Sears 2015 Annual Report Download - page 13

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, patent infringement claims 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 Annual 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 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.
On September 4, 2015, we announced the entry into a term sheet with the Pension Benefit Guaranty
Corporation ("PBGC"), concerning a five-year pension plan protection and forbearance agreement with the PBGC.
The Company is in discussions with the PBGC to enter into a definitive agreement with the PBGC on terms
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