Petsmart 2011 Annual Report Download - page 25

laws and regulations and the fact that the laws and regulations are enforced by the courts and by regulatory
authorities with broad discretion, we can make 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.
Failure of our internal controls over financial reporting could harm our business and financial results.
We have documented and tested our internal controls over financial reporting to assess their design and
operating effectiveness. Internal controls over financial reporting have inherent limitations and are not intended
to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. We
may encounter problems or delays in completing the review and evaluation, or implementing improvements.
Additionally, we may identify deficiencies that need to be addressed in our internal controls over financial
reporting, or other matters that may raise concerns for investors. Should we, or our independent registered public
accounting firm, determine in future periods that we have a material weakness in our internal controls over
financial reporting, our results of operations or financial condition may be adversely affected and the price of our
common stock may decline.
Changes in laws, accounting standards and subjective assumptions, estimates and judgments by management
related to complex accounting matters could significantly affect our financial results.
Accounting principles generally accepted in the United States of America, or “GAAP,” and related account-
ing pronouncements, implementation guidelines and interpretations with regard to a wide range of matters rele-
vant to our business are highly complex, continually evolving and involve many subjective assumptions,
estimates and judgments by us. Changes in these rules or their interpretation, or changes in facts, underlying
assumptions, estimates or judgments could significantly impact our reported or expected financial performance.
An unfavorable 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 results.
We are subject to periodic audits and examinations by the Internal Revenue Service, state, local or provin-
cial taxing authorities. Outcomes from the tax audits or examinations that we may be subject to in any juris-
diction in which we operate, or changes in the tax laws in any of the multiple jurisdictions in which we operate
could result in an unfavorable change in our effective tax rate which could have an adverse effect on our business
and financial results.
Failure to obtain commercial insurance at acceptable prices or failure to adequately reserve for self-insured
exposures might have a negative impact on our business.
We procure insurance to help us manage a variety of risks. 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.
Insurance costs continue to be volatile, affected by natural catastrophes, fear of terrorism, financial irregularities
and fraud at other publicly traded companies and fiscal viability of insurers. 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 actua-
rially 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 unpredict-
ability, 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 inter-
pretations, 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.
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