Pep Boys 2008 Annual Report Download - page 77

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will accommodate inventory necessary to support future store expansion and any increase in stock-
keeping units through the end of fiscal year 2009.
ITEM 3 LEGAL PROCEEDINGS
In September 2006, the United States Environmental Protection Agency (‘‘EPA’’) requested certain
information from the Company as part of an investigation to determine whether the Company had
violated, and is in violation of, the Clean Air Act and its non-road engine regulations. The information
requested concerned certain generator and personal transportation merchandise offered for sale by the
Company. In the fourth quarter of 2008, the EPA informed the Company that it believed that the
Company had violated the Clean Air Act by virtue of the fact that certain of this merchandise did not
conform to their corresponding EPA Certificates of Conformity and that unless the EPA and the
Company were able to reach a settlement, the EPA was prepared to commence a civil action. The
Company is currently engaged in settlement discussions with the EPA that would call for the payment
of a civil penalty by the Company and certain injunctive relief. As a result of these discussions, the
Company has accrued an amount equal to its estimate of the civil penalty that the Company is
prepared to pay to settle the matter and has temporarily restricted from sale, and taken a partial asset
impairment against certain related inventory. If the Company is not able to reach a settlement with the
EPA on mutually acceptable terms, the Company is prepared to vigorously defend any civil action filed.
The Company is also party to various other actions and claims arising in the normal course of
business.
The Company accrued $5,700,000 in the fourth quarter of fiscal year 2008 for awards or
assessments in connection with all such matters. The company believes that these amounts 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 the Company does not
believe that the amount of such excess loss could be material to the Company’s financial position, any
such loss could have a material adverse effect on the Company’s results of operations in the period(s)
during which the underlying matters are resolved
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the solicitation of proxies or
otherwise, during the fourth quarter of the fiscal year ended January 31, 2009.
13