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PostPosted: Tue Dec 19, 2006 11:30 pm 
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On November 12, 2002, Sears filed its Form 10-Q for the third quarter of 2002. In that report, Sears for the first time revealed to investors how the Sears MasterCard and Sears Card portfolios had both been deteriorating during the Class Period. Sears explained that "[b]ecause the MasterCard portfolio has a lower delinquency rate than the Sears Card, the growth in the MasterCard portfolio coupled with the decline in the Sears Card portfolio led to an improvement in the total portfolio delinquency rate as compared to the third quarter of 2001." Sears also stated that it "charges off accounts at 240 days where[as] most bankcard issuers charge off at 180 days. Therefore Sears' delinquency rate is not directly comparable to participants of the bankcard industry." (Id. ¶¶ 182, 183.) With respect to its re-aging policies, Sears disclosed that
*8 [t]he Company's current credit processing system charges off an account automatically when a customer's number of missed monthly payments reaches eight, except that accounts can be re-aged once per year when a customer makes two consecutive monthly payments. Also, accounts may be charged off sooner in the event of customer bankruptcy. Finance charge and credit card fee revenue is recorded until an account is charged off at which point the charged off balances are presented as a reduction of revenue.
(Id. ¶ 184.)
An article on The Street.com reported that this new data "shows deep deterioration in the MasterCard portfolio. A back-of-the-envelope calculation suggests that, if this rot continues, the company may have to make loan provisions in 2003 that could wipe out a large part of the earnings analysts currently forecast." (Id. ¶ 186.) On November 20, 2002, Bear Steams described Sears' "aggressive write-off policy" as a "key concern," and expressed "uneas [e]" as to whether Sears had "adequately accounted for the potential level of charge-offs." [FN6] (Id. ¶ 187.)


FN6. The Complaint does not identify the format of this report.


Ong ex rel. Ong v. Sears, Roebuck & Co.
Slip Copy, 2005 WL 2284285
N.D.Ill.,2005.
Sep 14, 2005

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