Petsmart 2006 Annual Report Download - page 27

A determination of a violation of any contractual obligations or government regulations could result in a
disruption to our operations and could harm our business.
We are subject to various contractual obligations with third-party providers and federal, state, provincial and
local laws and regulations governing among other things: our relationships with employees, including minimum
wage requirements, overtime, terms and conditions of employment, working conditions and citizenship require-
ments; veterinary practices, or the operation of veterinary hospitals in retail stores, that may impact our ability to
operate veterinary hospitals in certain facilities; the transportation, handling and sale of small pets; the generation,
handling, storage, transportation and disposal of waste and biohazardous materials; the distribution, import/export
and sale of products; providing services to our customers; contracted services with various third-party providers;
credit and debit card processing; the handling, security, protection and use of customer information; and the
licensing and certification of services.
We seek to structure our operations to comply with all federal, state, provincial and local laws and regulations
of each jurisdiction in which we operate. Given varying and uncertain interpretations of these 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 operating
effectiveness and obtained an opinion on the effectiveness of our internal controls from our independent registered
public accounting firm. 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, implementing improvements and receiving
an opinion from our independent registered public accounting firm. 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.
GAAP and related accounting pronouncements, implementation guidelines and interpretations with regard to a
wide range of matters relevant 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
underlying assumptions, estimates or judgments by us 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 operate in multiple tax jurisdictions and believe we have made adequate provision for income and other
taxes. If, however, tax regulators in these jurisdictions determine a position we have taken on an issue is
inappropriate, our financial results may be adversely affected.
Our business exposes us to claims, litigation and risk of loss that could result in adverse publicity, harm to
our brand and impact our financial results.
We are occasionally subject to claims due to the injury or death of a pet in our stores or while under our care.
We may also be subject to claims resulting from the transfer of diseases from pets in our stores to other animals,
associates and customers. From time to time, we have been subject to class action lawsuits, governmental action,
intellectual property infringement claims, product liability claims for some of the products we sell and general
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