Sears 2012 Annual Report Download - page 8

8
The lack of willingness of our vendors to provide acceptable payment terms could negatively impact our
liquidity and/or reduce the availability of products or services we seek to procure.
We depend on our vendors to provide us with financing on our purchases of inventory and services. Our
vendors could seek to limit the availability of vendor credit to us or other terms under which they sell to us, or both,
which could negatively impact our liquidity. In addition, the inability of vendors to access liquidity, or the
insolvency of vendors, could lead to their failure to deliver inventory or other services. Certain of our vendors
finance their operations and/or reduce the risk associated with collecting accounts receivable from us by selling or
“factoring” the receivables or by purchasing credit insurance or other forms of protection from loss associated with
our credit risks. The ability of our vendors to do so is subject to the perceived credit quality of the Company. Such
vendors could be limited in their ability to factor receivables or obtain credit protection in the future because of our
perceived financial position and creditworthiness, which could reduce the availability of products or services we
seek to procure.
Certain factors, including changes in market conditions and our credit ratings, may limit our access to capital
markets and other financing sources and materially increase our borrowing costs.
In addition to credit terms from vendors, our liquidity needs are funded by our operating cash flows and, to the
extent necessary, borrowings under our credit agreements and commercial paper program and access to capital
markets. The availability of financing depends on numerous factors, including economic and market conditions, our
operating performance, our credit ratings, and lenders' assessments of our prospects and the prospects of the retail
industry in general. Changes in these factors may affect our cost of financing, liquidity and our ability to access
financing sources, including the accordion feature of our domestic revolving credit facility and possible second lien
indebtedness that is permitted under the domestic revolving credit facility. Rating agencies revise their ratings for
the companies that they follow from time to time and our ratings may be revised or withdrawn in their entirety at
any time.
While the Company's domestic revolving credit facility currently provides for up to $3.275 billion of lender
commitments, our ability to borrow funds under this facility is limited by a borrowing base determined relative to
the value, from time to time, of eligible inventory, accounts receivable and certain other assets. If, through asset
sales or other means, the value of these eligible assets is not sufficient to support borrowings of up to the full amount
of the commitments under this facility, we will not have full access to the facility, but rather could have access to a
lesser amount determined by the borrowing base.
The lenders under our credit facilities may not be able to meet their commitments if they experience shortages
of capital and liquidity and there can be no assurance that our ability to otherwise access the credit markets will not
be adversely affected by changes in the financial markets and the global economy.
We cannot predict whether our plans to generate liquidity, reduce inventory and reduce fixed costs will be
successful.
We have plans to generate at least $500 million of additional liquidity over the next 12 months, reduce peak
domestic inventory in fiscal year 2013 by $500 million from $8.6 billion at the end of the third quarter of fiscal year
2012 and reduce our fixed cost base by $200 million during fiscal year 2013. The achievement of these objectives is
subject to risks and uncertainties with respect to market conditions and other factors that may cause our actual
results, performance or achievements to be materially different from our plans, and there can be no assurance that
transactions to monetize assets or other actions to generate liquidity will become available on acceptable terms. Our
ability to reduce fixed costs, which include occupancy costs and certain payroll costs, may be limited by our
contractual obligations and other factors.
Due to the seasonality of our business, our annual operating results would be adversely affected if our
business performs poorly in the fourth quarter.
Our business is seasonal, with a high proportion of revenues, operating income and operating cash flows being
generated during the fourth quarter of our year, which includes the holiday season. As a result, our fourth quarter
operating results significantly impact our annual operating results. Our fourth quarter operating results may fluctuate
significantly, based on many factors, including holiday spending patterns and weather conditions.