Costco 2008 Annual Report Download - page 21

contamination or spoilage, including the presence of foreign objects, substances, chemicals, other
agents, or residues introduced during the growing, storage, handling and transportation phases. While
we are subject to governmental inspection and regulations and believe our facilities comply in all
material respects with all applicable laws and regulations, we cannot be sure that consumption of our
products will not cause a health-related illness in the future or that we will not be subject to claims or
lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued,
the negative publicity surrounding any assertion that our products caused illness or injury could
adversely affect our reputation with existing and potential members and our corporate and brand
image.
Our success depends, in part, on the continued contributions of management and on our ability
to attract, train and retain highly qualified employees.
Our success depends to a significant degree on the continued contributions of members of our senior
management and other key operations, merchandising and administrative personnel, and the loss of
any such person(s) could have a material adverse effect. Other than an annual agreement with our
President and CEO, Mr. Sinegal, we have no employment agreements with our officers. We must
attract, train and retain a large and growing number of highly qualified employees, while controlling
related labor costs. Our ability to control labor costs is subject to numerous external factors, including
prevailing wage rates and healthcare and other insurance costs. We compete with other retail and
non-retail businesses for these employees and invest significant resources in training and motivating
them. There is no assurance that we will be able to attract or retain highly qualified employees in the
future, which could have a material adverse effect on the Company’s business, results of operations
and financial condition. The Company does not maintain key man insurance.
If we do not maintain the privacy and security of member-related information, we could damage
our reputation with members, incur substantial additional costs and become subject to
litigation.
We receive and retain certain personal information about our members. In addition, our online
operations at www.costco.com and www.costco.ca depend upon the secure transmission of
confidential information over public networks, including information permitting cashless payments. A
compromise of our security systems or those of other business partners that results in our member’s
personal information being obtained by unauthorized persons could adversely affect our reputation with
our members and others, as well as our operations, results of operations, financial condition and
liquidity, and could result in litigation against us or the imposition of penalties. In addition, a security
breach could require that we expend significant additional resources related to the security of
information systems and could result in a disruption of our operations, particularly our online sales
operations.
Additionally, the use of individually identifiable data by our business and our business associates is
regulated at the international, federal and state levels. Privacy and information security laws and
regulations change, and compliance with them may result in cost increases due to necessary systems
changes and the development of new administrative processes. If we or those with whom we share
information fail to comply with these laws and regulations or experience a data security breach, our
reputation could be damaged, possibly resulting in lost future business, and we could be subjected to
additional legal risk as a result of non-compliance.
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