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Notes to Consolidated Financial Statements



The Company is a multiline retailer providing a wide array of merchandise and services, and no single product or service accounted for a significant percentage of the Company's consolidated revenue. The Company has four domestic segments, which include the Company's operations in the United States and Puerto Rico, and one international segment. The domestic segments are Retail, Services, Credit and Corporate.

The Retail segment includes the operating results of the Company's Full-line Stores and Specialty Stores; and the Services segment includes the operating results of the Company's Home Services and Direct Response businesses. These businesses have been aggregated into their respective reportable segments based on the management reporting structure and their similar economic characteristics, customers and distribution channels.

A general description of the merchandise and services offered in each segment follows:

Full-line Stores, which are located principally in shopping malls, sell apparel, home fashions and hardlines merchandise. Specialty Stores, consisting of Hardware, Dealer, The Great Indoors, Auto, Contract Sales, and Homelife furniture stores sell hardlines, home fashions, auto products and furniture. The Homelife furniture stores were sold on January 30, 1999.

Associates and third-party licensee partners of the Company provide product repair services, extended warranty service contracts and home improvement products. Direct Response consists of direct-response marketing, which markets insurance (credit protection, life and health), clubs and service memberships, merchandise through specialty catalogs, and impulse and continuity merchandise.

The Credit business manages the Company's portfolio of credit card receivables arising from purchases of merchandise and services from domestic operations.

The Corporate segment includes activities that are of a holding-company nature, primarily consisting of administrative activities and the Sears Online investment initiatives related to selling merchandise via the Company Web site, the costs of which are not allocated to the Company's businesses.

The International segment consists of retail, credit, services and corporate operations similar to the Company's domestic operations. International operations are conducted in Canada through Sears Canada, Inc., a 54.6% owned subsidiary. International operations were also conducted in Mexico through Sears, Roebuck de Mexico, S.A. de C.V. (“Sears Mexico”) until March 29, 1997, when the Company sold 60% of the outstanding shares of Sears Mexico. Thereafter, Sears Mexico's results are no longer included in the Company's consolidated results.

The segments do not record intersegment revenues and expenses. External revenues and expenses are allocated between the applicable segments.

The domestic segments participate in a centralized funding program. Interest expense is allocated to the Credit segment based on its funding requirements assuming a 9-to-1 debt to equity ratio. Funding includes debt reflected on the balance sheet and investor certificates related to credit card receivables sold through securitizations. Services is allocated interest income based on the after-tax cash flow it generates through the sale of service contracts. The remainder of net domestic interest expense is reported in the Retail segment.

The Company's segments are evaluated on a pretax basis, and a stand-alone income tax provision is not calculated for the individual segments. The Company includes its deferred income taxes within the Corporate segment. The other accounting policies of the segments are substantially the same as those described in the Company's summary of significant accounting policies footnote.

  Annual Report 1999 

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