10-Q

 

 
 

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 JULY 1, 2000
	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 (State of Incorporation)			36-1750680 (I.R.S. Employer Identification No.)
3333 Beverly Road, Hoffman Estates, Illinois (Address of principal executive offices)			60179 (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 July 29, 2000, the Registrant had 342,854,648 common shares, $.75 par value, outstanding.

 
 

SEARS, ROEBUCK AND CO.

INDEX TO QUARTERLY REPORT ON FORM 10-Q
13 AND 26 WEEKS ENDED JULY 1, 2000

 
 
 
 
 
 
 
 
 
 

PART I - FINANCIAL INFORMATION		Page
Item 1.	Financial Statements
	Condensed Consolidated Statements of Income (Unaudited)  13 Weeks and 26 Weeks Ended July 1, 2000 and July 3, 1999	1
	Condensed Consolidated Balance Sheets  July 1, 2000 (Unaudited), July 3, 1999 (Unaudited) and January 1, 2000	2
	Condensed Consolidated Statements of Cash Flows (Unaudited)  26 Weeks Ended July 1, 2000 and July 3, 1999	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
	Independent Accountants' Review Report	8
Item 2.	Management's Discussion and Analysis of Operations, Financial Condition and Liquidity	9

 
 
 
 
 
 

PART II - OTHER INFORMATION
 
 
 

Item 1.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security-Holders	18
Item 6.	Exhibits and Reports on Form 8-K	19

 
 
 

 
 
 
 
 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
 

(millions, except per share data)			13 Weeks Ended						26 Weeks Ended
			July 1, 2000			July 3, 1999			July 1, 2000			July 3, 1999
Merchandise sales and services	$	8,975		$	8,599		$	16,804		$	16,127
Credit revenues		1,101			1,037			2,245			2,165
Total revenues		10,076			9,636			19,049			18,292
Costs and expenses
Cost of sales, buying and occupancy		6,606			6,271			12,475			11,929
Selling and administrative		2,112			2,058			4,066			3,977
Depreciation and amortization		210			215			419			424
Provision for uncollectible accounts		215			215			460			506
Interest		310			313			626			647
Total costs and expenses		9,453			9,072			18,046			17,483
Operating income		623			564			1,003			809
Other income (expense)		5			(12)			6			(14)
Income before income taxes and minority interest		628			552			1,009			795
Income taxes		(232)			(209)			(372)			(301)
Minority interest		(8)			(12)			(14)			(17)
Net income	$	388		$	331		$	623		$	477
Earnings per share:
Basic	$	1.12		$	0.87		$	1.77		$	1.25
Diluted	$	1.11		$	0.86		$	1.76		$	1.24
Cash dividends declared per share	$	0.23		$	0.23		$	0.46		$	0.46
Average common and common equivalent shares outstanding		348.4			383.6			354.2			384.4
See accompanying notes.

 
 
 
 

SEARS, ROEBUCK AND CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

 
 

(millions)	(Unaudited)
		July 1, 2000		July 3, 1999		January 1, 2000
Assets
Current assets
Cash and cash equivalents	$	345	$	397	$	729
Retained interest in transferred credit card receivables		1,985		3,600		3,144
Credit card receivables, net		17,125		16,771		18,033
Other receivables		311		384		404
Merchandise inventories		5,628		5,000		5,069
Prepaid expenses, deferred charges and other assets		561		604		579
Deferred income taxes		764		729		709
Total current assets		26,719		27,485		28,667
Property and equipment, net		6,345		6,332		6,450
Deferred income taxes		318		531		367
Other assets		1,487		1,502		1,470
Total assets	$	34,869	$	35,850	$	36,954
Liabilities
Current liabilities
Short-term borrowings	$	2,557	$	3,814	$	2,989
Current portion of long-term debt and capitalized leases		2,338		612		2,165
Accounts payable and other liabilities		6,319		5,977		6,992
Unearned revenues		1,086		950		971
Other taxes		462		451		584
Total current liabilities		12,762		11,804		13,701
Long-term debt and capitalized leases		12,245		14,042		12,884
Postretirement benefits		2,070		2,258		2,180
Minority interest and other liabilities		1,343		1,463		1,350
Total liabilities		28,420		29,567		30,115
Commitments and Contingent Liabilities
Shareholders' Equity
Common shares		323		323		323
Capital in excess of par value		3,542		3,566		3,554
Retained earnings		6,414		5,149		5,952
Treasury stock - at cost		(3,418)		(2,233)		(2,569)
Deferred ESOP expense		(113)		(160)		(134)
Accumulated other comprehensive loss		(299)		(362)		(287)
Total shareholders' equity		6,449		6,283		6,839
Total liabilities and shareholders' equity	$	34,869	$	35,850	$	36,954
Total common shares outstanding		343.0		380.3		369.1
See accompanying notes.

 
 
 
 

SEARS, ROEBUCK AND CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 

(millions)	26 Weeks Ended
	July 1,		July 3,
	2000		1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	623	$	477
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and other noncash items		466		464
Provision for uncollectible accounts		460		506
Loss (Gain) on sales of property and investments		(1)		2
Change in (net of acquisitions):
Deferred income taxes		(2)		81
Retained interest in transferred credit card receivables		1,159		694
Credit card receivables		437		758
Merchandise inventories		(564)		(234)
Other operating assets		70		(14)
Other operating liabilities		(822)		(732)
Net cash provided by operating activities		1,826		2,002
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired		(1)		(16)
Proceeds from sales of property and investments		19		101
Purchases of property and equipment		(395)		(575)
Purchases of long-term investments		(17)		(21)
Net cash used in investing activities		(394)		(511)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt		307		909
Repayments of long-term debt		(766)		(1,313)
Decrease in short-term borrowings, primarily 90 days or less		(432)		(830)
Repayments of ESOP note receivable		100		58
Common shares purchased		(901)		(202)
Common shares issued for employee stock plans		41		42
Dividends paid to shareholders		(164)		(257)
Net cash used in financing activities		(1,815)		(1,593)
Effect of exchange rate on cash and invested cash		(1)		4
Net decrease in cash and cash equivalents		(384)		(98)
Balance at beginning of year		729		495
Balance at end of period	$	345	$	397
See accompanying notes.

 
 
 
 

SEARS, ROEBUCK AND CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

1. Condensed Consolidated Financial Statements

 
The Condensed Consolidated Balance Sheets as of July 1, 2000 and July 3, 1999, the related Condensed Consolidated Statements of Income for the 13 and 26 weeks ended July 1, 2000 and July 3, 1999, and the Condensed Consolidated Statements of Cash Flows for the 26 weeks ended July 1, 2000 and July 3, 1999, 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. (the "Company" or "Sears") 1999 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.

Certain reclassifications have been made to the 1999 financial statements to conform with the current year presentation.
 

2. Shareholders' Equity and Dividend Restrictions Under terms of indentures entered into in 1981 and thereafter, Sears cannot take specified actions, including the declaration of cash dividends, which would cause its unencumbered assets, as defined, to fall below 150% of its liabilities, as defined. At July 1, 2000, approximately $4.5 billion could be paid in dividends to shareholders under the most restrictive indentures.

On March 10, 1999, the Board of Directors approved a common share repurchase program to acquire up to $1.5 billion of the Company's common shares by December 31, 2001. The shares are purchased on the open market or through privately negotiated transactions. As of July 1, 2000, approximately 41.5 million common shares have been acquired under this repurchase program at a cost of approximately $1.37 billion. During the second quarter of 2000, the Company repurchased 10.3 million shares at a cost of $393 million.
 
 

SEARS, ROEBUCK AND CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. Earnings Per Share

The following table sets forth the computations of basic and diluted earnings per share:
 
 
 

(millions, except per share data)	13 Weeks Ended						26 Weeks Ended
	July 1,		July 3,				July 1,			July 3,
	2000		1999				2000			1999
Basic:
Net income	$	388		$	331	$		623	$		477
Average shares outstanding		346.6			381.1			352.9			382.0
Earnings per share - basic	$	1.12		$	0.87	$		1.77	$		1.25
Diluted:
Net income	$	388		$	331	$		623	$		477
Average shares outstanding		346.6			381.1			352.9			382.0
Dilutive effect of stock options		1.8			2.5			1.3			2.4
Average shares and equivalent shares outstanding		348.4			383.6			354.2			384.4
Earnings per share - diluted	$	1.11		$	0.86	$		1.76	$		1.24

In each period, certain outstanding options were excluded from the computation of diluted earnings per share because they would have been antidilutive. As of July 1, 2000, options to purchase 11.1 million shares of stock at prices ranging from $37 to $64 and $33 to $64 per share were excluded from the 13 and 26 week 2000 calculations, respectively. As of July 3, 1999, options to purchase 7.3 million shares of stock at prices ranging from $47 to $64 and $45 to $64 per share were excluded from the 13 and 26 week 1999 calculations, respectively. 4. Comprehensive Income  
The following table sets forth the computation of comprehensive income:

	(millions)		13 Weeks Ended						26 Weeks Ended
			July 1,			July 3,			July 1,		July 3,
			2000			1999			2000		1999
Net income		$		388	$		331	$		623		$	477
Other comprehensive income (loss):
Unrealized gain (loss) on investments				(5)			(41)			(9)			42
Foreign currency translation adjustments				(10)			14			(3)			20
Total other comprehensive income				(15)			(27)			(12)			62
Total comprehensive income		$		373	$		304	$		611		$	539

 
 
 
 
 

SEARS, ROEBUCK AND CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accumulated other comprehensive loss is comprised of foreign currency translation charges of $115, $105 and $112 million as of July 1, 2000, July 3, 1999 and January 1, 2000, respectively; the Company's minimum pension liability (net of tax) of $194, $299 and $194 million as of July 1, 2000, July 3, 1999 and January 1, 2000, respectively; and an unrealized gain on investments (net of tax) of $10, $42 and $19 million as of July 1, 2000, July 3, 1999 and January 1, 2000, respectively. 5. Segment Disclosures  
The following tables set forth revenue, operating income (expense) and total assets by segment:

For the 13 weeks ended July 1, 2000

millions	Retail	Services	Credit	Corporate	International	Consolidated
Revenue	$ 7,290	$ 732	$ 1,033	$ --	$ 1,021	$ 10,076
Operating income (expense)	190	99	398	(94)	30	623
Total assets	10,444	1,123	18,312	1,760	3,230	34,869

 

          For the 13 weeks ended July 3, 1999
 

millions	Retail	Services	Credit	Corporate	International	Consolidated
Revenue	$ 6,997	$ 736	$ 973	$ --	$ 930	$ 9,636
Operating income (expense)	173	94	315	(63)	45	564
Total assets	10,109	1,028	19,731	2,210	2,772	35,850

 

          For the 26 weeks ended July 1, 2000
 

millions	Retail	Services	Credit	Corporate	International	Consolidated
Revenue	$ 13,603	$ 1,355	$ 2,104	$ --	$ 1,987	$ 19,049
Operating income (expense)	193	164	780	(182)	48	1,003
Total assets	10,444	1,123	18,312	1,760	3,230	34,869

For the 26 weeks ended July 3, 1999

millions	Retail	Services	Credit	Corporate	International	Consolidated
Revenue	$ 13,131	$ 1,383	$ 2,036	$ --	$ 1,742	$ 18,292
Operating income (expense)	104	169	610	(136)	62	809
Total assets	10,109	1,028	19,731	2,210	2,772	35,850

  6. Effect of New Accounting Standards and Statements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement (as amended) is now required to be adopted in years beginning after June 15, 2000. The Company is currently evaluating this statement's provisions and has not yet determined what effect it might have on the consolidated financial position and results of operations of the Company. The Company intends to adopt the standard for the 2001 fiscal year.
 
 

SEARS, ROEBUCK AND CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

7. Effect of New SEC Staff Guidance

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), which effectively changes previous guidance related to the recording of licensed business revenues for retail companies. As a result, the Company changed its method of recording licensed business revenue in the first quarter of 2000. Under SAB 101, the Company now recognizes as revenue only the commission received from the licensed business partner. Prior to implementation of SAB 101, the Company had recognized the gross revenues of licensees. This change in licensed business reporting reduces revenues and expenses by equal amounts and therefore does not have an impact on operating income. Prior year financial statements have been restated to reflect the reclassification under SAB 101.

8. Restructuring Charge

 
The Company implemented certain cost-reduction strategies during the third quarter of 1999 resulting in a $46 million pre-tax restructuring charge. Of the $46 million charge, $25 million related to the closing of 33 automotive stores in three geographic markets and $21 million related to severance costs for headquarters staff reductions of approximately 450 employees. The staff reductions and the closing of the 33 stores both occurred during the third quarter of 1999. Of the $25 million charge for the 33 closed stores, approximately $3 million related to severance costs, $21 million was to reduce the carrying value of the closed store assets to their estimated fair value, less costs to sell and $1 million was for other related costs. The Company paid $3 million and $11 million of restructuring costs during the 13 and 26 week periods ended July 1, 2000. Future cash payments are expected to be insignificant.

9. Legal Proceedings

 
There have been no material developments in any material legal proceedings since the Company's disclosure in its Annual Report on Form 10-K for the fiscal year ended January 1, 2000. SEARS, ROEBUCK AND CO.

INDEPENDENT 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 July 1, 2000 and July 3, 1999, and the related Condensed Consolidated Statements of Income for the 13-week and 26-week periods ended July 1, 2000 and July 3, 1999 and the Condensed Consolidated Statements of Cash Flows for the 26-week periods ended July 1, 2000 and July 3, 1999. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the Consolidated Balance Sheet of Sears, Roebuck and Co. as of January 1, 2000, 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 7, 2000, 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 January 1, 2000, 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
August 2, 2000
 
 

SEARS, ROEBUCK AND CO.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 AND 26 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999

Analysis of Operations

Operating results for the Company are reported for four domestic segments and one international segment. The domestic segments include the Company's operations in the United States and Puerto Rico. The Company's segments are defined as follows:
 
 

Retail consisting of: Full-line stores   Specialty stores (Hardware stores, Dealer stores, Contract Sales, The Great Indoors and Auto stores)	Corporate consisting of administrative activities of a holding company nature, the costs of which are not allocated to the Company's businesses (includes the Company's On-line investments)
Services consisting of: Home Services Direct Response	International consisting of retail, services, credit, corporate and On-line operations conducted in Canada through Sears Canada, Inc. ("Sears Canada"), a 54.5% owned consolidated subsidiary
Credit which manages domestic Credit Card operations

For the 13 weeks ended July 1, 2000, net income was $388 million, or $1.11 per share, compared to $331 million, or $0.86 per share for the comparable 1999 period. For the 26 weeks ended July 1, 2000, net income was $623 million, or $1.76 per share compared to $477 million, or $1.24 per share for the comparable 1999 period. The increases in net income and earnings per share were primarily due to increased operating income in the Retail and Credit segments coupled with a reduction in outstanding shares due to the Company's share repurchase program.

Operating income (expense) by segment was as follows:

(millions)	13 Weeks Ended				26 Weeks Ended
	July 1,		July 3,		July 1,		July 3,
	2000		1999		2000		1999
Retail	$	190	$	173	$	193	$	104
Services		99		94		164		169
Credit		398		315		780		610
Corporate		(94)		(63)		(182)		(136)
International		30		45		48		62
Total operating income	$	623	$	564	$	1,003	$	809

The Company's consolidated effective tax rate for the 13 weeks ended July 1, 2000 was 36.9% compared to 37.9% in the prior year period. The decrease in the effective tax rate is primarily due to the favorable resolution of certain domestic tax audit issues.
 
 

SEARS, ROEBUCK AND CO.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 AND 26 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999

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. This business seasonality results in performance for the 13 and 26 weeks ended July 1, 2000 which is not necessarily indicative of performance for the balance of the year. The Company makes available by phone a recorded message on the sales performance of its domestic stores. The message is updated weekly and can be heard by calling (847) 286-6111.
 

Retail

Retail revenues increased 4.2% to $7.3 billion and 3.6% to $13.6 billion for the 13 and 26 weeks ended July 1, 2000, respectively, from the comparable 1999 period. Excluding the effect of the HomeLife divestiture in the first quarter of 1999, retail revenues increased $521 million or 4.0% for the 26 week period. Retail revenues and related information are as follows:
 

(millions, except number of stores)			13 Weeks					26 Weeks
			July 1,		July 3,			July 1,			July 3,
			2000		1999	Change	2000			1999			Change
	Revenues:
	Full-line stores	$	5,652	$	5,437	4.0%	$	10,595		$	10,232		3.5%
	Specialty stores		1,638		1,560	5.0%		3,008			2,899		3.8%
	Total Retail revenues	$	7,290	$	6,997	4.2%	$	13,603		$	13,131		3.6%
	Number of Full-line stores							858			848
	Number of Specialty stores							2,174			2,127
	Total Retail stores							3,032			2,975
	Comparable store sales percentage increase		2.7%		0.9%				2.7%			1.3%

For the 13 week period, Full-line stores revenues increased 4.0% over the second quarter of 1999.

• Hardlines revenues increased 5.6% in the second quarter of 2000. Strong gains in electronics and home appliances, and an increase in home improvement were partially offset by a decrease in home office sales.

Softlines revenues increased 1.2% in the second quarter of 2000. Revenue increases in footwear, children's apparel, housewares, fine jewelry, dresses, cosmetics and fragrances, and intimate apparel were partially offset by decreases in men's apparel, floor coverings, window-shop and Junior's.

For the 26 week period, Full-line store revenues increased 3.5% over 1999 as hardlines increased 6.5% and softlines decreased 0.5%.
 
 

SEARS, ROEBUCK AND CO.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 AND 26 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999

For the 13 week period ended July 1, 2000, Specialty stores revenues increased 5.0% from the comparable 1999 period primarily due to strong comparable store sales increases in Sears Dealer stores. Sears Dealer store revenues also benefited from 73 net new store openings. The Great Indoors also produced strong revenue gains over the comparable 1999 period. Auto stores revenues decreased 1.9% from the comparable 1999 period due to the closure of 33 NTB stores in the third quarter of 1999 and comparable store sales decreases.
 

Specialty stores revenues increased 3.8% for the 26 week period ended July 1, 2000 compared to 1999. The prior year includes revenues from HomeLife which was sold on January 30, 1999. Excluding HomeLife revenues in the prior year, Specialty stores revenues increased 5.5% primarily due to new store growth and strong comparable store sales increases in the Sears Dealer and The Great Indoors stores, and comparable store increases in the Hardware stores, partially offset by Auto store comparable store sales decreases.

Retail gross margin as a percentage of Retail revenues for the second quarter of 2000 declined 50 basis points from the second quarter of 1999. The decline is primarily due to increased markdown activity in the Full-line stores particularly across the softlines businesses. For the 26 week period, retail gross margin was flat.

Retail selling and administrative expense as a percentage of Retail revenues for the second quarter of 2000 improved 40 basis points from the second quarter of 1999. The improvement was primarily due to increased marketing efficiency. For the 26 week period, the retail selling and administration expense rate improved 40 basis points.

Retail depreciation and amortization expense for the second quarter of 2000 decreased $4 million or 2.4% from the comparable 1999 period. For the 26 week period, retail depreciation and amortization expense decreased $4 million.
 

Services

Services revenues, which are generated by the Home Services and Direct Response businesses, decreased 0.5% in the second quarter of 2000 versus the comparable 1999 period. Both Home Services and Direct Response businesses showed slight revenue decreases. In Home Services, lower repair service revenues and significantly lower revenues from Sears Termite and Pest Control offset improvements in Cooling and Heating. For the 26 week period, Services revenues decreased 2.0%.

Services gross margin as a percentage of Services revenues for the second quarter of 2000 improved 50 basis points. The increase in gross margin rate is primarily due to margin rate improvements in the Sears Repair Services business partially offset by a lower margin rate in the Sears Home Improvement business.

Services selling and administrative expense as a percentage of Services revenues improved 20 basis points in the second quarter of 2000 from the comparable 1999 period. The decreased selling and administrative expense ratio was primarily due to productivity initiatives in Home Services that reduced payroll, benefits and marketing costs.

For the 26 week period, Services gross margin rate decreased 60 basis points and selling and administrative expense improved 50 basis points.

Services depreciation and amortization increased 2.0% in the second quarter of 2000 from the comparable 1999 period and increased 2.4% for the comparable 26 week period.
 
 

SEARS, ROEBUCK AND CO.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 AND 26 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999

Credit

Domestic Credit revenues increased 6.2% to $1.0 billion and 3.3% to $2.1 billion, respectively for the 13 and 26 weeks ended July 1, 2000 from the comparable prior year periods. The increase in Credit revenues in the second quarter was primarily attributable to yield improvement and higher securitization income. The yield improvement reflects performance pricing and higher late fees. Securitization of $910 million of credit card receivables in June 2000 added $22 million of securitization income to credit revenues and income. A lower average level of owned credit card receivables and retained interest assets partially offset the above revenue increases. A summary of Credit information (for the managed portfolio) is as follows:
 
 

	13 Weeks Ended				26 Weeks Ended
	July 1,		July 3,		July 1,		July 3,
	2000		1999		2000		1999
Sears credit cards as a % of sales(1)		46.5%		48.2%		46.8%		48.6%
Average account balance (as of July 1, 2000 and July 3, 1999)					$	1,163	$	1,182
Average managed credit card receivables (millions)	$	25,244	$	26,469	$	25,698	$	27,039

(1)  1999 Sears credit cards share has been restated to conform with the current year calculation which excludes HomeLife
      sales and now includes The Great Indoors sales and Sears On-line sales.  Sears credit cards include Sears Card, Premier,
      Sears Charge Plus, Sears Gold Mastercard, Sears Mastercard, Starter Card, Easy Pay, and Commercial One Card.

The percentage of merchandise sales and services transacted with Sears credit cards in the second quarter of 2000 declined to 46.5% compared to 48.2% a year ago due to greater consumer preference for the use of cash, checks and third party credit cards. The payment rate during the second quarter of 2000 was also higher than in the comparable prior year quarter, contributing to the decrease in average managed receivables.

Credit selling and administrative expense as a percentage of Credit revenues improved 310 basis points in the second quarter of 2000 and 280 basis points for the 26 week period from the comparable 1999 periods. The second quarter improvement was primarily due to lower account servicing and collection costs. The year to date expense reduction also reflects lower legal expenses.
 
 

SEARS, ROEBUCK AND CO.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 AND 26 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999

The domestic provision for uncollectible accounts and related information is as follows:
 
 

	13 Weeks Ended				26 Weeks Ended
(millions)	July 1,		July 3,		July 1,		July 3,
	2000		1999		2000		1999
Provision for uncollectible accounts	$	206	$	206	$	441	$	490
Net credit charge-offs as a percentage of average managed credit card receivables (1) (2)		5.09%		7.11%		5.39%		7.08%

 
 

	2000				1999
	July 1,		April 1,		Jan. 1,		Oct. 2,		July 3,
	2000		2000		2000		1999		1999
Domestic managed credit card receivables - delinquency rate (1)		7.15%		7.20%		7.58%		7.57%		7.29%
Allowance for uncollectible accounts	$	725	$	725	$	725	$	773	$	850
Allowance % of domestic owned credit card receivables		4.46%		4.48%		4.26%		4.78%		5.27%

^{(1) The domestic managed net charge-off rate includes all of the accounts in the domestic portfolio. Twelve percent of the accounts were converted to the new Total Systems Services, Inc. ("TSYS") account processing system in October 1998, 38% were converted in March 1999, and 50% were converted in April 1999. Balances are generally charged off earlier under the TSYS system than under the proprietary system. Delinquency rates calculated on the Company's pre-TSYS proprietary system are not comparable to delinquencies calculated on the TSYS system due to differences in methodology. For a description of the anticipated effects on charge-offs and delinquency rates of the TSYS conversion, see Sears quarterly report on Form 10-Q dated May 14, 1998.}

^{(2) The net charge-off rate is affected by seasonality, periodic sales of uncollectible accounts to third parties, bankruptcy trends and other general economic trends.}

The domestic provision for uncollectible accounts was flat at $206 million for the 13 weeks ended July 1, 2000 and decreased 10.0% to $441 million for the 26 weeks ended July 1, 2000 from the comparable prior year periods. The decrease was attributable to lower average owned credit card receivable balances and improvement in portfolio quality as net charge-offs declined from the comparable prior year period and delinquencies continued to show favorable trends.
 
 

SEARS, ROEBUCK AND CO.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 AND 26 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999

Interest expense is discussed within the Credit segment since the majority of the Company's interest expense is allocated to the Credit segment. Interest expense is combined with the funding costs on receivables sold through securitizations to represent total funding costs as follows:
 
 

	13 Weeks Ended				26 Weeks Ended
(millions)	July 1,		July 3,		July 1,		July 3,
	2000		1999		2000		1999
Consolidated interest expense(1)	$	310	$	313	$	626	$	647
Funding cost on securitized receivables		102		106		205		212
Total funding costs	$	412	$	419	$	831	$	859

^{(1) Credit segment interest expense was $271 and $273 for the second quarter of 2000 and 1999, respectively, and $555 and $562 for the 26 weeks ended July 1, 2000 and July 3, 1999, respectively.}

Consolidated interest expense decreased in the first and second quarters of 2000 compared to 1999 due to lower on-book debt levels caused primarily by a decrease in domestic owned credit card receivables and retained interest assets. This decrease in debt levels was partially offset by a higher average funding rate in the first and second quarter of 2000 versus 1999. The funding cost on securitized receivables was slightly lower in both the first and second quarters of 2000 due to lower levels of average securitized balances.
 

Corporate

Corporate expenses increased $31 million in the second quarter of 2000 and $46 million for the first 26 weeks of 2000 compared to similar periods in 1999. The increases were primarily due to a higher level of investment in the Sears On-line initiatives.

International

International revenues for the second quarter of 2000 increased 9.8% from the same period a year ago. Sears Canada enjoyed strong increases in retail and credit revenues. For the 26 week period, International revenues increased 14.1%.

International gross margin as a percentage of International merchandise and services revenues decreased 190 basis points in the second quarter of 2000 from the comparable prior year quarter. The decrease in gross margin rate was primarily due to increased promotional markdowns and increased costs related to the Eaton's acquisition. For the 26 week period, International gross margin decreased 110 basis points largely due to promotional markdowns and integration costs related to the Eaton's acquisition.

International selling and administrative expense as a percentage of total International revenues decreased 10 basis points in the second quarter of 2000 from the second quarter of 1999. For the 26 week period, the International selling and administrative rate increased 30 basis points primarily due to costs associated with remodeling and relaunching stores acquired as part of the Eaton's acquisition.

 
 

SEARS, ROEBUCK AND CO.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 AND 26 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999

Financial Condition

The consolidated owned net credit card receivables balances of $17.13 billion, $16.77 billion and $18.03 billion as of July 1, 2000, July 3, 1999 and January 1, 2000, respectively, exclude credit card receivables transferred to a securitization Master Trust as follows:
 
 

(millions)		July 1,			July 3,		January 1,
		2000			1999		2000
Domestic
Managed credit card receivables	$		25,144	$		26,103		$	26,754
Securitized balances sold			(6,893)			(6,381)			(6,579)
Retained interest in transferred credit card receivables			(1,985)			(3,600)			(3,144)
Other customer receivables			58			104			37
Domestic owned credit card receivables			16,324			16,226			17,068
International credit card receivables			1,557			1,430			1,725
Consolidated credit card receivables			17,881			17,656			18,793
Less: Allowance for uncollectible accounts			756			885			760
Credit card receivables, net	$		17,125	$		16,771		$	18,033

Consolidated credit card receivables in the second quarter of 2000 (before allowance for uncollectible accounts) increased $225 million over the second quarter of 1999. Domestic managed credit card receivables decreased from the second quarter of 1999 primarily due to declining market share of sales on the Sears Card and faster payment rates. Domestic owned credit card receivables are slightly higher than last year as a net reduction in securitized and transferred receivables more than offset the decline in managed receivables. Compared to 1999 year-end, consolidated credit card receivables (before allowance for uncollectible accounts) decreased $912 million due to the normal seasonal nature of the retail industry as well as the aforementioned declining market share.

As of July 1, 2000, consolidated merchandise inventories on the first-in, first-out (FIFO) basis were $6.25 billion, compared with $5.69 billion at July 3, 1999 and $5.66 billion at January 1, 2000. The increase in inventory levels from the second quarter of 1999 and January 1, 2000 is primarily due to increased hardlines and softlines inventories in the Full-line stores and increased Specialty store inventories to support revenue growth and additional new store openings. International inventory increases are due to the acquisition of Eaton stores and continued revenue growth.
 
 

SEARS, ROEBUCK AND CO.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 AND 26 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999

Total funding for the Company at July 1, 2000 was $24.0 billion compared with $24.8 billion a year earlier primarily resulting from a decline in the domestic managed credit card receivables portfolio. Total funding includes debt recorded on the balance sheet and investor certificates related to credit card receivables sold through securitizations as follows:

	July 1,		July 3,		January 1,
(millions)	2000		1999		2000
Short-term borrowings	$	2,557	$	3,814	$	2,989
Long-term debt and capitalized lease obligations		14,583		14,654		15,049
Securitized balances sold		6,893		6,381		6,579
Total funding	$	24,033	$	24,849	$	24,617

The Company accesses a variety of capital markets to preserve flexibility and diversify its funding sources. The primary funding sources utilized include unsecured commercial paper, medium term notes, senior debt and securitization.

Liquidity

Based upon the cash flow expected to be generated from future operations and the Company's ability to cost-effectively access multiple sources of funding, the Company believes sufficient resources will be available to maintain its planned level of operations, capital expenditures, dividends and share repurchases in the foreseeable future.

Cautionary Statement Regarding Forward-Looking Information

Certain statements made in this Report are forward-looking statements made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. As such, they involve risks and uncertainties that could cause actual results to differ materially. The Company's forward-looking statements are based on assumptions about many important factors, including ongoing competitive pressures in the retail industry, changes in consumer spending, delinquency and charge-off trends in the credit card receivables portfolio, general North American economic conditions (such as interest rates and consumer confidence), anticipated cash flow, the Company's ability to cost-effectively access multiple sources of funding, the ability of the Company to implement its marketing plans and cost reduction efforts and normal business uncertainty. In addition, the Company typically earns a disproportionate share of its operating income in the fourth quarter due to holiday buying patterns, which are difficult to forecast with certainty. While the Company believes that its assumptions are reasonable, it cautions that it is impossible to predict the impact of certain factors which could cause actual results to differ materially from expected results. The Company intends its forward looking statements to speak only as of the time of such statements, and does not undertake to update or revise them as more information becomes available.
 
 

SEARS, ROEBUCK AND CO.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments in any material legal proceedings since the Company's disclosure in its Annual Report on Form 10-K for the fiscal year ended January 1, 2000.
 
 
 
    SEARS, ROEBUCK AND CO.

PART II. OTHER INFORMATION

 

Item 4.	Submission of Matters to a Vote of Security-Holders.
	On May 11, 2000, the Company held its annual meeting of shareholders at the Merchandise Review Center - Sears Store Support in Hoffman Estates, Illinois.
	Hall Adams, Jr., James R. Cantalupo, W. James Farrell, and Richard C. Notebaert were elected to Class C of the Board of Directors for three year terms expiring at the 2003 annual meeting of shareholders. The shareholders approved the recommendation of the Audit Committee that Deloitte & Touche LLP be appointed auditors for 2000. The shareholders also approved the Sears, Roebuck and Co. 2000 Employees Stock Plan. A shareholder proposal regarding the classified Board of Directors was approved by a majority of votes casts. The votes on these matters were as follows:
	1.	Election of Directors
			Name		For		Withheld
			Hall Adams, Jr.		299,637,192		6,719,755
			James R. Cantalupo		298,004,157		8,352,790
			W. James Farrell		299,630,075		6,726,872
			Richard C. Notebaert		299,670,886		6,686,061
	2.	Appointment of Deloitte & Touche LLP as auditors for 2000.
			For		Against		Abstain
			302,527,553		2,037,806		1,791,588
	3.	Approval of the Sears, Roebuck and Co. 2000 Employees Stock Plan
		For		Against		Abstain		Broker Non-Votes
		168,685,626		85,187,557		3,166,694		49,317,070
	4.	Shareholder proposal regarding the classified Board of Directors.
		For		Against		Abstain		Broker Non-Votes
		131,807,005		118,161,197		7,071,675		49,317,070

SEARS, ROEBUCK AND CO.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits.
  An Exhibit Index has been filed as part of this Report on Page E-1. (b) Reports on Form 8-K.
  The Registrant filed a Current Report on Form 8-K dated April 17, 2000 to report, under Item 5, that the Registrant issued a press release to report its first quarter earnings and to furnish, under Item 7, a copy of the press release.

The Registrant filed a Current Report on Form 8-K dated April 18, 2000 to report, under Item 5, on the Registrant's analyst meeting and, under Item 7, to furnish excerpts from the presentation given at the meeting.
 
 
 
 

SEARS, ROEBUCK AND CO.

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)
August 15, 2000	By	/s/ Glenn R. Richter Glenn R. Richter  Vice President and Controller  (Principal Accounting Officer and duly authorized officer of Registrant)

 
 
 

E-1

EXHIBIT INDEX

SEARS, ROEBUCK AND CO.
13 AND 26 WEEKS ENDED JULY 1, 2000 AND JULY 3, 1999

 

Exhibit No.
3(a).	Restated Certificate of Incorporation as in effect on May 13, 1996 (incorporated by reference to Exhibit 3(a) to Registrant's Statement No. 333-8141).
3(b).	By-laws, as amended to February 1, 2000 (incorporated by reference to Exhibit 3.(ii) to Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 2000).
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.	Retirement Agreement between Sears, Roebuck and Co. and Arthur C. Martinez.
*12(a).	Computation of ratio of income to fixed charges for Sears and consolidated subsidiaries for each of the five years ended January 1, 2000 and for the six- and twelve-month periods ended July 3, 2000.
12(b).	Computation of ratio of income to combined fixed charges and preferred share dividends for Sears and consolidated subsidiaries (incorporated by reference to Exhibit 12.(b) to Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 2000).
*15.	Acknowledgement of awareness from Deloitte & Touche LLP, dated August 2, 2000, concerning unaudited interim financial information.
*27.	Financial Data Schedule.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

* Filed herewith.

EX-10

 

Exhibit 10

ARTHUR C. MARTINEZ

RETIREMENT AGREEMENT

This Retirement Agreement (the "Agreement") is entered into between Sears, Roebuck and Co., a New York corporation (the "Company") and Arthur C. Martinez, a resident of the State of Illinois (the "Executive") as of April 11, 2000.

This Agreement is hereby entered into in consideration of the following covenants and mutual promises.

1. Purpose. The Company and the Executive have determined that it would be appropriate to initiate a management transition process that includes the selection and hiring of a new chief executive officer. Upon the hiring of a new Chief Executive Officer, Executive will resign as President and Chief Executive Officer, and will resign from his position as Chairman and as a member of the Board of Directors at the discretion of the Board. Thereafter, the Executive will retire from the Company on a date designated by the Executive and acceptable to the Company, but in any event no later than ninety (90) days after the hiring of the new Chief Executive Officer. In consideration for Executive's dedicated service with the Company and his leadership during the management transition process and his subsequent retirement (the date of which is referred to as the "Retirement Date"), the Company and the Executive have agreed to enter into this Agreement.

2. Payments. Following the execution of this Agreement, the Company shall make the following payments to the Executive:
 

a) Continued annual base salary payments through Executive's Retirement Date, at the rate currently in effect;

b) An amount (the "2000 Annual Bonus"), calculated according to the Sears, Roebuck and Co. Annual Incentive Compensation Plan (the "Annual Incentive Compensation Plan"), equal to the greater of (i) the amount of the 2000 target annual bonus under the Annual Incentive Compensation Plan to which Executive would have been entitled if he had remained employed by the Company through December 31, 2000 and the Company had met the target level performance requirements for 2000, and (ii)  the amount of the annual bonus under the Annual Incentive Compensation Plan to which Executive would have been entitled based on the actual percentage earned by the other senior executives, in each case, prorated for the year 2000 based on the number of days elapsed in such calendar year as of the earlier of the Retirement Date or December 31, 2000. The 2000 Annual Bonus shall be paid at such time as it would have been paid had Executive remained employed by the Company but in any event no later than March 1, 2001;

c) A lump sum payment payable on January 5, 2001 (or the Retirement Date, if later), equal to three times the sum of (i) annual base salary at the rate currently in effect and (ii) the amount of the non-prorated 2000 target annual bonus referred to above; and

d) The award under the Long Term Performance Plan ("LTPP") for the LTPP period January 1, 1999 through December 31, 2001 in an amount determined as if the Company had met the target level performance requirements for that LTPP period as provided in the LTPP and payable at the time such award would have been paid pursuant to the LTPP if Executive had continued employment with the Company through December 31, 2001, but in any event no later than March 1, 2002.
 
 

3. Supplemental Retirement Income Plan. Executive's accrued benefit under the Sears, Roebuck and Co. Supplemental Retirement Income Plan and the Executive's supplemental agreement related thereto (collectively, the "Supplemental Retirement Income Plan") shall be determined in accordance with the Supplemental Retirement Income Plan, by calculating the basic monthly benefit thereunder based on (a) Executive's actual credited service plus additional credited service for the period from the Retirement Date through and including December 31, 2003, (b) the assumption that, in addition to his actual annual salary and bonus, Executive received in 2000 a non-prorated 2000 target annual bonus, and earned annual salary (at the rate currently in effect) and bonus (at the 2000 target annual bonus level) for years 2001, 2002, and 2003, and (c)  the assumption that the amounts described in (b) above were received on or before the Executive's Retirement Date. The present value of such benefit payable as a life annuity commencing January 1, 2001, shall be paid in a single lump sum payment on January 5, 2001 (or the Retirement Date, if later), which lump sum shall be determined in accordance with the provisions of the Supplement Retirement Income Plan based on the Executive's actual age as of that date. Such a determination of the estimated amount of such lump sum payment has been provided to the Executive by the Company. The amount described in Paragraph 3 shall be in addition to the benefits to which Executive is entitled under the Sears Pension Plan.

4. Welfare Coverage. The Company shall provide Executive with coverage under the welfare plans in which Executive currently participates through the Retirement Date. Thereafter, Executive shall be treated as eligible to receive Retiree Medical coverage and for all purposes thereunder shall be treated as having been covered under a Sears medical option on the Retirement Date and as having been continuously covered for the ten (10) consecutive years immediately prior to the Retirement Date.

5. Chairman's Retirement Benefits. In recognition of the Executive's services as Chairman of the Company, the following additional benefits shall be provided, or the cost of such benefits reimbursed, consistent with traditional benefits provided upon retirement to the Chairman of the Company:
 

a) An office with furnishings, secretarial and other assistance consistent with past practice and suitable for Executive's needs until the earlier of (i)  December 31, 2009, and (ii) such time that comparable office space and support is provided by a new employer; and

b) Fees for services consistent with current practice and suitable for Executive's needs, from a financial planner and tax advisor selected by the Executive, until December 31, 2005.
 
 

6. Equity. Effective on the Retirement Date, all stock options and restricted stock issued to the Executive under any Company-sponsored employee stock plan will become fully vested (except for the performance-based awards, which will be vested but will remain subject to the price targets for Company stock) and all of the Executive's vested stock options will remain exercisable until the earlier of (a) five (5) years after the Retirement Date for stock options granted in February, 1995 or later, and two (2) years after the Retirement Date for all other stock options, or (b) the date the options would otherwise have expired under the terms of the option grants (excluding provisions relating to termination of employment).

7. Mutual Release. In consideration of the service commitments and benefits provided under this Agreement, Executive and the Company have entered into the Mutual Release which is attached hereto as Exhibit A. This Mutual Release shall for purposes of this Agreement be treated as incorporated into this Section 7 in the form attached hereto.

8. Resignation of Officerships, Titles and Directorships. Effective on the Retirement Date, the Executive will resign all then remaining officerships, titles, and directorships with the Company, its subsidiaries and affiliates.

9. Prior Agreements, Non-Competition, Nonsolicitation, Confidentiality and Non-Disparagement. Except as provided for herein, this Agreement shall supersede all prior agreements between the Executive and the Company regarding Executive's employment; provided, however, the protective covenants provided for in Section 5 of the Non-Compete/Change-of-Control Agreement between the Company and Executive dated April 7, 1999 (the "Change-of-Control Agreement") shall continue in full force and effect as provided therein. Furthermore, the Executive agrees not to engage in any act after execution of this Agreement that is intended, or may reasonably be expected, to harm the reputation, business, prospects or operations of the Company, its officers, directors, stockholders, or employees. The Company further agrees that it will engage in no act which is intended, or may reasonably be expected, to harm the reputation, business, or prospects of the Executive.

10. Indemnification; D&O Insurance Coverage. To the fullest extent permitted by law, the Company will indemnify the Executive (including the advancement of expenses) for any judgments, fines, amounts paid in settlement and reasonable expenses, including attorney's fees, incurred by the Executive in connection with the defense of any lawsuit or other claim to which he is made a party by reason of being or having been an officer, director or employee of the Company or any of its subsidiaries. In addition, the Company shall cause Executive to be covered (with respect to acts, errors or omissions which shall have occurred on or before the Retirement Date) under such director and officer liability insurance policies as the Company shall from time to time have in effect for its then-active officers and directors to the same extent as coverage is available thereunder to the then-active officers and directors for acts, errors or omissions during their periods of service to the Company.

11. Beneficiary. If the Executive should die prior to receiving all of the benefits payable under this Agreement, any remaining benefits will be paid to the beneficiary designated in writing by the Executive. If no such beneficiary is designated, any payments shall be paid to the Executive's estate at the time or times and in the manner as would otherwise be due to the Executive.

12. Involuntary Termination; Change-of-Control. Should Executive be involuntarily terminated by the Company for any reason, other than Cause (as defined in the Change-of-Control Agreement), death or total and permanent disability, the Executive's date of termination shall be his Retirement Date. Notwithstanding anything in this Agreement to the contrary, in the event of a Change-of-Control of the Company (as defined in the Change-of-Control Agreement) (a) the Executive's Retirement Date shall be any date on or after the date of the Change-of-Control as designated by the Executive in his sole discretion, but in any event no later than ninety (90) days after the Change-of-Control, and (b) the Executive shall receive all amounts due him under Sections 2 and 3 of this Agreement on the earlier of (i) the date(s) such amounts would otherwise be paid to him under this Agreement or (ii) a date that is no later than ten (10) business days after his Retirement Date.

13. Withholding. The Company's obligation to pay amounts under this Agreement are subject to its withholding obligations under applicable federal, state and local tax laws.

14. Severability. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any other portion of this Agreement. Any section or a part of a section declared to be unlawful or invalid shall, if possible, be construed in a manner, or shall be deemed modified in a manner, which will give effect to the terms of the section to the fullest extent possible while remaining lawful and valid.

15. Amendment. Except as provided in Section 14, this Agreement shall not be altered, amended, or modified except by written instrument executed by the Company and the Executive. A waiver of any portion of this Agreement shall not be deemed a waiver of any other portion of this Agreement.

16. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument.

17. Applicable Law. The provisions of this Agreement shall be interpreted and construed in accordance with the laws of the State of Illinois without regard to its choice of law principles.

18. Arbitration. Any controversy or claim relating to this Agreement (except for court action initiated by the Company to enforce the Executive's protective covenants) will be settled exclusively by arbitration in Chicago, Illinois in accordance with the rules of the American Arbitration Association then in effect. Any arbitration award will be binding on the parties and may be enforced in any court having jurisdiction.
 
 

ATTEST:	SEARS, ROEBUCK AND CO.
/s/John T. Sloan	By: Anastasia D. Kelly Its: General Counsel
	EXECUTIVE:
	/s/Arthur C. Martinez

 
 
 
 
 
 

EXHIBIT A

Mutual Release

In consideration of the benefits provided under that certain Retirement Agreement dated as of April 11, 2000 (the "Agreement") by and between Sears, Roebuck and Co. (the "Company") and the undersigned Executive, Executive and the Company, and any person acting by, through, or under the Executive or the Company, hereby release, waive, and forever discharge each other and their respective agents, subsidiaries, affiliates, employees, officers, shareholders, successors, and assigns (if any) from any and all liability, actions, charges, causes of action, demands, damages, or claims for relief or remuneration of any kind whatsoever, whether known or unknown at this time, arising out of, or connected with, Executive's employment with the Company (other than indemnification to which the Executive may be entitled under the Company's bylaws, policies or agreements (now or hereafter maintained) with regard to the indemnification of its executive officers or directors), Executive's decision to retire, and/or the termination of the Executive's employment, including, but not limited to, all matters in law, in equity, in contract, or in tort, or pursuant to statute, including any claim by Executive for age or other types of discrimination under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, or any other federal, state, or local law or ordinance (the foregoing being sometimes hereinafter referred to as the "Waiver"). The Waiver does not apply to any rights or claims that may arise under the Age Discrimination in Employment Act after the date that Executive signs this Waiver. Executive acknowledges that he has read the Waiver and is voluntarily executing the Waiver and the Agreement.

Executive acknowledges that he has been advised to consult with an attorney prior to signing the Waiver, and was given at least twenty-one (21) days within which to consider the Agreement, including the Waiver, before signing the Waiver and the Agreement. Executive also acknowledges that he understands that if he signs the Waiver, he may revoke the Waiver and the Agreement within seven (7) days after signing the Waiver. The Agreement and the Waiver will, therefore, not be effective until seven (7) days after the Waiver is signed.

Any other provision hereof notwithstanding, the Waiver does not apply to any benefits provided in the Agreement or any benefits to which the Executive may be entitled under a Company-sponsored benefit plan.

Executed: April 11, 2000
 
 

ATTEST:	SEARS, ROEBUCK AND CO.
/s/John T. Sloan	By: Anastasia D. Kelly Its: General Counsel
	EXECUTIVE:
	/s/Arthur C. Martinez

EX-12 3 0003.htm EXHIBIT 12(A)

EXHIBIT 12(a)
 
 

COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES

SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES

 
 

	Twelve Months Ended Jul 1, 2000	Six Months Ended Jul 1, 2000	Year Ended
(millions, except ratios)	(unaudited)	(unaudited)	1999		1998		1997	1996		1995
Fixed Charges
Interest and amortization of debt discount and expense on all indebtedness	$1,248	$ 626		$1,268		$1,423	$1,409		$1,365		$1,373
Add interest element implicit in rentals	132	71		133		144	147		121		119
	1,380	697		1,401		1,567	1,556		1,486		1,492
Interest Capitalized	4	2		5		5	3		5		4
Total fixed charges	$1,384	$ 699		$1,406		$1,572	$1,559		$1,491		$1,496
Income
Income from continuing operations	$1,599	$ 623		$1,453		$1,072	$1,188		$1,271		$1,025
Deduct undistributed net income of unconsolidated companies	(3)	5		(5)		11	13		8		9
	1,602	618		1,458		1,061	1,175		1,263		1,016
Add
Fixed charges (excluding interest capitalized)	1,380	697		1,401		1,567	1,556		1,486		1,492
Income taxes	975	372		904		766	912		834		703
Income before fixed charges and income taxes	$3,957	$1,687		$3,763		$3,394	$3,643		$3,583		$3,211
Ratio of income to fixed charges	2.86	2.41		2.68		2.16	2.34		2.40		2.15

EX-15 4 0004.htm EXHIBIT 15

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 condensed consolidated financial information of Sears, Roebuck and Co. for the 13-week and 26-week periods ended July 1, 2000 and July 3, 1999, as indicated in our report dated August 2, 2000; 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 13-week period ended July 1, 2000, is incorporated by reference in Registration Statement Nos. 2-64879, 2-80037, 33-18081, 33-23793, 33-41485, 33-43459, 33-45479, 33-55825, 33-58851, 33-64345, 333-8141, and 333-38131 of Sears, Roebuck and Co.; Registration Statement Nos. 33-58139, 333-9817, 33-64215, 333-30879, and 333-62847 of Sears, Roebuck and Co. and Sears Roebuck Acceptance Corp.; Registration Statement Nos. 33-64775, 333-18591, and 333-43309 of Sears, Roebuck and Co. and Sears, Roebuck and Co. Deferred Compensation Plan; Registration Statement Nos. 33-57205, 333-11973, 333-53149, and 333-92501 of Sears, Roebuck and Co. and the Sears 401(k) Profit Sharing Plan (formerly, The Savings and Profit Sharing Fund of Sears Employees); and Registration Statement No. 33-44671 of Sears, Roebuck and Co. and Sears DC Corp.

We are also aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.
 
 

/s/Deloitte & Touche LLP
Chicago, Illinois
August 2, 2000 EX-27 5 0005.txt EXHIBIT 27

<ARTICLE> 5

<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

<MULTIPLIER> 1,000,000 <PERIOD-TYPE> 6-MOS <FISCAL-YEAR-END> DEC-30-2000 <PERIOD-END> JUL-01-2000 <CASH> 345 <SECURITIES> 1,985 <RECEIVABLES> 17,881 <ALLOWANCES> 756 <INVENTORY> 5,628 <CURRENT-ASSETS> 26,719 <PP&E> 12,201 <DEPRECIATION> 5,856 <TOTAL-ASSETS> 34,869 <CURRENT-LIABILITIES> 12,762 <BONDS> 12,245 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 323 <OTHER-SE> 6,126 <TOTAL-LIABILITY-AND-EQUITY> 34,869 <SALES> 16,804 <TOTAL-REVENUES> 19,049 <CGS> 12,475 <TOTAL-COSTS> 12,475 <OTHER-EXPENSES> 4,485 <LOSS-PROVISION> 460 <INTEREST-EXPENSE> 626 <INCOME-PRETAX> 1,009 <INCOME-TAX> 372 <INCOME-CONTINUING> 623 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 623 <EPS-BASIC> 1.77 <EPS-DILUTED> 1.76 <F1>Represents retained interest in transferred credit card receivables <F2>Represents the sum of selling and administrative expense, depreciation and amortization expense

-----END PRIVACY-ENHANCED MESSAGE-----

EX-15

To the Shareholders and Board of Directors

EX-27

 

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

<MULTIPLIER> 1,000,000

                             
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-30-2000
<PERIOD-END>                               JUL-01-2000
<CASH>                                             345
<SECURITIES>                                     1,985
<RECEIVABLES>                                   17,881
<ALLOWANCES>                                       756
<INVENTORY>                                      5,628
<CURRENT-ASSETS>                                26,719
<PP&E>                                          12,201
<DEPRECIATION>                                   5,856
<TOTAL-ASSETS>                                  34,869
<CURRENT-LIABILITIES>                           12,762
<BONDS>                                         12,245
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           323
<OTHER-SE>                                       6,126
<TOTAL-LIABILITY-AND-EQUITY>                    34,869
<SALES>                                         16,804
<TOTAL-REVENUES>                                19,049
<CGS>                                           12,475
<TOTAL-COSTS>                                   12,475
<OTHER-EXPENSES>                                 4,485
<LOSS-PROVISION>                                   460
<INTEREST-EXPENSE>                                 626
<INCOME-PRETAX>                                  1,009
<INCOME-TAX>                                       372
<INCOME-CONTINUING>                                623
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                       623
<EPS-BASIC>                                       1.77
<EPS-DILUTED>                                     1.76

<F1>Represents retained interest in transferred credit card receivables
<F2>Represents the sum of selling and administrative expense, depreciation and
amortization expense