Petsmart 2004 Annual Report Download - page 32

We depend on key personnel and may not be able to retain or replace these employees or recruit additional
qualiÑed personnel, which could harm our business.
Our success is largely dependent on the eÅorts and abilities of our senior executive group. The loss of the
services of one or more of our key executives could adversely impact our Ñnancial performance and our ability
to execute our strategies. In addition, our future success will depend on our ability to attract highly skilled
store managers and qualiÑed services personnel such as pet trainers and groomers. There is a high level of
competition for these employees, and our ability to operate our stores and expand these services depends on
our ability to attract and retain these personnel. In addition, historically there has been a shortage of qualiÑed
veterinarians. If BanÑeld cannot attract and retain a suÇcient number of veterinarians, BanÑeld's ability to
provide veterinary services in our stores and increase the number of stores in which BanÑeld 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 operated 25 stores in Canada as of January 30, 2005. As
these operations grow, they may require greater management and Ñnancial resources. International operations
require the integration of personnel with varying cultural and business backgrounds and an understanding of
the relevant diÅerences in the legal and regulatory environments. Our results may be increasingly aÅected by
the risks of our international activities, including:
‚ Fluctuations in currency exchange rates;
‚ Changes in international staÇng and employment issues;
‚ TariÅ and other trade barriers;
‚ 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 MMI, the third party operator of BanÑeld, The Pet Hospital, are subject to laws governing the
operation of veterinary hospitals. MMI Holdings, Inc., or MMIH, is the parent company of MMI. Statutes
and regulations in various states and Canadian provinces regulating the ownership of veterinary practices, or
the operation of veterinary hospitals in retail stores, may impact our ability and MMI's ability to operate
veterinary hospitals within our facilities. A determination that we or MMI are in violation of any of these
applicable statutes and regulations could require us or MMI to restructure our operations to comply or render
us or MMI unable to operate veterinary hospitals in a given location. We recorded $13.1 million and
$10.5 million from MMI during 2004 and 2003, respectively, as a reduction of the retail stores' occupancy
costs. We record store occupancy costs as a component of cost of sales in our consolidated Ñnancial
statements. If MMIH or MMI were to experience Ñnancial or other operating diÇculties 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, both directly and due to a decrease in customer traÇc. 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 Ì Related Party Transactions.''
Our business would be harmed if we were unable to raise any needed additional capital on acceptable terms.
We anticipate that our existing capital resources and cash Öows 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 Öows and operating income in the future, we may need additional
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