Petsmart 2011 Annual Report Download - page 63

PetSmart, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
January 29,
2012
January 30,
2011
Accrued income and sales tax ..................................... $ 42,214 $ 46,696
Non-trade accounts payable ...................................... 53,797 19,854
Other(1) ...................................................... 105,236 89,515
$201,247 $156,065
(1) There are no other individual items within other current liabilities greater than 5% of total current liabilities.
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 that the customer receives the product. We 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 29, 2012, and January 30, 2011. Amounts related to shipping and han-
dling 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 each of 2011 and 2010, we recognized $1.8 million of gift card breakage income. During 2009, we
recognized $2.1 million of gift card breakage income. Gift card breakage is recorded monthly and is included in
the Consolidated Statements of Income 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 Income and Compre-
hensive Income. We record the sales tax liability in other current liabilities on the Consolidated Balance Sheets.
In accordance with our master operating agreement with Banfield, we charge Banfield license fees for the
space used by the veterinary hospitals and for their portion of utilities costs. We also charge Banfield for its por-
tion of specific operating expenses. Prior to February 1, 2010, license fees were treated as a reduction of occu-
pancy costs, which are included as a component of cost of merchandise sales, and reimbursements for specific
operating expenses were treated as a reduction of operating, general and administrative expenses in the Con-
solidated Statements of Income and Comprehensive Income. Beginning February 1, 2010, license fees and the
reimbursements for specific operating expenses are included in other revenue.
Cost of Merchandise Sales
Cost of merchandise sales includes the following types of expenses:
• Purchase price of inventory sold;
• Transportation costs associated with inventory;
• Inventory shrinkage costs and valuation adjustments;
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