SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Commission file number 1-416
SEARS, ROEBUCK AND CO.
(Exact name of registrant as specified in its charter)
New York 36-1750680
(State of Incorporation) (I.R.S. Employer Identification
No.)
Sears Tower, Chicago, Illinois 60684
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 875-2500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
----------------------------------------- ------------------------
Common Shares, par value $0.75 per share New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Depositary Shares, each representing a New York Stock Exchange
one-fourth interest in an 8.88% Preferred
Share, par value $1.00 per share
Depositary Shares, each representing a New York Stock Exchange
one-fourth interest in a Series A Mandatorily
Exchangeable Preferred Share, par value
$1.00 per share
Extendable Notes due April 15, 1999 New York Stock Exchange
9-1/2% Notes due June 1, 1999 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
On January 31, 1995 Registrant had 351,855,045 common shares and
7,187,500 Series A Mandatorily Exchangeable Preferred Shares,
represented by 28,750,000 Depositary Shares, outstanding. Of these,
302,502,665 common shares and 28,750,000 Depositary Shares, having an
aggregate market value (based on the closing price of these shares as
reported in a summary of composite transactions in The Wall Street
Journal for stocks listed on the New York Stock Exchange on January 31,
1995) of approximately $15.0 billion, were owned by shareholders other
than directors and executive officers of the Registrant, The Savings and
Profit Sharing Fund of Sears Employees and any other person known by the
Registrant as of the date hereof to beneficially own five percent or
more of Registrant's common shares.
<PAGE 2>
Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
Documents Incorporated By Reference
Parts I and II of this Form 10-K incorporate by reference certain
information from the registrant's 1994 Annual Report to Shareholders
(the "1994 Annual Report"). Part III of this Form 10-K incorporates by
reference certain information from the registrant's definitive Proxy
Statement dated March 22, 1995, for its Annual Meeting of Shareholders
to be held on May 11, 1995 (the "1995 Proxy Statement").
<PAGE 3>
PART I
Item 1. Business
Sears, Roebuck and Co. ("Sears") originated from an enterprise
established in 1886. It was incorporated under the laws of New York in
1906. Its corporate headquarters are located at Sears Tower, Chicago,
Illinois. Sears and its consolidated subsidiaries (the "Company")
conduct Domestic and International merchandising operations. The
Company, through Sears Merchandise Group, a multi-line retailer, is
among the largest retailers in the world on the basis of sales of
merchandise and services.
Domestic operations include Domestic merchandising and Domestic
credit. Domestic merchandising consists of the Company's core
merchandising and product services businesses in the United States and
Puerto Rico. In recent years, Domestic merchandising has been
streamlining and focusing its operations in order to reduce operating
costs and improve the Company's competitive position and earnings
potential. Domestic credit operations primarily relate to the
SearsCharge card, the largest proprietary credit card in the United
States, which is used to pay for purchases of goods and services from
Domestic merchandising.
International operations consist of merchandising and credit
operations conducted through majority-owned subsidiaries in Canada and
Mexico.
For further information, see "Sears Merchandise Group" below and
"Analysis of Consolidated Operations," Sears Merchandise Group "Analysis
of Operations" and Sears Merchandise Group "Analysis of Financial
Condition" beginning on pages 20, 48 and 53, respectively, of the 1994
Annual Report, incorporated herein by reference in response to Item 7
hereof.
Spin-off of Allstate Insurance Group; Divestiture of Homart Development
Co.
On November 10, 1994, the Company announced a decision to
distribute to Sears common shareholders the Company's interest in its
Allstate Insurance Group ("Allstate") in a tax-free spin-off (the
"Allstate spin-off"). Allstate engages in property-liability insurance
and life insurance in the United States and Canada. The business of
Allstate is conducted through The Allstate Corporation ("Allcorp"), an
80.2%-owned subsidiary of the Company. Sears anticipates that the
Allstate spin-off will be effected in mid-1995 by means of a special
dividend to Sears common shareholders of all of the Allcorp common stock
owned by the Company.
In addition, the Company is pursuing the divestiture of Homart
Development Co. ("Homart") and an affiliated company. Homart and the
affiliated company are wholly-owned subsidiaries of the Company that
develop, own and manage shopping centers and retail community centers
and own and manage office properties. Homart has been treated as a
discontinued operation in the Company's consolidated financial
statements.
These transactions are subject to market conditions, final
approvals by Sears Board of Directors and, with respect to the Allstate
spin-off, any required regulatory approvals and a favorable tax ruling
or opinion on the tax-free nature of the spin-off. The Allstate spin-
off is scheduled to be considered at a special meeting of Sears
shareholders on March 31, 1995.
For further information, see "Allstate Insurance Group" and
"Homart" below and notes 3 and 5 of the Notes to the Consolidated
Financial Statements on pages 32 and 34, respectively, of the 1994
Annual Report, incorporated herein by reference to Item 7 hereof.
<PAGE 4>
Restructuring of Sears Tower Financing
On November 7, 1994, the Company announced an agreement to
restructure the financing of Sears Tower. Under the agreement, Sears
transferred ownership of Sears Tower and its related mortgages (which
were entered into in a nonrecourse mortgage financing in 1990) to a
trust. The transaction removed approximately $850 million in debt from
the Company's balance sheet and resulted in a $195-million after-tax
extraordinary gain related to the early extinguishment of debt in the
fourth quarter of fiscal 1994. The transaction will also reduce the
Company's after-tax interest expense by about $75 million annually.
Under the trust, a third party will become owner of Sears Tower in 2003.
For further information, see "Analysis of Consolidated Operations"
and note 12 of the Notes to the Consolidated Financial Statements
beginning on pages 20 and 40, respectively, of the 1994 Annual Report,
incorporated herein in response to Items 7 and 8 hereof.
Corporate Joint Ventures
The Company also has (i) a 50% interest in Prodigy Services
Company, a partnership with International Business Machines Corporation
("IBM"), and (ii) a minority interest in Advantis, a joint venture with
a subsidiary of IBM. Prodigy Services Company features the PRODIGY
service, an online network that permits customers to use their personal
computers to access a broad array of information and interactive
services, including news, weather, sports and financial information;
consumer databases; travel information and ticketing; online banking and
discount brokerage; education and entertainment; shopping; and
communication and messaging. The PRODIGY service was first offered
nationally in September 1990. Prodigy Services Company is also
developing other services for personal computer users. Advantis, which
began operations in December 1992, provides data and voice networking
services for the Company, IBM and other customers. Advantis also
provides information processing services to the Company.
Information regarding revenues, income before income taxes and
minority interest, net income and assets of the Company's Domestic and
International merchandising operations, Allstate insurance operations
and the Corporate group for each of the three years ended December 31,
1994 is in note 18 of the Notes to the Consolidated Financial Statements
beginning on page 47 of the 1994 Annual Report, incorporated herein by
reference to Item 8 hereof. Information on the components of revenues
is included in the analysis of operations of each of the Company's
business groups beginning on pages 48 and 56, and in the summarized
Group financial statements beginning on page 48, of the 1994 Annual
Report, incorporated herein by reference in response to Items 7 and 8
hereof.
The Company's continuing operations employ approximately 360,000
people worldwide, including its Corporate staff.
<PAGE 5>
SEARS MERCHANDISE GROUP
DOMESTIC OPERATIONS
The Merchandise Group's Domestic operations consists of Domestic
merchandising and Domestic credit.
Domestic merchandising
Domestic merchandising sells a broad line of general merchandise
and services through department stores and various types of free-
standing retail facilities and direct response marketing in the United
States and Puerto Rico. At December 31, 1994, the core merchandising
operations included:
- 800 Sears department stores, which include 412 large-size stores
located principally in shopping malls in major metropolitan areas, 379
medium-size stores that also carry an extensive assortment of
merchandise, and nine small-size hard-line stores that serve either
neighborhoods of metropolitan areas or smaller communities and stock a
limited selection of appliances, hardware, sporting goods and automotive
supplies.
- Free-standing stores, which include:
- Western Auto Supply Company and its subsidiaries, including
Tire America and NTW ("Western Auto"). Western Auto is a leading retail
and wholesale marketer of automotive supplies, tires, appliances and
lawn and garden equipment. Western Auto operates through 633 company-
owned retail stores (including 118 Tire America and 125 NTW stores) in
35 states and in Puerto Rico and in the United States Virgin Islands and
sells at wholesale to 1,020 independently owned and operated dealer
stores nationwide.
- 72 Sears Homelife furniture stores.
- 80 Sears Hardware stores.
- 285 dealer stores operated under the Sears name. The dealer
stores are primarily independently owned and operated, and carry home
appliances, electronics, CRAFTSMAN tools, DIEHARD batteries and lawn and
garden equipment.
- Seven small-size appliance stores, two free-standing Tire and
Auto Centers and 61 retail outlet stores.
Domestic merchandising's operations are organized into three core
businesses: Apparel, Home and Automotive. The Apparel business
consists of the women's, children's and men's apparel and home fashion
departments. The Home business consists of the home appliances and
electronics, furniture and home improvement departments, dealer stores
and Product Services. Furniture includes free-standing Homelife stores
as well as in-store furniture departments. Product Services operations
provide repair parts, consumer service and repair work on national brand
name
<PAGE 6>
items in addition to Sears brand name products. Product Services also
offers installation, repair, monitoring and other services for consumer
and commercial programs. The Automotive business consists of the Sears
Tire and Auto Centers and Western Auto.
The Home and Automotive business departments are positioned against
the strongest competitors (which are usually specialty stores focusing
on one type of business) in the merchandising category. The Apparel
business is positioned as a moderate department store.
Domestic merchandising's pricing strategy is to offer customers
great values every day, and also includes special sales events offering
even better values. Domestic merchandising sells a mixture of national
brands and high quality private label merchandise at competitive prices.
In-store and off-premise licensees deliver goods and services that
complement Domestic merchandising's core strategies. In-store licensed
businesses include portrait studios, optical and income tax preparation.
Off-premise licensed businesses include pest control, car rental and
carpet cleaning. See note 1 of the Notes to the Consolidated Financial
Statements on page 29 of the 1994 Annual Report, incorporated herein by
reference to Item 8 hereof.
Direct response marketing includes: specialty catalogs, credit
protection insurance, clubs and services, and impulse and continuity
merchandise. Sears Shop at Home Services, Inc., a wholly-owned
subsidiary of the Company, licenses third-party distributors of
specialty catalogs and merchandisers of shop-at home services to use the
Sears name and customer list.
Strategic Initiatives
In recent years, Domestic merchandising has been streamlining and
focusing operations in order to reduce operating costs and improve the
Company's competitive position and earnings potential. Initiatives
completed prior to 1994 included the termination, divestiture or closing
of various operations and elimination of approximately 50,000 full-time
and part-time positions. Five strategic initiatives, formulated in
1993, have served as a guide to improving profitability: focusing on
core businesses; making Sears a more compelling place to shop; cost and
productivity improvements; market focus; and fostering a winning
culture.
Focus on Core Businesses. Domestic merchandising is focusing on
middle income women as its primary core customer, and expanding the
product offering in apparel. This strategy is designed to take
advantage of Domestic merchandising's existing strengths of strong
private label brands, a loyal customer base, a strong position in
durable goods, highly-focused product lines, a network of mall-based
department stores, a nationwide service organization and attractive
credit programs.
Making Sears a More Compelling Place to Shop. To support the focus
on the core merchandising businesses, the Company has a $4 billion
capital expenditure program for the period 1993 through 1997. The
primary focus of the program is upgrading Domestic merchandising's
department stores and making the Sears store a more compelling place to
shop. Approximately 240 stores have been renovated and updated, and
approximately 260 additional stores will be renovated and updated
through 1997. The renovated and updated stores have increased selling
area, more extensive apparel offerings, wider aisles and better
lighting. Much of the additional selling area is being created from
underutilized stockroom and back office areas and the closing of in-
store furniture departments. By 1997, Domestic merchandising plans to
add approximately 12 million square feet of apparel selling area in the
renovated and updated stores, of which
<PAGE 7>
approximately 3.7 million square feet had been added by year-end 1994.
Apparel offerings are designed to meet shoppers' needs with a
mixture of national brands and high-quality, private label merchandise.
Expanded fragrance and cosmetics departments had been introduced in 120
stores by year-end 1994, with further expansion planned.
Capital is also being made available for selected new store
openings and the roll-out of promising new free-standing concepts, such
as Homelife and Sears Hardware stores and the expansion of Western Auto.
For further information, see "Properties" below and Sears
Merchandise Group "Analysis of Financial Condition" beginning on page 53
of the Company's Annual Report incorporated herein by reference in
response to Item 8 hereof.
Cost and Productivity Improvements. Customer service, expense and
logistics areas have been benchmarked against the competition, and
expense reduction and process improvement programs are ongoing. The
programs are intended to improve the value of merchandise to the
customer, reduce selling and administrative expenses as a percent of
revenues and improve productivity and customer service levels. In 1994,
Domestic merchandising began a Strategic Sourcing initiative designed to
reduce the costs of externally purchased goods and services. The goal
of the Strategic Sourcing initiative is to analyze purchases and
negotiate reduced expenditures while increasing quality and forging
closer and more efficient links with important suppliers and vendors. A
"Pure Selling Environment" program is building a strong customer service
orientation by relieving sales associates of administrative
responsibilities and enabling them to spend more time and effort serving
customers.
Market Focus. Domestic merchandising is renewing its emphasis on
market-by-market assortment, marketing and pricing to strengthen the
local competitive position of each store. As part of the capital
expenditure program referred to above, significant emphasis is being
placed on allocating capital to select geographic markets in order to
focus Domestic merchandising's positioning and marketing efforts on a
market-by-market basis. In addition, merchandising offerings are being
implemented to target small and rural markets, and Hispanic-American,
African-American and Asian-American customers.
Winning Culture. Programs are in place to foster teamwork,
customer focus, and speed and simplicity in the organizational culture,
and to develop depth in management. The programs for all salaried
associates include an expansion of the Company's stock option program
during 1994 and an incentive pay program based on the Merchandise
Group's growth, as measured by increases in profits. New culture is a
critical element in the success of the Company's strategic objectives.
Sources of Merchandise
Domestic merchandising purchases goods primarily from approximately
10,500 domestic suppliers, most of whom have been suppliers for many
years. Buying offices are located in Domestic merchandising's home
office complex, as well as the headquarters of Western Auto and several
foreign countries.
<PAGE 8>
Seasonality
Domestic merchandising sales in the fourth quarter are
traditionally higher than in other quarterly periods because of holiday
buying patterns. This results in a lower ratio of fixed costs to sales
and produces a higher ratio of operating income to sales in the fourth
quarter. Traditional business patterns also generally result in the
lowest sales in the first quarter, producing a relatively high ratio of
fixed costs to sales and a lower ratio of operating income to sales, as
compared with other periods.
Trademarks
The name "SEARS" is used extensively in the Company's Domestic
merchandising and other businesses in the United States and throughout
the world. The Company's right to the name "SEARS" continues so long as
it uses the name. The name is also the subject of numerous renewable
United States and foreign trademark and service mark registrations.
This trade and service mark is material to the Company's Merchandising
and other related businesses in the United States and throughout the
world.
The Company sells private label merchandise under a number of brand
names which are important to Domestic merchandising. Sears KENMORE,
CRAFTSMAN and DIEHARD brands are among the strongest private label
brands in retailing. The Company's right to these names continues so
long as it uses the names. The names are also the subject of numerous
renewable United States and foreign trademark and service mark
registrations. Other important and well-recognized Company trademarks
and service marks include BRAND CENTRAL and HOMELIFE.
Competition
The domestic retail merchandise business is highly competitive.
Convenience of shopping facilities, quality of merchandise, competitive
prices, brand names and availability of services such as credit, product
delivery, repair and installation, are the principal factors which
differentiate competitors. The Company believes it is able to compete
in every respect despite strong competitive pressures in recent years.
On average, the Company's ratio of operating costs to revenues is not as
low as benchmark targets in the industry but is improving due to efforts
to increase revenues and cut costs. See "Strategic Initiatives" above
and Sears Merchandise Group "Analysis of Operations" beginning on page
48 of the 1994 Annual Report, incorporated herein by reference to Item 7
hereof.
Domestic credit
Domestic credit initiates and maintains, in the United States,
customer credit accounts generated by Domestic merchandising.
In the department and Homelife stores, SearsCharge sales as a
percent of total sales was approximately 58.3%, 58.0% and 54.5% for
1994, 1993 and 1992, respectively. Based on current experience,
approximately 7.6% of the amount of total credit balances is liquidated
each month.
As of December 31, 1994, Domestic credit had approximately 25
million active customer credit accounts. These accounts had an average
balance of $842, for a total of $21.3 billion of retail customer
receivables before sales of account balances. SearsCharge (the
traditional charge card) accounted for approximately 90% of such
receivables.
<PAGE 9>
Sears has an ongoing securitization program pursuant to which a
portion of such accounts receivable has been sold through Sears
Receivables Financing Group, Inc., a wholly-owned subsidiary, to trusts
(the "securitization trusts") that issue credit account pass-through
certificates to public and private investors. In general, the
outstanding interests of investors in the securitization trusts are not
treated as assets, and the obligations of the securitization trusts to
investors are not treated as liabilities, in the Company's financial
statements. In addition, Sears has an ongoing program pursuant to which
a securitization trust issues credit account pass-through certificates
to wholly-owned subsidiaries of Sears which, in turn, issue commercial
paper ("asset-backed commercial paper") backed by such certificates and
liquidity facilities provided by third parties. The receivables
relating to asset-backed commercial paper are treated as assets, and the
asset-backed commercial paper is treated as a liability, in the
Company's financial statements. Pursuant to contractual agreements,
Sears remains the servicer on the accounts creating the receivables and
receives a fee for the services performed. See "Analysis of
Consolidated Financial Condition," note 12 of the Notes to Consolidated
Financial Statements, and Sears Merchandise Group "Analysis of
Operations" and Sears Merchandise Group "Analysis of Financial
Condition," beginning on pages 23, 40, 48 and 53, respectively of the
1994 Annual Report, incorporated herein by reference in response to
Items 7 and 8 hereof.
On August 1, 1993, all Sears stores began accepting VISA,
MasterCard and American Express cards for purchases, in addition to
SearsCharge, Discover Card, personal check or cash, in order to attract
new customers and incremental sales. Although customers' use of VISA,
MasterCard and American Express cards replaces to some extent their use
of Sears credit plans, it is expected that the long-term effect on
domestic credit operations will be offset by the effects of new
initiatives to increase SearsCharge market penetration in all sales and
service channels without lowering credit standards. Despite the
introduction of third party credit cards in the stores in 1993, the
percentage of domestic sales transacted with the SearsCharge card as a
percentage of total sales has remained stable. See Sears Merchandise
Group "Analysis of Operations" beginning on page 48 of the 1994 Annual
Report, incorporated herein by reference in response to Item 7 hereof.
Domestic credit's operations are subject to federal and state
legislation, including the consumer credit laws of each state in which
its customers reside. From time to time, such legislation, as well as
competitive conditions, may affect, among other things, credit card
finance charges. While the Company cannot predict the effect of future
competitive conditions and legislation or the measures which the Company
might take in response thereto, a significant reduction in the finance
charges imposed by Domestic credit could have an adverse effect on the
Company.
Sears National Bank (the "Bank"), a wholly-owned subsidiary of the
Company acquired in 1994, is a credit card bank limited to engaging
solely in credit card operations and is subject to certain other
restrictions applicable to credit card banks under federal law. In
1994, the Bank became the issuer of SearsCharge accounts in Arizona.
Beginning in March 1995, the Bank will be the issuer of new SearsCharge
accounts opened in an additional 25 states and current SearsCharge
holders in such states will be notified in March 1995 that the Bank will
become the issuer of their accounts beginning in May 1995.
In March 1995, the Bank will modify the SearsCharge account
agreement to create a uniform finance charge rate of 21% for all of its
accounts. The finance charge rate in most states has been 21% for a
number of years. Also in March 1995, Sears changed the methodology
specified in its SearsCharge plan on which the minimum monthly payment
is based. The effect generally is a lower monthly payment being
required.
<PAGE 10>
Employees
Domestic operations employs approximately 265,000 people, including
part-time employees.
Properties
The Domestic operations home office complex is located on a 200-
acre site at Prairie Stone, in Hoffman Estates, Illinois and is owned by
Sears. The complex consists of five interconnected office buildings
totaling approximately two million gross square feet of office space,
and serves as headquarters for the Company's retail operations. Prairie
Stone is a planned 786-acre zoned business community owned by Sears,
consisting of a 586-acre business park and the Merchandise Group's
headquarters. Sears Prairie Stone business park is being marketed for
sale, lease or build-to-suit by Homart.
The following table sets forth information concerning stores
operated by Domestic merchandising. The information excludes catalog
and specialty merchandising. Information for 1992 includes 113 stores
closed as a part of the restructuring announced in January 1993.
EDGAR Tables
Department Free-standing
stores Western Auto(a) Homelife(a) Hardware(a) Other(a)(b) Total
Stores at December 31, 1994:
Owned 432(c) 195 14 - 22 663
Leased(d)
Operating Leases
Gross and Net Leases(e) 321 438 54 77 45 935
Short-term and
Percentage Leases(f) 4 - - - - 4
Capital Leases(g) 43 - 4 3 3 53
Independently Owned Retail
Dealer Stores - - - - 285 285
Total Stores at December 31
1991 868 548 22 97 1091,644
Stores opened during 1992 13 62 13 11 17 116
Stores closed during 1992 (22) (15) (1) (5) (16) (59)
1992 859 595 34 103 110 1,701
Stores opened during 1993 6 56 17 15 216 310
Stores closed during 1993 (66) (32) - (32) (64) (194)
1993 799 619 51 86 262 1,817
Stores opened during 1994 9 35 22 11 108 185
Stores closed during 1994 (8) (21) (1) (17) (15) (62)
1994 800 633 72 80 355 1,940
Gross Retail Area
at December 31
(square feet in millions)
1994 112.5 7.5 2.5 1.1 4.1 127.7
1993 112.2 7.4 1.8 1.0 2.9 125.3
1992 115.9 7.0 1.2 .8 1.7 126.6
<PAGE 11>
Retail Selling Area
at December 31
(square feet in millions)
1994 62.7 3.5 2.1 .9 2.8 72.0
1993 61.1 3.5 1.5 .8 1.8 68.7
1992 62.7 3.5 1.0 .6 1.3 69.1
Net Sales per Square Foot (Selling Area)
1994 $360
1993 $344
1992 $340
<FN>
(a) Five of the Western Auto stores were located at Sears department
stores. Information concerning Homelife, Sears Hardware and Other
stores excludes facilities located at department stores.
(b) Other stores consist of small-size appliance stores, free-standing
Tire and Auto Centers, retail outlet stores and dealer stores.
(c) Includes 338 of the 412 large-size department stores.
(d) Many of the leases contain renewal options. With respect to 12
stores, leased prior to 1960 with lease terms ranging up to 45 years,
Sears has the option to purchase the premises, terminate the lease or
continue the terms at substantially reduced rentals.
(e) Leased for terms ranging from one to 99 years. Rentals are either
fixed or fixed at minimum rentals coupled with a percentage of sales,
including some sale and leaseback arrangements.
(f) Leased for a term, or with a remaining term, of less than one year
or under leases providing for payments based only on a percentage of
sales.
(g) Leased for terms ranging from five to 99 years. The leases have
been capitalized as assets of Domestic merchandising.
In addition, at December 31, 1994, there were 748 other sales
offices and service facilities, most of which are occupied under short-
term leases or are a part of other Sears facilities included in the
above table.
To effectively implement Domestic merchandising's logistics
strategy, Sears Logistics Services, Inc., a wholly-owned subsidiary of
the Company ("SLS"), provides specialized distribution, transportation
and home delivery services, primarily for Domestic merchandising and
also for other customers. SLS' strategy includes expanded marketing to
diversify and increase its current customer base through the range of
new logistics services as well as more efficient customer-oriented
performance of existing services.
As of December 31, 1994, SLS owned and operated four retail
replenishment centers, two direct delivery centers and 21 cross dock
centers; two other cross dock centers were operated and substantially
owned by SLS. An additional six retail replenishment centers, five
direct delivery
<PAGE 12>
centers (operated by third parties), four furniture consolidation
centers (operated by third parties) and 22 cross dock centers (five of
which are operated by third parties), were leased for terms ranging from
one to 99 years. In addition, as of December 31, 1994, Domestic
merchandising owned and operated five fashion merchandising distribution
centers.
SLS operates two retail replenishment centers pursuant to sale and
lease-back arrangements for a primary term of 25 years with renewal
options for an additional 30 or 40 years and a fair market value
purchase option at the end of the primary term, and at certain other
times. These facilities have been constructed on land owned by the
Company which has been leased to the lessor of the facility for an
initial term of 25 years, with renewal options which extend 10 to 20
years beyond that in the lease to the Company.
For Domestic merchandising and Domestic credit, the capital
expenditures for expansion and remodeling and other improvements
(including capitalized financing leases but excluding amounts expended
for administrative offices) amounted to $855 million for the year ended
December 31, 1994. In 1995, planned capital expenditures for Domestic
merchandising and Domestic credit of approximately $1.2 billion include
the remodeling and upgrade of merchandise presentations in approximately
109 existing department stores and 17 new or relocated department
stores. Domestic merchandising plans to open approximately 30
additional Homelife stores, 50 additional Hardware stores, 140
additional dealer stores and 62 Western Auto stores in 1995.
For additional information, see "Strategic Initiatives" above and
Sears Merchandise Group "Analysis of Financial Condition" beginning on
page 53 of the 1994 Annual Report, incorporated herein by reference in
response to Item 7 hereof.
INTERNATIONAL OPERATIONS
The Merchandise Group conducts retail merchandise and credit
operations in Canada through Sears Canada Inc., a consolidated, 61.1%
owned subsidiary of Sears ("Sears Canada") and in Mexico through Sears,
Roebuck de Mexico, S.A. de C.V., a consolidated, 75.2% owned subsidiary
of Sears ("Sears Mexico").
Sears Canada is the largest single retailer of general merchandise
in Canada. Sears Canada operates 110 department stores and 11 outlet
stores, and has 1,438 independently-owned catalog selling units and 37
warehouses. During 1994, Sears Canada relocated two department stores
and closed one outlet store. A conversion of company-operated catalog
selling units to independent local ownership was completed in 1994.
Sears Canada does not plan to open additional department stores during
1995, although it plans to renovate approximately ten stores and may
relocate one store during this period.
Sears Canada has an ongoing securitization program pursuant to
which undivided co-ownership interests in its pool of charge account
receivables are sold to trusts established to issue debt and trust units
(representing the residual equity interest in the trust) to third
parties. Sears Canada acts as servicer of the charge account
receivables. See Sears Merchandise Group "Analysis of Financial
Condition" and note 12 of the Notes to the Consolidated Financial
Statements on pages 53 and 40, respectively, of the 1994 Annual Report,
incorporated herein by reference in response to Items 7 and 8 hereof.
Approximately 38,800 full and part-time employees were employed by
Sears Canada.
<PAGE 13>
Sears Mexico operates 40 department stores and seven satellite
stores and has 21 warehouses. During 1994, two new stores were opened
and no stores were closed. Sears Mexico plans to open three new stores
in 1995.
Approximately 9,600 full and part-time employees were employed by
Sears Mexico.
<PAGE 14>
ALLSTATE INSURANCE GROUP
Allstate is engaged, principally in the United States and Canada
and primarily through agents working exclusively for Allstate Insurance
Company ("AIC"), a wholly-owned subsidiary of Allcorp, in property-
liability insurance (including personal property and casualty insurance,
business insurance and mortgage guaranty insurance) and life insurance.
Allstate is the country's second largest property-liability insurer on
the basis of 1993 statutory premiums earned and a major life insurer.
Allstate's life insurance operations are conducted through Allstate Life
Insurance Company ("ALIC"), a wholly-owned subsidiary of AIC, and
through various ALIC subsidiaries (collectively, "Allstate Life").
Allstate has more than 20 million customers, and its name and the
"You're in Good Hands" mark are widely recognized. AIC's primary
business is the sale of private passenger automobile and homeowners
insurance through its personal property and casualty unit ("PP&C"), and
it maintains estimated national market shares in these lines of
approximately 12.1% and 11.8%, respectively. Allstate Life sells life
insurance, annuity and group pension products. AIC's business insurance
unit ("Business Insurance") sells selected commercial property and
casualty coverages, and AIC's mortgage guaranty insurance operations
("PMI") sells residential mortgage guaranty insurance to residential
mortgage lenders. Allstate is proposing to sell PMI as discussed under
"Other Recent Developments" below. Allstate markets its products
through a variety of distribution channels, with the core of its
distribution system being a broad-based network of approximately 14,500
full-time Allstate agents in the United States and Canada.
On November 10, 1994, the Company announced the proposed Allstate
spin-off. Sears anticipates that the Allstate spin-off will be effected
in mid-1995 by means of a special dividend to Sears common shareholders
of all of the Allcorp common stock owned by the Company. The spin-off
is subject to market conditions, final approval by Sears Board of
Directors, any required regulatory approvals and a favorable tax ruling
or opinion on the tax-free nature of the spin-off. The Allstate spin-
off is scheduled to be considered at a special meeting of Sears
shareholders on March 31, 1995.
Allstate has, and following the Allstate spin-off will continue to
have, a variety of contractual and other relationships with the Company.
In contemplation of the Allstate spin-off, Allstate and Sears have
modified certain of these agreements and have entered into new
agreements. Allstate has described these new and modified agreements in
a Current Report on Form 8-K dated February 22, 1995 filed with the
Securities and Exchange Commission (the "SEC"), and has included the
text of such agreements as exhibits to such Form 8-K. These agreements
and arrangements are also incorporated by reference as exhibits to this
Report.
Other Recent Developments
On January 17, 1995, Allcorp and PMI filed registration statements
with the SEC regarding the proposed sale by Allcorp to the public of (i)
61.4% (70% if the underwriters' overallotment options are exercised in
full) of the shares of common stock of PMI Group ("PMI common stock"),
and (ii) a new issue of notes of Allcorp exchangeable at maturity for
all or a significant portion of the remaining shares of PMI common stock
(depending upon exercise of the underwriters' overallotment options with
respect to the notes offering and the market price of PMI common stock
at the maturity of the notes, and subject to Allstate's election to pay
cash in lieu of delivering PMI common stock to repay the notes upon
maturity). Allstate is proposing to sell PMI in keeping with its
strategic direction to focus on its core PP&C and life insurance
businesses, and to realize the return on its long-term investment in
PMI. PMI will be deconsolidated from the Allstate group as early as
January 1, 1995, depending upon the date of consummation of the
offerings. The foregoing
<PAGE 15>
offerings are subject to market and other conditions, and there can be
no assurance that they will be consummated.
During the autumn of 1994 Allstate offered a voluntary early
retirement incentive package. Approximately 600 eligible employees
accepted the offer. See Allstate Insurance Group "Analysis of
Operations" and note 6 of the Notes to the Consolidated Financial
Statements beginning on pages 56 and 34, respectively, of the 1994
Annual Report, incorporated herein by reference to Items 7 and 8 hereof.
Strategy
Allstate's strategy is to enhance the profitability of its leading
position in the private passenger automobile and homeowners insurance
markets by broadening its role as a provider of life insurance, selected
commercial coverages and other risk management products. This strategy
is designed to capitalize on: (i) the strength of the Allstate name,
(ii) Allstate's network of full-time agents, (iii) Allstate's auto
insurance capabilities, and (iv) additional distribution channels
available to Allstate.
Through the use of proprietary data bases, which consist of
marketing characteristics and of characteristics of various types of
risks in the personal lines automobile and homeowner markets, Allstate
is pursuing a strategy of growth in the types of markets it believes
will be profitable while limiting growth in other markets. Allstate is
also pursuing the same segmented growth strategy with respect to
geographic areas, attempting to grow its business more rapidly in areas
where weather and seismic conditions are relatively benign and in areas
where the regulatory climate is conducive to attractive returns, and
constraining growth in other areas. Allstate has also made extensive
use of computer technology in progressing toward its stated goal of
reducing the ratio of operating expenses to earned premiums by two
percentage points over the 1993 through 1997 period. Allstate's use of
this technology has also reduced the time and paperwork associated with
processing policies and claims in the field. Allstate has aligned and
focused resources - including technology, improved processes, and agent
training - in order to meet the needs and expectations of its customers
and potential customers. The customer retention rates for Allstate's
standard/preferred auto policies have risen to 91.11% for fiscal year
1994 from 90.48% for fiscal year 1993 and 89.52% for fiscal year 1992.
Allstate has achieved the leading market share in non-standard auto
insurance (insureds with a prior history of accidents or violations, or
owning high performance cars or having other special needs). This has
been a high growth market segment in which Allstate has competed
successfully by capitalizing on an established distribution system,
technology and claims capability and by tailoring pricing and products
to reach a broader market. Allstate plans to continue to develop
opportunities in this market.
Although Allstate's full-time agency force of approximately 14,500
full-time agents is at the core of its distribution system, Allstate is
expanding its market reach by distributing products in non-competing,
non-overlapping markets using independent agents, financial
institutions, specialized brokers and direct marketing.
Property-Liability Insurance
Allstate's property-liability insurance business consists of PP&C
insurance, Business Insurance and PMI. PP&C, which represented $15.3
billion (or 70.7%) of Allstate's 1994 statutory written premiums, writes
primarily private passenger automobile and homeowners insurance policies
<PAGE 16>
in 49 states and in Canada. Operating in approximately 9,635 locations,
Allstate agents produce more than 93% of PP&C's annual statutory written
premiums, with the balance generated by independent agents largely in
locations not currently served by Allstate agents. Business Insurance,
which represented 6.9% of Allstate's 1994 statutory written premiums,
writes selected commercial lines for small and medium-sized businesses,
which it markets through Allstate agents and a network of independent
agents. PMI, which represented 1.4% of Allstate's statutory written
premiums, writes residential mortgage insurance.
Principally engaged in private passenger automobile and homeowners
insurance, PP&C is Allstate's largest business segment, writing
approximately 89.6% of Allstate's total property-liability premiums, as
determined under generally accepted accounting principles. Allstate was
the country's second largest personal property and casualty insurer for
both private passenger automobile and homeowners insurance in 1994.
Although private passenger automobile and homeowners insurance account
for the majority of its business, PP&C also writes coverages for product
lines such as motorcycles, motor homes, renters, condominium,
residential and landlord, comprehensive personal liability, fire,
personal umbrella, recreational vehicle, mobile home, and boat owners.
PP&C markets its products primarily through Allstate agents, but also
through 2,000 independent agents mostly located in rural areas not
serviced by Allstate agents. PP&C also operates the Allstate Motor
Club, an organization whose purpose is to aid its members with travel
plans and emergency road service.
Business Insurance writes a variety of selected commercial property
and casualty insurance, including automobile insurance for vehicles used
in business; property insurance for buildings, equipment, inventory and
contents; general liability insurance for risks associated with business
premises, operations or products; package policies combining property
and liability insurance; and workers' compensation for work-related
injury, illness or death. Business Insurance also reinsures insurance
companies not affiliated with Allstate.
Business Insurance sells insurance to small and medium-sized
businesses through wholly-owned AIC subsidiaries, Northbrook Property
and Casualty Insurance Co., Northbrook National Insurance Company and
Northbrook Indemnity Company, which market through over 1,650
independent agencies. Business Insurance also sells commercial
insurance through Allstate agents and through rural independent agents.
The distribution channels used by Business Insurance share certain
support resources such as field claims and loss control, but each has
its own underwriting, processing and administrative organizations.
Allstate's reinsurance underwriting focus is directed toward smaller,
regional insurers who have books of business dominated by short-tail
lines such as automobile and homeowners insurance (where potential
exposure can be more accurately predicted), and whose own underwriting
standards are considered prudent by Allstate.
PMI sells residential mortgage guaranty insurance to mortgage
lenders, including mortgage bankers, savings institutions and commercial
banks. Demand for mortgage guaranty insurance is tied directly to house
sales and refinancing activity. PMI also sells title insurance,
provides contract underwriting services and licenses its proprietary
underwriting systems. PMI sells insurance through its own approximately
110 person sales force operating out of 21 field underwriting offices
located in 17 states in the United States. PMI is the third largest
private mortgage insurer in the United States, based both on new primary
insurance written in 1994 and direct primary insurance in force at
December 31, 1994.
Catastrophes are an inherent risk of the property-liability
insurance business which have contributed, and will continue to
contribute, to material year-to-year fluctuations in Allstate's results
of operations and financial position. The level of catastrophe loss
experienced in any year cannot
<PAGE 17>
be predicted and could be material. The establishment of appropriate
reserves for catastrophes, as for all property-liability claims, is an
inherently uncertain process. Catastrophe reserve estimates are
regularly reviewed and updated, using the most current information. Any
resulting adjustments, which may be material, are reflected in current
operations.
A "catastrophe" is defined by Allstate as an event that produces
pretax losses before reinsurance in excess of $250,000 involving
multiple first party policyholders. Catastrophes are caused by various
events, including hurricanes, earthquakes, tornadoes, wind and hail
storms and fires. Although catastrophes can cause losses in a variety
of property-liability lines, homeowners insurance has in the past
generated the vast majority of catastrophe-related claims. For
Allstate, major areas of potential losses due to hurricanes include
major metropolitan centers near the eastern coast of the United States,
and the major areas of exposure to potential losses due to earthquakes
include population centers in California affected by the San Andreas
fault line and fault lines in the Los Angeles basin and areas in the
central United States affected by the New Madrid fault line. Allstate
has experienced two catastrophes in the last three years resulting in
losses of approximately $2.5 billion relating to Hurricane Andrew (net
of reinsurance) and approximately $1.6 billion relating to the
Northridge earthquake, and risks experiencing similar or greater
catastrophes in the future. Allstate's proportion of its total
homeowners' insurance exposure in states having major catastrophe
exposure is higher than many of its competitors and is higher than the
property-liability insurance industry in general.
Although Allstate, consistent with industry practice, prices risks
in light of anticipated catastrophe exposure, the incidence and severity
of catastrophes is unpredictable. Due to the current unavailability of
reinsurance at acceptable rates, Allstate has no reinsurance in place to
lower its exposure to catastrophes at this time. However, Allstate
continues to evaluate the reinsurance market for appropriate coverage at
acceptable rates. Allstate has initiated a strategy to limit, over
time, its insurance exposures in certain regions prone to catastrophe
occurrences. Allstate has declined to renew some policies for property
coverages, although the extent of such nonrenewals is constrained by
state insurance laws and regulations. In addition, Allstate has filed
for selective rate increases as well as for limitations on policy
coverages in certain catastrophe exposure areas, subject to the
requirements of insurance laws and regulations and as limited by
competitive considerations. The extent of any resulting reduction in
Allstate's exposure to catastrophes in certain geographic regions over
time is uncertain. Allstate has worked and is working with Federal and
state governments and regulatory authorities to find a method of
managing catastrophe exposures. Legislation has been enacted in Florida
to strengthen building codes and to provide insurers limited
reimbursement from a state sponsored catastrophe fund in the case of
catastrophic hurricane losses. See Allstate Insurance Group "Analysis
of Operations" beginning on page 56 of the 1994 Annual Report,
incorporated herein by reference to Item 7 hereof.
Life Insurance
Allstate Life markets a broad line of life insurance, annuity and
group pension products. Allstate Life offers life insurance and annuity
pension products countrywide, and accounted for $4.5 billion (or 21.0%)
of Allstate's 1994 statutory premiums. Life insurance includes
traditional products such as whole life and term life insurance, as well
as universal life and other interest-sensitive life products. Annuities
include both deferred annuities, such as variable annuities and fixed
rate single premium deferred annuities, and immediate annuities such as
structured settlement annuities. Allstate Life's group pension products
include guaranteed investment contracts and retirement annuities. In
1994, annuity premiums and deposits represented approximately 50.4% of
Allstate Life's total statutory premiums and deposits.
<PAGE 18>
Allstate Life reaches a broad market of potential insureds
throughout the United States through a variety of distribution channels
including Allstate agents, financial institutions, independent agents
and brokers, specialized brokers and direct marketing techniques.
Allstate Life markets individual life insurance, annuity and pension
products through Allstate agents, financial institutions, independent
agents and brokers, and direct response marketing. Products bearing the
"Allstate" name are generally sold by Allstate agents and specialized
brokers, and through direct marketing techniques, while other products,
many of which are of similar types to those bearing the "Allstate" name,
are distributed through independent insurance agents and brokers and
financial institutions. Allstate Life's products are written by various
ALIC subsidiaries and are sold under various names in addition to
"Allstate" including "Allstate Life Insurance Company of New York,"
"Northbrook Life Insurance Company," "Glenbrook Life Insurance Company,"
"Glenbrook Life and Annuity Company," "Lincoln Benefit Life Company" and
"Surety Life Insurance Company." Life insurance in force was $142.4
billion at December 31, 1994 and $129.0 billion at December 31, 1993.
Allstate Life had $26.6 billion of invested assets (including $2.8
billion of Separate Accounts, but such number excludes unrealized gains
or losses on fixed income securities classified as available for sale),
as of December 31, 1994.
Northbrook Life Insurance Company has entered into a strategic
alliance with Dean Witter Reynolds Inc. for the marketing and
distribution of annuity products through Dean Witter. The arrangement
is not exclusive and does not bar Dean Witter from marketing the
products of other insurers or bar Northbrook Life Insurance Company from
using other brokerage firms to market and distribute its products.
Glenbrook Life Insurance Company has also entered into alliances with 18
banks for the sale of annuity products.
Although Allstate Life's management develops overall strategy and
coordinates certain supporting functions such as investments, finance
and legal, management of each distribution channel is largely
decentralized. Accordingly, management of each distribution channel is
primarily responsible for determining its own product mix and designing
products or product features appropriate for its target market.
Allstate Life believes that its range of channels promotes flexibility,
extends market reach, reduces dependency on any one distribution system,
and allows Allstate Life to focus on distinct, generally non-overlapping
markets.
Property - Liability Insurance Claims and Claims Expense Reserves
Allstate establishes property-liability loss reserves to cover its
estimated ultimate liability for losses and loss adjustment expenses
with respect to reported claims and claims incurred but not yet reported
as of the end of each accounting period. In accordance with applicable
insurance laws and regulations and generally accepted accounting
principles ("GAAP"), no reserves are established until a loss occurs,
including a loss from a catastrophe. Underwriting results of the
property-liability operations are significantly influenced by estimates
of property-liability claims and claims expense reserves (see note 9 of
the Notes to the Consolidated Financial Statements on page 36 of the
1994 Annual Report, incorporated herein by reference to Item 8 hereof).
These reserves are an accumulation of the estimated amounts necessary to
settle all outstanding claims, including claims which are incurred but
not reported, as of the reporting date. The reserve estimates are based
upon the facts in each case and Allstate's experience with similar
cases. Consideration is given to such historical trends as reserving
patterns, loss payments, pending levels of unpaid claims and product mix
as well as court decisions, economic conditions and public attitudes.
The effects of inflation are implicitly considered in the reserving
process. The establishment of reserves, including reserves for
catastrophes, is an inherently uncertain process and the ultimate cost
may vary materially from the recorded amounts. The inherent
uncertainties of estimating insurance reserves are generally greater for
liability coverages (particularly reserves for asbestos and
environmental losses) than for
<PAGE 19>
property coverages, due to the longer period of time that elapses before
a definitive determination of ultimate loss may be made. Establishing
reserves for asbestos and environmental claims is subject to significant
additional uncertainties, including lack of historical data, long
reporting delays, uncertainty as to the number and identity of insureds
with potential exposure, and unresolved legal issues regarding policy
coverage and the extent and timing of any such contractual liability.
Reserve estimates are regularly reviewed and updated, using the
most current information. Any resulting adjustments, which may be
material, are reflected in current operations.
The following tables are summary reconciliations of the beginning
and ending property-liability insurance claims and claims expense
reserve, displayed individually for each of the last three years. The
first table presents reserves on a gross (before reinsurance) basis.
The end of year gross reserve balance is reflected in the Allstate
Insurance Group Summarized Statements of Financial Position on page 59
of the 1994 Annual Report, incorporated herein by reference to Item 8
hereof. The second table presents reserves on a net (after reinsurance)
basis. The total net property-liability insurance claims and claims
expense amount is listed in the Allstate Insurance Group Summarized
Statements of Income on page 56 of the 1994 Annual Report, incorporated
herein by reference to Item 8 hereof.
Year ended December 31,
GROSS 1994 1993 1992
($ in millions)
Gross reserve for claims and claims expense,
beginning of year $15,683 $15,299 $13,533
Claims and claims expense
Provision attributable to the current year 15,638 13,641 15,712
Increase (decrease) in provision attributable to prior years (644) (276) 410
Total claims and claims expense 14,994 13,365 16,122
Payments
Claims and claims expense attributable to current year 8,993 7,706 9,538
Claims and claims expense attributable to prior years 4,751 5,275 4,818
Total payments 13,744 12,981 14,356
Gross reserve for Property-liability claims and claims
expense, end of year 16,933 15,683 15,299
Less: ARCO reserve balances not subject to development(a) 349 312 291
Gross reserve for Property-liability claims and claims expense,
end of year, as shown on the loss reserve development table $16,584 $15,371 $15,008
<FN>
(a) Loss development information for ARCO (AIC's indirectly owned
British reinsurance subsidiary) is not available on a comparable basis.
This information is not material ($129.9 million in gross claims and
claims expense in 1994 and $92.2 million in 1994 gross payments), and
was treated as attributable to the current year.
<PAGE 20>
Year ended December 31,
NET 1994 1993 1992
($ in millions)
Reserve for claims and claims expense,
beginning of year $14,241 $13,808 $12,370
Claims and claims expense
Provision attributable to the current year 15,387 13,298 15,296
Decrease in provision attributable to prior years (722) (375) (91)
Total claims and claims expense 14,665 12,923 15,205
Payments
Claims and claims expense attributable to current year 8,803 7,455 9,200
Claims and claims expense attributable to prior years 4,541 5,035 4,567
Total payments 13,344 12,490 13,767
Reserve for Property-liability claims and claims expense, end of year 15,562 14,241 13,808
Less: ARCO reserve balances not subject to development(a) 290 248 223
Reserve for Property-liability claims and claims expense, end of year,
as shown on the loss reserve development table(b) $15,272 $13,993 $13,585
<FN>
(a) Loss development information for ARCO (AIC's indirectly owned British
reinsurance subsidiary) is not available on a comparable
basis. This information is not material ($98.1 million in claims and claims
expense in 1994 and $56.6 million in 1994 payments), and was
treated as attributable to the current year.
(b) Reserves for claims and claims expense are net of reinsurance of $1.31
billion, $1.38 billion and $1.42 billion at December 31,
1994, 1993 and 1992, respectively.
The year-end 1994 reserves of $16.93 billion for property-
liability claims and claims expense, as determined under GAAP, were
$2.04 billion more than the reserve balance of $14.89 billion recorded
on the basis of statutory accounting principles for reports provided to
state regulatory authorities. The principal difference is the
reinsurance recoverable from third parties totaling $1.37 billion that
reduces reserves for statutory reporting and is recorded as an asset for
GAAP reporting. Additional differences are caused by the reserves of
the Canadian and British subsidiaries which are not included in the
consolidated United States statutory statement.
The loss reserve development table below illustrates the change
over time of reserves established for property-liability claims and
claims expense at the end of various calendar years. The first section
shows the reserves as originally reported at the end of the stated year.
The second section, reading down, shows the cumulative amounts paid as
of the end of successive years with respect to that reserve liability.
The third section, reading down, shows retroactive reestimates of the
original recorded reserve as of the end of each successive year which is
the result of Allstate's expanded awareness of additional facts and
circumstances that pertain to the unsettled claims. The last section
compares the latest reestimated reserve to the reserve originally
established, and indicates whether or not the original reserve was
adequate or inadequate to cover the estimated costs of unsettled claims.
The table also presents the gross reestimated liability as of the end of
the latest reestimation period, with separate disclosure of the related
reestimated reinsurance recoverable. This presentation appears for the
periods in which the income recognition provisions of Statement of
Financial Accounting Standards No. 113 have been applied.
The loss reserve development table is cumulative and, therefore,
ending balances should not be added since the amount at the end of each
calendar year includes activity for both the current and prior years.
<PAGE 21>
Loss Reserve Development
($ in millions)
December 31(a)
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
Gross Reserves for
Property-liability Claims
and Claims Expense $5,999 $6,582 $7,717 $8,941 $10,181 $11,095 $12,241 $13,225 $15,008 $15,371 $16,584
Deduct: Reinsurance
Recoverables 724 778 1,053 1,076 1,180 1,066 1,031 1,069 1,423 1,378 1,312
Net Reserve for
Property-liability Claims
and Claims Expense $5,275 $5,804 $6,664 $7,865 $9,001 $10,029 $11,210 $12,156 $13,585 $13,993 $15,272
Paid (Cumulative) as of:
One Year Later 1,839 2,445 2,758 3,184 3,611 4,349 4,594 4,567 5,035 4,541
Two Years Later 3,180 3,644 4,110 4,727 5,361 6,404 6,774 6,764 7,163
Three Years Later 3,863 4,406 4,957 5,682 6,518 7,653 8,069 8,014
Four Years Later 4,316 4,912 5,524 6,352 7,248 8,410 8,838
Five Years Later 4,642 5,269 5,930 6,803 7,698 8,896
Six Years Later 4,890 5,544 6,223 7,085 8,262
Seven Years Later 5,096 5,756 6,416 7,310
Eight Years Later 5,268 5,902 6,597
Nine Years Later 5,393 6,066
Ten Years Later 5,548
Reserve Reestimated as of:
End of Year 5,275 5,804 6,664 7,865 9,001 10,029 11,210 12,156 13,585 13,993 15,272
One Year Later 5,188 6,007 6,941 7,958 8,996 10,401 11,428 12,065 13,210 13,271
Two Years Later 5,373 6,259 7,038 7,995 9,108 10,693 11,635 11,998 12,866
Three Years Later 5,611 6,387 7,120 8,115 9,414 11,063 11,745 11,992
Four Years Later 5,778 6,480 7,235 8,423 9,773 11,179 11,841
Five Years Later 5,886 6,603 7,524 8,811 9,906 11,319
Six Years Later 6,021 6,887 7,924 8,955 10,063
Seven Years Later 6,285 7,287 8,081 9,126
Eight Years Later 6,671 7,437 8,229
Nine Years Later 6,863 7,635
Ten Years Later 7,060
Initial reserve in
excess of (less
than) reestimated net reserve:
Amount $(1,785) $(1,831) $(1,565) $(1,261) $(1,062) $(1,290) $(631) $164 $719 $722
Percent (33.8) (31.5) (23.5) (16.0) (11.8) (12.9) (5.6) 1.3 5.3 5.2
Gross Reestimated Liability-Latest $14,448 $14,727
Reestimated Recoverable-Latest 1,582 1,456
Net Reestimated Liability-Latest $12,866 $13,271
Gross Cumulative Excess $ 560 $ 644
<FN>
(a) Effective with 1990, this loss reserve development table excludes
ARCO claims and claims expense, due to the unavailability of loss
reserve development information for these claims on a comparable
basis.
<PAGE 22>
As the table above illustrates, Allstate's net reserves for
property-liability insurance claims and claims expense at the end of
1993 developed favorably in 1994 by $722 million, compared to favorable
development on the gross reserves of $644 million. This relationship is
due to the fact that Allstate's principal property-liability lines, such
as auto and homeowners, are not significantly affected by reinsurance,
whereas long-tail lines, including asbestos and environmental exposures,
involve a higher level of reinsurance protection. The more favorable
development in the net reserves is due to the effect of reinsurance on
increased reserve reestimates on asbestos and environmental claims.
The subsequent reduction in the net reserves established at
December 31, 1993, 1992 and 1991 shown in the foregoing table reflects,
as more fully discussed below, the Company's general reserving policy
which is to maintain a margin of conservatism in the reserves,
particularly the reserves for the most recent accident years for which
the ultimate loss costs are less predictable and therefore more
variable. The principal cause for the initial reserves established at
the end of 1990, and all previous years reflected in the table, needing
to be increased over the time frame in the above table is the cumulative
adverse reserve development on asbestos and environmental damage claims,
virtually all of which relates to 1984 and prior years. There are
significant uncertainties in estimating the amount of Allstate's
asbestos and environmental claims. Among the complications are a lack
of historical data, long reporting delays, uncertainty as to the number
and identity of insureds with potential exposure, and complex unresolved
legal issues regarding policy coverage and the extent and timing of any
such contractual liability. Courts have reached different and sometimes
inconsistent conclusions as to when the loss occurred and what policies
provide coverage; what claims are covered; whether there is an insured
obligation to defend; how policy limits are determined; how policy
exclusions are applied and interpreted; and whether cleanup costs
represent insured property damage. These issues are not likely to be
resolved in the near future. As a result of these issues, the ultimate
cost of these claims may generate losses that vary materially from the
amount currently reserved. See note 9 of the Notes to Consolidated
Financial Statements beginning on page and 36 of the 1994 Annual Report,
incorporated herein by reference to Item 8 hereof.
The following table is derived from the Loss Reserve Development
table above and summarizes the effect of reserve reestimates, net of
reinsurance, on calendar year operations for the same ten-year period
ended December 31, 1994. The total of each column details the amount of
reserve reestimates made in the indicated calendar year and shows the
accident years to which the reestimates are applicable. The amounts in
the total accident year column on the far right represent the cumulative
reserve reestimates for the indicated accident year(s).
<PAGE 23>
Effect of Reserve Reestimates on
Calendar Year Operations
Cumulative
($ in millions) Reestimates
for Each
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Accident Year
Accident Years
1984 & Prior $(87) $185 $238 $167 $108 $135 $264 $386 $192 $197 $1,785
1985 18 14 (39) (15) (12) 20 14 (42) 1 (41)
1986 25 (31) (11) (8) 5 0 7 (50) (63)
1987 (4) (45) 5 19 (12) (13) 23 (27)
1988 (42) (8) (2) (29) (11) (14) (106)
1989 260 (14) 11 (17) (17) 223
1990 (74) (163) (6) (44) (287)
1991 (298) (177) (102) (577)
1992 (308) (338) (646)
1993 (378) (378)
Total $(87) $203 $277 $ 93 $ (5) $372 $218 $ (91) $(375) $(722) $(117)
As the table illustrates, Allstate has experienced favorable net
reserve development on the reserves originally established for eight of
the last nine accident years. Favorable calendar year reserve
development in 1994, 1993 and 1992 was consistent with the Company's
above described reserving philosophy, and was also the result of
favorable severity trends in each of the three years which more than
offset adverse development on asbestos and environmental claims. The
favorable severity trend during this three year period was largely due
to a lower than anticipated medical cost inflation rate for personal
line auto injury claims. This trend has emerged over time as actual
claim settlements validated the steady decline in inflation. The level
of 1994 favorable development was further influenced by adjustments of
prior year catastrophe reserves and severity declines on personal line
injury claims that are believed to be attributable to improvements in
the claim settlement process as well as improving trends in commercial
coverages such as workers' compensation and product liability. In the
event these favorable trends continue, additional reserve releases will
be recorded.
Capital Requirements
The capacity for Allstate's growth in premiums, like that of other
insurance companies, is in part a function of its statutory surplus.
For property-liability insurance companies, ratios in excess of 3 to 1
in the amount of net premiums written to the amount of statutory surplus
are considered outside the usual range by insurance regulators and
rating agencies. AIC's premium to surplus ratio grew from 2.3 to 1 at
December 31, 1993 to 2.5 to 1 at December 31, 1994. The principal cause
of the increased ratio was a decline in statutory surplus resulting from
higher catastrophe losses in 1994. Maintaining appropriate levels of
statutory surplus is considered important by Allstate's management,
state insurance regulatory authorities, and the agencies that rate
insurers' claims-paying abilities and financial strength. Failure to
maintain certain levels of statutory capital and surplus could result in
increased scrutiny or, in some cases, action taken by state regulatory
<PAGE 24>
authorities or downgrades in an insurer's ratings. Increased public and
regulatory concerns regarding the financial stability of participants in
the insurance industry have resulted in greater emphasis being placed by
policyholders upon insurance company ratings and have created,
particularly with respect to certain life insurance products, some
measure of competitive advantage for insurance carriers with higher
ratings.
The National Association of Insurance Commissioners ("NAIC") has
adopted new standards for assessing the solvency of insurance companies,
which standards are referred to as risk-based capital ("RBC"). The
requirement consists of a formula for determining each insurer's RBC and
a model law specifying regulatory actions if an insurer's RBC falls
below specified levels. The RBC formula for life insurance companies
establishes capital requirements relating to insurance risk, business
risk, asset risk and interest rate risk. The RBC formula for property-
liability companies includes asset and credit risk, but places more
emphasis on underwriting factors for reserving and pricing. At December
31, 1994, Allstate's RBC for its property-liability and life insurance
operations exceeded the applicable RBC requirement. See Allstate
Insurance Group "Analysis of Financial Condition," beginning on page 60
of the 1994 Annual Report, incorporated herein by reference to Item 7
hereof.
Investments
Allstate follows an investment strategy that combines the goals of
safety, stability, liquidity, growth, and total return. It seeks to
balance preservation of principal with after-tax yield, while
maintaining portfolio diversification. Investment strategies for the
property-liability and life insurance segments vary based on the nature
of the respective insurance operations. The composition of each
portfolio is the result of various interrelated investment
considerations including protection of principal, appreciation
potential, tax consequences, and yield as well as asset-liability
management issues such as cash and duration matching. Because a
substantial portion of Allstate's revenues is generated from its
invested assets, the performance of its investment portfolio could
materially affect Allstate's results of operations and financial
condition.
Geographic Distribution of Insurance
Allstate, through a variety of companies, is authorized to sell
property-liability and life insurance in all 50 states, the District of
Columbia, Puerto Rico and Canada. To a limited extent, Allstate is
engaged, through affiliates, in the insurance business in Japan and the
Republic of Korea and is a worldwide reinsurer. The following table
reflects, in percentages, the principal geographic distribution of
statutory premiums earned for the property-liability insurance business
and statutory premiums for the life insurance business for the year
ended December 31, 1994:
CA NY FL TX NJ IL PA MI MD GA VA TOTAL
Property-Liability 12.9 11.2 9.4 6.8 4.9 4.4 4.3 3.4 3.2 2.9 2.7 66.1
CA IL MA MI NE FL TX PA OH VA IN TOTAL
Life 14.3 9.4 7.9 7.0 5.8 5.3 3.6 3.0 2.5 2.4 2.4 63.6
No other jurisdiction accounted for more than 2.5% of the
statutory premiums for property-liability and 2.2% of the statutory
premiums for life insurance.
<PAGE 25>
In 1991, Allstate announced its decision to withdraw from the
property-liability market in New Jersey, but its application has been
suspended until December 31, 1997 by agreement between Allstate and New
Jersey insurance authorities. In the meantime, Allstate has continued
to write insurance in New Jersey. Although it is licensed to do so,
Allstate is not currently writing private passenger automobile or
homeowners' insurance in Massachusetts.
Seasonality
Although the insurance business generally is not seasonal, claims
and claims expense for the property-liability insurance operations tend
to be higher for periods of severe or inclement weather.
Service Marks
The names "Allstate" and "Allstate Life," the slant "A" Allstate
logo, the slogan "You're in Good Hands With Allstate" and the graphic
"Good Hands" design logo which features cupped hands holding an
automobile and a house, and the "Northbrook" logo design are used
extensively in Allstate's businesses. Allstate's rights in the United
States to the names "Allstate" and "Allstate Life," the Allstate and
Northbrook logos, the "Good Hands" slogan and the "Good Hands" symbol
continue so long as Allstate continues to exercise those rights. These
service marks are the subject of numerous renewable United States and
foreign service mark registrations. The Company believes that these
service marks are material to the business of Allstate.
Competition
Property-Liability Insurance
The personal lines private passenger auto and homeowners business
is highly competitive. As of December 31, 1993 (the most recent date
for which information is available), this industry in the United States
was comprised of approximately 300 insurance groups, doing business
under approximately 1,400 different company names, generating annual
personal lines premiums totaling approximately $115 billion.
Approximately $37 billion of premiums are generated by independent
agencies, and the remaining $78 billion of premiums are generated by
direct writers placing their products directly to the consumer by direct
response, mail order or, like Allstate, primarily through employee
agents. In recent years, direct writers have increased their market
share while the market share of independent agency writers has
decreased.
Allstate believes that AIC and the other four largest (as measured
by 1993 premiums written) personal property and casualty companies,
three of which are direct writers, had nearly 44% of the private
passenger automobile premiums written and approximately 44% of the
homeowner premiums written. The Company believes that in 1993 the
largest 20 companies wrote approximately 66% of the private passenger
automobile premiums written and approximately 67% of the homeowner
premiums written in the United States.
AIC competes principally on the basis of its name recognition,
scope of distribution system, customer service and focus, use of
technology to improve customer service and quality, product features and
breadth of product offerings and price. Additionally, extensive use of
its database to develop proprietary information gives AIC the ability to
segment its market and appropriately price risks.
<PAGE 26>
The commercial property and casualty insurance industry, in
which Business Insurance operates, is highly competitive. The Company
believes that there were approximately 2,000 commercial property and
casualty insurance companies generating approximately $120 billion in
commercial premiums written in 1993, the last year for which comparative
data is available. Business Insurance competes principally on the basis
of its name recognition, scope of its distribution system, customer
service and focus, use of technology to improve customer service and
quality, breadth of product offerings, product features, and price.
Unlike the personal lines industry, the commercial insurance industry is
highly fragmented in terms of market share. In 1993, Allstate's
estimated market share of total commercial lines, based on direct
premiums written, was 1.5%.
The principal sources of PMI's direct competition are (i) other
private mortgage insurers (some of which are affiliates of well
capitalized, diversified public companies, have higher claims-paying
ability ratings and have greater access to capital than PMI) and (ii)
federal and state governmental and quasi-governmental agencies
(principally the Federal Housing Administration ("FHA")). Indirectly,
PMI also competes with mortgage lenders which forego third-party
coverage and retain the full risk of loss on their high LTV loans. The
environment for the nine active insurers which comprise the U.S. private
mortgage insurance industry is both highly dynamic and intensely
competitive.
Life Insurance
There is substantial competition among insurance companies seeking
customers for the types of insurance and annuity products sold by
Allstate Life. Despite some industry consolidation in recent years, the
life insurance market continues to be highly fragmented and competitive.
As of December 31, 1993, there were approximately 2,000 life insurance
companies in the United States, most of which offer one or more products
similar to those offered by Allstate Life and many of which use similar
marketing techniques. In addition, banks and savings and loan
associations in certain jurisdictions compete with Allstate Life in the
sale of life insurance products and, because certain life insurance and
annuity products include a savings or investment component, competition
also comes from brokerage firms, investment advisors and mutual funds,
as well as from banks and other financial institutions.
Allstate Life competes principally on the basis of its name
recognition, scope of its distribution systems, customer service and
focus, breadth of product offerings, product features, its financial
strength, claims-paying ability ratings, and price, and with respect to
variable life and annuity products, investment performance of its
Separate Accounts.
On January 18, 1995, the U.S. Supreme Court held that a bank may
act as an agent to sell fixed and variable annuity contracts and that
such annuities are not "insurance" for purposes of the National Bank Act
(Nationsbank of North Carolina v. Variable Annuity Life Insurance
Company). This decision provides legal support for Allstate Life's
practice of using banks to distribute its annuity products, but another
possible result of this decision could be increased competition for
Allstate Life's products from expanded bank sales of annuities produced
by other insurers or by banks.
Regulation
Allstate is subject to extensive regulation and supervision in the
jurisdictions in which it does business. This regulation has a
substantial effect on the business of Allstate, primarily on Allstate's
personal lines property-liability business. This regulatory oversight
includes, by way of example, matters relating to licensing and
examination, rate setting, trade practices, policy forms, limitations on
the nature and amount of certain investments, claims practices, mandated
participation in shared
<PAGE 27>
markets and guaranty funds, reserve adequacy, insurer solvency,
transactions with affiliates, the amount of dividends that may be paid,
and restrictions on underwriting standards. See notes 16 and 17 of the
Notes to the Consolidated Financial Statements on page 45 of the 1994
Annual Report, incorporated herein by reference to Item 8 hereof.
As a condition of its license to do business in various states,
AIC is required to participate in mandatory property-liability shared
market mechanisms or pooling arrangements which provide various
insurance coverages to individuals or other entities that otherwise are
unable to purchase such coverage voluntarily provided by private
insurers. In addition, some states require automobile insurers to
participate in reinsurance pools for claims that exceed a certain
amount. Currently, there are no mandatory pooling mechanisms applicable
to Allstate Life. The participation by AIC in such shared markets or
pooling mechanisms is generally in amounts related to the amount of
AIC's direct writings for the type of coverage written by the specific
pooling mechanism in the applicable state. AIC incurred an underwriting
loss from participation in such mechanisms, mandatory pools and
underwriting associations of $109 million, $140 million and $152 million
in 1994, 1993 and 1992, respectively. The amount of future losses or
assessments from the personal and commercial lines shared market
mechanisms and pooling arrangements described above cannot be predicted
with certainty. Although it is possible that future losses or
assessments from such mechanisms and pooling arrangements could have a
material adverse effect on results of operations, Allstate does not
expect future losses or assessments to have a material adverse effect on
liquidity or capital resources.
Failures of certain large insurers in recent years have increased
solvency concerns of regulators. Under state insurance guaranty fund
laws, insurers doing business in a state can be assessed, up to
prescribed limits, for certain obligations of insolvent insurance
companies to policyholders and claimants. Allstate's payments to such
guaranty funds for the years 1994, 1993 and 1992 were $56 million, $60
million and $65 million, respectively.
Employees
At December 31, 1994, Allstate employed approximately 46,300
people.
Properties
Allstate's home office complex is located in Northbrook, Illinois.
The complex consists of 10 buildings of approximately 1.96 million
square feet of office space on a 208.7 acre site. The Northbrook
complex serves as the headquarters for PP&C and ALIC. Business
Insurance is headquartered in South Barrington, Illinois, and PMI is
based in San Francisco, California.
Allstate's field business operations are conducted substantially
from approximately 50 offices located principally in metropolitan areas
throughout the United States and Canada. Allstate also has
approximately 280 claim service offices, sales facilities at
approximately 9,600 locations, and approximately 665 automobile damage
inspection locations, most of which are located at claim service offices
and sales facilities.
Allstate's home office complex and most major offices are owned.
Other facilities are leased, in almost all cases for terms of not more
than five years. The Company believes its properties and facilities are
adequate and suited to Allstate's current operations.
<PAGE 28>
Additional Information
Additional information concerning Allstate is included in
Allcorp's Annual Report on Form 10-K for the fiscal year ended December
31, 1994 and 1994 Annual Report to Stockholders, which are incorporated
by reference in this report as Exhibits 99.(a) and 99.(b), respectively.
<PAGE 29>
FINANCE SUBSIDIARIES
To meet certain capital requirements of its businesses, Sears
borrows on a short-term basis through the issuance of notes to, and from
time to time sells customer receivables balances to, Sears Roebuck
Acceptance Corp. ("SRAC"), a wholly-owned finance subsidiary. SRAC
obtains funds primarily from the issuance of commercial paper. SRAC
also obtains funds from term loans and borrowing agreements with bank
trust departments. In addition, on March 17, 1995, SRAC filed a
registration statement with the SEC relating to Debt Securities. Sears
and SRAC have also borrowed through Sears Overseas Finance N.V.
("SOFNV"), a wholly-owned international finance subsidiary, which has
obtained funds from the issuance of long-term debt, primarily in Europe,
in both U. S. dollars and foreign currencies.
Sears DC Corp. ("SDCC"), a wholly-owned finance subsidiary of
Sears, was formed to borrow money and lend the proceeds of such
borrowings to certain former subsidiaries of the Company. These former
subsidiaries have repaid all of their indebtedness to SDCC. SDCC is not
currently issuing additional debt. Pending use of the remaining amounts
received from the former subsidiaries to repay outstanding medium-term
notes at maturity or otherwise, SDCC has loaned such amounts to Sears.
Substantially all the debt and related interest expense of SDCC,
SRAC and SOFNV is borne by the Domestic credit operations.
In addition, various direct and indirect subsidiaries of Sears
have engaged in securitization programs in which credit card receivables
or asset-backed commercial paper are sold in public or private
transactions. See "Domestic Operations - Domestic credit," and
"International Operations," beginning on pages 8 and 12, respectively,
and note 12 of the Notes to Consolidated Financial Statements on page 40
in the 1994 Annual Report, incorporated herein by reference to Item 8
hereof.
<PAGE 30>
HOMART
Homart, a wholly-owned subsidiary of the Company, develops, owns
and manages regional shopping centers and community shopping centers.
HD Delaware Properties, Inc. ("HD Delaware"), a wholly-owned subsidiary
of the Company, owns and manages office buildings. At December 31,
1994, Homart (directly or indirectly) owned or substantially owned and
operated 12 regional shopping centers and five community centers, and
was a partner in joint ventures and limited partnerships that owned and
operated 16 regional shopping centers and one community center. In
addition, Homart (directly or indirectly) managed nine regional shopping
centers for other owners. HD Delaware (directly or indirectly) owned
and operated 15 office buildings and (directly or indirectly) was a
partner in joint ventures that owned and operated two office buildings.
Other commercial properties are being developed by Homart, and by joint
ventures and limited partnerships in which Homart (directly or
indirectly) has an interest.
The Company is pursuing a divestiture of Homart and HD Delaware.
Employees
At December 31, 1994, Homart and HD Delaware employed
approximately 870 people.
Competition
The businesses of Homart and HD Delaware are highly competitive.
Competition in the commercial property development business relates to
site acquisition and securing of tenants, including major department
stores for shopping centers (based primarily on location, rental rates
and service). Shopping center operation also involves competition for
customers with other retail locations (based primarily on location,
facilities, tenants and advertising).
<PAGE 31>
Executive Officers of the Registrant
The following table sets forth the names of the executive officers
of the Company, the positions and offices with the Company held by them,
the date they first became officers of the Company or a subsidiary of
the Company, and their current ages:
Date First
Became
Name Position Officer Age
Edward A. Brennan* Chairman of the Board of Directors,
President and Chief Executive Officer1978 61
James M. Denny Vice Chairman and Acting Chief
Financial Officer 1986 62
David Shute Senior Vice President,
General Counsel and Secretary 1981 64
James A. Blanda Vice President and Controller 1992 51
Gerald E. Buldak Vice President, Public Affairs 1993 50
Alice M. Peterson Vice President and Treasurer 1993 42
Jerry D. Choate Chairman and Chief Executive Officer
Allstate Insurance Group 1981 56
Arthur C. Martinez* Chairman and Chief Executive Officer
Sears Merchandise Group 1992 55
<FN>
* Also a director of Sears, Roebuck and Co.
Mr. Brennan has stated that he expects to remain in the position
of Chairman of the Board, President and Chief Executive Officer of the
Company until the successful completion of the Allstate spin-off and
during a transition period thereafter. After such period, Mr. Brennan
does not expect to remain a director of the Company. Mr. Denny expects
to remain as Vice Chairman and Acting Chief Financial Officer of the
Company until the successful completion of the Allstate spin-off and
during a transition period thereafter. Upon Mr. Brennan's retirement,
the Sears Board of Directors expects that Mr. Martinez will succeed him
and be elected as Chairman of the Board of Directors, President and
Chief Executive Officer.
In connection with the Allstate spin-off, Mr. Choate, in his
capacity as Chairman and Chief Executive Officer of Allstate, will no
longer be an executive officer of the Company.
Sometime following the Allstate spin-off, it is expected that Mr.
Buldak will resign as an executive officer of the Company and become
Vice President of Corporate Relations of AIC. Also following the
Allstate spin-off, it is anticipated that the Merchandise Group will
cease to be a separate business group and the officers of the
Merchandise Group listed in the following table will also become
executive officers of the Company with similar titles and functions
(other than the reference to the Merchandise Group in their titles).
The following table sets forth the names of such officers, the positions
and offices with the Merchandise Group held by them, the date they first
became officers of the Company and their current ages:
<PAGE 32>
Date First
Became
Name Position Officer Age
Russell S. Davis Executive Vice President
and Chief Financial Officer,
Sears Merchandise Group 1990 59
Anthony J. Rucci Executive Vice President, Administration,
Sears Merchandise Group 1993 44
John H. Costello Senior Executive Vice President,
General Manager, Marketing Division,
Sears Merchandise Group 1993 47
Robert Mettler President, Apparel and Home Fashions Group,
Sears Merchandise Group 1993 54
Paul A. Baffico President, Automotive Group,
Sears Merchandise Group 1992 48
Marvin M. Stern President, Home Group,
Sears Merchandise Group 1988 59
Allan B. Stewart President, Retail Stores,
Sears Merchandise Group 1984 52
Jane J. Thompson Executive Vice President, Credit,
Sears Merchandise Group 1988 43
William G. Pagonis Executive Vice President, Logistics,
Sears Merchandise Group 1993 53
Alan J. Lacy Senior Vice President, Finance,
Sears Merchandise Group 1995 41
No family relationships exist among the above-named individuals.
Each of the officers named above was elected to serve in the
office indicated until the first meeting of the Board of Directors
following the annual meeting of shareholders in 1995 and until his or
her successor is elected and qualified or until such officer reaches
retirement age or resigns.
With the exception of Messrs. Blanda, Buldak, Martinez, Costello,
Davis, Lacy, Mettler, Pagonis and Rucci, these officers have held the
positions set forth in the above tables for at least the last five years
or have served the Company in various executive or administrative
capacities for at least that length of time.
Mr. Blanda joined Sears as Vice President and Controller in
December 1992. Prior to joining Sears he had been a partner in the
accounting and auditing firm of KPMG Peat Marwick since 1983.
Mr. Buldak joined Sears as National Manager, External
Communications, in July 1990. Prior to joining Sears, he had been the
Manager of Public Affairs for The Detroit Edison Company since 1984.
Mr. Martinez joined Sears as Chairman and Chief Executive Officer
of Sears Merchandise Group in September 1992. Prior to joining Sears he
had been a Vice Chairman of Saks Fifth Avenue and responsible for all of
its administrative functions since August 1990 and, from January 1987
until August 1990, was Senior Vice President of Batus, Inc. and
responsible for its Saks Fifth Avenue, Marshall Field's, J.B. Ivey and
Breuner's stores.
<PAGE 33>
Mr. Costello joined Sears as Senior Executive Vice President,
General Manager, Marketing Division, of the Merchandise Group in April
1993. Prior to joining Sears, he had been President of Nielsen
Marketing Research USA.
Mr. Davis joined Sears as Senior Vice President and Chief
Financial Officer of the Merchandise Group in June 1990. Prior to
joining Sears, he had been Executive Vice President and Chief Financial
Officer, and previously Senior Vice President, Planning, of Federated
Department Stores/Allied Department Stores.
Mr. Lacy joined Sears as Senior Vice President, Finance of the
Merchandise Group effective January 1, 1995. Prior to joining Sears, he
had been Vice President, Financial Services and Systems of Philip Morris
Companies Inc. and President of Philip Morris Capital Corporation since
September 1993 and from September 1989 to September 1993, was Senior
Vice President of Kraft General Foods in charge of finance, strategy and
development matters.
Mr. Mettler joined Sears as President, Apparel Group of the
Merchandise Group in February 1993. Prior to joining Sears, he had been
President and Chief Executive Officer of Robinson's Inc.
Mr. Pagonis joined Sears as Senior Vice President of Logistics of
the Merchandise Group in November 1993. Prior to joining Sears, he had
been a Lieutenant General in the U.S. Army, serving as Director for
Transportation, Energy and Troop Support in the Office of the Deputy
Army Chief of Staff for Logistics.
Mr. Rucci joined Sears as Executive Vice President, Administration
of the Merchandise Group in October 1993. Prior to joining Sears, he
had been Senior Vice President, Strategy, Business Development and
External Affairs and previously Senior Vice President Human Resources,
of Baxter International, Inc.
Item 2. Properties
Information regarding the principal properties of the Company is
incorporated herein by reference to the following portions of Item 1
hereof: Sears Merchandise Group (pages 10 - 12); and Allstate Insurance
Group (page 27).
Item 3. Legal Proceedings
On January 26, 1994, the Alabama Department of Environmental
Management alleged infringement of state environmental statutes by Sears
relating to alleged underground gas tanks at six retail stores in that
state. The Department sought civil penalties of $250,000. Sears and
the Department have agreed to settle for civil penalties of $125,000,
pursuant to a signed consent decree. (Sears, Roebuck and Co. v. Alabama
Department of Environmental Management, Docket No. 94-08).
In proceedings entitled In Re: Insurance Antitrust Litigation
(U.S. District Court, N.D. Calif., 1988), AIC and a number of other
insurers and various related entities were sued by various states on the
grounds that defendants conspired to reduce the coverage under revised
commercial general liability forms filed with state insurance regulators
by the Insurance Services Office, a rating bureau. The states requested
unspecified treble damages and other relief. The case was consolidated
with 17 private class actions on behalf of private parties that were
allegedly unable to obtain desired commercial liability coverage as the
result of the defendants' conduct. On January 17, 1995, the District
Court gave preliminary approval to a settlement under which the 32
remaining defendants,
<PAGE 34>
including AIC, agreed to pay the total amount of $36,000,000 to fund
creation of a risk database and a public risk institute to provide
educational services to governmental and business insurance purchasers.
In addition, the settlement will restructure the Insurance Services
Office, the insurance industry's main insurance rating and advisory
organization, to decrease the influence of insurance companies over the
organization.
On January 19, 1995, class action certification was granted in
Gile v. Allstate and Moran v. Allstate and Sears (Alameda County
Superior Court, California), cases originally filed on October 16, 1992
and April 7, 1993, respectively, for purposes of determining whether AIC
violated a provision of the California Labor Code with respect to how
AIC reimburses its California Neighborhood Office Agent office expenses.
The plaintiffs in these cases seek both compensatory and punitive
damages. The Company's ultimate exposure to loss cannot presently be
predicted and no provision for liability has been made in the Company's
consolidated financial statements. Due to the early stage of
development of these proceedings, it is not practicable to presently
develop a meaningful range of potential loss. While the final
resolution of this matter may have a material impact on the Company's
results of operations, management believes this matter will not have a
material adverse effect on the financial position of the Company.
The Massachusetts Attorney General's office has advised Homart
that the Massachusetts Department of Environmental Protection ("DEP")
has investigated alleged releases of asbestos containing materials at
the site of Homart's Shopper's World Center in Framingham, Massachusetts
and relating to the Natick Mall in Natick, Massachusetts. Discussions
with the Attorney General's Office are ongoing. The Company expects
that this matter will not have a material impact on the results of
operation, financial position, liquidity or capital resources of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE 35> PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
DESCRIPTION OF SEARS COMMON SHARES
The summary contained herein of certain provisions of the Restated
Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), of Sears does not purport to be complete and is
qualified in its entirety by reference to the provisions of such
Certificate of Incorporation filed as Exhibit 3.(a) hereto and
incorporated by reference herein.
The Certificate of Incorporation authorizes the issuance of
1,000,000,000 common shares, par value $0.75 per share, and 50,000,000
preferred shares, par value $1.00 per share. As of January 31, 1995,
3,250,000 8.88% Preferred Shares, First Series (the "8.88% Preferred
Shares") and 7,187,500 Series A Mandatorily Exchangeable Preferred
Shares (the "Series A Preferred Shares"), were outstanding. On March
20, 1995, Sears exchanged its Series A Preferred Shares for 35,672,979
Sears common shares. Additional preferred shares may be issued in
series with rights and privileges as authorized by the Board of
Directors.
Subject to the restrictions on dividends mentioned below and the
rights of the holders of the 8.88% Preferred Shares and any preferred
shares which may hereafter be issued, each holder of common shares is
entitled to one vote per share, to vote cumulatively for the election of
directors, to dividends declared by the Board of Directors, and upon
liquidation to share in the assets of Sears pro rata in accordance with
his or her holdings after payment of all liabilities and obligations.
The holders of common shares have no preemptive, redemption,
subscription or conversion rights. Sears Board of Directors is divided
into three classes serving staggered three-year terms. Because the
Board is classified, shareholders wishing to exercise cumulative voting
rights to assure the election of one or more directors must own
approximately three times as many shares as would be required if the
Board were not classified. Directors may be removed only for cause upon
the affirmative vote of at least 75% of the shares entitled to vote.
Such a vote is also required to alter, amend or repeal, or to adopt any
provision inconsistent with, Article 5 of the Certificate of
Incorporation concerning directors, or to fix the number of directors by
shareholder vote. There are no restrictions on repurchases or
redemption of shares by Sears which do not impair its capital, except
for limitations under the terms of outstanding preferred shares and
except that the indentures relating to certain of Sears long-term debt
and an agreement pursuant to which Sears has provided a credit facility
in support of certain tax increment revenue bonds issued by the Village
of Hoffman Estates, Illinois, in connection with the construction of the
headquarters facility for Sears Merchandise Group provide that Sears
will not take certain actions, including the declaration of cash
dividends and the repurchase of shares, which would cause unencumbered
assets plus certain capitalized rentals to drop below 150% of
liabilities plus such capitalized rentals (as such terms are defined in
the indentures and the agreement).
The amount by which such unencumbered assets plus capitalized
rentals exceeds 150% of such liabilities plus capitalized rentals, as
computed under certain of the indenture provisions and those of the
credit facility agreement referred to above, is set forth in note 17 of
the Notes to Consolidated Financial Statements on page 45 of the 1994
Annual Report.
The 8.88% Preferred Shares were sold in the form of depositary
shares, each representing a one-fourth interest in an 8.88% Preferred
Share. In general, holders of the 8.88% Preferred Shares are entitled
to (i) receive, when and as declared by the Board, cumulative cash
dividends, payable quarterly, at a rate of 8.88% per annum on $100 per
share, prior to payment of dividends on the
<PAGE 36>
common shares or the redemption, purchase or other acquisition for
consideration of common shares by Sears and (ii) $100 per share, plus
accrued and unpaid dividends, in the event of any dissolution of Sears,
prior to any payment to the holders of the common shares. The 8.88%
Preferred Shares may be redeemed, at Sears option, on or after November
9, 1996 or, in certain limited circumstances, prior to such date.
Holders of the 8.88% Preferred Shares are not entitled to voting rights
except in limited circumstances.
Information regarding the principal market for Sears common
shares, the number of shareholders, and the prices of, and dividends
paid on, Sears common shares is incorporated herein by reference to the
section headed "Common Stock Market Information and Dividend Highlights"
on page 67 of the 1994 Annual Report and to the information under the
heading "Shareholders' equity - Dividend payments" contained in note 17
of the Notes to Consolidated Financial Statements on page 45 of the 1994
Annual Report.
Item 6. Selected Financial Data
The material under the caption "Ten-Year Summary of Consolidated
Financial Data" on pages 64 - 65 of the 1994 Annual Report is
incorporated herein by reference.
<PAGE 37>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information contained under the captions "Analysis of
Consolidated Operations" on pages 20 - 22, "Analysis of Consolidated
Financial Condition" on pages 23, 25 and 27, Sears Merchandise Group
"Analysis of Operations" on pages 48 - 52, Sears Merchandise Group
"Analysis of Financial Condition" on pages 53 - 55, Allstate Insurance
Group "Analysis of Operations" on pages 56 - 59, and Allstate Insurance
Group "Analysis of Financial Condition" on pages 60, 61 and 63, of the
1994 Annual Report, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company and the
summarized financial statements related to the Company's continuing
business groups, including the notes to all such statements, and other
information on pages 20 - 67 (other than that incorporated by reference
to Item 7 hereof) of the 1994 Annual Report is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
<PAGE 38>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors and executive officers of the
Company is incorporated herein by reference to the descriptions under
"Item 1: Election of Directors" on pages 2 - 5 of the 1995 Proxy
Statement and to Item 1 of this Report under the caption "Executive
Officers of the Registrant" on pages 31 - 33.
Item 11. Executive Compensation
Information regarding executive compensation is incorporated by
reference to the material under the captions "Item 1: Election of
Directors," "Directors' Compensation and Benefits," "Executive
Compensation," "Stock Options," "Pension Plan Table," "Employment
Contracts, Termination and Change in Control Arrangements" and
"Compensation Committee Interlocks and Insider Participation" on pages 2
- 5, 6, 7, 8, 9, 10 - 11 and 16, respectively, of the 1995 Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information regarding security ownership of certain beneficial
owners and management is incorporated herein by reference to the
material under the heading "Item 1: Election of Directors" on pages 2 -
5 of the 1995 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related
transactions is incorporated herein by reference to the material under
the heading "Certain Transactions" on page 19 of the 1995 Proxy
Statement.
<PAGE 38>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a)1 and 2 - An "Index to Financial Statements and Financial
Statement Schedules" has been filed as a part of this Report beginning
on page S-1 hereof.
(a)3 - Exhibits:
An "Exhibit Index" has been filed as a part of this Report
beginning on page E-1 hereof and is incorporated herein by reference.
(b) - Reports on Form 8-K:
A Current Report on Form 8-K for November 10, 1994 was filed
with the Securities and Exchange Commission (the "Commission") on
November 10, 1994 to report, under Item 5, that the Company issued a
press release to announce the proposed Allstate spin-off and divestiture
of Homart.
Signatures
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SEARS, ROEBUCK AND CO.
(Registrant)
/S/James A. Blanda
By:James A. Blanda
Vice President and Controller
March 23, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
/S/Edward A. Brennan Director, Chairman of the )
Edward A. Brennan Board of Directors, President )
and Chief Executive Officer )
)
/S/James M. Denny Vice Chairman and Acting )
James M. Denny Chief Financial Officer )
(Principal Financial Officer) )
)
/S/James A. Blanda Vice President )
James A. Blanda and Controller (Principal )
Accounting Officer) )
)
/S/Hall Adams, Jr. Director )
Hall Adams, Jr. )
)
/S/Warren L. Batts Director )
Warren L. Batts )
)
/S/James W. Cozad Director )
James W. Cozad )
)
/S/William E. LaMothe Director )
William E. LaMothe )
)
/S/Arthur C. Martinez Director ) March 23, 1995
Arthur C. Martinez )
)
/S/Michael A. Miles Director )
Michael A. Miles )
)
/S/Sybil C. Mobley Director )
Sybil C. Mobley )
)
/S/Nancy C. Reynolds Director )
Nancy C. Reynolds )
)
/S/Clarence B. Rogers Director )
Clarence B. Rogers )
)
/S/Donald H. Rumsfeld Director )
Donald H. Rumsfeld )
<PAGE S-1>
SEARS, ROEBUCK AND CO.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Year Ended December 31, 1994
The following consolidated financial statements, notes thereto and
related information of Sears, Roebuck and Co. are incorporated
herein by reference to the Company's 1994 Annual Report.
Page*
Consolidated Statements of Income ** 20
Consolidated Statements of Financial Position ** 24
Consolidated Statements of Cash Flows ** 26
Consolidated Statements of Shareholders' Equity ** 28
Notes to Consolidated Financial Statements ** 29
Quarterly Results ** 67
Common Stock Market Information and Dividend Highlights *** 67
Sears Merchandise Group
Summarized Statements of Income ** 48
Summarized Statements of Financial Position ** 53
Summarized Statements of Cash Flows ** 54
Allstate Insurance Group
Summarized Statements of Income ** 56
Summarized Statements of Financial Position ** 59
Summarized Statements of Cash Flows ** 62
* Refers to page number in Company's 1994 Annual Report.
** Incorporated by reference in Item 8 herein.
*** Incorporated by reference in Item 5 herein.
<PAGE S-2>
The following additional financial statement schedules and report and
consent of Independent Certified Public Accountants are furnished
herewith pursuant to the requirements of Form 10-K.
Sears, Roebuck and Co. Page
Schedules required to be filed under the provisions of Regulation S-X
Article 5:
Schedule I - Condensed Financial Information of the Registrant S-3
Schedule II - Valuation and Qualifying Accounts S-9
Schedules required to be filed under the provisions of Regulation S-X
Article 7:
Schedule I - Summary of Investments S-10
Schedule III- Supplementary Insurance Information S-11
Schedule IV - Reinsurance S-12
Schedule VI - Supplemental Insurance Information Concerning
Property - Casualty Insurance Operations S-13
Report of Independent Certified Public Accountants S-14
Consent of Independent Certified Public Accountants S-15
All other schedules are omitted because they are not applicable or not
required.
<PAGE S-3>
SEARS, ROEBUCK AND CO.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
(millions) Year Ended December 31
1994 1993 1992
Revenues
Net sales $ 23,926 $ 21,849 $ 24,400
Finance charge revenues 1,197 1,053 1,410
Total revenues 25,123 22,902 25,810
Costs and Expenses
Cost of sales, buying and occupancy 17,596 15,883 18,094
Selling and administrative expenses 5,930 5,562 6,658
Depreciation and amortization 399 381 370
Provision for uncollectible accounts 245 265 365
Restructuring - - 2,725
Interest (after deduction of income before
income taxes of financing subsidiaries
of $69, $129 and $172) 920 1,118 1,261
Total costs and expenses 25,090 23,209 29,473
Operating income (loss) 33 (307) (3,663)
Other income (loss) 7 14 (23)
Income (loss) before income taxes (benefit) and
equity in net income of subsidiaries and
other affiliates 40 (293) (3,686)
Income taxes (benefit) 90 (109) (1,326)
Equity in net income of subsidiaries
and other affiliates 1,504 2,769 301
Income (loss) before extraordinary loss and
cumulative effect of accounting changes 1,454 2,585 (2,059)
Extraordinary loss related to early extinguishment
of debt - (211) -
Cumulative effect of accounting changes - - (1,873)
Net income (loss) $ 1,454 $ 2,374 $ (3,932)
|See accompanying notes to condensed financial information and notes to
Consolidated Financial Statements incorporated herein by reference.
<PAGE S-4>
SEARS, ROEBUCK AND CO.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF FINANCIAL POSITION
(millions) December 31
1994 1993
Assets
Current assets
Accounts and notes receivable $ 8,004 $ 8,534
Less allowance for uncollectible accounts 352 401
7,652 8,133
Cash and invested cash 463 265
Notes due from affiliates 300 148
Merchandise inventories 3,265 2,697
Deferred income taxes 830 1,112
Prepaid expenses and other assets 202 248
Total current assets 12,712 12,603
Investments in and advances to subsidiaries and other
affiliates (including goodwill of $211 and $215) 17,272 16,299
Property and equipment 6,133 5,719
Less accumulated depreciation 3,132 3,029
3,001 2,690
Deferred income taxes 750 661
Notes due from affiliates 220 215
Other assets 287 338
Total assets $ 34,242 $ 32,806
Liabilities
Current liabilities
Short-term borrowings
Notes due to Sears Roebuck Acceptance Corp. $ 6,843 $ 3,404
Notes due to Sears DC Corp. 1,553 2,194
Notes payable to banks - 10
Current maturities of long-term debt 776 1,455
9,172 7,063
Restructuring reserves 184 647
Accounts payable and other liabilities 4,253 4,435
Unearned revenues 728 661
Total current liabilities 14,337 12,806
Long-term debt (note 4) 6,016 5,267
Postretirement benefits 2,564 2,490
Other liabilities 524 579
Total liabilities 23,441 21,142
Commitments and contingent liabilities (notes 1 and 4)
Shareholders' equity (note 2)
Preferred shares ($1.00 par value) 1,561 1,561
Common shares ($.75 par value) 294 294
Capital in excess of par value 2,385 2,354
Retained income 8,918 8,163
Treasury stock (at cost) (1,690) (1,704)
Deferred ESOP expense (558) (614)
Unrealized net capital gains 32 1,674
Cumulative translation adjustments (141) (64)
Total shareholders' equity 10,801 11,664
Total liabilities and shareholders' equity $ 34,242 $ 32,806
See accompanying notes to condensed financial information and notes to
Consolidated Financial Statements incorporated herein by reference.
<PAGE S-5>
SEARS, ROEBUCK AND CO.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(millions) Year Ended December 31
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,454 $ 2,374 $ (3,932)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation, amortization and other noncash items 456 465 430
Cumulative effect of accounting changes - - 2,209
Restructuring charges - - 2,725
Extraordinary loss related to early extinguishment of debt - 107 -
Provision for uncollectible accounts 245 265 365
Loss (gain) on sales of property and investments (17) (22) 35
Change in deferred taxes 194 344 (1,890)
Decrease (increase) in receivables (2,246) 51 (220)
Decrease (increase) in merchandise inventories (568) 440 375
Decrease in other operating assets 95 53 222
Decrease in other operating liabilities (528) (447) (30)
Net loss (income) of subsidiaries and other affiliates,
net of distributions (1,225) (1,424) 530
Net cash provided by (used in) operating activities (2,140) 2,206 819
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments 1 13 19
Proceeds from sales of property and equipment 17 15 3
Purchases of property and equipment (764) (411) (480)
Decrease in notes receivable from affiliates 23 1,123 844
Net transfers from (to) subsidiaries and other affiliates 73 (399) (1,568)
Net cash provided by (used in) investing activities (650) 341 (1,182)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 1,495 595 1,493
Repayments of long-term debt (1,472) (1,116) (983)
Net change in short-term borrowings, primarily 90 days or less 3,549 (1,804) (1,648)
Repayments from ESOP 69 15 10
Mandatorily exchangeable preferred shares issued - - 1,205
Common shares issued for employee stock plans 45 193 81
Dividends paid to shareholders (698) (727) (779)
Net cash provided by (used in) financing activities 2,988 (2,844) (621)
Net increase (decrease) in cash and invested cash $ 198 $ (297) $ (984)
Cash and invested cash at beginning of year $ 265 $ 562 $ 1,546
Cash and invested cash at end of year $ 463 $ 265 $ 562
See accompanying notes to condensed financial information and notes to
Consolidated Financial Statements incorporated herein by reference.
<PAGE S-6>
SEARS, ROEBUCK AND CO.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
(1) Basis of Presentation
The financial statements of the registrant
should be read in conjunction with the
Consolidated Financial Statements and notes
thereto included in the Sears, Roebuck and
Co. 1994 Annual Report to Shareholders.
The financial statements include only the
accounts of the registrant (a New York
corporation), which include the corporate
operations and certain merchandising and
credit businesses of Sears, Roebuck and Co.
Subsidiaries and other affiliates include
primarily the companies comprising the
Allstate Insurance Group, Homart
Development Co., and financing
subsidiaries. Dean Witter, Discover & Co.
and Coldwell Banker Residential Services
have been included in the results of
operations until their disposition. The
provision for income taxes and profit
sharing expense have been calculated on the
basis described in Notes 1 and 11 of the
Consolidated Financial Statements in the
Sears, Roebuck and Co. 1994 Annual Report
to Shareholders incorporated herein by
reference.
The registrant has established agreements
with certain financing subsidiaries which
ensure a minimum level of earnings at the
subsidiaries in excess of interest and
operating expenses.
Certain reclassifications have been made in
the 1993 and 1992 financial statements of
the registrant to conform to current
accounting classifications.
(2) Dividends to Shareholders
Certain indentures relating to the long-
term debt of Sears, Roebuck and Co., which
represent the most restrictive contractual
limitation on the payment of dividends,
provide that the Company cannot take
specified actions, including the
declaration of cash dividends, which would
cause its consolidated unencumbered assets,
as defined, to fall below 150% of its
consolidated liabilities, as defined. At
December 31, 1994, approximately $8.0
billion could be paid in dividends to
shareholders under the most restrictive
indentures.
(3) Dividends From Subsidiaries
Dividends paid to the registrant by
unconsolidated subsidiaries were $323
million and $1.07 billion and $445 million
for the years ended December 31, 1994, 1993
and 1992, respectively. Dividends paid to
the registrant by 50% or less owned persons
accounted for by the equity method were
immaterial. Unconsolidated subsidiaries
can transfer additional amounts to the
registrant in the form of loans or
advances.
<PAGE S-7>
SEARS, ROEBUCK AND CO.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
(4) Long-term debt is comprised of the following:
(millions) December 31
1994 1993
7% Notes, due 1994 $ - $ 350
12% Notes, due 1994 - 231
8.55% Notes, due 1996 200 200
9% Notes, due 1996 200 200
9-1/4% Notes, due 1997 300 300
8.45% Notes, due 1998 250 250
9-1/4% Notes, due 1998 500 500
8.2% Extendable Notes, due 1999 31 31
9-1/2% Notes, due 1999 200 200
6-1/4% Notes, due 2004 300 -
6% Debentures, $300 million face value,
due 2000 (effective rate 14.8%) 205 194
9.375% Debentures, due 2011 300 300
4.85% to 10.0% Medium-Term Notes, due
1994 to 2021 3,963 3,656
Due to financing subsidiary:
Zero Coupon Note, $500 million face value,
due 1998 (effective rate 13.39%) 302 266
Capitalized lease obligations and notes
payable 41 44
6,792 6,722
Less: Current maturities 776 1,455
Total long-term debt $ 6,016 $ 5,267
As of December 31, 1994, long-term debt maturities for the next
five years are as follows:
1995 $ 776
1996 905
1997 1,298
1998 1,491
1999 569
<PAGE S-8>
SEARS, ROEBUCK AND CO.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
As indicated in Note 12 of the
Consolidated Financial Statements of the
1994 Annual Report to Shareholders the
registrant has guaranteed all of the
borrowings and the related interest
payments of Sears Overseas Finance N.V.
(SOFNV), aggregating $336 million (face
value $500 million) at December 31, 1994.
Under the terms of an agreement dated as
of September 2, 1986, Sears, Roebuck and
Co. agreed to make all payments required
to be made by Sears Roebuck Acceptance
Corp. (SRAC) to SOFNV in accordance with
certain loan agreements between SRAC and
SOFNV. SRAC remains liable to SOFNV
pursuant to such loan agreements.
The registrant has issued a $450 million
demand note payable, due on or before
December 29, 1995, arising from a capital
contribution to Allstate Insurance
Company, which is reflected as a reduction
in Investments in and advances to
subsidiaries and other affiliates. See
note 3 of the Notes to Consolidated
Financial Statements beginning on page 32
of the 1994 Annual Report incorporated
herein by reference to Item 8 hereof.
(5) Supplemental Cash Flow Information
The following is a summary of the
significant noncash investing and
financing activities:
(millions)
December 31
1994 1993 1992
Net decrease in notes due to affiliates
for transfers of retail customer
receivables to unconsolidated subsidiary $(762) $(449) $(516)
Transfer of net retail customer receivables
to/(from) unconsolidated subsidiary 1,720 (576) -
Assumption of debt by The Allstate Corporation
in connection with its initial capitalization - 1,800 -
Dividend to common shareholders through a
tax-free distribution of Dean Witter, Discover
& Co. common shares - 2,288 -
Dividend and return of capital received from
SRAC effected through a reduction in the
notes due to SRAC - 2,030 -
Dividend and return of capital received from
Sears DC Corp. (SDC) effected through a
reduction in the notes due to SDC - 487 -
<PAGE S-9>
SEARS, ROEBUCK AND CO.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
(millions) Balance at Charged to Other Balance
Beginning Costs and Additions Deductions at End
Description of Period Expenses (Describe)(B) (Describe)(B) of Period
Year Ended December 31, 1994
Allowance for uncollectible accounts $ 771 $ 543 (A) $ 166 (C) $ 667 (G) $ 813
Allowance for reinsurance recoverable 110 26 - 10 (H) 126
Allowance for losses on mortgage loans
and real estate 102 66 - 61 (I) 107
Total $ 983 $ 635 $ 166 $ 738 $ 1,046
Year Ended December 31, 1993
Allowance for uncollectible accounts $ 609 $ 536 (A) $ 181 (D) $ 555 (G) $ 771
Allowance for reinsurance recoverable 122 9 - 21 (H) 110
Allowance for losses on mortgage loans
and real estate 154 86 1 (F) 139 (I) 102
Total $ 885 $ 631 $ 182 $ 715 $ 983
Year Ended December 31, 1992
Allowance for uncollectible accounts $ 491 $ 569 (A) $ 96 (E) $ 547 (G) $ 609
Allowance for reinsurance recoverable 101 37 - 16 (H) 122
Allowance for losses on mortgage loans
and real estate 46 157 - 49 (I) 154
Total $ 638 $ 763 $ 96 $ 612 $ 885
<FN>
(A)Excludes provision related to Sears Merchandise Group recourse liability for sold accounts of $155, $285 and $341 million
in 1994, 1993 and 1992, respectively.
(B)Excludes charge-offs and recoveries related to Sears Merchandise Group recourse liability for sold accounts.
(C)Includes: (F) Recoveries of Accounts Charged Off
Recoveries of Accounts Charged Off $ 108
Reclass from Recourse on Accounts Sold 58 (G) Uncollectible Accounts Charged Off
$ 166
(H) Write-offs, net of recoveries, of amounts determined
(D)Includes: to be uncollectible.
Recoveries of Accounts Charged Off $ 91
Reclass from Recourse on Accounts Sold 90 (I) Deductions in allowance for losses on mortgage loans
$ 181 represent amounts written off in connection with
foreclosure and the transfer to real estate.
(E)Includes:
Recoveries of Accounts Charged Off $ 75
Reclass from Recourse on Accounts Sold 21
$ 96
<PAGE S-10>
SEARS, ROEBUCK AND CO.
SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1994
(millions)
Carrying Value
in the
Statement of
Fair Financial
Type of Investment Cost Value Position
Fixed income securities:
Available for sale
Bonds:
United States Government and government
agencies and authorities $ 1,095 $ 1,029 $ 1,029
States, municipalities and political
subdivisions 16,265 16,294 16,294
Foreign governments 415 384 384
Public utilities 665 633 633
Convertible bonds and bonds with
warrants attached 141 136 136
All other corporate bonds 6,030 5,799 5,799
Mortgage-backed securities 5,975 5,613 5,613
Redeemable preferred stocks 147 145 145
Total fixed income securities,
available for sale 30,733 30,033 30,033
Held to maturity
Bonds:
United States Government and government
agencies and authorities 1,062 1,004 1,062
Foreign governments 1 1 1
Public utilities 1,115 1,090 1,115
All other corporate bonds 5,223 5,174 5,223
Mortgage-backed securities 607 600 607
Total fixed income securities,
held to maturity 8,008 7,869 8,008
Equity securities:
Common stocks:
Public utilities 397 427 427
Industrial and miscellaneous 3,277 3,793 3,793
Banks, trusts and insurance companies 295 327 327
Nonredeemable preferred stocks 312 305 305
Total equity securities 4,281 4,852 4,852
Total fixed income and equity securities 43,022 $ 42,754 42,893
Mortgage loans 3,234 3,234
Real estate 815 815
Total investments $ 47,071 $ 46,942
<PAGE S-11>
SEARS, ROEBUCK AND CO.
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(millions)
December 31 Year Ended December 31
Reserves
for Claims, Premium Claims,
Deferred Claims Revenue Claims Other Premiums
Policy Expense and Net Expense Policy Operating Written
Acquisition and Policy Unearned Contract Investment and Policy Acquisition Costs and (Excluding
Segment Costs Benefits Premiums Charges Income Benefits Costs Expenses Life)
1994
Property-Liability
Insurance $ 549 $ 16,933 $ 5,863 $ 16,808 $ 1,573 $ 14,665 $ 2,854 $ 1,112 $ 17,009
Life Insurance 1,525 23,198 45 1,053 1,827 2,031 344 170 170
Other - - - - 1 - - 2 -
Total $ 2,074 $ 40,131 $ 5,908 $ 17,861 $ 3,401 $ 16,696 $ 3,198 $ 1,284 $ 17,179
1993
Property-Liability
Insurance $ 503 $ 15,683 $ 5,696 $ 16,323 $ 1,460 $ 12,922 $ 2,869 $ 1,016 $ 16,615
Life Insurance 1,008 21,753 33 1,079 1,858 2,103 410 168 147
Other - - - - 6 - - - -
Total $ 1,511 $ 37,436 $ 5,729 $ 17,402 $ 3,324 $ 15,025 $ 3,279 $ 1,184 $ 16,762
1992
Property-Liability
Insurance $ 498 $ 15,299 $ 5,451 $ 15,738 $ 1,468 $ 15,205 $ 2,809 $ 996 $ 16,011
Life Insurance 1,031 20,583 24 1,128 1,732 2,154 345 144 144
Total $ 1,529 $ 35,882 $ 5,475 $ 16,866 $ 3,200 $ 17,359 $ 3,154 $ 1,140 $ 16,155
<PAGE S-12>
SEARS, ROEBUCK AND CO.
SCHEDULE IV - REINSURANCE
(millions)
Percent of
Ceded to Assumed Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount to Net
Year Ended December 31, 1994
Life Insurance in Force $ 153,905 $ 11,649 $ 129 $ 142,385 0.1%
Premiums and Contract Charges:
Life Insurance $ 868 $ 34 $ - $ 834 -
Accident-Health Insurance 224 14 9 219 4.1%
Property-Liability Insurance 16,550 609 867 16,808 5.2%
Total Premiums and
Contract Charges $ 17,642 $ 657 $ 876 $ 17,861 4.9%
Year Ended December 31, 1993
Life Insurance in Force $ 138,422 $ 9,559 $ 124 $ 128,987 0.1%
Premiums and Contract Charges:
Life Insurance $ 903 $ 28 $ 1 $ 876 -
Accident-Health Insurance 217 19 5 203 2.6%
Property-Liability Insurance 15,922 430 831 16,323 5.1%
Total Premiums and
Contract Charges $ 17,042 $ 477 $ 837 $ 17,402 4.8%
Year Ended December 31, 1992
Life Insurance in Force $ 124,040 $ 8,028 $ 122 $ 116,134 0.1%
Premiums and Contract Charges:
Life Insurance $ 948 $ 20 $ 1 $ 929 0.1%
Accident-Health Insurance 208 18 9 199 4.7%
Property-Liability Insurance 15,383 480 835 15,738 5.3%
Total Premiums and
Contract Charges $ 16,539 $ 518 $ 845 $ 16,866 5.0%
<PAGE S-13>
SEARS, ROEBUCK AND CO.
SCHEDULE VI - SUPPLEMENTAL INSURANCE INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
(millions)
December 31
1994 1993 1992
Deferred policy acquisition costs $ 549 $ 503 $ 498
Reserves for unpaid claims and claims expense 16,933 15,683 15,299
Unearned premiums 5,863 5,696 5,451
Year Ended December 31
1994 1993 1992
Earned premiums $ 16,808 $ 16,323 $ 15,738
Net investment income 1,573 1,460 1,468
Claims and claims expense incurred
Current year 15,387 13,297 15,296
Prior year (722) (375) (91)
Amortization of deferred policy acquisition costs 1,866 1,829 1,772
Paid claims and claims expense 13,344 12,490 13,767
Premiums written 17,009 16,615 16,011
<PAGE S-14>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Sears, Roebuck and Co.
We have audited the consolidated financial
statements of Sears, Roebuck and Co. as of
December 31, 1994 and 1993, and for each of
the three years in the period ended December 31,
1994, and have issued our report thereon
dated February 24, 1995, which report is
unqualified and includes an explanatory
paragraph as to the changes in the accounting
for certain investments in debt securities in
1993 and postretirement benefits in 1992; such
consolidated financial statements and report
are included in the 1994 Sears, Roebuck and
Co. Annual Report to Shareholders and are
incorporated herein by reference. Our audits
also included the financial statement
schedules of Sears, Roebuck and Co., listed in
the index at item 14(a)2. These financial
statement schedules are the responsibility of
the Company s management. Our responsibility
is to express an opinion based on our audits.
In our opinion, such financial statement
schedules, when considered in relation to the
basic consolidated financial statements taken
as a whole, present fairly in all material
respects the information set forth therein.
We have also previously audited, in accordance
with generally accepted auditing standards,
the Consolidated Statements of Financial
Position of Sears, Roebuck and Co. as of
December 31, 1985 through 1992, and the
related Consolidated Statements of Income and
Shareholders Equity for each of the seven
years in the period ended December 31, 1991
and the Consolidated Statement of Changes in
Financial Position for the year ended December 31,
1985 and the Consolidated Statements of
Cash Flows for each of the six years in the
period ended December 31, 1991 (none of which
are presented herein); and we expressed
unqualified opinions on those consolidated
financial statements. Effective January 1,
1986, the Company changed its accounting for
the cost of pension plans and effective
January 1, 1988 the Company changed its
accounting for income taxes.
Our audits were conducted for the purpose of
forming an opinion on the basic consolidated
financial statements taken as a whole. The
additional information set forth under
Operating results and Financial position
and on the lines captioned Book value per
common share (year end), Average common
shares outstanding (millions), Earnings
(loss) per common share and Cash dividends
per common share under Shareholders common
stock investment for each of the ten years in
the period ended December 31, 1994, appearing
under the caption Ten-Year Summary of
Consolidated Financial Data on pages 64 and
65 of the Sears, Roebuck and Co. 1994 Annual
Report to Shareholders is presented for the
purpose of additional analysis and is not a
required part of the basic consolidated
financial statements. This additional
information is the responsibility of the
Company's management. Such information has
been subjected to the auditing procedures
applied in our audits of the basic
consolidated financial statements and, in our
opinion, is fairly stated in all material
respects when considered in relation to the
basic consolidated financial statements taken
as a whole.
Deloitte & Touche LLP
Chicago, Illinois
February 24, 1995
<PAGE S-15>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference
in Registration Statement Nos. 2-64879,
2-80037, 33-18081, 33-23793, 33-29458, 33-
32008, 33-32568, 33-35021, 33-37427,
33-39724, 33-41485, 33-43459, 33-45479, 33-
49992 and 33-55825 of Sears, Roebuck and Co.,
Registration Statement Nos. 33-57205, 33-52836
and 33-51361 of Sears, Roebuck and Co. and The
Savings and Profit Sharing Fund of Sears
Employees, and Registration Statement No. 33-
44671 of Sears, Roebuck and Co. and Sears DC
Corp., of our reports dated February 24, 1995,
which report on the consolidated financial
statements is unqualified and includes an
explanatory paragraph as to the changes in
accounting for certain investments in debt
securities in 1993 and postretirement benefits
in 1992, appearing in, and incorporated by
reference, in the Annual Report on Form 10-K
of Sears, Roebuck and Co. for the year ended
December 31, 1994.
Deloitte & Touche LLP
Chicago, Illinois
March 22, 1995
Exhibit Index
*3.(i) Restated Certificate of Incorporation, as amended to
July 26, 1993.
*3.(ii) By-Laws as amended to February 7, 1995.
4.(i) Forms of restricted stock grants under Registrant's
1990 Employees Stock Plan. Incorporated by reference to Exhibit 4.(i)
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.**
*4.(ii) Form of restricted stock grants under Registrant's
1994 Employees Stock Plan.
4.(iii) Registrant hereby agrees to furnish to the Commission,
upon request, with the instruments defining the rights of holders of
each issue of long-term debt of the Registrant and its consolidated
subsidiaries.
10.(i)(a) Separation Agreement (including Financial Separation
Agreement) between Registrant and Dean Witter, Discover & Co.
Incorporated by reference to Exhibit 10.3 to Registration Statement No.
33-56104.
10.(i)(b) Separation Agreement dated February 20, 1995 between
Registrant and The Allstate Corporation. Incorporated by reference to
Exhibit 10(a) to The Allstate Corporation's Current Report on Form 8-K
dated February 22, 1995.***
10.(i)(c) Marketing File Separation Agreement dated February 20,
1995 between Registrant and The Allstate Corporation. Incorporated by
reference to Exhibit 10(b) to The Allstate Corporation's Current Report
on Form 8-K dated February 22, 1995.***
10.(i)(d) Research Services Agreement dated February 20, 1995
between Registrant and The Allstate Corporation. Incorporated by
reference to Exhibit 10(c) to The Allstate Corporation's Current Report
on Form 8-K dated February 22, 1995.***
10.(i)(e) Tax Sharing Agreement dated May 14, 1993 between
Registrant and its subsidiaries. Incorporated by reference to Exhibit
10.6 to Amendment No. 3 to The Allstate Corporation's Registration
Statement No. 33-59676.
10.(i)(f) Supplemental Tax Sharing Agreement dated January 27,
1995 between Registrant and The Allstate Corporation. Incorporated by
reference to Exhibit 10(d) to The Allstate Corporation's Current Report
on Form 8-K dated February 22, 1995.***
10.(i)(g) Human Resources Allocation Agreement dated May 27,
1993, among Registrant, The Allstate Corporation and Allstate Insurance
Company. Incorporated by reference to Exhibit 10.14 to The Allstate
Corporation's Registration Statement No. 33-59676.
10.(i)(h) Supplemental Human Resources Allocation Agreement
dated January 27, 1995 between Registrant and The Allstate Corporation.
Incorporated by reference to Exhibit 10(e) to The Allstate Corporation's
Current Report on Form 8-K dated February 22, 1995.***
10.(i)(i) Profit Sharing and Employee Stock Ownership Plan
Allocation Agreement dated January 27, 1995 between Registrant and The
Allstate Corporation. Incorporated by reference to Exhibit 10(f) to The
Allstate Corporation's Current Report on Form 8-K dated February 22,
1995.***
10.(iii)(1) Registrant's 1979 Incentive Compensation Plan.
Incorporated by reference to Exhibit 10.(iii)(1) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1985.** ****
10.(iii)(2) Registrant's 1978 Employes Stock Plan, as amended.
Incorporated by reference to Exhibit 10.(iii)(2) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1989.** ****
10.(iii)(3) Registrant's Deferred Compensation Plan for Directors,
as amended February 8, 1994. Incorporated by reference to Exhibit
10.(iii)(3) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993.** ****
10.(iii)(4) Registrant's Annual Incentive Compensation Plan,
amended as of March 9, 1994. Incorporated by reference to Appendix B to
the Registrant's Proxy Statement dated March 23, 1994.** ****
10.(iii)(5) Registrant's Long-Term Incentive Compensation Plan,
amended as of March 9, 1994. Incorporated by reference to Appendix C to
the Registrant's Proxy Statement dated March 23, 1994.** ****
10.(iii)(6) Registrant's 1982 Employees Stock Plan. Incorporated
by reference to Exhibit 4(a)(1) to Registration Statement No. 2-80037 of
the Registrant.****
10.(iii)(7) Description of Registrant's Supplemental Life
Insurance Plan, amended as of December 31, 1986. Incorporated by
reference to the second and third full paragraphs on page 10 of the
Registrant's Proxy Statement dated March 26, 1987.** ****
10.(iii)(8) Registrant's Non-Employee Directors' Retirement Plan,
as amended and restated to October 7, 1992. Incorporated by reference
to Exhibit 10.(b) to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1992.** ****
10.(iii)(9) Description of Registrant's Non-Employee Director Life
Insurance Plan. Incorporated by reference to the eighth paragraph on
page 4 of the Registrant's Proxy Statement dated March 26, 1986.** ****
10.(iii)(10) Registrant's Supplemental Retirement Income Plan, as
amended and restated on November 9, 1994. Incorporated by reference to
Exhibit 10(e) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended October 1, 1994.** ****
10.(iii)(11) Registrant's 1986 Employees Stock Plan, amended as of
May 12,
1994. Incorporated by reference to Exhibit 10.19 to The Allstate
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.*** ****
10.(iii)(12) Registrant's Transferred Executives Pension
Supplement. Incorporated by reference to Exhibit 10.(iii)(13) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988.** ****
10.(iii)(13) Registrant's Supplemental Long-Term Disability Plan.
Incorporated by reference to Exhibit 10.(iii)(17) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1987.** ****
*10.(iii)(14) Registrant's Deferred Compensation Plan, amended to
December 1, 1994.****
10.(iii)(15) Registrant's Management Supplemental Deferred Profit
Sharing Plan. Incorporated by reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended October
1, 1994.** ****
10.(iii)(16) Registrant's Stock Plan for Non-Employee Directors.
Incorporated by reference to Appendix F of the Registrant's Proxy
Statement dated March 25, 1988.** ****
10.(iii)(17) Registrant's 1990 Employees Stock Plan, amended as of
May 12, 1994. Incorporated by reference to Exhibit 10.20 to The
Allstate Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.*** ****
10.(iii)(18) Amendment to the Registrant's Stock Plan for Non-
Employee Directors, adopted on August 14, 1991. Incorporated by
reference to Exhibit 10.(a) to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1991.** ****
10.(iii)(19) Registrant's 1994 Employees Stock Plan. Incorporated
by reference to Appendix A to the Registrant's Proxy Statement dated
March 23,
1994.** ****
10.(iii)(20) Employment Agreement between Registrant and Arthur C.
Martinez dated August 10, 1992. Incorporated by reference to Exhibit
10.(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1992.** ****
10.(iii)(21) The Allstate Corporation Annual Executive Incentive
Compensation Plan. Incorporated by reference to Appendix A to The
Allstate Corporation's Proxy Statement dated March 31, 1994.*** ****
10.(iii)(22) The Allstate Corporation Long-Term Executive Incentive
Compensation Plan. Incorporated by reference to Appendix B to The
Allstate Corporation's Proxy Statement dated March 31, 1994.*** ****
10.(iii)(23) Allstate Insurance Company Supplemental Retirement
Income Plan. Incorporated by reference to Exhibit 10.8 to The Allstate
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.*** ****
10.(iii)(24) The Allstate Corporation Equity Incentive Compensation
Plan. Incorporated by reference to Appendix C to The Allstate
Corporation's Proxy Statement dated March 31, 1994.*** ****
10.(iii)(25) The Allstate Corporation Stock Plan for Non-Employee
Directors. Incorporated by reference to Exhibit 10.12 to The Allstate
Corporation's Registration Statement No. 33-59676.****
10.(iii)(26) The Allstate Corporation Deferred Compensation Plan
for Directors. Incorporated by reference to Exhibit 10.10 to The
Allstate Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.*** ****
10.(iii)(27) The Allstate Corporation Non-Employee Directors
Retirement Plan. Incorporated by reference to Exhibit 10.11 to The
Allstate Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.*** ****
10.(iii)(28) The Allstate Corporation Deferred Compensation Plan.
Incorporated by reference to Exhibit 10.14(a) to The Allstate
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.*** ****
10.(iii)(29) Retirement agreement dated August 9, 1994, between
Wayne E. Hedien, former chairman and chief executive officer of The
Allstate Corporation, and The Allstate Corporation. Incorporated by
reference to Exhibit 10.22 to The Allstate Corporation's Annual Report
on Form 10-K for the year ended December 31, 1994.*** ****
10.(iii)(30) Letter dated May 12, 1994, relating to alteration of
pension calculation for an executive officer of the Registrant.
Incorporated by reference to Exhibit 10(d) of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended April 2, 1994.** ****
10.(iii)(31) Description of retention policy that provides varying
levels of severance benefits for Executive Officers of the Company
following the Allstate spin-off. Incorporated by reference to the
material under "The Distribution Proposal - Agreements with Executive
Officers" on page 18 of the Registrant's Proxy Statement dated February
21, 1995 relating to a Special Meeting of Shareholders to be held on
March 31, 1995.** ****
*11. Computation of Earnings per Share.
*12.(a) Computation of ratio of income to fixed charges for
Registrant and consolidated subsidiaries.
*12.(b) Computation of ratio of income to combined fixed
charges and preferred share dividends for Registrant and consolidated
subsidiaries.
*13.(ii) Portions of Registrant's 1994 Annual Report
incorporated by reference into Part I or Part II of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
*21. Subsidiaries of the Registrant.
*23. Consent of Deloitte & Touche.
*27. Financial Data Schedules.
28. Information from reports furnished to state insurance
regulatory authorities (Schedule P of the Annual Statements, including
information formerly included in Schedule O). Incorporated by reference
to Exhibit 28 to The Allstate Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.***
99.(a) The Allstate Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994. Incorporated by
reference.***
99.(b) The Allstate Corporation's 1994 Annual Report to
Stockholders. Incorporated by reference to Exhibit 13 to The Allstate
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.***
* Filed herewith
** SEC File No. 1-416
*** SEC File No. 1-11840
**** A management contract or compensatory plan or arrangement required
to be filed as an exhibit to this report pursuant to Item 14(c) of
Form 10-K.