Petsmart 2009 Annual Report Download - page 23

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 actuarially 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 unpredictability, 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 interpretations, 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.
Pending legislation, weather, catastrophic events, disease, or other factors, could disrupt our operations, supply
chain and the supply of small pets and products we sell, which could harm our reputation and decrease sales.
There is generally a significant amount of legislation pending at the federal, state, provincial and local levels
regarding the handling of pets. This legislation may impair our ability to transport the small pets we sell in our
stores. The small pets we sell in our stores are susceptible to health risks and diseases that can quickly decrease or
destroy the supply of these pets. In addition, our supply of products may be negatively impacted by weather,
catastrophic events, disease, supply chain malfunctions, contamination or trade barriers. Any disruption in our
operations or the supply of products to our stores could harm our reputation and decrease our sales.
Fluctuations in the stock market, as well as general economic and market conditions, may impact our oper-
ations, sales, financial results and market price of our common stock.
Over the last several years, the market price of our common stock has been subject to significant fluctuations.
The market price of our common stock may continue to be subject to significant fluctuations in response to the
impact on our operations, sales and financial results of a variety of factors including, but not limited to:
• General economic changes;
• Actions taken by our competitors, including new product introductions and pricing changes;
• Changes in the strategy and capability of our competitors;
• Our ability to successfully integrate acquisitions;
• The prospects of our industry;
• Natural disasters, hostilities and acts of terrorism; and
• National or regional catastrophes or circumstances, such as a pandemic or other public health or welfare scare.
In addition, the stock market in recent years has experienced price and volume fluctuations that often have
been unrelated or disproportionate to the operating performance of companies. These fluctuations, as well as
general economic and market conditions, including but not limited to those listed above, may harm the market price
of our common stock.
15