Petsmart 2005 Annual Report Download - page 71

Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
January 29,
2006
January 30,
2005
Accrued income and sales tax .................................. $ 34,986 $14,699
Accounts payable — operating expenses .......................... 24,182 16,796
Accrued capital purchases ..................................... 23,310 7,579
Accrued general liability insurance reserve ........................ 11,514 9,291
Gift card liability ........................................... 10,755 8,199
Deferred revenue ........................................... 6,286 5,095
Other current liabilities ....................................... 37,462 31,753
$148,495 $93,412
Revenue Recognition
The Company records revenue at the point of sale for retail stores. The shipping terms for internet and catalog
orders is FOB shipping point and revenue for those transactions is recorded at the time of shipment. Internet and
catalog net sales include charges for outbound shipping. The Company makes provisions for estimated product
returns that it expects to occur under its return policy based on historical return rates. Revenue for grooming, pet
training, PetsHotel and Doggie Day Camp is recognized when services are performed.
The Company also records deferred revenue for the sale of gift cards and recognizes revenue upon the
redemption of gift cards. Deferred revenue from gift cards in the Consolidated Balance Sheets was $10,755,000 and
$8,199,000 as of January 29, 2006, and January 30, 2005, respectively.
Net Canadian sales, denominated in United States dollars, were $107,746,000, $87,693,000 and $75,706,000
for fiscal 2005, 2004 and 2003, respectively.
Advertising
The Company charges advertising costs to expense as incurred, except for direct response advertising, which is
capitalized and amortized over its expected period of future benefit, and classifies advertising costs within
operating, general and administrative expenses. Total advertising expenditures, net of cooperative income,
including direct response advertising, were $90,454,000, $70,675,000 and $72,794,000 for fiscal 2005, 2004
and 2003, respectively. Direct response advertising consists primarily of product catalogs. The capitalized costs of
the direct response advertising are amortized over the six-month to one-year period following the mailing of the
respective catalog. As of January 29, 2006 and January 30, 2005, $553,000 and $1,283,000, respectively, of direct
response advertising was included in prepaid expenses and other current assets in the Consolidated Balance Sheets.
Foreign Currency Translation and Transactions
The local currency has been used as the functional currency in Canada. The assets and liabilities denominated
in foreign currency are translated into United States dollars at the current rate of exchange at year-end, and revenues
and expenses are translated at the average exchange rate during the year. The translation gains and losses are
included as a separate component of other comprehensive income, and transaction gains and losses are included in
net income.
F-12
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)