Pep Boys 2013 Annual Report Download

Download and view the complete annual report

Please find the complete 2013 Pep Boys annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 164

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164

3111 West Allegheny Avenue • Philadelphia, PA 19132
2013
notice of annual meeting and proxy statement
annual report

Table of contents

  • Page 1
    2013 annual report notice of annual meeting and proxy statement

  • Page 2
    ... With respect to our Service & Tire Centers, we just opened our 225th location. Thirty-nine of these Service & Tire Centers showcase the welcoming exterior curb appeal and comfortable customer lounge of our new "Road Ahead" format. As we have refined our real estate model over the years we have also...

  • Page 3
    ... we are identifying new product opportunities to target these customer segments. Digital Operations. Sales from digital operations include on-line service appointments, tire sales that are made online and installed in our stores, ship-to-home sales and products that are ordered on-line and picked up...

  • Page 4
    ... you to Pep Boys 2014 Annual Meeting of Shareholders. This year's meeting will be held on Wednesday, June 11, 2014, at Pep Boys' Store Support Center located at 3111 West Allegheny Avenue, Philadelphia, Pennsylvania. The meeting will begin promptly at 9:00 a.m. At the meeting, shareholders will act...

  • Page 5
    ... Plan Based Awards ...28 Outstanding Equity Awards at Fiscal Year-End Table ...29 Option Exercises and Stock Vested Table ...30 Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans ...30 Employment Agreements with the Named Executive Officers ...31 Potential Payments...

  • Page 6
    ... connection with the solicitation of proxies by the Board of Directors for use at this year's Annual Meeting. The meeting will be held on Wednesday, June 11, 2014, at the Pep Boys' Store Support Center located at 3111 West Allegheny Avenue, Philadelphia, Pennsylvania and will begin promptly at 9:00...

  • Page 7
    ... a bank or brokerage account, please complete and mail the voting instruction form in the envelope provided. • Ballot at the Annual Meeting. You may vote your shares at the meeting if you or your authorized proxy attends the meeting. Even if you plan to attend the meeting, we encourage you to...

  • Page 8
    ... of Directors. The Board recommends a vote: FOR election of the nominated slate of directors. FOR the advisory resolution on executive compensation. FOR the ratification of the appointment of our independent registered public accounting firm. FOR the re-approval of our Annual Incentive Bonus Plan to...

  • Page 9
    ...beneficially own more than 5% of the outstanding shares of Pep Boys Stock. Name GAMCO Investors, Inc. and affiliates One Corporate Center Rye, NY 10580(a) BlackRock, Inc. 40 East 52nd Street New York, NY 10022(b) Dimensional Fund Advisors LP Palisades West, Building One 6300 Bee Cave Road Austin, TX...

  • Page 10
    ... table shows how many shares our directors and executive officers named in the Summary Compensation Table beneficially owned on April 7, 2014. The business address for each of such individuals is 3111 West Allegheny Avenue, Philadelphia, PA 19132. Name Michael R. Odell James A. Mitarotonda(b) Nick...

  • Page 11
    ... where he has been employed since 2002. Mr. Hotz currently serves as a director of Universal Health Services, Inc. Mr. Hotz' financial, M&A and regulatory expertise, public-company director experience and familiarity with Pep Boys' business garnered through his tenure as a Director were the primary...

  • Page 12
    ... President in June 2010. He joined Pep Boys in September 2007 as Executive Vice President- Chief Operating Officer, after having most recently served as the Executive Vice President and General Manager of Sears Retail & Specialty Stores. Mr. Odell joined Sears in its finance department in 1994 where...

  • Page 13
    ...our website is not part of this Proxy Statement. References to our website herein are intended as inactive textual references only. NYSE Listing Standards. As required by the New York Stock Exchange (NYSE), promptly following our 2013 Annual Meeting, our President & Chief Executive Officer certified...

  • Page 14
    ... base salaries, retirement benefits, perquisites and generally available benefit programs create little, if any, risk to Pep Boys. • Except as provided below, all of our management employees who receive short-term incentive-based compensation do so pursuant to the terms of our shareholder approved...

  • Page 15
    ...the current members of our Compensation Committee. None of these members is or has been an officer or employee of Pep Boys or has any relationship with Pep Boys requiring disclosure under Item 404 of SEC Regulation S-K. No executive officer of Pep Boys serves as a member of the board of directors or...

  • Page 16
    ... experiences) and his or her independence from Pep Boys. Such qualifications are evaluated against our then current requirements, as expressed by the full Board and our President & Chief Executive Officer, and the current make up of the full Board. Evaluations. Candidates are evaluated on the basis...

  • Page 17
    ... time-based RSUs and vested "in the money" stock options. Non-employee directors have five years from their appointment to the Board to achieve their expected ownership level. If in a shortfall position, (i) a non-employee director may not sell Pep Boys Stock and (ii) all net after-tax shares...

  • Page 18
    ... for communication among the Board of Directors and its committees, the independent registered public accounting firm, management and Pep Boys' internal audit function, as the respective duties of such groups, or their constituent members, relate to Pep Boys' financial accounting and reporting and...

  • Page 19
    ... and 2012 were for tax compliance services in connection with tax audits and appeals. The Audit Committee annually engages Pep Boys' independent registered public accounting firm and preapproves, for the following fiscal year, their services related to the annual audit and interim quarterly reviews...

  • Page 20
    ... management team. Pep Boys' executive compensation program received the support of 99% of votes cast in respect of our annual advisory 'say on pay" resolution at our most recent shareholder meeting in June 2013. Even with this high level of support and our belief that the program is working...

  • Page 21
    ..., 60% of the three-year long-term performance awards granted to our named executive officers in fiscal 2010 expired in fiscal 2013 without vesting because the Company failed to achieve specified thresholds of return on invested capital and total shareholder return over the performance period. 16

  • Page 22
    As a result, our named executive officers (information is shown for our President & CEO) were awarded considerably less compensation than their full pay opportunity. The following charts illustrate those comparisons for the past three fiscal years. This analysis utilizes the following definitions ...

  • Page 23
    ... with our customized peer group as to base salary, annual incentives and long-term incentives, and which are reflective of current and/or expected future company performance levels; Support Pep Boys' long-range business strategy; and Align executive compensation with shareholder interests by...

  • Page 24
    ... order that comparisons to 'market' compensation levels are meaningful and appropriate. Pep Boys compares itself with a custom peer group, which is comprised of companies with whom we compete for executive talent. These companies include key competitors in the automotive service and retail business...

  • Page 25
    ... Compensation Committee outside of meetings. Pay Governance worked with management (including the President & Chief Executive Officer, Senior Vice President Human Resources and Senior Vice President - General Counsel & Secretary) from time-to-time for purposes of gathering information and reviewing...

  • Page 26
    ... Company's success. In order to directly align our named executive officers' short-term incentive compensation with that of our overall performance, these pre-established goals consist entirely of corporate (as opposed to individual) objectives. For fiscal 2013, the named executive officers' annual...

  • Page 27
    ... compensation through equity grants directly aligns the interests of management with that of the Company's shareholders. The Stock Incentive Plan provides for the grant of stock options at exercise prices equal to the fair market value (the mean of the high and low quoted selling prices) of Pep Boys...

  • Page 28
    ... four years of a participant's employment, the contribution percentage is limited to 10% of cash compensation. In fiscal 2013, all named executive officers participated in the Account Plan. In order to incent the achievement of incremental profitability, all Company contributions to the savings plan...

  • Page 29
    ... not sell Pep Boys Stock, (ii) all net after-tax shares acquired upon the exercise of stock options or the vesting of RSUs or PSUs must be retained and (iii) any short-term incentive award in excess of the "cash cap" level will be awarded in the form of RSUs. All of our named executive officers are...

  • Page 30
    ... and Analysis with management. Based upon our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in Pep Boys' Annual Report on Form 10-K for the fiscal year ended February 3, 2014...

  • Page 31
    ... our named executive officers consists of base salaries, short-term cash incentives, long-term equity incentives, retirement plan contributions and heath and welfare benefits. Name and Principal Position Michael R. Odell President & CEO Fiscal Year 2013 2012 2011 2013 2012 2013 Salary ($) 830,000...

  • Page 32
    ... 2013, consists of the following dollar amounts: Odell 132,800 638 Stern 40,000 638 Adams 27,596 -Carey 35,525 -Flanagan 21,125 -Webb --- Contributed under our Account Plan Contributed (company match) under our 401(k) Savings Plan Paid as an auto allowance Representing group term life insurance...

  • Page 33
    ... annual equity grants made in fiscal 2013 in respect of fiscal 2012 service and (iii) inducement grants made to named executive officers that joined the Company in fiscal 2013. Estimated Potential Payouts Under Non-Equity Incentive Plan Awards(a) All Other Option Awards: Number of Securities...

  • Page 34
    Outstanding Equity Awards at Fiscal Year-End Table The following table shows information regarding unexercised stock options and unvested RSUs held by the named executive officers as of February 1, 2014. Option Awards Stock Awards Market Value of Shares or Units of Stock Number of That Shares or ...

  • Page 35
    ... to which we make annual contributions based upon a named executive officer's age and then current compensation. In order to further assist our named executive officers with their retirement savings, the Deferred Compensation Plan allows participants to defer up to 20% of their annual salary and 100...

  • Page 36
    ... a payment equal to two times the value of their annual salary, target bonus and welfare benefits (but not retirement benefits or auto allowances) and the vesting of all equity awards if such officer is terminated within two years following a change of control. A trust agreement has been established...

  • Page 37
    ... Vesting of Outstanding Equity Awards ($)(a) 2,072,254 282,695 156,874 147,628 132,558 Total ($) 5,438,808 1,704,684 1,393,092 1,204,473 1,083,040 (a) Represents the value of the accelerated vesting of all "in the money" stock options and RSUs at the closing price of a share of PBY Stock on...

  • Page 38
    ...of our Annual Incentive Bonus Program and long-term incentive awards, as well as the terms of our employment agreements with the named executive officers, are all designed to enable Pep Boys to attract and maintain top talent while, at the same time, creating a close relationship between performance...

  • Page 39
    ... for fiscal 2014. Deloitte & Touche LLP served as our independent registered public accounting firm for fiscal 2013. A representative of Deloitte & Touche LLP is expected to be present at the meeting and will have the opportunity to make a statement if he or she desires to do so. The representative...

  • Page 40
    ... at our 2009 Annual Meeting. Section 162(m) of the Code generally requires re-approval of the material terms of the performance goals under an incentive program, such as the Bonus Plan, every five years in order for a company to continue to have the ability to grant awards that qualify as...

  • Page 41
    ... year, or portion thereof in which the employee holds such position, unless excluded from participation by the Compensation Committee. Members of our Board of Directors who are not our employees are not eligible to participate in the Bonus Plan. As soon as practicable, but no later than ninety days...

  • Page 42
    ... shareholder equity; (2) earnings per share of Pep Boys Stock; (3) net income (before or after taxes); (4) earnings before interest, taxes, depreciation and amortization; (5) sales or revenue targets; (6) return on assets, capital or investment; (7) cash flow; (8) market share; (9) cost reduction...

  • Page 43
    ... terminate the Bonus Plan at any time; provided that the Compensation Committee may not amend the Bonus Plan without obtaining shareholder approval if shareholder approval is required under Section 162(m) of the Code. New Bonus Plan Benefits. The amounts payable under the Bonus Plan for 2014 cannot...

  • Page 44
    ...paid. Accordingly, if a participant elects to defer receipt of one or more bonuses under our Deferred Compensation Plan, he or she will not recognize ordinary compensation income until such time as those amounts are subsequently distributed. In general, we will be entitled to a corresponding federal...

  • Page 45
    ... 2,652,166 shares of Pep Boys Stock subject to outstanding awards under the Current Plan. The Board of Directors believes that the continuing ability to grant awards under the Stock Incentive Plan will further our compensation structure and strategy and align the interest of our key personnel with...

  • Page 46
    ... determine the key employees and members of the Board of Directors (including directors who are not employees) to whom and the times and the prices at which awards will be granted, (ii) determine the type of award to be granted and the number of shares of Pep Boys Stock subject to such awards, (iii...

  • Page 47
    ... current measure of fair market value on the day of grant, which will continue to be applicable immediately following adoption of the Stock Incentive Plan, is the mean between the highest and lowest quoted selling prices of the shares of Pep Boys Stock on the day of grant. The Compensation Committee...

  • Page 48
    ... and amortization; sales or revenue targets; return on assets, capital or investment; cash flow; market share; cost reduction goals; budget comparisons; implementation or completion of projects or processes strategic or critical to our business operation; measures of customer satisfaction; and/or...

  • Page 49
    ... Plan, the maximum number of shares of Pep Boys Stock for which awards may be granted to any individual during any calendar year, the kind and number of shares of Pep Boys Stock covered by each outstanding award and the exercise price for a stock option will be equitably adjusted by the Compensation...

  • Page 50
    ... be granted to key employees or who will receive any grants under the Stock Incentive Plan after the 2014 Annual Meeting, except for the automatic grants to non-employee directors described above. On April 7, 2014, the closing price of a share of Pep Boys Stock on the New York Stock Exchange was $12...

  • Page 51
    ... holders Equity compensation plans not approved by security holders Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) 2,652,166 Weighted-average exercise price of outstanding options, warrants and rights (b) 5.26 0 0 0 THE BOARD OF DIRECTORS...

  • Page 52
    ... be sent to: Pep Boys 3111 West Allegheny Avenue Philadelphia, PA 19132 Attention: Secretary Any shareholder proposal that does not comply with the applicable requirements of rule 14a-8 under the Securities Exchange Act of 1934 will not be included in the Board of directors' proxy materials for...

  • Page 53
    ...COPY OF OUR ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO) AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR OUR MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO: Pep Boys 3111 West Allegheny Avenue Philadelphia, PA 19132 Attention...

  • Page 54
    ... restated as of June 24, 2009) The Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation (the "Company"), previously established, effective January 29, 1989, an Annual Incentive Bonus Plan (the "Plan") for the benefit of officers of the Company who were eligible to participate as provided therein...

  • Page 55
    ...if shareholder approval would be required under Code section 162(m). The Compensation Committee's authority to extend, amend or modify the Plan shall include, without limitation, the right to change Award Periods, to determine the time or times of paying Bonuses, to establish and approve Company and...

  • Page 56
    ... Under the Plan, for each Award Period the Compensation Committee will establish minimum, target and maximum performance goals for the Company using one or more of the following business criteria (the "Company Performance Measures"): (1) return on total shareholder equity; (2) earnings per share of...

  • Page 57
    ...authority to recommend to the Board of Directors payments to any of the Eligible Employees, in cash or otherwise, based on performance measures or otherwise, other than Bonuses under this Plan to Participants. 8. Special Rules for Qualified Performance -Based Compensation (a) The maximum amount for...

  • Page 58
    ...to apply. (d) This Plan, and Bonuses payable hereunder, are intended to comply with the short-term deferral rule set forth in the regulations under Code section 409A, in order to avoid application of Code section 409A to the Plan. Notwithstanding the foregoing, if, and to the extent that any payment...

  • Page 59
    ...Jack 2009 Stock Incentive Plan and renames it as The Pep Boys - Manny, Moe & Jack 2014 Stock Incentive Plan, effective as of June 11, 2014, (the "Plan"). The Plan is intended to recognize the contributions made to the Company by key employees, and members of the Board of Directors, of the Company or...

  • Page 60
    ... the key employees and members of the Board of Directors (including Non-management Directors) to whom and the times and the prices at which Awards shall be granted, (B) determine the type of Award to be granted and the number of Shares subject thereto, (C) determine the vesting conditions with...

  • Page 61
    ... form as determined by the Committee. (B) On their initial election to the Board of Directors, each Nonmanagement Director shall receive a pro-rata portion of an Annual Non-management Director Award based on a fraction, the numerator of which is the number of days remaining until the next scheduled...

  • Page 62
    ... a national securities exchange, the mean between the highest and lowest quoted selling prices thereof, or, if the Shares are not so listed, the mean between the closing "bid" and "asked" prices thereof, as applicable and as the Committee determines, on the day the Option is granted, as reported in...

  • Page 63
    ... Option exceeds the applicable Option Price. Furthermore, the Committee may provide in an Option Document issued to an employee (and shall provide in the case of Option Documents issued to Non-management Directors) that payment may be made all or in part in shares of the Company's Common Stock...

  • Page 64
    ... other terms and conditions which the Committee shall from time to time require which are not inconsistent with the terms of the Plan. (a) Issuance of Shares. Upon an award of Restricted Stock to a Participant and receipt by the Company of a fully executed Restricted Stock Agreement, accompanied by...

  • Page 65
    ... upon official notice of issuance) upon each stock exchange upon which outstanding Shares of such class at the time of the Award are listed nor until there has been compliance with such laws or regulations as the Company may deem applicable, including without limitation registration or qualification...

  • Page 66
    ...on assets, capital or investment; (7) cash flow; (8) market share; (9) cost reduction goals; (10) budget comparisons; (11) implementation or completion of projects or processes strategic or critical to our business operation; (12) measures of customer satisfaction; and/or (13) any combination of, or...

  • Page 67
    ..., statutory share exchange or similar form of corporate transaction is consummated involving the Company or any of its Subsidiaries that requires the approval of the Company's shareholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination...

  • Page 68
    ... in the New York Stock Exchange listing rules or (ii) the cancellation of an Option for cash (other than in connection with a Change of Control) when the consideration to be paid per Option exceeds the amount by which the Fair Market Value of a Share exceeds the Option Price of such Option. 13...

  • Page 69
    ...and the "specified employee" requirements of Section 409A of the Code. (c) Funding the Plan. This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under this Plan. Nothing...

  • Page 70
    /s/ THE PEP BOYS - MANNY, MOE & JACK B-12

  • Page 71
    ... file number 1-3381 The Pep Boys-Manny, Moe & Jack (Exact name of registrant as specified in its charter) Pennsylvania (State or other jurisdiction of incorporation or organization) 3111 West Allegheny Avenue, Philadelphia, PA (Address of principal executive office) 23-0962915 (I.R.S. employer...

  • Page 72
    ... and Procedures ...Item 9B. Other Information ...PART III Item 10. Directors, Executive Officers and Corporate Governance ...Item 11. Executive Compensation ...Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Item 13. Certain Relationships...

  • Page 73
    ... square feet) and combine do-it-for-me service labor, installed merchandise and tire offerings (''DIFM'') with do-it-yourself parts and accessories (''DIY''). Most of our Supercenters also have a commercial sales program that delivers parts, tires and equipment to automotive repair shops and dealers...

  • Page 74
    ... of stores opened and closed by the Company during each of the last three fiscal years: NUMBER OF STORES AT END OF FISCAL YEARS 2010 THROUGH 2013 2013 Year End 2012 Year Opened Closed End 2011 Year Opened Closed End 2010 Year Opened Closed End State Alabama ...Arizona ...Arkansas ...California...

  • Page 75
    ..., we continue to learn more from our growing set of customer data and to advance our customer centered business model. Over the past two years, we have reconstituted our senior executive team to help guide the development of our strategy around our target customer segments and the delivery of world...

  • Page 76
    ... Service and Tire Centers in Southern California. Our fiscal 2013 capital expenditures also included the addition of 29 new locations, the conversion of 11 Supercenters into Superhubs, the addition of 63 Speed Shops within existing Supercenters and required expenditures for existing stores, offices...

  • Page 77
    ... maintenance and repair services (except body work) and installs tires, parts and accessories. Each Pep Boys Supercenter carries a similar product line, with variations based on the number and type of cars in the market where the store is located. A Pep Boys Service & Tire Center carries tires and...

  • Page 78
    ... between our customers and our brand. STORE OPERATIONS AND MANAGEMENT Most Pep Boys stores are open seven days a week. Most Supercenters have a Retail Manager and Service Manager (Service & Tire Centers only have a Service Manager) who report to geographicspecific Area Directors and Divisional...

  • Page 79
    ... approximately 550 of our stores with an expanded auto parts assortment. We also maintain one free standing tire hub warehouse in the Philadelphia market that offers an expanded assortment of tires and batteries for same day delivery to our stores in order to satisfy customer demand directly rather...

  • Page 80
    ... 2013, we employed 13,886 full-time and 5,555 part-time employees. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained herein, including in ''Item 1 Business'' and ''Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations'', constitute...

  • Page 81
    ...Vice President-Business Development since November 2007 Senior Vice President-Chief Human Resources Officer since August 2013 Senior Vice President-Merchandising since March 2014 Senior Vice President-General Counsel & Secretary since March 2009 Michael R. Odell was named Chief Executive Officer on...

  • Page 82
    ...-General Counsel & Secretary since 2003. Mr. Zuckerman joined the Company as a staff attorney in 1999. Prior to joining Pep Boys, Mr. Zuckerman practiced corporate and securities law with two firms in Philadelphia. Each of the executive officers serves at the pleasure of the Board of Directors...

  • Page 83
    ... to fund our business. While we believe we have the ability to sufficiently fund our planned operations and capital expenditures for the next fiscal year, circumstances could arise that would materially affect our liquidity. For example, cash flows from our operations could be affected by changes in...

  • Page 84
    ... in the products we sell and use in our service bays, the recycling of batteries, tires and used lubricants, the ownership and operation of real property and the sale of small engine merchandise. When we acquire or dispose of real property or enter into financings secured by real property, we...

  • Page 85
    ...) specialized automotive (such as oil change, brake and transmission) repair facilities that provide additional automotive repair and maintenance services. Tires • national and regional (including franchised) tire retailers; and • mass merchandisers and wholesale clubs that sell tires. A number...

  • Page 86
    ... economic conditions, customers may defer vehicle maintenance or repair and drive less due to unemployment, and during periods of good economic conditions, consumers may opt to purchase new vehicles rather than service the vehicles they currently own and replace worn or damaged parts; • gas prices...

  • Page 87
    ...office of approximately 3,500 square feet in Los Angeles, California. Of the 799 store locations operated by the Company at February 1, 2014, 228 are owned and 571 are leased. As of February 1, 2014, 142 of the 228 stores owned by the Company are currently used as collateral under our Senior Secured...

  • Page 88
    .... Since January 29, 2012 we have not paid a dividend on our common stock. The following table sets forth for the periods listed, the high and low sale prices of the Company's common stock, as reported by the New York Stock Exchange: Market Price Per Share High Low Fiscal 2013 Fourth quarter . Third...

  • Page 89
    ... Automotive, Inc.; Lithia Motors, Inc.; Monro Muffler Brake, Inc.; Sonic Automotive, Inc.; and The Pep Boys-Manny, Moe & Jack. The companies currently comprising the Peer Group are: Aaron's, Inc.; Advance Auto Parts, Inc.; AutoZone, Inc.; Big 5 Sporting Goods Corp.; Cabelas, Inc.; Conn's, Inc.; Dick...

  • Page 90
    ... 2011 2010 (52 weeks) (53 weeks) (52 weeks) (52 weeks) (52 weeks) (dollar amounts are in thousands, except per share data) Fiscal Year Ended STATEMENT OF OPERATIONS DATA Merchandise sales ...Service revenue ...Total revenues ...Costs of merchandise sales ...Cost of service revenue ...Gross profit...

  • Page 91
    ... debt retirement of $6.2 million. Gross profit from merchandise sales includes the cost of products sold, buying, warehousing and store occupancy costs. Gross profit from service revenue includes the cost of installed products sold, buying, warehousing, service payroll and related employee benefits...

  • Page 92
    ... located where our customers live or work. Service & Tire Centers are designed to capture market share and leverage our existing Supercenters and support infrastructure. We also operate a handful of legacy DIY only Pep Express stores. In fiscal 2013, we opened or acquired 40 new Service & Tire...

  • Page 93
    ... Change Fiscal 2013 vs. Fiscal 2012 vs. Fiscal 2012 Fiscal 2011 Year ended Merchandise sales ...Service revenue(1) ...Total revenues ...Costs of merchandise sales ...Costs of service revenue(2) ...Total costs of revenues ...Gross profit from merchandise sales ...Gross (loss) profit from service...

  • Page 94
    (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 ...

  • Page 95
    ... in tires, brakes, batteries and oil. Gross margin loss from service revenue for fiscal 2013 widened by $20.5 million to a loss of $13.0 million from profit of $7.5 million for fiscal 2012. In accordance with GAAP, service revenue is limited to labor sales (excludes any revenue from installed parts...

  • Page 96
    ... fiscal 2012 from 24.7% for fiscal 2011. This decrease in total gross profit margin was primarily due to higher payroll and related expenses as a percent of total sales. In addition, the new Service & Tire Centers have a higher concentration of their sales in lower margin tires and oil changes, are...

  • Page 97
    ... is limited to labor sales (excludes any revenue from installed parts and materials) and costs of service revenues includes the fully loaded service center payroll and related employee benefits and service center occupancy costs. Gross profit from service revenue for fiscal 2012 and 2011 included...

  • Page 98
    ...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. Gross profit from retail sales includes the cost of products sold, buying, warehousing and store...

  • Page 99
    ... of 17 Speed Shops within existing Supercenters, and information technology enhancements including our eCommerce initiatives and parts catalog enhancements. In fiscal 2012, we sold our regional administrative office in Los Angeles, CA for approximately $5.6 million, net of closing costs. In addition...

  • Page 100
    ... of $6.2 million. The above table does not reflect the timing of projected settlements for our recorded deferred compensation plan obligation, asset retirement obligation costs and income tax liabilities because we cannot make a reliable estimate of the timing of the related cash payments. 28

  • Page 101
    ...In fiscal 2013, we renewed our commercial commitment to purchase 6.3 million units of oil products at various prices over a three-year period. Based on our present consumption rate, we expect to meet the cumulative minimum purchase requirements under this contract in fiscal 2016. Senior Secured Term...

  • Page 102
    ...149.7 million under this program as of February 1, 2014 and February 2, 2013, respectively. We have letter of credit arrangements in connection with our risk management and import merchandising programs. We had $13.9 million and $5.2 million of outstanding commercial letters of credit as of February...

  • Page 103
    ... expense for the Account Plan was $0.8 million, $0.1 million and $0.3 million for fiscal 2013, 2012 and 2011, respectively. We have a qualified 401(k) savings plan and a separate savings plan for employees residing in Puerto Rico, which cover all full-time employees who are at least 21 years of age...

  • Page 104
    ...less than full credit will be received for such returns and where we anticipate items will be sold at retail prices that are less than recorded costs. The reserve is based on management's judgment, including estimates and assumptions regarding marketability of products, the market value of inventory...

  • Page 105
    ...related to store cash flows, are based on market and operating conditions at the time of evaluation. Future events could cause management's conclusion on impairment to change, requiring an adjustment of these assets to their then current fair market value. • We have a share-based compensation plan...

  • Page 106
    ... is not generated in future periods from either operations or projected tax planning strategies. RECENT ACCOUNTING STANDARDS In July 2013, the Financial Accounting Standards Board (''FASB'') issued Accounting Standards Update (''ASU'') No. 2013-11, ''Presentation of an Unrecognized Tax Benefit When...

  • Page 107
    ... fiscal 2013. The risks related to changes in the LIBOR rate are substantially mitigated by our interest rate swap. The fair value of our long-term debt including current maturities was $203.7 million at February 1, 2014. We determine fair value on our fixed rate debt by using quoted market prices...

  • Page 108
    ... DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The Pep Boys-Manny, Moe & Jack Philadelphia, Pennsylvania We have audited the accompanying consolidated balance sheets of The Pep Boys-Manny, Moe & Jack and subsidiaries (the ''Company'') as...

  • Page 109
    ... taxes ...Other long-term assets ...Total assets ...LIABILITIES AND STOCKHOLDERS' Current liabilities: Accounts payable ...Trade payable program liability ...Accrued expenses ...Deferred income taxes ...Current maturities of long-term debt EQUITY ... $1,605,481 $1,603,949 $ 256,031 129,801 237,403...

  • Page 110
    ...per share data) February 1, 2014 (52 weeks) February 2, 2013 (53 weeks) January 28, 2012 (52 weeks) Year ended Merchandise sales ...Service revenue ...Total revenues ...Costs of merchandise sales ...Costs of service revenue ...Total costs of revenues ...Gross profit from merchandise sales ...Gross...

  • Page 111
    ... of stock options and related tax benefits ...Effect of employee stock purchase plan ...Effect of restricted stock unit conversions ...Stock compensation expense ...Dividend reinvestment plan ...Comprehensive income: Net earnings ...Changes in net unrecognized other postretirement benefit costs, net...

  • Page 112
    ... acquired...Premiums paid on life insurance policies ...Net cash used in investing activities ...Cash flows from financing activities: Borrowings under line of credit agreements ...Payments under line of credit agreements ...Borrowings on trade payable program liability ...Payments on trade payable...

  • Page 113
    ... Service & Tire Centers are designed to capture market share and leverage the existing Supercenter and support infrastructure. The Company currently operates stores in 35 states and Puerto Rico. FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest to January 31. Fiscal 2013 and...

  • Page 114
    ... less than full credit will be received for such returns or where the Company anticipates items will be sold at retail prices that are less than recorded costs. The reserve is based on management's judgment, including estimates and assumptions regarding marketability of products, the market value of...

  • Page 115
    ...result of the Company's annual tests in the fourth quarter of fiscal year 2013, fiscal year 2012, and fiscal year 2011. OTHER INTANGIBLE ASSETS The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives. LEASES The Company amortizes leasehold...

  • Page 116
    ...customer, net of an allowance for estimated future returns. Service revenues are recognized on completion of the service. Service revenue consists of the labor charged for installing merchandise or maintaining or repairing vehicles, excluding the sale of any installed parts or materials. The Company...

  • Page 117
    ... expenses. Vendor support funds used to offset direct advertising costs were immaterial for fiscal years 2013, 2012, and 2011. WARRANTY RESERVE The Company provides warranties for both its merchandise sales and service labor. Warranties for merchandise are generally covered by the respective...

  • Page 118
    ... 2, 2013 ...Additions related to sales in the current year ...Warranty costs incurred in the current year ...Balance, February 1, 2014 ... $ 673 11,920 (11,729) 864 13,748 (13,930) $ 682 ADVERTISING The Company expenses the costs of advertising the first time the advertising takes place. Gross...

  • Page 119
    ...of its operating segments and has one reportable segment. Sales by major product categories are as follows: (dollar amounts in thousands) 52 weeks ended February 1, 2014 53 weeks ended February 2, 2013 52 weeks ended January 28, 2012 Parts and accessories ...Tires ...Service labor ...Total revenues...

  • Page 120
    ... to purchase 18 Service & Tire Centers located in Southern California from AKH Company, Inc., which had operated under the name Discount Tire Centers. This acquisition was financed using cash on hand. Collectively, the acquired stores produced approximately $26.1 million in sales annually based on...

  • Page 121
    ... assets related to seven service and tire centers located in the Houston, Texas area and all outstanding shares of capital stock of Tire Stores Group Holding Corporation which operated an 85-store chain in Florida, Georgia and Alabama under the name Big 10. Collectively, the acquired stores produced...

  • Page 122
    ...in other non-current liabilities. Sales for the fiscal 2011 acquired stores totaled $63.9 million from acquisition date through January 28, 2012. The net loss for the acquired stores for the period from acquisition date through January 28, 2012 was $2.0 million, excluding transition related expenses...

  • Page 123
    ... ...Long-term debt less current maturities ...Senior Secured Term Loan due October 2018 $198,000 3,500 201,500 (2,000) $199,500 $200,000 - 200,000 (2,000) $198,000 On October 11, 2012, the Company entered into the Second Amended and Restated Credit Agreement among the Company, Wells Fargo Bank...

  • Page 124
    ...) Years ended February 1, 2014, February 2, 2013 and January 28, 2012 NOTE 5-DEBT AND FINANCING ARRANGEMENTS (Continued) modification of the debt was treated as a debt extinguishment. The Company recorded $6.5 million of deferred financing costs related to the Second Amended and Restated Credit...

  • Page 125
    ... of February 1, 2014 and February 2, 2013, respectively. The Company has letter of credit arrangements in connection with its risk management and import merchandising programs. The Company had $13.9 million and $5.2 million outstanding commercial letters of credit as of February 1, 2014 and February...

  • Page 126
    ... as a reduction of costs of merchandise sales and costs of service revenues over the minimum term of these leases. NOTE 7-ASSET RETIREMENT OBLIGATIONS The Company records asset retirement obligations as incurred and when reasonably estimable, including obligations for which the timing and/or method...

  • Page 127
    ...245 (287) (12) 334 $6,243 Asset retirement obligation at February 1, 2014 ...NOTE 8-INCOME TAXES The components of income from continuing operations before income taxes are as follows: February 1, 2014 Year Ended February 2, 2013 January 28, 2012 (dollar amounts in thousands) Domestic ...Foreign...

  • Page 128
    ... 14,743 (3,887) (555) Total income tax expense from continuing operations(a) ...(a) $12,460 Excludes tax benefit recorded to discontinued operations of $0.1 million, $0.2 million and $0.1 million in fiscal years 2013, 2012 and 2011, respectively. A reconciliation of the statutory federal income...

  • Page 129
    ...2013 Deferred tax assets: Employee compensation ...Store closing reserves ...Legal reserve ...Benefit accruals ...Net operating loss carryforwards-Federal Net operating loss carryforwards-State . . Tax credit......Real estate tax ...Insurance and other . . Interest rate derivatives Debt related ...

  • Page 130
    ... state credit carryforwards. There was no significant change in the Company's valuation allowance position in fiscal year 2012. The Company and its subsidiaries' largest jurisdictions subject to income tax are U.S. federal, Puerto Rico (foreign) and various states jurisdictions, in respective order...

  • Page 131
    ... material changes to its unrecognized tax benefits within the next twelve months. NOTE 9-STOCKHOLDERS' EQUITY On December 12, 2012, the Company's Board of Directors authorized a program to repurchase up to $50.0 million of the Company's common stock to be made from time to time in the open market or...

  • Page 132
    ... to a plan to sell, (ii) the building is vacant and the property is available for sale, (iii) the Company is actively marketing the property 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. Assets held...

  • Page 133
    ...PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended February 1, 2014, February 2, 2013 and January 28, 2012 NOTE 11-STORE CLOSURES AND ASSET IMPAIRMENTS (Continued) The following schedule details activity in the reserve for closed locations...

  • Page 134
    ... operations, net of tax benefit of $102, $186 and $121 ...Net earnings ...(b) Basic average number of common shares outstanding during period ...Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market price ...(c) Diluted average number...

  • Page 135
    ... for the Account Plan was $0.8 million, $0.1 million and $0.3 million for fiscal 2013, 2012 and 2011, respectively. The Company has a qualified 401(k) savings plan and a separate savings plan for employees residing in Puerto Rico, which cover all full-time employees who are at least 21 years of age...

  • Page 136
    ... actuarial assumptions were used to determine benefit obligation and pension expense: Year Ended February 2, January 28, 2013 2012 Benefit obligation assumptions: Discount rate ...Rate of compensation increase . Pension expense assumptions: Discount rate ...Expected return on plan assets Rate of...

  • Page 137
    ...fiscal year end ...Other information Employer contributions expected in fiscal 2013 ...Estimated actuarial loss and prior service cost amortization in fiscal 2013 Plan Assets and Investment Policy $ $ - - - $(15,433 Investment policies were established in accordance with the Company's Benefits...

  • Page 138
    ... periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions (such as private equity and real estate), and the timing of benefit payments and contributions. Short term investments and exchange-traded derivatives were...

  • Page 139
    ... February 2, 2013 and January 28, 2012 NOTE 13-BENEFIT PLANS (Continued) Guaranteed annuity contracts (''GACs'') are annuity insurance contracts. GACs are primarily invested in public bonds with some small placement in common stock, private placement bonds and commercial mortgage products. The GACs...

  • Page 140
    ...terms and conditions applicable to future grants under the 2009 plan are generally determined by the Board of Directors, provided that the exercise price of stock options must be at least 100% of the quoted market price of the common stock on the grant date. The Company currently satisfies all share...

  • Page 141
    ...pre-tax compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of 1.3 years. The following table summarizes information about non-vested PSUs and RSUs since February 2, 2013: Weighted Average Fair Value Number of PSUs Number of RSUs...

  • Page 142
    ... underlying shares for performance and market based awards granted in both 2013 and 2012. During fiscal 2013, the Company granted approximately 4,000 restricted stock units for officers' deferred bonus matches under the Company's non-qualified deferred compensation plan, which vest over a three-year...

  • Page 143
    .... The aggregate number of shares of common stock that may be issued or transferred under the plan is 2,000,000 shares. All shares purchased by employees under this plan will be issued through treasury stock. The Company's expense for the discount during fiscal years 2013 and 2012 was immaterial...

  • Page 144
    ... as cash flow hedges on $100.0 million of the Company's Senior Secured Term Loan facility that expires in October 2018. The Company values this swap using observable market data to discount projected cash flows and for credit risk adjustments. The inputs used to value derivatives fall within...

  • Page 145
    ...PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended February 1, 2014, February 2, 2013 and January 28, 2012 NOTE 16-FAIR VALUE MEASUREMENTS (Continued) The following table provides information... value accounting for the Company's derivative...

  • Page 146
    ... Operations Basic Diluted Total Revenues Year Ended February 1, 2014 4th quarter ...3rd quarter ...2nd quarter ...1st quarter ...Year Ended February 2, 2013 4th quarter ...3rd quarter ...2nd quarter ...1st quarter ... Gross Profit (Loss) / Earnings Per Share Basic Diluted Market Price Per Share...

  • Page 147
    ...CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended February 1, 2014, February 2, 2013 and January 28, 2012 NOTE 18-QUARTERLY FINANCIAL DATA (UNAUDITED) (Continued) In the fourth quarter of fiscal 2012, the Company recorded on a pre-tax basis, a $17.8 million pension settlement charge. In the...

  • Page 148
    ... by the Company in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate...

  • Page 149
    ... (COSO). Based on this assessment, management determined that the Company's internal control over financial reporting as of February 1, 2014 was effective. Deloitte & Touche LLP, the Company's independent registered public accounting firm, has issued an attestation report, which is included on page...

  • Page 150
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The Pep Boys-Manny, Moe & Jack Philadelphia, Pennsylvania We have audited the internal control over financial reporting of The Pep Boys-Manny, Moe & Jack and subsidiaries (the ''Company'') as of February...

  • Page 151
    ...the ''Investor Relations-Corporate Governance'' section of our website. As required by the New York Stock Exchange (''NYSE''), promptly following our 2013 Annual Meeting, our Chief Executive Officer certified to the NYSE that he was not aware of any violation by Pep Boys of NYSE corporate governance...

  • Page 152
    ....1)(1) Form of Change of Control between the Company and certain officers of the Company. (10.2)(1) Form of Non-Competition Agreement between the Company and certain officers of the Company. (10.3)(1) The Pep Boys-Manny, Moe & Jack 2009 Stock Incentive Plan, Amended and Restated as of August 3, 2012...

  • Page 153
    (10.7)(1) Amendment 2013-1 to The Pep Boys Savings Plan (10.8)(1) Amendment and restatement as of January 1, 2011 of The Pep Boys Savings Plan-Puerto Rico. (10.9)(1) The Pep Boys Deferred Compensation Plan, as amended and restated (10.10)(1) The Pep Boys Annual Incentive Bonus Plan, as amended and ...

  • Page 154
    ...2002 Certification of Principal Financial Officer Pursuant to Section 302 of the SarbanesOxley Act of 2002 Principal Executive Officer Certification pursuant to 18 ...Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith Management contract or compensatory plan or arrangement. 82

  • Page 155
    ... of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Capacity Date /s/ MICHAEL R. ODELL Michael R. Odell President and Chief Executive Officer; Director (Principal...

  • Page 156
    Signature Capacity Date /s/ JANE SCACCETTI Jane Scaccetti Director April 17, 2014 /s/ JOHN T. SWEETWOOD John T. Sweetwood Director April 17, 2014 /s/ ANDREA M. WEISS Andrea M. Weiss Director April 17, 2014 /s/ NICK WHITE Nick White Director April 17, 2014 84

  • Page 157
    ... 1, 2014 ...Year ended February 2, 2013 ...Year ended January 28, 2012 ...(2) $ 896 $ 773 $1,056 $- $- $- $62,596 $63,068 $61,425 $62,686 $62,945 $61,708 $806 $896 $773 Sales return and allowance activity is recorded through a reduction of merchandise sales and costs of merchandise sales. 85

  • Page 158
    ...April 17, 2014, relating to the consolidated financial statements and financial statement schedule of The Pep Boys-Manny, Moe & Jack and subsidiaries (the ''Company'') and the effectiveness of the Company's internal control over financial reporting appearing in this Annual Report on Form 10-K of the...

  • Page 159
    ... 31.1 CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael R. Odell, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K of The Pep Boys-Manny, Moe & Jack...

  • Page 160
    ...31.2 CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, David R. Stern, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K of The Pep Boys-Manny, Moe & Jack; Based...

  • Page 161
    ... with this Annual Report on Form 10-K of The Pep Boys-Manny, Moe & Jack (the ''Company'') for the year ended February 1, 2014, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Michael R. Odell, Principal Executive Officer of the Company, certify, pursuant...

  • Page 162
    ... with this Annual Report on Form 10-K of The Pep Boys-Manny, Moe & Jack (the ''Company'') for the year ended February 1, 2014, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, David R. Stern, Executive Vice President and Chief Financial Officer of the...

  • Page 163
    ...Pep Boys Store Support Center 3111 W. Allegheny Avenue Philadelphia, PA Lester Rosenfeld NYSE Symbol: PBY Investor Relations To obtain copies of our periodic reports and earnings releases, write to: Investor Relations Department at address below or call the investor relations hotline at: 1-800-PEP...

  • Page 164
    3111 West Allegheny Avenue • Philadelphia, PA 19132