Pep Boys 2010 Annual Report Download - page 73

space in each of Melrose Park, Illinois and Bayamon, Puerto Rico. The Company leases an
administrative 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 Secured Term Loan, due October 2013.
The following table sets forth certain information regarding the owned and leased warehouse space
utilized by the Company to replenish its store locations at January 29, 2011:
Approximate Owned
Products Square or Stores
Warehouse Locations Warehoused Footage Leased Serviced States Serviced
San Bernardino, CA ...... All 600,000 Leased 172 AZ, CA, NM, NV, UT, WA
McDonough, GA ........ All 392,000 Owned 141 AL, FL, GA, LA, NC, PR,
SC, TN
Mesquite, TX ........... All 244,000 Owned 71 AR, CO, LA, MO, NM,
OK, TX
Plainfield, IN ........... All 403,000 Owned 70 IL, IN, KY, MI, MN, OH, PA
Chester, NY ........... All 402,000 Owned 167 CT, DE, MA, MD, ME, NH,
NJ, NY, PA, RI, VA
Philadelphia, PA ......... Tires & Batteries 74,000 Leased 64 DE, NJ, PA, VA, MD
McDonough, GA ........ All except tires 30,000 Leased — Auxiliary warehouse space
Total ................. 2,145,000
In addition to the distribution centers above, the Company leases three satellite warehouses
comprising a total of 60,500 square feet. These satellite warehouses stock approximately 37,000 Stock-
Keeping Units (SKUs), serve an average of 10–30 stores and have retail capabilities. Subsequently in
fiscal 2011, the lease for auxiliary warehouse space in McDonough, GA expired and was not renewed.
The Company anticipates that its existing and future warehouse space and its access to outside storage
will accommodate inventory necessary to support future store expansion and any increase in SKUs
through the end of fiscal 2011.
ITEM 3 LEGAL PROCEEDINGS
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
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