Sears 2011 Annual Report Download - page 11

such, we rely on trademark and copyright law, patent law, trade secret protection and confidentiality agreements
with our associates, consultants, vendors, and others to protect our proprietary rights. Nevertheless, the steps we
take to protect our proprietary rights may be inadequate. If we are unable to protect or preserve the value of our
trademarks, copyrights, trade secrets, patents or other proprietary rights for any reason, or if we fail to maintain
the image of our brands due to merchandise and service quality issues, actual or perceived, or other reasons, our
brands and reputation could be damaged and we could lose customers.
We may be subject to product liability claims if people or properties 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
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. Our pharmacy and home services businesses, in particular, are subject to numerous federal,
state and local regulations. We are impacted by trends in litigation, including class-action allegations brought
under various consumer protection and employment laws, including wage and hour laws, and investigations and
actions that are based on allegations of untimely compliance or noncompliance with applicable regulations or
statutes. 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,” as
well as Note 18 of Notes to Consolidated Financial Statements in this report on Form 10-K.
Our pension and postretirement benefit plan obligations are currently underfunded, and we may have to
make significant cash payments to some or all of these plans, which would reduce the cash available for
our businesses.
We have unfunded obligations under our domestic and foreign pension and postretirement benefit plans.
The funded status of our pension plans is dependent upon many factors, including returns on invested assets, the
level of certain market interest rates and the discount rate used to determine pension obligations. Unfavorable
returns on the plan assets or unfavorable changes in applicable laws or regulations could materially change the
timing and amount of required plan funding, which would reduce the cash available for our businesses. In
addition, a decrease in the discount rate used to determine pension obligations could result in an increase in the
valuation of pension obligations, which could affect the reported funding status of our pension plans and future
contributions, as well as the periodic pension cost in subsequent years. Moreover, unfavorable regulatory action
could materially change the timing and amount of required plan funding and negatively impact our business
operations and impair our business strategy.
Item 1B. Unresolved Staff Comments
None.
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