Petsmart 2004 Annual Report Download - page 76

PETsMART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Financial Instruments
The Company's Ñnancial instruments consist primarily of cash and cash equivalents and auction rate
securities. These balances, as presented in the consolidated Ñnancial statements at January 30, 2005 and
February 1, 2004 approximate their fair value.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board, or FASB, issued FASB Interpretation, or FIN, 46,
""Consolidation of Variable Interest Entities,'' an interpretation of Accounting Research Bulletin No. 51,
""Consolidated Financial Statements,'' on January 17, 2003. FIN 46 requires that an entity holding a majority
of the ""variable interest'' of a ""variable interest entity'' must consolidate the operations of that variable interest
entity of which it is the primary beneÑciary. In 2003, the Company purchased two properties from a structured
lease Ñnancing facility (see ""Structured Lease Facilities'' in Note 14). In 2003, the structured lease Ñnancing
facility was liquidated. FIN 46 was eÅective for the Company on August 4, 2003. With the liquidation of the
Company's special purpose entity during 2003, the adoption of FIN 46 did not have a material impact on the
Company's consolidated Ñnancial statements.
In March 2003, the FASB's Emerging Issues Task Force, or EITF, reached a consensus on Issue 02-16,
""Accounting by a Customer (including a Reseller) for Cash Consideration Received from a Vendor.'' The
transition provisions apply prospectively to arrangements with vendors entered into or modiÑed after
December 31, 2002, do not allow for prior period reclassiÑcation, and require companies to account for all
amounts received from vendors as a reduction of the cost of the products purchased unless certain criteria are
met that allow companies to account for vendor funding as a reduction of related selling, general and
administrative expenses. During Ñscal 2004, 2003 and 2002, the Company recorded approximately
$10,422,000, $10,931,000 and $11,007,000, respectively, for cooperative promotional income. The Company
adopted the provisions of EITF 02-16 for vendor contracts entered into or modiÑed subsequent to
December 31, 2002, and the adoption did not have a material impact on the consolidated Ñnancial statements.
In November 2003, the FASB's Emerging Issues Task Force reached a consensus on Issue 03-10,
""Application of Issue No. 02-16 by Resellers to Sales Incentives OÅered to Consumers by Manufacturers.''
Under EITF 03-10, any cash consideration a company receives from a vendor as part of a certain exclusive
sales incentive arrangement must be recorded in the income statement as an oÅset to cost of sales, and cannot
be recorded as revenue, unless the company meets certain criteria. EITF 03-10 is eÅective for new
arrangements and modiÑcations to existing arrangements entered into in Ñscal periods beginning after
November 25, 2003. EITF 03-10 permits reclassiÑcation of prior periods for comparison purposes. The
Company adopted EITF 03-10 on February 2, 2004, which resulted in a decrease in sales and a corresponding
decrease in cost of sales in the consolidated statements of operations of $3,336,000 and $2,936,000, for Ñscal
2004 and 2003, respectively.
On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), ""Share-Based
Payment'' (""FAS 123(R)''), which is a revision of FASB Statement No. 123, ""Accounting for Stock-Based
Compensation'' and supersedes APB Opinion No. 25, ""Accounting for Stock Issued to Employees'', and its
related implementation guidance. FAS 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the Ñnancial statements based on their grant-date fair
values. FAS 123(R) is eÅective for public companies at the beginning of the Ñrst interim or annual period
beginning after June 15, 2005. The Company intends to adopt FAS 123(R) beginning in its Ñrst quarter of
Ñscal 2005 ending May 1, 2005 and intends to utilize the modiÑed retrospective transition method, which
allows the restatement of prior periods by recognizing compensation cost in the amounts previously reported in
the pro forma footnote disclosures under the provisions of Statement 123.
F-14