8-K

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): August 17, 2006

SEARS HOLDINGS CORPORATION

(Exact name of registrant as specified in charter)

Delaware		20-1920798
(State or Other Jurisdiction of Incorporation)	000-51217 (Commission File Number)	(IRS Employer 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))

Section 2 -	Financial Information
Item 2.02.	Results of Operations and Financial Condition. On August 17, 2006, the Registrant issued a press release regarding its second quarter 2006 earnings. The press release is attached hereto as Exhibit 99.1.
Section 9 -	Financial Statements and Exhibits
Item 9.01	Financial Statements and Exhibits.
	(c) Exhibits
	Exhibit 99.1 — Press release dated August 17, 2006, furnished pursuant to Item 2.02.

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
	Vice President and Controller

Date: August 17, 2006

Exhibit Index

99.1      Press release dated August 17, 2006.

EX-99.1

EXHIBIT 99.1

NEWS MEDIA CONTACT:
Sears Holdings Public Relations
(847) 286-8371

FOR IMMEDIATE RELEASE:
August 17, 2006

SEARS HOLDINGS REPORTS SECOND QUARTER RESULTS

HOFFMAN ESTATES, Ill. — Sears Holdings Corporation (“Holdings” or “the Company”) (NASDAQ: SHLD) today reported net income of $294 million, or $1.88 per diluted share, for the second quarter ended July 29, 2006, compared with net income of $161 million, or $0.98 per diluted share, for the second quarter ended July 30, 2005. The second quarter 2006 results include a $36 million pre-tax gain, or $22 million net of taxes ($0.14 per diluted share), representing the Company’s portion of proceeds received during the second quarter of 2006 related to the settlement of Visa/MasterCard antitrust litigation. Excluding the impact of this gain, second quarter 2006 net income was $272 million, or $1.74 per diluted share. In addition, the prior year second quarter results included $42 million in merger-related restructuring charges at Kmart, or $26 million net of taxes ($0.16 per diluted share). Excluding the impact of these charges, prior year second quarter net income was $187 million, or $1.14 per diluted share. The improvement in second quarter 2006 earnings reflects improved profitability at both Kmart and Sears Domestic, largely due to reduced expenses and an increase of 120 basis points in gross margin rate from 27.2% in 2005 to 28.4% in 2006.

“Sears Holdings’ resolve to improve the profitability of this business remains strong and is borne out in the company’s second quarter results,” said Aylwin Lewis, Sears Holdings’ chief executive officer and president. He added, “While we are making progress, we must continue to focus on our customers, improve the shopability of our stores and continue to give our customers reasons to shop our stores more frequently.”

Second Quarter Revenues and Comparable Store Sales

For the quarter, domestic comparable stores sales declined 3.8% in the aggregate, with Sears Domestic comparable store sales declining 6.3% 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, comparable store sales declines in home goods were partially offset by increased sales within a number of merchandise categories, including apparel, general merchandise, pharmacy and food and other consumable goods. At Sears Domestic, comparable store sales declined across most categories and formats, with more pronounced sales declines within both the home fashion and lawn and garden categories.

Total revenues declined $0.4 billion to $12.8 billion for the 13 weeks ended July 29, 2006, as compared to total revenues of $13.2 billion for the 13 weeks ended July 30, 2005. Sears revenues were $8.3 billion for the 13 weeks ended July 29, 2006 as compared to $8.6 billion for the 13 weeks ended July 30, 2005 primarily reflecting the impact of comparable store sales declines, partially offset by an increase in the total number of Sears Full-line stores in operation, resulting mainly due to conversions from the Kmart format. Total revenues at Kmart declined $0.1 billion as compared to the prior year period, primarily reflecting a reduction in the total number of Kmart stores in operation.

Operating Income

Operating income was $517 million for the 13 weeks ended July 29, 2006, as compared to $324 million for the 13 weeks ended July 30, 2005. The increase in operating income was due to an increase of $92 million of Kmart operating income, as well as a $77 million increase in Sears Domestic operating income mainly due to lower expenses as a result of realizing merger synergies and a reduction of selling and administrative costs which decreased from $3.0 billion (22.8% of revenues) last year to $2.8 billion (22.1% of revenues) this year. The second quarter 2006 results include a $36 million one-time gain, recorded as a reduction of selling and administrative expenses, representing the Company’s portion of proceeds received during the second quarter of 2006 related to the settlement of Visa/MasterCard antitrust litigation. Excluding the impact of this gain, second quarter operating income was $481 million. In addition, the prior year results included $42 million in merger-related restructuring charges at Kmart. Excluding the impact of these charges, the prior year second quarter operating income was $366 million. Revenues declined from $13.2 billion last year to $12.8 billion this year, however, the impact of this decline was largely offset by an improvement in gross margin rate to 28.4% this year, an increase of 120 basis points from the prior year rate.

Financial Position

The Company had cash and cash equivalents of $3.7 billion at July 29, 2006 (of which $3.2 billion is domestic and $0.5 billion is at Sears Canada) as compared to $2.1 billion at July 30, 2005 and $4.4 billion at January 28, 2006. The decline in cash from fiscal 2005 year end is attributable to share repurchases, cash used in the acquisition of additional interests in Sears Canada, capital expenditures and debt repayments, partially offset by cash generated from operations.

Merchandise inventories at July 29, 2006 were approximately $9.5 billion, as compared to $9.0 billion as of July 30, 2005. The increase reflects planned increases due to earlier receipt of product this year and increases in categories where the Company believes business trends support higher inventory levels. Merchandise payables were $3.3 billion at July 29, 2006, as compared to $3.5 billion as of July 30, 2005.

Share Repurchase

During the second quarter of 2006, the company repurchased 0.7 million common shares at a total cost of $91 million, or an average price of $137.67 per share. As of July 29, 2006, the Company had remaining authorization to repurchase $406 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.

Investment of Available Capital

As noted above, the Company had total domestic cash and cash equivalents of $3.2 billion at July 29, 2006. Since the merger between Kmart and Sears, the Company’s cash flows have exceeded its working capital, financing and capital investment needs, and management expects that the Company’s cash flows will continue to exceed its operating cash needs for the foreseeable future.

The Company regularly evaluates how best to use available capital to increase shareholder value. The Company has and will continue to invest in its businesses to improve the customer experience and provide the opportunity for attractive returns. The Company has also repurchased $1.1 billion of its common shares since the merger and expects to continue to repurchase shares subject to market conditions and board authorization. In addition, the Company may pursue investments in the form of acquisitions, joint ventures and partnerships where the Company believes attractive returns can be obtained. Further, the Company may determine under certain market conditions that available capital is best utilized to fund investments that it believes offer the Company attractive return opportunities, whether or not related to its ongoing business activities.

As previously reported, the Company’s Board of Directors has delegated authority to direct investment of the Company’s surplus cash to its Chairman, Edward S. Lampert, subject to various limitations that have

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been or may be from time to time adopted by the Board of Directors and/or Finance Committee of the Board of Directors. As of July 29, 2006, the Company’s surplus cash was primarily invested in short-term, highly liquid investments. The Company is currently using, and may in the future use, a portion of its available capital to invest in marketable securities and other financial instruments, including derivatives. These investments may include significant and highly concentrated direct investments and/or related derivative positions with respect to the equity securities of public companies. Derivative contracts would be recorded on the Company’s balance sheet at fair value and, for non-hedge contracts, changes in fair value would be recognized currently in earnings as unrealized gains or losses.

“Our strong financial position and cash flow generation provide us with the flexibility to capitalize on a wide range of market opportunities as they arise. In addition to investing in our business and acquiring our shares, we are prepared to invest substantial amounts of capital if we identify other attractive investment opportunities which have the potential for returns we believe appropriately compensate the Company for the associated risks.” said Edward S. Lampert, Chairman of Holdings.

Any such investments will involve risks, and shareholders should recognize that Holdings’ balance sheet may change depending on the extent of excess funds and the timing, magnitude and performance of investments which the Company may make. Furthermore, such investments would be subject to volatility that may affect both the recorded value of the investments as well as the Company’s periodic earnings.

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;

• Adjusted EBITDA excludes the one-time gain resulting from the settlement of Visa/MasterCard litigation;

• Management considers merger transaction costs to result from extraordinary activities that are not part of normal 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

• Management considers gains/ (losses) on the sale of assets to result from investing decisions rather than ongoing operations.

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Adjusted EBITDA was determined as follows:

	13 Weeks Ended						26 Weeks Ended
	July 29, 2006			July 30, 2005			July 29, 2006			July 30, 2005
										Pro Forma
Operating income per statement of income	$	517		$	324		$	848		$	424
Plus depreciation and amortization		276			280			565			563
Less gain on sale of assets		(7	)		(4	)		(24	)		(11	)
Before excluded items		786			600			1,389			976
Vice Chairman Separation Expense		8			—			8			—
Visa/MasterCard settlement		(36	)		—			(36	)		—
Merger transaction costs		—			—			—			34
Restructuring charges		14			42			23			45
Adjusted EBITDA as defined	$	772		$	642		$	1,384		$	1,055
% to revenues		6.0%			4.9%			5.6%			4.1%

Adjusted EBITDA for the Company’s domestic (United States operations) and Sears Canada operations is as follows:

	13 Weeks Ended										26 Weeks Ended
	Adjusted EBITDA				% To Revenues						Adjusted EBITDA				% To Revenues
	July 29,		July 30,		July 29,			July 30,			July 29,		July 30,		July 29,			July 30,
	2006		2005		2006			2005			2006		2005		2006			2005
													Pro Forma					Pro Forma
Domestic operations	$	679	$	588		5.9	%		4.9	%	$	1,253	$	952		5.6	%		4.0	%
Sears Canada		93		54		7.4	%		4.5	%		131		103		5.7	%		4.5	%
Total Adjusted EBITDA	$	772	$	642		6.0	%		4.9	%	$	1,384	$	1,055		5.6	%		4.1	%

Quarterly Report on Form 10-Q

The Company plans to file with the SEC its Quarterly Report on Form 10-Q for the second quarter 2006 on or before September 7, 2006.

Forward-Looking Statements
Results are preliminary and unaudited. This press release contains forward-looking statements about the Company’s goals. 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.

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About Sears Holdings Corporation

Sears Holdings Corporation is the nation’s third largest broadline retailer, with approximately $55 billion in annual revenues, and with 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 http://www.searsholdings.com.

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Sears Holdings Corporation
Statements of Income
(Unaudited)

Amounts are Preliminary and Subject to Change	13 Weeks Ended						26 Weeks Ended
	Reported						Reported						Pro forma
millions, except per common share data	July 29,			July 30,			July 29,			July 30,			July 30,
	2006			2005			2006			2005			2005
REVENUES
Merchandise sales and services	$	12,785		$	13,114		$	24,783		$	20,749		$	25,800
Credit and financial products revenues		—			78			—			87			173
Total revenues		12,785			13,192			24,783			20,836			25,973
COSTS AND EXPENSES
Cost of sales, buying and occupancy		9,158			9,541			17,823			15,202			18,874
Gross margin dollars		3,627			3,573			6,960			5,547			6,926
Gross margin rate		28.4	%		27.2	%		28.1	%		26.7	%		26.8	%
Selling and administrative		2,827			3,009			5,548			4,737			6,078
Selling and administrative expense as a percentage of total revenues		22.1	%		22.8	%		22.4	%		22.7	%		23.4	%
Depreciation and amortization		276			280			565			387			563
Gain on sales of assets		(7	)		(4	)		(24	)		(10	)		(11	)
Restructuring charges		14			42			23			45			45
Total costs and expenses		12,268			12,868			23,935			20,361			25,549
Operating income		517			324			848			475			424
Interest expense, net		42			72			89			114			147
Bankruptcy-related recoveries		(11	)		(15	)		(12	)		(32	)		(32	)
Other income		(16	)		(2	)		(27	)		(11	)		(21	)
Income before income taxes, minority interest and cumulative effect of change in accounting principle		502			269			798			404			330
Income taxes		201			103			319			155			144
Minority interest		7			5			5			7			13
Income before cumulative effect of change in accounting principle		294			161			474			242			173
Cumulative effect of change in accounting principle (net of income tax benefit of $58)		—			—			—			(90	)		(90	)
NET INCOME	$	294		$	161		$	474		$	152		$	83
EARNINGS PER COMMON SHARE
Diluted earnings per share before cumulative effect of change in accounting principle	$	1.88		$	0.98		$	3.01		$	1.66		$	1.06
Diluted earnings per share	$	1.88		$	0.98		$	3.01		$	1.05		$	0.51
Diluted weighted average common shares outstanding		156.5			165.1			157.3			145.4			163.6

Sears Holdings Corporation
Condensed Balance Sheets

Amounts are Preliminary and Subject to Change	(Unaudited)
millions	July 29,		July 30,		January 28,
	2006		2005		2006
ASSETS
Current assets
Cash and cash equivalents	$	3,690	$	2,138	$	4,440
Receivables		803		1,822		811
Merchandise inventories		9,455		8,953		9,068
Other current assets		917		1,086		888
Total current assets		14,865		13,999		15,207
Property and equipment, net		9,395		10,084		9,823
Goodwill		1,885		1,911		1,684
Tradenames and other intangible assets		3,454		4,039		3,448
Other assets		462		485		411
TOTAL ASSETS	$	30,061	$	30,518	$	30,573
LIABILITIES
Current liabilities
Short-term borrowings and current portion of long-term debt	$	295	$	822	$	748
Merchandise payables		3,274		3,460		3,458
Unearned revenues		1,082		1,019		1,047
Other current liabilities		5,244		4,256		5,097
Total current liabilities		9,895		9,557		10,350
Long-term debt and capitalized lease obligations		3,475		3,333		3,268
Pension and postretirement benefits		2,361		2,614		2,421
Minority interest and other liabilities		2,719		3,713		2,923
Total Liabilities		18,450		19,217		18,962
Total Shareholders’ Equity		11,611		11,301		11,611
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	30,061	$	30,518	$	30,573
Total common shares outstanding		155.9		164.9		159.8

Sears Holdings Corporation
Segment Results
(Unaudited)

Amounts are Preliminary and Subject to Change

2006 — Reported	13 Weeks Ended July 29, 2006
millions				Sears
	Kmart			Domestic			Canada			Sears Holdings
Merchandise sales and services revenue	$	4,472		$	7,051		$	1,262		$	12,785
Cost of sales, buying and occupancy		3,389			4,884			885			9,158
Gross margin dollars		1,083			2,167			377			3,627
Gross margin rate		24.2	%		30.7	%		29.9	%		28.4	%
Selling and administrative		874			1,669			284			2,827
Selling and administrative expense as a percentage of total revenues		19.5	%		23.7	%		22.5	%		22.1	%
Depreciation and amortization		18			224			34			276
Gain on sales of assets		—			(7	)		—			(7	)
Restructuring charges		—			—			14			14
Total costs and expenses		4,281			6,770			1,217			12,268
Operating income	$	191		$	281		$	45		$	517
Number of:
Kmart Stores		1,398			—			—			1,398
Full-Line Stores		—			934			123			1,057
Specialty Stores		—			1,091			254			1,345
Total Stores		1,398			2,025			377			3,800

2005 — Reported	13 Weeks Ended July 30, 2005
millions				Sears
	Kmart			Domestic			Canada			Sears Holdings
Merchandise sales and services	$	4,642		$	7,337		$	1,135		$	13,114
Credit and financial products revenues		—			—			78			78
Total revenues		4,642			7,337			1,213			13,192
Cost of sales, buying and occupancy		3,529			5,180			832			9,541
Gross margin dollars		1,113			2,157			303			3,573
Gross margin rate		24.0	%		29.4	%		26.7	%		27.2	%
Selling and administrative		964			1,718			327			3,009
Selling and administrative expense as a percentage of total revenues		20.8	%		23.4	%		27.0	%		22.8	%
Depreciation and amortization		10			235			35			280
Gain on sales of assets		(2	)		—			(2	)		(4	)
Restructuring charges		42			—			—			42
Total costs and expenses		4,543			7,133			1,192			12,868
Operating income	$	99		$	204		$	21		$	324
Number of:
Kmart Stores		1,445			—			—			1,445
Full-Line Stores		—			906			122			1,028
Specialty Stores		—			1,150			246			1,396
Total Stores		1,445			2,056			368			3,869

Sears Holdings Corporation
Segment Results
(Unaudited)

Amounts are Preliminary and Subject to Change

2006 — Reported	26 Weeks Ended July 29, 2006
millions				Sears
	Kmart			Domestic			Canada			Sears Holdings
Merchandise sales and services revenue	$	8,726		$	13,748		$	2,309		$	24,783
Cost of sales, buying and occupancy		6,630			9,545			1,648			17,823
Gross margin dollars		2,096			4,203			661			6,960
Gross margin rate		24.0	%		30.6	%		28.6	%		28.1	%
Selling and administrative		1,729			3,289			530			5,548
Selling and administrative expense as a percentage of total revenues		19.8	%		23.9	%		23.0	%		22.4	%
Depreciation and amortization		33			464			68			565
Gain on sales of assets		(17	)		(7	)		—			(24	)
Restructuring charges		4			—			19			23
Total costs and expenses		8,379			13,291			2,265			23,935
Operating income	$	347		$	457		$	44		$	848
Number of:
Kmart Stores		1,398			—			—			1,398
Full-Line Stores		—			934			123			1,057
Specialty Stores		—			1,091			254			1,345
Total Stores		1,398			2,025			377			3,800

2005 — Reported	26 Weeks Ended July 30, 2005
millions				Sears
	Kmart			Domestic			Canada			Sears Holdings
Merchandise sales and services	$	9,182		$	10,338		$	1,229		$	20,749
Credit and financial products revenues		—			—			87			87
Total revenues		9,182			10,338			1,316			20,836
Cost of sales, buying and occupancy		6,997			7,304			901			15,202
Gross margin dollars		2,185			3,034			328			5,547
Gross margin rate		23.8	%		29.3	%		26.7	%		26.7	%
Selling and administrative		1,920			2,462			355			4,737
Selling and administrative expense as a percentage of total revenues		20.9	%		23.8	%		27.0	%		22.7	%
Depreciation and amortization		20			327			40			387
Gain on sales of assets		(8	)		—			(2	)		(10	)
Restructuring charges		45			—			—			45
Total costs and expenses		8,974			10,093			1,294			20,361
Operating income	$	208		$	245		$	22		$	475
Number of:
Kmart Stores		1,445			—			—			1,445
Full-Line Stores		—			906			122			1,028
Specialty Stores		—			1,150			246			1,396
Total Stores		1,445			2,056			368			3,869

2005 — Pro Forma	26 Weeks Ended July 30, 2005
millions				Sears
	Kmart			Domestic			Canada			Sears Holdings
Merchandise sales and services	$	9,182		$	14,508		$	2,110		$	25,800
Credit and financial products revenues		—			—			173			173
Total revenues		9,182			14,508			2,283			25,973
Cost of sales, buying and occupancy		6,997			10,322			1,555			18,874
Gross margin dollars		2,185			4,186			555			6,926
Gross margin rate		23.8	%		28.9	%		26.3	%		26.8	%
Selling and administrative		1,920			3,533			625			6,078
Selling and administrative expense as a percentage of total revenues		20.9	%		24.4	%		27.4	%		23.4	%
Depreciation and amortization		20			469			74			563
Gain on sales of assets		(8	)		(1	)		(2	)		(11	)
Restructuring charges		45			—			—			45
Total costs and expenses		8,974			14,323			2,252			25,549
Operating income	$	208		$	185		$	31		$	424

Sears Holdings Corporation
Adjusted EBITDA

Amounts are Preliminary and Subject to Change

	13 Weeks Ended
	July 29, 2006									July 30, 2005
	Domestic			Sears			Sears			Domestic			Sears			Sears
	Operations			Canada			Holdings			Operations			Canada			Holdings
Operating income per statement of income	$	472		$	45		$	517		$	303		$	21		$	324
Plus depreciation and amortization		242			34			276			245			35			280
Less gain on sale of assets/businesses		(7	)		—			(7	)		(2	)		(2	)		(4	)
Before excluded items		707			79			786			546			54			600
Vice Chairman Separation Expense		8			—			8			—			—			—
Visa/MasterCard Settlement		(36	)		—			(36	)		—			—			—
Restructuring charges		—			14			14			42			—			42
Adjusted EBITDA as defined	$	679		$	93		$	772		$	588		$	54		$	642
% to revenues		5.9	%		7.4	%		6.0	%		4.9	%		4.5	%		4.9	%

	26 Weeks Ended
	July 29, 2006									July 30, 2005
	Domestic			Sears			Sears			Domestic			Sears			Sears
	Operations			Canada			Holdings			Operations			Canada			Holdings
										Pro Forma			Pro Forma			Pro Forma
Operating income per statement of income	$	804		$	44		$	848		$	393		$	31		$	424
Plus depreciation and amortization		497			68			565			489			74			563
Less gain on sale of assets/businesses		(24	)		—			(24	)		(9	)		(2	)		(11	)
Before excluded items		1,277			112			1,389			873			103			976
Vice Chairman Separation Expense		8			—			8			—			—			—
Visa/MasterCard Settlement		(36	)		—			(36	)		—			—			—
Merger transaction costs		—			—			—			34			—			34
Restructuring charges		4			19			23			45			—			45
Adjusted EBITDA as defined	$	1,253		$	131		$	1,384		$	952		$	103		$	1,055
% to revenues		5.6	%		5.7	%		5.6	%		4.0	%		4.5	%		4.1	%

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 26-week period ended July 30, 2005.

Sears Holdings	26-week period ended July 30, 2005
				Pre-merger			Purchase
millions	As reported			Activity			Accounting			Pro Forma
Merchandise sales and services	$	20,749		$	5,051		$	—		$	25,800
Credit and financial products revenues		87			86			—			173
Total revenue		20,836			5,137			—			25,973
Cost of sales, buying and occupancy		15,202			3,672			—			18,874
Selling and administrative		4,737			1,330			11			6,078
Depreciation and amortization		387			147			29			563
Gain on sales of assets		(10	)		(1	)		—			(11	)
Restructuring charges		45			—			—			45
Total costs and expenses		20,361			5,148			40			25,549
Operating income (loss)		475			(11	)		(40	)		424
Interest expense (income), net		114			35			(2	)		147
Bankruptcy-related recoveries		(32	)		—			—			(32	)
Other income		(11	)		(10	)		—			(21	)
Income before income taxes, minority interest and cumulative effect of change in accounting principle		404			(36	)		(38	)		330
Income tax expense (benefit)		155			4			(15	)		144
Minority interest		7			6			—			13
Income before cumulative effect of change in accounting principle		242			(46	)		(23	)		173
Cumulative effect of change in accounting principle, net of tax		(90	)		—			—			(90	)
NET INCOME (LOSS)	$	152		$	(46	)	$	(23	)	$	83

Sears Domestic

	26-week period ended July 30, 2005
			Pre-merger			Purchase
millions	As reported		Activity			Accounting			Pro Forma
Merchandise sales and services revenue	$	10,338	$	4,170		$	—		$	14,508
Cost of sales, buying and occupancy		7,304		3,018			—			10,322
Selling and administrative		2,462		1,060			11			3,533
Depreciation and amortization		327		116			26			469
Gain on sales of assets		—		(1	)		—			(1	)
Total costs and expenses		10,093		4,193			37			14,323
Operating income (loss)	$	245	$	(23	)	$	(37	)	$	185

Sears Canada

	26-week period ended July 30, 2005
				Pre-merger		Purchase
millions	As reported			Activity		Accounting			Pro Forma
Merchandise sales and services	$	1,229		$	881	$	—		$	2,110
Credit and financial product revenues		87			86		—			173
Total revenues		1,316			967		—			2,283
Cost of sales, buying and occupancy		901			654		—			1,555
Selling and administrative		355			270		—			625
Depreciation and amortization		40			31		3			74
Gain on sales of assets		(2	)		—		—			(2	)
Restructuring charges		—			—		—			—
Total costs and expenses		1,294			955		3			2,252
Operating income (loss)	$	22		$	12	$	(3	)	$	31