Petsmart 2001 Annual Report Download - page 53

PETsMART, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Ì (Continued)
additional paid-in capital. Such deferred compensation is being amortized ratably by a charge to income over
the Ñve-year term of the restricted stock awards. The attainment of the performance goals could accelerate the
future recognition of compensation expense as the restrictions on the shares of common stock lapse. During
Ñscal 2000, deferred compensation was reduced by $1,473,000, with an oÅsetting debit to additional paid-in
capital for approximately 140,000 shares reacquired by the Company due to employee terminations. At
January 28, 2001, approximately 146,000 shares were outstanding under the plan, none of which were vested.
Stock Options
The Company may grant under a stock option plan (""the Plan'') either incentive stock options or
supplemental stock options to purchase up to 29,701,849 shares of common stock to key employees (including
oÇcers), consultants or directors of the Company at fair market value at the date of grant. At January 28,
2001, stock options to purchase approximately 13,955,771 shares of common stock were outstanding with
exercise prices ranging from $0.70 to $28.75 per share. Options vest over a period of three to four years and
expire ten years after the date of grant. At January 28, 2001, the Plan also includes stock options to purchase
457,708 shares of common stock outstanding under the 1996 Non-Employee Directors Equity Plan with
exercise prices ranging from $3.06 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 oÇcers and directors, under the terms of the Company's 1995
Equity Incentive Plan and 1997 Non-OÇcer 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 modiÑed and extended. No compensation expense was recorded as a
result of this exchange.
PETsMART applies APB 25 and related interpretations in accounting for its stock-based compensation,
and has adopted the disclosure-only provisions of SFAS No. 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 consistent with the provisions of SFAS 123, the Company's net
income (loss) and earnings (loss) per share would have been reduced as indicated below (in thousands,
except per share data):
Fiscal Year
2000 1999 1998
Income (loss) before extraordinary item and cumulative
eÅect of a change in accounting principle Ì as reported ÏÏ $(33,716) $(31,894) $23,269
Income (loss) before extraordinary item and cumulative
eÅect of a change in accounting principle Ì pro forma ÏÏÏ $(38,100) $(39,813) $12,892
Earnings (loss) per share diluted Ì as reported ÏÏÏÏÏÏÏÏÏÏÏ $ (0.30) $ (0.28) $ 0.20
Earnings (loss) per share diluted Ì pro forma ÏÏÏÏÏÏÏÏÏÏÏÏ $ (0.34) $ (0.35) $ 0.11
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants in Ñscal 2000, 1999, and 1998, respectively:
dividend yield of 0.00% in all years; expected volatility of 55.0 to 65.0 percent, 52.5 to 62.5 percent and 50.0 to
60.0 percent, respectively; risk-free interest rates of 4.79 to 6.53 percent, 4.78 to 6.72 percent and 4.12 to
5.72 percent, respectively; and expected lives of .38 to 1.71 years, 0.38 to 1.69 years, and 0.28 to 1.61 years,
respectively. The weighted average fair value of options granted during Ñscal 2000, 1999, and 1998 was $1.97,
$3.29, and $4.22, respectively.
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