Costco 2011 Annual Report Download - page 22

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materially affect our profitability. In addition, climate change could affect our ability to procure needed
commodities at costs and in quantities we currently experience. We also sell a substantial amount of
gasoline, the demand for which could be impacted by concerns about climate change and which also
could face increased regulation. Climate change may be associated with extreme weather conditions,
such as more intense hurricanes, thunderstorms, tornados and snow or ice storms, as well as rising
sea levels. Extreme weather conditions increase our costs, and damage resulting from extreme
weather may not be fully insured.
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 or may become 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 included in 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 risks of selling unsafe products.
If our merchandise offerings, including food and prepared food products for human consumption, drugs
and childrens’ products, do not meet or are perceived not to 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. 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.
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