Petsmart 2004 Annual Report Download - page 85

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PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Revenue Code of 1986, as amended, and similar limitations apply to certain state net operating loss
carryforwards under state tax laws.
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.
Note 10 Ì Earnings Per Share
Earnings per share is calculated in accordance with SFAS No. 128, ""Earnings per Share.'' Basic earnings
per share is calculated by dividing net income by the weighted average number 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 diluted 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.
A reconciliation of the basic and diluted per share computations for Ñscal 2004, 2003 and 2002 is as
follows (in thousands, except per share data):
Fiscal Year Ended
January 30, 2005 February 1, 2004 February 2, 2003
Weighted Per Weighted Per Weighted Per
Average Share Average Share Average Share
Income Shares Amount Income Shares Amount Income Shares Amount
Net income per common
share Ì basic ÏÏÏÏÏÏÏÏÏÏÏÏ $171,228 143,888 $1.19 $135,402 141,641 $0.96 $85,619 134,148 $0.64
EÅect of dilutive securities:
Options and dilutive eÅect
of subordinated notes ÏÏÏÏ Ì 5,764 0.05 Ì 5,614 0.04 694 7,534 0.03
Net income per common
share Ì diluted ÏÏÏÏÏÏÏÏÏÏÏ $171,228 149,652 $1.14 $135,402 147,255 $0.92 $86,313 141,682 $0.61
In Ñscal 2004, 2003 and 2002, options to purchase approximately 191,400, 362,609 and 609,300 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.
Note 11 Ì Employee BeneÑt Plans
The Company has a deÑned contribution plan pursuant to Section 401(k) of the Internal Revenue Code
(the ""401(k) Plan''). The 401(k) Plan covers substantially all employees that meet certain service
requirements. The Company matches employee contributions, up to speciÑed percentages of those contribu-
tions, as approved by the Board of Directors. Certain employees can elect to defer receipt of certain salary and
cash bonus payments pursuant to the Company's Non-QualiÑed Deferred Compensation Plan. The Company
matches employee contributions up to certain amounts as deÑned in the Deferred Compensation Plan
documents. During Ñscal 2004, 2003 and 2002, the Company recognized expense related to matching
contributions under these Plans of $3,498,000, $3,687,000 and $2,378,000, respectively.
F-23