Petsmart 2000 Annual Report Download - page 21

Sale of Subsidiary
The Company consummated the sale of its UK subsidiary (the “Transaction”) to an unrelated third party on
December 15, 1999. The Transaction was structured as a stock sale, whereby the Company sold 100% of the
stock in its subsidiary in exchange for cash of approximately $48.9 million less debt of approximately
$7.0 million. In connection with the sale, the C ompany recorded a net loss of $31.1 million, including
$23.6 million related to the excess of net book value over cash consideration and transaction fees of
approximately $7.5 million. Additionally, the C ompany has reflected the subsidiary’ s $14.6 million loss from
operations, excluding the related tax effects, for fiscal year 1999 through the date of the Transaction, as a loss on
disposal of subsidiary in the accompanying consolidated statement of operations.
Business Combinations and Restructuring Charges
During the fourth quarter of fiscal 1996, the Company acquired all of the outstanding equity interests of Pet
City Holdings Plc, a pet food and supplies superstore retailer in the UK (“UK subsidiary”). In connection with
this transaction, the Company recorded merger and business integration charges during fiscal 1997 of
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approximately $13.6 million, consisting of costs associated with reformatting, refixturing, and remerchandising the
acquired superstores to the format consistent with that of a PETsMART superstore.
In connection with its initiatives to refocus its operations, the Company in the second quarter of fiscal 1997
recorded charges of $61.0 million, of which approximately $44.9 million was recorded as a separate
restructuring charge during the quarter. Approximately $30.0 million was related to the costs of closing or
relocating 33 stores, of which 31 were formerly acquired stores, approximately $8.5 million was related to the
costs of discontinuing the Discovery Center department in all superstores and the write-down or write-off of
related fixtures, and approximately $4.1 million was related to the C ompany’ s previous acquisitions. The
remaining charges of $2.3 million included approximately $1.0 million of anticipated costs associated with the
Company’ s decision to complete the consolidation of distribution facilities and approximately $1.3 million
represented the write-off of the Company’ s investment in certain entities accounted for under the cost method
which were impaired as a result of the Company’ s decision to close certain departments within the PETsMART
superstores.
Of the remaining $16.1 million of one- time charges, approximately $9.4 million of related charges were
recorded as cost of goods sold, $3.3 million were recorded as store operating expenses, and $3.4 million were
included in general and administrative expenses. The $9.4 million of other one- time expenses were comprised of
the write- down or write- off of certain impaired assets, including discontinued Discovery Center merchandise,
from cost to net realizable value, reserves for litigation and other matters. The $3.3 million of other expenses
reflected as a component of store operating expenses and the $3.4 million of one- time expenses reflected as
general and administrative expenses consist primarily of a change in estimated self-insurance costs due to adverse
claims experience in the Company’ s worker’ s compensation plans, expenses related to the preliminary stages of
a consulting project for a new management information system, certain costs of several litigation matters, as well
as expenses related to other miscellaneous matters.
During the fourth quarter of fiscal 1998, a $1.8 million benefit was recognized as a change in estimate as a
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