Pep Boys 2010 Annual Report Download - page 105

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THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended January 29, 2011, January 30, 2010 and January 31, 2009
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The reserve for warranty activity for the years ended January 29, 2011 and January 30, 2010,
respectively, are as follows:
(dollar amounts in thousands)
Balance, January 31, 2009 .................................... $ 797
Additions related to sales in the current year ...................... 15,572
Warranty costs incurred in the current year ....................... (15,675)
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
ADVERTISING The Company expenses the costs of advertising the first time the advertising takes
place. Gross advertising expense for fiscal 2010, 2009 and 2008 was $57.5 million, $52.6 million and
$73.7 million, respectively, and is recorded in selling, general and administrative expenses. No
advertising costs were recorded as assets as of January 29, 2011 or January 30, 2010.
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 options.
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 29, 2011, 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).
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