Petsmart 2006 Annual Report Download - page 48

Other Information
Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the
Sarbanes-Oxley Act of 2002, PetSmart is responsible for listing the non-audit services approved in the fourth
quarter of fiscal 2006 by the PetSmart Audit Committee to be performed by Deloitte & Touche LLP, our
independent registered public accountants. Non-audit services are defined in the law as services other than those
provided in connection with an audit or a review of the consolidated financial statements of PetSmart. The Audit
Committee approved $0.2 million of non-audit related tax services in the fourth quarter of fiscal 2006.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
We are subject to certain market risks arising from transactions in the normal course of our business. Such risk
is principally associated with interest rate and foreign exchange fluctuations, as well as changes in our credit
standing. In addition, a market risk exists associated with fuel prices.
Energy Costs
Increased fuel prices have negatively impacted our results of operations during fiscal 2006. Fuel surcharges for
transporting product from our vendors to our distribution centers and from our distribution centers to our stores have
increased over fiscal 2005. The fuel surcharge difference was primarily in the first and second quarter of fiscal 2006.
However, freight expense as a percentage of net sales was lower in fiscal 2006 due to a reduction in average miles
driven per store as a result of our new distribution center and better truck space utilization. The improvement in
mileage driven per store and truck utilization offset increases in fuel prices. In addition, utilities costs have increased
between the periods.
Foreign Currency Risk
Our Canadian subsidiary operates 33 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. Approximately $133.0 million, or 3.1%, of our net sales for fiscal 2006
were denominated in the Canadian dollar. 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.
We had a net exchange gain (loss) of $(0.4) million, $0.2 million and $2.4 million in fiscal 2006, 2005 and
2004, respectively.
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. There were no borrowings under the line
of credit during fiscal 2006 or 2005.
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
PetSmart maintains 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
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