DEFERRED REVENUE

3 Months Ended

Oct. 31, 2013

11. DEFERRED REVENUE

We offer our Fine Jewelry guests lifetime warranties on certain products that cover sizing and breakage with an option to purchase theft protection for a two-year period. Revenues related to lifetime warranty sales are recognized in proportion to when the expected costs will be incurred, which we estimate to be over an eight-year period. A significant change in estimates related to the time period or pattern in which warranty-related costs are expected to be incurred could adversely impact our revenues and earnings. Revenues related to the optional theft protection are recognized over the two-year contract period on a straight-line basis. We also offer our Fine Jewelry guests a two-year watch warranty and our Fine Jewelry and Kiosk Jewelry guests a one-year warranty that covers breakage. The revenue from the two-year watch warranty and one-year breakage warranty is recognized on a straight-line basis over the respective contract terms.

The change in deferred revenue associated with the sale of warranties is as follows (in thousands):

	Three Months Ended October 31,

	2013			2012
Deferred revenue, beginning of period	$	191,245		$	208,516
Warranties sold(a)		25,934			24,980
Revenue recognized		(33,955	)		(34,257	)

Deferred revenue, end of period	$	183,224		$	199,239

(a): Warranty sales for the three months ended October 31, 2013 include $0.5 million related to the depreciation in the Canadian currency rate on the beginning of the period deferred revenue balance. The change in the Canadian currency rate did not have a significant impact on the beginning of the period deferred revenue balance for the three months ended October 31, 2012.

Revenues associated with warranties during the three months ended October 31, 2013 and 2012 totaled $34.0 million and $34.3 million, respectively. Gross margin associated with warranties during the three months ended October 31, 2013 and 2012 totaled $27.4 million and $28.1 million, respectively.