Petsmart 2000 Annual Report Download - page 29

of the financial covenants under its debt agreements depends on its future operating performance and cash flow,
which in turn are subject to prevailing economic conditions and to financial, business and other factors, some of
which are beyond the Company’ s control.
Seasonality and Inflation
The Company’ s business is subject to some seasonal fluctuation and it typically realizes a significant portion
of its net sales and operating profits during the fourth fiscal quarter. In addition, sales of certain of the Company’ s
products and services designed to address pet health needs, such as flea and tick problems, have been and may
continue to be negatively impacted by the introduction of alternative treatments, as well as by variations in
weather conditions. In addition, because PETsMART’ s superstores typically draw customers from a large trade
area, sales may be impacted by adverse weather or travel conditions.
The Company’ s results of operations and financial position are presented based upon historical cost.
Although the Company cannot accurately anticipate the effect of inflation on its operations, it does not believe
inflation is likely to have a material adverse effect on its net sales or results of operations.
Rece nt Accounting Pronounce ments
Statement of Financial Accounting Standards (“SFAS”) No. 137, “Accounting for Derivative Instruments
and Hedging Activities — Deferral of the Effective Date of SFAS 133” issued in June 1999 defers the effective
date of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, which was issued in
June 1998. SFAS 133 establishes the accounting and reporting standards for derivative instruments and hedging
activities, requiring that an entity recognize all derivatives as either assets or liabilities in the statement of financial
position and measure them at fair value. It also provides for matching of the timing of gain or loss recognition on
the hedging instrument with the recognition of (i) the changes in the fair value of the hedged asset or liability
related to the hedged risk or (ii) the hedged forecasted transaction earnings effect. Adoption is required for fiscal
years beginning after June 15, 2000. The C ompany will adopt SFAS 133 in the first quarter of fiscal 2001. The
Company has not yet analyzed the impact of adopting this statement.
Item 7.a. Quantitative and Qualitative Disclosures About Market Risks
The Company is subject to the risk of fluctuating interest rates in the ordinary course of business on certain
assets including cash and cash equivalents, borrowings under its revolving credit arrangement and the 6.75%
convertible subordinated notes due 2004. The C ompany had entered into interest rate swaps to lower its funding
costs and reduce its exposure to changes in short term interest rates. In January 2000, the Company terminated
all interest rate swap agreements for a nominal cost. The Company does not expect changes in fair value of the
arrangements to have a significant effect on the Company’ s operations, cash flow or financial position. See
Notes 8 and 10 of Notes to the Consolidated Financial Statements.
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Item 8. Financial Statements and Supplementary Data
The information required by this Item is attached as Appendix F.
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