UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal
Year Ended January 30, 2011
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 0-21888
PetSmart, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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94-3024325
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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19601 N. 27th Avenue
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85027
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Phoenix, Arizona
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(Zip Code)
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(Address of principal executive
offices)
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Registrants telephone number, including area code:
(623) 580-6100
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.0001 par value
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The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Note Checking the box above will not relieve
any registrant required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act from
their obligations under those sections.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant, based on the closing sale
price of the registrants common stock on August 1,
2010, the last business day of the registrants most
recently completed second fiscal quarter, as reported on the
NASDAQ Global Select Market was approximately $3,644,575,000.
This calculation excludes approximately 1,180,000 shares
held by directors and executive officers of the registrant. This
calculation does not exclude shares held by such organizations
whose ownership exceeds 5% of the registrants outstanding
common stock as of December 31, 2010, that have represented
to the registrant that they are registered investment advisers
or investment companies registered under Section 8 of the
Investment Company Act of 1940.
The number of shares of the registrants common stock
outstanding as of March 11, 2011, was 114,886,181.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2011 Annual Meeting of
Stockholders to be held on June 15, 2011, to be filed on or
about May 2, 2011, have been incorporated by reference into
Part III of this Annual Report on
Form 10-K.
PART I
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
statements are based on managements current expectations
and beliefs about future events or future financial performance.
We have attempted to identify forward-looking statements by
words such as: anticipate, believe,
can, continue, could,
estimate, expect, intend,
may, plan, potential,
predict, should, will, or
other comparable terminology. These statements are not
guarantees of future performance or results and involve known
and unknown risks, uncertainties and other factors, including
the risks outlined under Item 1A. Risk Factors
contained in Part I of this Annual Report, that may cause
our actual results, levels of activity, performance or
achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or
implied by these forward-looking statements.
Although we believe the expectations and beliefs reflected in
the forward-looking statements are reasonable, such statements
speak only as of the date this Annual Report on
Form 10-K
is filed, and we disclaim any intent or obligation to update any
of the forward-looking statements after such date, whether as a
result of new information, actual results, future events or
otherwise, unless required by law.
Our fiscal year consists of the 52 or 53 weeks ending on
the Sunday nearest January 31 of the following year. The 2010
fiscal year ended on January 30, 2011, and was a 52-week
year. The 2009 and 2008 fiscal years were also 52-week years.
Unless otherwise specified, all references in this Annual Report
on
Form 10-K
to years are to fiscal years.
General
We opened our first stores in 1987 and have become the leading
specialty provider of products, services and solutions for the
lifetime needs of pets. We have identified a large group of pet
owners we call pet parents, who are passionately
committed to their pets and consider their pets members of the
family. Our strategy is to attract and keep these customers by
becoming the preferred provider for the Total Lifetime
CareSM
of pets.
We opened 38 net new stores in 2010 and at the end of the
year operated 1,187 retail stores in North America. Square
footage in 2010 increased 0.7 million to 26.6 million
compared to 25.9 million in 2009. Our stores typically
range in size from 12,000 to 27,500 square feet and carry a
broad selection of high-quality pet products at everyday low
prices. We offer approximately 10,000 distinct items, including
nationally recognized brand names, as well as an extensive
selection of proprietary brands, including both exclusive and
private label products, across a range of product categories.
We complement our strong product assortment with a
differentiated selection of pet services, including grooming,
training, boarding and day camp. All our stores offer complete
pet training services and virtually all our stores feature pet
styling salons that provide high-quality grooming services. As
of January 30, 2011, we offered pet boarding at 180 of our
stores through our PetSmart
PetsHotels®,
or PetsHotels.
As of January 30, 2011, there were full-service veterinary
hospitals in 768 of our stores. MMI Holdings, Inc., through a
wholly owned subsidiary, Medical Management International, Inc.,
collectively referred to as Banfield, operated 757
of the hospitals under the registered trade name of
Banfield, The Pet Hospital. The remaining 11
hospitals are operated by other third parties in Canada.
Our
PetPerks®
program enables us to understand the needs of our customers and
target offers directly to them. We also reach customers through
PetSmart.com®,
our pet
e-commerce
site, as well as mypetsmart.com, our pet community site and
selected social networking sites.
The Pet
Industry
The pet industry serves a large and growing market. The American
Pet Products Association, or APPA, estimated the
calendar year 2010 market at approximately $47.7 billion,
an increase of more than 180% since calendar year 1994. Based on
the 2009/2010 APPA National Pet Owners Survey, approximately 62%
of households
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in the United States own a pet, which equates to more than
71 million homes. In total, there are approximately
94 million cats and 78 million dogs owned as pets in
the United States.
The APPA divides the pet industry into the following categories:
food and treats, supplies and medicines, veterinary care, pet
services (such as grooming and boarding) and live animal
purchases. The APPA estimates that food and treats for dogs and
cats are the largest volume categories of pet-related products
and in calendar year 2010, accounted for an estimated
$18.3 billion in sales, or 38.3% of the market.
Pet supplies and medicine sales account for 23.1%, or
$11.0 billion, of the market. These sales include dog and
cat toys, collars and leashes, cages and habitats, books,
vitamins and supplements, shampoos, flea and tick control and
aquatic supplies. Veterinary care, pet services, and live animal
purchases represent 26.8%, 7.2% and 4.6%, respectively, of the
market.
Competition
Based on total net sales, we are North Americas leading
specialty retailer of products, services and solutions for the
lifetime needs of pets. The pet products retail industry is
highly competitive and can be organized into eight different
categories:
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Warehouse clubs and other mass merchandisers;
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Grocery stores;
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Specialty pet supply stores;
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Independent pet stores;
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Veterinarians;
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General retail merchandisers;
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Catalog retailers; and
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E-commerce
retailers.
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We believe the principal competitive factors influencing our
business are product selection and quality, customer service,
convenience of store locations, store environment, price and
availability of other services. Many premium pet food brands,
which offer higher levels of nutrition than non-premium brands,
are not currently sold through grocery stores, warehouse clubs
and other mass and general retail merchandisers due to
manufacturers restrictions, but are sold primarily through
specialty pet supply stores, veterinarians and farm and feed
stores. In addition, our unique relationship with Banfield
allows us to sell therapeutic pet foods at our stores with
Banfield hospitals. We believe our pet services business
provides a competitive advantage that cannot be easily
duplicated. We compete effectively in our various markets;
however, some of our grocery store, warehouse club and other
mass and general retail merchandise competitors are much larger
in terms of overall sales volume and may have access to greater
capital.
Our
Strategy
Our strategy is to be the preferred provider for the lifetime
needs of pets. Our primary initiatives include:
Create meaningful differentiation that drives brand
preference. We are focused on developing and
strengthening our brand identity and enhancing the emotional
connection pet parents make with their pets and with PetSmart.
We remain committed to our promise of providing Total Lifetime
CareSM
for every pet, every parent, every time. We provide pet parents
with information, knowledge, trust and product solutions,
including both exclusive and private label offerings, that help
their pets live long, healthy and happy lives. Our marketing and
advertising efforts focus on emphasizing our unique offerings
for customers and promoting our strong value proposition.
Through extensive and on-going customer research, we are gaining
valuable insights into the wants and needs of our customers and
developing solutions and communication strategies to address
them. Our
PetPerks®
program, which is available in all PetSmart stores, plays a
central role in this effort. We are also able to reach customers
through various online communities and social networking sites.
With increasingly greater capacity to
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customize offers relevant to our customers, we are helping them
build a stronger, more meaningful bond with their pet and a
greater loyalty to PetSmart.
Offer superior customer service. Our emphasis
on the customer is designed to provide an unparalleled shopping
experience every time a customer visits our stores. Using a
detailed associate learning curriculum and role-playing
techniques, we educate store associates to identify customer
needs and provide appropriate solutions. We measure our success
in every store, and a portion of the annual incentive program
for the store management team is linked to customer
satisfaction. By providing pet parents with expertise and
solutions, we believe we are strengthening our relationships
with customers, building loyalty and enhancing our leading
market position, thus differentiating ourselves from grocery and
other mass retailers.
Focus on operating excellence. Our commitment
to operating excellence emphasizes retail basics like store
cleanliness, short check-out lines, a strong in-stock position,
an effective supply chain and outstanding care of the pets in
our stores, which allows us to provide a consistently superior
shopping experience. This focus on operating excellence
simplifies processes, makes our stores more efficient and easier
to operate and allows associates to be more productive. We
continually seek opportunities to strengthen our merchandising
capabilities allowing us to provide a differentiated product
assortment, including pet specialty channel exclusive products
and our proprietary brand offerings, to drive innovative
solutions and value to our customers.
Grow our pet services business. Based on net
services sales, we are North Americas leading specialty
provider of pet services, which includes professional grooming,
training, boarding and day camp. Full-service veterinary
hospitals are available in 768 of our stores, through our
partnership with Banfield and other third parties in Canada. Pet
services are an integral part of our strategy, and we are
focused on driving profitable growth in our services business.
We believe services further differentiate us from our
competitors, drive traffic and repeat visits to our stores,
provide cross-selling opportunities, allow us to forge a strong
relationship with our customers, increase transaction size and
enhance operating margins.
Add stores and provide the right store format to meet the
needs of our customers. Our expansion strategy
includes increasing our share in existing multi-store markets,
penetrating new multi-store and single-store markets and
achieving operating efficiencies and economies of scale in
merchandising, distribution, information systems, procurement,
marketing and store operations. We continually evaluate our
store format to ensure we are meeting the needs and expectations
of our customers, while providing a return on investment to our
stockholders. A store format that emphasizes our highly
differentiated products and pet services offerings, when
combined with our other strategic initiatives, will generally
contribute higher comparable store sales growth (or sales in
stores open at least one year), profitability and return on
investment.
We believe these strategic initiatives will continue to drive
comparable store sales and overall sales growth, allow us to
focus on managing capital and leveraging costs and drive product
margins to produce profitability and return on investment for
our shareholders.
Our
Stores
Our stores are generally located at sites co-anchored by strong
destination mass merchandisers and typically are in or near
major regional shopping centers. We are engaged in an ongoing
expansion program, opening new stores in both new and existing
markets and relocating existing stores. Store activity was as
follows:
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2010
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2009
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2008
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Store count at beginning of year
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1,149
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1,112
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1,008
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New, or relocated stores opened
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46
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45
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112
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Stores closed
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(8
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(8
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(8
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Store count at end of year
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1,187
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1,149
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1,112
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Distribution
Our distribution network and information systems are designed to
optimize store inventory, drive the efficient use of store
labor, facilitate a high in-stock position and promote high
distribution center productivity. We currently
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ship product to our stores in full truckloads, some of which
contain multiple store deliveries. We operate two kinds of
distribution centers: forward distribution centers and
combination centers. Our forward distribution centers handle
consumable products that require rapid replenishment, while our
combination distribution centers handle both consumable and
non-consumable products. We believe the combination distribution
centers drive efficiencies in transportation costs and store
labor. Our suppliers generally ship merchandise to one of our
distribution centers, which receive and allocate merchandise to
our stores. We contract the transportation of merchandise from
our distribution centers to stores through third-party vendors.
Merchandise
Merchandise sales, which have been decreasing as a percentage of
net sales due to the higher growth rate in services, represented
approximately 88.5%, 89.2% and 89.6% of our net sales in 2010,
2009 and 2008, respectively. Merchandise generally falls into
three main categories:
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Consumables. Consumables merchandise sales
includes pet food, treats and litter. We emphasize premium and
therapeutic dog and cat foods, many of which are not available
in grocery stores, warehouse clubs or other mass and general
retail merchandisers, as well as our private label foods. We
also offer quality national brands traditionally found in
grocery stores, warehouse clubs or other mass merchandisers, and
pet stores. Consumables merchandise sales comprised 52.5%, 53.4%
and 51.6% of our net sales in 2010, 2009 and 2008, respectively.
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Hardgoods. Hardgoods merchandise sales
includes pet supplies and other goods. Our broad assortment of
pet supplies, including exclusive and private label products,
includes collars, leashes, health care supplies, grooming and
beauty aids, toys and apparel, as well as pet beds and carriers.
We also offer a complete line of supplies for fish, birds,
reptiles and small pets. These products include aquariums and
habitats, as well as accessories, décor and filters.
Hardgoods merchandise sales comprised 34.4%, 34.0% and 36.1% of
our net sales in 2010, 2009 and 2008, respectively.
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Pets. Our stores feature fresh-water tropical
fish, birds, reptiles and small pets. Pets comprised 1.6%, 1.8%
and 1.9% of our net sales in 2010, 2009 and 2008, respectively.
We do not sell dogs or cats, but provide space in most stores
for adoption and animal welfare organizations.
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Pet
Services
Pet services, which include grooming, training, boarding and day
camp, represented 10.9%, 10.8% and 10.4% of our net sales in
2010, 2009 and 2008, respectively. Net sales from pet services
increased 7.5% from $575.4 million in 2009 to
$618.8 million in 2010.
We offer full-service grooming and training services in
virtually all our stores. We typically allocate approximately
900 square feet per store for high-quality, full-service
grooming, including precision cuts, baths, nail trimming and
grinding, and teeth brushing. Depending upon experience, our pet
stylists are educated as part of a comprehensive program that
teaches exceptional grooming skills using safe and gentle
techniques. Pet training services range from puppy classes to
advanced or private courses, led by our accredited pet training
instructors who are passionate about pets.
PetsHotels provide boarding for dogs and cats, which includes
24-hour
supervision by caregivers who are PetSmart trained to provide
personalized pet care, an on-call veterinarian, temperature
controlled rooms and suites, daily specialty treats and play
time, as well as day camp for dogs. As of January 30, 2011,
we operated 180 PetsHotels, and we plan to open 8 to 10 new
PetsHotels in 2011.
Veterinary
Services
The availability of comprehensive veterinary care in our stores
further differentiates us, drives sales in our stores and
reflects our overall commitment to pet care. Full-service
veterinary hospitals in 768 of our stores offer routine
examinations and vaccinations, dental care, a pharmacy and
surgical procedures. As of January 30, 2011, Banfield
operated 757 of the hospitals under the registered trade name of
Banfield, The Pet Hospital. The
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remaining 11 hospitals are located in Canada and are operated by
other third parties. See Note 3 in the Notes to
Consolidated Financial Statements for a discussion of our
ownership interest in Banfield.
PetSmart
Charities and Adoptions
Through PetSmart Charities, Inc., an independent 501(c)(3)
organization, we support the activities of animal welfare
organizations in North America. PetSmart Charities creates and
supports programs to help find a lifelong loving home for every
pet by:
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Raising awareness of companion animal welfare issues;
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Funding programs to further individual animal welfare
organizations missions; and
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Facilitating adoptions through in-store programs, community
events and pet transport programs.
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Since 1994, PetSmart Charities has funded more than
$134 million in grants and programs benefiting animal
welfare organizations and, through its adoption programs, has
helped save the lives of more than 4.4 million pets.
Government
Regulation
We are subject to various federal, state, provincial and local
laws and regulations governing, among other things: our
relationships with employees, including minimum wage
requirements, overtime, working conditions and citizenship
requirements; veterinary practices or the operation of
veterinary hospitals in retail stores that may impact our
ability to operate veterinary hospitals in certain facilities;
the transportation, handling and sale of small pets; the
generation, handling, storage, transportation and disposal of
waste and biohazardous materials; the distribution,
import/export and sale of products; the handling, security,
protection and use of customer and associate information; and
the licensing and certification of services.
We seek to structure our operations to comply with all federal,
state, provincial and local laws and regulations of each
jurisdiction in which we operate. Given varying and uncertain
interpretations of these laws and regulations, and the fact the
laws and regulations are enforced by the courts and regulatory
authorities with broad discretion, we can make no assurances we
would be found to be in compliance in all jurisdictions at all
times. We also could be subject to costs, including fines,
penalties or sanctions and third-party claims as a result of
violations of, or liabilities under, these laws and regulations.
Intellectual
Property
We believe our intellectual property has significant value and
is an important component in our merchandising and marketing
strategies. Some of our intellectual property includes numerous
servicemarks and trademarks registered with the United States
Patent and Trademark Office, or USPTO, including:
PetSmart®,
PetSmart.com®,
PetSmart
PetsHotel®,
PetPerks®,
and Where Pets Are
Family®,
as well as many others. We also have several servicemark and
trademark applications that are pending with the USPTO and
anticipate filing additional applications in the future. We also
own numerous registered servicemarks, trademarks and pending
applications in other countries, including Canada, as well as
several trade names, domain names and copyrights for use in our
business.
Employees
As of January 30, 2011, we employed approximately 47,000
associates, approximately 22,000 of whom were employed
full-time. We continue to invest in education for our full and
part-time associates as part of our emphasis on customer service
and providing pet care solutions. We are not subject to
collective bargaining agreements and have not experienced work
stoppages. We consider our relationship with our associates to
be a positive one. Increases in the federal and state minimum
wage in recent years have not had a material effect on our
business.
Financial
Information by Business Segment and Geographic Data
Operating segments are components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how
to allocate resources and in
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assessing performance. Utilizing these criteria, we manage our
business on the basis of one reportable operating segment.
Net sales in the United States were $5.4 billion,
$5.1 billion and $4.9 billion for 2010, 2009 and 2008,
respectively. Net sales in Canada, denominated in United States
dollars, were $296.7 million, $245.5 million and
$217.6 million for 2010, 2009 and 2008, respectively.
Substantially all our long-lived assets are located in the
United States.
Available
Information
We make available, free of charge through our investor relations
internet website (www.petm.com), our Annual Report on
Form 10-K
and our Quarterly Reports on
Form 10-Q,
including our XBRL instance documents, our current reports on
Form 8-K
and amendments to those reports, as soon as reasonably
practicable after we electronically file such material, or
furnish it to the Securities and Exchange Commission, or
SEC.
The public may read and copy materials that we file with the SEC
at the SECs Public Reference Room at
100 F Street, NW, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room
by calling the SEC at
1-800-SEC-0330.
The SEC maintains an internet website
(http://www.sec.gov)
that contains reports, proxy and information statements, and
other information regarding issuers that file electronically
with the SEC.
Management
Our executive officers and their ages and positions on
March 1, 2011, are as follows:
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Name
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Age
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Position
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Philip L. Francis
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64
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Executive Chairman
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Robert F. Moran
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60
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President and Chief Executive Officer
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Lawrence P. Molloy
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49
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Senior Vice President, Chief Financial Officer
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Emily D. Dickinson
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51
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Senior Vice President, General Counsel and Secretary
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David K. Lenhardt
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41
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Executive Vice President, Store Operations, Human Resources and
Information Systems
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Joseph D. OLeary
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52
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Executive Vice President, Merchandising, Marketing and Supply
Chain
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John W. Alpaugh
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45
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Senior Vice President, Chief Marketing Officer
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Donald E. Beaver
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52
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Senior Vice President, Chief Information Officer
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Jaye D. Perricone
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52
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Senior Vice President, Real Estate and Development
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Neil H. Stacey
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57
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Senior Vice President, Human Resources
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Bruce K. Thorn
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Senior Vice President, Supply Chain
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Kenneth T. Hall
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Senior Vice President, Strategic Planning and Business
Development
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Philip L. Francis has been a Director of PetSmart since
1989 and was named Executive Chairman in June 2009. From January
2002 until June 2009, he was Chairman and Chief Executive
Officer. He joined PetSmart as President and Chief Executive
Officer in March 1998, was named Chairman of the Board in 1999,
and held all three positions until December 2001. From 1991 to
1998, he held various positions with Shaws Supermarkets,
Inc., a subsidiary of J. Sainsbury plc., including Chief
Executive Officer, Chief Operating Officer and President. Prior
to that, he held several senior management positions for
Roundys Supermarket, Inc., Cardinal Health, Inc. and the
Jewel Companies, Inc.
Robert F. Moran was named President and Chief Executive
Officer in June 2009. He has been a Director of PetSmart since
June 2009. He joined PetSmart as President of North American
Stores in July 1999 and in December 2001, he was appointed
President and Chief Operating Officer. From 1998 to 1999, he was
President of Toys R Us, Ltd., Canada. Prior to 1991
and from 1993 to 1998, for a total of 20 years, he was with
Sears, Roebuck and Company
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in a variety of financial and merchandising positions, including
President and Chief Executive Officer of Sears de Mexico. He was
also Chief Financial Officer and Executive Vice President of
Galerias Preciados of Madrid, Spain from 1991 through 1993.
Lawrence P. Molloy joined PetSmart as Senior Vice
President and Chief Financial Officer in September 2007. Prior
to joining PetSmart, he was employed by Circuit City Stores,
Inc, a national consumer electronics retailer, from 2003 to
2007. While at Circuit City, he served as the Director of
Financial Planning and Analysis from 2003 to 2004, the Vice
President, Financial Planning and Analysis from 2004 to 2006 and
from 2006 to 2007 was Chief Financial Officer of retail. Prior
to Circuit City, he served in various leadership, planning and
strategy roles for Capital One Financial Corporation; AGL
Capital Investments, LLC; Deloitte & Touche Consulting
Group; and the United States Navy. He served ten years in the
Navy as a fighter pilot, later retiring from the Navy Reserve
with a rank of Commander.
Emily D. Dickinson joined PetSmart in September 2009 as
Senior Vice President, General Counsel and Secretary. Prior to
joining PetSmart, she spent 18 years with Hannaford Bros.
Co., eight of which were also with Delhaize Group, a
Belgian-based food retailer. While there, she had dual
responsibility as Vice President, Legal on a global basis for
Delhaize and Senior Vice President, General Counsel and
Secretary for Hannaford Bros. from 2000 to 2009. Before serving
at Hannaford Bros. Co., she was an attorney in Boston and with
two Portland, Maine law firms.
David K. Lenhardt was appointed Executive Vice President,
Store Operations, Human Resources and Information Systems
effective January 31, 2011. He joined PetSmart as Senior
Vice President of Services, Strategic Planning and Business
Development in October 2000. He was appointed Senior Vice
President, Store Operations and Services in February 2007 and in
February 2009 was appointed Senior Vice President, Store
Operations and Human Resources. From 1996 to 2000, he was a
manager with Bain & Company, Inc., where he led
consulting teams for retail, technology and
e-commerce
clients. Prior to that, he worked in the corporate finance and
Latin American groups of Merrill Lynch & Co.,
Inc.s investment banking division.
Joseph D. OLeary was appointed Executive Vice
President, Merchandising, Marketing and Supply Chain effective
January 31, 2011. He joined PetSmart as Senior Vice
President of Supply Chain in September 2006. From October 2008
to March 2010, he held the title of Senior Vice President,
Merchandising and Supply Chain. From March 2010 to January 2011,
he held the title of Senior Vice President, Merchandising. Prior
to joining PetSmart, he was Chief Operating Officer for
Interactive Health, a manufacturer of robotic massage chairs.
Prior to that, he served as Senior Vice President of Supply
Chain Strategy and Global Logistics for the Gap, Inc. from 2003
to 2005, and Senior Vice President of Global Logistics from 2000
to 2003. Prior to 1999, he held positions at Mothercare plc,
Coopers & Lybrand LLP and BP International.
John W. Alpaugh was appointed Senior Vice President,
Chief Marketing Officer in February 2010. He joined PetSmart in
1999 and has served in a number of leadership roles including
Vice President, Marketing from February 2006 to April 2007, Vice
President, Specialty Merchandising from April 2007 to March
2008, and from April 2008 to February 2010, Vice President of
Strategic Planning and Business Development. Prior to joining
PetSmart, he worked in Brand Management for Procter &
Gamble Europe and in Financial Planning and Analysis for IBM.
Donald E. Beaver joined PetSmart as Senior Vice President
and Chief Information Officer in May 2005. Prior to joining
PetSmart, he was employed by H.E. Butt Grocery Company where he
held the position of Senior Vice President and Chief Information
Officer starting in 1999. Prior to that, he served 14 years
at Allied Signal Aerospace, Inc. in various information systems
leadership roles, the last being the CIO for the aftermarket
support division.
Jaye D. Perricone was appointed Senior Vice President,
Real Estate and Development in December 2007, serving as Vice
President, Real Estate during the year prior. She joined
PetSmart in 1995, and served in a number of leadership roles
including Regional Vice President from 1997 to 2000, Vice
President of Services Operations from 2000 to 2001, Vice
President of Customer Service and Store Operations from 2001 to
2004 and Vice President of Property Management and Store Design
from 2004 to 2006. Prior to joining PetSmart, she held various
positions with Target Corporation, Pace Membership Warehouse,
Inc. and Bizmart, Inc.
7
Neil H. Stacey was appointed Senior Vice President of
Human Resources in February 2009. He joined PetSmart in 1995 and
served in a number of leadership roles including Vice President
General Merchandise Manager from 1995 to 1999, Senior Vice
President of Merchandising Consumables from 1999 to 2000,
Regional Vice President from 2000 to 2007, and Divisional Vice
President of Operations from 2007 to 2009. Prior to joining
PetSmart, he was employed at American Stores, a national food
and drug retailer, where he held several leadership positions
including Vice President of Advertising and Market Development,
Vice President of Merchandising and Vice President of Business
Process Redesign.
Bruce K. Thorn was appointed Senior Vice President,
Supply Chain in December 2009. He joined PetSmart in 2007 as
Vice President, Supply Chain Solutions, and served as Vice
President, Supply Chain from 2008 to 2009. Prior to joining
PetSmart, he served as Chief Operating Officer for LESCO, Inc.
from 2002 through 2007. LESCO, Inc. is a public company and
leader in the professional turf care industry. He previously
held leadership roles with Gap, Inc., Cintas Corporation and the
United States Army.
Kenneth T. Hall was appointed Senior Vice President of
Strategic Planning and Business Development in January 2010. He
joined PetSmart in October 2000 as Vice President, Strategic
Planning and Customer Relationships. In January 2003, he was
appointed Senior Vice President and Chief Marketing Officer,
after serving in the role from October 2002 on an interim basis.
He was appointed Senior Vice President of Merchandising in
February 2006. From September 2008 until December 2009, he
completed an executive rotational assignment in the field in
Store Operations. Prior to PetSmart, he worked with
Bain & Company, where he developed business and
customer loyalty strategies and programs for major retail,
automotive and financial services companies. He began his career
with Exxon Company, where he held a variety of operations and
financial roles. In January 2011, Mr. Hall announced that
he would retire from his position in March 2011.
In the normal course of business, our operations, financial
condition and results of operations are routinely subjected to a
variety of risks. Our actual financial results could differ
materially from projected results due to some or all of the
factors discussed below. You should carefully consider the risks
and uncertainties described below, as well as those discussed in
the Competition, Our Stores,
Distribution and Government Regulation
sections of this Annual Report on
Form 10-K.
In addition, the current global economic conditions amplify many
of these risks.
A
decline in consumer spending or a change in consumer preferences
could reduce our sales or profitability and harm our
business.
Our sales depend on consumer spending, which is influenced by
factors beyond our control, including general economic
conditions, the availability of discretionary income and credit,
tax or interest rate fluctuations, fuel and other energy costs,
healthcare costs, weather and unemployment levels. Global or
national political unrest or uncertainty may also impact the
price paid by consumers for goods, services and commodities and
reduce consumer spending and confidence, and reduce our sales or
profitability. We may experience declines in sales or changes in
the types of products sold during economic downturns. Any
material decline in the amount of consumer spending could reduce
our sales, and a decrease in the sales of higher-margin products
could reduce profitability and, in each case, harm our business.
The success of our business depends in part on our ability to
identify and respond to evolving trends in demographics and
consumer preferences. Failure to timely identify or effectively
respond to changing consumer tastes, preferences, spending
patterns and pet care needs could adversely affect our
relationship with our customers, our market share, the demand
for our products and services, our sales and gross margins, and
our profitability.
The
pet products and services retail industry is very competitive
and continued competitive forces may adversely impact our
business and financial results.
The pet products and services retail industry is very
competitive. We compete with supermarkets, warehouse clubs and
other mass and general retail merchandisers, many of which are
larger and have significantly greater resources than we have. We
also compete with a number of specialty pet supply stores and
independent pet stores,
8
veterinarians, catalog retailers and
e-commerce
retailers. The pet products and services retail industry has
become increasingly competitive due to the expansion of
pet-related product offerings by certain supermarkets, warehouse
clubs and other mass and retail merchandisers and the entrance
of other specialty retailers into the pet food and pet supply
market, some of which have developed store formats similar to
ours. We can make no assurances we will not face greater
competition from these or other retailers in the future. In
particular, if supermarket, warehouse club or other mass and
retail merchandiser competitors seek to gain or retain market
share by reducing prices, we would likely reduce our prices on
similar product offerings in order to remain competitive, which
may result in a decrease in our market share, sales, operating
results and profitability and require a change in our operating
strategies.
We also have been able to compete successfully by
differentiating ourselves from our competitors through providing
a careful combination of product assortment, competitive
pricing, service offerings and unique customer experience. If
changes in consumer preferences decrease the competitive
advantage attributable to these factors, or if we fail to
otherwise positively differentiate our customer experience from
our competitors, our business and results of operations could be
adversely affected.
Comparable
store sales growth may decrease. If we are unable to increase
sales at our existing stores, our results of operations could be
harmed.
We can make no assurances that our stores will meet forecasted
levels of sales and profitability. As a result of new store
openings in existing markets, and because older stores will
represent an increasing proportion of our store base over time,
our comparable store sales performance may be materially
impacted in future periods. In addition, a portion of a typical
new stores sales comes from customers who previously
shopped at other PetSmart stores in the existing market.
We may
be unable to continue to open new stores and enter new markets
successfully. If we are unable to successfully reformat existing
stores and open new stores, our results of operations could be
harmed. Also, store development may place increasing demands on
management and operating systems and may erode sales at existing
stores.
We currently operate stores in most of the major market areas of
the United States and Canada. Our ability to be successful with
our store development efforts is dependent on various factors,
some of which are outside our control, including:
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Identifying store sites that offer attractive returns on our
investment including the impact of cannibalization of our
existing stores;
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Competition for those sites;
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Successfully negotiating with landlords and obtaining any
necessary governmental, regulatory or private approvals;
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Timely construction of stores; and
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Our ability to attract and retain qualified store personnel.
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To the extent we are unable to accomplish any of the above, our
ability to open new stores and hotels may be harmed and our
future sales and profits may be adversely affected. In addition,
we can make no assurances that we will be able to meet the
forecasted level of sales or operate our new stores or hotels
profitably.
The increased demands placed on existing systems and procedures,
and on management by our store development plans, also could
result in operational inefficiencies and less effective
management of our business and associates, which could in turn
adversely affect our financial performance. Opening new stores
in a market will attract some customers away from other stores
already operated by us in that market and diminish their sales.
An increase in construction costs
and/or
building material costs could also adversely affect our
financial performance.
Our leases are typically signed approximately 9 months
before a store opens. As a result of that timing, we may be
unable to adjust our store opening schedule to new economic
conditions or a change in strategy in a timely manner.
9
Our
quarterly operating results may fluctuate due to seasonal
changes associated with the pet products and services retail
industry and the timing of expenses, new store openings and
store closures.
Our business is subject to seasonal fluctuation. We typically
realize a higher portion of our net sales and operating profit
during the fourth fiscal quarter. Sales of certain products and
services are seasonal and because our stores typically draw
customers from a large area, sales may also be impacted by
adverse weather or travel conditions, which are more prevalent
during certain seasons of the year. As a result of this
seasonality, we believe that
quarter-to-quarter
comparisons of our operating results are not necessarily
meaningful and that these comparisons cannot be relied upon as
indicators of future performance. Also, controllable expenses,
such as advertising, may fluctuate from quarter to quarter
within a year. As a result of our expansion plans, the timing of
new store openings and related preopening expenses, the amount
of revenue contributed by new and existing stores, and the
timing and estimated obligations of store closures, our
quarterly results of operations may fluctuate. Finally, because
new stores tend to experience higher payroll, advertising and
other store level expenses, as a percentage of net sales, than
mature stores, new store openings will also contribute to lower
store operating margins until these stores become established.
Failure
to successfully manage and execute our marketing initiatives
could have a negative impact on our business.
Our continued success and growth depend on cultivating a
growing, loyal customer base, improving customer traffic and
increasing the average transaction amount to gain sales momentum
in our stores and on our
e-commerce
web site. Historically, we have utilized various media to reach
the consumer, and we have experienced varying responses to our
marketing efforts. Often, media placement decisions are made
months in advance, and our inability to accurately predict our
consumers preferred method of communication may impair our
ability to attract new customers, result in fewer customers
shopping at our stores, or fail to drive additional sales and
thereby negatively impact our business and financial performance.
A
disruption, malfunction or increased costs in the operation,
expansion or replenishment of our distribution centers or our
supply chain would impact our ability to deliver to our stores
or increase our expenses, which could harm our sales and results
of operations.
Our vendors generally ship merchandise to one of our
distribution centers, which receive and allocate merchandise to
our stores. Any interruption or malfunction in our distribution
operations, including, but not limited to, the loss of a key
vendor that provides transportation of merchandise to or from
our distribution centers, or a material increase in our
transportation and distribution costs, including, but not
limited to, costs resulting from increases in the price of fuel
and other energy costs or other commodities, could harm our
sales and the results of our operations. We seek to optimize
inventory levels to operate our business successfully. An
interruption in the supply chain could result in
out-of-stock
or excess merchandise inventory levels that could harm our sales
and the results of operations. We operate two fish distribution
centers and have two fish distribution centers that are operated
by a third-party vendor. An interruption or malfunction in these
operations or in the fulfillment of fish orders could harm our
sales and results of operations. Operating the fish distribution
centers is a very complex process, and if we lose the
third-party operator, we can make no assurances that we could
contract with another third-party to operate the fish
distribution centers on favorable terms, if at all, or that we
could successfully operate all of the fish distribution centers
ourselves. In addition, our growth plans require the development
of new distribution centers to service the increasing number of
stores. If we are unable to successfully expand our distribution
network in a timely manner, our sales or results of operations
could be harmed.
Failure
to successfully manage our inventory could harm our
business.
In addition to the risks described elsewhere in this
Item 1A relating to our distribution centers and inventory
optimization by us and third parties, we are exposed to
inventory risks that may adversely affect our operating results
as a result of seasonality, new product launches, changes in
customer demand and consumer spending patterns, changes in
consumer tastes with respect to our products and other factors.
We endeavor to accurately predict these trends and avoid
overstocking or under stocking products that we sell. Demand for
products, however, can change between the time inventory is
ordered and the date of sale. In addition, when we begin selling
a new
10
product, it may be difficult to establish vendor relationships,
determine appropriate product selection, and accurately forecast
demand. We carry a broad selection of certain products and we
may be unable to sell products in sufficient quantities or
during the relevant selling seasons. Any one of the inventory
risk factors set forth above may adversely affect our operating
results.
If our
information systems fail to perform as designed or are
interrupted for a significant period of time, our business could
be harmed.
The efficient operation of our business is dependent on our
information systems. In particular, we rely on our information
systems to effectively manage our financial and operational
data, process payroll and to maintain our in-stock positions. We
possess disaster recovery capabilities for our key information
systems and take measures to prevent security breaches and
computer viruses. The failure of our information systems to
perform as designed, loss of data or any interruption of our
information systems for a significant period of time could
disrupt our business.
We continue to invest in our information systems. Enhancement to
or replacement of our major financial or operational information
systems could have a significant impact on our ability to
conduct our core business operations and increase our risk of
loss resulting from disruptions of normal operating processes
and procedures that may occur during the implementation of new
information systems. We can make no assurances that the costs of
investments in our information systems will not exceed
estimates, that the systems will be implemented without material
disruption, or that the systems will be as beneficial as
predicted. If any of these events occur, our results of
operations could be harmed.
If we
fail to protect the integrity and security of customer and
associate information, we could be exposed to litigation and our
business could be adversely impacted.
The increasing costs associated with information security, such
as increased investment in technology, the costs of compliance
with consumer protection laws, and costs resulting from consumer
fraud, could adversely impact our business. We also routinely
possess sensitive customer and associate information and, while
we have taken reasonable and appropriate steps to protect that
information, if our security procedures and controls were
compromised, it could harm our business, reputation, operating
results and financial condition and may increase the costs we
incur to protect against such information security breaches.
The
disruption of the relationship with or the loss of any of our
key vendors, including our vendors with whom we have exclusive
relationships, a decision by our vendors to make their products
available in supermarkets or through warehouse clubs and other
mass and retail merchandisers, the inability of our vendors to
provide quality products in a timely or cost-effective manner,
the availability of generic products, or risks associated with
the suppliers from whom products are sourced, all could harm our
business.
Sales of premium pet food for dogs and cats comprise a
significant portion of our net sales. Currently, most major
vendors of premium pet food do not permit their products to be
sold in supermarkets, warehouse clubs, or through other mass and
retail merchandisers. If any premium pet food or pet supply
vendor were to make its products available in supermarkets,
warehouse clubs and other mass or retail merchandisers, our
business could be harmed. In addition, if the grocery brands
currently available to such retailers were to gain market share
at the expense of the premium brands sold only through specialty
pet food and pet supply outlets, our business could be harmed.
We purchase a substantial amount of pet supplies from a number
of vendors with limited supply capabilities, and two of our
largest vendors account for a material amount of products sold.
We can make no assurances that we will be able to find new
qualified vendors who meet our standards, or that our current
pet supply vendors will be able to accommodate our anticipated
needs or comply with existing or any new regulatory
requirements. In addition, we purchase a substantial amount of
pet supplies from vendors outside of the United States.
Effective global sourcing of many of the products we sell is an
important factor in our financial performance. We can make no
assurances that our international vendors will be able to
satisfy our requirements including, but not limited to,
timeliness of delivery, acceptable product quality, and accurate
packaging and labeling. Any inability of our existing vendors to
provide products meeting such requirements in a timely or
cost-effective manner could harm our business. While
11
we believe our vendor relationships are good, we have no
material long-term supply commitments from our vendors and any
vendor could discontinue selling to us at any time.
Many factors relating to our vendors and the countries in which
they are located are beyond our control, including the stability
of the political, economic and financial environments where they
are located, their ability to operate in challenging economic
environments or meet our standards and applicable U.S. and
local legal requirements, the availability of labor and raw
materials, labor unrest, merchandise quality issues, currency
exchange rates, trade restrictions, transport availability and
cost, inflation and other factors. In addition, Canadas
and the United States foreign trade policies, tariffs and
other impositions on imported goods, trade sanctions imposed on
certain countries, the limitation on the import of certain types
of goods or of goods containing certain materials from other
countries and other factors relating to foreign trade are beyond
our control. These factors affecting our vendors and our access
to products could adversely affect our operations and our
financial performance.
Our
expanded offering of proprietary branded products may not
improve our financial performance and may expose us to product
liability claims.
We offer various proprietary branded products, for which we rely
on third-party manufacturers. Such third-party manufacturers may
prove to be unreliable, or the quality of the products may not
meet our expectations. In addition, our proprietary branded
products compete with other manufacturers branded items
that we offer. As we continue to evaluate the number and types
of proprietary branded products that we sell, we may adversely
affect our relationships with our vendors, who may decide to
reduce their product offerings through us and increase their
product offerings through our competitors. Finally, if any of
our customers are harmed by our proprietary branded products,
they may bring product liability and other claims against us.
Any of these circumstances could have an adverse effect on our
business and financial performance.
Food
safety, quality and health concerns could affect our
business.
We could be adversely affected if consumers lose confidence in
the safety and quality of vendor-supplied food products and
hard-good products. Adverse publicity about these types of
concerns, whether valid or not, may discourage consumers from
buying the products in our stores or cause vendor production and
delivery disruptions. The real or perceived sale of contaminated
food products by us could result in product liability claims
against our vendors or us, expose us or our vendors to
governmental enforcement action or private litigation, or lead
to costly recalls and a loss of consumer confidence, any of
which could have an adverse effect on our sales and operations
and financial performance.
We
depend on key executives, store managers and other personnel and
may not be able to retain or replace these employees or recruit
additional qualified personnel, which could harm our
business.
Our success is largely dependent on the efforts and abilities of
our senior executive group and other key personnel. The loss of
the services of one or more of our key executives or personnel,
or the increased demands placed on our key executives and
personnel by our continued growth, could adversely impact our
financial performance and our ability to execute our strategies.
In addition, our future success depends on our ability to
attract, train, manage and retain highly skilled store managers
and qualified services personnel such as pet trainers and
groomers. There is a high level of competition for these
employees and our ability to operate our stores and expand our
services depends on our ability to attract and retain these
personnel. Competition for qualified management and services
personnel could require us to pay higher wages or other
compensation to attract a sufficient number of employees.
Turnover, which has historically been high among entry-level or
part-time associates at our stores and distribution centers,
increases the risk associates will not have the training and
experience needed to provide competitive, high-quality customer
service. Our ability to meet our labor needs while controlling
our labor costs is subject to numerous external factors,
including unemployment levels, prevailing wage rates, changing
demographics and changes in employment legislation. If we are
unable to retain qualified associates or our labor costs
increase significantly, our business operations and our
financial performance could be adversely impacted. In addition,
there historically has been a shortage of qualified
veterinarians. If third party veterinary services providers
cannot attract and retain a sufficient number of qualified
veterinarians, their ability to provide
12
veterinary services in our stores and our ability to increase
the number of stores in which veterinary services are provided,
may be impacted.
Our
international operations may result in additional market risks,
which may harm our business.
We entered the Canadian market in 1996 and operate 69 stores in
Canada as of January 30, 2011. As these operations grow,
they may require greater management and financial resources.
International operations require the integration of personnel
with varying cultural and business backgrounds and an
understanding of the relevant differences in the cultural, legal
and regulatory environments. Our results may be increasingly
affected by the risks of our international activities, including:
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Fluctuations in currency exchange rates;
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Changes in international staffing and employment issues;
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Tariff and other trade barriers;
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Greater difficulty in utilizing and enforcing our intellectual
property rights;
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Failure to understand the local culture and market;
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The burden of complying with foreign laws, including tax laws
and financial accounting standards; and
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Political and economic instability and developments.
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Our
business may be harmed if the operation of veterinary hospitals
at our stores is limited or fails to continue.
We and Banfield, the third-party operator of Banfield, The Pet
Hospital, and our other third-party operators are subject to
statutes and regulations in various states and Canadian
provinces regulating the ownership of veterinary practices, or
the operation of veterinary hospitals in retail stores, that may
impact our ability to host and Banfields ability to
operate veterinary hospitals within our facilities. A
determination that we, or Banfield, are in violation of any of
these applicable statutes and regulations could require us, or
Banfield, to restructure our operations to comply, or render us,
or Banfield, unable to operate veterinary hospitals in a given
location. If Banfield were to experience financial or other
operating difficulties that would force it to limit its
operations, or if Banfield were to cease operating the
veterinary hospitals in our stores, our business may be harmed.
We can make no assurances that we could contract with another
third-party to operate the veterinary hospitals on favorable
terms, if at all, or that we could successfully operate the
veterinary hospitals ourselves. Any significant decrease in
Banfields financial results may negatively impact our
financial performance.
We
face various risks as an
e-commerce
retailer.
We may require additional capital in the future to sustain or
grow our
e-commerce
business. We have engaged a third-party to maintain our
e-commerce
website and process all customer orders placed through that
site. Business risks related to our
e-commerce
business include our ability to keep pace with rapid
technological change; failure in our, or any third-party
processors, security procedures and operational controls;
failure or inadequacy in our, or any third-party
processors, systems or ability to process customer orders;
government regulation and legal uncertainties with respect to
e-commerce;
and collection of sales or other taxes by one or more states or
foreign jurisdictions. If any of these risks materialize, it
could have an adverse effect on our business.
Our
business could be harmed if we were unable to effectively manage
our cash flow and raise any needed additional capital on
acceptable terms.
We expect to fund our currently planned operations with existing
capital resources, including cash flows from operations and the
borrowing capacity under our credit facility. If, however, we
are unable to effectively manage our cash flows or generate and
maintain positive operating cash flows and operating income in
the future, we may need additional funding. We may also choose
to raise additional capital due to market conditions or
strategic considerations, even if we believe that we have
sufficient funds for our current or future operating plans. Our
credit facility
13
and letter of credit facility are secured by substantially all
our personal property assets, our subsidiaries and certain real
property. This could limit our ability to obtain, or obtain on
favorable terms, additional financing and may make additional
debt financing outside our credit facility and letter of credit
facility more costly. If additional capital were needed, an
inability to raise capital on favorable terms could harm our
business and financial condition. In addition, to the extent
that we raise additional capital through the sale of equity or
debt securities convertible into equity, the issuance of these
securities could result in dilution or accretion to our
stockholders.
Failure
to successfully integrate any business we acquire could have an
adverse impact on our financial results.
We may, from time to time, acquire businesses we believe to be
complementary to our business. Acquisitions may result in
difficulties in assimilating acquired companies and may result
in the diversion of our capital and our managements
attention from other business issues and opportunities. We may
not be able to successfully integrate operations that we
acquire, including their personnel, financial systems,
distribution, operations and general operating procedures. If we
fail to successfully integrate acquisitions, we could experience
increased costs associated with operating inefficiencies which
could have an adverse effect on our financial results. Also,
while we employ several different methodologies to assess
potential business opportunities, the new businesses may not
meet or exceed our expectations and, therefore, affect our
financial performance.
Failure
to protect our intellectual property could have a negative
impact on our operating results.
Our trademarks, servicemarks, copyrights, patents, trade
secrets, domain names and other intellectual property are
valuable assets that are critical to our success. The
unauthorized reproduction or other misappropriation of our
intellectual property could diminish the value of our brands or
goodwill and cause a decline in our revenue or operating
results. Protecting our intellectual property outside the United
States could be time-consuming and costly, and the local laws
and regulations outside the United States may not fully protect
our rights in such intellectual property. Any infringement or
other intellectual property claim made against us, whether or
not it has merit, could be time-consuming, result in costly
litigation, cause product delays or require us to enter into
royalty or licensing agreements. As a result, any such claim
could have an adverse effect on our operating results.
A
determination that we are in violation of any contractual
obligations or government regulations could result in a
disruption to our operations and could impact our financial
results.
We are subject to various contractual obligations with
third-party providers and federal, state, provincial and local
laws and regulations governing, among other things: our
relationships with employees, including minimum wage
requirements, overtime, terms and conditions of employment,
working conditions and citizenship requirements; veterinary
practices, or the operation of veterinary hospitals in retail
stores, that may impact our ability to operate veterinary
hospitals in certain facilities; the transportation, handling
and sale of small pets; the generation, handling, storage,
transportation and disposal of waste and biohazardous materials;
the distribution, import/export and sale of products; providing
services to our customers; contracted services with various
third-party providers; credit and debit card processing; the
handling, security, protection and use of customer and associate
information; and the licensing and certification of services.
We seek to structure our operations to comply with all
applicable federal, state, provincial and local laws and
regulations of each jurisdiction in which we operate. Given
varying and uncertain interpretations of these laws and
regulations and the fact that the laws and regulations are
enforced by the courts and by regulatory authorities with broad
discretion, we can make no assurances that we would be found to
be in compliance in all jurisdictions. We also could be subject
to costs, including fines, penalties or sanctions and
third-party claims as a result of violations of, or liabilities
under, the above referenced contracts, laws and regulations.
Failure
of our internal controls over financial reporting could harm our
business and financial results.
We have documented and tested our internal controls over
financial reporting to assess their design and operating
effectiveness. Internal controls over financial reporting have
inherent limitations and are not intended to provide absolute
assurance that a misstatement of our financial statements would
be prevented or detected. We may
14
encounter problems or delays in completing the review and
evaluation, or implementing improvements. Additionally, we may
identify deficiencies that need to be addressed in our internal
controls over financial reporting, or other matters that may
raise concerns for investors. Should we, or our independent
registered public accounting firm, determine in future periods
that we have a material weakness in our internal controls over
financial reporting, our results of operations or financial
condition may be adversely affected and the price of our common
stock may decline.
Changes
in laws, accounting standards and subjective assumptions,
estimates and judgments by management related to complex
accounting matters could significantly affect our financial
results.
Accounting principles generally accepted in the United States of
America, or GAAP, and related accounting
pronouncements, implementation guidelines and interpretations
with regard to a wide range of matters relevant to our business
are highly complex, continually evolving and involve many
subjective assumptions, estimates and judgments by us. Changes
in these rules or their interpretation, or changes in facts,
underlying assumptions, estimates or judgments by us could
significantly impact our reported or expected financial
performance.
An
unfavorable determination by tax regulators may cause our
provision for income and other taxes to be inadequate and may
result in a material impact to our financial
results.
We operate in multiple tax jurisdictions and believe we have
made adequate provisions for income and other taxes. If,
however, tax regulators in these jurisdictions determine a
position we have taken on an issue is inappropriate, our
financial results may be adversely affected.
Failure
to obtain commercial insurance at acceptable prices or failure
to adequately reserve for self-insured exposures might have a
negative impact on our business.
We procure insurance to help us manage a variety of risks. A
failure of insurance to provide coverage for these risks may
expose us to expensive defense costs and the costs of the
ultimate outcome of the matter. Insurance costs continue to be
volatile, affected by natural catastrophes, fear of terrorism,
financial irregularities and fraud at other publicly traded
companies and fiscal viability of insurers. We believe that
commercial insurance coverage is prudent for risk management,
and insurance costs may increase substantially in the future. In
addition, for certain types or levels of risk, such as risks
associated with earthquakes, hurricanes or terrorist attacks, we
may determine that we cannot obtain commercial insurance at
acceptable prices. Therefore, we may choose to forego or limit
our purchase of relevant commercial insurance, choosing instead
to self-insure one or more types or levels of risks. Provisions
for losses related to self-insured risks are based upon
independent actuarially determined estimates. We maintain
stop-loss coverage to limit the exposure related to certain
risks. The assumptions underlying the ultimate costs of existing
claim losses are subject to a high degree of unpredictability,
which can affect the liability recorded for such claims. For
example, variability in inflation rates of health care costs
inherent in these claims can affect the amounts realized.
Similarly, changes in legal trends and interpretations, as well
as a change in the nature and method of how claims are settled
can impact ultimate costs. Although our estimates of liabilities
incurred do not anticipate significant changes in historical
trends for these variables, any changes could have a
considerable effect upon future claim costs and currently
recorded liabilities and could have a material impact on our
consolidated financial statements.
Pending
legislation, weather, catastrophic events, disease, or other
factors, could disrupt our operations, supply chain and the
supply of small pets and products we sell, which could harm our
reputation and decrease sales.
There is generally a significant amount of legislation pending
at the federal, state, provincial and local levels regarding the
handling of pets. This legislation may impair our ability to
transport the small pets we sell in our stores. The small pets
we sell in our stores are susceptible to health risks and
diseases that can quickly decrease or destroy the supply of
these pets. In addition, our supply of products may be
negatively impacted by weather, catastrophic events, disease,
supply chain malfunctions, contamination or trade barriers. Any
disruption in our operations or the supply of products to our
stores could harm our reputation and decrease our sales.
15
Fluctuations
in the stock market, as well as general economic and market
conditions, may impact our operations, sales, financial results
and market price of our common stock.
Over the last several years, the market price of our common
stock has been subject to significant fluctuations. The market
price of our common stock may continue to be subject to
significant fluctuations in response to the impact on our
operations, sales and financial results of a variety of factors
including, but not limited to:
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General economic changes;
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|
Actions taken by our competitors, including new product
introductions and pricing changes;
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|
Changes in the strategy and capability of our competitors;
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|
Our ability to successfully integrate acquisitions;
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The prospects of our industry;
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Natural disasters, hostilities and acts of terrorism; and
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|
National or regional catastrophes or circumstances, such as a
pandemic or other public health or welfare scare.
|
In addition, the stock market in recent years has experienced
price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies.
These fluctuations, as well as general economic and market
conditions, including but not limited to those listed above, may
harm the market price of our common stock. Further, a change in
an analysts published opinion or rating of our business
could impact the market price of our common stock.
Continued
volatility and disruption to the global capital and credit
markets may adversely affect our ability to access credit and
the financial soundness of our suppliers.
Financial turmoil affecting the banking system and financial
markets and the risk that additional financial institutions may
consolidate or become insolvent has resulted in a tightening in
the credit markets, a low level of liquidity in many financial
markets, and volatility in credit, currency and equity markets.
In such an environment, there is a risk that lenders, even those
with strong balance sheets and sound lending practices, could
fail or refuse to honor their legal commitments and obligations
under existing credit commitments, including but not limited to:
extending credit up to the maximum permitted by credit facility,
allowing access to additional credit features and otherwise
accessing capital
and/or
honoring loan commitments. If our lender fails to honor its
legal commitments under our credit facility, it could be
difficult in this environment to replace our credit facility on
similar terms. And if our suppliers or key third party vendors
of necessary services and technical systems encounter similar
difficulties with credit or liquidity in their own businesses,
our business may also be adversely affected.
Our
operating and financial performance in any given period may
differ from the guidance we have provided to the
public.
We provide public guidance on our expected operating and
financial results for future periods. Although we believe that
this guidance provides investors and analysts with a better
understanding of managements expectations for the future
and is useful to our stockholders and potential stockholders,
such guidance is comprised of forward-looking statements subject
to the risks and uncertainties described in this report and in
our other public filings and public statements. If our operating
or financial results for a particular period differ from our
guidance or the expectations of investment analysts, or if we
change our guidance for future periods, the market price of our
common stock could decline.
16
We
have implemented some anti-takeover provisions that may prevent
or delay an acquisition of us that may not be beneficial to our
shareholders.
Our restated certificate of incorporation and bylaws include
provisions that may delay, defer or prevent a change in
management or control that our shareholders may not believe is
in their best interests. These provisions include:
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Until 2012, a classified board of directors consisting of two
classes;
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The ability of our board of directors to issue, without
stockholder approval, up to 10,000,000 shares of preferred
stock in one or more series with rights, obligations and
preferences determined by the board of directors;
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No right of stockholders to call special meetings of
stockholders;
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No right of stockholders to act by written consent;
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Certain advance notice procedures for nominating candidates for
election to the board of directors; and
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No right to cumulative voting.
|
In addition, our restated certificate of incorporation requires
a
662/3%
vote of stockholders to:
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alter or amend our bylaws;
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remove a director without cause; or
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alter, amend or repeal certain provisions of our restated
certificate of incorporation.
|
We are also subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, and
the application of Section 203 could delay or prevent an
acquisition of PetSmart.
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Item 1B.
|
Unresolved
Staff Comments
|
None.
17
Our stores are generally located at sites co-anchored by strong
destination superstores and typically are in or near major
regional shopping centers. The following table summarizes the
locations of the stores by country and state as of
January 30, 2011:
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Number of
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United States:
|
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Stores
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|
|
Alabama
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13
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|
Alaska
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2
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Arizona
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|
48
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|
Arkansas
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|
|
7
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|
California
|
|
|
122
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|
Colorado
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|
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32
|
|
Connecticut
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|
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9
|
|
Delaware
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|
|
3
|
|
Florida
|
|
|
71
|
|
Georgia
|
|
|
40
|
|
Idaho
|
|
|
4
|
|
Illinois
|
|
|
51
|
|
Indiana
|
|
|
22
|
|
Iowa
|
|
|
9
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|
Kansas
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|
|
7
|
|
Kentucky
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|
|
9
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|
Louisiana
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|
|
15
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|
Maine
|
|
|
2
|
|
Maryland
|
|
|
29
|
|
Massachusetts
|
|
|
17
|
|
Michigan
|
|
|
32
|
|
Minnesota
|
|
|
16
|
|
Mississippi
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|
|
7
|
|
Missouri
|
|
|
20
|
|
Montana
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|
|
3
|
|
Nebraska
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|
|
7
|
|
Nevada
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|
|
17
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|
New Hampshire
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|
|
5
|
|
New Jersey
|
|
|
39
|
|
New Mexico
|
|
|
6
|
|
New York
|
|
|
41
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|
North Carolina
|
|
|
41
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|
North Dakota
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|
|
2
|
|
Ohio
|
|
|
39
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|
Oklahoma
|
|
|
15
|
|
Oregon
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|
|
14
|
|
Pennsylvania
|
|
|
46
|
|
Rhode Island
|
|
|
2
|
|
South Carolina
|
|
|
17
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|
South Dakota
|
|
|
2
|
|
Tennessee
|
|
|
21
|
|
Texas
|
|
|
116
|
|
Utah
|
|
|
11
|
|
Vermont
|
|
|
1
|
|
Virginia
|
|
|
44
|
|
Washington
|
|
|
25
|
|
West Virginia
|
|
|
3
|
|
Wisconsin
|
|
|
14
|
|
|
|
|
|
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Total U.S. stores
|
|
|
1,118
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|
Canada
|
|
|
69
|
|
|
|
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Total stores
|
|
|
1,187
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18
We lease substantially all of our stores, distribution centers,
and corporate offices under non-cancelable leases. The terms of
the store leases generally range from 10 to 15 years and
typically allow us to renew for 2 to 4 additional 5 year
terms. Store leases, excluding renewal options, expire at
various dates through 2026. Certain leases require payment of
property taxes, utilities, common area maintenance, and
insurance and, if annual sales at certain stores exceed
specified amounts, provide for additional rent. We have paid
minimal additional rent under these provisions during 2010, 2009
and 2008.
We lease approximately 365,000 square feet for our
corporate offices. The lease expires in 2023.
Our distribution centers and respective lease expirations as of
January 30, 2011, were as follows:
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|
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Square
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|
|
|
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Location
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Footage
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Date Opened
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Distribution Type
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Lease Expiration
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|
|
|
(In thousands)
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|
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Ennis, Texas
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|
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230
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|
|
|
May 1996
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|
Forward distribution center
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|
|
2013
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Phoenix, Arizona
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|
620
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|
|
|
November 1999
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|
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Combination distribution center
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|
|
2021
|
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Columbus, Ohio
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|
613
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|
|
September 2000
|
|
|
Combination distribution center
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|
|
2015
|
|
Gahanna, Ohio
|
|
|
276
|
|
|
|
October 2000
|
|
|
Forward distribution center
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|
|
2015
|
|
Hagerstown, Maryland
|
|
|
252
|
|
|
|
October 2000
|
|
|
Forward distribution center
|
|
|
2015
|
|
Ottawa, Illinois
|
|
|
1,000
|
|
|
|
August 2005
|
|
|
Combination distribution center
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|
|
2015
|
|
Newnan, Georgia
|
|
|
878
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|
|
July 2007
|
|
|
Combination distribution center
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|
|
2022
|
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Reno, Nevada
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873
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|
|
|
April 2008
|
|
|
Combination distribution center
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|
|
2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
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4,742
|
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|
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Item 3.
|
Legal
Proceedings
|
Beginning in March 2007, we were named as a party in the
following lawsuits arising from pet food recalls announced by
several manufacturers. The plaintiffs sued the major pet food
manufacturers and retailers claiming that their pets suffered
injury
and/or death
as a result of consuming allegedly contaminated pet food and pet
snack products.
Bruski v. Nutro Products, et al., USDC, N.D. IL (filed
3/23/07)
Rozman v. Menu Foods, et al., USDC, MN (filed 4/9/07)
Ford v. Menu Foods, et al., USDC, S.D. CA (filed 4/23/07)
Wahl, et al. v. Wal-Mart Stores Inc., et al., USDC, C.D. CA
(filed 4/10/07)
Demith v. Nestle, et al., USDC, N.D. IL (filed 4/23/07)
Thompkins v. Menu Foods, et al., USDC, CO (filed 4/11/07)
McBain v. Menu Foods, et al., Judicial Centre of Regina,
Canada (filed 7/11/07)
Dayman v. Hills Pet Nutrition Inc., et al., Ontario
Superior Court of Justice (filed 8/8/07)
Esau v. Menu Foods, et al., Supreme Court of Newfoundland
and Labrador (filed 9/5/07)
Ewasew v. Menu Foods, et al., Supreme Court of British
Columbia (filed 3/23/07)
Silva v. Menu Foods, et al., Canada Province of Manitoba
(filed 3/30/07)
Powell v. Menu Foods, et al., Ontario Superior Court of
Justice (filed 3/28/07)
By order dated June 28, 2007, the Bruski, Rozman, Ford,
Wahl, Demith and Thompkins cases were transferred to
the U.S. District Court for the District of New Jersey and
consolidated with other pet food class actions under the federal
rules for multi-district litigation (In re: Pet Food Product
Liability Litigation, Civil
No. 07-2867).
The Canadian cases were not consolidated.
On May 21, 2008, the parties to the U.S. lawsuits
comprising the In re: Pet Food Product Liability Litigation
and the Canadian cases jointly submitted a comprehensive
settlement arrangement for court approval. Preliminary court
approval was received from the U.S. District Court on
May 3, 2008, and from all of the Canadian courts as of
July 8, 2008. On October 14, 2008, the
U.S. District Court approved the settlement, and the
Canadian courts gave final approval on November 3, 2008.
19
Two different groups of objectors filed notices of appeal with
respect to the U.S. District Courts approval of the
U.S. settlement, and the Court of Appeals remanded one
point of fact to the motions judge for additional clarification.
Once the point remanded by the appeals court is addressed, these
cases should be resolved, and we continue to believe they will
not have a material adverse impact on our consolidated financial
statements.
There have been no appeals filed in Canada.
In January 2011, we were named as a defendant in
Pedroza v. PetSmart, Inc., et al., a lawsuit
originally filed in California Superior Court for the County of
San Bernardino. The case has been removed to the
U.S. District Court for the Central District of California.
The complaint alleges, purportedly on behalf of current and
former exempt store management in California, that we improperly
classified our store management as exempt pursuant to the
California Labor Code, and as a result failed to: (i) pay
or provide to such managers proper wages, overtime compensation,
or rest or meal periods, (ii) maintain and provide accurate
wage-related statements and records, and (iii) reimburse
certain business expenses, in each case as is required by the
California Labor Code.
The lawsuit seeks compensatory damages, statutory penalties and
other relief, including liquidated damages, attorneys
fees, costs and injunctive relief. At this time, we are not able
to predict the outcome of this lawsuit, or any possible monetary
exposure associated with the lawsuit. We believe, however, that
the lawsuit is without merit and that the case should not be
certified as a class or collective action, and we are vigorously
defending these claims.
We are involved in the defense of various other legal
proceedings that we do not believe are material to our
consolidated financial statements.
PART II
|
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Item 5.
|
Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
Price Range of Common Stock. Our common stock
is traded on the NASDAQ Global Select Market under the symbol
PETM. The following table indicates the
intra-day
quarterly high and low price per share of our common stock.
These prices represent quotations among dealers without
adjustments for retail
mark-ups,
markdowns or commissions, and may not represent actual
transactions.
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High
|
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Low
|
|
Year Ended January 30, 2011
|
|
|
|
|
|
|
|
|
First Quarter ended May 2, 2010
|
|
$
|
34.89
|
|
|
$
|
25.01
|
|
Second Quarter ended August 1, 2010
|
|
$
|
34.93
|
|
|
$
|
29.55
|
|
Third Quarter ended October 31, 2010
|
|
$
|
37.74
|
|
|
$
|
28.88
|
|
Fourth Quarter ended January 30, 2011
|
|
$
|
41.20
|
|
|
$
|
36.55
|
|
Year Ended January 31, 2010
|
|
|
|
|
|
|
|
|
First Quarter ended May 3, 2009
|
|
$
|
24.08
|
|
|
$
|
16.17
|
|
Second Quarter ended August 2, 2009
|
|
$
|
23.70
|
|
|
$
|
19.61
|
|
Third Quarter ended November 1, 2009
|
|
$
|
26.85
|
|
|
$
|
19.50
|
|
Fourth Quarter ended January 31, 2010
|
|
$
|
27.50
|
|
|
$
|
23.07
|
|
Common Stock Dividends. We believe our ability
to generate cash allows us to invest in the growth of the
business and, at the same time, distribute a quarterly dividend.
Our credit facility and letter of credit facility permit us to
pay dividends, as long as we are not in default and the payment
of dividends would not result in default.
20
In 2010, the following dividends were declared by the Board of
Directors:
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Dividend
|
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|
|
|
Amount per
|
|
Stockholders of
|
|
|
Date Declared
|
|
Share
|
|
Record Date
|
|
Date Paid
|
|
March 23, 2010
|
|
$
|
0.10
|
|
|
|
April 30, 2010
|
|
|
|
May 14, 2010
|
|
June 16, 2010
|
|
$
|
0.125
|
|
|
|
July 30, 2010
|
|
|
|
August 13, 2010
|
|
September 29, 2010
|
|
$
|
0.125
|
|
|
|
October 29, 2010
|
|
|
|
November 12, 2010
|
|
December 9, 2010
|
|
$
|
0.125
|
|
|
|
January 28, 2011
|
|
|
|
February 11, 2011
|
|
In 2009, the following dividends were declared by the Board of
Directors:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
|
|
|
|
Amount per
|
|
Stockholders of
|
|
|
Date Declared
|
|
Share
|
|
Record Date
|
|
Date Paid
|
|
March 24, 2009
|
|
$
|
0.03
|
|
|
|
May 1, 2009
|
|
|
|
May 15, 2009
|
|
June 22, 2009
|
|
$
|
0.10
|
|
|
|
July 31, 2009
|
|
|
|
August 14, 2009
|
|
September 30, 2009
|
|
$
|
0.10
|
|
|
|
October 30, 2009
|
|
|
|
November 13, 2009
|
|
December 10, 2009
|
|
$
|
0.10
|
|
|
|
January 29, 2010
|
|
|
|
February 12, 2010
|
|
On March 23, 2011, the Board of Directors declared a
quarterly cash dividend of $0.125 per share payable on
May 13, 2011 to stockholders of record on April 29,
2011.
Holders. On March 11, 2011, there were
4,777 holders of record of our common stock.
Equity Compensation Plan
Information. Information regarding our equity
compensation plans will be included in our proxy statement with
respect to our Annual Meeting of Stockholders to be held on
June 15, 2011 under the caption Equity Compensation
Plans and is incorporated by reference in this Annual
Report on
Form 10-K.
Share Purchase Program. In June 2009, the
Board of Directors approved a share purchase program authorizing
the purchase of up to $350.0 million of our common stock
through January 29, 2012. During 2009, we purchased
5.9 million shares of our common stock for
$140.0 million under the June 2009 share purchase
program. During the thirteen weeks ended May 2, 2010, we
purchased 3.4 million shares of common stock for
$107.1 million under the June 2009 share purchase
program.
In June 2010, the Board of Directors approved a new share
purchase program authorizing the purchase of up to
$400.0 million of our common stock through January 29,
2012, which replaced the $350.0 million program. During the
thirteen weeks ended January 30, 2011, we purchased
2.6 million shares of common stock for $99.9 million.
Since the inception of the $400.0 million authorization in
June 2010, we have purchased 4.2 million shares of common
stock for $156.2 million. As of January 30, 2011,
$243.8 million remained available under the
$400.0 million program.
The following table shows purchases of our common stock and the
available funds to purchase additional common stock under this
program for each period in the thirteen weeks ended
January 30, 2011:
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
of Shares
|
|
|
Value That May
|
|
|
|
Number
|
|
|
|
|
|
Purchased as Part of
|
|
|
Yet be Purchased
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Publicly Announced
|
|
|
Under the Plans or
|
|
Period
|
|
Purchased
|
|
|
Paid per Share
|
|
|
Plans or Programs
|
|
|
Programs(1)
|
|
|
November 1, 2010, to November 28, 2010
|
|
|
349,938
|
|
|
$
|
38.39
|
|
|
|
349,938
|
|
|
$
|
330,267,000
|
|
November 29, 2010, to January 2, 2011
|
|
|
2,201,208
|
|
|
$
|
39.29
|
|
|
|
2,201,208
|
|
|
$
|
243,778,000
|
|
January 3, 2011, to January 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
243,778,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended January 30, 2011
|
|
|
2,551,146
|
|
|
$
|
39.17
|
|
|
|
2,551,146
|
|
|
$
|
243,778,000
|
|
21
Stock Performance Graph. The following performance
graph and related information shall not be deemed
filed with the Securities and Exchange Commission,
nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933 or Securities
Exchange Act of 1934, each as amended, except to the extent that
we specifically incorporate it by reference into such filing.
The following graph shows a five-year comparison of the
cumulative total return for our common stock, the S&P 500
Index, and the S&P Specialty Stores Index based on a $100
investment on January 29, 2006 in stock or on
January 31, 2006 in the index. The comparison of the total
cumulative return on investment includes reinvestment of
dividends. Indices are calculated on a month-end basis.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN
Among
PetSmart, Inc., The S&P 500 Index
And The S&P Specialty Stores Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/29/06
|
|
1/28/07
|
|
2/3/08
|
|
2/1/09
|
|
1/31/10
|
|
1/30/11
|
|
PetSmart, Inc.
|
|
$
|
100.0
|
|
|
$
|
121.08
|
|
|
$
|
95.98
|
|
|
$
|
75.56
|
|
|
$
|
105.09
|
|
|
$
|
166.16
|
|
S & P 500
|
|
$
|
100.0
|
|
|
$
|
114.51
|
|
|
$
|
111.87
|
|
|
$
|
68.66
|
|
|
$
|
91.41
|
|
|
$
|
111.69
|
|
S & P Specialty Stores
|
|
$
|
100.0
|
|
|
$
|
113.57
|
|
|
$
|
86.67
|
|
|
$
|
47.73
|
|
|
$
|
77.85
|
|
|
$
|
82.78
|
|
22
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data is derived from our
consolidated financial statements. The data below should be read
in conjunction with Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended(1)
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts and operating
data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,693,797
|
|
|
$
|
5,336,392
|
|
|
$
|
5,065,293
|
|
|
$
|
4,672,656
|
|
|
$
|
4,233,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,654,531
|
|
|
|
1,519,217
|
|
|
|
1,495,433
|
|
|
|
1,436,821
|
|
|
|
1,307,770
|
|
Operating, general and administrative expenses
|
|
|
1,225,803
|
|
|
|
1,150,138
|
|
|
|
1,125,579
|
|
|
|
1,085,308
|
|
|
|
985,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
428,728
|
|
|
|
369,079
|
|
|
|
369,854
|
|
|
|
351,513
|
|
|
|
321,834
|
|
Gain on sale of equity investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,363
|
|
|
|
|
|
Interest expense, net
|
|
|
(58,837
|
)
|
|
|
(59,748
|
)
|
|
|
(58,757
|
)
|
|
|
(44,683
|
)
|
|
|
(31,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense and equity in income from
Banfield
|
|
|
369,891
|
|
|
|
309,331
|
|
|
|
311,097
|
|
|
|
402,193
|
|
|
|
290,117
|
|
Income tax expense
|
|
|
(140,396
|
)
|
|
|
(117,554
|
)
|
|
|
(121,019
|
)
|
|
|
(145,180
|
)
|
|
|
(105,048
|
)
|
Equity in income from Banfield
|
|
|
10,372
|
|
|
|
6,548
|
|
|
|
2,592
|
|
|
|
1,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
239,867
|
|
|
$
|
198,325
|
|
|
$
|
192,670
|
|
|
$
|
258,684
|
|
|
$
|
185,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.05
|
|
|
$
|
1.62
|
|
|
$
|
1.55
|
|
|
$
|
1.99
|
|
|
$
|
1.36
|
|
Diluted
|
|
$
|
2.01
|
|
|
$
|
1.59
|
|
|
$
|
1.52
|
|
|
$
|
1.95
|
|
|
$
|
1.33
|
|
Dividends declared per common share
|
|
$
|
0.475
|
|
|
$
|
0.33
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
116,799
|
|
|
|
122,363
|
|
|
|
124,342
|
|
|
|
129,851
|
|
|
|
135,836
|
|
Diluted
|
|
|
119,405
|
|
|
|
124,701
|
|
|
|
126,751
|
|
|
|
132,954
|
|
|
|
139,537
|
|
Selected Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores open at end of period
|
|
|
1,187
|
|
|
|
1,149
|
|
|
|
1,112
|
|
|
|
1,008
|
|
|
|
908
|
|
Square footage at end of period
|
|
|
26,617,162
|
|
|
|
25,876,510
|
|
|
|
25,102,528
|
|
|
|
22,825,783
|
|
|
|
20,787,903
|
|
Net sales per square foot(2)
|
|
$
|
214
|
|
|
$
|
205
|
|
|
$
|
208
|
|
|
$
|
210
|
|
|
$
|
208
|
|
Net sales growth
|
|
|
6.7
|
%
|
|
|
5.4
|
%
|
|
|
8.4
|
%
|
|
|
10.4
|
%
|
|
|
12.6
|
%
|
Increase in comparable store sales(3)
|
|
|
4.8
|
%
|
|
|
1.6
|
%
|
|
|
3.8
|
%
|
|
|
2.4
|
%
|
|
|
5.0
|
%
|
Selected Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise inventories
|
|
$
|
615,841
|
|
|
$
|
563,389
|
|
|
$
|
584,011
|
|
|
$
|
501,212
|
|
|
$
|
487,400
|
|
Average inventory per store(4)
|
|
$
|
519
|
|
|
$
|
490
|
|
|
$
|
525
|
|
|
$
|
497
|
|
|
$
|
537
|
|
Working capital
|
|
$
|
550,124
|
|
|
$
|
501,381
|
|
|
$
|
396,677
|
|
|
$
|
214,404
|
|
|
$
|
324,887
|
|
Total assets
|
|
$
|
2,470,220
|
|
|
$
|
2,461,986
|
|
|
$
|
2,357,653
|
|
|
$
|
2,167,257
|
|
|
$
|
2,053,477
|
|
Total debt(5)
|
|
$
|
566,829
|
|
|
$
|
571,474
|
|
|
$
|
585,993
|
|
|
$
|
563,747
|
|
|
$
|
449,001
|
|
Total stockholders equity
|
|
$
|
1,170,642
|
|
|
$
|
1,172,715
|
|
|
$
|
1,144,136
|
|
|
$
|
986,597
|
|
|
$
|
1,000,894
|
|
Current ratio
|
|
|
1.96
|
|
|
|
1.89
|
|
|
|
1.83
|
|
|
|
1.31
|
|
|
|
1.63
|
|
Long-term
debt-to-equity
|
|
|
45
|
%
|
|
|
46
|
%
|
|
|
48
|
%
|
|
|
52
|
%
|
|
|
43
|
%
|
Total
debt-to-capital
|
|
|
33
|
%
|
|
|
33
|
%
|
|
|
34
|
%
|
|
|
36
|
%
|
|
|
31
|
%
|
|
|
|
(1) |
|
The year ended February 3, 2008 consisted of 53 weeks
while all other periods presented consisted of 52 weeks. As
a result, all comparisons for the year ended February 3,
2008, other than comparable store sales, which was calculated on
an equivalent 52 week basis, also reflect the impact of one
additional week. The estimated impact |
23
|
|
|
|
|
of this additional week resulted in the following increases: net
sales, $89.7 million; gross profit, $34.4 million;
operating, general and administrative expenses,
$18.3 million; income before income tax expense and equity
in income from Banfield, $16.0 million; net income,
$9.8 million; and diluted earnings per common share, $0.07. |
|
(2) |
|
Net sales per square foot were calculated by dividing net sales,
excluding catalog and
e-commerce
sales, by average square footage. |
|
(3) |
|
Retail stores only, excludes catalog and
e-commerce
sales in all periods. For the year ended February 3, 2008,
includes sales through week 52. |
|
(4) |
|
Represents merchandise inventories divided by stores open at end
of period. |
|
(5) |
|
Represents borrowings under credit facility and capital lease
obligations. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could
materially differ from those discussed here. Factors that could
cause or contribute to such differences include, but are not
limited to, those discussed in this section, as well as in the
sections entitled Competition,
Distribution and Government Regulation
included in Item 1 Part I and Risk Factors included in
Item 1 Part 1A of this Annual Report on
Form 10-K.
Overview
Based on our 2010 net sales of $5.7 billion, we are
North Americas leading specialty provider of products,
services and solutions for the lifetime needs of pets. As of
January 30, 2011, we operated 1,187 stores, and we
anticipate opening 45 to 50 net new stores in 2011. Our
stores carry a broad assortment of high-quality pet supplies at
everyday low prices. We offer approximately 10,000 distinct
items, including nationally recognized brand names, as well as
an extensive selection of proprietary brands across a range of
product categories.
We complement our extensive product assortment with a wide
selection of pet services, including grooming, training,
boarding and day camp. All our stores offer complete pet
training services, and virtually all our stores feature pet
styling salons that provide high-quality grooming services. Our
PetsHotels provide boarding for dogs and cats, which includes
24-hour
supervision, an on-call veterinarian, temperature controlled
rooms and suites, daily specialty treats and play time, as well
as day camp for dogs. As of January 30, 2011, we operated
180 PetsHotels, and we anticipate opening 8 to 10 PetsHotels in
2011.
We make full-service veterinary care available through our
strategic relationship with certain third-party operators. As of
January 30, 2011, full-service veterinary hospitals were in
768 of our stores. Banfield operated 757 of the veterinary
hospitals. The remaining 11 hospitals are operated by other
third parties in Canada.
The principal challenges we face as a business are the highly
competitive market in which we operate and the recent changes in
the macroeconomy. However, we believe we have a competitive
advantage in our solutions for the Total Lifetime
CareSM
of pets, including pet services and proprietary
brands, which we believe cannot be easily duplicated.
Additionally, we believe that our cash flow from operations and
cash on hand will be adequate to meet our operating, investing
and financing needs in the foreseeable future and we continue to
have access to our revolving credit facility. We expect to
continuously assess the economic environment and market
conditions to guide our decisions regarding our uses of cash,
including capital expenditures, investments, dividends and share
repurchases.
Executive
Summary
|
|
|
|
|
Diluted earnings per common share for 2010 increased 26.4% to
$2.01 on net income of $239.9 million compared to diluted
earnings per common share of $1.59 on net income of
$198.3 million in 2009.
|
|
|
|
Net sales increased 6.7% to $5.7 billion in 2010 compared
to $5.3 billion in 2009 due to new store openings and an
increase in comparable store sales, or sales in stores open at
least one year.
|
|
|
|
Comparable store sales, or sales in stores open at least one
year, increased 4.8% during 2010 compared to a 1.6% increase
during 2009. The increase in sales was partially impacted by
$24.6 million in favorable
|
24
|
|
|
|
|
foreign currency fluctuations in 2010, compared to
$(8.3) million in unfavorable foreign currency fluctuations
in 2009.
|
|
|
|
|
|
Services sales increased 7.5% to $618.8 million, or 10.9%
of net sales, for 2010 compared to $575.4 million, or 10.8%
of net sales, during 2009.
|
|
|
|
As of January 30, 2011, we had $353.4 million in cash,
cash equivalents and restricted cash. We had no short-term debt,
and did not borrow against the revolving credit facility during
2010.
|
|
|
|
We purchased 7.6 million and 7.1 million shares of our
common stock for $263.3 million and $165.0 million
during 2010 and 2009, respectively.
|
|
|
|
We added 38 net new stores during 2010 and operated 1,187
stores as of the end of the year.
|
Critical
Accounting Policies and Estimates
The discussion and analysis of our financial condition and
results of operations are based on our consolidated financial
statements, which have been prepared in accordance with GAAP.
The preparation of these consolidated financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses.
On an on-going basis, we evaluate our estimates for inventory
valuation reserves, asset impairments, reserve for closed
stores, insurance liabilities and reserves, and reserves against
deferred tax assets and uncertain tax positions. We base our
estimates on historical experience and on various other
assumptions we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not
readily apparent from other sources. Under different assumptions
or conditions, actual results may differ from these estimates.
We believe the following critical accounting policies reflect
the more significant judgments and estimates we use in preparing
our consolidated financial statements.
Inventory
Valuation Reserves
We have established reserves for estimated inventory shrinkage
between physical inventories. Distribution centers perform cycle
counts encompassing all inventory items at least once every
quarter. Stores generally perform physical inventories at least
once a year. Between the physical inventories, stores perform
counts on certain inventory items. For each reporting period
presented, we estimate the inventory shrinkage based on a
two-year historical trend analysis. Changes in shrink results or
market conditions could cause actual results to vary from
estimates used to establish the inventory reserves.
We also have reserves for estimated obsolescence and to reduce
merchandise inventory to the lower of cost or market. We
evaluate inventories for excess, obsolescence or other factors
that may render inventories unmarketable at their historical
cost. Factors included in determining obsolescence reserves
include current and anticipated demand, customer preferences,
age of merchandise, seasonal trends and decisions to discontinue
certain products. If assumptions about future demand change, or
actual market conditions are less favorable than those projected
by management, we may require additional reserves.
We have not made any significant changes in the accounting
methodology we use to establish our inventory valuation reserves
during the past three fiscal years. We do not presently believe
there is a reasonable likelihood of a material change in the
accounting methodology and assumed factors used to create the
estimates we use to calculate our inventory valuation reserves.
As of January 30, 2011, and January 31, 2010, we had
inventory valuation reserves of $10.0 million and
$16.4 million, respectively. Additionally, we believe that
a 10% change in our inventory valuation reserves would not be
material to our consolidated financial statements.
Asset
Impairments
We review long-lived assets for impairment on a quarterly basis
and whenever events or changes in circumstances indicate that
the book value of such assets may not be recoverable.
25
We have not made any significant changes in our impairment loss
assessment methodology during the past three fiscal years. We do
not presently believe there is a reasonable likelihood that
there will be a material change in the estimates or assumptions
we use to calculate long-lived asset impairment losses. There
were no material asset impairments identified during 2010, 2009
or 2008.
Reserve
for Closed Stores
We continuously evaluate the performance of our stores and
periodically close those that are under-performing. Closed
stores are generally replaced by a new store in a nearby
location. We establish reserves for future occupancy payments on
closed stores in the period the store is closed. These costs are
classified in operating, general and administrative expenses in
the Consolidated Statements of Income and Comprehensive Income.
As of January 30, 2011, and January 31, 2010, our
reserve for closed stores was $9.8 million and
$8.2 million, respectively. We do not presently believe
there is a reasonable likelihood of a material change in the
future estimates or assumptions that we use to determine our
reserve for closed stores, including cash flow projections and
sublease assumptions. In any event, a 10% change in our reserve
for closed stores would not be material to our consolidated
financial statements.
Insurance
Liabilities and Reserves
We maintain workers compensation, general liability,
product liability and property insurance, on all our operations,
properties and leasehold interests. We utilize high deductible
plans for each of these areas including a self insured health
plan for our eligible associates. Workers compensation
deductibles generally carry a $1.0 million per occurrence
risk of claim liability. Our general liability plan specifies a
$0.5 million per occurrence risk of claim liability. We
establish reserves for claims under workers compensation
and general liability plans based on periodic actuarial
estimates of the amount of loss for all pending claims,
including estimates for which claims have been incurred but not
reported. Our loss estimates rely on actuarial observations of
ultimate loss experience for similar historical events and
changes in such assumptions could result in an adjustment,
favorable or adverse, to our reserves. As of January 30,
2011, and January 31, 2010, we had approximately
$99.9 million and $95.4 million, respectively, in
reserves related to workers compensation, general
liability and self-insured health plans.
We have not made any material changes in the accounting
methodology we use to establish our insurance reserves during
the past three years. We do not presently believe there is a
reasonable likelihood of a material change in the estimates or
assumptions that we use to calculate our insurance reserves,
including factors such as historical claims experience,
demographic factors, severity factors and other valuations.
However, if actual results are not consistent with our estimates
or assumptions, we may be exposed to losses or gains that could
be material. A 10% change in our insurance reserves would have
affected net income by approximately $6.2 million in 2010.
Reserves
Against Deferred Tax Assets and Uncertain Tax
Positions
We establish deferred income tax assets and liabilities for
temporary differences between the financial reporting bases and
the income tax bases of our assets and liabilities at enacted
tax rates expected to be in effect when such assets or
liabilities are realized or settled. We record a valuation
allowance on the deferred income tax assets to reduce the total
to an amount we believe is more likely than not to be realized.
Valuation allowances at January 30, 2011, and
January 31, 2010, were principally to offset certain
deferred income tax assets for net operating and capital loss
carryforwards.
We operate in multiple tax jurisdictions and could be subject to
audit in any of these jurisdictions. These audits can involve
complex issues that may require an extended period of time to
resolve and may cover multiple years. To the extent we prevail
in matters for which reserves have been established, or are
required to pay amounts in excess of our reserves, our effective
income tax rate in a given fiscal period could be materially
affected. An unfavorable tax settlement would require use of our
cash and could result in an increase in our effective income tax
rate in the period of resolution. A favorable tax settlement
could result in a reduction in our effective income tax rate in
the period of resolution.
Although we believe that the judgments and estimates discussed
herein are reasonable, actual results could differ, and we may
be exposed to losses or gains that could be material.
26
Results
of Operations
The following table presents the percent to net sales of certain
items included in our Consolidated Statements of Income and
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
70.9
|
|
|
|
71.5
|
|
|
|
70.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
29.1
|
|
|
|
28.5
|
|
|
|
29.5
|
|
Operating, general and administrative expenses
|
|
|
21.5
|
|
|
|
21.6
|
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7.5
|
|
|
|
6.9
|
|
|
|
7.3
|
|
Interest expense, net
|
|
|
(1.0
|
)
|
|
|
(1.1
|
)
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense and equity in income from
Banfield
|
|
|
6.5
|
|
|
|
5.8
|
|
|
|
6.1
|
|
Income tax expense
|
|
|
(2.5
|
)
|
|
|
(2.2
|
)
|
|
|
(2.4
|
)
|
Equity in income from Banfield
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4.2
|
%
|
|
|
3.7
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
compared to 2009
Net
Sales
Net sales increased $0.4 billion, or 6.7%, to
$5.7 billion in 2010, compared to net sales of
$5.3 billion in 2009. The increase in net sales was
partially impacted by $24.6 million in favorable foreign
currency fluctuations during 2010. Approximately 20% of the
sales increase is due to the addition of 38 net new stores
and 18 new PetsHotels since January 31, 2010, and 70% of
the increase is due to a 4.8% increase in comparable store sales
for 2010, and the remaining 10% of the sales increase is due to
other revenue from reimbursements charged to Banfield. The
increase in comparable store sales was due to the impact of
merchandising strategies, pricing strategies and new product
offerings. Comparable store transactions, which we use as a
proxy for traffic, represented 210 basis points of the
comparable store sales growth in 2010, compared to a
30 basis point decline in 2009. An increase in the average
sales per transaction represented 270 basis points of the
comparable store sales growth in 2010, compared to
190 basis points in 2009.
Services sales, which include grooming, training, boarding and
day camp, increased 7.5%, or $43.4 million, to
$618.8 million for 2010, compared to $575.4 million
for 2009. Services sales represented 10.9% and 10.8% of net
sales for 2010 and 2009, respectively. The increase in services
sales is primarily due to continued strong demand for our
grooming services, and the addition of 38 net new stores
and 18 new PetsHotels since 2009.
Gross
Profit
Gross profit increased 60 basis points to 29.1% of net
sales for 2010, from 28.5% for 2009.
Overall merchandise margin increased 30 basis points due to
the sales of a higher margin mix of products within the product
categories. Our hardgoods sales outpaced the sales growth of our
consumables category during 2010, primarily due to the addition
of the flea and tick product line. The flea and tick margin, net
of shrink, was slightly higher than our average consumables
margin, but significantly less than our average merchandise
margin. Hardgoods merchandise includes pet supplies such as
collars, leashes, health care supplies, grooming and beauty
aids, toys and apparel, as well as pet beds and carriers.
Consumables merchandise sales, which include pet food, treats,
and litter, generate lower gross margins on average compared to
hardgoods merchandise.
27
Services negatively contributed to gross margin by 10 basis
points. Services sales typically generate lower gross margins
than merchandise sales as service-related labor is included in
cost of sales; however, services generate higher operating
margins than merchandise sales. Store occupancy costs included
in gross margin provided 40 basis points of improvement due
to leverage associated with the increase in net sales, favorable
lease negotiations and lower utility costs. Warehouse and
distribution costs included in gross margin provided a benefit
of 15 basis points due to leverage associated with the
increase in net sales.
Recognizing reimbursements from Banfield as other revenue
negatively impacted gross margin by 15 basis points. In
accordance with our master operating agreement with Banfield, we
charge Banfield license fees for the space used by the
veterinary hospitals and for their portion of utilities costs.
We also charge Banfield for its portion of specific operating
expenses. Prior to February 1, 2010, license fees were
treated as a reduction of occupancy costs, which are included as
a component of cost of merchandise sales, and reimbursements for
specific operating expenses were treated as a reduction of
operating, general and administrative expense in the Condensed
Consolidated Statement of Operations and Comprehensive Income.
Beginning February 1, 2010, license fees and the
reimbursements for specific operating expenses are included in
other revenue, and the related costs are included in cost of
other revenue in the Condensed Consolidated Statements of Income
and Other Comprehensive Income.
Operating,
General and Administrative Expenses
Operating, general and administrative expenses decreased to
21.5% of net sales from 21.6% of net sales for 2010 and 2009,
respectively. Operating, general and administrative expenses
increased on a dollar basis by $75.7 million. The primary
reasons for the year over year increase include increases in
costs for incentive compensation associated with better than
expected financial results, increased advertising costs, higher
bank fees associated with increases in debit card rates and
higher claims expense for health insurance.
Interest
Expense, net
Interest expense, which is primarily related to capital lease
obligations, decreased to $59.6 million for 2010, compared
to $60.3 million for 2009. Included in interest expense,
net was interest income of $0.8 million and
$0.6 million for 2010 and 2009, respectively.
Income
Tax Expense
For 2010, income tax expense was $140.4 million, compared
with 2009 income tax expense of $117.6 million. The
effective tax rate was 38.0% for both years. The effective tax
rate is calculated by dividing our income tax expense, which
includes the income tax expense related to our equity in income
from Banfield, by income before income tax expense and equity in
income from Banfield.
Equity
in Income from Banfield
Our equity in income from our investment in Banfield was
$10.4 million and $6.5 million for 2010 and 2009,
respectively, based on our ownership percentage in Banfield.
2009
compared to 2008
Net
Sales
Net sales increased $0.2 billion, or 5.4%, to
$5.3 billion in 2009, compared to net sales of
$5.1 billion in 2008. The increase in net sales was
partially impacted by $8.3 million in unfavorable foreign
currency fluctuations during 2009. Approximately 70% of the
sales increase is due to the addition of 37 net new stores
and 20 new PetsHotels since February 1, 2009, and 30% of
the increase is due to a 1.6% increase in comparable store sales
for 2009. The increase in comparable store sales was due to the
impact of key merchandising and pricing strategies, primarily in
our hardgoods categories, partially offset by economic
conditions and the slowdown in consumer spending. A decrease in
the number of transactions represented a 30 basis point
decline of the comparable store sales growth in 2009, compared
to 200 basis point decline in 2008. An increase in the
average sales per transaction represented 190 basis points
of the comparable store sales growth in 2009, compared to
580 basis points in 2008.
28
Services sales, which are included in the net sales amount
discussed above and include grooming, training, boarding and day
camp, increased 9.2%, or $48.7 million, to
$575.4 million for 2009, compared to $526.7 million
for 2008. Services sales represented 10.8% and 10.4% of net
sales for 2009 and 2008, respectively. The increase in services
sales is primarily due to the demand for our grooming services,
and the addition of 37 net new stores and 20 new PetsHotels
since 2008.
Gross
Profit
Gross profit decreased to 28.5% of net sales for 2009, from
29.5% for 2008, representing a decrease of 100 basis points.
Overall merchandise margin decreased 150 basis points.
Merchandise product margin decreased 115 basis points, with
mix representing 52% and rate representing 48% of the decline.
The mix shift is due to an increase in consumables merchandise
sales relative to net sales. The rate impact is due to select
price reductions, an increase in promotions for hardgoods
merchandise, and broad category promotions to drive additional
customer traffic. Difficult macroeconomic conditions, including
reduced discretionary consumer spending, challenged our
merchandise product margins as we have experienced a mix shift
from higher margin discretionary hardgoods into consumables.
Consumables merchandise sales, which include pet food, treats,
and litter, generate lower gross margins on average compared to
hardgoods merchandise. Hardgoods merchandise includes pet
supplies such as collars, leashes, health care supplies,
grooming and beauty aids, toys, and apparel, as well as pet beds
and carriers. Merchandise margins related to the flow through of
previously capitalized inbound freight, as well as certain
procurement and distribution costs, decreased 35 basis
points.
Services margin increased 10 basis points primarily due to
the demand for our grooming services, and the addition of 20 new
PetsHotels since 2008. Services sales typically generate lower
gross margins than merchandise sales as service-related labor is
included in cost of sales; however, services generate higher
operating margins than merchandise sales. As discussed above,
the shift in merchandise sales to consumables merchandise has
contributed to the overall decrease in margin.
Store occupancy costs included in margin increased 15 basis
points primarily due to the addition of new stores and new store
growth outpacing the rate of sales growth.
Supply chain costs decreased 50 basis points due to lower
fuel costs, transportation efficiencies and improved
productivity in our distribution centers.
Operating,
General and Administrative Expenses
Operating, general and administrative expenses were 21.6% and
22.2% of net sales for 2009 and 2008, respectively, representing
an improvement of 60 basis points.
The primary reasons for the decrease in operating, general and
administrative expenses as a percentage of net sales during 2009
were increased efficiencies in our advertising spending due to
lower advertising rates and lower store preopening expenses due
to slower store growth. Store labor expense, travel and supplies
costs were also lower due to vendor renegotiations and various
cost control initiatives.
Interest
Expense, net
Interest expense, which is primarily related to capital lease
obligations, increased to $60.3 million for 2009, compared
to $59.3 million for 2008. Included in interest expense,
net was interest income of $0.6 million for both 2009 and
2008.
Income
Tax Expense
In 2009, the $117.6 million income tax expense represents
an effective tax rate of 38.0%, compared with 2008 income tax
expense of $121.0 million, which represented an effective
tax rate of 38.9%. The decrease in the effective tax rate was
primarily due to tax exempt gains from invested assets to fund
our deferred compensation plan. The effective tax rate is
calculated by dividing our income tax expense, which includes
the income tax expense
29
related to our equity in income from Banfield, by income before
income tax expense and equity in income from Banfield.
Equity
in Income from Banfield
Our equity in income from our investment in Banfield was
$6.5 million and $2.6 million for 2009 and 2008,
respectively, based on our ownership percentage in
Banfields net income.
Liquidity
and Capital Resources
Cash
Flow
We believe that our operating cash flow and cash on hand will be
adequate to meet our operating, investing and financing needs in
the foreseeable future. In addition, we also have access to our
$350.0 million revolving credit facility, although there
can be no assurance of our ability to access these markets on
commercially acceptable terms in the future. We expect to
continuously assess the economic environment and market
conditions to guide our decisions regarding our uses of cash,
including capital expenditures, investments, dividends and the
purchase of our common stock.
We finance our operations, new store and PetsHotel growth, store
remodels and other expenditures to support our growth
initiatives primarily through cash generated by operating
activities. Receipts from our sales come from cash, checks and
third-party debit and credit cards, and therefore provide a
significant source of liquidity. Cash is used in operating
activities primarily to fund procurement of merchandise
inventories and other assets, net of accounts payable and other
accrued liabilities. Net cash provided by operating activities
was $457.6 million for 2010, $566.9 million for 2009
and $420.7 million for 2008. The primary differences
between 2010 and 2009 were increased purchases of merchandise
inventories and income tax payments. Income tax payments were
greater in 2010 as a result of increased earnings and due to the
benefit provided in 2009 by the prepaid tax position at the end
of 2008. The primary differences between 2009 and 2008 were
lower levels of merchandise inventories and prepaid assets and
an increase in other current liabilities, offset by an increase
in deferred income taxes. Included in 2008 were
$27.1 million of tax benefits from the Economic Stimulus
Act of 2008, which provided for an accelerated depreciation
deduction for certain qualifying property.
Cash used in investing activities consisted primarily of
expenditures associated with opening new stores, reformatting
existing stores, expenditures associated with equipment and
computer software in support of our system initiatives,
PetsHotel construction costs, and other expenditures to support
our growth plans and initiatives. Net cash used in investing
activities was $147.9 million for 2010, $157.2 million
for 2009 and $235.2 million for 2008. The primary
differences between 2010 and 2009 resulted from an increase in
restricted cash during 2009, an increase in cash paid for
property and equipment in 2010 and our investment in short-term
available for sale securities during 2010. The primary
differences between 2009 and 2008 were a decrease in cash paid
for property and equipment as a result of the slowdown in store
openings, and an increase in restricted cash.
Net cash used in financing activities was $328.1 million
for 2010, $229.4 million for 2009 and $113.8 million
for 2008. The net cash used in 2010 consisted primarily of the
purchase of treasury stock, payments on capital lease
obligations, and payments of cash dividends offset by net
proceeds from common stock issued under equity incentive plans.
The primary difference between 2010 and 2009 was an increase in
cash paid for treasury stock. The primary differences between
2009 and 2008 were increased purchases of treasury stock and no
short-term debt borrowings.
Free
Cash Flow
Free cash flow is considered a non-GAAP financial measure under
the SECs rules. Management believes, however, that free
cash flow is an important financial measure for use in
evaluating our financial performance, or our ability to generate
future cash from our business operations. Free cash flow should
be considered in addition to, rather than as a substitute for,
net income as a measure of our performance and net cash provided
by operating activities as a measure of our liquidity.
30
Although other companies report free cash flow, numerous methods
exist for calculating free cash flow. As a result, the method
used by our management to calculate free cash flow may differ
from the methods other companies use to calculate free cash
flow. We urge you to understand the methods used by another
company to calculate free cash flow before comparing our free
cash flow to that of another company.
We define free cash flow as net cash provided by operating
activities minus cash paid for property and equipment, and
payments of capital lease obligations. We generated free cash
flow of $280.9 million, $415.6 million, and
$148.7 million for 2010, 2009, and 2008, respectively. For
the year ended January 30, 2011, our free cash flow
decreased primarily due to increases in merchandise inventory
balances, income tax payments, capital spending and capital
lease payments during 2010. For the year ended January 31,
2010, our free cash flow increased primarily due to a decrease
in capital spending as a result of the slowdown in store
openings.
The following table reconciles net cash provided by operating
activities, a GAAP measure, to free cash flow, a non-GAAP
measure (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Net cash provided by operating activities
|
|
$
|
457,645
|
|
|
$
|
566,943
|
|
|
$
|
420,700
|
|
Cash paid for property and equipment
|
|
|
(125,074
|
)
|
|
|
(112,920
|
)
|
|
|
(238,188
|
)
|
Payments of capital lease obligations
|
|
|
(51,668
|
)
|
|
|
(38,439
|
)
|
|
|
(33,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
280,903
|
|
|
$
|
415,584
|
|
|
$
|
148,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Purchase Program
In August 2007, the Board of Directors approved a share purchase
program authorizing the purchase of up to $300.0 million of
our common stock through August 2, 2009. We purchased
7.0 million shares for $225.0 million during 2007. We
purchased 2.3 million shares of our common stock for
$50.0 million during 2008, and 1.2 million shares of
common stock for $25.0 million during the thirteen weeks
ended May 3, 2009, completing the $300.0 million
program.
In June 2009, the Board of Directors approved a share purchase
program authorizing the purchase of up to $350.0 million of
our common stock through January 29, 2012. During 2009, we
purchased 5.9 million shares of our common stock for
$140.0 million under the June 2009 share purchase
program. During the thirteen weeks ended May 2, 2010, we
purchased 3.4 million shares of common stock for
$107.1 million under the June 2009 share purchase
program.
In June 2010, the Board of Directors replaced the
$350.0 million program with a new share purchase program
authorizing the purchase of up to $400.0 million of our
common stock through January 29, 2012. During the thirteen
weeks ended January 30, 2011, we purchased 2.6 million
shares of common stock for $99.9 million. Since the
inception of the $400.0 million authorization in June 2010,
we have purchased 4.2 million shares of common stock for
$156.2 million. As of January 30, 2011,
$243.8 million remained available under the
$400.0 million program.
Common
Stock Dividends
We presently believe our ability to generate cash allows us to
invest in the growth of the business and, at the same time,
distribute a quarterly dividend. Our credit facility and letter
of credit facility permit us to pay dividends, so long as we are
not in default and the payment of dividends would not result in
default. During 2010, 2009, and 2008, we paid aggregate
dividends of $0.45 per share, $0.26 per share, and $0.12 per
share, respectively.
Operating
Capital and Capital Expenditure Requirements
Substantially all our stores are leased facilities. We opened 46
new stores and closed 8 stores in 2010. Generally, each new
store requires capital expenditures of approximately
$1.0 million for fixtures, equipment and leasehold
improvements, approximately $0.3 million for inventory and
approximately $0.1 million for preopening costs. We expect
total capital spending to be approximately $130.0 to
$140.0 million for 2011, based on our plan to
31
open 45 to 50 net new stores and 8 to 10 new PetsHotels,
continuing our investment in the development of our information
systems, adding to our services capacity with the expansion of
certain grooming salons, remodeling or replacing certain store
assets and continuing our store refresh program.
Our ability to fund our operations and make planned capital
expenditures depends on our future operating performance and
cash flow, which are subject to prevailing economic conditions
and to financial, business and other factors, some of which are
beyond our control.
The following table presents our capital expenditures for each
of the past three years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
New stores
|
|
$
|
38,715
|
|
|
$
|
28,470
|
|
|
$
|
83,124
|
|
Store-related projects(1)
|
|
|
49,989
|
|
|
|
48,051
|
|
|
|
51,908
|
|
PetsHotel(2)
|
|
|
9,980
|
|
|
|
6,510
|
|
|
|
43,098
|
|
Information technology
|
|
|
20,222
|
|
|
|
20,297
|
|
|
|
27,464
|
|
Supply chain
|
|
|
5,484
|
|
|
|
8,851
|
|
|
|
20,480
|
|
Other(3)
|
|
|
684
|
|
|
|
741
|
|
|
|
12,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
125,074
|
|
|
$
|
112,920
|
|
|
$
|
238,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes store remodels, grooming salon expansions, equipment
replacements, relocations, and various merchandising projects. |
|
(2) |
|
For new and existing stores. |
|
(3) |
|
Includes corporate office related expenses, including costs
related to the expansion and renovation of our corporate offices
during 2008. |
Lease
and Other Commitments
Operating
and Capital Lease Commitments and Other Obligations
The following table summarizes our contractual obligations, net
of estimated sublease income, and includes obligations for
executed agreements for which we do not yet have the right to
control the use of the property at January 30, 2011, and
the effect that such obligations are expected to have on our
liquidity and cash flows in future periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 &
|
|
|
2014 &
|
|
|
2016 and
|
|
|
|
|
|
|
|
Contractual Obligation
|
|
2011
|
|
|
2013
|
|
|
2015
|
|
|
Beyond
|
|
|
Other
|
|
|
Total
|
|
|
Operating lease obligations(1)
|
|
$
|
307,177
|
|
|
$
|
580,861
|
|
|
$
|
466,353
|
|
|
$
|
542,175
|
|
|
$
|
|
|
|
$
|
1,896,566
|
|
Capital lease obligations(1)(2)
|
|
|
99,888
|
|
|
|
218,477
|
|
|
|
203,087
|
|
|
|
337,847
|
|
|
|
|
|
|
|
859,299
|
|
Purchase obligations(3)
|
|
|
58,666
|
|
|
|
41,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
124,666
|
|
Uncertain tax positions(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,735
|
|
|
|
16,735
|
|
Insurance obligations(5)
|
|
|
30,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,811
|
|
|
|
99,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
495,849
|
|
|
$
|
840,338
|
|
|
$
|
694,440
|
|
|
$
|
880,022
|
|
|
$
|
86,546
|
|
|
$
|
2,997,195
|
|
Less: Sublease income
|
|
|
4,196
|
|
|
|
6,220
|
|
|
|
5,466
|
|
|
|
3,077
|
|
|
|
|
|
|
|
18,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Total
|
|
$
|
491,653
|
|
|
$
|
834,118
|
|
|
$
|
688,974
|
|
|
$
|
876,945
|
|
|
$
|
86,546
|
|
|
$
|
2,978,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In addition to the commitments scheduled above, we have executed
operating and capital lease agreements with total minimum lease
payments of $82.1 million. The typical lease term for these
agreements is 10 years. We do not have the right to control
the use of the property under these leases as of
January 30, 2011 because we have not taken physical
possession of the property. |
32
|
|
|
(2) |
|
Includes $292.5 million in interest. |
|
(3) |
|
Represents purchase obligations for product and advertising
commitments. |
|
(4) |
|
Approximately $16.7 million of unrecognized tax benefits,
as shown in Other, have been recorded as
liabilities, and we are uncertain as to if or when such amounts
may be settled. |
|
(5) |
|
Approximately $69.8 million of insurance obligations, as
shown in Other have been classified as noncurrent
liabilities. We are unable to estimate the specific year to
which the obligations will relate beyond 2011. |
Letters
of Credit
We issue letters of credit for guarantees provided for insurance
programs. As of January 30, 2011, $93.0 million was
outstanding under our letters of credit.
Off-Balance
Sheet Arrangements
Other than in connection with executing operating leases, we do
not have any off-balance sheet financing that has, or is
reasonably likely to have, a material current or future effect
on our financial condition, cash flows, results of operations,
liquidity, capital expenditures or capital resources.
Related
Party Transactions
We have an investment in Banfield, who through a wholly owned
subsidiary, Medical Management International, Inc., operates
full-service veterinary hospitals in 757 of our stores. We use
the equity method of accounting for our investment in Banfield,
which consists of common and convertible preferred stock. As of
January 30, 2011 and January 31, 2010, we owned 21.4%
of the voting stock and 21.0% of the combined voting and
non-voting stock of Banfield. Our equity in income from our
investment in Banfield, which is recorded one month in arrears,
was $10.4 million, $6.5 million and $2.6 million
for 2010, 2009, and 2008, respectively.
In accordance with our master operating agreement with Banfield,
we charge Banfield license fees for the space used by the
veterinary hospitals and for their portion of utilities costs.
We also charge Banfield for its portion of specific operating
expenses. Prior to February 1, 2010, license fees were
treated as a reduction of occupancy costs, which are included as
a component of cost of merchandise sales, and reimbursements for
specific operating expenses were treated as a reduction of
operating, general and administrative expense in the Condensed
Consolidated Statement of Income and Comprehensive Income.
Beginning February 1, 2010, license fees and the
reimbursements for specific operating expenses are included in
other revenue, and the related costs are included in cost of
other revenue in the Condensed Consolidated Statements of Income
and Other Comprehensive Income.
We recognized license fees, utilities and other cost
reimbursements of $34.2 million, $33.2 million, and
$30.1 million during 2010, 2009, and 2008, respectively.
Receivables from Banfield totaled $2.7 million and
$2.4 million at January 30, 2011, and January 31,
2010, respectively, and were included in the receivables in the
accompanying Consolidated Balance Sheets.
The master operating agreement also includes a provision for the
sharing of profits on the sales of therapeutic pet foods sold in
all stores with a hospital operated by Banfield. The net sales
and gross profits on the sale of therapeutic pet foods are not
material to our consolidated financial statements.
Credit
Facility
We have a $350.0 million revolving credit facility, or
Revolving Credit Facility, that expires on
August 15, 2012. Borrowings under the Revolving Credit
Facility are subject to a borrowing base and bear interest, at
our option, at a banks prime rate plus 0% to 0.25% or
LIBOR plus 0.875% to 1.25%. We are subject to fees payable to
lenders each quarter at an annual rate of 0.20% of the unused
amount of the Revolving Credit Facility. The Revolving Credit
Facility also gives us the ability to issue letters of credit,
which reduce the amount available under the Revolving Credit
Facility. Letter of credit issuances under the Revolving Credit
Facility are subject to interest payable to the lenders and bear
interest of 0.875% to 1.25% for standby letters of credit or
0.438% to 0.625% for commercial letters of credit. As of
January 30, 2011, we had no borrowings and
$31.6 million in stand-by letter of
33
credit issuances under our Revolving Credit Facility. As of
January 31, 2010, we had no borrowings and
$35.7 million in stand-by letter of credit issuances under
our Revolving Credit Facility.
We also have a $100.0 million stand-alone letter of credit
facility, or Stand-alone Letter of Credit Facility,
that expires August 15, 2012. We are subject to fees
payable to the lender each quarter at an annual rate of 0.45% of
the average daily face amount of the letters of credit
outstanding during the preceding calendar quarter. In addition,
we are required to maintain a cash deposit with the lender equal
to the amount of outstanding letters of credit or we may use
other approved investments as collateral. If we use other
approved investments as collateral, we must have an amount on
deposit which, when multiplied by the advance rate of 85%, is
equal to the amount of the outstanding letters of credit under
the Stand-alone Letter of Credit Facility. As of
January 30, 2011, we had $61.4 million in outstanding
letters of credit under the Stand-alone Letter of Credit
Facility and $61.4 million in restricted cash on deposit
with the lender. As of January 31, 2010, we had
$48.2 million in outstanding letters of credit under the
Stand-alone Letter of Credit Facility and $48.2 million in
restricted cash on deposit with the lender.
We issue letters of credit for guarantees provided for insurance
programs.
The Revolving Credit Facility and Stand-alone Letter of Credit
Facility permit the payment of dividends, if we are not in
default and the payment of dividends would not result in default
of the Revolving Credit Facility or Stand-alone Letter of Credit
Facility. As of January 30, 2011, we were in compliance
with the terms and covenants of our Revolving Credit Facility
and Stand-alone Letter of Credit Facility. The Revolving Credit
Facility and Stand-alone Letter of Credit Facility are secured
by substantially all our personal property assets, our wholly
owned subsidiaries and certain real property.
Seasonality
and Inflation
Our business is subject to seasonal fluctuations. We typically
realize a higher portion of our net sales and operating profits
during the fourth quarter due to increased holiday traffic. As a
result of this seasonality, we believe that
quarter-to-quarter
comparisons of our operating results are not necessarily
meaningful, and that these comparisons cannot be relied upon as
indicators of future performance. Controllable expenses could
fluctuate from
quarter-to-quarter
in a year. Since our stores typically draw customers from a
large trade area, sales also may be impacted by adverse weather
or travel conditions, which are more prevalent during certain
seasons of the year. As a result of our expansion plans, the
timing of new store and PetsHotel openings and related
preopening costs, the amount of revenue contributed by new and
existing stores and PetsHotels and the timing and estimated
obligations of store closures, our quarterly results of
operations may fluctuate. Finally, because new stores tend to
experience higher payroll, advertising and other store level
expenses as a percentage of sales than mature stores, new store
openings will also contribute to lower store operating margins
until these stores become established. We expense preopening
costs associated with each new location as the costs are
incurred.
While we have experienced inflationary pressure in recent years,
we have been able to largely mitigate the effect by increasing
retail prices accordingly. Although neither inflation nor
deflation has had a material impact on net operating results, we
can make no assurance that our business will not be affected by
inflation or deflation in the future.
Impact
of Federal Health Care Reform Legislation
In March 2010, the President of the United States signed into
law the Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act of 2010, or
the Acts. The provisions of the Acts are not
expected to have a significant impact to our consolidated
financial statements in the short term. The longer term
potential impacts of the Acts to our business and the
consolidated financial statements are currently uncertain. We
will continue to assess the impact of the Acts on our health
care plans.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are subject to certain market risks arising from transactions
in the normal course of our business. Such risk is principally
associated with foreign exchange fluctuations.
34
Foreign
Currency Risk
Our Canadian subsidiary operates 69 stores and uses the Canadian
dollar as the functional currency and the United States dollar
as the reporting currency. We have certain exposures to foreign
currency risk. Net sales in Canada, denominated in United States
dollars, were $296.7 million, or 5.2%, of our consolidated
net sales for 2010. Transaction gains and losses denominated in
the United States dollar are recorded in cost of sales or
operating, general and administrative expenses in the
Consolidated Statements of Income and Comprehensive Income
depending on the nature of the underlying transaction.
The transaction (gain)/loss included in net income was
$(0.7) million, $(1.3) million and $3.4 million
for 2010, 2009 and 2008, respectively.
From time to time we enter into foreign currency forward
contracts, or Foreign Exchange Contracts, as a way
to manage the impact of foreign currency exchange rate
fluctuations related to certain balance sheet accounts,
primarily to mitigate risk related to non-functional currency
exposures. These Foreign Exchange Contracts are not designated
as hedges, and therefore, are recorded at fair value through
earnings using quoted prices for similar assets or liabilities
in active markets. The loss included in net income was
$0.4 million for 2010. We did not enter into Foreign
Exchange Contracts during 2009 or 2008.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The information required by this Item is attached as
Appendix F.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
We maintain disclosure controls and procedures that are designed
to provide reasonable assurance that information required to be
disclosed in our reports under the Securities Exchange Act of
1934, as amended, or the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is
accumulated and communicated to our management, including our
Chief Executive Officer, or CEO, and Chief Financial Officer, or
CFO, as appropriate, to allow timely decisions regarding
required disclosure.
As required by
Rule 13a-15(b)
under the Exchange Act, our management conducted an evaluation
(under the supervision and with the participation of our CEO and
our CFO) as of the end of the period covered by this report, of
the effectiveness of our disclosure controls and procedures as
defined in
Rule 13a-15(e)
under the Exchange Act. In performing this evaluation, our CEO
and CFO concluded that, as of January 30, 2011, our
disclosure controls and procedures were designed to meet the
objective at the reasonable assurance level and were effective
at the reasonable assurance level.
Managements
Report on Internal Control Over Financial Reporting
We are responsible for the preparation and integrity of the
consolidated financial statements appearing in our Annual Report
on
Form 10-K.
The consolidated financial statements were prepared in
conformity with accounting principles generally accepted in the
United States of America and, accordingly, include certain
amounts based on our best judgments and estimates. Financial
information in this Annual Report on
Form 10-K
is consistent with that in the consolidated financial statements.
We are responsible for establishing and maintaining adequate
internal control over financial reporting as such term is
defined in
Rules 13a-15(f)
under the Exchange Act. Our internal controls over financial
reporting are designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
the consolidated financial statements. Our internal control over
financial reporting is supported by a program of internal audits
and appropriate reviews by management, written policies and
guidelines, careful selection and training of qualified
personnel and a written Code of Business Conduct adopted by our
Board of Directors, applicable to all our
35
Directors, officers, employees and subsidiaries. Because of its
inherent limitations, internal control over financial reporting
may not prevent or detect misstatements and even when determined
to be effective, can only provide reasonable assurance with
respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over
financial reporting as of January 30, 2011. In making this
assessment, we used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control Integrated Framework. Based on our
assessment, we maintained effective internal control over
financial reporting as of January 30, 2011.
The effectiveness of our internal control over financial
reporting as of January 30, 2011, has been audited by
Deloitte & Touche, LLP, an independent registered
accounting firm, as stated in their attestation report, which is
included herein.
Changes
in Internal Control Over Financial Reporting
There was no change in our internal control over financial
reporting, as defined in
Rule 13a-15(f)
of the Exchange Act during the thirteen weeks ended
January 30, 2011, that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
36
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
PetSmart, Inc.
Phoenix, Arizona
We have audited the internal control over financial reporting of
PetSmart, Inc. and subsidiaries (the Company) as of
January 30, 2011, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of January 30, 2011, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended January 30, 2011 of
the Company and our reports dated March 24, 2011 expressed
unqualified opinions on those financial statements and the
financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 24, 2011
37
|
|
Item 9B.
|
Other
Information
|
None
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The required information concerning our executive officers is
contained in Item 1, Part I of this Annual Report on
Form 10-K.
The remaining information required by this item is incorporated
by reference from the information under the captions
Corporate Governance and the Board of Directors,
Audit Committee, Report of the Audit Committee
of the Board of Directors, and Section 16(a)
Beneficial Ownership Reporting Compliance in our proxy
statement for our Annual Meeting of Stockholders to be held on
June 15, 2011.
Our associates must act ethically at all times and in accordance
with the policies in PetSmarts Code of Business Ethics and
Policies. We require full compliance with this policy and all
designated associates including our CEO, CFO and other
individuals performing similar positions, to sign a certificate
acknowledging that they have read, understand and will continue
to comply with the policy. We publish the policy and any
amendments or waivers to the policy in the Corporate Governance
section of our Internet Website located at www.petm.com.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated by
reference from the information under the captions
Compensation Discussion and Analysis,
Executive Compensation, Stock Award
Grants, Exercises and Plans, Employment
and Severance Agreements, Director
Compensation, Compensation Committee Interlocks and
Insider Participation, and Report of the
Compensation Committee of the Board of Directors in our
proxy statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is incorporated by
reference from the information under the captions Security
Ownership of Certain Beneficial Owners and Management and
Equity Compensation Plans in our proxy statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is incorporated by
reference from the information under the captions Certain
Relationships and Transactions and Corporate
Governance and the Board of Directors Independence in our
proxy statement.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this item is incorporated by
reference from the information under caption Fees to
Independent Registered Public Accounting Firm for Fiscal Years
2011 and 2010 in our proxy statement.
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedule
|
(a) The following documents are filed as part of this
Annual Report on
Form 10-K.
1. Consolidated Financial Statements: Our
consolidated financial statements are included as
Appendix F of this Annual Report. See Index to Consolidated
Financial Statements and Financial Statement Schedule on
page F-1.
38
2. Consolidated Financial Statement
Schedule: The financial statement schedule
required under the related instructions is included within
Appendix F of this Annual Report. See Index to Consolidated
Financial Statements and Financial Statement Schedule on
page F-1.
3. Exhibits: The exhibits which are filed
with this Annual Report or which are incorporated herein by
reference are set forth in the Exhibit Index on
page E-1.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 24, 2011.
PetSmart, Inc.
Robert F. Moran
President, Chief Executive Officer and Director
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Robert F. Moran
and Lawrence P. Molloy, and each of them, as his or her true and
lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or
her name, place, and stead, in any and all capacities, to sign
any and all amendments to this Annual Report on
Form 10-K
and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith as fully to all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ PHILIP
L. FRANCIS
Philip
L. Francis
|
|
Executive Chairman
|
|
March 24, 2011
|
|
|
|
|
|
/s/ ROBERT
F. MORAN
Robert
F. Moran
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ LAWRENCE
P. MOLLOY
Lawrence
P. Molloy
|
|
Senior Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011
|
|
|
|
|
|
/s/ ANGEL
CABRERA
Angel
Cabrera
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ LAWRENCE
A. DEL SANTO
Lawrence
A. Del Santo
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ RITA
V. FOLEY
Rita
V. Foley
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ RAKESH
GANGWAL
Rakesh
Gangwal
|
|
Director
|
|
March 24, 2011
|
40
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ JOSEPH
S. HARDIN, JR.
Joseph
S. Hardin, Jr.
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ GREGORY
P. JOSEFOWICZ
Gregory
P. Josefowicz
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ AMIN
I. KHALIFA
Amin
I. Khalifa
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ RICHARD
K. LOCHRIDGE
Richard
K. Lochridge
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ BARBARA
A. MUNDER
Barbara
A. Munder
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
/s/ THOMAS
G. STEMBERG
Thomas
G. Stemberg
|
|
Director
|
|
March 24, 2011
|
41
APPENDIX F
PetSmart,
Inc. and Subsidiaries
Index to Consolidated Financial Statements and
Financial Statement Schedule
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
A-1
|
|
|
|
|
A-2
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
PetSmart, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of
PetSmart, Inc. and subsidiaries (the Company) as of
January 30, 2011 and January 31, 2010, and the related
consolidated statements of income and comprehensive income,
stockholders equity, and cash flows for each of the three
years in the period ended January 30, 2011. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
PetSmart, Inc. and subsidiaries as of January 30, 2011 and
January 31, 2010, and the results of their operations and
their cash flows for each of the three years in the period ended
January 30, 2011, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
January 30, 2011, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 24, 2011 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ DELOITTE &
TOUCHE LLP
Phoenix, Arizona
March 24, 2011
F-2
PetSmart,
Inc. and Subsidiaries
Consolidated
Balance Sheets
(In thousands,
except par value)
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
291,949
|
|
|
$
|
308,360
|
|
Short-term investments
|
|
|
9,708
|
|
|
|
|
|
Restricted cash
|
|
|
61,439
|
|
|
|
48,172
|
|
Receivables, net
|
|
|
53,971
|
|
|
|
52,232
|
|
Merchandise inventories
|
|
|
615,841
|
|
|
|
563,389
|
|
Deferred income taxes
|
|
|
44,999
|
|
|
|
36,805
|
|
Prepaid expenses and other current assets
|
|
|
46,022
|
|
|
|
57,652
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,123,929
|
|
|
|
1,066,610
|
|
Property and equipment, net
|
|
|
1,132,435
|
|
|
|
1,201,857
|
|
Equity investment in Banfield
|
|
|
42,858
|
|
|
|
32,486
|
|
Deferred income taxes
|
|
|
96,215
|
|
|
|
94,901
|
|
Goodwill
|
|
|
44,111
|
|
|
|
42,200
|
|
Other noncurrent assets
|
|
|
30,672
|
|
|
|
23,932
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,470,220
|
|
|
$
|
2,461,986
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Accounts payable and bank overdraft
|
|
$
|
168,776
|
|
|
$
|
212,121
|
|
Accrued payroll, bonus and employee benefits
|
|
|
139,359
|
|
|
|
105,162
|
|
Accrued occupancy expenses and deferred rents
|
|
|
64,328
|
|
|
|
63,142
|
|
Current maturities of capital lease obligations
|
|
|
45,277
|
|
|
|
37,839
|
|
Other current liabilities
|
|
|
156,065
|
|
|
|
146,965
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
573,805
|
|
|
|
565,229
|
|
Capital lease obligations
|
|
|
521,552
|
|
|
|
533,635
|
|
Deferred rents
|
|
|
86,027
|
|
|
|
91,030
|
|
Other noncurrent liabilities
|
|
|
118,194
|
|
|
|
99,377
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,299,578
|
|
|
|
1,289,271
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock; $.0001 par value; 10,000 shares
authorized, none issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock; $.0001 par value; 625,000 shares
authorized, 162,586 and 160,311 shares issued
|
|
|
16
|
|
|
|
16
|
|
Additional paid-in capital
|
|
|
1,222,340
|
|
|
|
1,148,228
|
|
Retained earnings
|
|
|
1,277,803
|
|
|
|
1,093,708
|
|
Accumulated other comprehensive income
|
|
|
5,380
|
|
|
|
2,369
|
|
Less: Treasury stock, at cost, 47,094 and 39,517 shares
|
|
|
(1,334,897
|
)
|
|
|
(1,071,606
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,170,642
|
|
|
|
1,172,715
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,470,220
|
|
|
$
|
2,461,986
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
PetSmart,
Inc. and Subsidiaries
Consolidated
Statements of Income and Comprehensive Income
(In thousands,
except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Merchandise sales
|
|
$
|
5,040,807
|
|
|
$
|
4,761,039
|
|
|
$
|
4,538,563
|
|
Services sales
|
|
|
618,755
|
|
|
|
575,353
|
|
|
|
526,730
|
|
Other revenue
|
|
|
34,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
5,693,797
|
|
|
|
5,336,392
|
|
|
|
5,065,293
|
|
Cost of merchandise sales
|
|
|
3,554,387
|
|
|
|
3,402,021
|
|
|
|
3,184,819
|
|
Cost of services sales
|
|
|
450,644
|
|
|
|
415,154
|
|
|
|
385,041
|
|
Cost of other revenue
|
|
|
34,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
4,039,266
|
|
|
|
3,817,175
|
|
|
|
3,569,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,654,531
|
|
|
|
1,519,217
|
|
|
|
1,495,433
|
|
Operating, general and administrative expenses
|
|
|
1,225,803
|
|
|
|
1,150,138
|
|
|
|
1,125,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
428,728
|
|
|
|
369,079
|
|
|
|
369,854
|
|
Interest expense, net
|
|
|
(58,837
|
)
|
|
|
(59,748
|
)
|
|
|
(58,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense and equity in income from
Banfield
|
|
|
369,891
|
|
|
|
309,331
|
|
|
|
311,097
|
|
Income tax expense
|
|
|
(140,396
|
)
|
|
|
(117,554
|
)
|
|
|
(121,019
|
)
|
Equity in income from Banfield
|
|
|
10,372
|
|
|
|
6,548
|
|
|
|
2,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
239,867
|
|
|
|
198,325
|
|
|
|
192,670
|
|
Other comprehensive income (loss), net of income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
3,011
|
|
|
|
5,083
|
|
|
|
(8,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
242,878
|
|
|
$
|
203,408
|
|
|
$
|
184,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.05
|
|
|
$
|
1.62
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2.01
|
|
|
$
|
1.59
|
|
|
$
|
1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
116,799
|
|
|
|
122,363
|
|
|
|
124,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
119,405
|
|
|
|
124,701
|
|
|
|
126,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
PetSmart,
Inc. and Subsidiaries
Consolidated
Statements of Stockholders Equity
(In thousands,
except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
(Loss)
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Stock
|
|
|
Total
|
|
|
BALANCE AT FEBRUARY 3, 2008
|
|
|
158,104
|
|
|
|
(30,066
|
)
|
|
$
|
16
|
|
|
$
|
1,079,190
|
|
|
$
|
758,674
|
|
|
$
|
5,585
|
|
|
$
|
(856,868
|
)
|
|
$
|
986,597
|
|
Stock options and employee stock purchase plan compensation cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,074
|
|
Net tax benefits from tax deductions in excess of the
compensation cost recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,980
|
|
Issuance of common stock under stock incentive plans
|
|
|
1,109
|
|
|
|
|
|
|
|
1
|
|
|
|
14,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,109
|
|
Issuance of restricted stock and compensation cost, net of award
reacquisitions and adjustments
|
|
|
557
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
12,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,204
|
|
Dividends declared ($0.12 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,244
|
)
|
|
|
|
|
|
|
|
|
|
|
(15,244
|
)
|
Other comprehensive income, net of income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,299
|
)
|
|
|
|
|
|
|
(8,299
|
)
|
Purchase of treasury stock, at cost
|
|
|
|
|
|
|
(2,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,955
|
)
|
|
|
(49,955
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192,670
|
|
|
|
|
|
|
|
|
|
|
|
192,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT FEBRUARY 1, 2009
|
|
|
159,770
|
|
|
|
(32,408
|
)
|
|
|
16
|
|
|
|
1,117,557
|
|
|
|
936,100
|
|
|
|
(2,714
|
)
|
|
|
(906,823
|
)
|
|
|
1,144,136
|
|
Stock options compensation cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,263
|
|
Net tax benefits from tax deductions in excess of the
compensation cost recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,062
|
)
|
Issuance of common stock under stock incentive plans
|
|
|
914
|
|
|
|
|
|
|
|
1
|
|
|
|
11,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,849
|
|
Issuance of restricted stock and compensation cost, net of award
reacquisitions and adjustments
|
|
|
(373
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
8,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,252
|
|
Issuance of performance shares and compensation cost, net of
award reacquisitions and adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,369
|
|
Dividends declared ($0.33 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,717
|
)
|
|
|
|
|
|
|
|
|
|
|
(40,717
|
)
|
Other comprehensive income, net of income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,083
|
|
|
|
|
|
|
|
5,083
|
|
Purchase of treasury stock, at cost
|
|
|
|
|
|
|
(7,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(164,783
|
)
|
|
|
(164,783
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,325
|
|
|
|
|
|
|
|
|
|
|
|
198,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 31, 2010
|
|
|
160,311
|
|
|
|
(39,517
|
)
|
|
|
16
|
|
|
|
1,148,228
|
|
|
|
1,093,708
|
|
|
|
2,369
|
|
|
|
(1,071,606
|
)
|
|
|
1,172,715
|
|
Stock options compensation cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,668
|
|
Net tax benefits from tax deductions in excess of the
compensation cost recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,436
|
|
Issuance of common stock under stock incentive plans
|
|
|
2,570
|
|
|
|
|
|
|
|
1
|
|
|
|
47,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,218
|
|
Issuance of restricted stock and compensation cost, net of award
reacquisitions and adjustments
|
|
|
(296
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,092
|
|
Issuance of performance shares and compensation cost, net of
award reacquisitions and adjustments
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
7,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,698
|
|
Dividends declared ($0.475 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,772
|
)
|
|
|
|
|
|
|
|
|
|
|
(55,772
|
)
|
Other comprehensive income, net of income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,011
|
|
|
|
|
|
|
|
3,011
|
|
Purchase of treasury stock, at cost
|
|
|
|
|
|
|
(7,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(263,291
|
)
|
|
|
(263,291
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,867
|
|
|
|
|
|
|
|
|
|
|
|
239,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 30, 2011
|
|
|
162,586
|
|
|
|
(47,094
|
)
|
|
$
|
16
|
|
|
$
|
1,222,340
|
|
|
$
|
1,277,803
|
|
|
$
|
5,380
|
|
|
$
|
(1,334,897
|
)
|
|
$
|
1,170,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
PetSmart,
Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
239,867
|
|
|
$
|
198,325
|
|
|
$
|
192,670
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
235,926
|
|
|
|
236,538
|
|
|
|
225,054
|
|
Loss on disposal of property and equipment
|
|
|
7,220
|
|
|
|
7,013
|
|
|
|
5,589
|
|
Stock-based compensation expense
|
|
|
23,928
|
|
|
|
24,792
|
|
|
|
24,301
|
|
Deferred income taxes
|
|
|
(11,325
|
)
|
|
|
(13,572
|
)
|
|
|
33,957
|
|
Equity in income from Banfield
|
|
|
(10,372
|
)
|
|
|
(6,548
|
)
|
|
|
(2,592
|
)
|
Tax benefits from tax deductions in excess of the compensation
cost recognized
|
|
|
(8,539
|
)
|
|
|
(2,901
|
)
|
|
|
(3,215
|
)
|
Non-cash interest expense
|
|
|
509
|
|
|
|
1,006
|
|
|
|
4,576
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise inventories
|
|
|
(51,068
|
)
|
|
|
23,403
|
|
|
|
(86,151
|
)
|
Other assets
|
|
|
2,771
|
|
|
|
21,474
|
|
|
|
(4,007
|
)
|
Accounts payable
|
|
|
(33,840
|
)
|
|
|
21,842
|
|
|
|
25,201
|
|
Accrued payroll, bonus and employee benefits
|
|
|
34,114
|
|
|
|
16,638
|
|
|
|
4,280
|
|
Other liabilities
|
|
|
28,454
|
|
|
|
38,933
|
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
457,645
|
|
|
|
566,943
|
|
|
|
420,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for short-term
available-for-sale
investments
|
|
|
(9,749
|
)
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(13,267
|
)
|
|
|
(48,172
|
)
|
|
|
|
|
Cash paid for property and equipment
|
|
|
(125,074
|
)
|
|
|
(112,920
|
)
|
|
|
(238,188
|
)
|
Proceeds from sales of property and equipment
|
|
|
198
|
|
|
|
3,894
|
|
|
|
2,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(147,892
|
)
|
|
|
(157,198
|
)
|
|
|
(235,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from common stock traded under stock incentive plans
|
|
|
47,217
|
|
|
|
11,848
|
|
|
|
14,108
|
|
Minimum statutory withholding requirements
|
|
|
(5,486
|
)
|
|
|
(3,405
|
)
|
|
|
(2,026
|
)
|
Cash paid for treasury stock
|
|
|
(263,291
|
)
|
|
|
(164,783
|
)
|
|
|
(49,955
|
)
|
Payments of capital lease obligations
|
|
|
(51,668
|
)
|
|
|
(38,439
|
)
|
|
|
(33,853
|
)
|
Proceeds from short-term debt
|
|
|
|
|
|
|
|
|
|
|
576,000
|
|
Payments on short-term debt
|
|
|
|
|
|
|
|
|
|
|
(606,000
|
)
|
(Decrease) increase in bank overdraft.
|
|
|
(9,982
|
)
|
|
|
(5,082
|
)
|
|
|
15
|
|
Tax benefits from tax deductions in excess of the compensation
cost recognized
|
|
|
8,539
|
|
|
|
2,901
|
|
|
|
3,215
|
|
Cash dividends paid to stockholders
|
|
|
(53,409
|
)
|
|
|
(32,459
|
)
|
|
|
(15,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(328,080
|
)
|
|
|
(229,419
|
)
|
|
|
(113,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
|
1,916
|
|
|
|
1,720
|
|
|
|
(3,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(16,411
|
)
|
|
|
182,046
|
|
|
|
67,992
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
308,360
|
|
|
|
126,314
|
|
|
|
58,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
291,949
|
|
|
$
|
308,360
|
|
|
$
|
126,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
|
|
Note 1
|
The
Company and its Significant Accounting Policies
|
Business
PetSmart, Inc., including its wholly owned subsidiaries (the
Company, PetSmart or we), is
the leading specialty provider of products, services and
solutions for the lifetime needs of pets in North America. We
offer a broad selection of products for all the life stages of
pets, as well as various pet services including professional
grooming, training, boarding and day camp. We also offer pet
products through an
e-commerce
site. As of January 30, 2011, we operated 1,187 retail
stores and had full-service veterinary hospitals in 768 of our
stores. MMI Holdings, Inc., through a wholly owned subsidiary,
Medical Management International, Inc., collectively referred to
as Banfield, operated 757 of the veterinary
hospitals under the registered trade name of Banfield, The
Pet Hospital. The remaining 11 hospitals are operated by
other third parties in Canada.
Principles
of Consolidation
Our consolidated financial statements include the accounts of
PetSmart and our wholly owned subsidiaries. We have eliminated
all intercompany accounts and transactions.
Fiscal
Year
Our fiscal year consists of the 52 or 53 weeks ending on
the Sunday nearest January 31. The 2010 fiscal year ended
on January 30, 2011, and was a 52-week year. The 2009 and
2008 fiscal years were also 52-week years. Unless otherwise
specified, all references in these consolidated financial
statements to years are to fiscal years.
Reclassifications
We have combined the receivables, net, other noncurrent assets,
and prepaid expenses and other current assets line items in the
Consolidated Statements of Cash Flows into a single line item
called other assets. Further, we have combined the accrued
occupancy expenses and current deferred rents, other current
liabilities, deferred rents and other noncurrent liabilities
line items in the Consolidated Statements of Cash Flows into a
single line item called other liabilities. Prior year amounts
have been combined to conform to this current year presentation.
Finally, as of February 1, 2010, Banfield license fees and
operating expense reimbursements, and the related costs, have
been separately presented on a gross basis as detailed in
Note 3.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America, or GAAP, requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Management bases its estimates on historical experience
and on various other assumptions it believes to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Under different assumptions or conditions, actual results could
differ from these estimates.
Segment
Reporting
Operating segments are components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. Utilizing
these criteria, we manage our business on the basis of one
reportable operating segment.
F-7
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Net sales in the United States were $5.4 billion,
$5.1 billion and $4.9 billion for 2010, 2009 and 2008,
respectively. Net sales in Canada, denominated in United States
dollars, were $296.7 million, $245.5 million and
$217.6 million for 2010, 2009 and 2008, respectively.
Substantially all our long-lived assets are located in the
United States.
Financial
Instruments
Our financial instruments consist primarily of cash and cash
equivalents, restricted cash, receivables and accounts payable.
These balances, as presented in the consolidated financial
statements at January 30, 2011, and January 31, 2010,
approximate fair value because of the short-term nature. We also
have short-term investments in municipal bonds, which are
recorded at fair value using quoted prices in active markets for
identical assets or liabilities as detailed in Note 3.
Finally, we have foreign exchange currency contracts, which are
recorded at fair value using quoted prices for similar assets or
liabilities in active markets, as detailed in Note 2.
Cash
and Cash Equivalents
We consider any liquid investments with a maturity of three
months or less at purchase to be cash equivalents. Included in
cash and cash equivalents are credit and debit card receivables
from banks, which typically settle within five business days, of
$48.9 million and $44.1 million as of January 30,
2011, and January 31, 2010, respectively.
Under our cash management system, a bank overdraft balance
exists for our primary disbursement accounts. This overdraft
represents uncleared checks in excess of cash balances in the
related bank accounts. Our funds are transferred on an as-needed
basis to pay for clearing checks. As of January 30, 2011,
and January 31, 2010, bank overdrafts of $32.5 million
and $42.5 million, respectively, were included in accounts
payable and bank overdraft in the Consolidated Balance Sheets.
Restricted
Cash
We are required to maintain a cash deposit with the lenders of
our stand-alone letter of credit facility equal to the amount of
the outstanding letters of credit, or we may use other approved
investments as collateral. If we use other approved investments
as collateral, we must have an amount on deposit which, when
multiplied by the advance rate of 85%, is equal to the amount of
the outstanding letters of credit under the stand-alone letter
of credit facility.
Vendor
Rebates and Cooperative Advertising Incentives
We receive vendor allowances, in the form of purchase rebates
and cooperative advertising incentives, from agreements made
with certain merchandise suppliers. Rebate incentives are
initially deferred as a reduction of the cost of inventory
purchased and then recognized as a reduction of cost of sales as
the related inventory is sold. Cooperative advertising
incentives are recorded as a reduction of operating, general and
administrative expenses in the Consolidated Statements of Income
and Comprehensive Income. Unearned purchase rebates recorded as
a reduction of inventory, and rebate and cooperative advertising
incentives remaining in receivables in the Consolidated Balance
Sheets as of January 30, 2011, and January 31, 2010,
were not material.
Merchandise
Inventories and Valuation Reserves
Merchandise inventories represent finished goods and are
recorded at the lower of cost or market. Cost is determined by
the moving average cost method and includes inbound freight, as
well as certain procurement and distribution costs related to
the processing of merchandise.
We have established reserves for estimated inventory shrinkage
between physical inventories. Physical inventory counts are
taken on a regular basis, and inventory is adjusted accordingly.
For each reporting period
F-8
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
presented, we estimate the inventory shrinkage based on a
two-year historical trend analysis. Changes in shrink results or
market conditions could cause actual results to vary from
estimates used to establish the reserves.
We have reserves for estimated obsolescence and to reduce
inventory to the lower of cost or market. We evaluate inventory
for excess, obsolescence or other factors that may render
inventories unmarketable at their historical cost. If
assumptions about future demand change or actual market
conditions are less favorable than those projected by
management, we may require additional reserves.
As of January 30, 2011, and January 31, 2010, our
inventory valuation reserves were $10.0 million and
$16.4 million, respectively.
Property
and Equipment
Property and equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation is provided on
buildings, furniture, fixtures and equipment and computer
software using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements and
capital lease assets are amortized using the straight-line
method over the shorter of the lease term or the estimated
useful lives of the related assets. Computer software consists
primarily of third-party software purchased for internal use.
Costs associated with the preliminary stage of a project are
expensed as incurred. Once the project is in the development
phase, external consulting costs, as well as qualifying internal
labor costs, are capitalized. Training costs, data conversion
costs and maintenance costs are expensed as incurred.
Maintenance and repairs to furniture, fixtures and equipment are
expensed as incurred.
Long-lived assets are reviewed for impairment based on
undiscounted cash flows. We conduct this review quarterly and
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. If this
review indicates that the carrying amount of the long-lived
assets is not recoverable, we will recognize an impairment loss,
measured at fair value by estimated discounted cash flows or
market appraisals. There were no material asset impairments
identified during 2010, 2009 or 2008.
Our property and equipment are depreciated using the following
estimated useful lives:
|
|
|
Buildings
|
|
39 years or term of lease
|
Furniture, fixtures and equipment
|
|
2 - 12 years
|
Leasehold improvements
|
|
1 - 20 years
|
Computer software
|
|
3 - 7 years
|
Goodwill
The carrying value of goodwill of $44.1 million and
$42.2 million as of January 30, 2011, and
January 31, 2010, respectively, represents the excess of
the cost of acquired businesses over the fair market value of
their net assets. During 2010 and 2009, goodwill increased
approximately $1.9 million and $3.6 million,
respectively, as a result of foreign currency translation. Other
than the effects of foreign currency translation, there have
been no other changes to goodwill.
Insurance
Liabilities and Reserves
We maintain workers compensation, general liability,
product liability and property insurance, on all our operations,
properties and leasehold interests. We utilize high deductible
plans for each of these areas including a self insured health
plan for our eligible associates. Workers compensation
deductibles generally carry a $1.0 million per occurrence
risk of claim liability. Our general liability plan specifies a
$0.5 million per occurrence risk of claim liability. We
establish reserves for claims under workers compensation
and general liability plans based on periodic actuarial
estimates of the amount of loss for all pending claims,
including estimates for which claims have been incurred but not
reported. Our loss estimates rely on actuarial observations of
ultimate loss
F-9
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
experience for similar historical events and changes in such
assumptions could result in an adjustment, favorable or adverse,
to our reserves. As of January 30, 2011, and
January 31, 2010, we had approximately $99.9 million
and $95.4 million, respectively, in reserves related to
workers compensation, general liability and self-insured
health plans, of which $69.8 million and $66.5 million
were classified as other noncurrent liabilities in the
Consolidated Balance Sheets.
Reserve
for Closed Stores
We continuously evaluate the performance of our retail stores
and periodically close those that are under-performing. Closed
stores are generally replaced by a new store in a nearby
location. We establish reserves for future occupancy payments on
closed stores in the period the store closes. The costs for
future occupancy payments are reported in operating, general and
administrative expenses in the Consolidated Statements of Income
and Comprehensive Income. We calculate the cost for future
occupancy payments, net of expected sublease income, associated
with closed stores using the net present value method at a
credit-adjusted risk-free interest rate over the remaining life
of the lease. Judgment is used to estimate the underlying real
estate market related to the expected sublease income, and we
can make no assurances that additional charges will not be
required based on the changing real estate environment.
Property and equipment retirement losses at closed stores are
recorded as operating, general and administrative expenses in
the Consolidated Statements of Income and Comprehensive Income.
Income
Taxes
We establish deferred income tax assets and liabilities for
temporary differences between the financial reporting bases and
the income tax bases of our assets and liabilities at enacted
tax rates expected to be in effect when such assets or
liabilities are realized or settled. We record a valuation
allowance on the deferred income tax assets to reduce the total
to an amount we believe is more likely than not to be realized.
Valuation allowances at January 30, 2011, and
January 31, 2010, were principally to offset certain
deferred income tax assets for net operating and capital loss
carryforwards.
We recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities. The
determination is based on the technical merits of the position
and presumes that each uncertain tax position will be examined
by the relevant taxing authority that has full knowledge of all
relevant information. Although we believe the estimates are
reasonable, no assurance can be given that the final outcome of
these matters will not be different than what is reflected in
the historical income tax provisions and accruals.
We operate in multiple tax jurisdictions and could be subject to
audit in any of these jurisdictions. These audits can involve
complex issues that may require an extended period of time to
resolve and may cover multiple years. To the extent we prevail
in matters for which reserves have been established, or are
required to pay amounts in excess of our reserves, our effective
income tax rate in a given fiscal period could be materially
affected. An unfavorable tax settlement would require use of our
cash and could result in an increase in our effective income tax
rate in the period of resolution, while a favorable tax
settlement could result in a reduction in our effective income
tax rate in the period of resolution.
Although we believe that the judgments and estimates discussed
herein are reasonable, actual results could differ, and we may
be exposed to losses or gains that could be material.
F-10
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Other
Current Liabilities
Other current liabilities consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Accrued income and sales tax
|
|
$
|
46,696
|
|
|
$
|
43,428
|
|
Other*
|
|
|
109,369
|
|
|
|
103,537
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
156,065
|
|
|
$
|
146,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
There are no other individual items within other current
liabilities greater than 5% of total current liabilities. |
Revenue
Recognition
We recognize revenue for store merchandise sales when the
customer receives and pays for the merchandise at the register.
Services sales are recognized at the time the service is
provided.
E-commerce
sales are recognized at the time we estimate that the customer
receives the product. We estimate and defer revenue and the
related product costs for shipments that are in-transit to the
customer. Customers typically receive goods within a few days of
shipment. Such amounts were immaterial as of January 30,
2011, and January 31, 2010. Amounts related to shipping and
handling that are billed to customers are reflected in
merchandise sales, and the related costs are reflected in cost
of merchandise sales.
We record deferred revenue for the sale of gift cards and
recognize this revenue in net sales when cards are redeemed.
Gift card breakage income is recognized over two years based
upon historical redemption patterns and represents the balance
of gift cards for which we believe the likelihood of redemption
by the customer is remote. During 2010, 2009 and 2008, we
recognized $1.8 million, $2.1 million and
$2.0 million of gift card breakage income, respectively.
Gift card breakage is recorded monthly and is included in the
Consolidated Statements of Income and Comprehensive Income as a
reduction of operating, general and administrative expenses.
We record allowances for estimated returns based on historical
return patterns.
Revenue is recognized net of applicable sales tax in the
Consolidated Statements of Income and Comprehensive Income. We
record the sales tax liability in other current liabilities on
the Consolidated Balance Sheets.
In accordance with our master operating agreement with Banfield,
we charge Banfield license fees for the space used by the
veterinary hospitals and for their portion of utilities costs.
We also charge Banfield for its portion of specific operating
expenses. Prior to February 1, 2010, license fees were
treated as a reduction of occupancy costs, which are included as
a component of cost of merchandise sales, and reimbursements for
specific operating expenses were treated as a reduction of
operating, general and administrative expenses in the
Consolidated Statement of Income and Comprehensive Income.
Beginning February 1, 2010, license fees and the
reimbursements for specific operating expenses are included in
other revenue.
Cost
of Merchandise Sales
Cost of merchandise sales includes the following types of
expenses:
|
|
|
|
|
Purchase price of inventory sold;
|
|
|
|
Transportation costs associated with inventory;
|
|
|
|
Inventory shrinkage costs and valuation adjustments;
|
|
|
|
Costs associated with operating our distribution network,
including payroll and benefit costs, occupancy costs, utilities
costs and depreciation;
|
F-11
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
|
|
|
|
|
Procurement costs, including merchandising and other costs
directly associated with the procurement, storage and handling
of inventory;
|
|
|
|
Store occupancy costs, including rent, common area maintenance,
real estate taxes, utilities and depreciation of leasehold
improvements and capitalized lease assets; and
|
|
|
|
Reductions for vendor rebates, promotions and discounts.
|
Cost
of Services Sales
Cost of services sales includes payroll and benefit costs, as
well as professional fees for the training of groomers, training
instructors and PetsHotel associates.
Cost
of Other Revenue
Cost of other revenue includes the costs related to license
fees, utilities and specific operating expenses charged to
Banfield.
Vendor
Concentration Risk
We purchase merchandise inventories from several hundred vendors
worldwide. Sales of products from our two largest vendors
approximated 17.8%, 22.4% and 21.9% of our net sales for 2010,
2009 and 2008, respectively.
Advertising
We charge advertising costs to expense as incurred, which are
classified within operating, general and administrative expenses
in the Consolidated Statements of Income and Comprehensive
Income. Total advertising expenditures, net of cooperative
income and vendor funding, and including direct response
advertising, were $83.5 million, $67.1 million and
$79.5 million for 2010, 2009 and 2008, respectively. Vendor
cooperative income reduced total advertising expense by
$8.4 million, $12.7 million and $11.0 million for
2010, 2009 and 2008, respectively. Vendor funding for
advertising, which began in 2009, reduced total advertising
expense by $16.1 million and $6.8 million in 2010 and
2009, respectively.
Stock-based
Compensation
We recognize stock-based compensation expense based on the fair
value of the awards at the grant date for all awards except
management equity units which are evaluated quarterly based upon
the current market value of our common stock. We use option
pricing methods that require the input of highly subjective
assumptions, including the expected stock price volatility.
Compensation cost is recognized ratably over the vesting period
of the related stock-based compensation award.
Foreign
Currency
The local currency is used as the functional currency in Canada.
We translate assets and liabilities denominated in foreign
currency into United States dollars at the current rate of
exchange at year-end, and translate revenues and expenses at the
average exchange rate during the year. Foreign currency
translation adjustments were included in other comprehensive
income and are reported separately in stockholders equity
in the Consolidated Balance Sheets. The income tax expense
(benefit) related to the foreign currency translation
adjustments was $1.8 million, $3.3 million and
$(5.3) million for 2010, 2009 and 2008, respectively. The
transaction (gain)/loss included in net income was
$(0.7) million, $(1.3) million and $3.4 million
for 2010, 2009 and 2008, respectively.
F-12
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
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.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2011
|
|
|
January 31, 2010
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
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 steps portion of Banfields net
assets at the respective acquisition date.
F-13
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Of the 4.7 million shares of voting stock of Banfield, we
held:
(a) 2.9 million shares of voting preferred stock that
may be converted into voting common stock at any time at our
option; and
(b) 1.8 million shares of voting common stock.
Banfields financial data is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
January 31,
|
|
|
2011
|
|
2010
|
|
Current assets
|
|
$
|
351,379
|
|
|
$
|
269,381
|
|
Noncurrent assets
|
|
|
119,175
|
|
|
|
122,934
|
|
Current liabilities
|
|
|
279,836
|
|
|
|
247,138
|
|
Noncurrent liabilities
|
|
|
12,367
|
|
|
|
16,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Net sales
|
|
$
|
676,591
|
|
|
$
|
617,508
|
|
|
$
|
448,528
|
|
Income from operations
|
|
|
82,864
|
|
|
|
49,851
|
|
|
|
21,897
|
|
Net income
|
|
$
|
49,390
|
|
|
$
|
29,723
|
|
|
$
|
13,626
|
|
We recognized license fees and reimbursements for specific
operating expenses from Banfield of $34.2 million,
$33.2 million and $30.1 million during 2010, 2009 and
2008, respectively. Receivables from Banfield totaled
$2.7 million and $2.4 million at January 30,
2011, and January 31, 2010, respectively, and were included
in receivables, net in the Consolidated Balance Sheets.
The master operating agreement also includes a provision for the
sharing of profits on the sales of therapeutic pet foods sold in
all stores with an operating Banfield hospital. The net sales
and gross profit on the sale of therapeutic pet foods are not
material to our consolidated financial statements.
|
|
Note 4
|
Property
and Equipment
|
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Land
|
|
$
|
1,032
|
|
|
$
|
691
|
|
Buildings
|
|
|
15,520
|
|
|
|
15,089
|
|
Furniture, fixtures and equipment
|
|
|
984,755
|
|
|
|
926,763
|
|
Leasehold improvements
|
|
|
617,735
|
|
|
|
581,684
|
|
Computer software
|
|
|
110,398
|
|
|
|
97,319
|
|
Buildings under capital leases
|
|
|
720,959
|
|
|
|
683,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,450,399
|
|
|
|
2,305,258
|
|
Less: accumulated depreciation and amortization
|
|
|
1,347,380
|
|
|
|
1,141,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,103,019
|
|
|
|
1,164,136
|
|
Construction in progress
|
|
|
29,416
|
|
|
|
37,721
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,132,435
|
|
|
$
|
1,201,857
|
|
|
|
|
|
|
|
|
|
|
F-14
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
We record capitalized interest primarily for interest expense
incurred during the construction period for new stores.
Capitalized interest was approximately $0.8 million,
$0.2 million and $1.6 million in 2010, 2009 and 2008,
respectively. Capitalized interest is included in property and
equipment, net in the Consolidated Balance Sheets.
|
|
Note 5
|
Reserve
for Closed Stores
|
The components of the reserve for closed stores were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Total remaining gross occupancy costs
|
|
$
|
34,313
|
|
|
$
|
33,577
|
|
Less:
|
|
|
|
|
|
|
|
|
Expected sublease income
|
|
|
(22,964
|
)
|
|
|
(24,018
|
)
|
Interest costs
|
|
|
(1,585
|
)
|
|
|
(1,343
|
)
|
|
|
|
|
|
|
|
|
|
Reserve for closed stores
|
|
$
|
9,764
|
|
|
$
|
8,216
|
|
|
|
|
|
|
|
|
|
|
Current portion, included in other current liabilities
|
|
|
3,056
|
|
|
|
2,395
|
|
Noncurrent portion, included in other noncurrent liabilities
|
|
|
6,708
|
|
|
|
5,821
|
|
|
|
|
|
|
|
|
|
|
Reserve for closed stores
|
|
$
|
9,764
|
|
|
$
|
8,216
|
|
|
|
|
|
|
|
|
|
|
The activity related to the reserve for closed stores was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Opening balance
|
|
$
|
8,216
|
|
|
$
|
6,382
|
|
|
$
|
6,157
|
|
Reserve for new store closures
|
|
|
4,921
|
|
|
|
1,526
|
|
|
|
3,132
|
|
Changes in sublease assumptions
|
|
|
1,072
|
|
|
|
4,173
|
|
|
|
1,734
|
|
Lease terminations
|
|
|
(562
|
)
|
|
|
(565
|
)
|
|
|
(821
|
)
|
Other
|
|
|
995
|
|
|
|
769
|
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges, net
|
|
|
6,426
|
|
|
|
5,903
|
|
|
|
4,562
|
|
Payments
|
|
|
(4,878
|
)
|
|
|
(4,069
|
)
|
|
|
(4,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
9,764
|
|
|
$
|
8,216
|
|
|
$
|
6,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We record charges for new closures and adjustments related to
changes in subtenant assumptions and other occupancy payments in
operating, general and administrative expenses in the
Consolidated Statements of Income and Comprehensive Income. We
can make no assurances that additional charges related to closed
stores will not be required based on the changing real estate
environment.
Income before income tax expense and equity in income from
Banfield was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
United States
|
|
$
|
361,106
|
|
|
$
|
301,644
|
|
|
$
|
309,311
|
|
Foreign
|
|
|
8,785
|
|
|
|
7,687
|
|
|
|
1,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
369,891
|
|
|
$
|
309,331
|
|
|
$
|
311,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Income tax expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
133,753
|
|
|
$
|
111,911
|
|
|
$
|
73,017
|
|
State/Foreign
|
|
|
17,968
|
|
|
|
19,215
|
|
|
|
9,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,721
|
|
|
|
131,126
|
|
|
|
82,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(7,906
|
)
|
|
|
(4,439
|
)
|
|
|
34,372
|
|
State/Foreign
|
|
|
(3,419
|
)
|
|
|
(9,133
|
)
|
|
|
4,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,325
|
)
|
|
|
(13,572
|
)
|
|
|
38,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
140,396
|
|
|
$
|
117,554
|
|
|
$
|
121,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the federal statutory income tax rate to our
effective tax rate is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Provision at federal statutory tax rate
|
|
$
|
129,462
|
|
|
|
35.0
|
%
|
|
$
|
108,266
|
|
|
|
35.0
|
%
|
|
$
|
108,882
|
|
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
|
5,591
|
|
|
|
1.5
|
|
|
|
8,725
|
|
|
|
2.8
|
|
|
|
8,860
|
|
|
|
2.8
|
|
Adjustments to tax reserves
|
|
|
3,636
|
|
|
|
1.0
|
|
|
|
(295
|
)
|
|
|
(0.1
|
)
|
|
|
(486
|
)
|
|
|
(0.2
|
)
|
Tax exempt interest income
|
|
|
(96
|
)
|
|
|
(0.0
|
)
|
|
|
(90
|
)
|
|
|
(0.0
|
)
|
|
|
|
|
|
|
|
|
Adjustment to valuation allowance
|
|
|
8
|
|
|
|
0.0
|
|
|
|
(343
|
)
|
|
|
(0.1
|
)
|
|
|
158
|
|
|
|
0.1
|
|
Tax on equity income from Banfield
|
|
|
3,630
|
|
|
|
1.0
|
|
|
|
2,292
|
|
|
|
0.7
|
|
|
|
907
|
|
|
|
0.3
|
|
Other
|
|
|
(1,835
|
)
|
|
|
(0.5
|
)
|
|
|
(1,001
|
)
|
|
|
(0.3
|
)
|
|
|
2,698
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,396
|
|
|
|
38.0
|
%
|
|
$
|
117,554
|
|
|
|
38.0
|
%
|
|
$
|
121,019
|
|
|
|
38.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
The components of the net deferred income tax assets
(liabilities) included in the Consolidated Balance Sheets are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
$
|
192,825
|
|
|
$
|
200,108
|
|
Employee benefit expense
|
|
|
82,228
|
|
|
|
74,613
|
|
Deferred rents
|
|
|
37,596
|
|
|
|
39,283
|
|
Net operating loss carryforwards
|
|
|
17,717
|
|
|
|
18,690
|
|
Reserve for closed stores
|
|
|
3,932
|
|
|
|
3,132
|
|
Miscellaneous reserves and accruals
|
|
|
9,589
|
|
|
|
10,501
|
|
Tenant incentives
|
|
|
11,238
|
|
|
|
11,328
|
|
Other
|
|
|
7,698
|
|
|
|
4,292
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
362,823
|
|
|
|
361,947
|
|
Valuation allowance
|
|
|
(7,700
|
)
|
|
|
(7,693
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets, net of valuation allowance
|
|
|
355,123
|
|
|
|
354,254
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(188,654
|
)
|
|
|
(200,150
|
)
|
Inventory
|
|
|
(6,113
|
)
|
|
|
(6,913
|
)
|
Prepaid expenses
|
|
|
(7,593
|
)
|
|
|
(7,452
|
)
|
Other
|
|
|
(11,549
|
)
|
|
|
(8,033
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(213,909
|
)
|
|
|
(222,548
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
$
|
141,214
|
|
|
$
|
131,706
|
|
|
|
|
|
|
|
|
|
|
We are subject to United States of America federal income tax,
as well as the income tax of multiple state and foreign
jurisdictions. We have substantially settled all federal income
tax matters through 2006, state and local jurisdictions through
1999 and foreign jurisdictions through 2003. We could be subject
to audits in these jurisdictions. These audits can involve
complex issues that may require an extended period of time to
resolve and may cover multiple years. During 2010, 2009 and
2008, we recorded a net benefit of approximately
$0.2 million, $1.0 million and $1.2 million,
respectively, from the settlement of uncertain tax positions
with various state tax jurisdictions and the lapse of the
statute of limitations for certain tax positions. The net
benefits are reflected in income tax expense in the Consolidated
Statements of Income and Comprehensive Income. We cannot make an
estimate of the range of possible changes that may result from
other audits.
F-17
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Unrecognized tax benefits, beginning balance
|
|
$
|
7,652
|
|
|
$
|
8,127
|
|
|
$
|
8,824
|
|
Gross increases tax positions related to the current
year
|
|
|
1,655
|
|
|
|
1,299
|
|
|
|
1,314
|
|
Gross increases tax positions in prior periods
|
|
|
7,933
|
|
|
|
716
|
|
|
|
290
|
|
Gross decreases tax positions in prior periods
|
|
|
(24
|
)
|
|
|
(153
|
)
|
|
|
(674
|
)
|
Gross settlements
|
|
|
(405
|
)
|
|
|
(394
|
)
|
|
|
(663
|
)
|
Lapse of statute of limitations
|
|
|
(221
|
)
|
|
|
(2,215
|
)
|
|
|
(558
|
)
|
Gross (decreases) increases foreign currency
translation
|
|
|
145
|
|
|
|
272
|
|
|
|
(406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, ending balance
|
|
$
|
16,735
|
|
|
$
|
7,652
|
|
|
$
|
8,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at
January 30, 2011, January 31, 2010, and
February 1, 2009, are $9.7 million, $6.8 million,
and $7.3 million, respectively, of tax benefits that, if
recognized, would affect the effective tax rate.
We continue to recognize penalties and interest accrued related
to unrecognized tax benefits as income tax expense. During 2010,
the impact of accrued interest and penalties related to
unrecognized tax benefits on the Consolidated Statement of
Operations was $0.5 million. In total, as of
January 30, 2011, we had recognized a liability for
penalties of $0.9 million and interest of
$2.2 million. As of January 31, 2010, and
February 1, 2009, we had recognized a liability for
penalties of $0.7 million and $0.8 million,
respectively, and interest of $1.7 million and
$1.8 million, respectively.
Our unrecognized tax benefits largely include state exposures
from filing positions taken on state tax returns and
characterization of income and timing of deductions on federal
and state tax returns. We believe that it is reasonably possible
that approximately $0.7 million of our currently remaining
unrecognized tax positions, each of which are individually
insignificant, may be recognized by the end of 2011 as a result
of settlements or a lapse of the statute of limitations.
As of January 30, 2011, we had, for income tax reporting
purposes, federal net operating loss carryforwards of
$50.4 million which expire in varying amounts between 2019
and 2020. The federal net operating loss carryforwards are
subject to certain limitations on their utilization pursuant to
the Internal Revenue Code. We also had a Canadian capital loss
carryforward of $11.6 million which can be carried forward
indefinitely.
|
|
Note 7
|
Earnings
Per Common Share
|
The following table presents a reconciliation of the weighted
average shares outstanding used to calculate earnings per common
share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Basic
|
|
|
116,799
|
|
|
|
122,363
|
|
|
|
124,342
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, restricted stock and performance share units
|
|
|
2,606
|
|
|
|
2,338
|
|
|
|
2,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
119,405
|
|
|
|
124,701
|
|
|
|
126,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Certain stock-based compensation awards representing
1.5 million, 3.0 million and 4.8 million shares
of common stock in 2010, 2009 and 2008, respectively, were not
included in the calculation of diluted earnings per common share
because the inclusion of the awards would have been antidilutive
for the periods presented.
|
|
Note 8
|
Stockholders
Equity
|
Share
Purchase Programs
In August 2007, the Board of Directors approved a share purchase
program authorizing the purchase of up to $300.0 million of
our common stock through August 2, 2009. We purchased
7.0 million shares for $225.0 million in 2009. We
purchased 2.3 million shares of our common stock for
$50.0 million during 2008, and 1.2 million shares of
common stock for $25.0 million during the thirteen weeks
ended May 3, 2009, completing the $300.0 million
program.
In June 2009, the Board of Directors approved a share purchase
program authorizing the purchase of up to $350.0 million of
our common stock through January 29, 2012. During 2009, we
purchased 5.9 million shares of our common stock for
$140.0 million under the June 2009 share purchase
program. During the thirteen weeks ended May 2, 2010, we
purchased 3.4 million shares of common stock for
$107.1 million under the June 2009 share purchase
program.
In June 2010, the Board of Directors replaced the
$350 million program with a new share purchase program
authorizing the purchase of up to $400.0 million of our
common stock through January 29, 2012. During the thirteen
weeks ended January 30, 2011, we purchased 2.6 million
shares of common stock for $99.9 million. Since the
inception of the $400.0 million authorization in June 2010,
we have purchased 4.2 million shares of common stock for
$156.2 million. As of January 30, 2011,
$243.8 million remained available under the
$400.0 million program.
Dividends
In 2010 and 2009, the Board of Directors declared the following
dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
|
|
|
|
|
|
|
Amount per
|
|
|
Stockholders of
|
|
|
|
|
Date Declared
|
|
Share
|
|
|
Record Date
|
|
|
Date Paid
|
|
|
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 23
|
|
$
|
0.10
|
|
|
|
April 30, 2010
|
|
|
|
May 14, 2010
|
|
June 16
|
|
$
|
0.125
|
|
|
|
July 30, 2010
|
|
|
|
August 13, 2010
|
|
September 29
|
|
$
|
0.125
|
|
|
|
October 29, 2010
|
|
|
|
November 12, 2010
|
|
December 9
|
|
$
|
0.125
|
|
|
|
January 28, 2011
|
|
|
|
February 11, 2011
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 24
|
|
$
|
0.03
|
|
|
|
May 1, 2009
|
|
|
|
May 15, 2009
|
|
June 22
|
|
$
|
0.10
|
|
|
|
July 31, 2009
|
|
|
|
August 14, 2009
|
|
September 30
|
|
$
|
0.10
|
|
|
|
October 30, 2009
|
|
|
|
November 13, 2009
|
|
December 10
|
|
$
|
0.10
|
|
|
|
January 29, 2010
|
|
|
|
February 12, 2010
|
|
|
|
Note 9
|
Stock-Based
Compensation
|
We have several long-term incentive plans, including plans for
stock options, restricted stock, performance share units,
management equity units and employee stock purchases. Shares
issued under our long-term incentive plans are issued from new
shares.
F-19
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Stock
Options
At January 30, 2011, stock option grants representing
6.0 million shares of common stock were outstanding under
all of the stock option plans, and 3.7 million of
additional stock options or awards may be issued under the 2006
Equity Incentive Plan. These grants are made to employees,
including officers and our Directors, at the fair market value
on the date of the grant.
Activity in all of our stock option plans is as follows (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 30, 2011
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Intrinsic Value
|
|
|
Outstanding at beginning of year
|
|
|
7,309
|
|
|
$
|
19.65
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,391
|
|
|
$
|
31.78
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,492
|
)
|
|
$
|
18.00
|
|
|
|
|
|
|
$
|
38,237
|
|
Forfeited/cancelled
|
|
|
(223
|
)
|
|
$
|
22.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
5,985
|
|
|
$
|
23.07
|
|
|
|
4.23
|
|
|
$
|
102,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at end of year
|
|
|
5,788
|
|
|
$
|
22.95
|
|
|
|
4.18
|
|
|
$
|
99,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
2,636
|
|
|
$
|
21.72
|
|
|
|
2.96
|
|
|
$
|
48,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2010
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Intrinsic Value
|
|
|
Outstanding at beginning of year
|
|
|
7,080
|
|
|
$
|
19.77
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,696
|
|
|
$
|
16.97
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(733
|
)
|
|
$
|
10.52
|
|
|
|
|
|
|
$
|
9,810
|
|
Forfeited/cancelled
|
|
|
(734
|
)
|
|
$
|
23.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
7,309
|
|
|
$
|
19.65
|
|
|
|
4.29
|
|
|
$
|
51,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at end of year
|
|
|
7,026
|
|
|
$
|
19.72
|
|
|
|
4.23
|
|
|
$
|
48,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
4,028
|
|
|
$
|
19.64
|
|
|
|
3.38
|
|
|
$
|
29,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended February 1, 2009
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Intrinsic Value
|
|
|
Outstanding at beginning of year
|
|
|
6,322
|
|
|
$
|
19.10
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,816
|
|
|
$
|
19.10
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(755
|
)
|
|
$
|
10.42
|
|
|
|
|
|
|
$
|
11,684
|
|
Forfeited/cancelled
|
|
|
(303
|
)
|
|
$
|
25.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
7,080
|
|
|
$
|
19.77
|
|
|
|
4.56
|
|
|
$
|
19,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at end of year
|
|
|
6,367
|
|
|
$
|
19.35
|
|
|
|
4.45
|
|
|
$
|
19,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
4,238
|
|
|
$
|
17.60
|
|
|
|
3.84
|
|
|
$
|
19,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
We may grant restricted stock under the 2006 Equity Incentive
Plan. Under the terms of the plan, employees may be awarded
shares of our common stock, subject to approval by the Board of
Directors. The employee may be required to pay par value for the
shares depending on their length of service. The shares of
common stock awarded under the plan are subject to a
reacquisition right held by us. In the event that the award
recipients employment by, or service to, us is terminated
for any reason, we are entitled to simultaneously and
automatically reacquire for no consideration all of the unvested
shares of restricted common stock previously awarded to the
recipient.
Restricted stock activity in our restricted stock plan is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30, 2011
|
|
|
January 31, 2010
|
|
|
February 1, 2009
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested at beginning of year
|
|
|
1,898
|
|
|
$
|
24.38
|
|
|
|
2,685
|
|
|
$
|
25.50
|
|
|
|
2,391
|
|
|
$
|
27.92
|
|
Granted
|
|
|
39
|
|
|
$
|
32.47
|
|
|
|
82
|
|
|
$
|
18.05
|
|
|
|
978
|
|
|
$
|
19.33
|
|
Vested
|
|
|
(611
|
)
|
|
$
|
23.94
|
|
|
|
(599
|
)
|
|
$
|
28.58
|
|
|
|
(367
|
)
|
|
$
|
24.85
|
|
Forfeited
|
|
|
(138
|
)
|
|
$
|
24.53
|
|
|
|
(270
|
)
|
|
$
|
24.29
|
|
|
|
(317
|
)
|
|
$
|
25.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of year
|
|
|
1,188
|
|
|
$
|
24.85
|
|
|
|
1,898
|
|
|
$
|
24.38
|
|
|
|
2,685
|
|
|
$
|
25.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock which vested during
2010, 2009 and 2008 was $17.2 million, $11.0 million,
and $7.2 million, respectively.
Performance
Share Units
The 2009 Performance Share Unit Program, approved by the Board
of Directors in January 2009, provides for the issuance of
performance share units, or PSUs, under the 2006
Equity Incentive Plan to executive officers and certain other
members of our management team based upon an established
performance goal. For units granted in 2010, the performance
goal was defined as a specified
end-of-year
pre-tax income. The actual number of PSUs awarded to each
participant was set at a minimum threshold of 50% of his or her
target number of PSUs, regardless of performance results, and
could increase up to 150% based upon performance results. Actual
performance against the
end-of-year
pre-tax income target was approved by the Board in March 2011,
and qualified participants received 150% of their target awards.
For units granted in 2009, the performance goal was defined as a
specified
end-of-year
F-21
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
net cash balance. The actual number of PSUs awarded to each
participant was set at a minimum threshold of 50% of his or her
target number of PSUs, regardless of performance results, and
could increase up to 150% based upon performance results. Our
actual performance against the
end-of-year
net cash target was approved by the Board in March 2010, and
qualified participants received 150% of their target awards. The
PSUs are subject to time-based vesting, cliff vesting on the
third anniversary of the initial grant date, and settle in
shares at that time.
Activity for PSUs in 2010 and 2009 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30, 2011
|
|
|
January 31, 2010
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
Units
|
|
|
Fair Value
|
|
|
Nonvested at beginning of year
|
|
|
570
|
|
|
$
|
16.97
|
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
288
|
|
|
$
|
31.77
|
|
|
|
592
|
|
|
$
|
16.96
|
|
Additional units granted for performance achievement
|
|
|
262
|
|
|
$
|
16.96
|
|
|
|
|
|
|
$
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Forfeited
|
|
|
(55
|
)
|
|
$
|
18.89
|
|
|
|
(22
|
)
|
|
$
|
16.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of year
|
|
|
1,065
|
|
|
$
|
22.14
|
|
|
|
570
|
|
|
$
|
16.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Equity Units
Beginning in 2009, certain members of management receive
Management Equity Units or MEUs. The value of one
MEU is equal to the value of one share of our common stock and
cliff vests on the third anniversary of the grant date. The
payout value of the vested MEU grants will be determined using
our closing stock price on the vest date and will be paid out in
cash.
Activity for MEUs in 2010 and 2009 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30, 2011
|
|
|
January 31, 2010
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
Units
|
|
|
Fair Value
|
|
|
Nonvested at beginning of year
|
|
|
255
|
|
|
$
|
25.75
|
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
248
|
|
|
$
|
40.17
|
|
|
|
285
|
|
|
$
|
25.75
|
|
Vested
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Forfeited
|
|
|
(53
|
)
|
|
$
|
40.17
|
|
|
|
(30
|
)
|
|
$
|
25.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of year
|
|
|
450
|
|
|
$
|
40.17
|
|
|
|
255
|
|
|
$
|
25.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Stock Purchase Plan
We have an Employee Stock Purchase Plan, or ESPP,
that allows essentially all employees who meet certain service
requirements to purchase our common stock on semi-annual
offering dates at a discount. Prior to February 2, 2009,
the ESPP allowed employees to purchase shares at 85% of the fair
market value of the shares on the offering date or, if lower, at
85% of the fair market value of the shares on the purchase date.
Effective February 2, 2009, the discount rate changed to
5%, allowing participants to purchase our common stock on
semi-annual offering dates at 95% of the fair market value of
the shares on the purchase date. A maximum of 4.0 million
shares is authorized for
F-22
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
purchase until the ESPP plan termination date of July 31,
2012. Share purchases and proceeds were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
January 30,
|
|
January 31,
|
|
February 1,
|
|
|
2011
|
|
2010
|
|
2009
|
|
Shares purchased
|
|
|
68
|
|
|
|
167
|
|
|
|
338
|
|
Aggregate proceeds
|
|
$
|
1,999
|
|
|
$
|
3,784
|
|
|
$
|
5,918
|
|
Stock-Based
Compensation Expense
Stock-based compensation expense and the total income tax
benefit recognized in the Consolidated Statements of Income and
Comprehensive Income were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 1,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Stock options expense
|
|
$
|
9,668
|
|
|
$
|
8,263
|
|
|
$
|
7,959
|
|
Restricted stock expense
|
|
|
6,559
|
|
|
|
11,626
|
|
|
|
14,227
|
|
PSU expense
|
|
|
7,701
|
|
|
|
3,369
|
|
|
|
|
|
Employee stock purchase plan expense
|
|
|
|
|
|
|
|
|
|
|
2,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation cost equity awards
|
|
|
23,928
|
|
|
|
23,258
|
|
|
|
24,301
|
|
MEU expense
|
|
|
5,481
|
|
|
|
1,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation cost
|
|
$
|
29,409
|
|
|
$
|
24,792
|
|
|
$
|
24,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit
|
|
$
|
10,286
|
|
|
$
|
8,824
|
|
|
$
|
8,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 30, 2011, the total unrecognized stock-based
compensation expense, net of estimated forfeitures, was
$39.7 million and is expected to be recognized over a
weighted average period of 1.3 years.
We estimated the fair value of stock options issued using a
lattice option pricing model. Expected volatilities are based on
implied volatilities from traded call options on our stock,
historical volatility of our stock and other factors. We use
historical data to estimate option exercises and employee
terminations within the valuation model. The expected term of
options granted is derived from the output of the option
valuation model and represents the period of time we expect
options granted to be outstanding. The risk-free rates for the
periods within the contractual life of the option are based on
the monthly U.S. Treasury yield curve in effect at the time
of the option grant using the expected life of the option. Stock
options are amortized straight-line over the vesting period net
of estimated forfeitures by a charge to income. Actual values of
grants could vary significantly from the results of the
calculations. The following assumptions were used to value
grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
January 30,
|
|
January 31,
|
|
February 1,
|
|
|
2011
|
|
2010
|
|
2009
|
|
Dividend yield
|
|
|
1.66
|
%
|
|
|
0.62
|
%
|
|
|
0.42
|
%
|
Expected volatility
|
|
|
31.0
|
%
|
|
|
46.0
|
%
|
|
|
36.2
|
%
|
Risk-free interest rate
|
|
|
1.31
|
%
|
|
|
1.17
|
%
|
|
|
1.96
|
%
|
Forfeiture rate
|
|
|
14.8
|
%
|
|
|
15.1
|
%
|
|
|
15.4
|
%
|
Expected lives
|
|
|
5.1 years
|
|
|
|
5.3 years
|
|
|
|
5.2 years
|
|
Vesting periods
|
|
|
4.0 years
|
|
|
|
4.0 years
|
|
|
|
4.0 years
|
|
Term
|
|
|
7.0 years
|
|
|
|
7.0 years
|
|
|
|
7.0 years
|
|
Weighted average fair value
|
|
$
|
8.10
|
|
|
$
|
6.68
|
|
|
$
|
6.44
|
|
F-23
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Restricted stock expense, which reflects the fair market value
on the date of the grant net of estimated forfeitures and cliff
vests after four years, is being amortized ratably by a charge
to income over the four-year term of the restricted stock awards.
PSU expense, net of forfeitures, is recognized over the
requisite service period, or three years, based upon the fair
market value on the date of grant, adjusted for the anticipated
or actual achievement against the established performance goal.
Compensation expense, net of forfeitures, for MEUs is recognized
over the requisite service period, or three years, and is
evaluated quarterly based upon the current market value of our
common stock.
|
|
Note 10
|
Employee
Benefit Plans
|
We have a defined contribution plan, or the Plan,
pursuant to Section 401(k) of the Internal Revenue Code.
The Plan covers all employees that meet certain service
requirements. We match employee contributions, up to specified
percentages of those contributions, as approved by the Board of
Directors. In addition, certain employees can elect to defer
receipt of certain salary and cash bonus payments pursuant to
our Non-Qualified Deferred Compensation Plan. We match employee
contributions up to certain amounts as defined in the
Non-Qualified Deferred Compensation Plan documents. During 2010,
2009 and 2008, we recognized expense related to matching
contributions under these Plans of $6.3 million,
$5.6 million, and $4.9 million, respectively.
|
|
Note 11
|
Financing
Arrangements and Lease Obligations
|
Short-term
Debt and Letters of Credit
We have a $350.0 million revolving credit facility, or
Revolving Credit Facility, that expires on
August 15, 2012. Borrowings under the Revolving Credit
Facility are subject to a borrowing base and bear interest, at
our option, at a banks prime rate plus 0% to 0.25% or
LIBOR plus 0.875% to 1.25%. We are subject to fees payable to
lenders each quarter at an annual rate of 0.20% of the unused
amount of the Revolving Credit Facility. The Revolving Credit
Facility also gives us the ability to issue letters of credit,
which reduce the amount available under the Revolving Credit
Facility. Letter of credit issuances under the Revolving Credit
Facility are subject to interest payable to the lenders and bear
interest of 0.875% to 1.25% for standby letters of credit or
0.438% to 0.625% for commercial letters of credit. As of
January 30, 2011, we had no borrowings and
$31.6 million in stand-by letter of credit issuances under
our Revolving Credit Facility. As of January 31, 2010, we
had no borrowings and $35.7 million in stand-by letter of
credit issuances under our Revolving Credit Facility.
We also have a $100.0 million stand-alone letter of credit
facility, or Stand-alone Letter of Credit Facility,
that expires August 15, 2012. We are subject to fees
payable to the lender each quarter at an annual rate of 0.45% of
the average daily face amount of the letters of credit
outstanding during the preceding calendar quarter. In addition,
we are required to maintain a cash deposit with the lender equal
to the amount of outstanding letters of credit or we may use
other approved investments as collateral. If we use other
approved investments as collateral, we must have an amount on
deposit which, when multiplied by the advance rate of 85%, is
equal to the amount of the outstanding letters of credit under
the Stand-alone Letter of Credit Facility. As of
January 30, 2011, we had $61.4 million in outstanding
letters of credit under the Stand-alone Letter of Credit
Facility and $61.4 million in restricted cash on deposit
with the lender. As of January 31, 2010, we had
$48.2 million in outstanding letters of credit under the
Stand-alone Letter of Credit Facility and $48.2 million in
restricted cash on deposit with the lender.
We issue letters of credit for guarantees provided for insurance
programs.
The Revolving Credit Facility and Stand-alone Letter of Credit
Facility permit the payment of dividends, if we are not in
default and the payment of dividends would not result in default
of the Revolving Credit Facility and Stand-alone Letter of
Credit Facility. As of January 30, 2011, we were in
compliance with the terms and covenants of our Revolving Credit
Facility and Stand-alone Letter of Credit Facility. The
Revolving Credit Facility and Stand-
F-24
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
alone Letter of Credit Facility are secured by substantially all
our personal property assets, our wholly owned subsidiaries and
certain real property.
Operating
and Capital Leases
We lease substantially all our stores, distribution centers and
corporate offices under noncancelable leases. The terms of the
store leases generally range from 10 to 15 years and
typically allow us to renew for 2 to 4 additional
5-year
terms. Store leases, excluding renewal options, expire at
various dates through 2026. Generally, the leases require
payment of property taxes, utilities, common area maintenance,
insurance and if annual sales at certain stores exceed specified
amounts, provide for additional rents. We also lease certain
equipment under operating leases and capital leases. Total
operating lease expense incurred, net of sublease income, during
2010, 2009 and 2008 was $302.4 million, $296.0 million
and $275.1 million, respectively. Additional rent included
in those amounts was not material.
At January 30, 2011, the future minimum annual rental
commitments under all noncancelable leases were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2011
|
|
$
|
307,177
|
|
|
$
|
99,888
|
|
2012
|
|
|
301,541
|
|
|
|
109,696
|
|
2013
|
|
|
279,320
|
|
|
|
108,781
|
|
2014
|
|
|
251,803
|
|
|
|
104,609
|
|
2015
|
|
|
214,550
|
|
|
|
98,478
|
|
Thereafter
|
|
|
542,175
|
|
|
|
337,847
|
|
|
|
|
|
|
|
|
|
|
Total minimum rental commitments
|
|
$
|
1,896,566
|
|
|
$
|
859,299
|
|
|
|
|
|
|
|
|
|
|
Less: amounts representing interest
|
|
|
|
|
|
|
(292,470
|
)
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
|
|
|
|
566,829
|
|
Less: current portion
|
|
|
|
|
|
|
(45,277
|
)
|
|
|
|
|
|
|
|
|
|
Long-term obligations
|
|
|
|
|
|
$
|
521,552
|
|
|
|
|
|
|
|
|
|
|
The rental commitments schedule includes all locations for which
we have the right to control the use of the property and
includes open stores, closed stores, stores to be opened in the
future, distribution centers and corporate offices. We have
recorded accrued rent of $0.9 million and $1.7 million
in the Consolidated Balance Sheets as of January 30, 2011,
and January 31, 2010, respectively. In addition to the
commitments scheduled above, we have executed lease agreements
with total minimum lease payments of $82.1 million. The
typical lease term for these agreements is 10 years. We do
not have the right to control the use of the property under
these leases as of January 30, 2011 because we have not
taken physical possession of the property.
F-25
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Future minimum annual rental commitments have not been reduced
by amounts expected to be received from subtenants. At
January 30, 2011, the future annual payments expected to be
collected from subtenants are as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
4,196
|
|
2012
|
|
|
3,153
|
|
2013
|
|
|
3,067
|
|
2014
|
|
|
2,726
|
|
2015
|
|
|
2,740
|
|
Thereafter
|
|
|
3,077
|
|
|
|
|
|
|
|
|
$
|
18,959
|
|
|
|
|
|
|
|
|
Note 12
|
Commitments
and Contingencies
|
Advertising
Purchase Commitments
As of January 30, 2011, we had advertising commitments of
approximately $22.7 million in 2011.
Product
Purchase Commitments
As of January 30, 2011, we had various commitments to
purchase product from certain vendors that are not material to
our total inventory purchases.
Litigation
and Settlements
Beginning in March 2007, we were named as a party in the
following lawsuits arising from pet food recalls announced by
several manufacturers. The plaintiffs sued the major pet food
manufacturers and retailers claiming that their pets suffered
injury
and/or death
as a result of consuming allegedly contaminated pet food and pet
snack products.
Bruski v. Nutro Products, et al., USDC, N.D. IL (filed
3/23/07)
Rozman v. Menu Foods, et al., USDC, MN (filed
4/9/07)
Ford v. Menu Foods, et al., USDC, S.D. CA (filed
4/23/07)
Wahl, et al. v. Wal-Mart Stores Inc., et al., USDC, C.D. CA
(filed
4/10/07)
Demith v. Nestle, et al., USDC, N.D. IL (filed
4/23/07)
Thompkins v. Menu Foods, et al., USDC, CO (filed
4/11/07)
McBain v. Menu Foods, et al., Judicial Centre of Regina, Canada
(filed
7/11/07)
Dayman v. Hills Pet Nutrition Inc., et al., Ontario Superior
Court of Justice (filed
8/8/07)
Esau v. Menu Foods, et al., Supreme Court of Newfoundland and
Labrador (filed
9/5/07)
Ewasew v. Menu Foods, et al., Supreme Court of British Columbia
(filed
3/23/07)
Silva v. Menu Foods, et al., Canada Province of Manitoba (filed
3/30/07)
Powell v. Menu Foods, et al., Ontario Superior Court of Justice
(filed
3/28/07)
By order dated June 28, 2007, the Bruski, Rozman, Ford,
Wahl, Demith and Thompkins cases were transferred to
the U.S. District Court for the District of New Jersey and
consolidated with other pet food class actions under the federal
rules for multi-district litigation (In re: Pet Food Product
Liability Litigation, Civil
No. 07-2867).
The Canadian cases were not consolidated.
On May 21, 2008, the parties to the U.S. lawsuits
comprising the In re: Pet Food Product Liability Litigation
and the Canadian cases jointly submitted a comprehensive
settlement arrangement for court approval. Preliminary court
approval was received from the U.S. District Court on
May 3, 2008, and from all of the Canadian courts as of
F-26
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
July 8, 2008. On October 14, 2008, the
U.S. District Court approved the settlement, and the
Canadian courts gave final approval on November 3, 2008.
Two different groups of objectors filed notices of appeal with
respect to the U.S. District Courts approval of the
U.S. settlement, and the Court of Appeals remanded one
point of fact to the motions judge for additional clarification.
Once the point remanded by the appeals court is addressed, these
cases should be resolved, and we continue to believe they will
not have a material adverse impact on our consolidated financial
statements.
There have been no appeals filed in Canada.
In January 2011, we were named as a defendant in
Pedroza v. PetSmart, Inc., et al., a lawsuit
originally filed in California Superior Court for the County of
San Bernardino. The case has been removed to the
U.S. District Court for the Central District of California.
The complaint alleges, purportedly on behalf of current and
former exempt store management in California, that we improperly
classified our store management as exempt pursuant to the
California Labor Code, and as a result failed to: (i) pay
or provide to such managers proper wages, overtime compensation,
or rest or meal periods, (ii) maintain and provide accurate
wage-related statements and records, and (iii) reimburse
certain business expenses, in each case as is required by the
California Labor Code.
The lawsuit seeks compensatory damages, statutory penalties and
other relief, including liquidated damages, attorneys
fees, costs and injunctive relief. At this time, we are not able
to predict the outcome of this lawsuit, or any possible monetary
exposure associated with the lawsuit. We believe, however, that
the lawsuit is without merit and that the case should not be
certified as a class or collective action, and we are vigorously
defending these claims.
We are involved in the defense of various other legal
proceedings that we do not believe are material to our
consolidated financial statements.
|
|
Note 13
|
Supplemental
Schedule of Cash Flows
|
Supplemental cash flow information for 2010, 2009 and 2008 was
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Interest paid
|
|
$
|
59,419
|
|
|
$
|
59,153
|
|
|
$
|
55,937
|
|
Income taxes paid, net of refunds
|
|
$
|
137,869
|
|
|
$
|
81,511
|
|
|
$
|
92,786
|
|
Assets acquired using capital lease obligations
|
|
$
|
42,175
|
|
|
$
|
18,849
|
|
|
$
|
86,083
|
|
Accruals and accounts payable for capital expenditures
|
|
$
|
29,114
|
|
|
$
|
25,827
|
|
|
$
|
19,770
|
|
Dividends declared but unpaid
|
|
$
|
14,436
|
|
|
$
|
12,073
|
|
|
$
|
3,816
|
|
F-27
PetSmart,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
|
|
Note 14
|
Selected
Quarterly Financial Data
(Unaudited)
|
Summarized quarterly financial information for 2010 and 2009 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Year Ended January 30, 2011
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
|
(In thousands, except per share data)
|
|
|
Merchandise sales
|
|
$
|
1,233,595
|
|
|
$
|
1,216,682
|
|
|
$
|
1,230,911
|
|
|
$
|
1,359,619
|
|
Services sales
|
|
|
153,287
|
|
|
|
165,305
|
|
|
|
148,282
|
|
|
|
151,881
|
|
Other revenue
|
|
|
8,271
|
|
|
|
8,553
|
|
|
|
8,877
|
|
|
|
8,534
|
|
Net sales
|
|
|
1,395,153
|
|
|
|
1,390,540
|
|
|
|
1,388,070
|
|
|
|
1,520,034
|
|
Gross profit
|
|
|
404,292
|
|
|
|
396,295
|
|
|
|
388,985
|
|
|
|
464,959
|
|
Operating income
|
|
|
103,261
|
|
|
|
92,007
|
|
|
|
83,640
|
|
|
|
149,820
|
|
Income before income tax expense and equity in income from
Banfield
|
|
|
87,918
|
|
|
|
77,417
|
|
|
|
69,351
|
|
|
|
135,205
|
|
Net income
|
|
|
55,592
|
|
|
|
48,386
|
|
|
|
45,613
|
|
|
|
90,276
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.47
|
|
|
$
|
0.41
|
|
|
$
|
0.39
|
|
|
$
|
0.78
|
|
Diluted
|
|
|
0.46
|
|
|
|
0.41
|
|
|
|
0.38
|
|
|
|
0.77
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
117,976
|
|
|
|
117,079
|
|
|
|
116,943
|
|
|
|
115,222
|
|
Diluted
|
|
|
120,382
|
|
|
|
119,423
|
|
|
|
119,360
|
|
|
|
117,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Year Ended January 31, 2010
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
|
(In thousands, except per share data)
|
|
|
Merchandise sales
|
|
$
|
1,184,755
|
|
|
$
|
1,154,593
|
|
|
$
|
1,157,647
|
|
|
$
|
1,264,044
|
|
Services sales
|
|
|
142,819
|
|
|
|
154,192
|
|
|
|
136,703
|
|
|
|
141,639
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,327,574
|
|
|
|
1,308,785
|
|
|
|
1,294,350
|
|
|
|
1,405,683
|
|
Gross profit
|
|
|
377,252
|
|
|
|
369,412
|
|
|
|
356,176
|
|
|
|
416,377
|
|
Operating income
|
|
|
89,869
|
|
|
|
73,789
|
|
|
|
71,280
|
|
|
|
134,141
|
|
Income before income tax expense and equity in income from
Banfield
|
|
|
74,895
|
|
|
|
58,819
|
|
|
|
56,249
|
|
|
|
119,368
|
|
Net income
|
|
|
46,262
|
|
|
|
38,964
|
|
|
|
38,070
|
|
|
|
75,029
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.32
|
|
|
$
|
0.31
|
|
|
$
|
0.63
|
|
Diluted
|
|
|
0.37
|
|
|
|
0.31
|
|
|
|
0.31
|
|
|
|
0.61
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
124,355
|
|
|
|
123,474
|
|
|
|
121,661
|
|
|
|
119,962
|
|
Diluted
|
|
|
126,524
|
|
|
|
125,504
|
|
|
|
123,781
|
|
|
|
122,658
|
|
F-28
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
PetSmart, Inc.
Phoenix, Arizona
We have audited the consolidated financial statements of
PetSmart, Inc. and subsidiaries (the Company) as of
January 30, 2011 and January 31, 2010, and for each of
the three years in the period ended January 30, 2011, and
the Companys internal control over financial reporting as
of January 30, 2011, and have issued our reports thereon
dated March 24, 2011; such consolidated financial
statements and reports are included elsewhere in this
Form 10-K.
Our audits also included the consolidated financial statement
schedule of the Company listed in Item 15. This
consolidated financial statement schedule is the responsibility
of the Companys management. Our responsibility is to
express an opinion based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ DELOITTE &
TOUCHE LLP
Phoenix, Arizona
March 24, 2011
A-1
Schedule II
Valuation and Qualifying Accounts
SCHEDULE II
PetSmart,
Inc. and Subsidiaries
Valuation
and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Charged to
|
|
|
|
|
|
End of
|
|
Description
|
|
of Period
|
|
|
Expense
|
|
|
Deductions
|
|
|
Period
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Valuation reserves deducted in the Consolidated Balance Sheets
from the asset to which it applies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lower of cost or market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
5,868
|
|
|
$
|
4,736
|
|
|
$
|
(2,827
|
)
|
|
$
|
7,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
7,777
|
|
|
$
|
9,652
|
|
|
$
|
(4,865
|
)
|
|
$
|
12,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
12,564
|
|
|
$
|
6,493
|
|
|
$
|
(12,243
|
)
|
|
$
|
6,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shrink
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
7,424
|
|
|
$
|
26,430
|
|
|
$
|
(27,032
|
)
|
|
$
|
6,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
6,822
|
|
|
$
|
24,250
|
|
|
$
|
(27,205
|
)
|
|
$
|
3,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
3,867
|
|
|
$
|
30,046
|
|
|
$
|
(30,723
|
)
|
|
$
|
3,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-2
APPENDIX E
PetSmart,
Inc.
ANNUAL
REPORT ON
FORM 10-K
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated By Reference
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Herewith
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of PetSmart
|
|
S-1
|
|
33-63912
|
|
3.3(i)
|
|
6/4/1993
|
|
|
|
3
|
.2
|
|
Certificate of Amendment of Restated Certificate of
Incorporation of PetSmart
|
|
10-Q
|
|
0-21888
|
|
3.5
|
|
9/7/2005
|
|
|
|
3
|
.3
|
|
Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of PetSmart
|
|
8-K
|
|
0-21888
|
|
99.3
|
|
8/21/1997
|
|
|
|
3
|
.35
|
|
Certificate of Amendment of Restated Certificate of
Incorporation of PetSmart
|
|
8-K
|
|
0-21888
|
|
3.4
|
|
6/23/2009
|
|
|
|
3
|
.4
|
|
Bylaws of PetSmart, as amended
|
|
8-K
|
|
0-21888
|
|
3.5
|
|
6/23/2009
|
|
|
|
4
|
.1
|
|
Reference is made to Exhibits 3.1 through 3.4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
.2
|
|
Form of Stock Certificate
|
|
S-1
|
|
33-63912
|
|
4.4
|
|
6/4/1993
|
|
|
|
10
|
.1
|
|
Form of Indemnity Agreement between PetSmart and its Directors
and Officers
|
|
S-1
|
|
33-63912
|
|
10.1
|
|
6/4/1993
|
|
|
|
10
|
.2
|
|
2003 Equity Incentive Plan
|
|
Proxy
Statement
|
|
0-21888
|
|
Appendix B
|
|
5/12/2003
|
|
|
|
10
|
.3
|
|
1996 Non-Employee Directors Equity Plan, as amended
|
|
S-8
|
|
333-58605
|
|
10.5
|
|
7/7/1998
|
|
|
|
10
|
.4
|
|
1997 Equity Incentive Plan, as amended
|
|
10-K
|
|
0-21888
|
|
10.4
|
|
4/18/2003
|
|
|
|
10
|
.5
|
|
2002 Employee Stock Purchase Plan, as amended
|
|
10-K
|
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|
|
|
|
|
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|
10
|
.6
|
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Non-Qualified 2005 Deferred Compensation Plan, as amended
|
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10-Q
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0-21888
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10.10
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11/30/2007
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10
|
.7
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Executive Short-Term Incentive Plan, as amended
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Proxy
Statement
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0-21888
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Appendix A
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5/3/2010
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10
|
.8
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Amended and Restated Employment Agreement, between PetSmart and
Philip L. Francis, Chairman of the Board of Directors and Chief
Executive Officer
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10-Q
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0-21888
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10.12
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11/26/2008
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10
|
.9
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Amended and Restated Employment Agreement, between PetSmart and
Robert F. Moran, President and Chief Operating Officer
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10-Q
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0-21888
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10.13
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11/26/2008
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10
|
.10
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Form of Performance Share Unit Grant Notice and Performance
Share Unit Agreement
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10-Q
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0-21888
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10.22
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5/29/2009
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E-1
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Incorporated By Reference
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Exhibit
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Filed
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Number
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Exhibit Description
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Form
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File No.
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Exhibit
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Filing Date
|
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Herewith
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10
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.11
|
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Form of Offer Letter between PetSmart and executive officers
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10-K
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0-21888
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10.15
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4/18/2003
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10
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.12
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Amended and Restated Executive Change in Control and Severance
Benefit Plan
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10-Q
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0-21888
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10.16
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11/26/2008
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10
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.13
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Forms of Stock Award Grant Agreements for the 2003 Equity
Incentive Plan and 1997 Equity Incentive Plan
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10-Q
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0-21888
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10.17
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9/8/2004
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10
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.14
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Forms of Revised Stock Option Grant Agreements for the 2003
Equity Incentive Plan and 1997 Equity Incentive Plan
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8-K
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0-21888
|
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10.20
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2/3/2006
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10
|
.15
|
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Forms of Revised Restricted Stock Grant Agreements for the 2003
Equity Incentive Plan and 1997 Equity Incentive Plan
|
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8-K
|
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0-21888
|
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10.19
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2/7/2005
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10
|
.16
|
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2006 Equity Incentive Plan
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10-K
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0-21888
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10.21
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3/28/2007
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10
|
.17
|
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Form of Nonstatutory Stock Agreement for 2006 Equity Incentive
Plan
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8-K
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0-21888
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10.2
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6/28/2006
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10
|
.18
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Form of Restricted Stock Agreement for 2006 Equity Incentive Plan
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8-K
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0-21888
|
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10.3
|
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6/28/2006
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10
|
.19
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Offer letter to Lawrence Chip Molloy dated
August 23, 2007
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8-K
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0-21888
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10.27
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9/7/2007
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10
|
.20
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Letter of Credit Agreement, dated June 30, 2006, between
PetSmart, Inc. and Bank of America, N.A.
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8-K
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0-21888
|
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10.21
|
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7/3/2006
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10
|
.21
|
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Second Amendment to Letter of Credit Agreement, dated as of
May 13, 2009
|
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10-Q
|
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0-21888
|
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10.20
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8/28/2009
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10
|
.22
|
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Credit Agreement dated as of August 15, 2007 among
PetSmart, Inc., PetSmart Store Support Group, Inc., the Lenders
Party thereto, Bank of America, N.A., as issuing bank,
administrative agent and collateral agent, and Banc of America
Securities LLC, as sole arranger and sole bookrunner.
|
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8-K
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0-21888
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10.2
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8/17/2007
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10
|
.23
|
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2010 Performance Share Unit Program
|
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8-K
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0-21888
|
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10.1
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3/26/2010
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23
|
.1
|
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Consent of Deloitte & Touche LLP, Independent
Registered Public Accounting Firm
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X
|
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31
|
.1
|
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Certification of Chief Executive Officer as required by
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended
|
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|
X
|
E-2
|
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|
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|
|
Incorporated By Reference
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Herewith
|
|
|
31
|
.2
|
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Certification of Chief Financial Officer as required by
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended
|
|
|
|
|
|
|
|
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|
X
|
|
32
|
.1*
|
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Certification of Chief Executive Officer as required by
Rule 13a-14(b)
of the Securities Exchange Act of 1934, as amended
|
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|
X
|
|
32
|
.2*
|
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Certification of Chief Financial Officer as required by
Rule 13a-14(b)
of the Securities Exchange Act of 1934, as amended
|
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|
X
|
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101
|
.INS
|
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XBRL Instance
|
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|
X
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
|
|
|
|
|
X
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation
|
|
|
|
|
|
|
|
|
|
X
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Labels
|
|
|
|
|
|
|
|
|
|
X
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation
|
|
|
|
|
|
|
|
|
|
X
|
|
101
|
.DEF
|
|
XBRL Taxonomy Extension Definition
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
Compensation plans or arrangements in which directors or
executive officers are eligible to participate. |
|
* |
|
The certifications attached as Exhibit 32.1 and
Exhibit 32.2 accompany this Annual Report on
Form 10-K,
are not deemed filed with the Securities and Exchange Commission
and are not to be incorporated by reference into any filing of
PetSmart, Inc., under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, whether made
before or after the date of this Annual Report on
Form 10-K,
irrespective of any general incorporation language contained in
such filing. |
E-3