What changed in this filing

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Item 1. Financial Statements

2021-08-27 compared with 2021-06-10 · 87 added, 53 removed, 310 unchanged (31% of the section changed)

34 unchanged sentences

Authorized - 1.0 billion shares;

Issued and outstanding - 226.5 million shares as of May 1, 2021

Issued and outstanding - 226.5 million shares as of July 31, 2021

and 226.4 million shares as of January 30, 2021

9 unchanged sentences

Additional paid-in-capital

Accumulated deficit

Retained earnings (accumulated deficit)

Accumulated other comprehensive loss

7 unchanged sentences

Thirteen weeks ended

Twenty-six weeks ended

Cost of sales

4 unchanged sentences

Loss on extinguishment and modification of debt

Income (loss) before income taxes and income from

equity method investees

Other non-operating income

Income (loss) before income taxes and income

from equity method investees

Income tax expense (benefit)

2 unchanged sentences

Net loss attributable to noncontrolling interest

Net income (loss) attributable to Class A and B-1 common

Net income (loss) attributable to Class A and B-1

common stockholders

Net income (loss) per Class A and B-1 common share (1):

Weighted average shares used in computing net income (loss) per Class A

and B-1 common share (1):

Weighted average shares used in computing net

income (loss) per Class A and B-1 common share (1):

Amounts for periods prior to the Company’s conversion to a Delaware corporation have been retrospectively adjusted to give effect to the organizational transactions described in Note 1.

5 unchanged sentences

Thirteen weeks ended

Twenty-six weeks ended

Net income (loss)

Net loss attributable to noncontrolling interest

Net income (loss) attributable to Class A and B-1 common

Other comprehensive loss, net of tax:

Net income (loss) attributable to Class A and B-1

common stockholders

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment

1 unchanged sentence

Losses on derivatives reclassified to income

Total other comprehensive loss, net of tax

Total other comprehensive income (loss), net of tax

Comprehensive income (loss)

Comprehensive loss attributable to noncontrolling

Comprehensive income (loss) attributable to Class A and B-1

common stockholders

Comprehensive income (loss) attributable to Class A and

B-1 common stockholders

See accompanying notes to consolidated financial statements.

3 unchanged sentences

Additional paid-in capital

deficit) retained earnings (1)

comprehensive

7 unchanged sentences

Balance at May 1, 2021

Equity-based compensation expense

Foreign currency translation

adjustment, net of tax

Issuance of common stock

Balance at July 31, 2021

Additional paid-in capital

9 unchanged sentences

Balance at May 2, 2020

Equity-based compensation expense

Repurchase of equity

Foreign currency translation

adjustment, net of tax

Unrealized loss on derivatives,

Losses on derivatives reclassified to

income, net of tax

Balance at August 1, 2020

Balances prior to the Company's conversion to a Delaware corporation were reclassified to additional paid-in capital to give effect to the organizational transactions described in Note 1 .

3 unchanged sentences

(In thousands) (Unaudited)

Thirteen weeks ended

Twenty-six weeks ended

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating

Adjustments to reconcile net income (loss) to net cash used in operating

Depreciation and amortization

8 unchanged sentences

Non-cash operating lease costs

Other non-operating income

Changes in assets and liabilities:

6 unchanged sentences

Other long-term liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

Cash paid for fixed assets

Cash paid for acquisitions, net of cash acquired

Distributions from equity investees

Proceeds from sale of assets

Net cash used in investing activities

4 unchanged sentences

Payments for finance lease liabilities

Proceeds from employee stock purchase plan

Repurchase of equity

Payment of contingent consideration

Payment of offering costs

Net cash (used in) provided by financing activities

Net cash used in financing activities

Net increase in cash, cash equivalents and restricted cash

13 unchanged sentences

Petco Health and Wellness Company, Inc.

(together with its consolidated subsidiaries, the “Company”) is a national specialty retailer of premium pet consumables, supplies and companion animals and services.

(together with its consolidated subsidiaries, the “Company”) is a category-defining health and wellness company focused on improving the lives of pets, pet parents, and its own partners.

The Company manages its business as one reportable operating segment.

2 unchanged sentences

There have been no significant changes from the significant accounting policies disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021 .

The results of operations for the thirteen weeks ended May 1, 2021 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending January 29, 2022.

Corporate Conversion and Initial Public Offering

The results of operations for the thirteen and twenty-six weeks ended July 31, 2021 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending January 29, 2022.

Corporate Conversion and Public Offerings

The Company previously operated as a Delaware limited liability company under the name PET Acquisition LLC.

6 unchanged sentences

Refer to Note 3 and Note 4 for further discussion on the Company’s use of proceeds from the initial public offering.

Subsequent Event

On June 1, 2021, Scooby Aggregator, LP, the Company’s principal stockholder, completed the sale of 22 million existing shares of Class A common stock in connection with a secondary offering.

In June 2021, Scooby Aggregator, LP, the Company’s principal stockholder, completed the sale of 25.3 million existing shares of Class A common stock in connection with a secondary offering.

The offering price to the public was $ 24.00 per share .

26 unchanged sentences

Thirteen weeks ended

Dog and cat food

Twenty-six weeks ended

Supplies and companion animals

4 unchanged sentences

The Amended Term Loan Facility, the Amended Revolving Credit Facility, the First Lien Term Loan, and the ABL Revolving Credit Facility are collectively referred to as the “Senior Secured Credit Facilities.”

As of May 1, 2021, the Company was in compliance with its covenants in the First Lien Term Loan and the ABL Revolving Credit Facility.

As of July 31, 2021, the Company was in compliance with its covenants under the First Lien Term Loan and the ABL Revolving Credit Facility.

Term Loan Facilities

6 unchanged sentences

The applicable rate is 2.25 % per annum for a base rate loan or 3.25 % per annum for an Adjusted LIBOR loan.

Principal and interest payments commence on June 30, 2021 .

Principal and interest payments commenced on June 30, 2021 .

Principal payments are $ 4.25 million quarterly.

In connection with the March 4, 2021 transaction, the Company recognized a loss on debt extinguishment and modification of $ 19.6 million, which consisted of a $ 6.5 million write-off of unamortized debt discount and issuance costs on the Amended Term Loan Facility and $ 13.1 million of third-party expenses.

In connection with the March 4, 2021 transaction, the Company recognized a loss on debt extinguishment and modification of $ 19.6 million on the term loan facilities, which consisted of a $ 6.5 million write-off of unamortized debt discount and issuance costs on the Amended Term Loan Facility and $ 13.1 million of third-party expenses.

Fees relating to the Company’s entry into the First Lien Term Loan consisted of arranger fees and other third-party expenses.

1 unchanged sentence

The remaining portion of original issue discount and debt issuance costs of the Amended Term Loan Facility previously capitalized is being amortized over the contractual term of the First Lien Term Loan to interest expense using the effective interest rate in effect on the date of issuance, as these amounts represent the portion that was not substantially modified.

As of May 1, 2021, the outstanding principal balance of the First Lien Term Loan was $ 1,700.0 million ($ 1,672.1 million, net of the unamortized discount and debt issuance costs).

As of July 31, 2021, the outstanding principal balance of the First Lien Term Loan was $ 1,695.8 million ($ 1,668.8 million, net of the unamortized discount and debt issuance costs).

As of January 30, 2021, the outstanding principal balance of the Amended Term Loan Facility was $ 1,678.1 million ($ 1,649.4 million, net of the unamortized discount and debt issuance costs).

The weighted average interest rate on the borrowings outstanding was 4.1 % and 4.3 % as of May 1, 2021 and January 30, 2021, respectively.

The weighted average interest rate on the borrowings outstanding was 4.1 % and 4.3 % as of July 31, 2021 and January 30, 2021, respectively.

Debt issuance costs are being amortized over the contractual term to interest expense using the effective interest rate in effect at issuance.

As of May 1, 2021, the estimated fair value of the First Lien Term Loan was approximately $ 1,689.4 million, based upon Level 2 fair value hierarchy inputs.

As of July 31, 2021, the estimated fair value of the First Lien Term Loan was approximately $ 1,687.3 million, based upon Level 2 fair value hierarchy inputs.

As of January 30, 2021, the estimated fair value of the Amended Term Loan Facility was approximately $ 1,673.9 million, based upon Level 2 fair value hierarchy inputs.

6 unchanged sentences

The remaining portion of debt issuance costs of the Amended Revolving Credit Facility previously capitalized is being amortized over the contractual term of the ABL Revolving Credit Facility as these amounts represent the portion that was not substantially modified.

As of May 1, 2021, no amounts were outstanding under the ABL Revolving Credit Facility.

As of July 31, 2021, no amounts were outstanding under the ABL Revolving Credit Facility.

As of January 30, 2021, no amounts were outstanding under the Amended Revolving Credit Facility.

At May 1, 2021, $ 420.5 million was available under the ABL Revolving Credit Facility, which is net of $ 56.6 million of outstanding letters of credit issued in the normal course of business and a $ 22.9 million borrowing base reduction for a shortfall in qualifying

assets, net of reserves.

Unamortized debt issuance costs of $ 5.6 mil lion relating to the ABL Revolving Credit Facility were outstanding and were being amortized using the straight-line method over the remaining term of the agreement as of May 1, 2021 .

At July 31, 2021, $ 441.1 million was available under the ABL Revolving Credit Facility, which is net of $ 58.9 million of outstanding letters of credit issued in the normal course of business and no borrowing base reduction for a shortfall in qualifying assets.

Unamortized debt issuance costs of $ 5.3 mil lion relating to the ABL Revolving Credit Facility were outstanding and were being amortized using the straight-line method over the remaining term of the agreement as of July 31, 2021 .

Unamortized debt issuance costs of $ 3.1 million relating to the Amended Revolving Credit Facility were outstanding and were being amortized using the straight-line method over the remaining term of the agreement as of January 30, 2021 .

37 unchanged sentences

The following table presents information about assets and liabilities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):

July 31, 2021

Assets (liabilities):

Money market mutual funds

Investments of officer’s life insurance

Investments of officers' life insurance

Non-qualified deferred compensation plan

2 unchanged sentences

Money market mutual funds

Investments of officer’s life insurance

Investments of officers' life insurance

Non-qualified deferred compensation plan

The fair value of money market mutual funds is based on quoted market prices, such as quoted net asset values published by the fund as supported in an active market.

Money market mutual funds included in the Company’s cash and cash equivalents were $ 116.0 million and $ 56.0 million as of May 1, 2021 and January 30, 2021, respectively.

Also included in the Company’s money market mutual funds balances were $ 5.4 million and $ 7.8 million as of May 1, 2021 and January 30, 2021, respectively, which relate to the Company’s restricted cash, and are included in other current assets in the condensed consolidated balance sheets.

The Company maintains a deferred compensation plan for key executives and other members of management, which is fully funded by investments in officers’ life insurance.

Money market mutual funds included in the Company’s cash and cash equivalents were $ 143.0 million and $ 56.0 million as of July 31, 2021 and January 30, 2021, respectively.

Also included in the Company’s money market mutual funds balances were $ 3.5 million and $ 7.8 million as of July 31, 2021 and January 30, 2021, respectively, which relate to the Company’s restricted cash, and are included in other current assets in the condensed consolidated balance sheets.

The Company maintains a deferred compensation plan for key executives and other members of management, which is funded by investments in officers’ life insurance.

The fair value of this obligation is based on participants’ elected investments, which reflect the closing market prices of similar assets.

Assets Measured on a Non-Recurring Basis

The Company’s non-financial assets, which primarily consist of goodwill, other intangible assets, fixed assets and equity and cost method investments, are reported at carrying value, or at fair value as of the date of the Company’s acquisition of Petco Holdings, Inc.

The Company’s non-financial assets, which primarily consist of goodwill, other intangible assets, fixed assets and equity and other investments, are reported at carrying value, or at fair value as of the date of the Company’s acquisition of Petco Holdings, Inc.

LLC on January 26, 2016, and are not required to be measured at fair value on a recurring basis.

1 unchanged sentence

If impaired, the carrying values of the assets are written down to fair value using Level 3 inputs.

There were no triggering events identified and no indication of impairment of the Company’s goodwill, indefinite lived trade name, other intangible assets or equity and cost method investments during the thirteen week periods ended May 1, 2021 and May 2, 2020.

During the thirteen week periods ended May 1, 2021 and May 2, 2020, the Company recorded fixed asset and right-of-use asset impairment charges of $ 1.1 million and $ 3.1 million, respectively.

The Company previously held an equity investment, in the form of multiple series of preferred stock, in A Place for Rover, Inc.

(“Rover”), an online marketplace for pet care, which was historically accounted for as an equity security without a readily determinable fair value.

In July 2021, Rover completed a business combination with Nebula Caravel Acquisition Corp., a publicly-traded special purpose acquisition company.

The combined entity was renamed to Rover Group, Inc., and the Company’s equity investment was converted into a common stock investment in the combined entity.

The business combination was considered to be an observable transaction, and the Company recognized a $ 45.2 million gain from the remeasurement of the fair value of its investment, which is included in other non-operating income in the consolidated statements of operations.

The fair value of the investment was $ 49.6 million as of July 31, 2021 and is included within other long-term assets on the consolidated balance sheets.

There were no triggering events identified and no indication of impairment of the Company’s goodwill, indefinite lived trade name, other intangible assets or equity and other investments during the thirteen or twenty-six week periods ended July 31, 2021 and August 1, 2020.

During the thirteen and twenty-six week periods ended July 31, 2021, the Company recorded fixed asset and right-of-use asset impairment charges of $ 1.4 million and $ 2.5 million, respectively.

During the thirteen and twenty-six week periods ended August 1, 2020, the Company recorded fixed asset and right-of-use asset impairment charges of $ 2.7 million and $ 5.8 million, respectively.

Stockholders’ Equity

2 unchanged sentences

The Company also has an employee stock purchase plan (“ESPP”).

Scooby LP, the direct owner of Scooby Aggregator, LP, also maintains an incentive plan (the “2016 Incentive Plan”) under which it has awarded partnership unit awards to employees, consultants, and non-employee directors of the Company that are restricted profit interests in Scooby LP subject to a distribution threshold (“Series C Units”) .

The following table summarizes the Company’s equity-based compensation expense by award type (in thousands):

Thirteen weeks ended

Twenty-six weeks ended

RSUs and RSAs

Partnership units of Scooby LP under the 2016 Incentive Plan

Partnership units of Scooby LP under the 2016 Incentive

Total equity-based compensation expense

4 unchanged sentences

Forfeited/expired

Nonvested RSUs and RSAs/options outstanding, May 1, 2021

Unrecognized compensation expense as of May 1, 2021

Weighted average remaining expense period as of May 1, 2021

Nonvested RSUs and RSAs/options outstanding, July 31, 2021

Unrecognized compensation expense as of July 31, 2021

Weighted average remaining expense period as of July 31, 2021

RSA activity has not been material and relates to an RSA of Class A common stock granted to an executive in March 2021.

3 unchanged sentences

The ESPP will allow eligible employees to contribute up to 15 % of their base earnings towards purchases of Class A common stock, subject to an annual maximum.

price will be 85 % of the lower of (i) the fair market value of the stock on the associated lookback date and (ii) the fair market value of the stock on the last day of the related purchase period.

The purchase price will be 85 % of the lower of (i) the fair market value of the stock on the associated lookback date and (ii) the fair market value of the stock on the last day of the related purchase period.

Series C Unit activity under the 2016 Incentive Plan was as follows (in thousands):

Outstanding, January 30, 2021

Outstanding, May 1, 2021

Vested, May 1, 2021

Available for future grant, May 1, 2021

As of May 1, 2021, unrecognized compensation expense related to the unvested portion of Scooby LP’s Series C Units was $ 23.8 million, which is expected to be recognized over a weighted average period of 2.9 years .

Outstanding, July 31, 2021

Vested, July 31, 2021

No additional Series C Units have been or will be awarded since the Company’s initial public offering.

As of July 31, 2021, unrecognized compensation expense related to the unvested portion of Scooby LP’s Series C Units was $ 21.8 million, which is expected to be recognized over a weighted average period of 2.7 years .

In addition to acceleration upon a change in control, a portion of grantees’ Series C Units may vest upon certain levels of direct or indirect sales by Scooby LP of the Company’s Class A common stock, and all unvested Series C Units will fully accelerate in the event Scooby LP sells 90 % of its direct or indirect holdings of the Company’s Class A common stock.

Earnings (Loss) Per Share

1 unchanged sentence

The calculation of diluted shares outstanding excludes securities where the combination of the exercise or purchase price (in the case of options and the ESPP) and the associated unrecognized compensation expense is greater than the average market price of Class A common shares because the inclusion of these securities would be anti-dilutive.

There were approximately 3.6 million potential shares that were anti-dilutive and excluded from the computation of diluted shares outstanding during the thirteen weeks ended May 1, 2021.

There were no potentially dilutive securities outstanding during the thirteen weeks ended May 2, 2020.

There were approximately 3.4 million potential shares that were anti-dilutive and excluded from the computation of diluted shares outstanding during the twenty-six weeks ended July 31, 2021.

There were no potentially dilutive securities outstanding during the twenty-six weeks ended August 1, 2020.

For periods prior to the Company’s conversion to a Delaware corporation in January 2021, the Company has retrospectively presented net loss per share as if the conversion had occurred at the beginning of the earliest period presented.

10 unchanged sentences

While the ultimate outcome of the matters cannot be determined, the Company currently does not expect that these matters will have a material adverse effect on its condensed consolidated financial statements.

The outcome of any litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of particular litigation is appropriate, the Company may be subject to liability that could have a material adverse effect on its condensed consolidated financial statements.

The outcome of any litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of a particular litigation matter is appropriate, the Company may be subject to liability that could have a material adverse effect on its condensed consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements