Petsmart 2007 Annual Report Download - page 64

to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The provisions of SFAS No. 160 must be applied retrospectively upon adoption.
SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. Early adoption of SFAS No. 160 is
not permitted. We do not believe the impact of adopting SFAS No. 160 will be material to our consolidated financial
statements.
Reclassifications
In order to provide information in greater detail, we have presented “Deferred rents” and “Other noncurrent
liabilities” as separate line items instead of the previously reported single line item of “Deferred rents and other
noncurrent liabilities” in the Consolidated Balance Sheets.
Note 2 — Investments
We have an investment in MMI Holdings, Inc., a provider of veterinary and other pet-related services. MMI
Holdings, Inc., through a wholly-owned subsidiary, Medical Management International, Inc., collectively referred
to as MMIH, operates full-service veterinary hospitals inside 673 of our stores, under the registered trademark of
Banfield, The Pet Hospital. Philip L. Francis, PetSmart’s Chairman and Chief Executive Officer, and Robert F.
Moran, PetSmart’s President and Chief Operating Officer, are members of the board of directors of MMIH. Our
investment consists of common and convertible preferred stock.
During the thirteen weeks ended April 29, 2007, we sold a portion of our non-voting shares in MMIH for
$111.8 million. The cost basis of the non-voting shares was $16.4 million, which resulted in a pre-tax gain of
$95.4 million, or an after tax gain of approximately $64.3 million. In connection with this transaction, we also
converted our remaining MMIH non-voting shares to voting shares. The increase in voting shares caused us to
exceed the significant influence threshold as defined by GAAP, which required us to account for our investment in
MMIH using the equity method of accounting, instead of the previously applied cost method in accordance with
Accounting Principles Board Opinion, or APB, No. 18, “The Equity Method of Accounting for Investments in
Common Stock.”
Our ownership interest in the stock of MMIH was as follows (in thousands, except percentages):
Amount Shares
Ownership
Percentage Amount Shares
Ownership
Percentage
February 3, 2008 January 28, 2007
Voting common and convertible
preferred .................. $21,675 4,693 21.5% $10,549 2,855 17.8%
Non-voting common and
convertible preferred ......... — — — 27,516 5,235 97.6%
Equity in income ............. 1,671 — — —
Total investment .............. $23,346 4,693 21.0% $38,065 8,090 37.2%
The investment in voting common and convertible preferred shares of MMIH includes goodwill of $15.9 mil-
lion. The goodwill is calculated as the excess of the purchase price for each step of the acquisition of our ownership
interest in MMIH relative to that step’s portion of MMIH’s net assets at the respective acquisition date.
Of the 4.7 million shares of voting stock of MMIH we held:
(a) 2.9 million are shares of voting convertible preferred stock that may be converted into voting common
stock at any time at our option; and
(b) 1.8 million are shares of voting common stock.
F-14
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)