Petsmart 2002 Annual Report Download - page 59

PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Amortization expense for the intangible assets was $278,000 during Ñscal 2002. For Ñscal years 2003
through 2007, the Company estimates the amortization expense to be approximately $282,000 each year.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment, based on undiscounted cash Öows, whenever events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If this
review indicates that the carrying amount of the long-lived assets is not recoverable, the Company will
recognize an impairment loss, measured by the future discounted cash Öow method or market appraisals. As a
result of continued losses incurred at its PETsMART Direct subsidiary, and an analysis of the current business
model, in Ñscal 2001, the Company performed an impairment analysis in accordance with SFAS No. 121,
""Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of.'' The analysis
indicated an impairment of $6,927,000 associated with PETsMART Direct's building, Ñxtures, equipment,
goodwill, and software, which was recorded in general and administrative expenses (see Note 6). The fair
value of such assets was determined based on market appraisals and analysis of expected future discounted
cash Öows. During Ñscal 2002 and 2000, no impairment losses were recorded.
Insurance Liabilities and Reserves
The Company maintains standard property and casualty insurance on all of its properties, product liability
insurance covering the sale of live pets, self-insured health plans, and workers compensation insurance.
Property insurance covers approximately $1,200,000,000 in buildings and contents, including furniture and
Ñxtures, leasehold improvements and inventory. Under the Company's casualty and workers compensation
insurance policies, it retains the initial risk of loss of $250,000 for each policy per occurrence. The Company
establishes reserves for losses based on independent actuarial estimates of the amount of loss inherent in that
period's claims, including losses for which claims have been incurred but not reported. Loss estimates rely on
actuarial observations of ultimate loss experience for similar historical events, and changes in such assump-
tions could result in an adjustment to the reserves. As of February 2, 2003 and February 3, 2002, the Company
had approximately $22,079,000 and $16,800,000, respectively, in reserves related to casualty and workers
compensation insurance policies.
Other Accrued Expenses
Other accrued expenses consisted of the following (in thousands):
February 2, February 3,
2003 2002
Accrued legal fees and settlement costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $17,569 $ 6,309
Accrued income and sales taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,794 24,780
Accrued general liability insuranceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,538 5,074
Accrued advertising ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,149 4,694
Other accrued expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 45,140 51,484
$84,190 $92,341
Income Taxes
Deferred income tax assets and liabilities are established for temporary diÅerences between the Ñnancial
reporting bases and the income tax bases of the Company's assets and liabilities at enacted tax rates expected
to be in eÅect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by
a valuation allowance if, in the judgment of the Company's management, it is more likely than not that such
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