Petsmart 2003 Annual Report Download - page 66

PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The activity related to the closed store reserve, as well as the remaining lease obligations for closed stores
and oÇce associated with the PETsMART Direct and PETsMART.com reorganization was as follows (in
thousands):
Fiscal Year Ended
February 1, February 2, February 3,
2004 2003 2002
Opening balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 9,261 $12,452 $ 4,427
Charges Ì closed stores ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,179 2,086 13,908
Charges Ì reorganizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 778
Cash payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5,678) (5,277) (6,661)
Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $14,762 $ 9,261 $12,452
The current portion of the closed store reserve is recorded in other current liabilities, and the noncurrent
portion of the reserve is recorded in deferred rents and other noncurrent liabilities.
The costs for future rental payments associated with closed stores were calculated using the net present
value method, at a credit-adjusted risk-free interest rate, over the remaining life of the lease, net of expected
sublease income. Approximately $4,524,000 was recorded in Ñscal 2003 as a charge to the reserve due to
changes in sublease assumptions and an increase in real property tax assessments. In Ñscal 2002, approxi-
mately $156,000 was recorded as a reduction to the reserve, due to a 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.
Impairment of Long-Lived Assets and Asset Write-Downs
During Ñscal 2001, the Company recorded an impairment charge of approximately $6,927,000, a write-
down of inventory of approximately $2,100,000, and a charge of approximately $720,000 for other asset write-
downs and reserves.
As a result of continued losses incurred at its PETsMART Direct subsidiary, and an analysis of the
current business model, the Company recorded a $6,927,000 impairment loss associated with PETsMART
Direct's building, Ñxtures, equipment, software, and goodwill, which was recorded in general and administra-
tive expenses. The fair value of such assets was determined based on market appraisals and analysis of
expected future discounted cash Öows. Also in Ñscal 2001, the Company analyzed the inventory at
PETsMART Direct and decided to discount or dispose of certain items, resulting in a $2,100,000 charge to
cost of sales to record the inventory at its estimated net realizable value. The Company can make no
assurances that additional charges will not be required based on continued evaluation of the PETsMART
Direct business model.
During Ñscal 2003, the Company recorded a loss of approximately $1,300,000 in general and administra-
tive expenses, which represented the net book value of leasehold improvements at closed stores.
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