Petsmart 2010 Annual Report Download - page 63

Earnings Per Common Share
Basic earnings per common share is calculated by dividing net income by the weighted average of shares
outstanding during each period. Diluted earnings per common share reflects the potential dilution of securities that
could share in earnings, such as potentially dilutive common shares that may be issuable upon the exercise of
outstanding stock options and unvested restricted stock, and is calculated by dividing net income by the weighted
average shares, including dilutive securities, outstanding during the period.
Note 2 — Derivative Financial Instruments
We use foreign currency exchange forward contracts, or “Foreign Exchange Contracts,” to manage the impact
of foreign currency exchange rate fluctuations related to certain balance sheet accounts. We enter into the Foreign
Exchange Contracts in Canada primarily to mitigate risk related to non-functional currency exposures. These
Foreign Exchange Contracts are not designated as hedges and are recorded at fair value using quoted prices for
similar assets or liabilities in active markets. The changes in the fair value are recognized in operating, general and
administrative expenses in the Condensed Consolidated Statements of Income and Comprehensive Income.
At January 30, 2011, we had Foreign Exchange Contracts outstanding with a notional amount of $10.0 million,
which represents the amount of foreign currencies to be purchased or sold at maturity and does not represent our
exposure on these contracts. The fair value of the receivable related to these Foreign Exchange Contracts included
in prepaid expenses and other current assets was immaterial at January 30, 2011. During 2010, we recorded
$0.4 million in losses on the Foreign Exchange Contracts. We did not enter into Foreign Exchange Contracts during
2009 or 2008.
Note 3 — Investments
Short-term Investments
At January 30, 2011, our short term investments consisted of municipal bonds with various maturities,
representing funds available for current operations. These short term investments are classified as available-for-sale
and are carried at fair value, which includes $0.1 million of accrued interest. The amortized cost basis at January 30,
2011 was $9.6 million. Unrealized holding gains and losses are included in comprehensive income and were not
material during 2010.
Equity Investment in Banfield
We have an investment in Banfield which is accounted for using the equity method of accounting. Philip L.
Francis, our Executive Chairman, and Robert F. Moran, our President and Chief Executive Officer are members of
the Banfield Board of Directors.
Our ownership interest in the stock of Banfield was as follows (in thousands):
Shares Amount Shares Amount
January 30, 2011 January 31, 2010
Voting common stock and preferred stock .............. 4,693 $21,675 4,693 $21,675
Equity in income from Banfield ...................... — 21,183 — 10,811
Total equity investment in Banfield ................... 4,693 $42,858 4,693 $32,486
Our investment consisted of voting common stock, comprising 21.4% of all voting stock as of January 30,
2011, and January, 31, 2010. Our ownership percentage as of January 30, 2011, and January 31, 2010, considering
all classes of stock (voting and non-voting), was 21.0%. Our investment includes goodwill of $15.9 million. The
goodwill is calculated as the excess of the purchase price for each step of the acquisition of our ownership interest in
Banfield relative to that step’s portion of Banfield’s net assets at the respective acquisition date.
F-13
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)