v2.4.0.6
Document and Entity Information (USD $)
12 Months Ended
Jan. 28, 2012
Mar. 30, 2012
Jul. 30, 2011
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 Jan. 28, 2012    
Amendment Flag false    
Current Fiscal Year End Date --01-28    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Accelerated Filer    
Entity Public Float     $ 507,481,000
Entity Common Stock, Shares Outstanding   52,761,355  
Document Fiscal Year Focus 2011    
Document Fiscal Period Focus FY    
v2.4.0.6
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Jan. 28, 2012
Jan. 29, 2011
Current assets:    
Cash and cash equivalents $ 58,244 $ 90,240
Accounts receivable, less allowance for uncollectible accounts of $1,303 and $1,551 25,792 19,540
Merchandise inventories 614,136 564,402
Prepaid expenses 26,394 28,542
Other current assets 59,979 60,812
Total current assets 784,545 763,536
Property and equipment-net 696,339 700,981
Goodwill 46,917 2,549
Deferred income taxes 72,870 66,019
Other long-term assets 33,108 23,587
Total assets 1,633,779 1,556,672
Current liabilities:    
Accounts payable 243,712 210,440
Trade payable program liability 85,214 56,287
Accrued expenses 221,705 236,028
Deferred income taxes 66,208 56,335
Current maturities of long-term debt 1,079 1,079
Total current liabilities 617,918 560,169
Long-term debt less current maturities 294,043 295,122
Other long-term liabilities 77,216 70,046
Deferred gain from asset sales 140,273 152,875
Commitments and contingencies      
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 296,462 295,361
Retained earnings 423,437 402,600
Accumulated other comprehensive loss (17,649) (17,028)
Treasury stock, at cost-15,803,322 shares and 15,971,910 shares (266,478) (271,030)
Total stockholders' equity 504,329 478,460
Total liabilities and stockholders' equity $ 1,633,779 $ 1,556,672
v2.4.0.6
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jan. 28, 2012
Jan. 29, 2011
CONSOLIDATED BALANCE SHEETS    
Accounts receivable, allowance for uncollectible accounts (in dollars) $ 1,303 $ 1,551
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 15,803,322 15,971,910
v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
Merchandise sales $ 1,642,757 $ 1,598,168 $ 1,533,619
Service revenue 420,870 390,473 377,319
Total revenues 2,063,627 1,988,641 1,910,938
Costs of merchandise sales 1,154,322 1,110,380 1,084,804
Costs of service revenue 399,776 355,909 340,027
Total costs of revenues 1,554,098 1,466,289 1,424,831
Gross profit from merchandise sales 488,435 487,788 448,815
Gross profit from service revenue 21,094 34,564 37,292
Total gross profit 509,529 522,352 486,107
Selling, general and administrative expenses 443,986 442,239 430,261
Net gain from disposition of assets 27 2,467 1,213
Operating profit 65,570 82,580 57,059
Non-operating income 2,324 2,609 2,261
Interest expense 26,306 26,745 21,704
Earnings from continuing operations before income taxes and discontinued operations 41,588 58,444 37,616
Income tax expense 12,460 21,273 13,503
Earnings from continuing operations before discontinued operations 29,128 37,171 24,113
Loss from discontinued operations, net of tax benefit of $(121), $(291) and $(580) (225) (540) (1,077)
Net earnings $ 28,903 $ 36,631 $ 23,036
Basic earnings per share:      
Earnings from continuing operations before discontinued operations (in dollars per share) $ 0.55 $ 0.71 $ 0.46
Loss from discontinued operations, net of tax (in dollars per share) $ (0.01) $ (0.01) $ (0.02)
Basic earnings per share (in dollars per share) $ 0.54 $ 0.70 $ 0.44
Diluted earnings per share:      
Earnings from continuing operations before discontinued operations (in dollars per share) $ 0.54 $ 0.70 $ 0.46
Loss from discontinued operations, net of tax (in dollars per share)   $ (0.01) $ (0.02)
Diluted earnings per share (in dollars per share) $ 0.54 $ 0.69 $ 0.44
v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
CONSOLIDATED STATEMENTS OF OPERATIONS      
Loss from discontinued operations, tax benefit $ (121) $ (291) $ (580)
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
Benefit Trust
Comprehensive Income
Balance at Jan. 31, 2009 $ 423,156 $ 68,557 $ 292,728 $ 358,670 $ (219,460) $ (18,075) $ (59,264)  
Balance (in shares) at Jan. 31, 2009   68,557,041     (14,124,021)      
Comprehensive income:                
Net earnings 23,036     23,036       23,036
Changes in net unrecognized other postretirement benefit costs, net of tax of $(1,872), $344 and $352 for year ended 2011, 2010 and 2009, respectively 595         595   595
Fair market value adjustment on derivatives, net of tax of $1,499, $48 and ($125) for year ended 2011, 2010 and 2009, respectively (211)         (211)   (211)
Total comprehensive income 23,420             23,420
Cash dividends ($.12 per share) (6,286)     (6,286)        
Reclassification of Benefits Trust         (59,264)   59,264  
Reclassification of Benefits Trust (in shares)         (2,195,270)      
Effect of stock options and related tax benefits 146     (209) 355      
Effect of stock options and related tax benefits (in shares)         22,000      
Effect of restricted stock unit conversions (172)   (1,493)   1,321      
Effect of restricted stock unit conversions (in shares)         81,726      
Stock compensation expense 2,575   2,575          
Dividend reinvestment plan 456     (375) 831      
Dividend reinvestment plan (in shares)         51,491      
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 $(1,872), $344 and $352 for year ended 2011, 2010 and 2009, respectively 582         582   582
Fair market value adjustment on derivatives, net of tax of $1,499, $48 and ($125) for year ended 2011, 2010 and 2009, respectively 81         81   81
Total comprehensive income 37,294             37,294
Cash dividends ($.12 per share) (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 $(1,872), $344 and $352 for year ended 2011, 2010 and 2009, respectively (3,120)         (3,120)   (3,120)
Fair market value adjustment on derivatives, net of tax of $1,499, $48 and ($125) for year ended 2011, 2010 and 2009, respectively 2,499         2,499   2,499
Total comprehensive income 28,282             28,282
Cash dividends ($.12 per share) (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)      
v2.4.0.6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY      
Changes in net unrecognized other postretirement benefit costs, tax $ (1,872) $ 344 $ 352
Fair market value adjustment on derivatives, tax $ 1,499 $ 48 $ (125)
Cash dividends (in dollars per share) $ 0.12 $ 0.12 $ 0.12
v2.4.0.6
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 28, 2012
Jan. 29, 2011
Jan. 30, 2010
Cash flows from operating activities:      
Net earnings $ 28,903 $ 36,631 $ 23,036
Adjustments to reconcile net earnings to net cash provided by continuing operations:      
Net loss from discontinued operations 225 540 1,077
Depreciation and amortization 79,542 74,151 70,529
Amortization of deferred gain from asset sales (12,602) (12,602) (12,325)
Stock compensation expense 3,237 3,497 2,575
Loss (gain) from debt retirement   200 (6,248)
Deferred income taxes 10,301 18,572 13,446
Net gain from dispositions of assets (27) (2,467) (1,213)
Loss from asset impairment 1,619 970 2,884
Other (573) (479) 345
Changes in operating assets and liabilities, net of the effects of acquisitions:      
Decrease in accounts receivable, prepaid expenses and other 2,391 7,060 7,175
(Increase) decrease in merchandise inventories (42,756) (5,284) 7,039
Increase (decrease) in accounts payable 24,871 7,466 (9,640)
Decrease in accrued expenses (18,745) (8,394) (13,238)
(Decrease) increase in other long-term liabilities (2,463) (1,200) 2,384
Net cash provided by continuing operations 73,923 118,661 87,826
Net cash used in discontinued operations (273) (1,466) (603)
Net cash provided by operating activities 73,650 117,195 87,223
Cash flows from investing activities:      
Capital expenditures (74,746) (70,252) (43,214)
Proceeds from dispositions of assets 515 7,515 14,776
Collateral investment (7,638) (9,638)  
Acquisitions, net of cash acquired (42,901) (288) (2,695)
Other (837)   (500)
Net cash used in continuing operations (125,607) (72,663) (31,633)
Net cash provided by discontinued operations   569 1,762
Net cash used in investing activities (125,607) (72,094) (29,871)
Cash flows from financing activities:      
Borrowings under line of credit agreements 5,721 21,795 249,704
Payments under line of credit agreements (5,721) (21,795) (273,566)
Borrowings on trade payable program liability 144,180 121,824 102,042
Payments on trade payable program liability (115,253) (99,636) (99,873)
Payments for finance issuance cost (2,441)    
Debt payments (1,079) (11,279) (11,990)
Dividends paid (6,344) (6,323) (6,286)
Other 898 1,227 611
Net cash provided by (used in) financing activities 19,961 5,813 (39,358)
Net (decrease) increase in cash and cash equivalents (31,996) 50,914 17,994
Cash and cash equivalents at beginning of year 90,240 39,326 21,332
Cash and cash equivalents at end of year 58,244 90,240 39,326
Supplemental cash flow information:      
Cash paid for interest, net of amounts capitalized 23,097 23,098 24,509
Cash received from income tax refunds 479 195 921
Cash paid for income taxes 1,150 890 4,768
Non-cash investing activities:      
Accrued purchases of property and equipment $ 1,400 $ 2,926 $ 1,738
v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Jan. 28, 2012
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, defined as Do-It-For-Me, or "DIFM" (service labor, installed merchandise and tires) and (2) the Retail business, defined 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. In 2009, as part of the Company's long-term strategy to lead with automotive service, the Company began 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 2011, which ended January 28, 2012, fiscal 2010, which ended January 29, 2011, and fiscal 2009 which ended January 30, 2010 were all 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 $536.4 million and $486.0 million as of January 28, 2012 and January 29, 2011, respectively. During fiscal 2011, 2010 and 2009, the effect of LIFO layer liquidations on gross profit was immaterial.

        The Company's inventory consists primarily of automotive parts and accessories. Because of the relatively long lives of vehicles, along 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 and 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's reserve for excess inventory was $4.2 million and $5.4 million as of January 28, 2012 and January 29, 2011, respectively. In fiscal 2010, the Company reduced its reserve for excess inventory by $5.9 million to $5.4 million from $11.3 million primarily due to improved inventory management, including timely return of excess product to vendors for credit. However, 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)
  January 28,
2012
  January 29,
2011
 

Land

  $ 204,023   $ 204,023  

Buildings and improvements

    875,999     848,268  

Furniture, fixtures and equipment

    723,938     685,481  

Construction in progress

    3,279     8,781  

Accumulated depreciation and amortization

    (1,110,900 )   (1,045,572 )
           

Property and equipment—net

  $ 696,339   $ 700,981  
           

        GOODWILL    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.

        At fiscal year end 2011, the Company had six reporting units, of which three included goodwill. 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, as if the reporting unit had been acquired in a business combination. 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.

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

        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 at the time the Company has the right to use the property.

        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. In the first quarter of fiscal 2011 as a result of the Company's review, the Company determined that the gross amount of borrowings and payments on the trade payable program shown on the statement of cash flows under "Cash flows from financing activities" included certain vendors that had not participated in the trade payable program. As such, the Company made an equal and offsetting adjustment to reduce the trade payables borrowings and payments line items within financing activities by $225.2 million and $90.3 million for the years ended January 29, 2011 and January 30, 2010, respectively. These adjustments have no net impact on net cash used in financing activities or on any other cash flow line items.

        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 during fiscal 2011.

        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.

        In the first quarter of fiscal 2009, the Company launched a Customer Loyalty program. The 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, which reduced advertising expense, amounted to $2.5 million for the year ended January 28, 2012, and were immaterial for all other periods presented.

        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 January 28, 2012 and January 29, 2011, respectively, are as follows:

(dollar amounts in thousands)
   
 

Balance, January 30, 2010

  $ 694  

Additions related to sales in the current year

    12,261  

Warranty costs incurred in the current year

    (12,282 )
       

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  
       

        ADVERTISING    The Company expenses the costs of advertising the first time the advertising takes place. Gross advertising expense for fiscal 2011, 2010 and 2009 was $54.9 million, $57.5 million and $52.6 million, respectively, and is recorded in selling, general and administrative expenses. No advertising costs were recorded as assets as of January 28, 2012 or January 29, 2011.

        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 January 28, 2012, 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 LOSS    Other comprehensive loss 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.

        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)
  January 28,
2012
  January 29,
2011
  January 30,
2010
 

Parts and accessories

  $ 1,259,500   $ 1,261,678   $ 1,219,396  

Tires

    383,257     336,490     314,223  

Service labor

    420,870     390,473     377,319  
               

Total revenues

  $ 2,063,627   $ 1,988,641   $ 1,910,938  
               

        SIGNIFICANT SUPPLIERS    During fiscal 2011, the Company's ten largest suppliers accounted for approximately 52% of merchandise purchased. No single supplier accounted for more than 21% 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 January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2010-06 "Fair Value Measurements—Improving Disclosures on Fair Value Measurements" ("ASU 2010-06"). This guidance requires new disclosures surrounding transfers in and out of level 1 or 2 in the fair value hierarchy and also requires that the reconciliation of level 3 inputs includes separately reported information on purchases, sales, issuances and settlements. The increased disclosures should be reported for each class of assets or liabilities. ASU 2010-06 also clarifies existing disclosures for the level of disaggregating, disclosures about valuation techniques and inputs used to determine level 2 or 3 fair value measurements and includes conforming amendments to the guidance on employers' disclosures about postretirement benefit plan assets. ASU 2010-06 was effective for interim and annual reporting periods beginning after December 15, 2009 except for the disclosures about purchases, sales, issuances or settlements in the roll forward activity for level 3 fair value measurements which are effective for interim and annual periods beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on the Company's consolidated financial statements.

        In December 2010, the FASB issued ASU 2010-29 "Business Combinations (Topic 805)—Disclosure of Supplementary Pro Forma Information for Business Combinations" (ASU 2010-29). This accounting standard update clarifies that SEC registrants presenting comparative financial statements should disclose in their pro forma information revenue and earnings of the combined entity as though the current period business combinations had occurred as of the beginning of the comparable prior annual reporting period only. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for material (either on an individual or aggregate basis) business combinations entered into in fiscal years beginning on or after December 15, 2010 with early adoption permitted. The adoption of ASU 2010-29 did not have a material impact on the consolidated financial statements.

        In May 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 Company does not believe the adoption of ASU 2011-04 will have a material impact on the consolidated results of operations and financial condition.

        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, and is effective for periods beginning after December 15, 2011, with early adoption permitted. On December 23, 2011, the FASB issued ASU 2011-12, which indefinitely defers the provision in ASU 2011-05 that required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statements in which net income is presented and the statement in which OCI is presented. The other provisions in ASU 2011-05 are unaffected by the deferral. The application of this guidance affects presentation only and therefore is not expected to have an impact on the Company's consolidated financial condition, results of operations or cash flows.

        In September 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 Company does not believe the adoption of ASU 2011-08 will have a material impact on the consolidated results of operations and financial condition.

v2.4.0.6
ACQUISITIONS
12 Months Ended
Jan. 28, 2012
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 name, 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. In the fourth quarter of 2011, the Company revised its estimates, which resulted in an increase in goodwill of $0.7 million from our previous allocation of purchase price. The change related primarily to the establishment of a valuation allowance related to the deferred tax assets acquired which is included within other non-current assets. The allocation is a 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 includes 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 five 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. 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 thirteen and fifty-two week periods ended January 28, 2012 and January 29, 2011, pro forma results for the thirteen and fifty-two week periods 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
Jan. 28, 2012
OTHER CURRENT ASSETS  
OTHER CURRENT ASSETS

NOTE 3—OTHER CURRENT ASSETS

        The following are the components of other current assets:

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

Reinsurance receivable

  $ 59,280   $ 57,532  

Income taxes receivable

    89     1,608  

Other

    610     1,672  
           

Total

  $ 59,979   $ 60,812  
           
v2.4.0.6
ACCRUED EXPENSES
12 Months Ended
Jan. 28, 2012
ACCRUED EXPENSES  
ACCRUED EXPENSES

NOTE 4—ACCRUED EXPENSES

        The following are the components of accrued expenses:

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

Casualty and medical risk insurance

  $ 147,806   $ 146,667  

Accrued compensation and related taxes

    19,133     31,990  

Sales tax payable

    12,254     12,809  

Other

    42,512     44,562  
           

Total

  $ 221,705   $ 236,028  
           
v2.4.0.6
DEBT AND FINANCING ARRANGEMENTS
12 Months Ended
Jan. 28, 2012
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)
  January 28,
2012
  January 29,
2011
 

7.50% Senior Subordinated Notes, due December 2014

  $ 147,565   $ 147,565  

Senior Secured Term Loan, due October 2013

    147,557     148,636  

Revolving Credit Agreement, through July 2016

         
           

Long-term debt

    295,122     296,201  

Current maturities

    (1,079 )   (1,079 )
           

Long-term debt less current maturities

  $ 294,043   $ 295,122  
           

7.50% Senior Subordinated Notes, due December 2014

        On December 14, 2004, the Company issued $200.0 million aggregate principal amount of 7.50% Senior Subordinated Notes (the "Notes") due December 2014. The Company did not repurchase Notes in fiscal 2011. During fiscal 2010, the Company repurchased Notes in the principal amount of $10.0 million, resulting in a loss from debt repurchases of $0.2 million.

  • Senior Secured Term Loan Facility, due October 2013

        The Company has a Senior Secured Term Loan facility (the "Term Loan") due October 2013. This facility is secured by a collateral pool consisting of real property and improvements associated with stores, which is adjusted periodically based upon real estate values and borrowing levels. Interest accrues at the three month London Interbank Offered Rate (LIBOR) plus 2.0% on this facility. As of January 28, 2012, 126 stores collateralized the Term Loan.

  • 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 related refinancing fees of $2.4 million are being amortized over the new five year life. 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. Fees based on the unused portion of the Agreement range from 37.5 to 75.0 basis points. As of January 28, 2012, there were no outstanding borrowings under the Agreement.

        The weighted average interest rate on all debt borrowings during fiscal 2011 and 2010 was 6.3%.

  • Other Matters

        Several of 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 credit agreement drops below $50.0 million. The failure to satisfy this covenant would constitute an event of default under the Revolving Credit Agreement, which would result in a cross-default under the Notes and Term Loan.

        As of January 28, 2012, the Company had no borrowings outstanding under the Revolving Credit Agreement, additional availability of approximately $194.9 million and was in compliance with all financial covenants contained in its debt agreements.

  • Other Contractual Obligations

        The Company has a vendor financing program with availability up to $125.0 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 $85.2 million and $56.3 million under the program as of January 28, 2012 and January 29, 2011, respectively.

        The Company has letter of credit arrangements in connection with its risk management, import merchandising and vendor financing programs. The Company had no outstanding commercial letters of credit as of January 28, 2012 and was contingently liable for $0.3 million in outstanding commercial letters of credit as of January 29, 2011. The Company was contingently liable for $31.7 million and $107.6 million in outstanding standby letters of credit as of January 28, 2012 and January 29, 2011, respectively.

        The Company is also contingently liable for surety bonds in the amount of approximately $8.3 million and $10.3 million as of January 28, 2012 and January 29, 2011, respectively. The surety bonds guarantee certain payments (for example utilities, easement repairs, licensing requirements and customs fees).

        The annual maturities of all long-term debt for the next five fiscal years are:

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

2012 Senior Secured Term Loan, due October 2013

  $ 1,079  

2013 Senior Secured Term Loan, due October 2013

    146,478  

2014 7.50% Senior Subordinated Notes, due December 2014

    147,565  

2015

     

Thereafter

     
       

Total

  $ 295,122  
       

        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 issues that are not quoted on an exchange. The estimated fair value of long-term debt including current maturities was $293.6 million and $298.3 million as of January 28, 2012 and January 29, 2011.

v2.4.0.6
LEASE AND OTHER COMMITMENTS
12 Months Ended
Jan. 28, 2012
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 fiscal 2009, the Company sold four properties to unrelated third parties. Net proceeds from these sales were $12.9 million. Concurrent with these sales, the Company entered into agreements to lease the properties back from the purchasers over minimum lease terms of 15 years. Each property has a separate lease with an initial term of 15 years and four five-year renewal options. Every five years, the leases have rent increases of an amount equal to the lesser of 8% of the monthly rent due in the immediately preceding lease year or the percentage of the CPI increase between five year anniversaries. The Company classified these leases as operating leases, actively uses these properties and considers the leases as normal leasebacks. The Company recognized a gain of $1.2 million on the sale of these properties and recorded a deferred gain of $6.4 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:

(dollar amounts in thousands)
Fiscal Year
  Operating
Leases
 

2012

  $ 98,479  

2013

    94,176  

2014

    89,753  

2015

    82,831  

2016

    75,626  

Thereafter

    372,123  
       

Aggregate minimum lease payments

  $ 812,988  
       

        Rental expenses incurred for operating leases in fiscal 2011, 2010, and 2009 were $91.6 million, $79.7 million and $75.3 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
Jan. 28, 2012
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 30, 2010 through January 28, 2012 is as follows:

(dollar amounts in thousands)
   
 

Asset retirement obligation at January 30, 2010

  $ 6,724  

Change in assumptions

    (1,192 )

Settlements

    (120 )

Accretion expense

    194  
       

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  
       
v2.4.0.6
INCOME TAXES
12 Months Ended
Jan. 28, 2012
INCOME TAXES  
INCOME TAXES

NOTE 8—INCOME TAXES

        The components of income before income taxes are as follows:

 
  Year Ended  
(dollar amounts in thousands)
  January 28,
2012
  January 29,
2011
  January 30,
2010
 

Domestic

  $ 36,633   $ 52,319   $ 41,921  

Foreign

    4,954     6,125     (4,305 )

Total

  $ 41,588   $ 58,444   $ 37,616  

        The provision for income taxes includes the following:

 
  Year Ended  
(dollar amounts in thousands)
  January 28,
2012
  January 29,
2011
  January 30,
2010
 

Current:

                   

Federal

  $   $   $ 398  

State

    602     491     (511 )

Foreign

    1,557     2,210     149  

Deferred:

                   

Federal(a)

    14,743     20,309     13,820  

State

    (3,887 )   (1,818 )   42  

Foreign

    (555 )   81     (395 )
               

Total income tax expense from continuing operations(a)

  $ 12,460   $ 21,273   $ 13,503  
               

(a)
Excludes tax benefit recorded to discontinued operations of $0.1 million, $0.3 million and $0.6 million in fiscal 2011, 2010 and 2009, respectively.

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

 
  Year Ended  
 
  January 28,
2012
  January 29,
2011
  January 30,
2010
 

Statutory tax rate

    35.0 %   35.0 %   35.0 %

State income taxes, net of federal tax

    3.2     2.4     2.4  

Job credits

    (1.5 )   (0.3 )   (0.9 )

Hire credits

    (2.1 )        

Tax uncertainty adjustment

    (0.1 )   0.2     (0.5 )

Valuation allowance

    (8.3 )   (3.5 )    

Non deductible expenses

    2.0     0.5     0.3  

Stock compensation

    0.1     0.2     0.8  

Foreign taxes, net of federal tax

    1.7     2.4     (0.7 )

Other, net

        (0.5 )   (0.5 )
               

 

    30.0 %   36.4 %   35.9 %
               

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

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

Deferred tax assets:

             

Employee compensation

  $ 5,008   $ 3,060  

Store closing reserves

    1,365     1,064  

Legal reserve

    341     569  

Benefit accruals

    5,922     3,576  

Net operating loss carryforwards—Federal

    16,473     2,527  

Net operating loss carryforwards—State

    111,588     107,941  

Tax credit carryforwards

    17,877     17,086  

Accrued leases

    15,916     12,107  

Interest rate derivatives

    5,730     5,960  

Deferred gain on sale leaseback

    56,325     61,904  

Deferred revenue

    5,621     5,871  

Other

    1,951     2,570  
           

Gross deferred tax assets

    244,117     224,235  

Valuation allowance

    (103,915 )   (104,486 )
           

 

    140,202     119,749  
           

Deferred tax liabilities:

             

Depreciation

  $ 54,284   $ 44,634  

Inventories

    65,886     57,538  

Real estate tax

    3,307     3,132  

Insurance and other

    6,159     2,574  

Debt related liabilities

    3,903     2,187  
           

 

    133,539     110,065  
           

Net deferred tax asset

  $ 6,663   $ 9,684  
           

        As of January 28, 2012 and January 29, 2011, the Company had available tax net operating losses that can be carried forward to future years. The Company has $16.5 million of deferred tax assets related to federal net operating loss carryforwards which begin to expire in 2027. The Company has $2.7 million of deferred tax assets related to state tax net operating loss carryforwards related to unitary filings of which 2.4% will expire in the next five years for which a full valuation allowance has been recorded. The balance of $108.8 million of the Company's net operating loss carryforwards relate to separate company filing jurisdictions that will expire in various years beginning in 2012 of which $106.2 million have full valuation allowances recorded against them.

        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 millions 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 tax credit carryforward at January 29, 2011 consists of $7.3 million of alternative minimum tax credits, $3.4 million of work opportunity credits and $6.4 million of state and Puerto Rico tax credits of which $3.3 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 sheets. 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. Based on the Company's improved performance and tax restructuring, 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 during fiscal 2011.

        The Company and its subsidiaries file income tax returns in the U.S. federal, various states and Puerto Rico jurisdictions. The Company's U.S. federal returns for tax years 2004 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 return. The Company 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)
  January 28,
2012
  January 29,
2011
  January 30,
2010
 

Unrecognized tax benefit balance at the beginning of the year

  $ 4,131   $ 2,411   $ 2,458  

Gross increases for tax positions taken in prior years

        1,331     646  

Gross decreases for tax positions taken in prior years

            (526 )

Gross increases for tax positions taken in current year

    235     389     296  

Settlements taken in current year

            (271 )

Lapse of statute of limitations

    (1,002 )       (192 )
               

Unrecognized tax benefit balance at the end of the year

  $ 3,364   $ 4,131   $ 2,411  
               

        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 2011 and no material income tax expense in fiscal 2010 related to potential interest and penalties associated with uncertain tax positions. At January 28, 2012, January 29, 2011, and January 30, 2010, the Company has recorded $0.3 million, $0.2 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 $1.3 million, $1.4 million, and $1.3 million, at January 28, 2012, January 29, 2011 and January 30, 2010, 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
Jan. 28, 2012
STOCKHOLDERS' EQUITY  
STOCKHOLDERS' EQUITY

NOTE 9—STOCKHOLDERS' EQUITY

        On January 26, 2010, the Company terminated the flexible employee benefits trust (the "Trust") that was established on April 29, 1994 to fund a portion of the Company's obligations arising from various employee compensation and benefit plans. In accordance with the terms of the Trust, upon its termination, the Trust's sole asset, consisting of 2,195,270 shares of the Company's common stock, was transferred to the Company in exchange for the full satisfaction and discharge of all intercompany indebtedness then owed by the Trust to the Company. The termination of the Trust had no impact on the Company's consolidated financial statements, except for the reclassification of the shares within the shareholders equity section of the Company's Consolidated Balance Sheets. The Company uses its treasury shares to satisfy share requirements to its employees under its compensation plans and dividend reinvestment program.

v2.4.0.6
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
12 Months Ended
Jan. 28, 2012
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)  
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

NOTE 10—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

        The following are the components of other comprehensive income:

 
  Year Ended  
(dollar amounts in thousands)
  January 28,
2012
  January 29,
2011
  January 30,
2010
 

Net earnings

  $ 28,903   $ 36,631   $ 23,036  

Other comprehensive income (loss), net of tax:

                   

Defined benefit plan adjustment

    (3,120 )   582     595  

Derivative financial instrument adjustment

    2,499     81     (211 )
               

Comprehensive income

  $ 28,282   $ 37,294   $ 23,420  
               

        The components of accumulated other comprehensive loss are:

 
  Year Ended  
(dollar amounts in thousands)
  January 28,
2012
  January 29,
2011
  January 30,
2010
 

Defined benefit plan adjustment, net of tax

  $ (9,696 ) $ (6,576 ) $ (7,158 )

Derivative financial instrument adjustment, net of tax

    (7,953 )   (10,452 )   (10,533 )
               

Accumulated other comprehensive loss

  $ (17,649 ) $ (17,028 ) $ (17,691 )
               
v2.4.0.6
STORE CLOSURES AND ASSET IMPAIRMENTS
12 Months Ended
Jan. 28, 2012
STORE CLOSURES AND ASSET IMPAIRMENTS  
STORE CLOSURES AND ASSET IMPAIRMENTS

NOTE 11—STORE CLOSURES AND ASSET IMPAIRMENTS

        During 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 fiscal 2010, the Company recorded a $0.8 million impairment charge related to two stores classified as held and used. Of the $0.8 million impairment charge, $0.6 million was charged to merchandise cost of sales, and $0.2 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 3 measure within the fair value hierarchy. The remaining fair value of impaired assets was $1.4 million at January 28, 2012.

        The following schedule details activity in the reserve for closed locations for the three years in the period ended January 28, 2012. The reserve balance includes remaining rent on leases net of sublease income.

(dollar amounts in thousands)
   
 

Balance, January 31, 2009

  $ 2,112  

Accretion of present value of liabilities

    111  

Change in assumptions about future sublease income, lease termination

    1,122  

Cash payments

    (1,095 )
       

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  
       

        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 2011, the Company sold the last remaining store classified as an asset held for sale at the property's carrying value.

        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.

        During fiscal 2009, the Company sold four stores classified as held for disposal for $3.6 million and recorded a net gain of $0.2 million of which $0.1 million is reported in discontinued operations. The Company also decided to reopen one store and moved the carrying value of $1.7 million to property and equipment. During fiscal 2009 in response to a continuing weak real estate market, the Company reduced its prices for certain properties and recorded a $3.1 million impairment charge, of which $2.2 million was charged to merchandise cost of sales, $0.7 million was charged to service cost of sales and $0.2 million (pretax) was charged to discontinued operations.

v2.4.0.6
EARNINGS PER SHARE
12 Months Ended
Jan. 28, 2012
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)
  January 28,
2012
  January 29,
2011
  January 30,
2010
 

(a)

 

Earnings from continuing operations before discontinued operations

  $ 29,128   $ 37,171   $ 24,113  

 

 

Loss from discontinued operations, net of tax benefit of $(121), $(291) and $(580)

    (225 )   (540 )   (1,077 )
                   

 

 

Net earnings

  $ 28,903   $ 36,631   $ 23,036  
                   

(b)

 

Basic average number of common shares outstanding during period

    52,958     52,677     52,397  

 

 

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

    673     485     270  
                   

(c)

 

Diluted average number of common shares assumed outstanding during period

    53,631     53,162     52,667  
                   

 

 

Basic earnings per share:

                   

 

 

Earnings from continuing operations (a/b)

  $ 0.55   $ 0.71   $ 0.46  

 

 

Discontinued operations, net of tax

    (0.01 )   (0.01 )   (0.02 )
                   

 

 

Basic earnings per share

  $ 0.54   $ 0.70   $ 0.44  
                   

 

 

Diluted earnings per share:

                   

 

 

Earnings from continuing operations (a/c)

  $ 0.54   $ 0.70   $ 0.46  

 

 

Discontinued operations, net of tax

        (0.01 )   (0.02 )
                   

 

 

Diluted earnings per share

  $ 0.54   $ 0.69   $ 0.44  
                   

        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 were 870,000, 978,000 and 1,125,000 as of January 28, 2012, January 29, 2011, and January 30, 2010, respectively.

v2.4.0.6
BENEFIT PLANS
12 Months Ended
Jan. 28, 2012
BENEFIT PLANS  
BENEFIT PLANS

NOTE 13—BENEFIT PLANS

DEFINED BENEFIT AND CONTRIBUTION PLANS

        On December 31, 2008, the Company paid $14.4 million to terminate the defined benefit portion of its Supplemental Executive Retirement Plan (SERP) and recorded a $6.0 million settlement charge. The Company continues to maintain the non-qualified defined contribution portion of the SERP plan (the "Account Plan") for key employees designated by the Board of Directors. The Company's contribution expense for the Account Plan was $0.3 million, $1.2 million and $0.8 million for fiscal 2011, 2010 and 2009, 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 2011, 2010 and 2009, the Company's contributions were conditional upon the achievement of certain pre-established financial performance goals which were met in fiscal 2010 and 2009, but not in fiscal 2011. The Company's savings plans' contribution expense was $3.0 million and $3.1 million in fiscal 2010 and 2009, respectively.

        The Company also has 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. The termination of the Plan is expected to be completed by the end of fiscal 2012. In order to terminate the Plan, in accordance with Internal Revenue Service and Pension Benefit Guaranty Corporation requirements, the Company is required to fully fund the Plan on a termination basis and will commit to contribute the additional assets necessary to do so. Plan participants will not be adversely affected by the Plan termination, but rather will have their benefits either converted into a lump sum cash payment or an annuity contract placed with an insurance carrier. Until the Plan is terminated, the Plan's trustee will continue to maintain and invest Plan assets and will administer benefits payments. The Company uses a fiscal year end measurement date for determining the benefit obligation and the fair value of Plan assets. The actuarial computations are made using the "projected unit credit method." Variances between actual experience and assumptions for costs and returns on assets are amortized over the remaining service lives of employees under the Plan.

        Pension expense follows:

 
  Year Ended  
(dollar amounts in thousands)
  January 28,
2012
  January 29,
2011
  January 30,
2010
 

Service cost

  $   $   $  

Interest cost

    2,558     2,561     2,539  

Expected return on plan assets

    (2,745 )   (2,151 )   (1,804 )

Amortization of prior service cost

    14     14     14  

Recognized actuarial loss

    1,499     1,672     1,766  
               

Total pension expense

  $ 1,326   $ 2,096   $ 2,515  
               

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

 
  Year Ended  
 
  January 22, 2012   January 29, 2011   January 30, 2010  

Benefit obligation assumptions:

                   

Discount rate

    4.60 %   5.70 %   6.10 %

Rate of compensation increase

    N/A     N/A     N/A  

Pension expense assumptions:

                   

Discount rate

    5.70 %   6.10 %   7.00 %

Expected return on plan assets

    6.80 %   6.95 %   6.70 %

Rate of compensation expense

    N/A     N/A     N/A  

        The Company selected the discount rate for the benefit obligation at January 29, 2011 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 2011, 6.95% for fiscal 2010 and 6.70% for fiscal 2009.

        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)
  January 28,
2012
  January 29,
2011
 

Change in benefit obligation:

             

Benefit obligation at beginning of year

  $ 46,118   $ 42,744  

Interest cost

    2,558     2,561  

Actuarial loss

    6,952     2,454  

Benefits paid

    (1,654 )   (1,641 )
           

Benefit obligation at end of year

  $ 53,974   $ 46,118  
           

Change in plan assets:

             

Fair value of plan assets at beginning of year

  $ 39,063   $ 31,857  

Actual return on plan assets (net of expenses)

    3,193     3,847  

Employer contributions

    3,000     5,000  

Benefits paid

    (1,654 )   (1,641 )
           

Fair value of plan assets at end of year

  $ 43,602   $ 39,063  
           

Unfunded status at fiscal year end

  $ (10,372 ) $ (7,055 )
           

Net amounts recognized on consolidated balance sheet at fiscal year end

             

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

  $ (10,372 ) $ (7,055 )
           

Net amount recognized at fiscal year end

  $ (10,372 ) $ (7,055 )
           

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

             

Actuarial loss

  $ 15,407   $ 10,402  

Prior service cost

    26     40  
           

Net amount recognized at fiscal year end

  $ 15,433   $ 10,442  
           

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

  $ 4,991   $ (928 )

Accumulated benefit obligation at fiscal year end

  $ 53,974   $ 46,118  

Other information

             

Employer contributions expected in fiscal 2012

  $   $  

Estimated actuarial loss and prior service cost amortization in fiscal 2012

  $ 2,300   $ 1,530  

        Benefit payments, including amounts to be paid from Company assets, as appropriate, are expected to be paid as follows:

(dollar amounts in thousands)
   
 

2013

  $ 1,987  

2014

    2,094  

2015

    2,204  

2016

    2,326  

2017

    2,450  

2018 - 2022

    14,464  
  • Plan Assets and Investment Policy

        Investment policies are 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 is to meet current and future benefit payment needs within the constraints of diversification and prudent risk taking. The Plan is 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 are 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 updates 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 are used to rebalance the actual asset allocation to the target asset allocation. The asset allocation is monitored and rebalanced on a monthly basis.

        The manager of the investments provides advice and recommendations to help the Committee discharge its fiduciary responsibilities in furtherance of the Plan's goals and objectives. The manager has 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 is 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 are as follows:


Weighted Average Asset Allocations

 
  January 28,
2012
  January 29,
2011
  Asset Allocation
Ranges
 

Total equities