SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 26, 2003
SEARS, ROEBUCK AND CO.
(Exact name of registrant as specified in charter)
New York
(State or Other Jurisdiction of Incorporation)
1-416 36-1750680
(Commission File Number) (IRS Employer Identification No.)
3333 Beverly Road, 60179
Hoffman Estates, Illinois (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (847) 286-2500
(Former name or former address, if changed since last report): Not Applicable
Item 5. Other Events.
The Registrant ("Sears," or the "Company") announced today that it is evaluating
strategic alternatives for the Company's Credit and Financial Products business.
The Company expects to conclude such evaluation and take any related actions
that arise therefrom in the second half of 2003. These alternatives include, but
are not limited to, a sale of the Gold MasterCard portfolio, a sale of the
entire Credit and Financial Products business, or a joint venture or other
collaboration involving this business. Proceeds from any transaction are
expected to be utilized primarily to reduce debt and return cash to the
Company's shareholders, as well as for general corporate purposes.
The above are forward-looking statements based on assumptions about the future
that are subject to risks and uncertainties, and actual results may differ
materially from the results projected above. For example, there can be no
assurances that the Company will identify an acceptable purchaser or negotiate
acceptable terms for the sale and ongoing operation of all or part of its Credit
and Financial Products business and there can be no assurances as to the timing
of such a transaction or transactions. These outcomes depend on many factors
outside the Company's control, such as the willingness of third parties to
accept terms that are acceptable to the Company.
Further risks and uncertainties that may cause actual results to differ
materially include competitive conditions in retail and credit; changes in
consumer confidence and spending; delinquency and charge-off trends in the
credit card portfolio; consumer debt levels and the level of consumer
bankruptcies; the success of initiatives to address increased delinquencies and
credit losses and improve credit profitability; the success of the Full-line
store strategy and other strategies; the possibility that the Company will
identify new business and strategic options for one or more of its business
segments, potentially including selective acquisitions, dispositions,
restructurings, joint ventures and partnerships; Sears' ability to integrate and
operate Lands' End successfully; the successful integration of Sears' retail
businesses with a third-party credit card program, which involves significant
training and the integration of complex systems and processes; the outcome of
pending legal proceedings; anticipated cash flow; social and political
conditions such as war, political unrest and terrorism or natural disasters; the
possibility of negative investment returns in the Company's pension plan;
changes in interest rates; the volatility in financial markets; changes in the
Company's debt ratings, credit spreads and cost of funds; the possibility of
interruptions in systematically accessing the public debt markets; general
economic conditions and normal business uncertainty. In addition, Sears
typically earns a disproportionate share of its operating income in the fourth
quarter due to seasonal buying patterns, which are difficult to forecast with
certainty. The Company intends these forward-looking statements to speak only as
of the time of this filing and does not undertake to update or revise them as
more information becomes available.
Item 9. Regulation FD Disclosure.
The information provided under Item 9 of this report is being furnished pursuant
to Regulation FD of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The information provided under Item 9 of this report shall not
be deemed to be "filed" for purposes of Section 18 of the Exchange Act or
otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2)
of the Securities Act of 1933, as amended (the "Securities Act"), nor shall it
be deemed incorporated by reference in any registration statement under the
Securities Act. The furnishing of such information in this report is not
intended to, and does not, constitute a representation that such furnishing is
required by Regulation FD or that such information is material information that
is not otherwise publicly available.
On March 26, 2003, the Registrant issued the following press release.
SEARS TO EVALUATE STRATEGIC ALTERNATIVES FOR CREDIT AND FINANCIAL PRODUCTS
BUSINESS
HOFFMAN ESTATES, Ill., March 26 /PRNewswire/ -- Sears (NYSE: S) announced
today that it is evaluating strategic alternatives for the company's Credit and
Financial Products business, including its possible sale, in order to create
value for all investors and focus on its profitable core Retail and Related
Services business.
Sears' Credit and Financial Products business manages the eighth largest
U.S. credit card portfolio with $30.8 billion in card receivables at year-end
2002, representing approximately 25 million active accounts. The business has
the nation's largest in-house, proprietary card portfolio with $18.4 billion in
Sears Card receivables, as well as $12.4 billion in MasterCard receivables. The
business generated more than $1.5 billion of comparable operating income in
2002.
"Sears' Credit and Financial Products business is extremely attractive and
highly profitable," said Alan J. Lacy, chairman and chief executive officer. "It
continues to perform well and is on track to deliver on its 2003 financial plan.
However, we believe the tremendous value and earnings power of these assets are
not reflected in today's market valuation of Sears. By selecting the right
strategic partner for this unique business, we believe we can create significant
value for our investors.
"This strategic action will support our sharpened focus on strengthening and
growing Sears' profitable Retail and Related Services business, while further
streamlining our organization, reducing leverage and returning cash to
shareholders," said Lacy.
Sears' Retail and Related Services business delivered more than $31 billion
in revenue and $1.2 billion in operating income in 2002, a 28 percent increase
over 2001 on a comparable basis, and generates significant free cash flow. The
company is the No. 1 retailer of home appliances, fitness equipment and lawn
mowers, and holds leading positions in many other categories. In addition, Sears
is the exclusive provider of several leading brands, including Kenmore,
Craftsman, Lands' End and DieHard. Sears owns a substantial direct-to-customer
operation and is the largest U.S. product repair service provider, making 14.5
million service calls annually.
The company expects to conclude its review of strategic alternatives for the
Credit and Financial Products business and take any related actions that arise
from this review in the second half of 2003.
Webcast Scheduled
Sears will webcast an analyst and investor conference call this morning at
9:00 a.m. Eastern / 8:00 a.m. Central time. The call will be webcast live over
the Internet at Sears.com. To access the webcast, click on "Investor Relations"
and select "Events and Webcasts." A replay of the call will be available on the
Web site for approximately one week. Software necessary to listen to the
webcast, Windows Media Player or Real Player, can be downloaded from the webcast
site. Downloading the software may take up to 22 minutes with a 56K speed modem.
About Sears
Sears, Roebuck and Co. is a broadline retailer with significant service
and credit businesses. In 2002, the company's annual revenue was $41.4 billion.
The company offers its wide range of apparel, home and automotive products and
services to families in the U.S. through Sears stores nationwide, including
approximately 870 full-line stores. Sears also offers a variety of merchandise
and services through its Web site, http://www.sears.com/. In June 2002, Sears
acquired Lands' End, a direct merchant of traditionally styled, classic Lands'
End clothing offered to customers around the world through regular mailings of
its specialty catalogs and online at http://www.landsend.com/.
Forward-Looking Statements
This press release and this morning's webcast contain statements about the
Company's expectations regarding possible strategic alternatives for its Credit
and Financial Products business and the timeline for completing a review of such
alternatives, as well as statements about the Company's 2003 financial plan, and
other statements about future Company performance. These are forward-looking
statements based on assumptions about the future that are subject to risks and
uncertainties, and actual results may differ materially from the results
projected in the forward looking statements. For example, there can be no
assurances that the Company will identify an acceptable purchaser or negotiate
acceptable terms for the sale and ongoing operation of all or part of its Credit
and Financial Products business and there can be no assurances as to the timing
of such a transaction or transactions. These outcomes depend on many factors
outside the Company's control, such as the willingness of third parties to
accept terms that are acceptable to the Company. Further risks and uncertainties
that may cause actual results to differ materially include competitive
conditions in retail and credit; changes in consumer confidence and spending;
delinquency and charge-off trends in the credit card portfolio; consumer debt
levels and the level of consumer bankruptcies; the success of initiatives to
address increased delinquencies and credit losses and improve credit
profitability; the success of the Full-line store strategy and other strategies;
the possibility that the Company will identify new business and strategic
options for one or more of its business segments, potentially including
selective acquisitions, dispositions, restructurings, joint ventures and
partnerships; Sears' ability to integrate and operate Lands' End successfully;
the successful integration of Sears retail businesses with a third-party credit
card program, which involves significant training and the integration of complex
systems and processes; the outcome of pending legal proceedings; anticipated
cash flow; social and political conditions such as war, political unrest and
terrorism or natural disasters; the possibility of negative investment returns
in the Company's pension plan; changes in interest rates; the volatility in
financial markets; changes in the Company's debt ratings, credit spreads and
cost of funds; the possibility of interruptions in systematically accessing the
public debt markets; general economic conditions and normal business
uncertainty. In addition, Sears typically earns a disproportionate share of its
operating income in the fourth quarter due to seasonal buying patterns, which
are difficult to forecast with certainty. The Company intends these
forward-looking statements to speak only as of the time of this release and does
not undertake to update or revise them as more information becomes available.
Sears, Roebuck and Co.
Domestic Credit and Financial Products Results, excluding non-comparable items
Supplemental Financial Disclosure (1)
2000 2001 2002
Revenue less Interest
(in millions) $ 3,697 $ 3,821 $ 4,378
Operating Income
(in millions) $ 1,513 $ 1,529 $ 1,502
Average Account
Balance as of Year-end:
Total portfolio $ 1,113 $ 1,136 $ 1,321
Total Portfolio
(in millions):
Average managed
receivables $25,830 $26,318 $28,372
Ending managed
receivables $27,001 $27,599 $30,766
Pre-Tax Profitability
Ratios:
Return on average
managed
receivables(2) 5.9% 5.8% 5.3%
Return on average
equity(3) 59% 58% 53%
2001 2002
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Credit Statistics:
60+ day delinquency
rates(4) 7.50% 7.26% 7.41% 7.58% 7.31% 6.87% 7.24% 7.69%
Net charge-off
rates(5) 5.07% 5.42% 5.62% 5.23% 5.43% 5.32% 5.55% 5.40%
(1) For more complete and detailed information refer to the Company's Form 10-K
for the fiscal year ended December 28, 2002.
(2) Equal to ratio of comparable operating income divided by average managed
credit card receivables of the Credit and Financial Products segment.
(3) Equal to ratio of comparable operating income divided by average equity
based on a 9-to-1 debt to equity ratio for managed receivables.
(4) Equal to ratio of balances associated with delinquent accounts greater than
60-days past due as a percentage of end-of-period receivables. Accounts are
classified as delinquent until charged-off pursuant to the company's
charge-off policy which typically charges off receivable balances after a
240-day contractual delinquency period.
(5) Equal to net charge-offs as a percentage of average receivables.
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 52 Weeks Ended
December 30, 2000
Excluding Non-Comparable Items and Securitization Income
Retail & Credit &
Related Financial Corporate & Sears
Services Products Other Canada
Merchandise sales
and services $31,935 $-- $ 353 $ 3,989
Credit and financial
products revenues -- 5,247 -- 293
Total Revenues 31,935 5,247 353 4,282
Costs and expenses
Cost of sales, buying
and occupancy 23,573 -- 144 2,901
Selling and
administrative 6,687 810 407 1,038
Provision for
uncollectible accounts -- 1,358 -- 48
Provision for previously
securitized receivables -- -- -- --
Depreciation and
amortization 710 16 53 60
Interest 25 1,550 -- 113
Special charges and
impairments -- -- -- --
Total costs and
expenses 30,995 3,734 604 4,160
Operating income $ 940 $ 1,513 $ (251) $ 122
Net Income
EPS - Diluted
Average shares o/s
Total Securitization Non-
Impact (1) comparable Consolidated
items GAAP
Merchandise sales
and services $36,277 $ -- $ -- $36,277
Credit and financial
products revenues 5,540 (969) -- 4,571
Total Revenues 41,817 (969) -- 40,848
Costs and expenses
Cost of sales,
buying and
occupancy 26,618 -- 14(2) 26,632
Selling and
administrative 8,942 (135) -- 8,807
Provision for
uncollectible
accounts 1,406 (522) -- 884
Provision for
previously
securitized
receivables -- -- -- --
Depreciation and
amortization 839 -- -- 839
Interest 1,688 (440) -- 1,248
Special charges
and impairments -- -- 251(2) 251
Total costs and
expenses 39,493 (1,097) 265 38,661
Operating income $ 2,324 $ 128 $ (265) $ 2,187
Net Income $ 1,458 $ 82 $ (197) $ 1,343
EPS - Diluted $ 4.21 $ 0.24 $(0.57) $ 3.88
Average shares o/s 346.3 346.3 346.3 346.3
2000 noncomparable items include:
(1) During 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". Prior to 2001,
domestic securitized receivables were recorded as off-balance sheet
securitizations under previous accounting rules thereby reducing reported
amounts of revenues, expenses, assets and liabilities. From April 2001
forward, the Company securitization transactions are accounted for as
secured borrowings and the Company ceased recording securitization income,
which was $128 million ($82 million after-tax) in 2000.
(2) Special charges and impairments in 2000 consisted of:
- a $150 million pretax charge ($99 million after-tax) related to the
closing of 87 underperforming stores. Of the $150 million pretax charge,
$136 million was recorded in special charges and impairments and $14
million in cost of sales.
- a $115 million impairment charge ($98 million after-tax) to write down
the Sears Termite and Pest Control business to its fair value. This
business was sold in 2001.
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 52 Weeks Ended
December 29, 2001
Excluding Non-Comparable Items and Securitization Income
Retail
& Related Credit & Corporate & Sears
Services Financial Other Canada
Products
Merchandise sales and
services $31,346 $ -- $ 378 $ 4,031
Credit and financial
products revenues -- 5,216 -- 294
Total Revenues 31,346 5,216 378 4,325
Costs and expenses
Cost of sales, buying
and occupancy 23,081 -- 159 2,994
Selling and administrative 6,628 833 473 997
Provision for uncollectible
accounts -- 1,441 -- 56
Provision for previously
securitized receivables -- -- -- --
Depreciation and amortization 704 18 58 83
Interest 32 1,395 -- 111
Special charges and impairments -- -- -- --
Total costs and expenses 30,445 3,687 690 4,241
Operating income $ 901 $ 1,529 $ (312) 84
Net Income before
cumulative effect of
change in accounting
Cumulative effect of
change in accounting
Net Income
EPS - Diluted
Average shares o/s
Total Securitization Non- Consolidated
Impact(1) comparable GAAP
items
Merchandise sales
and services $35,755 $ -- $ -- $35,755
Credit and financial
products revenues 5,510 (275) -- 5,235
Total Revenues 41,265 (275) -- 40,990
Costs and expenses
Cost of sales,
buying and
occupancy 26,234 -- -- 26,234
Selling and
administrative 8,931 (39) -- 8,892
Provision for
uncollectible
accounts 1,497 (153) -- 1,344
Provision for
previously securitized
receivables -- -- 522(1) 522
Depreciation and
amortization 863 -- -- 863
Interest 1,538 (123) -- 1,415
Special charges and
impairments -- -- 542(2) 542
Total costs and
expenses 39,063 (315) 1,064 39,812
Operating income $ 2,202 $ 40 $(1,064) $ 1,178
Net Income before
cumulative effect of
change in accounting $ 1,385 $ 26 $ (676) $ 735
Cumulative effect of
change in accounting $ -- $ - $ -- $ --
Net Income $ 1,385 $ 26 $ (676) $ 735
EPS - Diluted $ 4.22 $ 0.08 $ (2.06) $ 2.24
Average shares o/s 328.5 328.5 328.5 328.5
2001 noncomparable items include:
(1) During 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS")No. 140, " Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". Prior to 2001,
domestic securitized receivables were recorded as off-balance sheet
securitizations under previous accounting rules thereby reducing reported
amounts of revenues, expenses, assets and liabilities. With the adoption of
SFAS No. 140, the Company recorded a $522 million ($331 million after-tax)
provision for previously securitized receivables to establish an allowance
for uncollectible accounts related to $12 billion of securitized
receivables reinstated on the Company's balance sheet. In addition, from
April 2001 forward, the Company securitization transactions are accounted
for as secured borrowings and the Company ceased recording securitization
income, which was $40 million ($26 million after-tax) in 2001.
(2) Special charges and impairments in 2001 consisted of:
- a $151 million pretax charge ($97 million after-tax) for the exit of
unprofitable and non-strategic Full-line Store business categories
(including cosmetics, installed floor coverings and custom window
treatments).
- a $123 million pretax charge ($79 million after-tax) for productivity
initiatives designed to reduce operating costs.
- a $205 million pretax charge($129 million after-tax) for impairment and
other losses primarily resulting from the insolvency of Homelife (a
former operating division of Sears which was sold in 1998)
- a $63 million pretax charge ($40 million after-tax) for the cost of a
civil legal settlement relating to selling practices in 1994 and 1995 of
certain automotive batteries manufactured by Exide Technologies
SEARS, ROEBUCK AND CO.
Segment Income Statements
(millions)
For the 52 Weeks Ended
December 28, 2002
Excluding Non-Comparable Items
Retail & Related Credit & Financial Corporate &
Services Products Other
Merchandise sales
and services $31,459 $ -- $ 326
Credit and financial
products revenues -- 5,392 --
Total Revenues 31,459 5,392 326
Costs and expenses
Cost of sales,
buying and occupancy 22,743 -- 121
Selling and
administrative 6,816 955 442
Provision for
uncollectible accounts -- 1,903 --
Provision for
previously
securitized receivables -- -- --
Depreciation and
amortization 710 18 55
Interest 35 1,014 --
Special charges and
impairments -- -- --
Total costs and
expenses 30,304 3,890 618
Operating income $ 1,155 $1,502 $ (292)
Net Income before
cumulative effect
of change in
accounting
Cumulative effect
of change
in accounting
Net Income
EPS - Diluted
Average shares o/s
Sears Total Non- Consolidated
Canada comparable GAAP
items
Merchandise sales and
services $ 3,913 $35,698 $ -- $ 35,698
Credit and financial
products revenues 276 5,668 -- 5,668
Total Revenues 4,189 41,366 -- 41,366
Costs and expenses
Cost of sales, buying
and occupancy 2,782 25,646 -- 25,646
Selling and
administrative 1,036 9,249 -- 9,249
Provision for
uncollectible
accounts 58 1,961 300 (1) 2,261
Provision for
previously
securitized receivables -- -- -- --
Depreciation and
amortization 92 875 -- 875
Interest 94 1,143 -- 1,143
Special charges and
impairments -- -- 111 (2) 111
Total costs
and expenses 4,062 38,874 411 39,285
Operating income $ 127 $ 2,492 $ (411) $ 2,081
Net Income before
cumulative effect of
change in accounting $ 1,578 $ 6 (3) $ 1,584
Cumulative effect of change
in accounting $ -- $ (208)(4) $ (208)
Net Income $ 1,578 $ (202) $ 1,376
EPS - Diluted $ 4.92 $ (0.63) $ 4.29
Average shares o/s 320.7 320.7 320.7
2002 noncomparable items include:
(1) In 2002, the Company refined its allowance methodology to include current
accounts and credit card fees, resulting in a $300 million ($191 million
after-tax) increase to the allowance for uncollectible accounts.
(2) During 2002, Sears Canada converted seven stores operating under the Eatons
banner to Sears Canada Stores, resulting in severance, asset impairment and
other exit costs amounting to $111 million ($40 million net of income taxes
and minority interest).
(3) During 2002, the Company recorded a pretax gain of $336 million ($237
million after-tax) resulting from the gain on the sale of its holdings in
Advance Auto Parts. (This after-tax gain of $237 million offset the
after-tax charges of $191 million and $40 million noted in footnotes 1 and
2 above.)
(4) During 2002, the Company adopted Statement of Financial Accounting Standard
No. 142 "Goodwill and Other Intangible Assets", resulting in a charge of
$208 million (net of income taxes and minority interest), representing the
cumulative effect of the change in accounting for goodwill as of the
beginning of 2002.
SIGNATURES
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.
By: /s/ Thomas E. Bergmann
---------------------------------
Thomas E. Bergmann
Vice President and Controller
Date: March 26, 2003