Petsmart 2004 Annual Report Download - page 50

The operating and capital lease commitment payment schedule above is shown net of estimated sublease
income. Sublease income for operating and capital leases at January 30, 2005 is as follows (in thousands):
Sublease
Income
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,567
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,588
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,448
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,342
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,538
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19,918
$41,401
Letters of Credit
We issue letters of credit for guarantees provided for insurance programs, capital lease agreements and
utilities. As of January 30, 2005, $35.8 million was outstanding under our letters of credit.
Related Party Transactions
We have an investment in MMI Holdings, Inc., or MMIH, a provider of veterinary and other pet-related
services. MMIH, through a wholly owned subsidiary, Medical Management International, Inc., or MMI,
operates full-service veterinary hospitals and wellness hospitals inside approximately 430 of our stores, under
the registered trademark of BanÑeld, The Pet Hospital. Philip L. Francis, our Chairman and Chief Executive
OÇcer, and Robert F. Moran, our President and Chief Operating OÇcer, are members of the board of
directors of MMIH. Our investment consists of common and convertible preferred stock. During the second
quarter of 2004, we purchased an additional $0.8 million of MMIH capital stock from certain MMIH
stockholders, and as of January 30, 2005, we owned approximately 16.5% of the voting stock and
approximately 36.1% of the combined voting and non-voting stock of MMIH. We charge MMI licensing fees
for the space used by the veterinary hospitals, and we treat this income as a reduction of the retail stores'
occupancy costs. We record occupancy costs as a component of cost of sales in our consolidated statements of
operations. Licensing fees are determined by Ñxed costs per square foot, adjusted for the number of days the
hospitals are open and sales volumes achieved. We recognized licensing fees of approximately $13.1 million,
$10.5 million and $8.3 million during Ñscal 2004, 2003 and 2002 respectively. Licensing fees receivable from
MMI totaled $5.4 million and $4.4 million at January 30, 2005 and February 1, 2004, respectively, and were
included in receivables in the accompanying consolidated balance sheets.
Credit Facility
At our option, on November 21, 2003, we amended our credit facility to reduce the available
commitment to $125.0 million, extend the maturity by two years to April 30, 2008, and amended certain
covenants. The credit facility permits us to pay dividends, so long as we are not in default or the payment of
dividends would not result in default. The credit facility is secured by substantially all our personal property
assets and certain real property. We pay a fee to the lenders each quarter at an annual rate of 0.25% of the
unused amount of the credit facility. As of January 30, 2005, we had no borrowings outstanding under the
credit facility; however, we issue letters of credit for guarantees provided for insurance programs, capital lease
agreements and utilities.
Seasonality and InÖation
Our business is subject to seasonal Öuctuations. We typically realize a higher portion of our net sales and
operating proÑt during the fourth Ñscal quarter. As a result of this seasonality, we believe that quarter-to-
quarter comparisons of our operating results are not necessarily meaningful, and that these comparisons
cannot be relied upon as indicators of future performance. Controllable expenses, such as advertising, could
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