Sears vs Walmart

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9-101-011 REV: JANUARY 19, 2006
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This case was prepared by Professors Gregory S. Miller and Christopher Noe from published sources as the basis for class discussion rather than to illustrate either effective handling of an administrative situation. It is a rewritten version of the case, Sears, Roebuck and Co. vs. Wal-Mart Stores, Inc., HBS No. 199-046. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright ? 2000 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means?electronic, mechanical, photocopying, recording, or otherwise?without the permission of Harvard Business School.
GREGORY S. MILLER
CHRISTOPHER NOE Sears, Roebuck and Co. vs. Wal-Mart Stores, Inc.
Don Edwards, having just earned an MBA, decided to take a job as an analyst with a prestigious investment bank. He was assigned to a team that followed retail companies. His first task was to prepare a report that contrasted the financial performance of Sears and Wal-Mart. Although Wal- Mart was the acknowledged powerhouse of the U.S. retailing industry, Sears had made some great strides in the 1990s to revive the fortunes of its ailing stores. In fact, Edwards noted that Sears’ ROE of 22% exceeded Wal-Mart’s ROE of 20%, leading him to wonder which firm was the true powerhouse. Edwards knew that there was a good chance that his report would be used as input into buy/sell recommendations on these two companies so he wanted to do a good job.
Sears, Roebuck and Co.
Founded in 1891, Sears, Roebuck and Co. grew over the course of the next century to become the world?s largest retailer in terms of annual sales. Originally operated solely as a catalog business, the company expanded into retail stores in 1924. Sears? stores were primarily located in shopping malls and sold a variety of merchandise including apparel, cosmetics, jewelry, electronics, household appliances, cookware, bedding, and handtools.
By the early 1980s, Sears was confronted with increased competition and declining market share. A number of different retailing initiatives as well as diversification into financial services and real estate failed to turn around the company?s financial performance. In 1992, Arthur C. Martinez was brought on board to head Sears?s retailing operations. He was named the company?s CEO three years later.
Faced with outdated and unprofitable stores, Martinez sought to cut costs in order to improve profitability. He also re-oriented the product mix at Sears? stores in an attempt to boost sales by appealing to a target audience of middle-class female shoppers. The slogan, ?Come see the softer side of Sears,? reflected the company?s commitment to updating its merchandise selection.
Another way that Martinez sought to improve Sears? sales figures was to offer customers more flexibility to pay for merchandise gradually over time through the use of the company?s proprietary credit card. Sears? credit card was issued by the company and could only be used in its own stores.
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101-011 Sears, Roebuck and Co. vs Wal-Mart Stores, Inc.
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Following Martinez?s lead, Sears opened 24 million new card accounts between 1993 and 1996? roughly a 50% increase over the previous four years.1
Exhibit 1 contains selected excerpts of the description of business from Sears 1997 10-K, Exhibit 2 discusses several non-standard events that occurred during fiscal 1997, Exhibit 3 consists of Sears? 1997 financial statements. Exhibit 4 contains selected excerpts from Sears 1997 summary of significant accounting policies while Exhibit 5 provides the fiscal 1997 lease footnote. Exhibit 6 provides some information on the breakdown of the company?s operations by business segment. Sears was split into retailing, service, and credit businesses. The retailing segment consisted of the company?s namesake stores in addition to four different specialty chains that featured home furnishings, hardware, tires and batteries, and auto parts. The service segment was primarily composed of a business that performed home remodeling and appliance repair. The credit segment represented all activities related to Sears? credit card. Exhibit 7 supplies further detail on various aspects of operations for the credit segment.
Wal-Mart Stores, Inc.
In 1962, Sam Walton opened the first Wal-Mart in Bentonville, Arkansas. What began as a single store in a small rural community grew over the next three decades into a retailing powerhouse. Posting net sales of $43.9 billion in 1991, Wal-Mart claimed the title of world?s largest retailer. Continuing on a track of tremendous growth, the company was able to break $100 billion in annual net sales just five years later.
Besides Wal-Mart?s namesake discount stores, the company also operated Sam?s Club membership warehouses and Wal-Mart Supercenters. Wal-Mart?s pledge to provide a competitive price on anything that it sold was reflected in the slogan, ?Always low prices.?
Beginning in 1996, a Wal-Mart customer could obtain a MasterCard with the company?s logo on it. However, this credit card was issued by Chase Manhattan Bank, which completely bore the risk of a user either making late payments or failing to pay off a balance altogether. Unlike Sears, Wal-Mart did not have a proprietary credit card.
Exhibit 8 consists of selected excerpts from the description of business in Wal-Mart’s 1997 10-K. Exhibit 9 consists of Wal-Mart?s financial statements for the 1997 fiscal year.2 Exhibit 10 provides selected excerpts from a summary of Wal-Mart’s significant accounting policies while Exhibit 11 contains the 1997 lease footnote.
1Robert Brenner, ?Come See the Softer Side of Sears?Its Earnings,? The Wall Street Journal, July 23, 1998. 2 Wal-Mart follows a common retail convention of ending its fiscal year on January 31 of the following calendar year. This allows the year end to capture all holiday sales and related returns to the stores. Thus, fiscal 1997 ends on January 31, 1998. Sears does not follow this convention.
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Sears, Roebuck and Co. vs Wal-Mart Stores, Inc. 101-011
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Exhibit 1 Selected Excerpts Sears, Roebuck and Co., 1997 Description of Business Credit The products offered by the Company’s domestic credit operations (“Credit”) make it more attractive for customers to purchase goods and services from the Retail and Services businesses. As of December 1997, Credit had approximately 27.0 million active customer credit accounts (accounts with balances as of the beginning or end of December 1997) with an average balance of $1,058. Sears Card, the traditional charge card, accounted for approximately 90% of total receivables. There were approximately 41 million Sears Card customers with accounts that were active during any month in 1997. Sears stores also accept third party credit and debit cards such as VISA, MasterCard, American Express and Discover Card. Sears Card as a percentage of total sales in the Full-line and the majority of the specialty store formats was approximately 55.1%, 56.6%, and 56.6% for fiscal years 1997, 1996, and 1995, respectively. Since August 1, 1993, when Sears began to accept VISA, MasterCard and American Express cards at all Sears stores, the Company has focused intensely on marketing and other initiatives that are designed to maintain the penetration of Credit products in all sales and service channels, as well as to increase the revenues of the Retail and Services businesses. Sears has an ongoing securitization program through which a portion of domestic customer receivable balances are sold through SRFG, Inc., a wholly-owned subsidiary, to a master trust (the “Master Trust”) that issues credit account pass-through certificates to public and private investors. The receivables represented by the pass-through certificates sold to third parties qualify as sales for financial statement purposes and as such the receivables are removed from the consolidated balance sheet. The balance of the receivables in the Master Trust, which are not sold to third parties, is presented as retained interest in transferred credit card receivables. Pursuant to contractual agreements, Sears remains the servicer on the accounts and receives a fee for the services performed. Properties The following table sets forth information concerning stores operated by Domestic Operations.
Auto Stores Home Stores
Full-line Stores Tires Parts HomeLife Hardware Dealer Other Total Stores at January 3, 1998: 460 598 129 31 13 2 18 1,251 Leased Operating Leases 325 491 486 58 228 — 26 1,614 Capital Leases 48 17 — 12 14 — — 91 Independently owned and operated Dealer stores — — — — — 574 — 574 Total stores at fiscal year-end 1994 800 1,007 384 72 80 285 70 2,698 Stores opened during fiscal 1995 16 37 215 26 45 98 7 444 Stores closed during fiscal 1995 (10) (13) (17) (1) (17) (8) (6) (72) 1995 806 1,031 582 97 108 375 71 3,070 Stores opened during fiscal 1996 27 40 67 12 136 120 9 411 Stores closed during fiscal 1996 (12) (13) (22) (2) (15) (26) (20) (110) 1996 821 1,058 627 107 229 469 60 3,371 Stores opened during fiscal 1997 21 68 90 3 33 124 — 339 Stores closed during fiscal 1997 (9) (20) (102) (9) (7) (17) (16) (180) 1997 833 1,106 615 101 255 576 44 3,530 Gross retail area at fiscal year end (square feet in millions) 1997 110.3 15.9 6.6 3.6 8.2 4.7 1.7 151.0 1996 108.4 15.2 6.9 3.8 6.1 3.8 2.0 146.2 1995 105.6 15.0 6.4 3.4 2.0 2.9 2.0 137.3 Retail selling area at fiscal year end (square feet in millions) 1997 71.9 2.2 4.7 3.0 6.5 3.1 1.3 92.7 1996 69.9 2.1 4.7 3.2 5.6 2.6 1.5 89.8 1995 66.8 2.1 4.5 2.9 1.7 1.9 1.5 81.4
Retail Store Revenues per Selling Square Foot 1997 1996 1995 $318 $321 $323
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101-011 Sears, Roebuck and Co. vs Wal-Mart Stores, Inc.
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Exhibit 2 Sears, Roebuck and Co., 1997 Non-Comparable Items
Earnings millions, except per share after-tax per share Income from continuing operations in 1997 declined 6.6% to $1.19 billion, or $2.99 per share, from $1.27 billion, or $3.12 per share for 1996. Results for 1997 were impacted by several significant noncomparable items, which in the aggregate lowered net income by $115 million. The most notable of these items include the cost relating to the Company’s handling of certain credit reaffirmation agreements, the gain on the sale of the Advantis data services business, and the positive effect from the adoption of Statement of Financial Accounting Standards (SFAS) No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” effective Jan. 1, 1997.
The effect of these and other noncomparable items is summarized as follows:
1997 Net income before noncomparable items $1,303 $ 3.27 Reaffirmation charge (320) (0.80) SFAS No. 125 accounting change 136 0.35 Sale of Advantis 91 0.23 Other (22) (0.06) 1997 Net income as reported $1,188 $ 2.99
The reaffirmation charge of $475 million ($320 million after-tax) represents the estimated cost of the settlement of certain lawsuits and investigations by regulatory agencies that 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. This estimate is based on management’s assumptions as to the ultimate outcome of future events and uncertainties. Actual results could differ from this estimate and there can be no assurance that additional costs will not be incurred.
SFAS No. 125 requires the recognition of gains and losses on credit card securitizations that qualify as sales. The statement also indicates that an allowance for uncollectible accounts should not be maintained for securitized receivables that are sold. Implementation of SFAS No. 125 provided incremental net income of $136 million in 1997 and reduced reported credit revenues, selling and administrative expense and the provision for uncollectible accounts by $321 million, $126 million and $417 million, respectively.
In 1997, the Company sold its 30% equity interest in Advantis, a joint venture between IBM and the Company, to IBM, which resulted in a pretax gain of $150 million ($91 million after-tax) recorded in other income.
Other noncomparable items in 1997 include a loss on the sale of Sears Mexico, which is further discussed in the international segment, a one-time gain related to postretirement life insurance benefit plan changes, and a charge to complete the conversion of the Western Auto operations to the Parts America format.
In 1997, the Company announced changes to its postretirement life insurance benefit plan. Retiree life insurance benefits were eliminated for all active associates not retired by Dec. 31, 1997. This plan change resulted in a one-time gain of $61 million ($37 million after-tax) recorded as a reduction of selling and administrative expense. In connection with the elimination of retirement life insurance benefits for active associates, the Company also announced the reduction over a ten year period in the death benefit for certain retirees, which will generate annual after-tax savings of approximately $35 million.
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Sears, Roebuck and Co. vs Wal-Mart Stores, Inc. 101-011
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The Company accelerated its plan to complete the conversion of Western Auto operations to the new Parts America format in 1997 and, as a result, recorded a charge of $38 million ($23 million after- tax) related to this initiative. As of year-end, the Company has substantially completed its conversion to the parts-only format consisting of 576 domestic Parts America stores.
In 1997, net income before noncomparable items was $1.30 billion, an increase of 4.8% per share to $3.27, from 1996. The improved profitability of the domestic retail and services businesses, coupled with strong Sears Canada performance, was largely offset by a decline in credit results due to an increase in the domestic provision for uncollectible accounts, reflecting the continuing trend of increased delinquencies and charge-offs.
Net income in 1996 was $1.27 billion, an increase of 23.3% per share to $3.12, compared to income from continuing operations of $1.03 billion, or $2.53 per share, for 1995. The increase was a result of strong merchandise sales and improved margins coupled with higher credit operating income.
Source: Sears, Roebuck and Co. 1997 10-K filing.
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101-011 Sears, Roebuck and Co. vs Wal-Mart Stores, Inc.
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Exhibit 3 Sears, Roebuck and Co., 1997 Financial Statements
Statements of Income (millions fiscal years ended December 31)
1997 1996 1995 Revenues Merchandise sales and services $36,371 $33,751 $31,133 Credit revenues 4,925 4,313 3,702 Total revenues 41,296 38,064 34,835 Costs and expenses Cost of sales, buying and occupancy 26,769 24,889 23,160 Selling and administrative 8,331 8,059 7,428 Provision for uncollectible accounts 1,532 971 589 Depreciation and amortization 786 697 580 Interest 1,409 1,365 1,373 Reaffirmation charge 475 — — Total costs and expenses 39,302 35,981 33,130 Operating income 1,994 2,083 1,705 Other income 106 22 23 Income before income taxes 2,100 2,105 1,728 Income taxes 912 834 703 Income from continuing operations 1,188 1,271 1,025 Discontinued operations — — 776 Net income $1,188 $1,271 $1,801
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Sears, Roebuck and Co. vs Wal-Mart Stores, Inc. 101-011
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Exhibit 3 (continued)
Balance Sheets (millions fiscal years ended December 31)
1997 1996 Assets Current assets Cash and cash equivalents $358 $660 Retained interest in transferred credit card receivables 3,316 2,260 Credit card receivables 20,956 20,104 Less: Allowance for uncollectible accounts 1,113 801 19,843 19,303 Other receivables 335 335 Merchandise inventories 5,044 4,646 Prepaid expenses and deferred charges 956 348 Deferred income taxes 830 895 Total current assets 30,682 28,447 Property and equipment Land 487 445 Buildings and improvements 5,420 5,080 Furniture, fixtures and equipment 4,919 4,279 Capitalized leases 498 433 11,324 10,237 Less accumulated depreciation 4,910 4,359 Total property and equipment, net 6,414 5,878 Deferred income taxes 666 905 Other assets 938 937 Total assets $38,700 $36,167 Liabilities Current liabilities Short-term borrowings $5,208 $3,533 Current portion of LT debt and capitalized lease obligations 2,561 2,737 Accounts payable and other liabilities 6,637 7,225 Unearned revenues 830 840 Other taxes 554 615 Total current liabilities 15,790 14,950 Long-term debt and capitalized lease obligations 13,071 12,170 Postretirement benefits 2,564 2,748 Minority interest and other liabilities 1,413 1,354 Total liabilities 32,838 31,222 Shareholders? equity Common shares ($.75 par value, 1,000 shares authorized 390.9 and 391.4 shares outstanding) 323 323 Capital in excess of par value 3,598 3,618 Retained income 4,158 3,330 Treasury stock-at cost (1,702) (1,655) Minimum pension liability (217) (277) Deferred ESOP expense (204) (230) Cumulative translation adjustments (94) (164) Total shareholders? equity 5,862 4,945 Total liabilities and shareholders? equity $38,700 $36,167
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101-011 Sears, Roebuck and Co. vs Wal-Mart Stores, Inc.
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Exhibit 3 (continued)
Statements of Cash Flows (millions fiscal years ended December 31)
1997 1996 1995 Cash flows from operating activities Net income $1,188 $1,271 $1,801 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation, amortization and other non-cash items 807 774 631 Provision for uncollectible accounts 1,532 971 589 Gain on sales of property and investments (122) (36) (35) Change in (net of acquisitions): Deferred income taxes 273 (31) 50 Retained interest in transferred credit card receivables (1,056) 3,318 (2,036) Credit card receivables (2,285) (5,739) (534) Merchandise inventories (475) (475) 30 Other operating assets (160) 111 (106) Other operating liabilities (258) 1,025 801 Discontinued operations — — (776) Net cash (used in) provided by operating activities (556) 1,189 415 Cash flows from investing activities Acquisition of businesses, net of cash acquired (138) (296) (53) Proceeds from sales of property and investments 394 42 41 Purchases of property and equipment (1,328) (1,189) (1,183) Discontinued operations — — 483 Net cash used in investing activities (1,072) (1,443) (712) Cash flows from financing activities Proceeds from long-term debt 3,920 4,683 2,588 Repayments of long-term debt (3,299) (1,832) (1,124) Increase (decrease) in short-term borrowings, primarily 90 days or less 1,834 (1,814) (637) Termination of interest rate swap agreements (633) — — Repayments of ESOP loan 16 21 44 Preferred stock redemption — (325) — Common shares purchased for employee stock plans (170) (164) — Common shares issued for employee stock plans 103 134 97 Dividends paid to shareholders (441) (394) (607) Net cash provided by financing activities 1,330 309 361 Effect of exchange rate changes on cash and cash equivalents (4) (1) (6) Net (decrease) increase in cash and cash equivalents (302) 54 58
Source: Sears, Roebuck and Co. 1997 Annual Report.
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Sears, Roebuck and Co. vs Wal-Mart Stores, Inc. 101-011
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Exhibit 4 Selected Excerpts Sears, Roebuck and Co., 1997 Summary of Significant Accounting Policies
1. Summary Of Significant Accounting Policies Basis Of Presentation
The consolidated financial statements include the accounts of Sears, Roebuck and Co. (“the Company”) and all significant domestic and international companies in which the Company has more than a 50% equity ownership. Investments in companies in which the Company has a 20% to 50% ownership are accounted for using the equity method. The Allstate Corporation (“Allstate”) and Homart Development Co. and affiliated entities (“Homart”) are presented as discontinued operations in 1995.
Merchandise Sales And Services
Revenues from merchandise sales and services are net of returns and allowances and exclude sales tax. Included in merchandise sales and services are gross revenues from licensees of $1.39, $1.32 and $1.25 billion for 1997, 1996 and 1995, respectively.
Service Contracts
The Company sells extended service contracts with terms of coverage generally between 12 and 36 months. Revenue and incremental direct acquisition costs from the sale of these contracts are deferred and amortized on a straight-line basis over the lives of the contracts. Costs related to servicing the contracts are expensed as incurred.
Store Pre-Opening Expenses
Costs associated with the opening of new stores are expensed as incurred.
Retained Interest In Transferred Credit Card Receivables
As part of its domestic credit card securitizations, the Company transfers credit card receivables to a Master Trust (“Trust”) in exchange for certificates representing undivided interests in such receivables. Effective Jan. 3, 1998 the Company reclassified, for all periods presented, its retained interest in transferred credit card receivables to a separate balance sheet account and presented the related charge-offs of transferred credit card receivables as a reduction of credit revenues. The retained interests consist of investor certificates held by the Company and the seller’s certificate, which represents both contractually required seller’s interest and excess seller’s interest in the credit card receivables in the Trust. Retained interests are as follows:
Millions 1997 1996 1995 Investor certificates held by the Company $ 545 $ 522 $ 295 Contractually required seller’s interest 697 684 495 Excess seller’s interest 2,074 1,054 4,789 Retained interest in transferred credit card receivables $3,316 $2,260 $5,579
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101-011 Sears, Roebuck and Co. vs Wal-Mart Stores, Inc.
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The Company intends to hold the investor certificates and contractually required seller’s interest to maturity. The excess seller’s interest is considered available for sale. Due to the short-term revolving nature of the underlying credit card receivables, the carrying value of the Company’s retained interest in transferred credit card receivables approximates fair value and is classified as a current asset.
Credit Card Receivables
Credit card receivables arise primarily under open-end revolving credit accounts used to finance purchases of merchandise and services offered by the Company. These accounts have various billing and payment structures, including varying minimum payment levels and finance charge rates. Based on historical payment patterns, the full receivable balance will not be realized within one year.
Credit card receivables are shown net of an allowance for uncollectible accounts. The Company provides an allowance for uncollectible accounts based on impaired accounts, historical charge-off patterns, and management judgment.
Uncollectible accounts are generally charged off automatically when the customer’s past due balance is eight times the scheduled minimum monthly payment, except that accounts may be charged off sooner in the event of customer bankruptcy. Finance charge revenue is recorded until such time as an account is charged off. Finance charges on charged-off accounts are presented as a reduction of credit revenues.
Effective for fiscal year 1997, the Company adopted SFAS No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 125 requires that the Company recognize gains on its domestic credit card securitizations which qualify as sales and that an allowance for uncollectible accounts not be maintained for receivable balances which are sold. Prior to adoption of SFAS No. 125, the Company maintained an allowance for uncollectible sold accounts as a recourse liability and did not recognize gains on securitizations. Adoption of SFAS No. 125 increased net income $136 million in 1997.
Merchandise Inventories
Approximately 83% of merchandise inventories are valued at the lower of cost (using the last-in, first-out or LIFO method) or market using the retail method. To estimate the effects of inflation on inventories, the Company utilizes internally developed price indices.
The LIFO adjustment to cost of sales was a credit of $17 million in 1997 and a charge of $19 million in 1996 and 1995. Partial liquidation of merchandise inventories valued under the LIFO method resulted in credits of $2 million and $15 million in 1997 and 1995. No layer liquidation credits resulted in 1996. If the first-in, first-out (FIFO) method of inventory valuation had been used instead of the LIFO method, merchandise inventories would have been $713 and $730 million higher at Jan. 3, 1998 and Dec. 28, 1996, respectively.
Merchandise inventories of international operations, the Parts Group, certain Sears Tire Group formats and Puerto Rico, which represent approximately 17% of merchandise inventories, are recorded at the lower of cost or market based on the FIFO method.
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Sears, Roebuck and Co. vs Wal-Mart Stores, Inc. 101-011
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Property And Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided principally by the straight-line method over the estimated useful lives of the related assets, generally 5 to 10 years for furniture, fixtures and equipment, 40 to 50 years for buildings and building improvements, and over the expected term of the lease or estimated useful lives, whichever is shorter, for leasehold improvements.
Goodwill
Included in other assets is the excess of purchase price over net assets of businesses acquired (“goodwill”), which is amortized using the straight-line method over 40 years.
Exhibit 5 Sears, Roebuck and Co., Leased Stores Footnote
Lease And Service Agreements
The Company leases certain stores, office facilities, warehouses, computers and transportation equipment.
Operating and capital lease obligations are based upon contractual minimum rates and, for certain stores, amounts in excess of these minimum rates are payable based upon specified percentages of sales. Certain leases include renewal or purchase options. Operating lease rentals were $439, $365 and $357 million, including contingent rentals of $57, $66 and $66 million, for the years ended Jan. 3, 1998, Dec. 28, 1996, and Dec. 30, 1995, respectively.
Minimum lease obligations, excluding taxes, insurance and other expenses payable directly by the Company, for leases in effect as of Jan. 3, 1998, were:
Capital Leases (millions) Operating Leases (millions) 1998 $ 59 $ 340 1999 58 311 2000 58 268 2001 57 235 2002 53 210 After 2002 765 1,102 Total minimum payments $1,050 $2,466 Less imputed interest 626 Present value of minimum lease payments 424 Less current maturities 14 Long-term obligation $ 410
The Company has committed to purchase from a third party provider data and voice networking and information processing services of at least $216 million annually through 2004. Total expenses incurred by the Company for these services during the years 1997, 1996 and 1995 were $361, $327 and $270 million, respectively.
Source: Sears, Roebuck and Co. 1997 10-K filing.
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Exhibit 6 Sears, Roebuck and Co., 1995-97 Operating Income by Business Format (millions)
Fiscal years ended December 31,
1997 1996 1995 Retail $946 $867 $703 Services 345 279 221 Credit 1,005 1,164 1,001 Corporate (214) (216) (197) Total operating income $2,082 $2,094 $1,728
Source: Sears, Roebuck and Co. 1997 Annual Report.
Exhibit 7 Sears, Roebuck and Co., 1995-97 Credit Segment Information, Fiscal years ended December 31,
1997 1996 1995 Sears Card as % of sales 55.1% 56.6% 56.6% Credit card receivables ($ millions) 20,956 20,104 19,193 Provision for uncollectible accountsa ($ millions) 1,532 971 589 Allowance for uncollectible accountsb ($ millions) 1,113 801 826 Delinquency as % of end-of year credit card receivablesc 7.00% 5.40% 4.16%
Source: Sears, Roebuck and Co. 1997 Annual Report.
aProvision for uncollectible accounts is also commonly referred to as bad debt expense. This expense is a separate line item on the income statement and represents the amount of current-period sales that a company feels will not be collected as well as adjustments in uncollectibility from prior periods (if any).
bAllowance for uncollectible accounts appears on the balance sheet as a contra asset account to credit card receivables and measures the amount of credit card receivables that a company feels will not be collected. This account increases as bad debt expenses are recorded and decreases when uncollectible credit card receivables are written off.
cAn account is generally considered delinquent when the past due balance is three times the scheduled minimum monthly payment.
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Sears, Roebuck and Co. vs Wal-Mart Stores, Inc. 101-011
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Exhibit 8 Wal-Mart Stores, Inc., 1997 Description of Business
The Company, a Delaware corporation, has its principal offices in Bentonville, Arka

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