v2.4.0.6
Document and Entity Information
3 Months Ended
Apr. 28, 2012
May 25, 2012
Document and Entity Information    
Entity Registrant Name PEP BOYS MANNY MOE & JACK  
Entity Central Index Key 0000077449  
Document Type 10-Q  
Document Period End Date Apr. 28, 2012  
Amendment Flag false  
Current Fiscal Year End Date --02-02  
Entity Current Reporting Status Yes  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   52,851,617
Document Fiscal Year Focus 2012  
Document Fiscal Period Focus Q1  
v2.4.0.6
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Apr. 28, 2012
Jan. 28, 2012
Current assets:    
Cash and cash equivalents $ 99,439 $ 58,244
Accounts receivable, less allowance for uncollectible accounts of $1,289 and $1,303 22,542 25,792
Merchandise inventories 627,314 614,136
Prepaid expenses 26,077 26,394
Other current assets 57,197 59,979
Total current assets 832,569 784,545
Property and equipment - net 688,909 696,339
Goodwill 46,917 46,917
Deferred income taxes 67,745 72,870
Other long-term assets 32,393 33,108
Total assets 1,668,533 1,633,779
Current liabilities:    
Accounts payable 261,834 243,712
Trade payable program liability 100,414 85,214
Accrued expenses 228,675 221,705
Deferred income taxes 62,627 66,208
Current maturities of long-term debt 1,079 1,079
Total current liabilities 654,629 617,918
Long-term debt less current maturities 293,773 294,043
Other long-term liabilities 75,391 77,216
Deferred gain from asset sales 137,110 140,273
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 295,411 296,462
Retained earnings 424,083 423,437
Accumulated other comprehensive loss (16,275) (17,649)
Treasury stock, at cost - 15,716,914 shares and 15,803,322 shares (264,146) (266,478)
Total stockholders' equity 507,630 504,329
Total liabilities and stockholders' equity $ 1,668,533 $ 1,633,779
v2.4.0.6
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Apr. 28, 2012
Jan. 28, 2012
CONSOLIDATED BALANCE SHEETS    
Accounts receivable, allowance for uncollectible accounts (in dollars) $ 1,289 $ 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 15,716,914 15,803,322
v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Apr. 28, 2012
Apr. 30, 2011
Merchandise sales $ 412,332 $ 408,627
Service revenue 112,272 104,913
Total revenues 524,604 513,540
Costs of merchandise sales 290,856 285,329
Costs of service revenue 106,096 93,089
Total costs of revenues 396,952 378,418
Gross profit from merchandise sales 121,476 123,298
Gross profit from service revenue 6,176 11,824
Total gross profit 127,652 135,122
Selling, general and administrative expenses 119,710 108,900
Net (loss) gain from dispositions of assets (2) 89
Operating profit 7,940 26,311
Non-operating income 470 587
Interest expense 6,516 6,497
Earnings from continuing operations before income taxes and discontinued operations 1,894 20,401
Income tax expense 760 7,996
Earnings from continuing operations before discontinued operations 1,134 12,405
Loss from discontinued operations, net of tax (72) (37)
Net earnings 1,062 12,368
Basic earnings per share:    
Earnings from continuing operations before discontinued operations (in dollars per share) $ 0.02 $ 0.23
Loss from discontinued operations, net of tax (in dollars per share) $ 0.00 $ 0.00
Basic earnings per share (in dollars per share) $ 0.02 $ 0.23
Diluted earnings per share:    
Earnings from continuing operations before discontinued operations (in dollars per share) $ 0.02 $ 0.23
Loss from discontinued operations, net of tax (in dollars per share) $ 0.00 $ 0.00
Diluted earnings per share (in dollars per share) $ 0.02 $ 0.23
Other comprehensive income:    
Defined benefit plan adjustment, net of tax 354 220
Derivative financial instruments adjustment, net of tax 1,020 515
Other comprehensive income 1,374 735
Comprehensive income $ 2,436 $ 13,103
v2.4.0.6
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Apr. 28, 2012
Apr. 30, 2011
Cash flows from operating activities:    
Net earnings $ 1,062 $ 12,368
Adjustments to reconcile net earnings to net cash provided by continuing operations:    
Loss from discontinued operations, net of tax 72 37
Depreciation and amortization 19,938 19,884
Amortization of deferred gain from asset sales (3,163) (3,143)
Stock compensation expense 652 638
Deferred income taxes 719 4,458
Net loss (gain) from disposition of assets 2 (89)
Other (85) (63)
Changes in assets and liabilities, net of the effects of acquisitions:    
Decrease in accounts receivable, prepaid expenses and other 7,124 7,406
Increase in merchandise inventories (13,178) (13,323)
Increase in accounts payable 18,122 21,223
Increase (decrease) in accrued expenses 6,385 (8,242)
Increase (decrease) in other long-term liabilities 466 (2,458)
Net cash provided by continuing operations 38,116 38,696
Net cash used in discontinued operations (106) (66)
Net cash provided by operating activities 38,010 38,630
Cash flows from investing activities:    
Capital expenditures (11,940) (18,123)
Proceeds from dispositions of assets   89
Premiums paid on life insurance policies   (741)
Collateral investment   (4,763)
Other   (144)
Net cash used in investing activities (11,940) (23,682)
Cash flows from financing activities:    
Borrowings under line of credit agreements 524 1,067
Payments under line of credit agreements (524) (1,067)
Borrowings on trade payable program liability 42,722 24,589
Payments on trade payable program liability (27,522) (27,816)
Debt payments (270) (270)
Dividends paid   (1,585)
Other 195 268
Net cash provided by (used in) financing activities 15,125 (4,814)
Net increase in cash and cash equivalents 41,195 10,134
Cash and cash equivalents at beginning of period 58,244 90,240
Cash and cash equivalents at end of period 99,439 100,374
Supplemental disclosure of cash flow information:    
Cash paid for income taxes 1,227 57
Cash paid for interest 2,940 2,885
Non-cash investing activities:    
Accrued purchases of property and equipment $ 1,970 $ 993
v2.4.0.6
BASIS OF PRESENTATION
3 Months Ended
Apr. 28, 2012
BASIS OF PRESENTATION  
BASIS OF PRESENTATION

NOTE 1BASIS OF PRESENTATION

 

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, 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.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted, as permitted by Rule 10-01 of the Securities and Exchange Commission’s Regulation S-X, “Interim Financial Statements.” It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012. The results of operations for the thirteen weeks ended April 28, 2012 are not necessarily indicative of the operating results for the full fiscal year.

 

The consolidated financial statements presented herein are unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows as of April 28, 2012 and for all periods presented have been made.

 

The Company’s fiscal year ends on the Saturday nearest January 31. Accordingly, references to fiscal years 2012 and 2011 refer to the year ending February 2, 2013 and the year ended January 28, 2012, respectively.

 

The Company operated 738 store locations at April 28, 2012, of which 232 were owned and 506 were leased.

v2.4.0.6
NEW ACCOUNTING STANDARDS
3 Months Ended
Apr. 28, 2012
NEW ACCOUNTING STANDARDS  
NEW ACCOUNTING STANDARDS

NOTE 2NEW ACCOUNTING STANDARDS

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 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, and is effective for periods beginning after December 15, 2011. 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 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.

 

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. The adoption of ASU 2011-08 will not have a material impact on the consolidated financial statements.

v2.4.0.6
MERCHANDISE INVENTORIES
3 Months Ended
Apr. 28, 2012
MERCHANDISE INVENTORIES  
MERCHANDISE INVENTORIES

NOTE 3MERCHANDISE INVENTORIES

 

Merchandise inventories are valued at the lower of cost or market. Cost is determined by using the last-in, first-out (“LIFO”) method. An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on inventory and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected fiscal year-end inventory levels and costs. If the first-in, first-out (“FIFO”) method of costing inventory had been used by the Company, inventory would have been $554.1 million and $536.4 million as of April 28, 2012 and January 28, 2012, respectively.

 

The Company’s inventory, consisting primarily of automotive parts and accessories, is used on vehicles. Because of the relatively long lives of vehicles, along with historical experiences of returning most excess inventory to 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 $4.4 million and $4.6 million at April 28, 2012 and January 28, 2012, respectively.

v2.4.0.6
PROPERTY AND EQUIPMENT
3 Months Ended
Apr. 28, 2012
PROPERTY AND EQUIPMENT  
PROPERTY AND EQUIPMENT

NOTE 4PROPERTY AND EQUIPMENT

 

The Company’s property and equipment as of April 28, 2012 and January 28, 2012 was as follows:

 

(dollar amounts in thousands)

 

April 28, 2012

 

January 28, 2012

 

 

 

 

 

 

 

Property and equipment

 

 

 

 

 

Land

 

$

204,023

 

$

204,023

 

Buildings and improvements

 

880,733

 

875,999

 

Furniture, fixtures and equipment

 

730,700

 

723,938

 

Construction in progress

 

3,772

 

3,279

 

Accumulated depreciation and amortization

 

(1,130,319

)

(1,110,900

)

Property and equipment — net

 

$

688,909

 

$

696,339

 

v2.4.0.6
WARRANTY RESERVE
3 Months Ended
Apr. 28, 2012
WARRANTY RESERVE  
WARRANTY RESERVE

NOTE 5WARRANTY 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 experiences. These costs are included in either costs of merchandise sales or costs of service revenues in the consolidated statements of operations.

 

The reserve for warranty cost activity for the thirteen weeks ended April 28, 2012 and the fifty-two weeks ended January 28, 2012 is as follows:

 

(dollar amounts in thousands)

 

April 28, 2012

 

January 28, 2012

 

Beginning balance

 

$

673

 

$

673

 

 

 

 

 

 

 

Additions related to current period sales

 

2,804

 

12,122

 

 

 

 

 

 

 

Warranty costs incurred in current period

 

(2,804

)

(12,122

)

 

 

 

 

 

 

Ending balance

 

$

673

 

$

673

 

v2.4.0.6
DEBT AND FINANCING ARRANGEMENTS
3 Months Ended
Apr. 28, 2012
DEBT AND FINANCING ARRANGEMENTS  
DEBT AND FINANCING ARRANGEMENTS

NOTE 6DEBT AND FINANCING ARRANGEMENTS

 

The following are the components of debt and financing arrangements:

 

(dollar amounts in thousands)

 

April 28, 2012

 

January 28, 2012

 

7.50% Senior Subordinated Notes, due December 2014

 

$

147,565

 

$

147,565

 

Senior Secured Term Loan, due October 2013

 

147,287

 

147,557

 

Revolving Credit Agreement, through January 2016

 

 

 

Long-term debt

 

294,852

 

295,122

 

Current maturities

 

(1,079

)

(1,079

)

Long-term debt less current maturities

 

$

293,773

 

$

294,043

 

 

As of April 28, 2012, 126 stores collateralized the Senior Secured Term Loan.

 

The Company’s ability to borrow under its Revolving Credit 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 April 28, 2012, there were no outstanding borrowings under this agreement and $29.6 million of availability was utilized to support outstanding letters of credit. Taking this into account and the borrowing base requirements, as of April 28, 2012, there was $189.4 million of availability remaining.

 

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 Revolving Credit Agreement drops below $50.0 million. As of April 28, 2012, the Company was in compliance with all financial covenants contained in its debt agreements.

 

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 and are considered a level 2 measure under the fair value hierarchy. The estimated fair value of long-term debt including current maturities was $296.1 million and $293.6 million as of April 28, 2012 and January 28, 2012, respectively.

v2.4.0.6
ACCUMULATED OTHER COMPREHENSIVE LOSS
3 Months Ended
Apr. 28, 2012
ACCUMULATED OTHER COMPREHENSIVE LOSS  
ACCUMULATED OTHER COMPREHENSIVE LOSS

NOTE 7ACCUMULATED OTHER COMPREHENSIVE LOSS

 

The components of accumulated other comprehensive loss are:

 

(dollar amounts in thousands)

 

April 28, 2012

 

January 28, 2012

 

 

 

 

 

 

 

Defined benefit plan adjustment, net of tax

 

$

(9,342

)

$

(9,696

)

Derivative financial instrument adjustment, net of tax

 

(6,933

)

(7,953

)

Accumulated other comprehensive loss

 

$

(16,275

)

$

(17,649

)

v2.4.0.6
EARNINGS PER SHARE
3 Months Ended
Apr. 28, 2012
EARNINGS PER SHARE  
EARNINGS PER SHARE

NOTE 8EARNINGS PER SHARE

 

The following table presents the calculation of basic and diluted earnings per share for earnings from continuing operations and net earnings:

 

 

 

Thirteen Weeks Ended

 

(dollar amounts in thousands, except per share amounts)

 

April 28, 2012

 

April 30, 2011

 

 

 

 

 

 

 

(a) Earnings from continuing operations

 

$

1,134

 

$

12,405

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

(72

)

(37

)

 

 

 

 

 

 

Net earnings

 

$

1,062

 

$

12,368

 

 

 

 

 

 

 

(b) Basic average number of common shares outstanding during period

 

53,071

 

52,881

 

 

 

 

 

 

 

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

 

878

 

685

 

 

 

 

 

 

 

(c) Diluted average number of common shares assumed outstanding during period

 

53,949

 

53,566

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

Earnings from continuing operations (a/b)

 

$

0.02

 

$

0.23

 

Discontinued operations, net of tax

 

 

 

Basic earnings per share

 

$

0.02

 

$

0.23

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

Earnings from continuing operations (a/c)

 

$

0.02

 

$

0.23

 

Discontinued operations, net of tax

 

 

 

Diluted earnings per share

 

$

0.02

 

$

0.23

 

 

At April 28, 2012 and April 30, 2011, respectively, there were 2,654,000 and 2,717,000 outstanding options and restricted stock units. Certain stock options were excluded from the calculation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares for the periods then ended and therefore would be anti-dilutive. The total number of such shares excluded from the diluted earnings per share calculation are 299,000 and 773,000 for the thirteen weeks ended April 28, 2012 and April 30, 2011, respectively.

v2.4.0.6
BENEFIT PLANS
3 Months Ended
Apr. 28, 2012
BENEFIT PLANS  
BENEFIT PLANS

NOTE 9BENEFIT PLANS

 

The Company has a qualified 401(k) savings plan and a separate 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 also maintains a non-qualified defined contribution Supplemental Executive Retirement Plan (the “Account Plan”) for key employees designated by the Board of Directors. The Company’s contribution to these plans for fiscal 2012 is contingent upon meeting certain performance metrics. The Company did not record any contribution expense for these plans in the first quarter of 2012 or 2011.

 

The Company also has a frozen defined benefit pension plan covering the Company’s full-time employees hired on or before February 1, 1992. The Company’s expense for its pension plan follows:

 

 

 

Thirteen weeks ended

 

(dollar amounts in thousands)

 

April 28, 2012

 

April 30, 2011

 

 

 

 

 

 

 

Interest cost

 

$

619

 

$

651

 

Expected return on plan assets

 

(704

)

(651

)

Amortization of net loss

 

566

 

351

 

Net periodic benefit cost

 

$

481

 

$

351

 

 

The Plan is subject to minimum funding requirements of the Employee Retirement Income Security Act of 1974 as amended. While the Company had no minimum funding requirement during fiscal 2011, it made a $3.0 million discretionary contribution to the defined benefit pension plan on April 28, 2011.  There were no discretionary contributions made during the first quarter of 2012.

 

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.

v2.4.0.6
FAIR VALUE MEASUREMENTS AND DERIVATIVES
3 Months Ended
Apr. 28, 2012
FAIR VALUE MEASUREMENTS AND DERIVATIVES  
FAIR VALUE MEASUREMENTS AND DERIVATIVES

NOTE 10FAIR VALUE MEASUREMENTS AND DERIVATIVES

 

The Company’s fair value measurements consist of (a) 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 non-recurring non-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.

 

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

 

(dollar amounts in thousands)

 

Fair Value
at

 

Fair Value Measurements
Using Inputs Considered as

 

Description

 

April 28, 2012

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

99,439

 

$

99,439

 

$

 

$

 

Collateral investments (1)

 

17,276

 

17,276

 

 

 

Rabbi trust assets (1)

 

3,696

 

 

3,696

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

 

 

 

 

 

 

 

Derivative liability (2)

 

10,929

 

 

10,929

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollar amounts in thousands)

 

Fair Value
at

 

Fair Value Measurements
Using Inputs Considered as

 

Description

 

January 28, 2012

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

58,244

 

$

58,244

 

$

 

$

 

Collateral investments (1)

 

17,276

 

17,276

 

 

 

Rabbi trust assets (1) 

 

3,576

 

 

3,576

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

 

 

 

 

 

 

 

Derivative liability (2)

 

12,540

 

 

12,540

 

 

 

 

(1) included in other long-term assets

(2) included in other long-term liabilities

 

As of January 28, 2012 the Company invested $17.3 million in restricted accounts as collateral for its retained liabilities included within existing insurance programs in lieu of previously outstanding letters of credit, of which $4.8 million was invested during the first quarter of fiscal year 2011.

 

The Company has one interest rate swap designated as a cash flow hedge on $145.0 million of the Company’s Senior Secured Term Loan that is due in October 2013. The swap is 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 have been recorded to accumulated other comprehensive loss.

 

The table below shows the effect of the Company’s interest rate swap on the consolidated financial statements for the periods indicated:

 

(dollar amounts in thousands)

 

Amount of Gain in
Other Comprehensive
Income
(Effective Portion)

 

Earnings Statement
Classification

 

Amount of Loss
Recognized in Earnings
(Effective Portion) (a)

 

Thirteen weeks ended April 28, 2012

 

$

1,007

 

Interest expense

 

$

(1,654

)

Thirteen weeks ended April 30, 2011

 

$

498

 

Interest expense

 

$

(1,719

)

 

 

(a) represents the effective portion of the loss reclassified from accumulated other comprehensive loss

 

The fair value of the derivative was $10.9 million and $12.5 million payable at April 28, 2012 and January 28, 2012, respectively. Of the $1.6 million decrease in the fair value during the thirteen weeks ended April 28, 2012, $1.0 million net of tax was recorded to accumulated other comprehensive loss on the consolidated balance sheet.

 

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. These measures of fair value, and related inputs, are considered level 2 or level 3 measures under the fair value hierarchy. There were no remeasurements of non-financial assets in the first quarter of 2012 or 2011.

v2.4.0.6
LEGAL MATTERS
3 Months Ended
Apr. 28, 2012
LEGAL MATTERS  
LEGAL MATTERS

NOTE 11LEGAL 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 reasonable 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
MERGER UPDATE
3 Months Ended
Apr. 28, 2012
MERGER UPDATE  
MERGER UPDATE

NOTE 12MERGER UPDATE

 

On May 29, 2012, the Company, Auto Acquisition Company, LLC, a Delaware limited liability company (“Parent”), Auto Mergersub, Inc., a Delaware corporation (“Merger Sub”), and The Gores Group, LLC, a Delaware limited liability company (“Gores”), entered into a Settlement Agreement (the “Settlement Agreement”) relating to the previously announced Agreement and Plan of Merger, dated as of January 29, 2012, by and among the Company, Parent and Merger Sub (the “Merger Agreement”).  The Settlement Agreement provides for, among other things: (i) the termination of the Merger Agreement and the related financing commitments from Gores Capital Partners II, L.P. and Gores Capital Partners III, L.P.; (ii) Parent’s agreement to pay a $50.0 million fee to the Company and reimburse the Company for certain of its merger related expenses; and (iii) mutual releases of the parties. Each of Gores Capital Partners II, L.P. and Gores Capital Partners III, L.P. , investment funds affiliated with Gores, have entered into guarantee agreements in favor of the Company pursuant to which each fund has agreed to guarantee its pro rata portion of amounts payable by Parent under the Settlement Agreement.

v2.4.0.6
SUPPLEMENTAL GUARANTOR INFORMATION
3 Months Ended
Apr. 28, 2012
SUPPLEMENTAL GUARANTOR INFORMATION  
SUPPLEMENTAL GUARANTOR INFORMATION

NOTE 13SUPPLEMENTAL GUARANTOR INFORMATION

 

The Company’s Notes are fully and unconditionally and joint and severally guaranteed by certain of the Company’s direct and indirectly wholly-owned subsidiaries—namely, The Pep Boys Manny Moe & Jack of California, The Pep Boys—Manny Moe & Jack of Delaware, Inc. (the “Pep Boys of Delaware”); Pep Boys—Manny Moe & Jack of Puerto Rico, Inc.; Tire Stores Group Holding Corporation (on and after May 5, 2011); Big 10 Tire Stores, LLC (on and after May 5, 2011), (collectively, the “Subsidiary Guarantors”). The Notes are not guaranteed by the Company’s wholly owned subsidiary, Colchester Insurance Company.

 

The following consolidating information presents, in separate columns, the condensed consolidating balance sheets as of April 28, 2012 and January 28, 2012 and the related condensed consolidating statements of operations and comprehensive income for the thirteen weeks ended April 28, 2012 and April 30, 2011 and condensed consolidating statements of cash flows for the thirteen weeks ended April 28, 2012 and April 30, 2011 for (i) the Company (“Pep Boys”) on a parent only basis, with its investment in subsidiaries recorded under the equity method, (ii) the Subsidiary Guarantors on a combined basis, (iii) the subsidiary of the Company that does not guarantee the Notes, and (iv) the Company on a consolidated basis. The Company made an immaterial adjustment to the January 29, 2011 amounts reported for cash, intercompany receivables and intercompany liabilities to account for certain intercompany borrowing activity between Pep Boys and a subsidiary guarantor, which affected net cash provided by (used in) financing activities for the thirteen weeks ended April 30, 2011.

 

CONDENSED CONSOLIDATING BALANCE SHEET

(dollars in thousands)

(unaudited)

 

As of April 28, 2012

 

Pep Boys

 

Subsidiary
Guarantors

 

Subsidiary Non-
Guarantors

 

Consolidation/
Elimination

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,764

 

$

61,170

 

$

10,505

 

$

 

$

99,439

 

Accounts receivable, net

 

10,664

 

11,878

 

 

 

22,542

 

Merchandise inventories

 

221,428

 

405,886

 

 

 

627,314

 

Prepaid expenses

 

12,806

 

14,701

 

10,921

 

(12,351

)

26,077

 

Other current assets

 

1,803

 

 

60,235

 

(4,841

)

57,197

 

Total current assets

 

274,465

 

493,635

 

81,661

 

(17,192

)

832,569

 

Property and equipment—net

 

246,121

 

431,278

 

30,006

 

(18,496

)

688,909

 

Investment in subsidiaries

 

2,188,204

 

 

 

(2,188,204

)

 

Intercompany receivables

 

 

1,377,856

 

75,537

 

(1,453,393

)

 

Goodwill

 

2,549

 

44,368

 

 

 

46,917

 

Deferred income taxes

 

16,586

 

51,159

 

 

 

67,745

 

Other long-term assets

 

30,480

 

1,913

 

 

 

32,393

 

Total assets

 

$

2,758,405

 

$

2,400,209

 

$

187,204

 

$

(3,677,285

)

$

1,668,533

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

261,834

 

$

 

$

 

$

 

$

261,834

 

Trade payable program liability

 

100,414

 

 

 

 

100,414

 

Accrued expenses

 

24,543

 

62,227

 

154,256

 

(12,351

)

228,675

 

Deferred income taxes

 

25,985

 

41,483

 

 

(4,841

)

62,627

 

Current maturities of long-term debt

 

1,079

 

 

 

 

1,079

 

Total current liabilities

 

413,855

 

103,710

 

154,256

 

(17,192

)

654,629

 

Long-term debt less current maturities

 

293,773

 

 

 

 

293,773

 

Other long-term liabilities

 

29,496

 

45,895

 

 

 

75,391

 

Deferred gain from asset sales

 

60,258

 

95,348

 

 

(18,496

)

137,110

 

Intercompany liabilities

 

1,453,393

 

 

 

(1,453,393

)

 

Total stockholders’ equity

 

507,630

 

2,155,256

 

32,948

 

(2,188,204

)

507,630

 

Total liabilities and stockholders’ equity

 

$

2,758,405

 

$

2,400,209

 

$

187,204

 

$

(3,677,285

)

$

1,668,533

 

 

CONDENSED CONSOLIDATING BALANCE SHEET

(dollars in thousands)

(unaudited)

 

As of January 28, 2012

 

Pep Boys

 

Subsidiary
Guarantors

 

Subsidiary Non-
Guarantors

 

Consolidation/
Elimination

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,740

 

$

27,181

 

$

8,323

 

$

 

$

58,244

 

Accounts receivable, net

 

14,566

 

11,226

 

 

 

25,792

 

Merchandise inventories

 

214,584

 

399,552

 

 

 

614,136

 

Prepaid expenses

 

12,945

 

16,873

 

14,996

 

(18,420

)

26,394

 

Other current assets

 

606

 

 

64,214

 

(4,841

)

59,979

 

Total current assets

 

265,441

 

454,832

 

87,533

 

(23,261

)

784,545

 

Property and equipment—net

 

243,108

 

441,645

 

30,177

 

(18,591

)

696,339

 

Investment in subsidiaries

 

2,176,992

 

 

 

(2,176,992

)

 

Intercompany receivables

 

 

1,389,910

 

82,206

 

(1,472,116

)

 

Goodwill

 

2,549

 

44,368

 

 

 

46,917

 

Deferred income taxes

 

20,468

 

52,402

 

 

 

72,870

 

Other long-term assets

 

31,068

 

2,040

 

 

 

33,108

 

Total assets

 

$

2,739,626

 

$

2,385,197

 

$

199,916

 

$

(3, 690,960)

 

$

1,633,779

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

243,712

 

$

 

$

 

$

 

$

243,712

 

Trade payable program liability

 

85,214

 

 

 

 

85,214

 

Accrued expenses

 

17,887

 

55,527

 

166,711

 

(18,420

)

221,705

 

Deferred income taxes

 

29,383

 

41,666

 

 

(4,841

)

66,208

 

Current maturities of long-term debt

 

1,079

 

 

 

 

1,079

 

Total current liabilities

 

377,275

 

97,193

 

166,711

 

(23,261

)

617,918

 

Long-term debt less current maturities

 

294,043

 

 

 

 

294,043

 

Other long-term liabilities

 

30,540

 

46,676

 

 

 

77,216

 

Deferred gain from asset sales

 

61,323

 

97,541

 

 

(18,591

)

140,273

 

Intercompany liabilities

 

1,472,116

 

 

 

(1,472,116

)

 

Total stockholders’ equity

 

504,329

 

2,143,787

 

33,205

 

(2,176,992

)

504,329

 

Total liabilities and stockholders’ equity

 

$

2,739,626

 

$

2,385,197

 

$

199,916

 

$

(3,690,960

)

$

1,633,779

 

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AND COMPREHENSIVE INCOME

(dollars in thousands)

(unaudited)

 

 

 

 

 

Subsidiary

 

Subsidiary Non-

 

Consolidation /

 

 

 

Thirteen Weeks Ended April 28, 2012

 

Pep Boys

 

Guarantors

 

Guarantors

 

Elimination

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchandise sales

 

$

136,583

 

$

275,749

 

$

 

$

 

$

412,332

 

Service revenue

 

38,041

 

74,231

 

 

 

112,272

 

Other revenue

 

 

 

6,159

 

(6,159

)

 

Total revenues

 

174,624

 

349,980

 

6,159

 

(6,159

)

524,604

 

Costs of merchandise sales

 

97,710

 

193,606

 

 

(460

)

290,856

 

Costs of service revenue

 

34,286

 

71,857

 

 

(47

)

106,096

 

Costs of other revenue

 

 

 

6,572

 

(6,572

)

 

Total costs of revenues

 

131,996

 

265,463

 

6,572

 

(7,079

)

396,952

 

Gross profit from merchandise sales

 

38,873

 

82,143