|
|
442,661
|
|
1,718,369
|
|
24,722
|
|
(1,743,091
|
)
|
442,661
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
2,260,778
|
|
$
|
1,963,107
|
|
$
|
162,151
|
|
$
|
(2,879,116
|
)
|
$
|
1,506,920
|
|
11
Table of
Contents
As of January 31, 2009
|
|
Pep Boys
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Non-
Guarantors
|
|
Consolidation/
Elimination
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
12,753
|
|
$
|
6,393
|
|
$
|
2,186
|
|
$
|
|
|
$
|
21,332
|
|
Accounts
receivable, net
|
|
16,571
|
|
12,260
|
|
|
|
|
|
28,831
|
|
Merchandise
inventories
|
|
199,304
|
|
365,627
|
|
|
|
|
|
564,931
|
|
Prepaid
expenses
|
|
13,597
|
|
15,820
|
|
13,919
|
|
(17,946
|
)
|
25,390
|
|
Other
|
|
1,193
|
|
11
|
|
66,797
|
|
(5,580
|
)
|
62,421
|
|
Assets
held for disposal
|
|
1,830
|
|
10,823
|
|
|
|
|
|
12,653
|
|
Total
Current Assets
|
|
245,248
|
|
410,934
|
|
82,902
|
|
(23,526
|
)
|
715,558
|
|
Property
and EquipmentNet
|
|
239,859
|
|
487,956
|
|
32,226
|
|
(19,710
|
)
|
740,331
|
|
Investment
in subsidiaries
|
|
1,699,568
|
|
|
|
|
|
(1,699,568
|
)
|
|
|
Intercompany
receivables
|
|
|
|
989,077
|
|
85,145
|
|
(1,074,222
|
)
|
|
|
Deferred
income taxes
|
|
24,075
|
|
53,633
|
|
|
|
|
|
77,708
|
|
Other
|
|
17,614
|
|
1,178
|
|
|
|
|
|
18,792
|
|
Total
Assets
|
|
$
|
2,226,364
|
|
$
|
1,942,778
|
|
$
|
200,273
|
|
$
|
(2,817,026
|
)
|
$
|
1,552,389
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
212,331
|
|
$
|
9
|
|
$
|
|
|
$
|
|
|
$
|
212,340
|
|
Trade
payable program liability
|
|
31,930
|
|
|
|
|
|
|
|
31,930
|
|
Accrued
expenses
|
|
28,802
|
|
67,748
|
|
175,985
|
|
(17,781
|
)
|
254,754
|
|
Deferred
income taxes
|
|
16,355
|
|
25,238
|
|
|
|
(5,745
|
)
|
35,848
|
|
Current
maturities of long-term debt and obligations under capital leases
|
|
1,208
|
|
245
|
|
|
|
|
|
1,453
|
|
Total
Current Liabilities
|
|
290,626
|
|
93,240
|
|
175,985
|
|
(23,526
|
)
|
536,325
|
|
Long-term
debt and obligations under capital leases, less current maturities
|
|
332,682
|
|
19,700
|
|
|
|
|
|
352,382
|
|
Other
long-term liabilities
|
|
34,868
|
|
35,454
|
|
|
|
|
|
70,322
|
|
Deferred
gain from asset sales
|
|
70,810
|
|
119,104
|
|
|
|
(19,710
|
)
|
170,204
|
|
Intercompany
liabilities
|
|
1,074,222
|
|
|
|
|
|
(1,074,222
|
)
|
|
|
Stockholders
Equity
|
|
423,156
|
|
1,675,280
|
|
24,288
|
|
(1,699,568
|
)
|
423,156
|
|
Total
Liabilities and Stockholders Equity
|
|
$
|
2,226,364
|
|
$
|
1,942,778
|
|
$
|
200,273
|
|
$
|
(2,817,026
|
)
|
$
|
1,552,389
|
|
12
Table of
Contents
CONDENSED CONSOLIDATING
STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
|
|
|
|
Subsidiary
|
|
Subsidiary Non-
|
|
Consolidation /
|
|
|
|
Thirteen Weeks Ended October 31, 2009
|
|
Pep Boys
|
|
Guarantors
|
|
Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise Sales
|
|
$
|
127,689
|
|
$
|
251,171
|
|
$
|
|
|
$
|
|
|
$
|
378,860
|
|
Service Revenue
|
|
32,813
|
|
60,970
|
|
|
|
|
|
93,783
|
|
Other Revenue
|
|
|
|
|
|
5,723
|
|
(5,723
|
)
|
|
|
Total Revenues
|
|
160,502
|
|
312,141
|
|
5,723
|
|
(5,723
|
)
|
472,643
|
|
Costs of Merchandise Sales
|
|
91,008
|
|
179,003
|
|
|
|
(407
|
)
|
269,604
|
|
Costs of Service Revenue
|
|
28,607
|
|
56,201
|
|
|
|
(38
|
)
|
84,770
|
|
Costs of Other Revenue
|
|
|
|
|
|
4,270
|
|
(4,270
|
)
|
|
|
Total Costs of Revenues
|
|
119,615
|
|
235,204
|
|
4,270
|
|
(4,715
|
)
|
354,374
|
|
Gross Profit from Merchandise Sales
|
|
36,681
|
|
72,168
|
|
|
|
407
|
|
109,256
|
|
Gross Profit from Service Revenue
|
|
4,206
|
|
4,769
|
|
|
|
38
|
|
9,013
|
|
Gross Profit from Other Revenue
|
|
|
|
|
|
1,453
|
|
(1,453
|
)
|
|
|
Total Gross Profit
|
|
40,887
|
|
76,937
|
|
1,453
|
|
(1,008
|
)
|
118,269
|
|
Selling, General and Administrative Expenses
|
|
39,249
|
|
71,841
|
|
79
|
|
(1,624
|
)
|
109,545
|
|
Net Gain from Dispositions of Assets
|
|
877
|
|
455
|
|
|
|
|
|
1,332
|
|
Operating Profit
|
|
2,515
|
|
5,551
|
|
1,374
|
|
616
|
|
10,056
|
|
Non-Operating (Expense) Income
|
|
(3,650
|
)
|
21,650
|
|
616
|
|
(17,892
|
)
|
724
|
|
Interest Expense (Income)
|
|
17,280
|
|
7,440
|
|
(522
|
)
|
(17,276
|
)
|
6,922
|
|
(Loss) Earnings from Continuing Operations Before
Income Taxes
|
|
(18,415
|
)
|
19,761
|
|
2,512
|
|
|
|
3,858
|
|
Income Tax (Benefit) Expense
|
|
(6,760
|
)
|
7,208
|
|
1,053
|
|
|
|
1,501
|
|
Equity in Earnings of Subsidiaries
|
|
13,791
|
|
|
|
|
|
(13,791
|
)
|
|
|
Net Earnings from Continuing Operations
|
|
2,136
|
|
12,553
|
|
1,459
|
|
(13,791
|
)
|
2,357
|
|
Discontinued Operations, Net of Tax
|
|
(12
|
)
|
(221
|
)
|
|
|
|
|
(233
|
)
|
Net Earnings
|
|
$
|
2,124
|
|
$
|
12,332
|
|
$
|
1,459
|
|
$
|
(13,791
|
)
|
$
|
2,124
|
|
Thirteen Weeks Ended November 1, 2008
|
|
Pep Boys
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Non-
Guarantors
|
|
Consolidation /
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise Sales
|
|
$
|
126,430
|
|
$
|
252,031
|
|
$
|
|
|
$
|
|
|
$
|
378,461
|
|
Service Revenue
|
|
29,283
|
|
56,422
|
|
|
|
|
|
85,705
|
|
Other Revenue
|
|
|
|
|
|
5,797
|
|
(5,797
|
)
|
|
|
Total Revenues
|
|
155,713
|
|
308,453
|
|
5,797
|
|
(5,797
|
)
|
464,166
|
|
Costs of Merchandise Sales
|
|
88,368
|
|
180,273
|
|
|
|
(406
|
)
|
268,235
|
|
Costs of Service Revenue
|
|
25,523
|
|
55,602
|
|
|
|
(38
|
)
|
81,087
|
|
Costs of Other Revenue
|
|
|
|
|
|
2,814
|
|
(2,814
|
)
|
|
|
Total Costs of Revenues
|
|
113,891
|
|
235,875
|
|
2,814
|
|
(3,258
|
)
|
349,322
|
|
Gross Profit from Merchandise Sales
|
|
38,062
|
|
71,758
|
|
|
|
406
|
|
110,226
|
|
Gross Profit from Service Revenue
|
|
3,760
|
|
820
|
|
|
|
38
|
|
4,618
|
|
Gross Profit from Other Revenue
|
|
|
|
|
|
2,983
|
|
(2,983
|
)
|
|
|
Total Gross Profit
|
|
41,822
|
|
72,578
|
|
2,983
|
|
(2,539
|
)
|
114,844
|
|
Selling, General and Administrative Expenses
|
|
44,688
|
|
78,226
|
|
67
|
|
(3,154
|
)
|
119,827
|
|
Net Gain (Loss) from Dispositions of Assets
|
|
82
|
|
(135
|
)
|
|
|
|
|
(53
|
)
|
Operating (Loss) Profit
|
|
(2,784
|
)
|
(5,783
|
)
|
2,916
|
|
615
|
|
(5,036
|
)
|
Non-Operating (Expense) Income
|
|
(3,685
|
)
|
26,740
|
|
636
|
|
(23,386
|
)
|
305
|
|
Interest Expense (Income)
|
|
21,976
|
|
8,695
|
|
(802
|
)
|
(22,771
|
)
|
7,098
|
|
(Loss) Earnings from Continuing Operations Before
Income Taxes
|
|
(28,445
|
)
|
12,262
|
|
4,354
|
|
|
|
(11,829
|
)
|
Income Tax (Benefit) Expense
|
|
(10,587
|
)
|
4,395
|
|
1,417
|
|
|
|
(4,775
|
)
|
Equity in Earnings of Subsidiaries
|
|
10,473
|
|
|
|
|
|
(10,473
|
)
|
|
|
Net Earnings from Continuing Operations
|
|
(7,385
|
)
|
7,867
|
|
2,937
|
|
(10,473
|
)
|
(7,054
|
)
|
Discontinued Operations, Net of Tax
|
|
103
|
|
(331
|
)
|
|
|
|
|
(228
|
)
|
Net (Loss) Earnings
|
|
$
|
(7,282
|
)
|
$
|
7,536
|
|
$
|
2,937
|
|
$
|
(10,473
|
)
|
$
|
(7,282
|
)
|
13
Table of
Contents
|
|
|
|
Subsidiary
|
|
Subsidiary
Non-
|
|
Consolidation
/
|
|
|
|
Thirty-Nine Weeks Ended October 31, 2009
|
|
Pep Boys
|
|
Guarantors
|
|
Guarantors
|
|
Elimination
|
|
Consolidated
|
|
Merchandise Sales
|
|
$
|
397,677
|
|
$
|
771,431
|
|
$
|
|
|
$
|
|
|
$
|
1,169,108
|
|
Service Revenue
|
|
101,672
|
|
187,262
|
|
|
|
|
|
288,934
|
|
Other Revenue
|
|
|
|
|
|
17,168
|
|
(17,168
|
)
|
|
|
Total Revenues
|
|
499,349
|
|
958,693
|
|
17,168
|
|
(17,168
|
)
|
1,458,042
|
|
Costs of Merchandise Sales
|
|
282,482
|
|
545,170
|
|
|
|
(1,223
|
)
|
826,429
|
|
Costs of Service Revenue
|
|
86,371
|
|
169,296
|
|
|
|
(114
|
)
|
255,553
|
|
Costs of Other Revenue
|
|
|
|
|
|
16,412
|
|
(16,412
|
)
|
|
|
Total Costs of Revenues
|
|
368,853
|
|
714,466
|
|
16,412
|
|
(17,749
|
)
|
1,081,982
|
|
Gross Profit from Merchandise Sales
|
|
115,195
|
|
226,261
|
|
|
|
1,223
|
|
342,679
|
|
Gross Profit from Service Revenue
|
|
15,301
|
|
17,966
|
|
|
|
114
|
|
33,381
|
|
Gross Profit from Other Revenue
|
|
|
|
|
|
756
|
|
(756
|
)
|
|
|
Total Gross Profit
|
|
130,496
|
|
244,227
|
|
756
|
|
581
|
|
376,060
|
|
Selling, General and Administrative Expenses
|
|
116,471
|
|
211,643
|
|
234
|
|
(1,268
|
)
|
327,080
|
|
Net Gain from Dispositions of Assets
|
|
891
|
|
428
|
|
|
|
|
|
1,319
|
|
Operating Profit
|
|
14,916
|
|
33,012
|
|
522
|
|
1,849
|
|
50,299
|
|
Non-Operating (Expense) Income
|
|
(11,700
|
)
|
64,429
|
|
1,855
|
|
(52,918
|
)
|
1,666
|
|
Interest Expense (Income)
|
|
45,680
|
|
22,278
|
|
(1,565
|
)
|
(51,069
|
)
|
15,324
|
|
(Loss) Earnings from Continuing Operations Before
Income Taxes
|
|
(42,464
|
)
|
75,163
|
|
3,942
|
|
|
|
36,641
|
|
Income Tax (Benefit) Expense
|
|
(17,865
|
)
|
31,569
|
|
1,659
|
|
|
|
15,363
|
|
Equity in Earnings of Subsidiaries
|
|
45,372
|
|
|
|
|
|
(45,372
|
)
|
|
|
Net Earnings from Continuing Operations
|
|
20,773
|
|
43,594
|
|
2,283
|
|
(45,372
|
)
|
21,278
|
|
Discontinued Operations, Net of Tax
|
|
(5
|
)
|
(505
|
)
|
|
|
|
|
(510
|
)
|
Net Earnings
|
|
$
|
20,768
|
|
$
|
43,089
|
|
$
|
2,283
|
|
$
|
(45,372
|
)
|
$
|
20,768
|
|
Thirty-Nine Weeks Ended November 1, 2008
|
|
Pep Boys
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Non-
Guarantors
|
|
Consolidation /
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise Sales
|
|
$
|
404,555
|
|
$
|
785,317
|
|
$
|
|
|
$
|
|
|
$
|
1,189,872
|
|
Service Revenue
|
|
94,526
|
|
177,854
|
|
|
|
|
|
272,380
|
|
Other Revenue
|
|
|
|
|
|
17,167
|
|
(17,167
|
)
|
|
|
Total Revenues
|
|
499,081
|
|
963,171
|
|
17,167
|
|
(17,167
|
)
|
1,462,252
|
|
Costs of Merchandise Sales
|
|
283,416
|
|
556,382
|
|
|
|
(1,224
|
)
|
838,574
|
|
Costs of Service Revenue
|
|
82,604
|
|
167,943
|
|
|
|
(113
|
)
|
250,434
|
|
Costs of Other Revenue
|
|
|
|
|
|
12,105
|
|
(12,105
|
)
|
|
|
Total Costs of Revenues
|
|
366,020
|
|
724,325
|
|
12,105
|
|
(13,442
|
)
|
1,089,008
|
|
Gross Profit from Merchandise Sales
|
|
121,139
|
|
228,935
|
|
|
|
1,224
|
|
351,298
|
|
Gross Profit from Service Revenue
|
|
11,922
|
|
9,911
|
|
|
|
113
|
|
21,946
|
|
Gross Profit from Other Revenue
|
|
|
|
|
|
5,062
|
|
(5,062
|
)
|
|
|
Total Gross Profit
|
|
133,061
|
|
238,846
|
|
5,062
|
|
(3,725
|
)
|
373,244
|
|
Selling, General and Administrative Expenses
|
|
134,104
|
|
232,688
|
|
227
|
|
(5,574
|
)
|
361,445
|
|
Net Gain from Dispositions of Assets
|
|
3,385
|
|
6,170
|
|
|
|
|
|
9,555
|
|
Operating Profit
|
|
2,342
|
|
12,328
|
|
4,835
|
|
1,849
|
|
21,354
|
|
Non-Operating (Expense) Income
|
|
(11,640
|
)
|
88,230
|
|
1,920
|
|
(76,713
|
)
|
1,797
|
|
Interest Expense (Income)
|
|
73,089
|
|
23,430
|
|
(2,678
|
)
|
(74,864
|
)
|
18,977
|
|
(Loss) Earnings from Continuing Operations Before
Income Taxes
|
|
(82,387
|
)
|
77,128
|
|
9,433
|
|
|
|
4,174
|
|
Income Tax (Benefit) Expense
|
|
(27,077
|
)
|
24,291
|
|
2,971
|
|
|
|
185
|
|
Equity in Earnings of Subsidiaries
|
|
58,250
|
|
|
|
|
|
(58,250
|
)
|
|
|
Net Earnings from Continuing Operations
|
|
2,940
|
|
52,837
|
|
6,462
|
|
(58,250
|
)
|
3,989
|
|
Discontinued Operations, Net of Tax
|
|
(102
|
)
|
(1,049
|
)
|
|
|
|
|
(1,151
|
)
|
Net Earnings
|
|
$
|
2,838
|
|
$
|
51,788
|
|
$
|
6,462
|
|
$
|
(58,250
|
)
|
$
|
2,838
|
|
14
Table of
Contents
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Thirty-Nine Weeks Ended October 31, 2009
|
|
Pep Boys
|
|
Subsidiary
Guarantors
|
|
Subsidiary Non-
Guarantors
|
|
Consolidation /
Elimination
|
|
Consolidated
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$
|
20,768
|
|
$
|
43,089
|
|
$
|
2,283
|
|
$
|
(45,372
|
)
|
$
|
20,768
|
|
Adjustments
to Reconcile Net Earnings to Net Cash Provided by (Used in) Continuing
Operations
|
|
(30,554
|
)
|
35,260
|
|
1,360
|
|
43,523
|
|
49,589
|
|
Changes
in operating assets and liabilities
|
|
29,151
|
|
(1,436
|
)
|
(15,517
|
)
|
|
|
12,198
|
|
Net
cash provided by (used in) continuing operations
|
|
19,365
|
|
76,913
|
|
(11,874
|
)
|
(1,849
|
)
|
82,555
|
|
Net
cash used in discontinued operations
|
|
(5
|
)
|
(589
|
)
|
|
|
|
|
(594
|
)
|
Net
Cash Provided by (Used in) Operating Activities
|
|
19,360
|
|
76,324
|
|
(11,874
|
)
|
(1,849
|
)
|
81,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in continuing operations
|
|
(11,144
|
)
|
(7,648
|
)
|
|
|
|
|
(18,792
|
)
|
Net
cash provided by discontinued operations
|
|
|
|
1,762
|
|
|
|
|
|
1,762
|
|
Net
Cash Used in Investing Activities
|
|
(11,144
|
)
|
(5,886
|
)
|
|
|
|
|
(17,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used In) Financing Activities
|
|
5,066
|
|
(68,097
|
)
|
15,762
|
|
1,849
|
|
(45,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash and Cash Equivalents
|
|
13,282
|
|
2,341
|
|
3,888
|
|
|
|
19,511
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
12,753
|
|
6,393
|
|
2,186
|
|
|
|
21,332
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
26,035
|
|
$
|
8,734
|
|
$
|
6,074
|
|
$
|
|
|
$
|
40,843
|
|
15
Table of
Contents
Thirty-Nine Weeks Ended November 1, 2008
|
|
Pep Boys
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Non-
Guarantors
|
|
Consolidation
/ Elimination
|
|
Consolidated
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$
|
2,838
|
|
$
|
51,788
|
|
$
|
6,462
|
|
$
|
(58,250
|
)
|
$
|
2,838
|
|
Adjustments
to Reconcile Net Earnings to Net Cash (Used in) Provided By Continuing
Operations
|
|
(46,872
|
)
|
24,653
|
|
1,278
|
|
56,403
|
|
35,462
|
|
Changes
in operating assets and liabilities
|
|
(29,894
|
)
|
(6,979
|
)
|
(11,371
|
)
|
|
|
(48,244
|
)
|
Net
cash (used in) provided by continuing operations
|
|
(73,928
|
)
|
69,462
|
|
(3,631
|
)
|
(1,847
|
)
|
(9,944
|
)
|
Net
cash used in discontinued operations
|
|
(221
|
)
|
(659
|
)
|
|
|
|
|
(880
|
)
|
Net
Cash (Used in) Provided by Operating Activities
|
|
(74,149
|
)
|
68,803
|
|
(3,631
|
)
|
(1,847
|
)
|
(10,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Investing Activities
|
|
25,877
|
|
45,992
|
|
|
|
|
|
71,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Financing Activities
|
|
63,590
|
|
(113,894
|
)
|
4,857
|
|
1,847
|
|
(43,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash and Cash Equivalents
|
|
15,318
|
|
901
|
|
1,226
|
|
|
|
17,445
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
12,208
|
|
6,655
|
|
2,063
|
|
|
|
20,926
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
27,526
|
|
$
|
7,556
|
|
$
|
3,289
|
|
$
|
|
|
$
|
38,371
|
|
16
Table of Contents
NOTE 13. Commitments and
Contingencies
In September 2006,
the United States Environmental Protection Agency (EPA) requested certain
information from the Company as part of an investigation to determine whether
the Company had violated, and is in violation of, the Clean Air Act and its
non-road engine regulations. The information requested concerned certain
generator and personal transportation merchandise offered for sale by the
Company. In the fourth quarter of fiscal year 2008, the EPA informed the
Company that it believed that the Company had violated the Clean Air Act by
virtue of the fact that certain of this merchandise did not conform to their
corresponding EPA Certificates of Conformity. During the third quarter of
fiscal 2009, the Company and the EPA reached a settlement in principle of this
matter requiring that the Company (i) pay a monetary penalty of $5
million, (ii) take certain corrective action with respect to certain
inventory that had been restricted from sale during the course of the
investigation, (iii) implement a formal compliance program and (iv) participate
in certain non-monetary emission offset activities. The Company had previously
accrued an amount equal to the agreed upon civil penalty and a $3 million
contingency accrual with respect to the restricted inventory. During the third
quarter of fiscal 2009, the Company reversed $1 million of the inventory
accrual as a portion of the subject inventory was released for sale. When the
Company successfully completes the required corrective action with respect to
the remaining restricted inventory, it may reverse all or a portion of the
remaining $2 million accrual in future periods.
The Company
is also party to various other actions and claims arising in the normal course
of business.
The Company believes that amounts accrued for
awards or assessments in connection with all such matters are adequate and that
the ultimate resolution of these matters will not have a material adverse
effect on the Companys financial position. However, there exists a reasonable
possibility of loss in excess of the amounts accrued, the amount of which
cannot currently be estimated. While the Company does not believe that the
amount of such excess loss could be material to the Companys financial
position, any such loss could have a material adverse effect on the Companys
results of operations in the period(s) during which the underlying matters
are resolved.
NOTE 14. Comprehensive Income (Loss)
The following are the components of other
comprehensive income (loss):
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
(dollar amounts in thousands)
|
|
October 31,
2009
|
|
November 1,
2008
|
|
October 31,
2009
|
|
November 1,
2008
|
|
Net earnings (loss)
|
|
$
|
2,124
|
|
$
|
(7,282
|
)
|
$
|
20,768
|
|
$
|
2,838
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
Defined benefit plan adjustment
|
|
280
|
|
246
|
|
840
|
|
733
|
|
Derivative financial instrument adjustment
|
|
(542
|
)
|
(1,080
|
)
|
496
|
|
1,980
|
|
Comprehensive Income (Loss)
|
|
$
|
1,862
|
|
$
|
(8,116
|
)
|
$
|
22,104
|
|
$
|
5,551
|
|
The components of accumulated other
comprehensive loss are:
(dollar amounts in thousands)
|
|
October 31, 2009
|
|
January 31, 2009
|
|
Defined benefit plan adjustment, net of tax
|
|
$
|
(6,913
|
)
|
$
|
(7,753
|
)
|
Derivative financial instrument adjustment, net of
tax
|
|
(9,826
|
)
|
(10,322
|
)
|
Accumulated other comprehensive loss
|
|
$
|
(16,739
|
)
|
$
|
(18,075
|
)
|
NOTE 15. Fair Value Measurements
Fair value is the price received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The Company uses a framework for
measuring fair value based on a hierarchy of valuation inputs used to measure
fair value.
The hierarchy prioritizes the inputs into three
broad levels:
Level 1 inputsunadjusted quoted prices in
active markets for identical assets or liabilities that the Company has the
ability to access. An active market for the asset or liability is one in which
transactions for the asset or liability occur with sufficient frequency and
volume to provide ongoing pricing information.
Level 2 inputsinputs other than quoted market
prices included in Level 1 that are observable, either directly or indirectly,
for the asset or liability. Level 2 inputs include, but are not limited to,
quoted prices for similar assets or liabilities in an active market, quoted
prices for identical or similar assets or liabilities in markets that are not
active and inputs other than quoted market prices that are
17
Table of Contents
observable for the asset or liability, such as
interest rate curves and yield curves observable at commonly quoted intervals,
volatilities, credit risk and default rates.
Level 3 inputsunobservable inputs for the asset
or liability.
The following table provides the fair value
measurement amounts for assets and liabilities recorded on the Companys
Condensed Consolidated Balance Sheet at fair value as of October 31, 2009:
(dollar amounts in thousands)
|
|
Fair Value
at
October
|
|
Fair Value Measurements
Using Inputs Considered as
|
|
Description
|
|
31, 2009
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
40,843
|
|
$
|
40,843
|
|
|
|
|
|
Assets
held for disposal
|
|
6,616
|
|
|
|
$
|
6,616
|
|
|
|
Investments
(a)
|
|
500
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Derivative
liability (b)
|
|
15,246
|
|
|
|
15,246
|
|
|
|
Contingent
Consideration (c)
|
|
1,660
|
|
|
|
|
|
1,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
included in other long-term assets
(b)
included in other long-term liabilities
(c)
based on weighted average probability scenarios
including managements assumptions on expected future cash flow
The Company has one interest rate swap
designated as a cash flow hedge on $145,000 of the Companys $149,985 Senior
Secured Term Loan facility that expires in October 2013. The swap is used
to minimize interest rate exposure and overall interest costs by converting the
variable interest rate to a fixed rate of 5.036%. Since February 1, 2008,
this swap was deemed to be fully effective and all adjustments in the interest
rate swaps fair value have been recorded to Accumulated Other Comprehensive
Loss.
The table below shows the effect of the Companys
interest rate swap on the Condensed Consolidated Statement of Operations for
the periods indicated:
(dollar amounts in thousands)
|
|
Amount of Gain in
Other
Comprehensive Income
(Effective Portion)
|
|
Earnings Statement Classification
|
|
Amount of Loss
Recognized in
Earnings (Effective
Portion) (a)
|
|
Thirteen
weeks ended October 31, 2009
|
|
$
|
571
|
|
Interest expense
|
|
$
|
(1,599
|
)
|
Thirty-nine
weeks ended October 31, 2009
|
|
$
|
354
|
|
Interest expense
|
|
$
|
(4,030
|
)
|
(a) represents
the effective portion of the loss reclassified from accumulated other
comprehensive loss
18
Table of Contents
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
The discussion and analysis below should be read
in conjunction with (i) the condensed consolidated interim financial
statements and the notes to such financial statements included elsewhere in
this Quarterly Report on Form 10-Q and (ii) the consolidated
financial statements and the notes to such financial statements included in
Item 8, Financial Statements and Supplementary Data of our Annual Report on Form 10-K
for the fiscal year ended January 31, 2009.
OVERVIEW
The Pep Boys-Manny, Moe & Jack is the
only national chain offering automotive service, tires, parts and accessories,
positioning us to achieve our vision of becoming the automotive solutions
provider of choice for the value-oriented customer. Our primary operating unit
is our Supercenter format, which serves both do-it-for-me DIFM (service
labor, installed merchandise and tires) and do-it-yourself DIY (retail)
customers with the highest quality service offerings and merchandise. In most
of our Supercenters, we also have a commercial sales program that provides
commercial credit and prompt delivery of tires, parts and other products to
local, regional and national repair shops and dealers. As part of our long-term
strategy to lead with automotive service, in 2009 we began complementing our
existing Supercenter store base with Service & Tire Centers. These Service &
Tire Centers are designed to capture market share and leverage our existing
Supercenters and support infrastructure. In the third quarter of 2009, we
opened five new Service & Tire Centers and acquired ten additional
locations through our purchase of Florida Tire, Inc. (see note 3). As of October 31,
2009, we operated 552 Supercenters and 20 Service & Tire Centers, as well
as nine legacy Pep Boys Express (retail only) stores throughout 35 states and
Puerto Rico.
The prototypical Service & Tire Center is
expected to have between four and eight service bays, preferably six. The
capital investment for a prototype, including inventory net of payables, is
projected to be approximately $450,000 to $550,000 and a prototype is expected
to generate approximately $1,000,000 to $1,500,000 in sales and $150,000 to
$250,000 of EBITDA annually. We currently plan to lease Service & Tire
Center locations, as we believe that there are sufficient existing available
locations with attractive lease terms to enable our expansion. We are targeting
a total of 25 new Service & Tire Centers in fiscal year 2009, 40 in fiscal
2010 and 80 in fiscal 2011.
For the thirteen weeks ended October 31,
2009, our comparable sales (sales generated by locations in operation during
the same period) increased by 1.6% compared to a decrease of 10.4% for the
thirteen weeks ended November 1, 2008. This increase in comparable sales
was comprised of an 8.9% increase in comparable service revenue and a 0.1%
decrease in comparable merchandise sales. The difficult macro environment,
including higher unemployment and the credit crisis, continues to negatively
impact sales in our discretionary product categories like accessories and
complementary merchandise. Sales of non-discretionary product categories like
service and hard parts have benefited somewhat from these trends, as customers
have focused on maintaining their existing vehicles rather than purchasing new
vehicles. Our non-discretionary product categories are primarily impacted by
miles driven, which has stabilized since the second quarter of 2009, after
having declined for the previous year.
We continue to focus on refining and expanding
our parts assortment to improve our in stock position, improving execution and
the customer experience and utilizing television and radio advertising to
communicate our value offerings. In the thirteen and thirty-nine weeks ended October 31,
2009, we were able to successfully increase customer traffic and sales in our
service and commercial businesses. In addition, for the thirteen week period
ended October 31, 2009, total customer traffic and total revenue increased
for the first time in twenty-one quarters and 10 quarters, respectively.
Our net earnings for the thirteen weeks ended October 31,
2009 were $2,124,000, a $9,406,000 improvement over the net loss of $7,282,000
reported for the thirteen weeks ended November 1, 2008. This increase in
profitability resulted primarily from increased sales and gross profit margins
in our service business and lower selling, general and administrative expenses
due to continued disciplined spending control.
Our diluted earnings per share for the thirteen
and thirty-nine weeks ended October 31, 2009 were $0.04 and $0.40 per
share, respectively, as compared to ($0.14) and $0.05 per share for the
corresponding periods ended November 1, 2008, respectively. (See Results
of Operations).
The following discussion explains the
significant developments affecting our financial condition and material changes
in our results of operations for the thirteen weeks and thirty-nine weeks ended
October 31, 2009. We recommend that you also read the audited consolidated
financial statements, footnotes and Managements Discussion and Analysis of
Financial Condition and Results of Operations included in our Annual Report on Form 10-K
for the fiscal year ended January 31, 2009.
19
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Our cash requirements arise principally from the
purchase of inventory and capital expenditures related to existing and new
stores, offices and distribution centers, debt service and contractual
obligations. Cash flows realized through the sales of automotive services,
tires, parts and accessories are our primary source of liquidity. Net cash provided
by continuing operations was $82,555,000 in the thirty-nine weeks ended October 31,
2009 compared to a use of cash of $9,944,000 in the thirty-nine weeks ended November 1,
2008. The $92,499,000 improvement from the prior year was due to a $32,057,000
increase in our net earnings (net of non-cash adjustments) and a $60,442,000
favorable change in operating assets and liabilities. The change in operating
assets and liabilities was primarily due to favorable changes in inventory of
$17,742,000, accounts payable of $30,015,000 and in all other assets and
liabilities of $12,685,000. The improved cash flows from inventory resulted
from more disciplined inventory management, including reduced seasonal
inventory purchases, inventory lead times and safety stocks. The improvement in
accounts payable was attributable to the timing of our accounts payable cycle.
The favorable change in all other assets and liabilities was due to reduced
accounts receivable as a result of improved collection of vendor allowances and
trade receivables and as a result of lower declines in accrued expenses due in
part to a payment in the prior year first quarter of $4,539,000 in connection
with reducing the notional value on an interest rate swap by $55,000,000.
Cash used in investing activities by continuing
operations was $18,792,000 for the thirty-nine week period ended October 31,
2009 as compared to cash provided of $69,311,000 in the thirty-nine weeks ended
November 1, 2008. During the thirty-nine week period ended October 31,
2009, we sold three properties that were classified as held for sale for net
proceeds of $2,783,000, of which $1,758,000 is included in discontinued
operations, and completed sale leaseback transactions on three stores for net
proceeds of $10,986,000. In the thirteen weeks ended October 31, 2009 we
acquired substantially all of the assets (other than real property) of Florida
Tire, Inc. which included a cash
payment of $2,610,000 and the recording of a $1,660,000 contingent liability
which could result in future payments through November 2013. During fiscal
year 2008, we generated $209,085,000 from the disposition of assets primarily
due to sale-leaseback transactions, the proceeds of which were used to
repurchase 29 properties for $117,121,000 that were previously leased under a
master operating lease. Capital expenditures in the first thirty-nine weeks of
2009 and 2008 were $27,775,000 and $22,653,000, respectively. Capital
expenditures for the current year were for maintenance of our existing stores
and distribution centers, and for the opening of the new Service & Tire Centers.
Our fiscal year 2009 capital expenditures are
expected to be approximately $45,000,000 which includes the addition of
approximately 25 Service & Tire Centers and required expenditures for our
existing stores, offices and distribution centers. These expenditures are
expected to be funded by net cash generated from operating activities,
opportunistic single store sale leaseback transactions and our existing line of
credit.
In the thirty-nine weeks ended October 31,
2009 and November 1, 2008, we used cash in financing activities of
$45,420,000 and $43,600,000, respectively. In the current year, we repurchased
$16,970,000 of our outstanding 7.5% Senior Subordinated Notes for $10,722,000, repaid
$23,862,000 of borrowings under our credit facility and repaid $5,471,000 on
borrowings under our trade payable financing program discussed below. In the
prior year, we used the proceeds from the sale-leaseback transactions discussed
above to reduce debt obligations under our then existing credit facility, and
to repurchase $25,465,000 principal amount of our 7.5% Senior Secured Notes for
$22,005,000.
We anticipate that cash provided by operating
activities, opportunistic single store sale leaseback transactions and our
existing line of credit and cash on hand will exceed our expected cash
requirements in fiscal year 2009. We expect to have excess availability under
our existing line of credit during the entirety of fiscal year 2009. As of October 31,
2009, we had undrawn availability under our revolving credit facility of
$133,693,000. We also have substantial owned real estate which we believe we
can monetize, if necessary, through additional sale leaseback or other
financing transactions
Our working capital was $187,479,000 and
$179,233,000 at October 31, 2009 and January 31, 2009, respectively.
Our long-term debt, as a percentage of our total capitalization, was 41% and
45% at October 31, 2009 and January 31, 2009, respectively.
As of October 31, 2009, we had an
outstanding balance of $26,459,000 (classified as trade payable program
liability on the condensed consolidated balance sheet) under our vendor
financing program. On April 6, 2009, a previously existing program was
replaced by this new program which is funded by various bank participants who
have the ability, but not the obligation, to purchase directly from our vendors their account receivables
owed by us.
20
Table
of Contents
RESULTS
OF OPERATIONS
Thirteen
Weeks Ended October 31, 2009 vs. Thirteen Weeks Ended November 1,
2008
The
following table presents for the periods indicated certain items in the
condensed consolidated statements of operations as a percentage of total
revenues (except as otherwise provided) and the percentage change in dollar
amounts of such items compared to the indicated prior period.
|
|
Percentage of Total Revenues
|
|
Percentage Change
|
|
Thirteen Weeks Ended
|
|
October 31, 2009
(Fiscal 2009)
|
|
November 1, 2008
(Fiscal 2008)
|
|
Favorable
(Unfavorable)
|
|
|
|
|
|
|
|
|
|
Merchandise
Sales
|
|
80.2
|
%
|
81.5
|
%
|
0.1
|
%
|
Service Revenue
(1)
|
|
19.8
|
|
18.5
|
|
9.4
|
|
Total Revenues
|
|
100.0
|
|
100.0
|
|
1.8
|
|
Costs of
Merchandise Sales (2)
|
|
71.2
|
(3)
|
70.9
|
(3)
|
(0.5
|
)
|
Costs of Service
Revenue (2)
|
|
90.4
|
(3)
|
94.6
|
(3)
|
(4.5
|
)
|
Total Costs of
Revenues
|
|
75.0
|
|
75.3
|
|
(1.4
|
)
|
Gross Profit
from Merchandise Sales
|
|
28.8
|
(3)
|
29.1
|
(3)
|
(0.9
|
)
|
Gross Profit
from Service Revenue
|
|
9.6
|
(3)
|
5.4
|
(3)
|
95.1
|
|
Total Gross
Profit
|
|
25.0
|
|
24.7
|
|
3.0
|
|
Selling, General
and Administrative Expenses
|
|
23.2
|
|
25.8
|
|
8.6
|
|
Net Gain (Loss)
from Dispositions of Assets
|
|
0.3
|
|
|
|
NM
|
|
Operating Profit
(Loss)
|
|
2.1
|
|
(1.1
|
)
|
299.7
|
|
Non-operating
Income
|
|
0.2
|
|
0.1
|
|
137.4
|
|
Interest Expense
|
|
1.5
|
|
1.5
|
|
2.5
|
|
Earnings (Loss)
from Continuing Operations Before Income Taxes
|
|
0.8
|
|
(2.5
|
)
|
132.6
|
|
Income Tax
Expense
|
|
38.9
|
(4)
|
40.4
|
(4)
|
(131.4
|
)
|
Net Earnings
(Loss) from Continuing Operations
|
|
0.5
|
|
(1.5
|
)
|
133.4
|
|
Discontinued
Operations, Net of Tax
|
|
|
|
|
|
(2.2
|
)
|
Net Earnings
(Loss)
|
|
0.4
|
|
(1.6
|
)
|
129.2
|
|
(1)
|
Service revenue consists
of the labor charge for installing merchandise or maintaining or repairing
vehicles, excluding the sale of any installed parts or materials.
|
(2)
|
Costs of merchandise sales
include the cost of products sold, buying, warehousing and store occupancy
costs. Costs of service revenue include service center payroll and related
employee benefits and service center occupancy costs. Occupancy costs include
utilities, rents, real estate and property taxes, repairs and maintenance and
depreciation and amortization expenses.
|
(3)
|
As a percentage of related
sales or revenue, as applicable.
|
(4)
|
As a percentage of
Earnings from Continuing Operations Before Income Taxes.
|
NM Percentage not meaningful
Total
revenue and comparable sales for the thirteen weeks ended October 31, 2009
increased 1.8% and 1.6% respectively, as compared to the thirteen weeks ended November 1,
2008. The 1.6% increase in comparable store revenues consisted of a 0.1%
decrease in comparable merchandise sales that was offset by an increase of 8.9%
in comparable service revenue. The slight decrease in merchandise sales was
primarily due to weaker sales in our retail business stemming from less
discretionary spending by our customers.
In
the third quarter of fiscal year 2009, customer traffic generated by improved
store execution, promotional events and improved stock position resulted in an
increase in service and commercial customer count. While offset in part by a
decrease in DIY customer count, total customer count increased in the third
quarter of fiscal year 2009. We believe the decrease in retail customer count
is a result of the long-term industry decline in the DIY business, overall
reduced spending due to the current economic environment and our competitors
continuing to open new stores. In addition, we carry a large assortment of more
discretionary retail product that is more susceptible to consumer spending
deferrals. We continue to believe, and our third quarter performance has
validated, that providing a differentiated merchandise assortment, better
customer experience, value proposition and innovative marketing will stem the
overall decline in customer counts and sales over the long term.
21
Table
of Contents
Gross
profit as a percentage of merchandise sales decreased from 29.1% for the third
quarter of fiscal year 2008 to 28.8% for the third quarter of fiscal year 2009.
Gross profit decreased by $970,000 primarily due to a $2,417,000 asset
impairment charge, partially offset by a reduction in inventory related
accruals of $1,000,000 and a gain from an insurance settlement of $562,000.
Gross
profit from service revenue increased as a percentage of service revenue to 9.6
% for the third quarter of fiscal year 2009 from 5.4% for the third quarter of
2008. Gross profit from service revenue grew by $4,395,000 or 95.1%. The
current year third quarter gross profit included a $653,000 asset impairment
charge. The increase in gross profit was primarily due to the increase in
service revenue which resulted in higher absorption of fixed expenses such as
occupancy costs and to a certain extent, labor costs.
Selling, General and
Administrative expenses, as a percentage of total revenues decreased from 25.8%
for the third quarter of fiscal year 2008 to 23.2% for the third quarter of
fiscal year 2009. Selling, General and Administrative expenses decreased
$10,282,000 or 8.6%. The decrease was primarily due to reduced payroll and
related expenses of $1,632,000, less media expense of $3,958,000, lower legal
expenses and professional services fees of $2,242,000, improved store selling
expenses of $1,208,000 and lower travel expenses of $740,000.
Net
gains from the disposition of assets for the thirteen weeks ended October 1,
2009, reflects $1,332,000 in gains from the sale and leaseback of three stores.
Interest
expense declined by $176,000 to $6,922,000 in the third quarter of fiscal 2009
compared to $7,098,000 for the third quarter of fiscal 2008 primarily due to
reduced debt levels.
Our
income tax expense for the third quarter of fiscal year 2009 was $1,501,000 or
an effective rate of 38.9% as compared to a tax benefit of $4,775,000 or an
effective rate of 40.4% for the third quarter of fiscal year 2008. The current
year third quarter included an $80,000 tax benefit resulting primarily from the
settlement of certain state tax liabilities. Excluding this adjustment the
effective tax rate would have been 41.0 %.
Thirty-Nine
Weeks Ended October 31, 2009 vs. Thirty-Nine Weeks Ended November 1,
2008
The
following table presents for the periods indicated certain items in the
condensed consolidated statements of operations as a percentage of total
revenues (except as otherwise provided) and the percentage change in dollar
amounts of such items compared to the indicated prior period.
|
|
Percentage of Total Revenues
|
|
Percentage Change
|
|
Thirty-Nine Weeks Ended
|
|
October 31, 2009
(Fiscal 2009)
|
|
November 1, 2008
(Fiscal 2008)
|
|
Favorable
(Unfavorable)
|
|
|
|
|
|
|
|
|
|
Merchandise
Sales
|
|
80.2
|
%
|
81.4
|
%
|
(1.7
|
)%
|
Service Revenue
(1)
|
|
19.8
|
|
18.6
|
|
6.1
|
|
Total Revenues
|
|
100.0
|
|
100.0
|
|
(0.3
|
)
|
Costs of
Merchandise Sales (2)
|
|
70.7
|
(3)
|
70.5
|
(3)
|
1.4
|
|
Costs of Service
Revenue (2)
|
|
88.4
|
(3)
|
91.9
|
(3)
|
(2.0
|
)
|
Total Costs of
Revenues
|
|
74.2
|
|
74.5
|
|
0.6
|
|
Gross Profit
from Merchandise Sales
|
|
29.3
|
(3)
|
29.5
|
(3)
|
(2.5
|
)
|
Gross Profit
from Service Revenue
|
|
11.6
|
(3)
|
8.1
|
(3)
|
52.1
|
|
Total Gross
Profit
|
|
25.8
|
|
25.5
|
|
0.8
|
|
Selling, General
and Administrative Expenses
|
|
22.4
|
|
24.7
|
|
9.5
|
|
Net Gain from
Dispositions of Assets
|
|
0.1
|
|
0.7
|
|
(86.2
|
)
|
Operating Profit
|
|
3.4
|
|
1.5
|
|
135.5
|
|
Non-operating
Income
|
|
0.1
|
|
0.1
|
|
(7.3
|
)
|
Interest Expense
|
|
1.1
|
|
1.3
|
|
19.2
|
|
Earnings from
Continuing Operations Before Income Taxes
|
|
2.5
|
|
0.3
|
|
777.8
|
|
Income Tax
Expense Benefit
|
|
41.9
|
(4)
|
4.4
|
(4)
|
NM
|
|
Net Earnings
from Continuing Operations
|
|
1.5
|
|
0.3
|
|
433.4
|
|
Discontinued
Operations, Net of Tax
|
|
|
|
(0.1
|
)
|
55.7
|
|
Net Earnings
|
|
1.4
|
|
0.2
|
|
631.8
|
|
22
Table of Contents
(1)
|
Service revenue consists
of the labor charge for installing merchandise or maintaining or repairing
vehicles, excluding the sale of any installed parts or materials.
|
(2)
|
Costs of merchandise sales
include the cost of products sold, buying, warehousing and store occupancy
costs. Costs of service revenue include service center payroll and related
employee benefits and service center occupancy costs. Occupancy costs include
utilities, rents, real estate and property taxes, repairs and maintenance and
depreciation and amortization expenses.
|
(3)
|
As a percentage of related
sales or revenue, as applicable.
|
(4)
|
As a percentage of
Earnings from Continuing Operations Before Income Taxes.
|
NM Percentage not meaningful
Total
revenue and comparable sales for the thirty-nine weeks ended October 31,
2009 decreased by approximately 0.3% and 0.4% as compared to the thirty-nine
weeks ended November 1, 2008. Comparable merchandise sales decreased 1.8%
and was mostly offset by an increase in comparable service revenue of 5.9%. The
decrease in merchandise sales was due to weaker sales in our retail business
stemming from lower customer counts and less discretionary spending by our
customers.
Gross
profit as a percent of merchandise sales decreased to 29.3% for the thirty-nine
weeks ended October 31, 2009 from 29.5% for the thirty-nine weeks ended November 1,
2008. Gross profit from merchandise sales decreased $8,619,000 or 2.5%
primarily due to the reduced merchandise sales discussed above. Merchandise
sales gross profit margins declined by 70 basis points as result of increased
product promotions and an overall change in product mix, offset by lower
occupancy and warehousing costs, which improved by 40 basis points.
Gross
profit from service revenue increased as a percentage of service revenues to
11.6% for the thirty-nine weeks ended October 31, 2009 from 8.1% for the
thirty-nine weeks ended November 1, 2008. Gross profit from service revenue
increased by 52.1% or $11,435,000. This increase in gross profit was primarily
due to the increase in service revenue which resulted in higher absorption of
fixed expenses such as occupancy costs and to a certain extent, labor costs.
Selling,
General and Administrative expenses, as a percentage of total revenues
decreased from 24.7% for the thirty-nine weeks ended November 1, 2008 to
22.4% for the thirty-nine weeks ended October 31, 2009. Selling, General
and Administrative expenses decreased $34,365,000 or 9.5%. The decrease was
primarily due to reduced payroll and related expenses of $7,042,000, less media
expense of $15,008,000, lower legal expenses and professional services fees of
$7,604,000 and lower travel expenses of $2,384,000.
Net
gain from the disposition of assets for the thirty-nine weeks ended October 31,
2009 and November 1, 2008 reflects gains of $1,319,000 and $ 9,555,000, respectively,
primarily as a result of the sale and lease back transactions.
Interest
expense declined by $3,653,000 to $15,324,000 for the thirty-nine weeks ended October 31,
2009 from $18,977,000 for the thirty-nine weeks ended November 1, 2008.
Both periods included gains from the retirement of debt of $6,248,000 and
$3,460,000, respectively. Excluding these gains, interest expense declined by
$865,000 from 2008 to 2009 primarily due to reduced debt levels.
Income
tax expense was $15,363,000 or an effective rate of 41.9% for the thirty-nine
weeks ended October 31, 2009 as compared to $185,000 or an effective rate
of 4.4% for the thirty-nine weeks ended November 1, 2008. The increase in
tax expense was primarily due to improved earnings. The prior year included a
one-time tax benefit of $2,200,000 resulting from the recording of a deferred
tax asset due to a state tax law change.
INDUSTRY
COMPARISON
We
operate in the U.S. automotive aftermarket, which has two general lines of
business: the Service Business defined as Do-It-For-Me (service labor,
installed merchandise and tires) and the Retail Business defined as
Do-It-Yourself (retail merchandise) and commercial. Generally, specialized
automotive retailers focus on either the Retail or Service area of the
business. We believe that operation in both the Retail and Service areas of the
business positively differentiates us from most of our competitors. Although we
manage our store performance at a store level in aggregation, we believe that
the following presentation, which includes the reclassification of revenue from
installed products from retail sales to service center revenue, shows an
accurate comparison against competitors within the two sales arenas. We compete
in the Retail area of the business through our retail sales floor and
commercial sales business. Our Service Center business competes in the Service
area of the industry.
23
Table
of Contents
The
following table presents the revenues and gross profit for each area of the
business:
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
|
|
October 31,
|
|
November 1,
|
|
October 31,
|
|
November 1,
|
|
(Dollar amounts in thousands)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Retail Sales (1)
|
|
$
|
246,275
|
|
$
|
253,492
|
|
$
|
770,121
|
|
$
|
802,707
|
|
Service Center
Revenue (2)
|
|
226,368
|
|
210,674
|
|
687,921
|
|
659,545
|
|
Total Revenues
|
|
$
|
472,643
|
|
$
|
464,166
|
|
$
|
1,458,042
|
|
$
|
1,462,252
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
from Retail Sales (3)
|
|
$
|
65,846
|
|
$
|
68,360
|
|
$
|
210,147
|
|
$
|
220,139
|
|
Gross Profit
from Service Center Revenue (3)
|
|
52,423
|
|
46,484
|
|
165,913
|
|
153,105
|
|
Total Gross
Profit
|
|
$
|
118,269
|
|
$
|
114,844
|
|
$
|
376,060
|
|
$
|
373,244
|
|
(1)
|
Excludes revenues from
installed products.
|
(2)
|
Includes revenues from
installed products.
|
(3)
|
Gross Profit from Retail
Sales includes the cost of products sold, buying, warehousing and store
occupancy costs. Gross Profit from Service Center Revenue includes the cost
of installed products sold, buying, warehousing, 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.
|
NEW
ACCOUNTING STANDARDS
On
December 30, 2008 the Financial Accounting Standards Board (FASB) issued
FASB Staff Position No. 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets (FSP FAS 132(R)-1). This pronouncement
provides additional guidance on an employers disclosures about plan assets of
a defined benefit pension or other postretirement plan and is effective for
fiscal years ending after December 15, 2009. The Company does not expect the adoption of
FSP FAS 132(R)-1 to have a material impact on its consolidated financial statements.
In
October 2009, the FASB issued Accounting Standards Update 2009-13 Revenue
Recognition (Topic 605) Multiple-Deliverable Revenue Arrangements a consensus
of the FASB Emerging Issues Task Force, (ASU 2009-13). This update eliminates
the residual method of allocation and requires that consideration be allocated
to all deliverables using the relative selling price method. ASU 2009-13 is
effective for material revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010. The Company is
currently evaluating the impact ASU 2009-13 will have on its consolidated
financial statements.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Managements
Discussion and Analysis of Financial Condition and Results of Operations
discusses our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the condensed consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Additionally, we estimate our interim product gross margins in accordance with
the FASBs ASC on Interim Reporting.
On
an on-going basis, we evaluate our estimates and judgments, including those
related to customer incentives, product returns and warranty obligations, bad
debts, merchandise inventories, income taxes, financing operations,
restructuring costs, retirement benefits, risk participation agreements and
contingencies and litigation. We base our estimates and judgments on historical
experience and on various other factors that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. For a detailed discussion of
significant accounting policies that may involve a higher degree of judgment or
complexity, refer to Critical Accounting Policies and Estimates as reported
in our Annual Report on Form 10-K for the fiscal year ended January 31,
2009, which disclosures are hereby incorporated by reference.
24
Table
of Contents
FORWARD-LOOKING
STATEMENTS
Certain
statements contained herein constitute forward-looking statements within the
meaning of The Private Securities Litigation Reform Act of 1995. The words guidance,
expect, anticipate, estimates, forecasts and similar expressions are
intended to identify such forward-looking statements. Forward-looking
statements include managements expectations regarding implementation of its
long-term strategic plan, future financial performance, automotive aftermarket
trends, levels of competition, business development activities, future capital
expenditures, financing sources and availability and the effects of regulation and
litigation. Although we believe that the expectations reflected in such
forward-looking statements are based on reasonable assumptions, we can give no
assurance that our expectations will be achieved. Our actual results may differ
materially from the results discussed in the forward-looking statements due to
factors beyond our control, including the strength of the national and regional
economies, retail and commercial consumers ability to spend, the health of the
various sectors of the automotive aftermarket, the weather in geographical
regions with a high concentration of our stores, competitive pricing, the
location and number of competitors stores, product and labor costs and the
additional factors described in our filings with the Securities and Exchange
Commission (SEC). We assume no obligation to update or supplement
forward-looking statements that become untrue because of subsequent events.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
Our
primary market risk exposure with regard to financial instruments is to changes
in interest rates. Pursuant to the terms of our revolving credit agreement,
changes in LIBOR or the Prime Rate could affect the rates at which we could
borrow funds thereunder. At October 31, 2009 we had no borrowings under
this facility. Additionally, we have a $149,985,000 Senior Secured Term Loan
facility that bears interest at three month LIBOR plus 2.0%.
We
have an interest rate swap for a notional amount of $145,000,000, which is
designated as a cash flow hedge on our Senior Secured Term Loan. We record the
effective portion of the change in fair value through Accumulated Other
Comprehensive Loss.
The
fair value of the interest rate swap was $15,246,000 and $15,808,000 payable at
October 31, 2009 and January 31, 2009, respectively. Of the net
$562,000 decrease in fair value during the thirty-nine weeks ended October 31,
2009, $496,000, net of tax, was recorded to accumulated other comprehensive
loss on the condensed consolidated balance sheet.
Item 4. Controls
and Procedures.
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
Our
disclosure controls and procedures (as defined in Rule 13a-15 of the
Securities Exchange Act of 1934 (the Exchange Act)) are designed to ensure
that information required to be disclosed is accumulated and communicated to
our management, including our principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required
disclosure. The term disclosure controls and procedures means controls and
other procedures of an issuer that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits
under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and
reported, within the time periods specified in the SECs rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuers management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Companys management, with the participation of the Companys chief
executive officer and chief financial officer, evaluated the effectiveness of
the Companys disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the chief executive officer
and chief financial officer concluded that our disclosure controls and
procedures as of the end of the period covered by this report were functioning
effectively and provide reasonable assurance that the information required to
be disclosed by the Company in reports filed under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No
change in the Companys internal control over financial reporting occurred
during the fiscal quarter covered by this report that has materially affected,
or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
Item 5.
Other Information
None.
25
Table
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In
September 2006, the United States Environmental Protection Agency (EPA)
requested certain information from the Company as part of an investigation to
determine whether the Company had violated, and is in violation of, the Clean
Air Act and its non-road engine regulations. The information requested
concerned certain generator and personal transportation merchandise offered for
sale by the Company. In the fourth quarter of fiscal year 2008, the EPA
informed the Company that it believed that the Company had violated the Clean
Air Act by virtue of the fact that certain of this merchandise did not conform
to their corresponding EPA Certificates of Conformity. During the third quarter
of fiscal 2009, the Company and the EPA reached a settlement in principle of this
matter requiring that the Company (i) pay a monetary penalty of $5
million, (ii) take certain corrective action with respect to certain
inventory that had been restricted from sale during the course of the
investigation, (iii) implement a formal compliance program and (iv) participate
in certain non-monetary emission offset activities. The Company had previously
accrued an amount equal to the agreed upon civil penalty and a $3 million
contingency accrual with respect to the restricted inventory. During the third
quarter of fiscal 2009, the Company reversed $1 million of the inventory
accrual as a portion of the subject inventory was released for sale. When the
Company successfully completes the required corrective action with respect to
the remaining restricted inventory, it may reverse all or a portion of the remaining
$2 million accrual in future periods.
The
Company is also party to various other actions and claims arising in the normal
course of business.
The
Company believes that amounts accrued for awards or assessments in connection
with all such matters are adequate and that the ultimate resolution of these
matters will not have a material adverse effect on the Companys financial
position. However, there exists a reasonable possibility of loss in excess of
the amounts accrued, the amount of which cannot currently be estimated. While
the Company does not believe that the amount of such excess loss could be
material to the Companys financial position, any such loss could have a
material adverse effect on the Companys results of operations in the period(s) during
which the underlying matters are resolved.
Item
1A. Risk Factors
There have been no
changes to the risks described in the Companys previously filed Annual Report
on Form 10-K for the fiscal year ended January 31, 2009.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security Holders
None.
Item
5. Other Information
None.
26
Table
of Contents
Item
6.
Exhibits
(31.1)
|
Certification of Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
(31.2)
|
Certification of Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
(32.1)
|
Chief Executive Officer
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
(32.2)
|
Chief Financial Officer
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
27
Table
of Contents
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
THE PEP BOYS - MANNY, MOE & JACK
|
|
|
|
(Registrant)
|
|
|
|
|
|
Date:
|
December 09, 2009
|
|
by:
|
/s/ Raymond L. Arthur
|
|
|
|
|
|
|
|
|
Raymond L. Arthur
|
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
|
28
Table
of Contents
INDEX
TO EXHIBITS
(31.1)
|
Certification of Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
(31.2)
|
Certification of Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
(32.1)
|
Chief Executive Officer
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
(32.2)
|
Chief Financial Officer
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
29
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