Pep Boys 2010 Annual Report Download - page 90

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We are also contingently liable for surety bonds in the amount of approximately $10.3 million and
$10.2 million as of January 29, 2011 and January 30, 2010, respectively. The surety bonds guarantee
certain of our payments (for example utilities, easement repairs, licensing requirements and customs
fees).
Off-balance Sheet Arrangements
We lease certain property and equipment under operating leases and lease financings which
contain renewal and escalation clauses, step rent provisions, capital improvements funding and other
lease concessions. These provisions are considered in the calculation of our minimum lease payments
which are recognized as expense on a straight-line basis over the applicable lease term. Any lease
payments that are based upon an existing index or rate are included in our minimum lease payment
calculations. Total operating lease commitments as of January 29, 2011 were $747.6 million.
Pension and Retirement Plans
The Company has a Supplemental Executive Retirement Plan (SERP). This unfunded plan had a
defined benefit component that provided key employees designated by the Board of Directors with
retirement and death benefits. Retirement benefits were based on salary and bonuses; death benefits
were based on salary. Benefits paid to a participant under the defined pension plan are deducted from
the benefits otherwise payable under the defined benefit portion of the SERP. On January 31, 2004, we
amended and restated our SERP. This amendment converted the defined benefit portion of the SERP
to a defined contribution portion for certain unvested participants and all future participants. On
December 31, 2008, the Company terminated the defined benefit portion of the SERP with a
$14.4 million payment and recorded a charge of $6.0 million. The SERP currently consists of only the
defined contribution plan which 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% of the first 6% of a participant’s
contributions or 3% of the participant’s compensation. For fiscal 2010 and 2009, the Company’s
contributions were conditional upon the achievement of certain pre-established financial performance
goals which were met. The Company’s savings plans’ contribution expense was $3.0 million, $3.1 million
and $3.3 million in fiscal 2010, 2009 and 2008, respectively.
We also have a defined benefit pension plan covering our full-time employees hired on or before
February 1, 1992. As of December 31, 1996, the Company froze the accrued benefits under the plan
and active participants became fully vested. The plan’s trustee will continue to maintain and invest plan
assets and will administer benefits payments. Pension plan assets are stated at fair market value and are
composed primarily of money market funds and collective trust funds primarily invested in equity and
fixed income investments.
The expense under these plans for fiscal 2010, 2009 and 2008 was $6.3 million, $6.4 million and
$11.9 million, respectively. The fiscal 2008 pension expense includes a SERP settlement charge of
$6.0 million. Pension expense is calculated based upon a number of actuarial assumptions, including an
expected return on plan assets of 6.95% and a discount rate of 6.1%. In developing the expected return
on asset assumptions, we evaluated input from our actuaries, including their review of asset class return
expectations. The discount rate utilized for the pension plans is based on a model bond portfolio with
durations that match the expected payment patterns of the plans. We continue to evaluate our actuarial
assumptions and make adjustments as necessary for the existing plans. While we had no minimum
funding requirement during fiscal 2010, we made a $5.0 million discretionary contribution to the
defined benefit pension plan in October 2010. In fiscal 2008, we contributed an aggregate of
$19.9 million to our pension plans to fund the retirement obligations and for the termination of the
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