Costco 2009 Annual Report Download - page 22

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we operate and the temporary reduction in the availability of products in our warehouses. Public health
issues, such as a potential H1N1 flu pandemic (Swine flu), whether occurring in the United States or
abroad, could disrupt our operations, disrupt the operations of suppliers or customers, or have an
adverse impact on consumer spending and confidence levels. We may be required to suspend
operations in some or all of our locations, which could have a material adverse effect on our business,
financial condition, and results of operations. These events could also reduce demand for our products
or make it difficult or impossible to receive products from suppliers.
We are subject to a wide variety of federal, state, regional, local and international laws, and
regulations relating to the use, storage, discharge, and disposal of hazardous materials and
hazardous and non-hazardous wastes, and other environmental matters.
Any failure to comply with these laws could result in costs to satisfy environmental compliance,
remediation or compensatory requirements, or the imposition of severe penalties or restrictions on
operations by governmental agencies or courts that could adversely affect our operations.
We are involved in a number of legal proceedings and audits, and while we cannot predict the
outcomes of such proceedings and other contingencies with certainty, some of these
outcomes may unfavorably affect our operations or increase our costs.
We are involved in a number of legal proceedings and audits, including grand jury investigations, other
government investigations, consumer, employment, tort and other litigation (see discussion of Legal
Proceedings in Note 11 to the consolidated financial statements on page of this Report). We
cannot predict with certainty the outcomes of these legal proceedings and other contingencies,
including environmental remediation and other proceedings commenced by governmental authorities.
The outcome of some of these legal proceedings and other contingencies could require us to take or
refrain from taking actions which could unfavorably affect our operations or could require us to pay
substantial amounts of money. Additionally, defending against these lawsuits and proceedings may
involve significant expense and diversion of management’s attention and resources. Our business
requires compliance with a great variety of laws and regulations. Failure to achieve compliance could
subject us to lawsuits and other proceedings, and lead to damage awards, fines and penalties.
We are subject to the risk of product liability claims.
If our merchandise offerings, including food and prepared food products for human consumption, drugs
and childrens’ products, do not meet applicable safely standards or our members’ expectations
regarding safety, we could experience lost sales, increased costs and be exposed to legal and
reputational risk. The sale of these items involves the risk of injury to our members. Such injuries may
result from tampering by unauthorized third parties, product contamination or spoilage, including the
presence of foreign objects, substances, chemicals, other agents, or residues introduced during the
growing, manufacturing, storage, handling and transportation phases. All of our vendors must comply
with applicable product safety laws, and we are dependent on them to ensure that the products we buy
comply with all safety standards. While we are subject to governmental inspection and regulations and
work to comply in all material respects with 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, lawsuits, or government investigations relating to such matters, resulting in costly
product recalls and other liabilities. 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 and these effects could be long term.
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