Petsmart 2005 Annual Report Download - page 78

The components of the net deferred income tax assets (liabilities) included in the Consolidated Balance Sheets
are as follows (in thousands):
January 29,
2006
January 30,
2005
Deferred income tax assets:
Capital lease obligations .................................... $ 84,035 $ 52,465
Employee benefit expense ................................... 50,225 44,377
Deferred rents ............................................ 32,475 31,220
Net operating loss carryforwards .............................. 28,556 30,988
Capital loss carryforwards ................................... 7,093 6,496
Reserve for closed stores .................................... 3,781 3,227
Miscellaneous reserves and accruals............................ 1,915 1,475
Other .................................................. 14,437 14,190
Total deferred income tax assets............................. 222,517 184,438
Valuation allowance...................................... (20,229) (19,198)
Net deferred income tax assets .............................. 202,288 165,240
Deferred income tax liabilities:
Property and equipment..................................... (70,691) (54,231)
Inventory ............................................... (7,431) (6,293)
Other .................................................. (5,820) (2,972)
Total deferred income tax liabilities .......................... (83,942) (63,496)
Net deferred income tax assets .............................. $118,346 $101,744
The Company records a valuation allowance on the deferred income tax assets to reduce the total to an amount
that management believes is more likely than not to be realized. The valuation allowances at January 29, 2006 and
January 30, 2005 are based upon the Company’s estimates of the future realization of deferred income tax assets and
were principally to offset certain deferred income tax assets for operating and capital loss carryforwards.
As of January 29, 2006, the Company had, for income tax reporting purposes, federal net operating loss
carryforwards of $67,000,000 which expire in varying amounts between 2019 and 2020, state net operating loss
carryforwards of $7,000,000 which expire in varying amounts between 2006 and 2019 and capital loss carryfor-
wards of $20,000,000 to offset future capital gains, if any, which will expire in varying amounts between 2008
through 2009. The federal net operating loss carryforwards are subject to certain limitations on their utilization
pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, and similar limitations apply to certain
state net operating loss carryforwards under state tax laws.
The Company operates in multiple tax jurisdictions and could be subject to audit in these jurisdictions. These
audits can involve complex issues that may require an extended period of time to resolve and may cover multiple
years. The Internal Revenue Service is currently examining the Company’s tax returns for fiscal 2002, 2003 and
2004. While the examination has not been finalized, no issues have been identified that would have a material
impact on the Company’s financial position or results of operations.
Note 8 — Earnings Per Share
Earnings per share is calculated in accordance with SFAS No. 128, “Earnings per Share.” Basic earnings per
share is calculated by dividing net income by the weighted average number of common shares outstanding during
each period. Diluted earnings per share reflects the potential dilution of securities that could share in earnings, such
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PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)