Pep Boys 2014 Annual Report Download - page 49

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended January 31, 2015, February 1, 2014 and February 2, 2013
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 on 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.
The Company’s Customer Loyalty 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 if the customer returns 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 suppliers based on purchases or for services that the Company provides to the
suppliers. These incentives received from suppliers include rebates, allowances and promotional funds
and are generally based on 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 supplier agreements and ongoing
negotiations that may be impacted in the future based on changes in market conditions, supplier
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 supplier allowances are used exclusively for promotions and to offset
certain other direct expenses if the Company determines the allowances are for specific, identifiable
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