Petsmart 2007 Annual Report Download - page 57

PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 — The Company and its Significant Accounting Policies
Business
PetSmart, Inc. and subsidiaries (the “Company”, “PetSmart” or “we”), is a leading specialty provider of
products, services and solutions for the lifetime needs of pets. As of February 3, 2008, we operated 1,008 retail
stores. We offer a broad line of products for all the life stages of pets and pet services, which include professional
grooming, training, boarding and day camp. We also offer pet products through an e-commerce site. As of
February 3, 2008, we had full-service veterinary hospitals in 685 of our stores. Medical Management International,
Inc., an operator of veterinary hospitals, operated 673 of the veterinary hospitals under the registered trade name of
Banfield, The Pet Hospital. See Note 2 for a discussion of our ownership interest in Medical Management
International, Inc. The remaining 12 hospitals are located in Canada and operated by other third-parties.
Principles of Consolidation
Our consolidated financial statements include the accounts of PetSmart and our wholly-owned subsidiaries.
We have eliminated all intercompany accounts and transactions.
During 2007, we sold a portion of our non-voting shares in MMI Holdings, Inc. or “MMIH.” In connection
with this transaction, we also converted our remaining MMIH non-voting shares to voting shares. The increase in
voting shares caused us to exceed the significant influence threshold as defined by accounting principles generally
accepted in the United States of America, or “GAAP,” which required us to account for our investment in MMIH
using the equity method of accounting, instead of the previously applied cost method. The conversion to the equity
method of accounting would typically require a restatement of prior years’ consolidated financial statements for
MMIH earnings. However, since the amounts are not material, we have not restated prior year financial statements.
The equity income from our investment in MMIH is recorded one month in arrears. See Note 2 for additional
information.
Fiscal Year
Our fiscal year consists of the 52 or 53 weeks ending on the Sunday nearest January 31 of the following year.
Unless otherwise specified, all references in these consolidated financial statements to years are to fiscal years. The
2007 fiscal year ended on February 3, 2008 and was a 53-week year. The 2006 and 2005 fiscal years were 52-week
years.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Management bases its estimates on historical experience and on various other assumptions it
believes to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Under different
assumptions or conditions, actual results could differ from these estimates.
Segment Reporting
Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards, or SFAS,
No. 131, “Disclosures about Segments of an Enterprise and Related Information” requires that a public company
report annual and interim financial and descriptive information about its reportable operating segments. Operating
segments, as defined, are components of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing
performance. Utilizing these criteria, we manage our business on the basis of one reportable operating segment.
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