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 SEPTEMBER 28, 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 October 31, 1996 the Registrant had 391,520,604 common shares,
$.75 par value, outstanding.
<PAGE>
Sears, Roebuck and Co.
Index to Quarterly Report on Form 10-Q
September 28, 1996
Page
Part I - Financial Information.
Item 1. Financial Statements.
Condensed Consolidated Statements of Income (unaudited) -
Three and Nine Months Ended September 28, 1996 and
September 30, 1995. 1
Condensed Consolidated Balance Sheets -
September 28, 1996 (unaudited), September 30, 1995
(unaudited) and December 30, 1995. 2
Condensed Consolidated Statements of Cash Flows
(unaudited) - Nine Months Ended September 28, 1996
and September 30, 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. 11
<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 Nine Months Ended
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
(millions, except per common share data) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues
Merchandise sales and services $ 7,965 $ 7,491 $ 22,929 $ 21,330
Credit revenues 1,102 949 3,265 2,799
Total revenues 9,067 8,440 26,194 24,129
Costs and expenses
Cost of sales, buying and occupancy 5,903 5,585 17,098 15,987
Selling and administrative 1,933 1,809 5,659 5,249
Depreciation and amortization 173 143 502 420
Provision for uncollectible accounts 286 187 794 521
Interest 326 342 1,013 1,024
Total costs and expenses 8,621 8,066 25,066 23,201
Operating income 446 374 1,128 928
Other income 17 9 44 20
Income before income taxes 463 383 1,172 948
Income taxes 184 155 468 378
Income from continuing operations 279 228 704 570
Income from discontinued operations, less
income tax expense of $249 - - - 776
Net income $ 279 $ 228 $ 704 $ 1,346
Income from continuing operations
consists of:
Domestic operations $ 292 $ 235 $ 745 $ 593
International operations (13) (7) (41) (23)
Income from continuing operations $ 279 $ 228 $ 704 $ 570
Earnings per common share:
Income from continuing operations,
after allowing for dividends on
preferred shares $ 0.68 $ 0.56 $ 1.71 $ 1.40
Discontinued operations - - - 1.98
Net income $ 0.68 $ 0.56 $ 1.71 $ 3.38
Cash dividends declared per common share $ 0.23 $ 0.23 $ 0.69 $ 1.03
Average common and common
equivalent shares outstanding 398.4 396.0 399.3 392.8
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
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<TABLE>
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
Sept. 28, Sept. 30, Dec. 30,
(millions) 1996 1995 1995
<S> <C> <C> <C>
Assets
Current assets
Cash and invested cash $ 649 $ 469 $ 606
Credit card receivables 20,189 18,328 20,106
Other receivables 358 229 444
Merchandise inventories 5,260 4,840 4,033
Prepaid expenses and deferred charges 386 405 360
Deferred income taxes 981 1,065 892
Total current assets 27,823 25,336 26,441
Property and equipment
Land 406 372 387
Buildings and improvements 4,776 4,264 4,382
Furniture, fixtures and equipment 4,051 4,139 3,775
Capitalized leases 369 237 313
9,602 9,012 8,857
Less accumulated depreciation 4,095 4,364 3,780
Total property and equipment, net 5,507 4,648 5,077
Deferred income taxes 797 608 879
Other assets (note 4) 993 809 733
Net assets of discontinued operations - 472 -
Total assets $ 35,120 $ 31,873 $ 33,130
Liabilities
Current liabilities
Short-term borrowings $ 4,741 $ 5,843 $ 5,349
Current portion of long-term
debt and capitalized leases 2,298 1,491 1,730
Accounts payable and other
liabilities 6,997 6,223 6,641
Unearned revenues 945 835 887
Total current liabilities 14,981 14,392 14,607
Long-term debt and capitalized leases 11,355 9,434 10,044
Postretirement benefits 2,802 2,822 2,825
Minority interest and other liabilities 1,195 924 1,269
Total liabilities 30,333 27,572 28,745
Shareholders' Equity
8.88% Preferred Shares, First
Series (note 2) 325 325 325
Common shares 323 322 322
Capital in excess of par value 3,621 3,626 3,634
Retained income (note 2) 2,856 2,086 2,444
Treasury stock - at cost (1,653) (1,648) (1,634)
Minimum pension liability (285) - (285)
Deferred ESOP expense (232) (257) (253)
Cumulative translation adjustments (168) (153) (168)
Total shareholders' equity 4,787 4,301 4,385
Total liabilities and
shareholders' equity $ 35,120 $ 31,873 $ 33,130
Total common shares outstanding 391.4 389.7 390.5
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
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<TABLE>
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
Sept. 28, Sept. 30,
(millions) 1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 704 $ 1,346
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and other noncash items 689 511
Provision for uncollectible accounts 794 521
Gain on sales of property and investments (34) (11)
Change in:
Deferred income taxes (16) (53)
Credit card receivables (941) (725)
Merchandise inventories (1,084) (794)
Other operating assets 3 (3)
Operating liabilities 222 524
Discontinued operations - (776)
Net cash provided by operating activities 337 540
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired (296) -
Proceeds from sales of property and investments 37 11
Purchases of property and equipment (830) (804)
Discontinued operations - net - (310)
Net cash used in investing activities (1,089) (1,103)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 3,137 1,714
Repayments of long-term debt (1,433) (836)
Decrease in short-term borrowings,
primarily 90 days or less (611) (327)
Repayment of ESOP note receivable 21 372
Common shares purchased for employee stock plans (139) -
Common shares issued for employee stock plans 112 74
Dividends paid to shareholders (292) (510)
Net cash provided by financing activities 795 487
Effect of exchange rate changes on cash and invested cash - (3)
Net increase (decrease) in cash and invested cash 43 (79)
Cash and invested cash at beginning of year 606 548
Cash and invested cash at September 28, 1996 &
September 30, 1995 $ 649 $ 469
<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 September 28,1996 and
September 30, 1995 and the related Condensed Consolidated Statements of
Income for the three and nine months then ended and Condensed Consolidated
Statements of Cash Flows for the nine 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 and $22 million for the
three- and nine-month periods ended September 28, 1996 and September 30, 1995,
respectively, on the 8.88% Preferred Shares.
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 September 28,
1996, approximately $1.9 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 September 28, 1996, 2.9 million common shares had been acquired under
the repurchase program.
On September 23, 1996, the Company announced its intention to redeem
at par all the outstanding 8.88% Preferred Shares, First Series on
November 12, 1996.
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.
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.
<PAGE>
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. Orchard Supply Hardware Stores Corporation Acquisition
During September 1996, the Company acquired the outstanding stock of
Orchard Supply Hardware Stores Corporation ("Orchard") for $309 million.
Orchard is a retail corporation engaged in the operation of 61 hardware
superstores in California. The acquisition was recorded using the purchase
method of accounting and resulted in goodwill of approximately $220 million,
which is included in other assets. Orchard's results of operations after
the date of acquisition are not material to the Company's consolidated
results of operations.
5. 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>
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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 September 28, 1996 and September 30, 1995, and
the related Condensed Consolidated Statements of Income for the three and
nine-month periods ended September 28, 1996 and September 30, 1995, and the
Condensed Consolidated Statements of Cash Flows for the nine-month periods
ended September 28, 1996 and September 30, 1995. These financial statements
are the responsibility of the Company's management.
We conducted our reviews 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 reviews, 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
November 8, 1996
<PAGE>
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ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
Operating Results
Revenues increased 7.4% to $9.1 billion and 8.6% to $26.2 billion for
the three- and nine-month periods ended September 28, 1996, respectively,
from the comparable 1995 periods. Revenues are generated from domestic
operations and international operations. Domestic operations include
department stores, 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 ("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 Nine Months Ended
<CAPTION>
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
(millions, except number of stores) 1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Domestic operations:
Department stores $ 4,955 $ 4,666 6.2% $ 14,370 $ 13,370 7.5%
Off-the-mall stores 1,581 1,404 12.6 4,480 3,910 14.6
Service and other revenues 722 713 1.3 2,055 2,030 1.2
Merchandise sales and services 7,258 6,783 7.0 20,905 19,310 8.3
Credit revenues 1,026 863 19.0 3,021 2,531 19.4
Total domestic operations 8,284 7,646 8.4 23,926 21,841 9.5
International operations 783 794 (1.4) 2,268 2,288 (.9)
Total revenues $ 9,067 $ 8,440 7.4% $ 26,194 24,129 8.6%
Domestic comparable store
sales increase 3.8% 5.4% 5.9% 4.3%
Number of domestic department stores 812 804
Number of domestic off-the-mall stores 1,653 1,255
Total 2,465 2,059
</TABLE>
Department store revenues increased 6.2% for the third quarter, as the
Company posted strong comparable store sales increases despite the
competitive retail industry environment.
. Apparel revenues gained 12.7% during the third quarter reflecting the
positive response to department store renovations, broader assortments
and quality brands. Women's ready to wear, especially sportswear,
men's apparel, and footwear posted strong sales increases. Apparel
posted comparable store sales increases in all departments.
. Hardlines merchandise revenues increased 3.2% for the third quarter
and were driven by strong home improvement sales, which were up 7.7%
for the third quarter, partially offset by Brand Central sales which
were flat to last year. Hardlines comparable store sales were flat to
third quarter 1995.
For the nine-month period, department store sales grew 7.5% over 1995 as
Apparel achieved a 12.0% increase and Hardlines gained 5.8%.
<PAGE>
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ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
Off-the-mall store revenues increased 12.6% for the third quarter, which
came on top of a 14.5% gain in 1995.
. Home store revenues increased over 1995 led by mid-teen comparable
store sales growth for Sears Hardware stores. HomeLife furniture and
Sears dealer stores comparable sales performance for the third quarter
improved slightly from 1995. Home store revenues also benefited from
180 net new store openings since the third quarter of 1995.
. Automotive stores, consisting of the Sears Tire Group and Parts Group,
also experienced significant revenue growth driven by strong tire and
battery sales at the Sears Tire Group and the expansion of the Parts
Group, which has added over 200 stores since the third quarter of 1995.
Off-the-mall store revenues increased 14.6% for the nine-month period as
compared to 1995 and benefited largely from the expansion of Home stores and
Automotive stores.
Service and other revenues, which are generated by the home services and
direct response businesses, were up 1.3% in the third quarter and 1.2% in the
first nine months of 1996 versus the 1995 comparable periods primarily due to
increased memberships and higher retention rates within the direct response
business.
The approximate 19.0% growth in domestic credit revenues for the three-
and nine- month periods reflected higher owned receivable balances resulting
from strong merchandise sales and the positive impact of uniform pricing.
The improvement in credit revenues, coupled with reduced funding rates,
improved the net interest margin. The Sears Card continues to have the
dominant market share of credit retail sales generated in both the department
stores and off-the-mall stores.
International revenues for the third quarter of 1996 fell 1.4% from the
same period a year ago. Revenues were flat at Sears Canada and declined at
Sears Mexico reflecting the difficult local economic conditions and
competitive pressures. For the nine-month period, International revenues
were $2.3 billion, down $20 million from the prior year.
Gross margin as a percentage of domestic merchandise sales and services
for the third quarter was 26.1% versus 25.6% in the comparable prior year
period. The domestic gross margin rate benefited from a shift in sales to
higher margin apparel merchandise, improved logistics costs and savings from
strategic sourcing initiatives. For the nine-month period, 1996 domestic
gross margins rose 40 basis points to 25.7%. International gross margins
decreased to 23.5% in the third quarter from 23.6% n 1995. For the nine-
month period, International gross margins fell 50 basis points to 22.5%.
Selling and administrative expense as a percentage of revenues for
domestic operations decreased to 20.9% in the third quarter of 1996 from
21.2% resulting from the strong revenue performance coupled with continued
emphasis on controlling expenses and leveraging the fixed cost base. For
the nine-month period, the selling and administrative rate for domestic
operations improved 30 basis points to 21.3%. International selling and
administrative expenses increased to 25.7% from 24.0% in the third quarter
due to restructuring charges recorded for Sears Canada. On July 23, 1996,
Sears Canada announced its intention to eliminate certain positions and
close a warehouse and other support facilities as part of its ongoing cost
containment initiative. In the third quarter the Company recorded a $17
million restructuring charge (before minority interest) related to this
initiative in addition to the $10 million which was recorded in the second
quarter. The restructuring initiatives are projected to generate annualized
pretax savings of $35 to $45 million (before minority interest).
International selling and administrative expenses increased 90 basis points
to 24.5% for the nine-month period. For the three- and nine-month periods,
excluding the restructuring charges, the International selling and
administrative expense as a percentage of revenues improved 50 basis points
and 30 basis points, respectively.
<PAGE>
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ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
Depreciation and amortization expense was $173 million in the third
quarter and $502 million for the nine-month period, an increase of $30
million and $82 million, respectively, from the comparable 1995 periods.
The increase reflects the continuation of the Company's store remodeling
program and the off-the-mall store expansion.
<TABLE>
Key domestic credit information
Balances At
<CAPTION>
Sept. 28, Sept. 30,
(millions) 1996 1995
<S> <C> <C>
Gross credit card receivables $ 24,637 $ 21,902
Receivable balances sold (5,323) (4,404)
Owned credit card receivables $ 19,314 $ 17,498
Three Months Ended Nine Months Ended
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
Gross credit card receivables delinquent sixty days or more 5.24% 4.00% 5.24% 4.00%
Net credit charge-offs to average gross credit card receivables 4.60% 3.19% 4.11% 3.04%
Reserves for uncollectible accounts as a percentage
of gross credit customer receivables 3.86% 4.20% 3.86% 4.20%
</TABLE>
The provision for uncollectible accounts was $286 million in the third
quarter, a 53% increase from the same period last year. The increase is
attributable to a number of factors, including the growth in gross domestic
credit card receivables and the rise in net charge-offs due to the
industry-wide trend of increased delinquencies and bankruptcies. For
these same reasons, the provision for uncollectible accounts increased 52%
to $794 million in the nine-month period from $521 million in the comparable
prior year period. The reserve for uncollectible gross credit card
receivables was $950 million and $920 million at September 28, 1996 and
September 30, 1995, respectively. In response to the aforementioned trend,
the Company has implemented an aggressive action plan designed to mitigate
the increase in write-offs. Components of the action plan include increases
in collection staffing levels and additional investments in technology to
improve productivity and increase capacity.
Interest expense decreased $16 million to $326 million in the third
quarter of 1996 reflecting lower effective funding rates resulting from the
refinancing of long-term higher rate debt, partially offset by higher
funding requirements due to a larger gross receivable portfolio. For the
nine-month period, interest expense decreased $11 million to $1.01 billion.
Due to holiday buying patterns, merchandise sales are traditionally
higher in the fourth quarter than other quarterly periods. As such, a
disproportionate share of operating income is typically earned in the
fourth quarter.
<PAGE>
-10-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
Financial Condition
As of September 28, 1996, domestic merchandise inventories on the
first-in, first-out (FIFO) basis were $5.57 billion, compared with $5.09
billion at September 30, 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 provided by the Company's operating activities totaled $337
million for the first nine months of 1996, compared to net cash provided of
$540 million for the same period in 1995. The decrease in operating cash
flow was largely attributable to the increase in inventory levels and owned
credit card receivables in 1996 as compared to 1995.
Gross domestic credit card receivables were $24.64 billion at September
28, 1996, compared to $21.90 billion at September 30, 1995. Sears, through
its wholly-owned subsidiary, Sears Receivables Financing Group, Inc., had
$5.32 and $4.55 billion of credit account pass-through certificates
("securitized receivables") outstanding at September 28, 1996 and
December 30,1995, respectively. The change in the balance of securitized
receivables generated cash of $774 million during the nine months ended
September 28, 1996, compared to $457 million during the comparable 1995
period.
In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued and is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996. The statement provides
consistent standards for distinguishing transfers (securitizations) of
financial assets that are sales from transfers that are secured borrowings.
The Company is currently evaluating the impact of the new accounting standard,
and expects that existing asset securitization programs will continue to
qualify for sale accounting treatment under the new standard.
Net cash used in investing activities totaled $1.09 billion for the first
nine months of 1996 compared to $1.10 billion in 1995. The decrease in net
cash used resulted from a prior year use related to discontinued operations
offset by cash used for the acquisition of the Orchard stores in September
1996, as well as higher capital expenditures in 1996 related to the Company's
department store remodeling program and the expansion of its store base. As
part of its growth strategy, the Company may continue to pursue strategic
acquisitions.
Net cash provided by financing activities totaled $795 million for the
first nine months of 1996 as compared to $487 million in 1995. Financing
activities in 1996 were primarily long-term borrowings to support the growth
in credit card receivables and securitizations. The Company used proceeds
from securitizations for general corporate purposes and 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") which were exchanged into common shares on March 20, 1995,
and a higher common dividend as compared to 1996. In the first nine months
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 quarterly dividend payout
rate of $0.23 per common share for the first three quarters of 1996.
On September 23, 1996, the Company announced its intention to redeem at
par all the outstanding 8.88% Preferred Shares, First Series on November 12,
1996. The redemption will result in a cash use of approximately $325 million
in the fourth quarter of 1996 and will subsequently reduce annual dividends
paid by $29 million.
<PAGE>
-11-
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 July 18,
1996 (Items 5 and 7) containing consolidated statements of
income and supplementary domestic operations information.
<PAGE>
-12-
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)
November 8, 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 MONTH PERIOD ENDED SEPTEMBER 28, 1996
Exhibit No.
3. By-Laws of the Registrant as amended to August 14, 1996
(incorporated by reference to Exhibit 4(E) to Registration
Statement No. 333-11973).
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 Deferred Compensation Plan for Directors, as
amended and restated on October 9, 1996.
10(b). Registrant's Deferred Compensation Plan, as amended and
restated on October 9, 1996.
10(c). Form of severance and non-compete agreement for executive
officers of the Registrant.
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 nine- and
twelve-month periods ended September 28, 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 nine- and twelve-month periods
ended September 28, 1996.
15. Acknowledgment of awareness from Deloitte & Touche LLP, dated
November 8, 1996, concerning unaudited interim financial
information.
27. Financial Data Schedule.
Exhibit 10(a)
WHEREAS, it is in the best interests of the Company to amend and
restate the Deferred Compensation Plan for Directors (the
"Plan");
NOW, THEREFORE, BE IT RESOLVED, that the Plan be and it hereby
is amended and restated as follows:
SEARS, ROEBUCK AND CO.
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
as amended and restated on October 9, 1996
1. PURPOSE
The purpose of this Plan is to offer non-employee members
of the Board of Directors the opportunity to defer receipt of their
directors' compensation, as an incentive to their continued
participation as directors of Sears, Roebuck and Co.
2. DEFINITIONS
a. "Beneficiary" shall mean the person or persons designated
from time to time in writing by a Participant to receive
payments under the Plan after the death of such Participant, or,
in the absence of any such designation or in the event that such
designated person or persons shall predecease such Participant,
his estate.
b. "Common Share Unit" shall mean a Deferred Amount which is
converted into a unit or fraction of a unit for purposes of the
Plan by dividing a dollar amount by the Fair Market Value of one
of the Company's common shares.
c. "Company" shall mean Sears, Roebuck and Co.
d. "Compensation" shall mean payments which the Participant
receives from the Company for services, including retainer fees
and meeting fees.
e. "Deferred Amount" shall mean an amount of Compensation
deferred under the Plan and carried during the deferral period
in any Account provided for in the Plan.
f. "Distribution Date" shall mean the date designated by a
Participant in the Notice of Election form for distribution of
Accounts.
g. "Dividend Equivalent" shall mean an amount equal to the
cash dividend paid on one of the Company's common shares credited
to an Account for each Common Share Unit credited to such Account.
h. "Equity Index" shall mean the Standard & Poor's 500
Composite Stock Price Index which is a market value-weighted
index consisting of 500 common stocks of large U.S. domiciled
companies selected by Standard and Poor's Corporation ("S&P")
through a detailed screening process starting on a
macro-economic level and working toward a micro-economic level
dealing with company specific information such as market value,
industry group classification, capitalization and trading
activity. S&P's primary objective for the S&P Index is to
represent the segment of the U.S. equity securities markets
consisting of large market capitalization stocks. However,
companies are not selected by S&P for inclusion because they are
expected to have superior stock price performance relative to
the market in general or other stocks in particular.
i. "Fair Market Value" shall mean the closing price of the
Company's common shares as reported by the Wall Street Journal
or other comparable source in a summary of composite
transactions for stocks listed on the New York Stock Exchange.
j. "Hardship" shall mean an emergency or unexpected
situation in the Participant's financial affairs including, but not
limited to, illness or accident involving the Participant or
his/her dependents which, in the opinion of the Compensation
Committee of the Board of Directors of the Company, presents a
severe economic difficulty to the Participant, due to which a
distribution of the Account balance is appropriate.
k. "Fixed Income Index" shall mean the Lehman Brothers
Aggregate Bond Index, except for debt securities of Sears or
Allstate (as defined below), which is made up of the Lehman
Government/Corporate Bond Index ("Bond Index"), the Lehman
Mortgage-Backed Securities Index ("Mortgage-Backed Securities
Index"), and the Lehman Asset-Backed Securities Index
("Asset-Backed Securities Index"). The Bond Index is a
composite of all publicly issued, fixed rate, nonconvertible,
domestic bonds. The issues are rated investment grade or higher
by Moody's Investors Service, Inc., S&P, or Fitch Investors
Service, Inc., in that order, have a minimum outstanding
principal of $100 million for U.S. Government issues or $50
million for other bonds, and have a maturity of at least one
year. The index is capitalization-weighted. The
Mortgage-Backed Securities Index includes 15- and 30-year fixed
rate securities backed by mortgage pools of the Government
National Mortgage Association, the Federal Home Loan Mortgage
Corporation, and the Federal National Mortgage Association.
Graduated payment mortgages and balloon mortgages are included
in the index; buydown, manufactured homes and graduated equity
mortgages are not. The Asset-Backed Securities Index is
composed of credit card, auto, and home equity loans. Included
in the index are pass-through, bullet (noncallable), and
controlled amortization structures; no subordination tranches
are included. All securities have an average life of at least
one year.
l. "Non-Employee Director" shall mean any duly elected or
appointed member of the Board of Directors of the Company who is
not an employee of the Company or of any subsidiary of the
Company.
m. "Participant" shall mean any Non-Employee Director who
elects to defer any amount of Compensation under the Plan.
n. "Plan" shall mean the Sears, Roebuck and Co., Deferred
Compensation Plan for Directors.
o. "Secretary" shall mean the duly elected Secretary of the
Company.
3. ELECTION TO DEFER COMPENSATION
Each Participant may elect to defer the payment of all or any
part of his or her Compensation by executing and delivering to
the Secretary a Notice of Election, in the form attached hereto
and incorporated herein by this reference. Such election shall
be applicable only to Compensation payable on or after the first
day of the month following the month in which such Notice of
Election is received by the Secretary.
An election to defer payment of Compensation shall continue in
effect until revoked by notice in writing to the Secretary. In
addition, the receipt of a new or revised Notice of Election
form by the Secretary shall constitute a revocation of any
previously filed Notice of Election form to the extent
inconsistent therewith. No revocation shall be effective with
respect to Compensation earned prior to the date the revocation
is received by the Secretary or the effective date of the new or
revised Notice of Election.
4. TREATMENT OF DEFERRED AMOUNTS
The Company shall establish on its books the necessary
accounts ("Account", or collectively, "Accounts") to accurately
reflect the Company's liability to each Participant. To each
Account shall be credited, as applicable, Deferred Amounts,
Dividend Equivalents on Common Shares, Allstate Share Units,
Allstate Dividend Equivalents and interest. Payments to the
Participant or amounts transferred to another Account under the
Plan shall be debited to the appropriate Account.
a. Account #1 - Interest-Bearing Account. Compensation
deferred into an Interest-Bearing Account shall be credited to
the Account on the same date when it would otherwise be payable
to the Participant. Deferred Amounts carried in this Account
shall earn interest from the date of credit to the date of
payment. At the end of each calendar month, interest at a rate
equal to the monthly average per annum cost of commercial paper
or the equivalent issued by Sears Roebuck Acceptance Corp.
("SRAC") as reported in the monthly report to the SRAC Board of
Directors shall be credited to the amounts previously accrued in
each Account for the period from the date amounts were credited
to such Account to the end of such calendar month.
b. Account #2 - Common Share Unit Account. Compensation
deferred into a Common Share Unit Account shall be credited to
the Account on the same date when it would otherwise be payable
to the Participant. Such Deferred Amounts shall be converted
into a number of Common Share Units on the date credited to the
Account by dividing the Deferred Amount by the Fair Market Value
on such date. If Common Share Units exist in a Participant's
Account on a dividend record date for the Company's common
shares, Dividend Equivalents shall be credited to the
Participant's Account on the related dividend payment date, and
shall be converted into the number of Common Share Units which
could be purchased with the amount of Dividend Equivalents so
credited.
In the event of any change in the Company's common shares
outstanding, by reason of any stock split or dividend,
recapitalization, merger, consolidation, combination or exchange
of stock or similar corporate change, the Secretary shall make
such equitable adjustments, if any, deemed appropriate by reason
of any such change, in the number of Common Share Units credited
to each Participant's Account.
c. Account #3 - Equity Index Account. Compensation deferred
into an Equity Index Account shall be credited to the Account on
the same date when it would otherwise be payable to the
Participant. On the last day in the month the amounts in the
Participant's Account shall be adjusted by a percentage factor
based on the total return (including dividends) of the Equity
Index from the date the amount was credited to the Account for
amounts credited during the month or from the last day of the
preceding month for amounts in the Account on such day. Similar
adjustments shall also be made on any date the Account is
debited by reason of any transfer of an amount to another
Account or distribution to the Participant. In the event that
the Equity Index is not published for any date referred to
above, the Index for the closest day preceding such date for
which such Equity Index is published shall be used.
d. Account #4 - Fixed Income Index Account. Compensation
deferred into a Fixed Income Index Account shall be credited to
the Account on the same date when it would otherwise be payable
to the Participant. Amounts credited to the Account shall earn
additional amounts which will be credited to the Account on the
last business day of each month based upon the Iperformance of
the Fixed Income Index.
e. Account #5 - Allstate Share Unit Account. Participants
who have Common Share Unit Accounts on the payment date for the
Company's distribution to its common shareholders of its
remaining ownership of Allstate common stock will, at their
election, be credited with the same number of Allstate Share
Units per Common Share Unit as Allstate common shares
distributed per each Company common share in the distribution.
Such election shall be received by the Secretary of the Company
on or before the payment date for such distribution. In the
absence of receipt of such election as to any Participant, the
Secretary shall adjust the Common Share Unit Account of the
Participant to reflect in Common Share Units the value of the
Allstate distribution. All Allstate Share Units shall be
credited to Participants' Allstate Share Unit Account.
If Allstate Share Units exist in a Participant's Account
on a dividend record date for Allstate's common stock, Allstate
Dividend Equivalents shall be credited to the Participant's
Allstate Share Unit Account on the related dividend payment
date, and shall be converted into the number of Allstate Common
Share Units which could be purchased with the amount of Allstate
Dividend Equivalents so credited.
In the event of any change in Allstate's common stock
outstanding, by reason of any stock split or dividend,
recapitalization, merger, consolidation, combination or exchange
of stock or similar corporate change, the Secretary shall make
such equitable adjustments, if any, deemed appropriate by reason
of any such change, in the number of Allstate Common Share Units
credited to each Participant's Allstate Share Unit Account.
For purposes of this Section 4(e):
"Allstate" shall mean The Allstate Corporation.
"Allstate Dividend Equivalent" shall mean an amount equal
to the cash dividend paid on one of Allstate's shares of common
stock, credited to a Participant's Allstate Share Unit Account
for each Allstate Share Unit credited to such Account.
"Allstate Fair Market Value" shall mean the closing price
of Allstate's common shares as reported by the Wall Street Journal
or other comparable source in a summary of composite
transactions for stocks listed on the New York Stock Exchange.
"Allstate Share Unit" shall mean a unit or fraction of a
unit calculated (except with respect to the initial allocation of
such units to Participants' accounts at the time of the
Company's distribution of Allstate stock) by dividing a dollar
amount by the Allstate Fair Market Value of one of Allstate's
shares of common stock.
f. Transfers Between Accounts. Transfers between Account
#1, Account #2, Account #3 and Account #4 may be made at any time
requested by the Participant upon application to the Secretary.
Participants may make transfers from Account #5 to
another Account at any time requested by the Participant upon
application to the Secretary. No Participant may make transfers
to Account #5 from any other Account under any circumstances.
In the case of:
(i) any election to transfer or withdraw from Account #2
which occurs within six months after an election to transfer into
Account #2 or into another Equity Fund Account; and
(ii) any election to transfer into Account #2 which occurs
within six months after an election to transfer or withdraw from
Account #2 or from another Equity Fund Account,
the second election shall be deemed not to have occurred for any
purpose under this Plan, and the account of any such Participant
shall continue to reflect all balances and accruals as if such
election had not been made. The Company is authorized to make
any adjustments to a Participant's account as may be necessary
to give effect to the foregoing provision.
For purposes of this Section 4(f):
"Equity Fund Account" shall mean an account for a Participant
maintained under a benefit plan of the Company, that contains a
Company "equity security" within the meaning of the term "equity
security of such issuer" in Rule 16a-1 under the Exchange Act.
5. DISTRIBUTION
a. Except in the case of the death of a Participant,
distribution of Accounts shall commence as of the date specified
by the Participant in said Participant's applicable Notice of
Election form, which date shall be no later than one year after
termination from the Board. The Participant may revise the
terms of distribution of the Participant's Accounts by
submitting a revised Notice of Election, provided that (i) the
revised Notice of Election form shall be filed by the
Participant with the Secretary not later than twelve months
prior to the Participant's normal retirement date from the
Board, and (ii) in any event, distribution of the Participant's
Accounts shall not commence earlier than twelve months after the
Participant's revised Notice of Election form is filed with the
Secretary.
b. Except in the case of the death of the Participant,
payment of the amount in each Account shall be either in the form
of a lump-sum or in annual installments over a period of years not
to exceed ten (10) years as selected by the Participant in the
applicable Notice of Election form. The amount of any
installment payment shall be determined by multiplying the
amount to which the Participant would be entitled as a lump sum
on the installment date by a fraction, the numerator of which is
one and the denominator of which is the number of remaining
unpaid installments.
c. In the event of the Participant's death prior to the
Distribution Date, or after annual installments to the
Participant have commenced but before full distribution has been
made, the then remaining balance in each Account shall be paid
in a lump-sum to the Beneficiary or contingent Beneficiary
designated in the Notice of Election form, or to the estate of
the deceased Participant if there is no surviving Beneficiary or
contingent Beneficiary. In either such event the lump sum
payment shall be valued as of the first day of the month
following the Participant's date of death. A Participant may
change the Beneficiary or contingent Beneficiary from time to
time by filing with the Secretary a written notice of such
change; provided, however, that no such notice of change of
Beneficiary shall be effective unless it had been received by
the Secretary prior to the date of the Participant's death.
d. Upon demonstration of Hardship by the Participant to the
Compensation Committee of the Board of Directors of the Company,
distribution of a Participant's Account, or the remaining
balance of any unpaid installments, as the case may be, may be
made in a lump sum.
6. MISCELLANEOUS
a. The Board of Directors of the Company may amend or
terminate the Plan at any time; however, any amendment or
termination of the Plan shall not affect the rights of Participants
or Beneficiaries to payment, in accordance with Section 5 of the
Plan, of amounts credited to Participants' Accounts at the time
of such amendment or termination. The Board of Directors and
the Secretary may in their discretion prescribe such provisions
and interpretations of the Plan as they shall deem necessary or
advisable.
b. The Plan does not create a trust in favor of a
Participant, a Participant's designated Beneficiary or
Beneficiaries, or any other person claiming on a Participant's
behalf, and the obligation of the Company is solely a contractual
obligation to make payments due hereunder. In this regard, the
balance in any Account shall be considered a liability of the
Company and a Participant's right thereto shall be the same as any
unsecured general creditor of the Company. Neither a Participant
nor any other person shall acquire any right, title, or interest in
or to any amount outstanding to a Participant's credit under the
Plan other than the actual payment of such portions thereof in
accordance with the terms of the Plan.
c. No right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance
or change, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber or change the same shall be void. No
right or benefit hereunder shall in any manner be liable for or
subject to the debts, contracts, liabilities or torts of the
person entitled to such benefit.
d. Construction of the Plan shall be governed by the laws of
Illinois.
e. The terms of the Plan shall be binding upon the heirs,
executors, administrators, personal representatives, successors
and assigns of all parties in interest.
f. The headings have been inserted for convenience only and
shall not affect the meaning or interpretation of the Plan.
g. Any amount payable to or for the benefit of a minor, an
incompetent person or other person incapable of receipting
therefor shall be deemed paid when paid to such person's
guardian or to the party providing or reasonably appearing to
provide for the care of such person, and such payment shall
fully discharge the Company and the Board of Directors with
respect thereto.
Exhibit 10(b)
SEARS, ROEBUCK AND CO.
DEFERRED COMPENSATION PLAN
AS AMENDED AND RESTATED TO
OCTOBER 9, 1996
<PAGE>
ARTICLE I
DESIGNATION OF PLAN AND DEFINITIONS
1.1 Title
This Plan shall be known as the "Sears, Roebuck and
Co. Deferred Compensation Plan" and shall become effective for
Compensation received on and after January 1, 1987.
1.2 Definitions
The following definitions will apply:
(a) "Accounts" shall mean Deferred Compensation
Accounts.
(b) "Beneficiary" or "Contingent Beneficiary"
(collectively, "Beneficiary" or "Beneficiaries"), shall mean the
person or persons last designated in writing by the Participant to
the Committee, in accordance with Section 8.5 of this Plan.
(c) "Board" shall mean the Board of Directors of the
Company.
(d) "Compensation" shall mean salary, bonuses, LTIP
awards and any other compensation payable in cash or common shares
with respect to services rendered in any one Plan Year, by a
Participating Employer to an Eligible Employee.
(e) "Committee" shall mean the Committee appointed by
the Board of Directors pursuant to Article VI of this Plan.
(f) "Company" shall mean Sears, Roebuck and Co. and all
consolidated subsidiaries thereof.
(g) "Deferred Compensation Account" shall mean the
balance of all Compensation deferred by a Participant, plus all
interest accrued pursuant to Article IV of the Plan.
(h) "Eligible Employee" shall mean any Employee who is
eligible to be selected as a Participant under Article II of
this Plan.
(i) "Employee" shall mean any regular, full-time
employee of the Company.
(j) "Hardship" shall mean severe financial hardship to
the Participant resulting from a sudden and unexpected illness or
accident of the Participant or of a dependent (as defined in
Section 152(a) of the Internal Revenue Code of 1986, as amended)
of the Participant, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control
of the Participant. The circumstances that will constitute an
unforeseeable emergency will depend upon the facts of each case,
but, in any case, payment may not be made to the extent that
such hardship is or may be relieved--
1) through reimbursement or compensation by insurance
or otherwise,
2) by liquidation of the Participant's assets, to the
extent the liquidation of such assets would not itself cause severe
financial hardship, or
3) by cessation of deferrals under the Plan.
Examples of what are not considered to be unforeseeable
emergencies include the need to send a Participant's child to
college or the desire to purchase a home.
(k) "LTIP" shall mean the Sears, Roebuck and Co.
Long-Term Incentive Compensation Plan or any similar plan of the
Company providing Compensation intended to serve as incentive for
performance to occur over a period longer than one fiscal year.
(l) "Participant" shall mean an Eligible Employee
participating in the Plan in accordance with Article II hereof.
(m) "Participating Employer" shall mean the Company, or
any Subsidiary which adopts this Plan in accordance with Section
2.2 hereof.
(n) "Plan" shall mean this Sears, Roebuck and Co.
Deferred Compensation Plan as set forth herein, and as amended from
time to time in accordance with Article VII hereof.
(o) "Plan Year" shall mean the calendar year.
(p) "Section 16(a) Participants" shall mean Participants
who are required to file reports under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(q) "Separation from Service" shall mean the termination
of a Participant's employment with the Company for any reason
whatsoever, including retirement, resignation, dismissal and
death.
(r) "Subsidiary" shall mean any subsidiary of the
Company.
(s) "Transfer" shall mean a change in a Participant's
employment from a Participating Employer to a Subsidiary which
is not a Participating Employer.
<PAGE>
ARTICLE II
PARTICIPATION
2.1 Eligibility
(a) All Employees who are designated by the Board from
time to time as "executive officers" for the purposes of Section 16
of the Exchange Act, and the rules and regulations promulgated
thereunder, shall be Eligible Employees and may be Participants
for the next Plan Year.
(b) All other key officers and Employees as the
Committee may approve who expect to have Compensation and such
other items of income as the Committee shall determine, of over the
amount fixed from time to time by the Secretary of the Treasury
pursuant to Section 401(a)(17) of the Internal Revenue Code of
1986, as amended, for the next Plan Year, shall be Eligible
Employees and may be Participants for the next Plan Year. The
Committee may change the requirements in this Section 2.1 for
eligibility, provided, however, that the Committee shall not
decrease said income eligibility requirement.
2.2 Participating Employers
Any Subsidiary, with the approval of the Company, may
adopt this Plan for its Eligible Employees.
2.3 Notice of Eligibility
The Committee or its appointed representative shall
notify each Eligible Employee no later than 30 days prior to the
first business day of any Plan Year or as soon thereafter as
practicable, that he/she is entitled to become a Participant in
the Plan for such Plan Year.
2.4 Participation Election
Each Eligible Employee shall give written notice to the
Committee or its representative, of his/her election to become a
Participant in the Plan for any Plan Year, no later than the
last business day of the preceeding Plan Year. Such notice
shall specify the deferral percentages or amount of Compensation
expected to be earned and payable with respect to the upcoming
Plan Year to be deferred when such amounts would otherwise be
payable, as set forth in Section 3.1 of the Plan. If an
Eligible Employee fails to give such written notice of election,
such failure will be deemed an election not to become a
Participant for such Plan Year. No change may be made in
deferral election for the plan year for which a deferral
election previously has been made. However, a participant may at
any time suspend participation in the Plan for the remainder of a
plan year as to deferrals of the salary component of compensation,
and deferrals of said salary under the Plan for that plan year will
discontinue, starting with salary earned in the month following
the receipt by the Committee or its appointed representative of
written notice of such suspension.
2.5 Participation Election Form
The Committee shall approve and distribute to all Eligible
Employees a form which shall be used by Eligible Employees to
notify the Committee of their election to participate in the
Plan pursuant to Section 2.4 hereof. Such form shall clearly
delineate the deferral alternatives provided by the Plan,
pursuant to Section 3.1 hereof.
<PAGE>
ARTICLE III
DEFERRALS
3.1 Amount of Deferral
(a) Pursuant to Section 2.4 hereof, a Section 16(a)
Participant may elect to defer in whole number percentages or
whole dollar terms, or a combination thereof, up to all of the
aggregate of that portion of such person's base salary, annual
bonus, LTIP awards and any other compensation payable for
services rendered during the Plan Year and such other portion of
such person's Compensation as may be designated by the Board, in
excess of (i) the amount fixed from time to time by the
Secretary of the Treasury pursuant to Section 401(a)(17) of the
Internal Revenue Code of 1986, as amended, or (ii) any other
higher limitation expressly imposed by the Board.
(b) Any other Participant may, pursuant to Section 2.4
hereof, elect to defer in whole number percentages or whole dollar
terms, or a combination thereof, up to all of the aggregate of
that portion of a Participant's base salary, annual bonus, LTIP
awards and any other compensation payable for services rendered
during the Plan Year and such other portion of such
Participant's Compensation as may be designated by the
Committee, in excess of (i) the amount fixed from time to time
by the Secretary of the Treasury pursuant to Section 401(a)(17)
of the Internal Revenue Code of 1986, as amended, or (ii) any
other higher limitation expressly imposed by the Committee.
3.2 Effective Date of Deferral
Compensation deferred shall be credited to a
Participant's Account as set forth in Section 4.2.
3.3. Use of Amounts Deferred
Amounts credited to Deferred Compensation Accounts
hereunder shall be a part of the general funds of the Company,
shall be subject to all the risks of the Company's business, and
may be deposited, invested or expended in any manner whatsoever by
the Company.
<PAGE>
ARTICLE IV
DEFERRED COMPENSATION ACCOUNTS AND VESTING
4.1 Establishment of Account
The Committee shall establish, by bookkeeping entry on
the books of the Company, a Deferred Compensation Account for each
Participant. Such Account shall be established as of the first
day of the Plan Year for which the Eligible Employee first
becomes a Participant.
4.2 Contributions to Account
The Committee shall cause deferred Compensation to be
credited by bookkeeping entry to each Participant's Account as of
the date when such Compensation otherwise would have been payable
to the Participant.
4.3 Accrual of Interest on Compensation Deferred
To each Subaccount shall be credited, as applicable,
Compensation deferred, Dividend Equivalents on Common Shares,
and interest. Payments to the Participant or amounts
transferred to another Subaccount under the Plan shall be
debited to the appropriate Subaccount.
(a) Subaccount #1 - Sears Roebuck Acceptance Corp.
Commercial Paper Rate. Compensation deferred into Subaccount #1
shall be credited to the Subaccount on the same date when it would
otherwise be payable to the Participant. Compensation deferred
shall earn interest from the date of credit to the date of
payment. At the end of each calendar month, interest at a rate
equal to the monthly average per annum cost of commercial paper
or the equivalent issued by Sears Roebuck Acceptance Corp.
("SRAC") as reported in the monthly report to the SRAC Board of
Directors shall be credited to the amounts previously accrued in
each Subaccount for the period from the date amounts were
credited to such Subaccount to the end of such calendar month.
(b) Subaccount #2 - Common Share Units. Compensation
deferred into Subaccount #2 shall be credited to the Subaccount on
the same date when it would otherwise be payable to the
Participant. Such Compensation shall be converted into a number of
Common Share Units on the date credited to the Subaccount by
dividing the Compensation deferred by the Fair Market Value on such
date. If Common Share Units exist in a Participant's Subaccount
which are indexed under Subaccount #2 on a dividend record date for
the Company's common shares, Dividend Equivalents shall be
credited to the Participant's Subaccount on the related dividend
payment date, and shall be converted into the number of Common
Share Units which could be purchased with the amount of Dividend
Equivalents so credited.
In the event of any change in the Company's common shares
outstanding, by reason of any stock split or dividend,
recapitalization, merger, consolidation, combination or exchange
of stock or similar corporate change, the Committee shall make
such equitable adjustments, if any, by reason of any such
change, deemed appropriate in the number of Common Share Units
credited to each Participant's Subaccount #. 2.
(c) Subaccount #3 - Equity Index Subaccount.
Compensation deferred into Subaccount #3 shall be credited to the
Subaccount on the same date when it would otherwise be payable to
the Participant. On the last day in the month the amounts in the
Participant's Subaccount shall be adjusted by a percentage
factor based on the total return (including dividends) of the
Equity Index from the date the amount was credited to the
Subaccount for amounts credited during the month or from the
last day of the preceding month for amounts in the Subaccount on
such day. Similar adjustments shall also be made on any date
the Subaccount is debited by reason of any transfer of an amount
to another Subaccount or distribution to the Participant. In
the event that the Equity Index is not published for any date
referred to above, the Equity Index for the closest day
preceding such date for which such Index is published shall be
used.
(d) Subaccount #4 - Fixed Income Index Subaccount.
Compensation deferred into Subaccount #4 shall be credited to
the Subaccount on the same date when it would otherwise be
payable to the Participant. Amounts credited to the Subaccount
shall earn additional amounts which will be credited to the
Subaccount on the last business day of each month based upon the
performance of the Fixed Income Index.
(e) Subaccount #5 - Restricted Common Share Unit
Account. Compensation deferred into Subaccount #5 shall be
credited to the Subaccount on the same date when it would otherwise
be payable to the Participant. If a Participant has elected to
defer all or any portion of his or her annual bonus
Compensation or LTIP Compensation under any plan, contract,
authorization or arrangement of the Company, then the
Participant may elect to invest such deferrals in restricted
common share units and the dollar amount of such Compensation
will be allocated to Subaccount #5 and to no other Subaccount,
except as provided below.
Such amounts will be converted into Common Share Units
on the above-mentioned date and thereafter will be held in
Subaccount #5 and administered for all purposes in the same manner
as Compensation deferred into the Common Share Unit Account set
forth in Section 4.3(b), including but not limited to, the
allocation of Dividend Equivalents. Any event that would cause
a forfeiture of restricted shares under any of the
above-mentioned plans or arrangements of the Company shall cause
a forfeiture of Common Share Units under Subaccount #5.
On the date on which all restrictions would lapse if a
participant had received restricted common shares pursuant to
any of the above-mentioned plans or arrangements, instead of
restricted common share units pursuant to this Plan, all
Dividend Equivalents (except for Dividend Equivalents accruing
as of the close of business on such date) will cease to accrue
and all amounts in Subaccount #5 will automatically be
transferred into Subaccount #2 and thereafter will be subject to
all of the provisions of the Plan applicable to Subaccount #2,
including provisions relating to transfers of amounts between
Subaccount #2 and other Subaccounts and distribution.
Under no circumstances may a Participant who has received
restricted common shares of the Company pursuant to any plan or
arrangement be allowed to defer such shares into this Plan.
(f) Transfers between Subaccounts. Transfers among
Subaccounts #1, #2, #3 and #4 may be made once for each calendar
month at the request of the Participant upon application to the
Committee, and shall be effective as of the first day of the
calendar month subsequent to the month in which the Company
receives such Participant's request to transfer. Except for the
mandatory transfer referred to in Section 4.3(e) above, no
transfers shall be allowed to or from Subaccount #5.
With respect to a Section 16(a) Participant, in the case of:
(i) any election to transfer or withdraw from Subaccount #2
which occurs within six months after an election to transfer
into Subaccount #2 or into another Equity Fund Account; and
(ii) any election to transfer into Subaccount #2 which occurs
within six months after an election to transfer or withdraw from
Subaccount #2 or from another Equity Fund Account,
the second election shall be deemed not to have occurred for any
purpose under this Plan, and the account of any such Section
16(a) Participant shall continue to reflect all balances and
accruals as if such election had not been made. The Company is
authorized to make any adjustments to a Section 16(a)
Participant's account as may be necessary to give effect to the
foregoing provision.
(g) The following definitions apply to this Section 4.3:
1) "Common Share Unit" shall mean an amount of
Compensation deferred which is converted into a unit or fraction of
a unit for purposes of the Plan by dividing a dollar amount by the
Fair Market Value of one of the Company's common shares.
2) "Common shares" shall mean the Company's common
shares, par value $.75 per share.
3) "Dividend Equivalent" shall mean an amount
equal to the cash dividend paid on one of the Company's common
shares credited to a Subaccount for each Common Share Unit credited
to such Subaccount.
4) "Equity Fund Account" shall mean an account for
a Section 16(a) Participant maintained under a benefit plan of the
Company, that contains a Company "equity security" within the
meaning of the term "equity security of such issuer" in Rule
16a-1 under the Exchange Act.
5) "Equity Index" shall mean the Standard & Poor's
500 Composite Stock Price Index which is a market value-weighted
index consisting of 500 common stocks of large U.S. domiciled
companies selected by Standard and Poor's Corporation ("S&P")
through a detailed screening process starting on a
macro-economic level and working toward a micro-economic level
dealing with company specific information such as market value,
industry group classification, capitalization and trading
activity. S&P's primary objective for the S&P Index is to
represent the segment of the U.S. equity securities markets
consisting of large market capitalization stocks. However,
companies are not selected by S&P for inclusion because they are
expected to have superior stock price performance relative to
the market in general or other stocks in particular.
6) "Fair Market Value" shall mean the closing
price of the Company's common shares as reported by the Wall Street
Journal or other comparable source in a summary of composite
transactions for stocks listed on the New York Stock Exchange.
7) "Fixed Income Index" shall mean the Lehman
Brothers Aggregate Bond Index, which is made up of the Lehman
Government/Corporate Bond Index ("Bond Index"), the Lehman
Mortgage-Backed Securities Index ("Mortgage-Backed Securities
Index"), and the Lehman Asset-Backed Securities Index
("Asset-Backed Securities Index"). The Bond Index is a
composite of all publicly issued, fixed rate, nonconvertible,
domestic bonds. The issues are rated investment grade or higher
by Moody's Investors Service, Inc., S&P, or Fitch Investors
Service, Inc., in that order, have a minimum outstanding
principal of $100 million for U.S. Government issues or $50
million for other bonds, and have a maturity of at least one
year. The index is capitalization-weighted. The
Mortgage-Backed Securities Index includes 15- and 30-year fixed
rate securities backed by mortgage pools of the Government
National Mortgage Association, the Federal Home Loan Mortgage
Corporation, and the Federal National Mortgage Association.
Graduated payment mortgages and balloon mortgages are included
in the index; buydown, manufactured homes and graduated equity
mortgages are not. The Asset-Backed Securities Index is
composed of credit card, auto, and home equity loans. Included
in the index are pass-through, bullet (noncallable), and
controlled amortization structures; no subordination tranches
are included. All securities have an average life of at least
one year.
8) "Subaccount" shall mean the portion of the
balance in an Account reflecting the Compensation deferred and
indexed, as specified by the Participant, against one of the
indices set forth in Sections 4.3(a), (b), (c), (d) or (e), and
the interest amounts credited thereto.
(h) Each Participant may vary the choice of indices
against which interest on Compensation is measured by executing and
delivering a notice to the Director of Compensation of the
Company at any time. Such election shall be applicable only to
Compensation payable on or after the first day of the month
following the month in which such Notice of Election is
received.
4.4 Vesting
A Participant shall be fully vested in his/her Deferred
Compensation Account at all times, subject to Sections 3.3 and
8.2.
4.5 Transfers
In the event of a Transfer, deferrals of Compensation
under this Plan shall be discontinued as of the first day of the
pay period during which the Transfer becomes effective, according
to Company policy. The Participant's Account shall continue to
accrue interest in the same manner as the Accounts of all other
Participants, until such time as the Account is distributable
pursuant to Article V. In the event such an Employee again
becomes an Eligible Employee, he will be notified of his
eligibility to become a Participant again in accordance with the
procedure set forth in Section 2.3 and may elect to become a
Participant again in accordance with the procedure in Section
2.4.
<PAGE>
ARTICLE V
PAYMENTS
5.1 Events Causing Accounts to Become
Distributable
A Participant's Account becomes distributable on the date
on which any of the following occurs:
(a) Separation from Service;
(b) In a lump sum, one or two years subsequent to
Separation from Service, at the election of the Participant;
(c) Demonstration of Hardship by the Participant to the
Committee or its representative; and
(d) As to all or any portion of an Account attributable
to Compensation deferred and interest accrued thereon after the
date on which the Committee receives a Participant's election
form under this subsection 5.1(d) as shall be irrevocably
specified by the Participant, on a date certain occurring at any
time subsequent to the fiscal year in which the Participant
first participates in the Plan. Any balance in the
Participant's Account remaining after any payment under this
paragraph (d) and any balance in the Account attributable to
participation in the Plan in any year subsequent to the year in
which a payout on such date certain occurs, shall be paid to the
Participant as provided in paragraphs (a), (b) or (c) above.
Notwithstanding any contrary election by a Participant, any
payment under this Section 5.1 which would be made at a time
when a Participant is a "covered employee" as defined in Section
162(m) of the Internal Revenue Code of 1986, as amended, and
which the Company would be prohibited by said Section 162(m)
from claiming as a deduction on any tax return shall continue to
be deferred hereunder until the first date on which the Company
can claim such deduction, unless further deferred as provided in
Section 5.1(b).
5.2 Notice of Account Payment and Commencement
of Distribution
The Committee or its appointed representative shall
notify a Participant or Beneficiary, as the case may be, that
he/she is entitled to receive payment from an Account, no later
than the first day of the month succeeding the date on which the
Account becomes distributable, or as soon thereafter as
practicable. Distribution of Account balances shall commence on
the first day of the month following the date on which the Account
becomes distributable, or as soon thereafter as practicable.
5.3 Form of Payment
(a) Except as provided in paragraphs (c) and (d) of this
Section 5.3 and Article VIII hereof, payments of Account
balances to a Participant shall be in the form of one lump sum
payment or annual cash installment payments over a period of
from 1 to 10 years, at the election of the Participant.
(b) The following formula shall be used to determine
each annual installment payment to a Participant who has elected to
receive installment payments
remaining Account balance as of
the current payment date
___________________________________________
number of remaining payments, including the current one
Annual payments shall be made on the day payments commence
pursuant to Section 5.2 and on each annual anniversary date of
such initial payment. Interest shall continue to accrue on the
entire unpaid Account balance, as provided in Section 4.3.
(c) In the event of a Participant's death prior to full
distribution of his/her Account, the remaining Account balance
shall be paid in a lump-sum to the Beneficiary or Beneficiaries,
according to the designation made by the Participant, as soon as
practicable after a Participant's death, and shall accrue
interest until the account is completely distributed.
(d) Notwithstanding the provisions of paragraph (b)
above, if the remaining unpaid Account balance is $5,000 or less on
any date an annual installment payment is to be made to a
Participant, the payment shall be the remaining unpaid Account
balance.
5.4 Distribution Election
(a) Each Participant shall give written notice of
his/her desired form of payment at the time of his/her
participation election set forth in Section 2.4.
(b) Except for distribution elections under Section
5.1(d), each Participant may from time to time revise the terms of
distribution of the Participant's Account by submitting a
revised written notice of his/her desired form of payment,
provided that (i) the revised written notice of his/her desired
form of payment shall be filed by the Participant with the
Committee or its representative no less than twelve months prior
to the date on which payment would commence to be made in the
absence of such revised written notice, but in any event no
later than the day before the date of the Participant's
Separation from Service and (ii) in any event, distribution of
the Participant's Account shall not commence earlier than twelve
months after the Participant's revised notice of his/her desired
form of payment is filed with the Committee or its representative.
5.5 Distribution Election Form
The Committee shall approve and distribute to all
Participants a form which shall be used by each Participant to
notify the Committee of his/her desired form of payment or to
notify the Committee of any revision to his/her desired form of
payment. Such form shall clearly delineate the payment
alternatives provided pursuant to Section 5.4 hereof.
<PAGE>
ARTICLE VI
ADMINISTRATION
6.1 General Administration; Rights and Duties
Subject to the express limitations of the Plan, the
Committee, on behalf of the Participants, shall be charged with the
general administration of the Plan and with the responsibility for
carrying out its provisions, and shall have all powers necessary
to accomplish those purposes, including, but not by way of
limitation, the following:
(a) To construe and interpret the Plan;
(b) To compute the amount of benefits payable to
Participants;
(c) To authorize all disbursements by the Company of Account
balances pursuant to the Plan;
(d) To maintain all the necessary records for the
administration of the Plan;
(e) To make and publish rules for the administration and
interpretation of the Plan and the transaction of its business;
(f) To inform each Participant as soon as practicable after
January 1 of each Plan Year, of the value of the Participant's
Deferred Compensation Account as of the end of the previous Plan
Year; and
(g) To appoint (i) officers or Employees of the Company whom
the Committee believes to be reliable and competent; and (ii)
legal counsel (who may be Employees of the Company and
Participants), independent accountants and other persons to
assist the Committee in administering the Plan.
The determination of the Committee as to any disputed
question or controversy shall be conclusive.
Any member of the Committee may resign by delivering a
written resignation to the Board.
<PAGE>
ARTICLE VII
PLAN AMENDMENTS AND TERMINATION
7.1 Amendments
The Company shall have the right to amend this Plan from
time to time by resolutions of the Board or by the Committee, and
to amend or rescind any such amendments; provided, however, that no
action under this Section 7.1 shall in any way reduce the amount
of Compensation deferred or any interest thereon, up to and
including the end of the month in which such action is taken;
and provided further that Sections 2.1(a) and 3.1(a) may be
amended only by the Board. Interest will continue to accrue as
provided in Section 4.3. All such amendments shall be in
writing and shall be effective as provided by the Board or the
Committee, as the case may be, subject to the limitations in
this Section 7.1. The Committee shall inform each Participant
as soon as practicable following the enactment of any such
amendment.
7.2 Termination of Plan
Although the Company expects that this Plan will continue
indefinitely, continuance of this Plan is not a contractual or
other obligation of the Company, and the Company expressly
reserves its right to discontinue this Plan at any time by
resolutions of the Board or the Compensation Committee of the
Board, effective as provided in such resolutions. However, no
such action shall in any way reduce the amount of Compensation
deferred or any interest thereon, up to and including the end of
the month in which such action is taken. Interest will continue
to accrue as provided in Section 4.3.
<PAGE>
ARTICLE VIII
MISCELLANEOUS
8.1 Notification to Committee
Any notification given by a Participant pursuant to this
Plan shall be made in writing to the Committee or to such
representative of the Committee as may be designated by it for
such purpose, and shall be deemed to have been made or given on
the date received by the Committee or such representative.
8.2 Participants' Employment
Participation in this Plan shall not give any Participant
the right to be retained in the Company's employ or any right or
interest other than as herein provided. No Participant or
Employee shall have any right to any payment or benefit
hereunder except to the extent provided in this Plan. The
Company expressly reserves the right to dismiss any Participant
without any liability for any claim against the Company, except
to the extent expressly provided herein. This Plan shall create
only a contractual obligation on the part of the Company and
shall not be construed as creating a trust or other fiduciary
relationship with Participants. Participants will have only the
rights of general unsecured creditors of the Company with
respect to Compensation deferred and interest credited to their
Accounts.
8.3 Other Plans
This Plan shall not affect the right of any Employee or
Participant to participate in and receive benefits under and in
accordance with the provisions of any other Company plans which
are now or may hereafter be in existence.
8.4 Beneficiaries and Contingent Beneficiaries
Each Participant shall, by written notice to the
Committee, designate one or more persons or entities (including a
trust or trusts or his/her estate) to receive any balance in
his/her Deferred Compensation Account and interest thereon, payable
to him/her under this Plan in the event of his/her death prior to
full payment thereof. The Participant may also designate a
person or persons as a Contingent Beneficiary or Contingent
Beneficiaries who shall succeed to the rights of the person or
persons originally designated as Beneficiary or Beneficiaries,
in case the latter should die. He/she may from time to time
change any designation of Beneficiary or Contingent Beneficiary
so made, and the last written notice given by him/her to the
Committee shall be controlling. In the event a Participant
designates a person other than his/her spouse as Beneficiary of
any interests under this Plan, the Participant's spouse shall
sign a statement specifically approving such designation and
authorizing the Committee to make payment of such interests in
the manner provided in such designation. In the absence of such
designation by the Participant, or in the absence of spousal
approval and authorization as hereinabove provided, or in the
event of the death prior to or simultaneous with the death of
the Participant, of all Beneficiaries or Contingent
Beneficiaries, as the case may be, to whom payments were to be
made pursuant to a designation under this Section, and failing
any other valid designation by the Participant, such payments or
any balance thereof shall be paid to such Participant's legal
representatives. In the event of the death, subsequent to the
death of the Participant, of all Beneficiaries or Contingent
Beneficiaries, as the case may be, to whom such payments were to
be made or were being made pursuant to a designation under this
section, such payments or any balance thereof shall be paid to
the legal representatives of such Beneficiaries or Contingent
Beneficiaries.
8.5 Taxes
To the extent permitted by law, if the whole or any part
of a Participant's Account shall become the subject of any estate,
inheritance, income or other tax which the Company shall legally
be required to withhold and/or pay, the Company shall have full
power and authority to pay such tax out of any monies or other
property in its hands and charge such amounts paid against the
Account of the Participant whose interest hereunder is subject
to such taxes. Prior to making any such tax payment, the
Company may require such releases or other documents from any
lawful taxing authority as the Company shall deem necessary.
8.6 Benefits Not Assignable; Obligations
Binding Upon Successors
Benefits under this Plan and rights to receive the
amounts credited to the Account of a Participant shall not be
assignable or transferable and any purported transfer, assignment,
pledge or other encumbrance or attachment of any payments or
benefits under this Plan, other than by operation of law, shall not
be permitted or recognized. Obligations of the Company under this
Plan shall be binding upon successors of the Company.
8.7 Illinois Law Governs; Saving Clause
The validity of this Plan or any of its provisions shall
be construed and governed in all respects under and by the laws of
the State of Illinois. If any provisions of this Plan shall be
held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to
be fully effective.
8.8 Headings Not Part of Plan
Headings and subheadings in this Plan are inserted for
reference only, and are not to be considered in the construction
of the provisions hereof.
8.9 Mid-Year Participants
Notwithstanding Article III and Sections 4.5, 5.4 and 5.5
of the Plan, any person who shall be elected or appointed as an
officer of a Participating Employer and who expects to have
Compensation over the amount specified in Section 2.1 of the
Plan for the Plan Year of his or her election as an officer, and
any person who becomes eligible to participate in an LTIP
("Mid-Year Participants"), shall be an Eligible Employee and may
be a Participant, with respect to the portion of the Plan Year
beginning the day after the effective date of election or
appointment, or eligibility to participate in an LTIP. The
Director of Compensation of the Company is directed to notify
all persons who become Mid-Year Participants of their
eligibility to participate in the Plan, as soon as practicable
after their election or appointment or after they become
eligible to participate in an LTIP. Each Mid-Year Participant
shall give written notice to the Committee or its
representative, of his or her election to become a Participant
in the Plan for the remainder of such Plan Year, on a form to
be provided by the Company. If a Mid-Year Participant fails to
give such written notice of election within 30 days of being
notified of his or her eligibility, such failure will be deemed
an election not to become a Participant for the remainder of
such Plan Year.
Exhibit 10(c)
AGREEMENT
Sears, Roebuck and Co., including its subsidiaries (collectively
referred to as "Sears"), and ____________________ ("Executive"),
intending to be legally bound and for good and valuable
consideration, agree as follows:
1. Should Executive be involuntarily terminated from Sears for
any reason, other than willful misconduct or dishonesty, as defined
by Sears current policy, Sears agrees to pay severance to
Executive in the form of two* years of salary continuation,
which will include annual base salary plus annual bonus target
as determined by the year in which termination occurs, less
legal deductions. While receiving salary continuation,
Executive will be placed on a leave of absence status and
entitled to all benefits for which Executive is eligible to
participate. Stock options will continue to vest during the
salary continuation period. Vested options will expire in
accordance with their respective grant letters. After the first
year, salary continuation payments will be subject to mitigation
by the amount of any compensation and benefits to which the
Executive is entitled because of any employment, including
self-employment.** An amount may not be paid under this
Agreement to the extent that it, when considered along with
other amounts paid or provided by Sears to Executive, would not
be deductible by Sears because it would (a) exceed an amount
constituting reasonable compensation, (b) constitute an excess
parachute payment under Section 280G of the Internal Revenue
Code, or (c) exceed the limitations of Section 162(m) of the
Internal Revenue Code, or if for any other reason it would not
be allowable as a deduction by Sears under the Internal Revenue
Code.
2. Executive acknowledges that the above consideration, absent
this Agreement, is beyond what Sears is obligated to pay. In
consideration of the opportunity for severance benefits
specified above, Executive agrees that:
a. The confidential and proprietary information and trade
secrets of Sears are among its most valuable assets, including, but
not limited to, its customer and vendor lists, databases, computer
programs, frameworks, models, its marketing programs, its sales,
financial, marketing, training and technical information, and
any other information, whether communicated orally,
electronically, in writing or in other tangible forms concerning
how Sears creates, develops, acquires or maintains its products
and its marketing plans, targets its potential customers and
operates its retail and other businesses; Sears has invested,
and continues to invest, considerable amounts of time and money
in obtaining and developing the goodwill of its customers, its
other external relationships, its data systems and data bases,
and all the information described above (hereinafter
collectively referred to as "Sears Confidential Information");
and that any misappropriation or unauthorized disclosure of
Sears Confidential Information in any form would irreparably
harm Sears, and Executive will not, except as Sears may
otherwise consent or direct in writing, reveal or disclose,
sell, use, lecture upon or publish any Sears Confidential
Information. Executive's obligation under this paragraph will
cease as to any information which has become publicly known
through a source other than the Executive.
b. For a period of two* years from Executive's last day of
active employment, Executive shall not directly, or indirectly
(through another business or person), engage in the following
activities or assist others in such activities, anywhere in the
United States or in any other jurisdiction outside of the United
States in which Sears conducts or plans to conduct its business:
1. Hiring, recruiting, or attempting to recruit for any
person or business entity, which is a Competitor (as defined below)
with Sears, any person employed by Sears; and,
2. Being employed by, being connected to, or consulting
for any person who or business entity which is a Competitor of
Sears business or planned business at the time of the termination
of Executive's active employment with Sears.
For the purposes of this Agreement, "Competitor" shall be
defined as any business and any branch, office or operation
thereof, which is in material competition with Sears, including
without limitation, any direct marketing business or retail
department, specialty, discount, furniture, appliance,
electronics, hardware, home improvement, auto parts/service,
apparel store business with annual gross sales in excess of $500
million and any vendor with annual gross sales of services or
merchandise to Sears in excess of $100 million.
c. Executive will provide Sears with such information as
Sears may from time to time request to determine Executive's
compliance with this Agreement. Executive authorizes Sears to
contact Executive's future employers and other entities with whom
Executive has any sort of business relationship to determine
Executive's compliance with this agreement or to communicate the
contents of this agreement to such employers and entities.
d. The restrictions set forth above are necessary to prevent
the use and disclosure of Sears Confidential Information and to
otherwise protect the legitimate business interests of Sears and
that the provisions of this Agreement are reasonable.
e. Irreparable harm would result from any breach by
Executive of the provisions of this Agreement and that monetary
damages alone would not provide adequate relief for any such
breach. Accordingly, if Executive breaches this Agreement, the
Executive agrees that injunctive relief in favor of Sears is
proper. Moreover, Executive acknowledges and agrees that any award
of injunctive relief shall not preclude Sears from seeking or
recovering any lawful compensatory damages which may have
resulted from a breach of this Agreement, including a forfeiture
of any payments not made and a return of any payments already
received.
f. Any waiver, or failure to seek enforcement or remedy for
any breach or suspected breach of any provision of this Agreement
by Sears in any instance shall not be deemed a waiver of such
provision in the future.
3. Executive may request: (a) a waiver of the non-competition
provisions of this Agreement; or (b) that the time frame in
paragraph 2b. above, commence during Executive's continued
employment with Sears, by written request to the Chief Executive
Officer*** of Sears or the equivalent. Such a request will be
given reasonable consideration and may be granted, in whole or
in part, or denied at Sears absolute discretion.
4. This Agreement will be governed under the internal laws of the
State of Illinois.
5. If any provision of this Agreement conflicts with any other
agreement, policy, plan, practice or other Sears document, then,
the provisions of this Agreement will control. This Agreement
will supersede any prior agreement between Executive and Sears
with respect to the subject matter contained herein.
SEARS, ROEBUCK AND CO.
by: ___________________________
Date ___________________________
________________________________
Date ___________________________
_____________
* Three years in the case of the agreement for the Chairman and
CEO.
** This sentence is not included in the agreement for the
Controller of the Company.
*** In the case of the agreement for the Chairman and CEO,
requests are to be submitted to the Chairman, Compensation
Committee of Sears Board of Directors.
<PAGE>
<TABLE>
EXHIBIT 12(a)
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Twelve Nine
Months Months
Ended Ended
Sept. 28, Sept. 28, 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 $1,361 $1,013 $1,373 $1,279 $1,318 $1,389 $1,568
Add interest element implicit in rentals 128 99 119 114 105 165 155
1,489 1,112 1,492 1,393 1,423 1,554 1,723
Interest capitalized 4 4 4 1 3 23 22
Total fixed charges $1,493 $1,116 $1,496 $1,394 $1,426 $1,577 $1,745
Income (loss)
Income (loss) from continuing operations $1,159 $704 $1,025 $857 $625 ($1,812) $160
Deduct undistributed net income (loss)
of unconsolidated companies 20 12 9 (7) 6 (4) (11)
1,139 692 1,016 864 619 ( 1,808) 171
Add
Fixed charges (excluding interest capitalized) 1,489 1,112 1,492 1,393 1,423 1,554 1,723
Income taxes (benefit) 793 468 703 614 329 ( 1,039) 126
Income (loss) before fixed charges and
income taxes $3,421 $2,272 $3,211 $2,871 $2,371 ($1,293) $2,020
Ratio of income to fixed charges 2.29 2.04 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 Nine
Months Months
Ended Ended
Sept. 28, Sept. 28, 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 $1,361 $1,013 $1,373 $1,279 $1,318 $1,389 $1,568
Add interest element implicit in rentals 128 99 119 114 105 165 155
1,489 1,112 1,492 1,393 1,423 1,554 1,723
Preferred dividend factor 49 36 89 234 209 120 7
Interest capitalized 4 4 4 1 3 23 22
Total fixed charges $1,542 $1,152 $1,585 $1,628 $1,635 $1,697 $1,752
Income (loss)
Income (loss) from continuing operations $1,159 $704 $1,025 $857 $625 ($1,812) $160
Deduct undistributed net income (loss)
of unconsolidated companies 20 12 9 (7) 6 (4) (11)
1,139 692 1,016 864 619 ( 1,808) 171
Add
Fixed charges (excluding interest capitalized
and preferred dividend factor) 1,489 1,112 1,492 1,393 1,423 1,554 1,723
Income taxes (benefit) 793 468 703 614 329 ( 1,039) 126
Income (loss) before fixed charges and
income taxes $3,421 $2,272 $3,211 $2,871 $2,371 ($1,293) $2,020
Ratio of income to combined fixed charges
and preferred share dividends 2.22 1.97 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 and nine-month periods ended September 28,
1996 and September 30, 1995, as indicated in our report dated
November 8, 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 September 28, 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,
33-58851, 333-8141 and 33-64345 of Sears, Roebuck and Co.;
Registration Nos. 33-64215 and 333-9817 of Sears, Roebuck and Co.
and Sears Roebuck Acceptance Corp.; Registration Statement Nos.
33-57205 and 333-11973 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
November 8, 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> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 649
<SECURITIES> 0
<RECEIVABLES> 21,031
<ALLOWANCES> 842
<INVENTORY> 5,260
<CURRENT-ASSETS> 27,823
<PP&E> 9,602
<DEPRECIATION> 4,095
<TOTAL-ASSETS> 35,120
<CURRENT-LIABILITIES> 14,981
<BONDS> 11,355
0
325
<COMMON> 323
<OTHER-SE> 4,139
<TOTAL-LIABILITY-AND-EQUITY> 35,120
<SALES> 22,929
<TOTAL-REVENUES> 26,194
<CGS> 17,098
<TOTAL-COSTS> 17,098
<OTHER-EXPENSES> 5,659
<LOSS-PROVISION> 794
<INTEREST-EXPENSE> 1,013
<INCOME-PRETAX> 1,172
<INCOME-TAX> 468
<INCOME-CONTINUING> 704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 704
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>NOT APPLICABLE
</FN>
</TABLE>
