Petsmart 2005 Annual Report Download - page 76

Note 5 — Reserve for Closed Stores
The Company continuously evaluates the performance of its retail stores and periodically closes those that are
under-performing. Reserves for future occupancy payments on closed stores are established in the period the store is
closed, in accordance with SFAS No. 146. The costs for future occupancy payments associated with closed stores
are calculated by using the net present value method, at a credit-adjusted risk-free interest rate, over the remaining
life of the lease, net of expected sublease income.
The activity related to the closed store reserve was as follows (in thousands):
January 29,
2006
January 30,
2005
February 1,
2004
Fiscal Year Ended
Opening balance.................................. $9,141 $ 14,762 $ 9,261
Charges ........................................ 4,309 4,798 11,179
Cash payments ................................... (3,846) (10,419) (5,678)
Ending balance................................... $9,604 $ 9,141 $14,762
The current portion of the closed store reserve is recorded in other current liabilities, and the noncurrent
portion of the reserve is recorded in deferred rents and other noncurrent liabilities.
Approximately $4,000,000 was included in fiscal 2004 payments for the buyout of a previously reserved lease
obligation. During fiscal 2003, $4,524,000 was recorded as a charge to the reserve due to a lease termination,
changes in sublease assumptions and an increase in real property tax assessments. The adjustments and charges
were recorded in operating, general and administrative expenses in the Consolidated Statements of Operations. The
Company can make no assurances that additional charges related to these closed stores will not be required based on
the changing real estate environment.
Note 6 — Impairment of Long-Lived Assets and Asset Write-Downs
Long-lived assets, including goodwill and intangible assets, are reviewed for impairment, based on undis-
counted cash flows, annually and whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. If this review indicates that the carrying amount of the long-lived assets is not
recoverable, the Company will recognize an impairment loss, measured by the future discounted cash flow method
or market appraisals. During fiscal 2005, the Company recorded $440,000 in expense for the write-off of certain
intangible assets, and $2,085,000 in expense for accelerated depreciation of exterior signage to be replaced. During
fiscal 2004, the Company recorded approximately $4,100,000 for the retirement of assets and additional amor-
tization related to store lighting replacements. The Company records asset retirements at closed stores in
accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” These
charges were recorded as cost of goods sold or operating, general and administrative expenses, depending on asset
classification, in the consolidated statements of operations.
Long-lived assets for Canadian operations, denominated in United States dollars, were $25,735,000 and
$17,253,000 as of January 29, 2006 and January 30, 2005, respectively.
F-17
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)