Petsmart 2002 Annual Report Download - page 37

We believe our existing cash and cash equivalents, together with cash Öows from operations, borrowing
capacity under our bank credit facility and available lease Ñnancing, will provide adequate funds for our
foreseeable working capital needs, planned capital expenditures and debt service obligations. Our ability to
fund our operations, make planned capital expenditures, scheduled debt payments, and reÑnance indebted-
ness, depends on our future operating performance and cash Öow, which are subject to prevailing economic
conditions and to Ñnancial, business and other factors, some of which are beyond our control.
OÅ Balance Sheet Arrangements
Operating and Capital Lease Commitments
The following table summarizes our contractual obligations, net of estimated sublease income, at
February 2, 2003, and the eÅect that such obligations are expected to have on our liquidity and cash Öows in
future periods (in thousands).
Payments Due in Fiscal Year
2004 & 2006 & 2008 and
Contractual Obligation 2003 2005 2007 Beyond Total
Operating lease obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏ $174,328 $372,490 $323,730 $1,055,400 $1,925,948
Capital lease obligations(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏ 23,745 40,261 40,392 242,387 346,785
Purchase obligationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18,500 Ì Ì Ì 18,500
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $216,573 $412,751 $364,122 $1,297,787 $2,291,233
(1) Includes $179.8 million in interest.
The operating lease payment schedule above is shown net of estimated sublease income. Sublease income
for operating and capital leases is as follows: 2003: $2,641,000; 2004: $2,457,000; 2005: $2,502,000;
2006: $2,558,000; 2007: $2,580,000, and thereafter, $12,013,000.
Letters of Credit
We issue letters of credit for guarantees provided for the structured lease facilities, insurance programs,
import purchases and utilities. As of February 2, 2003, $47.4 million was outstanding under our letters of
credit.
Purchase Obligation
In the fourth quarter of 2002, we entered into a purchase agreement for an aircraft that will require a Ñnal
payment of approximately $18.5 million in the Ñrst quarter of Ñscal 2003.
Structured Lease Facilities
We have entered into lease agreements for certain stores as part of a structured lease Ñnancing. The
structured lease Ñnancing facilities provide a special purpose entity, not aÇliated with us, with the necessary
Ñnancing to complete the acquisition and construction of new stores. Once construction has been completed,
another special purpose entity, also not aÇliated with us, leases the completed stores to us for a four-year
term. After the four-year term has expired, we are required to pay the balance of the Ñnancing, provide for the
sale of the properties to a third party, or pay a guaranteed residual amount.
We have one outstanding special purpose entity lease remaining as of February 3, 2002, which
encompasses seven stores and two properties. Included in the operating leases for 2004 is the Ñnal payment of
approximately $27.7 million. The lease is supported by a letter of credit issued under our revolving credit
facility, which contains certain terms with which we must comply. There are no substantive Ñnancial
covenants associated with the lease facility.
The Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 46, ""Consolida-
tion of Variable Interest Entities,'' or FIN 46, an interpretation of Accounting Research Bulletin No. 51,
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