UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-416
SEARS, ROEBUCK AND CO.
(Exact name of registrant as specified in its charter)
New York 36-1750680
(State of Incorporation) (I.R.S. Employer Identification No.)
3333 Beverly Road, Hoffman Estates, Illinois 60179
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847/286-2500
Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of March 31, 1997 the Registrant had 391,981,907 common
shares, $.75 par value, outstanding.
<PAGE>
Sears, Roebuck and Co.
Index to Quarterly Report on Form 10-Q
March 29, 1997
Page
Part I - Financial Information.
Item 1. Financial Statements.
Condensed Consolidated Statements of Income (unaudited) -
Three Months Ended March 29, 1997 and March 30, 1996. 1
Condensed Consolidated Balance Sheets -
March 29, 1997 (unaudited), March 30, 1996 (unaudited)
and December 28, 1996. 2
Condensed Consolidated Statements of Cash Flows
(unaudited) - Three Months Ended March 29, 1997
and March 30, 1996. 3
Notes to Condensed Consolidated Financial Statements
(unaudited). 4
Independent Certified Public Accountants' Review Report. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8
Part II - Other Information.
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K. 15
<PAGE>
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 29, March 30,
(millions, except per common share data) 1997 1996
<S> <C> <C>
Revenues
Merchandise sales and services $ 7,559 $ 6,908
Credit revenues 1,203 1,087
Total revenues 8,762 7,995
Costs and expenses
Cost of sales, buying and occupancy 5,705 5,249
Selling and administrative 1,884 1,750
Depreciation and amortization 182 158
Provision for uncollectible accounts 282 238
Interest 352 354
Total costs and expenses 8,405 7,749
Operating income 357 246
Other (loss) income (10) 4
Income before income taxes 347 250
Income taxes 165 99
Net income $ 182 $ 151
Net income (loss) consists of:
Domestic operations $ 227 $ 165
International operations (45) (14)
Net income $ 182 $ 151
Earnings per common share, after
allowing for dividends on preferred shares $ 0.46 $ 0.36
Cash dividends declared per common share $ 0.23 $ 0.23
Average common and common
equivalent shares outstanding 398.6 399.5
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
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<TABLE>
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 29, March 30, Dec. 28,
(millions) 1997 1996 1996
<S> <C> <C> <C>
Assets
Current assets
Cash and invested cash $ 248 $ 823 $ 660
Credit card receivables 21,059 19,707 21,563
Other receivables 355 249 335
Merchandise inventories 4,939 4,419 4,646
Prepaid expenses and deferred charges 414 427 348
Deferred income taxes 856 908 895
Total current assets 27,871 26,533 28,447
Property and equipment
Land 455 384 445
Buildings and improvements 5,018 4,415 5,080
Furniture, fixtures and equipment 4,353 3,792 4,279
Capitalized leases 446 322 433
10,272 8,913 10,237
Less accumulated depreciation 4,495 3,790 4,359
Total property and equipment, net 5,777 5,123 5,878
Deferred income taxes 901 852 905
Other assets 1,080 853 937
Total assets $ 35,629 $ 33,361 $ 36,167
Liabilities
Current liabilities
Short-term borrowings $ 3,693 $ 5,205 $ 3,533
Current portion of long-term
debt and capitalized leases 2,349 1,907 2,737
Accounts payable and other liabilities 7,075 6,174 7,840
Unearned revenues 885 900 840
Total current liabilities 14,002 14,186 14,950
Long-term debt and capitalized leases 12,401 10,580 12,170
Postretirement benefits 2,715 2,814 2,748
Minority interest and other liabilities 1,369 1,289 1,354
Total liabilities 30,487 28,869 31,222
Commitments and Contingent Liabilities (note 6)
Shareholders' Equity
8.88% Preferred Shares, First Series (note 3) - 325 -
Common shares 323 323 323
Capital in excess of par value 3,611 3,635 3,618
Retained income (note 2) 3,422 2,498 3,330
Treasury stock - at cost (1,632) (1,592) (1,655)
Minimum pension liability (277) (285) (277)
Deferred ESOP expense (225) (246) (230)
Cumulative translation adjustments (80) (166) (164)
Total shareholders' equity 5,142 4,492 4,945
Total liabilities and shareholders'
equity $ 35,629 $ 33,361 $ 36,167
Total common shares outstanding 392.0 392.5 391.4
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
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<TABLE>
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 29, March 30,
(millions) 1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 182 $ 151
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and other noncash items 237 202
Provision for uncollectible accounts 282 238
Loss (gain) on sales of property and investments 32 (5)
Change in (net of acquisitions):
Deferred income taxes 44 10
Credit card receivables 15 144
Merchandise inventories ( 357) (383)
Other operating assets (79) 33
Other operating liabilities (622) (466)
Net cash used in operating activities (266) (76)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (115) -
Proceeds from sales of property and investments 6 5
Purchases of property and equipment, net (159) (222)
Net cash used in investing activities (268) (217)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 725 947
Repayments of long-term debt (866) (258)
Increase (decrease) in short-term borrowings,
primarily 90 days or less 319 (147)
Repayments of ESOP note receivable 16 21
Common shares purchased for employee stock plans (14) (14)
Common shares issued for employee stock plans 30 59
Dividends paid to shareholders (88) (97)
Net cash provided by financing activities 122 511
Effect of exchange rate changes on cash and invested cash - (1)
Net (decrease) increase in cash and invested cash (412) 217
Cash and invested cash at beginning of year 660 606
Cash and invested cash at end of period $ 248 $ 823
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheets as of March 29, 1997
and March 30, 1996 and the related Condensed Consolidated
Statements of Income and Condensed Consolidated Statements of
Cash Flows for the three months then ended are unaudited. The
interim financial statements reflect all adjustments (consisting
only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair statement of the results for
the interim periods presented. The condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in
the Sears, Roebuck and Co. 1996 Annual Report to Shareholders
and Annual Report on Form 10-K. The results of operations for
the interim periods should not be considered indicative of
results to be expected for the full year.
2. Shareholders' Equity and Dividend Restrictions
Under terms of indentures entered into in 1981 and thereafter,
Sears cannot take specified actions, including the declaration
of cash dividends, which would cause its consolidated
unencumbered assets, as defined, to fall below 150% of its
consolidated liabilities, as defined. At March 29, 1997
approximately $2.2 billion could be paid in dividends to
shareholders under the most restrictive indentures.
On March 13, 1996, the Board of Directors approved a common
share repurchase program for the purpose of acquiring shares for
distribution under employee stock-based incentive plans. The
Company plans on acquiring up to ten million Sears common shares
on the open market. Through March 29, 1997 3.7 million common
shares had been acquired under the repurchase program.
3. 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. In 1996, earnings per common share
included an adjustment for dividends of $7 million for the
three-month period ended March 30, 1996, on the 8.88% Preferred
Shares. The Company redeemed all the 8.88% Preferred Shares on
November 12, 1996 at a redemption price of $25 per depository
share plus accrued dividends.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard (SFAS) No.
128, "Earnings per Share." The statement is effective for
financial statements for periods ending after Dec. 15, 1997, and
changes the method in which earnings per share will be
determined. Adoption of this statement by the Company will not
have a material impact on earnings per share.
4. Accounting Change
The Company adopted Statement of Financial Accounting Standard
(SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", effective
January 1, 1997. This statement provides consistent guidance
for distinguishing transfers of financial assets
(securitizations) that are sales from transfers that are secured
borrowings. SFAS No. 125 requires the Company to recognize gains
on securitizations which qualify as sales. The statement also
indicates that an allowance for uncollectible accounts should
not be maintained for receivables which are sold (securitized).
The effect of this accounting change was to increase net income
by $38 million in the first quarter of 1997.
<PAGE>
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Acquisition of Businesses
During the first quarter of 1997, the Company acquired all the
outstanding stock of All America Termite and Pest Control, Inc.
("All America") and Florida Builder Appliances. All America is
a termite and pest control business and Florida Builder
Appliances is a leading supplier of appliances to residential
construction and remodeling contractors in the Florida market.
Additionally in the quarter, the Company acquired the remaining
35% of the outstanding shares it did not already own of MaxServ,
Inc. These acquisitions were recorded using the purchase method
of accounting. The results of operations from these acquired
companies are not material to the Company's consolidated results
of operations.
6. Legal Proceedings
In connection with a case pending before the United States
Bankruptcy Court for the District of Massachusetts (the "Court")
involving an individual debtor, on April 9, 1997, the Company
filed a voluntary nationwide restitution plan with the Court to
remedy certain bankruptcy collection practices relating to
reaffirmation agreements with the Company's bankrupt credit-card
holders that were not filed with federal bankruptcy courts from
1992 through April 1, 1997 (the "Plan"). In bankruptcy
proceedings under Chapter 7 of the United States Bankruptcy Code
(the "Code"), a debtor may generally agree to repay his or her
debts to creditors, but any such reaffirmations must be filed with
the bankruptcy court to be valid. The Plan contemplates that the
Company would expeditiously identify all debtors with
unfiled reaffirmation agreements during that period and remit to
them all amounts paid pursuant to such agreements, with interest.
In addition, the Company would send them a $100 gift certificate.
Subsequent to the Company's filing of the Plan with the Court,
the Company was served with two complaints, purporting to represent
a nationwide class, filed by certain bankrupt credit-card holders
of the Company with the Court on March 31, 1997 and April 7, 1997.
The complaints allege that the Company obtained payments
from these debtors under reaffirmation agreements that were not
filed with federal bankruptcy courts in violation of the Code and
certain state consumer fraud statutes. The complaints seek a refund
of all amounts paid by debtors under these agreements, punitive
damages and attorneys' fees and expenses. The Attorneys General for
the States of Massachusetts and Missouri are also investigating the
subject matter of these complaints. The Company expects that other
States Attorneys General will become involved. The Court has
provisionally certified the class for settlement purposes only. At
a hearing before the Court, the Company and the class action plaintiffs
agreed to work towards a settlement of these matters, together with
the States Attorneys General and the United States Bankruptcy Trustee,
between now and the parties' next scheduled appearance before the Court
on June 5, 1997. No assurances can be made, however, as to the terms,
if any, upon which such a settlement might be reached.
On April 16, 1997, the Court issued an order in the individual debtor
case referred to above requiring the Company to reimburse the debtor
$236 and referring the facts and circumstances of the case to the
United States Attorney for the District of Massachusetts (the "U.S.
Attorney") for investigation of potential criminal activity. The U.S.
Attorney has filed a civil complaint against the Company enjoining
it on a nationwide basis from the bankruptcy collection practices
referred to above, ordering the Company to identify all debtors
nationwide who were the subject of these practices from January 1, 1992
to date, and setting forth specific time periods and methodologies for
the collection of this data. The Company has consented to the entry
of this order and is cooperating fully to obtain a prompt resolution.
Although management is unable at this time to estimate the impact of
the resolution of the foregoing matters and therefore has not yet
recorded a provision for them, management believes that these matters
could have a material effect on the annual results of operations of the
Company.
<PAGE>
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In mid-April, several stockholders of the Company, purporting to
represent a class, filed complaints against the Company and certain of
its officers in the United States District Court for the Northern
District of Illinois, alleging violations of the Securities Exchange
Act of 1934 for failure to disclose the bankruptcy collection practices
described above in periodic filings with the Securities and Exchange
Commission prior to April 10, 1997. The complaints seek unspecified
damages and attorneys' fees and expenses. The Company intends to
defend these cases vigorously.
The Company is subject to various other legal and governmental
proceedings pending against the Company, many involving routine
litigation incidental to the businesses. Other matters contain
allegations which are nonroutine and involve compensatory,
punitive or antitrust treble damage claims in very large
amounts, as well as other types of relief. The consequences of
these matters are not presently determinable but, in the opinion
of management of the Company after consulting with legal
counsel, the ultimate liability in excess of reserves currently
recorded is not expected to have a material effect on annual
results of operations, financial position, liquidity or capital
resources of the Company.
<PAGE>
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SEARS, ROEBUCK AND CO.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REVIEW REPORT
To the Shareholders and Board of Directors
of Sears, Roebuck and Co.
We have reviewed the accompanying Condensed Consolidated Balance
Sheets of Sears, Roebuck and Co. as of March 29, 1997 and March
30, 1996, and the related Condensed Consolidated Statements of
Income for the three-month periods ended March 29, 1997 and
March 30, 1996, and the Condensed Consolidated Statements of
Cash Flows for the three-month periods ended March 29, 1997 and
March 30, 1996. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data
and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to such condensed consolidated
financial statements for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the Consolidated Balance Sheet of
Sears, Roebuck and Co. as of December 28, 1996, and the related
Consolidated Statements of Income, Shareholders' Equity, and
Cash Flows for the year then ended (not presented herein); and
in our report dated February 10, 1997, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
Condensed Consolidated Balance Sheet as of December 28, 1996, is
fairly stated, in all material respects, in relation to the
Consolidated Balance Sheet from which it has been derived.
Deloitte & Touche LLP
Chicago, Illinois
April 17, 1997
<PAGE>
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ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE-MONTH PERIODS ENDED MARCH 29, 1997 AND MARCH 30, 1996
Operating Results
Revenues increased 9.6% to $8.8 billion for the three-month
period ended March 29, 1997 from the comparable 1996 period.
Revenues are generated from domestic and international
operations. The domestic operations segment includes the
Company's operations in the United States and Puerto Rico.
Domestic operations include Retail Stores (comprised of
Full-line Stores, Home Stores and Auto Stores), Home Services,
Direct Response Marketing and Credit. Credit includes the
results of the Company's portfolio of receivables which arise
from extending domestic customers credit to pay for purchases of
merchandise and services. International operations consist of
similar merchandising and service operations conducted in Canada
through Sears Canada Inc., a consolidated, 55.0% owned
subsidiary ("Sears Canada") and Sears, Roebuck de Mexico, S.A.
de C.V. ("Sears Mexico"), a 75.5% owned subsidiary until March 29,
1997. As of March 29, 1997 Sears Mexico is no longer
included in the consolidated balance sheet because of the
pending sale by the Company of its controlling interest in Sears
Mexico to Grupo Carso, S.A. de C.V. See International
Operations section for further discussion.
<TABLE>
<CAPTION>
Revenues Three Months Ended
March 29, March 30,
(millions, except number of stores) 1997 1996 Change
<S> <C> <C> <C>
Domestic operations:
Full-line Stores $ 4,584 $ 4,298 6.6%
Off-the-mall stores 1,638 1,366 19.9
Service and other revenues 656 624 5.2
Merchandise sales and services 6,878 6,288 9.4
Credit revenues 1,121 999 12.3
Total domestic operations 7,999 7,287 9.8
International operations 763 708 7.6
Total revenues $ 8,762 $ 7,995 9.6%
Domestic comparable store sales increase 2.5% 4.5%
Number of domestic Full-line Stores 823 807
Number of domestic off-the-mall stores 2,558 2,260
Total 3,381 3,067
</TABLE>
Due to holiday buying patterns, merchandise sales are
traditionally higher in the fourth quarter than 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.
<PAGE>
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ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 29, 1997 AND MARCH 30, 1996
Domestic Operations
For the first quarter, the Company posted a 2.5% comparable
store sales increase which came on top of a 4.5% comparable
store sales increase in 1996.
Full-line Stores revenues increased 6.6% over first quarter 1996.
. Apparel revenues gained 16.9% during the first quarter
reflecting the positive response to Full-line Store renovations,
broader assortments and quality brands. Women's ready to wear,
especially sportswear, as well as children's apparel and
footwear posted strong sales increases and achieved comparable
store sales gains in the low to mid-teen range.
. Hardlines revenues, comprised of Home Electronics, Home
Appliances, and Home Improvement merchandise sales, increased
1.6% for the first quarter with gains in Home Electronics and
Home Appliances partially offset by decreased Home Improvement
sales. Hardlines comparable store sales were flat with first
quarter 1996.
Off-the-mall store revenues made up of Home Stores and Auto
Stores, increased 19.9% for the first quarter, which came on
top of a 14.1% gain in 1996.
. Home Stores revenues significantly increased over 1996
primarily resulting from sales by the newly acquired Orchard
Supply Hardware Stores. Hardware and Sears Dealer stores had
solid revenue increases from a year ago benefiting from 223 net
new store openings and also achieved comparable store sales
increases in the low teens. HomeLife furniture stores revenues
increased as 6 net new stores were opened, but comparable stores
sales fell slightly from 1996.
. Auto Stores, consisting of the Sears Tire Group and Parts
Group, experienced low single digit revenue growth primarily
driven by the addition of 79 net new stores since the first
quarter of 1996. Comparable store sales were flat with prior
year. During the quarter Sears Tire Group annunced plans to
convert its Tire America and NTW stores into a single format,
"National Tire and Battery" (NTB) as part of the continued
expansion of automotive off-the-mall concepts.
Service and other revenues, which are generated primarily by
the Home Services and Direct Response Marketing businesses, were
up 5.2% in the first quarter of 1997 versus the 1996 comparable
period primarily due to strong revenue gains by Direct Response
Marketing on increased memberships and lower cancellation rates
for insurance and clubs and services.
The domestic credit card receivables portfolio contributes
significantly to domestic operations' profitability. The key
components that determine profitability of the portfolio (before
administrative expenses and income taxes) are credit revenues
(gross revenues less the funding cost on securitized
receivables), interest expense and the provision for
uncollectible accounts.
On January 1, 1997 the Company adopted SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which changed the accounting
for securitized receivables. Implementation of SFAS No. 125
increased 1997 first quarter net income by $38 million.
<PAGE>
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<TABLE>
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 29, 1997 AND MARCH 30, 1996
<CAPTION>
Key Domestic Credit Information
Balances At
March 29, March 30, Dec. 28,
(millions) 1997 1996 1996
<S> <C> <C> <C>
Gross credit card receivables $ 26,230 $ 23,551 $ 26,731
Receivable balances sold (6,248) (4,715) (6,330)
Owned credit card receivables $ 19,982 $ 18,836 $ 20,401
Three Months Year
Ended Ended
March 29, March 30, Dec. 28,
1997 1996 1996
Gross credit revenues $ 1,229 $ 1,077 $ 4,454
Funding costs on securitized
receivables (108) (78) (348)
Net credit revenues $ 1,121 $ 999 $ 4,106
Gross credit card receivables
delinquent sixty days or more 5.65% 4.74% 5.43%
Net credit charge-offs to average
gross credit card receivables 5.17% 3.66% 4.24%
Allowance for uncollectible accounts
as a percentage of owned credit
card receivables 3.81% 3.97% 3.63%
</TABLE>
The 14.1% growth in gross domestic credit revenues for the
three-month periods reflected higher owned receivable balances
resulting from strong merchandise sales and the positive impact
of uniform pricing. The Sears Card continues to have the
dominant market share of credit retail sales generated in both
the Full-line Stores and off-the-mall stores. Adoption of SFAS
No. 125 reduced 1997 gross credit revenues by $50 million as the
servicing costs and provision for uncollectible accounts related
to securitized receivables are now presented as a reduction of
credit revenues.
Gross margin as a percentage of domestic merchandise sales and
services for the first quarter was 24.6% versus 24.4% in the
comparable prior year period. The domestic gross margin rate
benefited from the continued shift in sales to higher margin
apparel merchandise, improved logistics costs and savings from
merchandise sourcing initiatives.
Selling and administrative expense as a percentage of revenues
for domestic operations improved to 21.4% in the first quarter
of 1997 from 21.8%. First quarter 1997 selling and
administrative expense was reduced by $31 million as servicing
costs for securitized receivables are no longer included in
selling and administrative expense but instead are charged
against credit revenues in accordance with SFAS No. 125. An
additional 20 basis point decrease resulted from the strong
revenue performance coupled with continued emphasis on
controlling expenses and leveraging the fixed cost base.
Domestic operations depreciation and amortization expense was
$165 million in the first quarter, an increase of $23 million
from the comparable 1996 period. The increase reflects the
continuation of the Company's store remodeling program and the
off-the-mall store expansion.
<PAGE>
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ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 29, 1997 AND MARCH 30, 1996
The allowance for uncollectible accounts for owned domestic
credit card receivables was $761 million and $748 million at
March 29, 1997 and March 30, 1996, respectively. The domestic
provision for uncollectible accounts was $269 million in the
first quarter, an 18.9% increase from the same period last year.
The 1997 provision for uncollectible accounts was reduced by
$82 million due to the implementation of SFAS No. 125 which
requires that estimated charge-offs on sold receivables be
included in the determination of the gain or loss on the sale of
receivables. Excluding the impact of SFAS No. 125, the
provision would have increased 54.9%. The increase is primarily
attributable to the 56.4% rise in
net charge-offs due to the continuing industry-wide trend of increased
delinquencies and bankruptcies and the growth in domestic credit
card receivables.
Since the Company uses securitizations of credit card
receivables as a significant funding source, total domestic
funding costs include interest expense and the funding cost of
securitized receivables. Total funding costs were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 29, March 30,
(millions) 1997 1996
<S> <C> <C>
Interest expense $ 311 $ 307
Funding costs on securitized receivables (1) 108 78
Total funding costs $ 419 $ 385
<FN>
(1) Funding costs on securitized receivables represent the interest paid
on securitized receivables and are presented as a reduction of credit
revenues in the statements of income.
</FN>
</TABLE>
Total domestic funding costs as a percentage of revenues
improved from 5.3% in 1996 to 5.2% in 1997. The improvement was
attributable to the strong domestic revenue performance
partially offset by the increase in funding costs. The increase
in total domestic funding costs reflects higher funding
requirements due to a larger receivable portfolio and the
redemption of the Preferred Shares in the fourth quarter of
1996, partially offset by lower effective funding rates
resulting from the refinancing of long term, higher rate debt.
On April 9, 1997, the Company filed a voluntary nation-wide
restitution plan (the "Plan") with the United States Bankruptcy
Court for the District of Massachusetts (the "Court") to remedy
certain bankruptcy collection practices relating to
reaffirmation agreements with the Company's bankrupt credit-card
holders that were not filed from 1992 through April 1, 1997.
Under the Plan, the Company will move expeditiously to identify
all debtors with unfiled reaffirmation agreements during the
period and remit to them all amounts paid pursuant to such
agreements, plus interest and a $100 gift certificate.
Subsequently on April 10, 1997, the Company was served with a
class-action complaint filed by certain bankrupt credit-card
holders of the Company with the Court relating to these
collection practices. The Company is not able to estimate the
cost of this matter at this time, therefore no provision has
been recorded in the first quarter. The cost of this matter may
be material to operating results. Also, this matter will have an
adverse impact on credit card charge-offs and the provision for
uncollectible accounts in subsequent periods. See Note 6 for
further discussion.
<PAGE>
-12-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 29, 1997 AND MARCH 30, 1996
International Operations
As a result of the recent announcement regarding the strategic
alliance between the Company and Grupo Carso S.A. de C.V., the
Company recorded the sale of 60 percent of the outstanding shares of
Sears, Roebuck de Mexico, S.A. de C.V. ("Sears Mexico") in the
first quarter of 1997. The transaction will reduce the
Company's ownership in Sears Mexico to 15.5 percent. Proceeds
from the sale were $103 million and resulted in a loss of $21
million recorded in the consolidated statements of income as
other income (loss) and tax expense of $15 million for a net
after-tax loss of $36 million. Excluding the impact of this
transaction, the Company's consolidated effective tax rate would
have been 40.7% versus 47.4% in the first quarter.
International revenues for the first quarter of 1997 increased
7.6% from the same period a year ago. Revenues were up 8.0% at
Sears Canada and 5.3% at Sears Mexico. Sears Canada revenues
improved due to the strong merchandise sales at retail stores.
Gross margins as a percentage of merchandise sales and services
increased to 23.6% in the first quarter from 20.0% in 1996.
Sears Canada gross margin rates improved substantially in 1997
reflecting reduced logistics costs and lower markdown rates.
Selling and administrative expense as a percentage of total
revenues increased to 23.2% in 1997 from 22.8% in the first
quarter of 1996. The increase was attributable to Sears Mexico
which experienced higher marketing costs in the current year
period. Selling and administrative expense as a percentage of
revenue decreased at Sears Canada in the first quarter of 1997
due to cost containment initiatives coupled with revenue growth.
Financial Condition
As of March 29, 1997, domestic merchandise inventories on the
first-in, first-out (FIFO) basis were $5.27 billion, compared
with $4.69 billion at March 30, 1996 and $4.96 billion at
December 28, 1996. The increase in the inventory levels
reflects the additional inventory to support higher volume sales
and the growth in new stores, both Full-line and off-the-mall.
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.
Net cash used in the Company's operating activities totaled
$266 million for the first three months of 1997, compared to net
cash used of $76 million for the same period in 1996. The
larger use of operating net cash was primarily due to a decrease
in operating liabilities, an increase in operating assets, and a
smaller reduction in receivables from prior year.
<PAGE>
-13-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 29, 1997 AND MARCH 30, 1996
Net cash used in investing activities totaled $268 million for
the first three months of 1997 compared to $217 million in 1996.
The increase in net cash used resulted from the acquisition of
All America, MaxServ and Florida Builders Appliances in the
first quarter. As part of its growth strategy, the Company may
continue to pursue selective strategic acquisitions. Cash used
for property and equipment related to the Company's Full-line
stores remodeling programs and expansion of its store base was
$159 million in the first quarter of 1997 as compared to $222
million in 1996.
Net cash provided by financing activities totaled $122 million
for the first three months of 1997 as compared to $511 million
in 1996. The decrease in net cash provided by financing
activities resulted from lower funding requirements in 1997
attributable to the favorable year-end cash position.
<PAGE>
-14-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In connection with a case pending before the United States
Bankruptcy Court for the District of Massachusetts (the "Court")
involving an individual debtor, on April 9, 1997, the Company
filed a voluntary nationwide restitution plan with the Court to
remedy certain bankruptcy collection practices relating to
reaffirmation agreements with the Company's bankrupt credit-card
holders that were not filed with federal bankruptcy courts from
1992 through April 1, 1997 (the "Plan"). In bankruptcy
proceedings under Chapter 7 of the United States Bankruptcy Code
(the "Code"), a debtor may generally agree to repay his or her
debts to creditors, but any such reaffirmations must be filed with
the bankruptcy court to be valid. The Plan contemplates that the
Company would expeditiously identify all debtors with
unfiled reaffirmation agreements during that period and remit to
them all amounts paid pursuant to such agreements, with interest.
In addition, the Company would send them a $100 gift certificate.
Subsequent to the Company's filing of the Plan with the Court,
the Company was served with two complaints, purporting to represent
a nationwide class, filed by certain bankrupt credit-card holders
of the Company with the Court on March 31, 1997 and April 7, 1997.
The complaints allege that the Company obtained payments
from these debtors under reaffirmation agreements that were not
filed with federal bankruptcy courts in violation of the Code and
certain state consumer fraud statutes. The complaints seek a refund
of all amounts paid by debtors under these agreements, punitive
damages and attorneys' fees and expenses. The Attorneys General for
the States of Massachusetts and Missouri are also investigating the
subject matter of these complaints. The Company expects that other
States Attorneys General will become involved. The Court has
provisionally certified the class for settlement purposes only. At
a hearing before the Court, the Company and the class action
plaintiffs agreed to work towards a settlement of these matters,
together with the States Attorneys General and the United States
Bankruptcy Trustee, between now and the parties' next scheduled
appearance before the Court on June 5, 1997. No assurances can
be made, however, as to the terms, if any, upon which such a
settlement might be reached.
On April 16, 1997, the Court issued an order in the individual debtor
case referred to above requiring the Company to reimburse the debtor
$236 and referring the facts and circumstances of the case to the
United States Attorney for the District of Massachusetts (the "U.S.
Attorney") for investigation of potential criminal activity. The U.S.
Attorney has filed a civil complaint against the Company enjoining
it on a nationwide basis from the bankruptcy collection practices
referred to above, ordering the Company to identify all debtors
nationwide who were the subject of these practices from January 1,
1992 to date, and setting forth specific time periods and
methodologies for the collection of this data. The Company has
consented to the entry of this order and is cooperating fully to
obtain a prompt resolution.
Although management is unable at this time to estimate the impact of
the resolution of the foregoing matters and therefore has not yet
recorded a provision for them, management believes that these matters
could have a material effect on the annual results of operations of
the Company.
In mid-April, several stockholders of the Company, purporting to
represent a class, filed complaints against the Company and certain
of its officers in the United States District Court for the Northern
District of Illinois, alleging violations of the Securities Exchange
Act of 1934 for failure to disclose the bankruptcy collection
practices described above in periodic filings with the Securities
and Exchange Commission prior to April 10, 1997. The complaints seek
unspecified damages and attorneys' fees and expenses. The Company
intends to defend these cases vigorously.
<PAGE>
-15-
PART II. OTHER INFORMATION
The Company is subject to various other legal and governmental
proceedings pending against the Company, many involving routine
litigation incidental to the businesses. Other matters contain
allegations which are nonroutine and involve compensatory,
punitive or antitrust treble damage claims in very large
amounts, as well as other types of relief. The consequences of
these matters are not presently determinable but, in the opinion
of management of the Company after consulting with legal
counsel, the ultimate liability in excess of reserves currently
recorded is not expected to have a material effect on annual
results of operations, financial position, liquidity or capital
resources of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
An Exhibit Index has been filed as part of this Report on
Page E-1.
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K dated
January 7, 1997 (Item 5) and January 23, 1997 (Items 5
and 7, containing Consolidated Statements of Income
and Supplementary Domestic Operations Information).
<PAGE>
-16-
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Sears, Roebuck and Co.
(Registrant)
April 17, 1997 By /s/ James A. Blanda
James A. Blanda
Vice President and Controller
(Principal Accounting
Officer and duly authorized
Officer of Registrant)
<PAGE>
E-1
EXHIBIT INDEX
SEARS, ROEBUCK AND CO.
THREE-MONTH PERIOD ENDED MARCH 29, 1997
Exhibit No.
4. Registrant hereby agrees to furnish the Commission, upon
request, with the instruments defining the rights of
holders of each issue of long-term debt of the Registrant
and its consolidated subsidiaries.
10. Registrant's Deferred Compensation Plan for Directors, as
amended and restated on February 4, 1997.
12(a). Computation of ratio of income to fixed charges for
Sears, Roebuck and Co. and consolidated subsidiaries for
each of the five years ended December 28, 1996 and for
the three- and twelve-month periods ended March 29, 1997.
12(b). Computation of ratio of income to combined fixed charges
and preferred share dividends for Sears, Roebuck and Co.
and consolidated subsidiaries for each of the five years
ended December 28, 1996, and for the twelve-month period
ended March 29, 1997.
15. Acknowledgment of awareness from Deloitte & Touche LLP,
dated April 17, 1997, concerning unaudited interim
financial information.
27. Financial Data Schedule.
Exhibit 10
WHEREAS, it is in the best interests of the Company to amend and
restate the Deferred Compensation Plan for Directors (the
"Plan");
NOW, THEREFORE, BE IT RESOLVED, that the Plan be and it hereby
is amended and restated as follows:
SEARS, ROEBUCK AND CO.
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
as amended and restated on February 4, 1997
1. PURPOSE
The purpose of this Plan is to offer non-employee members of
the Board of Directors the opportunity to defer receipt of their
directors' compensation, as an incentive to their continued
participation as directors of Sears, Roebuck and Co.
2. DEFINITIONS
a. "Beneficiary" shall mean the person or persons designated
from time to time in writing by a Participant to receive payments under
the Plan after the death of such Participant, or, in the absence of any
such designation or in the event that such designated person or persons
shall predecease such Participant, his estate.
b. "Common Share Unit" shall mean a Deferred Amount which is
converted into a unit or fraction of a unit for purposes of the Plan by
dividing a dollar amount by the Fair Market Value of one of the
Company's common shares.
c. "Company" shall mean Sears, Roebuck and Co.
d. "Compensation" shall mean payments which the Participant
receives from the Company for services, including retainer fees and
meeting fees.
e. "Deferred Amount" shall mean an amount of Compensation
deferred under the Plan and carried during the deferral period in any
Account provided for in the Plan.
f. "Distribution Date" shall mean the date designated by a
Participant in the Notice of Election form for distribution of Accounts.
g. "Dividend Equivalent" shall mean an amount equal to the cash
dividend paid on one of the Company's common shares credited to an
Account for each Common Share Unit credited to such Account.
h. "Equity Index" shall mean the Standard & Poor's 500
Composite Stock Price Index which is a market value-weighted index
consisting of 500 common stocks of large U.S. domiciled companies
selected by Standard and Poor's Corporation ("S&P") through a detailed
screening process starting on a
macro-economic level and working toward a micro-economic level dealing
with company specific information such as market value, industry group
classification, capitalization and trading activity. S&P's primary
objective for the S&P Index is to represent the segment of the U.S.
equity securities markets consisting of large market capitalization
stocks. However, companies are not selected by S&P for inclusion because
they are expected to have superior stock price performance relative to
the market in general or other stocks in particular.
i. "Fair Market Value" shall mean the closing price of the
Company's common shares as reported by the Wall Street Journal or other
comparable source in a summary of composite
transactions for stocks listed on the New York Stock Exchange.
j. "Hardship" shall mean an emergency or unexpected situation
in the Participant's financial affairs including, but not limited to,
illness or accident involving the Participant or his/her dependents
which, in the opinion of the Compensation Committee of the Board of
Directors of the Company, presents a severe economic difficulty to the
Participant, due to which a distribution of the Account balance is
appropriate.
k. "Fixed Income Index" shall mean the Lehman Brothers
Aggregate Bond Index, except for debt securities of Sears or Allstate
(as defined below), which is made up of the Lehman Government/Corporate
Bond Index ("Bond Index"), the Lehman Mortgage-Backed Securities Index
("Mortgage-Backed Securities Index"), and the Lehman Asset-Backed
Securities Index
("Asset-Backed Securities Index"). The Bond Index is a composite of all
publicly issued, fixed rate, nonconvertible, domestic bonds. The issues
are rated investment grade or higher by Moody's Investors Service, Inc.,
S&P, or Fitch Investors Service, Inc., in that order, have a minimum
outstanding principal of $100 million for U.S. Government issues or $50
million for other bonds, and have a maturity of at least one year. The
index is capitalization-weighted. The
Mortgage-Backed Securities Index includes 15- and 30-year fixed rate
securities backed by mortgage pools of the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Federal
National Mortgage Association. Graduated payment mortgages and balloon
mortgages are included in the index; buydown, manufactured homes and
graduated equity mortgages are not. The Asset-Backed Securities Index
is composed of credit card, auto, and home equity loans. Included in
the index are pass-through, bullet (noncallable), and controlled
amortization structures; no subordination tranches are included. All
securities have an average life of at least one year.
l. "Non-Employee Director" shall mean any duly elected or
appointed member of the Board of Directors of the Company who is not an
employee of the Company or of any subsidiary of the Company.
m. "Participant" shall mean any Non-Employee Director who
elects to defer any amount of Compensation under the Plan.
n. "Plan" shall mean the Sears, Roebuck and Co., Deferred
Compensation Plan for Directors.
o. "Secretary" shall mean the duly elected Secretary of the
Company.
3. ELECTION TO DEFER COMPENSATION
Each Participant may elect to defer the payment of all or any part
of his or her Compensation by executing and delivering to the Secretary
a Notice of Election, in the form attached hereto and incorporated
herein by this reference. Such election shall be applicable only to
Compensation payable on or after the first day of the month following
the month in which such Notice of Election is received by the Secretary.
An election to defer payment of Compensation shall continue in
effect until revoked by notice in writing to the Secretary. In addition,
the receipt of a new or revised Notice of Election form by the Secretary
shall constitute a revocation of any previously filed Notice of Election
form to the extent
inconsistent therewith. No revocation shall be effective with respect
to Compensation earned prior to the date the revocation is received by
the Secretary or the effective date of the new or revised Notice of
Election.
4. TREATMENT OF DEFERRED AMOUNTS
The Company shall establish on its books the necessary accounts
("Account", or collectively, "Accounts") to accurately reflect the
Company's liability to each Participant. To each Account shall be
credited, as applicable, Deferred Amounts, Dividend Equivalents on
Common Shares, Allstate Share Units, Allstate Dividend Equivalents and
interest. Payments to the Participant or amounts transferred to another
Account under the Plan shall be debited to the appropriate Account.
a. Account #1 - Interest-Bearing Account. Compensation
deferred into an Interest-Bearing Account shall be credited to the
Account on the same date when it would otherwise be payable to the
Participant. Deferred Amounts carried in this Account shall earn
interest from the date of credit to the date of payment. At the end of
each calendar month, interest at a rate equal to the monthly average per
annum cost of commercial paper or the equivalent issued by Sears Roebuck
Acceptance Corp. ("SRAC") as reported in the monthly report to the SRAC
Board of Directors shall be credited to the amounts previously accrued
in each Account for the period from the date amounts were credited to
such Account to the end of such calendar month.
b. Account #2 - Common Share Unit Account. Compensation
deferred into a Common Share Unit Account shall be credited to the
Account on the same date when it would otherwise be payable to the
Participant. Such Deferred Amounts shall be converted into a number of
Common Share Units on the date credited to the Account by dividing the
Deferred Amount by the Fair Market Value on such date. If Common Share
Units exist in a Participant's Account on a dividend record date for the
Company's common shares, Dividend Equivalents shall be credited to the
Participant's Account on the related dividend payment date, and shall be
converted into the number of Common Share Units which could be purchased
with the amount of Dividend Equivalents so credited.
In the event of any change in the Company's common shares
outstanding, by reason of any stock split or dividend,
recapitalization, merger, consolidation, combination or exchange of
stock or similar corporate change, the Secretary shall make such
equitable adjustments, if any, deemed appropriate by reason of any such
change, in the number of Common Share Units credited to each
Participant's Account.
c. Account #3 - Equity Index Account. Compensation deferred
into an Equity Index Account shall be credited to the Account on the
same date when it would otherwise be payable to the Participant. On the
last day in the month the amounts in the Participant's Account shall be
adjusted by a percentage factor based on the total return (including
dividends) of the Equity Index from the date the amount was credited to
the Account for amounts credited during the month or from the last day
of the preceding month for amounts in the Account on such day. Similar
adjustments shall also be made on any date the Account is debited by
reason of any transfer of an amount to another Account or distribution
to the Participant. In the event that the Equity Index is not published
for any date referred to above, the Index for the closest day preceding
such date for which such Equity Index is published shall be used.
d. Account #4 - Fixed Income Index Account. Compensation
deferred into a Fixed Income Index Account shall be credited to the
Account on the same date when it would otherwise be payable to the
Participant. Amounts credited to the Account shall earn additional
amounts which will be credited to the Account on the last business day
of each month based upon the Iperformance of the Fixed Income Index.
e. Account #5 - Allstate Share Unit Account. Participants who
have Common Share Unit Accounts on the payment date for the Company's
distribution to its common shareholders of its remaining ownership of
Allstate common stock will, at their election, be credited with the same
number of Allstate Share Units per Common Share Unit as Allstate common
shares
distributed per each Company common share in the distribution. Such
election shall be received by the Secretary of the Company on or before
the payment date for such distribution. In the absence of receipt of
such election as to any Participant, the Secretary shall adjust the
Common Share Unit Account of the Participant to reflect in Common Share
Units the value of the Allstate distribution. All Allstate Share Units
shall be credited to Participants' Allstate Share Unit Account.
If Allstate Share Units exist in a Participant's Account on
a dividend record date for Allstate's common stock, Allstate Dividend
Equivalents shall be credited to the Participant's Allstate Share Unit
Account on the related dividend payment date, and shall be converted
into the number of Allstate Common Share Units which could be purchased
with the amount of Allstate Dividend Equivalents so credited.
In the event of any change in Allstate's common stock
outstanding, by reason of any stock split or dividend,
recapitalization, merger, consolidation, combination or exchange of
stock or similar corporate change, the Secretary shall make such
equitable adjustments, if any, deemed appropriate by reason of any such
change, in the number of Allstate Common Share Units credited to each
Participant's Allstate Share Unit Account.
For purposes of this Section 4(e):
"Allstate" shall mean The Allstate Corporation.
"Allstate Dividend Equivalent" shall mean an amount equal to
the cash dividend paid on one of Allstate's shares of common stock,
credited to a Participant's Allstate Share Unit Account for each
Allstate Share Unit credited to such Account.
"Allstate Fair Market Value" shall mean the closing price of
Allstate's common shares as reported by the Wall Street Journal or other
comparable source in a summary of composite
transactions for stocks listed on the New York Stock Exchange.
"Allstate Share Unit" shall mean a unit or fraction of a
unit calculated (except with respect to the initial allocation of such
units to Participants' accounts at the time of the Company's
distribution of Allstate stock) by dividing a dollar amount by the
Allstate Fair Market Value of one of Allstate's shares of common stock.
f. Transfers Between Accounts. Transfers between Account #1,
Account #2, Account #3 and Account #4 may be made at any time requested
by the Participant upon application to the Secretary.
Participants may make transfers from Account #5 to another
Account at any time requested by the Participant upon
application to the Secretary. No Participant may make transfers to
Account #5 from any other Account under any circumstances.
In the case of:
(i) any election to transfer or withdraw from Account #2 which
occurs within six months after an election to transfer into Account #2
or into another Equity Fund Account; and
(ii) any election to transfer into Account #2 which occurs within six
months after an election to transfer or withdraw from Account #2 or from
another Equity Fund Account,
the second election shall be deemed not to have occurred for any purpose
under this Plan, and the account of any such Participant shall continue
to reflect all balances and accruals as if such election had not been
made. The Company is authorized to make any adjustments to a
Participant's account as may be necessary to give effect to the
foregoing provision.
For purposes of this Section 4(f):
"Equity Fund Account" shall mean an account for a Participant maintained
under a benefit plan of the Company, that contains a Company "equity
security" within the meaning of the term "equity security of such
issuer" in Rule 16a-1 under the Exchange Act.
5. DISTRIBUTION
a. Except in the case of the death of a Participant,
distribution of Accounts shall commence as of the date specified by the
Participant in said Participant's applicable Notice of Election form,
which date shall be no later than one year after termination from the
Board. The Participant may revise the terms of distribution of the
Participant's Accounts by
submitting a revised Notice of Election, provided that (i) the revised
Notice of Election form shall be filed by the
Participant with the Secretary not later than twelve months prior to
the Participant's normal retirement date from the Board, and (ii) in any
event, distribution of the Participant's Accounts shall not commence
earlier than twelve months after the Participant's revised Notice of
Election form is filed with the Secretary.
b. Except in the case of the death of the Participant, payment
of the amount in each Account shall be either in the form of a lump-sum
or in annual installments over a period of from one to ten (10) years
as selected by the Participant in the applicable Notice of Election
form. At the election of the Participant, payment of the first
installment may be delayed until one year after the Participant's
termination from the Board. The amount of any installment payment
shall be determined by multiplying the amount to which the Participant
would be entitled as a lump sum on the installment date by a fraction,
the numerator of which is one and the denominator of which is the number
of remaining unpaid installments.
c. In the event of the Participant's death prior to the
Distribution Date, or after annual installments to the
Participant have commenced but before full distribution has been made,
the then remaining balance in each Account shall be paid in a lump-sum
to the Beneficiary or contingent Beneficiary designated in the Notice of
Election form, or to the estate of the deceased Participant if there is
no surviving Beneficiary or contingent Beneficiary. In either such
event the lump sum payment shall be valued as of the first day of the
month following the Participant's date of death. A Participant may
change the Beneficiary or contingent Beneficiary from time to time by
filing with the Secretary a written notice of such change; provided,
however, that no such notice of change of Beneficiary shall be effective
unless it had been received by the Secretary prior to the date of the
Participant's death.
d. Upon demonstration of Hardship by the Participant to the
Compensation Committee of the Board of Directors of the Company,
distribution of a Participant's Account, or the remaining balance of any
unpaid installments, as the case may be, may be made in a lump sum.
6. MISCELLANEOUS
a. The Board of Directors of the Company may amend or terminate
the Plan at any time; however, any amendment or termination of the Plan
shall not affect the rights of Participants or Beneficiaries to payment,
in accordance with Section 5 of the Plan, of amounts credited to
Participants' Accounts at the time of such amendment or termination.
The Board of Directors and the Secretary may in their discretion
prescribe such provisions and interpretations of the Plan as they shall
deem necessary or advisable.
b. The Plan does not create a trust in favor of a Participant,
a Participant's designated Beneficiary or Beneficiaries, or any other
person claiming on a Participant's behalf, and the obligation of the
Company is solely a contractual obligation to make payments due
hereunder. In this regard, the balance in any Account shall be
considered a liability of the Company and a Participant's right thereto
shall be the same as any unsecured general creditor of the Company.
Neither a Participant nor any other person shall acquire any right,
title, or interest in or to any amount outstanding to a Participant's
credit under the Plan other than the actual payment of such portions
thereof in accordance with the terms of the Plan.
c. No right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance or
change, and any attempt to anticipate, alienate, sell, assign, pledge,
encumber or change the same shall be void. No right or benefit
hereunder shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to such benefit.
d. Construction of the Plan shall be governed by the laws of
Illinois.
e. The terms of the Plan shall be binding upon the heirs,
executors, administrators, personal representatives, successors and
assigns of all parties in interest.
f. The headings have been inserted for convenience only and
shall not affect the meaning or interpretation of the Plan.
g. Any amount payable to or for the benefit of a minor, an
incompetent person or other person incapable of receipting therefor
shall be deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such
person, and such payment shall fully discharge the Company and the Board
of Directors with respect thereto.
<PAGE>
<TABLE>
EXHIBIT 12(a)
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Twelve Three
Months Months
Ended Ended
Mar. 29, Mar. 29, Year Ended
1997 1997
(millions, except ratios) (unaudited) (unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest and amortization of debt discount
and expense on all indebtedness $1,364 $352 $1,365 $1,373 $1,279 $1,318 $1,389
Add interest element implicit in rentals 127 37 121 119 114 105 165
1,491 389 1,486 1,492 1,393 1,423 1,554
Interest capitalized 4 1 5 4 1 3 23
Total fixed charges $1,495 $390 $1,491 $1,496 $1,394 $1,426 $1,577
Income (loss)
Income (loss) from continuing operations $1,302 $182 $1,271 $1,025 $857 $625 ($1,812)
Deduct undistributed net income (loss)
of unconsolidated companies 16 8 8 9 (7) 6 (4)
1,286 174 1,263 1,016 864 619 ( 1,808)
Add
Fixed charges (excluding interest capitalized) 1,491 389 1,486 1,492 1,393 1,423 1,554
Income taxes (benefit) 899 165 834 703 614 329 ( 1,039)
Income (loss) before fixed charges and
income taxes $3,676 $728 $3,583 $3,211 $2,871 $2,371 ($1,293)
Ratio of income to fixed charges 2.46 1.87 2.40 2.15 2.06 1.66 (A)
<FN>
(A) As a result of the loss for the year ended December 31, 1992, earnings did not cover fixed charges by $2,870 million.
</FN>
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12(b)
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Twelve
Months
Ended
Mar. 29, Year Ended
1997
(millions, except ratios) (unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest and amortization of debt discount
and expense on all indebtedness $1,364 $1,365 $1,373 $1,279 $1,318 $1,389
Add interest element implicit in rentals 127 121 119 114 105 165
1,491 1,486 1,492 1,393 1,423 1,554
Preferred dividend factor 30 41 89 234 209 120
Interest capitalized 4 5 4 1 3 23
Total fixed charges $1,525 $1,532 $1,585 $1,628 $1,635 $1,697
Income (loss)
Income (loss) from continuing operations $1,302 $1,271 $1,025 $857 $625 ($1,812)
Deduct undistributed net income (loss)
of unconsolidated companies 16 8 9 (7) 6 (4)
1,286 1,263 1,016 864 619 ( 1,808)
Add
Fixed charges (excluding interest capitalized
and preferred dividend factor) 1,491 1,486 1,492 1,393 1,423 1,554
Income taxes (benefit) 899 834 703 614 329 ( 1,039)
Income (loss) before fixed charges and
income taxes $3,676 $3,583 $3,211 $2,871 $2,371 ($1,293)
Ratio of income to combined fixed charges
and preferred share dividends 2.41 2.34 2.03 1.76 1.45 (A)
<FN>
In 1996, all the 8.88% Preferred Shares, First Series were redeemed and therefore in 1997 the Company made no
other preferred share dividend payments.
(A) As a result of the loss for the year ended December 31, 1992, earnings did not cover fixed charges by
$2,990 million.
</FN>
</TABLE>
<PAGE>
EXHIBIT 15
To the Shareholders and Board of Directors
of Sears, Roebuck and Co.
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of
the unaudited interim financial information of Sears, Roebuck
and Co. for the three-month periods ended March 29, 1997 and
March 30, 1996, as indicated in our report dated April 17, 1997;
because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which is
included in your Quarterly Report on Form 10-Q for the
three-month period ended March 29, 1997, is incorporated by
reference in Registration Statement Nos. 2-64879, 2-80037,
33-18081, 33-23793, 33-41485, 33-43459, 33-45479, 33-55825,
33-58139, 33-58851, 33-64345, 333-8141 of Sears, Roebuck and
Co.; Registration No. 333-9817 of Sears, Roebuck and Co. and
Sears Roebuck Acceptance Corp.; Registration Statement Nos.
33-57205 and 333-11973 of Sears, Roebuck and Co. and the Savings
and Profit Sharing Fund of Sears Employees; Registration
Statement No. 33-44671 of Sears, Roebuck and Co. and Sears DC
Corp.; and Registration Statement Nos. 33-64775 and 333-18591 of
Sears, Roebuck and Co. and Sears, Roebuck and Co. Deferred
Compensation Plan.
We are also aware that the aforementioned reports, pursuant to
Rule 436(c) under the Securities Act of 1933, are not considered
a part of the Registration Statement prepared or certified by an
accountant or a report prepared or certified by an accountant
within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
Chicago, Illinois
April 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND CASH
FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 248
<SECURITIES> 0
<RECEIVABLES> 21,861
<ALLOWANCES> 802
<INVENTORY> 4,939
<CURRENT-ASSETS> 27,871
<PP&E> 10,272
<DEPRECIATION> 4,495
<TOTAL-ASSETS> 35,629
<CURRENT-LIABILITIES> 14,002
<BONDS> 12,401
0
0
<COMMON> 323
<OTHER-SE> 4,819
<TOTAL-LIABILITY-AND-EQUITY> 35,629
<SALES> 7,559
<TOTAL-REVENUES> 8,762
<CGS> 5,705
<TOTAL-COSTS> 5,705
<OTHER-EXPENSES> 1,884
<LOSS-PROVISION> 282
<INTEREST-EXPENSE> 352
<INCOME-PRETAX> 347
<INCOME-TAX> 165
<INCOME-CONTINUING> 182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>Not applicable
</FN>
</TABLE>
