Petsmart 2002 Annual Report Download - page 66

PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Note 6 Ì Special Charges
Store Closure Reserves
Since 1996, the Company has incurred costs related to merger, integration, store closure, and other
business restructuring costs in connection with certain acquisitions. As of February 2, 2003 and February 3,
2002, the reserve balances of $1,868,000 and $3,357,000, respectively, relate to the liability associated with the
closed stores, and the related store and equipment lease termination costs.
Charges totaling approximately $1,282,000, $13,452,000 and $2,710,000 were recorded in Ñscal 2002,
2001 and 2000, respectively, for future rental payments on closed stores and terminated subleases. The costs
for future rental payments associated with closed stores were calculated using the net present value method, at
a risk-free interest rate, over the remaining life of the lease, net of expected sublease income. Approximately
$156,000 reduction to the charges was recorded in Ñscal 2002 to adjust previously established restructuring
reserves, as discussed above, due to the change in sublease assumptions. Approximately $2,931,000 of the
charges in Ñscal 2001 was to increase previously established restructuring reserves, as discussed above. The
adjustments and charges were recorded in general and administrative expenses. The Company can make no
assurances that additional charges related to these closed stores will not be required based on the changing real
estate environment.
Reorganization of PETsMART Direct and PETsMART.com
During the fourth quarter of Ñscal 2001, the Company approved a plan to move administrative functions,
during Ñscal 2002, of PETsMART Direct, Inc. (""PETsMART Direct'') and PETsMART.com, Inc.
(""PETsMART.com'') to the Company's administrative oÇce located in Phoenix, Arizona. PETsMART
Direct has, among other functions, the merchandising, human resource, and Ñnance operations provided by
the personnel in Arizona under a shared services arrangement. As a result of the reorganization of these
functions, the Company eliminated 44 positions during Ñscal 2002, and recorded severance charges of
approximately $431,000 in Ñscal 2001. The PETsMART Direct facility, located in Brockport, New York,
continues to handle warehousing and fulÑllment for the pet and equine catalogs, e-commerce sites, and in-
store State Line Tack departments, and manages customer service for all direct marketing operations. Also as
part of the plan, the Company closed Ñve small neighborhood PetWise retail stores located in upstate New
York, and recorded a reserve in the fourth quarter of Ñscal 2001 of approximately $698,000 for the remaining
oÇces and retail store lease obligations. In Ñscal 2001, the Company also sold a subsidiary of PETsMART
Direct for approximately $800,000, which resulted in a loss of approximately $906,000. Included in the loss on
sale of subsidiary is a $400,000 reserve against a note received as part of the purchase price, which is classiÑed
in long-term other assets, and is not part of the restructure reserve liability.
In January 2002, the Company acquired all of the remaining shares held by PETsMART.com minority
stockholders for approximately $9,500,000. In Ñscal 2002, the Pasadena, California-based operations moved
its administrative functions to the Company's oÇce in Phoenix, Arizona. As a result of the reorganization of
these functions, the Company eliminated 46 positions during Ñscal 2002, and recorded severance charges of
approximately $979,000 in Ñscal 2001. The Company also recorded a reserve of $80,000 in Ñscal 2001 for the
remaining lease obligations associated with the PETsMART.com oÇce space in Pasadena, California.
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