Petsmart 2006 Annual Report Download - page 25

attract, train, manage and retain highly skilled store managers and qualified 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 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, which could impact our business
operations and our financial performance. In addition, there historically has been a shortage of qualified veter-
inarians. 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 operated 33 stores in Canada as of January 28, 2007. In addition,
on February 15, 2007, we announced our plan to acquire 19 additional Canadian stores in fiscal 2007. 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 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;
• 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, 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 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 account for our investment in MMIH under the cost method. As discussed in Note 17 to the Notes to
Consolidated Financial Statements, we increased our voting share in MMIH, which will result in equity method
accounting under Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments
in Common Stock” subsequent to fiscal 2006. 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. 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
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