Petsmart 2009 Annual Report Download - page 72

We estimated the fair value of stock options issued after January 30, 2005, using a lattice option pricing model.
Expected volatilities are based on implied volatilities from traded call options on our stock, historical volatility of
our stock and other factors. We use historical data to estimate option exercises and employee terminations within the
valuation model. The expected term of options granted is derived from the output of the option valuation model and
represents the period of time we expect options granted to be outstanding. The risk-free rates for the periods within
the contractual life of the option are based on the monthly U.S. Treasury yield curve in effect at the time of the
option grant using the expected life of the option. Stock options are amortized straight-line over the vesting period
net of estimated forfeitures by a charge to income. Actual values of grants could vary significantly from the results
of the calculations. The following assumptions were used to value grants:
January 31,
2010
February 1,
2009
February 3,
2008
Year Ended
(52 weeks) (52 weeks) (53 weeks)
Dividend yield................................... 0.62% 0.42% 0.42%
Expected volatility................................ 46.0% 36.2% 32.0%
Risk-free interest rate ............................. 1.17% 1.96% 4.83%
Forfeiture rate ................................... 15.1% 15.4% 16.0%
Expected lives ................................... 5.3years 5.2 years 5.2 years
Vesting periods .................................. 4.0years 4.0 years 4.0 years
Term.......................................... 7.0years 7.0 years 7.0 years
Weighted average fair value ......................... $ 6.68 $ 6.44 $ 10.86
Restricted stock expense, which reflects the fair market value on the date of the grant net of estimated
forfeitures and cliff vests after four years, is being amortized ratably by a charge to income over the four-year term
of the restricted stock awards.
PSU expense, net of forfeitures, is recognized over the requisite service period, or three years, based upon the
fair market value on the date of grant, adjusted for the anticipated or actual achievement against the established
performance goal.
Share-based compensation expense, net of forfeitures, for MEUs is recognized over the requisite service
period, or three years, and is evaluated quarterly based upon the current market value of our common stock.
Note 10 — Employee Benefit Plans
We have a defined contribution plan, or the “Plan,” pursuant to Section 401(k) of the Internal Revenue Code.
The Plan covers all employees that meet certain service requirements. We match employee contributions, up to
specified percentages of those contributions, as approved by the Board of Directors. In addition, certain employees
can elect to defer receipt of certain salary and cash bonus payments pursuant to our Non-Qualified Deferred
Compensation Plan. We match employee contributions up to certain amounts as defined in the Non-Qualified
Deferred Compensation Plan documents. During 2009, 2008 and 2007, we recognized expense related to matching
contributions under these Plans of $5.6 million, $4.9 million, and $3.7 million, respectively.
Note 11 — Financing Arrangements and Lease Obligations
Short-term Debt and Letters of Credit
We have a $350.0 million five-year revolving credit facility, or “Revolving Credit Facility,” that expires on
August 15, 2012. Borrowings under the credit facility are subject to a borrowing base and bear interest, at our
option, at a bank’s prime rate plus 0% to 0.25% or LIBOR plus 0.875% to 1.25%. We are subject to fees payable to
lenders each quarter at an annual rate of 0.20% of the unused amount of the Revolving Credit Facility. The
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PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)