Petsmart 2006 Annual Report Download - page 26

third-party processor’s systems, government regulation and legal uncertainties with respect to e-commerce, and
collection of sales or other taxes by one or more states or foreign jurisdictions. If any of these risks materializes, it
could have an adverse effect on our business.
Our business could be harmed if we were unable to effectively manage our cash flow and raise any needed
additional capital on acceptable terms.
We believe our capital resources and cash flows from operations will enable us to maintain our currently
planned operations for the foreseeable future and, when applicable, to pay dividends and repurchase shares of our
common stock. If, however, we are unable to effectively manage our cash flows or generate and maintain positive
operating cash flows and operating income in the future, we may need additional funding. We may also choose to
raise additional capital due to market conditions or strategic considerations even if we believe that we have
sufficient funds for our current or future operating plans. Our credit facility and letter of credit facility are secured
by substantially all our personal property assets, our subsidiaries and certain real property. This could limit our
ability to obtain, or obtain on favorable terms, additional financing and may make additional debt financing outside
our credit facility and letter of credit facility more costly. If additional capital were needed, an inability to raise
capital on favorable terms would harm our business and financial condition. In addition, to the extent that we raise
additional capital through the sale of equity or debt securities convertible into equity, the issuance of these securities
could result in dilution to our stockholders.
Failure to successfully integrate any business we acquire could have an adverse impact on our financial
results.
We may, from time to time, acquire businesses we believe to be complementary to our business. Acquisitions
may result in difficulties in assimilating acquired companies and may result in the diversion of our capital and our
management’s attention from other business issues and opportunities. We may not be able to successfully integrate
operations that we acquire, including their personnel, financial systems, distribution, operations and general
operating procedures. If we fail to successfully integrate acquisitions, we could experience increased costs
associated with operating inefficiencies which could have an adverse effect on our financial results.
Changes to estimates related to our property and equipment, or operating results that are lower than our
current estimates at certain store locations, may cause us to incur impairment charges.
We make estimates and projections in connection with impairment analyses for our store locations in
accordance with accounting principles generally accepted in the United States of America (GAAP). We review
all stores for potential impairment. An impairment charge is required when the carrying value of the asset exceeds
the undiscounted future cash flows over the life of the asset. These calculations require us to make a number of
estimates and projections of future results, often up to 15 years into the future. If these estimates or projections
change or prove incorrect, we may be, and have been, required to record impairment charges on certain of these
store locations. If these impairment charges are significant, our results of operations would be adversely affected.
Our inability or failure to protect our intellectual property could have a negative impact on our operating
results.
Our trademarks, service marks, copyrights, patents, trade secrets, domain names and other intellectual
property are valuable assets that are critical to our success. The unauthorized reproduction or other misappropri-
ation of our intellectual property could diminish the value of our brands or goodwill and cause a decline in our
revenue. Any infringement or other intellectual property claim made against us, whether or not it has merit, could be
time-consuming, result in costly litigation, cause product delays or require us to enter into royalty or licensing
agreements. As a result, any such claim could have an adverse effect on our operating results.
14