Sears 2012 Annual Report Download - page 29

Download and view the complete annual report

Please find page 29 of the 2012 Sears annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 129

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129

29
majority of its categories, most notably the consumer electronics, pharmacy, grocery and household and drug store
categories.
Gross Margin
Gross margin declined $87 million to $10.5 billion in 2012 from $10.6 billion in 2011 and included charges of
$35 million and $130 million related to store closures for 2012 and 2011, respectively. Excluding these items, gross
margin declined $182 million as the above noted decline in revenues was only partially offset by an improvement in
gross margin rate. In addition, Sears Canada's gross margin included a decrease of $11 million related to the impact
of foreign currency exchange rates.
Sears Domestic's gross margin rate improved 120 basis points in 2012 primarily due to improved margins in
the apparel, home appliance and footwear categories, which were partially offset by declines in the consumer
electronics category and the Lands' End customer direct business. Kmart’s gross margin rate improved 70 basis
points in 2012 due to the improvement in the apparel, pharmacy and toys categories which were partially offset by a
decline in the consumer electronics category. Sears Canada’s gross margin rate decreased 10 basis points in 2012
due to declines in the fitness and recreation, children's wear, jewelry, accessories and luggage and footwear
categories.
Selling and Administrative Expenses
Selling and administrative expenses for 2012 were flat with the prior year and included expenses related to
pension plans, store closings and severance of $725 million in 2012 and $198 million in 2011. The current year also
included $12 million of transaction costs associated with strategic initiatives while 2011 included expense of $12
million related to hurricane losses in 2011. Excluding these items, selling and administrative expenses declined $531
million due to reductions in advertising, supplies and payroll expenses. Selling and administrative expenses at Sears
Canada for 2012 included a decrease of $10 million related to the impact of foreign currency exchange rates.
Selling and administrative expenses as a percentage of revenues ("selling and administrative expense rate")
were 26.7% and 25.7% for 2012 and 2011, respectively, and increased primarily as a result of the above noted
charges.
Depreciation and Amortization
Depreciation and amortization expense decreased by $23 million during 2012 to $830 million and included
charges of $22 million and $8 million in 2012 and 2011, respectively, taken in connection with store closings. The
decrease is primarily due to having fewer assets available for depreciation.
Impairment Charges
During 2012, we recorded impairment charges of $295 million and $35 million related to the impairment of
goodwill and long-lived assets, respectively. We also recorded impairment charges during 2011 of $551 million and
$98 million related to the impairment of goodwill and long-lived assets, respectively. Impairment charges recorded
in both years are described further in Notes 12 and 13 in Notes to Consolidated Financial Statements.
Gain on Sales of Assets
We recorded total gains on sales of assets of $468 million in 2012 and $64 million in 2011, which were
primarily attributable to several real estate transactions. The gain on sale of assets in 2012 included a gain of $223
million recognized on the sale of eleven (six owned and five leased) Sears Full-line store locations to General
Growth Properties for $270 million in cash proceeds, and a gain of $163 million recognized on the surrender and
early termination of the leases on three properties operated by Sears Canada, under an agreement with The Cadillac
Fairview Corporation Limited for which Sears Canada received $170 million Canadian in cash proceeds. In
connection with these transactions, we surrendered substantially all of our rights and obligations under our
preexisting lease agreements and agreed to surrender each of the premises in periods ranging from six to 23 months
from the date of closing. Gain on sales of assets recorded in 2012 also included a gain of $33 million related to the
sale of a store operated under The Great Indoors format, one Sears Full-line store and one Kmart store. During 2011,