Petsmart 2009 Annual Report Download - page 40

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
January 31, 2010, and the effect that such obligations are expected to have on our liquidity and cash flows in future
periods (in thousands):
Contractual Obligation 2010
2011 &
2012
2013 &
2014
2015 and
Beyond Other Total
Operating lease obligations .... $281,834 $580,688 $496,590 $ 751,208 $ — $2,110,320
Capital lease obligations(1) .... 93,432 206,207 201,186 397,693 — 898,518
Purchase obligations(2) ....... 27,876 — — — — 27,876
Uncertain tax positions(3) ..... — — — — 7,652 7,652
Insurance obligations(4) ....... 20,730 — — — 66,511 87,241
Total ..................... $423,872 $786,895 $697,776 $1,148,901 $74,163 $3,131,607
Less: Sublease income ........ 4,115 7,043 5,041 4,953 — 21,152
Net Total .................. $419,757 $779,852 $692,735 $1,143,948 $74,163 $3,110,455
(1) Includes $326.1 million in interest.
(2) Represents purchase obligations for advertising commitments.
(3) Approximately $7.7 million of unrecognized tax benefits, as shown in “Other,” have been recorded as
liabilities, and we are uncertain as to if or when such amounts may be settled.
(4) Approximately $66.5 million of insurance obligations, as shown in “Other” have been classified as noncurrent
liabilities. We are unable to estimate the specific year to which the obligations will relate beyond 2010.
Letters of Credit
We issue letters of credit for guarantees provided for insurance programs. As of January 31, 2010, $83.8 million
was outstanding under our letters of credit.
Related Party Transactions
We have an investment in Banfield which, through a wholly-owned subsidiary, Medical Management
International, Inc., operates full-service veterinary hospitals inside 740 of our stores. Our investment consists
of common and convertible preferred stock.
In 2007, we sold a portion of our non-voting shares in Banfield resulting in a pre-tax gain of $95.4 million. In
connection with this transaction, we also converted our remaining Banfield 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 Banfield using the equity method of accounting instead of the
previously applied cost method. As of January 31, 2010, we owned approximately 21.4% of the voting stock and
approximately 21.0% of the combined voting and non-voting stock of Banfield. Our equity income from our
investment in Banfield, which is recorded one month in arrears, was $6.5 million for 2009.
We charge Banfield 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 Banfield
for its portion of specific operating expenses, and treat the reimbursement as a reduction of the stores’ operating
expense.
We recognized license fees, utilities and other cost reimbursements of $33.2 million, $30.1 million, and
$32.9 million during 2009, 2008, and 2007, respectively. Receivables from Banfield totaled $2.4 million and
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