Petsmart 2003 Annual Report Download - page 63

PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
PETsMART.com at the holder's option. The minority interest in the losses of PETsMART.com for Ñscal
2001 was approximately $2,296,000 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
350 PETsMART stores, under the name BanÑeld, The Pet Hospital. The Company's investment consists of
common and convertible preferred stock. The Company accounts for its investment using the cost method, as
it lacks the ability to exercise signiÑcant inÖuence over MMIH's operating and Ñnancial policies. MMIH has
both voting and non-voting common stock and also has voting and non-voting series of convertible preferred
stock. The Company's ownership interest in the voting common and voting convertible preferred stock of
MMIH as of February 1, 2004, and February 2, 2003, was approximately 15%, or 2,679,706 shares at
$5,378,000 cost. At February 1, 2004, and February 2, 2003, the Company owned approximately 32% and
31%, respectively, of the combined voting and non-voting stock of MMIH. As of February 1, 2004, and
February 2, 2003, the Company's total equity investment in non-voting convertible preferred stock of MMIH
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.
Of the 2,679,706 shares of voting capital stock of MMIH held by the Company: (a) 1,070,772 are shares
of voting convertible preferred stock that may be converted into voting common stock at any time at the option
of the Company; and (b) 1,608,934 are shares of voting common stock. Of the 4,984,837 shares of non-voting
convertible preferred stock held by the Company, 4,821,679 shares are not convertible into voting common
stock until the earliest of: (i) June 1, 2011; (ii) an acquisition of MMIH; or (iii) an initial public oÅering of
shares of common stock of MMIH. The remaining 163,158 shares of non-voting convertible preferred stock
are convertible into voting common stock at any time at the option of the Company. As of February 1, 2004,
and February 2, 2003, all shares of voting and non-voting convertible preferred stock are convertible into
voting common stock on a one-for-one basis, subject to the restrictions previously discussed. In addition, the
Company holds 250,000 shares of MMIH non-voting common stock that is only convertible into voting
common stock in the event of an initial public oÅering of shares of common stock 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 a reduction of 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 $10,466,000,
$8,293,000, and $6,727,000 were recognized during Ñscal years 2003, 2002, and 2001, respectively. Addition-
ally, licensing fees receivable from MMI totaled $4,371,000 and $2,882,000 at February 1, 2004, and
February 2, 2003, respectively, and were included in receivables in the accompanying consolidated balance
sheets.
F-15