Petsmart 2000 Annual Report Download - page 60

officers), consultants or directors of the Company at fair market value at the date of grant. At January 30, 2000,
stock options to purchase approximately 15,786,000 shares of common stock are outstanding with exercise
prices ranging from $0.13 to $28.75 per share. Options vest over a period of four years and expire ten years
after the date of grant. At January 30, 2000, the Plan also includes stock options to purchase 364,708 shares of
common stock outstanding under the 1996 Non-Employee Directors Equity Plan with exercise prices ranging
from $6.69 to $21.50 per share. 700,000 shares are authorized for issuance under the Non-Employee Directors
Equity Plan.
In October 1998, the Company exchanged certain stock options that were previously granted to certain
eligible individuals, which excluded senior officers and directors, under the terms of the Company’ s 1995 Equity
Incentive Plan and 1997 Non-Officer Equity Incentive Plan. To be eligible to participate in the exchange plan,
50% or more of a participant’ s options must have had an exercise price of $16 or higher, and only option grants
with an exercise price of $16 or higher were exchanged. As a result of the exchange, options to purchase
1,123,620 shares (at a weighted average exercise price of $18.8256) were exchanged for options to purchase
650,560 shares with an exercise price equal to the fair market value per share at that date ($6.9375 per share),
and the vesting term was modified and extended. No compensation expense was recorded as a result of this
exchange.
PETsMART applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations in accounting for its stock-based compensation, and has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-
Based Compensation” (“SFAS 123”). Accordingly, no compensation cost has been recognized for the stock
option plans. Had compensation cost for the Company’ s plans been determined based on the fair value at the
grant date for awards in fiscal 1999, fiscal 1998 and fiscal 1997 consistent with the provisions of SFAS 123, the
Company’ s net income (loss) and earnings per share would have been reduced to the pro forma amounts
indicated below (in thousands, except per share data):
Fis cal Year
1999 1998 1997
Income (loss) before cumulative effect — as
reported $ (31,894) $ 23,269 $ (31,801)
Income (loss ) before cumulative effect — pro
forma $ (39,813) $ 12,892 $ (41,790)
Earnings (loss) per share diluted — as reported $ (0.28) $ 0.20 $ (0.28)
Earnings (loss) per share diluted — pro forma $ (0.35) $ 0.11 $ (0.36)
Weighted average number of shares
outs tanding — as reported 114,940 117,085 114,920
Weighted average number of shares
outs tanding — pro forma 114,940 116,281 114,920
The effects of applying SFAS 123 in the above pro forma disclosure are not necessarily indicative of future
amounts. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in fiscal 1999, 1998, and 1997,
respectively: dividend yield of 0.00% in all years; expected volatility of 52.5 to 62.5 percent; risk- free interest
rates of 4.78 to 6.72 percent, 4.12 to 5.72 percent and 5.34 to 6.69 percent, respectively; and expected lives of
0.38 to 1.69 years, 0.28 to 1.61 years, and 0.75 to 2.5 years, respectively. The weighted average fair
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