Pep Boys 2010 Annual Report Download - page 111

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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 and removed its
continuing involvement with these properties. The Company then recorded the sale of these two
properties as sale-leaseback transactions and recorded a $4.0 million deferred gain. Of the total net
proceeds for these properties, $76.0 million together with $41.2 million of cash on hand were used to
finance the purchase of 29 properties for $117.1 million that were previously leased under a master
operating lease.
In fiscal 2009, the Company sold four properties to unrelated third parties. Net proceeds from
these sales were $12.9 million. Concurrent with these sales, the Company entered into agreements to
lease the properties back from the purchasers over minimum lease terms of 15 years. Each property
has a separate lease with an initial term of 15 years and four five-year renewal options. Every five
years, the leases have rent increases of an amount equal to the lesser of 8% of the monthly rent due in
the immediately preceding lease year or the percentage of the CPI increase between five year
anniversaries. The Company classified these leases as operating leases, actively uses these properties
and considers the leases as normal leasebacks. The Company recognized a gain of $1.2 million on the
sale of these properties and recorded a deferred gain of $6.4 million.
In fiscal 2010, the Company sold one property to an unrelated third party. Net proceeds from this
sale were $1.6 million. Concurrent with this sale, the Company entered into an agreement to lease the
property back from the purchaser over a minimum lease term of 15 years. The Company classified this
lease as an operating lease. The Company actively uses this property and considers the lease as a
normal leaseback. The Company recorded a deferred gain of $0.4 million.
The aggregate minimum rental payments for all leases having initial terms of more than one year
are as follows:
(dollar amounts in thousands) Operating
Fiscal Year Leases
2011 ................................................ $ 86,730
2012 ................................................ 84,883
2013 ................................................ 81,169
2014 ................................................ 76,845
2015 ................................................ 70,590
Thereafter ........................................... 347,400
Aggregate minimum lease payments ......................... $747,617
Rental expenses incurred for operating leases in fiscal 2010, 2009, and 2008 were $79.7 million,
$75.3 million and $77.2 million, respectively, and are recorded primarily in cost of revenues. The
deferred gain for all sale leaseback transactions is being recognized in costs of merchandise sales and
costs of service revenues over the minimum term of these leases.
NOTE 7—ASSET RETIREMENT OBLIGATIONS
The Company records asset retirement obligations as incurred and when reasonably estimable,
including obligations for which the timing and/or method of settlement are conditional on a future
event that may or may not be within the control of the Company. The obligation principally represents
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