Petsmart 2009 Annual Report Download - page 32

• We had no short-term debt as of January 31, 2010 or February 1, 2009, and did not borrow against the
Revolving Credit Facility during 2009.
• We added 37 net new stores during 2009 and operated 1,149 stores at the end of the year.
• Comparable store sales increased 1.6% during 2009 compared to a 3.8% increase during 2008. The increase
in sales was partially impacted by $8.3 million in unfavorable foreign currency fluctuations in 2009,
compared to $6.3 million in unfavorable foreign currency fluctuations in 2008.
• Services sales increased 9.2% to $575.4 million, or 10.8% of net sales, for 2009 compared to $526.7 million,
or 10.4% of net sales, during 2008.
• We purchased 7.1 million and 2.3 million shares of our common stock for $165.0 million and $50.0 million
during 2009 and 2008, respectively.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our consolidated
financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates for inventory valuation reserves,
insurance liabilities and reserves, asset impairments, reserve for closed stores, reserves against deferred tax assets
and uncertain tax positions. We base our estimates on historical experience and on various other assumptions we
believe to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Under different
assumptions or conditions, actual results may differ from these estimates. We believe the following critical
accounting policies reflect the more significant judgments and estimates we use in preparing our consolidated
financial statements.
Inventory Valuation Reserves
We have established reserves for estimated inventory shrinkage between physical inventories. Distribution
centers perform cycle counts encompassing all inventory items at least once every quarter. Stores generally perform
physical inventories at least once a year. Between the physical inventories, stores perform counts on certain
inventory items. For each reporting period presented, we estimate the inventory shrinkage based on a two-year
historical trend analysis. Changes in shrink results or market conditions could cause actual results to vary from
estimates used to establish the inventory reserves.
We also have reserves for estimated obsolescence and to reduce merchandise inventory to the lower of cost or
market. We evaluate inventories for excess, obsolescence or other factors that may render inventories unmarketable
at their historical cost. Factors included in determining obsolescence reserves include current and anticipated
demand, customer preferences, age of merchandise, seasonal trends and decisions to discontinue certain products. If
assumptions about future demand change, or actual market conditions are less favorable than those projected by
management, we may require additional reserves.
We have not made any significant changes in the accounting methodology we use to establish our inventory
valuation reserves during the past three fiscal years. We do not presently believe there is a reasonable likelihood of a
material change in the accounting methodology and assumed factors used to create the estimates we use to calculate
our inventory valuation reserves.
As of January 31, 2010, and February 1, 2009, we had inventory valuation reserves of $16.4 million and
$14.6 million, respectively. Additionally, we believe that a 10% change in our inventory valuation reserves would
not be material to our consolidated financial statements.
Asset Impairments
We review long-lived assets for impairment on a quarterly basis and whenever events or changes in
circumstances indicate that the book value of such assets may not be recoverable.
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