Petsmart 2005 Annual Report Download - page 32

our stores, our business may be harmed, both directly and due to a decrease in customer traffic. There can be no
assurance that we could contract with another third party to operate the veterinary hospitals on favorable terms, if at
all, or that we could successfully operate the veterinary hospitals ourselves. For a further discussion of our
relationship with MMI, please see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Related Party Transactions.”
Our business would be harmed if we were unable to raise any needed additional capital on acceptable
terms.
We believe our capital resources and cash flows from operations will enable us to maintain our currently
planned operations for the foreseeable future. If, however, we are unable to generate and maintain positive operating
cash flows and operating income in the future, we may need additional funding. We may also choose to raise
additional capital due to market conditions or strategic considerations even if we believe that we have sufficient
funds for our current or future operating plans. Our credit facility is secured by substantially all our personal
property assets, our subsidiaries and certain real property. This could limit our ability to obtain, or obtain on
favorable terms, additional financing and may make additional debt financing outside our credit facility more
costly. If additional capital were needed, an inability to raise capital on favorable terms would harm our business
and financial condition. In addition, to the extent that we raise additional capital through the sale of equity or debt
securities convertible into equity, the issuance of these securities could result in dilution to our stockholders.
A determination of a violation of any contractual obligations or government regulations could result in a
disruption to our operations and could harm our business.
We are subject to various contractual obligations with third party providers and federal, state, provincial and
local laws and regulations governing among other things: our relationships with employees, including minimum
wage requirements, overtime, terms and conditions of employment, working conditions and citizenship require-
ments; veterinary practices, or the operation of veterinary hospitals in retail stores, that may impact our ability to
operate veterinary hospitals in certain facilities; the transportation, handling and sale of small pets; environmental
regulations with respect to the generation, handling, storage, transportation and disposal of waste and biohazardous
materials; the distribution, import/export and sale of products; providing services to our customers; services
contracted for with various third party providers; the handling, security, protection and use of customer information;
and the licensing and certification of services.
We seek to structure our operations to comply with all federal, state, provincial and local laws and regulations
of each jurisdiction in which we operate. Given varying and uncertain interpretations of these laws and regulations
and the fact that the laws and regulations are enforced by the courts and by regulatory authorities with broad
discretion, there can be no assurances that we would be found to be in compliance in all jurisdictions. We also could
be subject to costs, including fines, penalties or sanctions and third party claims as a result of violations of, or
liabilities under, the above referenced contracts, laws and regulations.
A determination by tax regulators may cause our provision for income and other taxes to be inadequate and
may result in a material impact to our financial position.
We operate in multiple tax jurisdictions and believe an adequate provision for income and other taxes has been
made. If, however, tax regulators in these jurisdictions determine that a position that we have taken on an issue is
inappropriate, this may result in a material impact to our financial position. The Internal Revenue Service is
currently examining our tax returns for fiscal 2002, 2003 and 2004. While the examination has not been finalized,
no issues have been identified that would have a material impact on our financial position or results of operations.
Our business exposes us to claims that could result in adverse publicity, harm to our brand and a reduction
in our sales.
We are occasionally subject to claims due to the injury or death of a pet in our stores or while under our care in
connection with the pet services we provide. In addition, we sell certain small pets including fish, birds, reptiles and
small rodents in our stores. Given the large number of small pets we sell, deaths or injuries of these small pets
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