Petsmart 2001 Annual Report Download - page 38

PETsMART, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 Ì The Company and its SigniÑcant Accounting Policies
Business
PETsMART, Inc. and Subsidiaries (""the Company'' or ""PETsMART'') is a retailer of pet food, pet
supplies, accessories and professional pet services throughout North America. The Company, through its
wholly owned subsidiary, PETsMART Direct (""Direct''), is also a leading mail order catalog retailer of pet
and animal products, and equine and riding supplies. On December 20, 2000, the Company acquired a
controlling interest in PETsMART.com, Inc. (""PETsMART.com''), a leading e-commerce pet food and
supply business, in which the Company held an equity ownership of approximately 46% prior to the closing of
this transaction, and historically accounted for its investment under the equity method. As a result of this
transaction, the Company holds more than an 81% voting ownership in PETsMART.com, and has assumed
control (see Note 2).
The Company consummated a sale of its United Kingdom (""UK'') subsidiary to an unrelated third party
on December 15, 1999 (see Note 6). As a result of this transaction, the results of operations, excluding the
related tax eÅects, for the UK subsidiary for Ñscal 1999 prior to the transaction date, along with the
transaction loss and related fees, are reÖected in loss on disposal of subsidiary in the accompanying
consolidated statements of operations.
Principles of Consolidation
The consolidated Ñnancial statements include the accounts of the Company and its wholly and majority-
owned subsidiaries. All signiÑcant intercompany accounts and transactions are eliminated in consolidation.
Fiscal Year
The Company's Ñscal year ends on the Sunday nearest January 31. Fiscal 2000, 1999, and 1998 each
comprised 52 weeks.
Use of Estimates
The preparation of Ñnancial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that aÅect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Ñnancial
statements, and the reported amounts of revenues and expenses during the reporting period. Actual results
could diÅer from those estimates.
Cash and Cash Equivalents
Under the Company's cash management system, a bank overdraft balance exists for the Company's
primary disbursement accounts. This overdraft represents uncleared checks in excess of cash balances in the
related bank accounts. The Company's funds are transferred on an as-needed basis to pay for clearing checks.
At January 28, 2001 and January 30, 2000, bank overdrafts of approximately $40,370,000 and $50,100,000,
respectively, were included in accounts payable and bank overdraft in the accompanying consolidated balance
sheets. The Company considers any liquid investments with an original maturity of three months or less to be
cash equivalents. At January 28, 2001, cash and cash equivalents include approximately $986,000 of cash
restricted for letters of credit for use by Direct.
Vendor Rebates and Promotions
The Company receives income from certain merchandise suppliers in the form of rebates and promotions.
Agreements are made with each individual supplier and income is earned as buying levels are met and/or
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