Sears 2012 Annual Report Download - page 10

10
information technology processes and systems. These initiatives are highly complex and include replacing legacy
systems, upgrading existing systems, and acquiring new systems and hardware with updated functionality. The risk
of disruption is increased in periods when such complex and significant systems changes are undertaken.
If we do not maintain the security of our member and customer, associate or company information, we could
damage our reputation, incur substantial additional costs and become subject to litigation.
Any significant security compromise or breach of member and customer, associate or company data, either
held or maintained by the Company or our third-party providers, could significantly damage our reputation and
brands and result in additional costs, lost sales, fines and/or lawsuits. The regulatory environment related to
information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable
to our business, and compliance with those requirements could result in additional costs. There is no guarantee that
the procedures that we have implemented to protect against unauthorized access to secured data are adequate to
safeguard against all data security breaches. A data security breach could negatively impact our business and our
results of operations.
We rely on third parties to provide us with services in connection with the administration of certain aspects of
our business.
We have entered into agreements with third-party service providers (both domestic and overseas) to provide
processing and administrative functions over a broad range of areas, and we may continue to do so in the future.
These areas include finance and accounting, information technology, including IT development, call center, human
resources and procurement functions. Services provided by third parties as a part of outsourcing initiatives could be
interrupted as a result of many factors, such as acts of God or contract disputes, and any failure by third parties to
provide us with these services on a timely basis or within our service level expectations and performance standards
could result in a disruption of our business. In addition, to the extent we are unable to maintain our outsourcing
arrangements; we would incur substantial costs, including costs associated with hiring new employees, in order to
return these services in-house. These outsourcing arrangements also carry the risk that the Company will fail to
adequately retain the significant internal historical knowledge of our business and systems that is transferred to the
service providers as the employment of the Company's personnel who possess such knowledge ends.
We could incur charges due to impairment of goodwill, intangible and long-lived assets.
At February 2, 2013, we had goodwill and intangible asset balances of $3.3 billion, which are subject to
periodic testing for impairment. Our long-lived assets, primarily stores, also are subject to periodic testing for
impairment. A significant amount of judgment is involved in the periodic testing. Failure to achieve sufficient levels
of cash flow within each of our reporting units, or sales of our branded products or cash flow generated from
operations at individual store locations could result in impairment charges for goodwill and intangible assets or fixed
asset impairment for long-lived assets, which could have a material adverse effect on our reported results of
operations. Impairment charges, if any, resulting from the periodic testing are non-cash. A significant and sustained
decline in our stock price could result in goodwill impairment charges. During times of financial market volatility,
significant judgment is used to determine the underlying cause of the decline and whether stock price declines are
short-term in nature or indicative of an event or change in circumstances. See Notes 12 and 13 of Notes to
Consolidated Financial Statements for further information.
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, our Chairman and Chief
Executive Officer, and other key employees, for our future success. Although certain executives 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.