Pep Boys 2008 Annual Report Download - page 86

We have letter of credit arrangements in connection with our risk management, import
merchandising and vendor financing programs. We were contingently liable for $354,000 and $691,000
in outstanding import letters of credit and $86,502,000 and $63,477,000 in outstanding standby letters of
credit as of January 31, 2009 and February 2, 2008, respectively.
We are also contingently liable for surety bonds in the amount of approximately $9,235,000 and
$6,598,000 as of January 31, 2009 and February 2, 2008, respectively. The surety bonds guarantee
certain of our payments (for example utilities, easement repairs, licensing requirements and customs
fees).
Off-balance Sheet Arrangements
In the third quarter of fiscal year 2004, we entered into a $35,000,000 operating lease for certain
operating equipment at an interest rate of LIBOR plus 2.25%. We have evaluated this transaction in
accordance with the guidance of Financial Accounting Standards Board Interpretation Number (FIN)
46 and re-evaluated the transaction under FIN 46R and have determined that the Company is not
required to consolidate the leasing entity. As of January 31, 2009, there was an outstanding
commitment of $1,809,000 under the lease. The lease includes a residual value guarantee with a
maximum value of approximately $172,000. We expect the fair market value of the leased equipment to
substantially reduce or eliminate our payment under the residual guarantee at the end of the lease
term. In accordance with FIN 45, we have recorded a liability for the fair value of the guarantee
related to this operating lease. As of January 31, 2009 and February 2, 2008, the current value of this
liability was $6,800 and $38,000, respectively, which is recorded in other long-term liabilities on the
consolidated balance sheets.
We lease certain property and equipment under operating leases and lease financings which
contain renewal and escalation clauses, step rent provisions, capital improvements funding and other
lease concessions. These provisions are considered in the calculation of our minimum lease payments
which are recognized as expense on a straight-line basis over the applicable lease term. In accordance
with the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No.13, as amended by SFAS No.29, any lease payments that are based upon an existing index
or rate are included in our minimum lease payment calculations. Total operating lease commitments as
of January 31, 2009 were $777,957,000.
Pension and Retirement Plans
We have a defined benefit pension plan covering our full-time employees hired on or before
February 1, 1992.
The Company also has a Supplemental Executive Retirement Plan (SERP). This unfunded plan
has a defined benefit component that provides key employees designated by the Board of Directors
with retirement and death benefits. Retirement benefits are based on salary and bonuses; death
benefits are based on salary. Benefits paid to a participant under the defined pension plan are
deducted from the benefits otherwise payable under the defined benefit portion of the SERP. On
January 31, 2004, we amended and restated our SERP. This amendment converted the defined benefit
portion of the SERP to a defined contribution portion for certain unvested participants and all future
participants. On December 31, 2008 the Company terminated the defined benefit portion of the SERP
with a $14,441,000 payment and recorded a $6,005,000 charge in accordance with SFAS No.88
‘‘Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits.’’
The expense under these plans for fiscal years 2008, 2007, and 2006 was $8,476,000; $3,612,000 and
$3,999,000, respectively. The fiscal year 2008 pension expense includes a SERP settlement charge of
$6,005,000. Pension expense is calculated based upon a number of actuarial assumptions, including an
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