Sears, Roebuck and Co. (NYSE: S) has reached a civil settlement agreement with the U.S. Attorney for the Southern District of Illinois that concludes an investigation of advertising of certain Sears automotive batteries in 1994 and 1995.
"The investigation related to this matter has gone on for more than two years," said Sears Chairman and Chief Executive Officer Alan J. Lacy. "Faced with the continuing expense and distraction of protracted litigation, we have decided that settling it now is in the best interests of all of our constituents."
In 1994, Sears selected new vendors to supply its DieHard line of automotive batteries. Exide Technologies, the world's largest manufacturer of lead acid batteries, was chosen to produce the DieHard Silver and DieHard WeatherHandler automotive batteries. In September 1994, Exide began supplying the new batteries to Sears. In October 1994, Exide informed Sears that a small percentage of the DieHard Silver and DieHard WeatherHandler batteries had latent formation defects that might cause some of the batteries to fail to meet certain advertised specifications. Exide assured Sears that the problems had been corrected. Sears also received test data provided by Exide that indicated the batteries met specifications, and Sears continued its advertising program. The advertising program principally featured the DieHard Gold battery, which was not manufactured by Exide.
Sears later learned that test data provided by Exide was false. In March 2001, Exide pled guilty to conspiracy to commit fraud in connection with batteries it manufactured and sold to Sears under the 1994 contract.
Sears and Exide ended their relationship in 1999, and Sears selected Johnson Controls, Inc. (JCI) to produce the DieHard Silver and DieHard WeatherHandler batteries, a relationship that continues today. JCI has manufactured Sears DieHard Gold automotive batteries since 1997. Sears DieHard automotive batteries today are widely regarded as among the best in the industry.
"Customers who experience a problem with any Sears battery will benefit from our guarantee of satisfaction, and that was just as true during the period covered by this settlement agreement as it is now," Lacy said. Sears battery warranties traditionally have been among the most generous in the industry.
Under terms of the settlement agreement, Sears will pay the government approximately $63 million. The cost of the settlement will result in a one- time, special charge to earnings of $0.12 per share in the fourth quarter of 2001.
Sears, Roebuck and Co. is a leading retailer of apparel, home and automotive products and services, with annual revenue of more than $40 billion. The company serves families in the U.S. through Sears stores nationwide, including approximately 860 full-line stores. Sears also offers a wide variety of merchandise and services through its Web site, http://www.sears.com/ .
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SOURCE: Sears, Roebuck and Co.
Contact: Media, Janice R. Drummond of Sears, Roebuck and Co.,