Sears (SHLDQ) 8-K Sears Holdings Reports Fourth Quarter and Full Year

Exhibit 99.1

NEWS MEDIA CONTACT:

Sears Holdings Public Relations

(847) 286-8371

FOR IMMEDIATE RELEASE:

March 1, 2007

SEARS HOLDINGS REPORTS FOURTH QUARTER AND FULL YEAR

2006 RESULTS

HOFFMAN ESTATES, IL – 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 3, 2007			January 28, 2006			February 3, 2007			January 28, 2006			January 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.

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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

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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 Décor/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

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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 3, 2007			January 28, 2006		February 3, 2007		January 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.

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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 3, 2007			January 28, 2006			February 3, 2007			January 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:

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	Quarters Ended								Fiscal Years Ended
	Adjusted EBITDA				% To Revenues				Adjusted EBITDA				% To Revenues
	February 3, 2007		January 28, 2006		February 3, 2007		January 28, 2006		February 3, 2007		January 28, 2006		February 3, 2007		January 28, 2006
											Pro Forma				Pro 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 www.searsholdings.com.

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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 common share data	February 3, 2007			January 28, 2006(1)			February 3, 2007			January 28, 2006(1)			January 28, 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

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Sears Holdings Corporation

Condensed Consolidated Balance Sheets

Amounts are Preliminary and Subject to Change

	Unaudited
millions	February 3, 2007		January 28, 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
	Kmart			Domestic			Canada			Sears 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
	Kmart			Domestic			Canada			Sears 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

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Sears Holdings Corporation

Segment Results

(Unaudited)

Amounts are Preliminary and Subject to Change

2006—Reported	Fiscal Year Ended February 3, 2007
millions				Sears
	Kmart			Domestic			Canada			Sears 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
	Kmart			Domestic			Canada			Sears 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
	Kmart			Domestic			Canada			Sears 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

11

Sears Holdings Corporation

Adjusted EBITDA

Amounts are Preliminary and Subject to Change

	Quarters Ended
	February 3, 2007									January 28, 2006
	Domestic Operations			Sears Canada			Sears Holdings			Domestic Operations			Sears Canada			Sears 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 Operations			Sears Canada			Sears Holdings			Domestic Operations			Sears Canada			Sears Holdings
										Pro Forma			Pro Forma			Pro 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	As reported			Pre-merger Activity			Purchase Accounting			Pro 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	As reported			Pre-merger Activity			Purchase Accounting			Pro 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	As reported			Pre-merger Activity			Purchase Accounting			Pro 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