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10-K 1 petm-20140202x10k.htm 10-K
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
Form 10-K
_______________
(Mark One)
_ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended February 2, 2014
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 94-3024325
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)
19601 N. 27th Avenue 85027
Phoenix, Arizona
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(623) 580-6100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.0001 par value The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
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 _ No
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 No _
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 _ No
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Table of contents

  • Page 1
    ... Fiscal Year Ended February 2, 2014 or Â... 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...

  • Page 2
    ...2014.02.02 - 10K Page 2 of 117 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...definitive proxy or information statements incorporated by ...

  • Page 3
    ... the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes Â... No _ The aggregate market value of the common stock held by non-affiliates of the registrant, based on the closing sale price of the registrant's common stock on August 4, 2013, the last business day of the registrant...

  • Page 4
    ... About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Directors, Executive Officers, and Corporate Governance Executive Compensation Security Ownership...

  • Page 5
    ...in "Our Strategy" will develop moment-making products, services, and experiences that will attract and retain these pet parents as PetSmart customers. We opened 55 net new stores in 2013, which includes twelve microstores, and at the end of the year operated 1,333 stores in the United States, Puerto...

  • Page 6
    ... for under the equity method of accounting. MMI Holdings, Inc., through a wholly owned subsidiary, Medical Management International, Inc., collectively referred to as "Banfield," operated 837 of the veterinary hospitals under the registered trade name of "Banfield, The Pet Hospital." The remaining...

  • Page 7
    ... care, services (such as grooming and boarding) and live animal purchases. The APPA estimates that pet food and treats are the largest volume categories of pet-related products and in calendar year 2013, accounted for an estimated $21.3 billion in sales, or 38.4% of the market. Pet supplies...

  • Page 8
    PETM - 2014.02.02 - 10K Page 8 of 117 for our associates, and caring for our communities. Our new customer strategy is to develop moment-making products, services, and experiences for pet parents. We will focus on the following three initiatives: Connecting with all pet parents in an authentic and...

  • Page 9
    ...cross-selling opportunities, and allow us to forge strong relationships and build loyalty with our customers. Attracting and retaining our most valuable customers. Our most valuable customers buy channel-exclusive foods, use grooming services, and are new pet parents of dogs, cats, and fish. We plan...

  • Page 10
    ... 52.8% of our net sales in 2013, 2012, and 2011, respectively. Hardgoods. Hardgoods merchandise sales includes pet supplies and other goods. Our broad assortment of pet supplies, including exclusive and proprietary products, includes collars, leashes, health care supplies, grooming and beauty aids...

  • Page 11
    ... to pet care. Full-service veterinary hospitals in 844 of our stores offer routine examinations and vaccinations, dental care, a pharmacy, and surgical procedures. As of February 2, 2014, Banfield operated 837 of the veterinary 4 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040...

  • Page 12
    ... of customers, have the same distribution method, and include sales similar in nature; therefore, they have been aggregated into one reportable segment. Net sales in the United States and Puerto Rico were $6.5 billion, $6.4 billion, and $5.8 billion for 2013, 2012, and 2011, respectively. Net sales...

  • Page 13
    ..., our current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission, or "SEC." 5 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 14
    ... Vice President title, working in Supply Chain and Merchandising groups through December 2010. In January 2011, he was appointed Executive Vice President, Merchandising, Marketing, Supply Chain, and Strategic Planning. Prior to joining PetSmart, he was Chief Operating Officer for Interactive Health...

  • Page 15
    PETM - 2014.02.02 - 10K Page 15 of 117 John W. Alpaugh was appointed Senior Vice President and 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, ...

  • Page 16
    ... to his current role, he served as Vice President, Human Resources for the Store Support Group and Distribution Centers. Prior to joining PetSmart, he served eight years at Distribution Architects International, Inc. in various leadership roles, the last being Director of Human Resources. He...

  • Page 17
    PETM - 2014.02.02 - 10K Page 17 of 117 Thorn, currently Senior Vice President, Store Operations and Services, will serve as Executive Vice President, Store Operations, Services, and Supply Chain. David K. Lenhardt, currently our Chief Executive Officer, will assume the title of President and Chief...

  • Page 18
    ... into the pet food and pet supply market, some of which have developed store formats similar to ours. We may face greater competition from these or other retailers in the future, and changes in their merchandising and operational strategies could impact our sales and profitability. In particular...

  • Page 19
    ... costs and/or building material costs could also adversely affect our financial performance. Our leases are typically signed approximately nine months before a store opens. As a result, we may be unable to timely adjust our store opening schedule to new economic conditions or a change in strategy...

  • Page 20
    ...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. If our information systems fail to perform as designed...

  • Page 21
    ...natural pet food for dogs and cats comprise a significant portion of our net sales. Currently, most major vendors of natural pet food do not permit their products to be sold in supermarkets, warehouse clubs, or through other mass and retail merchandisers. If any natural pet food or pet supply vendor...

  • Page 22
    ...train, manage, and retain a strong management team and quality store and distribution center associates, including 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...

  • Page 23
    ... 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 that associates will not have the training and experience...

  • Page 24
    ... to fund our currently planned operations with existing capital resources, including cash flows from operations and the borrowing capacity under our revolving credit facility. If, however, we are unable to effectively manage our cash flows or generate and maintain positive operating cash flows and...

  • Page 25
    PETM - 2014.02.02 - 10K Page 25 of 117 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. 12 http://www.sec.gov/...

  • Page 26
    ... protection, advertising, employment, intellectual property, tort and other matters. We may also be subject to lawsuits relating to the design, manufacture or distribution of our proprietary brand products. We may incur losses relating to claims filed against us, including costs associated with...

  • Page 27
    ... - 2014.02.02 - 10K Page 27 of 117 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 forgo or limit our purchase of relevant commercial insurance...

  • Page 28
    ... operations, sales and financial results of a variety of factors including, but not limited to General economic changes; Actions taken by our competitors, including new product introductions and pricing changes; Changes in the strategy and capability of our competitors; Our ability to successfully...

  • Page 29
    ...the locations of our stores by country and state or territory as of February 2, 2014: Number of Stores Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota...

  • Page 30
    PETM - 2014.02.02 - 10K Page 30 of 117 Washington West Virginia Wisconsin United States and Puerto Rico Canada Total stores 25 3 15 1,247 86 1,333 15 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 31
    ... distribution centers and respective lease expirations as of February 2, 2014, were as follows: Location Square Footage (In thousands) Date Opened Distribution Type Lease Expiration Ennis, Texas Phoenix, Arizona Columbus, Ohio Gahanna, Ohio Hagerstown, Maryland Ottawa, Illinois Newnan, Georgia Reno...

  • Page 32
    ... which is currently pending before the United States District Court for the District of Delaware. The case seeks to assert a Fair Labor Standards Act collective action on behalf of PetSmart's operations managers nationwide. The complaint alleges that PetSmart has misclassified operations managers as...

  • Page 33
    ... case management conference currently scheduled for April 2014. On December 22, 2012, a customer filed a lawsuit against us captioned Matin, et al. v. Nestle Purina PetCare Company, et al. in the United States District Court for the Northern District of California. The plaintiff claims he purchased...

  • Page 34
    ... On March 19, 2014, the Board of Directors declared a quarterly cash dividend of $0.195 per share payable on May 16, 2014, to stockholders of record on May 2, 2014. Stockholders Our common stockholders on record as of March 13, 2014, were 2,658. Equity Compensation Plan Information http://www.sec...

  • Page 35
    ... respect to our Annual Meeting of Stockholders to be held on June 18, 2014, under the caption "Equity Compensation Plan Information" and is incorporated by reference in this Annual Report on Form 10-K. 18 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 36
    ... stock for each period in the thirteen weeks ended February 2, 2014: Total Number of Shares Purchased Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Value That May Yet be Purchased Under the Plans or Programs Period Average Price Paid per Share November 4, 2013...

  • Page 37
    ... stock or on January 31, 2009, in the indices. The comparison of the total cumulative return on investment includes reinvestment of dividends. Indices are calculated on a month-end basis. 2/1/2009 1/31/2010 1/30/2011 1/29/2012 2/3/2013 2/2/2014 PetSmart, Inc. S & P 500 S & P Specialty Stores...

  • Page 38
    PETM - 2014.02.02 - 10K Page 38 of 117 20 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 39
    ...for the Year Ended(1) February 2, 2014 (52 weeks) February 3, 2013 (53 weeks) January 29, 2012 (52 weeks) January 30, 2011 (52 weeks) January 31, 2010 (52 weeks) (In thousands, except per share amounts and operating data) Selected Income Statement Data: Net sales(2) Gross profit Operating, general...

  • Page 40
    PETM - 2014.02.02 - 10K Page 40 of 117 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 41
    ... by caregivers who are PetSmart trained to provide personalized pet care, temperature-controlled rooms and suites, daily specialty treats and play time, as well as day camp for dogs. As of February 2, 2014, we operated 199 PetsHotels. We make full-service veterinary care available through our...

  • Page 42
    ... - 2014.02.02 - 10K Page 42 of 117 exclusive brands and services. Additionally, we consider our cash flow from operations and cash on hand to 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...

  • Page 43
    ... 2013, and 7.2 million shares of our common stock for $456.6 million during 2012. We added 55 net new stores during 2013, and operated 1,333 stores at the end of the year. • • • • • • Critical Accounting Policies and Estimates The discussion and analysis of our financial condition...

  • Page 44
    ... - 2014.02.02 - 10K Page 44 of 117 based system that determines whether the inventory should be counted every 30, 90, 180, or 365 days. Stores generally perform physical inventories at least once per year, and count certain inventory items between physical inventories. For each reporting period...

  • Page 45
    ...2013, 2012, or 2011. 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...

  • Page 46
    PETM - 2014.02.02 - 10K Page 46 of 117 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. As of February 2, 2014, and ...

  • Page 47
    ... sales per transaction. We expanded the space dedicated to certain brands of natural foods, including our proprietary brand Simply Nourish. We also introduced new formulations in both dog and cat foods across our top channel-exclusive brands, which further expanded the grain-free and high protein...

  • Page 48
    ...117 Services sales, which include professional grooming and boarding, as well as training and day camp for dogs, increased 3.4%, or $25.5 million, to $766.0 million for 2013, compared to $740.5 million for 2012. Services sales represented 11.1% and 11.0% of net sales for 2013 and 2012, respectively...

  • Page 49
    ...grooming salon in 2013, such as new puppy bath packages and application of flea and tick solution. We also continued to develop our pipeline of innovative services and exclusive offerings that are integrated with our merchandise brands and supported by marketing. Other revenue included in net sales...

  • Page 50
    ... - 2014.02.02 - 10K Page 50 of 117 In hardgoods, we refreshed and rebranded the dog toy aisle with the PetSmart Toy Chest reset. We also reset the aquatics and small animal categories to support the growing trends, added hundreds of new items, improved the category adjacencies and flow, and added...

  • Page 51
    ... our offerings of exclusive and proprietary brands. Finally, we made more than twenty website enhancements in 2012 and launched our Canada site on PetSmart.com. Services sales, which include professional grooming and boarding, as well as training and day camp for dogs, increased 9.7%, or $65...

  • Page 52
    PETM - 2014.02.02 - 10K Page 52 of 117 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....

  • Page 53
    ...in trade accounts payable resulting from the extension of vendor payment terms. This was partially offset by incremental increases in merchant receivables, deferred income tax assets, and capital spending as compared to 2011. Share Purchase Programs In September 2013, the Board of Directors approved...

  • Page 54
    PETM - 2014.02.02 - 10K Page 54 of 117 thirteen weeks ended February 2, 2014. As of February 2, 2014, $417.9 million remained available under the $535.0 million program. 28 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 55
    ... dividend declared in the fourth quarter of 2012, which was paid in December of 2012, rather than in February of 2013. Operating Capital and Capital Expenditure Requirements All our stores are leased facilities. We opened 60 new stores and closed 5 stores in 2013. Generally, each new store requires...

  • Page 56
    PETM - 2014.02.02 - 10K Page 56 of 117 Insurance obligations (5) Total Less: Sublease income Net Total 33,919 $ 542,299 3,248 $ 539,051 - $ 929,488 5,719 $... - 86,025 102,117 $2,945,112 12,901 $2,932,211 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 57
    ... Other than executed operating leases, we do not have any off-balance sheet financing that has, or is reasonably likely to have, a material current or future impact on our financial condition, cash flows, results of operations, liquidity, capital expenditures, or capital resources. Related Party...

  • Page 58
    PETM - 2014.02.02 - 10K Page 58 of 117 We had no borrowings under our Revolving Credit Facility at February 2, 2014, and February 3, 2013. We had $14.3 million and $17.9 million in stand-by letter of credit issuances under our Revolving Credit Facility as of February 2, 2014, and February 3, 2013,...

  • Page 59
    ..., and $0.8 million for 2013, 2012, and 2011, respectively. We maintain a natural hedge through management of the cash accounts denominated in United States dollars held in Canada in an effort to reduce the impact of foreign currency exchange rate fluctuations. From time to time, we have entered into...

  • Page 60
    ... related to certain balance sheet accounts. We did not designate these Foreign Exchange Contracts as hedges, and accordingly, they were recorded at fair value using quoted prices for similar assets or liabilities in active markets. The changes in the fair value were recognized in operating...

  • Page 61
    ...," is recorded, processed, summarized, and reported within the time periods specified in the SEC's 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...

  • Page 62
    ... - 2014.02.02 - 10K Page 62 of 117 Table of Contents 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...

  • Page 63
    PETM - 2014.02.02 - 10K Page 63 of 117 33 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 64
    ...," "Executive Compensation," "Stock Award Grants, Exercises, and Plans," "Employment and Severance Arrangements," "Director Compensation," "Compensation Committee Interlocks and Insider Participation," and " Compensation Committee Report" in our 2014 Proxy Statement. Item 12. Security Ownership...

  • Page 65
    PETM - 2014.02.02 - 10K Page 65 of 117 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules (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 ...

  • Page 66
    ... 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 27, 2014. PetSmart, Inc. By: /s/ David K. Lenhardt David K. Lenhardt Chief Executive Officer 36 http://www.sec.gov/Archives/edgar/data...

  • Page 67
    ... W. TEFFNER Carrie W. Teffner Title Director and Chief Executive Officer (Principal Executive Officer) Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Chairman Date March 27, 2014 March 27, 2014 /s/ GREGORY P. JOSEFOWICZ Gregory...

  • Page 68
    PETM - 2014.02.02 - 10K Page 68 of 117 37 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 69
    ... Statements and Financial Statement Schedule Page Number Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of February 2, 2014, and February 3, 2013 Consolidated Statements of Income and Comprehensive Income for the years ended February 2, 2014, February 3, 2013...

  • Page 70
    ... 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 February 2, 2014 and February 3, 2013, and the related consolidated statements...

  • Page 71
    ... PetSmart, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except par value) February 2, 2014 February 3, 2013 ASSETS Cash and cash equivalents Short-term investments Restricted cash Receivables, net Merchandise inventories Deferred income taxes Prepaid expenses and other current...

  • Page 72
    PETM - 2014.02.02 - 10K Page 72 of 117 F-3 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 73
    ... Contents PetSmart, Inc. and Subsidiaries Consolidated Statements of Income and Comprehensive Income (In thousands, except per share data) Year Ended February 2, 2014 (52 weeks) February 3, 2013 (53 weeks) January 29, 2012 (52 weeks) Merchandise sales Services sales Other revenue Net sales Cost of...

  • Page 74
    ... PetSmart, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (In thousands, except per share data) Shares Common Stock BALANCE AT JANUARY 30, 2011 Net Income Issuance of common stock under stock incentive plans Stock-based compensation expense Excess tax benefits from stock...

  • Page 75
    ... Loss on disposal of property and equipment Stock-based compensation expense Deferred income taxes Equity income from Banfield Dividend received from Banfield Excess tax benefits from stock-based compensation Non-cash interest expense Changes in assets and liabilities: Merchandise inventories...

  • Page 76
    ... - 2014.02.02 - 10K Page 76 of 117 $ 285,622 $ 335,155 $ 342,892 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid Income taxes paid, net of refunds Assets acquired using capital lease obligations Accruals and accounts payable for capital expenditures Treasury stock purchased...

  • Page 77
    ... as training and day camp for dogs. We also offer pet products through PetSmart.com. As of February 2, 2014, we operated 1,333 stores and had full-service veterinary hospitals in 844 of our stores. We have a 21.0% investment in MMI Holdings, Inc., which is accounted for under the equity method of...

  • Page 78
    ...2014.02.02 - 10K Page 78 of 117 or liabilities in active markets. The changes in the fair value were recognized in operating, general, and administrative expenses in the Consolidated Statements of Income and Comprehensive Income. We did not enter into Foreign Exchange Contracts during 2013 or 2012...

  • Page 79
    ...in the Consolidated Balance Sheets were not material as of February 2, 2014, and February 3, 2013. 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...

  • Page 80
    ... equipment are recorded at cost less accumulated depreciation and amortization. Depreciation is provided on buildings, furniture, fixtures, equipment, and computer software using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements and capital lease...

  • Page 81
    ...2013, 2012, or 2011. 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...

  • Page 82
    PETM - 2014.02.02 - 10K Page 82 of 117 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 ...

  • Page 83
    ... current liabilities in the Consolidated Balance Sheets. We recognize revenue for store merchandise sales when the customer receives and pays for the merchandise at the register. We recognize revenue from professional grooming, boarding, and dog training when the services are performed. Internet...

  • Page 84
    ... of operating, general, and administrative expenses. We record allowances for estimated returns based on historical return patterns. These allowances were not material during 2013, 2012, and 2011. F-10 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 85
    ... improvements and capitalized lease assets; and • Reductions for promotions and discounts, as well as vendor funding for temporary price reductions. Cost of Services Sales Cost of services sales primarily relates to payroll and benefit expenses related to PetSmart-employed groomers, trainers, and...

  • Page 86
    ...- 2014.02.02 - 10K Page 86 of 117 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...

  • Page 87
    ... Balance Sheet as of February 3, 2013. The adoption of the new guidance did not have a material impact on our consolidated financial statements. Note 3 - Income Taxes Income before income tax expense and equity income from Banfield was as follows (in thousands): Year Ended February 2, 2014 (52 weeks...

  • Page 88
    PETM - 2014.02.02 - 10K Page 88 of 117 Federal State Income tax expense F-12 $ (8,440) (3,533) (11,973) 239,444 $ (19,687) (1,322) (21,009) 223,329 $ 574 (4,276) (3,702) 166,960 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 89
    ...of the net deferred income tax assets (liabilities) included in the Consolidated Balance Sheets are as follows (in thousands): February 2, 2014 February 3, 2013 Deferred income tax assets: Capital lease obligations Employee benefit expense Deferred rents Net operating loss carryforwards Other Total...

  • Page 90
    ... Year Ended February 2, 2014 (52 weeks) February 3, 2013 (53 weeks) January 29, 2012 (52 weeks) Unrecognized tax benefits, beginning balance Gross increases - tax positions related to the current year Gross increases - tax positions in prior periods Gross decreases - tax positions in prior periods...

  • Page 91
    ...2,571 240 The aggregate fair value of our investments in NCDs was $12.8 million and $2.8 million at February 2, 2014, and February 3, 2013, respectively. The fair value is determined using pricing models which use inputs based on observable market data (Level F-14 http://www.sec.gov/Archives/edgar...

  • Page 92
    ... 2, 2014, and February 3, 2013, respectively, and were included in receivables, net in the Consolidated Balance Sheets. Our master operating agreement with Banfield also includes a provision for the sharing of profits on the sale of therapeutic pet foods sold in all stores with an operating Banfield...

  • Page 93
    ...726 3,466 5,260 $ 3,946 $ 8,726 Year Ended February 2, 2014 (52 weeks) February 3, 2013 (53 weeks) January 29, 2012 (52 weeks) Opening balance Provision for new store closures Lease terminations Changes in sublease assumptions Other charges Payments Ending balance $ 8,726 $ 1,171 (236) (197...

  • Page 94
    PETM - 2014.02.02 - 10K Page 94 of 117 Income. We can make no assurances that additional charges related to closed stores will not be required based on the changing real estate environment. F-16 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 95
    ... a reconciliation of the weighted average shares outstanding used in the earnings per common share calculations (in thousands): Year Ended February 2, 2014 (52 weeks) February 3, 2013 (53 weeks) January 29, 2012 (52 weeks) Basic Dilutive stock-based compensation awards Diluted 103,203 1,113 104...

  • Page 96
    ... cash dividend of $0.195 per share payable on May 16, 2014, to stockholders of record on May 2, 2014. 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...

  • Page 97
    ... in our restricted stock awards and restricted stock units plan were as follows (in thousands, except per share data): Year Ended February 2, 2014 (52 weeks) Weighted-Average Grant Date Fair Value February 3, 2013 (53 weeks) Weighted-Average Grant Date Fair Value January 29, 2012 (52 weeks) Weighted...

  • Page 98
    PETM - 2014.02.02 - 10K Page 98 of 117 Vested Forfeited Nonvested at end of year (26) (44) 386 $57.44 $60.06 $60.08 (604) (25) 220 $20.10 $50.87 $57.52 (543) (57) 612 $31.35 $19.89 $20.20 F-19 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 99
    ... Consolidated Financial Statements - (Continued) The total fair value of restricted stock which vested during 2013, 2012, and 2011 was $1.7 million, $35.7 million, and $22.7 million, respectively. Performance Share Units The 2009 Performance Share Unit Program, approved by the Board of Directors in...

  • Page 100
    PETM - 2014.02.02 - 10K Page 100 of 117 F-20 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 101
    ...): Year Ended February 2, 2014 (52 weeks) February 3, 2013 (53 weeks) January 29, 2012 (52 weeks) Stock options expense Restricted stock expense Performance share unit expense Stock-based compensation expense - equity awards Management equity unit expense Total stock-based compensation expense Tax...

  • Page 102
    PETM - 2014.02.02 - 10K Page 102 of 117 Table of Contents PetSmart, Inc. and Subsidiaries Notes to the Consolidated Financial Statements - (Continued) The following assumptions were used to value stock option grants: Year Ended February 2, 2014 February 3, 2013 January 29, 2012 Dividend yield ...

  • Page 103
    ...- 2014.02.02 - 10K Page 103 of 117 face amount of the letters of credit outstanding during the preceding month. In addition, we are required to maintain a cash deposit with the lender equal to 103% of the amount of outstanding letters of credit. F-22 http://www.sec.gov/Archives/edgar/data/863157...

  • Page 104
    ...-alone Letter of Credit Facility are secured by substantially all our financial assets. Operating and Capital Leases We lease 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...

  • Page 105
    PETM - 2014.02.02 - 10K Page 105 of 117 2017 2018 Thereafter $ F-23 1,542 1,025 1,367 12,901 http://www.sec.gov/Archives/edgar/data/863157/000086315714000040/petm-20140202x1...8/21/2015

  • Page 106
    ...all current and former operations managers employed by PetSmart at any time in the preceding three-year period. Notices were sent to potential class members in February 2014, and the Court has established a 60-day period within which recipients may consent to join the lawsuit. Also in September 2012...

  • Page 107
    PETM - 2014.02.02 - 10K Page 107 of 117 other relief, including attorneys' fees, costs, and injunctive relief. On June 14, 2013, we removed the case to the United States District Court for the Eastern District of California and subsequently filed a motion to transfer the case to the United States ...

  • Page 108
    ... 20, 2013, a former groomer in California filed a complaint in the Superior Court of California for the County of Orange captioned Pace v. PetSmart, Inc. PetSmart removed the case to the United States District Court for the Central District of California. The plaintiff seeks to certify a class of...

  • Page 109
    ... financial information for 2013 and 2012 is as follows: Year Ended February 2, 2014 First Quarter (13 weeks) Second Quarter (13 weeks) Third Quarter (13 weeks) Fourth Quarter (13 weeks) (In thousands, except per share data) Merchandise sales Services sales Other revenue Net sales Gross profit...

  • Page 110
    PETM - 2014.02.02 - 10K Page 110 of 117 (1) The estimated impact of the additional week in the fourth quarter of 2012 was: net sales, $126.0 million; gross profit, $48.3 million; operating income, $29.9 million; income before income tax expense and equity income from Banfield, $29.9 million; net ...

  • Page 111
    ... 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 February 2, 2014 and February 3, 2013, and for each of the three years in the period...

  • Page 112
    ... Description (In thousands) Valuation reserves deducted in the Consolidated Balance Sheets from the assets to which they apply: Merchandise inventories: Lower of cost or market 2011 2012 2013 Shrink 2011 2012 2013 3,190 2,885 2,000 $ $ $ 30,617 $ (30,922) $ 30,127 $ (31,012) $ 28,374 $ (28,368...

  • Page 113
    ... Statement 10-Q 0-21888 0-21888 10.4 Appendix A 4/18/2003 5/2/2012 10.6†Non-Qualified 2005 Deferred Compensation Plan, as amended Executive Short-Term Incentive Plan, as amended and restated Amended and Restated Employment Agreement, between PetSmart and Robert F. Moran Form of Performance...

  • Page 114
    PETM - 2014.02.02 - 10K Page 114 of 117 Form of Offer Letter between PetSmart and executive officers 10.11†Amended and Restated Executive Change in Control and Severance Benefit Plan Forms of Stock Award Grant Agreements for the 2003 Equity Incentive Plan and 1997 Equity Incentive Plan Forms of...

  • Page 115
    ... lender, and Wells Fargo Capital Finance, LLC, as Sole Lead Arranger and Sole Bookrunner. Letter of Credit Agreement, dated as of March 23, 2012, among the Company and Wells Fargo Bank, N.A., as L/C Issuer. 2011 Performance Share Unit Program 2011 Equity Incentive Plan 8-K 0-21888 10.19 2/7/2005...

  • Page 116
    ... 10K Page 116 of 117 10.32†Form of Nonstatutory Stock Option Grant Notice under 2011 Equity Incentive Plan (amended March 18, 2014) Form of Performance Share Unit Grant Notice under 2011 Equity Incentive Plan (amended March 18, 2014) Form of Restricted Stock Unit Grant Notice under 2011 Equity...

  • Page 117
    ... Public Accounting Firm Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended Certification of Chief Executive...