Sears 2012 Annual Report Download - page 32

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32
Operating Income (Loss)
We recorded an operating loss of $1.5 billion in 2011, as compared to operating income of $437 million in
2010. Operating loss for 2011 included a $551 million non-cash impairment charge related to goodwill balances of
certain reporting units, expenses related to domestic pension plans, store closings, severance and hurricane losses,
and a net gain on sales of assets, which aggregated to $964 million. Operating income for 2010 included expenses
related to domestic pension plans, store closings and severance and a gain on sale of assets, which aggregated to
$121 million. The decline in operating income of $1.9 billion was primarily the result of a decline in our gross
margin dollars, given lower overall sales, and a decline in our gross margin rate of 180 basis points and an increase
in the above noted charges.
Other Loss
Other loss is primarily comprised of mark-to-market and settlement gains and losses on Sears Canada hedge
transactions. Total net mark-to-market and settlement losses of $1 million and $15 million were recorded on these
transactions in 2011 and 2010, respectively. See Notes 4 and 5 to the Consolidated Financial Statements for further
information regarding these transactions.
Income Taxes
Our income tax expense effective tax rate for the year was 78.2% in 2011 and 16.3% in 2010. The increase in
our tax rate was primarily due to several significant tax matters, which included a non-cash charge of $1.8 billion to
establish a valuation allowance against certain deferred income tax assets and the nondeductible nature of our
goodwill impairment.
Business Segment Results
Kmart
Kmart results and key statistics were as follows:
millions, except number of stores 2012 2011 2010
Merchandise sales and services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,567 $ 15,285 $ 15,593
Comparable store sales %. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.7)% (1.4)% 0.8%
Cost of sales, buying and occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,158 11,818 11,757
Gross margin dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,409 3,467 3,836
Gross margin rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.4 % 22.7 % 24.6%
Selling and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,284 3,371 3,341
Selling and administrative expense as a percentage of revenues . . . . . . 22.5 % 22.1 % 21.4%
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 149 149
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 15 —
Gain on sales of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37) (34) (7)
Total costs and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,562 15,319 15,240
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5 $ (34) $ 353
Adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201 $ 172 $ 508
Total Kmart stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,221 1,305 1,307