Domestic operating income as reported and excluding noncomparable items is as follows:

The following discussion of domestic operating results excludes the effect of noncomparable items to provide a more meaningful comparison between years. While the table of noncomparable items on page 19 indicates the effect on net income and earnings per share for each item, the above table includes only the effect on operating income. In addition, this table includes the reclassification effect related to the implementation of SFAS No. 125 as contrasted with the accounting treatment prior to implementation of this standard. Domestic operations revenue increased 0.9% in 1998 to $38.46 billion, compared to $38.13 billion in 1997. Revenue results included a 1.1% increase in Retail revenues, a 1.3% increase in Services revenues and a 1.0% decrease in Credit revenues. In 1997, domestic operations revenues increased 10.0%, led by a 24.4% increase in Credit revenues. Gross margin as a percentage of domestic merchandise sales and services declined 70 basis points to 25.7% from 26.4% in 1997. The decline is due to increased promotional activity in the Retail segment. In 1997, gross margin as a percentage of domestic merchandise sales and services remained flat at 26.4% as the Retail gross margin rate declined due to higher promotional activity, but was offset by an improvement in the Services gross margin. Selling and administrative expense as a percentage of domestic revenues improved 10 basis points in 1998 to 20.1% from 20.2% in 1997. The improvement was primarily attributable to improved Retail expense leverage, partially offset by increased operating expenses within Credit and Services. In 1997, selling and administrative expense as a percentage of domestic revenues improved 70 basis points to 20.2% from 20.9% in 1996. The improvement was primarily attributable to leveraging payroll and other employee related costs in the Retail segment, partially offset by increased marketing in the Services segment. INFLATION The moderate rate of inflation over the past three years has not had a significant effect on the Company’s sales and profitability. OUTLOOK In 1999, the Company expects operating income to grow in its Retail, Services, Credit and International segments. The Company anticipates low double-digit earnings per share growth on a comparable basis for the full year of 1999. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION Certain statements made in this Annual 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 beginning on page 29 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.

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