v2.4.0.6
Document and Entity Information (USD $)
12 Months Ended
Feb. 02, 2013
Apr. 05, 2013
Jul. 27, 2012
Document and Entity Information      
Entity Registrant Name PEP BOYS MANNY MOE & JACK    
Entity Central Index Key 0000077449    
Document Type 10-K    
Document Period End Date Feb. 02, 2013    
Amendment Flag false    
Current Fiscal Year End Date --02-02    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Accelerated Filer    
Entity Public Float     $ 457,164,000
Entity Common Stock, Shares Outstanding   53,176,348  
Document Fiscal Year Focus 2012    
Document Fiscal Period Focus FY    
v2.4.0.6
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Feb. 02, 2013
Jan. 28, 2012
Current assets:    
Cash and cash equivalents $ 59,186 $ 58,244
Accounts receivable, less allowance for uncollectible accounts of $1,302 and $1,303 23,897 25,792
Merchandise inventories 641,208 614,136
Prepaid expenses 28,908 26,394
Other current assets 60,438 59,979
Total current assets 813,637 784,545
Property and equipment-net 657,270 696,339
Goodwill 46,917 46,917
Deferred income taxes 47,691 72,870
Other long-term assets 38,434 33,108
Total assets 1,603,949 1,633,779
Current liabilities:    
Accounts payable 244,696 243,712
Trade payable program liability 149,718 85,214
Accrued expenses 232,277 221,705
Deferred income taxes 58,441 66,208
Current maturities of long-term debt 2,000 1,079
Total current liabilities 687,132 617,918
Long-term debt less current maturities 198,000 294,043
Other long-term liabilities 53,818 77,216
Deferred gain from asset sales 127,427 140,273
Stockholders' equity:    
Common stock, par value $1 per share: authorized 500,000,000 shares; issued 68,557,041 shares 68,557 68,557
Additional paid-in capital 295,679 296,462
Retained earnings 430,148 423,437
Accumulated other comprehensive loss (980) (17,649)
Treasury stock, at cost-15,431,298 shares and 15,803,322 shares (255,832) (266,478)
Total stockholders' equity 537,572 504,329
Total liabilities and stockholders' equity $ 1,603,949 $ 1,633,779
v2.4.0.6
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Feb. 02, 2013
Jan. 28, 2012
CONSOLIDATED BALANCE SHEETS    
Accounts receivable, allowance for uncollectible accounts (in dollars) $ 1,302 $ 1,303
Common stock, par value (in dollars per share) $ 1 $ 1
Common stock, authorized shares 500,000,000 500,000,000
Common stock, issued shares 68,557,041 68,557,041
Treasury stock, shares 15,431,298 15,803,322
v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Feb. 02, 2013
Jan. 28, 2012
Jan. 29, 2011
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME      
Merchandise sales $ 1,643,948 $ 1,642,757 $ 1,598,168
Service revenue 446,782 420,870 390,473
Total revenues 2,090,730 2,063,627 1,988,641
Costs of merchandise sales 1,159,994 1,154,322 1,110,380
Costs of service revenue 439,236 399,776 355,909
Total costs of revenues 1,599,230 1,554,098 1,466,289
Gross profit from merchandise sales 483,954 488,435 487,788
Gross profit from service revenue 7,546 21,094 34,564
Total gross profit 491,500 509,529 522,352
Selling, general and administrative expenses 463,416 443,986 442,239
Pension settlement expense 17,753    
Net gain from disposition of assets 1,323 27 2,467
Operating profit 11,654 65,570 82,580
Merger termination fees, net 42,816    
Non-operating income 2,012 2,324 2,609
Interest expense 33,982 26,306 26,745
Earnings from continuing operations before income taxes and discontinued operations 22,500 41,588 58,444
Income tax expense 9,345 12,460 21,273
Earnings from continuing operations before discontinued operations 13,155 29,128 37,171
Loss from discontinued operations, net of tax benefit of $(186), $(121) and $(291) (345) (225) (540)
Net earnings 12,810 28,903 36,631
Basic earnings per share:      
Earnings from continuing operations before discontinued operations (in dollars per share) $ 0.25 $ 0.55 $ 0.71
Loss from discontinued operations, net of tax (in dollars per share) $ (0.01) $ (0.01) $ (0.01)
Basic earnings per share (in dollars per share) $ 0.24 $ 0.54 $ 0.70
Diluted earnings per share:      
Earnings from continuing operations before discontinued operations (in dollars per share) $ 0.24 $ 0.54 $ 0.70
Loss from discontinued operations, net of tax (in dollars per share)     $ (0.01)
Diluted earnings per share (in dollars per share) $ 0.24 $ 0.54 $ 0.69
Other comprehensive income:      
Defined benefit plan adjustment, net of tax 9,696 (3,120) 582
Derivative financial instruments adjustment, net of tax 6,973 2,499 81
Other comprehensive income 16,669 (621) 663
Total comprehensive income $ 29,479 $ 28,282 $ 37,294
v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Feb. 02, 2013
Jan. 28, 2012
Jan. 29, 2011
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME      
Loss from discontinued operations, tax benefit $ (186) $ (121) $ (291)
v2.4.0.6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Comprehensive Income
Balance at Jan. 30, 2010 $ 443,295 $ 68,557 $ 293,810 $ 374,836 $ (276,217) $ (17,691)  
Balance (in shares) at Jan. 30, 2010   68,557,041     (16,164,074)    
Comprehensive income:              
Net earnings 36,631     36,631     36,631
Changes in net unrecognized other postretirement benefit costs, net of tax of $5,729, $(1,872) and $344 for year ended 2012, 2011 and 2010, respectively 582         582 582
Fair market value adjustment on derivatives, net of tax of $4,208, $1,499 and $48 for year ended 2012, 2011 and 2010, respectively 81         81 81
Total comprehensive income 37,294           37,294
Cash dividends ($.12 per share and $.12 per share) for year ended 2011 and 2010, respectively (6,323)     (6,323)      
Effect of stock options and related tax benefits 585     (2,023) 2,608    
Effect of stock options and related tax benefits (in shares)         96,590    
Effect of restricted stock unit conversions (299)   (1,946)   1,647    
Effect of restricted stock unit conversions (in shares)         61,042    
Stock compensation expense 3,497   3,497        
Dividend reinvestment plan 411     (521) 932    
Dividend reinvestment plan (in shares)         34,532    
Balance at Jan. 29, 2011 478,460 68,557 295,361 402,600 (271,030) (17,028)  
Balance (in shares) at Jan. 29, 2011   68,557,041     (15,971,910)    
Comprehensive income:              
Net earnings 28,903     28,903     28,903
Changes in net unrecognized other postretirement benefit costs, net of tax of $5,729, $(1,872) and $344 for year ended 2012, 2011 and 2010, respectively (3,120)         (3,120) (3,120)
Fair market value adjustment on derivatives, net of tax of $4,208, $1,499 and $48 for year ended 2012, 2011 and 2010, respectively 2,499         2,499 2,499
Total comprehensive income 28,282           28,282
Cash dividends ($.12 per share and $.12 per share) for year ended 2011 and 2010, respectively (6,344)     (6,344)      
Effect of stock options and related tax benefits 323     (900) 1,223    
Effect of stock options and related tax benefits (in shares)         45,321    
Effect of employee stock purchase plan 231     (335) 566    
Effect of employee stock purchase plan (in shares)         20,963    
Effect of restricted stock unit conversions (239)   (2,136)   1,897    
Effect of restricted stock unit conversions (in shares)         70,228    
Stock compensation expense 3,237   3,237        
Dividend reinvestment plan 379     (487) 866    
Dividend reinvestment plan (in shares)         32,076    
Balance at Jan. 28, 2012 504,329 68,557 296,462 423,437 (266,478) (17,649)  
Balance (in shares) at Jan. 28, 2012   68,557,041     (15,803,322)    
Comprehensive income:              
Net earnings 12,810     12,810     12,810
Changes in net unrecognized other postretirement benefit costs, net of tax of $5,729, $(1,872) and $344 for year ended 2012, 2011 and 2010, respectively 9,696         9,696 9,696
Fair market value adjustment on derivatives, net of tax of $4,208, $1,499 and $48 for year ended 2012, 2011 and 2010, respectively 6,973         6,973 6,973
Total comprehensive income 29,479           29,479
Effect of stock options and related tax benefits 2,299   375 (5,494) 7,418    
Effect of stock options and related tax benefits (in shares)         274,769    
Effect of employee stock purchase plan 462     (605) 1,067    
Effect of employee stock purchase plan (in shares)         39,552    
Effect of restricted stock unit conversions 46   (2,457)   2,503    
Effect of restricted stock unit conversions (in shares)         92,703    
Stock compensation expense 1,299   1,299        
Treasury stock repurchases (342)       (342)    
Treasury stock repurchases (in shares)         (35,000)    
Balance at Feb. 02, 2013 $ 537,572 $ 68,557 $ 295,679 $ 430,148 $ (255,832) $ (980)  
Balance (in shares) at Feb. 02, 2013   68,557,041     (15,431,298)    
v2.4.0.6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Feb. 02, 2013
Jan. 28, 2012
Jan. 29, 2011
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY      
Changes in net unrecognized other postretirement benefit costs, tax $ 5,729 $ (1,872) $ 344
Fair market value adjustment on derivatives, tax $ 4,208 $ 1,499 $ 48
Cash dividends (in dollars per share)   $ 0.12 $ 0.12
v2.4.0.6
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Feb. 02, 2013
Jan. 28, 2012
Jan. 29, 2011
Cash flows from operating activities:      
Net earnings $ 12,810 $ 28,903 $ 36,631
Adjustments to reconcile net earnings to net cash provided by continuing operations:      
Net loss from discontinued operations 345 225 540
Depreciation and amortization 78,805 79,390 74,366
Amortization of deferred gain from asset sales (12,846) (12,602) (12,602)
Stock compensation expense 1,299 3,237 3,497
Loss from debt retirement     200
Deferred income taxes 7,576 10,301 18,572
Net gain from dispositions of assets (1,323) (27) (2,467)
Loss from asset impairment 10,555 1,619 970
Other 30 (421) (694)
Changes in operating assets and liabilities, net of the effects of acquisitions:      
Decrease in accounts receivable, prepaid expenses and other 3,829 2,391 7,060
Increase in merchandise inventories (27,074) (42,756) (5,284)
Increase in accounts payable 984 24,871 7,466
Increase (decrease) in accrued expenses 10,481 (18,745) (8,394)
Increase (decrease) in other long-term liabilities 3,487 (2,463) (1,200)
Net cash provided by continuing operations 88,958 73,923 118,661
Net cash used in discontinued operations (467) (273) (1,466)
Net cash provided by operating activities 88,491 73,650 117,195
Cash flows from investing activities:      
Capital expenditures (54,696) (74,746) (70,252)
Proceeds from dispositions of assets 5,588 515 7,515
Collateral investment (3,654) (7,638) (9,638)
Acquisitions, net of cash acquired   (42,901) (288)
Premiums paid on life insurance policies   (837)  
Net cash used in continuing operations (52,762) (125,607) (72,663)
Net cash provided by discontinued operations     569
Net cash used in investing activities (52,762) (125,607) (72,094)
Cash flows from financing activities:      
Borrowings under line of credit agreements 2,319 5,721 21,795
Payments under line of credit agreements (2,319) (5,721) (21,795)
Borrowings on trade payable program liability 179,751 144,180 121,824
Payments on trade payable program liability (115,247) (115,253) (99,636)
Payments for finance issuance cost (6,520) (2,441)  
Borrowings under new debt 200,000    
Debt payments (295,122) (1,079) (11,279)
Dividends paid   (6,344) (6,323)
Repurchase of common stock (342)    
Proceeds from stock issuance 2,693 898 1,227
Net cash (used in) provided by financing activities (34,787) 19,961 5,813
Net increase (decrease) in cash and cash equivalents 942 (31,996) 50,914
Cash and cash equivalents at beginning of year 58,244 90,240 39,326
Cash and cash equivalents at end of year 59,186 58,244 90,240
Supplemental cash flow information:      
Cash paid for interest, net of amounts capitalized 31,290 23,097 23,098
Cash received from income tax refunds 108 479 195
Cash paid for income taxes 2,826 1,150 890
Non-cash investing activities:      
Accrued purchases of property and equipment $ 1,371 $ 1,400 $ 2,926
v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Feb. 02, 2013
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        The Pep Boys—Manny, Moe & Jack and subsidiaries (the "Company") consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of the Company's financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses, as well as the disclosure of contingent assets and liabilities and other related disclosures. The Company bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of the Company's assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates, and the Company includes any revisions to its estimates in the results for the period in which the actual amounts become known.

        The Company believes the significant accounting policies described below affect the more significant judgments and estimates used in the preparation of its consolidated financial statements. Accordingly, these are the policies the Company believes are the most critical to aid in fully understanding and evaluating the historical consolidated financial condition and results of operations.

        BUSINESS    The Company operates in the U.S. automotive aftermarket, which has two general lines of business: (1) the Service business, commonly known as Do-It-For-Me, or "DIFM" (service labor, installed merchandise and tires) and (2) the Retail business, commonly known as Do-It-Yourself, or "DIY" (retail merchandise) and commercial. The Company's primary store format is the Supercenter, which serves both "DIFM" and "DIY" customers with the highest quality service offerings and merchandise. As part of the Company's long-term strategy to lead with automotive service, the Company is complementing the existing Supercenter store base with Service & Tire Centers. These Service & Tire Centers are designed to capture market share and leverage the existing Supercenter and support infrastructure. The Company currently operates stores in 35 states and Puerto Rico.

        FISCAL YEAR END    The Company's fiscal year ends on the Saturday nearest to January 31. Fiscal 2012, which ended February 2, 2013, was comprised of 53 weeks. Fiscal 2011, which ended January 28, 2012, and fiscal 2010 which ended January 29, 2011 were comprised of 52 weeks.

        PRINCIPLES OF CONSOLIDATION    The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

        CASH AND CASH EQUIVALENTS    Cash equivalents include all short-term, highly liquid investments with an initial maturity of three months or less when purchased. All credit and debit card transactions that settle in less than seven days are also classified as cash and cash equivalents.

        ACCOUNTS RECEIVABLE    Accounts receivable are primarily comprised of amounts due from commercial customers. The Company records an allowance for doubtful accounts based upon an evaluation of the credit worthiness of its customers. The allowance is reviewed for adequacy at least quarterly, and adjusted as necessary. Specific accounts are written off against the allowance when management determines the account is uncollectible.

        MERCHANDISE INVENTORIES    Merchandise inventories are valued at the lower of cost or market. Cost is determined by using the last-in, first-out (LIFO) method. If the first-in, first-out (FIFO) method of costing inventory had been used by the Company, inventory would have been $565.8 million and $536.4 million as of February 2, 2013 and January 28, 2012, respectively. During fiscal 2012, 2011 and 2010, the effect of LIFO layer liquidations on gross profit was immaterial.

        The Company's inventory, consisting primarily of automotive tires, parts, and accessories, is used on vehicles typically having long lives. Because of this, and combined with the Company's historical experience of returning excess inventory to the Company's vendors for full credit, the risk of obsolescence is minimal. The Company establishes a reserve for excess inventory for instances where less than full credit will be received for such returns or where the Company anticipates items will be sold at retail prices that are less than recorded costs. The reserve is based on management's judgment, including estimates and assumptions regarding marketability of products, the market value of inventory to be sold in future periods and on historical experiences where the Company received less than full credit from vendors for product returns. The Company also provides for estimated inventory shrinkage based upon historical levels and the results of its cycle counting program. The Company's inventory adjustments for these matters were approximately $4.6 million at February 2, 2013 and January 28, 2012, respectively. In future periods the company may be exposed to material losses should the company's vendors alter their policy with regard to accepting excess inventory returns.

        PROPERTY AND EQUIPMENT    Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives: building and improvements, 5 to 40 years, and furniture, fixtures and equipment, 3 to 10 years. Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost and accumulated depreciation are eliminated and the gain or loss, if any, is included in the determination of net income. Property and equipment information follows:

(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
 

Land

  $ 203,386   $ 204,023  

Buildings and improvements

    885,389     875,999  

Furniture, fixtures and equipment

    728,122     723,938  

Construction in progress

    3,282     3,279  

Accumulated depreciation and amortization

    (1,162,909 )   (1,110,900 )
           

Property and equipment—net

  $ 657,270   $ 696,339  
           

        GOODWILL    At fiscal year end 2012, the Company had six reporting units, of which three included goodwill (related to prior acquisitions by the Company). The Company tests the recorded amount of goodwill for recovery on an annual basis in the fourth quarter of each fiscal year. Impairment reviews may also be triggered by any significant events or changes in circumstances affecting the Company's business.

        Goodwill impairment testing consists of a two-step process, if necessary. The first step is to compare the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test must be performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The loss recognized cannot exceed the carrying amount of goodwill. The implied fair value of goodwill is determined in the same manner that the amount of goodwill recognized in a business combination is determined. The Company allocates the fair value of a reporting unit to all of the assets and liabilities of that unit, including intangible assets. Any excess of the value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. A deterioration of macroeconomic conditions may not only negatively impact the estimated operating cash flows used in the Company's cash flow models, but may also negatively impact other assumptions used in the Company's analyses, including, but not limited to, the estimated cost of capital and/or discount rates. Additionally, in accordance with accounting guidance, the Company is required to ensure that assumptions used to determine fair value in the analyses are consistent with the assumptions a market participant would use. As a result, the cost of capital and/or discount rates used may increase or decrease based on market conditions and trends, regardless of whether the Company's cost of capital has changed. Therefore the Company may recognize an impairment even though cash flows are approximately the same or greater than forecasted amounts.

        There were no impairments as a result of the Company's annual tests in the fourth quarter of fiscal year 2012, fiscal year 2011, and fiscal year 2010.

        OTHER INTANGIBLE ASSETS    For intangible assets with finite lives, the Company amortizes their cost on a straight-line basis over their estimated useful lives.

        LEASES    The Company amortizes leasehold improvements over the lesser of the lease term or the economic life of those assets. Generally, for stores the lease term is the base lease term and for distribution centers the lease term includes the base lease term plus certain renewal option periods for which renewal is reasonably assured and for which failure to exercise the renewal option would result in an economic penalty to the Company. The calculation of straight-line rent expense is based on the same lease term with consideration for step rent provisions, escalation clauses, rent holidays and other lease concessions. The Company begins expensing rent upon completion of the Company's due diligence or when the Company has the right to use the property, whichever comes earlier.

        SOFTWARE CAPITALIZATION    The Company capitalizes certain direct development costs associated with internal-use software, including external direct costs of material and services, and payroll costs for employees devoting time to the software projects. These costs are amortized over a period not to exceed five years beginning when the asset is substantially ready for use. Costs incurred during the preliminary project stage, as well as maintenance and training costs are expensed as incurred.

        TRADE PAYABLE PROGRAM LIABILITY    The Company has a trade payable program which is funded by various bank participants who have the ability, but not the obligation, to purchase account receivables owed by the Company directly from its vendors. The Company, in turn, makes the regularly scheduled full vendor payments to the bank participants.

        INCOME TAXES    The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are determined based upon enacted tax laws and rates applied to the differences between the financial statement and tax bases of assets and liabilities.

        The Company recognizes taxes payable for the current year, as well as deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The Company must assess the likelihood that any recorded deferred tax assets will be recovered against future taxable income. To the extent the Company believes it is more likely than not that the asset will not be recoverable, a valuation allowance must be established. To the extent the Company establishes a valuation allowance or changes the allowance in a future period, income tax expense will be impacted.

        In evaluating income tax positions, the Company records liabilities for potential exposures. These tax liabilities are adjusted in the period actual developments give rise to such change. Those developments could be, but are not limited to, settlement of tax audits, expiration of the statute of limitations, and changes in the tax code and regulations, along with varying application of tax policy and administration within those jurisdictions. Refer to Note 8, "Income Taxes," for further discussion of income taxes and changes in unrecognized tax benefit.

        SALES TAXES    The Company presents sales net of sales taxes in its consolidated statements of operations.

        REVENUE RECOGNITION    The Company recognizes revenue from the sale of merchandise at the time the merchandise is sold and the product is delivered to the customer. Service revenues are recognized upon completion of the service. Service revenue consists of the labor charged for installing merchandise or maintaining or repairing vehicles, excluding the sale of any installed parts or materials. The Company records revenue net of an allowance for estimated future returns. The Company establishes reserves for sales returns and allowances based on current sales levels and historical return rates. Revenue from gift card sales is recognized upon gift card redemption. The Company's gift cards do not have expiration dates. The Company recognizes breakage on gift cards when, among other things, sufficient gift card history is available to estimate potential breakage and the Company determines there are no legal obligations to remit the value of unredeemed gift cards to the relevant jurisdictions. Estimated gift card breakage revenue is immaterial for all periods presented.

        The Company's Customer Loyalty program allows members to earn points for each qualifying purchase. Points earned allow members to receive a certificate that may be redeemed on future purchases within 90 days of issuance. The retail value of points earned by loyalty program members is included in accrued liabilities as deferred income and recorded as a reduction of revenue at the time the points are earned, based on the historic and projected rate of redemption. The Company recognizes deferred revenue and the cost of the free products distributed to loyalty program members when the awards are redeemed. The cost of the free products distributed to program members is recorded within costs of revenues.

        A portion of the Company's transactions includes the sale of auto parts that contain a core component. These components represent the recyclable portion of the auto part. Customers are not charged for the core component of the new part if a used core is returned at the point of sale of the new part; otherwise the Company charges customers a specified amount for the core component. The Company refunds that same amount upon the customer returning a used core to the store at a later date. The Company does not recognize sales or cost of sales for the core component of these transactions when a used part is returned by the customer at the point of sale.

        COSTS OF REVENUES    Costs of merchandise sales include the cost of products sold, buying, warehousing and store occupancy costs. Costs of service revenue include service center payroll and related employee benefits, service center occupancy costs and cost of providing free or discounted towing services to customers. Occupancy costs include utilities, rents, real estate and property taxes, repairs, maintenance, depreciation and amortization expenses.

        VENDOR SUPPORT FUNDS    The Company receives various incentives in the form of discounts and allowances from its vendors based on purchases or for services that the Company provides to the vendors. These incentives received from vendors include rebates, allowances and promotional funds and are generally based upon a percentage of the gross amount purchased. Funds are recorded when title of goods purchased have transferred to the Company as the amount is known and not contingent on future events. The amount of funds to be received are subject to vendor agreements and ongoing negotiations that may be impacted in the future based on changes in market conditions, vendor marketing strategies and changes in the profitability or sell-through of the related merchandise for the Company.

        Generally vendor support funds are earned based on purchases or product sales. These incentives are treated as a reduction of inventories and are recognized as a reduction to cost of sales as the inventories are sold. Certain vendor allowances are used exclusively for promotions and to offset certain other direct expenses if the Company determines the allowances are for specific, identifiable incremental expenses. Vendor support funds used to offset direct advertising costs were immaterial for the year ended February 2, 2013, $2.5 million for the year ended January 28, 2012, and immaterial for the year ended January 29, 2011.

        WARRANTY RESERVE    The Company provides warranties for both its merchandise sales and service labor. Warranties for merchandise are generally covered by the respective vendors, with the Company covering any costs above the vendor's stipulated allowance. Service labor is warranted in full by the Company for a limited specific time period. The Company establishes its warranty reserves based on historical experience. These costs are included in either costs of merchandise sales or costs of service revenue in the consolidated statement of operations.

        The reserve for warranty activity for the years ended February 2, 2013 and January 28, 2012, respectively, are as follows:

(dollar amounts in thousands)
   
 

Balance, January 29, 2011

  $ 673  

Additions related to sales in the current year

    12,122  

Warranty costs incurred in the current year

    (12,122 )
       

Balance, January 28,2012

  $ 673  

Additions related to sales in the current year

    11,920  

Warranty costs incurred in the current year

    (11,729 )
       

Balance, February 2, 2013

  $ 864  
       

        ADVERTISING    The Company expenses the costs of advertising the first time the advertising takes place. Gross advertising expense for fiscal 2012, 2011 and 2010 was $63.3 million, $54.9 million and $57.5 million, respectively, and is recorded in selling, general and administrative expenses. No advertising costs were recorded as assets as of February 2, 2013 or January 28, 2012.

        STORE OPENING COSTS    The costs of opening new stores are expensed as incurred.

        IMPAIRMENT OF LONG-LIVED ASSETS    The Company evaluates the ability to recover long-lived assets whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. In the event assets are impaired, losses are recognized to the extent the carrying value exceeds fair value. In addition, the Company reports assets to be disposed of at the lower of the carrying amount or the fair market value less selling costs. See discussion of current year impairments in Note 11, "Store Closures and Asset Impairments."

        EARNINGS PER SHARE    Basic earnings per share are computed by dividing earnings by the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed by dividing earnings by the weighted average number of common shares outstanding during the year plus incremental shares that would have been outstanding upon the assumed exercise of dilutive stock based compensation awards.

        DISCONTINUED OPERATIONS    The Company's discontinued operations reflect the operating results for closed stores where the customer base could not be maintained. Loss from discontinued operations relates to expenses for previously closed stores and principally includes costs for rent, taxes, payroll, repairs and maintenance, asset impairments, and gains or losses on disposal.

        ACCOUNTING FOR STOCK-BASED COMPENSATION    At February 2, 2013, the Company has two stock-based employee compensation plans, which are described in Note 14, "Equity Compensation Plans." Compensation costs relating to share-based payment transactions are recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity award).

        COMPREHENSIVE INCOME    Other comprehensive income includes pension liability and fair market value of cash flow hedges.

        DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES    The Company may enter into interest rate swap agreements to hedge the exposure to increasing rates with respect to its certain variable rate debt agreements. The Company recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. See further discussion in Note 5, "Debt and Financing Arrangements."

        SEGMENT INFORMATION    The Company has six operating segments defined by geographic regions which are Northeast, Mid-Atlantic, Southeast, Central, West and Southern CA. Each segment serves both DIY and DIFM lines of business. The Company aggregates all of its operating segments and has one reportable segment. Sales by major product categories are as follows:

 
  Year ended  
(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

Parts and accessories

  $ 1,252,617   $ 1,259,500   $ 1,261,678  

Tires

    391,331     383,257     336,490  

Service labor

    446,782     420,870     390,473  
               

Total revenues

  $ 2,090,730   $ 2,063,627   $ 1,988,641  
               

        SIGNIFICANT SUPPLIERS    During fiscal 2012, the Company's ten largest suppliers accounted for approximately 51% of merchandise purchased. Only one supplier accounted for more than 10% of the Company's purchases. Other than a commitment to purchase 4.2 million units of oil products at various prices over a two-year period, the Company has no long-term contracts or minimum purchase commitments under which the Company is required to purchase merchandise. Open purchase orders are based on current inventory or operational needs and are fulfilled by vendors within short periods of time and generally are not binding agreements.

        SELF INSURANCE    The Company has risk participation arrangements with respect to workers' compensation, general liability, automobile liability, and other casualty coverages. The Company has a wholly owned captive insurance subsidiary through which it reinsures this retained exposure. This subsidiary uses both risk sharing treaties and third party insurance to manage this exposure. In addition, the Company self insures certain employee-related health care benefit liabilities. The Company maintains stop loss coverage with third party insurers through which it reinsures certain of its casualty and health care benefit liabilities. The Company records both liabilities and reinsurance receivables using actuarial methods utilized in the insurance industry based upon historical claims experience.

        RECLASSIFICATION    Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on reported totals for assets, liabilities, shareholders' equity, cash flows or net income.

RECENT ACCOUNTING STANDARDS

        In May of 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" ("ASU 2011-04"), which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. The adoption of ASU 2011-04 did not have a material impact on the Company's consolidated financial statements.

        In June of 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"). ASU 2011-05 was issued to improve the comparability of financial reporting between U.S. GAAP and International Financial Reporting Standards, and eliminates previous U.S. GAAP guidance that allowed an entity to present components of other comprehensive income ("OCI") as part of its statement of changes in shareholders' equity. With the issuance of ASU 2011-05, companies are now required to report all components of OCI either in a single continuous statement of total comprehensive income, which includes components of both OCI and net income, or in a separate statement appearing consecutively with the statement of income. ASU 2011-05 does not affect current guidance for the accounting of the components of OCI, or which items are included within total comprehensive income. ASU 2011-05 also states that reclassification adjustments between other comprehensive income and net income are presented separately on the face of the financial statements. In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), which requires companies to provide information about the amounts reclassified out of AOCI by component. In addition, companies are required to report significant amounts reclassified out of AOCI by the respective line items of net income if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, companies are required to cross-reference to other disclosures that provide additional detail on those amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU 2011-05 affected presentation only and therefore did not have an impact on the Company's consolidated financial condition, results of operations or cash flows. The adoption of ASU 2013-02 is not expected to impact the Company's consolidated financial condition, results of operations or cash flows.

        In September of 2011, the FASB issued ASU 2011-08, "Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment" ("ASU 2011-08"). The new guidance provides entities with the option to perform a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the quantitative two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the quantitative two-step goodwill impairment test. Entities also have the option to bypass the assessment of qualitative factors for any reporting unit in any period and proceed directly to performing the first step of the quantitative two-step goodwill impairment test, as was required prior to the issuance of this new guidance. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The adoption of ASU 2011-08 did not have a material impact on the Company's consolidated results of operations and financial condition.

v2.4.0.6
ACQUISITIONS
12 Months Ended
Feb. 02, 2013
ACQUISITIONS  
ACQUISITIONS

NOTE 2—ACQUISITIONS

        During fiscal 2011, the Company made three separate acquisitions. The Company acquired the assets related to seven service and tire centers located in the Seattle-Tacoma area, the assets related to seven service and tire centers located in the Houston, Texas area and all outstanding shares of capital stock of Tire Stores Group Holding Corporation which operated an 85-store chain in Florida, Georgia and Alabama under the name Big 10. Collectively, the acquired stores produced approximately $94.7 million (unaudited) in sales annually based on pre-acquisition historical information. The total purchase price of these stores was approximately $42.6 million in cash and the assumption of certain liabilities. The acquisitions were financed through cash flows provided by operations. The results of operations of these acquired stores are included in the Company's results from their respective acquisition dates.

        The Company has recorded its initial accounting for these acquisitions in accordance with accounting guidance on business combinations. The acquisitions resulted in goodwill related to, among other things, growth opportunities and assembled workforces. A portion of the goodwill is expected to be deductible for tax purposes. The Company has recorded finite-lived intangible assets at their estimated fair value related to trade names, favorable and unfavorable leases.

        The Company expensed all costs related to these acquisitions during fiscal 2011. The total costs related to these acquisitions were $1.5 million and are included in the consolidated statement of operations within selling, general and administrative expenses.

        The purchase price of the acquisitions has been allocated to the net tangible and intangible assets acquired, with the remainder recorded as goodwill on the basis of estimated fair values. The allocation is as follows:

(dollar amounts in thousands)
  As of
Acquisition
Dates
 

Current assets

  $ 11,421  

Intangible assets

    950  

Other non-current assets

    9,149  

Current liabilities

    (13,817 )

Long-term liabilities

    (9,458 )
       

Total net identifiable assets acquired

  $ (1,755 )
       

Total consideration transferred, net of cash acquired

  $ 42,614  

Less: total net identifiable assets acquired

    (1,755 )
       

Goodwill

  $ 44,369  
       

        Intangible assets consist of trade names ($0.6 million) and favorable leases ($0.3 million). Long-term liabilities include unfavorable leases ($9.1 million). The trade names are being amortized over their estimated useful life of 3 years. The favorable and unfavorable lease intangible assets and liabilities are being amortized to rent expense over their respective lease terms, ranging from 2 to 16 years. Amortization expense for the favorable and unfavorable leases over the next four years is approximately $0.6 million per year. Deferred tax assets in the amount of $6.8 million are primarily recorded in other non-current liabilities.

        Sales for the fiscal 2011 acquired stores totaled $63.9 million from acquisition date through January 28, 2012. The net loss for the acquired stores for the period from acquisition date through January 28, 2012 was $2.0 million, excluding transition related expenses.

        As the acquisitions (including Big 10) were immaterial to the operating results both individually and in aggregate for the fifty-two week periods ended January 28, 2012 and January 29, 2011, pro forma results for the fifty-two week period ended January 28, 2012 are not presented.

        In 2011, the Company recorded a reduction to the contingent consideration of $0.7 million related to one of the Company's acquisitions. The reversal of contingent consideration was recorded to selling, general and administrative expenses in the consolidated statements of operations.

v2.4.0.6
OTHER CURRENT ASSETS
12 Months Ended
Feb. 02, 2013
OTHER CURRENT ASSETS  
OTHER CURRENT ASSETS

NOTE 3—OTHER CURRENT ASSETS

        The following are the components of other current assets:

(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
 

Reinsurance receivable

  $ 59,160   $ 59,280  

Income taxes receivable

    668     89  

Other

    610     610  
           

Total

  $ 60,438   $ 59,979  
           
v2.4.0.6
ACCRUED EXPENSES
12 Months Ended
Feb. 02, 2013
ACCRUED EXPENSES  
ACCRUED EXPENSES

NOTE 4—ACCRUED EXPENSES

        The following are the components of accrued expenses:

(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
 

Casualty and medical risk insurance

  $ 152,606   $ 147,806  

Accrued compensation and related taxes

    27,641     19,133  

Sales tax payable

    11,556     12,254  

Other

    40,474     42,512  
           

Total

  $ 232,277   $ 221,705  
           
v2.4.0.6
DEBT AND FINANCING ARRANGEMENTS
12 Months Ended
Feb. 02, 2013
DEBT AND FINANCING ARRANGEMENTS  
DEBT AND FINANCING ARRANGEMENTS

NOTE 5—DEBT AND FINANCING ARRANGEMENTS

        The following are the components of debt and financing arrangements:

(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
 

7.50% Senior Subordinated Notes, due December 2014

  $   $ 147,565  

Senior Secured Term Loan, due October 2013

        147,557  

Senior Secured Term Loan, due October 2018

    200,000      

Revolving Credit Agreement, through July 2016

         
           

Long-term debt

    200,000     295,122  

Current maturities

    (2,000 )   (1,079 )
           

Long-term debt less current maturities

  $ 198,000   $ 294,043  
           
  • Senior Secured Term Loan Facility due October 2018

        On October 11, 2012, the Company entered into the Second Amended and Restated Credit Agreement that (i) increased the size of the Company's Senior Secured Term Loan (the "Term Loan") to $200.0 million, (ii) extended the maturity of the Term Loan from October 27, 2013 to October 11, 2018, (iii) reset the interest rate under the Term Loan to the London Interbank Offered Rate (LIBOR), subject to a floor of 1.25%, plus 3.75% and (iv) added an additional 16 of the Company's owned locations to the collateral pool securing the Term Loan. The amended and restated Term Loan was deemed to be substantially different than the prior Term Loan, and therefore the modification of the debt was treated as a debt extinguishment. As of February 2, 2013, 142 stores collateralized the Term Loan. The Company recorded $6.5 million of deferred financing costs related to the Second Amended and Restated Credit Agreement. The amount outstanding under the Term Loan as of February 2, 2013 was $200.0 million.

        Net proceeds from the amended and restated Term Loan together with cash on hand were used to settle the Company's outstanding interest rate swap on the Term Loan as structured prior to its amendment and restatement and to satisfy and discharge all of the Company's outstanding 7.5% Senior Subordinated Notes ("Notes") due 2014. The settlement of the interest rate swap resulted in the reclassification of $7.5 million of accumulated other comprehensive loss to interest expense. The Company recognized, in interest expense, $1.9 million of deferred financing costs related to the Notes and the Term Loan as structured prior to its amendment and restatement. The interest payment and the swap settlement payment are presented within cash flows from operations on the consolidated statement of cash flows.

        On October 11, 2012, the Company entered into two new interest rate swaps for a notional amount of $50.0 million each that together were designated as a cash flow hedge on the first $100.0 million of the Term Loan. The interest rate swaps convert the variable LIBOR portion of the interest payments due on the first $100.0 million of the Term Loan to a fixed rate of 1.855%.

  • Revolving Credit Agreement, Through July 2016

        On January 16, 2009 the Company entered into a Revolving Credit Agreement (the "Agreement") with available borrowings up to $300.0 million and a maturity of January 2014. Total incurred fees of $6.8 million were capitalized and are being amortized over the original five year life of the facility. On July 26, 2011, the Company amended and restated the Agreement to reduce its interest rate by 75 basis points and to extend its maturity to July 2016. The Company's ability to borrow under the Agreement is based on a specific borrowing base consisting of inventory and accounts receivable. The interest rate on this credit line is daily LIBOR plus 2.00% to 2.50% based upon the then current availability under the Agreement. As of February 2, 2013, the Company had no borrowings outstanding under the Agreement and $37.4 million of availability was utilized to support outstanding letters of credit. Taking this into account, the borrowings under the vendor financing program, and the borrowing base requirements, as of February 2, 2013, there was $141.2 million of availability remaining under the Agreement.

  • Other Matters

        The Company's debt agreements require compliance with covenants. The most restrictive of these covenants, an earnings before interest, taxes, depreciation and amortization ("EBITDA") requirement, is triggered if the Company's availability under its Revolving Credit Agreement plus unrestricted cash drops below $50.0 million. As of February 2, 2013, the Company was in compliance with all financial covenants contained in its debt agreements.

        The weighted average interest rate on all debt borrowings during fiscal 2012 and 2011 was 4.5% and 6.3%, respectively.

  • Other Contractual Obligations

        The Company has a vendor financing program with availability up to $175.0 million which is funded by various bank participants who have the ability, but not the obligation, to purchase account receivables owed by the Company directly from vendors. The Company, in turn, makes the regularly scheduled full vendor payments to the bank participants. There was an outstanding balance of $149.7 million and $85.2 million under the program as of February 2, 2013 and January 28, 2012, respectively.

        The Company has letter of credit arrangements in connection with its risk management, import merchandising and vendor financing programs. The Company had $5.2 million outstanding commercial letters of credit as of February 2, 2013. There were no outstanding commercial letters of credit as of January 28, 2012. The Company was contingently liable for $32.2 million and $31.7 million in outstanding standby letters of credit as of February 2, 2013 and January 28, 2012, respectively.

        The Company is also contingently liable for surety bonds in the amount of approximately $11.5 million and $8.3 million as of February 2, 2013 and January 28, 2012, respectively. The surety bonds guarantee certain payments (for example utilities, easement repairs, licensing requirements and customs fees).

        The annual maturities under the Senior Secured Term Loan, due October 2018, for the next five fiscal years are:

 
  Long-Term
Debt
 
(dollar amounts in thousands)
 
Fiscal Year
 

2013

  $ 2,000  

2014

    2,000  

2015

    2,000  

2016

    2,000  

2017

    2,000  

Thereafter

    190,000  
       

Total

  $ 200,000  
       

        Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt obligations and are considered a level 2 measure under the fair value hierarchy. The estimated fair value of long-term debt including current maturities was $203.5 million and $293.6 million as of February 2, 2013 and January 28, 2012, respectively

v2.4.0.6
LEASE AND OTHER COMMITMENTS
12 Months Ended
Feb. 02, 2013
LEASE AND OTHER COMMITMENTS  
LEASE AND OTHER COMMITMENTS

NOTE 6—LEASE AND OTHER COMMITMENTS

        In fiscal 2010, the Company sold one property to an unrelated third party. Net proceeds from this sale were $1.6 million. Concurrent with this sale, the Company entered into an agreement to lease the property back from the purchaser over a minimum lease term of 15 years. The Company classified this lease as an operating lease. The Company actively uses this property and considers the lease as a normal leaseback. The Company recorded a deferred gain of $0.4 million.

        In connection with the three acquisitions that occurred during fiscal 2011, the Company assumed additional lease obligations totaling $120.2 million over an average of 14 years.

        The aggregate minimum rental payments for all leases having initial terms of more than one year are as follows:

 
  Operating
Leases
 
(dollar amounts in thousands)
 
Fiscal Year
 

2013

    102,609  

2014

    98,205  

2015

    91,092  

2016

    83,707  

2017

    76,034  

Thereafter

    340,076  
       

Aggregate minimum lease payments

  $ 791,723  
       

        Rental expenses incurred for operating leases in fiscal 2012, 2011, and 2010 were $97.9 million, $91.6 million and $79.7 million, respectively, and are recorded primarily in cost of revenues. The deferred gain for all sale leaseback transactions is being recognized in costs of merchandise sales and costs of service revenues over the minimum term of these leases.

v2.4.0.6
ASSET RETIREMENT OBLIGATIONS
12 Months Ended
Feb. 02, 2013
ASSET RETIREMENT OBLIGATIONS  
ASSET RETIREMENT OBLIGATIONS

NOTE 7—ASSET RETIREMENT OBLIGATIONS

        The Company records asset retirement obligations as incurred and when reasonably estimable, including obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. The obligation principally represents the removal of leasehold improvements from stores upon termination of store leases. The obligations are recorded as liabilities at fair value using discounted cash flows and are accreted over the lease term. Costs associated with the obligations are capitalized and amortized over the estimated remaining useful life of the asset.

        The Company has recorded a liability pertaining to the asset retirement obligation in other long-term liabilities on its consolidated balance sheet. Changes in assumptions reflect favorable experience with the rate of occurrence of obligations and expected settlement dates. The liability for asset retirement obligations activity from January 29, 2011 through February 2, 2013 is as follows:

(dollar amounts in thousands)
   
 

Asset retirement obligation at January 29, 2011

  $ 5,606  

Additions

    206  

Change in assumptions

    (199 )

Settlements

    (61 )

Accretion expense

    323  
       

Asset retirement obligation at January 28, 2012

    5,875  

Additions

    89  

Change in assumptions

    (288 )

Settlements

    (11 )

Accretion expense

    298  
       

Asset retirement obligation at February 2, 2013

  $ 5,963  
       
v2.4.0.6
INCOME TAXES
12 Months Ended
Feb. 02, 2013
INCOME TAXES  
INCOME TAXES

NOTE 8—INCOME TAXES

        The components of income from continuing operations before income taxes are as follows:

 
  Year Ended  
(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

Domestic

  $ 14,577   $ 36,633   $ 52,319  

Foreign

    7,923     4,954     6,125  

Total

  $ 22,500   $ 41,588   $ 58,444  

        The provision for income taxes includes the following:

 
  Year Ended  
(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

Current:

                   

Federal

  $ (338 ) $   $  

State

    471     602     491  

Foreign

    1,636     1,557     2,210  

Deferred:

                   

Federal(a)

    6,548     14,743     20,309  

State

    988     (3,887 )   (1,818 )

Foreign

    40     (555 )   81  
               

Total income tax expense from continuing operations(a)

  $ 9,345   $ 12,460   $ 21,273  
               

(a)
Excludes tax benefit recorded to discontinued operations of $0.2 million, $0.1 million and $0.3 million in fiscal years 2012, 2011 and 2010, respectively.

        A reconciliation of the statutory federal income tax rate to the effective rate for income tax expense follows:

 
  Year Ended  
 
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

Statutory tax rate

    35.0 %   35.0 %   35.0 %

State income taxes, net of federal tax

    4.1     3.2     2.4  

Job credits

    (4.9 )   (1.5 )   (0.3 )

Hire credits

        (2.1 )    

Tax uncertainty adjustment

    (1.5 )   (0.1 )   0.2  

Valuation allowance

        (8.3 )   (3.5 )

Non deductible expenses

    2.2     2.0     0.5  

Stock compensation

    1.8     0.1     0.2  

Foreign taxes, net of federal tax

    5.6     1.7     2.4  

Other, net

    (0.8 )       (0.5 )
               

 

    41.5 %   30.0 %   36.4 %
               

        Items that gave rise to the deferred tax accounts are as follows:

(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
 

Deferred tax assets:

             

Employee compensation

  $ 5,274   $ 5,008  

Store closing reserves

    719     1,365  

Legal reserve

    122     341  

Benefit accruals

    1,247     5,922  

Net operating loss carryforwards—Federal

    1,887     16,473  

Net operating loss carryforwards—State

    111,785     111,588  

Tax credit carryforwards

    16,291     17,877  

Accrued leases

    16,032     15,916  

Interest rate derivatives

    708     5,730  

Deferred gain on sale leaseback

    51,124     56,325  

Deferred revenue

    5,194     5,621  

Other

    1,874     1,951  
           

Gross deferred tax assets

    212,257     244,117  

Valuation allowance

    (102,341 )   (103,915 )
           

 

    109,916     140,202  

Deferred tax liabilities:

             

Depreciation

  $ 42,400   $ 54,284  

Inventories

    65,203     65,886  

Real estate tax

    3,214     3,307  

Insurance and other

    6,261     6,159  

Debt related liabilities

    3,588     3,903  
           

 

    120,666     133,539  
           

Net deferred tax (liability) asset

  $ (10,750 ) $ 6,663  
           

        At February 2, 2013, the Company had available tax net operating losses that can be carried forward to future years. The Company has $1.9 million of deferred tax assets related to federal net operating loss carryforwards, which begin to expire in 2027. The Company has $2.3 million of deferred tax assets related to state tax net operating loss carryforwards in unitary filing jurisdictions, of which 2.9% will expire in the next five years and a full valuation allowance has been recorded against. The balance of $109.5 million of the Company's net operating loss carryforwards are for separate company state filing jurisdictions that will expire in various years beginning in 2013. $108.1 million of separate company state net operating losses are in the jurisdictions, where the Company has recorded a full valuation allowance against its net deferred tax assets.

        The tax credit carryforward at February 2, 2013 consists of $6.8 million of alternative minimum tax credits, $4.2 million of work opportunity credits, $0.9 million of hire tax credits and $4.4 million of various state credits. The alternative minimum tax credits have an indefinite life and the other credits are scheduled to expire in various years starting from 2013. The tax credit carryforward at January 28, 2012 consists of $7.3 million of alternative minimum tax credits, $4.0 million of work opportunity credits, $0.9 million of hire tax credits and $5.7 million of state and Puerto Rico tax credits. The alternative minimum credits have an indefinite life and the other credits are scheduled to expire in various years starting from 2012 of which $0.9 million have full valuation allowances recorded against them.

        The temporary differences between the book and tax treatment of income and expenses result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. The Company must assess the likelihood that any recorded deferred tax assets will be recovered against future taxable income. To the extent the Company believes it is more likely than not that the asset will not be recoverable, a valuation allowance must be established. To the extent the Company establishes a valuation allowance or changes the allowance in a future period, income tax expense will be impacted. There was no significant change in the Company's valuation allowance position in fiscal year 2012. In fiscal year 2011, the Company released $5.3 million of gross valuation allowances ($3.6 million net of federal benefit) on certain state net operating loss carryforwards and state credits.

        The Company and its subsidiaries' largest jurisdictions where they are subject to income tax are U.S. federal, Puerto Rico and various states jurisdictions, in respective order of significance. The Company's U.S. federal returns for tax years 2009 and forward are subject to examination. State and local income tax returns are generally subject to examination for a period of three to five years after filing of the respective returns. The Company is currently under federal examination for fiscal year 2010 and has various state income tax returns in the process of examination.

        A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

Unrecognized tax benefit balance at the beginning of the year

  $ 3,364   $ 4,131   $ 2,411  

Gross increases for tax positions taken in prior years

            1,331  

Gross decreases for tax positions taken in prior years

    (338 )        

Gross increases for tax positions taken in current year

    201     235     389  

Settlements taken in current year

             

Lapse of statute of limitations

    (953 )   (1,002 )    
               

Unrecognized tax benefit balance at the end of the year

  $ 2,274   $ 3,364   $ 4,131  
               

        The Company recognizes potential interest and penalties for unrecognized tax benefits in income tax expense and, accordingly, the Company recognized $0.1 million in fiscal years 2012 and 2011 related to potential interest and penalties associated with uncertain tax positions. At February 2, 2013, January 28, 2012, and January 29, 2011, the Company has recorded $0.5 million, $0.3 million, and $0.2 million, respectively, for the payment of interest and penalties which are excluded from the unrecognized tax benefit noted above.

        Unrecognized tax benefits include $0.9 million, $1.3 million, and $1.4 million, at February 2, 2013, January 28, 2012 and January 29, 2011, respectively, of tax benefits that, if recognized, would affect the Company's annual effective tax rate. The Company believes it is reasonably possible that the amount will increase or decrease within the next twelve months; however, it is not currently possible to estimate the impact of the change.

v2.4.0.6
STOCKHOLDERS' EQUITY
12 Months Ended
Feb. 02, 2013
STOCKHOLDERS' EQUITY  
STOCKHOLDERS' EQUITY

NOTE 9—STOCKHOLDERS' EQUITY

        On December 12, 2012, the Company's Board of Directors authorized a program to repurchase up to $50.0 million of the Company's common stock to be made from time to time in the open market or in privately negotiated transactions, with no expiration date. During the fourth quarter of fiscal 2012, the Company repurchased 35,000 shares of Common Stock for $342,000. All of these repurchased shares were placed into the Company's treasury.

v2.4.0.6
ACCUMULATED OTHER COMPREHENSIVE LOSS
12 Months Ended
Feb. 02, 2013
ACCUMULATED OTHER COMPREHENSIVE LOSS  
ACCUMULATED OTHER COMPREHENSIVE LOSS

NOTE 10—ACCUMULATED OTHER COMPREHENSIVE LOSS

        The components of accumulated other comprehensive loss are:

 
  Year Ended  
(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

Defined benefit plan adjustment, net of tax

  $   $ (9,696 ) $ (6,576 )

Derivative financial instrument adjustment, net of tax

    (980 )   (7,953 )   (10,452 )
               

Accumulated other comprehensive loss

  $ (980 ) $ (17,649 ) $ (17,028 )
               
v2.4.0.6
STORE CLOSURES AND ASSET IMPAIRMENTS
12 Months Ended
Feb. 02, 2013
STORE CLOSURES AND ASSET IMPAIRMENTS  
STORE CLOSURES AND ASSET IMPAIRMENTS

NOTE 11—STORE CLOSURES AND ASSET IMPAIRMENTS

        During fiscal 2012, the Company recorded a $10.6 million impairment charge related to 49 stores classified as held and used. Of the $10.6 million impairment charge, $5.1 million was charged to merchandise cost of sales, and $5.5 million was charged to service cost of sales. In fiscal 2011, the Company recorded a $1.6 million impairment charge related to 12 stores classified as held and used. Of the $1.6 million impairment charge, $0.6 million was charged to merchandise cost of sales, and $1.0 million was charged to service cost of sales. In both years the Company used a probability-weighted approach and estimates of expected future cash flows to determine the fair value of these stores. Discount and growth rate assumptions were derived from current economic conditions, management's expectations and projected trends of current operating results. The fair market value estimates are classified as a Level 2 or Level 3 measure within the fair value hierarchy. The remaining fair value of impaired assets was $2.3 million and $1.4 million at February 2, 2013 and January 28, 2012, respectively.

        The following schedule details activity in the reserve for closed locations for the three years in the period ended February 2, 2013. The reserve balance includes remaining rent on leases net of sublease income.

(dollar amounts in thousands)
   
 

Balance, January 30, 2010

  $ 2,250  

Accretion of present value of liabilities

    81  

Change in assumptions about future sublease income, lease termination

    163  

Cash payments

    (1,253 )
       

Balance, January 29, 2011

    1,241  

Accretion of present value of liabilities

    53  

Provision for closed locations

    310  

Change in assumptions about future sublease income, lease termination

    674  

Cash payments

    (477 )
       

Balance, January 28, 2012

    1,801  

Accretion of present value of liabilities

    137  

Change in assumptions about future sublease income, lease termination

    367  

Cash payments

    (664 )
       

Balance, February 2, 2013

  $ 1,641  
       

        A store is classified as "held for disposal" when (i) the Company has committed to a plan to sell, (ii) the building is vacant and the property is available for sale, (iii) the Company is actively marketing the property for sale, (iv) the sale price is reasonable in relation to its current fair value and (v) the Company expects to complete the sale within one year. Assets held for disposal have been valued at the lower of their carrying amount or their estimated fair value, net of disposal costs. The fair value of these assets is estimated using readily available market data for comparable properties and is classified as a Level 2 (as described in Note 16, "Fair Value Measurements") measure within the fair value hierarchy. No depreciation expense is recognized during the period the asset is held for disposal. During fiscal 2012 and fiscal 2011, the Company had no stores classified as an asset held for sale.

        During fiscal 2010, the Company sold seven stores classified as held for disposal for $4.3 million and recorded a net gain of $0.5 million in earnings from continuing operations. In addition, during fiscal 2010, the Company recorded a $0.2 million impairment charge related to a store classified as held for disposal. The Company lowered its selling price reflecting declines in the commercial real estate market. Substantially all of this impairment was charged to merchandise cost of sales.

v2.4.0.6
EARNINGS PER SHARE
12 Months Ended
Feb. 02, 2013
EARNINGS PER SHARE  
EARNINGS PER SHARE

NOTE 12—EARNINGS PER SHARE

        Basic earnings per share is based on net earnings divided by the weighted average number of shares outstanding during the period. The following schedule presents the calculation of basic and diluted earnings per share for earnings from continuing operations:

 
   
  Year Ended  
 
  (dollar amounts in thousands, except per share amounts)
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

(a)

 

Earnings from continuing operations before discontinued operations

  $ 13,155   $ 29,128   $ 37,171  

 

 

Loss from discontinued operations, net of tax benefit of $(186), $(121) and $(291)

    (345 )   (225 )   (540 )
                   

 

 

Net earnings

  $ 12,810   $ 28,903   $ 36,631  
                   

(b)

 

Basic average number of common shares outstanding during period

    53,225     52,958     52,677  

 

 

Common shares assumed issued upon exercise of dilutive stock options, net of assumed repurchase, at the average market price

    729     673     485  
                   

(c)

 

Diluted average number of common shares assumed outstanding during period

    53,954     53,631     53,162  
                   

 

 

Basic earnings per share:

                   

 

 

Earnings from continuing operations (a/b)

  $ 0.25   $ 0.55   $ 0.71  

 

 

Discontinued operations, net of tax

    (0.01 )   (0.01 )   (0.01 )
                   

 

 

Basic earnings per share

  $ 0.24   $ 0.54   $ 0.70  
                   

 

 

Diluted earnings per share:

                   

 

 

Earnings from continuing operations (a/c)

  $ 0.24   $ 0.54   $ 0.70  

 

 

Discontinued operations, net of tax

            (0.01 )
                   

 

 

Diluted earnings per share

  $ 0.24   $ 0.54   $ 0.69  
                   

        Certain stock options were excluded from the calculations of diluted earnings per share because their exercise prices were greater than the average market price of the common shares for the period then ended and therefore would be anti-dilutive. The total number of such shares excluded from the diluted earnings per share calculation was 859,000, 870,000 and 978,000 as of February 2, 2013, January 28, 2012, and January 29, 2011, respectively.

v2.4.0.6
BENEFIT PLANS
12 Months Ended
Feb. 02, 2013
BENEFIT PLANS  
BENEFIT PLANS

NOTE 13—BENEFIT PLANS

DEFINED BENEFIT AND CONTRIBUTION PLANS

        The Company maintains a non-qualified defined contribution plan (the "Account Plan") for key employees designated by the Board of Directors. The Company's contribution expense for the Account Plan was $0.1 million, $0.3 million and $1.2 million for fiscal 2012, 2011 and 2010, respectively.

        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 under both savings plans. For fiscal 2012, 2011 and 2010, the Company's contributions were conditional upon the achievement of certain pre-established financial performance goals which were met in fiscal 2010, but not in fiscal 2012 or 2011. The Company's savings plans' contribution expense was $3.0 million in fiscal 2010.

        The Company also maintained a defined benefit pension plan (the "Plan") covering 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. During the third quarter of fiscal 2011, the Company began the process of terminating the Plan. During the fourth quarter of fiscal 2012, in accordance with Internal Revenue Service and Pension Benefit Guaranty Corporation requirements, the Company contributed $14.1 million to fully fund the Plan on a termination basis and recorded a $17.8 million settlement charge. The participants' benefits were converted into a lump sum cash payment or an annuity contract placed with an insurance carrier. The Company used a fiscal year end measurement date for determining the benefit obligation and the fair value of Plan assets. The actuarial computations were made using the "projected unit credit method." Variances between actual experience and assumptions for costs and returns on assets were amortized over the remaining service lives of employees under the Plan.

        Pension expense is as follows:

 
  Year Ended  
(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

Service cost

  $   $   $  

Interest cost

    2,170     2,558     2,561  

Expected return on plan assets

    (2,658 )   (2,745 )   (2,151 )

Amortization of prior service cost

    13     14     14  

Recognized actuarial loss

    1,896     1,499     1,672  
               

Net Period Pension Cost

    1,421     1,326     2,096  

Settlement Charge

    17,753          
               

Net Period Pension Cost

  $ 19,174   $ 1,326   $ 2,096  
               

        The following actuarial assumptions were used to determine benefit obligation and pension expense:

 
  Year Ended  
 
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

Benefit obligation assumptions:

                   

Discount rate

    N/A     4.60 %   5.70 %

Rate of compensation increase

    N/A     N/A     N/A  

Pension expense assumptions:

                   

Discount rate

    4.60 %   5.70 %   6.10 %

Expected return on plan assets

    6.80 %   6.80 %   6.95 %

Rate of compensation expense

    N/A     N/A     N/A  

        The Company selected the discount rate for the benefit obligation at January 28, 2012 to reflect a rate commensurate with a model bond portfolio with durations that match the expected payment patterns of the plans. To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of a long-term rate of return on assets of 6.80% for fiscal 2012 and fiscal 2011, and 6.95% for fiscal 2010.

        The following table sets forth the reconciliation of the benefit obligation, fair value of plan assets and funded status of the Company's defined benefit plans:

 
  Year ended  
(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
 

Change in benefit obligation:

             

Benefit obligation at beginning of year

  $ 53,974   $ 46,118  

Interest cost

    2,170     2,558  

Actuarial loss

    3,621     6,952  

Settlements paid

    (58,134 )    

Benefits paid

    (1,631 )   (1,654 )
           

Benefit obligation at end of year

  $   $ 53,974  
           

Change in plan assets:

             

Fair value of plan assets at beginning of year

  $ 43,602   $ 39,063  

Actual return on plan assets (net of expenses)

    2,050     3,193  

Employer contributions

    14,113     3,000  

Settlements paid

    (58,134 )    

Benefits paid

    (1,631 )   (1,654 )
           

Fair value of plan assets at end of year

  $   $ 43,602  
           

Unfunded status at fiscal year end

  $   $ (10,372 )
           

Net amounts recognized on consolidated balance sheet at fiscal year end

             

Noncurrent benefit liability (included in other long-term liabilities)

  $   $ (10,372 )
           

Net amount recognized at fiscal year end

  $   $ (10,372 )
           

Amounts recognized in accumulated other comprehensive income (pre-tax) at fiscal year end

             

Actuarial loss

  $   $ 15,407  

Prior service cost

        26  
           

Net amount recognized at fiscal year end

  $   $ 15,433  
           

Other comprehensive (income) loss attributable to change in pension liability recognition

  $ (15,433 ) $ 4,991  

Accumulated benefit obligation at fiscal year end

  $   $ 53,974  

Other information

             

Employer contributions expected in fiscal 2013

  $   $  

Estimated actuarial loss and prior service cost amortization in fiscal 2013

  $   $ 2,300  
  • Plan Assets and Investment Policy

        Investment policies were established in accordance with the Company's Benefits Committee (the "Committee") responsibilities to the participants of the Plan and its beneficiaries, and in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The objective of the Plan was to meet current and future benefit payment needs within the constraints of diversification and prudent risk taking. The Plan was diversified across asset classes to achieve an optimal balance between risk and return and between income and growth of assets through capital appreciation. Investment objectives for each asset class were determined based on specific risks and investment opportunities identified. The Company believes that the diversification of its assets minimizes the risk due to concentration of the Plan assets.

        The Company updated its long-term, strategic asset allocations annually using various analytics to determine the optimal asset mix and consideration of plan liability characteristics, liquidity characteristics, funding requirements, expected rates of return and the distribution of returns. Actual allocations to each asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions (such as private equity and real estate), and the timing of benefit payments and contributions. Short term investments and exchange-traded derivatives were used to rebalance the actual asset allocation to the target asset allocation. The asset allocation was monitored and rebalanced on a monthly basis.

        The manager of the investments provided advice and recommendations to help the Committee discharge its fiduciary responsibilities in furtherance of the Plan's goals and objectives. The manager had the discretion to allocate assets among funds within each asset class to conform to strategic targets and ranges established by the Committee. The target asset allocation was 50% equity securities and 50% fixed income. The investment policy requires that the asset allocation be maintained within certain ranges. The weighted average asset allocations and asset allocation ranges by asset category were as follows:


Weighted Average Asset Allocations

 
  January 28,
2012
  Asset Allocation
Ranges
 

Total equities

    50 %   45 - 55 %

Domestic equities

    32 %   28 - 38 %

Non-US equities

    18 %   12 - 22 %

Fixed income

    50 %   45 - 55 %

        The tables below provide the fair values of the Company's pension plan assets at January 28, 2012, by asset category. The tables also identify the level of inputs used to determine the fair value of assets in each category (see Note 16, "Fair Value Measurements" for definition of levels). The significant amount of Level 2 investments in the table relates to investments in pooled funds that contain investments with values based on quoted market prices, but for which the funds are not valued on a quoted market basis, and fixed income securities that are valued using model based pricing services.

 
  Fair Value at
January 28,
2012
   
   
   
 
(dollar amounts in thousands)
  Level 1   Level 2   Level 3  
Asset Category
 

Domestic equities

                         

US Small/Mid Cap Growth

  $ 1,372   $   $ 1,372   $  

US Small/Mid Cap Value

    1,335         1,335      

US Large Cap Passive

    11,006         11,006      

Non-U.S. equities

                         

Non-US Core Equity

    7,962         7,962      

Fixed income

                         

Long Duration

    15,598         15,598      

Long Duration Passive

    4,995         4,995      

Guaranteed annuity contracts

    1,334             1,334  
                   

Total

  $ 43,602   $   $ 42,268   $ 1,334  
                   

        Generally, investments are valued based on information in financial publications of general circulation, statistical and valuation services, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers. Money market funds are valued using a market approach based on the quoted market prices of identical instruments. These investments are classified within Level 1 of the fair value hierarchy.

        Domestic equities, non-US equities, and both long duration fixed income securities consist of collective trust ("CT") funds. CT funds are comprised of shares or units in commingled funds that are not publicly traded. The underlying assets in these funds (equity securities and fixed income securities) are publicly traded on exchanges and price quotes for the assets held by these funds are readily available. CT funds are valued at their net asset values that are calculated by the investment manager of the fund and have daily or monthly liquidity. These investments are classified within Level 2 of the fair value hierarchy.

        Guaranteed annuity contracts ("GACs") are annuity insurance contracts. GACs are primarily invested in public bonds with some small placement in common stock, private placement bonds and commercial mortgage products. The GACs are valued based on unobservable inputs, as observable inputs are not available, using valuation methodologies to determine fair value. GACs are deemed to be Level 3 investments.

        The following table provides a summary of changes in fair value of Level 3 financial assets during fiscal 2012:

(dollar amounts in thousands)
  Fair
Value
 

Balance, January 28, 2012

  $ 1,334  

Transfers from other investments

     

Interest income and gains

    116  

Administrative fees

    (72 )

Benefits paid during the period

    (1,378 )
       

Balance, February 2, 2013

  $  
       

DEFERRED COMPENSATION PLAN

        The Company maintains a non-qualified deferred compensation plan that allows its officers and certain other employees to defer up to 20% of their annual salary and 100% of their annual bonus. Additionally, the first 20% of an officer's bonus deferred into the Company's stock is matched by the Company on a one-for-one basis with Company stock that vests and is expensed over three years. The shares required to satisfy distributions of voluntary bonus deferrals and the accompanying match in the Company's stock are issued from its treasury account.

RABBI TRUST

        The Company establishes and maintains a deferred liability for the non-qualified deferred compensation plan and the Account Plan. The Company plans to fund this liability by remitting the officers' deferrals to a Rabbi Trust where these deferrals are invested in variable life insurance policies. These assets are included in non-current other assets and are considered to be a Level 2 measure within the fair value hierarchy. Accordingly, all gains and losses on these underlying investments, which are held in the Rabbi Trust to fund the deferred liability, are recognized in the Company's Consolidated Statement of Operations. Under these plans, there were liabilities of $6.7 million at February 2, 2013 and $6.9 million at January 28, 2012, respectively, which are recorded primarily in other long-term liabilities.

v2.4.0.6
EQUITY COMPENSATION PLANS
12 Months Ended
Feb. 02, 2013
EQUITY COMPENSATION PLANS  
EQUITY COMPENSATION PLANS

NOTE 14—EQUITY COMPENSATION PLANS

        The Company has a stock-based compensation plan originally approved by the stockholders on May 21, 1990 under which it has previously granted non-qualified stock options and incentive stock options to key employees and members of its Board of Directors. There are no awards remaining available for grant under the 1990 Plan. The Company has a stock-based compensation plan originally approved by the stockholders on June 2, 1999 under which it has previously granted and may continue to grant non-qualified stock options, incentive stock options and restricted stock units ("RSUs") to key employees and members of its Board of Directors. On June 24, 2009, the stockholders renamed the 1999 Plan to the 2009 Plan, extended its terms to December 31, 2014 and increased the number of shares issuable thereunder by 1,500,000. As of February 2, 2013, there were 2,751,725 awards outstanding and 984,840 awards available for grant under the 2009 Plan.

        Incentive stock options and non-qualified stock options granted under the 1990 and 2009 plans to non-officers vest fully on the third anniversary of their grant date and officers vest in equal tranches over three or four year periods. Generally, all options granted prior to March 3, 2004 carry an expiration date of ten years and options granted on or after March 3, 2004 carry an expiration date of seven years. RSUs previously granted to non-officers vest fully on the third anniversary of their grant date. RSUs previously granted to officers vest in equal tranches over three or four year periods.

        The Company has also granted RSUs under the 2009 plan in conjunction with its non-qualified deferred compensation plan. Under the deferred compensation plan, the first 20% of an officer's bonus deferred into the Company's stock fund is matched by the Company on a one-for-one basis with RSUs that vest over a three-year period, with one third vesting on each of the first three anniversaries of the grant date.

        The exercise price, term and other conditions applicable to future stock option and RSU grants under the 2009 plan are generally determined by the Board of Directors; provided that the exercise price of stock options must be at least 100% of the quoted market price of the common stock on the grant date. The Company currently satisfies all share requirements resulting from RSU conversions and option exercises from its treasury stock. The Company believes its treasury share balance at February 2, 2013 is adequate to satisfy such activity during the next twelve-month period.

        The following table summarizes the options under the plans:

 
  Fiscal Year 2012  
 
  Shares   Weighted
Average
Exercise
Price
 

Outstanding—beginning of year

    2,008,430   $ 8.97  

Granted

    287,574     9.97  

Exercised

    (274,769 )   7.00  

Forfeited

    (55,283 )   11.32  

Expired

    (287,359 )   15.89  
             

Outstanding—end of year

    1,678,593     8.20  
             

Vested and expected to vest options—end of year

    1,630,311     8.15  
             

Options exercisable—end of year

    1,153,837     7.07  
             

        The following table summarizes information about options during the last three fiscal years (dollars in thousands except per option):

 
  Fiscal
2012
  Fiscal
2011
  Fiscal
2010
 

Weighted average fair value at grant date per option

  $ 4.65   $ 5.38   $ 4.28  

Intrinsic value of options exercised

  $ 874   $ 202   $ 609  

        The aggregate intrinsic value of outstanding options, exercisable options and expected to vest options at February 2, 2013 was $5.5 million, $5.2 million and $0.3 million, respectively. At February 2, 2013, the weighted average remaining contractual term of outstanding options, exercisable options and expected to vest options was 4.6 years, 3.3 years and 7.4 years, respectively. At February 2, 2013, there was approximately $1.7 million of total unrecognized pre-tax compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of 1.5 years.

        The following table summarizes information about non-vested RSUs since January 28, 2012:

 
  Number of
RSUs
  Weighted Average
Fair Value
 

Nonvested at January 28, 2012

    626,747   $ 9.93  

Granted

    319,081     9.48  

Forfeited

    (78,737 )   9.89  

Vested

    (70,491 )   10.90  
             

Nonvested at February 2, 2013

    796,600     9.67  
             

        The following table summarizes information about RSUs during the last three fiscal years:

(dollar amounts in thousands)
  Fiscal
2012
  Fiscal
2011
  Fiscal
2010
 

Weighted average fair value at grant date per unit

  $ 9.48   $ 10.45   $ 9.32  

Fair value at vesting date

  $ 768   $ 1,498   $ 1,861  

Intrinsic value at conversion date

  $ 218   $ 896   $ 809  

Tax benefits realized from conversions

  $ 82   $ 336   $ 301  

        At February 2, 2013, there was approximately $2.0 million of total unrecognized pre-tax compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted-average period of 1.3 years.

        The Company recognized approximately $1.1 million, $1.3 million, and $1.4 million of compensation expense related to stock options, and approximately $0.2 million, $1.9 million, and $2.1 million of compensation expense related to restricted stock units, included in selling, general and administrative expenses for fiscal 2012, 2011, and 2010, respectively. The related tax benefit recognized was approximately $0.4 million, $1.2 million and $1.3 million for fiscal 2012, 2011 and 2010, respectively.

        Expected volatility is based on historical volatilities for a time period similar to that of the expected term and the expected term of the options is based on actual experience. The risk-free rate is based on the U.S. treasury yield curve for issues with a remaining term equal to the expected term. The fair value of each option granted during fiscal 2012, 2011 and 2010 is estimated on the date of grant using the Black-Scholes option-pricing model and, in certain situations where the grant includes both a market and a service condition, the Monte Carlo simulation model is used. The following are the weighted-average assumptions:

 
  Year ended  
 
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

Dividend yield

    0 %   1.0 %   1.35 %

Expected volatility

    58 %   58 %   56 %

Risk-free interest rate range:

                   

High

    0.6 %   1.9 %   2.0 %

Low

    0.5 %   1.6 %   0.9 %

Ranges of expected lives in years

    4 - 5     4 - 5     4 - 5  

        The Company granted approximately 106,000 and 95,000 RSUs in fiscal 2012 and 2011, respectively that will vest if the employees remain continuously employed through the third anniversary date of the grant and the Company achieves a return on invested capital target for fiscal year 2014 and 2013, respectively. The number of underlying shares that may be issued upon vesting will range from 0% to 150%, depending upon the Company achieving the financial targets in fiscal year 2014 and 2013, respectively. At the date of the grants, the fair values were $9.98 per unit and $12.48 per unit for the 2012 and 2011 awards, respectively. The Company also granted approximately 53,000 and 48,000 RSUs for fiscal 2012 and 2011, respectively, that will vest if the employees remain continuously employed through the third anniversary date of the grant and will become exercisable if the Company satisfies a total shareholder return target in fiscal 2014 and 2013, respectively. The number of underlying shares that may become exercisable will range from 0% to 175% depending upon whether the market condition is achieved. The Company used a Monte Carlo simulation to estimate a $7.96 per unit and $14.73 per unit grant date fair value for the 2012 and 2011 RSUs, respectively. The non-vested restricted stock award table reflects the maximum vesting of underlying shares for performance and market based awards granted in both 2012 and 2011.

        The company did not grant any restricted stock units for officers' deferred bonus matches under the Company's non-qualified deferred compensation plan during fiscal 2012. During fiscal 2011, the Company granted approximately 50,000 restricted stock units related to officers' deferred bonus matches under the Company's non-qualified deferred compensation plan which vest over a three year period. The fair value of these awards was $13.68 per unit. During fiscal 2012, the Company granted approximately 33,000 restricted stock units to its non-employee directors of the board, which vest over a one year period with a quarter vesting on each of the first four quarters following their grant date. The fair value was $9.98 per unit. During fiscal 2011, the Company granted approximately 42,000 restricted stock units to its non-employee directors of the board that vested immediately. The fair value for these awards was $10.67 per unit.

        The Company reflects in its consolidated statement of cash flows any tax benefits realized upon the exercise of stock options or issuance of RSUs in excess of that which is associated with the expense recognized for financial reporting purposes. The amounts reflected as financing cash inflows and operating cash outflows in the Consolidated Statement of Cash Flows for fiscal 2012, 2011 and 2010 are immaterial.

        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 years 2012 and 2011 was immaterial. As of February 2, 2013, there were 1,916,178 shares available for issuing under this plan.

v2.4.0.6
INTEREST RATE SWAP AGREEMENT
12 Months Ended
Feb. 02, 2013
INTEREST RATE SWAP AGREEMENT  
INTEREST RATE SWAP AGREEMENT

NOTE 15—INTEREST RATE SWAP AGREEMENT

        On October 11, 2012, the Company settled its interest rate swap designated as a cash flow hedge on $145.0 million of the Company's Term Loan prior to its amendment and restatement. The swap was used to minimize interest rate exposure and overall interest costs by converting the variable component of the total interest rate to a fixed rate of 5.036%. Since February 1, 2008, this swap was deemed to be fully effective and all adjustments in the interest rate swap's fair value were recorded to accumulated other comprehensive loss. The settlement of this swap resulted in an interest charge of $7.5 million, which was previously recorded within accumulated other comprehensive loss. As of January 28, 2012, the fair value of this swap was a net $12.5 million payable, recorded within other long-term liabilities on the balance sheet.

        On October 11, 2012, the Company entered into two new interest rate swaps for a notional amount of $50.0 million each that together are designated as a cash flow hedge on the first $100.0 million of the amended and restated Term Loan. The interest rate swaps convert the variable LIBOR portion of the interest payments due on the first $100.0 million of the Term Loan to a fixed rate of 1.855%. As of February 2, 2013, the fair value of the new swap was a net $1.6 million payable, recorded within other long-term liabilities on the balance sheet.

v2.4.0.6
FAIR VALUE MEASUREMENTS
12 Months Ended
Feb. 02, 2013
FAIR VALUE MEASUREMENTS  
FAIR VALUE MEASUREMENTS

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 value. As a result, the Company has determined that its cash equivalents in their entirety are classified as a Level 1 measure within the fair value hierarchy.

  • Collateral investments:

        Collateral investments include monies on deposit that are restricted. The Company carries these investments at fair value. As a result, the Company has determined that its collateral investments are classified as a Level 1 measure within the fair value hierarchy.

  • Deferred compensation assets:

        Deferred compensation assets include variable life insurance policies held in a Rabbi Trust. The Company values these policies using observable market data. The inputs used to value the variable life insurance policy fall within Level 2 of the fair value hierarchy.

  • Derivative liability:

        The Company has two interest rate swaps designated as cash flow hedges on $100.0 million of the Company's Senior Secured Term Loan facility that expires in October 2018. The Company values this swap using observable market data to discount projected cash flows and for credit risk adjustments. The inputs used to value derivatives fall within Level 2 of the fair value hierarchy.

        The following table provides information by level for assets and liabilities that are measured at fair value, on a recurring basis.

 
   
  Fair Value Measurements
Using Inputs Considered as
 
 
  Fair Value at
February 2,
2013
 
(dollar amounts in thousands)
Description
  Level 1   Level 2   Level 3  

Assets:

                         

Cash and cash equivalents

  $ 59,186   $ 59,186   $   $  

Collateral investments(a)

    20,929     20,929          

Deferred compensation assets(a)

    3,834         3,834      

Liabilities:

                         

Other liabilities

                         

Derivative liability(b)

    1,567         1,567      

(a)
included in other long-term assets
(b)
included in other long-term liabilities

 
   
  Fair Value Measurements
Using Inputs Considered as
 
 
  Fair Value at
January 28,
2012
 
(dollar amounts in thousands)
Description
  Level 1   Level 2   Level 3  

Assets:

                         

Cash and cash equivalents

  $ 58,244   $ 58,244   $   $  

Collateral investments(a)

    17,276     17,276          

Deferred compensation assets(a)

    3,576         3,576      

Liabilities:

                         

Other liabilities

                         

Derivative liability(b)

    12,540         12,540      

(a)
included in other long-term assets

(b)
included in other long-term liabilities

        The following represents the impact of fair value accounting for the Company's derivative liability on its consolidated financial statements:

(dollar amounts in thousands)
  Amount of Gain/
(Loss) in
Other Comprehensive
Income
(Effective Portion)
  Earnings Statement
Classification
  Amount of Loss
Recognized in Earnings
(Effective Portion)
 

Fiscal 2012

  $ 2,171   Interest expense   $ 4,676  

Fiscal 2011

  $ 2,428   Interest expense   $ 6,970  
  • 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 in fiscal 2010. 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. Measurements of assets held and used are discussed in Note 11, "Store Closures and Asset Impairments."

v2.4.0.6
LEGAL MATTERS
12 Months Ended
Feb. 02, 2013
LEGAL MATTERS  
LEGAL MATTERS

NOTE 17—LEGAL MATTERS

        The Company is party to various actions and claims arising in the normal course of business. The Company believes that amounts accrued for awards or assessments in connection with all such matters are adequate and that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position. However, there exists a possibility of loss in excess of the amounts accrued, the amount of which cannot currently be estimated. While the Company does not believe that the amount of such excess loss could be material to the Company's financial position, any such loss could have a material adverse effect on the Company's results of operations in the period(s) during which the underlying matters are resolved.

v2.4.0.6
QUARTERLY FINANCIAL DATA (UNAUDITED)
12 Months Ended
Feb. 02, 2013
QUARTERLY FINANCIAL DATA (UNAUDITED)  
QUARTERLY FINANCIAL DATA (UNAUDITED)

NOTE 18—QUARTERLY FINANCIAL DATA (UNAUDITED)

 
   
   
   
   
   
  Earnings /
Loss
Per Share
from
Continuing
Operations
   
   
   
   
   
 
 
   
   
   
   
   
  Earnings /
Loss Per
Share
   
  Market Price
Per Share
 
 
   
   
   
  Earnings /
Loss from
Continuing
Operations
   
   
 
 
  Total
Revenues
  Gross
Profit
  Operating
Profit /
Loss
  Earnings /
Loss
  Cash
Dividends
Per Share
 
 
  Basic   Diluted   Basic   Diluted   High   Low  

Year Ended February 2, 2013

                                                                         

4th quarter

  $ 530,847   $ 117,206   $ (16,394 ) $ (14,320 ) $ (14,543 ) $ (0.27 )   (0.27 )   (0.27 )   (0.27 )     $ 11.16   $ 9.48  

3rd quarter

    509,608     116,040     3,791     (6,695 )   (6,759 )   (0.13 )   (0.13 )   (0.13 )   (0.13 )       10.57     8.76  

2nd quarter

    525,671     130,601     16,315     33,034     33,048     0.62     0.61     0.62     0.61         14.93     8.67  

1st quarter

    524,604     127,652     7,940     1,134     1,062     0.02     0.02     0.02     0.02         15.46     14.90  

Year Ended January 28, 2012

                                                                         

4th quarter

  $ 505,318   $ 112,273   $ (29 ) $ (4,191 ) $ (4,420 ) $ (0.08 ) $ (0.08 ) $ (0.08 ) $ (0.08 ) $ 0.0300   $ 12.08   $ 10.21  

3rd quarter

    522,173     126,921     17,347     7,022     7,011     0.13     0.13     0.13     0.13     0.0300     12.04     8.18  

2nd quarter

    522,594     135,210     21,939     13,891     13,943     0.26     0.26     0.26     0.26     0.0300     14.28     10.27  

1st quarter

    513,540     135,122     26,311     12,405     12,368     0.23     0.23     0.23     0.23     0.0300     14.70     10.53  
  • The sum of individual share amounts may not equal due to rounding.

        In the fourth quarter of fiscal 2012, the Company recorded on a pre-tax basis, a $17.8 million pension settlement charge. In the third quarter the Company recorded, on a pre-tax basis, an asset impairment charge of $8.8 million and refinancing costs of $11.2 million. In the second quarter of fiscal 2012, the Company recorded, on a pre-tax basis, merger settlement proceeds, net of costs of $42.8 million.

        In the second quarter of fiscal 2011, the Company released $3.4 million (net of federal tax) of valuation allowance relating to state net loss operating carryforwards and credits. In the fourth quarter of fiscal 2011, the Company recorded a $1.1 million reduction to its reserve for excess inventory.

v2.4.0.6
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
12 Months Ended
Feb. 02, 2013
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES  
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(dollar amounts in thousands)

   
   
   
   
   
 
Column A   Column B   Column C   Column D   Column E  
Description
  Balance at
Beginning
of Period
  Additions
Charged to
Costs and
Expenses
  Additions
Charged to
Other
Accounts
  Deductions(1)   Balance
at End
of Period
 
 
  (in thousands)
 

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

                               

Year ended February 2, 2013

  $ 1,303   $ 2,479   $   $ 2,480   $ 1,302  

Year ended January 28, 2012

  $ 1,551   $ 2,434   $   $ 2,682   $ 1,303  

Year ended January 29, 2011

  $ 1,488   $ 2,595   $   $ 2,532   $ 1,551  

(1)
Uncollectible accounts written off.

Column A   Column B   Column C   Column D   Column E  
Description
  Balance at
Beginning
of Period
  Additions
Charged to
Costs and
Expenses
  Additions
Charged to
Other
Accounts(2)
  Deductions(2)   Balance
at End
of Period
 
 
  (in thousands)
 

SALES RETURNS AND ALLOWANCES:

                               

Year ended February 2, 2013

  $ 773   $   $ 63,068   $ 62,945   $ 896  

Year ended January 28, 2012

  $ 1,056   $   $ 61,425   $ 61,708   $ 773  

Year ended January 29, 2011

  $ 1,031   $   $ 60,740   $ 60,715   $ 1,056  

(2)
Sales return and allowance activity is recorded through a reduction of merchandise sales and costs of merchandise sales.
v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
12 Months Ended
Feb. 02, 2013
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
FISCAL YEAR END
FISCAL YEAR END    The Company's fiscal year ends on the Saturday nearest to January 31. Fiscal 2012, which ended February 2, 2013, was comprised of 53 weeks. Fiscal 2011, which ended January 28, 2012, and fiscal 2010 which ended January 29, 2011 were comprised of 52 weeks.
PRINCIPLES OF CONSOLIDATION
PRINCIPLES OF CONSOLIDATION    The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS    Cash equivalents include all short-term, highly liquid investments with an initial maturity of three months or less when purchased. All credit and debit card transactions that settle in less than seven days are also classified as cash and cash equivalents.
ACCOUNTS RECEIVABLE
ACCOUNTS RECEIVABLE    Accounts receivable are primarily comprised of amounts due from commercial customers. The Company records an allowance for doubtful accounts based upon an evaluation of the credit worthiness of its customers. The allowance is reviewed for adequacy at least quarterly, and adjusted as necessary. Specific accounts are written off against the allowance when management determines the account is uncollectible.
MERCHANDISE INVENTORIES

MERCHANDISE INVENTORIES    Merchandise inventories are valued at the lower of cost or market. Cost is determined by using the last-in, first-out (LIFO) method. If the first-in, first-out (FIFO) method of costing inventory had been used by the Company, inventory would have been $565.8 million and $536.4 million as of February 2, 2013 and January 28, 2012, respectively. During fiscal 2012, 2011 and 2010, the effect of LIFO layer liquidations on gross profit was immaterial.

        The Company's inventory, consisting primarily of automotive tires, parts, and accessories, is used on vehicles typically having long lives. Because of this, and combined with the Company's historical experience of returning excess inventory to the Company's vendors for full credit, the risk of obsolescence is minimal. The Company establishes a reserve for excess inventory for instances where less than full credit will be received for such returns or where the Company anticipates items will be sold at retail prices that are less than recorded costs. The reserve is based on management's judgment, including estimates and assumptions regarding marketability of products, the market value of inventory to be sold in future periods and on historical experiences where the Company received less than full credit from vendors for product returns. The Company also provides for estimated inventory shrinkage based upon historical levels and the results of its cycle counting program. The Company's inventory adjustments for these matters were approximately $4.6 million at February 2, 2013 and January 28, 2012, respectively. In future periods the company may be exposed to material losses should the company's vendors alter their policy with regard to accepting excess inventory returns.

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT    Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives: building and improvements, 5 to 40 years, and furniture, fixtures and equipment, 3 to 10 years. Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost and accumulated depreciation are eliminated and the gain or loss, if any, is included in the determination of net income. Property and equipment information follows:

(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
 

Land

  $ 203,386   $ 204,023  

Buildings and improvements

    885,389     875,999  

Furniture, fixtures and equipment

    728,122     723,938  

Construction in progress

    3,282     3,279  

Accumulated depreciation and amortization

    (1,162,909 )   (1,110,900 )
           

Property and equipment—net

  $ 657,270   $ 696,339  
           
GOODWILL

GOODWILL    At fiscal year end 2012, the Company had six reporting units, of which three included goodwill (related to prior acquisitions by the Company). The Company tests the recorded amount of goodwill for recovery on an annual basis in the fourth quarter of each fiscal year. Impairment reviews may also be triggered by any significant events or changes in circumstances affecting the Company's business.

        Goodwill impairment testing consists of a two-step process, if necessary. The first step is to compare the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test must be performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The loss recognized cannot exceed the carrying amount of goodwill. The implied fair value of goodwill is determined in the same manner that the amount of goodwill recognized in a business combination is determined. The Company allocates the fair value of a reporting unit to all of the assets and liabilities of that unit, including intangible assets. Any excess of the value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. A deterioration of macroeconomic conditions may not only negatively impact the estimated operating cash flows used in the Company's cash flow models, but may also negatively impact other assumptions used in the Company's analyses, including, but not limited to, the estimated cost of capital and/or discount rates. Additionally, in accordance with accounting guidance, the Company is required to ensure that assumptions used to determine fair value in the analyses are consistent with the assumptions a market participant would use. As a result, the cost of capital and/or discount rates used may increase or decrease based on market conditions and trends, regardless of whether the Company's cost of capital has changed. Therefore the Company may recognize an impairment even though cash flows are approximately the same or greater than forecasted amounts.

        There were no impairments as a result of the Company's annual tests in the fourth quarter of fiscal year 2012, fiscal year 2011, and fiscal year 2010.

OTHER INTANGIBLE ASSETS
OTHER INTANGIBLE ASSETS    For intangible assets with finite lives, the Company amortizes their cost on a straight-line basis over their estimated useful lives.
LEASES
LEASES    The Company amortizes leasehold improvements over the lesser of the lease term or the economic life of those assets. Generally, for stores the lease term is the base lease term and for distribution centers the lease term includes the base lease term plus certain renewal option periods for which renewal is reasonably assured and for which failure to exercise the renewal option would result in an economic penalty to the Company. The calculation of straight-line rent expense is based on the same lease term with consideration for step rent provisions, escalation clauses, rent holidays and other lease concessions. The Company begins expensing rent upon completion of the Company's due diligence or when the Company has the right to use the property, whichever comes earlier.
SOFTWARE CAPITALIZATION
SOFTWARE CAPITALIZATION    The Company capitalizes certain direct development costs associated with internal-use software, including external direct costs of material and services, and payroll costs for employees devoting time to the software projects. These costs are amortized over a period not to exceed five years beginning when the asset is substantially ready for use. Costs incurred during the preliminary project stage, as well as maintenance and training costs are expensed as incurred.
TRADE PAYABLE PROGRAM LIABILITY
TRADE PAYABLE PROGRAM LIABILITY    The Company has a trade payable program which is funded by various bank participants who have the ability, but not the obligation, to purchase account receivables owed by the Company directly from its vendors. The Company, in turn, makes the regularly scheduled full vendor payments to the bank participants.
INCOME TAXES

INCOME TAXES    The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are determined based upon enacted tax laws and rates applied to the differences between the financial statement and tax bases of assets and liabilities.

        The Company recognizes taxes payable for the current year, as well as deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The Company must assess the likelihood that any recorded deferred tax assets will be recovered against future taxable income. To the extent the Company believes it is more likely than not that the asset will not be recoverable, a valuation allowance must be established. To the extent the Company establishes a valuation allowance or changes the allowance in a future period, income tax expense will be impacted.

        In evaluating income tax positions, the Company records liabilities for potential exposures. These tax liabilities are adjusted in the period actual developments give rise to such change. Those developments could be, but are not limited to, settlement of tax audits, expiration of the statute of limitations, and changes in the tax code and regulations, along with varying application of tax policy and administration within those jurisdictions. Refer to Note 8, "Income Taxes," for further discussion of income taxes and changes in unrecognized tax benefit.

SALES TAXES
SALES TAXES    The Company presents sales net of sales taxes in its consolidated statements of operations.
REVENUE RECOGNITION

REVENUE RECOGNITION    The Company recognizes revenue from the sale of merchandise at the time the merchandise is sold and the product is delivered to the customer. Service revenues are recognized upon completion of the service. Service revenue consists of the labor charged for installing merchandise or maintaining or repairing vehicles, excluding the sale of any installed parts or materials. The Company records revenue net of an allowance for estimated future returns. The Company establishes reserves for sales returns and allowances based on current sales levels and historical return rates. Revenue from gift card sales is recognized upon gift card redemption. The Company's gift cards do not have expiration dates. The Company recognizes breakage on gift cards when, among other things, sufficient gift card history is available to estimate potential breakage and the Company determines there are no legal obligations to remit the value of unredeemed gift cards to the relevant jurisdictions. Estimated gift card breakage revenue is immaterial for all periods presented.

        The Company's Customer Loyalty program allows members to earn points for each qualifying purchase. Points earned allow members to receive a certificate that may be redeemed on future purchases within 90 days of issuance. The retail value of points earned by loyalty program members is included in accrued liabilities as deferred income and recorded as a reduction of revenue at the time the points are earned, based on the historic and projected rate of redemption. The Company recognizes deferred revenue and the cost of the free products distributed to loyalty program members when the awards are redeemed. The cost of the free products distributed to program members is recorded within costs of revenues.

        A portion of the Company's transactions includes the sale of auto parts that contain a core component. These components represent the recyclable portion of the auto part. Customers are not charged for the core component of the new part if a used core is returned at the point of sale of the new part; otherwise the Company charges customers a specified amount for the core component. The Company refunds that same amount upon the customer returning a used core to the store at a later date. The Company does not recognize sales or cost of sales for the core component of these transactions when a used part is returned by the customer at the point of sale.

COSTS OF REVENUES
COSTS OF REVENUES    Costs of merchandise sales include the cost of products sold, buying, warehousing and store occupancy costs. Costs of service revenue include service center payroll and related employee benefits, service center occupancy costs and cost of providing free or discounted towing services to customers. Occupancy costs include utilities, rents, real estate and property taxes, repairs, maintenance, depreciation and amortization expenses.
VENDOR SUPPORT FUNDS

VENDOR SUPPORT FUNDS    The Company receives various incentives in the form of discounts and allowances from its vendors based on purchases or for services that the Company provides to the vendors. These incentives received from vendors include rebates, allowances and promotional funds and are generally based upon a percentage of the gross amount purchased. Funds are recorded when title of goods purchased have transferred to the Company as the amount is known and not contingent on future events. The amount of funds to be received are subject to vendor agreements and ongoing negotiations that may be impacted in the future based on changes in market conditions, vendor marketing strategies and changes in the profitability or sell-through of the related merchandise for the Company.

        Generally vendor support funds are earned based on purchases or product sales. These incentives are treated as a reduction of inventories and are recognized as a reduction to cost of sales as the inventories are sold. Certain vendor allowances are used exclusively for promotions and to offset certain other direct expenses if the Company determines the allowances are for specific, identifiable incremental expenses. Vendor support funds used to offset direct advertising costs were immaterial for the year ended February 2, 2013, $2.5 million for the year ended January 28, 2012, and immaterial for the year ended January 29, 2011.

WARRANTY RESERVE

WARRANTY RESERVE    The Company provides warranties for both its merchandise sales and service labor. Warranties for merchandise are generally covered by the respective vendors, with the Company covering any costs above the vendor's stipulated allowance. Service labor is warranted in full by the Company for a limited specific time period. The Company establishes its warranty reserves based on historical experience. These costs are included in either costs of merchandise sales or costs of service revenue in the consolidated statement of operations.

        The reserve for warranty activity for the years ended February 2, 2013 and January 28, 2012, respectively, are as follows:

(dollar amounts in thousands)
   
 

Balance, January 29, 2011

  $ 673  

Additions related to sales in the current year

    12,122  

Warranty costs incurred in the current year

    (12,122 )
       

Balance, January 28,2012

  $ 673  

Additions related to sales in the current year

    11,920  

Warranty costs incurred in the current year

    (11,729 )
       

Balance, February 2, 2013

  $ 864  
       
ADVERTISING
ADVERTISING    The Company expenses the costs of advertising the first time the advertising takes place. Gross advertising expense for fiscal 2012, 2011 and 2010 was $63.3 million, $54.9 million and $57.5 million, respectively, and is recorded in selling, general and administrative expenses. No advertising costs were recorded as assets as of February 2, 2013 or January 28, 2012.
STORE OPENING COSTS
STORE OPENING COSTS    The costs of opening new stores are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
IMPAIRMENT OF LONG-LIVED ASSETS    The Company evaluates the ability to recover long-lived assets whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. In the event assets are impaired, losses are recognized to the extent the carrying value exceeds fair value. In addition, the Company reports assets to be disposed of at the lower of the carrying amount or the fair market value less selling costs. See discussion of current year impairments in Note 11, "Store Closures and Asset Impairments."
EARNINGS PER SHARE
EARNINGS PER SHARE    Basic earnings per share are computed by dividing earnings by the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed by dividing earnings by the weighted average number of common shares outstanding during the year plus incremental shares that would have been outstanding upon the assumed exercise of dilutive stock based compensation awards.
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS    The Company's discontinued operations reflect the operating results for closed stores where the customer base could not be maintained. Loss from discontinued operations relates to expenses for previously closed stores and principally includes costs for rent, taxes, payroll, repairs and maintenance, asset impairments, and gains or losses on disposal.
ACCOUNTING FOR STOCK-BASED COMPENSATION
ACCOUNTING FOR STOCK-BASED COMPENSATION    At February 2, 2013, the Company has two stock-based employee compensation plans, which are described in Note 14, "Equity Compensation Plans." Compensation costs relating to share-based payment transactions are recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity award).
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME    Other comprehensive income includes pension liability and fair market value of cash flow hedges.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES    The Company may enter into interest rate swap agreements to hedge the exposure to increasing rates with respect to its certain variable rate debt agreements. The Company recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. See further discussion in Note 5, "Debt and Financing Arrangements."
SEGMENT INFORMATION

SEGMENT INFORMATION    The Company has six operating segments defined by geographic regions which are Northeast, Mid-Atlantic, Southeast, Central, West and Southern CA. Each segment serves both DIY and DIFM lines of business. The Company aggregates all of its operating segments and has one reportable segment. Sales by major product categories are as follows:

 
  Year ended  
(dollar amounts in thousands)
  February 2,
2013
  January 28,
2012
  January 29,
2011
 

Parts and accessories

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