Pep Boys 2010 Annual Report Download - page 94

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ASU 2010-06 also clarifies existing disclosures for the level of disaggregating, disclosures about
valuation techniques and inputs used to determine level 2 or 3 fair value measurements and includes
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
forward activity for level 3 fair value measurements which are effective for interim and annual periods
beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on
the Company’s consolidated financial statements.
In December 2010, the FASB issued ASU 2010-29 ‘‘Business Combinations (Topic 805)—
Disclosure of Supplementary Pro Forma Information for Business Combinations’’ (ASU 2010-29). This
accounting standard update clarifies that SEC registrants presenting comparative financial statements
should disclose in their pro forma information revenue and earnings of the combined entity as though
the current period business combinations had occurred as of the beginning of the comparable prior
annual reporting period only. The update also expands the supplemental pro forma disclosures to
include a description of the nature and amount of material, nonrecurring pro forma adjustments
directly attributable to the business combination included in the reported pro forma revenue and
earnings. ASU 2010-29 is effective prospectively for material (either on an individual or aggregate
basis) business combinations entered into in fiscal years beginning on or after December 15, 2010 with
early adoption permitted. The Company does not believe the adoption of those requirements of ASU
2010-29 will have a material impact on the consolidated results of operations and financial condition.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has market rate exposure in its financial instruments due to changes in interest rates
and prices.
Variable and Fixed Rate Debt
The Company’s Revolving Credit Agreement bears interest at LIBOR or Prime plus 2.75% to
3.25% based upon the then current availability under the facility. At January 29, 2011, there were no
outstanding borrowings under the agreement. Additionally, the Company has a Senior Secured Term
Loan facility with a balance of $148.6 million at January 29, 2011, that bears interest at three month
LIBOR plus 2.00%. Excluding our interest rate swap, a one percent change in the LIBOR rate would
have affected net earnings by approximately $1.0 million for fiscal 2010. The risk related to changes in
the three month LIBOR rate are substantially mitigated by our interest rate swap.
At January 29, 2011, the fair value of the Company’s fixed rate debt instruments, principally the
$147.6 million 7.50% Senior Subordinated Notes, due December 15, 2014, was $149.8 million. At
January 30, 2010, the fair value of the Company’s fixed rate debt instruments, principally the
$157.6 million 7.50% Senior Subordinated Notes, due December 15, 2014, was $148.9 million. The
Company determines fair value on its fixed rate debt by using quoted market prices and current
interest rates.
Interest Rate Swaps
The Company entered into an interest rate swap for a notional amount of $145.0 million that is
designated as a cash flow hedge on the first $145.0 million of the Company’s Senior Secured Term
Loan facility. The interest rate swap converts the variable LIBOR portion of the interest payments to a
fixed rate of 5.036% and terminates in October 2013. As of January 29, 2011 and January 30, 2010, the
fair value of the swap was a net $16.4 million payable recorded within other long-term liabilities on the
balance sheet.
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