Pep Boys 2007 Annual Report Download - page 87

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended February 2, 2008, February 3, 2007 and January 28, 2006
(dollar amounts in thousands, except share data)
TRADE PAYABLE PROGRAM LIABILITY In the third quarter of fiscal 2004, the Company
entered into a vendor-financing program with an availability of $20,000. Under this program, the factor
made accelerated and discounted payments to the Company’s vendors and the Company, in turn, made
regularly scheduled full vendor payments to the factor. This program was terminated effective
December 2007. As of February 2, 2008 and February 3, 2007, there was an outstanding balance of $0
and $13,990, respectively, under this program, classified as trade payable program liability in the
consolidated balance sheet.
On June 29, 2007, the Company entered into a new vendor-financing program with an availability
up to $65,000. There was an outstanding balance of $14,254 under this program as of February 2, 2008.
VENDOR SUPPORT FUNDS The Company receives various incentives in the form of discounts
and allowances from its vendors based on the volume of purchases or for services that the Company
provides to the vendors. These incentives received from vendors include rebates, allowances and
promotional funds. Typically, these funds are dependent on purchase volumes and advertising activities.
The amounts received are subject to changes in market conditions, vendor marketing strategies and
changes in the profitability or sell-through of the related merchandise for the Company.
The Company accounts for vendor support funds in accordance with Financial Accounting
Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 02-16, ‘‘Accounting by a
Customer (Including a Reseller) for Cash Consideration Received from a Vendor’’ (EITF 02-16).
Rebates and other miscellaneous incentives 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 partially
or fully offset certain other direct expenses. Such allowances would be offset against the appropriate
expenses they offset, once the Company determines the allowances are for specific, identifiable
incremental expenses.
WARRANTY RESERVE The Company provides warranties for both its merchandise sales and
service labor. Warranties for merchandise are generally covered by its vendors, with the Company
covering any costs above the vendor’s stipulated allowance. Service labor warranties are covered in full
by the Company on a limited lifetime basis. The Company establishes its warranty reserves based on
historical data of warranty transactions. These costs are included in either our Costs of Merchandise
Sales or Costs of Service Revenue.
Components of the reserve for warranty costs for fiscal years ended February 2, 2008 and
February 3, 2007, are as follows:
Balance at January 28, 2006 ........................................ $ 1,477
Additions related to fiscal 2006 sales ................................. 9,320
Warranty costs incurred in fiscal 2006 ................................ (10,152)
Balance at February 3, 2007 ........................................ 645
Additions related to fiscal 2007 sales ................................. 7,937
Warranty costs incurred in fiscal 2007 ................................ (8,335)
Balance at February 2, 2008 ........................................ $ 247
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10-K