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Sears Holdings Corporation Reports Third Quarter 2005 Results

Sears Holdings Corporation (NASDAQ: SHLD) today issued its financial statements for the quarter ended October 29, 2005. Sears Holdings Corporation ("Holdings" or the "Company") was formed in connection with the business combination of Kmart Holding Corporation ("Kmart") and Sears, Roebuck and Co. ("Sears"), which was completed on March 24, 2005. Sears Holdings is the nation's third largest broadline retailer with approximately 2,300 full-line and 1,200 specialty retail stores in the United States operating through Kmart and Sears and 370 full-line and specialty stores in Canada operating through Sears Canada Inc. ("Sears Canada"), a 54%-owned subsidiary. For accounting purposes, the business combination was treated as a purchase of Sears by Kmart. As such, the historical financial statements of Kmart became the historical financial statements of Holdings.

The condensed consolidated statements of operations included below for the 13 and 39 weeks ended October 29, 2005 are not comparable to the prior year periods because the prior year periods do not include Sears' results. Additionally, the results for the 39 weeks ended October 29, 2005 are not representative of the Company's ongoing operations as they only include the results of Sears from March 25, 2005 forward. In order to provide information on the trends and on-going performance of the combined Company, pro forma results are presented as though Kmart and Sears had been combined as of the beginning of fiscal 2004. The Company has also provided its calculation of Pro Forma Adjusted EBITDA for Holdings, including a breakdown of Pro Forma Adjusted EBITDA between its domestic and Canadian operations. Pro Forma Adjusted EBITDA, while a non-GAAP measure, is used by management for purposes of evaluating ongoing operating performance of the Company. Reconciliation of the pro forma results of operations to the GAAP results of operations has also been included.

Third Quarter Revenues

Total revenues increased $7.8 billion to $12.2 billion for the quarter ended October 29, 2005, as compared to total revenues of $4.4 billion for the quarter ended October 27, 2004. The increase was primarily attributable to the addition of Sears revenues of $8.0 billion in 2005, partially offset by a $0.3 billion decline in Kmart's revenues, due to a reduction in the total number of Kmart stores in operation and a decline in comparable store sales of 2.8%. While Kmart's overall comparable store sales declined as a result of lower transaction volumes across most businesses, most notably home products and electronics, the apparel business outperformed other businesses and had positive comparable store sales during the period.

Sears Domestic sales declined 6.3% for the quarter ended October 29, 2005, as compared to the quarter ended October 27, 2004. The decline was due to a 10.8% decrease in domestic comparable store sales partially offset by an increase in the total number of Sears stores combined with strong home services sales. The decline in Sears Domestic comparable store sales reflects efforts initiated in 2005 to improve gross margin by reducing reliance on certain promotional events and weak apparel sales resulting from weaker than anticipated customer response to fashion offerings within the full-line stores.

Condensed Consolidated Statements of Operations (unaudited)

Holdings' unaudited condensed consolidated statements of operations for the 13 and 39 weeks ended October 29, 2005 and October 27, 2004 were as follows:

                             13 Weeks Ended            39 Weeks Ended
  (in millions, except
   per share amounts)   October 29,   October 27,   October 29,  October 27,
                            2005          2004          2005         2004
  Total revenues          $12,202       $ 4,426       $33,039     $ 13,893
  Cost of sales, buying
   and occupancy            8,783         3,324        24,009       10,520
  Selling and
   administrative           2,972           994         7,669        2,921
  Depreciation and
   amortization               263             6           650           14
  Provision for
   uncollectible accounts      21            --            38           --
  Gain on sales of assets     (15)         (807)          (25)        (911)
  Restructuring charges        59            --           104           --
    Total costs and
     expenses              12,083         3,517        32,445       12,544
  Operating income            119           909           594        1,349
  Interest expense, net       (70)          (25)         (184)         (86)
  Bankruptcy-related
   recoveries                   1             1            33           13
  Other income                 22             1            33            4
  Income before income taxes,
   minority interest and
   cumulative effect of
   change in accounting
   principle                   72           886           476        1,280
  Income taxes                 28           334           183          483
  Minority interest           (14)           --            (7)          --

  Income before change in
   accounting principle       $58          $552          $300         $797
  Cumulative effect of
   change in accounting
   principle                   --            --           (90)          --
  Net income                  $58          $552          $210         $797

  Per share (diluted basis)
  Earnings per share before
   change in accounting
   principle                $0.35         $5.45         $1.98       $ 7.93
  Cumulative effect of
   change in accounting
   principle                   --            --         (0.59)          --
  Earnings per share        $0.35         $5.45         $1.39       $ 7.93
  Diluted weighted average
   shares outstanding       163.6         101.6         151.4        101.4

Operating income was $119 million for the quarter ended October 29, 2005, as compared to $909 million for the quarter ended October 27, 2004. The decline in operating income was primarily due to $792 million less in gains on the sale of assets realized in the current year. Also, the 2005 quarter included $59 million of restructuring charges, of which $53 million was attributable to Sears Canada and $6 million was attributable to Holdings' integration efforts.

Earnings per share on a diluted basis was $0.35 for the quarter ended October 29, 2005, as compared to $5.45 per share on a diluted basis for the quarter ended October 27, 2004. The decrease was primarily attributable to the decrease in gain on the sale of assets and restructuring charges incurred in the current year quarter as illustrated below:

  Diluted earnings per share impact of certain significant items: (1)

                                     Reported
                                  13 Weeks Ended
                             October 29,      October 27,
                               2005             2004

 Gain on sale of assets       $0.06            $4.95
 Restructuring charges        (0.13)              --
 Total                       $(0.07)           $4.95

  (1)  Gain on sale of assets in the fiscal 2004 period includes Kmart's
       store sale and lease assignment transactions with The Home Depot,
       Inc.  ($1.21 per diluted share) and with Sears ($3.67 per diluted
       common share).  Asset sale transactions and restructuring activities
       periodically affect the Company's results; however, the amounts of
       these types of items may vary significantly from period to period and
       have a disproportionate effect on the periods presented, which
       affects the comparability of the Company's financial performance.
       Management considers the total impact of these items, along with
       reported results, when it reviews and evaluates the Company's
       financial performance.

  Financial Position

As of October 29, 2005, Holdings had approximately $31 billion of assets and $11 billion of equity, as follows

  (in billions)          October 29,        October 27,         Jan. 26,
                               2005               2004             2005
  Total assets                $30.7               $7.7             $8.7
  Total liabilities            19.8                4.6              4.2
  Shareholders' equity        $10.9               $3.1             $4.5

At quarter end, the Company had over $900 million of cash and cash equivalents. Between closing of the business combination transaction between Kmart and Sears in March of this year and quarter end, Holdings paid down approximately $700 million in debt, funded $270 million to its pension plans, repurchased $434 million of stock and funded a $1.5 billion seasonal build in inventories for the holiday shopping season. During the third quarter of 2005, the Company reduced its outstanding borrowings to $3.2 billion (excluding capital lease obligations).

Holdings' inventory level at October 29, 2005 was approximately $10.8 billion, an increase of $6.9 billion over the prior year as a result of the combination. As of the end of the prior year period, the pro forma combined inventory on a FIFO basis for Sears and Kmart was approximately $11.4 billion. Accounts payable was $4.3 billion at October 29, 2005 compared to $4.6 billion for Sears and Kmart pro forma combined as of October 27, 2004.

During the quarter ended October 29, 2005, the Company spent $153 million on capital expenditures compared to $55 million and $264 million spent by Kmart and Sears, respectively, during their third quarters of 2004.

Orchard Supply Hardware

On November 23, 2005, the Company completed its sale of 19.9% of the voting stock of Orchard Supply Hardware Stores Corporation ("OSH") to the private equity fund of Ares Management LLC. Prior to the sale, OSH had been a wholly-owned subsidiary of the Company. The private equity fund paid $59 million in cash for the 19.9% equity interest and a three-year option to purchase, for $127 million, additional shares of OSH that currently represent 30.2% of OSH's outstanding voting stock. Also, OSH subsidiaries entered into arrangements for $250 million in financing, consisting of a $130 million senior secured revolving credit facility and a $120 million commercial mortgage-backed loan. At closing, OSH drew down $56 million of the revolving credit facility. After the closing of the transaction, the Company has an 80.1% interest in OSH that would be reduced should the private equity fund exercise its option.

As previously announced, in connection with the investment by Ares and a dividend to Sears by OSH, Sears received $225 million in cash and a $230 million note that has a term of 66 months and bears interest initially at 10%, increasing over time to a maximum of 12.5%. The note may be prepaid without penalty.

Sears Canada

On November 15, 2005, Sears Canada completed the sale of its Credit and Financial Services operations to JPMorgan Chase & Co. ("JPMorgan Chase") for approximately $1.9 billion in cash proceeds net of securitized receivables and other related costs and taxes. In addition, Sears Canada and JPMorgan Chase have entered into a long-term marketing and servicing alliance with an initial term of ten years. On December 2, 2005, Sears Canada's Board of Directors declared that the net after-tax proceeds from the sale will be used to fund a cash distribution to its shareholders in the amount of approximately US$1.7 billion with the balance of sale proceeds to be used for general corporate purposes. The cash distribution to shareholders is scheduled to be paid on December 16, 2005. Holdings expects that its after-tax proceeds from this distribution will approximate US$820 million.

On December 5, 2005 Holdings announced its intention to acquire the 49.5 million outstanding shares of common stock of Sears Canada which it does not currently own. To acquire that 46% equity interest, Holdings plans to offer C$16.86 (Canadian dollars) per share for an aggregate purchase price of C$835 million or $720 million in U.S. dollars. Sears Canada Shareholders are also entitled to receive C$18.64 per share from the Sears Canada cash distribution described above. Holdings further announced that it entered into an agreement with the largest shareholder of Sears Canada (other than Holdings) pursuant to which the investor, Natcan Investment Management, Inc., has agreed to tender all common shares owned or controlled by it (approximately 9.1% of the outstanding common shares of Sears Canada) into Sears Holdings' offer for the same consideration. If the transaction is consummated, Sears Canada would become a wholly-owned subsidiary of Holdings.

Pro Forma Results

The statements of operations for the 13 and 39 weeks ended October 29, 2005 are not comparable to the prior year periods because the prior year periods do not include the results of Sears. Additionally, the statement of operations for the 39 weeks ended October 29, 2005 is not representative of the Company's on-going results as it only includes Sears results from March 25, 2005 forward. Therefore, the Company believes that an understanding of trends and on-going performance is not complete without presenting results on a pro forma basis that include Sears results for all periods presented.

The following pro forma statements of operations summarize the results of Holdings assuming that the merger occurred at the beginning of 2004.

                              13 Weeks Ended           39 Weeks Ended
  (in millions, except
   per share amounts)   October 29,   October 27,   October 29,  October 27,
                            2005          2004        2005 (2)       2004
                                       Pro Forma     Pro Forma    Pro Forma

  Total revenues          $12,202      $ 12,838      $38,176      $ 39,122
  Cost of sales,
   buying and occupancy     8,783         9,336       27,681        28,721
  Gross margin rate          27.5%         26.8%        27.0%         26.1%
  Selling and
   administrative           2,972         3,090        8,994         9,076
  Selling and administrative
   expense as a percentage
   of total revenues         24.4%         24.1%        23.6%         23.2%
  Depreciation and
   amortization               263           283          826           871
  Provision for
   uncollectible accounts      21            16           54            42
  Gain on sales of assets     (15)         (208)         (26)         (321)
  Restructuring charges        59            --          104            41
  Total costs and
   expenses                12,083        12,517       37,633        38,430
  Operating income            119           321          543           692
  Interest expense, net       (70)          (84)        (217)         (269)
  Bankruptcy-related
   recoveries                   1             1           33            13
  Other income                 22             8           43            57
  Income before income taxes,
   minority interest and
   cumulative effect of
   change in accounting
   principle                   72           246          402           493
  Percent to revenues         0.6%          1.9%         1.1%          1.3%
  Income taxes                 28            89          172           184
  Minority interest           (14)            7           (1)           14

  Income before change in
   accounting principle       $58          $150         $231          $295
  Cumulative effect of
   change in accounting
   principle                   --            --          (90)           --
  Net income                  $58          $150         $141          $295
  Diluted earnings
   per share                $0.35         $0.93        $0.87         $1.84

  (2)  Includes $34 million of transaction costs related to the merger.


  Diluted earnings per share impact of certain significant items

  Gain on sale of assets    $0.06         $0.81        $0.09         $1.22
  Restructuring charges     (0.13)           --        (0.28)        (0.16)
  Total                    $(0.07)        $0.81       $(0.19)        $1.06

  Gain on sale of assets in the pro forma fiscal 2004 periods include
  Kmart's store sale and lease assignment transactions with The Home Depot,
  Inc. of $0.77 per diluted share for the 13 weeks ended October 27, 2004
  and $0.92 per diluted common share for the 39 weeks ended October 27,
  2004.  Assets sale transactions and restructuring activities periodically
  affect the Company's results; however, the amounts of these types of items
  may vary significantly from period to period and have a disproportionate
  effect on the periods presented, which affects the comparability of the
  Company's financial performance.  Management considers the total impact of
  these items, along with reported results, when it reviews and evaluates
  the Company's financial performance.


The pro forma information is not indicative of the results of operations that would have been achieved if the merger had taken place at the beginning of 2004 or that may result in the future. The pro forma information has not been adjusted to reflect any operating efficiencies that may be realized as a result of the merger.

Pro Forma Adjusted EBITDA

For purposes of evaluating operating performance, the Company's management uses a Pro Forma Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Pro Forma Adjusted EBITDA") measurement computed as operating income 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 and restructuring charges. Pro Forma Adjusted EBITDA is used by management to evaluate the operating performance of the Company's businesses for comparable periods. Pro Forma 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 Pro Forma Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

   1.  EBITDA excludes the effect of financing and investing activities by
       eliminating the effect of interest and depreciation costs;
   2.  Management considers merger transaction costs to result from
       extraordinary activities that are not part of normal operations;
   3.  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
   4.  Management considers gains (losses) on the sale of assets to result
       from investing decisions rather than ongoing operations.

  Pro Forma Adjusted EBITDA is determined as follows:

                             13 Weeks Ended            39 Weeks Ended
                        October 29,   October 27,   October 29,  October 27,
                            2005          2004          2005         2004
                                      Pro Forma      Pro Forma    Pro Forma
  Operating income
   per statement of
   operations               $119          $321          $543         $692
  Plus depreciation and
   amortization              263           283           826          871
  Less gain on sale of
   assets                    (15)         (208)          (26)        (321)
  Before excluded items      367           396         1,343        1,242

  Merger transaction costs    --            --            34           --
  Restructuring charges       59            --           104           41

  Pro Forma Adjusted EBITDA
   as defined               $426          $396        $1,481       $1,283

  % to revenues              3.5%          3.1%          3.9%         3.3%



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

                                         13 Weeks Ended
                          Pro Forma Adjusted
                                EBITDA                   % To Revenues
                     October 29,   October 27,     October 29,   October 27,
                         2005          2004            2005          2004
                                                                  Pro Forma

  Domestic operations    $367          $320             3.3%          2.7%
  Sears Canada             59            76             4.8%          6.6%

    Total Pro Forma
     Adjusted EBITDA     $426          $396             3.5%          3.1%


                                         39 Weeks Ended
                          Pro Forma Adjusted
                                EBITDA                   % To Revenues
                     October 29,   October 27,     October 29,   October 27,
                         2005          2004            2005          2004
                                                    Pro Forma    Pro Forma

  Domestic operations  $1,319        $1,096             3.8%          3.1%
  Sears Canada            162           187             4.6%          5.7%

    Total Pro Forma
     Adjusted EBITDA  $ 1,481        $1,283             3.9%          3.3%


For a detailed discussion of the Company's financial results, please see the Company's Quarterly Report on Form 10-Q, which has been filed with the Securities and Exchange Commission and posted to the Company's website at .

Annual Meeting of Stockholders

Sears Holdings also announced that its 2006 annual meeting of stockholders will be held at the Company's corporate headquarters in Hoffman Estates, Illinois on Wednesday, April 12, 2006.

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 3,900 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as one of the leading retailers of 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 14 million service calls made annually. For more information, visit Sears Holdings' website at .

Pro forma Reconciliation

The following table provides the as reported results for Holdings presented above for the 13-week period ended October 29, 2005 and a reconciliation from the as reported results to the pro forma results presented above for Holdings for the 13-week period ended October 27, 2004.

  Holdings

                      13 Weeks
                       Ended
                     October 29,
                        2005           13 Weeks Ended October 27, 2004
  (millions,
   except per                                 Pre-
   share data)           As          As      merger       Purchase    Pro
                      reported    reported  Activity(1)    Acctng    Forma
  Merchandise sales
   and services       $12,118      $4,426    $8,327          $--    $12,753
  Credit and financial
   products revenues       84          --        85           --         85
    Total revenue      12,202       4,426     8,412           --     12,838

  Cost of sales,
   buying and
   occupancy            8,783       3,324     6,012           --      9,336
  Gross margin rate      27.5%       24.9%     27.8%          --%      26.8%
  Selling and
   administrative       2,972         994     2,076           20(2)   3,090
  Selling and
   administrative as
   % of total
   revenues              24.4%       22.5%     24.7%          --%     24.1%
  Depreciation and
   amortization           263           6       228           49(3)    283
  Provision for
   uncollectible
   accounts                21          --        16           --        16
  Gain on sales of
   assets                 (15)       (807)       --          599(4)   (208)
  Restructuring charges    59          --        --           --        --
  Total costs and
   expenses            12,083       3,517     8,332          668    12,517
  Operating income
   (loss)                 119         909        80         (668)      321
  Interest (expense)
   income, net            (70)        (25)      (66)           7(5)    (84)
  Bankruptcy-related
   recoveries               1           1        --           --         1
  Other income             22           1         7           --         8

  Income before income
   taxes, minority
   interest and
   cumulative effect of
   change in accounting
   principle               72         886        21         (661)      246
  Income tax expense
   (benefit)               28         334         9         (254)(6)    89
  Minority interest       (14)         --         7           --         7

  Income before
   cumulative effect of
   change in accounting
   principle               58         552         5         (407)      150

  NET INCOME (LOSS)       $58        $552        $5        $(407)     $150

  Diluted earnings
   per share            $0.35       $5.45                            $0.93


  (1)  Represents the 2004 results of operations for the period August 1,
       2004 through October 30, 2004 for Sears Domestic and the period
       July 4, 2004 through October 2, 2004 for Sears Canada.

  (2)  Represents an increase to selling and administration expense
       resulting from the adjustment to Sears' pension and postretirement
       plans based on the adjustment of such liabilities to fair value.

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

  (4)  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.

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

  (6)  Represents the aggregate pro forma income tax effect (38.4%) of notes
       (2) through (5) above.


The following table provides a reconciliation from the as reported results presented above to the pro forma results presented above for Holdings for the 39-week periods ended October 29, 2005 and October 27, 2004, respectively.

  Holdings


                                 39-week period ended October 29, 2005

  millions, except                            Pre-
   per share data                As          merger       Purchase    Pro
                              reported     Activity(1)     Acctng    forma
  Merchandise sales and
   services                   $32,868        $5,051         $--     $37,919
  Credit and financial
   products revenues              171            86          --         257
     Total revenue             33,039         5,137          --      38,176
  Cost of sales, buying and
   occupancy                   24,009         3,672          --      27,681
  Gross margin rate              27.0%         27.3%         --%       27.0%
  Selling and administrative    7,669         1,314          11(3)    8,994
  Selling and administrative
   as %of total revenues         23.2%         25.6%         --%       23.6%
  Depreciation and amortization   650           147          29(4)      826
  Provision for uncollectible
   accounts                        38            16          --          54
  Gain on sales of assets         (25)           (1)         --         (26)
  Restructuring charges           104            --          --         104
  Total costs and expenses     32,445         5,148          40      37,633

  Operating income (loss)         594           (11)        (40)        543
  Interest (expense) income,
   net                           (184)          (35)          2(6)     (217)
  Bankruptcy-related recoveries    33            --          --          33
  Other income                     33            10          --          43
  Income before income taxes,
   minority interest and
   cumulative effect of
   change in accounting
   principle                      476           (36)        (38)        402
  Income tax expense (benefit)    183             4         (15)(7)     172

  Minority interest                (7)            6          --          (1)

  Income before cumulative
   effect of change in
   accounting principle           300           (46)        (23)        231
  Cumulative effect of
   change in accounting
   principle, net of tax          (90)           --          --         (90)


  NET INCOME (LOSS)              $210           (46)        (23)        141

  Diluted earnings per share    $1.39                                 $0.87

  Diluted earnings per share
   before cumulative effect of
   change in accounting
   principle                    $1.98                                 $1.42



                               39-week period ended October 30, 2004

  millions, except                            Pre-
   per share data                As          merger       Purchase    Pro
                              reported     Activity(1)     Acctng    forma
  Merchandise sales and
   services                  $ 13,893      $ 24,976         $--     $38,869
  Credit and financial
  products revenues               --           253          --         253
    Total revenue             13,893        25,229          --      39,122
  Cost of sales, buying and
   occupancy                   10,520        18,193           8(2)   28,721
  Gross margin rate              24.3%         27.2%         --%       26.1%
  Selling and administrative    2,921         6,094          61(3)    9,076
  Selling and administrative
   as %of total revenues         21.0%         24.2%         --%       23.2%
  Depreciation and amortization    14           712         145(4)      871
  Provision for uncollectible
   accounts                        --            42          --          42
 Gain on sales of assets        (911)           (9)        599(5)     (321)
  Restructuring charges            --            41          --          41
  Total costs and expenses     12,544        25,073         813      38,430

  Operating income (loss)       1,349           156        (813)        692
  Interest (expense) income,
  net                            (86)         (200)         17(6)     (269)
  Bankruptcy-related recoveries    13            --          --          13
 Other income                      4            53          --          57
  Income before income taxes,
   minority interest and
   cumulative effect of
   change in accounting
   principle                    1,280             9        (796)        493
  Income tax expense (benefit)    483             5        (304)(7)     184

  Minority interest                --            14          --          14

  Income before cumulative
   effect of change in
   accounting principle           797           (10)       (492)        295
  Cumulative effect of
   change in accounting
  principle, net of tax           --            --          --          --

  NET INCOME (LOSS)              $797          $(10)      $(492)       $295

 Diluted earnings per share    $7.93                                 $1.84
  Diluted earnings per share
   before cumulative effect of
   change in accounting
  principle                    $7.93                                 $1.84


  (1)  Represents the 2005 results of operations for the period January 30,
       2005 through March 24, 2005 for Sears Domestic and the period
       January 2, 2005 through March 24, 2005 for Sears Canada and the 2004
       results of operations for the period February 1, 2004 through
       October 30, 2004 for Sears Domestic and the period January 4, 2004
       through October 2, 2004 for Sears Canada.

  (2)  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.

  (3)  Represents an increase to selling and administrative expense
       resulting from the adjustment to Sears' pension and postretirement
       plans based on the adjustment of such liabilities to fair value.

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

  (5)  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.

  (6)  Represents a decrease to interest expense resulting from the
       adjustment to Sears debt based on the adjustments of such liabilities
       to fair value.

  (7)  Represents the aggregate pro forma effective income tax effect
       (38.4%) of notes (2) through (6) above.



The following table reconciles Pro Forma Adjusted EBITDA to net income as reported for the 13-week periods ended:

                                                   October 29,   October 27,
                                                      2005          2004
  Pro Forma Adjusted EBITDA                           $426          $396


  Restructuring charges                                (59)           --

  Pro Forma Adjusted EBITDA after
   restructuring charges                               367           396

     Depreciation and amortization                    (263)         (283)
     Less gain on sale of assets                        15           208
  Pro Forma operating income                           119           321


     Interest expense, net                             (70)          (84)
     Bankruptcy-related recoveries                       1             1
     Other income                                       22             8
     Income tax expense                                (28)          (89)
     Minority interest expense                          14            (7)
  Pro Forma net income                                  58           150


     Less pre-merger activity                           --            (5)
     Less effect of purchase accounting adjustments     --           407

  Net income as reported                               $58          $552



The following table reconciles Pro Forma Adjusted EBITDA to net income as reported for the 39-week periods ended:

                                                  October 29,    October 27,
                                                     2005           2004
  Pro Forma Adjusted EBITDA                         $1,481         $1,283


  Merger transaction costs                             (34)            --
  Restructuring charges                               (104)           (41)
  Pro Forma Adjusted EBITDA after merger-related
   items and restructuring charges                   1,343          1,242


     Depreciation and amortization                    (826)          (871)
     Less gain on sale of assets                        26            321

  Pro Forma operating income                           543            692


     Interest expense, net                            (217)          (269)
     Bankruptcy-related recoveries                      33             13
     Other income                                       43             57
     Income tax expense                               (172)          (184)
     Minority interest expense                           1            (14)
     Change in accounting principle                    (90)            --
  Pro Forma net income                                 141            295


     Less pre-merger activity                           46             10
     Less effect of purchase accounting adjustments     23            492

  Net income as reported                              $210           $797

SOURCE: Sears Holdings Corporation

CONTACT: Sears Holdings Public Relations, +1-847-286-8371

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