Petsmart 2000 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 2000
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21888
PETsMART, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other juris diction of incorporation or organization)
94-3024325
(I.R.S. Employer Identification No.)
19601 North 27th Avenue, Phoenix, Arizona
(Address of principal executive offices)
85027
(Zip Code)
Re gistrant’s te lephone number, including area code: (623) 580-6100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
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 report(s), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S- K is not
contained herein, and will not be contained, to the best of registrant’ s 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. [ ]
9/16/2010 www.sec.gov/Archives/edgar/data/86…
sec.gov/…/0000950153-00-000575-d1.… 1/70

Table of contents

  • Page 1
    ... Commission file number 0-21888 PETsMART, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 19601 North 27th Avenue, Phoenix, Arizona (Address of principal executive offices) 94-3024325 (I.R.S. Employer Identification...

  • Page 2
    9/16/2010 www.sec.gov/Archives/edgar/data/86... Based on the closing sale price of $2.94 on April 5, 2000, the aggregate market value of the voting stock held by non-affiliates of the registrant was $328,858,721. On April 5, 2000 there were outstanding 111,951,905 shares of the Registrant' s Common...

  • Page 3
    ... sales accounted for by premium foods. Premium pet food brands such as Nutro, Science Diet, ProPlan, and Eukenuba, which offer higher levels of nutrition than non-premium brands, accounted for approximately 27% of total pet food sales in 1999. Many of these premium pet foods currently are not sold...

  • Page 4
    ... aids, shampoos, medication, toys, animal carriers, dog houses, cat furniture and equestrian supplies. The Company also offers a complete line of supplies for fish, birds and small animals, including aquariums, filters, birdcages and small animal supplies. Corporate brand pet supplies include "Top...

  • Page 5
    ... and pet training grew nearly 15% from approximately $64.6 million in fiscal 1998 to approximately $74.3 million in fiscal 1999, including a 5.1% comparable store sales increase. Veterinary Services Veterinary clinics operated in PETsMART stores generally offer routine examinations and vaccinations...

  • Page 6
    ... and benefit plan is in development for all PETsMART stylists to provide adequate incentives and improve retention. Additional resources are being directed at pet training classes from basic puppy to adult obedience with the goal of becoming the industry leader. Veterinary clinics operated by...

  • Page 7
    ... by Direct for PETsMART.com. Distribution The Company currently employs a hybrid distribution system including, as appropriate, full truckload shipments to individual superstores, the splitting of full truckloads among several closely located superstores, consolidation centers to service regional...

  • Page 8
    ... principal competitive factors influencing the Company' s business are product selection and quality, convenience of store locations, customer service and price. In this regard, many of the major premium pet food brands offered by the Company, such as Science Diet, Nutro, ProPlan, and Eukanuba, are...

  • Page 9
    ... its merchandising and marketing strategies. The Company believes it has all the licenses necessary to conduct its business. Employees As of January 30, 2000, the Company employed 19,825 associates, 8,836 of whom were employed full time. PETsMART' s associates receive wages and benefits competitive...

  • Page 10
    ... and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." International Operations. On December 15, 1999, the Company sold its United Kingdom subsidiary Pet City to an unrelated third party as a stock sale in exchange for cash net of outstanding liabilities...

  • Page 11
    ... account for approximately 23% of total purchases. Sales of premium pet food for dogs and cats, such as Science Diet, Nutro, ProPlan and Eukanuba make up a significant portion of PETsMART' s revenues. Currently, most of the major vendors of premium pet foods do not permit these products to be sold...

  • Page 12
    ... efficient use of store inventory, store labor, reduced transportation costs, improved in-stock position and distribution center productivity and vendor support. The Company began the implementation of this strategy during fiscal 1999 with the new distribution center in Ennis, Texas. Four additional...

  • Page 13
    ... distribution centers are: Colombus, Ohio; Hagerstown, Maryland; Atlanta, Georgia and Las Vegas, Nevada. There can be no assurance, however, that the Company will be able to realize any labor and other cost savings as a result of the planned strategy. Competition. The pet food and supply retailing...

  • Page 14
    ... Financial Officer Senior Vice President, Marketing, Branding & Advertising Senior Vice President, Human Resources Senior Vice President and General Counsel Senior Vice President, Chief Information Officer President, PETsMART International Supply Company Senior Vice President, General Manager of...

  • Page 15
    ...Bargain Close-Out, a discount retailer, from 1996 to January 1998. From 1995 to 1996, he was Vice President Finance/ Controller and Corporate Administration for Kay-Bee Toys, a mall-based specialty toy retailer. Prior to joining Kay-Bee Toys, Mr. Watanabe was Chief Financial and Operating Officer of...

  • Page 16
    ... was named Senior Vice President, General Manager of PETsMART Services. Prior to joining PETsMART, Mr. Murphy spent 28 years with various food retailing and distribution companies in various executive merchandising and marketing positions. Neil H. Stacey, joined PETsMART in 1995 as Vice President of...

  • Page 17
    ...Number of Superstores Vermont Virginia Washington Wisconsin Total United States superstores Canada Total North America superstores 1 17 14 3 464 20 484 PETsMART leases substantially all of its superstores, retail distribution centers and corporate offices under noncancellable operating leases. The...

  • Page 18
    ... distribution center in Phoenix, Arizona, the lease on which expires in April 2002. The Company leases a 230,000 square foot facility in Ennis, Texas, under a lease, which expires in 2012. PETsMART Direct owns and operates a catalog fulfillment and equine distribution center in Brockport, New York...

  • Page 19
    ... The Company' s Common Stock is traded on the Nasdaq Stock Market under the symbol "PETM." The following table sets forth for the periods indicated the high and low price per share of the common stock on the Nasdaq Stock Market. These prices represent quotations among dealers without adjustments for...

  • Page 20
    ... in common stock, sold its subsidiary in the United Kingdom ("UK") and invested approximately $29 million in PETsMART.com, an e-commerce pet business. Additionally, the Company transferred operational control of the United States veterinary clinics owned by PETsMART Veterinary Services, Inc. to...

  • Page 21
    ... as general and administrative expenses consist primarily of a change in estimated self-insurance costs due to adverse claims experience in the Company' s worker' s compensation plans, expenses related to the preliminary stages of a consulting project for a new management information system, certain...

  • Page 22
    ... Store operating expenses Store preopening expenses General and administrative expenses Loss on disposal of subsidiary Merger, business integration and restructuring costs (benefits) Operating income (loss) Interest income Interest expense Income (loss) before equity loss in PETsMART.com, income tax...

  • Page 23
    ... the UK, general and administrative costs as a percentage of sales were 2.7% of sales for fiscal 1998. The increase in 1999 over 1998 relates to costs incurred during the implementation of the Company' s new information systems, including one-time costs for payroll and benefits, equipment costs and...

  • Page 24
    ... in PETsMART.com are excluded from the Company' s consolidated income tax return. Also, the loss on the sale of the UK subsidiary is not deductible for tax purposes until a capital gain is recognized to offset the capital loss. Excluding the tax benefit of $4.8 million realized from the operating...

  • Page 25
    9/16/2010 www.sec.gov/Archives/edgar/data/86... business (PETsMART.com) corporate joint venture and the disposal of the UK retail subsidiary: Fiscal Year Ended January 30, 2000 North America stores and Direct PETsMART.com UK retail subsidiary, net of tax benefit Total earnings per share - basic $ ...

  • Page 26
    ... restructuring charges and the related tax benefits, and the cumulative effect of a change in accounting principle, net income for fiscal 1997, on a comparable basis, was $15.5 million (or $0.13 per share). Liquidity and Capital Resources The Company has financed its operations and expansion program...

  • Page 27
    ... are for opening new superstores and distribution centers, the costs of closing redundant or inadequate superstores, corporate investments, including expenditures associated with the continued development and implementation of the Company' s new information systems, and for working capital. All of...

  • Page 28
    ...debentures annually for each of the next three fiscal years. The Company' s policy on the repurchase of stock or subordinated debt is to make market purchases when the price is advantageous and as cash flow allows to maintain appropriate liquidity. Management believes that its existing cash and cash...

  • Page 29
    ...it typically realizes a significant portion of its net sales and operating profits during the fourth fiscal quarter. In addition, sales of certain of the Company' s products and services designed to address pet health needs, such as flea and tick problems, have been and may continue to be negatively...

  • Page 30
    ... the information under the caption "Certain Relationships and Related Transactions" contained in the Proxy Statement. 26 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K. 1. Financial...

  • Page 31
    ...16/2010 www.sec.gov/Archives/edgar/data/86... are set forth in the Exhibit Index on page E-1. (b) Reports on Form 8-K. During the fourth quarter of fiscal 1999, the Company filed no reports on Form 8-K. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act...

  • Page 32
    ... as of April 3, 1995 (the "Sporting Dog Agreement")(3) Form of First Amendment to the Sporting Dog Agreement, dated as of April 18, 1995(3) Agreement and Plan of Reorganization and Plan of Merger by and among PETsMART, Turnpike Acquisition Corp., and The Pet Food Giant, Inc., dated as of August 17...

  • Page 33
    ...Exhibit Number 10.5* 10.6* 10.12* 10.17 Description of Document PETsMART' s 1992 Non-Employee Director' s Stock Option Plan(1) PETsMART' s Employee Stock Purchase Plan(1) Employment Agreement between Giles Clarke, PETsMART and Pet City Holdings, plc dated as of October 23, 1996(9) Deed of Variation...

  • Page 34
    ... 16.1 to PETsMART' s Current Report on Form 8-K (File No. 021888), filed on May 5, 1999, as amended by a Current Report on Form 8-K/A (File No. 0-21888), filed on May 10, 1999. E-2 PETsMART, Inc. and Subsidiaries INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE sec.gov...

  • Page 35
    ...the consolidated financial position of the Company as of January 30, 2000, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule...

  • Page 36
    .... PricewaterhouseCoopers LLP Phoenix, Arizona February 26, 1999 F-3 PETsMART, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 30, 2000 January 31, 1999 (In thousands, except par value) Assets Cash and cash equivalents Receivables, net (Notes 1, 2 and 11) Merchandise inventories (Note 15...

  • Page 37
    ...Stockholders' Equity Accounts payable and bank overdraft $ 144,076 Accrued payroll and employee benefits 30,839 Accrued occupancy expenses 13,214 Accrued merger, business integration and restructuring costs (Note 5) 10,410 Other accrued expenses 27,272 Current maturities of capital lease obligations...

  • Page 38
    ... General and administrative expenses Loss on disposal of subsidiary (Note 4) Merger, business integration and restructuring costs (benefits) (Note 5) Operating income (loss) Interest income Interest expense (Note 10) Income (loss) before equity loss in PETsMART.com, income tax expense (benefit...

  • Page 39
    ...FEBRUARY 2, 1997 Tax benefit from exercise of stock options Issue of common stock for employee benefit plan and exercise of stock options Issue of common stock for acquisitions, including veterinary clinics Other comprehensive income, net of income tax: Foreign currency translation adjustments (Note...

  • Page 40
    ...Tax benefit from exercise of stock options Issue of common stock for employee benefit plan and exercise of stock options Amortization of deferred compensation Other comprehensive income, net of income tax: Foreign currency translation adjustments, net of reclassification adjustment (Note 1) Purchase...

  • Page 41
    ...FEBRUARY 2, 1997 Tax benefit from exercise of stock options Issue of common stock for employee benefit plan and exercise of stock options Issue of common stock for acquisitions, including veterinary clinics Other comprehensive income, net of income tax: Foreign currency translation adjustments (Note...

  • Page 42
    ...Tax benefit from exercise of stock options Issue of common stock for employee benefit plan and exercise of stock options Amortization of deferred compensation Other comprehensive income, net of income tax: Foreign currency translation adjustments, net of reclassification adjustment (Note 1) Purchase...

  • Page 43
    ... loss in PETsMART.com Tax benefit from exercise of stock options Deferred income taxes Changes in assets and liabilities: Receivables, net Merchandise inventories Prepaid expenses and other current assets Other assets Accounts payable and bank overdraft Accrued payroll and employee benefits Accrued...

  • Page 44
    ... Direct ("Direct"), is also a leading mail order catalog retailer of pet and animal products, and equine and riding supplies. Additionally, Direct provides product sourcing and fulfillment services for online sales made by PETsMART.com, Inc., a corporate joint venture formed with and operated...

  • Page 45
    ..., administrative and distribuF-8 PETSMART, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) tion costs remaining in inventory at January 30, 2000 and January 31, 1999 were $21,744,000 and $16,693,000, respectively. Vendor Rebates and Promotions The Company receives...

  • Page 46
    ... assets purchased that will be sold and leased back upon consummation of lease transactions as new stores open. The Company' s property and equipment is depreciated using the following estimated useful lives: Buildings Furniture, fixtures and equipment Leasehold improvements Computer software 39...

  • Page 47
    ... upon information provided by a broker dealer that makes a market in the Company' s senior subordinated notes. Store Preopening Costs Store preopening costs and internal costs incurred in selecting and developing sites for new stores are expensed as incurred. Income Taxes Income taxes are accounted...

  • Page 48
    ...) before cumulative effect of an accounting change Cumulative effect of change in accounting principle, net of tax Net income (loss) per common share - basic Effect of dilutive securities: Options Net income (loss) per common share - diluted Average Shares Per Share Amount $ (31,801) 114,920...

  • Page 49
    ... and $1,300,000 was included in general and administrative expenses in the accompanying consolidated statements of operations. In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98...

  • Page 50
    ...stock investment in PETsMART.com, a corporate joint venture which began operations in June 1999 and operates as an electronic commerce pet product retailer. During 1999, the Company contributed cash of approximately $29,061,000 in exchange for 8,287,135 shares of preferred stock. The preferred stock...

  • Page 51
    ... (Continued) fiscal 1999, the Company consummated a transfer of assets of PETsMART Veterinary Services, Inc. ("PVS"), a wholly-owned subsidiary of the Company, to MMI in exchange for an additional equity investment of 4,821,679 shares or $25,424,000 of non-voting preferred stock in MMI. Prior to the...

  • Page 52
    ... general and administrative expenses consisting primarily of a change in estimated self-insurance costs due to adverse loss developments in the Company' s worker' s compensation experience, expenses related to the preliminary stages of a consulting project for the new management information system...

  • Page 53
    ... balance remaining in the accrued merger, business integration and restructuring costs liability account as of January 30, 2000 consists of store lease termination costs of $5,600,000, equipment lease termination costs of $2,500,000, and other real estate and store closure costs of $2,310,000. Lease...

  • Page 54
    ..., net of federal tax benefit Foreign taxes Tax in excess of financial reporting loss on disposition of subsidiary, net of accrual adjustments Enacted change in foreign tax rate Corporate joint venture losses not deductible Change in valuation allowance Nondeductible acquisition costs Other $ (2,386...

  • Page 55
    ...deferred tax asset will not be realized. NOTE 7 - EMPLOYEE BENEFIT PLANS The Company has a defined contribution plan pursuant to Section 401(k) of the Internal Revenue Code ("the 401(k)"). The 401(k) covers substantially all associates that meet certain service requirements. The Company makes annual...

  • Page 56
    ... incurred Less: interest costs capitalized Interest expense $ 23,475 1,753 21,722 $ 13,984 63 13,921 $ $ NOTE 11 - LEASES The Company leases substantially all of its stores, distribution centers, corporate offices and certain equipment under noncancelable operating leases, expiring at various...

  • Page 57
    ...12,593 $ 63,951 The Company receives sublease rental income from MMI for the space in the Company' s retail stores occupied by veterinary services. Rentals are determined by fixed costs per square foot, adjusted for the number of days the clinics are open and sales volumes achieved. Sublease income...

  • Page 58
    ... District of Arizona, Phoenix Division by a putative class of investors in PETsMART, Inc. securities. The lawsuit alleged, among other things, that the Company and its officers and directors issued materially false financial statements about the Company' s flea and tick product inventory, financial...

  • Page 59
    ... scheduled to occur on May 3, 2000. NOTE 13 - STOCK INCENTIVE PLANS Employee Stock Purchase Plan The Company has an Employee Stock Purchase Plan under which essentially all employees with six or more months of service can purchase common stock on semi-annual offering dates at 85% of the fair market...

  • Page 60
    9/16/2010 www.sec.gov/Archives/edgar/data/86... officers), consultants or directors of the Company at fair market value at the date of grant. At January 30, 2000, stock options to purchase approximately 15,786,000 shares of common stock are outstanding with exercise prices ranging from $0.13 to $28...

  • Page 61
    ... all of the Company' s stock option plans is as follows: Shares (In thousands) 10,629 4,771 (1,145) (1,915) 12,340 4,318 (350) (3,152) 13,156 5,579 (222) (2,727) 15,786 Weighted Average Exercise Price per Share Outstanding, February 2, 1997 Granted Exercised Canceled Outstanding, February 1, 1998...

  • Page 62
    ...Company $25,000,000 annually to be used for the repurchase of the Company' s common stock and/or subordinated debt. NOTE 16 - FINANCIAL INFORMATION BY BUSINESS SEGMENT As of the end of fiscal 1999, the Company operates two reportable business segments. PETsMART North American operations, the largest...

  • Page 63
    ... U.K PETsMART Direct Loss on disposal of subsidiary Merger, business integration and restructuring (costs) benefits Operating income (loss) Interest income Interest expense Income (loss) before equity loss in PETsMART.com, income tax expense (benefit) and cumulative effect of a change in accounting...

  • Page 64
    ...Fourth Quarter (In thousands, except per share data) Fiscal Year Ended January 30, 2000 Net sales Gross profit Loss on disposal of subsidiary Operating income (loss) Equity loss in PETsMART.com Income (loss) before cumulative effect of a change in accounting principle Cumulative effect of a change...

  • Page 65
    ... average common and common equivalent shares outstanding - basic Weighted average common and common equivalent shares outstanding - diluted Fiscal Year Ended January 31, 1999 Net sales Gross profit Merger, business integration and restructuring benefits Operating income Net income (loss) Earnings...

  • Page 66
    ... expenses General and administrative expenses Loss on disposal of subsidiary Merger and business integration costs Operating income (loss) Interest income Interest expense Income (loss) before equity loss in PETsMART.com, income tax expense (benefit) and cumulative effect of a change in accounting...

  • Page 67
    ... by average square footage. (7) North American stores only, excludes UK and PETsMART Direct sales in all periods, and includes only superstores open at least 52 weeks. Fiscal 1995 has not been restated for the acquisitions of Petstuff and Pet Food Giant in 1995. Fiscal 1996 data has been adjusted to...

  • Page 68
    ... as of April 3, 1995 (the "Sporting Dog Agreement")(3) Form of First Amendment to the Sporting Dog Agreement, dated as of April 18, 1995(3) Agreement and Plan of Reorganization and Plan of Merger by and among PETsMART, Turnpike Acquisition Corp., and The Pet Food Giant, Inc., dated as of August 17...

  • Page 69
    ...(4) Form of Non-qualified Stock Option Grant under the Incentive Plan(4) PETsMART' s 1992 Non-Employee Director' s Stock Option Plan(1) PETsMART' s Employee Stock Purchase Plan(1) Exhibit Number 10.12* 10.17 Description of Document Employment Agreement between Giles Clarke, PETsMART and Pet City...

  • Page 70
    ... 10.17 to PETsMART' s Annual Report on Form 10-K (File No. 021888) filed on April 26, 1999. (13) Incorporated by reference to Exhibit 16.1 to PETsMART' s Current Report on Form 8-K (File No. 021888), filed on May 5, 1999, as amended by a Current Report on Form 8-K/A (File No. 0-21888), filed on May...