Pep Boys 2006 Annual Report Download - page 87

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THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 3, 2007, January 28, 2006 and January 29, 2005
(dollar amounts in thousands, except share data)
48
2.25%. This Master Lease is reflected in the Company’s consolidated financial statements as an operating
lease. The Company has evaluated this transaction in accordance with the guidance of FIN 46R and has
determined that it is not required to consolidate the leasing entity. The Company has an outstanding
commitment of approximately $14,938 and $20,507 on this operating lease facility as of February 3, 2007
and January 28, 2006. The lease includes a residual value guarantee with a maximum value of
approximately $172. The Company expects the fair market value of the leased equipment to substantially
reduce or eliminate the Company’s payment under the residual guarantee at the end of the lease term.
In accordance with FIN 45, the Company has recorded a liability for the fair value of the guarantee
related to this operating lease. As of February 3, 2007 and January 28, 2006, the current value of this
liability was $71 and $105, respectively, which is recorded in other long-term liabilities on the consolidated
balance sheets.
On August 1, 2003, the Company renegotiated $132,000 of store and distribution center operating
leases. These leases, which expire on August 1, 2008, have lease payments with an effective rate of LIBOR
plus 2.06%. The Company has evaluated this transaction in accordance with the original guidance of FIN
46 and has determined that it is not required to consolidate the leasing entity. As of February 3, 2007 and
January 28, 2006 there was an outstanding commitment of $117,627 and $123,970 under the leases. The
leases include a residual value guarantee with a maximum value of approximately $105,000. The Company
expects the fair market value of the leased real estate to substantially reduce or eliminate the Company’s
payment under the residual guarantee at the end of the lease term.
In accordance with FIN 45, the Company has recorded a liability for the fair value of the guarantee
related to this operating lease. As of February 3, 2007 and January 28, 2006, the current value of this
liability was $1,496 and $2,493, respectively, which is recorded in other long-term liabilities on the
consolidated balance sheets.
The Company leases certain property and equipment under operating leases and capital leases, which
contain renewal and escalation clauses, step rent provisions, capital improvements funding and other lease
concessions. These provisions are considered in the Company’s calculation of the Company’s minimum
lease payments, which are recognized as expense on a straight-line basis over the applicable lease term. In
accordance with SFAS No. 13, as amended by SFAS No. 29, any lease payments that are based upon an
existing index or rate are included in the Company’s minimum lease payment calculations. Future
minimum rental payments for noncancelable operating leases and capital leases in effect as of February 3,
2007 are shown in the table below. All amounts are exclusive of lease obligations and sublease rentals
applicable to stores for which reserves, in conjunction with the restructuring, have previously been
established.