Petsmart 2009 Annual Report Download - page 56

assessing performance. Utilizing these criteria, we manage our business on the basis of one reportable operating
segment.
Net sales in the United States were $5.1 billion, $4.9 billion and $4.5 billion for 2009, 2008 and 2007,
respectively. Net sales in Canada, denominated in United States dollars, were $245.5 million, $217.6 million and
$188.6 million for 2009, 2008 and 2007, respectively. Substantially all our long-lived assets are located in the
United States.
Financial Instruments
Our financial instruments consist primarily of cash and cash equivalents, restricted cash, receivables, and
accounts payable. These balances, as presented in the consolidated financial statements at January 31, 2010, and
February 1, 2009, approximate fair value because of the short-term nature.
Cash and Cash Equivalents
We consider any liquid investments with a maturity of three months or less at purchase to be cash equivalents.
Included in cash and cash equivalents are credit and debit card receivables from banks, which typically settle within
five business days, of $44.1 million and $43.0 million as of January 31, 2010, and February 1, 2009, respectively.
Under our cash management system, a bank overdraft balance exists for our primary disbursement accounts.
This overdraft represents uncleared checks in excess of cash balances in the related bank accounts. Our funds are
transferred on an as-needed basis to pay for clearing checks. As of January 31, 2010, and February 1, 2009, bank
overdrafts of $42.5 million and $47.6 million respectively, were included in accounts payable and bank overdraft in
the Consolidated Balance Sheets.
Restricted Cash
We are required to maintain a cash deposit with the lenders of our stand-alone letter of credit facility equal to
the amount of the outstanding letters of credit, or we may use other approved investments as collateral. If we use
other approved investments as collateral, we must have an amount on deposit which, when multiplied by the
advance rate of 85%, is equal to the amount of the outstanding letters of credit under the stand-alone letter of credit
facility.
Vendor Rebates and Cooperative Advertising Incentives
We receive vendor allowances, in the form of purchase rebates and cooperative advertising incentives, from
agreements made with certain merchandise suppliers. Rebate incentives are initially deferred as a reduction of the
cost of inventory purchased and then recognized as a reduction of cost of sales as the related inventory is sold.
Cooperative advertising incentives are recorded as a reduction of operating, general and administrative expenses in
the Consolidated Statements of Operations and Comprehensive Income. Unearned purchase rebates recorded as a
reduction of inventory, and rebate and cooperative advertising incentives remaining in receivables in the Consol-
idated Balance Sheets as of January 31, 2010, and February 1, 2009, were not material.
Merchandise Inventories and Valuation Reserves
Merchandise inventories represent finished goods and are recorded at the lower of cost or market. Cost is
determined by the moving average cost method and includes inbound freight, as well as certain procurement and
distribution costs related to the processing of merchandise.
We have established reserves for estimated inventory shrinkage between physical inventories. Physical
inventory counts are taken on a regular basis, and inventory is adjusted accordingly. For each reporting period
F-8
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)