Petsmart 2003 Annual Report Download - page 59

PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
February 1, February 2,
2004 2003
Accrued legal fees and settlement costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,144 $17,569
Accrued income and sales taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 31,194 13,794
Accrued general liability insuranceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,328 5,538
Accrued advertising ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,128 2,149
Accrued capital purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,540 6,637
Gift card liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,850 4,158
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 46,334 34,345
$105,518 $84,190
Legal fees and other costs incurred in connection with loss contingencies are expensed as incurred.
Income Taxes
Deferred income tax assets and liabilities are established for temporary diÅerences between the Ñnancial
reporting bases and the income tax bases of the Company's assets and liabilities at enacted tax rates expected
to be in eÅect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by
a valuation allowance if, in the judgment of the Company's management, it is more likely than not that such
assets will not be realized. In 2001, the Company reversed valuation allowances on deferred tax assets of
$18,885,000 associated with the increase in ownership of PETsMART.com (see Note 2). The impact of the
reversed valuation allowances was included in income tax expense net of the reduction of goodwill discussed
above under Goodwill and Intangible Assets.
Revenue Recognition
The Company records revenue at the point of sale for retail stores. The shipping terms for catalog and
internet orders is FOB shipping point, therefore revenue is recognized at the time of shipment for catalog and
electronic commerce sales. Outbound shipping charges are included in net sales when the products are
shipped for catalog and electronic commerce sales. The Company records an allowance for estimated returns
in the period of sale. Revenue for grooming, pet training, and PETsHOTEL is recognized when services are
performed.
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 beneÑt, and classiÑes advertising costs
within operating expenses. Total advertising expenditures, net of cooperative income, including direct response
advertising, were $72,793,000, $66,180,000, and $80,247,000 for Ñscal 2003, 2002, and 2001, respectively.
Direct response advertising consists primarily of product catalogs developed by the Company's direct
marketing subsidiaries. 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 February 1, 2004, and
February 2, 2003, $1,267,000 and $2,020,000, respectively, of direct response advertising was included in
prepaid expenses and other current assets in the accompanying consolidated balance sheets.
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