Petsmart 2002 Annual Report Download - page 64

PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
of the minority interest as of February 3, 2002 was $604,000. The additional investment and the minority
interest represented a net amount of $8,896,000, which was recorded as goodwill in Ñscal 2001. The Pasadena,
California-based operations moved its administrative functions to the Company's oÇce in Phoenix, Arizona
during Ñscal 2002.
The minority interest in PETsMART.com held by the Company during Ñscal 2000 and 2001, consisted
primarily of convertible voting preferred stock, which was convertible at Ñxed conversion rates into common
stock of PETsMART.com at the holder's option. The minority interest in the losses of PETsMART.com for
Ñscal 2001 and 2000 (recognized from the Transaction Date to January 28, 2001) was approximately
$2,296,000 and $300,000, respectively, and has been included in the accompanying consolidated statements of
operations.
Note 3 Ì Investments
The Company has an investment in MMI Holdings, Inc. (""MMIH''), a provider of veterinary and other
pet related services. MMIH, through a wholly-owned subsidiary, Medical Management International, Inc.,
(""MMI''), operates full-service veterinary hospitals and wellness hospitals inside approximately 300 of the
PETsMART stores, under the name BanÑeld, The Pet Hospital
TM
. The Company's investment consists of
common and convertible preferred stock. The Company accounts for its investment using the cost method, as
the Company lacks the ability to exercise signiÑcant inÖuence over MMIH's operating and Ñnancial policies.
The Company's ownership interest in the voting common and convertible preferred stock of MMIH as of
February 2, 2003, and February 3, 2002 was approximately 15% and 19%, respectively, or 2,679,706 shares at
$5,378,000 cost. At February 2, 2003, and February 3, 2002, the Company owned approximately 31% and
36%, respectively, in the combined voting and non-voting stock of MMIH. The Company's percentage
ownership decreased due to additional contributions by another investor. As of February 2, 2003 and
February 3, 2002, the total equity investment in non-voting convertible preferred stock was 4,984,837 shares or
$26,995,000. Also, contractual payments of approximately $1,321,000 related to the transfer of assets were
made by the Company in a prior year, totaling $33,694,000 for the investment in MMIH. The voting
convertible preferred stock may be converted into common stock at any time, at the option of the holder. The
non-voting convertible preferred stock is convertible into common stock upon the earlier of June 1, 2011 or an
acquisition of MMIH.
The Company receives licensing fees from MMI for the space in the Company's retail stores occupied by
veterinary services, which is recorded as income from leased departments within cost of sales in the
accompanying consolidated statements of operations. Licensing fees are determined by Ñxed costs per square
foot, adjusted for the number of days the hospitals are open and sales volumes achieved. Licensing fees of
approximately $8,293,000, $6,727,000 and $6,853,000 was recognized during Ñscal years 2002, 2001, and 2000,
respectively. Additionally, licensing fees receivable from MMI totaled $2,882,000 and $2,182,000 at Febru-
ary 2, 2003, and February 3, 2002, respectively, and were included in receivables in the accompanying
consolidated balance sheets.
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