Petsmart 2011 Annual Report Download - page 44

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 29, 2012, we had no borrowings and $24.4 million in stand-by letter of credit issuances under
our Revolving Credit Facility. 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.
We also have a $100.0 million stand-alone letter of credit facility, or “Stand-alone Letter of Credit Facility,”
that expires on 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 collat-
eral, 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 29, 2012, we had $70.2 million in outstanding letters of credit under the Stand-alone Letter of
Credit Facility and $70.2 million in restricted cash on deposit with the lender. 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.
We issue letters of credit for guarantees provided for insurance programs.
Our 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 29, 2012, 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.
We intend to refinance our Revolving Credit Facility and the Stand-alone Letter of Credit Facility with sim-
ilar facilities and terms before they expire on August 15, 2012.
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 estab-
lished. 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
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