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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 1995
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 Number)
3333 Beverly Road, Hoffman Estates, Illinois 60179
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 286-2500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Shares, par value $0.75 per share New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Depositary Shares, each representing New York Stock Exchange
a one-fourth interest in an 8.88%
Preferred Share, par value
$1.00 per share
Extendable Notes due April 15, 1999 New York Stock Exchange
9-1/2% Notes due June 1, 1999 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
On January 31, 1996 Registrant had 391,420,159 common shares
outstanding. Of these, 346,134,009 common shares, having an aggregate market
value (based on the closing price of these shares as reported in a summary of
composite transactions in The Wall Street Journal for stocks listed on the
New York Stock Exchange on January 31, 1996) of approximately $14.4 billion,
were owned by shareholders other than directors and executive officers of the
Registrant, The Savings and Profit Sharing Fund of Sears Employees and any
other person known by the Registrant as of the date hereof to beneficially
own five percent or more of Registrant's common shares.
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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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [X]
Documents Incorporated By Reference
Parts I and II of this Form 10-K incorporate by reference certain
information from the registrant's 1995 Annual Report to Shareholders (the
"1995 Annual Report"). Part III of this Form 10-K incorporates by reference
certain information from the registrant's definitive Proxy Statement dated
March 20, 1996, for its Annual Meeting of Shareholders to be held on May 9,
1996 (the "1996 Proxy Statement").
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<PAGE>
PART I
Item 1. Business
Sears, Roebuck and Co. ("Sears") originated from an enterprise
established in 1886. It was incorporated under the laws of New York in 1906.
Its principal executive offices are located at 3333 Beverly Road, Hoffman
Estates, Illinois. Sears and its consolidated subsidiaries (the "Company")
conduct Domestic and International merchandising and credit operations. The
Company, a multi-line retailer, is among the largest retailers in the world
on the basis of sales of merchandise and services.
Domestic operations includes the Company's merchandising and credit
operations in the United States and Puerto Rico. The Domestic credit
operations ("Credit") primarily relate to the Sears Card, the largest
proprietary credit card in the United States, which is used to pay for
purchases of goods and services from the Company's Retail Store, Home
Services and Direct Response Marketing businesses.
During late 1995, the Company announced organizational changes that
further align the structure of its Domestic merchandising operations with its
strategy to grow its off-the-mall, as well as mall-based, businesses.
- - The Home business was divided into Hardlines, Home Stores
and Home Services. Hardlines and Apparel/Home Fashions are included in Sears
Department Stores (primarily mall-based, general merchandise stores). Home
Stores are the off-the-mall home-related stores: Sears HomeLife, Sears
Hardware and Sears Dealer Stores. Home Services consists of Product Services
and other home improvement products and services.
- - The Automotive business was realigned to include Sears
Tire Group consisting of the Sears Auto Centers, Tire America and National
Tire Warehouse ("NTW") stores that sell and install tires and batteries and
related goods and services, and the Parts Group that includes the Western
Auto, Western Auto Wholesale and Parts America automotive parts stores.
International operations consist of merchandising and credit
operations conducted through majority-owned subsidiaries in Canada and
Mexico.
For further information, see "Domestic Operations" and "International
Operations" below and "Analysis of Consolidated Operations" and "Analysis of
Consolidated Financial Condition" beginning on pages 17 and 23, respectively,
of the 1995 Annual Report, incorporated herein by reference in response to
Item 7 hereof.
Spin-off of Allstate Insurance Group; Divestiture of Homart Development Co.
On November 10, 1994, the Company announced a decision to distribute
to Sears common shareholders the Company's interest in its Allstate Insurance
Group ("Allstate") in a tax-free spin-off (the "Allstate spin-off"). Prior
to the Allstate spin-off, the Company, through Allstate, engaged in property-
liability insurance and life insurance in the United States and Canada. The
business of Allstate was conducted through The Allstate Corporation
("Allcorp"), an 80.3%-owned subsidiary of the Company. On June 30, 1995,
Sears completed the Allstate spin-off by means of a special dividend, to
Sears common shareholders of record on June 30, 1995, of all of the Allcorp
common stock owned by the Company.
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The Company has also completed the previously-announced sale of its
interest in Homart Development Co. and affiliated entities ("Homart"). In
July 1995, the Company completed the sale of Homart's commercial office
building portfolio. In November 1995, the Company completed the sale of
Homart's community center business. In December 1995, the Company completed
the sale of Homart's retail shopping center business. These sales generated
nearly $500 million in net cash proceeds.
Allstate and Homart have been treated as discontinued operations in
the Company's consolidated financial statements.
For further information, see "Analysis of Consolidated Operations"
and note 2 of the Notes to Consolidated Financial Statements beginning on
pages 17 and 29, respectively, of the 1995 Annual Report, incorporated herein
by reference in response to Items 7 and 8 hereof.
Corporate Joint Ventures
The Company also has (i) a 50% interest in Prodigy Services Company,
a partnership with International Business Machines Corporation ("IBM"), and
(ii) a minority interest in Advantis, a joint venture with a subsidiary of
IBM. Prodigy Services Company features the PRODIGY service, an online
network that permits customers to use their personal computers to access a
broad array of information and interactive services and provides customers
with access to the Internet. The PRODIGY service was first offered
nationally in September 1990. Prodigy Services Company is also developing
other services for personal computer users. The Company intends to dispose
of its interest in Prodigy. Although currently the Company does not expect
to incur a loss on the disposal, any loss that might result is not expected
to materially affect annual operating results. Advantis, which began
operations in December 1992, provides data and voice networking services for
the Company, certain of its previous affiliates, IBM and other customers.
Advantis also provides information processing services to the Company and one
of its previous affiliates.
________________________________
Information regarding revenues, income before income taxes and
minority interest and net income and assets of the Company's Domestic and
International merchandising operations for each of the three fiscal years
ended December 30, 1995 is in note 12 of the Notes to Consolidated Financial
Statements on page 36 of the 1995 Annual Report, incorporated herein by
reference in response to Item 8 hereof. Information on the components of
revenues is included in the "Analysis of Consolidated Operations" beginning
on page 17 of the 1995 Annual Report, incorporated herein by reference in
response to Items 7 and 8 hereof.
The Company's continuing operations employ approximately 320,000
people worldwide.
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DOMESTIC OPERATIONS
Domestic operations consists of Retail Stores (Department Stores,
Home Stores and Auto Stores), Home Services, Direct Response Marketing and
Credit.
Retail Stores
At December 30, 1995, Retail Stores consisted of:
- - Department Stores, which included 425 large-size stores located
principally in shopping malls in major metropolitan areas, 372 medium-size
stores that are also primarily mall-based, and nine small-size stores that
serve either neighborhoods of metropolitan areas or smaller communities and
stock a narrower selection of merchandise. The merchandise offerings in the
Department Stores include Apparel/Home Fashions, Hardlines and Licensed
Businesses. The Apparel/Home Fashions departments consist of women's,
children's and men's apparel and home fashions and are positioned as the
price leader among mall-based stores. The Hardlines departments consist of
appliances, electronics and computers for the home, home improvement
products, lawn and garden equipment and seasonal items. The Hardlines
departments compete with the strongest competitors, which are typically
specialty stores focused on one type of business. Licensed Businesses
includes portrait studios and optical. The furniture departments presently
in approximately 165 Department Stores (excluding in-store HomeLife Stores)
are being closed as the stores are being remodeled.
- - Home Stores, which included:
- 138 Sears HomeLife furniture stores that target the value-
seeking homeowner. There are 97 off-the-mall HomeLife stores and 41 HomeLife
stores located in Department Stores. HomeLife stores have been opened within
select major metropolitan areas.
- 108 off-the-mall Sears Hardware stores that offer convenient
neighborhood locations and Sears proprietary brands such as CRAFTSMAN tools,
as well as a wide assortment of national brands and other home repair
products. Sears Hardware stores are grouped within select major metropolitan
areas.
- 375 Sears Dealer Stores that are primarily independently
owned and operated and offer appliances and electronics for the home,
CRAFTSMAN tools, DIEHARD batteries and lawn and garden equipment. Dealer
Stores are primarily located in smaller, rural markets.
- Contract Sales, that targets home builders, remodelers and
property managers for appliance purchases, as well as vocational schools,
factory maintenance and service companies.
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- - Auto Stores, which included:
- The Sears Tire Group that is comprised of 784 Sears Auto
Centers primarily located at the mall-based Department Stores, 123 Tire
America stores and 144 NTW stores. These stores sell and install tires,
batteries and related goods and services.
- The Parts Group which is comprised of 392 Western Auto
stores, 190 Parts America stores and 924 independently owned and operated
stores located in smaller, rural markets that operate under the Western Auto
name and purchase merchandise wholesale from Western Auto Supply Company, a
subsidiary of the Company. These stores sell an extensive selection of
automotive parts. Many of the Western Auto stores also sell automotive
services.
The Auto Stores are positioned against the strongest competitors that
specialize in selling automotive parts and services.
Home Services
Home Services includes:
- Product Services (repair services), which provides product
repair on all major brands of appliances, regardless of where purchased;
- Relationship Products (maintenance agreements);
- Installed Home Improvements, which includes the following
services provided through outside contractors:
- Home Improvement Products and Services, which sells and
installs siding, roofing, cabinet refacing and other home improvements; and
- Cooling, Heating, Retail Installation Services, which sells
and installs heating, ventilation and air conditioning for homes;
- Licensed Services for the Home, which include pest control
and carpet cleaning.
Direct Response Marketing
Direct Response Marketing includes specialty catalogs, credit
protection insurance, clubs and services, and impulse and continuity
merchandise. Sears Shop at Home Services, Inc., a wholly-owned subsidiary of
the Company, licenses third-party distributors of specialty catalogs and
merchandisers of shop-at-home services to use the Sears name and customer
list.
___________________________
The pricing strategy for the Retail Stores, Home Services and Direct
Response Marketing is to offer customers great values every day, as well as
to have special sales events offering even better values. These operations
offer a mixture of national brands and high quality private label
merchandise.
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Credit
Credit initiates and maintains customer credit accounts generated by
the Retail Stores, Home Services and Direct Response Marketing.
In the Department and HomeLife stores, Sears Card sales as a percent
of total sales was approximately 59.7%, 58.3% and 58.0% for fiscal years
1995, 1994 and 1993, respectively. Based on current year experience,
approximately 7.20% of the amount of total credit balances is liquidated each
month.
As of December 30, 1995, Credit had approximately 26.0 million active
customer credit accounts (accounts with balances as of the beginning or end
of the month). These accounts had an average balance of $912, for a total of
$23.8 billion of retail customer receivables before sales of account
balances. Additionally, there were approximately 38.0 million Sears Card
customers with active accounts during 1995. Sears Card, the traditional
charge card, accounted for approximately 90% of such receivables.
Sears has an ongoing securitization program pursuant to which a
portion of such accounts receivable has been sold through Sears Receivables
Financing Group, Inc., a wholly-owned subsidiary, to trusts (the
"securitization trusts") that issue credit account pass-through certificates
to public and private investors. In general, the outstanding interests of
investors in the securitization trusts are not treated as assets, and the
obligations of the securitization trusts to investors are not treated as
liabilities, in the Company's financial statements. In addition, a
securitization trust has issued credit account pass-through certificates to
wholly-owned subsidiaries of Sears which, in turn, has issued commercial
paper ("asset-backed commercial paper") backed by such certificates and
liquidity facilities provided by third parties. The receivables relating to
asset-backed commercial paper are treated as assets, and the asset-backed
commercial paper is treated as a liability, in the Company's financial
statements. Pursuant to contractual agreements, Sears remains the servicer
on the accounts creating the receivables and receives a fee for the services
performed. See "Analysis of Consolidated Operations," "Analysis of
Consolidated Financial Condition" and note 8 of the Notes to Consolidated
Financial Statements beginning on pages 17, 23 and 34, respectively, of the
1995 Annual Report, incorporated herein by reference in response to Items 7
and 8 hereof.
On August 1, 1993, all Sears stores began accepting VISA, MasterCard
and American Express cards for purchases, in addition to Sears Card, Discover
Card, personal check or cash, in order to attract new customers and
incremental sales. Although customers' use of third party credit cards
replaces to some extent their use of Sears credit plans, it is expected that
the long-term effect on credit operations will be offset by the effects of
new initiatives to increase Sears Card market penetration in all sales and
service channels without lowering credit standards. Despite the introduction
of third party credit cards in the stores in fiscal 1993, the percentage of
domestic sales transacted with the Sears Card as a percentage of total sales
has increased. See "Analysis of Consolidated Operations" beginning on page
17 of the 1995 Annual Report, incorporated herein by reference in response to
Item 7 hereof.
Credit's operations are subject to federal and state legislation,
including the consumer credit laws of each state in which its customers
reside. From time to time, such legislation, as well as competitive
conditions, may affect, among other things, credit card finance charges.
While the Company cannot predict the effect of future competitive conditions
and legislation or the measures which the Company might take in response
thereto, a significant reduction in the finance charges imposed by Credit
could have an adverse effect on the Company.
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<PAGE>
Sears National Bank (the "Bank"), a wholly-owned subsidiary of the
Company acquired in 1994, is a credit card bank limited to engaging solely in
credit card operations and is subject to certain other restrictions
applicable to credit card banks under federal law. In 1994, the Bank became
the issuer of Sears Card accounts in Arizona. Beginning in May 1995, Sears
Card accounts in 25 additional states were transferred to the Bank by the
Company. Certain of the Company's other customer credit accounts have also
been transferred to or are being originated by the Bank.
Beginning in March 1995, the Bank modified the Sears Card account
agreement to create a uniform finance charge rate of 21% for all of its
accounts. The finance charge rate in most states has been 21% for a number
of years. In March 1995, the Company changed the methodology used to
calculate the minimum monthly payment. The effect is that lower monthly
payments are now required.
Strategic Initiatives
The Company's vision is to be a compelling place to shop, work and
invest. This vision is an outgrowth of the five strategic priorities
originally outlined in 1993: focus on core businesses, make Sears a more
compelling place to shop, establish greater local market focus, improve cost
structure and productivity and develop a winning culture.
Compelling Place to Shop
The Company is focusing on its core customer, women and their
families, and expanding the product offering in apparel. This strategy is
designed to take advantage of the Company's existing strengths of strong
private label brands, a loyal customer base, a strong position in durable
goods, highly-focused product lines, a network of mall-based Department
Stores, strong customer service, a nationwide service organization and
attractive credit programs. A "Pure Selling Environment" program is building
a strong customer service orientation by relieving sales associates of
administrative responsibilities and enabling them to spend more time and
effort serving customers.
Apparel offerings are designed to meet shoppers' needs with a mixture
of national brands and high-quality, private label merchandise. Expanded
fragrance and cosmetics departments had been introduced in 216 stores by
fiscal year-end 1995, with further expansion planned.
The Company is continuing its emphasis on market-by-market
assortment, marketing and pricing to strengthen the local competitive
position of each store. Merchandising offerings are being implemented to
target small and rural markets, and Hispanic-American, African-American and
Asian-American customers. As part of the store revitalization program
referred to below, significant emphasis is also being placed on allocating
capital to select geographic markets in order to focus the Company's
positioning and marketing efforts on a market-by-market basis.
Compelling Place to Work
Programs are in place to foster teamwork, customer focus, and speed
and simplicity in the organizational culture, and to develop depth in
management. The programs for all salaried associates include an expansion of
the Company's stock option program during fiscal 1994 and an incentive pay
program based on the Company's growth, as measured by increases in profits.
Programs for officers and senior managers include a "Total Performance Index"
measurement which focuses management on leading indicators of success, such
as customer satisfaction, as well as financial results. New culture is a
critical element in the success of the Company's strategic objectives.
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Compelling Place to Invest
To support the focus on the core merchandising businesses, the
Company has a $4 billion store revitalization program for the period fiscal
1993 through 1997. The focus of the program is upgrading the Company's
Department stores and making the Retail Stores a more compelling place to
shop. Approximately 355 stores have been renovated and updated, and
approximately 200 additional stores will be renovated and updated through
fiscal 1997. The renovated and updated stores have increased selling area,
more extensive apparel offerings, wider aisles and better lighting. Much of
the additional selling area is being created from underutilized stockroom and
back office areas and the closing of in-store furniture departments. By
fiscal 1997, the Company plans to have added approximately 12 million square
feet of apparel selling area in the renovated and updated stores, of which
approximately six million square feet had been added by fiscal year-end 1995.
Capital is also being made available for selected new store openings
and the continued expansion of off-the-mall concepts, such as Sears HomeLife,
Sears Hardware stores, Western Auto's Parts America stores and Sears Tire
Group's Tire America and NTW stores. In October and November 1995, Western
Auto acquired 166 auto parts stores that were converted into Parts America
stores. The Company may pursue additional selective strategic acquisitions
as a means of growth.
Customer service, expense and logistics areas have been benchmarked
against the competition, and expense reduction and process improvement
programs are ongoing. The programs are intended to improve the value of
merchandise to the customer, reduce selling and administrative expenses as a
percent of revenues and improve productivity and customer service levels. In
fiscal 1994, Domestic operations began a Strategic Sourcing initiative
designed to reduce the costs of externally purchased goods and services. The
goal of the Strategic Sourcing initiative is to analyze purchases and
negotiate reduced expenditures while increasing quality and forging closer
and more efficient links with important suppliers and vendors. A "Shared
Services" concept initiated in late 1995 is intended to improve support
functions by bringing an enhanced customer service focus to the Company's
support function, providing appropriate levels of service and improving cost
and processes.
_________________________
For further information, see "Properties" below and "Analysis of
Consolidated Financial Condition" beginning on page 23 of the 1995 Annual
Report incorporated herein by reference in response to Item 7 hereof.
Sources of Merchandise
Domestic operations purchases goods primarily from approximately
7,500 domestic suppliers, most of whom have been suppliers for many years.
Seasonality
Due to holiday buying patterns, merchandise sales are traditionally
higher in the fourth quarter than the other quarterly periods and a
disproportionate share of operating income is typically earned in the fourth
quarter. Similarly, traditional business patterns generally result in the
lowest sales and operating income in the first quarter.
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Trademarks
The name "SEARS" is used extensively in the Company's Domestic
operations and other businesses. The Company's right to the name "SEARS"
domestically continues so long as it uses the name. The name is also the
subject of numerous renewable United States and foreign trademark and service
mark registrations. This trade and service mark is material to the Company's
Domestic operations and other related businesses.
The Company sells private label merchandise under a number of brand
names which are important to Domestic operations. Sears KENMORE, CRAFTSMAN
and DIEHARD brands are among the strongest private label brands in retailing.
The Company's right to these names continues so long as it uses the
names. The names are also the subject of numerous renewable United States
and foreign trademark and service mark registrations. Other important and
well-recognized Company trademarks and service marks include BRAND CENTRAL,
HOMELIFE, CIRCLE OF BEAUTY and CANYON RIVER BLUES.
Competition
The domestic retail merchandise business is highly competitive.
Convenience of shopping facilities, quality of merchandise, competitive
prices, brand names and availability of services such as credit, product
delivery and repair and installation, are the principal factors which
differentiate competitors. The Company believes it is able to compete in
every respect despite strong competitive pressures in recent years. On
average, the Company's ratio of operating costs to revenues is not as low as
benchmark targets in the industry but is improving due to efforts to increase
revenues and cut costs. See "Strategic Initiatives" above and "Analysis of
Consolidated Operations" beginning on page 17 of the 1995 Annual Report,
incorporated herein by reference to Item 7 hereof.
Employees
Domestic operations employs approximately 275,000 people, including
part-time employees.
Properties
The Company's principal executive offices are located on a 200-acre
site owned by the Company at Prairie Stone, in Hoffman Estates, Illinois.
The complex consists of five interconnected office buildings totaling
approximately two million gross square feet of office space.
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The following table sets forth information concerning stores operated
by Domestic operations. The information excludes catalog and specialty
merchandising. Information for fiscal 1992 includes 113 stores closed as a
part of the restructuring announced in January 1993.
<TABLE>
<CAPTION>
Department Auto Stores Home Stores
-------------- ----------------------------
Stores Tire(a) Parts(b) HomeLife(c) Hardware Dealer Other(d) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stores at December 30, 1995:
Owned 435(e) 72 157 26 1 5 20 716
Leased(f)
Operating Leases
Gross and Net Leases(g) 274 195 425 57 96 - 43 1,090
Short-term and
Percentage Leases(h) 60 - - 1 8 - 6 75
Capital Leases(i) 37 - - 13 3 - 2 55
Independently owned and
operated Dealer Stores - - - - - 370 - 370
Total Stores at Fiscal Year End
1992 859 201 394 34 103 - 110 1,701
Stores opened during fiscal 1993 6 42 14 17 15 197 19 310
Stores closed during fiscal 1993 (66) (10) (22) - (32) (5) (59) (194)
1993 799 233 386 51 86 192 70 1,817
Stores opened during fiscal 1994 9 18 18 22 11 98 9 185
Stores closed during fiscal 1994 (8) (2) (20) (1) (17) (5) (9) (62)
1994 800 249 384 72 80 285 70 1,940
Stores opened during fiscal 1995 16 21 215 26 45 98 7 428
Stores closed during fiscal 1995 (10) (3) (17) (1) (17) (8) (6) (62)
1995 806 267 582 97 108 375 71 2,306
Gross Retail Area at
Fiscal Year end
(square feet in millions)
1995 113.8 3.0 6.4 3.4 2.0 2.9 2.0 133.5
1994 112.5 2.8 4.7 2.5 1.1 2.2 1.9 127.7
1993 112.2 2.3 5.1 1.8 1.0 1.4 1.5 125.3
Retail Selling Area at
Fiscal Year end
(square feet in millions)
1995 65.0 0.3 4.5 2.9 1.7 1.9 1.5 77.8
1994 62.7 0.2 3.3 2.1 0.9 1.3 1.5 72.0
1993 61.1 0.2 3.3 1.5 0.8 0.6 1.2 68.7
_________________________________________________________________________________________________________________________
Retail Store Revenues per Selling Square Foot
1995...............................$353
1994...............................$346
1993...............................$321
<FN>
(a) Excludes 784 Sears Tire Group properties owned or leased as part of
department store properties.
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(b) Excludes 924 independently owned and operated stores.
(c) Excludes approximately 165 furniture departments and 41 HomeLife
Stores located in department stores.
(d) Other stores consist of small-size appliance stores and retail outlet
stores. Excludes Other facilities owned or leased as part of
department store properties.
(e) Includes 345 of the 425 large-size department stores.
(f) Many of the leases contain renewal options. With respect to 23
stores, with lease terms ranging up to 75 years, Sears has the option
to assume ownership of the property.
(g) Leased for terms ranging from one to 99 years. Rentals are either
fixed or fixed at minimum rentals coupled with a percentage of sales,
including some sale and leaseback arrangements.
(h) Leased for a term, or with a remaining term, of less than one year
or under leases providing for payments based only on a percentage of
sales.
(i) Leased for terms ranging from five to 99 years. The leases have been
capitalized as assets of Domestic operations.
</FN>
</TABLE>
In addition, at December 30, 1995, there were 760 other sales offices
and service facilities, most of which are occupied under short-term leases or
are a part of other Sears facilities included in the above table.
To effectively implement the Company's logistics strategy, Sears
Logistics Services, Inc., a wholly-owned subsidiary of the Company ("SLS"),
provides specialized distribution, transportation and home delivery services,
primarily for Domestic operations and also for other customers. SLS'
strategy includes expanded marketing to diversify and increase its current
customer base through the range of new logistics services as well as more
efficient customer-oriented performance of existing services.
As of December 30, 1995, SLS owned and operated three retail
replenishment centers, two direct delivery centers and 19 cross dock centers;
three other cross dock centers were operated and substantially owned by SLS.
An additional four retail replenishment centers, five direct delivery centers
(operated by third parties), four furniture consolidation centers (operated
by third parties) and 23 cross dock centers (four of which are operated by
third parties), were leased for terms ranging from one to 99 years. In
addition, as of December 30, 1995, Domestic operations operated five owned
fashion merchandising distribution centers.
SLS operates two retail replenishment centers pursuant to sale and
lease-back arrangements for a primary term of 25 years with renewal options
for an additional 30 or 40 years and a fair market value purchase option at
the end of the primary term, and at certain other times. These facilities
have been constructed on land owned by the Company which has been leased to
the lessor of the facility for an initial term of 25 years, with renewal
options which extend 10 to 20 years beyond that in the lease to the Company.
Credit services its accounts locally at nine regional credit card
operations centers ("RCCOCs") and one national account authorization center
("NAAC") in ten states, regionally at four Credit Processing Centers, at the
headquarters of the Bank in Phoenix, Arizona and at the Company's
headquarters at Prairie Stone. One of the RCCOCs is owned and eight are
leased for remaining terms ranging from four to ten years, the NAAC is leased
for a remaining term of three years and one of the Credit Processing Centers
is owned and three are leased for remaining terms ranging from one to six
years.
For Domestic operations, the capital expenditures for expansion and
remodeling and other improvements (including capitalized financing leases but
excluding amounts expended for administrative offices) amounted to $925
million for the fiscal year ended December 30, 1995. In fiscal 1996, planned
capital expenditures for Domestic operations of approximately $1.4 billion
include the remodeling and upgrade of merchandise presentations in
approximately 90 to 100 existing Department stores and 10 to 20 new or
relocated Department stores. Domestic operations plans to open approximately
20 to 25 additional Tire stores, 80 to 90 additional Parts stores, 10 to 15
additional HomeLife stores, 65 to 75 additional Hardware stores and 100 to
125 additional Dealer stores in fiscal 1996.
For additional information, see "Strategic Initiatives" above and
"Analysis of Consolidated Financial Condition" beginning on page 23 of the
1995 Annual Report, incorporated herein by reference in response to Item 7
hereof.
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INTERNATIONAL OPERATIONS
The Company conducts retail merchandise and credit operations in
Canada through Sears Canada Inc., a consolidated, 61.1% owned subsidiary of
Sears ("Sears Canada") and in Mexico through Sears, Roebuck de Mexico, S.A.
de C.V., a consolidated, 75.4% owned subsidiary of Sears ("Sears Mexico").
Sears Canada is the largest single retailer of general merchandise
in Canada. Sears Canada operates 110 department stores and one Sears Whole
Home Furniture Store (similar to Domestic operation's HomeLife stores) and
ten outlet stores, and has 1,513 catalog selling units operated under
independent local ownership, 19 independently operated dealer stores and 17
active warehouses. During fiscal 1995, Sears Canada relocated one department
store and closed one outlet store. Sears Canada currently has no plans to
open any new department stores during fiscal 1996, but does continue to seek
opportunities for expansion in desirable locations. In 1996, Sears Canada
plans to open four Sears Whole Home Furniture Stores and 31 dealer stores, as
well as to renovate seven department stores.
Sears Canada has an ongoing securitization program pursuant to which
undivided co-ownership interests in its pool of charge account receivables
are sold to trusts established to issue debt and trust units (representing
the residual equity interest in the trust) to third parties. Sears Canada
acts as servicer of the charge account receivables. See "Analysis of
Consolidated Financial Condition" and note 6 of the Notes to the Consolidated
Financial Statements beginning on pages 23 and 32, respectively, of the 1995
Annual Report, incorporated herein by reference in response to Items 7 and 8
hereof.
Approximately 37,500 full and part-time employees were employed by
Sears Canada.
Sears Mexico operates 42 department stores and five satellite stores
and has 2 warehouses. During fiscal 1995, three new stores were opened and
one store was closed. Sears Mexico plans to open two new stores in fiscal
1996.
Approximately 9,000 full and part-time employees were employed by
Sears Mexico.
14
<PAGE>
FINANCE SUBSIDIARIES
To meet certain capital requirements of its businesses, Sears borrows
on a short-term basis through the issuance of notes to, and from time to time
sells customer receivables balances to, Sears Roebuck Acceptance Corp.
("SRAC"), a wholly-owned finance subsidiary. SRAC obtains funds primarily
from the issuance of commercial paper and through intermediate-term loans,
discrete underwritten debt and medium-term notes. Sears and SRAC have also
borrowed through Sears Overseas Finance N.V. ("SOFNV"), a wholly-owned
international finance subsidiary, which has obtained funds from the issuance
of long-term debt, primarily in Europe, in both U. S. dollars and foreign
currencies.
Sears DC Corp. ("SDCC"), a wholly-owned finance subsidiary of Sears,
was formed to borrow money and lend the proceeds of such borrowings to
certain former subsidiaries of the Company. These former subsidiaries have
repaid all of their indebtedness to SDCC. SDCC is not currently issuing
additional debt. Pending use of amounts received from the former
subsidiaries to repay outstanding medium-term notes at maturity or otherwise,
SDCC has loaned such amounts to Sears.
Substantially all the debt and related interest expense of SDCC, SRAC
and SOFNV is borne by the Credit operations.
In addition, various direct and indirect subsidiaries of Sears have
engaged in securitization programs in which credit card receivables or asset-
backed commercial paper are sold in public or private transactions. See
"Domestic Operations - Credit," and "International Operations," beginning on
pages 7 and 14, respectively, and notes 6 and 8 of the Notes to Consolidated
Financial Statements beginning on pages 32 and 34 in the 1995 Annual Report,
incorporated herein by reference to Item 8 hereof.
15
<PAGE>
Executive Officers of the Registrant
The following table sets forth the names of the executive officers
of the Company, the positions and offices with the Company held by them, the
date they first became officers of the Company or a subsidiary of the
Company, and their current ages:
<TABLE>
<CAPTION>
Date First
Became
Name Position Officer Age
<S> <C> <C> <C>
Arthur C. Martinez Chairman of the Board of
Directors, President and
Chief Executive Officer 1992 56
Paul A. Baffico President, Automotive Group
and Tire Division 1992 49
John H. Costello Senior Executive Vice
President, General Manager,
Marketing 1993 48
Gary L. Crittenden Executive Vice President, Strategy
and Business Development 1996 42
Russell S. Davis Executive Vice President 1990 60
Alan J. Lacy Executive Vice President and
Chief Financial Officer 1995 42
Michael D. Levin Senior Vice President, General
Counsel and Secretary 1996 53
Robert L. Mettler President, Apparel and Home
Fashions Group, Office of the
President of Mall Stores 1993 55
William G. Pagonis Executive Vice President,
Logistics 1993 54
Anthony J. Rucci Executive Vice President,
Administration 1993 45
William L. Salter President, Hardlines, Office of
the President of Mall Stores 1995 52
Marvin M. Stern President, Home Stores 1988 60
Allan B. Stewart President, Retail Stores, Office
of the President of Mall Stores 1984 53
Jane J. Thompson President, Home Services and
Acting Executive Vice President,
Credit 1988 44
No family relationships exist among the above-named individuals.
Following the Allstate spin-off, the Officers of Sears Merchandise
Group became Executive Officers of the Company. Each of the officers named
above was elected to serve in the office indicated until the first meeting of
the Board of Directors following the annual meeting of shareholders in 1996
and until his or her successor is elected and qualified or until such officer
reaches retirement age or resigns.
With the exception of Messrs. Martinez, Costello, Crittenden, Lacy,
Levin, Mettler, Pagonis and Rucci, these officers have held the positions set
forth in the above tables for at least the last five years or have served the
Company in various executive or administrative capacities for at least that
length of time.
16
<PAGE>
Mr. Martinez joined Sears as Chairman and Chief Executive Officer of
Sears Merchandise Group in September 1992 and became Chairman of the Board of
Directors, President and Chief Executive Officer of the Company in August
1995. Prior to joining Sears he had been a Vice Chairman of Saks Fifth
Avenue and responsible for all of its administrative functions since August
1990 and, from January 1987 until August 1990, was Senior Vice President of
Batus, Inc. and responsible for its Saks Fifth Avenue, Marshall Field's, J.B.
Ivey and Breuner's stores.
Mr. Costello joined Sears as Senior Executive Vice President, General
Manager, Marketing Division, of the Merchandise Group in April 1993. Prior
to joining Sears, he had been President of Nielsen Marketing Research USA.
Mr. Crittenden joined Sears as Executive Vice President, Strategy and
Business Development, in February 1996. Prior to joining Sears, he had been
Senior Vice President and Chief Financial Officer of Melville Corporation, a
diversified specialty retailer, since 1994, Executive Vice President and
Chief Financial Officer of Filene's Basement from 1991 to 1994, and a
consultant with Bain & Company, an international strategy consulting firm,
from 1979 to 1991.
Mr. Lacy joined Sears as Senior Vice President, Finance of the
Merchandise Group effective January 1, 1995. Prior to joining Sears, he had
been Vice President, Financial Services and Systems, of Philip Morris
Companies Inc. and President of Philip Morris Capital Corporation since
September 1993, and from September 1989 to September 1993, was Senior Vice
President of Kraft General Foods in charge of finance, strategy and
development matters.
Mr. Levin joined Sears as Senior Vice President and General Counsel
in January 1996. Prior to joining Sears, he had been a partner in the law
firm of Latham & Watkins since 1982. Effective March 1, 1996, Mr. Levin also
became Secretary of the Company.
Mr. Mettler joined Sears as President, Apparel Group of the
Merchandise Group in February 1993. Prior to joining Sears, he had been
President and Chief Executive Officer of Robinson's Inc.
Mr. Pagonis joined Sears as Senior Vice President of Logistics of the
Merchandise Group in November 1993. Prior to joining Sears, he had been a
Lieutenant General in the U.S. Army.
Mr. Rucci joined Sears as Executive Vice President, Administration
of the Merchandise Group in October 1993. Prior to joining Sears, he had
been Senior Vice President, Strategy, Business Development and External
Affairs and previously Senior Vice President, Human Resources, of Baxter
International, Inc.
Item 2. Properties
Information regarding the principal properties of the Company is
incorporated herein by reference to pages 10 to 13 of Item 1 hereof.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
17
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
DESCRIPTION OF SEARS COMMON SHARES
The summary contained herein of certain provisions of the Restated
Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), of Sears does not purport to be complete and is qualified in
its entirety by reference to the provisions of such Certificate of
Incorporation filed as Exhibit 3.(i) hereto and incorporated by reference
herein.
The Certificate of Incorporation authorizes the issuance of
1,000,000,000 common shares, par value $0.75 per share, and 50,000,000
preferred shares, par value $1.00 per share. As of January 31, 1996,
3,250,000 8.88% Preferred Shares, First Series (the "8.88% Preferred Shares")
were outstanding. Additional preferred shares may be issued in series with
rights and privileges as authorized by the Board of Directors.
Subject to the restrictions on dividends mentioned below and the
rights of the holders of the 8.88% Preferred Shares and any preferred shares
which may hereafter be issued, each holder of common shares is entitled to
one vote per share, to vote cumulatively for the election of directors, to
dividends declared by the Board of Directors, and upon liquidation to share
in the assets of Sears pro rata in accordance with his or her holdings after
payment of all liabilities and obligations. The holders of common shares
have no preemptive, redemption, subscription or conversion rights. Sears
Board of Directors is divided into three classes serving staggered three-year
terms. Because the Board is classified, shareholders wishing to exercise
cumulative voting rights to assure the election of one or more directors must
own approximately three times as many shares as would be required if the
Board were not classified. Directors may be removed only for cause upon the
affirmative vote of at least 75% of the shares entitled to vote. Such a vote
is also required to alter, amend or repeal, or to adopt any provision
inconsistent with, Article 5 of the Certificate of Incorporation concerning
directors, or to fix the number of directors by shareholder vote. There are
no restrictions on repurchases or redemption of shares by Sears which do not
impair its capital, except for limitations under the terms of outstanding
preferred shares and except that the indentures relating to certain of Sears
long-term debt and an agreement pursuant to which Sears has provided a credit
facility in support of certain tax increment revenue bonds issued by the
Village of Hoffman Estates, Illinois, in connection with the construction of
its headquarters facility provide that Sears will not take certain actions,
including the declaration of cash dividends and the repurchase of shares,
which would cause unencumbered assets plus certain capitalized rentals to
drop below 150% of liabilities plus such capitalized rentals (as such terms
are defined in the indentures and the agreement).
The amount by which such unencumbered assets plus capitalized rentals
exceeds 150% of such liabilities plus capitalized rentals, as computed under
certain of the indenture provisions and those of the credit facility
agreement referred to above, is set forth in note 11 of the Notes to
Consolidated Financial Statements beginning on page 35 of the 1995 Annual
Report.
The 8.88% Preferred Shares were sold in the form of depositary
shares, each representing a one-fourth interest in an 8.88% Preferred Share.
In general, holders of the 8.88% Preferred Shares are entitled to (i)
receive, when and as declared by the Board, cumulative cash dividends,
payable quarterly, at a rate of 8.88% per annum on $100 per share, prior to
payment of dividends on the common shares or the redemption, purchase or
other acquisition for consideration of common shares by Sears and (ii) $100
per share, plus accrued and unpaid dividends, in the event of any dissolution
of Sears, prior to any payment to the holders of the common shares. The
8.88% Preferred Shares may be redeemed, at Sears option, on or after November
9, 1996 or, in certain limited circumstances, prior to such date. Holders of
the 8.88% Preferred Shares are not entitled to voting rights except in
limited circumstances.
18
<PAGE>
Information regarding the principal market for Sears common shares,
the number of shareholders, and the prices of, and dividends paid on, Sears
common shares is incorporated herein by reference to the section headed
"Common Stock Market Information and Dividend Highlights" on page 39 of the
1995 Annual Report and to the information under the heading "Shareholders'
equity - Dividend payments" contained in note 11 of the Notes to Consolidated
Financial Statements on page 35 of the 1995 Annual Report.
Item 6. Selected Financial Data
The material under the caption "Five-Year Summary of Consolidated
Financial Data" on page 37 of the 1995 Annual Report is incorporated herein
by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information contained under the captions "Analysis of
Consolidated Operations" on pages 16 - 21 and "Analysis of Consolidated
Financial Condition" on pages 23, 25 and 27, of the 1995 Annual Report, is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company and the
summarized financial statements related to the Company's continuing business
groups, including the notes to all such statements, and other information on
pages 17 - 39 (other than that incorporated by reference to Item 7 hereof) of
the 1995 Annual Report is incorporated herein by reference.
Item 9. Changes in and Disagreements with Independent Auditors on
Accounting and Financial Disclosure
None
19
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors and executive officers of the Company
(including certain information concerning their compliance with Section 16(a)
of the Securities Exchange Act of 1934) is incorporated herein by reference
to the descriptions under "Item 1: Election of Directors" on pages 2 - 6 of
the 1996 Proxy Statement and to Item 1 of this Report under the caption
"Executive Officers of the Registrant" on pages 16 - 17.
Item 11. Executive Compensation
Information regarding executive compensation is incorporated by
reference to the material under the captions "Item 1: Election of Directors,"
"Directors' Compensation and Benefits," "Executive Compensation," "Stock
Options," "Long-Term Incentive Compensation Plan," "Pension Plan Table,"
"Employment Contracts, Termination and Change in Control Arrangements" and
"Compensation Committee Interlocks and Insider Participation" on pages 2 - 6,
7, 8, 9, 10, 10 - 11, 11 - 13 and 19, respectively, of the 1996 Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
and management is incorporated herein by reference to the material under the
heading "Item 1: Election of Directors" on pages 2 - 5 of the 1996 Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions
is incorporated herein by reference to the material under the heading
"Certain Transactions" on page 26 of the 1996 Proxy Statement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1 and 2 - An "Index to Financial Statements and Financial Statement
Schedules" has been filed as a part of this Report beginning on page S-1
hereof.
(a)3 - Exhibits:
An "Exhibit Index" has been filed as a part of this Report beginning
on page E-1 hereof and is incorporated herein by reference.
(b) - Reports on Form 8-K:
A Current Report on Form 8-K for November 8, 1995 was filed with the
Securities and Exchange Commission (the "Commission) on November 8, 1995 to
file under Item 7, the opinion and consent of Latham & Watkins relating to
the validity of Sears common shares credited to the accounts of participants
in The Savings and Profit Sharing Fund of Sears Employees.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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)
/S/ James A. Blanda*
By: James A. Blanda
Vice President
and Controller
March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
Arthur C. Martinez* Director, Chairman of the )
Arthur C. Martinez Board of Directors, President )
and Chief Executive Officer )
Alan J. Lacy* Executive Vice President and )
Alan J. Lacy Chief Financial Officer )
(Principal Financial Officer) )
James A. Blanda* Vice President and Controller )
James A. Blanda (Principal Accounting Officer) )
) March 28, 1996
Hall Adams, Jr.* Director )
Hall Adams, Jr. )
)
Warren L. Batts* Director )
Warren L. Batts )
)
James W. Cozad* Director )
James W. Cozad )
)
William E. LaMothe* Director )
William E. LaMothe )
)
Michael A. Miles* Director )
Michael A. Miles )
)
Nancy C. Reynolds* Director )
Nancy C. Reynolds )
)
Clarence B. Rogers, Jr.* Director )
Clarence B. Rogers, Jr. )
)
Donald H. Rumsfeld* Director )
Donald H. Rumsfeld )
)
Dorothy A. Terrell* Director )
Dorothy A. Terrell )
)
*By: /S/ James A. Blanda Individually and as Attorney-in-fact
James A. Blanda
<PAGE>
SEARS, ROEBUCK AND CO.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Year Ended December 30, 1995
The following consolidated financial statements, notes thereto and related
information of Sears, Roebuck and Co. are incorporated herein by reference to
the Company's 1995 Annual Report.
Page*
Consolidated Statements of Income** 16
Consolidated Balance Sheets** 22
Consolidated Statements of Cash Flows** 24
Consolidated Statements of Shareholders' Equity** 26
Notes to Consolidated Financial Statements** 28
Quarterly Results** 39
Common Stock Market Information and Dividend Highlights*** 39
* Refers to page number in Company's Annual Report.
** Incorporated by reference in Item 8 herein.
*** Incorporated by reference in Item 5 herein.
<PAGE>
The following additional financial statement schedules and report and consent
of Independent Certified Public Accountants are furnished herewith pursuant
to the requirements of Form 10-K.
Sears, Roebuck and Co. Page
Schedules required to be filed under the provisions of
regulation S-X Article 5:
Schedule II - Valuation and Qualifying Accounts S-3
Schedules required to be filed under the provisions of
Regulation S-X Article 7:
None.
Report of Independent Certified Public Accountants S-4
Consent of Independent Certified Public Accountants S-5
All other schedules are omitted because they are not applicable or not
required.
<PAGE>
SEARS, ROEBUCK AND CO.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
</TABLE>
<TABLE>
<CAPTION>
Additions
(millions) Balance at Charged to Other Balance
Beginning Costs and Additions Deductions at End
Description of Period Expenses (Describe)(B) (Describe)(B) of Period
<S> <C> <C> <C> <C> <C>
Year Ended December 30, 1995
Allowance for uncollectible accounts $ 813 $ 707 (A) $ 109 (C) $ 803 (F) $ 826
Year Ended December 31, 1994
Allowance for uncollectible accounts $ 770 $ 543 (A) $ 167 (D) $ 667 (F) $ 813
Year Ended December 31, 1993
Allowance for uncollectible accounts $ 609 $ 536 (A) $ 181 (E) $ 555 (F) $ 771
<FN>
(A) Excludes provision related to recourse liability for sold accounts of $159,
$155 and $285 million in 1995, 1994 and 1993, respectively.
(B) Excludes charge-offs and recoveries related to the recourse liability
for sold accounts.
(C) Includes:
Recoveries of Accounts Charged-Off $ 134
Reclass to Recourse on Accounts Sold (25)
$ 109
(D) Includes:
Recoveries of Accounts Charged-Off $ 109
Reclass from Recourse on Accounts Sold 58
$ 167
(E) Includes:
Recoveries of Accounts Charged-Off $ 91
Reclass from Recourse on Accounts Sold 90
$ 181
(F) Represents Uncollectible Accounts Which Have Been Charged-Off.
</FN>
</TABLE>
S-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Sears, Roebuck and Co.
We have audited the consolidated financial statements of Sears, Roebuck and
Co. as of December 30, 1995 and December 31, 1994, and for each of the three
years in the period ended December 30, 1995 and have issued our report
thereon dated February 15, 1996; such consolidated financial statements and
report are included in the 1995 Sears, Roebuck and Co. Annual Report to
Shareholders and are incorporated herein by reference. Our audits also
included the financial statement schedules of Sears, Roebuck and Co., listed
in item 14(a)1 and 2. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/S/Deloitte & Touche
Deloitte & Touche LLP
Chicago, Illinois
February 15, 1996
S-4
<PAGE>
EXHIBIT INDEX
Sears, Roebuck and Co. Form 10-K For
the Year Ended December 30, 1995
*3.(i) Restated Certificate of Incorporation, as amended to March 15, 1996.
*3.(ii) By-Laws as amended to February 6, 1996.
4.(i) Forms of restricted stock grants under Registrant's 1990 Employees
Stock Plan. Incorporated by reference to Exhibit 4.(i) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993.**
4.(ii) Form of restricted stock grants under Registrant's 1994 Employees
Stock Plan. Incorporated by reference to Exhibit 4(ii) to the Registrant's
Annual report on Form 10-K for the year ended December 31, 1994.**
4.(iii) Registrant hereby agrees to furnish to 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.(i)(a) Separation Agreement dated February 20, 1995 between Registrant
and The Allstate Corporation. Incorporated by reference to Exhibit 10(a) to
The Allstate Corporation's Current Report on Form 8-K dated February 22,
1995.***
10.(i)(b) Marketing File Separation Agreement dated February 20, 1995
between Registrant and The Allstate Corporation. Incorporated by reference
to Exhibit 10(b) to The Allstate Corporation's Current Report on Form 8-K
dated February 22, 1995.***
10.(i)(c) Research Services Agreement dated February 20, 1995 between
Registrant and The Allstate Corporation. Incorporated by reference to
Exhibit 10(c) to The Allstate Corporation's Current Report on Form 8-K dated
February 22, 1995.***
10.(i)(d) Tax Sharing Agreement dated May 14, 1993 between Registrant and
its subsidiaries. Incorporated by reference to Exhibit 10.6 to Amendment No.
3 to The Allstate Corporation's Registration Statement No. 33-59676.
10.(i)(e) Supplemental Tax Sharing Agreement dated January 27, 1995 between
Registrant and The Allstate Corporation. Incorporated by reference to
Exhibit 10(d) to The Allstate Corporation's Current Report on Form 8-K dated
February 22, 1995.***
10.(i)(f) Supplemental Human Resources Allocation Agreement dated January
27, 1995 between Registrant and The Allstate Corporation. Incorporated by
reference to Exhibit 10(e) to The Allstate Corporation's Current Report on
Form 8-K dated February 22, 1995.***
10.(i)(g) Profit Sharing and Employee Stock Ownership Plan Allocation
Agreement dated January 27, 1995 between Registrant and The Allstate
Corporation. Incorporated by reference to Exhibit 10(f) to The Allstate
Corporation's Current Report on Form 8-K dated February 22, 1995.***
10.(iii)(1) Registrant's 1979 Incentive Compensation Plan. Incorporated by
reference to Exhibit 10.(iii)(1) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1985.** ****
10.(iii)(2) Registrant's 1978 Employes Stock Plan, as amended. Incorporated
by reference to Exhibit 10.(iii)(2) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1989.** ****
10.(iii)(3) Registrant's Deferred Compensation Plan for Directors, as
amended and restated on November 8, 1995. Incorporated by reference to
Exhibit 10.(e) to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995.** ****
10.(iii)(4) Registrant's Annual Incentive Compensation Plan, amended and
restated as of January 1, 1994. Incorporated by reference to Appendix B to
the Registrant's Proxy Statement dated March 23, 1994.** ****
10.(iii)(5) Registrant's Long-Term Incentive Compensation Plan, amended and
restated as of January 1, 1994. Incorporated by reference to Appendix C to
the Registrant's Proxy Statement dated March 23, 1994.** ****
10.(iii)(6) Registrant's 1982 Employees Stock Plan. Incorporated by
reference to Exhibit 4(a)(1) to Registration Statement No. 2-80037 of the
Registrant.****
10.(iii)(7) Description of Registrant's Supplemental Life Insurance Plan,
amended as of December 31, 1986. Incorporated by reference to the second and
third full paragraphs on page 10 of the Registrant's Proxy Statement dated
March 26, 1987.** ****
*10.(iii)(8) Registrant's Non-Employee Directors' Retirement Plan, as
amended and restated to March 13, 1996.****
10.(iii)(9) Description of Registrant's Non-Employee Director Life Insurance
Plan. Incorporated by reference to the eighth paragraph on page 4 of the
Registrant's Proxy Statement dated March 26, 1986.** ****
10.(iii)(10) Registrant's 1990 Employees Stock Plan, amended as of May 12,
1994. Incorporated by reference to Exhibit 10.20 to The Allstate
Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 1994.*** ****
*10.(iii)(11) Registrant's Supplemental Retirement Income Plan, as amended
effective February 6, 1996.****
10.(iii)(12) Registrant's 1986 Employees Stock Plan, amended as of May 12,
1994. Incorporated by reference to Exhibit 10.19 to The Allstate
Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 1994.*** ****
10.(iii)(13) Registrant's Transferred Executives Pension Supplement.
Incorporated by reference to Exhibit 10.(iii)(13) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988.** ****
*10.(iii)(14) Amendment to Registrant's Transferred Executives Pension
Supplement adopted on March 13, 1996.****
10.(iii)(15) Registrant's Supplemental Long-Term Disability Plan.
Incorporated by reference to Exhibit 10.d to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995.** ****
10.(iii)(16) Registrant's Deferred Compensation Plan, as amended and
restated on December 4, 1995. Incorporated by reference to Exhibit 4.1 to
Registration Statement No. 33-64775 of the Registrant.****
10.(iii)(17) Registrant's Management Supplemental Deferred Profit Sharing
Plan. Incorporated by reference to Exhibit 10(b) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 1, 1994.** ****
10.(iii)(18) Registrant's Non-Employee Director Stock Plan. Incorporated by
reference to Appendix B of the Registrant's Proxy Statement dated March 20,
1996.** ****
10.(iii)(19) Registrant's 1994 Employees Stock Plan. Incorporated by
reference to Appendix A to the Registrant's Proxy Statement dated March 23,
1994.** ****
10.(iii)(20) Employment Agreement between Registrant and Arthur C. Martinez
dated August 10, 1992. Incorporated by reference to Exhibit 10.(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1992.** ****
*10.(iii)(21) Agreement dated November 13, 1995 amending employment contract
of Arthur C. Martinez dated August 10, 1992.****
10.(iii)(22) Description of retention policy that provides varying levels of
severance benefits for Executive Officers of the Company following the
Allstate spin-off. Incorporated by reference to the material under "The
Distribution Proposal--Agreements with Executive Officers" on page 18 of the
Registrant's Proxy Statement dated February 21, 1995.** ****
10.(iii)(23) Retirement Agreement of Edward A. Brennan dated as of August 9,
1995. Incorporated by reference to Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1995.** ****
10.(iii)(24) Retirement Agreement of James M. Denny dated as of August 9,
1995. Incorporated by reference to Exhibit 10(b) to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1995.** ****
10.(iii)(25) Extension of employment contract of Arthur C. Martinez, dated
August 9, 1995. Incorporated by reference to Exhibit 10(c) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995.** ****
10.(iii)(26) Employment Agreement between the Registrant and John H.
Costello, dated April 1, 1993. Incorporated by reference to Exhibit 10(a) to
the Registrant's Current Report on Form 8-K dated June 20, 1995.** ****
10.(iii)(27) Employment Agreement between the Registrant and Robert L.
Mettler, dated February 1, 1993. Incorporated by reference to Exhibit 10(b)
to the Registrant's Current Report on Form 8-K dated June 20, 1995.** ****
10.(iii)(28) Letter from the Registrant to Russell S. Davis dated May 18,
1990, relating to employment. Incorporated by reference to Exhibit 10(c) to
the Registrant's Current Report on Form 8-K dated June 20, 1995.** ****
10.(iii)(29) Letter from the Registrant to Alan J. Lacy dated December 14,
1994 relating to employment. Incorporated by reference to Exhibit 10(d) to
the Registrant's Current Report on Form 8-K dated June 20, 1995.** ****
10.(iii)(30) Letter from the Registrant to William G. Pagonis dated August
15, 1993 relating to employment. Incorporated by reference to Exhibit 10(e)
to the Registrant's Current Report on Form 8-K dated June 20, 1995.** ****
10.(iii)(31) Letter from the Registrant to Anthony J. Rucci dated September
21, 1993 relating to employment. Incorporated by reference to Exhibit 10(f)
to the Registrant's Current Report on Form 8-K dated June 20, 1995.** ****
*10.(iii)(32) Letter from the Registrant to Michael D. Levin dated November
27, 1995 relating to employment.** ****
*10.(iii)(33) Letter from the Registrant to Gary L. Crittenden dated January
2, 1996 relating to employment.** ****
*10.(iii)(34) Sears Executive Retirement Plan Arrangements.****
*11. Computation of Earnings per Share.
*12.(a) Computation of ratio of income to fixed charges for Registrant and
consolidated subsidiaries.
*12.(b) Computation of ratio of income to combined fixed charges and
preferred share dividends for Registrant and consolidated subsidiaries.
*13. Portions of Registrant's 1995 Annual Report incorporated by reference
into Part I or Part II of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
*21. Subsidiaries of the Registrant.
*23. Consent of Deloitte & Touche LLP.
*24. Power of Attorney of certain officers and directors of the Registrant.
*27. Financial Data Schedules.
*99.(i)(a) Amendment to the text of The Savings and Profit Sharing Fund of
Sears Employees adopted by the Board of Directors of the Registrant on March
13, 1996.
*99.(i)(b) Amendment to The Savings and Profit Sharing Fund of Sears
Employees Trust Agreement adopted by the Board of Directors of the Registrant
on March 13, 1996.
_________________
* Filed herewith
** SEC File No. 1-416
*** SEC File No. 1-11840
**** A management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report pursuant to Item 14(c) of
Form 10-K.
Exhibit 21
Subsidiaries
The significant subsidiaries of Sears, Roebuck and Co., the names under
which such subsidiaries do business, and the states or countries in which
each was organized, were as follows at December 30, 1995:
Place of
Name Organization
Consolidated Subsidiaries:
Maxserv. Inc. Texas
Sears Canada Inc. Canada
Sears Acceptance Company Inc. Canada
Sears Credit Corp. I Delaware
Sears Credit Corp. II Delaware
Sears DC Corp. Delaware
Sears Logistics Services, Inc. Delaware
Sears National Bank United States
Sears Overseas Finance N.V. Netherlands
Antilles
Sears Receivables Financing Group, Inc. Delaware
Sears Roebuck Acceptance Corp. Delaware
Sears, Roebuck de Mexico, S.A. de C.V. Mexico
Sears, Roebuck de Puerto Rico, Inc. Delaware
Western Auto Supply Company Delaware
Tire America Inc. Delaware
NTW Incorporated Delaware
94 other companies Various
The Company owns 20% to 50% of the outstanding voting securities of 24
companies which are accounted for on an equity method.
The Company has investments in a number of other corporations representing
substantial percentages (but not more than 20 percent) of their outstanding
capital stock. The Company disclaims control of any such companies.
Exhibit 3. (i)
Restated Certificate of Incorporation
of
Sears, Roebuck and Co., as amended to
March 13, 1996
1. NAME
The name of the Corporation is Sears, Roebuck and Co.
2. PURPOSES
The purposes of the Corporation are:
2.1 To manufacture, buy, sell, import, export, distribute and deal in
goods, wares, merchandise and related services of every kind, and any and all
materials or articles for, or used or useful in connection with all or any of
the objects aforesaid.
2.2 To engage in any activity which may promote the interests of the
Corporation, or enhance the value of its property, to the fullest extent
permitted by law.
3. SHARES
3.1 Authorized Shares. The total number of shares which the Corporation
may issue is 1,050,000,000, of which 1,000,000,000 shall be common shares of
a par value of $0.75 each and 50,000,000 shall be preferred shares of a par
value of $1.00 each.
3.2 Preferred Shares. The preferred shares may be issued from time to
time in series. The board of directors is authorized to establish and
designate series and to fix the number of shares and the relative rights,
preferences and limitations as between series, subject to such limitations as
may be prescribed by law. In particular, the board of directors may
establish, designate and fix the following with respect to each series of
preferred shares: establish and specify a designation of such series; fix
the dividend rights of holders of shares of each such series; fix the terms
on which shares of each such series may be redeemed if the shares of such
series are to be redeemable; fix the rights of the holders of shares of each
such series upon dissolution or any distribution of assets; fix the terms or
amount of the sinking fund, if any, to be provided for the purchase or
redemption of shares of each such series; fix the terms upon which the shares
of each such series may be converted into or exchanged for shares of any
other class or classes or of any one or more series of preferred shares if
the shares of such series are to be convertible or exchangeable; fix the
voting rights, if any, of the shares of each such series; and any other
relative rights, preferences, or limitations of shares of the series
consistent herewith and applicable law.
3.2.1 8.88% Preferred Shares, First Series.
(1) Designation. An aggregate of 3,250,000 preferred shares, par
value $1.00 per share, of the Company are hereby constituted as a series of
preferred shares designated as "8.88% Preferred Shares, First Series"
(hereinafter called "First Series Preferred Shares").
(2) Dividends. (a) The holders of First Series Preferred Shares
shall be entitled to receive a cash dividend per share (payable as set forth
below), out of funds legally available for the purpose, computed as follows
(rounded to the nearest cent):
(i) for the Initial Dividend Period (as hereinafter
defined), the product of (A) 8.88% times (B) a fraction the numerator of
which is the number of days from (and including) the date of the original
issue of the First Series Preferred Shares to (but not including) December
31, 1991, on the basis of 30-day months, and the denominator of which is 360
times (C) $100; and
(ii) for each Quarterly Dividend Period thereafter, the
product of (A) 8.88% times (B) .25 times (C) $100.
Such dividends shall be cumulative from the date of original issue
of such shares and shall be payable in arrears, when and as declared by the
Board of Directors, on February 1, May 1, August 1 and November 1 of each
year, commencing on February 1, 1992. Each such dividend shall be paid to
the holders of record of the First Series Preferred Shares as their names
shall appear on the share register of the Company on such record date, not
exceeding 50 days preceding the payment date thereof, as shall be fixed by
the Board of Directors of the Company. Dividends on account of arrears for
any past Dividend Periods (as hereinafter defined) may be declared and paid
at any time, without reference to any regular dividend payment date, to
holders of record on such date, not exceeding 50 days preceding the payment
date thereof, as may be fixed by the Board of Directors of the Company.
(b) The term:
(i) "Dividend Period" shall mean the Initial Dividend
Period or any Quarterly Dividend Period (collectively referred to as
"Dividend Periods");
(ii) "Initial Dividend Period" shall mean the period from
the date of the original issue of the First Series Preferred Shares through
December 31, 1991; and
(iii) "Quarterly Dividend Period" shall mean each of the
periods commencing on January 1, April 1, July 1 and October 1 in each year
and ending on (and including) the day next preceding the first day of the
next Quarterly Dividend Period, beginning on January 1, 1992.
(c) So long as any of the First Series Preferred Shares are
outstanding, no dividend (other than dividends or distributions paid in
common shares, or in options, warrants or rights to subscribe for or purchase
common shares or another stock ranking junior to the First Series Preferred
Shares as to dividends and other than as provided in paragraph (d) of this
Section (2)) shall be declared or paid or set aside for payment or other
distribution declared or made upon the common shares or upon any other stock
ranking junior to or on a parity with the First Series Preferred Shares as to
dividends, nor shall any common shares or any other stock of the Company
ranking junior to or on a parity with the First Series Preferred Shares as to
dividends be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any shares of any such stock) by the Company (except by
conversion into or exchange for stock of the Company ranking junior to the
First Series Preferred Shares as to dividends) unless, in each case, the full
cumulative dividends on the outstanding First Series Preferred Shares shall
have been paid or set apart for payment for all Dividend Periods terminating
on or prior to the date of such payment or action, as the case may be.
(d) When dividends are not paid in full, as aforesaid, on the
First Series Preferred Shares and on any other preferred shares ranking on a
parity as to dividends with the First Series Preferred Shares, all dividends
declared on the First Series Preferred Shares and any other preferred shares
ranking on a parity as to dividends with the First Series Preferred Shares
shall be declared ratably in accordance with the respective dividends which
would be payable on the First Series Preferred Shares and such other
preferred shares if all accrued and unpaid dividends thereon were paid in
full. Holders of First Series Preferred Shares shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends, as herein provided, on the First Series Preferred
Shares. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the First Series Preferred
Shares which may be in arrears.
(3) Dissolution Preference. (a) In the event of any liquidation,
dissolution, or winding up (hereinafter "Dissolution") of the Corporation,
whether voluntary or involuntary, before any payment or distribution of the
assets of the Corporation (whether capital or surplus) shall be made to or
set apart for the holders of any series or class or classes of stock of the
Company ranking junior to the First Series Preferred Shares upon Dissolution,
the holders of the First Series Preferred Shares shall be entitled to receive
for each share $100 plus an amount equal to all dividends (whether or not
earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders (subject to the right of the holders of record
of any First Series Preferred Shares on a record date for payment of
dividends thereon to receive a dividend payable on the date of final
distribution), determined by adding (i) dividends accrued and unpaid for any
Dividend Period preceding the Dividend Period in which the date of final
distribution falls plus (ii) the product of (A) 8.88% times (B) a fraction,
the numerator of which is the number of days elapsed from (and including) the
first day of the Dividend Period in which the date of final distribution
falls, to (but not including) the date of final distribution, on the basis of
30-day months, and the denominator of which is 360 times (C) $100; but such
holders shall not be entitled to any further payment. If, upon any
Dissolution of the Company, the assets of the Company, or proceeds thereof,
distributable among the holders of the First Series Preferred Shares and any
other preferred shares ranking as to Dissolution on a parity with the First
Series Preferred Shares shall be insufficient to pay in full the preferential
amount aforesaid and Dissolution payments on any other such other preferred
shares, then such assets, or the proceeds thereof, shall be distributed among
the holders of First Series Preferred Shares and any such other preferred
shares ratably in accordance with the respective amounts which would be
payable on such First Series Preferred Shares and any such other preferred
shares if all amounts payable thereon were paid in full. For the purposes of
this Section (3), a sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Company, or a
consolidation or merger of the Company with one or more corporations shall
not be deemed to be a Dissolution, voluntary or involuntary.
(b) Subject to the rights of the holders of shares of any series
or class or classes of stock ranking on a parity with or prior to the First
Series Preferred Shares upon Dissolution, upon any Dissolution of the
Company, after payment shall have been made in full to the First Series
Preferred Shares as provided in this Section (3), but not prior thereto, any
other series or class or classes of stock ranking junior to the First Series
Preferred Shares upon Dissolution shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the First Series Preferred
Shares shall not be entitled to share therein.
(4) Redemption. (a) Except as provided in paragraph (b) of this Section
4, the First Series Preferred Shares may not be redeemed prior to November 9,
1996. Thereafter, the Company, at its option, may redeem the First Series
Preferred Shares, as a whole or in part, at any time or from time to time at
redemption prices which shall be $100 per share, plus accrued and unpaid
dividends thereon to the date fixed for redemption (subject to the right of
the holders of record of any First Series Preferred Shares on a record date
for payment of dividends thereon to receive a dividend payable on the date of
redemption), determined by adding (i) dividends accrued and unpaid for any
Dividend Period preceding the Dividend Period in which the date of redemption
falls, plus (ii) the product of (A) 8.88% times (B) a fraction, the numerator
of which is the number of days elapsed from (and including) the first day of
the Dividend Period in which the date of redemption falls to (but not
including) the date of redemption, on the basis of 30-day months, and the
denominator of which is 360 times (C) $100.
(b) Prior to November 9, 1996, the Company at its option may
redeem all, but not less than all, of the outstanding First Series Preferred
Shares if the holders of the First Series Preferred Shares shall be entitled
to vote upon or consent to a merger or consolidation of the Company as
provided in Section (7) and all of the following conditions have been
satisfied: (i) the Company shall have requested the vote or consent of the
holders of the First Series Preferred Shares to the consummation of such
merger or consolidation, stating in such request that failing the requisite
favorable vote or consent the Company will have the option to redeem the
First Series Preferred Shares, (ii) the Company shall not have received the
favorable vote or consent requisite to the consummation of the transaction
within 60 days after making such written request (which shall be deemed to
have been made upon the mailing of the notice of any meeting of holders of
the First Series Preferred Shares to vote upon granting such consent), and
(iii) such transaction shall be consummated on the date fixed for such
redemption, which date shall be no more than one year after such request is
made. Any such redemption shall be on notice as aforesaid (and on an
additional notice in accordance with paragraph (c) of this Section (4), which
may be contemporaneous with, or included in, the notice provided for by this
paragraph (b)) at the redemption price of (i) $100 per share, plus (ii)
accrued and unpaid dividends thereon to the date fixed for redemption
(subject to the right of the holders of record of any First Series Preferred
Shares on a record date for payment of dividends thereon to receive a
dividend payable on the date of redemption), determined by adding (i)
dividends accrued and unpaid for any Dividend Period preceding the Dividend
Period in which the date of redemption falls, plus (ii) the product of (A)
8.88% times (B) a fraction, the numerator of which is the number of days
elapsed from (and including) the first day of the Dividend Period in which
the date of redemption falls, to (but not including) the date of redemption,
on the basis of 30-day months, and the denominator of which is 360 times (C)
$100.
(c) In the event the Company shall redeem any First Series
Preferred Shares, notice of such redemption shall be given by first class
mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to
the redemption date, to each holder of record of the shares to be redeemed,
at such holder's address as the same appears on the share register of the
Company. Each such notice shall state: (1) the redemption date; (2) the
number of shares to be redeemed and, if less than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (3) the redemption price; (4) the place or places where certificates
for such shares are to be surrendered for payment of the redemption price;
and (5) that dividends on the shares to be redeemed will cease to accrue on
such redemption date. Notice having been mailed as aforesaid, from and after
the redemption date (unless default shall be made by the Company in providing
money for the payment of the redemption price) dividends on the First Series
Preferred Shares so called for redemption shall cease to accrue, and said
shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as shareholders of the Company (except the right to receive
from the Company the redemption price) shall cease. The Company's obligation
to provide monies in accordance with the preceding sentence shall be deemed
fulfilled if, on or before the redemption date, the Company shall deposit
with a bank or trust company (which may be an affiliate of the Company)
having an office in the Borough of Manhattan, The City of New York, and
having a capital and surplus of at least $50,000,000, funds necessary for
such redemption, in trust, with irrevocable instructions that such funds be
applied to the redemption of the First Series Preferred Shares so called for
redemption. Any interest accrued on such funds shall be paid to the Company
from time to time.
(d) Upon surrender in accordance with said notice of the
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors of the Company shall so require and the
notice shall so state), such shares shall be redeemed by the Company at the
redemption price aforesaid. If less than all the outstanding First Series
Preferred Shares are to be redeemed, shares to be redeemed shall be selected
by the Company from outstanding shares not previously called for redemption
by lot or pro rata (as nearly as may be possible) or by any other method
determined by the Company in its sole discretion to be equitable, except that
in any redemption of fewer than all the outstanding First Series Preferred
Shares the Company may redeem all First Series Preferred Shares held by all
holders of a number of shares not to exceed 100 as may be specified by the
Company.
(e) In no event shall the Company redeem less than all the
outstanding First Series Preferred Shares unless full cumulative dividends
shall have been paid or declared and set apart for payment upon all
outstanding First Series Preferred Shares for all Dividend Periods
terminating on or prior to the date fixed for redemption.
(5) Shares to be Retired. All First Series Preferred Shares redeemed or
purchased by the Company shall be retired and cancelled and shall be restored
to the status of authorized but unissued preferred shares, without
designation as to series, and may thereafter be issued, but not as First
Series Preferred Shares.
(6) Conversion or Exchange. The holders of First Series Preferred Shares
shall not have any rights herein to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of any
class or classes of capital stock (or any other security) of the Company.
(7) Voting. (a) Except as hereinafter in this Section (7) expressly
provided or as otherwise from time to time required by law, the First Series
Preferred Shares shall have no voting rights. Whenever, at any time or
times, dividends payable on the First Series Preferred Shares shall be in
arrears in an amount equal to at least the dividends payable for six
Quarterly Dividend Periods on the First Series Preferred Shares at the time
outstanding, the holders of the outstanding First Series Preferred Shares
shall have the exclusive right, voting separately as a class with holders of
any one or more other series of preferred shares ranking on a parity with the
First Series Preferred Shares either as to dividends or the distribution of
assets upon Dissolution and upon which like voting rights have been conferred
and are exercisable, to elect two directors of the Company at the Company's
next annual meeting of shareholders and at each subsequent annual meeting of
shareholders. Such directors shall be elected for terms expiring at the next
succeeding annual meeting of shareholders or until their respective
successors are elected and qualified, unless such terms are sooner terminated
as provided in this paragraph (a) of this Section (7). At elections for such
directors, each holder of First Series Preferred Shares shall be entitled to
vote cumulatively in accordance with Article 3.5 of the Restated Certificate
of Incorporation of the Company as to the directors to be elected by such
holders voting as a class (the holders of any other series of preferred
shares ranking on a parity being entitled to such number of votes, if any,
for each share held as may be granted to them). The right of the holders of
the First Series Preferred Shares, voting separately as a class, to elect
(either alone or together with the holders of any one or more other series of
preferred shares ranking on a parity) members of the Board of Directors of
the Company as aforesaid shall continue until such time as all dividends
accumulated on the First Series Preferred Shares shall have been paid in full
or set aside for payment by the Company, at which time such right shall
terminate, except as herein or by law expressly provided, subject to
revesting in the event of each and every subsequent failure to pay dividends
in the aggregate amount specified above. Any such director may be removed
from office, with or without cause, only by vote of holders of the First
Series Preferred Shares voting as a class with holders of any one or more
other series of preferred shares ranking on a parity with the First Series
Preferred Shares either as to dividends or the distribution of assets upon
Dissolution and upon which like voting rights have been conferred and are
exercisable, and by such vote as may be required by law.
(b) Upon any termination of the right of the holders of the First
Series Preferred Shares as a class to vote for directors as herein provided,
the term of office of all directors then in office elected by the First
Series Preferred Shares voting as a class shall terminate immediately. If the
office of any director elected by the holders of the First Series Preferred
Shares voting as a class as herein provided becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office, or
otherwise, the remaining director elected by the holders of the First Series
Preferred Shares voting as a class as herein provided may choose a successor
who shall hold office for the unexpired term in respect of which such vacancy
occurred.
(c) So long as any First Series Preferred Shares remain
outstanding, the consent of the holders of at least two-thirds of the First
Series Preferred Shares outstanding at the time (voting separately as a class
together with all other series of preferred shares ranking on a parity with
First Series Preferred Shares either as to dividends or the distribution of
assets upon Dissolution and upon which like voting rights have been conferred
and are exercisable) given in person or by proxy, either in writing or at any
special or annual meeting called for the purpose, shall be necessary to
permit, effect or validate any one or more of the following:
(i) the authorization, creation or issuance, or any
increase in the authorized or issued amount, of any class or series of shares
(including any class or series of preferred shares) ranking prior (as that
term is defined in paragraph (e) of this Section (7)) to the First Series
Preferred Shares; or
(ii) the amendment, alteration or repeal of any of the
provisions of the Restated Certificate of Incorporation in any manner which
would materially and adversely affect any right, preference, privilege or
voting power of the First Series Preferred Shares or of the holders thereof;
provided, however, that any increase in the amount of authorized preferred
shares or the creation and issuance of other series of preferred shares, in
each case ranking on a parity with or junior to the First Series Preferred
Shares with respect to the payment of dividends and the distribution of
assets upon Dissolution shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers; provided,
further, that the creation of a class or series of shares entitled to vote as
a class together with the First Series Preferred Shares on the matters stated
herein and having a voting power greater than one vote for each $100 of
liquidation preference (exclusive of accrued and unpaid dividends), shall be
deemed to materially and adversely affect the voting power of the Preferred
Shares.
(d) So long as any First Series Preferred Shares remain
outstanding, the consent of the holders of at least a majority of the First
Series Preferred Shares outstanding at the time (voting separately as a class
together with all other series of preferred shares ranking on a parity with
First Series Preferred Shares either as to dividends or the distribution of
assets upon Dissolution and upon which like voting rights have been conferred
and are exercisable) given in person or by proxy, either in writing or at any
special or annual meeting called for the purpose, shall be necessary to
effect the merger or consolidation of the Company with or into any other
corporation, if and only if the plan of merger or consolidation contains any
provision which, if contained in an amendment to the Company's Restated
Certificate of Incorporation, would entitle the holders of shares of such
class or series to vote as a class thereon.
(e) The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of the First
Series Preferred Shares shall have been redeemed or sufficient funds shall
have been deposited in trust to effect such redemption.
(f) Any class or classes of shares of the Company shall be deemed
to rank:
(i) prior to the First Series Preferred Shares as to
dividends or as to distribution of assets upon Dissolution if the holders of
such class shall be entitled to the receipt of dividends or of amounts
distributable upon Dissolution in preference or priority to the holders of
the First Series Preferred Shares; and
(ii) on a parity with the First Series Preferred Shares
as to dividends or as to distribution of assets upon Dissolution whether or
not the dividend rates, dividend payment dates, or redemption or Dissolution
prices per share thereof be different from those of the First Series
Preferred Shares, if the holders of such class of shares and the First Series
Preferred Shares shall be entitled to the receipt of dividends or of amounts
distributable upon Dissolution in proportion to their respective dividend
rates or Dissolution prices, without preference or priority one over the
other.
3.2.2.Series A Mandatorily Exchangeable Preferred Shares
(1) Designation. An aggregate of 7,187,500 preferred shares, par
value $1.00 per share, of the Company are hereby constituted as a series of
preferred shares designated as "Series A Mandatorily Exchangeable Preferred
Shares" (hereinafter called "Series A Preferred Shares").
(2) Dividends. (a) The holders of Series A Preferred Shares
shall be entitled to receive a cash dividend per share (payable as set forth
below), out of funds legally available for the purpose, computed as follows
(rounded to the nearest cent):
(i) for the Initial Dividend Period (as hereinafter
defined), the product of (A) 8.721% times (B) a fraction the numerator of
which is the number of days from (and including) the date of the original
issuance of the Series A Preferred Shares to (but not including) April 1,
1992, on the basis of 30-day months, and the denominator of which is 360
times (C) $172.00; and
(ii) for each Quarterly Dividend Period thereafter, the
product of (A) 8.721% times (B) .25 times (C) $172.00.
Such dividends shall be cumulative from the date of original issuance
of such shares and shall be payable in arrears, when, as and if declared by
the Board of Directors, on each Dividend Payment Date (as hereinafter
defined) commencing on April 1, 1992. Each such dividend shall be paid to
the holders of record of the Series A Preferred Shares as their names shall
appear on the share register of the Company on such record date, not
exceeding 50 days preceding the payment date thereof, as shall be fixed by
the Board of Directors of the Company. Dividends on account of arrears for
any past Dividend Periods (as hereinafter defined) may be declared and paid
at any time, without reference to any regular dividend payment date, to
holders of record on such date, not exceeding 50 days preceding the payment
date thereof, as may be fixed by the Board of Directors of the Company.
Dividends on the Series A Preferred Shares shall accrue (whether or not
declared) on a daily basis from the previous Dividend Payment Date, except
that with respect to the first dividend, such dividend shall accrue from the
date of original issuance of the Series A Preferred Shares. Dividends will
cease to accrue on the Series A Preferred Shares on the Exchange Date (as
defined in paragraph (4)(h)(iii)), with respect to the Series A Preferred
Shares subject to such exchange on such Exchange Date. Dividends (or cash
amounts equal to accrued and unpaid dividends) payable on the Series A
Preferred Shares for any period shorter than a Quarterly Dividend Period
shall be computed on the basis of a 360-day year of twelve 30-day months.
All dividends paid with respect to Series A Preferred Shares pursuant to this
paragraph (2) shall be paid pro rata to the holders entitled thereto.
(b) The term:
(i) "Dividend Period" shall mean the Initial Dividend
Period or any Quarterly Dividend Period (collectively referred to as
"Dividend Periods");
(ii) "Dividend Payment Date" shall mean January 1, April
1, July 1 and October 1 of each year, unless any such date shall be or be
declared a national or New York state holiday or banking institutions in New
York shall be closed because of a banking moratorium or otherwise on such
date, in which case the Dividend Payment Date shall be the next succeeding
day on which such banks shall be open;
(iv) "Initial Dividend Period" shall mean the period from
the date of the original issuance of the Series A Preferred Shares through
(but not including) April 1, 1992; and
(v) "Quarterly Dividend Period" shall mean each of the
periods commencing on January 1, April 1, July 1 and October 1 in each year
and ending on (and including) the day next preceding the first day of the
next following Quarterly Dividend Period, beginning on April 1, 1992.
(3) Rank. (a) The Series A Preferred Shares, with respect to
dividend rights and rights upon liquidation, dissolution and winding up,
shall rank prior to the common shares, par value $.75 per share (the "common
shares") of the Company and on a parity with the First Series Preferred
Shares of the Company. All equity securities of the Company to which the
Series A Preferred Shares rank prior with respect to dividends or upon
liquidation, dissolution or winding-up, as the case may be, including the
common shares, are collectively referred to herein as "Junior Securities";
all equity securities of the Company with which the Series A Preferred Shares
rank on a parity with respect to dividends or upon liquidation, dissolution
or winding-up, as the case may be (whether or not the dividend rates,
dividend payment dates or amounts to be received upon dissolution,
liquidation or winding up are different therefrom), including the First
Series Preferred Shares, are collectively referred to herein as "Parity
Securities"; and all equity securities of the Company to which the Series A
Preferred Shares rank junior with respect to dividends or upon liquidation,
dissolution or winding-up, as the case may be, are collectively referred to
herein as "Senior Securities." The Series A Preferred Shares shall be
subject to the creation of Junior Securities, Parity Securities and Senior
Securities. The term "equity securities" excludes convertible debt
securities or debt securities redeemable or exchangeable for equity
securities.
(b) So long as any of the Series A Preferred Shares are
outstanding, no dividend (other than dividends or distributions paid in
Junior Securities which rank junior as to dividends, or in options, warrants
or rights to subscribe for or purchase such Junior Securities and other than
as provided in paragraph (3)(c)) shall be declared or paid or set aside for
payment or other distribution declared or made upon any Junior Securities
which rank junior as to dividends or Parity Securities which rank on a parity
as to dividends, nor shall any such Junior Securities or such Parity
Securities be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such securities) by the Company (except by conversion into
or exchange for Junior Securities which rank junior as to dividends) unless,
in each case, the full cumulative dividends on the Series A Preferred Shares
shall have been declared and paid or set apart for payment for all Quarterly
Dividend Periods terminating on or prior to the date of such payment or
action, as the case may be.
(c) When dividends are not paid in full on the Series A Preferred
Shares and any Parity Securities which rank on a parity with respect to
dividends, all dividends declared on the Series A Preferred Shares and such
Parity Securities shall be declared ratably in accordance with the respective
dividends which would be payable on the Series A Preferred Shares and such
Parity Securities if all accrued and unpaid dividends thereon were then to be
paid in full.
(d) Holders of Series A Preferred Shares shall not be entitled
to any dividends, whether payable in cash, property or stock, in excess of
full cumulative dividends as provided in paragraph (2)(a). No interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment which may be in arrears. Subject to the foregoing provisions of this
paragraph (3) and paragraph (4)(d), the Board of Directors may declare and
the Company may pay or set apart for payment dividends and other
distributions on any of the Junior Securities or Parity Securities, and may
redeem, purchase, exchange, convert or otherwise retire any Junior Securities
or Parity Securities, and the holders of the Series A Preferred Shares shall
not be entitled to share therein. Any dividend payment made on Series A
Preferred Shares shall first be credited against the earliest accrued but
unpaid dividend due with respect to the Series A Preferred Shares.
(4) Exchanges. (a) Mandatory Exchange on Final Exchange Date.
Unless earlier exchanged in accordance with the provisions hereof, on April
1, 1995 (the "Final Exchange Date), the Company shall be obligated to
exchange the following consideration for each outstanding Series A Preferred
Share:
(i) subject to paragraph (4)(d)(iv), a number of common
shares at the Common Equivalent Rate (determined as provided in paragraph
(4)(d)) in effect on the Final Exchange Date; and
(ii) the right to receive an amount in cash equal to all
accrued and unpaid dividends on such Series A Preferred Share to and
including such Exchange Date, whether or not declared, out of funds legally
available for the payment of dividends; provided, however, to the extent
that, on the Final Exchange Date, the Company shall (x) not have funds
legally available for the payment of such accrued and unpaid dividends in
cash, or (y) be prohibited from paying such dividends in cash by the terms of
any Senior Security, Parity Security or any then-outstanding indebtedness or
other contractual obligation of the Company, then the Company shall issue, in
lieu of such cash payment, that number of common shares determined by
dividing the amount of such accrued and unpaid dividends by the Current
Market Price (as defined in paragraph (4)(d)(vi)) of the common shares
determined as of the Trading Date immediately preceding the Final Exchange
Date.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued common
shares, for the purpose of effecting the exchange of the Series A Preferred
Shares pursuant to this paragraph (4)(a), the full number of common shares
required to be delivered pursuant to paragraph (4)(a)(i) upon such mandatory
exchange of all outstanding Series A Preferred Shares, and shall adjust such
reserve promptly following any adjustment in the Common Equivalent Rate.
(b) Automatic Exchange Upon the Occurrence of Certain Events. On the
business day (as defined in paragraph (4)(h)(1)) immediately prior to the
effectiveness of a merger or consolidation of the Company (other than a
merger or consolidation of the Company with or into a direct or indirect
wholly-owned subsidiary of the Company) (the "Settlement Date") that would
result in the exchange of common shares for, or the conversion of common
shares into, other securities or other property (whether of the Company or
any other entity) or the right to receive such other securities or other
property (any such merger or consolidation is referred to herein as a "Merger
or Consolidation"), the Company shall exchange the following consideration
for each outstanding Series A Preferred Share:
(i) subject to paragraphs (4)(d)(iii) and (4)(d)(iv), a
number of common shares at the Common Equivalent Rate in effect on the
Settlement Date; plus
(ii) the right to receive an amount in cash equal to all
accrued and unpaid dividends on such Series A Preferred Share to and
including the Settlement Date, whether or not declared, out of funds legally
available for the payment of dividends; plus
(iii) the right to receive an amount in cash initially equal
to $21.00, declining by $.018851 on each day following the date of original
issuance of the Series A Preferred Shares (computed on the basis of a 360-day
year of twelve 30-day months) to $1.13 on February 1, 1995, and equal to zero
thereafter, in each case determined with reference to the Settlement Date,
out of funds legally available therefor.
At the option of the Company, the Company may satisfy its obligation
with respect to some or all of the cash consideration described in clauses
(ii) and (iii) above by delivery of a number of common shares to be
determined by dividing the amount of cash consideration that the Company has
elected to pay in common shares by the Current Market Price (as defined in
paragraph (4)(d)(vi)) of the common shares determined as of the second
Trading Date (as defined in paragraph (4)(h)(vi)) immediately preceding the
Notice Date (as defined in paragraph (4)(h)(iv)) relating to such exchange.
In the event that in connection with an exchange of Series A
Preferred Shares pursuant to paragraph (4)(a) or (4)(b) the Company is
required to or elects to deliver common shares in lieu of any cash amount
required to be paid pursuant to paragraph (4)(a)(ii) or paragraphs (4)(b)(ii)
or (iii), respectively, and there shall have occurred an adjustment pursuant
to paragraph (4)(d)(iv) as a result of a merger or consolidation with or into
a direct or indirect wholly-owned subsidiary prior to the Exchange Date
relating to such exchange, the form of consideration deliverable by the
Company in lieu of such cash amount shall consist of, in lieu of common
shares, the kind of securities or other property received by the holders of
common shares as a result of such merger or consolidation (provided, however,
that if by virtue of the structure of such merger or consolidation, a holder
of common shares is required to make an election with respect to the nature
and kind of consideration to be received in such merger or consolidation,
then the form of consideration so deliverable by the Company in lieu of
common shares shall consist of the kind of securities or other property
received by a holder of common shares as a result of such merger or
consolidation if such holder of common shares had failed to exercise any such
rights of election (however, if the nature or kind of consideration is not
the same for each non-electing share, then for purposes of this proviso the
kind so receivable in lieu of common shares upon such transaction for each
non-electing share will be the kind so receivable per share by the plurality
of the non-electing shares)), in the same relative proportions (if more than
one kind of securities or other property was so received), with an aggregate
market price (determined for any security or other property, to the extent
possible, in the manner that the Current Market Price is determined for the
common shares, and otherwise determined by the Board of Directors of the
Company, whose determination shall be conclusive), determined as of the
Trading Date immediately preceeding the Final Exchange Date (in the case of
an exchange pursuant to paragraph (4)(a)) or as of the second Trading Date
immediately preceding the Notice Date relating to such exchange (in the case
of an exchange pursuant to paragraph (4)(b)), equal to the cash amount that
the Company has elected or is required to pay in such securities or other
property.
(c) Optional Exchange by the Company. At any time and from time to
time prior to the Final Exchange Date, the Company shall have the right to
exchange the consideration specified in this paragraph (4)(c) for any or all
of the outstanding Series A Preferred Shares (subject to the notice
provisions set forth in paragraph (4)(i)). Upon the Exchange Date relating
to any such optional exchange, each Series A Preferred Share to be so
exchanged shall be exchanged for (i) a number of common shares equal to the
Optional Exchange Price (as defined in paragraph (4)(h)(v)) in effect on such
Exchange Date divided by the Current Market Price of the common shares
determined as of the second Trading Date immediately preceding the Notice
Date relating to such exchange and (ii) a cash amount equal to all accrued
and unpaid dividends on such Series A Preferred Share to and including the
Exchange Date, whether or not declared, out of funds legally available for
the payment of dividends; provided that if there shall have occurred an
adjustment pursuant to paragraph (4)(d)(iv) prior to such Exchange Date, each
Series A Preferred Share so exchanged shall be exchanged for, in lieu of
common shares as described in paragraph (4)(c)(i), the kind of securities or
other property received by the holders of common shares as a result of the
merger or consolidation with or into a direct or indirect wholly-owned
subsidiary which gave rise to such adjustment (provided, however, that if by
virtue of the structure of such merger or consolidation, a holder of common
shares is required to make an election with respect to the nature and kind of
consideration to be received in such merger or consolidation, then the form
of consideration deliverable upon exercise of such option by the Company
shall consist of the kind of securities or other property received by a
holder of common shares as a result of such merger or consolidation if such
holder of common shares had failed to exercise any such rights of election
(however, if the nature or kind of consideration is not the same for each
non-electing share, then for purposes of this proviso the kind so receivable
upon such transaction for each non-electing share will be the kind so
receivable per share by the plurality of the non-electing shares)), in the
same relative proportions (if more than one kind of securities or other
property was so received) in either case with an aggregate market price
(determined, for any security or other property, to the extent possible, in
the manner that the Current Market Price is determined for the common shares,
and otherwise determined by the Board of Directors of the Company, whose
determination shall be conclusive), as of the second Trading Date immediately
preceding the Notice Date related to such exchange, equal to the Optional
Exchange Price in effect on the Exchange Date. If fewer than all the
outstanding Series A Preferred Shares are to be subject to any exchange
pursuant to this paragraph (4)(c), shares to be exchanged shall be selected
by the Company from outstanding Series A Preferred Shares not previously
exchanged by lot or pro rata (as nearly as may be practicable without
creating fractional shares) or by any other method determined by the Board of
Directors of the Company in its sole discretion to be equitable.
Notwithstanding any provision to the contrary set forth herein, the Company
may not effect an exchange of less than all of the outstanding Series A
Preferred Shares pursuant to this paragraph (4)(c) unless, on or prior to the
Exchange Date for such exchange, full cumulative dividends have been paid or
declared and set apart for payment on all outstanding Series A Preferred
Shares for all Quarterly Dividend Periods ending prior to such Exchange Date.
(d) Common Equivalent Rate; Adjustments. The Common Equivalent Rate
to be used to determined the number of common shares to be delivered on the
exchange of the Series A Preferred Shares for common shares pursuant to
paragraph (4)(a) or (b) shall be initially four common shares for each Series
A Preferred Share; provided, however, that such Common Equivalent Rate shall
be subject to adjustment from time to time as provided below in this
paragraph (4)(d). All adjustments to the Common Equivalent Rate shall be
calculated to the nearest 1/100th of a common share. Such rate in effect at
any time is herein called the "Common Equivalent Rate."
(i) If the Company shall either:
(A) pay a dividend or make a distribution with
respect to common shares in common shares,
(B) subdivide or split the outstanding common
shares into a greater number of shares,
(C) combine the outstanding common shares into a
smaller number of shares, or
(D) issue by reclassification of the common shares
any additional common shares of the Company, then, in any such event, the
Common Equivalent Rate in effect immediately prior thereto shall be adjusted
so that the holder of a Series A Preferred Share shall be entitled to
receive, on the exchange of such Series A Preferred Share, the number of
common shares of the Company which such holder would have owned or been
entitled to receive pursuant to paragraph (4)(a)(i), after the happening of
any of the events described above had such Series A Preferred Share been
exchanged pursuant to paragraph (4)(a) immediately prior to such event or any
record date with respect thereto. Such adjustment shall become effective at
the opening of business on the business day next following the record date
for determination of shareholders entitled to receive such dividend or
distribution in the case of a dividend or distribution, and shall become
effective immediately after the effective date thereof in case of a
subdivision, split, combination or reclassification; and any common shares
issuable in payment of a dividend shall be deemed to have been issued
immediately prior to the close of business on the record date for such
dividend for purposes of calculating the number of outstanding common shares
under clauses (ii) and (iii) below. Such adjustments shall be made
successively.
(ii) If the Company shall, after the date hereof, issue
rights or warrants to all holders of its common shares entitling them (for a
period not exceeding 45 days from the date of such issuance) to subscribe for
or purchase common shares at a price per share less than the Current Market
Price of the common shares (as defined in paragraph (4)(d)(vi)) on the record
date for the determination of shareholders entitled to receive such rights or
warrants, then in each case the Common Equivalent Rate shall be adjusted by
multiplying the Common Equivalent Rate in effect immediately prior thereto by
a fraction, of which the numerator shall be the number of common shares
outstanding on the date of issuance of such rights or warrants, immediately
prior to such issuance, plus the number of additional common shares offered
for subscription or purchase pursuant to such rights or warrants, and of
which the denominator shall be the number of common shares outstanding on the
date of issuance of such rights or warrants, immediately prior to such
issuance, plus the number of common shares which the aggregate offering price
of the total number of common shares so offered for subscription or purchase
pursuant to such rights or warrants would purchase at such Current Market
Price (determined by multiplying such total number of shares by the exercise
price of such rights or warrants and dividing the product so obtained by such
Current Market Price). Such adjustment shall become effective at the opening
of business on the business day next following the record date for the
determination of shareholders entitled to receive such rights or warrants.
To the extent that common shares are not delivered after the expiration of
such rights or warrants, the Common Equivalent Rate shall be readjusted to
the Common Equivalent Rate which would then be in effect had the adjustments
made upon the issuance of such rights or warrants been made upon the basis of
delivery of only the number of common shares actually delivered. Such
adjustments shall be made successively.
(iii) If the Company shall pay a dividend or make a
distribution to all holders of its common shares of evidences of its
indebtedness or other assets (including shares of capital stock of the
Company (other than common shares) but excluding any distributions and
dividends referred to in clause (i) above, or any regular quarterly cash
dividends), or shall issue to all holders of its common shares rights or
warrants to subscribe for or purchase securities (other than those rights or
warrants referred to in clause (ii) above), then in each such case, the
Common Equivalent Rate shall be adjusted by multiplying the Common Equivalent
Rate in effect on the record date mentioned below by a fraction, of which the
numerator shall be the Current Market Price of the common shares (as defined
in paragraph (4)(d)(vi)) on the record date for the determination of
shareholders entitled to receive such dividend or distribution, and of which
the denominator shall be such Current Market Price per common share less the
fair value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) as of such record date of the portion of
the assets or evidences of indebtedness so distributed, or of such
subscription rights or warrants, applicable to one common share. Such
adjustment shall become effective on the opening of business on the business
day next following the record date for the determination of shareholders
entitled to receive such dividend or distribution.
(iv) If there shall occur a merger or consolidation of the
Company with or into a direct or indirect wholly-owned subsidiary of the
Company that results in the exchange of the common shares for, or the
conversion of common shares into, other securities or other property (whether
of the Company or any other entity) or the right to receive such other
securities or other property, then the Series A Preferred Shares will
thereafter no longer be subject to exchange for common shares pursuant to
paragraphs (4)(a)(i) and (b)(i), but instead will be subject to exchange for
the kind and amount of securities or other property which the holder of such
Series A Preferred Shares would have had the right to receive as a holder of
common shares immediately after such merger or consolidation if such Series
A Preferred Shares had been exchanged for common shares pursuant to paragraph
(4)(a) immediately before the effective time of such merger or consolidation;
provided, however, that if by virtue of the structure of such merger or
consolidation, a holder of common shares is required to make an election with
respect to the nature and kind of consideration to be received in such merger
or consolidation, then the Series A Preferred Shares shall, after such merger
or consolidation, be subject to exchange for the kind and amount of
securities or other property which the holder of such Series A Preferred
Shares would have had the right to receive as a holder of common shares
immediately after such merger or consolidation if (x) such Series A Preferred
Shares had been exchanged for common shares pursuant to paragraph (4)(a)(i)
immediately before the effective time of such merger or consolidation and (y)
if such holder of common shares had failed to exercise any such rights of
election (however, if the nature or kind of consideration is not the same for
each non-electing share, then for purposes of this proviso the kind so
receivable upon such transaction for each non-electing share will be the kind
so receivable per share by the plurality of the non-electing shares). If
this paragraph (4)(d)(iv) applies, then no adjustment in respect of the same
merger or consolidation shall be made pursuant to the other provisions of
this paragraph (4)(d).
(v) Anything in this paragraph (4) notwithstanding, the
Company shall be entitled to make such upward adjustments in the Common
Equivalent Rate, in addition to those required by this paragraph (4), as the
Company in its sole discretion may determine to be advisable, in order that
any share dividends, subdivision of shares, distribution of rights to
purchase shares or securities, or a distribution of securities convertible
into or exchangeable or redeemable for shares (or any transaction which could
be treated as any of the foregoing transactions pursuant to Section 305 of
the Internal Revenue Code of 1986, as amended) hereafter made by the Company
to its shareholders shall not be taxable. If the Company determines that
such an adjustment to the Common Equivalent Rate should be made, an
adjustment shall be made effective as of such date as is determined by the
Board of Directors of the Company. The determination of the Board of
Directors of the Company as to whether such an adjustment to the Common
Equivalent Rate should be made pursuant to the foregoing provisions of this
paragraph (4)(d)(v), and, if so, as to what adjustment should be made and
when, shall be conclusive, final and binding on the Company and all
shareholders of the Company.
(vi) As used in this paragraph (4), the "Current Market
Price" of the common shares on any date shall be the average of the daily
Closing Prices (as defined in paragraph (4)(h)(ii)) for the five consecutive
Trading Dates ending on and including the date of determination of the
Current Market Price; provided, however, that, except for a determination in
connection with an exchange pursuant to paragraph 4(a), if the Closing Price
for the Trading Date next following such five-day period (the "next-day
closing price") is less than 95% of such average, then the Current Market
Price per common share on such date of determination shall be the next-day
closing price; and provided, further, that, if any event that would result in
an adjustment of the Common Equivalent Rate occurs during such five-day
period or, for the purposes of calculating the Current Market Price in
connection with any exchange of Series A Preferred Shares or any
determination of an amount in cash payable in lieu of a fraction of a common
share, if any event that would result in an adjustment of the Common
Equivalent Rate occurs during the period beginning on the first day of such
five-day period and ending on the applicable Exchange Date, the Current
Market Price as determined pursuant to the foregoing will be appropriately
adjusted to reflect the occurrence of such event.
(vii) In any case in which paragraph (4)(d) shall require
that an adjustment to the form or amount of any Exchange Consideration (as
defined in paragraph (4)(j)) become effective at the opening of business on
the business day next following a record date and an Exchange Date occurs
after such record date, but before the occurrence of the event giving rise to
such adjustment, the Company may in its sole discretion elect to defer until
after the occurrence of such event the issuance of any portion of the
Exchange Consideration the form or amount of which is affected by such
adjustment.
(viii) Before taking any action which would cause an
adjustment to the Common Equivalent Rate that would cause the Company to
issue common shares for consideration below the then par value (if any) of
the common shares upon exchange of the Series A Preferred Shares, the Company
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid
and nonassessable common shares at such adjusted Common Equivalent Rate.
(ix) If, at any time, as a result of an adjustment made
pursuant to paragraph (4)(d)(iv) the Series A Preferred Shares shall become
exchangeable for any consideration other than common shares, thereafter the
form and amount of such other consideration so issuable upon exchange of the
Series A Preferred Shares shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the common shares contained in this paragraph (4)(d).
(e) Notice of Adjustments. Whenever the Common Equivalent Rate
and/or the kind or amount of securities or other property issuable upon
exchange of the Series A Preferred Shares is adjusted as herein provided, the
Company shall:
(i) forthwith compute such adjustment in accordance with
this paragraph (4) and prepare a certificate signed by the Chief Financial
Officer, any Vice President, the Treasurer or Controller of the Company
setting forth the terms of such adjustment, the method of calculation thereof
in reasonable detail and the facts requiring such adjustment and upon which
such adjustment is based, and file such certificate forthwith with the
transfer agent or agents for the Series A Preferred Shares and the common
shares; and
(ii) mail a notice to the holders of record of the
outstanding Series A Preferred Shares at or prior to the time the Company
mails an interim statement to its shareholders covering the fiscal quarter
during which the facts requiring such adjustment occurred, but in any event
within 45 days of the end of such fiscal quarter stating that such adjustment
has been made, the facts requiring such adjustment and the facts upon which
such adjustment is based and setting forth the terms of such adjustment.
(f) No Fractional Shares. (i) No fractional shares or scrip
representing fractional common shares shall be issued upon the exchange of
any Series A Preferred Shares. Instead of any fractional interest in a
common share which would otherwise be deliverable upon the exchange of a
Series A Preferred Share, the Company shall either (A) pay to the holder of
such share (a "Fractional Shareholder") an amount in cash (computed to the
nearest cent) equal to the same fraction of the Current Market Price of the
common share determined as of the second Trading Date immediately preceding
the relevant Notice Date or, in the case of an exchange pursuant to paragraph
(4)(a), the Trading Date immediately preceding the Final Exchange Date or (B)
follow the procedures set forth in paragraph (4)(f)(ii). If more than one
Series A Preferred Share shall be surrendered for exchange at one time by the
same holder, the number of full common shares issuable upon exchange thereof
shall be computed on the basis of the aggregate number of Series A Preferred
Shares so surrendered.
(ii) The Company may, in lieu of paying cash to
Fractional Shareholders as provided in paragraph (f)(i), issue, in full
payment of the Company's obligation with respect to such fractional
interests, common shares equal to the aggregate of such fractional interests
of such Fractional Shareholder and other Fractional Shareholders (aggregated
over a reasonable period of time, but not in any event more than 20 business
days, and rounded upwards to the nearest whole share) to an agent (the
"Transfer Agent") appointed by the Company for such Fractional Shareholders
for sale promptly by the Transfer Agent on behalf of the Fractional
Shareholders. The Transfer Agent will remit promptly to such Fractional
Shareholders their proportionate interest in the net proceeds (following the
deduction of applicable transaction costs and computed to the nearest cent)
from such sale.
(iii) In the event that, as a result of any adjustment
pursuant to paragraph (4)(d)(iv), the Series A Preferred Shares are exchanged
for securities other than common shares, the Company may treat any fractional
interests in such securities in the same manner as is provided in paragraphs
(4)(f)(i) and (ii) with respect to fractional common shares.
(g) Cancellation. Series A Preferred Shares that have been
acquired by the Company in an exchange pursuant to this paragraph (4) will
initially be held in the Company's treasury, to the extent that capital or
earned surplus at such time (calculated after any change to any surplus
account resulting from payment of cash or delivery of property by the Company
in such exchange) is at least equal to the aggregate par value of the common
shares issued in exchange for such Series A Preferred Shares. To the extent
that capital or earned surplus is not at least equal to such value at such
time, such Series A Preferred Shares will be cancelled and will assume the
status of authorized but unissued preferred shares. Shares held in the
Company's treasury may thereafter, at the option of the Company, be resold
(if consistent with the terms thereof) or cancelled. If cancelled, such
shares will assume the status of authorized but unissued preferred shares and
may thereafter be reissued in the same manner as other authorized but
unissued preferred shares.
(h) Definitions. As used in this paragraph (4):
(i) the term "business day" shall mean any day other
than a Saturday, Sunday, or a day on which banking institutions in the State
of New York are authorized or obligated by law or executive order to close;
(ii) the term "Closing Price" on any day shall mean the
closing sale price regular way on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices
regular way, in each case on the New York Stock Exchange Consolidated Tape
(or any successor composite tape reporting transactions on national
securities exchanges), or, if the common shares are not listed or admitted to
trading on such Exchange, on the principal national securities exchange on
which the common shares are listed or admitted to trading (which shall be the
national securities exchange on which the greatest number of common shares
have been traded during the five consecutive Trading Dates ending on and
including the date of determination of the Current Market Price), or, if not
listed or admitted to trading on any national securities exchange, the
average of the closing bid and asked prices of the common shares on the over-
the-counter market on the day in question as reported by the National
Association of Securities Dealers Automated Quotation System, or a similarly
generally accepted reporting service, or if not so available as determined in
good faith by the Board of Directors, on the basis of such relevant factors
as it in good faith considers, in the reasonable judgment of the Board of
Directors, appropriate;
(iii) the term "Exchange Date" shall mean the date upon
which an exchange of Series A Preferred Shares pursuant to paragraph (4)(a),
(4)(b) or (4)(c) shall become effective, which (x) in the case of an exchange
pursuant to paragraph (4)(a) shall be the Final Exchange Date, (y) in the
case of an exchange pursuant to paragraph (4)(b) shall be the Settlement Date
and (z) in the case of an exchange pursuant to paragraph (4)(c) shall, with
respect to the shares to be so exchanged, be the date specified as the
Exchange Date in the notice with respect thereto provided pursuant to
paragraph (4)(i), provided that in each case the Exchange Date shall not be
deemed to have occurred unless and until the Company shall have deposited
with the Exchange Agent (as hereinafter defined) common shares, funds and
such other property as may be deliverable upon such exchange sufficient to
effect such exchange as contemplated by paragraph (4)(j).
(iv) the term "Notice Date" with respect to any notice
given by the Company in connection with an exchange of any of the Series A
Preferred Shares shall be the commencement of the mailing of such notice to
the holders of Series A Preferred Shares in accordance with paragraph (4)(i);
(v) the term "Optional Exchange Price" shall mean the
per share price (payable in common shares) at which the Company may exchange
common shares (and/or other property as provided in this paragraph (4)) for
Series A Preferred Shares pursuant to paragraph (4)(c) hereof, which shall be
initially equal to $257.00, declining by $.018851 on each day following the
date of issuance of the Series A Preferred Shares (computed on the basis of
a 360-day year of twelve 30-day months) to $237.13 on February 1, 1995 and
equal to $236.00 thereafter, in each case determined with reference to the
Exchange Date for such exchange;
(vi) the term "Trading Date" shall mean a date on which the
New York Stock Exchange (or any successor to such Exchange) is open for the
transaction of business.
(i) Notice of Exchange. The Company will provide notice of any
exchange (including any potential exchange to be effected pursuant to
paragraph (4)(b) but excluding, except as provided in the last sentence of
this paragraph (4)(i), the mandatory exchange required to be effected
pursuant to paragraph (4)(a)) of Series A Preferred Shares to holders of
record of the Series A Preferred Shares to be exchanged not less than 30 nor
more than 60 days prior to the date fixed for such exchange, as the case may
be; provided, however, that if the timing of the effectiveness of a Merger or
Consolidation makes it impracticable to provide at least 30 days' notice, the
Company shall provide such notice as soon as practicable prior to such
effectiveness. Such notice shall be provided by mailing notice of such
exchange first class postage prepaid, to each holder of record of the Series
A Preferred Shares to be exchanged, at such holder's address as it appears on
the stock register of the Company; provided, however, that no failure to give
such notice nor any defect therein shall affect the validity of the
proceeding for the exchange of any Series A Preferred Shares to be exchanged.
Each such notice shall state, as appropriate, the following:
(i) the Exchange Date;
(ii) that all outstanding Series A Preferred Shares are to
be exchanged or, in the case of an exchange of fewer than all outstanding
Series A Preferred Shares pursuant to paragraph (4)(c), the number of such
shares held by such holder to be exchanged;
(iii) in the case of an exchange pursuant to paragraph
(4)(c), the Optional Exchange Price, the number of common shares deliverable
upon exchange of each Series A Preferred Share to be exchanged and the
Current Market Price used to calculate such number of common shares, subject
to any subsequent adjustments pursuant to paragraph (4)(d);
(iv) whether the Company is exercising any option to deliver
common shares in lieu of cash (and, in the case of an exchange pursuant to
paragraph (4)(b), the Current Market Price to be used to calculate the number
of such common shares) and, if the Company is exercising such option in
respect of less than all the cash that is deliverable by the Company upon
such exchange, the portion of such cash in lieu of which common shares will
be delivered;
(v) the place or places where certificates representing such
Series A Preferred Shares are to be surrendered for exchange; and
(vi) that dividends on the Series A Preferred Shares to be
exchanged will cease to accrue on such Exchange Date.
In the event that, with respect to the exchange of Series A Preferred
Shares pursuant to paragraph (4)(a), the Company determines that the accrued
and unpaid dividends on the Series A Preferred Shares that are to be paid
upon such exchange will be required to be paid in whole or in part in common
shares as provided in paragraph (4)(a)(ii), the Company shall give notice
thereof no later than ten days prior to the Final Exchange Date to the
holders of record of the Series A Preferred Shares; provided, however, that
no failure to give such notice nor any defect therein shall affect the
validity of the proceeding for the exchange of Series A Preferred Shares
pursuant to paragraph (4)(a).
(j) Deposit of Shares and Funds. The Company's obligation to
deliver common shares and provide funds (or other property, as contemplated
by paragraphs (4)(b) and (4)(d)(iv)) upon an exchange of the Series A
Preferred Shares in accordance with this paragraph (4) shall be deemed
fulfilled if, on or before the Exchange Date for such exchange, the Company
shall deposit, with a bank or trust company, or an affiliate of a bank or
trust company, having an office or agency in New York City and having a
capital and surplus of at least $50,000,000 (the "Exchange Agent"), such
number of common shares and/or such other property as are required to be
delivered by the Company pursuant to this paragraph (4) upon the occurrence
of such exchange (including any payment in respect of fractional share
amounts pursuant to paragraph (4)(f)(i)) together with funds (or, to the
extent required or permitted by paragraphs (4)(a) or (4)(b), as applicable,
common shares, other property and/or funds) sufficient to pay all accrued and
unpaid dividends (subject to the rights of any holder pursuant to paragraph
(4)(m) below) on the Series A Preferred Shares to be exchanged as required by
this paragraph (4) (the "Exchange Consideration"), in trust for the account
of the holders of the shares to be exchanged (and so as to be and continue to
be available therefor), with instructions and authority to the Exchange Agent
that such shares, funds and/or other property be applied solely to the
exchange of the Series A Preferred Shares subject to such exchange. Any
interest accrued on such funds shall be paid to the Company from time to
time. Any common shares, funds and/or other property so deposited and
unclaimed at the end of two years from such Exchange Date shall be repaid and
released to the Company, after which the holder or holders of such Series A
Preferred Shares so exchanged shall look only to the Company for delivery of
such common shares, funds and/or other property.
(k) Exchange of Certificates; Status. Upon an Exchange Date,
dividends shall cease to accrue on any Series A Preferred Shares subject to
exchange on such Exchange Date, such Series A Preferred Shares shall no
longer be deemed outstanding, all rights of the holders thereof as
shareholders of the Company shall cease and thereupon the certificate or
certificates theretofore representing such Series A Preferred Shares shall
represent only the right to receive the Exchange Consideration payable in
respect thereof. From and after the Exchange Date, each holder of a
certificate which immediately prior to the Exchange Date represented
outstanding Series A Preferred Shares subject to such exchange shall be
entitled to receive in exchange therefor, upon and only upon surrender
thereof to an Exchange Agent, a certificate or certificates representing the
number of whole common shares included in the Exchange Consideration and a
check representing any cash amount included in the Exchange Consideration
plus any cash amount payable pursuant to paragraph (4)(f) in lieu of any
fractional share included in the Exchange Consideration and any other
property included in the Exchange Consideration as a result of any adjustment
provided for in paragraph (4)(d)(iv). In the event that fewer than all
Series A Preferred Shares represented by such surrendered certificate are
subject to such exchange, a new certificate shall be issued at the expense of
the Company representing the Series A Preferred Shares not so exchanged. No
interest will be payable with respect to any Exchange Consideration. No
holder of a certificate or certificates which immediately prior to the
Exchange Date represented outstanding Series A Preferred Shares shall be a
holder of the common shares issuable in exchange therefor, or have any rights
as a holder of such common shares, including without limitation voting rights
or the right to receive any dividend or other distribution from the Company
with respect to any such common shares, until surrender of such certificate
or certificates that prior to the Exchange Date represented Series A
Preferred Shares for a certificate or certificates representing such common
shares; provided that, upon such surrender, there shall be paid to the
holder, with respect to the number of whole common shares issued upon such
surrender, an amount equal to any dividends or other distributions (without
interest) theretofore payable to the holders of common shares as of any
record date on or after the Exchange Date, but which were not paid to such
holder in respect of such common shares by reason of the failure to deliver
certificates that represented Series A Preferred Shares. The Company shall
not be liable to any holder of Series A Preferred Shares for any common
shares (or dividends or distributions with respect thereto), cash in lieu of
fractional shares or other cash amounts or any other property included in the
Exchange Consideration which is delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
(l) Agreement of Holders. By purchasing or otherwise acquiring
Series A Preferred Shares, the holders thereof irrevocably consent to and
agree with the Company to the exchange and repurchase of such Series A
Preferred Shares upon the Final Exchange Date or any earlier Exchange Date
upon the terms and subject to the conditions set forth in this paragraph (4).
The holders of the Series A Preferred Shares further agree to accept from the
Company, as full payment, discharge and satisfaction of the obligations of
the Company with respect to the Series A Preferred Shares, the Exchange
Consideration delivered by the Company in exchange for the Series A Preferred
Shares in accordance with the terms of this paragraph (4). The foregoing
agreements of the holders of Series A Preferred Shares constitute a contract
between the Company and each holder of Series A Preferred Shares, enforceable
against the Company and each such holder in accordance with the terms hereof.
(m) Dividend Payments. The holders of Series A Preferred Shares at
the close of business on a dividend record date shall be entitled to receive
the dividend payable on such shares on the corresponding Dividend Payment
Date; provided, however, that, with respect to shares subject to exchange on
an Exchange Date occurring between such record date and the Dividend Payment
Date, that portion of the accrued and unpaid dividends on such shares which
is included in the dividend payable on such Dividend Payment Date shall be
paid on such Exchange Date to the holders of record of such shares on such
record date, and the holders of such shares on the Exchange Date which were
not holders of record of such shares on such record date shall not be
entitled to such portion of the accrued and unpaid dividends on such shares
as a part of the Exchange Consideration payable upon exchange of such shares.
(n) Payment of Taxes. The Company will pay any and all
documentary, stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of common shares or other securities on the exchange of
Series A Preferred Shares pursuant to this paragraph (4); provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any registration of transfer involved in the issue or delivery of
common shares or other securities in a name other than that of the registered
holder of Series A Preferred Shares exchanged or to be exchanged, and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Company the amount of any such tax or has established,
to the satisfaction of the Company, that such tax has been paid.
(o) Allocation of Stated Capital. Upon the issuance of and
receipt of payment for the Series A Preferred Shares, the Company shall
allocate to the stated capital of the Series A Preferred Shares $2.00 per
Series A Preferred Share so issued (which amount shall be in addition to the
stated capital represented by the par value of the Series A Preferred
Shares). Upon any Exchange Date, the Company shall reserve available capital
or earned surplus for allocation to stated capital for the common shares
issuable with respect to the Series A Preferred Shares exchanged on such
Exchange Date to the extent that the stated capital of any Series A Preferred
Shares cancelled in such exchange is less than the aggregate par value of the
common shares issuable in such exchange.
(5) Dissolution Preference. (a) In the event of any liquidation,
dissolution, or winding up (hereinafter "Dissolution") of the Company,
whether voluntary or involuntary, before any payment or distribution of the
assets of the Company (whether capital or surplus) shall be made to or set
apart for the holders of any Junior Securities which rank junior with respect
to Dissolution, the holders of the Series A Preferred Shares shall be
entitled to receive for each share $172.00 plus an amount equal to all
dividends (whether or not earned or declared) accrued and unpaid thereon to
the date of final distribution to such holders (subject to the right of the
holders of record of any Series A Preferred Shares on a record date for
payment of dividends thereon to receive such dividend on the date of final
distribution), determined by adding (i) dividends accrued and unpaid for any
Dividend Period preceding the Dividend Period in which the date of final
distribution falls plus (ii) the product of (A) 8.721% times (B) a fraction,
the numerator of which is the number of days elapsed from (and including) the
first day of the Dividend Period in which the date of final distribution
falls, to (but not including) the date of final distribution, on the basis of
30-day months, and the denominator of which is 360 times (C) $172.00; but
such holders shall not be entitled to any further payment. If, upon any
Dissolution of the Company, the assets of the Company, or proceeds thereof,
distributable among the holders of the Series A Preferred Shares and any
Parity Securities which rank on a parity with respect to Dissolution shall be
insufficient to pay in full the preferential amount aforesaid and Dissolution
payments on any such Parity Securities, then such assets, or the proceeds
thereof, shall be distributed among the holders of Series A Preferred Shares
and any such Parity Securities ratably in accordance with the respective
amounts which would be payable on such Series A Preferred Shares and any such
Parity Securities if all amounts payable thereon were paid in full. For the
purposes of this paragraph (5), a sale, lease, exchange or other disposition
of all or substantially all of the property and assets of the Company, or a
consolidation or merger of the Company with one or more corporations, shall
not be deemed to be a Dissolution.
(b) Subject to the rights of the holders of Senior Securities
which rank senior with respect to Dissolution and Parity Securities which
rank on a parity with respect to Dissolution, upon any Dissolution of the
Company, after payment shall have been made in full to the Series A Preferred
Shares and any Parity Securities which rank on a parity with respect to
Dissolution as provided in this paragraph (5), but not prior thereto, any
Junior Securities which rank junior with respect to Dissolution shall,
subject to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed,
and the Series A Preferred Shares and any such Parity Securities shall not be
entitled to share therein.
(6) Voting Rights. (a) The holders of record of Series A Preferred
Shares shall not be entitled to any voting rights except as hereinafter
provided in this paragraph (6) or as otherwise required by law. The holders
of Series A Preferred Shares shall be entitled to vote on all matters
submitted to a vote of the holders of common shares, voting together with the
holders of common shares (and any other securities upon which like voting
rights have been conferred and are then exercisable) as one class. Each
Series A Preferred Share shall be entitled to one vote per share, without
regard to the Common Equivalent Rate or any adjustments thereto. At
elections for directors as aforesaid, each holder of Series A Preferred
Shares shall be entitled to vote cumulatively in accordance with Article 3.5
of the Restated Certificate of Incorporation, as amended, of the Company as
to the directors to be elected by such holders voting together with the
holders of common shares and any other securities upon which like voting
rights have been conferred and are then exercisable.
(b) (i) If at any time or times dividends payable on the
Series A Preferred Shares shall be in arrears and unpaid in an amount equal
to the dividends payable for six quarterly periods, then the number of
directors constituting the Board of Directors, without further action, shall
be increased by two (2) and the holders of Series A Preferred Shares shall
have the right, voting separately as a class with holders of any Parity
Securities upon which like voting rights have been conferred and are then
exercisable, to elect the directors of the Company to fill such newly created
directorships, the remaining directors to be elected by the other class or
classes of shares entitled to vote therefor, at each meeting of shareholders
held for the purpose of electing directors. While holders of Series A
Preferred Shares are entitled to elect two directors, they shall not be
entitled to participate with the holders of common shares in the election of
any other directors, but shall continue to be entitled to vote with the
holders of common shares upon each other matter coming before any meeting of
the shareholders.
(ii) Such directors shall be elected for terms expiring
at the next succeeding annual meeting of shareholders or until their
respective successors are elected and qualified, unless such terms are sooner
terminated as provided in this paragraph (6). The right of the holders of
the Series A Preferred Shares, voting separately as a class, to elect (either
alone or together with the holders of any Parity Securities) members of the
Board of Directors of the Company as aforesaid shall continue until such time
as all dividends in arrears and unpaid on the Series A Preferred Shares shall
have been paid in full or set aside for payment by the Company, at which time
such right shall terminate, except as herein or by law expressly provided,
subject to revesting in the event of each and every subsequent failure to pay
dividends in the aggregate amount specified above. Any such director may be
removed from office, with or without cause, only by vote of holders of the
Series A Preferred Shares voting as a class with holders of any Parity
Securities upon which like voting rights have been conferred and are then
exercisable, and by such vote as may be required by law.
(iii) At elections for directors as aforesaid, each holder
of Series A Preferred Shares shall be entitled to vote cumulatively in
accordance with Article 3.5 of the Restated Certificate of Incorporation, as
amended, of the Company as to the directors to be elected by such holders
voting as a class with the holders of any Parity Securities upon which like
voting rights have been conferred and are then exercisable (the holders of
any Parity Securities being entitled to the number of votes, if any, for each
share held as may be granted to them).
(iv) Upon any termination of the right of the holders of
the Series A Preferred Shares voting as a class (together with Parity
Securities upon which like voting rights have been conferred and are then
exercisable) to vote for directors as herein provided, the term of office of
all directors then in office elected by the holders of Series A Preferred
Shares and such Parity Securities so voting shall terminate immediately.
Upon such termination the number of directors constituting the Board of
Directors shall, without further action, be reduced by two (2). If the
office of any director elected as herein provided becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office, or
otherwise, the remaining director elected by the holders of the Series A
Preferred Shares voting as a class as herein provided, may choose a successor
who shall hold office for the unexpired term in respect of which such vacancy
occurred.
(c) So long as any Series A Preferred Shares remain outstanding,
the consent of the holders of at least two-thirds of the Series A Preferred
Shares outstanding at the time (voting separately as a class together with
all other Parity Securities upon which like voting rights have been conferred
and are then exercisable by the terms of such Parity Securities with respect
to such matters) given in person or by proxy, either in writing or at any
special or annual meeting called for the purpose, shall be necessary to
permit, effect or validate any one or more of the following:
(i) the authorization, creation or issuance, or any
increase in the authorized or issued amount, of any Senior Securities; or
(ii) the amendment, alteration or repeal of any of the
provisions of the Restated Certificate of Incorporation, as amended, in any
manner which would materially and adversely affect any right, preference,
privilege or voting power of the Series A Preferred Shares or of the holders
thereof; provided, however, that any increase in the amount of authorized
preferred shares or the creation and issuance of Parity Securities or Junior
Securities shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers; provided, further, that the
creation of a class or series of shares entitled to vote as a class together
with the Series A Preferred Shares on the matters stated in paragraphs 6(b)
or 6(c) and having a voting power greater than one vote for each $100 of
Dissolution preference (exclusive of accrued and unpaid dividends) shall be
deemed to materially and adversely affect the voting power of the Series A
Preferred Shares.
(d) So long as any Series A Preferred Shares remain outstanding,
the consent of the holders of at least a majority of the Series A Preferred
Shares outstanding at the time (voting separately as a class together with
all other Parity Securities upon which like voting rights have been conferred
and are then exercisable) given in person or by proxy, either in writing or
at any special or annual meeting called for the purpose, shall be necessary
to effect the merger or consolidation of the Company with or into any other
corporation, if and only if the plan of merger or consolidation contains any
provision which, if contained in an amendment to the Company's Restated
Certificate of Incorporation, as amended, would entitle the holders of shares
of such class or series to vote as a class thereon.
(e) The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of the Series
A Preferred Shares shall have been exchanged in accordance with paragraph (4)
hereof.
(7) Savings Provision. If any term or provision hereof is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms and provisions hereof shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
3.3 Common Shares. The holders of common shares, subject to law and to
the rights of the preferred shares, shall have the exclusive right to vote
for the election of directors and on all other matters requiring shareholder
action, each common share being entitled to one vote.
3.4 Preemptive Rights. The holders of shares of the Corporation shall
have no preemptive rights to purchase any shares or any other securities of
the Corporation.
3.5 Cumulative Voting. At all elections for directors of the
Corporation, each shareholder entitled to vote for the election of directors
shall be entitled to as many votes as shall equal the number of shares owned
by said shareholder multiplied by the number of directors to be elected. A
shareholder may cast all of such votes for a single director or may
distribute them among the number to be voted for or any two or more of them.
3.6 Share Distributions. The board of directors may from time to time
authorize the distribution of shares of any class or series to the holders of
the same or of any other class or series of shares.
4. BYLAWS
The board of directors may adopt, amend or repeal the bylaws of the
Corporation.
5. DIRECTORS
5.1 Number of Directors. The number of directors of the Corporation
shall be fixed and may from time to time be increased or decreased by the
board of directors, but in no event shall the number of directors be less
than 9 or more than 30.
5.2 Classified Directors. Notwithstanding anything to the contrary in
the by-laws, the directors shall be classified with respect to the time for
which they severally hold office into three classes, as nearly equal in
number as possible, with each director in each class to hold office until his
or her successor is elected and qualified. At the annual meeting held in
1988, the three classes of directors shall be elected to serve terms expiring
in 1989, 1990 and 1991, respectively. At each annual meeting of shareholders
beginning with the meeting to be held in 1989, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the annual meeting of shareholders to be held in the
third year following the year of their election, with each director in each
such class to hold office until his or her successor is elected and
qualified. Any newly created directorship or any decrease in directorships
shall be so apportioned among the classes as to make all classes as nearly
equal in number as possible. When the number of directors is increased by
the board and any newly created directorships are filled by the board, there
shall be no classification of the additional directors until the next annual
meeting of shareholders.
5.3 Vacancies. Any vacancies on the board of directors may be filled by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the board of directors. No decrease in the
number of directors constituting the board of directors shall shorten the
term of any incumbent director.
5.4 Removal. Any director may be removed from office only for cause and
only by the affirmative vote of at least 75% of the shares entitled to vote.
5.5 Preferred Shares. Notwithstanding the foregoing, whenever the
holders of any one or more series of preferred shares issued by the
Corporation shall have the right to vote separately by series to elect
directors at an annual or special meeting of shareholders, the election,
terms of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Restated Certificate of
Incorporation applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Article 5 unless expressly provided by
such terms.
5.6 Required Vote. Notwithstanding anything contained in this
certificate to the contrary, the affirmative vote of a least 75% of the
shares entitled to vote shall be required to alter, amend or repeal, or adopt
any provision inconsistent with, this Article 5, or to fix (including by
increase or decrease) the number of directors of the Corporation by vote of
the Corporation's shareholders.
6. MISCELLANEOUS
6.1 Office. The office of the Company it to be located in the County of
Westchester of the State of New York.
6.2 Service of Process. The Secretary of State of New York is designated
as an agent of the Corporation upon whom process against the Corporation may
be served in any action or proceeding against it within the State of New
York. The post office address to which the Secretary of State shall mail a
copy of any process against the Corporation served upon him is Sears, Roebuck
and Co., 3333 Beverly Road, Hoffman Estates, Illinois 60179-0002, Attention:
Secretary.
7. LIMITATION
A director shall not be personally liable to the Corporation or its
shareholders for damages for any breach of duty in such capacity, unless a
judgement or other final adjudication adverse to him or her establishes that
his or her acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law, or that he or she personally gained
in fact a financial profit or other advantage to which he or she was not
legally entitled, or that his or her acts violated Section 719 of the New
York Business Corporation Law. The foregoing sentence shall not eliminate or
limit the liability of any director for any act or omission occurring prior
to the adoption of this Article
7. If the New York Business Corporation Law is amended after adoption of this
Article by the shareholders to authorize corporations to further limit
director liability, this Article shall be construed to limit director
liability to the fullest extent permitted by the New York Business
Corporation Law as so amended. No amendment to or repeal of this Article 7,
and no modification to its provisions, shall apply to, or have any effect
upon, the liability or alleged liability of any director with respect to any
acts or omissions of such director prior to such amendment, repeal or
modification.
Exhibit 3. (ii)
Sears, Roebuck and Co.
By-Laws
As Amended to
February 6, 1996
Article I
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of the shareholders
shall be held at such place within or without the State of New York as shall
be fixed by the Board of Directors from time to time.
Section 2. Annual Meetings. The annual meeting of the
shareholders for the election of directors and for the transaction of such
other business as may properly be brought before the meeting shall be held at
such time as is specified in the notice of the meeting on either the second
Wednesday in May of each year or on such other date as may be fixed by the
Board of Directors prior to the giving of the notice of such meeting. The
Board of Directors acting by resolution may postpone and reschedule any
previously scheduled annual meeting of shareholders.
Nominations of persons for election to the Board of Directors of the
Company and the proposal of business to be considered by the shareholders may
be made at an annual meeting of shareholders (a) pursuant to the Company's
notice of meeting, (b) by or at the direction of the Board of Directors or
(c) by any shareholder of the Company who was a shareholder of record at the
time of giving of notice provided for in this By-Law, who is entitled to vote
at the meeting and who complied with the notice procedures set forth in this
By-Law.
For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of the foregoing
paragraph of this By-Law, the shareholder must have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the Company not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the shareholder to be timely must be so delivered
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public announcement of the
date of such meeting is first made. Such shareholder's notice shall set
forth (a) as to each person whom the shareholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (b) as to
any other business that the shareholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such shareholder and the beneficial owner, if
any, on whose behalf the proposal is made; (c) as to the shareholder giving
the notice and the beneficial owner, if any, on whose behalf the nomination
or proposal is made (i) the name and address of such shareholder, as they
appear on the Company's books, and of such beneficial owner and (ii) the
class and number of shares of the Company which are owned beneficially and of
record by such shareholder and such beneficial owner.
Notwithstanding anything in the second sentence of the preceding
paragraph to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Company is increased and there is no
public announcement naming all of the nominees for Director or specifying the
size of the increased Board of Directors made by the Company at least 70 days
prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this By-Law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal
executive offices of the Company not later than the close of business on the
10th day following the day on which such public announcement is first made by
the Company.
Only such persons who are nominated in accordance with the procedures
set forth in these By-Laws shall be eligible to serve as directors and only
such business shall be conducted at an annual meeting of shareholders as
shall have been brought before the meeting in accordance with the procedures
set forth in this By-Law. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set
forth in this By-Law and, if any proposed nomination or business is not in
compliance with this By-Law, to declare that such defective proposal shall be
disregarded.
For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Company with the Securities and Exchange Commission
pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this By-Law, a
shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-Law. Nothing in this By-Law shall be deemed to
affect any rights of shareholders to request inclusion of proposals in the
Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 3. Special Meetings. Special meetings of the
shareholders for any purpose or purposes shall be called to be held at any
time upon the request of the Chairman of the Board of Directors, the
President or a majority of the members of the Board of Directors or of the
Executive Committee then in office. Business transacted at all special
meetings shall be confined to the specific purpose or purposes of the persons
authorized to request such special meeting as set forth in this Section 3 and
only such purpose or purposes shall be set forth in the notice of such
meeting. The Board of Directors acting by resolution may postpone and
reschedule any previously scheduled special meeting of shareholders.
Nominations of persons for election to the Board of Directors may be
made at a special meeting of shareholders at which directors are to be
elected (a) pursuant to the Company's notice of meeting (b) by or at the
direction of the Board of Directors or (c) by any shareholder of the Company
who is a shareholder of record at the time of giving of notice provided for
in this By-Law, who shall be entitled to vote at the meeting and who complies
with the notice procedures set forth in this By-Law. Nominations by
shareholders of persons for election to the Board of Directors may be made at
such a special meeting of shareholders if the shareholder's notice required
by the third paragraph of Section 2 of Article I of these By-Laws shall be
delivered to the Secretary at the principal executive offices of the Company
not earlier than the 90th day prior to such special meeting and not later
than the close of business on the later of the 60th day prior to such special
meeting or the 10th day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
Only such persons who are nominated in accordance with the procedures
set forth in these By-Laws shall be eligible to serve as directors and only
such business shall be conducted at a special meeting of shareholders as
shall have been brought before the meeting in accordance with the procedures
set forth in this By-Law. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set
forth in this By-Law and, if any proposed nomination or business is not in
compliance with this By-Law, to declare that such defective proposal shall be
disregarded.
Notwithstanding the foregoing provisions of this By-Law, a
shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-Law. Nothing in this By-Law shall be deemed to
affect any rights of shareholders to request inclusion of proposals in the
Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 4. Notice of Meetings. Written notice of the time,
place, and purpose or purposes of each annual and special meeting of
shareholders shall be signed by the Secretary and served by mail upon each
shareholder of record entitled to vote at such meeting not less than ten nor
more than fifty days before the date of the meeting. Notice of an annual or
special meeting of shareholders shall be deemed to be served when deposited
in the United States mail, postage prepaid, addressed to each shareholder at
his address as it appears on the stock records of the Company or at such
other address as he may have filed with the Secretary of the Company for such
purpose.
Section 5. Quorum. At any meeting of the shareholders, the
holders of record of one-third of the total number of shares of the Company
entitled to vote, present in person or represented by proxy, shall constitute
a quorum for the purpose of transacting business.
Section 6. Organization and Adjournment. The Chairman of the
Board of Directors or in the Chairman's absence, the President, or, if both
of such officers are absent, an officer designated by the Executive
Committee, shall act as chairman of the meeting. The Secretary, or in the
Secretary's absence an Assistant Secretary, or if neither the Secretary nor
any Assistant Secretary be present, any person designated by the chairman of
the meeting, shall act as secretary of the meeting. Any annual or special
meeting of shareholders may be adjourned by the chairman of the meeting or
pursuant to resolution of the Board of Directors without notice other than by
announcement at the meeting. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted at
the meeting as originally convened.
Section 7. Voting. At each meeting of the shareholders, each
holder of shares entitled to vote at such meeting shall be entitled to vote
in person or by proxy appointed by an instrument in writing signed by such
shareholder or by the shareholder's duly authorized attorney and, except as
provided in the Certificate of Incorporation of the Company with respect to
cumulative voting, shall have one vote for each share standing in the
shareholder's name on the books of the Company upon each matter submitted to
a vote at the meeting. The vote upon the election of directors shall be by
ballot. If a quorum is present at any meeting of shareholders, the vote of
the holders of a majority of the shares cast by the holders of shares
entitled to vote on the matter shall be sufficient for the transaction of any
business, except that directors shall be elected by a plurality of shares
cast by the holders of shares entitled to vote in the election, unless, in
either case, otherwise provided by law or by the Certificate of
Incorporation.
Section 8. Inspectors of Election. Prior to each meeting of
shareholders, the Board of Directors shall appoint three Inspectors, who
shall not be directors or officers of the Company or candidates for the
office of director. Such Inspectors shall count and report to the meeting
the votes cast on all matters submitted to a vote at such meeting. In the
case of failure of the Board of Directors to make such appointments, or in
the case of failure of any Inspector so appointed to act, the chairman of the
meeting shall make such appointments or fill such vacancies; provided,
however, that if any shareholder shall demand an election, such Inspector or
Inspectors shall be elected by the votes cast in person or by proxy of the
holders of record of a plurality of the shares voted at the meeting and the
chairman of the meeting shall conduct such an election. Each Inspector shall
be entitled to a reasonable compensation from the Company for his services.
The Inspectors appointed to act at any meeting of the shareholders, before
entering upon the discharge of their duties, shall be sworn faithfully to
execute the duties of Inspectors at such meeting with strict impartiality and
according to the best of their ability, and the oath so taken shall be
subscribed by them.
Article II
BOARD OF DIRECTORS
Section 1. Number, Qualification and Term of Office. The
business of the Company shall be managed under the direction of a Board of
Directors, each of whom shall be at least 18 years of age. The number of
directors of the Company shall be fixed and may from time to time be
increased or decreased by the Board of Directors, but in no event shall the
number of directors be less than 9 or more than 30.
Section 2. Vacancies. Any vacancies on the Board of Directors
may be filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 3. Resignations. Any director may resign at any time
by giving written notice to the Chairman of the Board of Directors, or to the
President, or to the Secretary of the Company. Such resignation shall take
effect on the date of receipt of such notice unless a later effective date is
specified therein. The acceptance of such resignation by the Board of
Directors shall not be necessary to make it effective.
Section 4. Place of Meetings. The Board of Directors may hold
its meetings at such place or places, within or without the State of New
York, as the Board of Directors may from time to time determine or as may be
specified in the notice of any meeting.
Section 5. Annual Meetings. A meeting of the Board of
Directors to be known as the annual meeting of the Board of Directors shall
be held following the meeting of the shareholders at which such Board of
Directors is elected, at such place as shall be fixed by the Board of
Directors, for the purpose of electing the officers of the Company and the
committees of the Board of Directors, and of transacting such other business
as may properly come before the meeting. It shall not be necessary to give
notice of this meeting.
Section 6. Other Meetings. Meetings of the Board of Directors
shall be held on such dates as from time to time may be determined by the
Board of Directors or whenever called upon the direction of the Chairman of
the Board of Directors or of the President or by the Secretary upon the
written request of one-third of the directors in office, which request shall
state the date, place and purpose of such meeting.
Section 7. Notice of Meetings. Written, telephonic,
telegraphic or facsimile transmission notice of each meeting except the
annual meeting shall be given by the Secretary to each director, by personal
delivery, by telephone, or by regular or express mail, or telegram or
facsimile transmission addressed to the director at his or her usual business
address, or to the address where the director is known to be, at least three
days (excluding Saturdays, Sundays, and holidays) prior to the meeting in
case of notice by regular mail and at least three hours prior to the meeting
in case of notice by personal delivery, express mail, telephone, telegram, or
facsimile transmission. All notices which are given by regular mail shall be
deemed to have been given when deposited in the United States mail, postage
prepaid. Any director may waive notice of any meeting, and the attendance of
a director at any meeting shall constitute a waiver of notice of such
meeting. Any and all business may be transacted at any meeting and the
purpose thereof need not be specified in the notice or waiver of notice of
such meeting.
Section 8. Organization, Quorum, Written Consents and Meetings
by Telephone or Similar Equipment. Unless the Board of Directors shall by
resolution otherwise provide, the Chairman of the Board of Directors, or in
the Chairman's absence, the President, or, if both of such officers are
absent, a director chosen by a majority of the directors present, shall act
as chairman at meetings of the Board of Directors; and the Secretary, or in
the Secretary's absence an Assistant Secretary, or in the absence of an
Assistant Secretary, such person as may be designated by the chairman of the
meeting, shall act as secretary at such meetings.
A majority of the directors in office at the time (but not less than
one-third of the entire Board of Directors) shall constitute a quorum
necessary for the transaction of business, and, except as otherwise provided
in these By-Laws, the action of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board of Directors a quorum is not
present, a majority of the directors present may adjourn the meeting from
time to time.
Any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all
members of the Board of Directors or the committee consent in writing to the
adoption of a resolution authorizing the action. The resolution and the
written consent thereto by the members of the Board of Directors or committee
shall be filed with the minutes of the proceedings of the Board of Directors
or committee.
Any one or more members of the Board of Directors or any committee
thereof may participate in a meeting of such Board of Directors or committee
by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the
same time. Participation by such means shall constitute presence in person
at a meeting.
Section 9. Compensation. Each director not an officer of the
Company, or of any subsidiary or affiliated company, may receive such
compensation for his or her services as a director and as a committee member
as shall be fixed from time to time by resolution of the Board of Directors
and shall be reimbursed for expenses of attendance at meetings of the Board
of Directors and of any committee of which he or she is a member.
Article III
COMMITTEES
Section 1. Creation and Organization. The Board of Directors,
at its annual meeting, or any adjournment thereof, shall, or at any other
meeting may, elect from among its members, by the vote of a majority of its
members, an Audit Committee, a Compensation Committee, an Executive
Committee, a Nominating Committee and a Public Issues Committee, which shall
be the standing committees of the Board of Directors, and such other
committees as shall be determined by the Board of Directors. The Board of
Directors also shall designate the chairman of each such committee.
The Secretary of the Company shall act as secretary of each committee
meeting, or in the Secretary's absence, an Assistant Secretary shall act as
secretary thereof, or in the absence of an Assistant Secretary, any person as
may be designated by the chairman of the committee shall act as secretary of
the meeting and keep the minutes of such meeting.
The Board of Directors, by the vote of a majority of its members, may
remove the chairman or any member of any committee, and may fill from among
the directors vacancies in any committee caused by the death, resignation, or
removal of any person elected thereto.
Each committee may determine its own rules of procedure, consistent
with these By-Laws. Meetings of any committee may be called upon direction
of the Chairman of the Board of Directors, the President, or the chairman of
the committee. Notice of each meeting shall be given to each member of the
committee, by personal delivery, telephone, telegram, facsimile transmission,
or regular or express mail addressed to the member at his or her usual
business address, or to the address where the member is known to be, at least
three days (excluding Saturdays, Sundays, and holidays) prior to the meeting
in case of notice by regular mail, and at least three hours prior to the
meeting in case of notice by personal delivery, express mail, telephone,
telegram, or facsimile transmission. All notices which are given by regular
mail shall be deemed to have been given when deposited in the United States
mail, postage prepaid. Notice of meetings of any committee may be waived by
any member of the committee. At meetings of each committee, the presence of
a majority of such committee shall be necessary to constitute a quorum for
the transaction of business, and, if a quorum is present at any meeting, the
action taken by a majority of the members present shall be the act of the
committee. Each committee shall keep a record of its acts and proceedings,
and all action shall be reported to the Board of Directors at the next
meeting of the Board of Directors following such action. Each committee
shall annually consider whether amendments to the section of Article III of
these By-Laws relating to the composition and function of such committee
appear to be in the best interests of the Company. Each committee shall
report on such recommendations to the Board of Directors at its first regular
meeting each year and each committee except the Nominating Committee shall
report on such recommendations to the Nominating Committee annually no later
than October.
Section 2. Executive Committee. The Executive Committee shall
consist of the Chairman of the Board of Directors and of such number of other
directors, a majority of whom shall not be officers or employees of the
Company or its affiliates, not less than four, as shall from time to time be
prescribed by the Board of Directors.
The Executive Committee, unless otherwise provided by resolution of
the Board of Directors, shall between meetings of the Board of Directors have
all the powers of the Board of Directors and may perform all of the duties
thereof, except that the Executive Committee shall have no authority as to
the following matters: (i) submission to shareholders of any action that
requires shareholders' authorization under the New York Business Corporation
Law; (ii) compensation of directors; (iii) amendment or repeal of these By-
Laws or the adoption of new By-Laws; (iv) amendment or repeal of any
resolution of the Board of Directors that by its terms may not be so amended
or repealed; (v) action in respect of dividends to shareholders; (vi)
election of officers, directors or members of committees of the Board of
Directors. Any action taken by the Executive Committee shall be subject to
revision or alteration by the Board of Directors, provided that rights or
acts of third parties vested or taken in reliance on such action prior to
their receipt of written notice of any such revision or alteration shall not
be adversely affected by such revision or alteration.
Section 3. Audit Committee. The Audit Committee shall consist
of such number of directors, who shall not be officers or employees of the
Company or any of its affiliates, not less than three, as shall from time to
time be prescribed by the Board of Directors.
The Audit Committee shall review, with management, the Company's
independent public accountants and its internal auditors, upon completion of
the audit, the annual financial statements of the Company, the independent
public accountants' report thereon, the other relevant financial information
to be included in the Company's Annual Report on Form 10-K and its annual
report to shareholders. After such review, the Committee shall report
thereon to the Board of Directors.
The Audit Committee shall: (1) review recommendations made by the
Company's independent public accountants and internal auditors to the Audit
Committee or the Board of Directors with respect to the accounting methods
and the system of internal control used by the Company, and shall advise the
Board of Directors with respect thereto; (2) examine and make recommendations
to the Board of Directors with respect to the scope of audits conducted by
the Company's independent public accountants and internal auditors; (3)
review reports from the Company's independent public accountants and internal
auditors concerning compliance by management with governmental laws and
regulations and with the Company's policies relating to ethics, conflicts of
interest, perquisites and use of corporate assets.
The Audit Committee shall meet with the Company's independent public
accountants and/or internal auditors without management present whenever the
Audit Committee shall deem it appropriate. The Committee shall review with
the General Counsel of the Company the status of legal matters that may have
a material impact on the Company's financial statements.
The Audit Committee shall each year make a recommendation, based on
a review of qualifications, to the Board of Directors for the appointment of
independent public accountants to audit the financial statements of the
Company and to perform such other duties as the Board of Directors may from
time to time prescribe. As part of such review of qualifications, the Audit
Committee shall consider management's plans for engaging the independent
public accountants for management advisory services to determine whether such
services could impair the public accountants' independence.
The Audit Committee shall have the power to conduct or authorize
special projects or investigations which the Committee considers necessary to
discharge its duties and responsibilities. It shall have the power to retain
independent outside counsel, accountants or others to assist it in the
conduct of any investigations and may utilize the Company's General Counsel
and internal auditors for such purpose.
Section 4. Compensation Committee. The Compensation Committee
shall consist of such number of directors, who shall not be officers or
employees of the Company or any of its affiliates, not less than three, as
shall from time to time be prescribed by the Board of Directors. As
authorized by the Board of Directors, the Compensation Committee shall make
recommendations to the Board of Directors with respect to the compensation of
directors and the administration of the salaries, bonuses, and other
compensation to be paid to the officers of the Company, including the terms
and conditions of their employment, shall review the compensation of the
Chief Executive Officer, and shall administer all stock option and other
benefit plans (unless otherwise specified in plan documents) affecting
officers' direct and indirect remuneration.
The Compensation Committee shall review the design, funding and
investment policies of the employee benefit plans of the Company and its
subsidiaries, as appropriate. The Committee shall, on its own initiative or
upon referral from the Board of Directors, investigate, analyze and consider
the current and future financial practices of such benefit plans and report
and make such recommendations to the Board of Directors as deemed
appropriate.
Section 5. Nominating Committee. The Nominating Committee
shall consist of such number of directors, who shall not be officers or
employees of the Company or any of its affiliates, not less than three, as
shall from time to time be prescribed by the Board of Directors.
The Nominating Committee shall review and recommend to the
Board of Directors prior to the annual shareholders' meeting each year: (a)
the appropriate size and composition of the Board of Directors; (b) a proxy
statement and form of proxy; (c) policies and practices on shareholder
voting; (d) plans for the annual shareholders' meeting; and (e) nominees:
(i) for election to the Board of Directors for whom the Company should
solicit proxies; (ii) to serve as proxies in connection with the annual
shareholders' meeting; (iii) for election to all committees of the Board of
Directors; and (iv) for election of as executive officers of the Company.
The Nominating Committee shall annually assess the
performance of the Board, evaluate the performance of the Chairman and Chief
Executive Officer of the Company, and review the management organization of
the Company and succession plans for the Chairman and Chief Executive
Officer of the Company, including consultation with the Chairman of the Board
of Directors regarding persons considered qualified to fill any vacancy that
may occur in the position of Chairman and Chief Executive Officer. In the
event of any such vacancy, the Nominating Committee shall recommend to the
Board of Directors a nominee to fill such vacancy.
Section 6. Public Issues Committee. The Public Issues
Committee shall consist of such number of directors, not less than three, as
shall from time to time be prescribed by the Board of Directors. A majority
of the members shall not be officers or employees of the Company or any of
its affiliates.
The Public Issues Committee shall concern itself with current
problems and future trends in respect to public issues that may affect the
Company and shall review and discuss such issues with the appropriate
representatives of management of the Company and provide guidance as to the
Company's policies and positions with respect thereto.
Article IV
OFFICERS
Section 1. Officers. The Board of Directors shall, at its
annual meeting, and may at any other meeting, or any adjournment thereof,
elect from among its members a Chairman of the Board of Directors and a
President. The Board of Directors may also elect at such meeting one or more
Vice Chairmen and one or more Vice Presidents, who may have special
designations, and may elect at such meeting a Treasurer, a Controller and a
Secretary, who also may have special designations.
The Board of Directors may elect or appoint such other officers and
agents as it shall deem necessary, or as the business of the Company may
require, each of whom shall hold office for such period, have such authority
and perform such duties as the Board of Directors may prescribe from time to
time.
Any two or more offices, except the offices of Chairman of the Board
of Directors and Secretary, the offices of President and Secretary and the
offices of Treasurer and Controller, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity.
Section 2. Term of Office. Each officer elected by the Board
of Directors shall hold office until the next annual meeting of the Board of
Directors and until his or her successor is elected, or until such earlier
date as shall be prescribed by the Board of Directors at the time of his or
her election. Any officer may be removed at any time, with or without cause,
by the vote of a majority of the members of the Board of Directors.
Section 3. Vacancies. A vacancy in any office caused by the
death, resignation, retirement, or removal of the person elected thereto, or
by any other cause, may be filled for the unexpired portion of the term by
election of the Board of Directors at any meeting. In case of the absence or
disability, or refusal to act of any officer of the Company, or for any other
reason that the Board of Directors shall deem sufficient, the Board of
Directors may delegate, for the time being, the powers and duties, or any of
them, of such officer to any other officer or to any director, consistent
with the limitations in Section 1.
Section 4. The Chairman of the Board of Directors. The
Chairman of the Board of Directors shall be the chief executive officer of
the Company and shall have general direction over the affairs of the Company,
subject to the control and direction of the Board of Directors. The Chairman
shall, when present, preside as chairman at all meetings of the shareholders
and of the Board of Directors. The Chairman may call meetings of the
shareholders and of the Board of Directors and of the committees whenever he
or she deems it necessary. The Chairman shall, in the absence or incapacity
of the President, perform all duties and functions and exercise all the
powers of the President. The Chairman shall have such other powers and
perform such other duties as from time to time may be prescribed by the Board
of Directors.
Section 5. The President. The President shall have general
direction over the day-to-day business of the Company, subject to the control
and direction of the Chairman of the Board of Directors. The President shall
keep the Chairman of the Board of Directors fully informed concerning the
activities of the Company under his supervision. The President shall, in the
absence or incapacity of the Chairman of the Board of Directors, perform all
duties and functions and exercise all the powers of the Chairman of the Board
of Directors. In the absence of the Chairman of the Board of Directors, the
President shall preside at meetings of the shareholders and of the Board of
Directors. The President shall have such other powers and perform such other
duties as are incident to the office of President and as from time to time
may be prescribed by the Board of Directors.
Section 6. Vice Chairmen and Vice Presidents. Each Vice
Chairman and each Vice President shall have such powers and perform such
duties as from time to time may be assigned to him or her by the Board of
Directors or be delegated to him or her by the Chairman of the Board of
Directors or by the President. The Board of Directors may assign to any Vice
Chairman or Vice President general supervision and charge over any
territorial or functional division of the business and affairs of the
Company. In the absence or incapacity of the Chairman of the Board of
Directors and the President, the powers, duties, and functions of the
President shall be temporarily performed and exercised by such one of the
Vice Chairmen or Vice Presidents as shall be designated by the Board of
Directors or, if not designated by the Board of Directors, by the Executive
Committee or, if not designated by the Executive Committee, by the President.
Section 7. Treasurer. The Treasurer shall have responsibility
for the custody and safekeeping of all funds and securities of the Company;
shall make disbursements of Company funds upon appropriate vouchers and
supervise the handling of balances and maintain proper relationships with
banks; shall keep full and accurate accounts of the transactions of his or
her office in books belonging to the Company and render to the Board of
Directors, whenever it may require, an account of his or her transactions as
Treasurer; and in general shall have such other powers and perform such other
duties as are incident to the office of Treasurer and as from time to time
may be prescribed by the Board of Directors, the Chairman of the Board of
Directors, or the President.
Section 8. Controller. The Controller shall have general
charge, control, and supervision over the accounting and auditing affairs of
the Company. The Controller or such persons as the Controller shall
designate shall have responsibility for the custody and safekeeping of all
permanent records and papers of the Company. The Controller shall have
responsibility for the preparation and maintenance of the books of account
and of the accounting records and papers of the Company; shall supervise the
preparation of all financial statements and reports on the operation and
condition of the business; shall have responsibility for the establishment of
financial procedures, records, and forms used by the Company; shall have
responsibility for the filing of all financial reports and returns, except
tax returns, required by law; shall render to the Chairman of the Board of
Directors, the President, or the Board of Directors, whenever they may
require, an account of the Controller's transactions; and in general shall
have such other powers and perform such other duties as are incident to the
office of Controller and as from time to time may be prescribed by the Board
of Directors, the Chairman of the Board of Directors, or the President.
Section 9. Secretary. The Secretary shall attend and keep the
minutes of meetings of the shareholders, of the Board of Directors, and of
all committees of the Company in books of the Company provided for that
purpose; may sign with the Chairman of the Board of Directors, the President,
any Vice Chairman or any Vice President, or the Manager of any Department, in
the name of the Company, contracts and other instruments authorized by the
Board of Directors or by the Executive Committee, and in proper cases shall
affix the corporate seal thereto; shall see that notices are given and
corporate records and reports are properly kept and filed by the Company as
required by these By-Laws or as required by law; and in general shall have
such other powers and perform such other duties as are incident to the office
of Secretary and as from time to time may be prescribed by the Board of
Directors, the Chairman of the Board of Directors, or the President.
Section 10. Compensation. The salaries and other compensation
of all officers elected by the Board of Directors shall be fixed from time to
time by or under the direction of the Board of Directors.
Article V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Indemnification. Any person (hereinafter called an
"Indemnitee") made, or threatened to be made, a party to, or who is otherwise
involved in, any action, suit or proceeding whether civil, criminal,
administrative or investigative, by reason of the fact that such Indemnitee,
or his or her testator or intestate, is or was a director or officer of the
Company, or, while a director or officer of the Company and at the request of
the Company, is or was serving another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
shall be indemnified by the Company to the full extent permitted by
applicable law, against judgments, fines, amounts paid in settlement and all
expenses, including attorneys' fees, actually incurred as a result of such
action, suit or proceeding, or any appeal therein.
Without limitation of the foregoing, the Company shall be deemed to
have requested an Indemnitee to serve an employee benefit plan where the
performance by such person of his or her duties to the Company also imposes
duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan. Excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable
law shall be considered fines.
Section 2. Partial Indemnity. If an Indemnitee is entitled
under any provision of this Article V to indemnification by the Company for
some or a portion of the amounts indemnified against, but not for the total
amount thereof, the Company shall nevertheless indemnify such Indemnitee for
the portion thereof to which such Indemnitee is entitled.
Section 3. Advancement of Expenses. The Company shall, from
time to time, reimburse or advance to any Indemnitee the funds necessary for
payment of expenses incurred in connection with any action, suit or
proceeding referred to in Section 1, upon receipt of a written undertaking by
or on behalf of such Indemnitee to repay such amounts if and to the extent
that such repayment is required pursuant to applicable law.
Section 4. Corporate Action; Judicial Review. Upon receipt of
a request to be indemnified, or for the reimbursement or advancement of
expenses, the Company shall promptly proceed in good faith to take all
actions necessary to a determination of whether or not the Indemnitee is
entitled to such payment pursuant to this Article V. If such a request is
not paid in full by the Company within thirty days after receipt of a written
claim therefor, the Indemnitee may at any time thereafter bring suit against
the Company to recover the unpaid amount of the claim and, if successful in
whole or in part, the Indemnitee also shall be entitled to be reimbursed by
the Company for the expenses actually incurred, including attorneys' fees, of
prosecuting such claim. Neither a determination that such payments are
improper under the circumstances, nor the failure of the Company (including
its Board of Directors, Independent Counsel (as hereinafter defined) or
shareholders) to have made a determination, prior to the commencement of such
action, that such payments are proper under the circumstances, shall be a
defense to the action or shall create a presumption that the Indemnitee is
not entitled to the payment requested. Notwithstanding any other provision
of this Article V, in any action hereunder by the Indemnitee against the
Company to secure indemnification or reimbursement or advancement of
expenses, to the extent permitted by applicable law, the Company shall bear
the burden of proof that the Indemnitee is not entitled to such payments.
Section 5. Contract Right. The right to indemnification and to
the reimbursement or advancement of expenses pursuant to this Article V (a)
is a contract right provided in consideration of services to the Company,
with respect to which an Indemnitee may bring suit as if the provisions of
this Article V were set forth in a separate written contract between the
Company and such Indemnitee, (b) is intended to be retroactive and shall, to
the extent permitted by applicable law, be available with respect to events
occurring prior to the adoption hereof, and (c) shall continue to exist after
any future rescission or restrictive modification hereof with respect to any
alleged cause of action that accrues, or any other incident or matter that
occurs, prior to such rescission or modification. It is the intent of the
Company to irrevocably establish hereby the right of Indemnitees to all
indemnification that is not prohibited by applicable law.
Section 6. Change in Control. If there has been a Change in
Control of the Company (as hereinafter defined) within five years prior to
any request for indemnification or reimbursement or advancement of expenses
pursuant to this Article V, then with respect to all matters thereafter
arising concerning the rights of Indemnitees to payments pursuant to this
Article V or under any other agreement not inconsistent with this Article V
now or hereafter in effect, the Company shall seek legal advice as specified
below only from Independent Counsel (as hereinafter defined) selected by the
Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such Independent Counsel shall determine whether and
to what extent the Indemnitee would be permitted to be indemnified under
applicable law, which determination shall include an opinion as to whether
any requisite standard of conduct under applicable law has been met, and
shall render a written opinion to the Company and the Indemnitee to such
effect. To the extent permitted by applicable law, the Company shall be
required by this Section 6 to authorize indemnification to the extent such
opinion of Independent Counsel indicates that indemnification is permitted
under applicable law; provided, however, that nothing in this Section 6 shall
be deemed to abrogate the duties of any director of the Company to
participate in any determination required to be made under applicable law as
to whether such payments shall be made. The Company agrees to pay the
reasonable fees of such Independent Counsel and to indemnify such counsel
fully against any and all expenses, claims, liabilities and damages arising
out of or relating to this Article V or the engagement of such Independent
Counsel pursuant hereto.
A "Change in Control of the Company" shall be deemed to have occurred
if (a) any "person" (as such term is used in Section 13(d) of the Securities
Exchange Act of 1934) is or becomes the beneficial owner (as defined in Rule
13d-3 under such Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding voting shares, or (b) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a
majority thereof unless the election of each director who was not a director
at the beginning of the period was approved by a vote of a least 75% of the
directors then still in office who were directors at the beginning of the
period.
"Independent Counsel" shall refer to an attorney-at-law who at the
time of his or her selection shall not have otherwise performed services for
the Company or the Indemnitee within the previous five years. Independent
Counsel shall not be any person who, under the standards of professional
conduct to which he or she is legally subject, would have a conflict of
interest in representing either the Company or the Indemnitee in connection
with the determination of the Indemnitee's rights under this Article V; nor
shall Independent Counsel be any person who has been sanctioned or censured
for ethical violations of such standards of professional conduct.
Section 7. Period of Limitations. To the extent such
limitation is permitted by applicable law, no legal action shall be brought
and no cause of action shall be asserted by or in the right of the Company or
any affiliate of the Company against an Indemnitee, Indemnitee's spouse,
heirs, testators, intestates, executors, administrators or personal or legal
representatives after the expiration of three years from the date of accrual
of such cause of action, and any claim or cause of action of the Company or
any affiliate shall be extinguished and deemed released unless asserted by
the timely filing of a legal action within such three year period; provided,
however, that if any shorter period of limitations is otherwise applicable to
any such cause of action, such shorter period shall govern.
Section 8. Non-exclusivity. The rights of Indemnitees under
the foregoing provisions of this Article V shall be in addition to any other
rights such persons may have under a resolution of the shareholders of the
Company, a resolution of its directors, the Certificate of Incorporation of
the Company as amended or restated from time to time, the New York Business
Corporation Law, the common law, any insurance policy, any agreement or
otherwise. In addition to the foregoing provisions of this Article V,
indemnification and reimbursement and advancement of expenses may be
authorized pursuant to this Article V by a resolution of the shareholders of
the Company, a resolution of its directors or an agreement providing for such
indemnification. The Company shall not be liable under this Article V to
make any payment to an Indemnitee to the extent that such person has
otherwise actually received payment of the amounts otherwise indemnifiable
hereunder.
Section 9. Applicable Law. Any Indemnitee entitled to
indemnification or to the reimbursement or advancement of expenses as a
matter of right pursuant to this Article V may elect, to the extent permitted
by law, to have the right of indemnification (or reimbursement or advancement
of expenses) interpreted on the basis of the applicable law in effect at the
time of the occurrence of the event or events giving rise to the action, suit
or proceeding, or on the basis of the applicable law in effect at the time
indemnification (or reimbursement or advancement of expenses) is sought.
Article VI
STOCK CERTIFICATES AND TRANSFER OF STOCK
Section 1. Certificates of Stock. Certificates representing
shares of the Company shall be in such form, consistent with law, as shall be
approved by the Board of Directors. They shall be signed by the Chairman of
the Board of Directors or President or a Vice Chairman or a Vice President,
and by the Secretary or Treasurer or by an Assistant Secretary or Assistant
Treasurer, and shall be sealed with the corporate seal of the Company. Such
seal may be an engraved or printed facsimile, and the signature of such
officers of the Company, or any of them, may be printed facsimiles if such
certificates are countersigned by a Transfer Agent or registered by a
Registrar other than the Company itself or an employee thereof. In case any
officer who shall have signed any such certificate, or whose facsimile
signature shall have been used thereon, shall cease to be such officer before
such certificate shall have been issued by the Company, such certificate may
be issued by the Company with the same effect as if such officer had not
ceased to be such at the date of the issuance of such certificate. The
signature of the Transfer Agent and Registrar on a certificate representing
shares of the Company may also be a printed facsimile when the same entity
acts in the dual capacity.
Section 2. Transfer of Certificated Stock. Certificated shares
of the Company shall be transferred on the books of the Company only upon
surrender of the certificate or certificates therefor to the Treasurer of the
Company, or to any authorized Transfer Agent, properly endorsed or
accompanied by proper assignments duly executed by the registered holder
thereof in person or by his or her attorney duly authorized in writing;
except that with respect to certificates alleged to have been lost, stolen,
or destroyed, a new certificate may be issued without cancellation of the
original certificate, but only upon production of such evidence of the loss,
theft, or destruction of the original certificate, and upon delivery to the
Company of a bond of indemnity in such amount and upon such terms as the
Board of Directors, in its discretion, may require. Until so transferred on
the books of the Company, the Company shall deem and treat the registered
holder of each certificate for shares as the owner of such shares for all
purposes.
Section 3. Transfer Agent and Registrar; Regulations. The
Company shall maintain one or more transfer offices or agencies, each under
control of a Transfer Agent, where the shares of the Company may be
transferable, and also one or more registry offices or agencies, each under
control of a Registrar, where such shares may be registered, and no
certificate for shares of the Company shall be valid unless countersigned by
such Transfer Agent and registered by such Registrar. The Board of Directors
may make such additional rules and regulations as it may deem expedient
concerning the issue, transfer, and registration of certificates for shares
of the Company.
Section 4. Record Date of Shareholders. The Board of Directors
may from time to time fix in advance a date, not more than fifty nor less
than ten days preceding the date of any meeting of shareholders, and not more
than fifty days prior to the date for the payment of any dividend, or the
date for the allotment of any rights, or the date when any change or
conversion or exchange of shares shall become effective, or the date for any
other action by the shareholders, as a record for the determination of the
shareholders entitled to notice of, and to vote at, any such meeting and any
adjournment thereof, or entitled to receive payment of any such dividend, or
to any such allotment of rights, or to exercise the rights in respect of any
such change, conversion, or exchange of shares, or to take any other action,
and only such shareholders as shall be shareholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting and
any adjournment thereof, or to receive payment of such dividend, or to
receive such allotment of rights, or to exercise such rights, or to take such
other action, as the case may be, notwithstanding any transfer of any shares
on the books of the Company after any such record date so fixed.
Section 5. Uncertificated Shares. The Board of Directors may
in its discretion authorize the issuance of shares which are not represented
by certificates and provide for the registration and transfer thereof on the
books and records of the Company or any Transfer Agent or Registrar so
designated.
Section 6. Shareholder Records. The names and addresses of the
persons to whom shares are issued, and the number of shares and the dates of
issue and any transfer thereof, whether in certificated or uncertificated
form, shall be entered on records kept for that purpose. The stock transfer
records and the blank stock certificates shall be kept by the Transfer Agent,
or by the Treasurer, or such other officer as shall be designated by the
Board of Directors for that purpose. Every certificate surrendered for
transfer or exchange shall be cancelled.
Article VII
FISCAL YEAR
The fiscal year of the Company shall begin on January 1 in 1994, and
thereafter shall begin on the day after the Saturday closest to December 31
in each year, and shall end on the Saturday closest to December 31 in 1994
and each year thereafter.
Article VIII
SEAL
The corporate seal of the Company shall be circular in form and shall
contain the name of the Company and the words "New York," "1906," and "Seal."
The Secretary shall have custody of the seal, and a duplicate of the seal may
be kept and used by any Assistant Secretary.
Article IX
AMENDMENTS
These By-Laws may be amended or repealed by the vote of a majority
of the directors present at any meeting at which a quorum is present or by
the vote of the holders of the shares of the Company at the time entitled to
vote in the election of directors at any meeting of the shareholders at which
a quorum is present.
Exhibit 10. (iii)(8)
NON-EMPLOYEE DIRECTORS RETIREMENT PLAN
Each director who is not an employee of the Company or its
subsidiaries ("non-employee director") who is a director on
November 8, 1995 will be eligible upon retirement from the Board
of Directors at the mandatory retirement age (or upon earlier
retirement with Board approval), to receive, while living, a
quarterly payment in advance of each quarter equal to
one-quarter of the "annual retainer fee" of $30,000 in effect on
November 8, 1995. For purposes of this Plan, the annual
retainer fee shall exclude additional fees paid to a
non-employee director for acting as chairman of a committee.
Payment(s) to eligible non-employee directors under this Plan
shall not begin until retirement from the Board at the
mandatory retirement age set by the Board (or earlier upon Board
approval). Persons who become directors of the Company
subsequent to November 8, 1995 will not be eligible for benefits
under this Plan.
The Board of Directors and the Secretary may in their
discretion prescribe such provisions and interpretations as
either shall deem necessary or advisable for purposes of this
Plan. At any time, the Board of Directors may amend, modify or
terminate this Plan, in whole or in part, and terminate benefits
to an otherwise eligible non-employee director who ceases to
serve as such because, in the opinion of the Board, of
misfeasance.
Nothing in the Plan shall be deemed to create any obligation on
the part of the Board of Directors to nominate any non-employee
director for reelection by the Company's shareholders. The Plan
does not create a trust in favor of a non-employee director or
any other person and the obligation of the Company is solely a
contractual obligation to make payments due hereunder. In this
regard, benefits under the Plan shall be considered a liability
of the Company and a non-employee director's right thereto shall
be the same as any unsecured general creditor of the Company.
No non-employee director shall acquire any right, title or
interest in or to any amounts payable to a non-employee director
under the Plan other than the actual payment of such amounts in
accordance with the terms of the Plan.
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.
Construction of the Plan shall be governed by the laws of
Illinois.
Exhibit 10.(iii)(11)
SUPPLEMENTAL RETIREMENT INCOME PLAN
As Amended Effective as of February 6, 1996
February 6, 1996
This Supplemental Retirement Income Plan is established for the benefit of
participants in Sears Pension Plan who retire or die after December 31, 1977.
The Company shall pay, from time to time out of its general funds, to such
participants (or, in the case of the death of such participant, to any person
or persons to whom benefits are payable) a monthly retirement amount equal to
the amount, if any, by which the benefit payable under Sears Pension Plan,
was reduced in order to comply with the limits imposed by the Internal
Revenue Code on the annual amount of retirement income, including limits on
the maximum amount of annual compensation which may be taken into account.
Compensation for purposes of the Supplemental Retirement Income Plan shall
include any compensation deferred under the Sears, Roebuck and Co. Deferred
Compensation Plan which is not included and compensation under the Sears
Pension Plan. Notwithstanding the foregoing, no individual who is eligible
to receive a Special ERIP Payment pursuant to resolutions adopted by the
Board of Directors on August 11, 1993 shall be a participant in, or entitled
to benefits under, this Supplemental Retirement Income Plan.
The monthly retirement amount, if any, payable from time to time to any
person under the Supplemental Retirement Income Plan shall be paid commencing
as of the same date, for the same period, based upon the same assumptions and
subject to the same terms and conditions as the monthly retirement income
paid to such person under Sears Pension Plan, including Supplemental A
thereto.
If a participant elects to receive the retirement benefit payable under the
Sears Pension Plan in the form of a lump sum, rather than in the form of
monthly payments, such participant, with the approval of the Sears Pension
Plan Administrator, may elect to have the monthly retirement income amount,
if any, payable under the Supplemental Retirement Income Plan paid to him (as
of the date the lump sum payment under the Sears Pension Plan is calculated)
in an actuarially adjusted amount pursuant to one of the optional forms set
forth in Section 7.2 of the Sears Pension Plan.
If a participant under the Supplemental Retirement Income Plan terminates
employment prior to attaining eligibility for a lump sum distribution under
the Sears Pension Plan, the monthly retirement amount payable under the
Supplemental Retirement Income Plan may be paid at the request of the
participant, in the sole discretion of Sears Pension Plan Administrator, to
the person or persons entitled thereto in a lump sum, and payable as of the
first day of the month following termination of employment from the Company.
If a participant is not eligible for a lump sum distribution under the Sears
Pension Plan upon termination of employment, and does not request a lump sum
distribution from the Supplemental Retirement Income Plan upon termination of
employment, such participant will not be eligible for a lump sum distribution
from the Supplemental Retirement Income Plan at a later date.
In calculating the lump sum which is the actuarial equivalent of the monthly
retirement amount, the mortality table used for lump sum calculations under
the Sears Pension Plan shall be used, and the interest rate employed shall be
the lump sum interest rate under the Sears Pension Plan multiplied by sixty
percent (60%).
In the event a participant dies while employed by the Company after he has
attained age 55 and has completed ten or more years of continuous service,
then the monthly retirement amount which would become payable pursuant to the
terms of the Supplemental Retirement Income Plan shall be payable to the
person or persons designated by him pursuant to such election as he shall
have made from among the options provided for in Subsection 7.2 of Sears
Pension Plan. Such monthly retirement amount shall commence with the first
day of the month following the month in which the participant's death occurs.
A participant may elect for this purpose under the Supplemental Retirement
Income Plan an option other than the one he has elected for the purposes of
the Sears Pension Plan. In the event a deceased participant had not elected
an option under the Supplemental Retirement Income Plan, the monthly
retirement amount shall be paid pursuant to any option elected under Sears
Pension Plan, or if no such option has been elected, then in the manner
provided pursuant to Subsection 6.2 of Sears Pension Plan.
The liability for any other supplemental pension benefits which have been
granted on an individual basis to certain key executives, and described in
individual agreements previously incorporated by reference into this
Supplemental Retirement Income Plan, is hereby transferred to the Sears
Executive Retirement Plan Arrangements.
Exhibit 10. (iii)(14)
Amendment to the
Transferred Executives Pension Supplement
RESOLVED, that the last sentence of the sixth full paragraph of the
Transferred Executives Pension Supplement be substituted with the following
new sentence effective for annuity starting dates, as defined in section 417
of the Internal Revenue Code, on or after February 6, 1996:
In calculating the lump sum actuarial equivalent under TEPS, the
actuarial factors and interest rates to be employed shall be the same
actuarial factors and interest rates that were used or would have been used
for computing a lump sum under the Supplemental Retirement Income Plan for
benefits accrued after December 31, 1985, unless the Original Employer
Pension Plan provides for a lower lump sum interest rate, in which event such
lower rate shall be used.
Exhibit 10. (iii)(21)
AGREEMENT
between
SEARS, ROEBUCK AND CO. and ARTHUR C. MARTINEZ
Sears, Roebuck and Co., a New York corporation (the "Company"), and
Arthur C. Martinez (the "Executive") entered into an Employment Agreement
("Agreement") dated August 10, 1992. The Company and the Executive entered
into an extension and amendment of the Agreement, dated August 9, 1995, which
is referred to as the "Continuation Agreement." The terms of the Agreement,
which would have expired on August 31, 1995, were extended until December 1,
1995, unless sooner terminated by mutual agreement, by the terms of the
Continuation Agreement.
The Company and the Executive agree as follows:
1. Article III, subparagraphs 3.07(b), (c), (d), (e) and (f) of the
Agreement, and numbered paragraph 3 of the Continuation Agreement are hereby
eliminated, retroactive to August 10, 1992. Any other references to the
eliminated provisions in the Agreement are appropriately changed to reflect
this amendment.
2. In addition to the Executive's pension benefits payable at
retirement, the Company will pay the Executive an additional amount from the
Supplemental Retirement Income Plan ("SRIP"), which additional amount will be
determined by adding ten years to the Executive's then actual continuous and
credited service. In computing this additional pension benefit, the Company
will apply the rules of the Sears Pension Plan and SRIP then in effect. This
additional amount is fully vested on the date this agreement is dated below.
Dated: November 13, 1995
SEARS, ROEBUCK AND CO.
By: /S/David Shute /S/Arthur C. Martinez
ARTHUR C. MARTINEZ
Its: Senior Vice President,
Law and Corporate Secretary
November 27, 1995
Mr. Mike Levin
Dear Mike,
I would like to extend to you our offer to join Sears, Roebuck
and Co. as Senior Vice President and General Counsel effective
January 1, 1996. In this position you will be reporting
directly to me.
While this letter does not constitute an employment contract, I
thought it important that we put our offer in writing to clarify
the terms of your employment. This offer is contingent upon the
approval of the Sears Board of Directors.
Your compensation package will consist of the following:
Annual base salary of $400,000, with periodic increases based on
performance
Participation in Sears Annual Incentive Plan with a bonus target
of 60% of base salary. Based on your beginning salary, the
initial annual bonus target amounts to $240,000. The annual
incentive performance objective for your position is based on
our achievement of Company net income goals. Currently the plan
pays for performance above and below the target objective as
follows:
Threshold (90% of prior year Net Income) pays 25% of target
Target (110% of prior year Net Income) pays 100% of target
Maximum (130% of prior year Net Income) pays 230% of target
We will guarantee a minimum bonus award for 1996 equal to your
target award of $240,000.
Participation in Sears Long-Term Incentive Plan with a potential
incentive target of 125% of base pay pro-rata. For the
1996-1997 cycle, 70% of your long-term incentive target will be
conveyed in Sears stock options and 30% earned through a
Performance Incentive Plan. The Performance Incentive Plan
awards will be determined based on achievement of our Total
Performance Index objectives. The Performance Plan award can
range between 50% - 150% of the target award.
5,000 shares of restricted stock which will vest according to
the following schedule:
1/97 - 1,666 shares
1/98 - 1,666 shares
1/99 - 1,668 shares
Alternatively, to assist you in your personal tax planning, we
could consider having these shares cliff vest at retirement.
However, in the event of death or permanent and total disability
prior to all shares becoming vested, your shares will vest as
follows:
If death or disability occurs between January 1, 1996 and June
30, 1996, all shares would be forfeited but you would receive a
cash payment for the value of 2,500 shares at the time death or
disability occurs;
If death or disability occurs between July 1, 1996 and December
31, 1997, 50% of the unvested shares would become vested;
And if death or disability occurs after January 1, 1998, all
remaining unvested shares would become fully vested
20,000 non-qualified stock options which will vest according to
the following schedule:
1/97 - 6,666 shares
1/98 - 6,666 shares
1/99 - 6,668 shares
However, in the event of death or permanent and total disability
prior to all option shares becoming vested, your option shares
will vest as follows:
If death or disability occurs between January 1, 1996 and June
30, 1996, all option shares would be forfeited but you would
receive a cash payment for the value of the options at the time
death or disability occurs
If death or disability occurs after July 1, 1996, all unvested
option shares would become vested
Participation in standard Company benefits with your position.
Your initial annual vacation will be four weeks.
The potential for an 8 year service enhancement to your final
pension benefit will be provided through the non-qualified
pension plan to offset the loss of certain retirement benefits
from your current partnership. The service enhancement will be
vested to you as a 2 yr-for-1 yr service credit over the first
eight years of your employment with Sears. All other provisions
of the Sears pension plan will apply to this benefit.
However, in the event of death or permanent and total disability
during your first eight years of employment, your service
enhancement would vest as follows:
If death or disability occurs during the first two years of
employment, the first four years of the service enhancement
would become vested
If death or disability occurs during the third year of
employment, the first six years of the service enhancement would
become vested
If death or disability occurs after the third year of
employment, all eight years of the service enhancement would
become vested
Nothing contained in this letter shall limit the right of you or
Sears to terminate your employment with or without cause at any
time. However, in the event that Sears should terminate you
other than for cause during your first three years of
employment, you will receive one and one-half years base salary
and a pro-rata share of your annual incentive. This will
constitute the entire damages you can claim against Sears.
This offer of employment is contingent upon your satisfactorily
passing a pre-employment drug test. We'll arrange for the test
to be taken prior to the first day of your employment.
Mike, we have great confidence in your ability to significantly
contribute to the future success of Sears. I look forward to
working with you to build that success.
Sincerely,
/S/ Arthur C. Martinez
cc: A.J. Rucci
January 2, 1996
Mr. Gary Crittenden
Dear Gary,
I would like to extend to you our offer to join Sears, Roebuck
and Co. as Executive Vice President, Strategy and Business
Development. In this position you will be reporting directly to
me.
While this letter does not constitute an employment contract, I
thought it important that we put our offer in writing to clarify
the terms of your employment. This offer is contingent upon the
approval of the Sears Board of Directors.
Your compensation package will consist of the following:
- -Annual base salary of $400,000, with periodic increases based
on performance.
- -Participation in Sears Annual Incentive Plan with a current
bonus target of 60% of base salary. Based on your beginning
salary, the current bonus target amounts to $240,000. As we've
discussed, we anticipate gaining approval from the Compensation
Committee of the Board of Directors at our February meeting to
raise your bonus target percent to 72% of your base salary which
would increase your annualized bonus target to $288,000. The
annual incentive performance objective for your position will be
based on our achievement of Company net income goals as well as
your performance on individual priorities we will agree to.
Currently the plan pays for performance above and below the
target objective as follows:
Threshold (90% of prior year Net Income) pays 25% of target
Target (110% of prior year Net Income) pays 100% of target
Maximum (130% of prior year Net Income) pays 230% of target
We will also guarantee your 1996 target bonus of
$240,000 or $288,000 upon approval of the
Compensation Committee.
Sign-on bonus of $75,000, payable within 30 days following the
beginning of your employment.
Participation in Sears Long-Term Incentive Plan with a potential
incentive target of 125% of base pay pro-rata. For the
1996-1997 cycle, 70% of your long-term incentive target will be
conveyed in Sears stock options and 30% earned through a
Performance Incentive Plan. The Performance Incentive Plan
awards will be determined based on achievement of our Total
Performance Index objectives. The Performance Plan award can
range between 50% - 150% of the target award.
10,000 shares of restricted stock which will vest according to
the following schedule:
2/97 - 3,333 shares
2/98 - 3,333 shares
2/99 - 3,334 shares
25,000 non-qualified stock options which will vest according to
the following schedule:
2/97 - 8,333 shares
2/98 - 8,333 shares
2/99 - 8,334 shares
Participation in standard Company benefits commensurate with
your position.
- -We will enroll you and your family immediately in a Sears Group
Medical Benefit option. To effectively transition your wife
into the Sears medical benefit, we recommend that you obtain
COBRA coverage from Melville Corporation. We agree to reimburse
you for the cost of these premiums for up to eighteen months.
- -Participation in the Sears Supplemental Retirement Income Plan.
A Summary Plan Description is attached.
- -Your annual vacation will be three weeks.
Relocation assistance in accordance with Sears Relocation
Policy which includes a $10,000 moving allowance, reimbursement
for temporary living, reimbursement for home visits and house
hunting, a home appraisal and purchase program available through
Coldwell Banker Relocation and reimbursement of customary
closing costs for your new residence. In addition:
- -We'll agree to reimburse you for any incremental interest
expense over your current arrangement you incur as a result of
your relocation, up to a maximum reimbursement of $25,000.
- -We'll agree to extend temporary living reimbursement through
the first six months of your employment.
- -We'll agree to provide round-trip travel reimbursement between
Chicago and New Canaan for the first six months of your
employment. Reimbursement is limited to a maximum of $10,000
over the six month period
Nothing contained in this letter shall limit the right of you
or Sears to terminate your employment with or without cause at
any time. However, in the event that Sears should terminate you
other than for cause during your first three years of
employment, you will receive one and one-half years base salary
and a pro-rata share of your annual incentive. This will
constitute the entire damages you can claim against Sears.
This offer of employment is contingent upon your satisfactorily
passing a pre-employment drug test. We'll arrange for the test
to be taken prior to the first day of your employment.
Gary, we have great confidence in your ability to significantly
contribute to the future success of Sears. I look forward to
working with you to build that success.
Sincerely,
/S/Arthur C. Martinez
cc: A.J. Rucci
Exhibit 10. (iii)(34)
SEARS EXECUTIVE RETIREMENT PLAN ARRANGEMENTS
February 6, 1996
TABLE OF CONTENTS
SEARS EXECUTIVE RETIREMENT PLAN ARRANGEMENTS
SECTION 1
General
1.1 Purpose and Effective Date. Sears, Roebuck and Co. (the
"Company") has established these Sears Executive Retirement Plan
Arrangements (the "Plan") for certain key Sears employees effective
as of February 6, 1996 for the purpose of providing certain
supplemental pension benefits to employees as described in
individual written agreements. The Plan hereby incorporates by
reference the relevant portions of each individual agreement with
regard to supplemental pension benefits, including any appropriate
reference to the Supplemental Retirement Income Plan ("SRIP"). The
Secretary of the Company shall certify that the relevant portions
of each individual agreement are part of this Plan.
1.2 Definitions. Unless the context clearly requires
otherwise, any word, term or phrase used in the Plan shall have the
same meaning as is assigned to it under the terms of the Pension
Plan, or, if appropriate, SRIP.
1.3 Plan Administration. The authority to control and manage
the operation and administration of the Plan shall be vested in the
"Pension Plan Administrator" under the Pension Plan. In exercising
such authority, the Pension Plan Administrator, to the extent
necessary and appropriate, shall have the same rights, powers and
duties as those delegated to the Pension Plan Administrator under
the Pension Plan. The Pension Plan Administrator shall have the
power and authority to interpret and construe the provisions of the
Plan, to determine the amount of benefits payable to any person
under the Plan, and to remedy any ambiguities, inconsistencies or
omissions of whatever kind. Any determination made by the Pension
Plan Administrator under the Plan shall be conclusive on all
persons.
1.4 ERISA Status. The plan is unfunded and is maintained
primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees (within
the meaning of sections 201(a) (2), 301(a) (3) and 401(a) (1) of
the Employee Retirement Income Security Act of 1974, as amended).
1.5 Source of Benefits. The amount of any benefit payable
under the Plan shall be paid from the general revenues of the
Company. No person who is entitled to any benefits under the Plan
shall have any preferred claim on or any interest in any assets of
the Company and any rights of such person under the Plan shall
constitute unsecured contractual rights of a general creditor.
1.6 Applicable Laws. The Plan shall be construed and
administered in accordance with the laws of the State of Illinois.
SECTION 2
Participation
Each individual who is a key executive and who has a written
individual agreement for supplemental pension benefits is a
participant in this Plan.
SECTION 3
Amount and Payment of Benefit
3.1 Amount of Benefit. The benefit payable under the Plan
shall be as described in each individual arrangement, and shall be
computed using the rules of SRIP, and, as necessary, the rules of
the Sears Pension Plan then in effect.
3.2 Payment of Benefits. The benefit payable to or on
account of a participant under the Plan shall be payable at the
time and under the same terms and conditions as described from time
to time in SRIP.
3.3 Distributions to Persons Under Disability. In the event
that any individual is declared incompetent and a conservator or
other person legally charged with the care of the individual's
person or estate is appointed, any retirement income to which such
individual is entitled under this Plan shall be paid to such
conservator or other person.
3.4 No Assignment or Alienation. The benefit payable to, or
on account of, any individual under this Plan may not be
voluntarily or involuntarily assigned, alienated or encumbered.
SECTION 4
Amendment and Termination
The Company reserves the right to amend or terminate this Plan
at any time.
Exhibit 11
SEARS, ROEBUCK AND CO.
AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year Ended
--------------------------
(millions, except per common share data) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
EARNINGS
Income from continuing operations $ 1,025 $ 857 $ 625
Discontinued operations 776 402 1,960
Extraordinary gain (loss) - 195 (211)
Cumulative effect of accounting changes - - -
------- ------- --------
Net income 1,801 1,454 2,374
Preferred share dividends (29) (29) (29)
-------- -------- --------
Net income applicable to common shares $ 1,772 $ 1,425 $ 2,345
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES (1)
Primary 394.0 388.9 382.9
Fully dilutive effect of stock options-
after application of treasury
stock method(2) - - -
------- ------ -------
Maximum number of common and common
equivalent shares outstanding 394.0 388.9 382.9
EARNINGS PER COMMON SHARE (1)
PRIMARY
Income from continuing operations $ 2.53 $ 2.13 $ 1.56
Discontinued operations 1.97 1.03 5.12
Extraordinary gain (loss) - 0.50 (0.55)
------ ------- --------
Net income $ 4.50 $ 3.66 $ 6.13
FULLY DILUTED (3)
Income from continuing operations $ 2.53 $ 2.13 $ 1.56
Discontinued operations 1.97 1.03 5.12
Extraordinary gain (loss) - 0.50 (0.55)
------- ------- --------
Net income $ 4.50 $ 3.66 $ 6.13
<FN>
(1) Series A Mandatorily Exchangeable Preferred Shares are considered
common shares for purposes of computing weighted average number of common
shares.
(2) The maximum dilution of earnings per common share assumes the exercise
of all outstanding stock options. The treasury stock method has been applied
based upon the higher of the closing price at fiscal year end or the average
price of the common shares during the respective years.
(3) Fully diluted earnings per common share are not disclosed in the
Company's financial statements in accordance with APB Opinion No. 15 since
the maximum dilutive effect is less than 3%.
</FN>
</TABLE>
Exhibit 12. (a)
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
Year
Ended Year Ended
December 30 December 31
------------ -----------------------------
1995 1994 1993 1992 1991
(millions, except ratios)
<S> <C> <C> <C> <C> <C>
Fixed Charges
Interest and amortization of debt discount
and expense on all indebtedness $1,373 $1,279 $1,318 $1,389 $1,568
Add interest element implicit in rentals 119 114 105 165 155
1,492 1,393 1,423 1,554 1,723
Interest capitalized 4 1 3 23 22
Total fixed charges $1,496 $1,394 $1,426 $1,577 $1,745
Income (loss)
Income (loss) from continuing operations $1,025 $857 $625 ($1,812) $160
Add/subtract undistributed net loss/gain
of unconsolidated companies 9 (7) 6 (4) (11)
1,016 864 619 (1,808) 171
Add
Fixed charges (excluding interest captialized) 1,492 1,393 1,423 1,554 1,723
Income taxes (benefit) 703 614 329 (1,040) 126
Income (loss) before fixed charges and
income taxes 3,211 2,871 2,371 (1,294) 2,020
Ratio of income to fixed charges 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 $2,871 million.
</FN>
</TABLE>
Exhibit 12. (b)
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES AND PREFERRED SHARE
DIVIDENDS
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
Year
Ended
December 30 Year Ended December 31
----------- -------------------------------
1995 1994 1993 1992 1991
(millions, except ratios)
<S> <C> <C> <C> <C> <C>
Fixed Charges
Interest and amortization of debt discount
and expense on all indebtedness $1,373 $1,279 $1,318 $1,389 $1,568
Add interest element implicit in rentals 119 114 105 165 155
1,492 1,393 1,423 1,554 1,723
Preferred dividend factor 89 234 209 120 7
Interest capitalized 4 1 3 23 22
Total fixed charges $1,585 $1,628 $1,635 $1,697 $1,752
Income (loss)
Income (loss) from continuing operations $1,025 $857 $625 ($1,812) $160
Add undistributed net loss
of unconsolidated companies 9 (7) 6 (4) (11)
1,016 864 619 (1,808) 171
Add
Fixed charges (excluding interest
capitalized and preferred dividend factor) 1,492 1,393 1,423 1,554 1,723
Income taxes (benefit) 703 614 329 (1,040) 126
Income (loss) before fixed charges and
income taxes $3,211 $2,871 $2,371 ($1,294) $2,020
Ratio of income to combined fixed charges
and preferred share dividends 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 and preferred share dividends by $2,991
million.
</FN>
</TABLE>
SEARS, ROEBUCK AND CO.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
millions, except per common share data 1995 1994 1993
- --------------------------------------------------------------------------------------------
REVENUES
Merchandise sales and services $31,035 $29,451 $27,171
Credit revenues 3,890 3,574 3,273
- --------------------------------------------------------------------------------------------
Total revenues 34,925 33,025 30,444
- --------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales, buying and occupancy 22,866 21,568 19,918
Selling and administrative 7,577 7,498 7,039
Depreciation and amortization 578 528 504
Provision for uncollectible accounts 826 698 821
Interest 1,373 1,279 1,318
- --------------------------------------------------------------------------------------------
Total costs and expenses 33,220 31,571 29,600
- --------------------------------------------------------------------------------------------
Operating income 1,705 1,454 844
Other income 23 17 110
- --------------------------------------------------------------------------------------------
Income before income taxes 1,728 1,471 954
Income taxes 703 614 329
- --------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 1,025 857 625
Discontinued operations 776 402 1,960
- --------------------------------------------------------------------------------------------
Income before extraordinary gain (loss) 1,801 1,259 2,585
Extraordinary gain (loss) related to early extinguishment of debt -- 195 (211)
- --------------------------------------------------------------------------------------------
NET INCOME $ 1,801 $ 1,454 $ 2,374
- --------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE, after allowing
for dividends on preferred shares
Income from continuing operations $ 2.53 $ 2.13 $ 1.56
Discontinued operations 1.97 1.03 5.12
- --------------------------------------------------------------------------------------------
Income before extraordinary gain (loss) 4.50 3.16 6.68
Extraordinary gain (loss) --- 0.50 (0.55)
- --------------------------------------------------------------------------------------------
Net income $ 4.50 $ 3.66 $ 6.13
- ------------------------------------------------------------------- -------------------------
Average common and common equivalent shares outstanding 394.0 388.9 382.9
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
16
SEARS, ROEBUCK AND CO.
ANALYSIS OF CONSOLIDATED OPERATIONS
Sears, Roebuck and Co. ("the Company") conducts merchandising and credit
operations in the United States, Canada and Mexico. In 1995, the Company
successfully completed the initiatives announced in November 1994 to transform
the Company into a stand-alone, focused retailer for the first time since 1931.
- - The Company's 80% ownership interest in The Allstate Corporation
("Allstate") was distributed to shareholders as a tax-free dividend in
June 1995. The distribution of Allstate reduced consolidated
shareholders' equity by $8.98 billion.
- - The divestiture of Homart Development Co. and affiliated
entities ("Homart") was completed in December 1995.
In September 1992, the Company announced a strategic repositioning.
The highlights of the repositioning, which was completed in 1993, were as
follows:
- - Dean Witter, Discover & Co. ("Dean Witter") was distributed to
shareholders as a tax-free dividend in June 1993, following the primary
initial public offering of 20% of its common stock in March 1993. The
Dean Witter distribution reduced consolidated shareholders' equity by
$2.29 billion.
- - Allstate completed a primary initial public offering of 20% of
its common stock in June 1993, resulting in a gain of $635 million.
- - The sales of the Coldwell Banker residential services
businesses, consisting of the residential brokerage and relocation
businesses and mortgage banking operations, were completed in the
fourth quarter of 1993.
The consolidated financial statements present the results of Allstate,
Dean Witter, Coldwell Banker and Homart as discontinued operations as discussed
in note 2 to the consolidated financial statements.
Operating results for the Company's merchandising and credit
operations are reported for two business segments: domestic operations and
international operations.
During late 1995, the Company announced organizational changes within
domestic operations that further aligned its structure with its strategy to
grow department, as well as off-the-mall, stores and services. The
organizational changes included:
- - The creation of separate organizations for department stores,
which sell apparel, home fashions and hardlines merchandise;
off-the-mall Home stores, comprised of Sears Hardware, Sears dealer and
HomeLife stores; and Home Services, consisting of Product Services and
other home improvement services.
- - The separation of the Automotive business into two divisions:
the Sears Tire Group, which sells and installs tires, batteries and
related goods and services through the Sears Auto, Tire America and NTW
stores; and the Parts Group, that includes the automotive parts stores
of Western Auto and Parts America.
Domestic operations include the department stores, the off-the-mall
stores (comprised of Home stores and Automotive stores), Home Services, Direct
Response and Credit. Credit primarily relates to the Sears Card, the largest
proprietary credit card in the United States. The domestic operations conduct
business in the United States and Puerto Rico.
International operations includes similar merchandising and credit
operations conducted in Canada through Sears Canada Inc. ("Sears Canada"), a
61.1% owned subsidiary, and in Mexico through Sears Roebuck de Mexico, S.A. de
C.V. ("Sears Mexico"), a 75.4% owned subsidiary.
Consolidated revenues for 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
millions 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic operations:
Domestic merchandising $28,020 $26,127 $23,806
Domestic credit 3,538 3,249 2,970
- --------------------------------------------------------------------------
Total domestic operations 31,558 29,376 26,776
International operations 3,367 3,649 3,668
- --------------------------------------------------------------------------
Total revenues $34,925 $33,025 $30,444
- --------------------------------------------------------------------------
</TABLE>
Consolidated revenues in 1995 rose $1.90 billion, or 5.8%. Domestic
revenues increased $2.18 billion, or 7.4%, primarily due to strong merchandise
sales and solid credit revenue increases. International operations revenues
declined $282 million, or 7.7%, primarily due to adverse exchange rate changes
and difficult economic conditions in both Canada and Mexico. In 1994,
consolidated revenues increased $2.58 billion, or 8.5%. Domestic revenues rose
$2.60 billion, or 9.7%, primarily due to hardlines and apparel sales increases
during the year. International revenues declined $19 million, or 0.5%, due to
adverse exchange rate changes. In local currencies, international revenues
increased 5.5% in 1994.
DOMESTIC OPERATIONS
Supplementary domestic merchandising information:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
millions, except number of stores 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Department store revenues $20,133 $18,910 $17,344
Off-the-mall store revenues 5,354 4,866 4,210
- --------------------------------------------------------------------------
Total retail store revenues 25,487 23,776 21,554
Service and other revenues 2,533 2,351 2,252
- --------------------------------------------------------------------------
Domestic merchandising revenues $28,020 $26,127 $23,806
- --------------------------------------------------------------------------
Number of department stores 806 800 799
Number of off-the-mall stores 1,500 1,140 1,018
- --------------------------------------------------------------------------
Total retail stores 2,306 1,940 1,817
- --------------------------------------------------------------------------
Retail store revenues per selling square foot $ 353 $ 346 $ 321
- --------------------------------------------------------------------------
Comparable store sales increase 4.7% 8.3% 8.9%
- --------------------------------------------------------------------------
</TABLE>
One of the primary objectives of the Company's growth strategy has
been to improve the sales productivity of its department stores. The success of
this strategy can be measured by the comparable store sales increases which
have remained strong over the past three years. The strength of the comparable
store sales increases becomes even more evident considering the intense
competition that the retail industry has experienced.
In addition to the strong comparable store sales increases, the
increase in revenues per selling square foot also demonstrates the improvement
in department store productivity.
17
SEARS, ROEBUCK AND CO.
ANALYSIS OF CONSOLIDATED OPERATIONS (CONTINUED)
Department store revenues increased 6.5% in 1995, which built on a
9.0% increase in 1994. Department store revenues have increased substantially
since the Company's restructuring announced in 1993 and have benefited from the
remodeling and modernization of 353 mall stores, the conversion of 3.8 million
square feet of non-selling space and 2.5 million square feet of selling space
formerly occupied by furniture departments to apparel selling space, and a more
targeted customer-focused merchandise selection.
Apparel sales posted significant gains in 1995, overcoming weak
industry conditions. Sales increases were strongest in women's dresses,
juniors, cosmetics, jewelry and men's fashions. The Company has undertaken
several initiatives to grow the apparel business. They include remodeling the
mall stores, offering more varied national brand-name merchandise and
developing private brand fashion merchandise for select lines.
Hardlines merchandise had solid revenue growth in 1995 but did not
achieve the same robust growth rates that were experienced in 1994. Brand
Central contributed the largest portion of the increase on strong sales in home
electronics, appliances and home office merchandise. Home Improvement sales
also contributed to the hardlines sales increase and were generated by solid
sales growth in hardware and exercise equipment.
In 1994, the increase in department store revenues was paced by
excellent hardline sales as appliances and home electronics merchandise
benefited from strong home-related consumer demand. Softline fashion sales also
increased significantly in 1994 as women's fashions, fine jewelry, cosmetics,
men's apparel and footwear sold particularly well.
[COMPARABLE STORE SALES GROWTH CHART]
With the department stores making considerable progress since the
restructuring, the Company has planned for future growth opportunities by
aggressively expanding its various off-the-mall store concepts.
Off-the-mall store revenues in 1995 increased 10.0% over 1994. The
Home stores contributed the largest portion of the revenue growth in 1995. The
increase was attributable to the expansion of the dealer store network, as the
Company opened 98 stores in 1995, and growth in the Sears Hardware and HomeLife
stores where 45 and 26 new stores were opened, respectively.
The automotive business also generated revenue growth in 1995. The
Company has aggressively expanded this business by opening 49 and acquiring 166
automotive parts stores. As the acquisitions of the 166 stores were not
completed until the fourth quarter, they did not have a significant impact on
1995 revenues. The Sears Tire Group experienced significant revenue growth with
the opening of 15 NTW and 6 Tire America Stores in 1995.
In 1994, off-the-mall store revenues increased 15.6% over 1993. The
increase was attributable to the growth of the Sears dealer, Sears Hardware and
HomeLife stores networks. Revenues at the Automotive stores increased slightly
in 1994, as strong sales increases in the Parts Group were partially offset by
sales declines in the Sears Tire Group, reflecting the discontinuation of
unprofitable product lines and services at the Sears Auto Centers.
Service and other revenues, which are generated by the home services
and direct response businesses, increased 7.8% in 1995 and 4.4% in 1994.
Increases in product services maintenance agreement sales, which benefited from
strong Brand Central sales, accounted for the 1995 and 1994 growth.
Supplementary domestic credit revenue information:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
millions 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues $ 3,863 3,600 3,486
Funding cost on securitized receivables $ (325) (351) (516)
Net revenues $ 3,538 3,249 2,970
Sears Card sales as a % of sales (1) 59.7% 58.3 58.0
Gross customer receivables $23,760 21,325 20,351
Receivable balances sold at year end $ 4,549 3,946 5,174
Owned customer receivables at year end $19,211 17,379 15,177
Average gross receivables $21,685 20,094 19,649
Average owned receivables $17,381 15,718 13,471
Average account balance (dollars) $ 912 842 795
- --------------------------------------------------------------------
</TABLE>
(1) For department and HomeLife stores only.
In 1995, gross credit revenues increased 7.3% reflecting higher gross
receivable balances driven by strong merchandise sales and a reduction in the
minimum required monthly payment rate. The percentage of merchandise sales and
services transacted with the Sears Card in 1995 increased due to continuing
efforts to integrate the Sears Card with the promotional plans of the
department and off-the-mall stores. In 1994, gross credit revenues increased
3.3% against 1993, reflecting strong merchandise sales.
18
SEARS, ROEBUCK AND CO.
ANALYSIS OF CONSOLIDATED OPERATIONS (CONTINUED)
Key operating measures for domestic operations:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
millions 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Gross margin $7,465 7,093 6,548
Percent of merchandise sales and services 26.6% 27.1 27.5
Selling and administrative expense $6,813 6,710 6,238
Percent of total revenues 21.6% 22.8 23.3
Interest expense $1,183 1,120 1,159
Funding cost on securitized receivables $ 325 351 516
Total funding costs $1,508 1,471 1,675
Provision for uncollectible accounts $ 764 650 795
Operating income $1,729 1,400 880
Percent of total revenues 5.5% 4.8 3.3
Net credit charge-offs to average gross
customer receivables 3.52% 3.32 3.45
Gross credit customer receivables delinquent
sixty days or more 4.19% 3.86 3.55
Allowance for uncollectible accounts as a
percentage of gross credit customer
receivables at year end 3.87% 4.31 4.72
- ----------------------------------------------------------------------------
</TABLE>
Note: Corporate operating results are insignificant and have been included
in Domestic Operations for 1995. Domestic Operations results for 1994
and 1993 have been restated to include Corporate.
Gross margin as a percentage of merchandise sales and services
declined from 27.1% in 1994 to 26.6% in 1995. Gross margins were pressured by
intense competition in the retail marketplace throughout the year, but fourth
quarter gross margin rates increased relative to 1994 in the important holiday
selling season on improved markdown trends. The year-to-year difference in the
LIFO adjustment lowered 1995 gross margins by 20 basis points as compared to
1994.
In 1994, gross margin as a percentage of merchandise sales and services
decreased to 27.1% from 27.5% due largely to the strong sales performance in
the Brand Central and home improvement departments, which provide lower gross
margin rates than domestic merchandising operations as a whole.
Domestic operations selling and administrative expense as a percent of
revenues in 1995 improved 120 basis points to 21.6% from 22.8% in 1994. The
improvement in the selling and administrative expense ratio reflects the
Company's continued emphasis on controlling expenses and leveraging its fixed
cost base with strong revenue growth. Payroll, store operating and general
overhead costs continued to decline as a percentage of revenues in 1995.
Included in domestic operations selling and administrative expense in
1995 was a $51 million pretax restructuring charge related to the Company's
realignment initiative. This initiative better aligns the Company's structure
with its growth strategy, particularly the creation of separate tire and auto
parts units and the consolidation of certain distribution facilities. Beginning
in 1997, resulting after-tax savings from the restructuring will be
approximately $30 to $35 million annually.
In 1995, the Company also reversed $62 million of pretax reserves
previously established as part of its $2.65 billion restructuring announced in
1993, which are no longer needed based on the settlement of obligations and the
adjustment of the carrying values of certain properties to be disposed of in
connection with that restructuring. This reserve adjustment was also included
in domestic operations selling and administrative expense in 1995.
In 1994, selling and administrative expense as a percent of revenues
declined 50 basis points to 22.8% from 23.3% in 1993. The improvement was
primarily attributable to a reduction in payroll and store operating costs as a
percent of revenues.
[DOMESTIC OPERATIONS SELLING AND ADMINISTRATIVE
EXPENSE PERCENT OF REVENUES CHART]
Total domestic funding costs, comprised of interest expense and the
cost associated with receivable securitizations, increased 2.6% as compared to
1994 reflecting the growth in gross credit receivables partially offset by a
lower effective funding rate resulting from the favorable interest rate
environment in 1995.
In 1994, total domestic funding costs decreased 12.2% reflecting lower
funding needs stemming from the strategic repositioning partially offset by
higher retail customer receivables.
The provision for uncollectible accounts increased 17.5% from 1994.
The increase is attributable to a number of factors, primarily the 7.9% growth
of the average gross receivable balance from 1994 levels, the rise in the
delinquency rate and the increase in the net charge-off rate due to the
industry-wide unfavorable trend in customer bankruptcies. The Company has
responded to the rise in bankruptcies and delinquency trends by stepping up
collection efforts and implementing additional collection strategies.
In 1994, the provision for uncollectible accounts was 18.2% lower than
1993 reflecting favorable customer write-off trends.
The key measure of the improved profit performance of domestic
operations is the growth in operating income from 1993 through 1995. The
improved performance is attributable to the strong merchandising revenue
growth, the reduction in selling and administrative expense as a percent of
revenues and the strong credit performance, partially offset by a decline in
gross margin rates.
19
SEARS, ROEBUCK AND CO.
ANALYSIS OF CONSOLIDATED OPERATIONS (continued)
[DOMESTIC OPERATIONS OPERATING INCOME PERCENT OF REVENUES CHART]
INTERNATIONAL OPERATIONS
Revenues in U.S. dollars declined 7.7% in 1995 compared to 1994, largely
reflecting unfavorable Mexican Peso exchange rates. In local currencies,
revenues at Sears Canada decreased 3.5% from 1994 as continued slow economic
conditions depressed sales. Revenues at Sears Mexico declined 0.2% in constant
pesos in 1995 as consumer demand was stifled under government economic controls
aimed at curbing inflation.
Gross margins as a percentage of merchandising revenues declined to
23.3% in 1995 from 23.8% in 1994. Gross margin rates of Sears Canada declined
in 1995 on higher markdown trends at the retail stores and lower initial
margins at catalog. Gross margin rates also declined at Sears Mexico in 1995 as
markdowns increased in an effort to stimulate sales growth in response to lower
consumer spending.
Selling and administrative expense as a percent of total revenues
increased to 22.7% in 1995 from 21.6% in 1994. Selling and administrative
expenses at Sears Canada declined in total dollars in 1995 reflecting continued
cost control efforts but increased as a percentage of revenues due to year over
year sales declines. Selling and administrative expense as a percentage of
revenues increased at Sears Mexico in 1995 as inflationary cost increases
outpaced sales growth in the post-devaluation economic environment.
International operating income declined $78 million in 1995 as
operating performance suffered at Sears Canada and Sears Mexico in difficult
economic conditions.
In 1994, revenues in local currencies increased 5.5%. The improvement
in local currencies was attributable to a 1.7% increase at Sears Canada coupled
with a 27.5% increase at Sears Mexico, as sales benefited from the opening of
two new stores. Revenues in U.S. dollars declined slightly against 1993 due
mainly to unfavorable Canadian exchange rates.
Gross margins as a percent of merchandising revenues improved to 23.8%
in 1994 from 20.9% in 1993 due to improved inventory controls at Sears Canada,
partially offset by lower gross margins at Sears Mexico stemming from a
repositioning of that business.
Selling and administrative expense as a percentage of merchandising
revenues decreased to 21.6% in 1994 from 21.8% in 1993 as expense reductions at
Sears Canada were partially offset by increased costs at Sears Mexico.
Operating income as a percentage of total revenues improved
250 basis points in 1994 over 1993 primarily due to an improved operating
performance at Sears Canada. The improvement at Sears Canada was partially
offset by lower operating income at Sears Mexico stemming from the merchandise
inventory repositioning.
INTEREST EXPENSE AND FUNDING COSTS
Since the Company uses securitizations of retail customer receivables as a
significant funding source, total funding costs include interest expense, as
shown on the consolidated statements of income, and the funding cost of
securitized receivables. The changes in funding cost were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
millions 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in interest expense $ 94 $ (39)
Decrease in funding cost of securitized receivables (1) (16) (173)
- ----------------------------------------------------------------------------
Increase (decrease) in funding costs $ 78 $(212)
- ----------------------------------------------------------------------------
</TABLE>
(1) Funding costs of securitized receivables are reported as a reduction of
revenues in the consolidated statements of income.
Consolidated funding costs increased $78 million in 1995 and declined
$212 million in 1994. The increase in funding costs in 1995 reflects a higher
level of debt required to fund increases in owned customer receivables and a
higher interest rate environment in Mexico and Canada, partially offset by a
lower domestic effective funding rate which benefited from a favorable domestic
interest rate environment in 1995.
The decline in funding costs in 1994 reflects the paydown of debt from
the proceeds of the strategic repositioning partially offset by higher domestic
operations interest expense stemming from higher domestic customer receivable
balances.
20
SEARS, ROEBUCK AND CO.
ANALYSIS OF CONSOLIDATED OPERATIONS (continued)
OTHER INCOME
Other income increased $6 million to $23 million in 1995 primarily due to
higher gains from sales of property and investments. Other income decreased $93
million to $17 million in 1994 reflecting lower gains from sales of property
and investments.
A summary of other income by type follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
millions 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Gain on sales of property and investments $35 $22 $ 73
Equity in joint ventures and unconsolidated
subsidiaries (1) (1) 7
Minority interest (4) (14) (7)
Other (7) 10 37
- --------------------------------------------------------------------
Total $23 $17 $110
- --------------------------------------------------------------------
</TABLE>
The equity in joint ventures and unconsolidated subsidiaries included
the results of Advantis and Prodigy. The Company holds a minority interest in
Advantis, a joint venture with a subsidiary of International Business Machines
Corporation ("IBM"), which provides data and voice networking services for the
Company, IBM and other customers. The Company also holds a 50% interest in
Prodigy, a partnership with IBM, which offers a variety of online personal
computer services.
The Company intends to dispose of its interest in Prodigy. Although
currently the Company does not expect to incur a loss on the disposal, any loss
that might result is not expected to materially impact annual operating
results.
INCOME TAX EXPENSE
Income tax expense as a percentage of pretax income was 40.7% in 1995 as
compared to 41.7% in 1994. In 1993, the effective tax rate was 34.5% and was
favorably impacted by a $57 million tax credit from the adjustment of deferred
tax assets due to the 1% increase in the federal income tax rate resulting from
the Omnibus Budget Reconciliation Act of 1993.
EXTRAORDINARY ITEMS
Results for 1994 included a $195 million extraordinary gain related to the
early extinguishment of debt associated with the Company's transfer of Sears
Tower and all related assets and liabilities to a third party as trustee of a
trust in November 1994. The elimination of the related mortgages reduced
Corporate debt by $845 million and resulted in annual interest savings of
approximately $75 million.
An extraordinary loss of $211 million related to the early
extinguishment of debt was included in 1993 results. This extraordinary loss
included the call of a $300 million, 7% deep-discount bond issue ($66 million)
and payments to terminate interest rate swaps associated with retired
commercial paper that was allocated to the funding of discontinued operations
($145 million). The 7% deep-discount bond issue carried an effective yield of
14.6%, and the interest rate swaps, which converted variable to fixed-rate debt,
carried an average fixed rate of 9.2%.
INFLATION
Reported earnings have been impacted by inflation; however, there is no simple
way of separating those effects. Competitive and regulatory conditions
permitting, the Company modifies the prices charged for its goods and services
in order to recognize cost changes as incurred or as anticipated. By also
attempting to control costs and efficiently utilize resources, the Company
strives to minimize the effects of inflation on its operations.
21
Sears, Roebuck and Co.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
millions 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and invested cash $ 606 $ 548
Retail customer receivables 20,949 19,033
Less: Allowance for uncollectible accounts and unearned finance charge 843 832
- ------------------------------------------------------------------------------------------------------------------------------------
20,106 18,201
Other receivables 444 321
Merchandise inventories 4,033 4,044
Prepaid expenses and deferred charges 360 303
Deferred income taxes 892 712
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 26,441 24,129
Property and equipment
Land 387 371
Buildings and improvements 4,382 4,041
Furniture, Fixtures and equipment 3,775 3,777
Capitalized leases 313 229
- ------------------------------------------------------------------------------------------------------------------------------------
8,857 8,418
Less accumulated depreciation 3,780 4,165
- -----------------------------------------------------------------------------------------------------------------------------------
Total property and equipment, net 5,077 4,253
Deferred income taxes 879 893
Other assets 733 806
Net assets of discontinued operations -- 7,231
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $33,130 $37,312
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Current Liabilities
Short-term borrowings $ 5,349 $ 6,190
Current portion of long-term debt and capitalized lease obligations 1,730 1,141
Accounts payable and other liabilities 6,133 5,307
Unearned revenues 887 795
Other taxes 508 480
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 14,607 13,913
Long-term debt and capitalized lease obligations 10,044 8,844
Postretirement benefits 2,825 2,810
Minority interest and other liabilities 1,269 944
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 28,745 26,511
- ------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Preferred shares ($1 par value, 50 shares authorized)
8.88% Preferred Shares, First Series (3.25 shares issued and outstanding) 325 325
Series A Mandatorily Exchangeable Preferred Shares (7.1875 shares issued and outstanding
as of Dec. 31, 1994) -- 1,236
Common shares ($.75 par value, 1,000 shares authorized, 390.5 and 351.7 shares outstanding) 322 294
Capital in excess of par value 3,634 2,385
Retained income 2,444 8,918
Treasury stock--at cost (1,634) (1,690)
Minimum pension liability (285) --
Deferred ESOP expense (253) (558)
Unrealized net capital gains -- 32
Cumulative translation adjustments (168) (141)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 4,385 10,801
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $33,130 $37,312
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
22
SEARS, ROEBUCK AND CO.
ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
The Company's significant financial capacity and flexibility are
exemplified by the quality and liquidity of its assets and by its ability to
access multiple sources of capital.
The retail customer receivables portfolio of $20.11 billion of owned
receivable balances excludes $5.08 billion of receivables sold through
securitizations. Domestic and international accounts represent $18.92 billion
and $1.19 billion of the owned portfolio, respectively. The portfolio is
geographically diversified in the U.S., Canada and Mexico. The Company extends
and monitors retail consumer credit based on an extensive use of proprietary
and commercially available credit histories and scoring models. The Company
promptly recognizes uncollectible accounts and emphasizes the maintenance of an
adequate loss allowance, which is assessed using multiple modeling approaches
based on the portfolio risk characteristics. Domestic accounts are written off
at 210 days delinquent or within 60 days of receipt of a bankruptcy notice.
Merchandising inventories are primarily valued on the last-in, first-out or
LIFO method. Inventories would have been $711 million higher if valued on the
first-in, first-out or FIFO method at Dec. 30, 1995. Inventories on a FIFO
basis totaled $4.74 billion at Dec. 30, 1995 and Dec. 31, 1994.
[1995 ASSETS CHART]
CAPITAL RESOURCES
Total net funding for the Company at Dec. 30, 1995 was $22.06
billion compared with $20.53 billion at Dec. 31, 1994, and was used primarily
to fund retail customer receivables. Net funding includes debt reflected on the
balance sheet and investor certificates related to retail customer receivables
sold through securitizations. Funding related to customer receivables grew
during the year, as gross customer receivables increased, reflecting the
continuing strength of the Sears Card business. The Company's debt-to-equity
ratio was 3.9 at Dec. 30, 1995.
[FUNDING SOURCES AT YEAR-END 1995 CHART]
FUNDING SOURCES AT YEAR-END 1995
During 1994, the Company eliminated debt of $845 million through the
transfer of Sears Tower and all related assets and liabilities to a third party
as trustee of a trust. Debt was reduced by $2.41 billion as a result of the
classification of Allstate and Homart as discontinued operations.
The Company accesses a variety of capital markets to preserve flexibility
and diversify its funding sources. The broad access to capital markets also
allows the Company to effectively manage liquidity and repricing risk.
Liquidity risk is the measure of the Company's ability to fund maturities and
provide for the operating needs of its businesses. Repricing risk is the impact
on net income due to changes in interest rates. The Company's cost of funds is
affected by a variety of general economic conditions, including the level and
volatility of interest rates. To aid in the management of repricing risk, the
Company uses off-balance sheet instruments, such as interest rate swaps and
caps. The Company has policies that centrally govern the use of off-balance
sheet instruments.
23
SEARS, ROEBUCK AND CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
millions 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,801 $ 1,454 $ 2,374
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation, amortization and other noncash items 631 601 645
Extraordinary (gain) loss related to early extinguishment of debt -- (319) 107
Provision for uncollectible accounts 826 698 821
Gain on sales of property and investments (35) (22) (73)
Change in:
Deferred income taxes 37 359 341
Retail customer receivables (2,807) (3,199) (2,868)
Merchandise inventories (7) (594) 514
Other operating assets (145) 638 (111)
Other operating liabilities 837 (148) (865)
Discontinued operations (776) (402) (1,960)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 362 (934) (1,075)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments -- -- 364
Proceeds from sales of property and equipment 41 26 10
Purchases of property and equipment (1,183) (954) (562)
Discontinued operations--net 483 233 1,289
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (659) (695) 1,101
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 2,588 2,798 707
Repayments of long-term debt (1,124) (2,717) (1,537)
Increase (decrease) in short-term borrowings, primarily 90 days or less (637) 1,617 980
Repayments of ESOP note receivable 44 69 15
Common shares issued for employee stock plans 97 45 193
Dividends paid to shareholders (607) (698) (727)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 361 1,114 (369)
- ----------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND INVESTED CASH (6) (3) (1)
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND INVESTED CASH 58 (518) (344)
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND INVESTED CASH AT BEGINNING OF YEAR 548 1,066 1,410
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND INVESTED CASH AT END OF YEAR $ 606 $ 548 $ 1,066
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
24
SEARS, ROEBUCK AND CO.
ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION (Continued)
The current debt ratings of the Company appear in the table
below. The Company believes that its debt ratings continue to afford
cost-effective access to the capital markets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Moody's Duff & Fitch
Investors Phelps Investors
Services, Standard Credit Service
Inc. & Poor's Rating Co. Inc.
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unsecured long-term debt A2 BBB A A
Unsecured commercial paper P-1 A-2 D-1 F-1
Term securitization Aaa AAA AAA AAA
Asset-backed commercial paper P-1 A-1+ NR NR
- ---------------------------------------------------------------------------------------
NR--Not rated.
</TABLE>
On January 5, 1996, Standard & Poor's placed the unsecured
long-term debt rating of the Company under review with positive implications.
The Company utilizes Sears Roebuck Acceptance Corp. ("SRAC"), a
wholly-owned subsidiary, to issue long-term underwritten debt, to maintain a
continuously offered medium-term note program, to issue intermediate-term notes
and to issue commercial paper. SRAC issued term debt securities totaling $1.93
billion in 1995. SRAC commercial paper outstandings were $4.45 billion and $4.91
billion at Dec. 30, 1995 and Dec. 31, 1994, respectively. SRAC commercial paper
is supported by a $4.68 billion syndicated credit facility which expires in 2000
and by a $1.0 billion, 364-day, syndicated credit facility.
The Company also issues commercial paper secured by retail customer
receivables through the Sears Credit Corp. ("SCC") entities. The commercial
paper issued by SCC is collateralized by Sears Card receivables and allows for
the cost-effective management of the Company's term securitization issues. SCC
commercial paper outstandings were $1.00 billion and $1.75 billion at Dec. 30,
1995 and Dec. 31, 1994, respectively. SCC commercial paper is supported by
syndicated credit facilities of $1.04 billion.
In 1995, the Company and SRAC issued medium-term notes in an on-going
program to average interest rates on a portion of its term senior unsecured
financings. Variable-rate notes totaling $292 million were issued in 1995 at an
average maturity of 2.3 years. Fixed-rate issuances in 1995 totaled $1.64
billion with a weighted average coupon of 6.5% and an average term of 3.9
years. During 1995, SRAC issued $500 million of discrete senior debt with a
weighted average coupon of 6.63% and an average term of 7.5 years.
The Company securitizes credit card receivables to access
intermediate-term investors in a cost-effective manner. These securities are
rated in the highest category by the national rating agencies. The Company
issued $2.39 billion of domestic, fixed-rate term securitizations in 1995 at an
average coupon of 7.03%. As of Dec. 30, 1995, there were $6.91 billion of
domestic investor certificates outstanding, which were backed by $4.55 billion
of sold domestic retail customer receivables and $2.36 billion of other
investments.
On Mar. 20, 1995, the Company exchanged all of its 28.8 million Series
A Mandatorily Exchangeable Preferred Shares ("PERCS") for 35.7 million common
shares of the Company. The exchange did not dilute earnings per share as the
PERCS were reflected in the Company's earnings per share calculation in prior
years.
CAPITAL SPENDING
The Company is currently in the middle of a five-year, $4 billion
capital expenditure program which is focused on renovating and updating the
department stores. In addition, the Company plans to grow its off-the-mall
businesses. The capital expended for property and equipment during the past
three years has been used as follows:
- --------------------------------------------------------------------------------
millions 1995 1994 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Department stores, primarily remodel and expansion
efforts $ 868 $673 $306
Off-the-mall stores 111 106 82
Other - distribution centers/support functions 204 175 174
- ---------------------------------------------------------------------------------
Total capital expenditures $1,183 $954 $562
- ---------------------------------------------------------------------------------
</TABLE>
The Company plans capital expenditures of $1.40 billion for 1996, which
includes remodeling and expansion of approximately 100 existing stores, and
opening of 10 to 20 new department stores, 65 to 75 Sears Hardware stores, 10 to
15 HomeLife stores and 100 to 115 automotive stores. The Company may also pursue
selective strategic acquisitions as a means of growth.
OPERATING, INVESTING AND FINANCING ACTIVITIES
Cash flows from operating activities consist primarily of net income adjusted
for certain noncash expense items including depreciation, the provision for
uncollectible accounts, changes in receivables, inventories and deferred taxes.
Cash provided by operating activities in 1995 improved $1.30 billion as
compared with 1994. The change was due to higher income from continuing
operations, lower levels of inventory growth, lower increases in owned domestic
customer receivables and a larger increase in other operating liabilities as
compared to 1994. These changes were partially offset by an increase in other
operating assets as compared to 1994. The lower levels of inventory growth in
1995 reflect the Company's continued emphasis on inventory management and
control. The lower increase in owned customer receivables reflects higher levels
of securitized receivables partially offset by higher levels of gross domestic
customer receivables. The cash generated by other operating liabilities is due
primarily to lower levels of restructuring payments and a general increase in
other operating liabilities in 1995 as compared to 1994. The increase in other
operating assets reflects a change in other receivables related to the Company's
securitization program which occurred in 1994.
25
SEARS, ROEBUCK AND CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
dollars in millions shares in thousands
<S> <C> <C> <C> <C> <C> <C>
8.88% PREFERRED SHARES, FIRST SERIES
Balance, beginning of year $ 325 $ 325 $ 325 3,250 3,250 3,250
Issued during year -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 325 $ 325 $ 325 3,250 3,250 3,250
- -----------------------------------------------------------------------------------------------------------------------------------
SERIES A MANDATORILY EXCHANGEABLE
PREFERRED SHARES (PERCS)
Balance, beginning of year $ 1,236 $ 1,236 $ 1,236 7,188 7,188 7,188
Issued during year -- -- -- -- -- --
Exchanged to common shares during year (1,236) -- -- (7,188) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ -- $ 1,236 $ 1,236 -- 7,188 7,188
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES
Balance, beginning of year $ 294 $ 294 $ 291 392,310 391,752 387,514
Conversion of PERCS 27 -- -- 35,673 -- --
Stock options exercised and other changes 1 -- 3 1,700 558 4,238
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 322 $ 294 $ 294 429,683 392,310 391,752
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL IN EXCESS OF PAR VALUE
Balance, beginning of year 2,385 2,354 2,195
Stock options exercised and other changes 40 31 159
Conversion of PERCS 1,209 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 3,634 2,385 2,354
- -----------------------------------------------------------------------------------------------------------------------------------
RETAINED INCOME
Balance, beginning of year 8,918 8,163 8,772
Net income 1,801 1,454 2,374
Preferred share dividends (53) (137) (137)
Common share dividends ($1.26, $1.60 and $1.60 per share) (475) (562) (558)
Distribution of The Allstate Corporation shares (7,747) -- --
Distribution of Dean Witter, Discover & Co. shares -- -- (2,288)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 2,444 8,918 8,163
- -----------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK-AT COST
Balance, beginning of year (1,690) (1,704) (1,734) (40,570) (40,904) (41,670)
Reissued under compensation plans 56 14 30 1,375 334 766
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (1,634) (1,690) (1,704) (39,195) (40,570) (40,904)
- -----------------------------------------------------------------------------------------------------------------------------------
MINIMUM PENSION LIABILITY
Balance, beginning of year -- -- --
Minimum liability adjustment during year (285) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (285) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
DEFERRED ESOP EXPENSE
Balance, beginning of year (558) (614) (700)
Reductions 305 56 86
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (253) (558) (614)
- -----------------------------------------------------------------------------------------------------------------------------------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year 32 1,674 428
Net increase (decrease) 1,176 (1,642) 1,246
Distribution of The Allstate Corporation shares (1,208) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year -- 32 1,674
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year (141) (64) (40)
Net unrealized loss during year (7) (77) (24)
Distribution of The Allstate Corporation shares (20) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (168) (141) (64)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON SHAREHOLDERS' EQUITY
AND SHARES OUTSTANDING $ 4,060 $ 9,240 $10,103 390,488 351,740 350,848
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 4,385 $ 10,801 $11,664
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
26
SEARS, ROEBUCK AND CO.
ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION (Continued)
Cash used in operations in 1994 decreased $141 million compared with 1993.
The change was due to higher income from continuing operations, a decrease in
other operating assets and a smaller decrease in other operating liabilities
compared to 1993. These changes were partially offset by an increase in
merchandise inventories, a larger increase in owned retail customer receivables
compared with 1993 and a lower provision for uncollectible accounts. The
decrease in other operating assets was primarily due to changes in receivables
related to the Company's securitization program. The increase in owned retail
customer receivables was due to higher gross retail customer receivables
partially offset by lower securitized receivables. Merchandise inventories
increased as a result of expansion of selling space in the department stores
and the growth of the off-the-mall stores.
Net cash used in investing activities decreased in 1995 due to higher
cash realized from discontinued operations partially offset by increased levels
of capital expenditures from the department store remodel program. The cash
realized from discontinued operations in 1995 relates primarily to the proceeds
from the sale of Homart. Net cash used in investing activities in 1994
increased over 1993, reflecting a lower level of cash provided by discontinued
operations and higher store remodeling capital expenditures.
The decline in cash provided by financing activities in 1995 was
primarily due to an increase in securitization levels to finance retail
customer receivable growth over 1994 levels.
Net cash provided by financing activities in 1994 was primarily due to
increases in short-term borrowings supporting higher owned retail customer
receivable balances, resulting from the decrease in receivables sold through
securitizations.
The Company paid cash dividends of $1.43 per common share in
1995, the 60th consecutive year of payout. Since the Allstate spin-off, the
Company's quarterly cash dividend has been $0.23 per common share. The payment
of future common dividends is dependent upon the Company's earnings and
investment opportunities.
27
SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sears, Roebuck
and Co. ("the Company") and all significant domestic and international
companies in which the Company has more than a 50% equity ownership.
Investments in companies in which the Company has a 20% to 50% ownership are
accounted for using the equity method. The Allstate Corporation ("Allstate"),
Homart Development Co. and affiliated entities ("Homart"), Dean Witter,
Discover & Co. ("Dean Witter") and Coldwell Banker and affiliated entities
("Coldwell Banker") are presented as discontinued operations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Although not a part of the financial statements, included with the
consolidated statements is a five-year summary of consolidated financial data.
Certain reclassifications have been made in the 1994 and 1993 financial
statements to conform to current accounting classifications.
FISCAL YEAR
In 1994, the Company changed its fiscal year to end on the last Saturday in
December. Fiscal year 1995 ended on December 30, while fiscal years 1994 and
1993 ended on December 31.
MERCHANDISE SALES AND SERVICES
Revenues from merchandise sales and services are net of returns and allowances
and exclude sales tax. Included in merchandise sales and services are gross
revenues from licensed departments of $1.10, $1.07 and $1.03 billion for 1995,
1994 and 1993, respectively.
MAINTENANCE AGREEMENTS
The Company sells extended service contracts with terms of coverage between 12
and 36 months. Revenue and incremental direct acquisition costs from the sale
of these contracts are deferred and amortized on a straight-line basis over the
lives of the contracts. Costs related to servicing the contracts are expensed
as incurred.
STORE PRE-OPENING EXPENSES
Costs associated with the opening of new stores are expensed in the year
incurred.
EARNINGS PER COMMON SHARE
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 $29 million in 1995, 1994 and 1993 on the
8.88% Preferred Shares. The Series A Mandatorily Exchangeable Preferred Shares
("PERCS") were exchanged for common shares on Mar. 20, 1995.
CASH AND INVESTED CASH
Cash and invested cash includes all highly liquid investments with maturities
of three months or less.
RETAIL CUSTOMER RECEIVABLES
Retail customer receivables at Dec. 30, 1995 include approximately $9.9 billion
of domestic accounts and $406 million of Canadian accounts which will not
become due within one year. These receivables are expected to earn finance
charge revenue at annual percentage rates ranging from 10.3% to 21.0% for
domestic accounts and 28.8% for Canadian accounts.
Retail customer receivables are shown net of an allowance for
uncollectible accounts. When receivables are securitized and sold with
recourse, the portion of the allowance for uncollectible accounts pertaining to
such receivables is transferred to a recourse liability at the date of sale.
Factors such as prior account loss experience, changes in the volume of the
account portfolio and overall portfolio quality are considered in determining
the allowance and the recourse liability.
MERCHANDISE INVENTORIES
Merchandise inventories of domestic operations are valued at the lower of cost
(primarily using the last-in, first-out or LIFO method) or market using the
retail method. To estimate the effects of inflation in inventories, the Company
utilizes internally developed price indices.
The LIFO adjustment to cost of sales was a charge of $19 million in
1995, compared with a credit of $34 million in 1994 and a charge of $5 million
in 1993. Partial liquidation of merchandise inventories valued under the LIFO
method in all three years resulted in credits of $15, $3 and $74 million in
1995, 1994 and 1993, respectively. If the first-in, first-out (FIFO) method of
inventory valuation had been used instead of the LIFO method, merchandise
inventories would have been $711 and $692 million higher at Dec. 30, 1995 and
Dec. 31, 1994, respectively.
Merchandise inventories of international operations, Western Auto and
Puerto Rico, which represent approximately 18% of merchandise inventories, are
recorded based on the FIFO method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided principally by the straight-line method over the
estimated useful lives of the related assets, generally 5 to 10 years for
equipment and 40 to 50 years for real property. Accumulated depreciation was
$3.78 and $4.17 billion at Dec. 30, 1995 and Dec. 31, 1994, respectively.
INCOME TAXES
The consolidated federal income tax return of Sears, Roebuck and Co. includes
results of the domestic operations of both the continuing businesses and
discontinued operations. Tax liabilities and benefits are allocated as
generated by the respective businesses, whether or not such benefits would be
currently available on a separate return basis.
28
SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company utilizes various off-balance sheet financial instruments to manage
the interest rate and foreign currency risk associated with its borrowings. The
counterparties to these instruments are major financial institutions with
credit ratings primarily of AA.
Interest rate swap agreements modify the interest characteristics of a
portion of the Company's debt. The differential to be paid or received is
accrued as interest rates change and recognized as an adjustment to interest
expense in the statement of income. The related accrued receivable or payable
is included in other assets or liabilities. The fair values of the swap
agreements are not recognized in the financial statements.
Interest rate caps are used to lock in a maximum rate if rates rise,
but enable the Company to otherwise pay lower market rates. The cost of
interest rate caps is amortized to interest expense over the life of the caps.
Payments received due to the interest rate caps reduce interest expense. The
unamortized cost of the interest rate caps is included in other assets.
2. DISCOUNTINUED OPERATIONS
Income from discontinued operations was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
millions 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating income, net of income tax
expense (benefit) of $249, $(256) and $240 $776 $402 $1,389
Gain from Allstate's initial public offering -- -- 635
Loss on disposal, including income tax expense of $22 -- -- (64)
- ----------------------------------------------------------------------------
Total $776 $402 $1,960
- ----------------------------------------------------------------------------
</TABLE>
On Nov. 10, 1994, the Company announced its intention to distribute in
a tax-free dividend to the Company's common shareholders its 80% 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, .93 shares of The Allstate Corporation for each Sears
common share owned. This transaction resulted in a noncash dividend to Sears
shareholders totaling $8.98 billion.
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.
In March 1993, Dean Witter completed an initial public offering of 20%
of its common stock. The Company did not recognize a gain on this transaction.
On June 18, 1993, the Company's Board of Directors approved a tax-free spin-off
of Dean Witter to the Company's common shareholders. Sears common shareholders
of record on June 28, 1993 received, effective June 30, 1993, .39 shares of
Dean Witter for each Sears common share owned. This transaction resulted in a
noncash dividend to Sears common shareholders totaling $2.29 billion.
In May 1993, the Company entered into separate agreements to sell the
Coldwell Banker residential business and the mortgage banking operations. A $64
million after-tax loss was recorded in the second quarter of 1993 primarily due
to adverse income tax effects related to the sale of Sears Savings Bank (an
affiliate of Coldwell Banker). These sales were completed in the fourth quarter
of 1993.
The operating results of the discontinued operations are
summarized below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
millions 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Allstate
Revenues $11,244 $21,464 $20,946
Income 776 388 1,160
Homart
Revenues $ 256 $ 266 $ 234
Income (loss) -- 14 (11)
Dean Witter
Revenues $ -- $ -- $ 2,832
Income -- -- 248
Coldwell Banker
Revenues $ -- $ -- $ 1,204
Income (loss) $ -- $ -- (8)
- ---------------------------------------------------------------------------
</TABLE>
3. RESTRUCTURING
Included in domestic operations selling and administrative expenses in 1995 was
a $51 million pretax restructuring charge associated with the Company's
organizational realignment.This initiative better aligns the Company's
structure with its growth strategy, particularly the creation of separate tire
and auto parts units and the consolidation of certain distribution facilities.
Beginning in 1997, resulting after-tax savings from the restructuring will be
an estimated $30 to $35 million annually.
In 1995, the Company also reversed $62 million of pretax reserves related
to the $2.65 billion domestic merchandising restructuring announced in 1993.
The reserves which were released are no longer needed due to the settlement of
obligations and the adjustment of the carrying values of certain properties to
be disposed of in connection with that restructuring. The remaining reserve
balance for that restructuring is not material.
29
SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
Income before income taxes was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
millions 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $1,727 $1,411 $ 905
Foreign 1 60 49
- --------------------------------------------------------------------
Total $1,728 $1,471 $ 954
- --------------------------------------------------------------------
</TABLE>
Federal, state and foreign taxes were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
millions 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax
Current $ 571 $ 324 $ (35)
Deferred 31 171 295
State income tax
Current 93 45 (5)
Deferred 10 38 57
Foreign income tax
Current 23 51 8
Deferred (25) (15) 9
- --------------------------------------------------------------------
Income tax provision $ 703 $ 614 $ 329
- --------------------------------------------------------------------
</TABLE>
A reconciliation of the statutory federal income tax rate to the
effective rate was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income taxes 3.9 3.8 3.6
Deferred income taxes adjustment for rate change -- -- (6.0)
Other 1.8 2.9 1.9
- --------------------------------------------------------------------
Effective income tax rate 40.7% 41.7% 34.5%
- --------------------------------------------------------------------
</TABLE>
Deferred taxes based upon differences between the financial statement
and tax bases of assets and liabilities and available tax carryforwards
consisted of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Assets/(Liabilities) in millions 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Unearned maintenance income $ 430 $ 294
Allowance for uncollectible accounts 377 362
Alternative minimum tax credit -- 57
Workers' compensation reserve 71 62
Public liability claims reserve 79 60
Postretirement benefit liability 1,161 1,146
Minimum pension liability 183 --
Other deferred tax assets 680 662
Property and equipment (548) (402)
Prepaid pension (187) (159)
LIFO (125) (169)
Other deferred tax liabilities (350) (308)
- --------------------------------------------------------------------
Total $1,771 $1,605
- --------------------------------------------------------------------
</TABLE>
U.S. income and foreign withholding taxes were not provided on certain
unremitted earnings of international affiliates which the Company considers to
be permanent investments. The cumulative amount of unremitted income for which
income taxes have not been provided totaled $241 million at Dec. 30, 1995. If
these earnings were to be remitted, taxes of $64 million would be due.
Income taxes of $616, $470 and $(171) million were paid (refunded) in
1995, 1994 and 1993, respectively.
5. BENEFIT PLANS
Expenses for retirement and savings-related benefit plans were
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
millions 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Savings and Profit Sharing Fund of Sears
Employees
Defined contribution $ 61 $ 61 $ 64
Additional ESOP benefit (19) (4) (23)
Pension plans 38 (61) (45)
Retiree insurance benefits 185 232 249
Other plans 10 8 18
- --------------------------------------------------------------------
Total $275 $236 $263
- --------------------------------------------------------------------
</TABLE>
PROFIT SHARING FUND
Most domestic employees are eligible to become members of The Savings
and Profit Sharing Fund of Sears Employees ("the Fund"). The Company
contribution is based on 6% of consolidated income, as defined, for the
participating companies. Company contributions are limited to 70% of eligible
employee contributions.
The Fund includes an Employee Stock Ownership Plan ("the ESOP") to
prefund a portion of the Company's anticipated contribution through 2004. The
Company loaned the ESOP $800 million which it used to purchase 25.9 million of
Sears common shares. The loan is repaid with dividends on ESOP shares and
Company contributions.
30
SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In conjunction with the Allstate spin-off, The Savings and Profit Sharing
Fund of Sears Employees, which includes the ESOP, was split into two separate
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 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.
The additional ESOP benefit included in the benefit plan expense table was
computed as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
millions 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense recognized by ESOP $ 45 $ 64 $ 71
Less dividends accrued on ESOP shares (31) (43) (40)
Cost of shares allocated to employees and
plan expenses 28 56 71
- --------------------------------------------------------------------
42 77 102
- --------------------------------------------------------------------
ESOP expense attributable to discontinued
operations -- (24) (63)
Reduction of defined contribution due to ESOP (61) (57) (62)
- --------------------------------------------------------------------
Additional ESOP benefit $(19) $ (4) $(23)
- --------------------------------------------------------------------
</TABLE>
The Company contributed $62, $91 and $45 million to the ESOP in 1995, 1994
and 1993, respectively. At Dec. 30, 1995, total committed to be released,
allocated and unallocated ESOP shares were 1.7, 7.6 and 16.6 million,
respectively.
PENSION PLANS
Substantially all domestic full-time and certain part-time employees are
eligible to participate in noncontributory defined benefit plans after meeting
age and service requirements. Substantially all Canadian employees are eligible
to participate in contributory defined benefit plans. Pension benefits are
based on length of service, compensation, and in certain plans, Social Security
or other benefits. Funding for the various plans is determined using various
actuarial cost methods, and amounted to $76, $81 and $12 million for 1995, 1994
and 1993, respectively.
Pension expense (benefit) was comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
millions 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned during the period $ 68 $ 81 $ 74
Interest on projected benefit obligation 181 196 225
Actual return on plan assets (383) 12 (514)
Net amortization and deferral 172 (350) 170
- --------------------------------------------------------------------
Pension expense (benefit) $ 38 $(61) $(45)
- --------------------------------------------------------------------
</TABLE>
The Company uses October 31 as the measurement date for purposes of
determining pension plan assets and obligations. The weighted average discount
rate and rate of increase in compensation used in determining the actuarial
present value of the projected benefit obligations were 7.75% and 3.75% in
1995, 9.0% and 4.0% in 1994 and 7.5% and 3.75% in 1993. The expected long-term
rate of return on plan assets used in determining net periodic pension cost was
9.5% in 1995, 1994 and 1993.
The plans' funded status was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------
Assets Accumu- Assets Accumu-
exceed lated exceed lated
accumu- benefits accumu- benefits
lated exceed lated exceed
millions benefits assets benefits assets
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations
Vested benefit
obligation $419 $1,743 $1,718 $ 71
- --------------------------------------------------------------------------
Accumulated benefit
obligation $420 $1,975 $1,842 $ 72
- --------------------------------------------------------------------------
Projected benefit obligation
(PBO) $469 $2,241 $2,027 $ 77
Plan assets at fair value,
primarily publicly traded
stocks and bonds 635 1,626 2,070 6
- --------------------------------------------------------------------------
PBO less than (in excess of)
plan assets 166 (615) 43 (71)
Unrecognized net loss 30 734 329 12
Unrecognized prior service
cost -- 54 58 --
Unrecognized transitional
asset (25) -- (64) --
Adjustment required to
recognize minimum liability -- (522) -- (13)
- --------------------------------------------------------------------------
Prepaid (accrued) pension
cost in the Balance Sheet at
year end $171 $ (349) $ 366 $(72)
- --------------------------------------------------------------------------
</TABLE>
The provisions of Statement of Financial Accounting Standards ("SFAS")
No. 87 "Employers' Accounting For Pensions" require the recognition of an
additional minimum liability for each defined benefit plan for which the
accumulated benefit obligation exceeds plan assets. In 1995, the Company
recorded a $522 million minimum liability adjustment. The Company also
recognized an intangible asset of $54 million, which is an amount equal to the
unrecognized prior service cost. The minimum liability in excess of prior
service cost was recorded, net of tax, as a $285 million reduction to
shareholders' equity.
31
SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
RETIREE INSURANCE BENEFITS
The Company provides certain health care and life insurance benefits for
retired employees. Generally, qualified employees may become eligible for these
benefits if they retire in accordance with the Company's established retirement
policy and are continuously insured under the Company's group plans or other
approved plans for 10 or more years immediately prior to retirement.
The Company shares the cost of the retiree medical benefits with
retirees based on years of service. Through 1995, the Company's share is
subject to a 5% limit on annual medical inflation after retirement. Beginning
in 1996, the Company's share of these costs will be capped at 1995 levels for
employees who retired before 1996. For employees who retire after 1995, the
Company's share of these benefit costs will be capped based on the Company
contribution calculated during the first year of retirement. The effect of this
plan change will be to reduce postretirement benefit expense in subsequent
years commencing in 1996. The Company's postretirement benefit plans are not
funded. The Company has the right to modify or terminate these plans.
Postretirement benefit expense was comprised of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
millions 1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned during the period $ 24 $ 35 $ 30
Interest on accumulated postretirement
benefit obligation 188 197 219
Net amortization and deferral (27) -- --
- ----------------------------------------------------------------
Postretirement benefit expense $185 $232 $249
- ----------------------------------------------------------------
</TABLE>
The plans' funded status was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
millions 1995 1994
- ----------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $1,646 $2,097
Fully eligible active plan participants 114 151
Other active plan participants 161 258
- ----------------------------------------------------------------
Accumulated postretirement benefit obligation 1,921 2,506
Unrecognized gain 301 304
Unrecognized prior service cost 603 --
- ----------------------------------------------------------------
Accrued postretirement benefit cost in the
Balance Sheet at year end $2,825 $2,810
- ----------------------------------------------------------------
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% in 1995 and 9.0% in 1994.
The weighted average health care cost trend rate used in measuring the
postretirement benefit expense was 11.5% in 1996, gradually declining to 6.0%
in 2007 and remaining at that level thereafter. A one percentage point increase
in the assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation by $41 million and would increase the annual
postretirement benefit expense by $7 million.
6. BORROWINGS
Short-term borrowings consisted of:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
millions 1995 1994
- ----------------------------------------------------------------
<C> <C> <C>
Commercial paper $4,961 $5,919
Bank loans 101 98
Agreements with bank trust departments 137 87
Other loans (principally foreign) 150 86
- ----------------------------------------------------------------
Total short-term borrowings $5,349 $6,190
Weighted average interest rate at year end 7.2% 6.1%
Weighted average interest rate at year end,
including effects of swaps and caps 7.8% 6.5%
- ----------------------------------------------------------------
</TABLE>
At Dec. 30, 1995, the Company had credit agreements totaling $6.82
billion. SRAC's credit facilities totaled $5.68 billion, including $4.68
billion in syndicated credit agreements and $1.0 billion in a 364-day
syndicated credit facility. The Sears Credit Corp. entities, in support of
asset-backed commercial paper, had $1.04 billion in credit lines. Sears Canada
had credit agreements totaling $97 million. These syndicated and uniform credit
agreements provide for loans at prevailing interest rates and mature at various
dates through June 2000. The Company pays commitment fees in connection with
these credit agreements.
The Company had interest rate swap agreements which established fixed
rates on $1.39 billion and $752 million of short-term variable rate debt at
Dec. 30, 1995 and Dec. 31, 1994, resulting in weighted average interest rates
of 8.1% and 9.1%, respectively. The weighted average maturity of agreements in
effect on Dec. 30, 1995 was approximately eight years. Due to interest rate
caps, the Company had maximum weighted average interest rates of 9.0% on $200
million of debt at Dec. 30, 1995 and 9.0% on $450 million of debt at Dec. 31,
1994. The maturity of cap agreements in effect on Dec. 30, 1995 is
approximately two years.
32
SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-term debt was as follows:
<TABLE>
<CAPTION>
millions
- ------------------------------------------------------------------------------------
ISSUE 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
SEARS, ROEBUCK AND CO.
6.25% to 9.5% Notes, due 1996 to 2004 $ 1,950 $ 1,950
8.2% Extendable Notes, due 1999 31 31
6% Debentures, $300 million face value,
due 2000, effective rate 14.8% 218 205
9.375% Debentures, due 2011 300 300
4.85% to 10.0% Medium-Term Notes,
due through 2021 3,737 3,963
Capitalized lease obligations 127 40
SEARS ROEBUCK ACCEPTANCE CORP.
5.83% to 6.51% Term Loans, due 1996 to 2000 895 845
6.50% and 6.75% Notes, due 2000 to 2005 499 --
5.60% to 6.74% Medium-Term Notes,
due 1997 to 2005 1,383 --
SEARS DC CORP.
7.57% to 9.26% Medium-Term Notes,
due through 2012 1,229 1,521
SEARS DEVELOPMENT CO.
12.50% Note due 1999 43 --
Sears Overseas Finance N.V. (guaranteed by
Sears, Roebuck and Co.)
Zero Coupon Bonds, $500 million face value,
due 1998, effective rate 12.0% 376 336
SEARS CANADA INC.
8 1/4% to 11.70% Debentures, due 1997 to 2000 348 328
Notes, mortgages, bonds and capitalized leases 139 138
SEARS CANADA RECEIVABLES TRUST
5.65% to 9.18% Receivables Trusts,
due 1997 to 2004 325 302
SEARS ACCEPTANCE CO. LTD.
15 1/8% Secured Debentures, due 1996 49 59
SEARS ROEBUCK DE MEXICO, S.A. DE C.V.
16% Bank Notes, due 1996 78 120
Notes payable to banks -- 21
OTHER SUBSIDIARIES
Notes, mortgage and capitalized leases 47 41
Long-term debt attributed to discontinued
operations, 7.0% weighted average rate -- (215)
- ------------------------------------------------------------------------------------
11,774 9,985
Less current maturities 1,730 1,141
Total long-term debt $ 10,044 $ 8,844
- ------------------------------------------------------------------------------------
</TABLE>
On Nov. 7, 1994, the Company transferred Sears Tower and all related
assets and liabilities to a third party as trustee of a trust and was released
from the related non-recourse mortgages encumbering the building. The second
mortgagee is the residual beneficiary of the trust. The Company is the current
income beneficiary, but cannot receive distributions as beneficiary until all
debt which encumbers Sears Tower is repaid. An affiliate of the second
mortgagee is responsible for operating Sears Tower. As a result of this
transfer, assets and long-term debt were reduced by $501 and $845 million,
respectively, and other liabilities were increased by $25 million, resulting in
an after-tax extraordinary gain of $195 million ($319 million pretax) related
to the early extinguishment of debt.
During the second quarter of 1993, the Company recorded an extraordinary
loss of $145 million after taxes ($234 million pretax) related primarily to
payments to terminate interest rate swaps associated with retired commercial
paper that was allocated to the funding of discontinued operations.
In the third quarter of 1993, the Company recorded an extraordinary loss
of $66 million after taxes ($107 million pretax) related to the call of 7%
deep-discount debentures due to mature Nov. 15, 2001.
As of Dec. 30, 1995, long-term debt maturities for the next five years
were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
millions
- -----------------------------------------------------------------------------------------
<S> <C>
1996 $1,730
1997 2,565
1998 2,296
1999 1,265
2000 1,822
- -----------------------------------------------------------------------------------------
</TABLE>
The Company's continuing operations paid interest of $1.3, $1.2 and $1.2
billion for the years ended Dec. 30, 1995, and Dec. 31, 1994 and 1993,
respectively. Interest capitalized was $4, $1 and $3 million for the years
ended Dec. 30, 1995 and Dec. 31, 1994 and 1993, respectively.
7. LEASE AND SERVICE AGREEMENTS
The Company leases certain stores, office facilities, computers and automotive
equipment.
Operating and capital lease obligations are based upon contractual
minimum rates and, for certain stores, amounts in excess of these minimum rates
are payable based upon specified percentages of sales. Certain leases include
renewal or purchase options. Operating lease rentals were $357, $341 and $314
million, including contingent rentals of $66, $62 and $53 million, for the years
ended Dec. 30, 1995 and Dec. 31, 1994 and 1993, respectively.
Minimum lease obligations, excluding taxes, insurance and other expenses
payable directly by the Company, for leases in effect as of Dec. 30, 1995, were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Capital Operating
millions leases leases
- -----------------------------------------------------------------------------------------
<S> <C> <C>
1996 $ 44 $ 265
1997 43 237
1998 43 220
1999 42 202
2000 40 184
After 2000 493 961
- ----------------------------------------------------------------------------------------
Minimum payments 705 $2,069
- ----------------------------------------------------------------------------------------
Executory costs (principally taxes) 93
Imputed interest 354
- ----------------------------------------------------------------------------------------
Present value of minimum lease payments,
principally long-term $ 258
- ----------------------------------------------------------------------------------------
</TABLE>
33
SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has a minority interest in Advantis, which began operations
in December 1992. Advantis provides data and voice networking and information
processing services to the Company. Total expenses incurred by the Company for
these services during the years ended Dec. 30, 1995 and Dec. 31, 1994 were $270
and $311 million, respectively. The Company has committed to purchase services
of at least $315 million for 1996 and $216 million annually through 2004.
8. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets, incurs various financial liabilities and enters into agreements
involving off-balance sheet financial instruments. The fair value estimates of
financial instruments presented are not necessarily indicative of the amounts
the Company might pay or receive in actual market transactions. Potential taxes
and other transaction costs have also not been considered in estimating fair
value. As a number of the Company's significant assets (including merchandise
inventories, property and equipment, and deferred income taxes) and liabilities
are not considered financial instruments, the disclosures below do not reflect
the fair value of the Company as a whole.
For financial instruments which are short-term in nature, such as other
receivables, short-term borrowings, accounts payable and other liabilities,
carrying value approximates fair value. The fair value of other financial
instruments is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994
Carrying Fair Carrying Fair
millions Value Value Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
Retail customer receivables $20,106 $21,674 $18,201 $19,202
Long-term debt (excluding
capitalized leases) 11,461 12,212 9,815 9,851
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Retail customer receivables are valued by discounting estimated cash
flows. The estimated cash flows reflect the historical cardholder payment
experience and are discounted at a risk-adjusted market rate.
Long-term debt is valued based on quoted market prices when available or
discounted cash flows, using interest rates currently available to the Company
on similar borrowings.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company is a party to off-balance sheet financial instruments to manage
interest rate and foreign currency risk. These financial instruments involve, to
varying degrees, elements of market, credit, exchange and interest rate risk in
excess of amounts recognized in the balance sheet. The Company does not require
collateral or other security to support the financial instruments with credit
risk, unless noted otherwise.
Debt-related
The Company had the following off-balance sheet financial instruments
related to its outstanding borrowings at Dec. 30, 1995 and Dec. 31, 1994:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 30, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Contract or
Notional Fair Carrying
millions Amount Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate swap agreements:
Pay floating rate, receive fixed rate $ 805 $ 35 $--
Pay fixed rate, receive floating rate 1,411 (504) --
Interest rate cap agreement 200 -- --
Foreign currency hedge agreements 110 5 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Contract or
Notional Fair Carrying
millions Amount Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate swap agreements:
Pay floating rate, receive fixed rate $805 $ (37) $--
Pay fixed rate, receive floating rate 752 (180) --
Interest rate cap agreements 450 2 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company uses interest rate swaps and caps to manage the interest rate
risk associated with its borrowings and to manage the Company's allocation of
fixed and variable rate debt. For pay floating rate, receive fixed rate swaps,
the Company paid a weighted average rate of 6.00% and received a weighted
average rate of 6.83% in 1995. For pay fixed rate, receive floating rate swaps,
the Company paid a weighted average rate of 8.60% and received a weighted
average rate of 6.27% in 1995. The fair values of interest rate swaps and caps
are based on prices quoted from dealers. If a counterparty fails to meet the
terms of a swap or cap agreement, the Company's exposure is limited to the net
amount that would have been received, if any, over the agreement's remaining
life.
Maturity dates of the off-balance sheet financial instruments
outstanding at Dec. 30, 1995 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Notional amount
- ------------------------------------------------------------------------------------------------------------------------------------
Over
millions 1 year 2-5 years 5 years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate swap agreements $ 443 $ 1,206 $567
Interest rate cap agreement -- 200 --
Foreign currency hedge agreements 100 10 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Credit-related
The Company had outstanding securitized retail customer receivables sold
with recourse of $4.55 and $3.95 billion at Dec. 30, 1995 and Dec. 31, 1994,
respectively. These receivables represent conditional commitments of the
Company to guarantee performance to a third party. A portion of the securitized
receivables are collateralized by personal property. The Company's credit risk
exposure was contractually limited to $613 million at Dec. 30, 1995. The
Company had estimated accrued liabilities associated with this credit exposure
included in the balance sheet of $169 and $170 million at Dec. 30, 1995 and
Dec. 31, 1994, respectively.
Other
The Company had a financial guaranty of $81 million at Dec. 30, 1995. This
guaranty represents a commitment by the Company to guarantee the performance of
certain municipal bonds issued in connection with the Company's headquarters
building for its domestic operations. No amounts were accrued in the balance
sheet for any potential loss associated with this guaranty at Dec. 30, 1995
and Dec. 31, 1994.
9. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Company grants credit to customers throughout the nation. The five states in
which the Company had the largest amount of gross retail customer receivables,
including those sold with recourse, were as follows:
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------
millions 1995 1994
- ---------------------------------------------------------------------
California $2,337 $2,009
Texas 1,912 1,717
Florida 1,785 1,612
Pennsylvania 1,364 1,216
New York 1,358 1,186
- ---------------------------------------------------------------------
</TABLE>
10. 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 the 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.
11. SHAREHOLDERS' EQUITY
DIVIDENT PAYMENTS
Certain indentures relating to the long-term debt of Sears, Roebuck and Co.,
which represent the most restrictive contractual limitation on the payment of
dividends, provide that the Company 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 Dec. 30, 1995, approximately $1.90 billion could be paid in
dividends to shareholders under the most restrictive indentures.
PREFERRED SHARES
The 8.88% Preferred Shares, First Series ("8.88% Preferred Shares")
were issued in the form of 13 million depository shares having cumulative
dividends of $2.22 annually and a liquidation preference of $25 per depository
share, plus accrued and unpaid dividends. On or after Nov. 9, 1996, the Company
may, at its option, redeem the 8.88% Preferred Shares, in whole or in part, at
any time at a redemption price of $25 per depository share, plus accrued and
unpaid dividends to the redemption date.
In the event that dividends payable on the preferred stock are in
arrears for six quarterly periods, holders of such stock together shall have
the right to elect two additional directors of the Company until all cumulative
dividends have been paid or set apart for payment. Additionally, dividends
cannot be paid on the Company's common shares if dividends on the preferred
shares are in arrears.
The Series A Mandatorily Exchangeable Preferred Shares were issued in
the form of 28.75 million depository shares having an annual, cumulative
dividend of $3.75 per depository share. The Company exchanged the PERCS for
common shares on Mar. 20, 1995. Holders of depository shares received 1.24
common shares for each depository share. The total number of common shares
delivered upon exchange was 35.7 million.
35
SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
STOCK OPTION PLANS
Options to purchase common stock of the Company have been granted to employees
under various plans at prices equal to the fair market value of the stock on
the dates the options were granted. Options are generally exercisable in not
more than four equal, annual installments beginning one year after the date of
grant, and generally expire in 10 or 12 years.
Changes in stock options were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
thousands of shares 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance 11,523 6,800 11,335
Granted 3,018 6,351 2,281
Exercised (3,121) (953) (5,689)
Canceled or expired (1,319) (675) (2,587)
Adjustment due to Allstate
distribution 8,620 -- --
Adjustment due to Dean
Witter distribution -- -- 1,460
- --------------------------------------------------------------------------
Ending balance 18,721 11,523 6,800
- --------------------------------------------------------------------------
Reserved for future
grant at year end 16,795 8,855 2,551
Exercisable 6,812 3,480 2,894
- -------------------------------------------------------------------------
Option prices per share:
Granted $23.36-$53.88 $46.32-$51.19 $34.01- $58.00
Exercised 10.14- 53.57 20.09- 39.68 19.90- 47.57
Canceled or expired 11.57- 53.94 22.91- 48.57 22.91- 57.88
- -------------------------------------------------------------------------
Exercise prices of ending
balance $10.14-$39.32 $19.90-$58.00 $19.90- $58.00
- -------------------------------------------------------------------------
</TABLE>
In 1995, the number and exercise price of outstanding stock options were
adjusted for the dilutive effect of the spin-off of Allstate. Similar
adjustments were made in 1993 for the spin-off of Dean Witter.
In October 1995, SFAS No. 123, "Accounting For Stock-Based
Compensation," was issued and is effective for financial statements for fiscal
years beginning after December 1995. As permitted by the statement, the Company
intends to continue to measure compensation cost for stock option plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting For
Stock Issued to Employees."
12. SUMMARY OF SEGEMENT DATA
In both 1994 and 1993, results included losses from the Corporate segment which
included items of a holding company nature such as the portion of
administrative costs and interest not allocated to the Company's businesses.
Corporate assets are principally investments, real estate and ventures not
included in the business segments.
The Company operates primarily in the retailing industry. The following
three-year summary includes a refinement within segments:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
millions 1995(1) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Domestic operations $31,558 $29,376 $26,776
International operations 3,367 3,649 3,668
- -----------------------------------------------------------------------------
Total $34,925 $33,025 $30,444
- -----------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
Domestic operations $ 1,739 $ 1,484 $ 1,141
International operations (11) 46 32
Corporate -- (59) (219)
- -----------------------------------------------------------------------------
Total $ 1,728 $ 1,471 $ 954
- -----------------------------------------------------------------------------
NET INCOME (LOSS)
Domestic operations $ 1,055 $ 897 $ 744
International operations (30) (7) 8
Corporate -- (33) (127)
Discontinued operations 776 402 1,960
Extraordinary gain (loss) -- 195 (211)
- -----------------------------------------------------------------------------
Total $ 1,801 $ 1,454 $ 2,374
- -----------------------------------------------------------------------------
ASSETS
Domestic operations $30,521 $27,035 $24,995
International operations 2,611 2,527 2,691
Corporate -- 527 1,974
Intergroup eliminations and
reclassifications (2) (8) (450)
Net assets of discontinued
operations -- 7,231 8,701
- -----------------------------------------------------------------------------
Total $33,130 $37,312 $37,911
- -----------------------------------------------------------------------------
</TABLE>
(1) Corporate results for 1995 are not significant and have been
included in the Domestic operations segment.
36
SEARS, ROEBUCK AND CO.
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
millions, except per common share data 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $ 34,925 $ 33,025 $ 30,444 $ 32,943 $ 32,250
Costs and expenses 31,847 30,292 28,282 31,752 30,481
Restructuring -- -- -- 2,782 --
Interest 1,373 1,279 1,318 1,389 1,568
Operating income (loss) 1,705 1,454 844 (2,980) 201
Other income 23 17 110 129 85
Income (loss) before income taxes (benefit) 1,728 1,471 954 (2,851) 286
Income taxes (benefit) 703 614 329 (1,039) 126
Income (loss) from continuing operations 1,025 857 625 (1,812) 160
Income (loss) from discontinued operations 776 402 1,960 (247) 1,119
Extraordinary gain (loss) -- 195 (211) -- --
Cumulative effect of accounting changes -- -- -- (1,873) --
Net income (loss) 1,801 1,454 2,374 (3,932) 1,279
FINANCIAL POSITION
Retail customer receivables $ 20,106 $ 18,201 $ 15,906 $ 13,878 $ 13,537
Property and equipment, net 5,077 4,253 4,401 4,574 4,898
Merchandise inventories 4,033 4,044 3,518 4,048 4,459
Net assets of discontinued operations -- 7,231 8,701 10,731 11,038
Total assets 33,130 37,312 37,911 39,540 38,636
Short-term borrowings 5,349 6,190 4,636 4,469 1,775
Long-term debt 11,774 9,985 10,790 12,432 16,398
Total debt 17,123 16,175 15,426 16,901 18,173
Percent of debt to equity 391% 150% 154% 157% 128%
Shareholders' equity $ 4,385 $ 10,801 $ 11,664 $ 10,773 $ 14,188
SHAREHOLDERS' COMMON STOCK INVESTMENT
Book value per common share (year end) $ 10.30 $ 26.91 $ 29.58 $ 27.89 $ 40.29
Shareholders 256,624 262,387 291,320 337,892 342,851
Average common shares outstanding (millions) 394 389 383 370 344
Earnings (loss) per common share
Income (loss) from continuing
operations $ 2.53 $ 2.13 $ 1.56 $ (4.98) $ 0.45
Income (loss) from discontinued
operations 1.97 1.03 5.12 (0.67) 3.26
Extraordinary gain (loss) -- 0.50 (0.55) -- --
Cumulative effect of accounting changes -- -- -- (5.07) --
Net income (loss) 4.50 3.66 6.13 (10.72) 3.71
Cash dividends declared per common share $ 1.26 $ 1.60 $ 1.60 $ 2.00 $ 2.00
Cash dividend payout percent 28.0% 43.7% 26.1% N/M 53.9%
Market price-common stock (high-low) 60-30 551/8-421/8 601/8-397/8 48-37 431/2-243/8
- ---------------------------------------------------------------------------------------------------------------------
Closing market price at year end 39 46 527/8 451/2 377/8
- ---------------------------------------------------------------------------------------------------------------------
Price/earnings ratio (high-low) 16-12 15-12 10-7 N/M 12-7
- ---------------------------------------------------------------------------------------------------------------------
Operating results and financial position reflect Allstate Insurance Group, Homart Development Co. and affiliated entities,
Dean Witter, Discover & Co. and the Coldwell Banker residential services businesses as discontinued operations. See note 2
to the consolidated financial statements.
Operating results and financial position for 1995, 1994, 1993 and 1992 reflect the adoption of new accounting rules for
postretirement and postemployment benefits.
Series A Mandatorily Exchangeable Preferred Shares are considered common shares for purposes of calculating book value per common
share, average common shares outstanding and earnings (loss) per common share. See note 1 to the consolidated financial statements.
The percent of debt to equity for 1994 and 1993 is calculated using equity excluding unrealized net capital gains.
The 1995 price/earnings ratio was calculated on a continuing operations basis.
N/M--Not meaningful.
</TABLE>
37
SEARS, ROEBUCK AND CO.
MANAGEMENT'S REPORT
The financial statements, including the financial analysis and all other
information, were prepared by management which is responsible for their
integrity and objectivity. Management believes the financial statements, which
require the use of certain estimates and judgments, fairly and accurately
reflect the Company's financial position and operating results, in accordance
with generally accepted accounting principles. All financial information is
consistent with the financial statements.
Management maintains a system of internal controls which it believes
provides reasonable assurance that, in all material respects, assets are
maintained and accounted for in accordance with management's authorizations and
transactions are recorded accurately in the books and records. The concept of
reasonable assurance is based on the premise that the cost of internal controls
should not exceed the benefits derived. To assure the effectiveness of the
internal control system, the organizational structure provides for defined
lines of responsibility and delegation of authority. The Company's formally
stated and communicated policies demand of employees high ethical standards in
their conduct of its business. These policies address, among other things,
potential conflicts of interest; compliance with all domestic and foreign laws,
including those related to financial disclosure; and the confidentiality of
proprietary information. As a further enhancement of the above, the Company's
comprehensive internal audit program is designed for continual evaluation of
the adequacy and effectiveness of its internal controls and measures adherence
to established policies and procedures.
Deloitte & Touche LLP, independent certified public accountants, have
audited the financial statements of the Company, and their report is presented
below. Their audit also includes a study and evaluation of the Company's
control environment, accounting systems and control procedures. The independent
accountants and internal auditors advise management of the results of their
reviews, and make recommendations to improve the system of internal controls.
Management evaluates the audit recommendations and takes appropriate action.
The Audit Committee of the Board of Directors is comprised entirely of
directors who are not employees of the Company. The committee reviews audit
plans, internal control reports, financial reports and related matters and
meets regularly with the Company's management, internal auditors and
independent accountants. The independent accountants and the internal auditors
advise the committee of any significant matters resulting from their audits of
our financial statements and internal controls and have free access to the
committee without management being present.
/s/ Arthur C. Martinez
- -------------------------------------------------
Arthur C. Martinez
Chairman and Chief Executive Officer
/s/ Alan J. Lacy
- ---------------------------------------------------
Alan J. Lacy
Executive Vice President and Chief Financial Officer
/s/ James A. Blanda
- ----------------------------------------------------
James A. Blanda
Vice President and Controller
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
SEARS, ROEBUCK AND CO.
We have audited the accompanying Consolidated Balance Sheets of Sears,
Roebuck and Co. as of December 30, 1995 and December 31, 1994, and the related
Consolidated Statements of Income, Shareholders' Equity, and Cash Flows for
each of the three years in the period ended December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the over all financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Sears, Roebuck and Co. as of
December 30, 1995 and December 31, 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 30, 1995
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
February 15, 1996
38
SEARS, ROEBUCK AND CO.
QUARTERLY RESULTS (Unaudited)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter Year
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
millions, except per common share data 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues $7,449 $7,095 $8,204 $7,810 $8,418 $7,926 $10,854 $10,194 $34,925 $33,025
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income 209 190 345 320 374 315 777 629 1,705 1,454
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 124 118 218 191 228 192 455 356 1,025 857
Discontinued operations 435 (216) 341 312 -- 172 -- 134 776 402
Extraordinary gain -- -- -- -- -- -- -- 195 -- 195
Net income (loss) $ 559 $ (98) $ 559 $ 503 $ 228 $ 364 $ 455 $ 685 $ 1,801 $ 1,454
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share
Income from continuing operations 0.30 0.29 0.54 0.47 0.56 0.47 1.13 0.90 2.53 2.13
Discontinued operations 1.11 (0.56) 0.87 0.80 -- 0.44 -- 0.34 1.97 1.03
Extraordinary gain -- -- -- -- -- -- -- 0.50 -- 0.50
Net income (loss) $ 1.41 $(0.27) $ 1.41 $ 1.27 $ 0.56 $ 0.91 $ 1.13 $ 1.74 $ 4.50 $ 3.66
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues, operating income, net income and related per common share amounts for 1994 reflect Allstate Insurance Group and Homart
Development Co. and affiliated entities as discontinued operations.
The fourth quarter pretax LIFO adjustments were credits of $5 and $58 million in 1995 and 1994, compared with charges of $24 million
for the first nine months of the respective years.
Fourth quarter 1994 results included an extraordinary gain of $195 million related to the early extinguishment of debt. See note 6
to the consolidated financial statements.
Total of quarterly earnings per common share may not equal the annual amount as net income per common share is calculated
independently for each quarter.
</TABLE>
Common Stock Market Information and Dividend Highlights (unaudited)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter Year
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
dollars 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Stock price range
High 54 1/8 55 1/8 60 51 7/8 37 5/8 51 1/8 40 3/4 52 3/8 60 55 1/8
Low 44 1/8 42 7/8 51 1/4 42 1/8 30 45 5/8 32 1/2 43 1/2 30 42 1/8
Close 53 3/8 43 1/8 59 1/2 48 36 7/8 48 39 46 39 46
Cash dividends declared .40 .40 .40 .40 .23 .40 .23 .40 1.26 1.60
- ----------------------------------------------------------------------------------------------------------------------------------
Stock price ranges are for transactions reported in a summary of composite transactions for stocks listed on the New York Stock
Exchange (trading symbol-S), which is the principal market for the Company's common stock.
The third quarter prices reflect the when-issued price for the Company's common stock due to The Allstate Corporation spin-off.
Stock prices prior to July 1, 1995 have not been restated to reflect the Allstate distribution.
The number of registered common shareholders at Feb. 29, 1996 was 255,018.
In addition to the New York Stock Exchange, the Company's common stock is listed on the following exchanges: Chicago; Pacific, San
Francisco; London, England; Amsterdam, The Netherlands; Tokyo, Japan; Paris, France; and Frankfurt, Germany.
</TABLE>
39
APPENDIX
GRAPHIC AND IMAGE MATERIAL
Chart (Page 18)
A bar graph showing domestic comparable store sales growth for 1993 through
1995 for Sears as follows: 1993, 8.9%; 1994, 8.3%; and 1995, 4.7%. A line
graph was also presented showing comparable store sales growth per the Merrill
Lynch Broadline Retailers Index as follows: 1993, 2.7%; 1994, 3.0% and 1995,
2.0%.
Chart (Page 19)
A bar graph showing Domestic Operations selling and administrative expense as a
percent of revenues for 1993 through 1995 as follows: 1993, 23.3%; 1994, 22.8%;
1995, 21.6%.
Chart (Page 20)
A bar graph showing Domestic Operations operating income as a percent of
revenues for 1993 through 1995 as follows: 1993, 3.3%; 1994, 4.8%; 1995, 5.5%.
Chart (1st Chart on Page 23)
Three-dimensional pie chart showing the percentage of 1995 assets for the
Company as follows: Net Receivables, 62%; Inventory, 12%; Property and
Equipment, 15%; and Other Assets, 11%.
Chart (2nd Chart on Page 23)
Three-dimensional pie chart showing the percentage of various funding sources
at year-end 1995 as follows: Medium-Term Notes, 29%; Senior Unsecured, 21%;
Other, 3%; Unsecured Commercial Paper, 19%; Asset-Backed Commercial Paper,
6%; and Securitization, 22%.
Exhibit 23
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Sears, Roebuck and Co.
We have audited the consolidated financial statements of Sears, Roebuck and
Co. as of December 30, 1995 and December 31, 1994, and for each of the three
years in the period ended December 30, 1995 and have issued our report
thereon dated February 15, 1996; such consolidated financial statements and
report are included in the 1995 Sears, Roebuck and Co. Annual Report to
Shareholders and are incorporated herein by reference. Our audits also
included the financial statement schedules of Sears, Roebuck and Co., listed
in item 14(a)1 and 2. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
We have also previously audited, in accordance with generally accepted
auditing standards, the Consolidated Statements of Financial Position of
Sears, Roebuck and Co. as of December 31, 1991 through 1993, and the related
Consolidated Statements of Income, Shareholders' Equity and Cash Flows for
each of the two years in the period ended December 31, 1992 (none of which
are presented herein); and we expressed unqualified opinions on those
consolidated financial statements. Effective January 1, 1992, the Company
changed its method of accounting for the cost of postretirement benefits
other than pensions and postemployment benefits.
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The additional
information set forth under "Operating results" and "Financial position" and
on the lines captioned "Book value per common share (year end)", "Average
common shares outstanding (millions)", "Earnings (loss) per common share" for
each of the five years in the period ended December 30, 1995, appearing under
the caption "Five Year Summary of Consolidated Financial Data" on page 37 of
the Sears, Roebuck and Co. 1995 Annual Report to Shareholders is presented
for the purpose of additional analysis and is not a required part of the
basic consolidated financial statements. This additional information is the
responsibility of the Company's management. Such information has been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, is fairly sated in all
material respects when considered in relation to the basic consolidated
financial statements taken as a whole.
/S/Deloitte & Touche
Deloitte & Touche LLP
Chicago, Illinois
February 15, 1996
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being
a director or officer, or both, of SEARS, ROEBUCK AND CO., a New York
corporation (the "Corporation"), does hereby constitute and appoint ARTHUR C.
MARTINEZ, ALAN J. LACY, MICHAEL D. LEVIN and JAMES A. BLANDA, with full
power to each of them to act alone, as the true and lawful attorneys and
agents of the undersigned, with full power of substitution and resubstitution
to each of said attorneys, to execute, file and deliver any and all
instruments and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Corporation to comply
with the Securities Exchange Act of 1934, as amended, and any requirements of
the Securities and Exchange Commission in respect thereto, relating to annual
reports on Form 10-K, including specifically, but without limitation of the
general authority hereby granted, the power and authority to sign his or her
name in the name and on behalf of the Corporation or as a director or
officer, or both, of the Corporation, as indicated below opposite his or her
signature, to annual reports on Form 10-K or any amendment or papers
supplemental thereto; and each of the undersigned does hereby fully ratify
and confirm all that said attorneys and agents, or any of them, or the
substitute of any of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these
presents, as of this 13th day of March, 1996.
NAME TITLE
/S/Arthur C. Martinez Director, Chairman of the
Arthur C. Martinez Board of Directors, President
and Chief Executive Officer
(Principal Executive Officer)
/S/Alan J. Lacy Executive Vice President and
Alan J. Lacy Chief Financial Officer
(Principal Financial Officer)
/S/James A. Blanda Vice President and Controller
James A. Blanda (Principal Accounting Officer)
/S/Hall Adams, Jr. Director
Hall Adams, Jr.
/S/Warren L. Batts Director
Warren L. Batts
/S/James W. Cozad Director
James W. Cozad
/S/William E. LaMothe Director
William E. LaMothe
/S/Michael A. Miles Director
Michael A. Miles
/S/Nancy C. Reynolds Director
Nancy C. Reynolds
/S/Clarence B. Rogers, Jr. Director
Clarence B. Rogers, Jr.
/S/Donald H. Rumsfeld Director
Donald H. Rumsfeld
/S/Dorothy A. Terrell Director
Dorothy A. Terrell
Exhibit 99. (i)(a)
Amendments to The Savings and
Profit Sharing Fund of Sears Employees
RESOLVED, that The Savings and Profit Sharing Fund of Sears Employees, as
amended effective as of November 8, 1995, be amended in the following
particulars as of May 1, 1996:
1. A new Subsection 3.6(l) shall be inserted immediately following
Subsection 3.6(k) as follows:
"(l) or such other deemed immediate and heavy financial need established
from time to time by the Commissioner of Internal Revenue."
And further, the word "or" shall be deleted at the end of Subsection 3.6(j),
and the period shall be substituted with a semicolon at the end of Subsection
3.6(k), and all subsequent paragraphs in Subsection 3.6 shall be
appropriately renumbered to reflect this amendment, and any other cross
references shall be modified to reflect this amendment.
2. The fifth full sentence of Subsection 7.2 shall be amended to delete
the phrase "during the period beginning on May 1, 1994 and ending on April
30, 1996."
3. Delete the second dash and Allstate Holdings, Inc. in Appendix A.
4. Delete in its entirety Appendix B.
Exhibit 99. (i)(b)
Amendments to The Savings and Profit Sharing Fund of
Sears Employees Trust Agreement
RESOLVED, that The Savings and Profit Sharing Fund of Sears Employees Trust
Agreement be amended by adding a new Subsection 4.3(g) as follows, and
renumbering the current Subsection 4.3(g) as new Subsection (h):
"(g) to move cash between Trust accounts in accordance with instructions
electronically transmitted pursuant to a computer system known as Client
Initiated Transaction to the extent provided by a written agreement entered
into between the Trustee and either the Company or the Investment Committee
governing the use of such system; and";
FURTHER RESOLVED, that the word "and" be deleted at the end of Subsection
4.3(f); and
FURTHER RESOLVED, that Alan J. Lacy, Anthony J. Rucci and Michael D. Levin,
or any of them acting alone are authorized to sign an instrument with The
Northern Trust Company of New York to acknowledge the effect of this
amendment, and that the effective date of the amendment shall be the date of
the signed instrument between the parties.
<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>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 606
<SECURITIES> 0
<RECEIVABLES> 20,949
<ALLOWANCES> 843
<INVENTORY> 4,033
<CURRENT-ASSETS> 26,441
<PP&E> 8,857
<DEPRECIATION> 3,780
<TOTAL-ASSETS> 33,130
<CURRENT-LIABILITIES> 14,607
<BONDS> 10,044
0
325
<COMMON> 322
<OTHER-SE> 3,738
<TOTAL-LIABILITY-AND-EQUITY> 33,130
<SALES> 31,035
<TOTAL-REVENUES> 34,925
<CGS> 22,866
<TOTAL-COSTS> 22,866
<OTHER-EXPENSES> 8,155
<LOSS-PROVISION> 826
<INTEREST-EXPENSE> 1,373
<INCOME-PRETAX> 1,728
<INCOME-TAX> 703
<INCOME-CONTINUING> 1,025
<DISCONTINUED> 776
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,801
<EPS-PRIMARY> 4.50
<EPS-DILUTED> 0<F1>
<FN>
<F1>(1) Not Applicable.
</FN>
</TABLE>
