Edgar Filing: SEARS HOLDINGS CORP

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 6, 2005

SEARS HOLDINGS CORPORATION

(Exact name of registrant as specified in charter)


Delaware	000-51217	20-1920798
(State or Other Jurisdiction	(Commission File Number)	(IRS Employer
of Incorporation)		Identification No.)


3333 Beverly Road
Hoffman Estates, Illinois		60179
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (847) 286-2500

(Former name or former address, if changed since last report): Not Applicable

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):


o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)


o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)


o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))


o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS


Section 2 — Financial Information
	Item 2.02. Results of Operations and Financial Condition.
Section 7 — Regulation FD
	Item 7.01 Regulation FD Disclosure.
Section 9 — Financial Statements and Exhibits
	Item 9.01 Financial Statements and Exhibits.
SIGNATURES
Exhibit Index
Press Release
Letter from the Chairman


Section 2 —		Financial Information


Item 2.02.		Results of Operations and Financial Condition.

On December 6, 2005, the Registrant issued a press release regarding its third quarter 2005 earnings. The press release is attached hereto as Exhibit 99.1.


Section 7 —		Regulation FD


Item 7.01		Regulation FD Disclosure.

Chairman’s Letter

On December 6, 2005 the Chairman of the Registrant issued a letter to shareholders. The letter will be available on the Registrant’s website, www.searsholdings.com, and is attached hereto as Exhibit 99.2.

Fiscal 2004 Pro Forma Financial Information

In the Registrant’s Quarterly Reports on Form 10-Q for the quarterly periods ended April 30, 2005, July 30, 2005 and October 29, 2005, the Registrant provided unaudited pro forma financial information for the fiscal 2004 interim periods as if Sears, Roebuck and Co. (“Sears”) and Kmart Holding Corporation (“Kmart”) had been combined as of the beginning of fiscal 2004. As noted in those filings, the combination of Kmart and Sears has been treated as a purchase business combination for accounting purposes, with Kmart designated as the acquirer and the historical financial statements of Kmart become the historical financial statements of the Registrant. As also noted in those filings, on a reported basis, the condensed consolidated statements of operations for the fiscal 2005 quarterly and year-to-date periods are not comparable to the respective prior year periods because the prior year periods do not include Sears results. Therefore, the Registrant believes that an understanding of its reported results, trends and on-going performance is not complete without presenting results on a pro forma basis.

The Registrant has compiled preliminary prior year unaudited pro forma financial information presenting the results of operations of Kmart and Sears for the 13-week period ended January 26, 2005, as well as for the fiscal year ended January 26, 2005, as though the companies had been combined as of the beginning of fiscal 2004. The Registrant is furnishing this unaudited pro forma financial information in this Current Report on Form 8-K for informational purposes only to assist investors in formulating a comparative framework within which to analyze the Registrant’s fiscal 2005 performance. The unaudited pro forma financial information is not indicative of the results of operations that would have been achieved if the merger had taken place at the beginning of fiscal 2004, or that may result in the future. In addition, the pro forma information has not been adjusted to reflect any operating efficiencies that have been, or may in the future be, realized as a result of the combination of Kmart and Sears. This pro forma information is based on management’s preliminary purchase price allocation, as reflected in the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended October 29, 2005. Further refinements to the purchase price allocation may be necessary, and therefore, the pro forma financial information summarized below is preliminary and subject to change.

The preliminary prior year unaudited pro forma financial results referred to above include restructuring charges and significant gains from the sale of assets. The Company has included an additional schedule that shows the effect of excluding the restructuring charges and the gains on sale of assets from the preliminary prior year pro forma financial results.

Sears Holdings Corporation
millions, except per common share data


	13 Weeks Ended January 26, 2005
	As			Pre-merger			Pro Forma
	Reported⁽¹⁾			Activity⁽²⁾			Adjustments			Pro Forma


Merchandise sales and services	$	5,928		$	10,766		$	—		$	16,694
Credit and financial products revenues		—			128			—			128

Total revenues		5,928			10,894			—			16,822


Cost of sales, buying and occupancy		4,447			7,752			—			12,199
Selling and administrative		1,036			2,324			5	⁽³⁾		3,365
Depreciation and amortization		12			272			40	⁽⁴⁾		324
Provision for uncollectible accounts		—			22			—			22
Loss (Gain) on sales of assets		(35	)		—			—			(35	)⁽⁷⁾
Restructuring charges		—			—			—			—

Total costs and expenses		5,460			10,370			45			15,875


Operating income		468			524			(45	)		947
Interest expense, net		(22	)		(65	)		6	⁽⁵⁾		(81	)
Bankruptcy-related recoveries		45			—			—			45
Other income		4			13			—			17


Income before income taxes and minority interest		495			472			(39	)		928
Income taxes		186			136			(15	)⁽⁶⁾		307
Minority interest		—			32			—			32


NET INCOME	$	309		$	304		$	(24	)	$	589


Earnings per common share
Basic	$	3.48								$	3.90
Diluted	$	3.06								$	3.61
Weighted average shares
Basic		88.7									150.9
Diluted		101.1									163.3


⁽¹⁾		Certain reclassifications have been made to the historical presentation of Kmart to conform to the presentation used in the unaudited pro forma condensed consolidated statement of operations contained in the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended October 29, 2005.

⁽²⁾		Represents the 2004 results of operations for the period October 31, 2004 through January 29, 2005 for the Sears Domestic segment and the period October 3, 2004 through January 1, 2005 for the Sears Canada segment.

⁽³⁾		Represents an $18 million increase to selling and administrative expense primarily resulting from the adjustment to Sears’ pension and postretirement plans based on the adjustment of such liabilities to fair value, partially offset by the elimination of $13 million of costs incurred by Sears as a result of the merger.


⁽⁴⁾		Represents an increase in depreciation and amortization expense resulting from the adjustment to Sears’ property and equipment and identifiable definite-lived intangible assets based on the adjustment of such assets to fair value.

⁽⁵⁾		Represents a decrease to interest expense resulting from the adjustment to Sears debt and capital lease obligations based on the adjustments of such liabilities to fair value.

⁽⁶⁾		Represents the aggregate pro forma effective income tax effect (38.4%) applied to the adjustments described in notes (3) through (5) above.

⁽⁷⁾		Kmart recognized aggregate gains of $35 million during the 13 weeks ended January 26, 2005, including aggregate gains of $12 million related to the assignment of a leased property to The Home Depot, Inc. The gains continue to be reflected in the pro forma amounts shown above, increasing operating income by $35 million and net income by approximately $22 million, or $0.14 per diluted common share.

Sears Holdings Corporation
millions, except per common share data


	Fiscal Year Ended January 26, 2005
	As			Pre-merger			Pro Forma
	Reported⁽¹⁾			Activity⁽²⁾			Adjustments			Pro Forma


Merchandise sales and services	$	19,821		$	35,742		$	—		$	55,563
Credit and financial products revenues		—			381			—			381

Total revenues		19,821			36,123			—			55,944


Cost of sales, buying and occupancy		14,967			25,945			8	⁽³⁾		40,920
Selling and administrative		3,958			8,418			66	⁽⁴⁾		12,442
Depreciation and amortization		26			984			185	⁽⁵⁾		1,195
Provision for uncollectible accounts		—			64			—			64
Loss (Gain) on sales of assets		(946	)⁽⁶⁾		(9	)		599	⁽⁶⁾		(356	)⁽⁶⁾
Restructuring charges		—			41			—			41

Total costs and expenses		18,005			35,443			858			54,306


Operating income		1,816			680			(858	)		1,638
Interest expense, net		(108	)		(265	)		23	⁽⁷⁾		(350	)
Bankruptcy-related recoveries		58			—			—			58
Other income		8			66			—			74


Income before income taxes and minority interest		1,774			481			(835	)		1,420
Income taxes		669			141			(319	)⁽⁸⁾		491
Minority interest		—			46			—			46

NET INCOME	$	1,105		$	294		$	(516	)	$	883


Earnings per common share
Basic	$	12.37								$	5.83
Diluted	$	10.91								$	5.40
Weighted average shares
Basic		89.3									151.5
Diluted		101.4									163.6


⁽¹⁾		Certain reclassifications have been made to the historical presentation of Kmart to conform to the presentation used in the unaudited pro forma condensed consolidated statement of operations contained in the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended October 29, 2005.

⁽²⁾		Represents the 2004 results of operations for the period February 1, 2004 through January 29, 2005 for the Sears Domestic segment and the period January 4, 2004 through January 1, 2005 for the Sears Canada segment.


⁽³⁾		Represents an increase to cost of sales, buying and occupancy expense resulting from the adjustment to Sears’ inventory based on the adjustment of such assets to fair value.

⁽⁴⁾		Represents a $79 million increase to selling and administrative expense primarily resulting from the adjustment to Sears’ pension and postretirement plans based on the adjustment of such liabilities to fair value, partially offset by the elimination of $13 million of costs incurred by Sears as a result of the merger.

⁽⁵⁾		Represents an increase in depreciation and amortization expense resulting from the adjustment to Sears’ property and equipment and identifiable definite-lived intangible assets based on the adjustment of such assets to fair value.

⁽⁶⁾		On September 29, 2004, Sears acquired ownership or leasehold interest in 50 Kmart stores for approximately $575 million. During the thirteen weeks ended October 27, 2004, Kmart recognized a gain on the sale amounting to $599 million. This adjustment eliminates the gain on the sale recognized by Kmart.

		In addition, Kmart recognized aggregate gains of $347 million during fiscal 2004, including aggregate gains of $253 million related to the sale of four properties and the assignment of 14 leased properties to The Home Depot, Inc. These gains continue to be reflected in the pro forma amounts shown above, increasing operating income by $347 million and net income by approximately $214 million, or $1.31 per diluted common share.

⁽⁷⁾		Represents a decrease to interest expense resulting from the adjustment to Sears debt and capital lease obligations based on the adjustments of such liabilities to fair value.

⁽⁸⁾		Represents the aggregate pro forma effective income tax effect (38.4%) applied to the adjustments described in notes (3) through (7) above.

Pro Forma Adjusted Results of Operations

The following presentation of results of operations excludes the effect of restructuring charges and gains (losses) on sales of assets. For purposes of evaluating operating performance of the Company’s business for comparable periods, the Company’s management excludes these items as management considers gains (losses) on the sale of assets to result from investing decisions rather than ongoing operations and does not view restructuring charges as indicative of ongoing performance of the business as they may vary significantly from period to period and have a disproportionate effect in a given period, which affects the comparability of results.

(millions except per share amounts)


	13 Weeks Ended January 26, 2005									Fiscal Year Ended January 26, 2005
				Special			Pro Forma -						Special			Pro Forma -
	Pro Forma			Items			Adjusted			Pro Forma			Items			Adjusted
Revenues
Merchandise sales and services	$	16,694		$	—		$	16,694		$	55,563		$	—		$	55,563
Credit and Financial Products Revenue		128						128			381						381

Total Revenue		16,822						16,822			55,944						55,944


Costs and Expenses
Cost of sales, buying and occupancy		12,199						12,199			40,920						40,920
Selling and administrative expenses		3,365						3,365			12,442						12,442
Depreciation and amortization		324						324			1,195						1,195
Provision for uncollectible accounts		22						22			64						64
Loss (Gain) on sales of assets		(35	)		35			—			(356	)		356			—
Restructuring charges (1)		—						—			41			(41	)		—


Total costs and expenses		15,875			35			15,910			54,306			315			54,621


Operating income		947			(35	)		912			1,638			(315	)		1,323
Interest expense		(81	)					(81	)		(350	)					(350	)
Bankruptcy-related recoveries		45						45			58						58
Other income		17						17			74						74


Income before income taxes and minority interest		928			(35	)		893			1,420			(315	)		1,105
Income taxes		307			(13	)		294			491			(119	)		372
Minority interest		32						32			46						46


Net income	$	589		$	(22	)	$	567		$	883		$	(196	)	$	687


Earnings per common share
Basic	$	3.90		$	(0.14	)	$	3.76		$	5.83		$	(1.30	)	$	4.53
Diluted	$	3.61		$	(0.13	)	$	3.47		$	5.40		$	(1.20	)	$	4.20

Weighted average shares
Basic		150.9						150.9			151.5						151.5
Diluted		163.3						163.3			163.6						163.6


(1)		The $41 million restructuring charge recorded in fiscal 2004 reflects a charge recorded at Sears in the second quarter of 2004 as part of a productivity initiative.


Section 9 —		Financial Statements and Exhibits


Item 9.01		Financial Statements and Exhibits.

Exhibit 99.1 — Press release dated December 6, 2005, furnished pursuant to Item 2.02.

Exhibit 99.2 — Letter from the Chairman dated December 6, 2005, furnished pursuant to Item 7.01.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SEARS HOLDINGS CORPORATION
	By:	/s/ William K. Phelan
		William K. Phelan
Date: December 6, 2005		Vice President and Controller

Exhibit Index



99.1		Press release dated December 6, 2005.
99.2		Letter from the Chairman dated December 6, 2005.

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