Petsmart 2006 Annual Report Download - page 45

investment in the development of our information systems, to add to our services capacity with the expansion of
certain grooming salons, to remodel or replace certain store assets and to continue our store refresh program.
In addition, we plan to purchase 19 Super Pet stores in Canada, as described in Note 17 to the Notes to
Consolidated Financial Statements.
We believe our existing cash and cash equivalents, together with cash flows from operations, borrowing
capacity under our bank credit facility and available lease financing, 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 refinance indebtedness depends on our future
operating performance and cash flow, which are subject to prevailing economic conditions and to financial, business
and other factors, some of which are beyond our control.
Lease and Other Commitments
Operating and Capital Lease Commitments and Purchase 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 28, 2007, and the effect that such obligations are expected to have on our liquidity and cash flows in future
periods (in thousands):
Contractual Obligation(1) 2007
2008 &
2009
2010 &
2011
2012 and
Beyond Total
Fiscal Year
Operating lease obligations ...... $248,440 $501,235 $466,859 $1,076,734 $2,293,268
Capital lease obligations(2) ...... 72,122 157,605 161,475 544,460 935,662
Purchase obligations(3) . . . ...... 10,525 — — — 10,525
Total ...................... $331,087 $658,840 $628,334 $1,621,194 $3,239,455
Less: Sublease income . . . ...... (4,972) (9,211) (7,909) (12,784) (34,876)
Net Total ................... $326,115 $649,629 $620,425 $1,608,410 $3,204,579
(1) At January 28, 2007, we had no long-term debt other than capital lease obligations.
(2) Includes $355.1 million in interest.
(3) Represents purchase obligation for advertising.
Lease Contingencies
In December 1997, we entered into operating lease agreements for a pool of 11 properties. Under the
agreements, in year ten of the lease, we must elect to either cancel the leases and pay a cancellation fee, make an
offer to purchase the leased property for a predetermined value or amend the leases with a provision for a change in
rent payments and a cancellation price at the end of the amended term. In January 2007, we elected the cancellation
option on two leases, the purchase option on three leases, and an extension on the remaining six leases with a change
in rent payments to occur in January 2008. The landlords for the leases where we elected the cancellation option
must respond to our election by June 2007. The landlords for the leases where we made an offer to purchase must
respond to our offer by September 2007. The landlords for the leases where we elected to change rent payments
must respond to our election by November 2007. We do not believe that the impact of these leases and elections will
be material to our consolidated financial statements.
In May 1998, we entered into additional operating lease agreements for a pool of eight properties. Under the
agreements, in year ten of the lease, we must elect to either cancel the leases and pay a cancellation fee, make an
offer to purchase the leased property for a predetermined value or amend the leases with a provision for a change in
rent payments and a cancellation price at the end of the amended term. The decision date for each property is May
2007 with any payment under these options to occur in May 2008. We are currently evaluating our options under the
lease agreements to determine the impact on our consolidated financial statements.
33