Petsmart 2000 Annual Report Download - page 50

Comprehe nsive Income
The income tax expense (benefit) related to the foreign currency translation adjustment was approximately
$925,000, $(1,432,000), and $(834,000) for fiscal years 1999, 1998, and 1997, respectively.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards (“SFAS”) No. 137, “Accounting for Derivative Instruments
and Hedging Activities — Deferral of the Effective Date of SFAS 133” issued in June 1999 defers the effective
date of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” which was issued in
June 1998. SFAS 133 establishes the accounting and reporting standards for derivative instruments and hedging
activities, requiring that an entity recognize all derivatives as either assets or liabilities in the statement of financial
position and measure them at fair value. It also provides for matching of the timing of gain or loss recognition on
the hedging instrument with the recognition of (i) the changes in the fair value of the hedged asset or liability
related to the hedged risk or (ii) the hedged forecasted transaction earnings effect. Adoption is required for fiscal
years beginning after June 15, 2000. The C ompany will adopt SFAS 133 in the first quarter of fiscal 2001. The
Company has not yet analyzed the impact of adopting this statement.
Reclassifications
For comparative purposes, certain prior year amounts have been reclassified to conform with the current
year presentation.
NOTE 2 — INVESTMENTS
The Company has a preferred stock investment in PETsMART.com, a corporate joint venture which began
operations in June 1999 and operates as an electronic commerce pet product retailer. During 1999, the
Company contributed cash of approximately $29,061,000 in exchange for 8,287,135 shares of preferred stock.
The preferred stock is fully convertible to 18,923,499 shares of common stock at the Company’ s option and
represents 49.6% of the outstanding common stock on a fully converted basis. The Company accounts for the
investment using the equity method in accordance with Accounting Principles Board Opinion No. 18.
Accordingly, the Company has recorded its proportionate share of the equity in losses of PETsMART.com in
the accompanying consolidated statements of operations, which reduced the carrying value of the Company’ s
investment to zero. The Company has agreements with PETsMART.com in which the Company, through its
wholly-owned subsidiary PETsMART Direct, provides merchandise procurement and distribution support. The
Company is reimbursed for the cost of product transferred to PETsMART.com, as well as, a fulfillment charge
for support services provided, which is calculated using an activity- based costing method. The uncollected
amounts for product transferred and fulfillment charges remaining in receivables in the accompanying
consolidated balance sheets at January 30, 2000 were approximately $7,381,000.
The Company has an investment in Medical Management International, Inc. (“MMI”), a provider of
veterinary services that operates full- service veterinary hospitals and wellness clinics inside PETsMART stores,
consisting of common and preferred stock. The Company’ s ownership interest in the voting common stock of
MMI at January 30, 2000 and January 31, 1999 was 19%, or $5,378,000 at cost. The Company accounts for
its investment using the cost method, as its ownership of voting common stock is less than 20% and the
Company does not have significant influence over MMI’ s operating and financial policies. During
9/16/2010 www.sec.gov/Archives/edgar/data/86…
sec.gov/…/0000950153-00-000575-d1.… 50/70