SHLD Inputs

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Questions on the slide (various aspects) - 6 questions

1. pro forma vs reported numbers: Why take pro forma instead of reported numbers? When you are projecting the consolidated company post M&A, which financials to use? 2. organic vs inorganic growth: When you are trying to project organic vs inorganic growth and % of growth in the combined company... 1. pro forma vs reported numbers: Why take pro forma instead of reported numbers? When you are projecting the consolidated company post M&A, which financials to use?

2. organic vs inorganic growth: When you are trying to project organic vs inorganic growth and % of growth in the combined company from acquisition vs from organic (acquiror), is it the right way to do this: use historical financials (3-5 years) of target & acquiror and going forward, except that going forward you include synergies? Is there a need to use pro forma 2004-2005 numbers from SHLD in this case and how do you use given pro forma numbers when carrying out this inorganic vs organic growth analysis?

3. Adjustments on pro forma questions: Gain from sale of business:
a. $317m gain from sale of business that occurred at pretax level but was offset by MI expense post tax. This MI expense occurs post tax below net income right? All MI income / expense usually occurs after net income to common shareholders (so post tax), is this right?

4. Adjustments on pro forma questions: Bankruptcy ($40m expense on page 9/43 on top of PDF – is this expense equal to the gain that you will add after reversing?):
a. I agree they are below EBIT but they are in between EBIT and earning before tax, so they are pretax. The slides state these numbers are post tax, how do you arrive at post tax conclusion?

b. Is gain adjustment from bankruptcy $40m from page 21/43 on the cashflow statement equal to the bankruptcy expense $40m on page 9/43. This cashflow statement is from successor company meaning GAAP right (so post M&A consolidation and not pro forma)?

5. Adjustments on pro forma questions: other income adjustments ($21m gain created from $48m other income):
a. I agree they are below EBIT but they are in between EBIT and earning before tax, so they are pretax. The slides state these numbers are post tax, how do you arrive at post tax conclusion?

b. $23m vs $21m gain from asset sale (not sure which number to use): Where is $21m gain from? On page 33/43 It was stated $21m gain from other income from $45m cure payment to Kmart? However, on notes 12 page 32/43, gain on sale of investment in total is $23m instead of $21m. Which is the right number to use $23m or $21m gain? The total other income pro forma is $48m vs reported $38m and the breakdown of other income is only given $38m (which seem to be reported, instead of pro forma) so how do you know which gain from investment sale number to use out of the $48m since the breakdown of other income pro forma is not given?

6. Estimates for pro forma diluted EPS: you used 2 methods using pro forma net income before and after accounting changes. Whichever is the method, you always take the higher diluted EPS number to be conservative correct? Hence there is no preference for either method. Read More

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by Elvina J.

added 6 years ago

Re: Questions on the slide (various aspects) - 6 questions

Many of these are explained the videos; may we suggest to go back and re-view the videos again; in the meantime, short answers: 1) PF because that's what they'll report going forward 2) Conceptually yes, but in retail, Same Store Sales is best metric for organic so you don't have to worry about ov... Read More

by WST Expert 1.

added 6 years ago

Complex Comps - SHLD - EPS before vs after acctng change

In the video for SHLD, it is stated that we should use the pro-forma diluted eps before accounting change instead of after. Why is that? I would have actually thought the opposite.

Thanks.

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by Guest 1.

added 10 years ago

SHLD Inputs on complex tr comps

Hi, I have some questions in relation to the SHLD class: (1). When should we use Pro Forma numbers and when not? Is there any decision rule in this case? (2). Since we are trying to capture the core, recurring and sustainable profitability, shouldn’t we have excluded the “Credit and financ... Hi, I have some questions in relation to the SHLD class:

(1). When should we use Pro Forma numbers and when not? Is there any decision rule in this case?

(2). Since we are trying to capture the core, recurring and sustainable profitability, shouldn’t we have excluded the “Credit and financial products revenues” given that on page 39 of the 10K the company states that these revenues are “not expected to re-occur” (due to the sale of the Credit and Financial Services operations on November 2005)?

(3). I’m still not sure about the credit card adjustment. As it also appears in the 2004PF figures, it gives the idea that is a recurring item and part of the credit card business. Isn’t it enough to indicate that this is not a one-time item and therefore we wouldn’t have to adjust for it (also note that the amounts are very similar, $65MM in 2005PF, and $64MM in 2004PF)? If the instructor’s theory (that the company may have taken the opportunity to write-off this item) was true, I presume we would see very discrepant amounts from in these 2 years; does that make sense for you? Also, isn’t it an arbitrary decision to determine that these values are one-time items?

(4). We didn’t adjust for the EPS impact of the $317MM because the company stated it was offset by the correspondent minority interest expense. However, if we think about it the minority interest is going to happen every year, it is a recurring item and will continue to affect results. On the other hand, the gain on sale of assets is a one-time item and is not part of the business, and since we are trying to get the sustainable profitability we would subtract it out from EPS as well. So, don’t you think we are overstating the company’s normalized EPS since we didn’t adjust this item? And also, we are netting a recurring item (MI) with a non-recurring item (gain on sale of assets), isn’t it the old story of apples to apples?

(5). In the other companies we did, when the company gave us the EPS impact on a diluted basis of the one-time item, we directly input it on the “Adjustments per share” on our model. Why didn’t we do the same in the case of SHLD, since the company gave us this data (gain on sale of assets – 2005PF $0.15; restructuring charges – 2005PF $0.33; p.26 on the 10K)? Note that by using them our normalized EPS moves from $5.68 to $5.59, a considerable difference.

(6). If we have goodwill impairment in the financials, should treat it as a one-time item and reverse it (positive impact on the normalized EPS)? If yes, no tax effect, right? (since GW is not tax deductible we would sum it to EPS directly).

Thanks for your help.
Cheers. Read More

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by Guest 1.

added 10 years ago

RE: SHLD Inputs on complex tr comps

1) use judgement as explained in the video. the point is, you have to READ the entire filing which most people don't do. Remember, Murphy's Law - the one time you don't, you get burned. 2) Yes, however, it is still an actual - it would not be inappropriate to exclude it. 3) Please refer back t... Read More

by WST Expert 1.

added 10 years ago

RE: SHLD Inputs on complex tr comps

Hi, thanks for your answers. Just two more points here: (3). When I ask a question to WST, be sure I always have watched the video at least twice (in the part I'm not sure of the concepts tought). So, here in question 3, please, I would like to hear WST comments on the fact that the amounts are v... Read More

by Guest 1.

added 10 years ago

RE: SHLD Inputs on complex tr comps

3) Net Sales is what is reported on the financials. Net Sales has been already reduced by Allowance for Bad Debt/Uncollectibles; as a result, normally, you wouldn't see that expense AT ALL anywhere! It's definitely NOT in the expense line (whether COGS or SG&A). Plus, Sears didn't have it in pr... Read More

by WST Expert 1.

added 10 years ago