Petsmart 2007 Annual Report Download - page 44

distribution center in Newnan, Georgia and better truck space utilization. Our results will be negatively impacted if
energy prices continue to increase.
Foreign Currency Risk
Our Canadian subsidiary operates 55 stores and uses the Canadian dollar as the functional currency and the
United States dollar as the reporting currency. We have certain exposures to foreign currency risk. However, we
believe that such exposure does not present a significant risk due to a relatively limited number of transactions and
accounts denominated in foreign currency. Net sales in Canada, denominated in United States dollars, were
$188.6 million, or 4.0%, of our consolidated net sales for 2007. Transaction gains and losses denominated in the
United States dollar are recorded in cost of sales or operating, general and administrative expenses in the
Consolidated Statements of Operations and Comprehensive Income depending on the nature of the underlying
transaction.
Net exchange gains and losses were not material in 2007, 2006 and 2005.
Interest Rate Risk
We have the ability to use a revolving line of credit and short-term bank borrowings to support seasonal
working capital needs and to finance capital requirements of the business. Borrowings under the credit facility bear
interest at a bank’s prime rate plus 0% to 0.25% or LIBOR plus 0.875% to 1.25%. Therefore, we have exposure to
changes in interest rates. During 2007, we borrowed $100.0 million to partially fund our ASR, in addition to
occasional borrowings as needed to support seasonal working capital needs. As of February 3, 2008, there were
borrowings of $30.0 million under the revolving line of credit. We had no borrowings under the line of credit during
2006.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is attached as Appendix F.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that
information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our management, including our Chief
Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding
required disclosure.
As required by Rule 13a-15(b) under the Exchange Act, our management conducted an evaluation (under the
supervision and with the participation of our CEO and our CFO) as of the end of the period covered by this report, of
the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. In
performing this evaluation, our CEO and CFO concluded that, as of February 3, 2008, our disclosure controls and
procedures were (1) designed to ensure that material information relating to us, including our consolidated
subsidiaries, is made known to our CEO and CFO by others within the entities, particularly during the period in
which this report was being prepared and (2) effective, in that they provide reasonable assurance that information
required to be discussed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms.
Management’s Report on Internal Control Over Financial Reporting
We are responsible for the preparation and integrity of the consolidated financial statements appearing in our
Annual Report on Form 10-K. The consolidated financial statements were prepared in conformity with accounting
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