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 APRIL 3, 1999
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)
Registrants 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 March 31, 1999, the Registrant had 380,943,314 common shares, $.75 par
value, outstanding.
SEARS, ROEBUCK AND CO.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
13 WEEKS ENDED APRIL 3, 1999
Page
PART I - FINANCIAL INFORMATION.
Item 1. Financial Statements.
Condensed Consolidated Statements of Income (Unaudited)-
13 Weeks Ended April 3, 1999 and April 4, 1998. 1
Condensed Consolidated Balance Sheets
April 3, 1999 (Unaudited), April 4, 1998 (Unaudited)-
and January 2, 1999. 2
Condensed Consolidated Statements of Cash Flows (Unaudited)-
13 Weeks Ended April 3, 1999 and April 4, 1998. 3
Notes to Condensed Consolidated Financial Statements (Unaudited). 4
Independent Accountants' Review Report. 9
Item 2. Management's Discussion and Analysis of Operations,
Financial Condition and Liquidity. 10
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings. 20
Item 6. Exhibits and Reports on Form 8-K. 20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(millions, except per share data) 13 Weeks Ended
Revenues April 3,1999 April 4,1998
Merchandise sales and services $ 7,909 $ 8,025
Credit revenues 1,128 1,208
Total revenues 9,037 9,233
Costs and expenses
Cost of sales, buying and occupancy 6,035 6,084
Selling and administrative 1,923 1,949
Depreciation and amortization 209 208
Provision for uncollectible accounts 291 394
Interest 334 376
Total costs and expenses 8,792 9,011
Operating income 245 222
Other income, net (2) 6
Income before income taxes and minority interest 243 228
Income taxes (92) (92)
Minority interest (5) (3)
Net income $ 146 $ 133
Earnings per share
Basic $ 0.38 $ 0.34
Diluted $ 0.38 $ 0.34
Cash dividends declared per share $ 0.23 $ 0.23
Average common and common equivalent
shares outstanding 385.1 394.5
See accompanying notes.
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(millions) April 3, April 4, January 2,
1999 1998 1999
Assets
Current assets
Cash and cash equivalents $ 371 $ 344 $ 495
Retained interest in transferred
credit card receivables 3,633 3,113 4,294
Credit card receivables, net 16,843 18,962 17,972
Other receivables 357 403 397
Merchandise inventories 5,177 5,465 4,816
Prepaid expenses, deferred
charges and other assets 642 568 506
Deferred income taxes 746 773 791
Total current assets 27,769 29,628 29,271
Property and equipment, net 6,266 6,391 6,380
Deferred income taxes 562 659 572
Other assets 1,493 1,376 1,452
Total assets $36,090 $38,054 $37,675
Liabilities
Current liabilities
Short-term borrowings $ 4,502 $ 4,095 $ 4,624
Current portion of long-term
debt and capitalized leases 936 2,723 1,414
Accounts payable and other
liabilities 6,078 6,009 6,732
Unearned revenues 803 828 815
Other taxes 397 393 524
Total current liabilities 12,716 14,048 14,109
Long-term debt and capitalized
leases 13,457 14,161 13,631
Postretirement benefits 2,302 2,516 2,346
Minority interest and other
liabilities 1,512 1,418 1,523
Total liabilities 29,987 32,143 31,609
Commitments and Contingent Liabilities
Shareholders' Equity
Common shares 323 323 323
Capital in excess of par value 3,575 3,593 3,583
Retained earnings 4,906 4,201 4,848
Treasury stock - at cost (2,199) (1,699) (2,089)
Deferred ESOP expense (167) (198) (175)
Accumulated other comprehensive
income (335) (309) (424)
Total shareholders' equity 6,103 5,911 6,066
Total liabilities and
shareholders' equity $36,090 $38,054 $37,675
Total common shares outstanding 381.0 391.1 383.5
See accompanying notes.
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
13 Weeks Ended
(millions) April 3, April 4,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 146 $ 133
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and other noncash items 214 226
Provision for uncollectible accounts 291 394
Gain on sales of property and investments -- (6)
Change in (net of acquisitions):
Deferred income taxes 10 63
Retained interest in transferred credit
card receivables 661 203
Credit card receivables 858 484
Merchandise inventories (426) (419)
Other operating assets 29 (117)
Other operating liabilities (725) (739)
Net cash provided by operating activities 1,058 222
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (16) --
Proceeds from sales of property and investments 100 7
Purchases of property and equipment (269) (285)
Net cash used in investing activities (185) (278)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 28 1,782
Repayments of long-term debt (664) (558)
Decrease in short-term borrowings,
primarily 90 days or less (133) (1,113)
Repayments of ESOP note receivable 58 23
Common shares purchased (141) (24)
Common shares issued for employee stock plans 23 22
Dividends paid to shareholders (170) (90)
Net cash (used in) provided by
financing activities (999) 42
Effect of exchange rate on cash and invested cash 2 --
Net decrease in cash and cash equivalents (124) (14)
Balance at beginning of year 495 358
Balance at end of period $ 371 $ 344
See accompanying notes.
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheets as of April 3, 1999 and April 4,
1998, the related Condensed Consolidated Statements of Income and the
Condensed Consolidated Statements of Cash Flows for the 13 weeks then ended
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. (the "Company" or
"Sears") 1998 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 1998 financial statements
to conform with the current year presentation.
2. Dividend Restrictions and Share Repurchase Programs
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 April 3, 1999, approximately $4.5 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 authorized the Company to acquire
up to 20 million Sears common shares on the open market. In the first
quarter of 1999, 3.0 million common shares were repurchased. As of April
3, 1999, all 20 million common shares authorized to be purchased under the
repurchase program have been acquired.
On March 10, 1999, the Board of Directors approved a common share
repurchase program authorizing the Company to acquire up to $1.5 billion of
the Company's common shares by December 31, 2001. The shares will be
purchased on the open market or through privately negotiated transactions.
No shares have been acquired under this repurchase program as of April 3,
1999.
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Earnings Per Share
The following table sets forth the computations of basic and diluted
earnings per share:
13 Weeks Ended
(millions, except per share data) April 3, April 4,
1999 1998
Basic:
Net income $ 146 $ 133
Average shares outstanding 382.9 390.9
Earnings per share basic $ 0.38 $ 0.34
Diluted:
Net income $ 146 $ 133
Average shares outstanding 382.9 390.9
Dilutive effect of stock options 2.2 3.6
Average shares and equivalent
shares outstanding 385.1 394.5
Earnings per share diluted $ 0.38 $ 0.34
Options to purchase 7.5 million and 3.8 million shares of stock at prices
ranging from $43 to $64 and $52 to $64 per share were outstanding at April
3, 1999 and April 4, 1998, respectively, but were not included in the
computation of diluted earnings per share because they would have been
antidilutive.
4. Comprehensive Income
The following table sets forth the computation of comprehensive income.
For the 13 weeks ended April 3, 1999, other comprehensive income was
comprised of an $83 million unrealized gain on investments (net of income
tax of $46 million) and $6 million of foreign currency translation
adjustments related to Sears Canada. For the 13 weeks ended April 4, 1998,
other comprehensive income was comprised of foreign currency translation
adjustments related to Sears Canada.
13 Weeks Ended
(millions) April 3, April 4,
1999 1998
Net income $ 146 $ 133
Other comprehensive income 89 2
Total comprehensive income $ 235 $ 135
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accumulated other comprehensive income is comprised of foreign currency
translation adjustments of $119, $92 and $125 million as of April 3, 1999,
April 4, 1998 and January 2, 1999, respectively, and adjustments to the
Company's minimum pension liability of $299, $217 and $299 million as of
April 3, 1999, April 4, 1998 and January 2, 1999, respectively.
Additionally, a net unrealized gain on investments of $83 million is
included in accumulated other comprehensive income as of April 3, 1999.
5. Segment Disclosures
The following table sets forth revenue, operating income and total assets
by segment:
<TABLE>
<S>
For the 13 weeks ended April 3, 1999
millions Retail Services Credit Corporate International Consolidated
<C> <C> <C> <C> <C> <C>
Revenue $ 6,422 $ 718 $ 1,063 $ -- $ 834 $ 9,037
Operating
income
(expense) (69) 75 295 (73) 17 245
Total
assets 10,222 1,027 19,862 2,346 2,633 36,090
</TABLE>
<TABLE>
<S>
For the 13 weeks ended April 4, 1998
millions Retail Services Credit Corporate International Consolidated
<C> <C> <C> <C> <C> <C>
Revenue $ 6,605 $ 692 $ 1,140 $ -- $ 796 $ 9,233
Operating
income
(expense) (60) 80 252 (60) 10 222
Total assets 10,993 826 21,413 2,153 2,669 38,054
</TABLE>
6. Effect of New Accounting Standards and Statements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in
years beginning after June 15, 1999. The Company is currently evaluating
the effect this statement might have on its consolidated financial position
and results of operations.
7. Disposition of Business
On January 30, 1999, the Company completed the sale of its HomeLife
furniture business. On November 18, 1998, the Company had entered into an
agreement to exchange its interest in the HomeLife furniture business for
$100 million in cash, a $10 million note receivable and a 19% equity
ownership in the new HomeLife business. The Company recorded a pretax
charge of $33 million ($21 million after-tax) in the fourth quarter of 1998
to adjust the carrying value of HomeLife's assets to their estimated fair
market value, less cost to sell. The completion of the sale did not have a
material effect on the first quarter 1999 results of operations or
financial condition.
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Legal Proceedings
The Company has been subject to a federal civil and criminal investigation
in connection with activities relating to certain debt reaffirmation
agreements with current and former credit card holders of the Company who
had declared personal bankruptcy. Under the reaffirmation provisions of
the United States Bankruptcy Code, a debtor seeking Chapter 7 protection
may agree to repay his or her debts to creditors. This reaffirmation
agreement must be filed with the bankruptcy court to be valid. On February
19, 1999, Sears Bankruptcy Recovery Management Services, Inc., a subsidiary
of the Company, pleaded guilty in federal district court to one count of
bankruptcy fraud and was fined $60 million. The fine had no effect on the
Company's earnings because the Company recorded a pretax charge of $475
million against earnings for the settlement of lawsuits, fines and related
matters stemming from the improper handling of certain debt reaffirmation
agreements and other related matters in the second quarter of 1997. The
plea agreement does not require any change in the day-to-day operations of
Sears or the subsidiary.
In a separate civil action related to the reaffirmation matter dating from
April 7, 1997, Sears reached a settlement agreement with the U.S. Attorney
for the District of Massachusetts, which was approved by the federal
district court on February 23, 1999. Under the terms of that agreement,
the Company will continue to file all reaffirmation agreements obtained in
Chapter 7 bankruptcies as required by the United States Bankruptcy Code.
On March 9, 1999, the Company reached an agreement to settle a class action
lawsuit stemming from an increase in the annual percentage rate assessed on
certain balances of some Sears credit customers. This settlement, which is
subject to final approval by the United States District Court, Northern
District of Illinois, is also expected to resolve related lawsuits in
Illinois and Washington. The lawsuit was brought on behalf of a nationwide
class of Sears credit customers who had outstanding balances when their
accounts were transferred to Sears National Bank, a wholly-owned subsidiary
of Sears, during a period from 1994 through 1996, and who had not fully
paid off those balances as of the effective dates of an April 1997 Notice
of Change in Credit Terms. Under the terms of the settlement, the Company
will provide to the class members cash and coupons with a face value
totaling approximately $156 million. The Company previously reserved for
the estimated cost of the settlement; the settlement will not have a
material effect on the Company's annual results of operations, financial
position, liquidity or capital resources. The settlement does not require
any change in the Company's credit practices.
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On January 13, 1999, ten "Doe" plaintiffs filed a putative class action in
the United States District Court for the Central Division of California
against eighteen domestic clothing retailers, including the Company, and
eleven foreign clothing suppliers (the"Federal Action"). The Doe
plaintiffs allege that they have worked in garment factories on the island
of Saipan in the Commonwealth of the Northern Mariana Islands, and they
purport to represent a class of other current and former workers. The
plaintiffs allege that class members were forced to work under illegal
labor conditions in the Saipan factories used by suppliers, and they assert
against the Company claimed violations of the Racketeering Influenced
Corrupt Organizations Act, the Anti-Peonage Act, the Thirteenth Amendment
to the U.S. Constitution, and the Law of Nations. The central allegation
of the Federal Action is that the Company and the other retail defendants
who purchased garments manufactured in the Saipan factories used by
suppliers are liable to the plaintiff class for any alleged unlawful
working conditions imposed upon them by their employers. The case seeks
injunctive and declaratory relief, unspecified treble damages, interest and
attorneys' fees and expenses. On January 13, 1999, a related case was also
filed against seventeen named domestic clothing retailers, including the
Company, and additional unnamed retailers, in San Francisco County Superior
Court (the "State Action"), alleging violations of the California Business
and Professional Code. The named plaintiffs in the State Action are the
Union of Needletrades Industrial and Textile Employees, AFL-CIO, Global
Exchange, Sweatshop Watch and the Asian Law Caucus, who purport to bring
the action on behalf of the general public of the State of California. The
central allegation in the State Action is that the Company and the other
defendants engaged in unlawful and unfair business practices in the selling
and advertising in California of garments that had been manufactured under
allegedly illegal labor conditions on Saipan. The case seeks injunctive
relief, restitution and disgorgement of profits, interest and attorney's
fees and costs. The Company intends to vigorously defend these cases. The
consequences of these actions are not presently determinable, but in the
opinion of management of the Company, the ultimate liability is not
expected to have a material effect on the results of operations, financial
position, liquidity or capital resources of the Company.
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 that 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.
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 April 3, 1999 and April 4, 1998, and the related
Condensed Consolidated Statements of Income and of Cash Flows for the 13-week
periods ended April 3, 1999 and April 4, 1998. 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 2, 1999, 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 11, 1999, 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 2, 1999, 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
April 30, 1999
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
Analysis of Operations
Operating results for the Company are reported for four domestic segments and
one international segment. The domestic segments include the Company's
operations in the United States and Puerto Rico. The Company's segments are
defined as follows:
Retail consisting of:
- Full-line stores
- Specialty stores (Home stores
and Auto stores)
Services consisting of:
- Home Services
- Direct Response Marketing
Credit which manages domestic Sears Card operations
Corporate consisting of administrative activities of a holding company
nature, the costs of which are not allocated to the Company's businesses
(includes e-commerce)
International consisting of retail, services and credit operations conducted
in Canada through Sears Canada, Inc. ("Sears Canada"), a 54.7% owned
consolidated subsidiary
For the 13 weeks ended April 3, 1999, net income was $146 million, or $0.38
per share, as compared to $133 million, or $0.34 per share for the comparable
1998 period. The increase in net income was primarily due to improved
performance of the Credit segment, partially offset by declines in the Retail
and Services segments and higher corporate expenses.
Operating income in the first quarter of 1999 was $245 million compared to
$222 million in the comparable 1998 period. Operating income by segment was
as follows:
13 Weeks Ended
(millions) April 3, April 4,
1999 1998
Retail $ (69) $ (60)
Services 75 80
Credit 295 252
Corporate (73) (60)
International 17 10
Total operating income $ 245 $ 222
The Company's consolidated effective tax rate in the first quarter of 1999
was 37.9% as compared to 40.4% in the prior year period. The decrease in the
effective tax rate is primarily due to a reduction in domestic taxes on
international operations and the favorable resolution of certain tax audit
issues.
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
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 weeks ended April 3, 1999 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.
Retail
Retail revenues decreased 2.8% to $6.42 billion for the 13 weeks ended April
3, 1999 from the comparable 1998 period due to the divestitures of Western
Auto and HomeLife. Excluding the impact of the divested businesses, first
quarter Retail revenues increased $212 million or 3.4%. Retail revenues and
related information are as follows:
(millions, except number of stores) 13 Weeks Ended
April 3, April 4,
1999 1998 Change
Revenues:
Full-line stores $ 5,066 $ 4,936 2.6 %
Specialty stores 1,356 1,669 (18.8)%
Total Retail revenues $ 6,422 $ 6,605 (2.8)%
Number of Full-line stores 847 834
Number of Specialty stores 2,104 2,727
Total Retail stores 2,951 3,561
Comparable store sales
percentage increase 1.9% 4.9%
Full-line stores revenues increased 2.6% over first quarter 1998.
Apparel revenues increased 2.1% during the first quarter after a 5.4% gain
in 1998. Women's special sizes, girl's and infant's apparel, jewelry,
cosmetics and fragrances posted strong sales increases, while women's
sportswear and men's apparel had solid revenue gains. These increases
were partially offset by decreases in dresses, boy's apparel, footwear
and children's furniture.
Hardlines revenues comprised of home electronics, home appliances, home
office and home improvement merchandise sales, as well as licensed
business sales, increased 2.9% in the first quarter of 1999. Gains in
home appliances, home electronics and home improvement were partially
offset by a decline in home office sales.
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
For the 13 week period ended April 3, 1999, Specialty stores revenues
decreased 18.8% from the comparable 1998 period.
Home stores revenues decreased 3.9% from the 1998 level. As a result of
the January 30, 1999 sale of HomeLife, the prior year includes three
months of HomeLife revenues compared to one month in the current year.
Excluding HomeLife, Home stores revenues increased 13.0% 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 7 and 83 net new store openings,
respectively. The Commercial Sales business also produced strong
revenue gains over the comparable 1998 period as expansion of this
business continues.
Auto stores revenues decreased 35.2% from the comparable 1998 period. The
prior year includes sales from the Parts Group, which sold automotive
parts through Parts America and Western Auto through November 2, 1998,
when the Company sold the Parts Group. Excluding the Parts Group
revenues in the prior year, Auto revenues increased 0.3% as the Sears
Tire Group experienced negative comparable store sales, offset by 11
net new stores.
Retail gross margin as a percentage of Retail revenues for the first quarter
of 1999 declined 90 basis points from the first quarter of 1998. The
decrease was the result of increased promotional activity in the Full-line
stores.
Retail selling and administrative expense as a percentage of Retail revenues
for the first quarter of 1999 improved 70 basis points from the first quarter
of 1998. The improvement was primarily due to leveraging marketing and
payroll and other employee-related costs.
Retail depreciation and amortization expense decreased $3 million or 2.0%
from the comparable 1998 period. The decrease reflects the HomeLife and
Parts Group divestitures. Excluding the impact of the divestitures,
depreciation and amortization increased $9 million due to the continuation of
the Full-line stores remodeling program and the growth in the number of
Full-line and Specialty stores in operation.
Services
Services revenues, which are generated by the Home Services and Direct
Response Marketing businesses, were up 3.8% in the first quarter of 1999
versus the comparable 1998 period. For the first quarter of 1999, both Home
Services and Direct Response Marketing showed revenue increases.
Services gross margin as a percentage of Services revenues for the first
quarter of 1999 improved slightly, while Services selling and administrative
expense as a percentage of Services revenues increased 100 basis points in
the first quarter of 1999 over the comparable 1998 period. The increase in
the selling and administrative expense ratio was primarily due to increased
investments in marketing.
Services depreciation and amortization increased 8.8% in the first quarter of
1999 from the comparable 1998 period. The increase reflects continued
investment in the Services businesses.
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
Credit
Domestic Credit revenues decreased 6.8% to $1.06 billion for the 13 weeks
ended April 3, 1999 from the comparable prior year period. The decline in
Credit revenues was attributable to a lower level of owned credit card
receivables and reduced late fee income. A summary of Credit information
(for the managed portfolio) is as follows:
13 Weeks Ended
April 3, April 4,
1999 1998
Sears Card as a %
of sales 48.1% 53.2%
Average account balance (1)
(as of April 3, 1999
and April 4, 1998) $ 1,159 $ 1,071
Average managed credit
card receivables (millions)$ 27,540 $ 28,425
(1) The April 3, 1999 average account balance includes only the 50% of
accounts that have been converted to the new credit system ("TSYS"). Under
TSYS, only accounts with balances are included in the calculation of
average account balance. Therefore, the average account balance
statistic is higher under TSYS than it would be under the Company's
proprietary credit system, which was used for the April 4, 1998 average
account balance statistic.
The percentage of merchandise sales and services transacted with the Sears
Card in the first quarter of 1999 declined to 48.1% compared to 53.2% a year
ago due to greater preference for the use of cash, checks and third party
credit cards. The payment rate during the first quarter of 1999 was also
higher than in the comparable prior year quarter, contributing to the
decrease in average managed balances.
Credit selling and administrative expense as a percentage of Credit revenues
increased 320 basis points in the first quarter of 1999 from the comparable
1998 period. The increase was primarily due to increased investment in
collection efforts and legal costs. The benefits from increased spending on
collections is reflected in the lower provision for uncollectible accounts as
charge-offs and delinquencies have shown favorable trends.
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
The domestic provision for uncollectible accounts and related domestic credit
information is as follows:
13 Weeks Ended
(millions) April 3, April 4,
1999 1998
Provision for uncollectible
accounts $ 284 $ 387
Net credit charge-offs
as a percentage of
average managed credit
card receivables(1) 7.08% 8.12%
Owned credit card receivables $16,446 $18,696
Allowance for uncollectible
credit card receivables $ 932 $ 1,091
Delinquency rates for
managed portfolio
(as of April 3, 1999
and April 4, 1998)(2) 6.80% 6.97%
(1) The 1999 managed net charge-off rate includes all of the accounts in the
domestic portfolio. Twelve percent of the account balances were converted
to the TSYS account processing system in October 1998 and 38% were
converted in March 1999. Balances are charged-off earlier under the TSYS
system than under the proprietary system. The March 1999 conversion has not
yet had an effect on the charge-off rate.
(2) The April 3, 1999 delinquency rate is for the 50% of the managed accounts
which were still on the Sears proprietary system and had not yet been
converted to TSYS. For the TSYS accounts, which represent the other 50% of
the managed accounts at quarter end, the delinquency rate is 8.07%. Under
the existing proprietary receivables processing system, Sears divides
delinquencies as of the end of each billing cycle by balances at the end of
the month. The TSYS processing system divides delinquencies as of the end
of the month by balances at the end of the month. If Sears had calculated
delinquencies for converted accounts by dividing delinquencies as of the
end of each billing cycle by balances at the end of the month, as it does
for unconverted accounts, the delinquency rate for converted accounts would
have been 9.08%.
The domestic provision for uncollectible accounts decreased 26.6% to $284
million for the 13 weeks ended April 3, 1999, from the comparable prior year
period. The decrease was attributable to lower owned credit card receivable
balances, and favorable trends in delinquency rates, charge-off experience
and bankruptcy filings.
Interest expense is discussed within the Credit segment since the majority of
the Company's interest expense is allocated to the Credit segment. Interest
expense is combined with the funding costs on receivables sold through
securitizations to represent total funding costs as follows:
13 Weeks Ended
(millions) April 3, April 4,
1999 1998
Consolidated interest expense(1) $ 334 $ 376
Funding cost on
securitized receivables 106 106
Total funding costs $ 440 $ 482
(1) Credit segment interest expense was $288 and $328 for the
first quarter of 1999 and 1998, respectively.
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
Consolidated interest expense decreased in the first quarter of 1999 compared
to the first quarter of 1998 due to lower on-book debt levels caused
primarily by a decrease in owned credit card receivables. Interest expense
also benefited from a lower funding rate in the first quarter of 1999 vs.
1998. The funding cost on securitized receivables was consistent in both
years due to slightly higher levels of average securitized balances offset by
slightly lower funding rates.
Corporate
Corporate expenses increased $13 million in the first quarter of 1999
compared to the first quarter of 1998. The increase was primarily
attributable to higher e-commerce development costs and additional spending
on information systems projects. The non-Year 2000 information systems costs
for 1999 will be more heavily weighted towards the first half of the year
since Year 2000 testing will take precedence in the second half of 1999.
International
International revenues for the first quarter of 1999 increased 4.8% from the
same period a year ago. Sears Canada enjoyed strong retail and catalog sales
performance, which was partially offset by the negative effects of a lower
exchange rate when reporting in U.S. dollars.
International gross margin as a percentage of International merchandise and
services revenues increased 50 basis points in the first quarter of 1999
from the comparable 1998 period, reflecting savings realized from merchandise
sourcing initiatives.
International selling and administrative expense as a percentage of total
International revenues decreased 80 basis points in 1999 from the first
quarter of 1998. The improvement was primarily due to leveraging employee-
related costs and marketing expenses.
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
Financial Condition
The consolidated owned net credit card receivables balances of $16.84
billion, $18.96 billion and $17.97 billion as of April 3, 1999, April 4, 1998
and January 2, 1999, respectively, exclude credit card receivables
transferred to a securitization Master Trust as follows:
<TABLE>
<S>
(millions) April 3, April 4, January 2,
1999 1998 1999
<C> <C> <C>
Domestic Managed credit
card receivables $ 26,681 $ 27,875 $ 28,251
Securitized balances sold (6,744) (6,255) (6,626)
Retained interest in
transferred credit
card receivables(1) (3,633) (3,113) (4,294)
Other customer receivables 142 189 112
Domestic owned credit card
receivables 16,446 18,696 17,443
International credit card
receivables 1,362 1,393 1,503
Consolidated credit card
receivables $ 17,808 $ 20,089 $ 18,946
Less: Allowance for
uncollectible accounts 965 1,127 974
Credit card receivables, net $ 16,843 $ 18,962 $ 17,972
</TABLE>
Consolidated credit card receivables (before allowance for uncollectible
accounts) decreased $2.28 billion when comparing the first quarter of 1999
with the first quarter of 1998. The decrease is primarily due to a decrease
in managed receivables and accounts being transferred to the securitization
Master Trust to be used in securitizations. Managed credit card receivables
decreased from the first quarter of 1998 primarily due to declining market
share. Compared to 1998 year-end, consolidated credit card receivables
(before allowance for uncollectible accounts) decreased $1.14 billion due to
the normal seasonal nature of the retail industry and the decrease in credit
share.
As of April 3, 1999, consolidated merchandise inventories on the first-in,
first-out (FIFO) basis were $5.86 billion, compared with $6.19 billion at
April 4, 1998 and $5.50 billion at January 2, 1999. The decrease in
inventory levels from the first quarter of 1998 reflects the sales of the
Western Auto and HomeLife businesses. The increase in inventory from January
2, 1999 reflects the normal seasonal build-up of inventory.
Total property and equipment, net of accumulated depreciation, was $6.27
billion at April 3, 1999 compared with $6.39 billion a year earlier. The
decrease reflects the sales of Western Auto and HomeLife, partially offset by
the net addition of 13 Full-line stores and 100 Specialty stores, as well as
the continuation of the Full-line stores remodeling program.
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
Total funding for the Company at April 3, 1999 was $25.64 billion compared
with $27.23 billion a year earlier. The decrease in funding reflects the
recent divestitures of HomeLife and Western Auto and the decrease in the
managed credit card receivables portfolio. Total funding includes debt
recorded on the balance sheet and investor certificates related to credit
card receivables sold through securitizations as follows:
<TABLE>
<S>
(millions) April 3, April 4, January 2,
1999 1998 1999
<C> <C> <C>
Short-term borrowings $ 4,502 $ 4,095 $ 4,624
Long-term debt and
capitalized
lease obligations 14,393 16,884 15,045
Securitized balances sold 6,744 6,255 6,626
Total funding $ 25,639 $ 27,234 $ 26,295
</TABLE>
The Company accesses a variety of capital markets to preserve flexibility and
diversify its funding sources. The primary funding sources utilized include
unsecured commercial paper, medium term notes, senior debt and
securitization.
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.
Year 2000
Except for the risks below, this description supplements the description of
the Company's Year 2000 project on pages 29 and 31 of Sears 1998 Annual
Report to Shareholders.
State of Readiness
Information Systems. As of April 7, 1999, the Company has completed an
inventory and assessment of its mission critical (vital to business
operations) information systems. The Company has remediated approximately
90% of its mission critical systems and has assessed or tested approximately
73% of them as Year 2000 compliant, subject to certification (final testing
and validation). The Company expects to have substantially completed
remediation and testing by July 1999. The Company has begun certification,
which it expects to complete by November 1999. The Company has issued a
moratorium on deploying any non-Year 2000 changes into its systems
production environment from July 1, 1999 through April 1, 2000 (subject to
business critical changes), which will assist in completing certification.
Business Management. There have been no changes in the Company's assessment
of its equipment and systems that contain embedded computer technology, its
resale merchandise, or its mission critical, non-information systems service
providers -- the Company believes that these areas do not pose a substantial
Year 2000 compliance risk to the Company.
Merchandise Vendors. The Company rates its vendors on a scale of green (on
target to be compliant by July 1), yellow (on target to be compliant by July
1 but minor concerns about progress) and red (not on target to be compliant
by July 1). As of April 7, 1999, the Company has assigned a red rating to
one first tier vendor (less than 1% of merchandise sales), 24 second tier
vendors (approximately 3% of merchandise sales) and 208 third tier vendors
(approximately 3% of merchandise sales). Vendor ratings are subject to
change based on the Company's ongoing evaluation process.
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
The Company has performed site visits of all of its first tier vendors (50%
of merchandise sales), and is performing follow-up site visits on certain
first tier vendors with a yellow or red rating. In addition, the Company is
performing site visits on second tier vendors (29% of merchandise sales)
with a red rating and the nine largest second tier vendors with a yellow or
green rating. The Company anticipates completing all site visits by June
30, 1999. The Company has completed telephone conferences with second tier
vendors with a red or green rating and anticipates completing telephone
conferences with second tier vendors with a yellow rating in May 1999. The
Company continues to track responses to its Year 2000 questionnaire
distributed to all mission critical vendors in January 1998, review follow-
up progress reports, review vendors' filings with the Securities and
Exchange Commission (the "Commission") and conduct electronic data
interchange testing for all mission critical vendors.
Contingency Plans
Each of the Company's business units is developing contingency plans that
identify what actions need to be taken if a critical system, merchandise
vendor or service provider is not Year 2000 compliant. The business units
are considering various contingencies, such as alternative merchandise
vendors and service providers, operational alternatives due to a loss of
utilities or public services and manual transaction process alternatives due
to a loss of a mission critical information system. The Company expects to
be ready to implement its contingency plans by October 1999.
Risks
The Company believes that its most significant Year 2000 risk factors are:
Failure of either of its two mission critical information systems
service providers to make their systems Year 2000 compliant;
Failure of the Company to timely complete implementation of its new
payroll processing system, which it anticipates completing by July
1999; and,
Failure of a first tier mission critical merchandise vendor, or
multiple merchandise vendors or service providers, to supply
merchandise or services for an extended period of time.
Although the occurrence of any one of these scenarios could have a material
adverse effect on the Company, the Company does not believe that any of
these scenarios or any other Year 2000 compliance issues that would
materially affect the Company's operations are reasonably likely to occur.
Costs
The Company estimates total costs (including external costs and the costs of
internal personnel) related to its Year 2000 effort to be approximately $66
million, of which the Company (including Sears Canada) has incurred
approximately $39 million. In addition, the Company has accelerated the
planned development of new systems with improved business functionality to
replace systems that were not Year 2000 compliant, including the Company's
new payroll processing system. The Company expects these systems will cost
approximately $81 million, of which the Company has incurred approximately
$63 million. The Company funds Year 2000 costs with cash flows from
operations.
SEARS, ROEBUCK AND CO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY FOR THE
13 WEEKS ENDED APRIL 3, 1999 AND APRIL 4, 1998
Cautionary Statement Regarding Forward-Looking Information
Certain statements made in this Report are forward-looking statements made in
reliance on the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. As such, they involve risks and uncertainties that could
cause actual results to differ materially. The Company's forward-looking
statements are based on assumptions about many important factors, including
ongoing competitive pressures in the retail industry, changes in consumer
spending, general North American economic conditions (such as interest rates
and consumer confidence) and normal business uncertainty. In particular, the
discussion of Year 2000 matters above is based on assumptions about a variety
of factors, including the technical skills of employees and independent
contractors, the representations and preparedness of third parties, vendors'
delivery of merchandise and performance of services required by the Company
and the collateral effects of Year 2000 compliance issues on the Company's
business partners and customers. While the Company believes that its
assumptions are reasonable, it cautions that it is impossible to predict the
impact of certain factors which could cause actual results to differ
materially from expected results.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in any legal proceedings since
the Company's disclosure in its Annual Report on Form 10-K for the fiscal year
ended January 2, 1999 which described certain material events that
occurred in the quarterly period covered by this Report.
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.
A Current Report on Form 8-K dated January 21, 1999 was filed with
the Commission on January 21, 1999 to report, under Item 5, that the
Registrant issued a press release to report its fourth quarter
earnings and to file, under Item 7, a copy of such press release.
A Current Report on Form 8-K dated February 9, 1999 was filed with
the Commission on February 9, 1999 to report, under Item 5, that the
Registrant issued a press release to report that a subsidiary agreed
to plead guilty to one count of bankruptcy fraud and to file, under
Item 7, a copy of such press release.
A Current Report on Form 8-K dated February 18, 1999 was filed with
the Commission on February 18, 1999 to report, under Item 5, that the
Registrant held an analyst meeting and to file, under Item 7, certain
material from that analyst meeting.
A Current Report on Form 8-K dated February 19, 1999 was filed with
the Commission on February 19, 1999 to report, under Item 5, that
certain agreements had been approved by a federal district court.
A Current Report on Form 8-K dated March 10, 1999 was filed with the
Commission on March 11, 1999 to report, under Item 5, that the
Registrant issued a press release to report the settlement of a class
action lawsuit and a second press release to announce a $1.5 billion
stock repurchase program and to file, under Item 7, a copy of such
press releases.
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)
May 7, 1999 By: /s/ Jeffrey N. Boyer
Jeffrey N. Boyer
Vice President and Controller
(Principal Accounting Officer and duly
authorized officer of Registrant)
E-1
EXHIBIT INDEX
SEARS, ROEBUCK AND CO.
13 WEEKS ENDED APRIL 3, 1999
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 2, 1999 (incorporated by reference to
Exhibit 3.(ii) to Registrant's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999).
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.
10. Letter from the Registrant to Anastasia D. Kelly dated December 14,
1998 relating to employment.
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 2, 1999 and for the three- and twelve-month periods ended April
3, 1999.
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 three years: 1996, 1995 and 1994.
15. Acknowledgement of awareness from Deloitte & Touche LLP, dated April
30, 1999, concerning unaudited interim financial information.
27. Financial Data Schedule
Exhibit 10
SEARS, ROEBUCK AND CO.
3333 Beverly Road
Hoffman Estates, IL 60179
JOHN SLOAN
Senior Vice President
Human Resources
847-286-0558
Fax 847-286-3258
December 14, 1998
Ms. Anastasia Kelly
11206 River View Road
Potomac, Maryland 20854-1568
Dear Stasia,
As discussed, this letter will confirm our offer of employment to join Sears,
Roebuck and Co. as Executive Vice President, General Counsel and Secretary
reporting to Arthur C. Martinez, Chairman and CEO, Sears, Roebuck and Co.
Your compensation package will consist of the following:
Annual base salary of $450,000, with periodic increases based upon
performance.
Sign-on bonus of $100,000.
Participation in the Sears Annual Incentive Plan. Your annual incentive
opportunity will Equate to a bonus target equal to 85% of base salary,
amounting to $382,500 on an annualized basis. The annual incentive
performance objective for your position will be based 100% on our
achievement of Sears earnings per share, as well as your performance
on the individual priorities we will agree to. Currently the Company
performance portion of the plan pays for performance as follows:
-- Threshold (90% of prior year Earnings Per Share) pays 25% of target
-- Target (110% of prior year Earnings per Share) pays 100% of target
-- Maximum (130% of prior year Earnings Per Share) pays 230% of target
Performance goals for Sears are based on improvement over prior year
results. We will guarantee a minimum bonus award for 1999 of $382,500,
payable in February, 2000.
100,000 non-qualified stock option shares will vest in three equal annual
installments from the date of grant and will include a reload feature and
tax withholding rights.
25,000 shares of restricted stock which will vest from the date of grant as
follows:
9,000 shares in two years;
8,000 shares in three years; and
8,000 shares in five years.
5,000 shares
These shares will also include tax withholding rights.
Participation in the Sears Long-Term Incentive Plan with an incentive
target of 125% of base pay. For the 1997-1999 cycle, 87.5% of your
long-term incentive target will be conveyed in Sears stock options and
37.5% through shares of Sears common stock. The Performance Incentive Plan
awards will be determined based on achievement of our Total
Performance Index objectives. The Performance Incentive Plan award can
range between 50%-150% of the target award. Plan participants receive this
award in March, 2000. We will guarantee a minimum payout for 1999 of
$168,750 in Sears common stock. Since 1999 is an overlapping cycle year,
one-half of this award for the 1997-1999 cycle will be paid in March, 2000
as part of the 1997-1999 cycle. The remaining half will be distributed
in March, 2002 as part of the 1999-2001 cycle payout.
Participation in standard company benefits commensurate with your position.
A service enhancement to your final pension benefit will be provided
through the non-qualified pension plan. The service enhancement will be
accrued to you as a 2-year-for-1-year service credit during your employment
with Sears up until age 60. The value based on your current base salary and
annual incentive paid at target would equate to a lump sum value of
approximately $2,400,000.
We will extend our relocation assistance program and have previously
included information for your review.
Nothing contained in this letter shall limit the right of you or Sears to
terminate your employment with or without cause at any time. However, in
the event that Sears should involuntarily terminate you other than for
cause during your first two years of employment, you will receive two years
base salary plus two years target annual incentive. This will
constitute the entire damages you may claim against Sears on account of
such termination of employment. In exchange for this severance protection,
you will be required to sign our standard Non-Compete/Change-in-Control
Agreement. In situations when employment has been involuntarily terminated,
it has been our common practice to provide a leave of absence period during
which options and restricted stock would continue to vest.
The above is contingent upon your satisfactorily passing a pre-employment
drug test, satisfactory referral verification and approval by the Sears
Compensation Committee of the Board.
Stasia, we have great confidence in your ability to significantly contribute
to the future success of Sears. I look forward to working with you to build
that success.
Sincerely,
/s/ John Sloan
EXHIBIT 12(a)
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<S>
Twelve Three
Months Months
Ended Ended
Apr. 3, Apr. 3, Year Ended
(millions, except ratios) 1999 1999 1998 1997 1996 1995 1994
(unaudited) (unaudited)
<C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest and amortization
of debt discount and
expense on all indebtedness $1,381 $ 333 $1,423 $1,409 $1,365 $1,373 $1,279
Add interest element
implicit in rentals 142 36 144 147 121 119 114
1,522 369 1,567 1,556 1,486 1,492 1,393
Interest Capitalized 5 1 5 3 5 4 1
Total fixed charges $1,527 $ 370 $1,572 $1,559 $1,491 $1,496 $1,394
Income
Income from continuing
operations $1,085 $ 146 $1,072 $1,188 $1,271 $1,025 $ 857
Deduct undistributed
net income of
unconsolidated companies 10 1 11 13 8 9 (7)
1,075 145 1,061 1,175 1,263 1,016 864
Add
Fixed charges
(excluding interest
capitalized) 1,522 369 1,567 1,556 1,486 1,492 1,393
Income taxes 767 92 766 912 834 703 614
Income before fixed
charges and
income taxes $3,364 $ 606 $3,394 $3,643 $3,583 $3,211 $ 2,871
Ratio of income to
fixed charges 2.20 1.64 2.16 2.34 2.40 2.15 2.06
</TABLE>
EXHIBIT 12(b)
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED
CHARGES AND PREFERRED SHARE DIVIDENDS
SEARS, ROEBUCK AND CO.
AND CONSOLIDATED SUBSIDIARIES
Year Ended
</CAPTION>
<S>
(millions, except ratios) 1996 1995 1994
<C> <C> <C>
Fixed Charges
Interest and amortization of
debt discount and expense
on all indebtedness $1,365 $1,373 $1,279
Add interest element implicit
in rentals 121 119 114
1,486 1,492 1,393
Preferred dividend factor 41 89 234
Interest capitalized 5 4 1
Total fixed charges $1,532 $1,585 $1,628
Income
Income from continuing
operations $1,271 $1,025 $857
Deduct undistributed net
income (loss) of
unconsolidated companies 8 9 (7)
1,263 1,016 864
Add
Fixed charges (excluding
interest capitalized
and preferred dividend
factor) 1,486 1,492 1,393
Income taxes 834 703 614
Income before fixed
charges and Income taxes $3,583 $3,211 $2,871
Ratio of income to combined
fixed charges and preferred
share dividends 2.34 2.03 1.76
Note: In 1996, all the 8.88% Preferred Shares, First Series were
redeemed and thereafter, the Company made no other preferred share
dividend payments.
</TABLE>
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 April 3, 1999 and April 4, 1998, as indicated in our report dated April
30, 1999; 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 April 3, 1999,
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, 333-30879, and 333-62847 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
April 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 371
<SECURITIES> 3,633<F1>
<RECEIVABLES> 17,808
<ALLOWANCES> 965
<INVENTORY> 5,177
<CURRENT-ASSETS> 27,769
<PP&E> 11,428
<DEPRECIATION> 5,162
<TOTAL-ASSETS> 36,090
<CURRENT-LIABILITIES> 12,716
<BONDS> 13,457
0
0
<COMMON> 323
<OTHER-SE> 5,780
<TOTAL-LIABILITY-AND-EQUITY> 36,090
<SALES> 7,909
<TOTAL-REVENUES> 9,037
<CGS> 6,035
<TOTAL-COSTS> 6,035
<OTHER-EXPENSES> 2,132<F2>
<LOSS-PROVISION> 291
<INTEREST-EXPENSE> 334
<INCOME-PRETAX> 245
<INCOME-TAX> 92
<INCOME-CONTINUING> 146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146
<EPS-PRIMARY> .38<F3>
<EPS-DILUTED> .38
<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>
