Petsmart 2007 Annual Report Download - page 43

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openings will also contribute to lower store operating margins until these stores become established. We expense
preopening costs associated with each new location as the costs are incurred.
Our results of operations and financial position are presented based upon historical costs. While neither
inflation nor deflation has had, nor do we expect them to have, a material impact on operating results, we can make
no assurances that our business will not be affected by inflation or deflation in the future.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair
value, establishes a framework and provides guidance regarding the methods used for measuring fair value, and
expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We are currently
evaluating SFAS No. 157 to determine its impact on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities,” which expands opportunities to use fair value measurements in financial reporting and permits entities
to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. We are currently evaluating SFAS No. 159 to determine its impact
on our consolidated financial statements.
In June 2007, the FASB ratified Emerging Issues Task Force, or EITF, Issue No. 06-11, “Accounting for the
Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF Issue No. 06-11 provides that tax
benefits associated with dividends on share-based payment awards that are charged to retained earnings be recorded
as a component of additional paid-in capital. EITF Issue No. 06-11 is effective, on a prospective basis, for fiscal
years beginning after December 15, 2007. We do not believe the impact of adopting EITF Issue No. 06-11 will be
material to our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.”
SFAS No. 141(R) establishes principles and requirements for how the acquirer in a business combination
recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and
any noncontrolling interest in the acquiree at the acquisition date fair value. SFAS No. 141(R) determines what
information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early
adoption is not permitted.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements,an Amendment of ARB No. 51.” SFAS No. 160 amends Accounting Research Bulletin, or ARB, No. 51
to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The provisions of SFAS No. 160 must be applied retrospectively upon adoption.
SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. Early adoption of SFAS No. 160 is
not permitted. We do not believe the impact of adopting SFAS No. 160 will be material to our consolidated financial
statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are subject to certain market risks arising from transactions in the normal course of our business. Such risk
is principally associated with interest rate and foreign exchange fluctuations, as well as changes in our credit
standing. In addition, a market risk exists associated with fuel prices.
Energy Costs
Increased fuel prices have negatively impacted our results of operations during 2007. Fuel surcharges for
transporting product from our vendors to our distribution centers and from our distribution centers to our stores have
increased over 2006. The fuel surcharge difference was most notable in the third and fourth quarters of 2007.
Offsetting the increase in fuel prices was a decrease in average miles driven per store as a result of our new
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