Sears 2006 Annual Report Download - page 10

Download and view the complete annual report

Please find page 10 of the 2006 Sears annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 112

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112

provide various services which could also give rise to such claims. Although we maintain liability insurance, we
cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will
continue to be available to us on economically reasonable terms, or at all.
We may be subject to periodic litigation and other regulatory proceedings. These proceedings may be
affected by changes in laws and government regulations or changes in the enforcement thereof.
From time to time, we may be involved in lawsuits and regulatory actions relating to our business, certain of
which may be in jurisdictions with reputations for aggressive application of laws and procedures against
corporate defendants. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot
accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material
adverse impact on our business, financial condition and results of operations. In addition, regardless of the
outcome of any litigation or regulatory proceedings, these proceedings could result in substantial costs and may
require that we devote substantial resources to defend our Company. Further, changes in governmental
regulations both in the United States and in the other countries where we operate could have adverse effects on
our business and subject us to additional regulatory actions. For a description of current legal proceedings, see
Item 3, “Legal Proceedings” in this Form 10-K.
The Company’s failure to successfully invest available surplus cash could negatively affect the Company’s
performance
The Company’s performance with respect to the investment of surplus cash is substantially dependent on the
performance of Edward S. Lampert, to whom the Company’s Board of Directors has delegated authority to direct
such investments, subject to certain limitations.
There can be no assurance that the Company will be successful in its efforts to identify investment
opportunities that meet its requirements. Any such investments may include significant and highly concentrated
direct investments, related derivative positions, or both, with respect to the equity securities of public companies.
In addition, any such investments will involve risks, and Holdings’ balance sheet and results of operations may
fluctuate, depending on the extent of excess funds and the timing, magnitude and performance of the Company’s
investments. Furthermore, such investments would be subject to volatility due to market conditions and other
conditions over which the Company may not have control, which may affect both the recorded value of the
investments as well as the Company’s periodic earnings. Accordingly, the poor performance by a significant
investment of the Company could have a material adverse effect on the results of operations and financial
condition of the Company.
Specifically, at February 3, 2007, the Company had total return swaps outstanding with an aggregate
notional amount of $375 million. See Part II, Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Investment of Available Capital.” These investments are highly
concentrated and involve substantial risks. A significant decline in the value of these investments could have a
material adverse effect on the Company’s quarterly and annual results of operations.
Item 1B. Unresolved Staff Comments
None.
10