Pep Boys 2008 Annual Report Download - page 94

• We have significant pension costs and liabilities that are developed from actuarial valuations.
Inherent in these valuations are key assumptions including discount rates, expected return on
plan assets, mortality rates and merit and promotion increases. We are required to consider
current market conditions, including changes in interest rates, in selecting these assumptions.
Changes in the related pension costs or liabilities may occur in the future due to changes in the
assumptions. The following table highlights the sensitivity of our pension obligations and expense
to changes in these assumptions, assuming all other assumptions remain constant:
Impact on Annual Impact on Projected
Change in Assumption Pension Expense Benefit Obligation
0.50 percentage point decrease in discount rate ......... Increase $320,000 Increase $2,335,000
0.50 percentage point increase in discount rate .......... Decrease $320,000 Decrease $2,335,000
5.00 percentage point decrease in expected rate of return
on assets ................................... Increase $138,000 —
5.00 percentage point increase in expected rate of return
on assets ................................... Decrease $138,000 —
• We periodically evaluate our long-lived assets for indicators of impairment. Management’s
judgments are based on market and operating conditions at the time of evaluation. Future
events could cause management’s conclusion on impairment to change, requiring an adjustment
of these assets to their then current fair market value.
• We have a share-based compensation plan, which includes stock options and restricted stock
units, or RSUs. We account for our share-based compensation plans as prescribed by the fair
value provisions of SFAS No. 123R. We determine the fair value of our stock options at the date
of the 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 fair value of our awards. These assumptions and judgments
include the expected life of stock options, expected stock price volatility, future employee stock
option exercise behaviors and the estimate of award forfeitures. We do not believe there is a
reasonable likelihood that there will be a material change in the future estimates or assumptions
we use to determine stock-based compensation expense. However, if actual results are different
from these assumptions, the share-based compensation expense reported in our financial
statements may not be representative of the actual economic cost of the share-based
compensation. In addition, significant changes in these assumptions could materially impact our
share-based compensation expense on future awards. A 10% change in our share-based
compensation expense for the fiscal year ended January 31, 2009 would have affected net loss by
approximately $200,000.
• We are required to estimate our income taxes in each of the jurisdictions in which we operate.
This requires us to estimate our actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as depreciation of property and
equipment and valuation of inventories, for tax and accounting purposes. We determine our
provision for income taxes based on federal and state tax laws and regulations currently in
effect, some of which have been recently revised. Legislation changes currently proposed by
certain states in which we operate, if enacted, could increase our transactions or activities subject
to tax. Any such legislation that becomes law could result in an increase in our state income tax
expense and our state income taxes paid, which could have a material effect on our net earnings
(loss).
At any one time our tax returns for many tax years are subject to examination by U.S. Federal,
foreign, and state taxing jurisdictions. We establish tax liabilities in accordance with FIN No. 48,
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