Costco 2010 Annual Report Download - page 81

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motions to dismiss the amended complaint on various grounds, including that plaintiffs failed properly
to allege why a pre-suit demand had not been made on the board of directors. On September 20,
2010, a special committee of the Board of Directors of the Company approved an agreement in
principle with the plaintiffs that would terminate the litigation. The agreement, which is subject among
other things to federal district court approval, provides that the Company will pay an amount not to
exceed $4.85 million in attorneys’ fees to plaintiffs’ counsel and will adopt or maintain certain
governance, control and other process changes.
On October 4, 2006, the Company received a grand jury subpoena from the United States Attorney’s
Office for the Central District of California, seeking records relating to the Company’s receipt and
handling of hazardous merchandise returned by Costco members and other records. The Company is
cooperating with the inquiry and at this time cannot reasonably estimate any loss that may arise from
this matter.
The Environmental Protection Agency (EPA) issued an Information Request to the Company, dated
November 1, 2007, under the Clean Air Act. The EPA is seeking records regarding warehouses in the
states of Arizona, California, Hawaii, and Nevada relating to compliance with regulations concerning
air-conditioning and refrigeration equipment. On March 4, 2009, the Company was advised by the
Department of Justice that the Department was prepared to allege that the Company has committed at
least nineteen violations of the leak-repair requirements of 40 C.F.R. § 82.156(i) and at least seventy-
four violations of the recordkeeping requirements of 40 C.F.R. § 82.166(k), (m) at warehouses in these
four states. The Company has responded to these allegations, is engaged in communications with the
Department about these and additional allegations made by letter dated September 10, 2009, and has
entered into a tolling agreement. An Information Request dated January 14, 2008, has also been
received concerning a warehouse in New Hampshire. Substantial penalties may be levied for violations
of the Clean Air Act. In April 2008 the Company received an information request from the South Coast
Air Quality Management District concerning certain locations in Southern California. The Company has
responded to that request. The Company is cooperating with these inquiries and at this time cannot
reasonably estimate any loss that might arise from these matters.
On October 7, 2009, the District Attorneys for San Diego, San Joaquin and Solano Counties filed a
complaint, People of the State of California v. Costco Wholesale Corp., et. al No. 37-2009-00099912
(Superior Court for the County of San Diego), alleging on information and belief that the Company has
violated and continues to violate provisions of the California Health and Safety Code and the Business
and Professions Code through the use of certain spill clean-up materials at its gasoline stations. Relief
sought includes, among other things, requests for preliminary and permanent injunctive relief, civil
penalties, costs and attorneys’ fees. On September 2, 2010, the court dismissed the complaint without
prejudice. An amended complaint was filed on September 13, 2010.
The Company has received notices from most states stating that they have appointed an agent to
conduct an examination of the books and records of the Company to determine whether it has
complied with state unclaimed property laws. The States of Washington and New York are conducting
such examinations on their own behalf. In addition to seeking the turnover of unclaimed property
subject to escheat laws, the states may seek interest, penalties, costs of examinations, and other relief.
Except where indicated otherwise above, a reasonable estimate of the possible loss or range of loss
cannot be made at this time for the matters described. The Company does not believe that any
pending claim, proceeding or litigation, either alone or in the aggregate, will have a material adverse
effect on the Company’s financial position; however, it is possible that an unfavorable outcome of some
or all of the matters, however unlikely, could result in a charge that might be material to the results of
an individual fiscal quarter.
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