Pep Boys 2005 Annual Report Download - page 48

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THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended January 28, 2006, January 29, 2005 and January 31, 2004
(dollar amounts in thousands, except share data)
BENEFITS TRUST On April 29, 1994, the Company established a flexible employee benefits trust with the intention of
purchasing up to $75,000 worth of the Company’s common shares. The repurchased shares will be held in the trust and will
be used to fund the Company’s existing benefit plan obligations including healthcare programs, savings and retirement plans
and other benefit obligations. The trust will allocate or sell the repurchased shares through 2023 to fund these benefit programs.
As shares are released from the trust, the Company will charge or credit additional paid-in capital for the difference between
the fair value of shares released and the original cost of the shares to the trust. For financial reporting purposes, the trust is
consolidated with the accounts of the Company. All dividend and interest transactions between the trust and the Company are
eliminated. In connection with the Dutch Auction self-tender offer, 37,230 shares were tendered at a price of $16.00 per share
in fiscal 1999. At January 28, 2006, the Company has reflected 2,195,270 shares of its common stock at a cost of $59,264 as
“cost of shares in benefits trust” on the Company’s consolidated balance sheet.
NOTE 7—RESTRUCTURING
Building upon 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 the Company’s profitability. These actions, including the disposal and sublease of
the Company’s real properties, were substantially completed by January 31, 2004 with net costs of approximately $65,986.
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”. These initiatives included:
Closure of 33 under-performing stores on July 31, 2003
The charges related to these closures included a $31,237 write-down of fixed assets, $424 in long-term lease and other
related obligations, net of subleases, $980 in workforce reduction costs, store breakdown costs of $2,031 and inventory transfer
costs of $862. These charges are included in discontinued operations in the consolidated statement of operations. The write-
down of fixed assets includes the adjustment to the market value of those owned stores that are now classified as assets held
for disposal in accordance with SFAS No. 144 and the write-down of leasehold improvements. The assets held for disposal
have been valued at the lower of their carrying amount or their estimated fair value, net of disposal costs. The long-term lease
and other related obligations represent the fair value of such obligations less the estimated net sublease income. The workforce
reduction costs represent the involuntary termination benefits payable to approximately 900 store employees, all of whom
were notified on or prior to July 31, 2003. Severance for these employees was accrued in accordance with SFAS No. 146.
Approximately 61% of these employees were terminated as of November 1, 2003. The remaining employees accepted other
positions within the Company subsequent to the July 31, 2003 notification date. The accrued severance of $557 related to
employees that accepted other positions was reversed in the third quarter of fiscal 2003. An additional $187 in accrued
severance was reversed in the fourth quarter of fiscal 2003 due to a change in the estimate of severance payable. These
reversals were recorded in discontinued operations on the consolidated statement of operations.
Discontinuation of certain merchandise offerings
In the second quarter of fiscal 2003, the Company recorded a $24,580 write-down of inventory as a result of a decision to
discontinue certain merchandising offerings. This write-down was recorded in cost of merchandise sales on the consolidated
statement of operations.
Corporate realignment
The charges related to this fiscal 2003 realignment included $3,070 in workforce reduction costs, $2,543 of expenses
incurred in the development of the restructuring plan, a $536 write-down of certain assets and $467 in costs related to two
warehouse lease terminations. The workforce reduction costs represent the involuntary termination benefits payable to 150
Store Support Center employees and field managers. All of these employees were terminated as of November 1, 2003. The
realignment charges were recorded in selling, general and administrative expenses and cost of merchandise sales on the
consolidated statement of operations.