Sears 2013 Annual Report Download - page 12

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The interests of these affiliates, which have investments in other companies, including our former subsidiary,
Sears Hometown and Outlet Stores, Inc., 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 unable to protect or preserve the image of our brands and our intellectual property rights, which
could have a negative impact on our business.
We regard our copyrights, service marks, trademarks, trade dress, trade secrets, patents and similar intellectual
property as critical to our success, particularly those that relate to our private branded merchandise. As 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, adverse publicity, governmental
investigations or litigation, or other reasons, our brands and reputation could be damaged and we could lose
members and 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. Some of these actions have the potential for significant statutory penalties, and compensatory, treble or
punitive damages. Our pharmacy, home services and grocery businesses, in particular, are subject to numerous
federal, state and local regulations, and a significant change in, or noncompliance with, these regulations could have
a material adverse effect on our compliance costs and results of operations. 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