Petsmart 2009 Annual Report Download - page 59

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Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
January 31,
2010
February 1,
2009
Accrued income and sales tax .................................. $ 43,428 $ 19,313
Accounts payable — operating expenses .......................... 19,458 17,183
Accrued capital purchases ..................................... 17,303 14,255
Accrued general liability insurance reserve (current portion)............ 5,195 5,137
Gift card liability ........................................... 8,991 8,472
Deferred revenue ........................................... 7,120 6,692
Other .................................................... 45,470 36,263
$146,965 $107,315
Revenue Recognition
We recognize revenue for store merchandise sales when the customer receives and pays for the merchandise at
the register. Services sales are recognized at the time the service is provided. E-commerce sales are recognized at
the time we estimate that the customer receives the product. We estimate and defer revenue and the related product
costs for shipments that are in-transit to the customer. Customers typically receive goods within a few days of
shipment. Such amounts were immaterial as of January 31, 2010, and February 1, 2009. Amounts related to
shipping and handling that are billed to customers are reflected in merchandise sales, and the related costs are
reflected in cost of merchandise sales.
We record deferred revenue for the sale of gift cards and recognize this revenue in net sales when cards are
redeemed. Gift card breakage income is recognized over two years based upon historical redemption patterns and
represents the balance of gift cards for which we believe the likelihood of redemption by the customer is remote.
During 2007, we obtained sufficient historical redemption data for our gift card program to make a reasonable
estimate of the ultimate redemption patterns and breakage rate. Accordingly, we recognized $6.0 million of gift card
breakage income in 2007, which includes the gift card breakage income related to gift cards sold since the inception
of the gift card program in 2000. During 2009 and 2008, we recognized $2.1 million and $2.0 million of gift card
breakage income, respectively. Gift card breakage is recorded monthly and is included in the Consolidated
Statements of Operations and Comprehensive Income as a reduction of operating, general and administrative
expenses.
We record allowances for estimated returns based on historical return patterns.
Revenue is recognized net of applicable sales tax in the Consolidated Statements of Operations and
Comprehensive Income. We record the sales tax liability in other current liabilities on the Consolidated Balance
Sheets.
Cost of Merchandise Sales
Cost of merchandise sales includes the following types of expenses:
• Purchase price of inventory sold;
• Transportation costs associated with moving inventory;
• Inventory shrinkage costs and valuation adjustments;
F-11
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)