Pep Boys 2005 Annual Report Download - page 21

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16
Upon maturity on June 1, 2005, the Company retired the remaining $40,444,000 aggregate principal amount of its 7.0%
Senior Notes with cash from operations and its existing line of credit. In December 2004, the Company repurchased, through
a tender offer, $59,556,000 of these notes. In the second quarter of fiscal 2004, the Company reclassified the $100,000,000
aggregate principal amount of these notes then outstanding to current liabilities on the balance sheet.
In the first quarter of fiscal 2005 the Company reclassified, to current liabilities on its consolidated balance sheet,
$43,000,000 aggregate principal amount of 6.88% Medium-Term Notes with a stated maturity date of March 6, 2006. These
notes were retired in January 2006 with cash from the Company’s $200,000,000 Senior Secured Term Loan facility.
Additionally, the company prepaid $342,000 in interest through the original maturity date.
On December 14, 2004, the Company issued $200,000,000 aggregate principal amount of 7.5% Senior Subordinated
Notes due December 15, 2014.
On December 2, 2004, the Company further amended its amended and restated line of credit agreement. The amendment
increased the amount available for borrowings to $357,500,000, with an ability, upon satisfaction of certain conditions, to
increase such amount to $400,000,000. The amendment also reduced the interest rate under the agreement to the London
Interbank Offered Rate (LIBOR) plus 1.75% (after June 1, 2005, the rate decreased to LIBOR plus 1.50%, subject to 0.25%
incremental increases as excess availability falls below $50,000,000). The amendment also provided the flexibility, upon
satisfaction of certain conditions, to release up to $99,000,000 of reserves currently required as of December 2, 2004 under
the line of credit agreement to support certain operating leases. This reserve was reduced to $76,401,000 on December 2,
2004. Finally, the amendment extended the term of the agreement through December 2009. The weighted average interest rate
on borrowings under the line of credit agreement was 6.2% and 4.1% at January 28, 2006 and January 29, 2005,
respectively.
The Company has miscellaneous notes payable that have a principal balance of $1,315,000 and $1,331,000 and a weighted
average interest rate of 5.1% and 4.8% at January 28, 2006 and January 29, 2005, respectively, and mature at various times
through August 2016. Certain of these notes are collateralized by land and buildings with an aggregate carrying value of
approximately $6,744,000 and $6,766,000 at January 28, 2006 and January 29, 2005, respectively.
On May 21, 2002, the Company issued $150,000,000 aggregate principal amount of 4.25% Convertible Senior Notes due
June 1, 2007. The notes may be converted into shares of Pep Boys common stock at 44.6484 shares per each $1,000 principal
amount of the notes, equivalent to a conversion price of approximately $22.40 per share. In January 2005, the Company
repurchased, in private transactions, $31,000,000 aggregate principal amount of these notes.
Other Contractual Obligations
In the third quarter of fiscal 2004, the Company entered into a vendor financing program with an availability of
$20,000,000. Under this secured program, the Company’s factor makes accelerated and discounted payments to its vendors
and the Company, in turn, makes its regularly-scheduled full vendor payments to the factor. As of January 28, 2006, there was
an outstanding balance of $11,156,000 under this program, classified as trade payable program liability in the consolidated
balance sheet. There was no balance in trade payable program liability at January 29, 2005, as vendors did not participate in
the program until fiscal 2005.
In October 2001, the Company entered into a contractual commitment to purchase media advertising services with equal
annual purchase requirements totaling $39,773,000 over four years. During the second quarter of fiscal 2004, it was determined
that the Company would be unable to meet this obligation for the 2004 contract year which ended on November 30, 2004. As
a result, the Company recorded a $1,579,000 charge to selling, general and administrative expenses in the quarter ending July
31, 2004 related to the anticipated shortfall in this purchase commitment. The Company has satisfied all purchase requirements
under this contract at January 28, 2006.
The Company has letter of credit arrangements in connection with its risk management and import merchandising
programs. The Company was contingently liable for $1,015,000 and $960,000 in outstanding import letters of credit and
$41,218,000 and $35,493,000 in outstanding standby letters of credit as of January 28, 2006 and January 29, 2005,
respectively.
The Company was also contingently liable for surety bonds in the amount of approximately $13,021,000 and $4,442,000
as of January 28, 2006 and January 29, 2005, respectively. The surety bonds guarantee certain payments (for example utilities,
easement repairs, licensing requirements, customs fees, etc.) for the Company’s stores.