Some very interesting items in this mornings 10-Q from Sears Holdings (SHLD).
Short Term Borrowings:
Credit Agreement
“We have a $4.0 billion, five-year credit agreement (the “Credit Agreement”) in place as a funding source for general corporate purposes, which includes a $1.5 billion letter of credit sublimit. The Credit Agreement, which has an expiration date of March 2010, is a revolving credit facility under which Sears Roebuck Acceptance Corp. (“SRAC”) and Kmart Corporation are the borrowers. The Credit Agreement is guaranteed by Holdings and certain of our direct and indirect subsidiaries and is secured by a first lien on our domestic inventory, credit card accounts receivable and the proceeds thereof. Availability under the Credit Agreement is determined pursuant to a borrowing base formula, based on domestic inventory levels, subject to certain limitations. As of August 2, 2008, we had $800 million of borrowings and $1.0 billion of letters of credit outstanding under the Credit Agreement with $2.2 billion of availability remaining under the Credit Agreement. The $800 million in borrowings, borrowed in the first half of fiscal 2008, are classified within short-term borrowings on our condensed consolidated balance sheet as of August 2, 2008 as we intend to repay the entire amount within the next 12 months. The Credit Agreement does not contain provisions that would restrict borrowings or letter of credit issuances based on material adverse changes or credit ratings.”
Reorganization:
“In January 2008, we announced that we would implement a new organizational structure and operating model designed to simplify the way our business lines are managed. While we have begun the process of transforming the Company to this new model, it will take some time to build the processes and information systems necessary to support the structure. We continue to assess the impact our new organizational structure will have on the business segment information used by our management to operate Holdings on an on-going basis. “
Interest Expense
“We incurred $65 million in interest expense during the second quarter of fiscal 2008, as compared to $71 million in the second quarter of last year. The reduction was attributable to lower average borrowings outstanding during the quarter.”
“We incurred $131 million in interest expense during the first half of fiscal 2008, as compared to $144 million in the first half of last year. The reduction was attributable to lower average borrowings outstanding during the first half of the year in 2008.”
Investing Activities
“For the first half of fiscal 2008, we used $277 million of cash for capital expenditures as compared to $278 million used during the first half of fiscal 2007. In addition, we received $75 million of proceeds from sales of property and investments in the first half of fiscal 2008, which was mainly related to the sale of Sears Canada’s Calgary downtown full-line store. In the first half of fiscal 2007, $60 million of collateral was returned to us related to our investments in total return swaps. There were no total return swaps outstanding as of or during the period ended August 2, 2008.”
From May 4th to August 2nd, Lampert repurchased 5.6 million shares at an average price of $78.22. The stock, currently roughly $90 a share sits 15% above that level.
What I find interesting in much of the commentary out there is that the general thought is that Lampert “is cutting spending and using debt to fund operations”. Yet, the reality is that capex is flat, debt down & share count down.”
It is odd that so much of the commentary revolving Sears is factually inaccurate. It is one thing to look at the numbers and come to different conclusions, it is another entirely to not bother looking at them before making those conclusion because it is the general consensus.
Disclosure (“none” means no position):Long SHLD
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