Pep Boys 2010 Annual Report Download - 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 derivative liability
on its consolidated financial statements:
Amount of Loss
in Other Amount of Loss
Comprehensive Earnings Recognized in
Income Statement Earnings
(dollar amounts in thousands) (Effective Portion) Classification (Effective Portion)
Fiscal 2010 ............................ $ 14 Interest expense $6,905
Fiscal 2009 ............................ $373 Interest expense $5,796
Non-financial assets measured at fair value on a non-recurring basis:
Certain assets are measured at fair value on a non-recurring basis, that is, the assets are subject to
fair value adjustments in certain circumstances such as when there is evidence of impairment. In
response to a continuing weak real estate market, the Company reduced its prices for certain properties
held for disposal and recorded impairment charges of $0.2 million, $3.1 million and $5.4 million in
fiscal 2010, 2009 and 2008, respectively. The fair values were based on selling prices of comparable
properties, net of expected disposal costs. These measures of fair value, and related inputs, are
considered level 2 measures under the fair value hierarchy.
NOTE 17—LEGAL MATTERS
In September 2006, the United States Environmental Protection Agency (‘‘EPA’’) requested certain
information from the Company as part of an investigation to determine whether the Company had
violated the Clean Air Act and its non-road engine regulations. The information requested concerned
certain generator and personal transportation merchandise offered for sale by the Company. In the
fourth quarter of fiscal 2008, the United States Environmental Protection Agency (‘‘EPA’’) informed the
Company that it believed that the Company had violated the Clean Air Act by virtue of the fact that
certain of this merchandise did not conform to their corresponding EPA Certificates of Conformity.
During the third quarter of fiscal 2009, the Company and the EPA reached a settlement in principle of
this matter requiring that the Company (i) pay a monetary penalty of $5.0 million, (ii) take certain
corrective action with respect to certain inventory that had been restricted from sale during the course
of the investigation, (iii) implement a formal compliance program and (iv) participate in certain
non-monetary emission offset activities. The Company had previously accrued an amount equal to the
agreed upon civil penalty and a $3.0 million contingency accrual with respect to the restricted
inventory. During fiscal 2009, the Company reversed approximately $2.0 million of the inventory accrual
as a portion of the subject inventory was released for sale by the EPA as remediation efforts had been
completed. During the second quarter of fiscal 2010, the Company completed the remediation efforts
and accordingly reversed approximately $1.0 million of the inventory accrual. Further, the Company
reached an agreement with the merchandise vendor to cover the entire cost of retrofitting a portion of
the remaining subject merchandise and to accept the balance of the subject inventory for return for full
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.
74