Costco 2014 Annual Report Download - page 21

Failure to meet market expectations for our financial performance could adversely affect the
market price and volatility of our stock.
We believe that the price of our stock generally reflects high market expectations for our future operating
results. Any failure to meet or delay in meeting these expectations, including our comparable warehouse
sales growth rates, margins, earnings and earnings per share or new warehouse openings could cause
the market price of our stock to decline, as could changes in our dividend or stock repurchase policies.
Legal and Regulatory Risks
Our international operations subject us to risks associated with the legislative, judicial,
accounting, regulatory, political and economic factors specific to the countries or regions in
which we operate which could adversely affect our business, financial condition and results of
operations.
During 2014, our international operations, including Canada, generated 28% of our consolidated net
sales. We plan to continue expanding our international operations. As a result of these expansion
activities in countries outside the U.S., we expect that our international operations could account for a
larger portion of our net sales in future years. Future operating results internationally could be negatively
affected by a variety of factors, many similar to those we face in the U.S., but many of which are beyond
our control. These factors include political conditions, economic conditions, regulatory constraints,
currency regulations and exchange rates, and other matters in any of the countries or regions in which we
operate, now or in the future. Other factors that may impact international operations include foreign trade,
monetary and fiscal policies and the laws and regulations of the U.S. and foreign governments, agencies
and similar organizations, and risks associated with having major facilities located in countries which have
been historically less stable than the U.S. Risks inherent in international operations also include, among
others, the costs and difficulties of managing international operations, adverse tax consequences, and
greater difficulty in enforcing intellectual property rights. Additionally, foreign currency exchange rates and
fluctuations could have an adverse impact on our future costs or on future profits and cash flows from our
international operations.
Changes in accounting standards and subjective assumptions, estimates and judgments by
management related to complex accounting matters could significantly affect our financial
condition and results of operations.
Generally accepted accounting principles and related accounting pronouncements, implementation
guidelines, and interpretations with regard to a wide range of matters that are relevant to our business,
including, but not limited to, revenue recognition, investments, merchandise inventories, vendor rebates
and other vendor consideration, impairment of long-lived assets, self-insurance liabilities, and income
taxes are highly complex and involve many subjective assumptions, estimates and judgments by our
management. Changes in these rules or their interpretation or changes in underlying assumptions,
estimates or judgments by our management could significantly change our reported or expected financial
performance.
Provisions for losses related to self-insured risks are generally based upon independent actuarially
determined estimates. The assumptions underlying the ultimate costs of existing claim losses can be
highly unpredictable, which can affect the liability recorded for such claims. For example, variability in
inflation rates of health care costs inherent in these claims can affect the amounts realized. Similarly,
changes in legal trends and interpretations, as well as a change in the nature and method of how claims
are settled can impact ultimate costs. Although our estimates of liabilities incurred do not anticipate
significant changes in historical trends for these variables, any changes could have a considerable effect
upon future claim costs and currently recorded liabilities and could materially impact our consolidated
financial statements.
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