Costco 2010 Annual Report Download - page 22

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. Our vendors are generally contractually required to 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.
Our success depends 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
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, retain, and transmit 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 members’
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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