Petsmart 2009 Annual Report Download - page 41

$3.3 million at January 31, 2010, and February 1, 2009, 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 is not material.
Credit Facility
We have a $350.0 million five-year 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 bank’s 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 31, 2010, we had no borrowings and $35.7 million in stand-
by letter of credit issuances under our Revolving Credit Facility. As of February 1, 2009, we had no borrowings and
$91.3 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 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. As of February 1, 2009, we had no outstanding letters of credit under the Stand-alone Letter
of Credit Facility, no restricted cash or short-term investments on deposit with the lender, and no other investments
related to the Stand-alone Letter of Credit Facility.
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 31, 2010, 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. 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.
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