Costco 2011 Annual Report Download - page 23

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 on our business. 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 and maintaining our core values. 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 and business 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.
Our security measures may be undermined due to the actions of outside parties, employee error,
malfeasance, or otherwise, and, as a result, an unauthorized party may obtain access to our data
systems and misappropriate business and personal information. Because the techniques used to
obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and
may not immediately produce signs of intrusion, we may be unable to anticipate these techniques or to
implement adequate preventative measures. Any such breach or unauthorized access could result in
significant legal and financial exposure, damage to our reputation, and potentially have an adverse
effect on our business.
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