Petsmart 2007 Annual Report Download - page 41

Lease and Other Commitments
Operating and Capital Lease Commitments and Other Obligations
The following table summarizes our contractual obligations, net of estimated sublease income, and includes
obligations for executed agreements for which we do not yet have the right to control the use of the property at
February 3, 2008, and the effect that such obligations are expected to have on our liquidity and cash flows in future
periods (in thousands):
Contractual Obligation 2008
2009 &
2010
2011 &
2012
2013 and
Beyond Other Total
Operating lease obligations ..... $254,586 $559,027 $520,819 $1,162,539 $ — $2,496,971
Capital lease obligations(1) ..... 81,788 193,568 199,221 586,873 — 1,061,450
Short-term debt(2) . . .......... 30,000 — — — — 30,000
Purchase obligations(3) ........ 54,813 59,534 — — — 114,347
Uncertain tax positions(4) ...... — — — — 8,824 8,824
Total ...................... $421,187 $812,129 $720,040 $1,749,412 $8,824 $3,711,592
Less: Sublease income ......... (4,072) (7,477) (6,606) (7,368) — (25,523)
Net Total ................... $417,115 $804,652 $713,434 $1,742,044 $8,824 $3,686,069
(1) Includes $372.5 million in interest.
(2) Credit facility borrowings.
(3) Represents purchase obligations for advertising and a product purchase agreement with a vendor.
(4) Approximately $8.8 million of unrecognized tax benefits, as shown in “other,” have been recorded as liabilities
in accordance with FIN 48, and we are uncertain as to if or when such amounts may be settled.
Letters of Credit
We issue letters of credit for guarantees provided for insurance programs, capital lease agreements and
utilities. As of February 3, 2008, $70.4 million was outstanding under our letters of credit.
Related Party Transactions
We have an investment in MMI Holdings, Inc. who, through a wholly-owned subsidiary, Medical Management
International, Inc., operates full-service veterinary hospitals inside 673 of our stores. Our investment consists of
common and convertible preferred stock.
During the first quarter of 2007, we sold a portion of our non-voting shares in MMIH resulting in a pre-tax gain of
$95.4 million. In connection with this transaction, we also converted our remaining MMIH non-voting shares to voting
shares. The increase in voting shares caused us to exceed the significant influence threshold as defined by GAAP,
which required us to account for our investment in MMIH using the equity method of accounting instead of the
previously applied cost method in accordance with APB No. 18. As of February 3, 2008, we owned approximately
21.5% of the voting stock and approximately 21.0% of the combined voting and non-voting stock of MMIH.
Conversion to the equity method of accounting would typically require a restatement of prior years’
consolidated financial statements for MMIH earnings. However, because the amounts are not material, we have
not restated prior year financial statements. Our equity income from our investment in MMIH, which is recorded
one month in arrears, was $1.7 million for 2007.
We charge MMIH license fees for the space used by the veterinary hospitals and for their portion of utilities
costs. We treat these amounts as a reduction of the retail stores’ occupancy costs, which are included as a component
of cost of sales in the Consolidated Statements of Operations and Comprehensive Income. We also charge MMIH
for its portion of specific operating expenses, and treat the reimbursement as a reduction of the stores’ operating
expense.
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