PETCE Petco Animal Supplies (MM)

PETCO Files Annual Report on Form 10-K - Internal Review of Distribution Operation Is Complete SAN DIEGO, June 28 /PRNewswire-FirstCall/ -- PETCO Animal Supplies, Inc. (NASDAQ:PETCE) today announced that it has filed with the Securities and Exchange Commission its annual report on Form 10-K for the fiscal year ended January 29, 2005, as well as its quarterly report on Form 10-Q for the first quarter of fiscal 2005. The fourth quarter and fiscal year 2004 audited results reflect the following changes: * An after-tax charge of $3.6 million, or $0.06 per diluted share, related to the conclusions of an internal review. As previously announced on April 15, 2005, subsequent to the Company's March 10, 2005 earnings release, PETCO discovered within its Distribution Operation instances of errors in which certain expenses were under-accrued. Upon identification of these errors, the Company commenced a comprehensive internal review, which is now complete. The internal review concluded that the errors were limited to the Distribution Operation. In addition, the internal review confirmed that a restatement of prior financial statements would not be necessary. * An income tax benefit of $2.3 million, or $0.04 per diluted share, reflecting a one-time favorable adjustment of an income tax accrual. Subsequent to the Company's March 10, 2005 earnings release, PETCO identified a one-time favorable adjustment of an income tax accrual related to certain franchise taxes. This favorable income tax adjustment has been recorded in the fourth quarter of fiscal 2004. Reflecting these adjustments, net earnings in fiscal 2004 were $82.4 million, or $1.41 per diluted share. Pro forma net earnings for fiscal 2004, as adjusted, were $84.9 million, or $1.45 per diluted share, excluding the one-time income tax benefit, compared to pro forma net earnings previously reported on March 10, 2005 of $88.6 million, or $1.51 per diluted share. In the following pages of this news release, PETCO provides tables illustrating its condensed consolidated statements of operations and balance sheet, with comparisons of results "as reported" on March 10, 2005 with the "as adjusted" results reported today, on both a GAAP and pro forma basis, for the fourth quarter and full fiscal year ended January 29, 2005. "We are pleased to file our Form 10-K, which represents the final step in a process that included a comprehensive internal review," commented PETCO's Chief Executive Officer, James M. Myers. "While it was very disappointing to identify a control deficiency in any part of our Company, it is important to note that the comprehensive review, which included the participation of independent, external experts, concluded that the errors in under-accruals were limited to our Distribution Operation. We acted quickly and decisively to strengthen our controls, processes and oversight responsibilities to prevent such errors in the future." The filing of PETCO's 10-K and first quarter 2005 10-Q will bring the Company back in compliance with SEC filing requirements, and is expected to result in the cancellation of the NASDAQ review process with respect to the delisting of PETCO stock and the restoration of the stock symbol to "PETC". Outlook In conjunction with its May 25, 2005 report of earnings for the first quarter of fiscal 2005, PETCO had provided financial guidance for its second fiscal quarter. That prior outlook indicated earnings of $0.33 - $0.35 per diluted share, reflecting the expectation that costs associated with the now- completed review of the Company's Distribution Operation would approximate $0.01 per share. Those second quarter costs are now estimated to be $0.02 per share. In its report of results for the first fiscal quarter, PETCO also discussed refinements to its marketing plans to more effectively communicate with its customers. These refinements are being implemented and, as previously discussed, will be in effect during the latter part of the second fiscal quarter. The Company currently expects to report a comparable store net sales increase of approximately 3% - 4% for the second fiscal quarter. In view of this anticipated comparable store sales gain, as well as the additional $0.01 per share in costs associated with the Distribution-related review, the Company now expects to report earnings at the lower end of a revised range of $0.31 - $0.33 per diluted share. PETCO intends to provide an update to its outlook for fiscal 2005 when it reports its earnings for the second fiscal quarter in August. About PETCO Animal Supplies, Inc. PETCO is a leading specialty retailer of premium pet food, supplies and services. PETCO's vision is to best promote, through its people, the highest level of well being for companion animals, and to support the human-animal bond. PETCO generated net sales of more than $1.8 billion in fiscal 2004. It operates over 740 stores in 47 states and the District of Columbia, as well as a leading destination for on-line pet food and supplies at http://www.petco.com/. Since its inception in 1999, The PETCO Foundation, PETCO's non-profit organization, has raised more than $23 million in support of more than 2,700 non-profit grassroots animal welfare organizations around the nation. Forward Looking Statements Certain statements in this news release that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Stockholders and other readers are cautioned not to place undue reliance on these forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results of PETCO to be materially different from historical results or from any results expressed or implied by such forward-looking statements. These factors, such as performance of new stores, ability to execute expansion strategy and sustain growth, debt levels, reliance on vendors and exclusive distribution arrangements, competition, integration of operations as a result of acquisitions, compliance with various state and local regulations, remediation of any internal control deficiencies, the outcome of existing litigation and dependence on senior management, are discussed from time to time in the reports filed by PETCO with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended January 29, 2005. PETCO Animal Supplies, Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data) As Reported on As Adjusted March 10, 2005 Quarter ended Quarter ended 1/29/05 1/29/05 GAAP Pro Forma GAAP Pro Forma Basis Basis Basis Basis Net sales $492,313 $492,313 $492,313 $492,313 Cost of sales and occupancy costs 314,886 313,546 320,469 319,129 Gross profit 177,427 178,767 171,844 173,184 Selling, general and administrative expenses 121,124 121,124 121,124 121,124 Operating income 56,303 57,643 50,720 52,060 Interest expense, net 4,589 4,589 4,589 4,589 Debt retirement costs 6,754 --- 6,754 --- Earnings before income taxes 44,960 53,054 39,377 47,471 Income taxes 17,353 20,541 13,070 18,591 Net earnings $ 27,607 $ 32,513 $ 26,307 $ 28,880 Net earnings per common share, basic $ 0.48 $ 0.56 $ 0.46 $ 0.50 Net earnings per common share, diluted $ 0.47 $ 0.55 $ 0.45 $ 0.49 Basic weighted average number of common shares 57,631 57,631 57,631 57,631 Diluted weighted average number of common shares 58,725 58,725 58,725 58,725 This press release includes information presented on a pro forma basis. These pro-forma financial measures are considered "non-GAAP" financial measures within the meaning of SEC Regulation G. The Company believes that this presentation of pro forma results provides useful information to both management and investors by excluding specific costs and expenses that we believe are not indicative of core operating results. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles. The reconciliations set forth below are provided in accordance with Regulation G and reconcile the pro forma financial measures with the most directly comparable GAAP-based financial measures. PETCO Animal Supplies, Inc. Reconciliation of GAAP Financial Measures to Pro Forma Financial Measures (In thousands, except per share data) Quarter ended 1/29/05 As reported As on 3/10/2005 Adjusted Reconciliation of GAAP to Pro Forma Gross Profit GAAP gross profit $177,427 $171,844 Adjustments: Lease accounting adjustment 1,340 1,340 Pro forma gross profit $178,767 $173,184 Reconciliation of GAAP to Pro Forma Operating Income GAAP operating income $ 56,303 $ 50,720 Adjustments: Lease accounting adjustment 1,340 1,340 Pro forma operating income $ 57,643 $ 52,060 Reconciliation of GAAP to Pro Forma Net Earnings GAAP net earnings $ 27,607 $ 26,307 Adjustments: Lease accounting adjustment 1,340 1,340 Debt retirement costs 6,754 6,754 Tax effect of adjustments (3,188) (3,188) Adjustment of income tax accrual --- (2,333) Pro forma net earnings $ 32,513 $ 28,880 GAAP net earnings per common share, diluted $ 0.47 $ 0.45 Pro forma net earnings per common share, diluted $ 0.55 $ 0.49 Diluted weighted average number of shares (GAAP and Pro forma) 58,725 58,725 PETCO Animal Supplies, Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data) As Reported on March 10, 2005 As Adjusted Year ended 1/29/05 Year ended 1/29/05 GAAP Pro Forma GAAP Pro Forma Basis Basis Basis Basis Net sales $1,812,145 $1,812,145 $1,812,145 $1,812,145 Cost of sales and occupancy costs 1,175,771 1,174,431 1,181,354 1,180,014 Gross profit 636,374 637,714 630,791 632,131 Selling, general and administrative expenses 472,780 472,780 472,780 472,780 Operating income 163,594 164,934 158,011 159,351 Interest expense, net 19,337 19,337 19,337 19,337 Debt retirement costs 6,754 --- 6,754 --- Earnings before income taxes 137,503 145,597 131,920 140,014 Income taxes 53,830 57,018 49,547 55,068 Net earnings $ 83,673 $ 88,579 $ 82,373 $ 84,946 Net earnings per common share, basic $ 1.45 $ 1.54 $ 1.43 $ 1.48 Net earnings per common share, diluted $ 1.43 $ 1.51 $ 1.41 $ 1.45 Basic weighted average number of common shares 57,542 57,542 57,542 57,542 Diluted weighted average number of common shares 58,511 58,511 58,511 58,511 This press release includes information presented on a pro forma basis. These pro-forma financial measures are considered "non-GAAP" financial measures within the meaning of SEC Regulation G. The Company believes that this presentation of pro forma results provides useful information to both management and investors by excluding specific costs and expenses that we believe are not indicative of core operating results. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles. The reconciliations set forth below are provided in accordance with Regulation G and reconcile the pro forma financial measures with the most directly comparable GAAP-based financial measures. PETCO Animal Supplies, Inc. Reconciliation of GAAP Financial Measures to Pro Forma Financial Measures (In thousands, except per share data) Year ended 1/29/05 As reported As on 3/10/2005 Adjusted Reconciliation of GAAP to Pro Forma Gross Profit GAAP gross profit $636,374 $630,791 Adjustments: Lease accounting adjustment 1,340 1,340 Pro forma gross profit $637,714 $632,131 Reconciliation of GAAP to Pro Forma Operating Income GAAP operating income $163,594 $158,011 Adjustments: Lease accounting adjustment 1,340 1,340 Pro forma operating income $164,934 $159,351 Reconciliation of GAAP to Pro Forma Net Earnings GAAP net earnings $ 83,673 $ 82,373 Adjustments: Lease accounting adjustment 1,340 1,340 Debt retirement costs 6,754 6,754 Tax effect of adjustments (3,188) (3,188) Adjustment of income tax accrual --- (2,333) Pro forma net earnings $ 88,579 $ 84,946 GAAP net earnings per common share, diluted $ 1.43 $ 1.41 Pro forma net earnings per common share, diluted $ 1.51 $ 1.45 Diluted weighted average number of shares (GAAP and Pro forma) 58,511 58,511 PETCO Animal Supplies, Inc. Condensed Consolidated Balance Sheets (In thousands) As Reported on March 10, 2005 As Adjusted January 29, 2005 January 29, 2005 ASSETS Cash and cash equivalents $ 36,815 $ 36,815 Receivables 17,875 17,875 Inventories 167,038 167,038 Deferred tax assets 18,012 17,680 Other current assets 9,481 10,916 Total current assets 249,221 250,324 Fixed assets, net 333,300 333,300 Goodwill 40,179 40,179 Other assets 16,650 16,650 $639,350 $640,453 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 82,142 $ 82,142 Accrued expenses and other current liabilities 136,078 141,044 Current portion of long-term debt 353 353 Total current liabilities 218,573 223,539 Senior credit facility 85,000 85,000 Senior subordinated notes payable 103,982 103,982 Deferred rent and other liabilities 92,703 90,637 Total liabilities 500,258 503,158 Stockholders' equity 139,092 137,295 $639,350 $640,453 DATASOURCE: PETCO Animal Supplies, Inc. CONTACT: Rodney Carter, Senior Vice President and Chief Financial Officer of PETCO Animal Supplies, Inc., +1-858-202-7848 Web site: http://www.petco.com/

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