<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:
OCTOBER 27, 1996
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 (I.R.S. Employer
incorporation or organization) Identification No.)
10000 N. 31ST AVENUE, SUITE C-100
PHOENIX, ARIZONA 85051
(Address of principal executive offices, including Zip Code)
(602) 944-7070
(Registrants telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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.
(1) Yes (X) No ( )
(2) Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date:
Common Stock, $0.0001 Par Value 105,809,295 Shares outstanding at
November 29, 1996
1
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PETsMART, INC.
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at
October 27, 1996 and January 28, 1996 3
Consolidated Statements of Operations
for the thirteen and thirty-nine weeks ended
October 27, 1996 and October 29, 1995 4
Consolidated Statements of Cash Flows
for the thirty-nine weeks ended
October 27, 1996 and October 29, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
Part II. Other Information
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit Index 23
2
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PETsMART, INC. AND SUBSIDIARIES
______________________________________________________________________________
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
October 27, January 28,
ASSETS 1996 1996
------------- -------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 46,525 $ 74,540
Receivables 47,819 31,236
Merchandise inventories 261,175 201,574
Prepaid expenses and other current assets 21,630 11,898
------------- -------------
Total current assets 377,149 319,248
Property held for sale and leaseback 3,465 10,126
Property and equipment, net 178,878 163,067
Other assets 47,227 36,250
------------- -------------
Total assets $606,719 $528,691
------------- -------------
------------- -------------
LIABILITIES, PREFERRED STOCK, COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
Notes payable to bank $ 28,560 $ 22,248
Accounts payable 130,208 110,678
Accrued payroll and employee benefits 12,637 15,321
Accrued occupancy expense 7,747 7,546
Accrued merger and nonrecurring charges 11,172 3,962
Other accrued expenses 19,448 21,084
Current maturities of capital leases 8,442 8,953
------------- -------------
Total current liabilities 218,214 189,792
Capital lease obligations 59,468 56,143
Deferred rents 12,119 11,316
Other liabilities 106 1,227
------------- -------------
Total liabilities 289,907 258,478
------------- -------------
Preferred stock, common stock and other stockholders' equity:
Preferred stock (Note 7) -- 6,510
Common stock; $.0001 par value; 250,000 shares authorized,
105,196 and 101,950 shares issued and outstanding 10 5
Additional paid-in capital 328,578 290,289
Cumulative foreign currency translation adjustments (215) (42)
Accumulated deficit (11,561) (26,549)
------------- -------------
Total preferred stock, common stock and
other stockholders' equity 316,812 270,213
------------- -------------
Total liabilities, preferred stock, common stock
and other stockholders' equity $606,719 $528,691
------------- -------------
------------- -------------
The accompanying notes are an integral part of these unaudited financial statements.
</TABLE>
3
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PETsMART, INC. AND SUBSIDIARIES
______________________________________________________________________________
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the 13 weeks ended For the 39 weeks ended
October 27, October 29, October 27, October 29,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $339,930 $265,481 $972,002 $776,072
Cost of sales 247,767 198,011 703,196 581,615
-------- -------- -------- --------
Gross profit 92,163 67,470 268,806 194,457
Store operating expenses 60,430 49,986 182,871 147,697
Store preopening expenses 1,267 912 5,518 2,890
General and administrative
expense 9,896 7,203 28,650 24,731
Merger and nonrecurring costs -- 6,400 20,364 47,129
-------- -------- -------- --------
Operating income (loss) 20,570 2,969 31,403 (27,990)
Interest income -- 500 187 1,331
Interest expense (2,576) (2,290) (6,747) (6,080)
-------- -------- -------- --------
Income (loss) before income
taxes 17,994 1,179 24,843 (32,739)
Income tax expense (benefit) 6,837 1,070 9,863 (13,649)
-------- -------- -------- --------
Net income (loss) 11,157 109 14,980 (19,090)
Accretion of redeemable preferred
stock -- (369) -- (1,365)
-------- -------- -------- --------
Net income (loss) applicable to
holders of common stock $11,157 $ (260) $14,980 $(20,455)
-------- -------- -------- --------
-------- -------- -------- --------
Income (loss) per common share
and common share equivalent $ 0.10 $ (0.00) $ 0.14 $ (0.20)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of
common and common equivalent
shares outstanding 110,852 105,842 109,688 102,543
-------- -------- -------- --------
-------- -------- -------- --------
The accompanying notes are an integral part of these unaudited financial statements.
</TABLE>
4
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PETsMART, INC. AND SUBSIDIARIES
______________________________________________________________________________
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the 39 weeks ended
October 27, October 29,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss) $14,980 $(19,090)
Adjustments to reconcile net income (loss) to net cash
from (used in) operating activities:
Depreciation and amortization 19,649 16,736
Loss on disposal of assets 250 9,155
Changes in assets and liabilities:
Receivables (16,582) (6,980)
Merchandise inventories (59,602) (19,719)
Prepaid expenses and other current assets (9,732) (2,814)
Other assets (539) (18,792)
Accounts payable 19,530 46,435
Accrued payroll and employee benefits (2,684) 662
Accrued occupancy expense 201 (3,481)
Accrued merger and nonrecurring charges 7,455 8,563
Other accrued expenses (1,636) (3,836)
Deferred rents 803 1,751
Other liabilities (1,121) (1,367)
-------- -------
Net cash from (used in) operating activities (29,028) 7,223
-------- -------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of leaseholds, fixtures and equipment (25,055) (18,974)
Purchases of property held for sale and leaseback (18,527) (14,660)
Proceeds from investment sales -- 3,999
Proceeds from sale of property held for sale and leaseback 25,277 7,083
-------- -------
Net cash from (used in) investing activities (18,305) (22,552)
-------- -------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 12,472 6,397
Borrowings from bank credit facility 110,400 27,558
Payments on bank credit facility (104,088) (15,644)
Tax benefit of exercise of stock options 8,171 1,752
Payment on capital lease obligations (7,464) (12,068)
-------- -------
Net cash from (used in) financing activities 19,491 7,995
-------- -------
FOREIGN CURRENCY TRANSLATION GAINS (LOSSES) (173) 168
-------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28,015) (7,166)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 74,540 84,746
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $46,525 $77,580
-------- -------
-------- -------
The accompanying notes are an integral part of these unaudited financial statements.
</TABLE>
5
<PAGE>
PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS AND THIRTY-NINE WEEKS ENDED OCTOBER 27, 1996 AND OCTOBER 29, 1995
________________________________________________________________________________
NOTE 1 - GENERAL
- ----------------
The accompanying unaudited consolidated financial statements of PETsMART,
Inc. and Subsidiaries ("PETsMART" or "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Because of the seasonal nature of the Company's business, the results of
operations for the thirteen weeks and thirty-nine weeks ended October 27,
1996 and October 29, 1995 are not necessarily indicative of the results to
be expected for the full year. For further information, refer to the
financial statements and footnotes thereto for the fiscal year ended January
28, 1996, included in the Company's Annual Report on Form 10-K (File No.
0-21888) filed with the Securities and Exchange Commission on April 12, 1996.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
- ------------------------------------
The accompanying consolidated financial statements include the accounts of
PETsMART and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Financial data for all periods presented reflect the retroactive effects of
the May 1995 merger with Sporting Dog Specialties Inc., ("Sporting Dog"),
the June 1995 merger with Petstuff Inc., ("Petstuff"), the September 1995
merger with The Pet Food Giant, Inc. ("Pet Food Giant"), and the January
1996 merger with State Line Tack, Inc. ("State Line Tack"), all of which
have been accounted for as poolings of interest. The consolidated financial
statements have been prepared by combining the historical financial
statements of PETsMART, Sporting Dog, Petstuff, Pet Food Giant and State
Line Tack.
NOTE 3 - ACCOUNTING CHANGE
- --------------------------
During the quarter ended April 30, 1995, PETsMART adopted Accounting
Standards Executive Committee Statement of Position 93-7, "Reporting on
Advertising Costs" ("SOP 93-7"). Under SOP 93-7 the Company is required to
expense advertising costs for other than direct-response advertising either
as incurred or the first time the advertising takes place. As a result of
the adoption of SOP 93-7, the Company charged to operations during the
quarter ended April 30, 1995 previously deferred advertising costs of
approximately $450,000.
NOTE 4 - STOCK SPLITS
- ---------------------
On July 19, 1996, the Company effected a 2-for-1 split of its common stock
in the form of a stock dividend to stockholders of record on July 8, 1996.
On May 1, 1995, the Company effected a 3-for-2 split of its common stock in
the form of a stock dividend to stockholders of record on April 17, 1995.
All share and per share data has been restated to reflect the stock splits
effected in the form of these stock dividends.
6
<PAGE>
PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS AND THIRTY-NINE WEEKS ENDED OCTOBER 27, 1996 AND OCTOBER 29, 1995
________________________________________________________________________________
NOTE 5 - 1995 ACQUISITIONS
- --------------------------
SPORTING DOG SPECIALTIES, INC.
On May 16, 1995 the Company acquired all of the outstanding equity
securities of Sporting Dog Specialties, Inc. and its affiliates ("Sporting
Dog") for an aggregate consideration of 3,750,000 shares of PETsMART Common
Stock. Sporting Dog, a Rochester, New York based company, is the leading
world-wide catalog retailer of pet and animal supplies and accessories. The
transaction was accounted for by the pooling of interests method; therefore,
prior financial statements have been restated to reflect this merger.
As a result of the acquisition, the Company recorded merger and related
non-recurring charges of $1.8 million in its fiscal quarter ended July 30,
1995. This one-time charge included legal and accounting fees, a provision
for closure of inadequate facilities and other costs of consolidation.
PETSTUFF, INC.
On June 1, 1995, the Company acquired all of the outstanding equity
securities of Petstuff, Inc. ("Petstuff") for an aggregate consideration of
8,032,178 shares of PETsMART Common Stock, plus an additional 317,538 shares
of PETsMART Common Stock reserved for issuance upon exercise of Petstuff
Stock options assumed in the merger. Petstuff was an Atlanta, Georgia based
operator of pet food and supply superstores in the Eastern United States and
Canada. The transaction was accounted for by the pooling of interests
method; therefore, prior financial statements have been restated to reflect
this merger.
As a result of the acquisition, the Company recorded merger and related
non-recurring charges of $38.9 million in its fiscal quarter ended July 30,
1995. This one-time charge included investment banking, legal and accounting
fees, costs associated with reformatting, refixturing and remerchandising
the acquired superstores to the format consistent with that of a PETsMART
superstore, a provision for the closure of redundant and non-productive
superstores and other costs of integration.
During the second fiscal quarter ended July 28, 1996, the Company recorded
an additional $12.3 million charge ($7.6 million after its related tax
benefit or $0.07 per share) principally as a result of a change in its
accounting estimate of the lease termination costs anticipated to be
incurred in connection with the settlement of lease obligations for the 17
former Petstuff stores closed by the Company immediately following the
merger with Petstuff, along with seven lease commitments for future Petstuff
locations that were either duplicate or inadequate facilities, and
therefore, were not opened. The Company believes lease settlement costs
associated with the closed stores, and the leases related to unopened
locations, will require $10.8 million of such additional expenditures. The
remaining $1.5 million of the additional charge was primarily related to
Petstuff store conversion costs.
THE PET FOOD GIANT, INC.
On September 18, 1995, the Company acquired all of the outstanding equity
securities of Pet Food Giant for an aggregate consideration of 1,879,342
shares of PETsMART Common Stock, plus 94,032 shares of PETsMART Common Stock
reserved for issuance upon exercise of Pet Food Giant stock options assumed
in the merger. Pet Food Giant, based in New Jersey, is an operator of pet
food and supply superstores in the New Jersey, Long Island and Philadelphia
metropolitan areas. The transaction was accounted for by the pooling of
interests method; therefore, prior financial statements have been restated
to reflect this merger.
7
<PAGE>
PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS AND THIRTY-NINE WEEKS ENDED OCTOBER 27, 1996 AND OCTOBER 29, 1995
________________________________________________________________________________
As a result of the acquisition, the Company recorded a merger and related
non-recurring charge during its fiscal quarter ended October 29, 1995 of
$6.4 million. This one-time charge included investment banking, legal and
miscellaneous transaction costs, costs associated with the consolidation of
the companies' operations, and termination benefits to be paid to key
employees of Pet Food Giant.
NOTE 6 - 1996 ACQUISITION
- -------------------------
STATE LINE TACK, INC.
On January 30, 1996, the Company acquired State Line Tack, a New Hampshire
based catalog retailer specializing in discount brand name tack, riding
apparel, and equine supplies, by issuing 1,200,000 shares, including
approximately 76,000 shares reserved for State Line Tack stock options
assumed in the merger, of the Company's Common Stock in exchange for all of
the outstanding equity interests of State Line Tack. The transaction was
accounted for by the pooling of interests method; therefore, prior financial
statements have been restated to reflect this merger.
As a result of the acquisition, the Company recorded a merger and related
non-recurring charge during its quarter ended April 28, 1996 of $8.1
million. This one-time charge included investment banking, legal and
miscellaneous transaction costs ($1.4 million), costs associated with the
consolidation of the companies' operations ($6.7 million), including
provision for the closure of inadequate and duplicative facilities and
systems, severance and employee relocation costs, cancellation of certain
contractual obligations and other costs.
Net sales and net income (loss) applicable to holders of common stock for
PETsMART and State Line Tack for the thirteen week and thirty-nine week
periods ended October 29, 1995 were as follows (in thousands):
Thirteen Weeks Ended: PETsMART State Line Tack Combined
--------------------- -------- --------------- --------
Net sales $251,709 $13,772 $265,481
Net income (loss) applicable
to holders of common stock (1) $578 $(838) $(260)
Thirty-Nine Weeks Ended:
------------------------
Net sales $738,505 $37,567 $776,072
Net income (loss) applicable
to holders of common stock (2) $(18,747) $(1,708) $(20,455)
_________________________
(1) Includes accretion of redeemable convertible preferred stock of
PETsMART of $152,000 and accretion of preferred stock to liquidation
value of State Line Tack of $217,000, respectively.
(2) Includes accretion of redeemable convertible preferred stock of
PETsMART of $714,000 and accretion of preferred stock to liquidation
value of State Line Tack of $651,000, respectively.
8
<PAGE>
PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS AND THIRTY-NINE WEEKS ENDED OCTOBER 27, 1996 AND OCTOBER 29, 1995
________________________________________________________________________________
NOTE 7 - PREFERRED STOCK
- ------------------------
REDEEMABLE PREFERRED STOCK
At December 31, 1995, 3,099,172 shares of State Line Tack Series A Preferred
Stock and 375,000 shares of State Line Tack Series B Preferred Stock were
issued and outstanding. The Series A Preferred Stock was subject to a 15%
cumulative dividend and had a liquidation preference of $0.91963 per share
and the Series B Preferred Stock was subject to a 8.55% cumulative dividend
and had a liquidation preference of $2 per share. All series of preferred
stock were redeemable at the discretion of the State Line Tack Board of
Directors. The Series A and Series B Preferred Stock were being accreted to
their liquidation value through charges to retained earnings. The carrying
value of the Series A and Series B Preferred Stock at January 28, 1996 was
$6.51 million.
In connection with the merger with the Company (see Note 6), all shares of
State Line Tack Series A and Series B Preferred Stock were included in the
conversion into PETsMART equivalent common shares.
NOTE 8 - PET CITY HOLDINGS PLC MERGER
- -------------------------------------
On October 25, 1996, the Company announced that it had entered into an
agreement involving a scheme of arrangement under the laws of the United
Kingdom whereby the Company will acquire all of the outstanding equity
securities of Pet City Holdings plc. At the closing of the transaction,
anticipated to be in December 1996, 0.3214 of a share of PETsMART Common
Stock will be issued for each outstanding ordinary share of Pet City
Holdings plc. The transaction is intended to qualify as a tax-free
reorganization and is intended to be accounted for as a pooling of
interests. In a Special Meeting of Shareholders of Pet City Holdings plc
held on November 22, 1996, the transaction was approved by more than 75 % of
the eligible ordinary shareholders. The transaction is subject to, among
other things, approval by the High Court of Justice of England and Wales.
Pet City Holdings plc is the largest pet industry specialty retailer in the
United Kingdom, and is currently operating 53 stores. Pet City Holdings plc
audited financial results for its fiscal year ended July 27, 1996, reflect
sales of L54.5 million and a loss of L982,000 or 4.5p per share.
PETsMART is currently evaluating the effect on operations of the merger and
there can be no assurance that the combined company will be able to operate
profitably or that there will not be material adverse effects due to the
integration efforts and the Company's limited operating experience outside
of the United States. The Company expects to incur a merger and nonrecurring
charge related to the Pet City Holdings merger in its fourth fiscal quarter
ending February 2, 1997, currently estimated to be in the range of $20.0
million to $35.0 million, before taxes, to reflect the combination of the
two companies, including transaction costs of $5.0 million to $7.0 million,
store conversion expenses of $13.0 million to $24.0 million, and other costs
of integration of $2.0 million to $4.0 million. These amounts are
preliminary estimates and, therefore, are subject to change. The Company
does not expect the results of the Pet City Holdings merger to be dilutive
to fiscal 1997 operating results.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's 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 PURCHASING AND DISTRIBUTION,
COMPETITION, and RISK FACTORS in the Company's Form 10-K for the year ended
January 28, 1996, and the RISK FACTORS section contained in the Company's
Registration Statement on Form S-3 (Commission File No. 333-12019) filed
with the Commission on September 13, 1996.
GENERAL
At October 27, 1996, PETsMART operated 311 superstores in 34 states. Net
sales grew 28.0% for the thirteen weeks ended October 27, 1996, compared to
the same period of 1995, due principally to the opening of new superstores
and comparable store sales increases of 12.5%. The Company believes that
comparable store sales increases have been largely due to increased customer
traffic and to improvements in its merchandising and marketing activities.
In view of the increasing maturity of its superstore base, as well as the
opening of additional superstores in existing markets, the Company
anticipates that its rate of comparable store sales growth may be lower in
future periods than previously reported. The Company also expects that
future increases in net sales and net income, if any, will be somewhat
dependent on the opening and profitability of new superstores. There can be
no assurance that the Company will be able to achieve its planned expansion
on a timely and profitable basis or that the combined operations and recent
mergers with Petstuff, Sporting Dog Specialties, Pet Food Giant and State
Line Tack will be successful or that there will be no material adverse
effects from the efforts to integrate Petstuff, Sporting Dog, Pet Food Giant
and State Line Tack on the financial results of the Company.
As a result of its expansion plans, the Company anticipates certain costs,
such as preopening expenses and occupancy, may increase as a percentage of
sales in the near term. In addition, the timing of new superstore openings
and related preopening expenses and the amount of revenue contributed by new
and existing superstores may cause the Company's quarterly results of
operations to fluctuate. Since new superstores have higher payroll,
advertising and other store level expenses as a percentage of sales than
mature superstores, the level of recent new superstore openings will also
contribute to lower store operating margins. The Company anticipates opening
at least 10 stores during the fourth quarter of fiscal 1996, including eight
stores in Canada, and 25 to 30 stores in the first fiscal quarter of fiscal
1997. In addition, the Company charges preopening costs associated with each
new superstore to earnings when the superstore is opened. Therefore, the
Company expects that the opening of large numbers of new superstores in a
given quarter will adversely impact its quarterly results of operations for
that quarter. The Company expects
10
<PAGE>
preopening costs for its Canadian stores opening in the fourth quarter 1996
to exceed its historical average on a per-store basis due to the extended
training and store set-up costs expected to be incurred.
The Company's business also is subject to some seasonal fluctuation.
Historically, the Company has realized a higher portion of its net
sales during the month of December and a lower portion of its net
sales during the summer months. PETsMART's superstores typically draw
from a large retail area and can therefore be impacted by adverse
weather and travel conditions.
In May 1995, PETsMART acquired Sporting Dog Specialties, Inc. and
affiliates (Sporting Dog), a catalog retailer of pet and animal
supplies and accessories. Although the results of Sporting Dog were
not dilutive on PETsMART's fiscal 1995 operating results, there can be
no assurance that Sporting Dog can maintain its profitability.
In June 1995, PETsMART acquired 52 superstores in the Eastern United
States and four superstores in Canada from Petstuff, Inc. (Petstuff).
During the second quarter 1995, 15 of the redundant and non-productive
superstores, including all of the Canadian stores, were closed. As of
October 27, 1996, a total of 17 redundant or nonproductive former
Petstuff superstores had been closed. The Company has completed the
integration of the remaining Petstuff superstores, including changing
the merchandise mix and operating and marketing philosophies. The
Petstuff acquisition was dilutive to fiscal 1995 operating results,
but PETsMART expects the acquisition to contribute to earnings in
fiscal 1996; however, there can be no assurance these superstores can
achieve their anticipated profitability.
In September 1995, PETsMART acquired The Pet Food Giant, Inc. (Pet
Food Giant), an operator of 10 pet food and supply superstores in the
New Jersey, Long Island and Philadelphia metropolitan areas. As of
October 27, 1996, one redundant superstore had been closed. The
Company has completed the process of integrating the Pet Food Giant
stores into the PETsMART format, including changing the merchandise
mix and operating and marketing philosophies. Although PETsMART does
not expect the results of Pet Food Giant to be dilutive to 1996
operating results, there can be no assurance that Pet Food Giant can
achieve its anticipated profitability.
On January 30, 1996, PETsMART completed the acquisition of State Line
Tack, Inc. (State Line Tack), the leading worldwide catalog operator
specializing in discount brand name tack, riding apparel and equine
supplies. PETsMART does not believe the results of this acquisition
will be dilutive to fiscal 1996 operating results.
11
<PAGE>
The discussion below relates to the results of operations of PETsMART
reflecting the mergers with Petstuff, Sporting Dog, Pet Food Giant, and State
Line Tack as if they had taken place from the inception of PETsMART. All of
these acquisitions have been accounted for as poolings of interests.
Additionally, all share and per share data have been restated to reflect the
Company's 2-for-1 stock split effected in the form of a stock dividend paid
on July 19, 1996 to stockholders of record on July 8, 1996, and a 3-for-2
stock split effected in the form of a stock dividend paid on May 1, 1995 to
stockholders of record on April 17, 1995.
RESULTS OF OPERATIONS
THIRD QUARTER 1996 COMPARED TO THIRD QUARTER 1995
Net sales increased 28.0% to $339.9 million for the thirteen weeks ended
October 27, 1996 ("third quarter 1996") from $265.5 million for the thirteen
weeks ended October 29, 1995 ("third quarter 1995"). Comparable store sales
increased 12.5% in third quarter 1996, as compared to an increase of 12.0%,
excluding the Petstuff and Pet Food Giant stores which were closed for
retrofiting, for third quarter 1995. During third quarter 1996, the Company
opened 12 new superstores and had 311 superstores in operation at the end of
third quarter 1996 compared to 254 superstores open at the end of third
quarter 1995, after giving effect to its recent mergers.
Gross profit, defined as net sales less cost of sales, including distribution
costs and store occupancy costs, increased as a percentage of net sales to
27.1% for third quarter 1996 as compared to 25.4% for third quarter 1995. The
increase in margin was principally due to a change in sales mix in retail
stores, including those stores along the Atlantic coast reflecting the impact
of the assimilation of the former Petstuff stores acquired in the second
quarter of last year, and improved margins in catalog operations.
Store operating expenses, which includes payroll and benefits, advertising
and other store level expenses, were 17.8% of net sales for third quarter
1996 versus 18.8% for third quarter 1995.
Store preopening expenses as a percentage of net sales increased to 0.4% for
third quarter 1996 compared to 0.3% for third quarter 1995. The average
preopening expenses for the 12 PETsMART superstores opened in third quarter
1996 increased to $106,000 from $83,000 for the eleven PETsMART-format
superstores opened during third quarter 1995. The increase in preopening
expenses on a per unit basis reflected rent paid on several new locations and
increased training costs.
12
<PAGE>
General and administrative expenses were 2.9% of net sales for third
quarter 1996 versus 2.7% for third quarter 1995.
Merger and related non-recurring charges of $6.4 million related to the Pet
Food Giant acquisition were recorded in third quarter 1995. This one-time
charge included legal, investment banking, and accounting fees ($1.4
million), costs associated with reformatting, refixturing and remerchandising
the acquired Pet Food Giant superstores to the format consistent with that of
a PETsMART-format superstore ($2.4 million), a provision for the closure of
redundant and non-performing Pet Food Giant superstores ($0.7 million) and
other costs of consolidation, including employee severance, relocation costs
and early termination fees on a credit facility ($1.9 million).
The Company generated operating income of $20.6 million for third quarter
1996 compared to operating income of $3.0 million in third quarter 1995.
However, excluding the merger and related non-recurring charge in third
quarter 1995 for the Pet Food Giant acquisition, operating income increased
$11.2 million from $9.4 million for third quarter 1995. Excluding the merger
and related non-recurring charge, operating income as a percentage of sales
increased to 6.1% for third quarter 1996 from 3.5% for third quarter 1995.
Interest income decreased to $0 for third quarter 1996 from $500,000 for
third quarter 1995 principally due to the decrease in average cash balances
in third quarter 1996 compared to third quarter 1995. Interest expense
increased to $2.6 million for third quarter 1996 from $2.3 million for third
quarter 1995 principally due to higher average borrowings outstanding during
the period.
Income tax expense was $6.8 million for third quarter 1996 compared to
expense of $1.1 million for third quarter 1995. The Company's effective
income tax rate for third quarter 1996 was 38% compared to 35% for third
quarter 1995, excluding the effect of permanent differences within the merger
and non-recurring charges recorded in third quarter 1995. This increase was
primarily due to an increased federal rate due to the absence of targeted job
tax credits, lower tax-advantaged investments, and a higher effective state
income tax rate.
13
<PAGE>
As a result of the foregoing, the Company reported net income of $11.2
million (or $0.10 per share) for third quarter 1996 compared to net income,
before accretion of the Pet Food Giant and State Line Tack preferred stock,
of $109,000 (or $0.00 per share) for third quarter 1995. Excluding the merger
and related non-recurring charge and the related tax benefits recorded in
third quarter 1995, net income for third quarter 1996, on a comparable basis,
increased $6.2 million (or $0.06 per share).
THIRTY-NINE WEEKS ENDED OCTOBER 27, 1996 COMPARED TO THIRTY-NINE WEEKS
ENDED OCTOBER 29, 1995
Net sales increased 25.2% to $972.0 million for the thirty-nine weeks ended
October 27, 1996 from $776.1 million for the thirty-nine weeks ended October
29, 1995. Comparable store sales increased 12.2% for the fiscal 1996
thirty-nine week period as compared to a 13.1% increase, excluding the
Petstuff and Pet Food Giant stores, for the first thirty-nine weeks of fiscal
1995. During the period, the Company opened 51 new superstores and closed two
relocated stores. The Company had 311 superstores in operation at the end of
third quarter 1996 compared to 254 superstores open at the end of third
quarter 1995, after giving effect to its recent mergers.
Gross profit, defined as net sales less cost of sales, including distribution
costs and store occupancy costs, increased as a percentage of net sales to
27.7% for 1996 year to date as compared to 25.1% for the same period of 1995.
The increase in margin is principally due to a change in sales mix in retail
stores, including those stores along the Atlantic coast reflecting the impact
of the assimilation of the former Petstuff stores acquired in the second
quarter of last year, and improved margins in catalog operations.
Store operating expenses, which includes payroll and benefits, advertising
and other store level expenses, decreased as a percentage of net sales to
18.8% for the period from 19.0% for the first three quarters of last year.
Store preopening expenses as a percentage of net sales increased to 0.6% for
1996 compared to 0.4% for 1995, primarily as a result of the large number
(51) of superstores opened in 1996. The average preopening expenses for the
51 PETsMART-format superstores opened in 1996 increased to $108,000 from
$96,000 for the 30 PETsMART-format and Pet Food Giant-format superstores
opened during 1995. The increase in preopening expenses on a per unit basis
reflected the opening of five large-format superstores in Southern California
which required increased planning, store setup and training costs due to
their larger size and several new merchandising concepts.
14
<PAGE>
General and administrative expenses decreased as a percentage of sales to
2.9% for the year to date 1996 from 3.2% for the comparable period of 1995.
These expenses reflected continued expense management along with the
consolidation of the Petstuff and Pet Food Giant administrative activities
incurred last year.
Merger and non-recurring charges of $20.4 million related to the State Line
Tack acquisition and the Petstuff lease settlement costs were recorded during
the thirty-nine weeks ended October 27, 1996. The State Line Tack one-time
charge included investment banking, legal and accounting fees ($1.4 million),
a provision for the closure of duplicate or inadequate facilities and systems
($5.5 million) and other costs of consolidation, including employee
severance, relocation costs and early termination fees on bank debt ($1.2
million). The Company recorded an additional $12.3 million charge primarily
related to lease termination costs anticipated to be incurred in connection
with the settlement of lease obligations for the 17 former Petstuff stores
closed by the Company immediately following the merger with Petstuff in June
1995, along with seven lease commitments for future Petstuff locations that
were either duplicate or inadequate facilities, and therefore, were not
opened. The Company believes lease settlement costs associated with the
closed stores, and the leases related to unopened locations, will require an
additional $10.8 million of expenditures. The remaining $1.5 million of the
charge was primarily related to Petstuff store conversion costs. No other
acquired stores, other than the relocation of two stores, have been closed
since July 1995.
Merger and related non-recurring charges recorded in the thirty-nine week
period ended October 29, 1995 were $47.1 million. Approximately $38.9 million
of this one-time charge was related to the June 1, 1995 acquisition of
Petstuff, and included investment banking, legal and accounting fees, costs
associated with reformatting, refixturing and remerchandising the acquired
Petstuff superstores to the format consistent with that of a PETsMART
superstore, a provision for closure of redundant and inadequate Petstuff
superstores, and other costs of consolidation. In addition, $1.8 million of
this one-time charge was related to the May 16, 1995 acquisition of Sporting
Dog. Lastly, $6.4 million of the charge was related to the Pet Food Giant
acquisition and included legal, investment banking, and accounting fees ($1.4
million), costs associated with reformatting, refixturing and remerchandising
the acquired Pet Food Giant superstores to the format consistent with that of
a PETsMART-format superstore ($2.4 million), a provision for the closure of
redundant and non-performing Pet Food Giant superstores ($0.7 million) and
other costs of consolidation, including employee severance, relocation costs
and early termination fees on a credit facility ($1.9 million).
The Company generated operating income of $31.4 million for the thirty-nine
weeks ended October 27, 1996 compared to an operating loss of $28.0 million
in the 1995 comparable period. However, excluding the merger and related
non-recurring charges recorded in both years, operating income increased
$32.7 million to $51.8 million for 1996 from $19.1 million for 1995.
Excluding the merger and related non-
15
<PAGE>
recurring charge, operating income as a percentage of sales increased to 5.3%
for 1996 from 2.5% for 1995.
Interest income decreased to $187,000 for the first three quarters of 1996
from $1.3 million for 1995 principally due to the decrease in average cash
balances in 1996 compared to 1995. Interest expense increased to $6.7 million
for 1996 from $6.1 million for 1995 principally due to higher average
borrowings during the thirty-nine weeks ended October 27, 1996.
Income tax expense was $9.9 million for the first three quarters of 1996
compared to an income tax benefit of $13.6 million for 1995. Included in the
1995 and 1996 year to date tax provisions is the effect of the
nondeductibility of certain items included in the Petstuff, Pet Food Giant,
Sporting Dog and State Line Tack merger and non-recurring charges. Excluding
the effect of permanent differences within the merger and non-recurring
charges, the Company's effective income tax rate for 1996 was 38% compared to
35% for 1995. This increase was primarily due to an increased federal rate
due to the absence of targeted job tax credits, lower tax-advantaged
investments and a higher effective state income tax rate.
As a result of the foregoing, the Company reported net income of $15.0
million (or $0.14 per share) for the thirty-nine weeks ended October 27, 1996
compared to a net loss, before accretion of the Pet Food Giant and State Line
Tack preferred stock, of $19.1 million (or $0.19 per share) for the 1995
comparable period. Excluding the 1995 and 1996 merger and related
non-recurring charges and the related tax benefits, net income for the 1996
period, on a comparable basis, increased to $28.0 million (or $0.26 per
share), a $18.7 million increase over the first three quarters of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and expansion program to date
principally through the sale of equity securities, raising an aggregate of
approximately $275 million since the Company's inception, as well as from
cash flow from operations. Additional sources of financing include real and
personal property leases, bank lines of credit and vendor terms on inventory
purchases.
At October 27, 1996, total assets were $606.7 million, of which $377.1
million were current assets. Cash and cash equivalents were $46.5 million.
The principal use of operating cash is the purchase of merchandise
inventories. This usage is reduced by vendor credit terms that allow the
Company to finance a portion of its inventory purchases. Since PETsMART's
sales are on a cash and carry basis, cash flow generated from operating
superstores provides a source of liquidity to the Company.
Net cash used in operations was $29.0 million for the thirty-nine weeks ended
October 27, 1996, compared to cash provided of $7.2 million for the same
period of last year. Approximately $40.1 million of the cash used in
operations during the thirty-nine weeks ended October 27, 1996 related to the
timing of inventory purchases and
16
<PAGE>
payments during the first three quarters of fiscal 1996 for inventory
balances required for the stores opened in the same period. Merchandise
accounts payable leveraging (the percentage of merchandise inventory financed
by vendor credit terms, e.g. accounts payable divided by merchandise
inventory), decreased to 49.9% at October 27, 1996, compared to 54.9% at
January 28, 1996. Inventory balances were approximately $261.1 million at
October 27, 1996, and $201.6 million at January 28, 1996. The $59.5 million
increase from January 28, 1996, reflected approximately $5.0 million of
inventory required for the eight Canadian stores to be opened in the fourth
quarter 1996, approximately $7.0 million of inventory resulting from the
expansion of the Company's Columbus, Ohio distribution center, and
approximately $11.0 million of inventory necessary to stock the Company's new
Phoenix, Arizona distribution center which began operations in third quarter
1996. Therefore, on a comparable basis, inventory increased $36.5 million, or
18.1%, from January 28, 1996 and average inventory per open store was
$766,000 at October 27, 1996, as compared to $769,000 at January 28, 1996.
The Company believes that its inventories generally are not subject to
consumer fashion trends and have a long shelf life which limits product
obsolescence exposure.
The Company has used cash in investing activities since inception to purchase
leaseholds, fixtures and equipment for new superstores and, to a lesser
extent, to purchase equipment and computer software in support of its
administrative functions. The Company has also used cash to purchase
superstores for sale and leaseback. Net cash used in investing activities was
$18.3 million for the thirty-nine weeks ended October 27, 1996.
Net cash flow from financing activities, primarily borrowings and repayments
under the Company's bank credit facility, was $19.5 million for the
thirty-nine weeks ended October 27, 1996.
The Company currently has a $100 million revolving bank credit arrangement
that expires July 6, 1999. Borrowings under the credit facility are unsecured
and bear interest, at PETsMART's option, at either the bank's prime rate or
LIBOR plus 0.875%. The credit facility contains certain restrictive covenants
relating to net worth, debt to equity ratios, capital expenditures and
minimum fixed charge coverage. The Company expects to meet all existing
covenants in its credit agreement for the remainder of fiscal 1996. At
October 27, 1996, $28.6 million was outstanding under the credit facility.
The Company also has several lease arrangements with leasing companies that
the Company uses to finance certain store and warehouse fixtures and
equipment, point-of-sale equipment and management information systems.
The Company's primary long-term capital requirement is for opening new
superstores. All of the Company's superstores are leased facilities. The
Company currently expects to open at least ten additional superstores in the
remainder of fiscal 1996, including eight stores in Canada. The Company
estimates that its net cash requirements to open each superstore, including
store fixtures and equipment, leasehold improvements, preopening costs and
inventory will range from $680,000
17
<PAGE>
to $1,240,000. This amount will include from $50,000 to $600,000 for
leasehold improvements, depending upon whether the superstore site is a
build-to-suit or a rehabilitated unit. Based upon the Company's current plan
to open at least ten superstores during the fourth quarter of fiscal 1996,
between $6.8 million and $12.4 million will be needed to finance the
Company's new superstore openings in the fourth quarter of fiscal 1996, of
which approximately $3.4 million to $7.8 million will be financed through
equipment leases. During third quarter 1996, the Company completed the
construction and sale/leaseback of a new 430,000 square foot distribution
center in Phoenix, Arizona which required total expenditures of approximately
$17.0 million. The Company may also expend additional funds to take advantage
of opportunities that arise from time to time for the acquisition of
businesses or lease rights from tenants occupying retail space that is
suitable for a PETsMART superstore.
The United States Congress has passed legislation which increases the federal
minimum wage. The Company does not believe this legislation will have a
material adverse effect on its store operating expenses or results of
operations for the next twelve months.
The Company does not intend to own the land and buildings for its
superstores. However, to the extent the Company believes that it is
advantageous to purchase land for new superstores and to construct new
superstore buildings itself, it will use its existing financing sources or
cash to finance construction and, after the superstores are open, complete
sale/leaseback transactions or attempt to secure other permanent financing.
The Company believes that its current cash balances, together with funds
available from bank facilities, equipment lease arrangements and from
operations will be adequate to meet its anticipated working capital and
capital expenditure requirements for at least the next twelve months.
However, numerous factors, such as future acquisition opportunities or a
change in expansion plans, may cause the Company to change its current plans
and seek additional funds. The Company is continually evaluating financing
possibilities, and it may seek to raise additional funds through a debt or
equity financing if it believes it would be in the best interests of the
Company and its stockholders to do so.
The Company has historically had higher short-term cash requirements during
periods of high store opening activity and during the holiday inventory
build-up in its third fiscal quarter.
Although the Company cannot accurately anticipate the effect of inflation on
its operations, it does not believe inflation is likely to have a material
adverse effect on its net sales or results of operations.
PET CITY HOLDINGS plc MERGER
On October 25, 1996, the Company announced that it had entered into an
agreement involving a scheme of arrangement under the laws of the
United Kingdom whereby the Company will acquire all of the outstanding
18
<PAGE>
equity securities of Pet City Holdings plc. At the closing of the
transaction, which is anticipated to occur during the fourth quarter of
fiscal 1996, 0.3214 of a share of PETsMART Common Stock will be issued for
each outstanding ordinary share of Pet City Holdings plc. The transaction is
intended to qualify as a tax-free reorganization and is intended to be
accounted for as a pooling of interests. In a Special Meeting of Shareholders
of Pet City Holdings plc held on November 22, 1996, the transaction was
approved by more than 75% of the eligible oridinary shareholders. The
transaction is subject to, among other things, approval by the High Court of
Justice of England and Wales.
Pet City Holdings plc is the largest pet industry specialty retailer
currently operating 53 stores in the United Kingdom. Pet City Holdings plc
audited financial results for its fiscal year ended July 27, 1996, reflected
sales of L54.5 million and a loss of L982,000 or 4.5p per share.
PETsMART is currently evaluating the effect on operations of the merger and
there can be no assurance that the combined company will be able to operate
profitably. The Company expects to incur a merger and nonrecurring charge
related to the Pet City merger in its fourth fiscal quarter ending February
2, 1997, currently estimated to be in the range of $20.0 million to $35.0
million, before taxes, to reflect the combination of the two companies,
including transaction costs of $5.0 million to $7.0 million, store conversion
expenses of $13.0 million to $24.0 million, and other costs of integration of
$2.0 million to $4.0 million. These amounts are preliminary estimates and,
therefore, are subject to change. The Company does not expect the results of
the Pet City merger to be dilutive to fiscal 1997 operating results.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 1995, Petstuff Canada, LTD., a wholly-owned subsidiary of
Petstuff, Inc., was named as a defendant in a complaint filed by a Canadian
company alleging breach of the Competition Act, injurious falsehood, and
damages to the trademarks and reputation of the Canadian company, stemming
from alleged advertising practices. The suit seeks $20 million (Canadian) in
damages plus $500,000 (Canadian) for punitive damages plus costs and
interest. Petstuff Canada, LTD. subsequently filed counterclaims in this
action. In September 1996, the parties reached a settlement under which
PETsMART agreed to pay the Canadian company $75,000 (Canadian), and the
lawsuit has been dismissed.
In March 1996, and after an exchange of correspondence, the Company filed a
Statement of Claim in the Federal Court of Canada against Perry's Pet Mart
(Canada) Inc. (Perry's) seeking a declaration of the Company's right to use
the PETsMART name and mark in Canada. Perry's responded with a Statement of
Defense and Counterclaim contesting the Company's right to use the name and
mark in Canada and seeking permanent and interlocutory injunctive relief and
damages, costs and interest. In September 1996, the parties signed a
settlement agreement and a stock exchange agreement, under which PETsMART
agreed to purchase all the outstanding stock of Perry's for $1,000,000
(Canadian), and Perry's agreed to withdraw its request for an interlocutory
injunction.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits
Exhibit 11.1 Computation of Per Share Earnings
(b) Reports on Form 8-K
During the thirteen weeks ended October 27, 1996, the Company filed the
following report on Form 8-K or Form 8-K/A:
I. Report on Form 8-K filed September 10, 1996, for an amendment of the
Company's Restated Certificate of Incorporation increasing the number of
authorized number of shares of the Company's Common Stock from 75,000,000
to 250,000,000, and the Company's 2-for-1 split of its common stock
effected in the form of a stock dividend to its stockholders of record
on July 8, 1996.
21
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
PETsMART, INC.
(Registrant)
Date: December 6, 1996 /s/ C. DONALD DORSEY
C. Donald Dorsey
Executive Vice President and Chief
Financial Officer (Duly Authorized
Officer and Principal Financial and
Accounting Officer)
22
<PAGE>
PETsMART, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11.1 Computation of Per Share Earnings.
23
<PAGE>
Exhibit 11.1
PETsMART, Inc. and Subsidiaries
Statement of Computation of Common
and Common Equivalent Shares and
Earnings per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the 13 Weeks Ended For the 39 Weeks Ended
------------------------ ------------------------
October 27, October 29, October 27, October 29,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY (1)
Weighted average common shares outstanding (2) 105,048 101,514 104,127 102,543
Incremental common equivalents from options and warrants 5,804 4,328 5,562 --
------------------------ ------------------------
Weighted average shares outstanding 110,852 105,842 109,688 102,543
------------------------ ------------------------
------------------------ ------------------------
Net income (loss) $ 11,157 $ 109 $ 14,980 $ (19,090)
Accretion of redeemable convertible preferred stock -- (369) -- (1,365)
------------------------ ------------------------
Net income (loss) applicable to holders of common stock $ 11,157 $ (260) $ 14,980 $ (20,455)
------------------------ ------------------------
------------------------ ------------------------
Net income (loss) per share applicable to holders of common
stock $ 0.10 $ (0.00) $ 0.14 $ (0.20)
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
- ------------------------
(1) Primary and Fully Diluted earnings per share are the same for all periods
presented.
(2) Includes common and common equivalent shares outstanding during the period.
Common equivalent shares consist of redeemable and nonredeemable convertible
preferred stock (using the if-converted method).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> OCT-28-1996
<CASH> 46,525
<SECURITIES> 0
<RECEIVABLES> 47,819
<ALLOWANCES> 0
<INVENTORY> 261,175
<CURRENT-ASSETS> 21,630
<PP&E> 251,221
<DEPRECIATION> 72,343
<TOTAL-ASSETS> 606,719
<CURRENT-LIABILITIES> 218,214
<BONDS> 59,468
0
0
<COMMON> 10
<OTHER-SE> 316,802
<TOTAL-LIABILITY-AND-EQUITY> 606,719
<SALES> 972,002
<TOTAL-REVENUES> 972,002
<CGS> 703,196
<TOTAL-COSTS> 703,196
<OTHER-EXPENSES> 237,403<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,747
<INCOME-PRETAX> 24,843
<INCOME-TAX> 9,863
<INCOME-CONTINUING> 14,980
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,980
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
<FN>
<F1>Includes merger and nonrecurring charges of $20,364.
</FN>
</TABLE>
