Petsmart 2002 Annual Report Download - page 70

PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
capital gains, if any, which expire in 2004. No deferred tax asset has been recorded for the foreign net
operating loss carryforwards as it is anticipated that any beneÑt associated with their utilization would be oÅset
by United States residual tax. 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.
During 2001, the Company increased its voting ownership in PETsMART.com to the requisite
percentage for income tax reporting purposes that will allow the Company to utilize a portion of
PETsMART.com's net operating loss carryforwards. As a result, the Company reversed previously established
valuation allowances of approximately $18,885,000, eliminated the remaining goodwill associated with the
Transaction, and recorded a tax beneÑt of $10,310,000. EÅective Ñscal 2001, losses from PETsMART.com are
included in the Company's consolidated federal income tax return.
Note 8 Ì Earnings Per Share
Basic earnings per share are computed by dividing net income or loss by the weighted average of common
shares outstanding during each period. Diluted earnings per share is computed by dividing net income or loss
by the weighted average number of common shares outstanding during the period after adjusting for dilutive
stock options and dilutive common shares assumed to be issued on conversion of the Company's Notes.
A reconciliation of the basic and diluted per share computations for Ñscal 2002, 2001, and 2000 is as
follows (in thousands, except per share data):
Fiscal Year Ended
February 2, 2003 February 3, 2002 January 28, 2001
Weighted Per Weighted Per Weighted Per
Average Share Average Share Average Share
Income Shares Amount Income Shares Amount Loss Shares Amount
Net income (loss) per
common share Ì
basicÏÏÏÏÏÏÏÏÏÏÏÏÏ $88,855 134,148 $0.66 $39,567 112,006 $0.35 $(30,904) 111,351 $(0.28)
EÅect of dilutive
securities:
Options and
dilutive eÅect
of subordinated
notes ÏÏÏÏÏÏÏÏ 694 7,534 0.03 Ì 2,061 Ì Ì Ì Ì
Net income (loss) per
common share Ì
diluted ÏÏÏÏÏÏÏÏÏÏÏ $89,549 141,682 $0.63 $39,567 114,067 $0.35 $(30,904) 111,351 $(0.28)
As of February 3, 2002, no shares of common stock had been issued upon conversion of the Notes issued
in November 1997 (see Note 10). During February and March 2002, the entire balance of the Notes were
retired for approximately $275,000 in cash and approximately 19,800,000 shares of common stock. These
shares were not included in the calculation of diluted earnings per share for Ñscal 2001 or 2000 due to the anti-
dilutive eÅect they would have on earnings (loss) per share if converted.
Due to the Company's loss in Ñscal 2000, a calculation of diluted earnings per share is not required. In
Ñscal 2000, potentially dilutive securities consisted of options convertible into approximately 125,000 shares of
common stock. In Ñscal 2002 and 2001, options to purchase approximately 609,300 and 2,616,000 shares of
common stock, respectively, were outstanding but not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the average market price of common shares.
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