Pep Boys 2011 Annual Report Download - page 116

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 14—EQUITY COMPENSATION PLANS (Continued)
During fiscal 2011, the Company began an employee stock purchase plan which provides eligible
employees the opportunity to purchase shares of the Company’s stock at a stated discount through
regular payroll deductions. The aggregate number of shares of common stock that may be issued or
transferred under the plan is 2,000,000 shares. All shares purchased by employees under this plan will
be issued through treasury stock. The Company’s expense for the discount during fiscal 2011 was
immaterial. As of January 28, 2012, there were 1,964,238 shares available for issuing under this plan.
NOTE 15—INTEREST RATE SWAP AGREEMENT
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 28, 2012 and January 29, 2011, the
fair value of the swap was a net $12.5 million and $16.4 million payable, respectively, recorded within
other long-term liabilities on the balance sheet.
NOTE 16—FAIR VALUE MEASUREMENTS
The Company’s fair value measurements consist of (a) non-financial assets and liabilities that are
recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least
annually) and (b) all financial assets and liabilities.
Fair value is defined as the exit price, or the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants as of the measurement
date. There is a hierarchy for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be
used when available. Observable inputs are inputs market participants would use in valuing the asset or
liability developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market
participants would use in valuing the asset or liability developed based upon the best information
available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are
quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include
quoted prices for similar assets or liabilities in active markets. Level 3 inputs are unobservable inputs
for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:
The Company’s long-term investments, interest rate swap agreements and contingent consideration
are measured at fair value on a recurring basis. The information in the following paragraphs and tables
primarily addresses matters relative to these assets and liabilities.
Cash equivalents:
Cash equivalents, other than credit card receivables, include highly liquid investments with an
original maturity of three months or less at acquisition. The Company carries these investments at fair
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