Pep Boys 2008 Annual Report Download - page 146

Download and view the complete annual report

Please find page 146 of the 2008 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 168

  • 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
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended January 31, 2009, February 2, 2008 and February 3, 2007
(dollar amounts in thousands, except share data)
change in fair value had previously been recorded in Accumulated Other Comprehensive Income
(Loss) on the consolidated balance sheets. The Company evaluated the impact of this error, along with
three other errors discussed in the next sentence, on an annual and quarterly basis and concluded there
was no material impact on the fourth quarter of fiscal 2006 or any historical periods, on an individual
or aggregate basis. The three other errors consisted of: (i) $3,700 of amortization expense on leasehold
improvements classified in land and therefore not depreciated, (ii) $500 of understated closed store
reserves and (iii) $400 of an overstated accrual for non-qualified defined contributions. The Company
corrected these errors in the fourth quarter of fiscal year 2006, resulting in no material impact to the
consolidated financial statements. The Company has removed its designation as a cash flow hedge on
this transaction and records the change in fair value through its operating statement until the date of
termination. During fiscal year 2008 this interest rate swap expired.
On November 2, 2006, the Company entered into an interest rate swap for a notional amount of
$200,000. The Company has designated the swap a cash flow hedge on the first $200,000 of the
Company’s $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, recorded the increase in the fair value of the interest rate swap of $1,490 as a reduction to
Interest Expense. The Company documented that the swap met the requirements of SFAS No.133 for
hedge accounting on April 9, 2007, and prospectively records the effective portion of the change in fair
value of the swap through Accumulated Other Comprehensive Loss.
On November 27, 2007, the Company sold the land and buildings for 34 owned properties to an
independent third party. The Company used $162,558 of the net proceeds from such transaction to
prepay a portion of the Senior Secured Term Loan facility which eliminated a portion of the future
interest payments hedged by the November 2, 2006 interest rate swap. The Company concluded that it
was not probable that those future interest payments would occur. In accordance with SFAS No.133,
the Company discontinued hedge accounting for the unmatched portion of the November 2, 2006 swap
and reclassified a $2,259 pre-tax loss applicable to the unmatched portion of the $200,000 interest rate
swap from other comprehensive income to interest expense. On November 27, 2007, the Company
re-designated $145,000 notional amount of the interest rate swap as a cash flow hedge to fully match
the future interest payments under the Senior Secured Notes. As a result, all future changes in this
interest rate swap’s fair value that has been re-designated as a hedge will be recorded to Accumulated
Other Comprehensive Loss. From the period of November 27, 2007 through February 1, 2008, the
Company incurred interest expense includes $1,907 for changes in fair value related to the $55,000
unmatched portion of this swap. On February 1, 2008, the Company recorded $4,539 within accrued
expenses to reduce the notional amount of the interest rate swap to $145,000 from the original
$200,000 amount. The $4,539 was paid on February 4, 2008. As of January 31, 2009 and February 2,
2008 respectively, the fair value of the swap was a net $15,808 and $10,985 payable recorded within
other long-term liabilities on the balance sheet.
NOTE 17—FAIR VALUE OF FINANCIAL AND DERIVATIVE INSTRUMENTS
The Company adopted SFAS No.157, (as impacted by FSP Nos.157-1, 157-2, and 157-3) effective
February 3, 2008, with respect to fair value measurements of (a) non-financial assets and liabilities that
are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at
least annually) and (b) all financial assets and liabilities.
82