Sears 2011 Annual Report Download - page 100

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
nominating for re-election to the Sears Holdings Corporation board Mr. Crowley and Ms. Reese while they were
also members of the boards of AutoNation, Inc. (Crowley), AutoZone, Inc. (Crowley), and Jones Apparel Group,
Inc. (Reese), defendants violated Section 8 of the Clayton Act prohibiting “interlocking directorships” and
breached their fiduciary duty to the Company. Plaintiff sought injunctive relief and recovery of its costs,
including reasonable attorney fees. In April 2010, the parties entered into an Amended Stipulation of Settlement,
which the Court preliminarily approved in May 2010. The settlement included certain remedial measures but did
not contemplate any monetary payment other than a potential payment of plaintiffs’ attorney fees. On January 27,
2012, the Court denied the parties’ motion for final approval of the settlement. Under the terms of the settlement,
the Court’s order has restored the parties to their respective positions and rendered the Stipulation of Settlement
without further force and effect. The Court has not yet set a schedule for further proceedings. Theodore H. Frank,
a purported shareholder of the Company, has appealed the Court’s denial of his motion to intervene in opposition
to the settlement. The Court of Appeals has set a schedule that provides for briefing of the Frank appeal to be
completed by April 25, 2012. The case is not expected to have a material effect on our annual results of
operations, financial position, liquidity or capital resources.
We are a defendant in several lawsuits containing class-action allegations in which the plaintiffs are current
and former hourly and salaried associates who allege various wage and hour violations and unlawful termination
practices. The complaints generally seek unspecified monetary damages, injunctive relief, or both. Further,
certain of these proceedings are in jurisdictions with reputations for aggressive application of laws and
procedures against corporate defendants.
We are subject to various other legal and governmental proceedings and investigations, including some
involving the practices and procedures in our more highly regulated businesses and many involving litigation
incidental to those and other businesses. Some matters contain class action allegations, environmental and
asbestos exposure allegations and other consumer-based, regulatory or qui tam claims, each of which may seek
compensatory, punitive or treble damage claims (potentially in large amounts), as well as other types of relief.
In accordance with accounting standards regarding loss contingencies, we accrue an undiscounted liability
for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated,
and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount
accrued, if such disclosure is necessary for our financial statements to not be misleading. We do not record
liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably
estimated, or when the liability is believed to be only reasonably possible or remote.
Because litigation outcomes are inherently unpredictable, our evaluation of legal proceedings often involves
a series of complex assessments by management about future events and can rely heavily on estimates and
assumptions. If the assessments indicate that loss contingencies that could be material to any one of our financial
statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then we
disclose the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement
that such loss is not reasonably estimable. While the consequences of certain unresolved proceedings are not
presently determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of
amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings
could have a material effect on our earnings in any given reporting period. However, in the opinion of our
management, after consulting with legal counsel, and taking into account insurance and reserves, the ultimate
liability related to current outstanding matters is not expected to have a material effect on our financial position,
liquidity or capital resources.
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