UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-416
SEARS, ROEBUCK AND CO.
(Exact name of registrant as specified in its charter)
New York 36-1750680
(State of Incorporation) (I.R.S. Employer Identification No.)
3333 Beverly Road, Hoffman Estates, Illinois 60179
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847/286-2500
Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of April 30, 1996 the Registrant had 392,246,272 common shares,
$.75 par value, outstanding.
<PAGE>
Sears, Roebuck and Co.
Index to Quarterly Report on Form 10-Q
March 30, 1996
Page
Part I - Financial Information.
Item 1. Financial Statements.
Condensed Consolidated Statements of Income (unaudited) -
Three Months Ended March 30, 1996 and April 1, 1995. 1
Condensed Consolidated Balance Sheets (unaudited) -
March 30, 1996, April 1, 1995 and December 30, 1995. 2
Condensed Consolidated Statements of Cash Flows (unaudited) -
Three Months Ended March 30, 1996 and April 1, 1995. 3
Notes to Condensed Consolidated Financial Statements
(unaudited). 4
Independent Certified Public Accountants' Review Report. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 7
Part II - Other Information.
Item 6. Exhibits and Reports on Form 8-K. 10
<PAGE>
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 30, April 1,
(millions, except per common share data) 1996 1995
<S> <C> <C>
Revenues
Merchandise sales and services $ 6,908 $ 6,536
Credit revenues 1,087 927
Total revenues 7,995 7,463
Costs and expenses
Cost of sales, buying and occupancy 5,249 4,974
Selling and administrative 1,750 1,628
Depreciation and amortization 158 138
Provision for uncollectible accounts 238 178
Interest 354 336
Total costs and expenses 7,749 7,254
Operating income 246 209
Other income (loss) 4 (4)
Income before income taxes 250 205
Income taxes 99 81
Income from continuing operations 151 124
Income from discontinued operations, less income tax
expense of $151 - 435
Net income $ 151 $ 559
Income from continuing operations consists of:
Domestic operations $ 165 $ 138
International operations (14) (14)
Income from continuing operations $ 151 $ 124
Earnings per common share, after
allowing for dividends on preferred shares:
Income from continuing operations $ 0.36 $ 0.30
Discontinued operations - 1.11
Net income $ 0.36 $ 1.41
Cash dividends declared per common share $ 0.23 $ 0.40
Average common and common
equivalent shares outstanding 399.5 389.9
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
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<TABLE>
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 30, April 1, Dec. 30,
(millions) 1996 1995 1995
<S> <C> <C> <C>
Assets
Current assets
Cash and invested cash $ 823 $ 457 $ 606
Retail customer receivables 19,707 17,453 20,106
Other receivables 249 244 444
Merchandise inventories 4,419 4,178 4,033
Prepaid expenses and deferred charges 427 412 360
Deferred income taxes 908 1,057 892
Total current assets 26,533 23,801 26,441
Property and equipment
Land 384 374 387
Buildings and improvements 4,415 3,981 4,382
Furniture, fixtures and equipment 3,792 3,801 3,775
Capitalized leases 322 232 313
8,913 8,388 8,857
Less accumulated depreciation 3,790 4,211 3,780
Total property and equipment, net 5,123 4,177 5,077
Deferred income taxes 852 612 879
Other assets 853 798 733
Net assets of discontinued operations - 8,198 -
Total assets $ 33,361 $ 37,586 $ 33,130
Liabilities
Current liabilities
Short-term borrowings $ 5,205 $ 5,582 $ 5,349
Current portion of long-term debt
and capitalized leases 1,907 1,141 1,730
Accounts payable & other liabilities 6,174 5,548 6,641
Unearned revenues 900 788 887
Total current liabilities 14,186 13,059 14,607
Long-term debt and capitalized leases 10,580 9,008 10,044
Postretirement benefits 2,814 2,819 2,825
Minority interest and other liabilities 1,289 902 1,269
Total liabilities 28,869 25,788 28,745
Shareholders' Equity
8.88% Preferred Shares, First Series 325 325 325
Common shares 323 321 322
Capital in excess of par value 3,635 3,606 3,634
Retained income (note 2) 2,498 9,305 2,444
Treasury stock - at cost (1,592) (1,682) (1,634)
Minimum pension liability (285) - (285)
Deferred ESOP expense (246) (552) (253)
Unrealized net capital gains - 635 -
Cumulative translation adjustments (166) (160) (168)
Total shareholders' equity 4,492 11,798 4,385
Total liabilities and shareholders'
equity $ 33,361 $ 37,586 $ 33,130
Total common shares outstanding 392.5 388.0 390.5
<FN>
See accompanying notes.
</FN>
</TABLE>
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<TABLE>
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 30, April 1,
(millions) 1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 151 $ 559
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and other noncash items 202 168
Provision for uncollectible accounts 238 178
Gain on sales of property and investments (5) -
Change in:
Deferred income taxes 10 (47)
Retail customer receivables 144 489
Merchandise inventories (383) (155)
Other operating assets 33 (31)
Operating liabilities (466) (245)
Discontinued operations - (435)
Net cash (used in) provided by operating activities (76) 481
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and investments 5 -
Purchases of property and equipment (222) (107)
Discontinued operations - net - 71
Net cash used in investing activities (217) (36)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 947 427
Repayments of long-term debt (258) (242)
Decrease in short-term borrowings,
primarily 90 days or less (147) (583)
Repayment of ESOP note receivable 21 45
Common shares purchased for employee stock plans (14) -
Common shares issued for employee stock plans 59 20
Dividends paid to shareholders (97) (199)
Net cash provided by (used in) financing activities 511 (532)
Effect of exchange rate changes on cash
and invested cash (1) (4)
Net increase (decrease) in cash and invested cash 217 (91)
Cash and invested cash at beginning of year 606 548
Cash and invested cash at March 30, 1996
and April 1, 1995 $ 823 $ 457
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheets as of March 30, 1996
and April 1, 1995 and the related Condensed Consolidated
Statements of Income and Condensed Consolidated Statements of
Cash Flows for the three months then ended are unaudited. The
interim financial statements reflect all adjustments (consisting
only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair statement of the results for
the interim periods presented. The condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in
the Sears, Roebuck and Co. 1995 Annual Report to Shareholders
and Annual Report on Form 10-K. The results of operations for
the interim periods should not be considered indicative of
results to be expected for the full year.
Earnings per common share is computed based on the weighted
average number of common and common equivalent shares (dilutive
stock options) outstanding and after adjustment for dividends of
$7 million for the three month periods ended March 30, 1996 and
April 1, 1995, on the 8.88% Preferred Shares. The Series A
Mandatorily Exchangeable Preferred Shares (PERCS) were
considered common shares due to their mandatory exchange into
common shares, and the dividends thereon were not deducted from
net income for purposes of calculating earnings per common
share. On March 20, 1995, the Company exchanged all of the 28.8
million PERCS for 35.7 million common shares of the Company.
The exchange did not dilute earnings per share as the PERCS were
reflected in the Company's earnings per share calculation.
Certain reclassifications have been made in the 1995 financial
statements to conform with current year presentation.
2. Shareholders' Equity and Dividend Restrictions
Under terms of indentures entered into in 1981 and thereafter,
Sears cannot take specified actions, including the declaration
of cash dividends, which would cause its consolidated
unencumbered assets, as defined, to fall below 150% of its
consolidated liabilities, as defined. At March 30, 1996,
approximately $1.80 billion could be paid in dividends to
shareholders under the most restrictive indentures.
On March 13, 1996, the Board of Directors approved a common
share repurchase program for the purpose of acquiring shares for
distribution under employee stock-based incentive plans. The
Company plans on acquiring up to 10 million Sears common shares
on the open market over the next two years. Through March 30,
1996, 285,000 common shares had been acquired under the
repurchase program.
3. Discontinued Operations
On November 10, 1994, the Company announced its intention to
distribute in a tax-free dividend to the Company's common
shareholders its 80.3% ownership interest in The Allstate
Corporation. The distribution was approved by shareholders at a
special meeting on March 31, 1995. On June 20, 1995, the
Company's Board of Directors approved the distribution to Sears
shareholders in a tax-free dividend. Sears shareholders of
record on June 30, 1995 received, effective June 30, 1995,
.927035 share of The Allstate Corporation for each Sears common
share. This transaction resulted in a non-cash dividend to
Sears shareholders totaling $8.98 billion.
<PAGE>
-5-
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In conjunction with the Allstate spin-off, The Savings and
Profit Sharing Fund of Sears Employees, which includes an
Employee Stock Ownership Plan (the ESOP), was split into two
different plans, a plan for employees of the Company and its
affiliates other than Allstate and a plan for Allstate
employees. The ESOP was split with 50% of the unallocated
shares in the ESOP and 50% of the ESOP debt being transferred to
the Allstate plan. In connection with this transfer, Allstate
purchased from the Company 50% of the Company's remaining loan
to the ESOP at a purchase price of $327 million.
In July 1995, the Company completed the sale of Homart's
commercial office building portfolio to an operating partnership
composed of The Morgan Stanley Real Estate Fund II, L.P. and
Hines Interests Limited Partnership. In December 1995, the
Company completed the sale of the retail shopping center and
community development businesses of Homart to a wholly-owned
subsidiary of General Growth Properties, Inc. No gain or loss
to the Company resulted from these transactions.
4. Legal Proceedings
Various legal and governmental proceedings are pending against
the Company, many involving routine litigation incidental to the
businesses. Other matters contain allegations which are
nonroutine and involve compensatory, punitive or antitrust
treble damage claims in very large amounts, as well as other
types of relief.
The consequences of these matters are not presently
determinable but, in the opinion of management of the Company
after consulting with legal counsel, the ultimate liability in
excess of reserves currently recorded is not expected to have a
material effect on the results of operations, financial
position, liquidity or capital resources of the Company.
<PAGE>
-6-
SEARS, ROEBUCK AND CO.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REVIEW REPORT
To the Shareholders and Board of Directors
of Sears, Roebuck and Co.:
We have reviewed the accompanying Condensed Consolidated Balance
Sheets of Sears, Roebuck and Co. as of March 30, 1996 and April
1, 1995, and the related Condensed Consolidated Statements of
Income and Condensed Consolidated Statements of Cash Flows for
the three month periods then ended. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such condensed consolidated
financial statements for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the Consolidated Balance Sheet of
Sears, Roebuck and Co. as of December 30, 1995, and the related
Consolidated Statements of Income, Shareholders' Equity, and
Cash Flows for the year then ended (not presented herein); and
in our report dated February 15, 1996, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
Condensed Consolidated Balance Sheet as of December 30, 1995, is
fairly stated, in all material respects, in relation to the
Consolidated Balance Sheet from which it has been derived.
Deloitte & Touche LLP
Chicago, Illinois
May 9, 1996
<PAGE>
-7-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 30, 1996 AND APRIL 1, 1995
Operating Results
Revenues were $7.99 billion for the first three months of 1996,
an increase of 7.1% from the comparable 1995 period. Revenues
are generated from domestic operations and international
operations. Domestic operations include the department stores,
the off-the-mall stores (comprised of Home stores and Automotive
stores), Home Services, Direct Response and Credit. Credit
primarily relates to the Sears Card, the largest proprietary
credit card in the United States. The domestic operations
conduct business in the United States and Puerto Rico.
International operations consist of similar merchandising and
credit operations conducted in Canada through Sears Canada Inc.,
a consolidated, 61.1% owned subsidiary of Sears ("Sears
Canada"), and in Mexico through Sears Roebuck de Mexico, S.A. de
C.V., a consolidated, 75.4% owned subsidiary ("Sears Mexico").
<TABLE>
Revenues Three Months Ended
<CAPTION>
March 30, April 1,
(millions, except number of stores) 1996 1995 Change
<S> <C> <C> <C>
Domestic operations:
Department stores $ 4,316 $ 4,125 4.6%
Off-the-mall stores 1,363 1,195 14.1
Service and other revenues 609 597 2.0
Merchandise sales and services 6,288 5,917 6.3
Credit revenues 999 839 19.1
Total domestic operations 7,287 6,756 7.9
International operations 708 707 0.1
Total revenues $ 7,995 $ 7,463 7.1%
Domestic comparable store sales increase 4.5% 4.2%
Number of domestic department stores 807 801
Number of domestic off-the-mall stores 1,502 1,176
Total 2,309 1,977
</TABLE>
Department store revenues grew 4.6% for the first quarter, as
the Company posted strong comparable store sales increases
across all departments despite competitive industry conditions.
. Apparel revenues gained 8.4% during the first quarter as
sales benefitted from the early Easter holiday selling period.
Women's dresses, men's and children's fashions and fine jewelry
had particularly strong sales increases. Severe weather
hampered sales at the beginning of the quarter, but a positive
response to new spring merchandise provided a solid finish for
the three-month period.
. Hardlines merchandise revenues increased 3.5% for the first
quarter and were driven by strong gains in home appliance and
sporting good sales partially offset by lower lawn and garden
sales which were impacted by the late spring weather in most
areas of the country.
<PAGE>
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ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 30, 1996 AND APRIL 1, 1995
Off-the-mall store revenues increased 14.1% over 1995.
Automotive stores, consisting of the Sears Tire Group and Parts
Group, contributed the largest portion of the off-the-mall
revenue growth in the first quarter. The growth in automotive
store revenues was driven by the expansion of the Parts Group,
which has added over 200 stores since the first quarter of 1995,
and by increased tire and battery sales at the Sears Tire Group. Home
stores revenues also increased over 1995 and benefitted from the
opening of 121 net new stores since the first quarter of 1995 as
listed below:
Dealer Stores 78
Sears Hardware 24
HomeLife 19
TOTAL 121
Service and other revenues, which are generated by the home
services and direct response businesses, were largely flat in
the first quarter of 1996 versus the 1995 comparable period.
Domestic credit revenues increased 19.1% against the first
quarter of 1995 reflecting higher owned receivable balances and
the impact of uniform pricing. The increase in owned receivable
balances was driven by the continued growth in merchandise sales
and services, and the Sears Card's dominant market share of
credit retail sales generated in both the department stores and
off-the-mall stores.
International revenues for the first quarter of 1996 were flat
compared with the same period a year ago. Excluding the impact
of inflation and exchange rate fluctuations, revenues declined
at Sears Canada and Sears Mexico reflecting difficult local
economic conditions.
Gross margin as a percentage of domestic merchandise sales and
services for the first quarter was 24.4% versus 24.2% in the
comparable prior year period. The increase in domestic gross
margin was broad-based across both the department stores and
off-the-mall stores as the Company benefitted from the favorable
1995 year-end inventory position as well as a slight shift of
sales to higher margin apparel merchandise. International gross
margins decreased to 20.0% in the first quarter from 20.7% in
1995.
Selling and administrative expense as a percentage of revenues
for domestic operations increased slightly to 21.8% from 21.7%
in the first quarter of 1996 due largely to an increased
investment in marketing and higher expenses resulting from the
assimilation of 166 newly acquired auto parts stores.
International selling and administrative expenses increased to
22.8% from 22.7% in the first quarter.
Depreciation and amortization expense was $158 million in the
first quarter, an increase of $20 million from the comparable
1995 period. The increase is attributable to higher capital
expenditures as part of the Company's department store
remodeling program.
The provision for uncollectible accounts was $238 million in
the first quarter as compared to $178 million in the comparable
1995 period. The increase is attributable to a larger gross
receivable portfolio and an industry-wide trend towards
increased delinquencies and account write-offs.
Interest expense increased $18 million to $354 million in the
first quarter of 1996. Total funding costs, comprised of
interest expense and the funding cost of securitized
receivables, increased $9 million to $440 million. The increase
was due to the funding requirements of a larger gross receivable
portfolio, partially offset by a lower effective funding rate,
as debt with higher interest rates matured and was replaced by
lower cost debt.
<PAGE>
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ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 30, 1996 AND APRIL 1, 1995
Other income increased $8 million for the first three months of
1996. The increase reflects the higher gains from the sale of
certain investments in 1996 and the impact of a foreign exchange
loss in 1995 related to the Mexican peso devaluation. Other
income also includes Sears share of income from unconsolidated
subsidiaries. On May 12, 1996, the Company, in conjunction with
International Business Machines Corporation ("IBM"), entered into
an agreement with International Wireless Incorporated for the sale
of Prodigy Services Company, subject to regulatory approval. No
gain or loss will be recorded by the Company in connection with
this transaction.
Holiday buying patterns generally result in the lowest
merchandising sales in the first quarter and the highest
merchandising sales in the fourth quarter. This business
seasonality results in performance for the first quarter which
is not necessarily indicative of performance for the balance of
the year.
Financial Condition
As of March 30, 1996, domestic merchandise inventories on the
first-in, first-out (FIFO) basis were $4.69 billion, compared
with $4.44 billion at April 1, 1995 and $4.32 billion at
December 30, 1995. The increase in the inventory levels
reflects the expansion of selling space in the department stores
and the growth of the off-the-mall store businesses.
Net cash used in the Company's operating activities totaled $76
million for the first three months of 1996, compared to net cash
provided of $481 million for the same period in 1995. The
decrease in operating cash flow was attributible to the increase
in inventory levels and higher owned retail customer receivables
in 1996 as compared to 1995.
Gross domestic retail customer receivables were $23.57 billion
at March 30, 1996, compared to $21.11 billion at April 1, 1995.
Sears, through its wholly-owned subsidiary, Sears Receivables
Financing Group, Inc., had $4.72 and $4.55 billion of credit
account pass-through certificates ("securitized receivables")
outstanding at March 30, 1996 and December 30, 1995,
respectively. The change in the balance of securitized
receivables generated cash of $166 million during the three
months ended March 30, 1996, compared to $362 million during the
comparable 1995 period.
Net cash used in investing activities totaled $217 million for
the first three months of 1996 compared to $36 million in 1995.
The change was due to cash realized from discontinued operations
in 1995 coupled with higher capital expenditures in 1996 related
to the Company's department store remodeling program and the
expansion of its department and off-the-mall store base. As
part of its growth strategy, the Company may pursue strategic
acquisitions.
Net cash provided by financing activities totaled $511 million
in the first quarter of 1996 as compared to net cash used in
financing activities of $532 million in 1995. Financing
activities in 1996 were primarily long-term borrowings to
support the growth in retail customer receivables. In 1995,
proceeds from securitizations were used to pay down short-term
borrowings. Dividends paid to shareholders in 1995 included the
final dividend payment on the Series A Mandatorily Exchangeable
Preferred Shares (PERCS) and a higher dividend payout rate as
compared to 1996. In the first quarter of 1995, the common
share dividend payment was based on a quarterly payout rate of
$0.40 per common share, reflective of the Company's structure
prior to the spin-off of Allstate, as compared to the current
1996 quarterly dividend payout rate of $0.23 per common share.
<PAGE>
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
An Exhibit Index has been filed as part of this Report on
Page E-1.
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K dated
February 7, 1996 (Items 5 and 7) containing Consolidated
Statements of Income and Supplementary Domestic Operations
Information for the three- and twelve-months ended
December 30, 1995 and December 31, 1994.
<PAGE>
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SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Sears, Roebuck and Co.
(Registrant)
May 13, 1996 By /s/ James A. Blanda
James A. Blanda
Vice President and Controller
(Principal Accounting
Officer and duly authorized
Officer of Registrant)
<PAGE>
E-1
EXHIBIT INDEX
SEARS, ROEBUCK AND CO.
THREE MONTHS ENDED MARCH 30, 1996
Exhibit No.
4. Registrant hereby agrees to furnish the Commission, upon
request, with the instruments defining the rights of holders
of each issue of long-term debt of the Registrant and its
consolidated subsidiaries.
10 (a). Registrant's Supplemental Retirement Income Plan, as
amended effective February 6, 1996.
10 (b). Letter from the Registrant to Steven D. Goldstein dated
March 12, 1996 relating to employment.
12 (a). Computation of ratio of income to fixed charges for
Sears, Roebuck and Co. and consolidated subsidiaries for each
of the five years ended December 30, 1995, and for the
three- and twelve-month periods ended March 30, 1996.
12 (b). Computation of ratio of income to combined fixed charges and
preferred share dividends for Sears, Roebuck and Co. and
consolidated subsidiaries for each of the five years ended
December 30, 1995, and for the three- and twelve-month periods
ended March 30, 1996.
15. Acknowledgment of awareness from Deloitte & Touche LLP,
dated May 9, 1996, concerning unaudited interim
financial information.
27. Financial Data Schedule.
Exhibit 10(a)
SUPPLEMENTAL RETIREMENT INCOME PLAN
As Amended Effective as of February 6, 1996
This Supplemental Retirement Income Plan is established for the benefit
of participants in Sears Pension Plan who retire or die after December
31, 1977. The Company shall pay, from time to time out of its general
funds, to such participants (or, in the case of the death of such
participant, to any person or persons to whom benefits are payable) a
monthly retirement amount equal to the amount, if any, by which the
benefit payable under Sears Pension Plan, was reduced in order to comply
with the limits imposed by the Internal Revenue Code on the annual
amount of retirement income, including limits on the maximum amount of
annual compensation which may be taken into account. Compensation for
purposes of the Supplemental Retirement Income Plan shall include any
compensation deferred under the Sears, Roebuck and Co. Deferred
Compensation Plan which is not included and compensation under the Sears
Pension Plan. Notwithstanding the foregoing, no individual who is
eligible to receive a Special ERIP Payment pursuant to resolutions
adopted by the Board of Directors on August 11, 1993 shall be a
participant in, or entitled to benefits under, this Supplemental
Retirement Income Plan.
Except as expressly provided herein, the monthly retirement amount, if
any, payable from time to time to any person under the Supplemental
Retirement Income Plan shall be paid commencing as of the same date, for
the same period, based upon the same assumptions and subject to the same
terms and conditions as the monthly retirement income paid to such
person under Sears Pension Plan, including Supplemental A thereto.
If a participant elects to receive the retirement benefit payable under
the Sears Pension Plan in the form of a lump sum, rather than in the
form of monthly payments, such participant, with the approval of the
Sears Pension Plan Administrator, may elect to have the monthly
retirement income amount, if any, payable under the Supplemental
Retirement Income Plan paid to him (as of the date the lump sum payment
under the Sears Pension Plan is calculated) in an actuarially adjusted
amount pursuant to one of the optional forms set forth in Section 7.2 of
the Sears Pension Plan.
If a participant under the Supplemental Retirement Income Plan
terminates employment prior to attaining eligibility for a lump sum
distribution under the Sears Pension Plan, the monthly retirement amount
payable under the Supplemental Retirement Income Plan may be paid at the
request of the participant, in the sole discretion of Sears Pension Plan
Administrator, to the person or persons entitled thereto in a lump sum,
and payable as of the first day of the month following termination of
employment from the Company. If a participant is not eligible for a
lump sum distribution under the Sears Pension Plan upon termination of
employment, and does not request a lump sum distribution from the
Supplemental Retirement Income Plan upon termination of employment, such
participant will not be eligible for a lump sum distribution from the
Supplemental Retirement Income Plan at a later date.
In calculating the lump sum which is the actuarial equivalent of the
monthly retirement amount, the mortality table used for lump sum
calculations under the Sears Pension Plan shall be used, and the
interest rate employed shall be the lump sum interest rate under the
Sears Pension Plan multiplied by sixty percent (60%).
In the event a participant dies while employed by the Company after he
has attained age 55 and has completed ten or more years of continuous
service, then the monthly retirement amount which would become payable
pursuant to the terms of the Supplemental Retirement Income Plan shall
be payable to the person or persons designated by him pursuant to such
election as he shall have made from among the options provided for in
Subsection 7.2 of Sears Pension Plan. Such monthly retirement amount
shall commence with the first day of the month following the month in
which the participant's death occurs. A participant may elect for this
purpose under the Supplemental Retirement Income Plan an option other
than the one he has elected for the purposes of the Sears Pension Plan.
In the event a deceased participant had not elected an option under the
Supplemental Retirement Income Plan, the monthly retirement amount shall
be paid pursuant to any option elected under Sears Pension Plan, or if
no such option has been elected, then in the manner provided pursuant to
Subsection 6.2 of Sears Pension Plan.
The liability for any other supplemental pension benefits which have
been granted on an individual basis to certain key executives, and
described in individual agreements previously incorporated by reference
into this Supplemental Retirement Income Plan, is hereby transferred to
the Sears Executive Retirement Plan Arrangements.
Exhibit 10(b)
SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, IL 60179
ARTHUR C. MARTINEZ
Chairman of the Board
Chief Executive Officer
March 12, 1996
Mr. Steven D. Goldstein
Dear Steve,
I would like to extend to you our offer to join Sears, Roebuck and Co.
as President, Credit. In this position you will be reporting directly to
me.
While this letter does not constitute an employment contract, I thought
it important that we put our offer in writing to clarify the terms of
your employment. This offer is contingent upon the approval of the Sears
Board of Directors.
Your compensation package will consist of the following:
Annual base salary of $440,000 with periodic increases based on
performance.
Participation in Sears Annual Incentive Plan with a current bonus target
of 70% of base salary for 1996. Based on your beginning salary, the
current bonus target amounts to $308,000 prorated from your employment
date. Our Board has approved increasing the annual incentive opportunity
to the 75th percentile of market which would increase your target award
to 80% of base salary in 1997 and 85% in 1998. The annual incentive
performance objective for your position will be based 50% on our
achievement of Company net income goals and 50% on achievement of Credit
net income goals as well as your performance on individual priorities we
will agree to. Currently the Company performance portion of the plan
pays for performance above and below the target objective as follows:
- -- Threshold (90% of prior year Net Income)
pays 25% of target
- -- Target (110% of prior year Net Income)
pays 100% of target
- -- Maximum (130% of prior year Net Income)
pays 230% of target
Performance goals for Credit have not yet been finalized, but will also
be based on improvement over prior year. We will also guarantee a
minimum bonus award for 1996 in the amount of $308,000, also prorated
from your employment date.
Sign-on bonus of $100,000 payable within 30 days following the beginning
of your employment.
Participation in Sears Long-Term Incentive Plan with an incentive target
of 125% of base pay pro-rata. For the 1996-1997 cycle, 70% of your long-
term incentive target will be conveyed in Sears stock options and 30%
earned through a Performance Incentive Plan. The Performance Incentive
Plan awards will be determined based on achievement of our Total
Performance Index objectives. The Performance Plan award can range
between 50% - 150% of the target award.
15,000 shares of restricted stock which will be granted on April 1,
1996* and will vest according to the following schedule:
4/97 - 5,000 shares
4/98 - 5,000 shares
4/99 - 5,000 shares
72,000 non-qualified stock options which will be granted on April 1,
1996* and will vest according to the following schedule:
4/97 - 24,000 shares
4/98 - 24,000 shares
4/99 - 24,000 shares
Participation in standard Company benefits commensurate with your
position, which include Pension, Profit Sharing, Health and Welfare
benefits and an executive financial planning reimbursement plan which
covers fees from a firm of your choice up to $10,000 annually. For
purposes of calculating your pension benefit, you will be considered as
if you were fully vested and as if you began accruing credited service
under such plans as of your date of hire. You will receive a
supplemental pension benefit based on such deemed vesting and accrued
credited service, offset by the amounts actually payable under such
plans. Your annual vacation will be three weeks.
Cash payment of $100,000 to compensate for lost perquisites payable
within 30 days following the commencement of your employment.
* Date of commencement of employment.
<PAGE>
Relocation assistance in accordance with Sears Relocation Policy which
includes a $10,000 moving allowance, reimbursement for temporary living
up to six months, reimbursement for home visits and house hunting, a
home appraisal and purchase program available through Coldwell Banker
Relocation and reimbursement of customary closing cost for your new
residence. Subject to an appraisal of your current property by Coldwell
Banker, we are prepared to extend normal relocation provisions to cover
additional autos, insurance coverage and housing allowance, etc, per
your request. In addition:
- -- We'll agree to provide round-trip travel reimbursement between
Chicago and New York for the first six months of your employment.
Reimbursement is limited to a maximum of $10,000 over the six month
period.
Nothing contained in this letter shall limit the right of you or Sears
to terminate your employment with or without cause at any time. However,
in the event that Sears should involuntarily terminate you other than
for cause or you terminate your employment as a result of a constructive
termination without cause (see attached offer letter definitions) during
your first three years of employment, you will receive one and one-half
years base salary plus one and one-half years target annual incentive
and a pro-rata share of your annual and long-term incentives based on
actual company performance in the year of termination. In addition, you
will vest in 7,500 shares of your hiring restricted share grant if you
are so separated within the first twelve months from your hire date. If
you are so separated after your first year of employment then the
remaining unvested restricted shares will be completely vested. This
will constitute the entire damages you may claim against Sears on
account of such termination of employment. If you obtain subsequent
employment, there will be no offset against amounts due you on account
of any remuneration attributable to such subsequent employment.
We will also reimburse you for reasonable and customary legal fees
incurred for advice on your employment offer up to a maximum of $5,000.
You will be entitled to standard indemnification provided to all elected
officers.
This offer of employment is contingent upon your satisfactorily passing
a pre-employment drug test. We'll arrange for the test to be taken prior
to the first day of your employment. Attached to this letter is an
addendum which outlines current common practices of the company related
to several issues about which you inquired.
Steve, we have great confidence in your ability to significantly
contribute to the future success of Sears. I look forward to working
with you to build that success
Sincerely
/s/ARTHUR C. MARTINEZ
cc: A.J. Rucci
<PAGE>
STEVEN D. GOLDSTEIN OFFER LETTER DEFINITIONS
"Cause" shall mean:
(a) You are convicted of a felony involving moral turpitude;
(b) you engage in conduct that constitutes willful gross neglect or
willful gross misconduct in carrying out your duties, resulting, in
either case, in material economic harm to Sears, unless you believed in
good faith that such act or nonact was in the best interest of Sears; or
(c) you habitually neglected (neglect to be determined based upon your
failure to meet the standards of performance which reasonably would be
expected of a senior executive officer of a major company with your
duties) your duties (other than on account of physical or mental
incapacity), provided that either (i) you received from the Company
notice of habitual neglect of duties where no prior notice of any
instance of neglect of duties was given, and you failed to cure such
habitual neglect within 15 days of receiving such notice, or (ii) you
received notice of an instance of neglect of duties and failed to cure
before such neglect became habitual.
"Constructive Termination Without Cause" shall mean a termination of
your employment at your initiative following the occurrence, without
your written consent, of one or more of the following events:
(a) a reduction in your then current base salary or target annual
incentive opportunity or long-term incentive opportunity under Sears
Annual Incentive Plan or Sears Long-Term Incentive Plan or the
termination or material reduction of any employee benefit of perquisite
enjoyed by you (other than as part of an across-the-board reduction of
benefits or perquisites applicable to all executive officers of Sears);
(b) the failure to elect or reelect you as President, Credit, or your
removal from such position;
(c) a material diminution in your duties or the assignment to you of
duties which are materially inconsistent with your duties or which
materially impair your ability to function as President, Credit;
(d) the failure to continue your participation in any incentive
compensation plan unless a plan providing a substantially similar
opportunity is substituted;
(e) the relocation of your own office location as assigned to you by
Sears to a location more than 35 miles from Hoffman Estates, IL., except
in connection with the relocation of Sears principal office; or
(f) the failure of Sears to obtain the assumption in writing of its
obligation to perform the terms of this letter by any successor to all
or substantially all of the assets of Sears within 15 days after a
merger, consolidation, sale or similar transaction.
<PAGE>
Offer Letter Addendum
Steven D. Goldstein
NON-QUALIFIED PENSION BENEFIT DISTRIBUTION
For individuals retiring prior to reaching age 55, a one-time election
to receive a lump-sum distribution at age 55 is permitted. If a lump-sum
distribution is not elected when offered then the distribution will be
in the form of a monthly annuity.
For individuals retiring after age 55, they may elect at the time they
receive their QUALIFIED plan distribution to receive a non-qualified
plan distribution in the form of a lump-sum. if they do not elect a
lump-sum distribution then they will receive a monthly annuity.
STOCK OPTION VESTING
When the Company has divested a subsidiary it has been our common
practice to accelerate vesting for all non-vested options and provide a
window period to exercise all outstanding options.
In situations when employment has been terminated, it has been our
common practice to provide a leave of absence period during which
options would continue to vest.
SEVERANCE AND CHANGE-IN-CONTROL
The Company typically provides the choice of receiving severance
benefits in the form of a lump-sum or salary continuation. In addition,
we also typically provide a leave of absence to provide the continuation
of benefits.
<PAGE>
Steven D. Goldstein
Offer Letter Modification
The following modification was faxed to Mr. Leonard Epstein at
Batchelder Law Offices in New York on March 12, 1996:
On page 2, 4th bullet, second sentence reads: "For purposes of
calculating your pension benefit, you will be considered as if you were
fully vested and as if you began accruing credited service under the
Sears Pension Plan and the Supplemental Retirement Income Plan as of
your date of hire."
Previously page 2, 4th bullet, second sentence read: "For purposes of
calculating your pension benefit, you will be considered as if you were
fully vested and as if you began accruing credited service under such
plans as of your date of hire.
/s/ARTHUR C. MARTINEZ
/s/STEVEN D. GOLDSTEIN
<PAGE>
<TABLE>
EXHIBIT 12(a)
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Twelve Three
Months Months
Ended Ended
Mar. 30, Mar. 30, Year Ended
1996 1996
(millions, except ratios) (unaudited) (unaudited) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest and amortization of debt discount
and expense on all indebtedness $1,391 $354 $1,373 $1,279 $1,318 $1,389 $1,568
Add interest element implicit in rentals 123 32 119 114 105 165 155
1,514 386 1,492 1,393 1,423 1,554 1,723
Interest capitalized 3 1 4 1 3 23 22
Total fixed charges $1,517 $387 $1,496 $1,394 $1,426 $1,577 $1,745
Income (loss)
Income (loss) from continuing operations $1,052 $151 $1,025 $857 $625 ($1,812) $160
Deduct undistributed net income (loss)
of unconsolidated companies 10 (1) 9 (7) 6 (4) (11)
1,042 152 1,016 864 619 ( 1,808) 171
Add
Fixed charges (excluding interest capitalized) 1,514 386 1,492 1,393 1,423 1,554 1,723
Income taxes (benefit) 721 99 703 614 329 ( 1,039) 126
Income (loss) before fixed charges and
income taxes $3,277 $637 $3,211 $2,871 $2,371 ($1,293) $2,020
Ratio of income to fixed charges 2.16 1.65 2.15 2.06 1.66 (A) 1.16
<FN>
(A) As a result of the loss for the year ended December 31, 1992, earnings did not cover fixed charges by $2,870 million.
</FN>
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12(b)
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Twelve Three
Months Months
Ended Ended
Mar. 30, Mar. 30,
1996 1996 Year Ended
(millions, except ratios) (unaudited) (unaudited) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest and amortization of debt discount
and expense on all indebtedness $1,391 $354 $1,373 $1,279 $1,318 $1,389 $1,568
Add interest element implicit in rentals 123 32 119 114 105 165 155
1,514 386 1,492 1,393 1,423 1,554 1,723
Preferred dividend factor 49 12 89 234 209 120 7
Interest capitalized 3 1 4 1 3 23 22
Total fixed charges $1,566 $399 $1,585 $1,628 $1,635 $1,697 $1,752
Income (loss)
Income (loss) from continuing operations $1,052 $151 $1,025 $857 $625 ($1,812) $160
Deduct undistributed net income (loss)
of unconsolidated companies 10 (1) 9 (7) 6 (4) (11)
1,042 152 1,016 864 619 ( 1,808) 171
Add
Fixed charges (excluding interest capitalized
and preferred dividend factor) 1,514 386 1,492 1,393 1,423 1,554 1,723
Income taxes (benefit) 721 99 703 614 329 ( 1,039) 126
Income (loss) before fixed charges and
income taxes $3,277 $637 $3,211 $2,871 $2,371 ($1,293) $2,020
Ratio of income to combined fixed charges
and preferred share dividends 2.09 1.60 2.03 1.76 1.45 (A) 1.15
<FN>
(A) As a result of the loss for the year ended December 31, 1992, earnings did not cover fixed charges by $2,990 million.
</FN>
</TABLE>
<PAGE>
EXHIBIT 15
To the Shareholders and Board of Directors
of Sears, Roebuck and Co.
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of
the unaudited interim financial information of Sears, Roebuck
and Co. for the three-month periods ended March 30, 1996 and
April 1, 1995, as indicated in our report dated May 9, 1996;
because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which is
included in your Quarterly Report on Form 10-Q for the
three-month period ended March 30, 1996, is incorporated by
reference in Registration Statement Nos. 2-64879, 2-80037,
33-18081, 33-23793, 33-41485, 33-43459, 33-45479, 33-55825,
33-58139, 33-58851, 33-64215 and 33-64345 of Sears, Roebuck and
Co.; Registration Statement No. 33-57205 of Sears, Roebuck and
Co. and The Savings and Profit Sharing Fund of Sears Employees;
Registration Statement No. 33-44671 of Sears, Roebuck and Co.
and Sears DC Corp.; and Registration Statement No. 33-64775 of
Sears, Roebuck and Co. and Sears, Roebuck and Co. Deferred
Compensation Plan.
We also are aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act of 1933, is not considered
a part of the Registration Statement prepared or certified by an
accountant or a report prepared or certified by an accountant
within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
Chicago, Illinois
May 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND CASH
FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> MAR-30-1996
<CASH> 823
<SECURITIES> 0
<RECEIVABLES> 20,552
<ALLOWANCES> 845
<INVENTORY> 4,419
<CURRENT-ASSETS> 26,533
<PP&E> 8,913
<DEPRECIATION> 3,790
<TOTAL-ASSETS> 33,361
<CURRENT-LIABILITIES> 14,186
<BONDS> 10,580
0
325
<COMMON> 323
<OTHER-SE> 3,844
<TOTAL-LIABILITY-AND-EQUITY> 33,361
<SALES> 6,908
<TOTAL-REVENUES> 7,995
<CGS> 5,249
<TOTAL-COSTS> 5,249
<OTHER-EXPENSES> 1,908
<LOSS-PROVISION> 238
<INTEREST-EXPENSE> 354
<INCOME-PRETAX> 250
<INCOME-TAX> 99
<INCOME-CONTINUING> 151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>Not applicable
</FN>
</TABLE>
