Pep Boys 2008 Annual Report Download - page 98

‘‘whether instruments granted in share-based payment transactions are participating securities prior to
vesting and, therefore, need to be included in the earnings allocation in computing EPS under the
two-class method outlined in SFAS No. 128, ‘‘Earnings per Share.’’ The FASB concluded that all
outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends
participate in undistributed earnings with common shareholders. Under SFAS No. 128, restricted shares
are better termed non-vested and are accounted for under SFAS No. 123(R) ‘‘Share-Based Payment’’
which requires accounting for the non-vested shares under the treasury stock method. This statement is
effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim
periods within those years. The adoption of EITF 03-6-1 will not have a material impact on the
Company.
In September 2008, the EITF reached a consensus on Issue Number 08-5, ‘‘Issuer’s Accounting for
Liabilities Measured at Fair Value with a Third-Party Credit Enhancement’’ (EITF 08-05). The Task
Force reached a consensus that an issuer of a liability with a third-party credit enhancement that is
inseparable from the liability must treat the liability and the credit enhancement as two units of
accounting. Under the consensus, the fair value measurement of the liability does not include the effect
of the third-party credit enhancement; therefore, changes in the issuer’s credit standing without the
support of the credit enhancement affect the fair value measurement of the issuer’s liability. Entities
will need to disclose the existence of any third-party credit enhancements related to their liabilities that
are within the scope of this Issue (i.e., that are measured at fair value). We do not expect the adoption
of EITF No. 08-5 to have a material impact on our financial condition, results of operations or cash
flows.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has market rate exposure in its financial instruments due to changes in interest
rates.
Variable Rate Debt
The Company’s revolving credit agreement bears interest at LIBOR or Prime plus 2.75% to 3.25%
based upon the then current availability under the facility. At January 31, 2009, the Company had
outstanding borrowings of $23,862,000 under the revolving credit agreement. Additionally, the Company
has a Senior Secured Term Loan facility with a balance of $150,794,000 at January 31, 2009, that bears
interest at three month LIBOR plus 2.00%, and $1,809,000 of equipment operating leases which have
lease payments that vary based on changes in LIBOR. A one percent change in the LIBOR rate would
have affected net loss by approximately $1.5 million for the fiscal year ended January 31, 2009.
Fixed Rate Debt
The table below summarizes the fair value and contract terms of fixed rate debt instruments,
principally the 7.5% Senior Subordinated notes, held by the Company at January 31, 2009:
Average
(dollar amounts in thousands) Amount Interest Rate
Fair value at January 31, 2009 ....................... $ 84,301
Expected maturities:
2009 ......................................... $ 247 3.90%
2010 ......................................... 258 3.90
2011 ......................................... 269 3.90
2012 ......................................... 281 3.90
2013 ......................................... 294 3.90
Thereafter ..................................... 177,701 7.45
Total Carrying Amount ............................ $179,050
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