Petsmart 2003 Annual Report Download - page 69

PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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, operating results of
PETsMART.com are included in the Company's consolidated federal income tax return.
The Company operates in multiple tax jurisdictions and could be subject to audit in these jurisdictions.
These audits can involve complex issues that may require an extended period of time to resolve and may cover
multiple years. The Company believes an adequate provision for taxes has been made for all years subject to
audit.
Note 8 Ì Earnings Per Share
Earnings per share is computed in accordance with SFAS No. 128, ""Earnings per Share.'' Basic earnings
per share is computed by dividing net income by the weighted average of common shares outstanding during
each period. Diluted earnings per share reÖects the potential dilution of securities that could share in earnings,
such as common stock equivalents that may be issuable upon exercise of outstanding common stock options.
During February and March 2002, the remaining balance of the Company's Notes was called for
redemption, resulting in the purchase of the Notes for approximately $275,000 in cash and the conversion of
the remainder into approximately 19,800,000 shares of common stock. Prior to the conversion, and due to the
dilutive eÅect these shares would have had on earnings per share, the Company included these shares in the
calculation of earnings per share for Ñscal 2002. Net income is adjusted for the interest expense, net of income
tax beneÑt, when the Notes are included in the diluted earnings per share calculation. These shares were not
included in the calculation of diluted earnings per share for Ñscal 2001 due to the anti-dilutive eÅect they
would have on earnings per share if converted.
A reconciliation of the basic and diluted per share computations for Ñscal 2003, 2002, and 2001 is as
follows (in thousands, except per share data):
Fiscal Year Ended
February 1, 2004 February 2, 2003 February 3, 2002
Weighted Per Weighted Per Weighted Per
Average Share Average Share Average Share
Income Shares Amount Income Shares Amount Loss Shares Amount
Net income per common share Ì
basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $139,549 141,641 $0.99 $88,855 134,148 $0.66 $39,567 112,006 $0.35
EÅect of dilutive securities:
Options and dilutive eÅect of
subordinated notes ÏÏÏÏÏÏÏÏ Ì 5,614 0.04 694 7,534 0.03 Ì 2,061 Ì
Net income per common share Ì
diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $139,549 147,255 $0.95 $89,549 141,682 $0.63 $39,567 114,067 $0.35
In Ñscal 2003, 2002, and 2001, options to purchase approximately 362,609, 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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