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PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
method of SFAS No. 123 to record compensation expense for stock options and employee stock purchases (in
thousands, except per share data).
Fiscal Year
2003 2002 2001
Net income, as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $139,549 $88,855 $39,567
Less: Compensation expense for option awards determined by the fair
value based method, net of related tax eÅectsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (11,107) (8,031) (6,822)
Pro forma net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $128,442 $80,824 $32,745
Net income per share Basic:
Net income, as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.99 $ 0.66 $ 0.35
Pro forma net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.91 $ 0.60 $ 0.29
Diluted:
Net income, as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.95 $ 0.63 $ 0.35
Pro forma net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.87 $ 0.58 $ 0.29
The fair value was estimated using the Black-Scholes option pricing model with the following
assumptions used for grants in Ñscal 2003, 2002, and 2001, respectively: dividend yield of 0.00% to 0.34%,
0.00%, and 0.00%; expected volatility of 62.8 percent, 63.0 percent and 64.0 percent, respectively; risk-free
interest rates of 1.22 percent to 4.40 percent, 1.32 percent to 5.11 percent, and 2.25 percent to 5.25 percent,
respectively; and expected lives of 1.63 years, 1.58 years, and 1.47 years, respectively. The weighted average
Black-Scholes fair value of options granted during Ñscal 2003, 2002, and 2001 was $7.59, $5.76, and $2.06,
respectively.
Restricted Stock
The Company may grant restricted stock under the PETsMART, Inc. 1997 Equity Incentive Plan and
the PETsMART, Inc. 2003 Equity Incentive Plan (see Note 14). The shares of restricted common stock
awarded under this plan vest on the fourth year anniversary of the date of the award provided the executive is
continuously employed through such anniversary. The Company accounts for this plan under APB No. 25,
and related Interpretations, and compensation expense is recognized pro rata over the four-year vesting period
of the stock. Deferred compensation is based on the fair market value at the date of grant.
Restricted Stock Bonus Plan
The Company had a Restricted Stock Bonus Plan (See Note 14). Restricted stock awards are recognized
as deferred compensation with an oÅsetting credit to additional paid-in capital and are amortized ratably by a
charge to income over a Ñve-year term. The Company accounted for this plan under APB No. 25, and related
Interpretations.
Financial Instruments
The Company's Ñnancial instruments consist primarily of cash and cash equivalents. These balances, as
presented in the consolidated Ñnancial statements at February 1, 2004 and February 2, 2003 approximate their
fair value. As of February 3, 2002 the fair market value of the Notes approximated $222,080,000 based upon
information provided by a broker dealer that makes a market in the Notes. During February and March 2002,
the entire balance of the Notes was retired for approximately $275,000 in cash and approximately
19,800,000 shares of common stock.
F-13