Petsmart 2002 Annual Report Download - page 58

PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Investments
All investments in which the Company has the ability to exercise signiÑcant inÖuence over the investee,
but less than a controlling voting interest, are accounted for under the equity method of accounting. Under the
equity method of accounting, the Company's share of the investee's earnings or loss is included in consolidated
operating results. Other investments, for which the Company does not have the ability to exercise signiÑcant
inÖuence and for which there is not a readily determinable market value, are accounted for under the cost
method of accounting. The Company periodically evaluates the carrying value of its investments accounted for
under the cost method of accounting and as of February 2, 2003, and February 3, 2002, such investments were
recorded at the lower of cost or estimated net realizable value.
Goodwill and Intangible Assets
The carrying value of goodwill of $14,422,000 and $13,222,000 as of February 2, 2003, and February 3,
2002, respectively, represents the excess of the cost of acquired businesses over the fair market value of their
net assets. In Ñscal 2002, the Company recorded $1,200,000 of additional goodwill related to the payment of
contingent consideration associated with the acquisition of PETsMART PETsHOTEL
TM
in 2000. In the
second quarter of Ñscal 2001, the Company eliminated net goodwill of $8,575,000 associated with the increase
in ownership of PETsMART.com (see Note 2). The goodwill was eliminated in connection with the reversal
of the valuation allowance against deferred tax assets and is discussed under Income Taxes (see Note 7). In
January 2002, the Company acquired all of the remaining shares held by PETsMART.com minority
stockholders for approximately $9,500,000, and eliminated the minority interest balance of $604,000. The net
amount of $8,896,000 was recorded in goodwill, and is associated with the pet Internet and pet catalog direct
marketing channels, which remain an integral part of the Company's direct marketing strategies.
In accordance with SFAS No. 142, ""Goodwill and Other Intangible Assets,'' the Company discontinued
the amortization of goodwill, eÅective February 4, 2002. The Company has completed the transitional
goodwill impairment test for its reporting units and recorded no impairment charge.
A reconciliation of the previously reported net income and earnings per common share to the amounts
adjusted for the exclusion of goodwill amortization, net of the related income tax eÅect, is as follows (in
thousands, except per share amounts):
Fiscal 2001 Fiscal 2000
Earnings Per Share Earnings Per Share
Income Basic Diluted (Loss) Basic Diluted
Reported net income (loss)ÏÏÏÏÏÏÏÏ $39,567 $0.35 $0.35 $(30,904) $(0.28) $(0.28)
Add back: amortization expense, net
of income tax beneÑt ÏÏÏÏÏÏÏÏÏÏÏ 1,056 0.01 0.01 383 0.01 0.01
Adjusted net income ÏÏÏÏÏÏÏÏÏÏÏÏÏ $40,623 $0.36 $0.36 $(30,521) $(0.27) $(0.27)
Intangible assets consisted solely of trademarks, and changes in the carrying amount for Ñscal 2002, were
as follows (in thousands):
Carrying Accumulated
Amount Amortization Net
Balance, February 3, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,758 $(1,656) $3,102
Additions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14 (278) (264)
Balance, February 2, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,772 $(1,934) $2,838
F-10