Costco 2012 Annual Report Download - page 21

Unfavorable changes in tax rates could adversely affect our financial condition and results of
operations.
We compute our income tax provision based on enacted tax rates in the countries in which we operate.
As the tax rates vary among countries, a change in earnings attributable to the various jurisdictions in
which we operate could result in an unfavorable change in our overall tax provision. Additionally, any
change in the enacted tax rates, any adverse outcome in connection with any income tax audits in any
jurisdiction, including transfer pricing disputes, or any change in the pronouncements relating to
accounting for income taxes could have a material adverse affect on our financial condition and results
of operations.
Significant changes in, or failure to comply with, federal, state, regional, local and international
laws and regulations relating to the use, storage, discharge and disposal of hazardous
materials, hazardous and non-hazardous wastes and other environmental matters could
adversely impact our business, financial condition and results of operations.
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, hazardous and
non-hazardous wastes and other environmental matters. Any failure to comply with these laws could
result in significant 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 business, financial condition and results of
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 could adversely affect our business, financial condition and results of operations.
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, or may become involved, in a number of legal proceedings and audits including
grand jury investigations, government and agency investigations, and 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, audits,
unclaimed property laws, and other contingencies could require us to take, or refrain from taking,
actions which could negatively affect our operations or could require us to pay substantial amounts of
money adversely affecting our financial condition and results of operations. Additionally, defending
against these lawsuits and proceedings may involve significant expense and diversion of
management’s attention and resources.
We are subject to the risks of selling unsafe products which could result in illness or injury to
our members, harm our reputation and subject us to litigation.
If our merchandise offerings, including food and prepared food products for human consumption,
drugs, childrens’ products, and pet products, do not meet or are perceived not to meet applicable
safety 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 health-related illness or injury to our members. Such illnesses or injuries could 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
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