Petsmart 2000 Annual Report Download - page 49

At January 30, 2000, no shares of common stock had been issued upon conversion of the subordinated
convertible notes issued in November 1997. These notes are convertible into an aggregate of approximately
22,857,000 shares of common stock. These shares were not included in the calculation of diluted earnings per
share for fiscal 1999, 1998, or 1997 due to the anti-dilutive effect they would have on earnings per share if
converted.
Due to the Company’ s loss in fiscal years 1999 and 1997, a calculation of earnings per share assuming
dilution is not required. In fiscal years 1999 and 1997, potentially dilutive securities consisted of options
convertible into approximately 400,000 and 1,000,000 shares of common stock, respectively.
Foreign Curre ncy Translation and Trans actions
The local currency has been used as the functional currency in both the United Kingdom and Canada. The
assets and liabilities denominated in foreign currency are translated into U.S. dollars at the current rate of
exchange existing at year end and revenues and expenses are translated at the average exchange rate for the
year. The translation gains and losses are included as a separate component of other comprehensive income
(loss). Transaction gains and losses included in net income (loss) are not material. During 1999, the Company
reclassified $1,366,000 of foreign currency translation gain to income related to the sale of the UK subsidiary
and is included in loss on disposal of subsidiary in the accompanying consolidated statements of operations.
Change In Accounting Principles
In November 1997, the Emerging Issues Task Force issued Consensus Number 97-13, “Accounting for
Costs Incurred in Connection with a Consulting Contract or an Internal Project that combines Business Process
Reengineering and Information Technology Transformation.” This consensus requires that costs for business
process reengineering incurred subsequent to November 20, 1997 be expensed as incurred. The charge against
fiscal 1997 earnings related to this change in accounting was $5,600,000, before taxes, of which $4,300,000,
before taxes, was recorded as a cumulative effect of a change in accounting principle and $1,300,000 was
included in general and administrative expenses in the accompanying consolidated statements of operations.
In April 1998, the American Institute of Certified Public Accountants (“AIC PA”) issued Statement of
Position 98-5, “Reporting on the Costs of Start-up Activities” (“SOP 98-5”). SOP 98-5 is effective for financial
statements for fiscal years beginning after December 15, 1998. Under the provisions of SOP 98-5,
F-11
PETSMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
costs of start-up activities, including organization costs and preopening costs, should be expensed as incurred.
The Company adopted SOP 98-5 at the beginning of fiscal 1999. Prior to its adoption of SOP 98-5, the
Company expensed its store preopening costs in the month in which the store opened. The charge against
earnings during fiscal 1999 related to this change in accounting principle was $888,000, before taxes, and was
recorded as a cumulative effect of a change in accounting principle.
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