Pep Boys 2010 Annual Report Download

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2010 ANNUAL REPORT
NOTICE OF ANNUAL MEETING & PROXY STATEMENT

Table of contents

  • Page 1
    2010 ANNUAL REPORT NOTICE OF ANNUAL MEETING & PROXY STATEMENT

  • Page 2

  • Page 3
    ...and Grow through Service & Tire Centers. We are a national, full service - tires, maintenance and repair - shop. We leverage our retail and commercial businesses to buy our parts directly from the manufacturers, and we pass those savings on to our customers in the form of lower prices. Pep Boys Does...

  • Page 4
    ... in 2010 and plan to open 55 more in 2011 - both organically and through acquisitions. Most of our new stores are Service & Tire Centers. They are smaller in size and closer to where our target customers live and work. They leverage the inventory, delivery operations and marketing of the Supercenter...

  • Page 5
    ...independent registered public accounting firm. The approval of our Employee Stock Purchase Plan. A shareholder proposal regarding lowering the threshold required to call a special meeting of shareholders, if presented by its proponent. The shareholders will also consider any other business that may...

  • Page 6
    ... at Fiscal Year-End Table ...25 Option Exercises and Stock Vested Table ...27 Pension Plans ...27 Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans ...27 Employment Agreements with the Named Executive Officers ...28 Potential Payments upon Termination or Change of...

  • Page 7
    ... by the Board of Directors for use at this year's Annual Meeting. The meeting will be held on Wednesday, June 15, 2011, at the Hilton Philadelphia City Avenue, 4200 City Avenue, Philadelphia, Pennsylvania and will begin promptly at 9:00 a.m. The Company's Proxy Statement and 2010 Annual Report are...

  • Page 8
    ... as you direct. If you sign and return a proxy card prior to the meeting that does not contain instructions, your shares will be voted as recommended by the Board of Directors. Can I change my vote after I return my proxy card? Yes. You may revoke your proxy at any time prior to its exercise at the...

  • Page 9
    ... executive compensation every year. FOR the ratification of the appointment of our independent registered public accounting firm. FOR the approval of our Employee Stock Purchase Plan. AGAINST the shareholder proposal regarding lowering the threshold required to call a special meeting of shareholders...

  • Page 10
    ... shares of Pep Boys Stock. Name Dimensional Fund Advisors LP Palisades West, Building One 6300 Bee Cave Road Austin, TX 78746(a) BlackRock, Inc. 40 East 52nd Street New York, NY 10022(b) Glenhill Advisors, LLC and affiliates 156 West 56th Street, 17th Floor New York, NY 10019(c) Number of Shares...

  • Page 11
    ... many shares our directors and executive officers named in the Summary Compensation Table beneficially owned on April 8, 2011. The business address for each of such individuals is 3111 West Allegheny Avenue, Philadelphia, PA 19132. Name James A. Mitarotonda(b) Michael R. Odell Raymond L. Arthur Max...

  • Page 12
    ...Co. Ms. Atkins currently serves as a director of Shoppers Drug Mart Corporation, Spartan Stores, Inc. and Tim Hortons Inc. Ms. Atkins' retail industry, operations, strategic planning and financial expertise, public-company director experience, familiarity with Pep Boys' business garnered through her...

  • Page 13
    ...'s status as a significant shareholder, financial and corporate governance expertise, experiences as a chief executive officer, public-company director experience and familiarity with Pep Boys' business garnered through his tenure as a Director and former Chairman of the Board were the primary...

  • Page 14
    ... by the New York Stock Exchange (NYSE), promptly following our 2010 Annual Meeting, our CEO certified to the NYSE that he was not aware of any violation by Pep Boys of NYSE corporate governance listing standards. Diversity. While the Board has not adopted a formal diversity policy, in accordance...

  • Page 15
    ..., retirement benefits, perquisites and generally available benefit programs create little, if any, risk to Pep Boys. • Except as provided below, all of our management employees who receive short-term incentive-based compensation do so pursuant to the terms of our shareholder approved Annual...

  • Page 16
    ... are the current members of the Audit Committee. The Audit Committee reviews Pep Boys' consolidated financial statements and makes recommendations to the full Board of Directors on matters concerning the audits of Pep Boys' books and records. The Audit Committee met eight times during fiscal 2010...

  • Page 17
    ...000 and $2,500, respectively, and (iv) decrease the Audit Committee chair and member fees by $5,000 and $3,000, respectively. The current director compensation is detailed below. Base Compensation. Each non-management director (other than the Chairman of the Board) receives an annual director's fee...

  • Page 18
    ... and/or by holding unvested time-based RSUs and vested "in the money" stock options. Non-employee directors have five years from their appointment to Board to achieve their expected ownership level. If in a shortfall position, (i) a non-employee director may not sell Pep Boys Stock and (ii) all net...

  • Page 19
    ... point for communication among the Board of Directors and its committees, the independent registered public accounting firm, management and Pep Boys' internal audit function, as the respective duties of such groups, or their constituent members, relate to Pep Boys' financial accounting and reporting...

  • Page 20
    ... Audit Committee annually engages Pep Boys' independent registered public accounting firm and preapproves, for the following fiscal year, their services related to the annual audit and interim quarterly reviews of Pep Boys' financial statements and all reasonably-related assurance and services. All...

  • Page 21
    ... that our efforts in 2010 have also positioned the Company for future success as we opened 35 new locations - 28 Service & Tire Centers and seven Supercenters - and continued to build cash on our balance sheet, $90 million at year end. As a result, our executives realized the benefit of our heavily...

  • Page 22
    ...of 2009. The current peer group includes: Aarons, Advance Auto Parts, Autozone, Big 5 Sporting Goods, Cabela's, Conn's, Dick's Sporting Goods, hhgregg, Midas, Monro Muffler & Brake, O'Reilly Automotive, PetSmart, RadioShack, Rent-A-Center, Tractor Supply and West Marine. In some cases, Pep Boys also...

  • Page 23
    ... outside of meetings. Pay Governance worked with management (including the President & Chief Executive Officer, Senior Vice President - Human Resources and Senior Vice President - General Counsel & Secretary) from time-to-time for purposes of gathering information and reviewing and providing...

  • Page 24
    ...also added at a weight of 25% to reflect the criticality to the Company's short- and long-term strategy of sales growth, in general, and the addition of sales through the opening of new Service and Tire Centers, in particular. Customer satisfaction scores remained important objectives in fiscal 2010...

  • Page 25
    ... at least a threshold level of total shareholder return measured against our peer group. In fiscal 2010, taking into account the Company's fiscal 2009 financial performance and the relative position of each named executive officer's total compensation to the market median of our peer group, the...

  • Page 26
    ... Company contributions to the savings plan and Account Plan (on account of all associates, including the named executive officers) that would otherwise have been made during calendar 2010 were conditioned upon the Company's achievement of a level of pre-tax income in fiscal 2010, which exceeded 2009...

  • Page 27
    ...Analysis with management. Based upon our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in Pep Boys' Annual Report on Form 10-K for the fiscal year ended January 29, 2011 filed...

  • Page 28
    ..., long-term equity incentives, retirement plan contributions and heath and welfare benefits. Fiscal Name and Principal Position Year Michael R. Odell CEO(e) 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008 Salary ($) 800,000 800,000 723,846 500,000 500,000 369,231 320,000...

  • Page 29
    ... joined Pep Boys on May 1, 2008. (g) Mr. Shull joined Pep Boys on September 2, 2008 as Senior Vice President - Stores and was promoted to Executive Vice President - Stores on June 17, 2010. (h) Mr. Webb joined Pep Boys on September 10, 2007 as Senior Vice President - Merchandising & Marketing and...

  • Page 30
    ... at the beginning of fiscal 2010 in respect of fiscal 2009 service. Estimated Potential Payouts Under Non-Equity Incentive Plan Awards(a) All Other Option Awards: Number of Securities Underlying Options (#) -93,458 --18,692 --14,953 --18,692 --10,748 -- Name Michael R. Odell Grant Date -03/30/10...

  • Page 31
    Outstanding Equity Awards at Fiscal Year-End Table The following table shows information regarding unexercised stock options and unvested RSUs held by the named executive officers as of January 29, 2011. Option Awards Stock Awards Market Value of Shares or Units of Stock Number of That Shares or ...

  • Page 32
    ...(m) 6,673(g) Market Value of Shares or Units of Stock That Have Not Yet Vested ($) (a) --------13,980 27,960 93,289 (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) Based upon the closing price of a share of Pep Boys Stock on January 28, 2011 ($13.98). Such options become exercisable...

  • Page 33
    ...align the interests of named executive officers with that of our shareholders, the first 20% of an executive's bonus deferred into Pep Boys Stock is matched by the Company on a one-for-one basis with Pep Boys Stock that vests over three years. Nonqualified Defined Contribution Plan (our Account Plan...

  • Page 34
    ... liquidation or dissolution of Pep Boys; or • such other events as the Board may designate. Non-Competition Agreements. In exchange for a severance payment equal to one year's base salary upon the termination of their employment without cause, each of our named executive officers has agreed to...

  • Page 35
    ...24th for each month that a named executive officer remains employed by the Company following a change of control (e.g., a named executive terminated twelve months following a change of control would receive half of the amounts set forth in the table). Name Michael R. Odell Raymond L. Arthur William...

  • Page 36
    ...of our Annual Incentive Bonus Program and long-term incentive awards, as well as the terms of our employment agreements with the named executive officers, are all designed to enable Pep Boys to attract and maintain top talent while, at the same time, creating a close relationship between performance...

  • Page 37
    ... a large number of companies each year. Others believe that an annual vote is needed to give shareholders the opportunity to react promptly to emerging trends in compensation, provide feedback before those trends become pronounced over time, and give the Compensation Committee and the full Board the...

  • Page 38
    ... respect to the consolidated financial statements of Pep Boys and its subsidiaries for fiscal 2011. Deloitte & Touche LLP served as our independent registered public accounting firm for fiscal 2010. A representative of Deloitte & Touche LLP is expected to be present at the meeting and will have the...

  • Page 39
    (ITEM 5) PROPOSAL TO APPROVE OUR EMPLOYEE STOCK PURCHASE PLAN On March 29, 2011, the Board adopted The Pep Boys - Manny, Moe & Jack Employee Stock Purchase Plan, or the ESPP, subject to shareholder approval at the Annual Meeting. If approved by our shareholders, the ESPP will become effective on ...

  • Page 40
    .... Subject to shareholder approval of the ESPP at the Annual Meeting, the first offering period will begin on October 3, 2011. Participation. Each eligible employee who elects to participate in an offering period will be granted an option to purchase shares of Pep Boys Stock on the first day of the...

  • Page 41
    ... ESPP at any time, with such amendment or termination to become effective immediately following the close of an offering period. However, the Board of Directors may not amend the ESPP without stockholder approval if such amendment increases the number of shares of Pep Boys Stock issuable under the...

  • Page 42
    ... price plus any ordinary income realized). The capital gain rate will depend on how long Pep Boys Stock is held by the participant. EQUITY COMPENSATION PLAN INFORMATION The following chart provides information regarding all of our equity compensation plans as of April 8, 2011. Plan Category Number...

  • Page 43
    ... firm, rated our company "Moderate Concern" in Executive Pay - only 52% of executive pay was incentive based. The Corporate Library said long-term executive incentives consisted solely of market-priced stock options that vest over time. Market-priced stock options are a risk for shareholders because...

  • Page 44
    PEP BOYS' STATEMENT IN OPPOSITION TO THE FOREGOING SAHREHOLDER PROPOSAL The Board of Directors recognizes its accountability to shareholders and supports the right of shareholders to call special meetings. However, the Board also recognizes that special shareholder meetings are significant ...

  • Page 45
    ... which any shareholder wishes to present at the 2012 Annual Meeting and to have included in the Board of Directors' proxy materials relating to that meeting must be received no later than December 30, 2011. Such proposals should be sent to: Pep Boys 3111 West Allegheny Avenue Philadelphia, PA 19132...

  • Page 46
    ... STATEMENT, A COPY OF OUR ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO) AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR OUR MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO: Pep Boys 3111 West Allegheny Avenue Philadelphia, PA...

  • Page 47
    ... BOYS - MANNY, MOE & JACK EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE OF THE PLAN This Plan is intended to promote the interests of the Company, by providing Eligible Employees with the opportunity to acquire a proprietary interest in the Company through participation in an employee stock purchase plan...

  • Page 48
    ... base salary paid to a Participant by one or more Participating Employers during the Participant's period of participation in one or more Offering Periods under the Plan plus (ii) any overtime payments, bonuses, commissions, profit-sharing distributions and other cash incentivetype payments received...

  • Page 49
    ...from time to time. (q) "Plan Administrator" shall mean the Benefits Committee or such other committee as the Board subsequently appoints for purposes of administering the Plan. (r) "Purchase Date" shall mean the last business day of each Offering Period. (s) "Stock Exchange" shall mean the New York...

  • Page 50
    ... options or other rights to purchase, stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or any Company Affiliate. (c) Enrollment Forms. In order to participate in the Plan for a particular Offering Period, an Eligible Employee...

  • Page 51
    ... continue through the pay day ending with or immediately prior to the last day of that Offering Period. The amounts so collected shall be credited to a book account established on the Company's records for the Participant. No interest shall accrue on the balance from time to time outstanding in such...

  • Page 52
    ... the Participant withdraws from the Plan prior to his or her return. An individual who returns to active employment following a leave of absence which exceeds in duration the applicable (x) or (y) time period will be treated as a new Eligible Employee for purposes of subsequent participation in...

  • Page 53
    ... in the Plan (by making a timely filing of the prescribed enrollment forms) on or before his or her scheduled start date into the applicable Offering Period. (i) Change of Control. Unless the Plan Administrator determines otherwise prior to the beginning of the Offering Period, immediately prior...

  • Page 54
    ... any Stock Exchange on which the Common Stock is listed for trading and all other applicable requirements established by law or regulation have been met. In the event such stockholder approval is not obtained at the 2011 Annual Shareholders Meeting, or such compliance is not effected, the Plan shall...

  • Page 55
    ... terminate such person's employment at any time for any reason, with or without cause. (d) Withholding. If and to the extent that any stock purchases or sales under this Plan are subject to federal, state or local taxes, the Company is authorized to withhold all applicable taxes from shares issuable...

  • Page 56

  • Page 57
    ...definitive proxy statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year, for the Company's 2011 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10...

  • Page 58
    ... 13. Item 14. PART IV Item 15. Exhibits and Financial Statement Schedules ...Signatures ...89 92 Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships...

  • Page 59
    ... commercial sales program that provides commercial credit and prompt delivery of tires, parts and other products to local, regional and national repair shops and dealers. In 2009, as part of our long-term strategy to lead with automotive service, we began complementing our existing Supercenter store...

  • Page 60
    ...three fiscal years: NUMBER OF STORES AT END OF FISCAL YEARS 2007 THROUGH 2010 State 2010 2009 2008 2007 Year End Opened Closed Year End Opened Closed Year End Opened Closed Year End Alabama ...Arizona ...Arkansas ...California ...Colorado ...Connecticut ...Delaware ...Florida ...Georgia ...Illinois...

  • Page 61
    ...tires at competitive prices provides a competitive advantage to the Company since DIY competitors do not sell tires and related services. In order to further leverage our tire business, we are in the process of introducing a new interactive web application which allows customers to shop for the tire...

  • Page 62
    ... (except body work) and installs tires, hard parts and accessories. Each Pep Boys Supercenter and Pep Express store carries a similar product line, with variations based on the number and type of cars in the markets where the store is located, while a Pep Boys Service & Tire Center carries tires and...

  • Page 63
    ... steering pumps under the name PROSTEER↧; brakes under the name PROSTOP↧ and brakes, batteries, starters, and ignitions under the name VALUEGRADE. All products sold by the Company under various private label names were approximately 31% of the Company's merchandise sales in fiscal 2010 and 2009...

  • Page 64
    ...mail addresses with us. These coupons cover special discounts on services and products at Pep Boys. STORE OPERATIONS AND MANAGEMENT Most Pep Boys stores are open seven days a week. Each Supercenter has a Retail Manager and Service Manager (Service & Tire Centers only have a Service Manager while Pep...

  • Page 65
    ... of batteries, tires and used lubricants, the sale of small engine merchandise and the ownership and operation of real property. EMPLOYEES At January 29, 2011, the Company employed 18,279 persons as follows: Description Full-time % Part-time % Total % Retail ...Service center ...Store total...

  • Page 66
    ... economies, retail and commercial consumers' ability to spend, the health of the various sectors of the automotive aftermarket, the weather in geographical regions with a high concentration of our stores, competitive pricing, the location and number of competitors' stores, product and labor costs...

  • Page 67
    ...-Merchandising & Marketing since June 2010 Senior Vice President-Business Development since November 2007 Senior Vice President-Human Resources since July 2007 Senior Vice President-General Counsel & Secretary since March 2009 Michael R. Odell was named Chief Executive Officer on September 22, 2008...

  • Page 68
    ...of Human Resources Shared Services for TBC Corporation, then the parent company of Big O Tires, Tire Kingdom and National Tire & Battery. Mr. Fee has over 20 years experience in operations and human resources in the tire and automotive service and repair business. Brian D. Zuckerman was named Senior...

  • Page 69
    ...Risks Related to Pep Boys We may not be able to successfully implement our business strategy, which could adversely affect our business, financial condition, results of operations and cash flows. Our long-term strategic plan, which we update annually, includes numerous initiatives to increase sales...

  • Page 70
    ... business, including those governing the handling, storage and disposal of hazardous substances contained in the products we sell and use in our service bays, the recycling of batteries, tires and used lubricants, the ownership and operation of real property and the sale of small engine merchandise...

  • Page 71
    ...) specialized automotive (such as oil change, brake and transmission) repair facilities that provide additional automotive repair and maintenance services. Tires • national and regional (including franchised) tire retailers; and • mass merchandisers and wholesale clubs that sell tires. A number...

  • Page 72
    ... the market in which they operate. ITEM 1B None. ITEM 2 PROPERTIES UNRESOLVED STAFF COMMENTS The Company owns its five-story, approximately 300,000 square foot corporate headquarters in Philadelphia, Pennsylvania and a 60,000 square foot office building in Los Angeles, California. The Company also...

  • Page 73
    ... regional office of approximately 4,000 square feet in Carrollton, Texas. Of the 621 store locations operated by the Company at January 29, 2011, 232 are owned and 389 are leased. As of January 29, 2011, 126 of the 232 stores owned by the Company are currently used as collateral under our Senior...

  • Page 74
    credit. During the second quarter of fiscal 2010, the formal settlement agreement between the Company and the EPA became effective and the Company paid the monetary penalty. The Company is also party to various other actions and claims arising in the normal course of business. The Company believes ...

  • Page 75
    ... SECURITIES The common stock of The Pep Boys-Manny, Moe & Jack is listed on the New York Stock Exchange under the symbol ''PBY.'' There were 4,634 registered shareholders as of April 1, 2011. The following table sets forth for the periods listed, the high and low sale prices and the cash dividends...

  • Page 76
    ... Five Year Total Return $200 $150 $100 $50 $0 Jan-06 Jan-07 Pep Boys Peer Group Jan-08 Jan-09 Jan-10 Jan-11 S&P SmallCap 600 Index S&P 600 Automotive Retail Index 4APR201118163398 Jan. 2010 Jan. 2011 Company/Index Jan. 2006 Jan. 2007 Jan. 2008 Jan. 2009 Pep Boys ...S&P SmallCap...

  • Page 77
    ... Year Ended Jan. 29, 2011 Jan. 30, 2010 Jan. 31, 2009 Feb. 2, 2008 Feb. 3, 2007 (dollar amounts are in thousands, except per share data) STATEMENT OF OPERATIONS DATA(6) Merchandise sales ...Service revenue ...Total revenues ...Gross profit from merchandise sales(7) ...Gross profit from service...

  • Page 78
    ...fiscal years reflect 52 weeks. Gross profit from merchandise sales includes the cost of products sold, buying, warehousing and store occupancy costs. Gross profit from service revenue includes the cost of installed products sold, buying, warehousing, service payroll and related employee benefits and...

  • Page 79
    ...commercial sales program that provides delivery of tires, parts and other products to automotive repair shops and dealers. In 2009, as part of our long-term strategy to lead with automotive service, we began complementing our existing Supercenter store base with Service & Tire Centers. These Service...

  • Page 80
    ... to communicate our ''DOES EVERYTHING. FOR LESS.'' brand vision and focused on ''execution excellence'' in our stores in order earn the TRUST of our customers every day. We believe these efforts are responsible for increased customer traffic in our stores in all lines of business for fiscal 2010...

  • Page 81
    .... Costs of merchandise sales include the cost of products sold, buying, warehousing and store occupancy costs. Costs of service revenue include service center payroll and related employee benefits and service center occupancy costs. Occupancy costs include utilities, rents, real estate and property...

  • Page 82
    ... fiscal 2009 in all lines of business due to our traffic-driving promotional events and rewards program and our improved customer experience resulting from better store execution. Our core automotive parts and tires categories, which make up approximately 79% of our merchandise sales, experienced...

  • Page 83
    ... charge related to previously closed stores. Excluding these items from both years, gross profit margin from service revenue decreased to 8.9% for fiscal 2010 from 10.1% in the prior year. The decrease in gross profit from service revenue was due to the opening of new Service & Tire Centers...

  • Page 84
    automotive sales remained relatively flat year over year. Service revenues increased in fiscal 2009 as compared to fiscal 2008 primarily due to increased customer counts. During fiscal 2009, customer traffic generated by improved store execution, promotional events and an improved hard parts ...

  • Page 85
    ... automotive aftermarket, which has two general lines of business: (1) the Service business, defined as Do-It-For-Me (service labor, installed merchandise and tires) and (2) the Retail business, defined as Do-It-Yourself (retail merchandise) and commercial. Generally, specialized automotive retailers...

  • Page 86
    ... expenses. Gross profit from service center revenue includes the cost of installed products sold, buying, warehousing, service center payroll and related employee benefits and service center occupancy costs. Occupancy costs include utilities, rents, real estate and property taxes, repairs...

  • Page 87
    ..., in fiscal 2009, of $23.9 million of borrowings under our credit facility. The trade payable program is funded by various bank participants who have the ability, but not the obligation, to purchase, directly from our vendors, account receivables owed by Pep Boys. In fiscal 2010, we increased...

  • Page 88
    ... not have legal title to are considered commercial commitments. In fiscal 2010, we entered into a commercial commitment to purchase 1.5 million gallons of oil products at various prices over a one-year period. At January 29, 2011, we expect to meet the cumulative minimum purchase requirements under...

  • Page 89
    ... of real property and improvements associated with our stores, which is adjusted periodically based upon real estate values and borrowing levels. Interest accrues at the London Interbank Offered Rate (LIBOR) plus 2.0% on this facility. As of January 29, 2011, 126 stores collateralized the Senior...

  • Page 90
    ... we refer to as our ''Account Plan.'' The Company has a qualified 401(k) savings plan and a separate savings plan for employees residing in Puerto Rico, which cover all full-time employees who are at least 21 years of age with one or more years of service. The Company contributes the lesser of 50...

  • Page 91
    ... during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to customer incentives, product returns and warranty obligations, bad debts, inventories, income taxes, financing operations, restructuring costs, retirement benefits, share...

  • Page 92
    ... valuations. Inherent in these valuations are key assumptions including discount rates, expected return on plan assets and mortality rates. We are required to consider current market conditions, including changes in interest rates, in selecting these assumptions. Changes in the related pension costs...

  • Page 93
    ... could differ from this assessment if adequate taxable income is not generated in future periods from either operations or projected tax planning strategies. We had net deferred tax assets of $9.7 million at January 29, 2011. RECENT ACCOUNTING STANDARDS In March 2007, the FASB issued guidance on...

  • Page 94
    ... conforming amendments to the guidance on employers' disclosures about postretirement benefit plan assets. ASU 2010-06 was effective for interim and annual reporting periods beginning after December 15, 2009 except for the disclosures about purchases, sales, issuances or settlements in the roll...

  • Page 95
    Other In the second quarter of fiscal 2010, the Company entered into a price stability agreement (''Agreement'') that is also designated as a cash flow hedge. This Agreement is intended to hedge the price risks associated with the market volatility of retail gasoline. This hedge is deemed to be ...

  • Page 96
    ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The Pep Boys-Manny, Moe & Jack Philadelphia, Pennsylvania We have audited the accompanying consolidated balance sheets of The Pep Boys-Manny, Moe...

  • Page 97
    CONSOLIDATED BALANCE SHEETS The Pep Boys-Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except share data) January 29, 2011 January 30, 2010 ASSETS Current assets: Cash and cash equivalents ...Accounts receivable, less allowance for $1,488 ...Merchandise inventories ...Prepaid ...

  • Page 98
    ... STATEMENTS OF OPERATIONS The Pep Boys-Manny, Moe & Jack and Subsidiaries (dollar amounts in thousands, except per share data) January 29, 2011 January 30, 2010 January 31, 2009 Year ended Merchandise sales ...Service revenue ...Total revenues ...Costs of merchandise sales ...Costs of service...

  • Page 99
    ... ...Fair market value adjustment on derivatives, net of tax of ($1,734) ...Total comprehensive loss ...Cash dividends ($.27 per share) . . Effect of stock options and related tax benefits ...Effect of restricted stock unit conversions ...Stock compensation expense ...Dividend reinvestment plan ...68...

  • Page 100
    ...flows from financing activities: Borrowings under line of credit agreements ...Payments under line of credit agreements ...Borrowings on trade payable program liability ...Payments on trade payable program liability ...Payments for finance issuance costs ...Proceeds from lease financing ...Long-term...

  • Page 101
    ... and tires) and (2) the Retail business, defined as Do-It-Yourself, or ''DIY'' (retail merchandise) and commercial. The Company's primary store format is the Supercenter, which houses both retail and repair services in one building. The Company currently operates stores in 35 states and Puerto Rico...

  • Page 102
    ... management, including timely return of excess product to vendors for credit. However, in future periods the Company may be exposed to material losses should the Company's vendors alter their policy with regard to accepting excess inventory returns. PROPERTY AND EQUIPMENT Property and equipment...

  • Page 103
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) payroll costs for employees devoting time to the software projects...

  • Page 104
    ... employee benefits, service center occupancy costs and cost of providing free or discounted towing services to customers. Occupancy costs include utilities, rents, real estate and property taxes, repairs, maintenance, depreciation and amortization expenses. VENDOR SUPPORT FUNDS The Company receives...

  • Page 105
    ... the current year ...Balance, January 30, 2010 ...Additions related to sales in the current year ...Warranty costs incurred in the current year ...Balance, January 29,2011 ... $ 797 15,572 (15,675) 694 12,261 (12,282) $ 673 ADVERTISING The Company expenses the costs of advertising the first time...

  • Page 106
    ...DIFM lines of business. The Company aggregates all of its operating segments and has one reportable segment. Sales by major product categories are as follows: January 29, 2011 Year ended January 30, 2010 January 31, 2009 (dollar amounts in thousands) Parts and accessories ...Tires ...Service labor...

  • Page 107
    ... conforming amendments to the guidance on employers' disclosures about postretirement benefit plan assets. ASU 2010-06 was effective for interim and annual reporting periods beginning after December 15, 2009 except for the disclosures about purchases, sales, issuances or settlements in the roll...

  • Page 108
    ... FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 2-BUSINESS COMBINATIONS On October 31, 2009, the Company acquired substantially all of the assets (other than real property) and certain liabilities of Florida Tire, Inc. (''Florida Tire...

  • Page 109
    ... BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 5-DEBT AND FINANCING ARRANGEMENTS (Continued) 7.50% Senior Subordinated Notes, due December 2014 On December 14, 2004, the Company...

  • Page 110
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 5-DEBT AND FINANCING ARRANGEMENTS (Continued) Other Contractual Obligations On April 6, 2009, the Company entered into a ...

  • Page 111
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 6-LEASE AND OTHER COMMITMENTS (Continued) 2008, the Company provided the necessary documentation to satisfy its indemnity ...

  • Page 112
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 7-ASSET RETIREMENT OBLIGATIONS (Continued) the removal of leasehold improvements from stores upon termination of store ...

  • Page 113
    ... tax expense (benefit) follows: January 29, 2011 Year Ended January 30, 2010 January 31, 2009 Statutory tax rate ...State income taxes, net of federal tax ...Job credits ...Texas law change impact ...Tax uncertainty adjustment ...Valuation allowance ...Non deductible expenses ...Stock compensation...

  • Page 114
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 8-INCOME TAXES (Continued) Items that gave rise to the deferred tax accounts are as follows: (dollar amounts in thousands) ...

  • Page 115
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 8-INCOME TAXES (Continued) opportunity credits and $8.0 million of state and Puerto Rico tax credits of which $5.5 million have full valuation allowances recorded against...

  • Page 116
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 9-STOCKHOLDERS' EQUITY On January 26, 2010, the Company terminated the flexible employee benefits trust (the ''Trust'') ...

  • Page 117
    ... fiscal 2010, the Company recorded a $0.2 million impairment charge related to a store classified as held for disposal. The Company lowered its selling price reflecting declines in the commercial real estate market. Substantially all of this impairment was charged to merchandise cost of sales. 59

  • Page 118
    ... equipment. During fiscal 2009 in response to a continuing weak real estate market, the Company reduced its prices for certain properties and recorded a $3.1 million impairment charge, of which $2.2 million was charged to merchandise cost of sales, $0.7 million was charged to service cost of sales...

  • Page 119
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 12-EARNINGS PER SHARE (Continued) The following schedule presents the calculation of basic and diluted earnings per share ...

  • Page 120
    ...million for fiscal 2010, 2009 and 2008, respectively. The Company has a qualified 401(k) savings plan and a separate savings plan for employees residing in Puerto Rico, which cover all full-time employees who are at least 21 years of age with one or more years of service. The Company contributes the...

  • Page 121
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 13-BENEFIT PLANS (Continued) The following actuarial assumptions were used to determine benefit obligation and pension ...

  • Page 122
    ... FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 13-BENEFIT PLANS (Continued) The following table sets forth the reconciliation of the benefit obligation, fair value of plan assets and funded status of the Company's defined benefit plans...

  • Page 123
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 13-BENEFIT PLANS (Continued) Benefit payments, including amounts to be paid from Company assets, as appropriate, are ...

  • Page 124
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 13-BENEFIT PLANS (Continued) ranges. The weighted average asset allocations and asset allocation ranges by asset category ...

  • Page 125
    ... FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 13-BENEFIT PLANS (Continued) Fair Value at January 30, 2010 (dollar amounts in thousands) Asset Category Level 1 Level 2 Level 3 Money market fund ...Domestic equities US Small/Mid Cap...

  • Page 126
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 13-BENEFIT PLANS (Continued) The following table provides a summary of changes in fair value of Level 3 financial assets ...

  • Page 127
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 14-EQUITY COMPENSATION PLANS (Continued) Incentive stock options and non-qualified stock options previously granted under ...

  • Page 128
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 14-EQUITY COMPENSATION PLANS (Continued) 2011, the weighted average remaining contractual term of outstanding options, ...

  • Page 129
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 14-EQUITY COMPENSATION PLANS (Continued) both a market and a service condition, the Month Carlo simulation model is used. ...

  • Page 130
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 16-FAIR VALUE MEASUREMENTS The Company's fair value measurements consist of (a) non-financial assets and liabilities that ...

  • Page 131
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 16-FAIR VALUE MEASUREMENTS (Continued) Contingent consideration: The Company has recorded contingent consideration as a result of the acquisition of Florida Tire. The...

  • Page 132
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 16-FAIR VALUE MEASUREMENTS (Continued) The following represents the impact of fair value accounting for the Company's ...

  • Page 133
    ... the condensed consolidating balance sheets as of January 29, 2011 and January 30, 2010 and the related condensed consolidating statements of operations and condensed consolidating statements of cash flows for fiscal 2010, 2009 and 2008 for (i) the Company (''Pep Boys'') on a parent only basis, with...

  • Page 134
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 19-SUPPLEMENTAL GUARANTOR INFORMATION (Continued) subsidiaries recorded under the equity method, (ii) the Subsidiary ...

  • Page 135
    ... SHEET (dollar amounts in thousands) As of January 29, 2011 Pep Boys Subsidiary Guarantors Subsidiary Consolidation/ Non-Guarantors Elimination Consolidated ASSETS Current assets: Cash and cash equivalents . Accounts receivable, net . . Merchandise inventories . . Prepaid expenses ...Other current...

  • Page 136
    ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 19-SUPPLEMENTAL GUARANTOR INFORMATION (Continued) CONDENSED CONSOLIDATING BALANCE SHEET (dollar amounts in thousands) As of January 30, 2010 Pep Boys Subsidiary Guarantors...

  • Page 137
    ... STATEMENT OF OPERATIONS (dollar amounts in thousands) Year ended January 29, 2011 Pep Boys Subsidiary Guarantors Subsidiary Non-Guarantors Consolidation/ Elimination Consolidated Merchandise sales ...Service revenue ...Other revenue ...Total revenues ...Costs of merchandise sales ...Costs...

  • Page 138
    ... STATEMENT OF OPERATIONS (dollar amounts in thousands) Year ended January 30, 2010 Pep Boys Subsidiary Guarantors Subsidiary Non-Guarantors Consolidation/ Elimination Consolidated Merchandise sales ...Service revenue ...Other revenue ...Total revenues ...Costs of merchandise sales ...Costs...

  • Page 139
    ... STATEMENT OF OPERATIONS (dollar amounts in thousands) Year ended January 31, 2009 Pep Boys Subsidiary Guarantors Subsidiary Non-Guarantors Consolidation/ Elimination Consolidated Merchandise sales ...Service revenue ...Other revenue ...Total revenues ...Costs of merchandise sales ...Costs...

  • Page 140
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 19-SUPPLEMENTAL GUARANTOR INFORMATION (Continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (dollar amounts in ...

  • Page 141
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 19-SUPPLEMENTAL GUARANTOR INFORMATION (Continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (dollar amounts in ...

  • Page 142
    THE PEP BOYS-MANNY, MOE & JACK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended January 29, 2011, January 30, 2010 and January 31, 2009 NOTE 19-SUPPLEMENTAL GUARANTOR INFORMATION (Continued) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (dollar amounts in ...

  • Page 143
    ... SEC's rules and forms and is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. There were no changes to the Company's internal control over financial reporting that...

  • Page 144
    ... (COSO). Based on this assessment, management determined that the Company's internal control over financial reporting as of January 29, 2011 was effective. Deloitte & Touche LLP, the Company's independent registered public accounting firm, has issued an attestation report, which is included on page...

  • Page 145
    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of The Pep Boys-Manny, Moe & Jack Philadelphia, Pennsylvania We have audited the internal control over financial reporting of The Pep Boys-Manny, Moe & Jack and subsidiaries (the ''Company'') as of January 29, 2011, based...

  • Page 146
    ... Relations-Corporate Governance'' section of our website. As required by the New York Stock Exchange (''NYSE''), promptly following our 2010 Annual Meeting, our Chief Executive Officer certified to the NYSE that he was not aware of any violation by Pep Boys of NYSE corporate governance listing...

  • Page 147
    ... of Cash Flows-Years ended January 29, 2011, January 30, 2010 and January 31, 2009 ...Notes to Consolidated Financial Statements ...The following consolidated financial statement schedule of The Pep Boys-Manny, Moe & Jack is included Schedule II Valuation and Qualifying Accounts and Reserves ...All...

  • Page 148
    ... and restated The Pep Boys Annual Incentive Bonus Plan (amended and restated as of January 31, 2009) Account Plan Flexible Employee Benefits Trust The Pep Boys Grantor Trust Agreement Filed herewith (10.4)* Incorporated by reference from the Company's Form 10-K for the year ended February 1, 2003...

  • Page 149
    ...of Ratio of Earnings to Fixed Charges Subsidiaries of the Company Consent of Independent Registered Public Accounting Firm Certification of Principal Executive Officer Pursuant to Section 302 of the SarbanesOxley Act of 2002 Certification of Principal Financial Officer Pursuant to Section 302 of the...

  • Page 150
    ... this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 11, 2011 THE PEP BOYS-MANNY, MOE & JACK (REGISTRANT) By: /s/ RAYMOND L. ARTHUR Raymond L. Arthur Executive Vice President and Chief Financial Officer (Principal Financial Officer...

  • Page 151
    ...REID Dr. Irvin D. Reid Director April 11, 2011 /s/ JANE SCACCETTI Jane Scaccetti Director April 11, 2011 /s/ JOHN T. SWEETWOOD John T. Sweetwood Director April 11, 2011 /s/ NICK WHITE Nick White Director April 11, 2011 /s/ JAMES A. WILLIAMS James A. Williams Director April 11, 2011 93

  • Page 152
    ... Charged Additions Charged Beginning to Costs to Other Balance at of Period and Expenses Accounts(2) Deductions(2) End of Period (in thousands) Description SALES RETURNS AND ALLOWANCES: Year ended January 29, 2011 ...Year ended January 30, 2010 ...Year ended January 31, 2009 ...(2) $1,031...

  • Page 153
    Exhibit 12 January 29, 2011 Fiscal Year Ended January 30, January 31, February 2, February 3, 2010 2009 2008 2007 (dollar amounts in thousands, except ratios) Interest ...Interest factor in rental expense ...Capitalized interest ...(a) Fixed charges, as defined ...Earnings (loss) from continuing ...

  • Page 154
    ... 2011, relating to the consolidated financial statements and financial statement schedule of The Pep Boys-Manny, Moe & Jack and subsidiaries (the ''Company'') and the effectiveness of the Company's internal control over financial reporting appearing in this Annual Report on Form 10-K of The Pep Boys...

  • Page 155
    ... whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 11, 2011 3. 4. By: /s/ MICHAEL R. ODELL Michael R. Odell President and Chief Executive Officer (Principal Executive Officer)

  • Page 156
    ...material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 11, 2011 By: /s/ RAYMOND L. ARTHUR Raymond L. Arthur Executive Vice President and Chief Financial Officer (Principal Financial Officer) 3. 4.

  • Page 157
    ... with this Annual Report on Form 10-K of The Pep Boys-Manny, Moe & Jack (the ''Company'') for the year ended January 29, 2011, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Michael R. Odell, Principal Executive Officer of the Company, certify, pursuant...

  • Page 158
    ... with this Annual Report on Form 10-K of The Pep Boys-Manny, Moe & Jack (the ''Company'') for the year ended January 29, 2011, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Raymond L. Arthur, Executive Vice President and Chief Financial Officer of the...

  • Page 159
    ... Rosenfeld Annual Shareholder Meeting Wednesday, June 15, 2011 at 9:00 a.m. Hilton Philadelphia City Avenue 4200 City Avenue Philadelphia, PA NYSE Symbol: PBY Investor Relations To obtain copies of our periodic reports and earnings releases, write to: Investor Relations Department at address below...

  • Page 160
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