Pep Boys 2007 Annual Report Download - page 91

Download and view the complete annual report

Please find page 91 of the 2007 Pep Boys annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 148

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148

THE 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)
Expected volatility is based on historical volatilities for a time period similar to that of the
expected term. 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-free rate is based on the U.S. treasury yield curve for issues with a
remaining term equal to the expected term. The fair value of each option granted during fiscal years
2007, 2006 and 2005 is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
Year ended
February 2, February 3, January 28,
2008 2007 2006
Dividend yield ................................ 1.79% 2.02% 1.77%
Expected volatility .............................. 39% 53% 41%
Risk-free interest rate range:
High ....................................... 5.0% 4.8% 4.6%
Low........................................ 3.5% 4.6% 3.5%
Ranges of expected lives in years ................... 4-5 5-7 3-8
SFAS No. 123R also requires the Company to change the classification, in its consolidated
statement of cash flows, of any excess tax benefits realized upon the exercise of stock options or
issuance of RSUs, in excess of that which is associated with the expense recognized for financial
reporting purposes. Approximately $1,104 is reflected as a financing cash inflow rather than as a
reduction of income taxes paid in the consolidated statement of cash flows for fiscal year 2007.
COMPREHENSIVE LOSS Comprehensive loss is reported in accordance with SFAS No. 130,
‘‘Reporting Comprehensive Income.’’ Other comprehensive loss includes minimum pension liability and
fair market value of cash flow hedges.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company may enter into
interest rate swap agreements to hedge the exposure to increasing rates with respect to its variable rate
lease and debt agreements, when the Company deems it prudent to do so. The Company reports
derivatives and hedging activities in accordance with SFAS No. 133, ‘‘Accounting for Derivative
Instruments and Hedging Activities,’’ as amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149.
This statement establishes accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and
for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair value.
SEGMENT INFORMATION The Company reports segment information in accordance with
SFAS No. 131, ‘‘Disclosure about Segments of an Enterprise and Related Information.’’ The Company
operates in one industry, the automotive aftermarket using a SUPERCENTER layout, which houses
both retail and service centers in one building. In accordance with SFAS No. 131, the Company
45
10-K