Petsmart 2007 Annual Report Download - page 61

“Accounting for Costs Associated with Exit or Disposal Activities.” The costs for future occupancy payments are
reported in operating, general and administrative expenses in the Consolidated Statements of Operations and
Comprehensive Income. We calculate the cost for future occupancy payments, net of sublease income, associated
with closed stores using the net present value method, at a credit-adjusted risk-free interest rate, over the remaining
life of the lease. Judgment is used to estimate the underlying real estate market related to the expected sublease
income, and we can make no assurances that additional charges will not be required based on the changing real
estate environment.
Property and equipment retirement losses at closed stores are recorded as operating, general and administrative
expenses in the Consolidated Statements of Operations and Comprehensive Income.
Income Taxes
We establish deferred income tax assets and liabilities for temporary differences between the financial
reporting bases and the income tax bases of our assets and liabilities at enacted tax rates expected to be in effect
when such assets or liabilities are realized or settled. We record a valuation allowance on the deferred income tax
assets to reduce the total to an amount we believe is more likely than not to be realized. Valuation allowances at
February 3, 2008 and January 28, 2007, were principally to offset certain deferred income tax assets for net
operating and capital loss carryforwards.
As of January 29, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes — an Interpretation of FASB Statement No. 109,” or FIN 48. FIN 48 addresses the determination of whether
tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under
FIN 48, the tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities. The determination is based on the technical
merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing
authority that has full knowledge of all relevant information. Although we believe the estimates are reasonable, no
assurance can be given that the final outcome of these matters will not be different than what is reflected in the
historical income tax provisions and accruals.
We operate in multiple tax jurisdictions and could be subject to audit in any of these jurisdictions. These audits
can involve complex issues that may require an extended period of time to resolve and may cover multiple years.
Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
February 3,
2008
January 28,
2007
Accrued income and sales tax .................................. $ 24,812 $ 31,042
Accounts payable — operating expenses .......................... 21,584 23,716
Accrued capital purchases ..................................... 21,419 23,090
Accrued general liability insurance reserve ........................ 16,059 13,555
Gift card liability ........................................... 9,325 12,775
Deferred revenue ........................................... 7,686 5,807
Other current liabilities ....................................... 47,947 45,319
$148,832 $155,304
F-11
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)