NEW YORK — Sears, Roebuck and Co. said it was adjusting its fourth-quarter earnings, reducing per-share earnings by up to 10 cents to correct an accounting error relating to its leasing transactions.

The roughly 5 percent reduction in profits is due to a change in how the company amortizes its construction allowances.

Previously, the allowances were amortized as a reduction of depreciation expense over the estimated useful life of the property or equipment, but now they will be amortized as a reduction of rent expense over the lease term of that property or equipment, the company said.

According to the retailer, this change will also affect income statement classification by increasing depreciation expense and reducing the cost of sales, buying and occupancy.

In another move, Sears changed the classification of cash flows from its credit card business to investing activities, rather than as operating activities.

Sears, which posted $36.1 billion in revenue in 2004, expects to close its merger with Kmart Holding Corp. in mid-March. The new, 3,800-store entity, Sears Holding Corp., is expected to earn nearly double in revenue and be the third largest retailer in the United States.

This story first appeared in the February 16, 2005 issue of WWD. Subscribe Today.