Petsmart 2012 Annual Report Download - page 41

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33
decisions regarding the options available to manage costs for benefit programs impacted by the Acts. We will continue to assess
the impact of the Acts on our health care plans.
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 foreign exchange fluctuations.
Foreign Currency Risk
Our Canadian subsidiary operates 80 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. Net sales in Canada, denominated in United
States dollars, were $0.4 billion, or 5.5% of our consolidated net sales for 2012. 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 Income and Comprehensive Income depending on the nature of the underlying transaction.
The transaction loss (gain) included in net income was $0.5 million, $0.8 million and $(0.7) million for 2012, 2011 and 2010,
respectively.
We maintain a natural hedge through management of the cash accounts denominated in United States Dollars held in Canada
in an effort to reduce the impact of foreign currency exchange rate fluctuations. From time to time, we have also entered into
foreign currency exchange forward contracts, or “Foreign Exchange Contracts,” in Canada to manage the impact of foreign currency
exchange rate fluctuations related to certain balance sheet accounts. We do not designate these Foreign Exchange Contracts as
hedges and, accordingly, they are recorded at fair value using quoted prices for similar assets or liabilities in active markets. The
changes in the fair value are recognized in operating, general and administrative expenses in the Consolidated Statements of
Income and Comprehensive Income. The recorded gains and losses were immaterial for 2011 and 2010. We did not enter into
Foreign Exchange Contracts during 2012.
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.