Sears Holdings Reports Fourth Quarter and Full Year 2006 Results
Sears Holdings Corporation ("Holdings" or the "Company") (NASDAQ: SHLD) today reported net income of $820 million, or $5.33 per diluted share, for the fourth quarter ended February 3, 2007, compared with net income of $648 million, or $4.03 per diluted share, for the fourth quarter ended January 28, 2006. For the fiscal year ended February 3, 2007, net income was $1.5 billion, or $9.57 per diluted share compared with net income of $858 million, or $5.59 per diluted share, for the fiscal year ended January 28, 2006. Net income for the year ended January 28, 2006 included an after-tax charge of $90 million, or $0.58 per diluted share, for the cumulative effect of a change in accounting. The Company follows a retail-based financial reporting calendar. Accordingly, the Company's fiscal 2006 fourth quarter and full-year results reflect the 14- and 53-week periods ended February 3, 2007, respectively, whereas fiscal 2005 contained 13- and 52-weeks for the fourth quarter and full year, respectively.
The Company's improved quarterly results reflect increased operating income at both Kmart and Sears Domestic, driven primarily by improved margin rate performance, most notably within apparel. The full year results also improved as compared to last year on the basis of strong second half margin performance within apparel, as well as improved expense management across all of the Company's segments: Kmart, Sears Domestic and Sears Canada. Earnings per diluted share for the quarter also benefited from lower average diluted shares outstanding during the current year quarter as compared with the fourth quarter of fiscal 2005.
"We are making progress as evidenced by our improved financial performance in fiscal 2006, but recognize we still have much work to do. Our improved apparel results are an indication of what can happen when we enhance our offerings and services to better meet customers' needs," said Aylwin Lewis, Sears Holdings' chief executive officer and president. He added, "We believe that actions taken in 2006 to put the right culture and infrastructure in place will provide opportunities for us to expand our successes in 2007 and help us realize our Company vision to improve the lives of our customers by providing quality services, products and solutions that earn their trust and build lifetime relationships."
Significant Items
A number of items significantly impacted the Company's fiscal 2006 and fiscal 2005 diluted earnings per share. While these types of items periodically affect the Company's results, they vary significantly in amount from period to period, and had a disproportionate effect on the Company's results for the periods presented. Management considers the total impact of these items, along with reported results, when it reviews and evaluates the Company's financial performance. The impact of these items on diluted earnings per share is shown in the following table:
Quarters Ended Fiscal Years Ended
February January February January January
3, 2007 28, 2006 3, 2007 28, 2006 28, 2006
Pro
forma(1)
Earnings per diluted share $5.33 $4.03 $9.57 $5.59 $4.85
Less:
Cumulative effect of
change in accounting -- -- -- (0.58) (0.55)
Total return swap
income (loss) (0.11) -- 0.29 -- --
Income tax settlements 0.17 -- 0.20 -- --
Visa/MasterCard
settlement -- -- 0.14 -- --
Legal reserve - AIG
Annuity Insurance Co.,
et al. v. Sears Roebuck (0.29) -- (0.29) -- --
Gain on sale of assets 0.20 0.05 0.32 0.16 0.15
Restructuring charges -- (0.02) (0.09) (0.35) (0.33)
Earnings per diluted
share excluding the
above items $5.36 $4.00 $9.00 $6.36 $5.58
(1) The reported results for fiscal 2005 include the full year results for
Kmart, but Sears results are included only for the period subsequent
to the March 24, 2005 Sears and Kmart merger. Therefore, to facilitate
an understanding of the Company's trends and on-going performance, in
addition to the reported results for fiscal 2005, the Company has
presented pro forma results for fiscal 2005. These pro forma results
adjust the reported amounts for fiscal 2005 to give effect to the
Merger as if it had occurred at the beginning of fiscal 2004.
The four significant items impacting the fourth quarter of 2006 are: 1) a $27 million pre-tax loss ($17 million after-tax or $0.11 per diluted share) on the Company's total return swap investments; 2) pre-tax gains of $50 million ($31 million after-tax or $0.20 per diluted share) on sale of assets; 3) a tax benefit of $25 million (or $0.17 per diluted share) related to the resolution of certain income tax matters and 4) a pre-tax charge of approximately $74 million ($45 million after-tax or $0.29 per diluted share) related to an unfavorable verdict in connection with a pre-merger legal matter concerning Sears' redemption of certain bonds in 2004. As previously disclosed, a verdict was reached by a state court jury in Dallas, Texas on February 2, 2007 that will require the Company's subsidiary Sears Roebuck and Co. to pay a group of institutional bondholders approximately $74 million in a case relating to the 2004 redemption of certain bonds by Sears, Roebuck following the sale of its credit card business. The Company is filing post-trial motions seeking to overturn the verdict and, if necessary, will file an appeal. There can be no assurance that the Company will be successful in its efforts to challenge the verdict. The increase in the gain on asset sales is primarily due to the recognition of a $41 million pre-tax gain recorded in fiscal 2006 on the sale of the Company's former Kmart corporate headquarters in Troy, Michigan.
Fourth Quarter and Full Year Revenues and Comparable Store Sales
For the quarter, domestic comparable store sales declined 3.1% in the aggregate, with Sears Domestic comparable store sales declining 4.9% and Kmart comparable store sales declining 0.9%. For the year, domestic comparable store sales declined 3.7% in the aggregate, with Sears Domestic comparable store sales declining 6.1% and Kmart comparable store sales declining 0.6%. The comparable store sales declines at both Kmart and Sears Domestic reflect the impact of increased competition and lower transaction volumes. At Kmart, despite continued pressure from competitor expansion, comparable store sales declined only modestly for both the quarter and year. The decline at Kmart occurred across a number of categories, partially offset by increases within apparel and pharmacy. At Sears Domestic, comparable store sales declined for both the quarter and year across most categories and formats, partially offset by increases in women's apparel, reflecting what the Company believes are improved assortments in this business relative to last year. In 2005, Sears Domestic modified its apparel assortment to a more "fashion forward" offering, which was not successful and led to significant sales declines within Sears Domestic's apparel business during the second half of fiscal 2005. During the fourth quarter, the Company experienced a sales decline in its home appliance business as a result of the slower U.S. housing market and increased competition.
For the quarter, total revenues increased $0.2 billion to $16.3 billion for the 14 weeks ended February 3, 2007, as compared to total revenues of $16.1 billion for the 13 weeks ended January 28, 2006. The increase was primarily due the inclusion of an additional week of sales in the fourth quarter of fiscal 2006 (comprised of 14 weeks) as compared to the fourth quarter of fiscal 2005 (comprised of 13 weeks). Full year fiscal 2006 revenues were $53.0 billion as compared to $49.1 billion in fiscal 2005. The increase in fiscal 2006 was primarily due to the inclusion of Sears for the entire year in fiscal 2006 and, to a lesser degree, the inclusion of an additional week of sales in fiscal 2006. Fiscal 2006 revenues declined $1.3 billion, or 2.3%, to $53.0 billion, as compared to fiscal 2005 pro forma revenues of $54.3 billion. The decline versus pro forma revenues for fiscal 2005 primarily reflects lower comparable store sales and the impact of Kmart store closures, partially offset by the added week of sales recorded in fiscal 2006.
Operating Income
Operating income was $1.4 billion for the 14 weeks ended February 3, 2007, as compared to $1.5 billion for the 13 weeks ended January 28, 2006. The decrease in operating income reported for the quarter was due primarily to a $317 million pre-tax gain on the sale of the Sears Canada credit business in fiscal 2005. The gain had no impact on Holdings' net income as its entire impact was offset by increased minority interest expense. Excluding the $317 million pre-tax gain, fiscal 2005 fourth quarter operating income was $1.2 billion, with the increase in fiscal 2006 primarily reflecting improved margin performance within the domestic apparel business.
Operating income was $2.5 billion for fiscal year 2006, as compared to $2.1 billion for fiscal 2005. Excluding the gain on sale of the Sears Canada credit business in 2005, operating income was $1.8 billion, with the increase in fiscal 2006 primarily reflecting improved margin performance within the domestic apparel business and reduced expense across all business segments. Operating income in fiscal 2005 was negatively impacted by $111 million in restructuring charges at Sears Canada and Kmart as compared with $28 million in such charges at Kmart and Sears Canada in the current year.
Financial Position
The Company had cash and cash equivalents of $4.0 billion at February 3, 2007 (of which $3.3 billion was domestic and $0.7 billion was at Sears Canada) as compared to $4.4 billion at January 28, 2006. During the current quarter, cash and cash equivalents increased $1.9 billion from the $2.1 billion balance at the end of the third quarter, primarily reflecting operating cash flows generated from sales during the holiday selling season. For the year, the Company's significant uses of its domestic cash included $816 million for share repurchases, $474 million in capital expenditures, $318 million in pension contributions, $282 million to purchase additional interests in Sears Canada, and debt payments, net of new borrowings of $250 million. The Company's fiscal 2006 year-end domestic cash balance of $3.3 billion was below the Company's projected year-end balance largely as a result of higher than expected disbursements made relative to federal and state tax payments and lower than expected January sales.
Merchandise inventories at February 3, 2007 were approximately $9.9 billion, as compared to $9.1 billion as of January 28, 2006. The increase as compared to prior year end reflects a number of factors, including timing of inventory receipts ($200 million) primarily due to earlier receipt of spring goods and a higher level of in-transit import inventory, planned increases in certain basic fashion categories ($130 million), increased inventory in hardline categories ($120 million) to place Sears products (Craftsman and appliances) in Kmart stores and pursue incremental Home Decor/Furniture business, and approximately $140 million attributable to lower than expected sales levels. Additionally, at the end of fiscal 2005, the Company reduced inventory in Sears Domestic's apparel and home fashion businesses as the Company worked to improve merchandise assortments in these categories. The Company continues to review and assess its merchandise inventory levels in an ongoing effort to continuously improve overall returns. Merchandise payables were $3.3 billion at February 3, 2007, as compared to $3.5 billion as of January 28, 2006.
As the result of resolving certain tax matters during the fourth quarter of 2006 pertaining to pre-merger periods, the Company recorded approximately $188 million as a reduction to deferred tax liabilities with an offsetting credit recorded to goodwill. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," resolution of these matters result in a direct credit to merger-related goodwill.
Share Repurchase
During the fourth quarter of 2006, the Company repurchased approximately 0.1 million common shares under its share repurchase program at a total cost of $14 million, or an average price of $165 per share. For the full year, the Company repurchased 6 million common shares under its share repurchase program at a cost of $806 million, or an average price of $133 per share. As of February 3, 2007, the Company had remaining authorization to repurchase $604 million of common shares under its existing share repurchase program approved by the board of directors. The remaining shares may be purchased in the open market, through self-tender offers or through privately negotiated transactions. Timing will depend on prevailing market conditions, alternative uses of capital and other factors.
Interest and Investment Income
The following table sets forth the components of interest and investment income as reported on the Company's income statement. Amounts from prior periods have been reclassified to interest and investment income to conform to current period presentation. The Company previously reported interest income on cash and cash equivalents as a component of net interest expense, and reported other investment income as a component of other income.
Quarters Ended Fiscal Years Ended
millions February January February January
3, 2007 28, 2006 3, 2007 28, 2006
Interest and investment income
Interest income on cash and
cash equivalents $39 $34 $151 $85
Total return swap income (loss) (27) -- 74 --
Other investment income 1 7 29 42
Total $13 $41 $254 $127
The Company, from time to time, invests its surplus cash in various securities and financial instruments, including total return swaps, which are derivative contracts that synthetically replicate the economic return characteristics of one or more underlying marketable equity securities. In exchange for receiving the return tied to the position underlying a total return swap, the Company pays a floating rate of interest tied to LIBOR on the notional amount of the contract. The fair value of a total return swap is based on the quoted market price of the underlying position and changes in fair value of the total return swaps are recognized currently in earnings. During fiscal 2006, the Company entered into total return swaps and recognized $74 million of pre-tax investment income. At February 3, 2007, the total return swaps had an aggregate notional amount of $375 million and a fair value of $5 million. These investments are highly concentrated and involve substantial risks. Accordingly, the Company's financial position and quarterly and annual results of operations may be positively or negatively materially affected based on the timing, magnitude and performance of these investments.
Adjusted EBITDA
For purposes of evaluating operating performance, the Company's management uses an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") measurement computed as operating income appearing on the statement of operations less depreciation and amortization and gains/(losses) on sales of assets. In addition, it is adjusted to exclude certain merger-related costs, nonrecurring gains and restructuring charges. Adjusted EBITDA is used by management to evaluate the operating performance of the Company's businesses for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Management compensates for this limitation by using GAAP financial measures as well in managing the Company's businesses.
While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:
-- EBITDA excludes the effects of financing and investing activities by
eliminating the effects of interest and depreciation costs;
-- Management considers gains/(losses) on the sale of assets to result
from investing decisions rather than ongoing operations;
-- Restructuring activities, while periodically affecting the Company's
results, may vary significantly from period to period and have a
disproportionate effect in a given period, which affects the
comparability of results; and
-- Adjusted EBITDA excludes a one-time gain resulting from the settlement
of Visa/MasterCard litigation and vice chairman separation expenses,
both of which were recorded in the second quarter of fiscal 2006, as
well as the legal reserve recorded in connection with a pre-merger
legal matter and merger transaction costs which result from
extraordinary activities that are not part of normal operations.
Adjusted EBITDA was determined as follows:
Quarters Ended Fiscal Years Ended
February January February January
3, 2007 28, 2006 3, 2007 28, 2006
Pro Forma
Operating income per statement of
income $1,399 $1,530 $2,523 $2,073
Plus depreciation and amortization 299 282 1,142 1,108
Less gain on sale of
assets/businesses (50) (331) (82) (357)
Before excluded items 1,648 1,481 3,583 2,824
Vice Chairman separation expense -- -- 8 --
Visa/MasterCard settlement -- -- (36) --
Merger transaction costs -- -- -- 34
Legal reserve - AIG Annuity
Insurance Co., et al. v.
Sears Roebuck 74 -- 74 --
Restructuring charges 1 7 28 111
Adjusted EBITDA as defined $1,723 $1,488 $3,657 $2,969
% to revenues 10.6% 9.3% 6.9% 5.5%
Adjusted EBITDA for the Company's domestic (United States operations) and
Sears Canada operations is as follows:
Quarters Ended Fiscal Years Ended
Adjusted % To Adjusted % To
EBITDA Revenues EBITDA Revenues
Feb- Jan- Feb- Jan- Feb- Jan- Feb- Jan-
ruary uary ruary uary ruary uary ruary uary
3, 28, 3, 28, 3, 28, 3, 28,
2007 2006 2007 2006 2007 2006 2007 2006
Pro Pro
Forma Forma
Domestic operations $1,556 $1,303 10.6% 9.0% $3,248 $2,622 6.8% 5.3%
Sears Canada 167 185 10.2% 11.4% 409 347 7.9% 6.8%
Total Adjusted EBITDA $1,723 $1,488 10.6% 9.3% $3,657 $2,969 6.9% 5.5%
Annual Report on Form 10-K
The Company plans to file with the SEC its Annual Report on Form 10-K for the year ended February 3, 2007 on or before April 4, 2007
Forward-Looking Statements
Results are preliminary and unaudited. This press release contains forward-looking statements about the Company's expectations. Forward-looking statements are subject to risks and uncertainties that may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Such statements include, but are not limited to, statements about the expected benefits of the business combination of Sears and Kmart, the potential benefits of our investments and future financial and operating results. Such statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Risks and uncertainties include the possibility that we fail to offer products and services that satisfy the desires of our customers, whose preferences may change in the future, or other factors outside the control of Holdings. Actual results may differ materially from those set forth in the forward-looking statements. The Company intends the forward- looking statements to speak only as of the time made and does not undertake to update or revise them as more information becomes available.
About Sears Holdings Corporation
Sears Holdings Corporation is the nation's third largest broadline retailer with over $50 billion in annual revenues and approximately 3,800 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands' End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. The Company is the nation's largest provider of home services, with more than 13 million service calls made annually. For more information, visit Sears Holdings' website at .
Sears Holdings Corporation
Consolidated Statements of Income
(Unaudited)
Amounts are Preliminary and
Subject to Change Quarters Ended Fiscal Years Ended
Reported Reported Pro forma
millions, except per February January February January January
common share data 3, 28, 3, 28, 28,
2007 2006(1) 2007 2006(1) 2006(1)
REVENUES
Merchandise sales and
services $16,288 $16,044 $53,012 $48,911 $53,962
Credit and financial
products revenues - 42 - 213 299
Total revenues 16,288 16,086 53,012 49,124 54,261
COSTS AND EXPENSES
Cost of sales, buying and
occupancy 11,440 11,508 37,820 35,505 39,177
Gross margin dollars 4,848 4,536 15,192 13,406 14,785
Gross margin rate 29.8% 28.3% 28.7% 27.4% 27.4%
Selling and administrative 3,199 3,090 11,581 10,808 12,149
Selling and administrative
expense as a percentage of
total revenues 19.6% 19.2% 21.8% 22.0% 22.4%
Depreciation and
amortization 299 282 1,142 932 1,108
Gain on sales of assets (50) (14) (82) (39) (40)
Gain on sale of business - (317) - (317) (317)
Restructuring charges 1 7 28 111 111
Total costs and
expenses 14,889 14,556 50,489 47,000 52,188
Operating income 1,399 1,530 2,523 2,124 2,073
Interest and investment
income (13) (41) (254) (127) (159)
Interest expense 82 88 337 323 378
Other income (9) (6) (24) (37) (37)
Income before income taxes,
minority interest and
cumulative effect of change
in accounting principle 1,339 1,489 2,464 1,965 1,891
Income taxes 492 533 930 716 705
Minority interest 27 308 44 301 307
Income before cumulative
effect of change in
accounting principle 820 648 1,490 948 879
Cumulative effect of change
in accounting principle
(net of income tax benefit
of $58) - - - (90) (90)
NET INCOME $820 $648 $1,490 $858 $789
EARNINGS PER COMMON SHARE
Diluted earnings per share
before cumulative effect
of change in accounting
principle $5.33 $4.03 $9.57 $6.17 $5.40
Diluted earnings per share $5.33 $4.03 $9.57 $5.59 $4.85
Diluted weighted average
common shares outstanding 153.9 160.7 155.7 153.6 162.6
(1) Certain prior period amounts have been reclassified to conform to
current year presentation
Sears Holdings Corporation
Condensed Consolidated Balance Sheets
Amounts are Preliminary and Subject to Change
Unaudited
millions February 3, January 28,
2007 2006
ASSETS
Current assets
Cash and cash equivalents $3,968 $4,440
Receivables 848 811
Merchandise inventories 9,907 9,068
Other current assets 685 888
Total current assets 15,408 15,207
Property and equipment, net 9,151 9,823
Goodwill 1,692 1,684
Tradenames and other intangible assets 3,437 3,448
Other assets 380 411
TOTAL ASSETS $30,068 $30,573
LIABILITIES
Current liabilities
Short-term borrowings and current
portion of long-term debt $705 $748
Merchandise payables 3,312 3,458
Unearned revenues 1,073 1,047
Other current liabilities 4,924 5,097
Total current liabilities 10,014 10,350
Long-term debt and capitalized lease
obligations 2,850 3,268
Pension and postretirement benefits 1,648 2,421
Minority interest and other liabilities 2,842 2,923
Total Liabilities 17,354 18,962
Total Shareholders' Equity 12,714 11,611
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $30,068 $30,573
Total common shares outstanding 153.8 159.8
Sears Holdings Corporation
Segment Results
(Unaudited)
Amounts are Preliminary and Subject to Change
2006 - Reported Quarter Ended February 3, 2007
millions Sears Sears
Kmart Domestic Canada Holdings
Merchandise sales and services revenue $5,879 $8,776 $1,633 $16,288
Cost of sales, buying and occupancy 4,335 5,964 1,141 11,440
Gross margin dollars 1,544 2,812 492 4,848
Gross margin rate 26.3% 32.0% 30.1% 29.8%
Selling and administrative 1,005 1,869 325 3,199
Selling and administrative expense as a
percentage of total revenues 17.1% 21.3% 19.9% 19.6%
Depreciation and amortization 22 240 37 299
Gain on sales of assets (45) (5) - (50)
Restructuring charges 1 - 1
Total costs and expenses 5,318 8,068 1,503 14,889
Operating income $561 $708 $130 $1,399
Number of:
Kmart Stores 1,388 - - 1,388
Full-Line Stores - 935 123 1,058
Specialty Stores - 1,095 250 1,345
Total Stores 1,388 2,030 373 3,791
2005 - Reported Quarter Ended January 28, 2006
millions Sears Sears
Kmart Domestic Canada Holdings
Merchandise sales and services $5,740 $8,727 $1,577 $16,044
Credit and financial products revenues - - 42 42
Total revenues 5,740 8,727 1,619 16,086
Cost of sales, buying and occupancy 4,308 6,112 1,088 11,508
Gross margin dollars 1,432 2,615 489 4,536
Gross margin rate 24.9% 30.0% 31.0% 28.3%
Selling and administrative 954 1,790 346 3,090
Selling and administrative expense as a
percentage of total revenues 16.6% 20.5% 21.4% 19.2%
Depreciation and amortization 14 228 40 282
Loss (gain) on sales of assets (15) 1 - (14)
Gain on sale of business - - (317) (317)
Restructuring charges 3 - 4 7
Total costs and expenses 5,264 8,131 1,161 14,556
Operating income $476 $596 $458 $1,530
Number of:
Kmart Stores 1,416 - - 1,416
Full-Line Stores - 924 123 1,047
Specialty Stores - 1,128 252 1,380
Total Stores 1,416 2,052 375 3,843
2006 - Reported Fiscal Year Ended February 3, 2007
millions Sears Sears
Kmart Domestic Canada Holdings
Merchandise sales and services revenue $18,647 $29,179 $5,186 $53,012
Cost of sales, buying and occupancy 14,061 20,120 3,639 37,820
Gross margin dollars 4,586 9,059 1,547 15,192
Gross margin rate 24.6% 31.0% 29.8% 28.7%
Selling and administrative 3,623 6,820 1,138 11,581
Selling and administrative expense as a
percentage of total revenues 19.4% 23.4% 21.9% 21.8%
Depreciation and amortization 77 927 138 1,142
Gain on sales of assets (71) (11) - (82)
Restructuring charges 9 - 19 28
Total costs and expenses 17,699 27,856 4,934 50,489
Operating income $948 $1,323 $252 $2,523
Number of:
Kmart Stores 1,388 - - 1,388
Full-Line Stores - 935 123 1,058
Specialty Stores - 1,095 250 1,345
Total Stores 1,388 2,030 373 3,791
2005 - Reported Fiscal Year Ended January 28, 2006
millions Sears Sears
Kmart Domestic Canada Holdings
Merchandise sales and services $19,094 $25,868 $3,949 $48,911
Credit and financial products revenues - - 213 213
Total revenues 19,094 25,868 4,162 49,124
Cost of sales, buying and occupancy 14,462 18,221 2,822 35,505
Gross margin dollars 4,632 7,647 1,127 13,406
Gross margin rate 24.3% 29.6% 28.5% 27.4%
Selling and administrative 3,804 5,968 1,036 10,808
Selling and administrative expense as a
percentage of total revenues 19.9% 23.1% 24.9% 22.0%
Depreciation and amortization 47 769 116 932
Loss (gain) on sales of assets (40) 1 - (39)
Gain on sale of business - - (317) (317)
Restructuring charges 54 - 57 111
Total costs and expenses 18,327 24,959 3,714 47,000
Operating income $767 $909 $448 $2,124
Number of:
Kmart Stores 1,416 - - 1,416
Full-Line Stores - 924 123 1,047
Specialty Stores - 1,128 252 1,380
Total Stores 1,416 2,052 375 3,843
2005 - Pro Forma Fiscal Year Ended January 28, 2006
millions Sears Sears
Kmart Domestic Canada Holdings
Merchandise sales and services $19,094 $30,038 $4,830 $53,962
Credit and financial products revenues - - 299 299
Total revenues 19,094 30,038 5,129 54,261
Cost of sales, buying and occupancy 14,462 21,239 3,476 39,177
Gross margin dollars 4,632 8,799 1,354 14,785
Gross margin rate 24.3% 29.3% 28.0% 27.4%
Selling and administrative 3,804 7,039 1,306 12,149
Selling and administrative expense as a
percentage of total revenues 19.9% 23.4% 25.5% 22.4%
Depreciation and amortization 47 911 150 1,108
Gain on sales of assets (40) - - (40)
Gain on sale of business - - (317) (317)
Restructuring charges 54 - 57 111
Total costs and expenses 18,327 29,189 4,672 52,188
Operating income $767 $849 $457 $2,073
Sears Holdings Corporation
Adjusted EBITDA
Amounts are Preliminary and Subject to Change
Quarters Ended
February 3, 2007 January 28, 2006
Domestic Sears Sears Domestic Sears Sears
Operations Canada Holdings Operations Canada Holdings
Operating income per
statement of income $1,269 $130 $1,399 $1,072 $458 $1,530
Plus depreciation and
amortization 262 37 299 242 40 282
Less gain on sale of
assets/businesses (50) - (50) (14) (317) (331)
Before excluded items 1,481 167 1,648 1,300 181 1,481
Legal reserve - AIG
Annuity Insurance Co.,
et al. v. Sears
Roebuck 74 - 74 - - -
Restructuring charges 1 - 1 3 4 7
Adjusted EBITDA as
defined $1,556 $167 $1,723 $1,303 $185 $1,488
% to revenues 10.6% 10.2% 10.6% 9.0% 11.4% 9.3%
Fiscal Years Ended
February 3, 2007 January 28, 2006
Domestic Sears Sears Domestic Sears Sears
Operations Canada Holdings Operations Canada Holdings
Pro Pro Pro
Forma Forma Forma
Operating income per
statement of income $2,271 $252 $2,523 $1,616 $457 $2,073
Plus depreciation and
amortization 1,004 138 1,142 958 150 1,108
Less gain on sale of
assets/businesses (82) - (82) (40) (317) (357)
Before excluded items 3,193 390 3,583 2,534 290 2,824
Vice Chairman separation
expense 8 - 8 - - -
Visa/MasterCard
settlement (36) - (36) - - -
Merger transaction costs - - - 34 - 34
Legal reserve - AIG
Annuity Insurance Co.,
et al. v. Sears
Roebuck 74 - 74 - - -
Restructuring charges 9 19 28 54 57 111
Adjusted EBITDA as
defined $3,248 $409 $3,657 $2,622 $347 $2,969
% to revenues 6.8% 7.9% 6.9% 5.3% 6.8% 5.5%
Sears Holdings Corporation
Pro Forma Reconciliation
The following tables provide a reconciliation from the as reported results to the pro forma results presented for Sears Holdings, Sears Domestic and Sears Canada for the fiscal year ended January 28, 2006.
Sears Holdings Fiscal Year Ended January 28, 2006(1)
millions
Pre- Purchase
As merger Account- Pro
reported Activity ing Forma
Merchandise sales and services $48,911 $5,051 $- $53,962
Credit and financial products revenues 213 86 - 299
Total revenue 49,124 5,137 - 54,261
Cost of sales, buying and occupancy 35,505 3,672 - 39,177
Selling and administrative 10,808 1,330 11 12,149
Depreciation and amortization 932 147 29 1,108
Gain on sales of assets (39) (1) - (40)
Gain on sale of business (317) - - (317)
Restructuring charges 111 - - 111
Total costs and expenses 47,000 5,148 40 52,188
Operating income (loss) 2,124 (11) (40) 2,073
Interest and investment income (127) (32) - (159)
Interest expense 323 57 (2) 378
Other income (37) - - (37)
Income before income taxes, minority
interest and cumulative effect of
change in accounting principle 1,965 (36) (38) 1,891
Income tax expense (benefit) 716 4 (15) 705
Minority interest 301 6 - 307
Income before cumulative effect of
change in accounting principle 948 (46) (23) 879
Cumulative effect of change in
accounting principle, net of tax (90) - - (90)
NET INCOME (LOSS) $858 $(46) $(23) $789
(1) Certain prior period amounts have been reclassified to conform to
current year presentation
Sears Domestic Fiscal Year Ended January 28, 2006(1)
millions
Pre- Purchase
As merger Account- Pro
reported Activity ing Forma
Merchandise sales and services revenue $25,868 $4,170 $- $30,038
Cost of sales, buying and occupancy 18,221 3,018 - 21,239
Selling and administrative 5,968 1,060 11 7,039
Depreciation and amortization 769 116 26 911
Loss (gain) on sales of assets 1 (1) - -
Gain on sale of business - - - -
Total costs and expenses 24,959 4,193 37 29,189
Operating income (loss) $909 $(23) $(37) $849
Sears Canada Fiscal Year Ended January 28, 2006(1)
millions
Pre- Purchase
As merger Account- Pro
reported Activity ing Forma
Merchandise sales and services $3,949 $881 $- $4,830
Credit and financial product revenues 213 86 - 299
Total revenues 4,162 967 - 5,129
Cost of sales, buying and occupancy 2,822 654 - 3,476
Selling and administrative 1,036 270 - 1,306
Depreciation and amortization 116 31 3 150
Loss (gain) on sales of assets - - - -
Gain on sale of business (317) - - (317)
Restructuring charges 57 - - 57
Total costs and expenses 3,714 955 3 4,672
Operating income (loss) $448 $12 $(3) $457
First Call Analyst:
FCMN Contact:
SOURCE: Sears Holdings Corporation
CONTACT: Sears Holdings Public Relations, +1-847-286-8371
Web site: