Pep Boys 2008 Annual Report Download - page 107

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended January 31, 2009, February 2, 2008 and February 3, 2007
(dollar amounts in thousands, except share data)
quarterly, and adjusted as necessary. Specific accounts are written off against the allowance when
management determines the account is uncollectible.
TRADE PAYABLE PROGRAM LIABILITY In the third quarter of fiscal year 2004, we entered
into a vendor financing program. Under this program, our factor makes accelerated and discounted
payments to our vendors and we, in turn, make our regularly-scheduled full vendor payments to the
factor. On June 29, 2007, we replaced the vendor financing program with a new lender and increased
availability from $20,000 to $65,000. This availability was subsequently reduced to $40,000. There was
an outstanding balance of $31,930 and $14,254 under this program as of January 31, 2009 and
February 2, 2008 respectively, which is classified as trade payable program liability in the consolidated
balance sheet.
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. 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, if 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 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 experience. These costs are included in either our 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 31, 2009 and February 2, 2008,
respectively, is as follows:
Balance at February 3, 2007 ........................................ $ 645
Additions related to sales in the current year ........................... 7,937
Warranty costs incurred in the current year ............................ (8,335)
Balance at February 2, 2008 ........................................ 247
Additions related to sales in the current year ........................... 13,439
Warranty costs incurred in the current year ............................ (12,889)
Balance at January 31, 2009 ........................................ $ 797
43