Petsmart 2010 Annual Report Download - page 39

Although other companies report free cash flow, numerous methods exist for calculating free cash flow. As a
result, the method used by our management to calculate free cash flow may differ from the methods other
companies use to calculate free cash flow. We urge you to understand the methods used by another company to
calculate free cash flow before comparing our free cash flow to that of another company.
We define free cash flow as net cash provided by operating activities minus cash paid for property and
equipment, and payments of capital lease obligations. We generated free cash flow of $280.9 million, $415.6 mil-
lion, and $148.7 million for 2010, 2009, and 2008, respectively. For the year ended January 30, 2011, our free cash
flow decreased primarily due to increases in merchandise inventory balances, income tax payments, capital
spending and capital lease payments during 2010. For the year ended January 31, 2010, our free cash flow increased
primarily due to a decrease in capital spending as a result of the slowdown in store openings.
The following table reconciles net cash provided by operating activities, a GAAP measure, to free cash flow, a
non-GAAP measure (in thousands).
January 30,
2011
January 31,
2010
February 1,
2009
Year Ended
Net cash provided by operating activities ............... $457,645 $ 566,943 $ 420,700
Cash paid for property and equipment .................. (125,074) (112,920) (238,188)
Payments of capital lease obligations .................. (51,668) (38,439) (33,853)
Free cash flow ................................... $280,903 $ 415,584 $ 148,659
Share Purchase Program
In August 2007, the Board of Directors approved a share purchase program authorizing the purchase of up to
$300.0 million of our common stock through August 2, 2009. We purchased 7.0 million shares for $225.0 million
during 2007. We purchased 2.3 million shares of our common stock for $50.0 million during 2008, and 1.2 million
shares of common stock for $25.0 million during the thirteen weeks ended May 3, 2009, completing the
$300.0 million program.
In June 2009, the Board of Directors approved a share purchase program authorizing the purchase of up to
$350.0 million of our common stock through January 29, 2012. During 2009, we purchased 5.9 million shares of our
common stock for $140.0 million under the June 2009 share purchase program. During the thirteen weeks ended
May 2, 2010, we purchased 3.4 million shares of common stock for $107.1 million under the June 2009 share
purchase program.
In June 2010, the Board of Directors replaced the $350.0 million program with a new share purchase program
authorizing the purchase of up to $400.0 million of our common stock through January 29, 2012. During the thirteen
weeks ended January 30, 2011, we purchased 2.6 million shares of common stock for $99.9 million. Since the
inception of the $400.0 million authorization in June 2010, we have purchased 4.2 million shares of common stock
for $156.2 million. As of January 30, 2011, $243.8 million remained available under the $400.0 million program.
Common Stock Dividends
We presently believe our ability to generate cash allows us to invest in the growth of the business and, at the
same time, distribute a quarterly dividend. Our credit facility and letter of credit facility permit us to pay dividends,
so long as we are not in default and the payment of dividends would not result in default. During 2010, 2009, and
2008, we paid aggregate dividends of $0.45 per share, $0.26 per share, and $0.12 per share, respectively.
Operating Capital and Capital Expenditure Requirements
Substantially all our stores are leased facilities. We opened 46 new stores and closed 8 stores in 2010.
Generally, each new store requires capital expenditures of approximately $1.0 million for fixtures, equipment and
leasehold improvements, approximately $0.3 million for inventory and approximately $0.1 million for preopening
costs. We expect total capital spending to be approximately $130.0 to $140.0 million for 2011, based on our plan to
31