UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JULY 4, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-416
SEARS, ROEBUCK AND CO.
(Exact name of registrant as specified in its charter)
New York 36-1750680
(State of Incorporation) (I.R.S. Employer Identification No.)
3333 Beverly Road, Hoffman Estates, Illinois 60179
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847/286-2500
Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
As of June 30, 1998 the Registrant had 392,358,505 common shares, $.75 par
value, outstanding.
<PAGE>
Sears, Roebuck and Co.
Index to Quarterly Report on Form 10-Q
13 and 26 Weeks Ended July 4, 1998
Page
Part I - Financial Information.
Item 1. Financial Statements.
Condensed Consolidated Statements of Income (Unaudited) -
13 and 26 Weeks Ended July 4, 1998 and June 28, 1997. 1
Condensed Consolidated Balance Sheets -
July 4, 1998 (Unaudited), June 28, 1997 (Unaudited)
and January 3, 1998. 2
Condensed Consolidated Statements of Cash Flows (Unaudited) -
26 Weeks Ended July 4, 1998 and June 28, 1997. 3
Notes to Condensed Consolidated Financial Statements
(Unaudited). 4
Independent Accountants' Review Report. 8
Item 2. Management's Discussion and Analysis of
Results of Operations, Financial Condition and Liquidity. 9
Part II - Other Information.
Item 1. Legal Proceedings. 16
Item 4. Submission of Matters to a Vote of Security-Holders. 17
Item 6. Exhibits and Reports on Form 8-K. 18
<PAGE>
-1-
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
(millions, except per share data) July 4, June 28, July 4, June 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
Merchandise and services $ 9,061 $ 8,547 $ 17,016 $ 16,090
Credit revenues 1,186 1,153 2,394 2,342
Total revenues 10,247 9,700 19,410 18,432
Costs and expenses
Cost of sales, buying and occupancy 6,700 6,278 12,734 11,969
Selling and administrative 2,054 1,997 3,983 3,892
Depreciation and amortization 211 201 419 383
Provision for uncollectible accounts 355 287 749 542
Interest 361 341 737 693
Reaffirmation charge - 475 - 475
Total costs and expenses 9,681 9,579 18,622 17,954
Operating income 566 121 788 478
Other income, net 3 147 9 136
Income before income taxes and
minority interest 569 268 797 614
Income taxes (223) (143) (315) (308)
Minority interest (10) (8) (13) (7)
Net income $ 336 $ 117 $ 469 $ 299
Net income (loss) consists of:
Domestic operations $ 327 $ 113 $ 460 $ 340
International operations 9 4 9 (41)
Net income $ 336 $ 117 $ 469 $ 299
Earnings per share:
Basic $ 0.86 $ 0.30 $ 1.20 $ 0.76
Diluted $ 0.85 $ 0.29 $ 1.19 $ 0.75
Cash dividends declared per share $ 0.23 $ 0.23 $ 0.46 $ 0.46
Average common and common
equivalent shares outstanding 395.4 397.7 394.9 398.1
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
-2-
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
(millions) July 4, June 28, Jan. 3,
1998 1997 1998
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 450 $ 247 $ 358
Retained interest in transferred
credit card receivables 4,302 2,088 3,316
Credit card receivables, net 17,160 19,337 19,843
Other receivables 293 264 335
Merchandise inventories 5,146 4,954 5,044
Prepaid expenses and deferred
charges 521 398 518
Deferred income taxes 759 991 830
Total current assets 28,631 28,279 30,244
Property and equipment, net 6,503 5,889 6,414
Deferred income taxes 649 893 666
Other assets 1,388 955 1,376
Total assets $ 37,171 $ 36,016 $ 38,700
Liabilities
Current liabilities
Short-term borrowings $ 3,588 $ 3,334 $ 5,208
Current portion of long-term
debt and capitalized leases 2,865 2,383 2,561
Accounts payable and other
liabilities 6,107 7,019 6,637
Unearned revenues 844 888 830
Other taxes 412 501 554
Total current liabilities 13,816 14,125 15,790
Long-term debt and capitalized
leases 13,257 12,661 13,071
Postretirement benefits 2,479 2,700 2,564
Minority interest and other
liabilities 1,434 1,392 1,413
Total liabilities 30,986 30,878 32,838
Commitments and Contingent Liabilities (note 5)
Shareholders' Equity
Common shares 323 323 323
Capital in excess of par value 3,586 3,600 3,598
Retained income (note 2) 4,447 3,449 4,158
Treasury stock - at cost (1,655) (1,657) (1,702)
Minimum pension liability (217) (277) (217)
Deferred ESOP expense (192) (220) (204)
Cumulative translation adjustments (107) (80) (94)
Total shareholders' equity 6,185 5,138 5,862
Total liabilities and
shareholders' equity $ 37,171 $ 36,016 $ 38,700
Total common shares outstanding 392.3 391.6 390.9
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
-3-
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
26 Weeks Ended
July 4, June 28,
(millions) 1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 469 $ 299
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and other noncash items 472 421
Provision for uncollectible accounts 749 542
Gain on sales of property and investments (6) (118)
Change in (net of acquisitions):
Deferred income taxes 88 (82)
Retained interest in transferred credit card receivables (986) 172
Credit card receivables 1,884 (743)
Merchandise inventories (108) (371)
Other operating assets 50 (80)
Other operating liabilities (530) (159)
Net cash provided by (used in) operating activities 2,082 (119)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (34) (115)
Net proceeds from sales of businesses -- 379
Proceeds from sales of property and investments 8 9
Purchases of property and equipment (656) (461)
Net cash used in investing activities (682) (188)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,924 1,544
Repayments of long-term debt (1,494) (1,427)
Decrease in short-term borrowings, primarily 90 days
or less (1,615) (40)
Repayments of ESOP note receivable 23 16
Common shares purchased (52) (77)
Common shares issued for employee stock plans 87 57
Dividends paid to shareholders (180) (178)
Net cash used in financing activities (1,307) (105)
Effect of exchange rate on cash and invested cash (1) (1)
Net increase (decrease) in cash and cash equivalents 92 (413)
Balance at beginning of year 358 660
Balance at end of period $ 450 $ 247
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
-4-
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheets as of July 4, 1998 and June 28,
1997 and the related Condensed Consolidated Statements of Income for the
13 and 26 weeks ended July 4, 1998 and June 28, 1997 and the Condensed
Consolidated Statements of Cash Flows for the 26 week periods ended July 4,
1998 and June 28, 1997 are unaudited. The interim financial statements
reflect all adjustments (consisting only of normal recurring accruals)
which are, in the opinion of management, necessary for a fair statement of
the results for the interim periods presented. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Sears, Roebuck and
Co. 1997 Annual Report to Shareholders and Annual Report on Form 10-K. The
results of operations for the interim periods should not be considered
indicative of results to be expected for the full year.
Certain reclassifications have been made in the 1997 financial statements
to conform with current year presentation.
2. Shareholders' Equity and Dividend Restrictions
Under terms of indentures entered into in 1981 and thereafter, Sears cannot
take specified actions, including the declaration of cash dividends, which
would cause its unencumbered assets, as defined, to fall below 150% of its
liabilities, as defined. At July 4, 1998 approximately $4.2 billion could
be paid in dividends to shareholders under the most restrictive indentures.
On February 3, 1998 the Board of Directors extended, for an additional
two years, the common share repurchase program which is used to acquire
shares for distribution in connection with the expected exercise of stock
options, the grant of restricted shares and the exchange of deferred shares
under the Company's stock plans. The program authorizes the Company to
acquire up to 20 million Sears common shares on the open market. Through
July 4, 1998 7.8 million common shares had been acquired under the
repurchase program.
3. Earnings Per Share
The following table sets forth the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
(millions, except per share data) July 4, June 28, July 4, June 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic:
Net income $ 336 $ 117 $ 469 $ 299
Average shares outstanding 391.7 391.5 391.3 391.6
Earnings per share -basic $ 0.86 $ 0.30 $ 1.20 $ 0.76
Diluted:
Net income $ 336 $ 117 $ 469 $ 299
Average shares outstanding 391.7 391.5 391.3 391.6
Dilutive stock options 3.7 6.2 3.6 6.5
Average shares and equivalent
shares outstanding 395.4 397.7 394.9 398.1
Earnings per share -diluted $ 0.85 $ 0.29 $ 1.19 $ 0.75
</TABLE>
<PAGE>
-5-
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Options to purchase 1.9 million shares of stock at prices ranging from $60
to $64 per share were outstanding at July 4, 1998, and options to purchase
1.5 million shares of stock at prices ranging from $50 to $57 per share
were outstanding at June 28, 1997, but not included in the computation of
diluted earnings per share because they would have been antidilutive.
4. Effect of New Accounting Standards and Statements
Effective January 4, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
This statement requires that the Company report the change in its net
assets during the period from nonowner sources. For the 13 and 26 weeks
ended July 4, 1998, components of other comprehensive income (loss)
include foreign currency translation adjustments related to Sears Canada.
For the 26 weeks ended June 28, 1997, components of other comprehensive
income primarily related to the foreign currency translation adjustment
recognized on the sale of Sears Mexico.
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
(millions) July 4, June 28, July 4, June 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $ 336 $ 117 $ 469 $ 299
Other comprehensive income
(loss) (15) -- (13) 84
Total comprehensive income $ 321 $ 117 $ 456 $ 383
</TABLE>
Effective January 4, 1998, the Company adopted AICPA Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 requires certain software development
costs to be capitalized. Generally, once the capitalization criteria of
the SOP have been met, external direct costs of materials and services used
in development of internal-use software, payroll and payroll related costs
for employees directly involved in the development of internal-use software,
and interest costs incurred when developing software for internal use are
to be capitalized. The adoption of this SOP did not have a material effect
on the Company's consolidated financial position, results of operations or
cash flows for the 13 and 26 weeks ended July 4, 1998.
In February 1998 the Financial Accounting Standards Board (FASB) issued
SFAS No. 132, "Employers Disclosures about Pensions and Other Postretirement
Benefits", which is effective for fiscal years beginning after December 15,
1997. The new statement will change disclosure requirements related to
pension and other postretirement benefit obligations. The new statement
will be implemented in 1998 and will not impact the Company's consolidated
financial position, results of operations or cash flows. The effect of the
new statement will be limited to the form and content of disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in
years beginning after June 15, 1999. The Company has not yet determined
the effect this statement will have on the consolidated financial position
or results of operations of the Company.
<PAGE>
-6-
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Legal Proceedings
On June 3, 1997, the Company entered into a settlement of the consolidated
debtor class action lawsuits filed in the United States Bankruptcy and
District Courts for the District of Massachusetts by certain current and
former credit card holders of the Company who had declared personal
bankruptcy (the "Settlement"). These lawsuits alleged that the Company
had violated the United States Bankruptcy Code and consumer protection
laws in various states through activities related to certain debt
reaffirmation agreements. A federal civil and criminal investigation of
these matters is ongoing.
As previously reported, on May 7, 1998, the Supreme Court of the State of
New York, County of New York, approved the settlement of consolidated
shareholders' derivative actions filed on behalf of the Company against its
directors and certain of its officers alleging breach of fiduciary duty for
failing to prevent the improper handling of certain of the Company's debt
reaffirmation agreements. This court-approved settlement was subject to
satisfactory resolution of several consolidated securities class action
lawsuits against the Company and one of its officers in the United States
District Court for the Northern District of Illinois. The class action
lawsuits alleged violations of the Securities Exchange Act of 1934 for
failure to disclose the bankruptcy collection practices described above in
periodic filings with the Securities and Exchange Commission prior to April
10, 1997. On August 10, 1998, the Illinois court entered an order and
final judgement approving the securities class action settlement. The
entry of this final judgement satisfied the condition to the court approved
settlement of the shareholder derivative actions referred to above.
The Company recorded a pretax charge of $475 million ($320 million on an
after-tax basis) in the second quarter of 1997 for the estimated cost of
the matters referred to above, including other related expenses. This
estimate is based on management's assumptions as to the ultimate outcome
of future events and actual results could differ from this estimate. As
such, it is possible that additional costs relating to the civil and
criminal investigation referred to above could be incurred. However,
management believes that its current reserves adequately provide for
the costs relating to the matters referred to above and does not expect
such costs to have a material effect on the annual results of operations,
financial position, liquidity or capital resources of the Company.
On July 2, 1998, a credit cardholder of the Company purporting to represent
a nationwide class filed a complaint in the United States District Court
for the Northern District of Illinois against the Company and Sears
National Bank ("SNB"), an indirect wholly-owned subsidiary of the Company,
alleging breach of contract claims, state statutory consumer fraud and
federal Truth in Lending and National Bank Act violations in connection
with the annual percentage rate ("APR") charged on certain credit card
balances. Related cases have previously been filed in Illinois and
Washington state courts against the Company alleging similar claims. The
central allegation in each of these actions is that the May 1997 increase
of the APR charged on balances that pre-dated the transfer of the
cardholder accounts to SNB was unlawful. Each of these cases seeks
injunctive and declaratory relief, unspecified damages and attorneys'
fees and expenses. The Company intends to vigorously defend these cases.
At this time, the effect of the resolution of these matters cannot
be estimated.
The Company is subject to various other legal and governmental proceedings
pending against the Company, many involving routine litigation incidental
to the businesses. Other matters contain allegations which are nonroutine
and involve compensatory, punitive or antitrust treble damage claims in
very large amounts, as well as other types of relief. The consequences of
these matters are not presently determinable but, in the opinion of
management of the Company after consulting with legal counsel, the ultimate
liability in excess of reserves currently recorded is not expected to have
a material effect on annual results of operations, financial position,
liquidity or capital resources of the Company.
<PAGE>
-7-
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Subsequent Events
On August 16, 1998, the Company entered into an Agreement and Plan of
Merger between Western Auto, a wholly owned subsidiary, and Advance Auto
Parts for $175 million in cash and approximately 40% equity ownership
interest in the resulting combined company. The sale is subject to
antitrust clearance. The Company estimates that the transaction will
result in an after-tax loss ranging from $200 million to $250 million,
which will be recorded during the third quarter of 1998. The sale price
and the loss on the transaction are expected to be finalized in the
fourth quarter of 1998 when the transaction is expected to close. The
sale will not have a material effect on the financial position or liquidity
of the Company.
<PAGE>
-8-
SEARS, ROEBUCK AND CO.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders and Board of Directors
of Sears, Roebuck and Co.
We have reviewed the accompanying Condensed Consolidated Balance Sheets of
Sears, Roebuck and Co. as of July 4, 1998 and June 28, 1997, and the related
Condensed Consolidated Statements of Income for the 13-week and 26-week
periods ended July 4, 1998 and June 28, 1997, and the Condensed Consolidated
Statements of Cash Flows for the 26-week periods ended July 4, 1998 and June
28, 1997. These financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the Consolidated Balance Sheet of Sears, Roebuck and Co. as of
January 3, 1998, and the related Consolidated Statements of Income,
Shareholders' Equity, and Cash Flows for the year then ended (not presented
herein); and in our report dated February 20, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying Condensed Consolidated
Balance Sheet as of January 3, 1998, is fairly stated, in all material
respects, in relation to the Consolidated Balance Sheet from which it has
been derived.
Deloitte & Touche LLP
Chicago, Illinois
August 14, 1998
<PAGE>
-9-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
13 AND 26 WEEKS ENDED JULY 4, 1998 AND JUNE 28, 1997
Operating Results
Domestic operations include the Company's operations in the United States and
Puerto Rico. Domestic operations are comprised of:
Retail - consisting of: Credit - which manages Sears Card
-Full-line stores operations
-Specialty stores (Home stores
and Auto stores)
Corporate - administrative activities
Services - consisting of: of a holding company
-Home Services nature, the cost of which
-Direct Response Marketing not allocated to the
Company's businessess
International operations consist of similar retail, services and credit
operations conducted in Canada through Sears Canada, Inc. ("Sears Canada"),
a 54.8% owned consolidated subsidiary. International operations were also
conducted through Sears, Roebuck de Mexico, S.A. de C.V. ("Sears Mexico"),
a previously 75.5% owned subsidiary until March 29, 1997. At that time,
the Company sold 60% of the outstanding shares of Sears Mexico to Grupo Carso
S.A. de C.V. Thereafter, Sears Mexico's results are no longer included in
the Company's consolidated operations.
For the 13 weeks ended July 4, 1998, net income was $336 million, or $0.85
per share, as compared to $117 million, or $0.29 per share for the 13 weeks
ended June 28, 1997. The second quarter of 1998 includes the positive impact
of $18 million, or $0.05 per share, due to SFAS No. 125 accounting.
Significant non-comparable items in the second quarter of 1997 included the
reaffirmation charge, the gain on the sale of Advantis and the positive
impact of SFAS No. 125 accounting, which in aggregate reduced net income by
$194 million, or $0.49 per share. Excluding these items, second quarter net
income was $318 million, or $0.80 per share, a 2.3% increase over net income
of $311 million, or $0.78 per share for the comparable 1997 period. The
increase in net income, after consideration of non-comparable items, was
primarily due to the improvement in operating results from domestic retail
and services businesses, which was partially offset by a decline in credit
results. For the 26 week period ended July 4, 1998, net income was $469
million or $1.19 per share compared to $299 million or $0.75 per share in
1997. The increase in reported net income was due primarily to the negative
impact of non-comparable items in 1997, as previously mentioned. Excluding
non-comparable items, net income would have been $431 million or $1.09 per
share as compared to $490 million or $1.23 per share in the comparable 1997
period.
The Company's consolidated effective tax rate in the second quarter of 1998
was 39.0% as compared to 53.9% in the prior year period. The prior year tax
rate was impacted by certain components of the reaffirmation charge which
were not tax deductible. Excluding the impact of the reaffirmation charge,
the Company's consolidated effective tax rate would have been 40.1% in the
second quarter of 1997. For the six-months ended July 4, 1998 the
consolidated effective tax rate was 39.3% versus 50.1% in the first half of
1997. The prior year tax rate was impacted by the reaffirmation charge and
the tax expense from the first quarter sale of Sears Mexico. Excluding
these significant items, the consolidated effective tax rate would have
been 40.2% for the first half of 1997.
<PAGE>
-10-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
13 AND 26 WEEKS ENDED JULY 4, 1998 AND JUNE 28, 1997
Due to holiday buying patterns, merchandise sales are traditionally higher
in the fourth quarter than other quarterly periods and a disproportionate
share of operating income is typically earned in the fourth quarter. This
business seasonality results in performance for the 13 and 26 weeks ended
July 4, 1998 which is not necessarily indicative of performance for the
balance of the year. The company makes available by phone a recorded message
on the sales performance of its domestic stores. The message is updated
weekly and can be heard by calling 847/286-6111.
Domestic Operations
Merchandise and services revenues increased 6.1% to $8.30 billion and 6.2%
to $15.60 billion for the 13 and 26 weeks ended July 4, 1998, respectively,
from the comparable 1997 periods. Merchandise and services revenues and
related information are as follows:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
July 4, June 28, July 4, June 28,
1998 1997 Change 1998 1997 Change
(millions, except number
of stores)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Full-line stores $ 5,561 $ 5,229 6.3% $ 10,497 $ 9,815 6.9%
Specialty stores 1,956 1,821 7.4% 3,624 3,456 4.9%
Total retail 7,517 7,050 6.6% 14,121 13,271 6.4%
Services 786 773 1.8% 1,479 1,413 4.6%
Merchandise and services $ 8,303 $ 7,823 6.1% $ 15,600 $ 14,684 6.2%
Number of Full-line stores 835 824
Number of Specialty stores 2,758 2,607
Total retail stores 3,593 3,431
Comparable store sales
percentage increase 2.9% 2.3% 3.8% 2.5%
</TABLE>
For the 13 week period, Full-line stores revenues increased 6.3% over the
comparable 1997 period.
Apparel revenues gained 4.3% during the second quarter after a 5.1% gain
in 1997. Women's sportswear and special sizes, as well as girl's apparel,
and cosmetics and fragrances posted strong sales increases, while boy's
apparel, home fashions and fine jewelry had solid revenue gains. Men's
apparel sales were slightly higher than the second quarter last year.
Hardlines revenues, comprised of home electronics, home appliances, and
home improvement merchandise sales, increased 7.1% in the second quarter
with gains in home appliances and home improvement. Home electronics sales
were below the prior year due to slow sales of home office equipment.
For the 26 week period, Full-line stores revenues increased 6.9% over 1997 as
apparel achieved a 4.8% increase and hardlines gained 7.1%.
<PAGE>
-11-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
13 AND 26 WEEKS ENDED JULY 4, 1998 AND JUNE 28, 1997
For the 13 week period, Specialty stores revenues increased 7.4% over the
comparable 1997 period.
Home stores revenues increased 20.3% over 1997 due to the addition of new
stores and strong comparable store sales increases. Hardware and Sears
Dealer stores had strong revenue increases from a year ago benefiting from
118 net new store openings. HomeLife furniture stores revenues showed a
moderate increase despite having four fewer stores than a year ago.
Auto stores, consisting of the Sears Tire Group and Parts Group, experienced
a 4.3% decline in revenue from 1997 as the Sears Tire Group experienced weak
comparable store sales and the Parts Group revenue decreased primarily as a
result of a change in store format. The new Parts America format sells
automotive merchandise and no longer provides repair services.
Specialty stores revenues increased 4.9% for the 26 week period as compared
to 1997, largely due to the new store growth and increases in comparable
store sales in Hardware, HomeLife and Sears Dealer store formats.
Services revenues, which are generated by the Home Services and Direct
Response Marketing businesses, were up 1.8% in the second quarter of 1998
and 4.6% for the first six months of 1998 versus the comparable 1997 periods.
For both the second quarter and six months ended July 4, 1998, revenue
increases were solid in the product services and installation businesses,
while the home improvement business had declining revenues.
Domestic credit revenues increased 3.0% to $1.12 billion and 2.9% to $2.26
billion for the 13 and 26 weeks ended July 4, 1998, respectively, from the
comparable prior year periods. A summary of credit information (for the
managed portfolio) is as follows:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
(millions) July 4, June 28, July 4, June 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sears Card as a % of sales 52.3% 55.5% 52.7% 55.5%
Average account balance (dollars)
(as of July 4, 1998 and June 28,
1997) $ 1,086 $ 1,033 $ 1,086 $ 1,033
Average managed credit card
receivables (millions) $ 27,808 $ 26,634 $ 28,151 $ 26,747
</TABLE>
The percentage of merchandise sales and services transacted with the Sears
Card in the second quarter of 1998 declined to 52.3% compared to 55.5% a year
ago primarily due to greater preference for the use of cash, checks and third
party credit cards.
Gross margin as a percentage of domestic merchandise and services revenues
for the second quarter was 26.1% versus 26.5% in the comparable prior year
period. Improved services gross margin was more than offset by the decline
in retail gross margin which was caused primarily by increased promotional
activity. For the 26 week period, 1998 domestic gross margin declined 40
basis points to 25.2%.
<PAGE>
-12-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
13 AND 26 WEEKS ENDED JULY 4, 1998 AND JUNE 28, 1997
Selling and administrative expense as a percentage of total revenues for
domestic operations improved to 20.0% in the second quarter of 1998 from
20.4% in the comparable prior year period. The improvement was primarily due
to the leveraging of employee-related costs and business overhead costs,
partially offset by additional investments in marketing. For the 26 week
period, the selling and administrative expense rate for domestic operations
improved 50 basis points to 20.4%.
The domestic provision for uncollectible accounts and related information is
as follows:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
(millions) July 4, June 28, July 4, June 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Provision for uncollectible accounts $ 348 $ 280 $ 735 $ 522
Net credit charge-offs as a percentage
of average managed credit card
receivables 7.37% 5.69% 7.74% 5.32%
Allowance for uncollectible credit
card receivables $ 1,101 $ 793 $ 1,101 $ 793
Delinquency rates for managed
portfolio (as of July 4, 1998 and
June 28, 1997) 6.54% 5.88% 6.54% 5.88%
</TABLE>
The provision for uncollectible accounts increased 24.7% to $348 million and
40.9% to $735 million for the 13 and 26 weeks ended July 4, 1998,
respectively, from the same periods last year. The increase was primarily
attributable to the higher delinquency and charge-off rates of the credit
card portfolio.
Domestic operations depreciation and amortization expense was $196 million
in the second quarter and $388 million for the first six months of 1998, an
increase of $9 million and $36 million, respectively, from the comparable
1997 periods. The increase reflects the continuation of the Full-line stores
remodeling program and the growth in the number of Specialty stores in
operation.
Interest expense, as presented on the statements of income, is combined with
the funding costs on receivables sold through securitizations to represent
total funding costs as follows:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
(millions) July 4, June 28, July 4, June 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest expense $ 334 $ 315 $ 683 $ 626
Funding cost on securitized
receivables (1) 107 105 213 213
Total funding costs $ 441 $ 420 $ 896 $ 839
<FN>
(1) Funding cost on securitized receivables represents the interest paid on securitized
receivables.
</FN>
</TABLE>
<PAGE>
-13-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
13 AND 26 WEEKS ENDED JULY 4, 1998 AND JUNE 28, 1997
Total domestic funding costs increased in the second quarter of 1998 when
compared to the second quarter of 1997 and increased for the first six months
of 1998 compared to the first six months of 1997. Funding costs increased due
to the additional level of debt needed to support a larger managed credit card
receivables portfolio, but was partially offset by lower effective funding
rates.
Operating income in the second quarter of 1998 was $529 million compared to
$92 million in the comparable 1997 period. On a reported basis, the increase
is due to the $475 million reaffirmation charge recorded in the second
quarter of 1997. Excluding non-comparable items, operating income was $500
million, a 1.8% decrease from operating income of $509 million in the second
quarter of 1997. The decrease is primarily due to the decline in credit
results, partially offset by improved retail and services results.
Operating income by business format is as follows:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
(millions) July 4, June 28, July 4, June 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Retail $ 199 $ 175 $ 139 $ 146
Services 97 89 177 156
Credit 286 (120) 538 262
Corporate (53) (52) (113) (110)
Total domestic operating
income $ 529 $ 92 $ 741 $ 454
</TABLE>
International Operations
International operations in 1998 include only the Company's 54.8% interest
in Sears Canada. In the first quarter of 1997, the Company sold 60% of the
outstanding shares of Sears Mexico to Grupo Carso S.A. de C.V. The
transaction reduced the Company's ownership in Sears Mexico to 15.5 percent.
International revenues for the second quarter of 1998 increased 4.2% from
the same period a year ago due to the solid retail and catalog sales
performance at Sears Canada. For the first six months of 1998, International
revenues were $1.5 billion, which is even with prior year. The prior year
includes revenues of $100 million generated by Sears Mexico before its sale
in the first quarter of 1997. The overall increase in Sears Canada revenue
in the first six months of 1998 offset the loss of revenue from the sale of
Sears Mexico.
Gross margins as a percentage of merchandise and services revenues decreased
to 25.9% in the second quarter from 26.8% in 1997, reflecting higher retail
promotional markdowns compared to the prior year. For the first six months
of 1998, gross margin rate declined 40 basis points to 24.8%.
Selling and administrative expense as a percentage of total revenues decreased
to 21.1% in 1998 from 23.0% in the second quarter of 1997. The improvement
was primarily due to leveraging employee-related costs and marketing expense.
For the first six months of 1998, the selling and administrative expense rate
improved 140 basis points to 21.7%.
<PAGE>
-14-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
13 AND 26 WEEKS ENDED JULY 4, 1998 AND JUNE 28, 1997
Financial Condition
The consolidated owned net credit card receivables balances of $17.16 billion,
$19.34 billion and $19.84 billion as of July 4, 1998, June 28, 1997 and
January 3, 1998, respectively, exclude credit card receivables transferred to
a securitization Master Trust as follows:
<TABLE>
<CAPTION>
July 4, June 28, January 3,
(millions) 1998 1997 1998
<S> <C> <C> <C>
Domestic:
Managed credit card receivables $ 27,725 $ 26,834 $ 28,945
Securitized balances sold (6,667) (6,123) (6,404)
Retained interest in transferred
credit card receivables (4,302) (2,088) (3,316)
Other customer receivables 202 174 161
Domestic owned credit card receivables 16,958 18,797 19,386
International credit card receivables 1,339 1,365 1,570
Consolidated credit card receivables $ 18,297 $ 20,162 $ 20,956
Less: Allowance for uncollectible
accounts 1,137 825 1,113
Credit card receivables, net $ 17,160 $ 19,337 $ 19,843
</TABLE>
Consolidated credit card receivables (before allowance for uncollectible
accounts) decreased $1.87 billion when comparing the second quarter of 1998
with the second quarter of 1997. The decrease is primarily due to accounts
being transferred to the securitization Master Trust to be used in future
securitizations. Managed credit card receivables increased over second
quarter 1997 primarily due to growth in existing account balances. Compared
to 1997 year-end, consolidated credit card receivables (before allowance for
uncollectible accounts) decreased $2.66 billion due to the normal seasonal
nature of the retail industry as well as the aforementioned transfer of
receivables to the securitization Master Trust.
As of July 4, 1998, consolidated merchandise inventories on the first-in,
first-out (FIFO) basis were $5.88 billion, compared with $5.71 billion at
June 28, 1997 and $5.76 billion at January 3, 1998. The increase in the
inventory levels reflects the additional inventory to support higher sales
volume and the addition of new Full-line and Specialty stores. Domestic
inventories per selling square foot declined slightly from prior year levels.
Total property and equipment, net of accumulated depreciation, was $6.50
billion at July 4, 1998 compared with $5.89 billion a year earlier. The
increase is primarily due to the net addition of 11 Full-line stores and 151
Specialty stores.
<PAGE>
-15-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
13 AND 26 WEEKS ENDED JULY 4, 1998 AND JUNE 28, 1997
Total funding for the Company at July 4, 1998 was $26.38 billion compared with
$24.50 billion a year earlier. The increase in funding was used primarily to
fund growth in the managed credit card receivables portfolio and to provide
cash for the capital spending program. Total funding includes debt recorded
on the balance sheet and investor certificates related to credit card
receivables sold through securitizations as follows:
<TABLE>
<CAPTION>
(millions) July 4, June 28, January 3,
1998 1997 1998
<S> <C> <C> <C>
Short-term borrowings $ 3,588 $ 3,334 $ 5,208
Long-term debt and capitalized
lease obligations 16,122 15,044 15,632
Securitized balances sold 6,667 6,123 6,404
Total funding $ 26,377 $ 24,501 $ 27,244
</TABLE>
During the 26 weeks ended July 4, 1998, the Company has utilized more
long-term debt and less short-term borrowings in its funding mix due to
favorable long-term funding rates. The Company accesses a variety of capital
markets to preserve flexibility and diversify its funding sources. The
primary funding sources utilized include medium term notes, securitization,
senior unsecured debt and unsecured commercial paper.
Liquidity
Based upon the cash flow expected to be generated from future operations and
the Company's ability to cost-effectively access multiple sources of funding,
the Company believes sufficient resources will be available to maintain its
planned level of operations, capital expenditures and dividends in the future.
<PAGE>
-16-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 3, 1997, the Company entered into a settlement of the consolidated
debtor class action lawsuits filed in the United States Bankruptcy and
District Courts for the District of Massachusetts by certain current and
former credit card holders of the Company who had declared personal
bankruptcy (the "Settlement"). These lawsuits alleged that the Company
had violated the United States Bankruptcy Code and consumer protection
laws in various states through activities related to certain debt
reaffirmation agreements. A federal civil and criminal investigation of
these matters is ongoing.
As previously reported, on May 7, 1998, the Supreme Court of the State of
New York, County of New York, approved the settlement of consolidated
shareholders' derivative actions filed on behalf of the Company against its
directors and certain of its officers alleging breach of fiduciary duty for
failing to prevent the improper handling of certain of the Company's debt
reaffirmation agreements. This court-approved settlement was subject to
satisfactory resolution of several consolidated securities class action
lawsuits against the Company and one of its officers in the United States
District Court for the Northern District of Illinois. The class action
lawsuits alleged violations of the Securities Exchange Act of 1934 for
failure to disclose the bankruptcy collection practices described above in
periodic filings with the Securities and Exchange Commission prior to April
10, 1997. On August 10, 1998, the Illinois court entered an order and
final judgement approving the securities class action settlement. The
entry of this final judgement satisfied the condition to the court approved
settlement of the shareholder derivative actions referred to above.
The Company recorded a pretax charge of $475 million ($320 million on an
after-tax basis) in the second quarter of 1997 for the estimated cost of
the matters referred to above, including other related expenses. This
estimate is based on management's assumptions as to the ultimate outcome
of future events and actual results could differ from this estimate. As
such, it is possible that additional costs relating to the civil and
criminal investigation referred to above could be incurred. However,
management believes that its current reserves adequately provide for
the costs relating to the matters referred to above and does not expect
such costs to have a material effect on the annual results of operations,
financial position, liquidity or capital resources of the Company.
On July 2, 1998, a credit cardholder of the Company purporting to represent
a nationwide class filed a complaint in the United States District Court
for the Northern District of Illinois against the Company and Sears
National Bank ("SNB"), an indirect wholly-owned subsidiary of the Company,
alleging breach of contract claims, state statutory consumer fraud and
federal Truth in Lending and National Bank Act violations in connection
with the annual percentage rate ("APR") charged on certain credit card
balances. Related cases have previously been filed in Illinois and
Washington state courts against the Company alleging similar claims. The
central allegation in each of these actions is that the May 1997 increase
of the APR charged on balances that pre-dated the transfer of the
cardholder accounts to SNB was unlawful. Each of these cases seeks
injunctive and declaratory relief, unspecified damages and attorneys'
fees and expenses. The Company intends to vigorously defend these cases.
At this time, the effect of the resolution of these matters cannot
be estimated.
The Company is subject to various other legal and governmental proceedings
pending against the Company, many involving routine litigation incidental
to the businesses. Other matters contain allegations which are nonroutine
and involve compensatory, punitive or antitrust treble damage claims in
very large amounts, as well as other types of relief. The consequences of
these matters are not presently determinable but, in the opinion of
management of the Company after consulting with legal counsel, the ultimate
liability in excess of reserves currently recorded is not expected to have
a material effect on annual results of operations, financial position,
liquidity or capital resources of the Company.
<PAGE>
-17-
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
On May 14, 1998, the Company held its annual meeting of shareholders at
The Art Institute of Chicago in Chicago, Illinois.
1) Warren L. Batts, Arthur C. Martinez, Hugh B. Price and Clarence B.
Rogers, Jr. were elected to Class A of the Board of Directors for three
year terms expiring at the 2001 annual meeting of shareholders. Brenda
C. Barnes was elected to Class B of the Board of Directors for a term
expiring at the 1999 annual meeting of shareholders. The shareholders
approved the recommendation of the Audit Committee that Deloitte &
Touche LLP be appointed auditors for 1998. A shareholder proposal to
declassify the Company's Board of Directors was voted on and defeated.
The vote on these matters was as follows:
Directors
Name For Withheld
Warren L. Batts 338,250,861 4,704,427
Arthur C. Martinez 338,250,861 5,283,549
Hugh B. Price 338,250,861 4,888,533
Clarence B. Rogers, Jr. 338,250,861 4,629,748
Brenda C. Barnes 338,250,861 4,476,405
2) Approval of appointment of Deloitte & Touche LLP as auditors for 1998.
For Against Abstain
340,152,176 1,251,751 869,996
Shareholder Proposals
3) Declassifying the Board of Directors.
For Against Abstain Broker Non-Votes
144,953,258 153,886,891 5,338,009 38,095,765
<PAGE>
-18-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
An Exhibit Index has been filed as part of this Report on
Page E-1.
(b) Reports on Form 8-K.
None.
<PAGE>
-19-
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Sears, Roebuck and Co.
(Registrant)
August 17, 1998 By /s/ Jeffrey N. Boyer
Jeffrey N. Boyer
Vice President and Controller
(Principal Accounting Officer
and duly authorized Officer
of Registrant)
<PAGE>
E-1
EXHIBIT INDEX
SEARS, ROEBUCK AND CO.
13 AND 26 WEEKS ENDED JULY 4, 1998
Exhibit No.
3(a). Restated Certificate of Incorporation as in effect on May 13, 1996
(incorporated by reference to Exhibit 3(a) to Registrant's
Statement No. 333-8141).
3(b). By-laws, as amended to February 3, 1998 (incorporated by reference
to Exhibit 3.(ii) to the Registrant's Annual Report on Form 10-K
for the year ended January 3, 1998).
4. Registrant hereby agrees to furnish the Commission, upon request,
with the instruments defining the rights of holders of each issue
of long-term debt of the Registrant and its consolidated
subsidiaries.
12(a). Computation of ratio of income to fixed charges for Sears, Roebuck
and Co. and consolidated subsidiaries for each of the five years
ended January 3, 1998 and for the six- and twelve-month periods
ended July 4, 1998.
12(b). Computation of ratio of income to combined fixed charges and
preferred share dividends for Sears, Roebuck and Co. and
consolidated subsidiaries for each of the four years: 1996, 1995,
1994, and 1993.
15. Acknowledgment of awareness from Deloitte & Touche LLP, dated
August 14, 1998, concerning unaudited interim financial
information.
27. Financial Data Schedule.
<PAGE>
<TABLE>
EXHIBIT 12(a)
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Twelve Six
Months Months
Ended Ended
July 4, July 4, Year Ended
1998 1998
(millions, except ratios) (unaudited) (unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest and amortization of debt discount/
premium and expense on all indebtedness $1,453 $ 737 $1,409 $1,365 $1,373 $1,279 $1,318
Add interest element implicit in rentals 152 79 147 121 119 114 105
1,605 816 1,556 1,486 1,492 1,393 1,423
Interest capitalized 4 2 3 5 4 1 3
Total fixed charges $1,609 $ 818 $1,559 $1,491 $1,496 $1,394 $1,426
Income
Income from continuing operations $1,358 $ 469 $1,188 $1,271 $1,025 $ 857 $ 625
Deduct undistributed net income (loss)
of unconsolidated companies 13 3 13 8 9 (7) 6
1,345 466 1,175 1,263 1,016 864 619
Add
Fixed charges (excluding interest capitalized) 1,605 816 1,556 1,486 1,492 1,393 1,423
Income taxes 919 315 912 834 703 614 329
Income before fixed charges and
income taxes $3,869 $1,597 $3,643 $3,583 $3,211 $2,871 $2,371
Ratio of income to fixed charges 2.40 1.95 2.34 2.40 2.15 2.06 1.66
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12(b)
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Year Ended
(millions, except ratios) 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Fixed Charges
Interest and amortization of debt discount
and expense on all indebtedness $1,365 $1,373 $1,279 $1,318
Add interest element implicit in rentals 121 119 114 105
1,486 1,492 1,393 1,423
Preferred dividend factor 41 89 234 209
Interest capitalized 5 4 1 3
Total fixed charges $1,532 $1,585 $1,628 $1,635
Income (loss)
Income (loss) from continuing operations $1,271 $1,025 $ 857 $ 625
Deduct undistributed net income (loss)
of unconsolidated companies 8 9 (7) 6
1,263 1,016 864 619
Add
Fixed charges (excluding interest capitalized
and preferred dividend factor) 1,486 1,492 1,393 1,423
Income taxes (benefit) 834 703 614 329
Income (loss) before fixed charges and
income taxes $3,583 $3,211 $2,871 $2,371
Ratio of income to combined fixed charges
and preferred share dividends 2.34 2.03 1.76 1.45
<FN>
In 1996, all the outstanding 8.88% Preferred Shares, First Series were redeemed and thereafter the Company made no
other preferred share dividend payments.
</FN>
</TABLE>
<PAGE>
EXHIBIT 15
To the Shareholders and Board of Directors
of Sears, Roebuck and Co.
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited
interim financial information of Sears, Roebuck and Co. for the 13- week
periods ended July 4, 1998 and June 28, 1997, as indicated in our report
dated August 14, 1998; because we did not perform an audit, we expressed
no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the 13-week period ended July 4, 1998, is
incorporated by reference in Registration Statement Nos. 2-64879, 2-80037,
33-18081, 33-23793, 33-41485, 33-43459, 33-45479, 33-55825, 33-58851,
33-64345, 333-8141 and 333-38131 of Sears, Roebuck and Co.; Registration
Statement Nos. 33-58139, 333-9817, 33-64215 and 333-30879 of Sears, Roebuck
and Co. and Sears Roebuck Acceptance Corp.; Registration Statement Nos.
33-64775, 333-18591, and 333-43309 of Sears, Roebuck and Co. and Sears,
Roebuck and Co. Deferred Compensation Plan; Registration Statement Nos.
33-57205, 333-11973 and 333-53149, of Sears, Roebuck and Co. and the Sears
401(k) Profit Sharing Plan (formerly, The Savings and Profit Sharing Fund
of Sears Employees); and Registration Statement No. 33-44671 of Sears,
Roebuck and Co. and Sears DC Corp.
We are also aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that
Act.
Deloitte & Touche LLP
Chicago, Illinois
August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 450
<SECURITIES> 4,302<F1>
<RECEIVABLES> 18,297
<ALLOWANCES> 1,137
<INVENTORY> 5,146
<CURRENT-ASSETS> 28,631
<PP&E> 11,721
<DEPRECIATION> 5,218
<TOTAL-ASSETS> 37,171
<CURRENT-LIABILITIES> 13,816
<BONDS> 13,257
0
0
<COMMON> 323
<OTHER-SE> 5,862
<TOTAL-LIABILITY-AND-EQUITY> 37,171
<SALES> 17,016
<TOTAL-REVENUES> 19,410
<CGS> 12,734
<TOTAL-COSTS> 12,734
<OTHER-EXPENSES> 4,402<F2>
<LOSS-PROVISION> 749
<INTEREST-EXPENSE> 737
<INCOME-PRETAX> 797
<INCOME-TAX> 315
<INCOME-CONTINUING> 469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 469
<EPS-PRIMARY> 1.20<F3>
<EPS-DILUTED> 1.19
<FN>
<F1>Represents retained interest in transferred credit card receivables
<F2>Represents the sum of selling and administrative expense and depreciation
and amortization expense
<F3>Represents basic earnings per share
</FN>
</TABLE>
