Petsmart 2005 Annual Report Download - page 69

Goodwill and Intangible Assets
The Company accounts for goodwill and intangible assets in accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets.” The carrying value of goodwill of $14,422,000 as of January 29, 2006 and January 30,
2005, represents the excess of the cost of acquired businesses over the fair market value of their net assets.
Intangible assets consisted solely of servicemarks and trademarks that have an estimated useful life of 10 to
15 years. The servicemarks and trademarks have zero residual value. Changes in the carrying amount for fiscal 2005
and 2004 were as follows (in thousands):
Carrying
Amount
Accumulated
Amortization Net
Balance, February 1, 2004.............................. $4,890 $(2,269) $2,621
Changes ........................................... 104 (356) (252)
Balance, January 30, 2005.............................. 4,994 (2,625) 2,369
Changes ........................................... 76 (400) (324)
Write-off .......................................... (1,321) 881 (440)
Balance, January 29, 2006.............................. $3,749 $(2,144) $1,605
Amortization expense for the intangible assets was $359,000, $356,000 and $335,000 during fiscal 2005, 2004
and 2003, respectively. For fiscal years 2006 through 2010, the Company estimates the amortization expense to be
approximately $256,000 each year.
During fiscal 2005, the Company recognized a charge of $440,000 in the Consolidated Statements of
Operations for the write-off of certain intangible assets no longer in use.
Insurance Liabilities and Reserves
The Company maintains standard property and casualty insurance on all our properties and leasehold interests,
product liability insurance that covers products and the sale of live pets, self-insured health plans, employer’s
professional liability and workers’ compensation insurance. Property insurance covers approximately
$1,200,000,000 in buildings and contents, including furniture and fixtures, leasehold improvements and inventory.
Under our casualty and workers’ compensation insurance policies through January 31, 2004, the Company retained
the initial risk of loss of $250,000 for each policy per occurrence. Effective February 1, 2004, the Company engaged
a new insurance provider. Under our casualty and workers’ compensation insurance policies with the new provider,
the Company retains an initial risk of loss of $500,000 for each policy per occurrence on or subsequent to
February 1, 2004. The Company establishes reserves for losses based on semi-annual independent actuarial
estimates of the amount of loss inherent in that period’s claims, including losses for which claims have been
incurred but not reported. Loss estimates rely on actuarial observations of ultimate loss experience for similar
historical events, and changes in assumptions could result in an adjustment to the reserves. As of January 29, 2006
and January 30, 2005, the Company had approximately $54,246,000 and $41,552,000, respectively, in reserves
related to casualty, self-insured health plans, employer’s professional liability and workers’ compensation insur-
ance policies.
Reserve for Closed Stores
The Company continuously evaluates the performance of its retail stores and periodically closes those that are
under-performing. Closed stores are generally replaced by a new store in a nearby location. The Company
establishes reserves for future occupancy payments on closed stores in the period the store closes in accordance with
SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal.” The costs for future occupancy payments
are reported in operating, general and administrative expenses in the Consolidated Statements of Operations. The
F-10
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)