UNITED STATES
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): July 15, 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.
On July 15, 2003, Sears Roebuck and Co. (the "Registrant") entered into a
Purchase, Sale and Servicing Transfer Agreement (the "Purchase Agreement"), by
and among Citicorp, a Delaware corporation ("Citicorp"), the Registrant, and
certain subsidiaries of the Registrant, including Sears Financial Holding
Corporation, Sears National Bank, Sears Roebuck De Puerto Rico, Inc., Sears Life
Holding Corp., SRFG, Inc. and Sears Intellectual Property Management Company
(the Registrant and all of such subsidiaries, collectively, "Sellers").
The Purchase Agreement provides, among other things, that Citicorp will acquire
from Sellers, and Sellers will sell to Citicorp, substantially all of the assets
and liabilities primarily relating to the Registrant's credit card and
financial products business, on the terms and subject to the conditions of the
Purchase Agreement.
Also on July 15, 2003, the Registrant, Sears Intellectual Property Management
Company and Citibank (USA) N.A. ("Citibank"), an affiliate of Citicorp, entered
into a Program Agreement (the "Program Agreement") that provides for, among
other things, the issuance of Sears proprietary cards and general purpose credit
cards, the issuance of existing credit and financial products and new credit and
financial products to be developed with Citibank, the processing and servicing
of the related accounts and the conduct of related marketing activities. The
Program Agreement will take effect upon the closing under the Purchase Agreement
and will run for a 10-year initial term with seven-year renewals.
Pursuant to the Purchase Agreement, at the closing, Citicorp will pay a purchase
price equal to the total equity of the business plus a premium amount equal to
10% of net customer receivables as such terms have been defined by the parties
in a reference balance sheet for the business. In the event the closing of the
purchase and sale of the business occurs after October 31, 2003, net customer
receivables will be calculated as the average net customer receivables at
month-end for the six month period preceding the closing.
Citicorp will assume all the outstanding securitization financing associated
with the credit card receivables included in the sale, and all other debt
financing at the Registrant and its affiliates will remain with the Registrant,
subject to such repayment or restructuring plans as the Registrant may
determine. The Registrant has agreed to use reasonable best efforts to call
certain series of unsecured debt for redemption as soon as permitted following
the closing.
The Purchase Agreement contains representations, warranties, covenants and
indemnification that are customary for a transaction of this type.
The Registrant is responsible for liabilities related to the pre-closing period
that are not expressly assumed by Citicorp and Citicorp is responsible for
liabilities related to the pre-closing period associated with the operation of
the business, subject to Citicorp's indemnification rights.
The sale of the business, which is expected to close by the end of 2003, is
subject to customary closing conditions, including the expiration of the
Hart-Scott-Rodino antitrust waiting period.
The foregoing description of the Purchase Agreement is qualified in its entirety
by reference to the full text of such agreement. A copy of the Purchase
Agreement is filed as an exhibit to this report and incorporated herein by this
reference.
Pursuant to the Program Agreement, Citibank will be the Registrant's exclusive
provider of credit cards, including the Sears Card and Sears MasterCard, and
will also provide to the Registrant's customers financial products and
additional new products to be agreed upon by the parties from time to time.
Citibank will pay the Registrant fees and marketing support payments for such
items as origination of new accounts, credit sales, and the sale of financial
products.
Citibank will also provide support for 0% financing levels generally consistent
with the Registrant's current levels.
Committees comprised of an equal number representatives of the Registrant and
Citibank will review the program, subject to Citibank's right to control credit
policy and servicing policy. Citibank is obligated to pay the Registrant
penalties if Citibank does not meet certain goals for new account origination,
authorization, available credit levels and store and customer service levels. In
addition, the Registrant may terminate the agreement for significant
deterioration in new account origination, authorization, available credit levels
and store and customer service levels as well as certain material adverse events
related to Citibank. Citibank has termination rights for material adverse events
related to the Registrant that are reasonably expected to have a material
adverse impact on the Registrant's retail profile, Citibank or the program. In
addition, certain economic adjustments apply in the event of sales deterioration
short of termination triggers, which could lead to termination if parties cannot
agree on adjustments.
The Registrant has the option to repurchase the receivables and program rights
under the program on fair market value terms upon certain terminations of the
Program Agreement, subject to certain minimum repurchase prices in certain
specified termination events.
* * * *
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The Exhibit Index included herewith is incorporated herein by reference.
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 July 15, 2003, the Registrant issued the following press release.
SEARS TO SELL CREDIT AND FINANCIAL PRODUCTS BUSINESS TO CITIGROUP; SEARS
TO NET $6 BILLION IN PRE-TAX CASH PROCEEDS
Companies to Establish 10-Year Strategic Alliance
Generating Additional Performance Payments, Cost Savings
HOFFMAN ESTATES, Ill., July 15 /PRNewswire/ -- Sears, Roebuck and Co. (NYSE: S)
today announced it has entered into a definitive agreement to sell its entire
Credit and Financial Products business to Citigroup (NYSE: C) for approximately
$32 billion, representing approximately a 10 percent premium to Sears' $29
billion gross domestic credit card receivables portfolio. As part of the
transaction, Sears and Citigroup will also enter into a long-term marketing and
servicing alliance with an initial term of 10 years. The transaction has been
approved by both companies' boards of directors and is expected to close by
year-end 2003, subject to customary regulatory review and closing conditions.
Under the terms of the transaction, at closing Sears will net pre-tax cash
proceeds of approximately $6 billion, which represents approximately a $3
billion premium on receivables and approximately $3 billion of Sears' net
invested capital.
STRATEGIC ALLIANCE
Under the long-term marketing and servicing alliance, Citigroup will provide
credit and customer service benefits to Sears' proprietary and Gold MasterCard
holders. As part of the alliance, Sears expects to receive approximately $200
million in annual performance payments from Citigroup based on items such as new
account and credit sales generation activities. In addition, Sears expects to
realize annual savings of more than $200 million as Citigroup will absorb costs
associated with Sears' zero percent financing program.
Upon completion of the transaction, substantially all of the approximately 8,300
employees of Sears' Credit and Financial Products business will become employees
of Citigroup and Citigroup also will assume ownership of the business' operating
facilities.
"This is a great deal for Sears, its customers and shareholders," said Alan J.
Lacy Sears chairman and chief executive officer. "Our customers will enjoy
broader credit and financial products opportunities and continued high levels of
service, while Sears gains an additional source of profitability and greater
financial flexibility. We are delighted to be involved in a strategic alliance
with Citigroup. They are a world leader in proprietary, co-branded and general
purpose
cards, with world class technology, powerful financing capabilities and
excellent customer relationship management skills."
Lacy added, "This strategic action will also create significant value for our
investors by accelerating progress toward building a Sears that is completely
focused on growing our core retail and related services business, further
simplifying our organization, strengthening our financial position and returning
substantial proceeds to shareholders. With the completion of this transaction,
Sears will stand as a focused, well-financed retail leader, with substantial
earnings and a strong balance sheet."
Sears' domestic credit card business includes 59 million total accounts, of
which 23 million are active. This portfolio represents the eighth largest in the
U.S. and includes the largest remaining in-house private label portfolio. Both
the Sears proprietary card and Sears MasterCard will continue to be offered
through Citigroup and the transition will be transparent to Sears customers.
"The combination of Sears' exceptional distribution channel and customer base
and Citigroup's industry leadership position in cards and excellence in customer
service will create powerful new growth opportunities for both companies," said
Robert B. Willumstad, president of Citigroup and chairman and chief executive
officer of Citigroup's Global Consumer Group. "Citigroup looks forward to
delivering even higher levels of service to Sears' 59 million credit card
customers, capitalizing on new opportunities to expand this portfolio, and
leveraging our proven ability to maximize the potential of the card business."
USE OF PROCEEDS
Proceeds from the transaction are intended to be used primarily to retire debt,
return cash to Sears shareholders and for general corporate purposes. After
retirement of debt, the company expects that approximately $4 billion to $4.5
billion in cash will be available. Following the expected distribution, Sears
expects to have approximately $1.5 billion of debt, net of cash reserves held
for future paydown of remaining outstanding debt.
Sears is a leading retailer in the U.S. and Canada, with $35.7 billion in
merchandise sales and services revenues in 2002. 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 product repair service provider in North America, making 14.5 million
service calls annually.
ABOUT SEARS
Sears, Roebuck and Co. is a broadline retailer with significant service and
credit businesses. In 2002, the company's 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 sites, sears.com, thegreatindoors.com and landsend.com, and a
variety of specialty catalogs.
ABOUT CITIGROUP
Citigroup (NYSE: C), the preeminent global financial services company with some
200 million customer accounts in more than 100 countries, provides consumers,
corporations, governments and institutions with a broad range of financial
products and services, including consumer banking and credit, corporate and
investment banking, insurance, securities brokerage, and asset management. Major
brand names under Citigroup's trademark red umbrella include Citibank,
CitiFinancial, Primerica, Smith Barney, Banamex, and Travelers Life and Annuity.
Additional information may be found at: http://www.citigroup.com .
WEBCAST SCHEDULED
Sears will webcast an analyst and investor conference call today at 5:00 p.m.
EDT/4:00 p.m. CDT. The conference call will be webcast live over the Internet at
http://www.Sears.com/investors. From the Investor Relations page, select "Events
and Webcasts." The webcast will be archived and available on the company's
website at http://www.sears.com/investors, also under "Events and Webcasts."
Software necessary to listen to the webcast, Windows Media or Real Player, can
be downloaded from the webcast site. Downloading the software may take up to 22
minutes with a 56K modem.
FORWARD-LOOKING STATEMENTS
This press release and this morning's webcast contain forward-looking statements
about Sears' expectations regarding the sale of its Credit and Financial
Products business and its alliance with Citigroup, including statements
concerning expected benefits to Sears and the timing of closing of the
transaction. Statements preceded by, followed by or that otherwise include the
words "believes," "expects," "anticipates," "intends," "project," "estimates,"
"plans," and similar expressions or future or conditional verbs such as "will,"
"should," "would," "may" and "could" are generally forward-looking in nature and
not historical facts. These forward-looking statements are 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. Risks and uncertainties include the possibility that the transaction
does not close, that the companies may be required to modify aspects of the
transaction in order to achieve regulatory approval or other factors outside the
control of Sears and Citigroup. Further risks and uncertainties that may cause
actual results to differ materially include Citigroup's ability to integrate and
operate the Credit and Financial Products business successfully and the ability
of Sears to successfully integrate its retail businesses with a third-party
credit card program, which involves significant training and the integration of
complex systems and processes; the manner in which Citigroup operates the Credit
and Financial business, which may be different than the manner that such
business was operated by Sears and the impact of any such differences on Sears'
Retail business; conditions in retail and credit; changes in consumer confidence
and spending; consumer debt levels and the level of consumer bankruptcies; the
success of the Full-line store strategy and other strategies; the possibility
that Sears 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 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 Sears' pension plan; changes in interest rates; the
volatility in financial markets; the possibility of interruptions in
systematically accessing the public debt markets; changes in Sears' debt
ratings; and 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.
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/ Michael J. Graham
--------------------------------
Michael J. Graham
Vice President and Controller
Date: July 16, 2003
EXHIBIT INDEX
Exhibit No.
10.1 Purchase, Sale and Servicing Transfer Agreement, dated as of July 15,
2003, by and among Registrant, certain subsidiaries of Registrant and
Citicorp, a Delaware corporation.