Sears 2012 Annual Report Download - page 36

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Sears Domestic’s gross margin rate was 28.0% in 2012 and 26.8% in 2011. The increase of 120 basis points
was mainly due to improvements in the apparel, home appliance and footwear categories, which were partially offset
by declines in the consumer electronics category and our Lands' End customer direct business.
Selling and Administrative Expenses
Sears Domestic’s selling and administrative expenses increased $142 million in 2012 as compared to 2011.
Selling and administrative expenses for 2012 were impacted by expenses of $617 million related to pension plans
and $30 million related to store closings and severance, while 2011 was impacted by expenses of $74 million related
to pension plans and $76 million related to store closings and severance. Selling and administrative expenses for
2012 also included $9 million of transaction costs associated with strategic initiatives while 2011 included expense
of $12 million related to hurricane losses. Excluding these items, selling and administrative expenses decreased
$352 million due to declines in advertising and payroll expenses.
Sears Domestic’s selling and administrative expense rate was 29.5% in 2012 and 27.9% in 2011 and increased
as a result of the above noted expenses.
Depreciation and Amortization
Depreciation and amortization expense decreased $23 million to $578 million during 2012 and included
charges of $13 million and $8 million in 2012 and 2011, respectively, taken in connection with store closings. The
decrease is primarily attributable to having fewer assets available for depreciation.
Impairment Charges
During 2012, we recorded impairment charges of $25 million related to the impairment of long-lived assets.
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 $261 million in 2012 and $30 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. In connection with this transaction, 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 $22 million related to the sale of a store operated under The Great Indoors format and
one Sears Full-line store. The gain on sales of assets in 2011 included a gain of $21 million recognized on the sale of
two stores operated under the Great Indoors format.
Operating Loss
Sears Domestic reported an operating loss of $656 million in 2012 compared to $1.4 billion in 2011. Sears
Domestic’s operating loss improved as the increase in selling and administrative expenses noted above was more
than offset by lower impairment charges, an increase in the gains on sales of assets and an increase in gross margin
dollars. Sears Domestic’s operating loss included expenses related to domestic pension plans and store closings and
severance of $674 million and $242 million in 2012 and 2011, respectively, impairments of $25 million and $634
million in 2012 and 2011 respectively, $9 million of transaction costs associated with strategic initiatives in 2012
and hurricane losses of $12 million in 2011, as well as a gains of $245 million and $21 million in 2012 and 2011,
respectively, related to the sale of real estate assets.