Dollar General 2010 Annual Report Download - page 91

10-K
Product liability and food safety claims could adversely affect our business, reputation and financial
performance.
Despite our best efforts to ensure the quality and safety of the products we sell, we may be subject
to product liability claims from customers or penalties from government agencies relating to products,
including food products, that are recalled, defective or otherwise alleged to be harmful. Such claims
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, storage, handling and transportation phases. All of our vendors and their products must
comply with applicable product and food safety laws. We generally seek contractual indemnification and
insurance coverage from our suppliers. However, if we do not have adequate contractual
indemnification and/or insurance available, such claims could have a material adverse effect on our
business, financial condition and results of operations. Our ability to obtain indemnification from
foreign suppliers may be hindered by the manufacturers’ lack of understanding of U.S. product liability
or other laws, which may make it more likely that we be required to respond to claims or complaints
from customers as if we were the manufacturer of the products. Even with adequate insurance and
indemnification, such claims could significantly damage our reputation and consumer confidence in our
products. Our litigation expenses could increase as well, which also could have a materially negative
impact on our results of operations even if a product liability claim is unsuccessful or is not fully
pursued.
We are subject to governmental regulations, procedures and requirements. A significant change in, or
noncompliance with, these regulations could have a material adverse effect on our financial performance.
Our business is subject to numerous federal, state and local laws and regulations. We routinely
incur costs in complying with these regulations. New laws or regulations, particularly those dealing with
healthcare reform, product safety, and labor and employment, among others, or changes in existing
laws and regulations, particularly those governing the sale of products, may result in significant added
expenses or may require extensive system and operating changes that may be difficult to implement
and/or could materially increase our cost of doing business. In addition, such changes or new laws may
require the write off and disposal of existing product inventory, resulting in significant adverse financial
impact to us. Untimely compliance or noncompliance with applicable regulations or untimely or
incomplete execution of a required product recall can result in the imposition of penalties, including
loss of licenses or significant fines or monetary penalties, in addition to reputational damage.
Litigation may adversely affect our business, financial condition and results of operations.
Our business is subject to the risk of litigation by employees, consumers, suppliers, competitors,
shareholders, government agencies and others through private actions, class actions, administrative
proceedings, regulatory actions or other litigation. The number of employment-related class actions
filed each year has continued to increase, and recent changes and proposed changes in Federal and
state laws may cause claims to rise even more. The outcome of litigation, particularly class action
lawsuits, regulatory actions and intellectual property claims, is difficult to assess or quantify. Plaintiffs in
these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of
the potential loss relating to these lawsuits may remain unknown for substantial periods of time. In
addition, certain of these lawsuits, if decided adversely to us or settled by us, may result in liability
material to our financial statements as a whole or may negatively affect our operating results if changes
to our business operation are required. The cost to defend future litigation may be significant. There
also may be adverse publicity associated with litigation that could negatively affect customer perception
of our business, regardless of whether the allegations are valid or whether we are ultimately found
liable. As a result, litigation may adversely affect our business, financial condition and results of
operations. See Note 9 to the consolidated financial statements for further details regarding certain of
these pending matters.
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