Pep Boys 2007 Annual Report Download

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Table of contents

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  • Page 7
    ... on at the meeting. All shareholders of record at the close of business on Friday, April 18, 2008 are entitled to vote at the meeting and any postponements or adjournments. Whether or not you plan to attend the meeting, please make sure that your shares are represented by signing and returning the...

  • Page 8
    ... Avenue Philadelphia, Pennsylvania 19132 _____ PROXY STATEMENT _____ TABLE OF CONTENTS GENERAL INFORMATION ...1 SHARE OWNERSHIP ...3 (ITEM 1) ELECTION OF DIRECTORS ...6 What is the makeup of the Board of Directors? ...6 Nominees for Election ...6 Corporate Governance ...8 Meetings and Committees...

  • Page 9
    ... employees. What are the voting rights of Pep Boys' shareholders? Each shareholder is entitled to one vote per share on all matters including in uncontested elections of directors. How do I vote before the meeting? If you complete and sign the enclosed proxy card and return it prior to meeting...

  • Page 10
    ... and then voting in person. How many votes must be present to hold the meeting? In order to hold the meeting, a majority of the shares of Pep Boys Stock outstanding on the April 18, 2008 record date must be present at the meeting. The presence of such a majority is called a quorum. Since 53,967,613...

  • Page 11
    ...following table provides information about those shareholders that beneficially own more than 5% of the outstanding shares of Pep Boys Stock. Name Barington Capital Group, L.P. and affiliates 888 Seventh Avenue, 17th Floor New York, NY 10019 RJG Capital Management, LLC and affiliates 11517 West Hill...

  • Page 12
    ... shares for which the named person has sole voting and investment power and non-voting interests including restricted stock units and deferred compensation accounted for as Pep Boys Stock. Also includes the following shares that can be acquired through stock option exercises through June 18, 2008...

  • Page 13
    ... shares of Pep Boys Stock. Mr. Hudson disclaims beneficial ownership of any and all such shares in excess of his actual pecuniary interest in such shares, if any. Mr. Smith was separated from the Company as of September 7, 2007. His beneficial ownership is reported as of such date. Mr. Page retired...

  • Page 14
    ... through March 25, 2007. From 1992 through his retirement in 2004, Mr. Leonard served as an officer, and ultimately President & Chief Executive Officer and a director, of ARAMARK Corporation, a professional services company providing food, hospitality, facility management services and uniform and...

  • Page 15
    ... executive and management level positions with Wal-Mart Stores, Inc., including Executive Vice President and General Manager of the Supercenter division from 1990 to 2000 and Executive Vice President and General Manager of Sam's Wholesale Club from 1985 through 1989. Mr. white serves as a Director...

  • Page 16
    ... by the New York Stock Exchange (NYSE), promptly following our 2007 Annual Meeting, our President & CEO certified to the NYSE that he was not aware of any violation by Pep Boys of NYSE corporate governance listing standards. Independence. An independent director is independent from management and...

  • Page 17
    ... members of the Audit Committee. The Audit Committee reviews Pep Boys' consolidated financial statements and makes recommendations to the full Board of Directors on matters concerning the audits of Pep Boys' books and records. The Audit Committee met 14 times during fiscal 2007. Human Resources...

  • Page 18
    ...by the director at the time of deferral. A director who is also an employee of Pep Boys receives no additional compensation for service as a director. Equity Grants. The Pep Boys 1999 Stock Incentive Plan, or the 1999 Plan, provides for an annual grant of restricted stock units and options having an...

  • Page 19
    ... to include each of Messrs. Lukens, Mitarotonda, White and Williams in the Board's slate of directors for election at the 2006 and 2007 Annual Meetings • the Company made certain modifications to its Shareholder Rights Plan • the Barington Group agreed not to nominate persons for election as...

  • Page 20
    ...the Board of Directors The Audit Committee reviews Pep Boys' financial statements and makes recommendations to the full Board of Directors on matters concerning the audits of Pep Boys' books and records. Each committee member is "independent" as defined by the listing standards of the New York Stock...

  • Page 21
    ...financial accounting and reporting consultations and employee benefit plan audits. Tax Fees. Tax Fees billed in fiscal 2007 and 2006 consisted of tax compliance services in connection with tax audits and appeals. The Audit Committee annually engages Pep Boys' independent registered public accounting...

  • Page 22
    ... market competitiveness and job level responsibility. The Human Resources Committee recommends to the full Board of Directors the annual total compensation levels for all of the named executive officers (other than the CEO), based on recommendations made by the CEO and the head of Human Resources...

  • Page 23
    ... (those named executive officers who were in position at the beginning of fiscal 2007) based upon departmental objectives. For fiscal 2007, the Company achieved its bonus objectives in the areas of (i) field management turnover percentage at target and (ii) service center customer service index at...

  • Page 24
    ... When making annual grants, the Human Resources Committee applies the performance values derived from the named executive officers' performance assessments (discussed above) to the target grants to determine the actual grant level. In fiscal 2007, each of Messrs. Cirelli, Yanowitz and Smith received...

  • Page 25
    ..., we also provide our named executive officers with health and welfare benefits, including medical and dental coverage, life insurance valued at one times salary, long term disability coverage, an auto allowance and a tax/financial planning allowance. Employment Agreements. We have entered...

  • Page 26
    ... of the Board for his services as Interim Chief Executive Officer, from July 2006 through March 2007, we paid Mr. Leonard a monthly salary of $83,333 and reimbursed him for his commuting expense, with a tax gross-up, from his home in California to our Philadelphia store support center. Otherwise, Mr...

  • Page 27
    ...Analysis with management. Based upon our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in Pep Boys' Annual Report on Form 10-K for the fiscal year ended February 2, 2008 filed...

  • Page 28
    ... for Pep Boys' Interim CEO, CFO, the three other executive officers that received the highest compensation in fiscal 2007 and our former CEO. These executives are referred to herein as the "named executive officers." Proxy Name and Fiscal Principal Position Year Salary ($) Michael R. Odell EVP...

  • Page 29
    ...under our Deferred Compensation Plan Contributed (company match) in connection with Pep Boys 401(k) Savings Plan Paid as dividend equivalents on RSUs Paid as an auto allowance Paid as a tax/financial planning allowance Representing group term life insurance premiums Odell Cirelli Webb Yanowitz Smith...

  • Page 30
    ... 02/15/2007 02/15/2007 02/15/2007 02/15/2007 Michael R. Odell Joseph A. Cirelli Scott A. Webb Harry F. Yanowitz Hal Smith All Other Stock Awards: Number of Shares of Stock or Units (#) n/a 500,000 n/a 18,000 33,222 n/a 4,000 22,291 n/a 8,000 n/a 36,000 Exercise or Base Price of Option Awards ($/Sh...

  • Page 31
    ... unexercised stock options and unvested RSUs held by the named executive officers as of February 2, 2008 Outstanding Equity Awards at Fiscal Year-End Table Proxy Option Awards Name Jeffrey C. Rachor Number of Securities Underlying Unexercised Options (#) Exercisable 250,000 Number of Securities...

  • Page 32
    ...employment by Pep Boys and the number of years of participation in the plan. Benefits payable under this plan are not subject to deduction for Social Security or other offset amounts. The maximum annual benefit for any employee under this plan is $20,000. Messrs. Cirelli and Page were the only named...

  • Page 33
    ... ($) 959,928 0 Payments Made During Last Plan Year ($) 0 2,246,646(a) Proxy Name Joseph A. Cirelli Mark L. Page Plan Name Defined Benefit SERP Number of Years Credited Service (#) 25 -- (a) Such amount became payable to Mr. Page upon his retirement on September 7, 2007. Nonqualified Defined...

  • Page 34
    ...2007). Mr. Leonard did not receive or participate in any of the Company's welfare, retirement or other benefits plans or receive any other perquisites. While Mr. Leonard served as interim CEO, he did not receive his customary cash consideration on account of his service on the Board, but did receive...

  • Page 35
    ... the payments and benefits that a named executive officer would have received under his Employment Agreement (Mr. Rachor) or Non-Competition Agreement (Messrs. Odell, Cirelli, Webb, Yanowitz) assuming that he was terminated without cause as of February 2, 2008. Proxy Name Jeffrey R. Rachor Michael...

  • Page 36
    ... financial statements of Pep Boys and its subsidiaries for fiscal 2008. Deloitte & Touche LLP served as our independent registered public accounting firm for fiscal 2007. A representative of Deloitte & Touche LLP is expected to be present at the meeting and will have the opportunity to make...

  • Page 37
    ...of Directors. The Board of Directors will then accept or reject the resignation, or take other appropriate action, based upon the best interests of the Company and its shareholders and will publicly disclose its decision and rationale within 90 days. In contested elections, those in which the number...

  • Page 38
    ... which any shareholder wishes to present at the 2009 Annual Meeting and to have included in the Board of Directors' proxy materials relating to that meeting must be received no later than December 28, 2008. Such proposals should be sent to: Pep Boys 3111 West Allegheny Avenue Philadelphia, PA 19132...

  • Page 39
    ...COPY OF OUR ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO) AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR OUR MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO: Pep Boys 3111 West Allegheny Avenue Philadelphia, PA 19132 Attention...

  • Page 40
    ... point for communication among the Board of Directors, the Company's independent registered public accounting firm, internal audit function and management, as the respective duties of such groups, or their constituent members, relate to the Company's financial accounting and reporting and internal...

  • Page 41
    ...To review with management, the internal audit function and the independent registered public accounting firm the Company's policies and procedures to seek assurance as to the adequacy of the Company's internal controls over financial reporting. Annually, the Committee shall review the Company's plan...

  • Page 42
    ...of employee dishonesty, theft, embezzlement and human resource matters. 4.10 Conflicts of Interest. To review with the General Counsel, and to investigate as appropriate, any matters pertaining to the integrity of management, members of the Board and the independent registered public accounting firm...

  • Page 43
    ... to be added to the Amended and Restated Articles of Incorporation of The Pep Boys - Manny, Moe & Jack: "7. Election of Directors by the shareholders shall be as follows: (a) In an election of Directors that is not a contested election, to be elected a nominee must receive the affirmative vote...

  • Page 44
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  • Page 45
    ... employer identification no.) 10-K 19132 (Zip code) 215-430-9000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $1.00 par value New York Stock Exchange...

  • Page 46
    ... 9B. PART III Item 10. Item 11. Item 12. Item 13. Item 14. PART IV Item 15. Exhibits and Financial Statement Schedules ...Signatures ...87 92 Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 47
    ...52 weeks. The Company is a leading automotive retail and service chain. The Company operates in one industry, the automotive aftermarket. The Company is engaged principally in the retail sale of automotive parts, tires and accessories, automotive repairs and maintenance and the installation of parts...

  • Page 48
    ... . . Puerto Rico ...Rhode Island . . South Carolina . Tennessee ...Texas ...Utah ...Virginia ...Washington ... 10-K Total ...562 * As more fully described in Note 7-Store Closures and Asset Impairments of the notes to the Consolidated Financial Statements included in Item 8, the Company closed 31...

  • Page 49
    ..., 2007, we announced our long-term strategic plan developed by our management team and approved by the Board of Directors. The cornerstones of Pep Boys' five-year plan are to refocus on core automotive merchandise, optimize the Company's square footage productivity and add service bay market density...

  • Page 50
    ... service (except body work). The Company's commercial automotive parts delivery program, branded PEP EXPRESS PARTS↧, is designed to increase the Company's market share with the professional installer and to leverage its inventory investment. The program satisfies the installed merchandise customer...

  • Page 51
    ... and commercial credit accounts. The Company does not experience significant seasonal fluctuation in the generation of its revenues. STORE OPERATIONS AND MANAGEMENT All Pep Boys stores are open seven days a week. Each SUPERCENTER has a Retail Manager and Service Manager (PEP BOYS EXPRESS STORES only...

  • Page 52
    ... in our industry include store location, availability of product, customer service and product offerings, quality and price. The Company believes that the warranty policies in connection with the higher priced items it sells, such as tires, batteries, brake linings and other major automotive...

  • Page 53
    ... Position Michael R. Odell ... 44 7 months Interim Chief Executive Officer named on April 23, 2008; Executive Vice President-Chief Operating Officer from September 2007-April 2008 Senior Vice President-Business Development since November 2007 Senior Vice President-Human Resources since July 2007...

  • Page 54
    ... Shared Services for TBC Corporation, then the parent company of Big O Tires, Tire Kingdom and National Tires & Battery. Mr. Fee has over 20 years experience in operations and human resources in the tire and automotive service and repair business. Scott A. Webb, Senior Vice President-Merchandising...

  • Page 55
    ... to meet our needs. We face substantial competition, both from within and outside of the automotive aftermarket to retain and attract qualified personnel. In addition, we believe that the number of qualified automotive service technicians in the industry is generally insufficient to meet demand...

  • Page 56
    ... wholesale clubs that sell automotive products and select non-automotive merchandise that appeals to automotive ''Do-It-Yourself'' customers, such as generators, power tools and canopies. Do-It-For-Me Service Labor • regional and local full service automotive repair shops; • automobile dealers...

  • Page 57
    ... 300,000 square foot corporate headquarters in Philadelphia, Pennsylvania. The Company also owns the following administrative regional offices- approximately 4,000 square feet of space in each of Melrose Park, Illinois and Bayamon, Puerto Rico. In addition, the Company leases approximately 4,000...

  • Page 58
    ... to support future store expansion and any increase in stock-keeping units through the end of fiscal 2008. ITEM 3 LEGAL PROCEEDINGS During the fourth quarter of 2006 and the first quarter of 2007, the Company was served with four separate lawsuits brought by former associates employed in California...

  • Page 59
    ... fiscal 2007, are adequate and that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position. However, there exists a reasonable possibility of loss in excess of the amounts accrued, the amount of which cannot currently be estimated. While...

  • Page 60
    ... the New York Stock Exchange under the symbol ''PBY''. There were 5,414 registered shareholders as of April 24, 2008. The following table sets forth for the periods listed, the high and low sale prices and the cash dividends paid on the Company's common stock. MARKET PRICE PER SHARE Market Price Per...

  • Page 61
    ... current President & Chief Executive Officer in order to induce him to join the Company. As of February 2, 2008, there were no awards available for grant under these inducement plans. STOCK PRICE PERFORMANCE The following graph compares the cumulative total return on shares of Pep Boys Stock over...

  • Page 62
    ...weeks. Gross Profit from Retail Sales includes the cost of products sold, buying, warehousing and store occupancy costs. Gross Profit from Service Center Revenue includes the cost of installed products sold, buying, warehousing, service center payroll and related employee benefits and service center...

  • Page 63
    ... other years included in this report are 52 weeks. Fiscal 2007 was a year of significant change for Pep Boys during which our entire management team developed and, our Board of Directors approved, our long-term strategic plan. The cornerstones of this five-year plan, which was announced on November...

  • Page 64
    ... of 130 stores and the opening of two new SUPERCENTERS. Our fiscal 2008 capital expenditures are expected to be similar to fiscal 2007, including comparable inventory levels. In fiscal 2007, we received $30,045,000 from the cancellation of certain company-owned life insurance policies. The proceeds...

  • Page 65
    ... an option to purchase, on or before August 1, 2008, 29 properties that we currently rent under a master operating lease. We believe that the market value of these properties exceeds their $116,318,000 purchase price, which will allow us to fund such purchase through sale-leasebacks or other...

  • Page 66
    ... because we cannot make a reliable estimate of the timing of the related cash payments. Due in less Due in Due in than 1 year 1 - 3 years 3 - 5 years (dollar amounts in thousands) Due after 5 years Commercial Commitments Total Import letters of credit ...Standby letters of credit . . Surety bonds...

  • Page 67
    ... 29, 2007, we entered into a new vendor financing program with an availability up to $65,000,000. There was an outstanding balance of $14,254,000 under this program as of February 2, 2008. We have letter of credit arrangements in connection with our risk management, import merchandising and vendor...

  • Page 68
    ... index or rate are included in our minimum lease payment calculations. Total operating lease commitments as of February 2, 2008 were $584,965,000. Pension and Retirement Plans We have a defined benefit pension plan covering our full-time employees hired on or before February 1, 1992. We also have...

  • Page 69
    ... the fourth quarter of fiscal 2007, these stores were operated as clearance centers. We are accounting for these store closures in accordance with the provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 146 ''Accounting for Costs Associated with Exit or Disposal Activities...

  • Page 70
    ... or repairing vehicles, excluding the sale of any installed parts or materials. (2) Costs of merchandise sales include the cost of products sold, buying, warehousing and store occupancy costs. Costs of service revenue include service center payroll and related employee benefits and service center...

  • Page 71
    ... higher service associate compensation expense resulting from increased staffing levels in our service centers and impairment charges of $1,849,000 related to the 20 closed stores. Selling, general and administrative expenses, as a percentage of total revenues, decreased to 24.2% for fiscal 2007 as...

  • Page 72
    ... as a result of these changes. Warehousing costs were reduced due to a more efficient store replenishment schedule and the absence in fiscal 2006 of certain costs associated with the fiscal 2005 relocation of our Southern California distribution center. Increased occupancy costs were the result of...

  • Page 73
    ... expense and repairs and maintenance costs offset by cost associated with providing free or discounted towing services to our customers. Net gain from disposition of assets increased, as percentage of total revenue to 0.4% from 0.2% in fiscal 2005. The $4,142,000 increase resulted from the sale of...

  • Page 74
    ... Sales includes the cost of products sold, buying, warehousing and store occupancy costs. Gross Profit from Service Center Revenue includes the cost of installed products sold, buying, warehousing, service center payroll and related employee benefits and service center occupancy costs. Occupancy...

  • Page 75
    ... on current market conditions and we believe inventory is stated at the lower of cost as determined under LIFO or market in the consolidated financial statements. In addition, historically we have been able to return excess items to vendors for credit. Future changes in vendors, in their policies or...

  • Page 76
    ... grant using the Black-Scholes option-pricing model. The RSUs are awarded at a price equal to the market price of our underlying stock on the date of the grant. The pricing model and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the...

  • Page 77
    ... 3, 2008. In June 2007, the FASB ratified EITF Issue Number 06-11, ''Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards'' (EITF 06-11). EITF 06-11 applies to share-based payment arrangements with dividend protection features that entitle employees to receive (a) dividends...

  • Page 78
    ... November 15, 2008. We are currently evaluating the impact SFAS No. 161 will have on our consolidated financial statements. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has market rate exposure in its financial instruments primarily due to changes in interest rates...

  • Page 79
    ... sheet. In the fourth quarter of fiscal 2006, the Company determined it was not in compliance with SFAS No. 133 for hedge accounting and, accordingly, recorded a reduction of rent expense, which is included in Costs of Merchandise and Costs of Service Revenues, for the cumulative fair value change...

  • Page 80
    ...FIRM To the Board of Directors and Stockholders of The Pep Boys-Manny, Moe & Jack Philadelphia, Pennsylvania We have audited the accompanying consolidated balance sheets of The Pep Boys-Manny, Moe & Jack and subsidiaries (the ''Company'') as of February 2, 2008 and February 3, 2007, and the related...

  • Page 81
    CONSOLIDATED BALANCE SHEETS The Pep Boys-Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except share data) February 2, 2008 February 3, 2007 ASSETS Current Assets: Cash and cash equivalents ...Accounts receivable, less allowance for Merchandise inventories ...Prepaid expenses ......

  • Page 82
    ... The Pep Boys-Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except share data) February 2, 2008 February 3, 2007 January 28, 2006 Year ended Merchandise Sales ...Service Revenue ...Total Revenues ...Costs of Merchandise Sales ...Costs of Service Revenue ...Total Costs of...

  • Page 83
    ... ($.27 per share) ...Incremental effect from adoption of FAS No. 158, net of tax ...Effect of stock options and related tax benefits ...Effect of restricted stock unit conversions ...Stock compensation expense ...Repurchase of Common Stock ...Dividend reinvestment plan ...Balance, February 3, 2007...

  • Page 84
    ... ...Excess tax benefits from stock based awards ...Increase in cash surrender value of life insurance policies ...Changes in operating assets and liabilities: (Increase) decrease in accounts receivable, prepaid expenses and other ...Decrease (increase) in merchandise inventories ...(Decrease...

  • Page 85
    ... SIGNIFICANT ACCOUNTING POLICIES BUSINESS The Pep Boys-Manny, Moe & Jack and subsidiaries (the ''Company'') is engaged principally in the retail sale of automotive parts and accessories, automotive maintenance and service and the installation of parts through a chain of stores. The Company currently...

  • Page 86
    ... the sale of merchandise at the time the merchandise is sold. Service revenues are recognized upon completion of the service. The Company records revenue net of an allowance for estimated future returns. The Company establishes reserves for sales returns and allowances based on current sales levels...

  • Page 87
    .... The amounts received are subject to changes in market conditions, vendor marketing strategies and changes in the profitability or sell-through of the related merchandise for the Company. The Company accounts for vendor support funds in accordance with Financial Accounting Standards Board (FASB...

  • Page 88
    ...or repairing vehicles, excluding the sale of any installed parts or materials. COSTS OF REVENUES Costs of merchandise sales include the cost of products sold, buying, warehousing and store occupancy costs. Costs of service revenue include service center payroll and related employee benefits, service...

  • Page 89
    ... FINANCIAL STATEMENTS (Continued) Years ended February 2, 2008, February 3, 2007 and January 28, 2006 (dollar amounts in thousands, except share data) should establish a valuation allowance, the Company considers various tax planning strategies, including potential real estate transactions...

  • Page 90
    ... service period (generally the vesting period of the equity award). Prior to January 29, 2006, the Company accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion No. 25, ''Accounting for Stock Issued to Employees'' (APB No. 25), and related...

  • Page 91
    .... In estimating the expected term of the options, the Company has utilized the ''simplified method'' allowable under the Securities and Exchange Commission, or SEC, Staff Accounting Bulletin No. 107, Share-Based Payment. No options were granted from January 1, 2008 through February 2, 2008. The risk...

  • Page 92
    ... in thousands, except share data) aggregates all of its stores and reports one operating and reporting segment. Sales by major product categories are as follows: Year ended Feb. 2, 2008 Feb. 3, 2007 Jan. 28, 2006 Parts and Accessories ...Tires ...Total Merchandise Sales ...Service Labor ...Total...

  • Page 93
    ... 15, 2008. The Company is currently evaluating the impact SFAS No. 157 will have on its consolidated financial statements beginning in fiscal 2009. In September 2006, the FASB issued SFAS No. 158, ''Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans- an Amendment...

  • Page 94
    ... 3, 2008. In June 2007, the FASB ratified EITF Issue Number 06-11, ''Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards'' (EITF 06-11). EITF 06-11 applies to share-based payment arrangements with dividend protection features that entitle employees to receive (a) dividends...

  • Page 95
    ..., except share data) In December 2007, the FASB issued SFAS No. 160, ''Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51.'' SFAS No. 160, among other things, provides guidance and establishes amended accounting and reporting standards for a parent company...

  • Page 96
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended February 2, 2008, February 3, 2007 and January 28, 2006 (dollar amounts in thousands, except share data) holders of the convertible notes to convert them into shares of the Company's common stock, at any time until the June...

  • Page 97
    ..., 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. This program was terminated effective December 2007. As of February 2, 2008 and February 3, 2007, the Company had an outstanding...

  • Page 98
    ...) NOTE 3-ACCRUED EXPENSES The Company's accrued expenses as of February 2, 2008 and February 3, 2007, were as follows: February 2, 2008 February 3, 2007 Casualty and medical risk insurance ...Accrued compensation and related taxes Sales tax payable ...Other ...Total ...NOTE 4-OTHER CURRENT ASSETS...

  • Page 99
    ... As of February 2, 2008 and February 3, 2007, the current value of this liability was $38 and $71, 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...

  • Page 100
    ...be used by the Company to provide benefits to employees under its compensation plans and in conjunction with the Company's dividend reinvestment program. As of February 2, 2008, the Company reflected 14,609,094 shares of its common stock at a cost of $227,291 as ''cost of shares in treasury'' on the...

  • Page 101
    ... 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-STORE CLOSURES AND ASSET IMPAIRMENTS In the third quarter of fiscal 2007, the Company adopted a long-term strategic plan. One of the...

  • Page 102
    ... FINANCIAL STATEMENTS (Continued) Years ended February 2, 2008, February 3, 2007 and January 28, 2006 (dollar amounts in thousands, except share data) The store closure costs are reflected in fiscal 2007 Statement of Operations as follows: Cost of Merchandise Sales Cost of Service Revenue...

  • Page 103
    ... the 31 low-return stores closed as part of the Company's long term strategic plan adopted in 2007. The remaining 20 stores operating results remain in continuing operations, as the Company believes that its remaining stores will retain the cash flows lost from the closed locations. The results for...

  • Page 104
    ... sheets as of February 2, 2008 and February 3, 2007 and the related condensed consolidating statements of operations and condensed consolidating statements of cash flows for the fiscal years ended February 2, 2008, February 3, 2007 and January 28, 2006 for (i) the Company (''Pep Boys'') on a parent...

  • Page 105
    ...2007 and January 28, 2006 (dollar amounts in thousands, except share data) CONDENSED CONSOLIDATING BALANCE SHEET Subsidiary Guarantors Subsidiary NonGuarantors Consolidation/ Elimination As of February 2, 2008 ASSETS Current Assets: Cash and cash equivalents Accounts receivable, net . . Merchandise...

  • Page 106
    ...2, 2008, February 3, 2007 and January 28, 2006 (dollar amounts in thousands, except share data) CONDENSED CONSOLIDATING BALANCE SHEET As of February 3, 2007 ASSETS Current Assets: Cash and cash equivalents Accounts receivable, net . . Merchandise inventories . . Prepaid expenses ...Other ...Pep Boys...

  • Page 107
    ...2008, February 3, 2007 and January 28, 2006 (dollar amounts in thousands, except share data) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Subsidiary NonGuarantors Year ended February 2, 2008 Pep Boys Subsidiary Guarantors Consolidation / Elimination Consolidated Merchandise Sales ...Service...

  • Page 108
    ... share data) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Subsidiary Guarantors Subsidiary NonGuarantors Consolidation / Elimination Year ended February 3, 2007 Pep Boys Consolidated Merchandise Sales ...Service Revenue ...Other Revenue ...Total Revenues ...Costs of Merchandise Sales ...Costs...

  • Page 109
    ... 2008, February 3, 2007 and January 28, 2006 (dollar amounts in thousands, except share data) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS Subsidiary Guarantors Subsidiary NonGuarantors Consolidation / Elimination Year ended January 28, 2006 Pep Boys Consolidated Merchandise Sales ...Service...

  • Page 110
    ... from subsidiary ...Excess tax benefits from stock based awards ...Increase in cash surrender value of life insurance policies ...Changes in operating assets and liabilities: (Increase) decrease in accounts receivable, prepaid expenses and other ...Increase in merchandise inventories ...Decrease in...

  • Page 111
    ... tax benefits from stock based awards ...Increase in cash surrender value of life insurance policies . Changes in operating assets and liabilities: Decrease (increase) in accounts receivable, prepaid expenses and other ...Increase (decrease) in merchandise inventories ...Increase in accounts payable...

  • Page 112
    ... ...Increase in cash surrender value of life insurance policies . . Changes in operating assets and liabilities: Decrease (increase) in accounts receivable, prepaid expenses and other ...Increase in merchandise inventories ...Decrease in accounts payable ...(Decrease) increase in accrued expenses...

  • Page 113
    ...) NOTE 10-BENEFIT PLANS DEFINED BENEFIT PLANS The Company has a defined benefit pension plan covering substantially all of its full-time employees hired on or before February 1, 1992. Normal retirement age is 65. Pension benefits are based on salary and years of service. The Company's policy is to...

  • Page 114
    ... plan assets and funded status of the Company's defined benefit plans: Year ended February 2, 2008 February 3, 2007 Measurement Date ...February 2, December 31, 2008 2006 Change in Benefit Obligation: Benefit obligation at beginning of year ...$ 57,614 $ 54,349 Service cost ...166 246 Interest cost...

  • Page 115
    ...-term rate of return on assets assumption. The Company selected the discount rate at February 2, 2008 to reflect a rate commensurate with a model bond portfolio with durations that match the expected payment patterns of the plans. Pension plan assets are stated at fair market value and are composed...

  • Page 116
    ... in thousands, except share data) Equity securities include Pep Boys common stock in the amounts of $640 (1.7% of total plan assets) and $817 (2.2% of total plan assets) at February 2, 2008 and December 31, 2006, respectively. Benefit payments, including amounts to be paid from Company assets, and...

  • Page 117
    ...) to key employees and members of its Board of Directors. As of February 2, 2008, there were 1,444,982 awards remaining available for grant under the 1999 Plan. The Company adopted two standalone inducement plans under which it granted non-qualified stock options and RSUs to its current President...

  • Page 118
    ...applicable to future stock option and RSU grants under the 1999 plan are generally determined by the Board of Directors; provided that the exercise price of stock options must be at least 100% of the quoted market price of the common stock on the grant date. The Company currently satisfies all share...

  • Page 119
    ...and 3.6 years. At February 2, 2008, the weighted average remaining contractual term and aggregate intrinsic value of outstanding and expected to vest options is 4.4 years and $1,244. The cash received and related tax benefit realized from options exercised during fiscal year 2007 was $3,652 and $815...

  • Page 120
    ... PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended February 2, 2008, February 3, 2007 and January 28, 2006 (dollar amounts in thousands, except share data) reconciliation of the beginning balance and ending carrying amounts of the Company...

  • Page 121
    ... new filing position, the Company has recorded certain tax attributes that were not recognized previously. Items that gave rise to significant portions of the deferred tax accounts are as follows: February 2, 2008 February 3, 2007 Deferred tax assets: Employee compensation ...Store closing reserves...

  • Page 122
    ...through fiscal 2008. State and local income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. In Puerto Rico, the 2002 through 2007 tax years are currently under examination by their respective tax authorities. The Company has...

  • Page 123
    ... litigation and the status of examination, it is not possible to estimate the impact of the change. NOTE 15-CONTINGENCIES During the fourth quarter of 2006 and the first quarter of 2007, the Company was served with four separate lawsuits brought by former associates employed in California, each of...

  • Page 124
    ...320,000 senior secured notes. The interest rate swap converts the variable LIBOR portion of the interest payments to a fixed rate of 5.036% and terminates in October 2013. The Company did not meet the documentation requirements of SFAS No. 133, at inception or as of February 3, 2007 and, accordingly...

  • Page 125
    ...PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended February 2, 2008, February 3, 2007 and January 28, 2006 (dollar amounts in thousands, except share data) NOTE 17-FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company...

  • Page 126
    ... share data) NOTE 18-QUARTERLY FINANCIAL DATA (UNAUDITED) Net (Loss) Earnings Per Net (Loss) Share From Earnings Continuing From Operations Continuing Before Operations Cumulative Before Effect of Cumulative Change in Net (Loss) Effect of Cash Accounting Earnings Per Market Price Operating Change...

  • Page 127
    ... as Pep Boys stores for a term of 15 years, with four 5-year options. The proceeds from the sale are expected to be used to repay indebtedness. On April 23, 2008, the Company announced the appointment of Michael R. Odell, former Chief Operating Officer, as interim Chief Executive Officer. Mr. Odell...

  • Page 128
    ... of the second quarter of fiscal 2007, the Company has continued to implement changes designed to enhance the effectiveness of its financial close and reporting process including (i) hiring staff and providing additional accounting research resources, (ii) improving process documentation and (iii...

  • Page 129
    ...over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Deloitte & Touche LLP, the Company's independent registered public accounting...

  • Page 130
    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The Pep Boys-Manny, Moe & Jack Philadelphia, Pennsylvania We have audited The Pep Boys-Manny, Moe & Jack and subsidiaries' (the ''Company's'') internal control over financial reporting as of February 2, 2008 based...

  • Page 131
    ... schedule and included an explanatory paragraph relating to the Company's adoption of Financial Accounting Standards Board Interpretation (''FIN'') 48, Accounting for Uncertainty in Income Taxes, as of February 4, 2007. Deloitte & Touche LLP Philadelphia, Pennsylvania April 30, 2008 10-K 85

  • Page 132
    ... the ''Investor Relations-Corporate Governance'' section of our website. As required by the New York Stock Exchange (NYSE), promptly following our 2007 Annual Meeting, our President & CEO certified to the NYSE that he was not aware of any violation by Pep Boys of NYSE corporate governance listing...

  • Page 133
    ...are filed as part of this report: Page 1. The following consolidated financial statements of The Pep Boys-Manny, Moe & Jack are included in Item 8 Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets-February 2, 2008 and February 2, 2007 ...Consolidated Statements...

  • Page 134
    ... Directors' Deferred Compensation Plan, as amended (10.3)* Form of Employment Agreement (Change of Control) between the Company and certain officers of the Company. Form of Non-Competition Agreement between the Company and certain officers of the Company. Employment Agreement dated March 13, 2007...

  • Page 135
    ... Plan-Puerto Rico. The Pep Boys Deferred Compensation Plan (10.16)* (10.17)* The Pep Boys Annual Incentive Bonus Plan (amended and restated as of December 9, 2003) Amendment to and Restatement of the Executive Supplemental Pension Plan, effective as of January 31, 2004. Flexible Employee Benefits...

  • Page 136
    ... from the Company's Form 10-K for the fiscal year ended February 3, 2007. (23) (31.1) (31.2) Consent of Independent Registered Public Accounting Firm Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer Pursuant...

  • Page 137
    ... as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 None (32.2) (b) * Management contract or compensatory plan or arrangement. 10-K 91

  • Page 138
    ...13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report of Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. THE PEP BOYS-MANNY, MOE & JACK (REGISTRANT) By: DATED: APRIL 30, 2008 /s/ HARRY F. YANOWITZ Harry F. Yanowitz...

  • Page 139
    ... Chief Executive Officer (Principal Executive Officer) Senior Vice President and Chief Financial Officer (Principal Financial Officer) Chief Accounting Officer and Treasurer (Principal Accounting Officer) Chairman of the Board April 30, 2008 April 30, 2008 April 30, 2008 April 30, 2008 Director...

  • Page 140
    ...to Costs and Other Expenses Accounts(2) Deductions(3) (in thousands) Column E Balance at End of Period 10-K SALES RETURNS AND ALLOWANCES: Year Ended February 2, 2008 ...Year Ended February 3, 2007 ...Year Ended January 28, 2006 ...(2) Additions charged to merchandise sales. (3) Actual returns and...

  • Page 141
    ...2007 2006 2005 (in thousands, except ratios) January 31, 2004 Interest ...Interest factor in rental expense ...Capitalized interest ...(a) Fixed charges, as defined ...(Loss) Earnings from continuing operations before income taxes and cumulative effect of change in accounting... interest costs) plus...

  • Page 142
    ... Benefit Pension and Other Postretirement Plans, SFAS No. 123 (revised 2004), Share-Based Payment, and FIN 47, Accounting for Conditional Asset Retirement Obligations, as of February 4, 2007, February 3, 2007, January 29, 2006, and January 28, 2006, respectively) and our report dated April 30, 2008...

  • Page 143
    ... report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 30, 2008 /s/ MICHAEL R. ODELL Michael R. Odell Interim Chief Executive Officer

  • Page 144
    ... (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 30, 2008 /s/ HARRY F. YANOWITZ Harry F. Yanowitz Senior Vice President and Chief Financial Officer 3. 4. 10-K

  • Page 145
    ... with this Annual Report on Form 10-K of The Pep Boys-Manny, Moe & Jack (the ''Company'') for the year ended February 2, 2008, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Michael R. Odell, Interim Chief Executive Officer of the Company, certify...

  • Page 146
    ...Form 10-K of The Pep Boys-Manny, Moe & Jack (the ''Company'') for the year ended February 2, 2008, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Harry F. Yanowitz, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18...

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