Pep Boys 2006 Annual Report Download - page 59

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Pension Plans
The Company has a defined benefit pension plan covering its full-time employees hired on or before
February 1, 1992 and an unfunded Supplemental Executive Retirement Plan (SERP) that includes a
defined benefit portion. The pension expense under these plans for fiscal 2006, 2005, and 2004 was
$3,999,000, $4,331,000 and $4,076,000, respectively. The fiscal year 2006 expense is calculated based upon a
number of actuarial assumptions, including an expected return on plan assets of 6.30% and a discount rate
of 5.70%. In developing the expected return on asset assumptions, the Company evaluated input from its
actuaries, including their review of asset class return expectations. The discount rate utilized for the
pension plans is based on a model bond portfolio with durations that match the expected payment patterns
of the plans. The Company will continue to evaluate its actuarial assumptions and adjust as necessary. In
fiscal 2006, the Company contributed an aggregate of $504,000 to our pension plans. Based upon the
current funded status of the defined benefit pension plan and the unfunded defined benefit portion of the
SERP, aggregate cash contributions are expected to be $1,258,000 in fiscal 2007.
On January 31, 2004, the Company amended and restated its SERP. This amendment converted the
defined benefit plan to a defined contribution plan for certain unvested participants and all future
participants. All vested participants under the defined benefit portion will continue to accrue benefits
according to the defined benefit formula. In connection with these amendments, the Company settled
several obligations related to the benefits under the defined benefit SERP. These obligations totaled
$568,000, and resulted in an expense under SFAS No. 88, “Employers’ Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” of approximately $774,000
in fiscal 2004.
RESULTS OF OPERATIONS
Management Overview-Fiscal 2006
Fiscal 2006 was a year of continuous improvement to operating performance for the Company. Our
operating profit for fiscal 2006 was $36,022,000 or a $47,247,000 improvement over the operating loss in
fiscal 2005 of $11,225,000. On a 52 week basis, our comparable sales were basically flat, but included a
1.3% improvement in service revenues. With revenue flat, improvements in margins and lower operating
costs helped drive this operating profit improvement. Net loss for fiscal 2006 decreased to $2,549,000 or
$0.05 per share (basic & diluted) from a net loss in 2005 of $37,528,000 or $0.69 per share (basic &
diluted).
Discontinued Operations
In accordance with SFAS No. 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).
During the second quarter of fiscal 2006, we sold a store that we have leased back and will continue to
operate for a one year period. Due to our significant continuing involvement with this store following the
sale, we reclassified back into continuing operations, for all periods presented, this store’s revenues and
costs that had been previously reclassified into discontinued operations during the third quarter of fiscal
2005, in accordance with SFAS No. 144 and EITF 03-13.
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.