Pep Boys 2005 Annual Report Download - page 23

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18
RESULTS OF OPERATIONS
Management Overview-Fiscal 2005
Fiscal 2005 was a difficult year for the financial performance of the Company, as operating profit declined from
$74,786,000 to an operating loss of $11,183,000. Comparable store sales decreased by 1.3% due to our efforts to improve
product margins on newly introduced retail products and the effect of higher gasoline prices on our customers’ disposable
income and product costs. Operating profit margins were impacted by (i) increased product costs, principally tires, which
were not passed on to customers, (ii) incremental hiring and training costs associated with our efforts to improve the field
organization and (iii) our store refurbishment capital expenditures. Net income declined from $23,579,000 (Basic Earnings
Per Share of $0.42) to a Net Loss of $37,528,000 (Basic Loss Per Share of $0.69).
Restructuring-Fiscal 2003
Following the Profit Enhancement Plan launched in October 2000, the Company, during fiscal 2003, conducted a
comprehensive review of its operations including individual store performance, the entire management infrastructure and its
merchandise and service offerings. On July 31, 2003, the Company announced several initiatives aimed at realigning its
business and continuing to improve upon its profitability. These actions were substantially completed by January 31, 2004
with net costs of approximately $65,986,000. The Company is accounting for these initiatives in accordance with the provisions
of SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” and SFAS No. 144 “Accounting for the
Impairment or Disposal of Long-Lived Assets” (SFAS 144).
Discontinued Operations
In accordance with SFAS 144, our discontinued operations continues to reflect the costs associated with the stores
remaining from the 33 stores closed on July 31, 2003 as part of our corporate restructuring (see Item 8 Financial Statements
and Supplementary Data- note 7).
Sales of Stores in Discontinued Operations
During fiscal 2005, the Company sold a closed store for proceeds of $931,000 resulting in a pre-tax gain of $341,000,
which was recorded in discontinued operations on the consolidated statement of operations.
During fiscal 2004, the Company sold assets held for disposal for proceeds of $13,327,000 resulting in a loss of $91,000,
which was recorded in discontinued operations on the consolidated statement of operations.
Other Store Sales and Transfers
During the third quarter of 2005, the Company reclassified a store from assets held for use to assets held for disposal in
accordance with the provisions of SFAS 144.
During the second quarter of 2005, the Company sold a closed store classified as an asset held for disposal for proceeds
of $6,912,000 resulting in a pre-tax gain of $5,176,000, which was recorded in costs of merchandise sales on the consolidated
statement of operations in accordance with the provisions of SFAS 144.
Additionally, during the second quarter of 2005 the Company sold a closed store classified as an asset held for use for
proceeds of $659,000 resulting in a pre-tax loss of $502,000, which was recorded in costs of merchandise sales on the
consolidated statement of operations in accordance with the provisions of SFAS 144.
During the second quarter of 2005, the Company reclassified a store in assets held for disposal at April 29, 2005 to assets
held for use in accordance with the provisions of SFAS 144, as the Company concluded that the sale of the store was no longer
expected to occur within one year. This store is valued at its fair value at the date of the subsequent decision to transfer it,
which was lower than its carrying amount before it was classified as held for sale, adjusted for depreciation expense that would
have been recognized had the asset been continuously classified as held and used. The results of operations of this store are
not material for the fifty-two weeks ended January 28, 2006 and January 29, 2005, respectively, and therefore have not been
reclassified into continuing operations in the consolidated statements of operations.