Petsmart 2000 Annual Report Download - page 47

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The Company charges advertising costs to expense as incurred except for direct-response advertising which
is capitalized and amortized over its expected period of future benefit. Total advertising expenditures, other than
direct-response advertising, were $56,081,000, $41,103,000, and $44,256,000 for fiscal years 1999, 1998,
and 1997, respectively. Direct response advertising consists primarily of product catalogs of the Company’ s mail
order subsidiaries. The capitalized costs of the advertising are amortized over the six-month to one-year period
following the mailing of the respective catalog. At January 30, 2000 and January 31, 1999, $4,292,000 and
$4,013,000, respectively, of direct-response advertising was included in prepaid expenses and other current
assets in the accompanying consolidated balance sheets.
Financial Instruments
The Company’ s financial instruments consist primarily of cash and cash equivalents and subordinated
convertible notes. These balances, as presented in the financial statements at January 30, 2000 and January 31,
1999, approximate their fair value, except for the subordinated convertible notes whose fair market value at
January 30, 2000 and January 31, 1999 approximated $141,000,000 and $244,000,000, respectively based
upon information provided by a broker dealer that makes a market in the Company’ s senior subordinated notes.
Store Pre opening Costs
Store preopening costs and internal costs incurred in selecting and developing sites for new stores are
expensed as incurred.
Income Taxes
Income taxes are accounted for under an asset and liability approach that requires the recognition of deferred
income tax assets and liabilities for the expected future consequences of events that have been recognized in the
Company’ s financial statements and income tax returns. Management provides a valuation allowance for
deferred income tax assets when it is more likely than not that a portion of such deferred income tax assets will
not be realized.
Earnings Pe r Share
Basic earnings per share are computed by dividing net income (loss) by the weighted average of common
shares outstanding during each period. Diluted earnings per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the period after giving effect to dilutive stock
options and adjusting for dilutive common shares assumed to be issued on conversion of the Company’ s
subordinated convertible notes.
F-10
PETSMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the basic and diluted per share computations for fiscal 1999, 1998, and 1997 is as
follows:
9/16/2010 www.sec.gov/Archives/edgar/data/86…
sec.gov/…/0000950153-00-000575-d1.… 47/70