Petsmart 2007 Annual Report Download - page 22

There is a risk of loss from breaches in the security or other failures resulting from inadequate or failed
processes or systems, theft or fraud. These can occur in many forms including, among others, errors, business
interruptions, inappropriate behavior of or misconduct by our associates or those contracted to perform services for
us, and vendors that do not perform in accordance with their contractual agreements. These events can potentially
result in financial losses or other damages.
We procure insurance to help manage a variety of risks including many of the foregoing claims. A failure of
insurance to provide coverage for these risks may expose us to expensive defense costs and the costs of the ultimate
outcome of the matter. Furthermore, in connection with our insurance policies, we are subject to decisions made by
the insurance companies that may result in an increase in our costs that are outside of our control, which may impact
our financial results.
Our inability to obtain commercial insurance at acceptable prices or our failure to adequately reserve for
self-insured exposures may have a negative impact on our business.
Insurance costs continue to be volatile, affected by natural catastrophes, fear of terrorism and financial
irregularities and fraud at other publicly traded companies. We believe that commercial insurance coverage is
prudent for risk management, and insurance costs may increase substantially in the future. In addition, for certain
types or levels of risk, such as risks associated with earthquakes, hurricanes or terrorist attacks, we may determine
that we cannot obtain commercial insurance at acceptable prices. Therefore, we may choose to forego or limit our
purchase of relevant commercial insurance, choosing instead to self-insure one or more types or levels of risks.
Provisions for losses related to self-insured risks are based upon independent actuarially determined estimates. We
maintain stop-loss coverage to limit the exposure related to certain risks. The assumptions underlying the ultimate
costs of existing claim losses are subject to a high degree of unpredictability, which can affect the liability recorded
for such claims. For example, variability in inflation rates of health care costs inherent in these claims can affect the
amounts realized. Similarly, changes in legal trends and interpretations, as well as a change in the nature and method
of how claims are settled can impact ultimate costs. Although our estimates of liabilities incurred do not anticipate
significant changes in historical trends for these variables, any changes could have a considerable effect upon future
claim costs and currently recorded liabilities and could have a material impact on our consolidated financial
statements.
Pending legislation, weather, catastrophic events, disease or other factors could disrupt our operations,
supply chain and the supply of small pets and products we sell, which could harm our reputation and
decrease sales.
There is generally a significant amount of legislation pending at the federal, state, provincial and local levels
regarding the handling of pets. This legislation may impair our ability to transport the small pets we sell in our
stores. The small pets we sell in our stores are susceptible to health risks and diseases that can quickly decrease or
destroy the supply of these pets. In addition, our supply of products may be negatively impacted by weather,
catastrophic events, disease, supply chain malfunctions, contamination or trade barriers. Any disruption in our
operations or the supply of products to our stores could harm our reputation and decrease our sales.
Food safety, quality and health concerns could affect our business.
We could be adversely affected if consumers lose confidence in the safety and quality of certain vendor-
supplied food products and hard-good products. Adverse publicity about these types of concerns, whether valid or
not, may discourage consumers from buying the products in our stores or cause vendor production and delivery
disruptions. The real or perceived sale of contaminated food products by us could result in product liability claims
against our vendors or us and a loss of consumer confidence, which could have a material adverse effect on our sales
and operations.
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