Petsmart 2007 Annual Report Download - page 63

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Foreign Currency Translation and Transactions
The local currency has been used as the functional currency in Canada. We translate assets and liabilities
denominated in foreign currency into United States dollars at the current rate of exchange at year-end, and translate
revenues and expenses at the average exchange rate during the year. Translation gains and losses are included as a
separate component of other comprehensive income, and transaction gains and losses are included in net income.
Other Comprehensive Income
Foreign currency translation adjustments were the only component of other comprehensive income and are
reported separately in stockholders’ equity. The income tax expense related to the foreign currency translation
adjustments was $2.9 million for 2007 and not material for 2006 and 2005.
Earnings Per Common Share
Basic earnings per common share is calculated by dividing net income by the weighted average of shares
outstanding during each period. Diluted earnings per common share reflects the potential dilution of securities that
could share in earnings, such as potentially dilutive common shares that may be issuable upon the exercise of
outstanding common stock options and unvested restricted stock, and is calculated by dividing net income by the
weighted average shares, including dilutive securities, outstanding during the period.
Recently Issued 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
F-13
PetSmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)