Sears 2006 Annual Report Download - page 9

as fuel costs and the availability of consumer credit, affect consumer-spending habits. In addition, disposable
income levels may influence consumer-purchasing patterns. A general slowdown in the United States economy
or an uncertain economic outlook could adversely affect consumer spending habits and our operating results.
The domestic and international political situation also affects consumer confidence. The threat, outbreak or
escalation of terrorism, military conflicts or other hostilities could lead to a decrease in consumer spending. Any
of these events and factors could cause us to increase inventory markdowns and promotional expenses, thereby
reducing our gross margins and operating results.
We rely extensively on computer systems to process transactions, summarize results and manage our
business. Disruptions in these systems could harm our ability to run our business.
Given the number of individual transactions we have each year, it is critical that we maintain uninterrupted
operation of our computer and communications hardware and software systems. Our systems are subject to
damage or interruption from power outages, computer and telecommunications failures, computer viruses,
security breaches, catastrophic events such as fires, tornadoes and hurricanes, and usage errors by our employees.
If our systems are damaged or cease to function properly, we may have to make a significant investment to fix or
replace them, and we may suffer interruptions in our operations in the interim. Any material interruption in our
computer operations may have a material adverse effect on our business or results of operations. In addition, we
are pursuing complex initiatives to transform our information technology processes and systems, which will
include, for many systems, establishing a common platform across our lines of business, such as common human
resources, supply chain and financial systems. The risk of disruption is increased in periods where such complex
and significant systems changes are undertaken. Also, if we fail to successfully combine our systems, we may
fail to realize cost savings anticipated to be derived from these initiatives.
The loss of key personnel may disrupt our business and adversely affect our financial results.
We depend on the contributions of key personnel, including Edward S. Lampert (chairman), Aylwin B.
Lewis (Chief Executive Officer and President) and other key employees, for our future success. Although certain
executives, including Mr. Lewis, have employment agreements with us, changes in our senior management and
any future departures of key employees may disrupt our business and materially adversely affect our results of
operations.
Affiliates of our Chairman, whose interests may be different than your interests, exert substantial
influence over our Company.
Affiliates of Edward S. Lampert, the Chairman of our Board of Directors, beneficially own 42.5% of the
outstanding shares of our common stock. These affiliates are controlled, directly or indirectly, by Mr. Lampert.
Accordingly, these affiliates, and thus Mr. Lampert, have substantial influence over many if not all actions to be
taken or approved by our stockholders, including the election of directors and any transactions involving a
change of control.
The interests of these affiliates, which have investments in other companies, may from time to time diverge
from the interests of our other stockholders, particularly with regard to new investment opportunities. This
substantial influence may have the effect of discouraging offers to acquire our Company because the
consummation of any such acquisition would likely require the consent of these affiliates.
We may be subject to product liability claims if people or property are harmed by the products we sell or
the services we offer.
Some of the products we sell may expose us to product liability claims relating to personal injury, death, or
property damage caused by such products, and may require us to take actions such as product recalls. We also
9