Petsmart 2009 Annual Report Download - page 61

Earnings Per Common Share
Basic earnings per common share is calculated by dividing net income by the weighted average of shares
outstanding during each period. Diluted earnings per common share reflects the potential dilution of securities that
could share in earnings, such as potentially dilutive common shares that may be issuable upon the exercise of
outstanding common stock options and unvested restricted stock, and is calculated by dividing net income by the
weighted average shares, including dilutive securities, outstanding during the period.
Note 2 — Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in an orderly transaction between market
participants at the measurement date. The fair value hierarchy, which prioritizes the inputs used in measuring
fair value into three broad levels is as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the
asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the
financial instrument; and
Level 3: Unobservable inputs based on the Company’s own assumptions used to measure assets and
liabilities at fair value.
The following table provides the fair value hierarchy for financial assets measured at fair value on a recurring
basis (in thousands):
Total Carrying
Value at January 31,
2010
Quoted Prices in
Active Markets
(Level 1)
Significant
Observable
Other Inputs
(Level 2)
Significant
Unobservable
Other Inputs
(Level 3)
Fair Value Measurements at January 31, 2010, using:
Money market funds .......... $287,293 $287,293 — —
Note 3 — Investments
We have an investment in MMI Holdings, Inc., a provider of veterinary services. MMI Holdings, Inc., through
a wholly owned subsidiary, Medical Management International, Inc., collectively referred to as “Banfield,” operates
full-service veterinary hospitals in 740 of our stores under the registered trade name “Banfield, The Pet Hospital.”
Philip L. Francis, our Executive Chairman, and Robert F. Moran, our President and Chief Executive Officer are
members of the Banfield Board of Directors.
In 2007, we sold a portion of our non-voting shares in Banfield for $111.8 million. The cost basis of the non-
voting shares was $16.4 million, which resulted in a pre-tax gain of $95.4 million, or an after tax gain of
approximately $64.3 million. In connection with this transaction, we also converted our remaining Banfield non-
voting shares to voting shares. We account for our investment in Banfield using the equity method of accounting.
Our ownership interest in the stock of Banfield was as follows (in thousands):
Shares Amount Shares Amount
January 31, 2010 February 1, 2009
Voting common stock and preferred stock .............. 4,693 $21,675 4,693 $21,675
Equity in income from investee ...................... — 10,811 — 4,263
Total equity investment in affiliate .................... 4,693 $32,486 4,693 $25,938
F-13
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)