Petsmart 2007 Annual Report Download - page 19

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expand our services depends on our ability to attract and retain these personnel. Competition for qualified
management and services personnel could require us to pay higher wages or other compensation to attract a
sufficient number of employees. Turnover, which has historically been high among entry-level or part-time
associates at our stores and distribution centers, increases the risk associates will not have the training and
experience needed to provide competitive, high-quality customer service. Our ability to meet our labor needs while
controlling our labor costs is subject to numerous external factors, including unemployment levels, prevailing wage
rates, changing demographics and changes in employment legislation. If we are unable to retain qualified associates
or our labor costs increase significantly, our business operations and our financial performance could be adversely
impacted. In addition, there historically has been a shortage of qualified veterinarians. If Banfield cannot attract and
retain a sufficient number of qualified veterinarians, Banfield’s ability to provide veterinary services in our stores
and our ability to increase the number of stores in which Banfield provides veterinary services, may be impacted.
Our international operations may result in additional market risks, which may harm our business.
We entered the Canadian market in 1996 and operate 55 stores in Canada as of February 3, 2008. As these
operations grow, they may require greater management and financial resources. International operations require the
integration of personnel with varying cultural and business backgrounds and an understanding of the relevant
differences in the cultural, legal and regulatory environments. Our results may be increasingly affected by the risks
of our international activities, including:
• Fluctuations in currency exchange rates;
• Changes in international staffing and employment issues;
• Tariff and other trade barriers;
• Greater difficulty in utilizing and enforcing our intellectual property rights;
• Failure to understand the local culture and market;
• The burden of complying with foreign laws, including tax laws; and
• Political and economic instability and developments.
Our business may be harmed if the operation of veterinary hospitals at our stores is limited or fails to continue.
We and MMIH, the third-party operator of Banfield, The Pet Hospital, and our other third-party operators are
subject to statutes and regulations in various states and Canadian provinces regulating the ownership of veterinary
practices, or the operation of veterinary hospitals in retail stores, that may impact our ability to host and MMIH’s
ability to operate veterinary hospitals within our facilities. A determination that we or MMIH are in violation of any
of these applicable statutes and regulations could require us or MMIH to restructure our operations to comply or
render us or MMIH unable to operate veterinary hospitals in a given location. If MMIH were to experience financial
or other operating difficulties that would force it to limit its operations, or if MMIH were to cease operating the
veterinary hospitals in our stores, our business may be harmed. We can make no assurances 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.
We currently account for our investment in MMIH under the equity method of accounting under Accounting
Principles Board Opinion, or APB No. 18, “The Equity Method of Accounting for Investments in Common Stock.”
Any significant decrease in MMIH’s financial results may negatively impact our consolidated financial statements.
We face various risks as an e-commerce retailer.
We may require additional capital in the future to sustain or grow our e-commerce business. We have engaged a
third-party to maintain our U.S. e-commerce website and process all customer orders placed through that site.
Business risks related to our e-commerce business include our ability to keep pace with rapid technological change,
failure in our or any third-party processor’s security procedures and operational controls, failure or inadequacy in
our or any third-party processor’s systems or ability to process customer orders, government regulation and legal
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