Sears 2013 Annual Report Download - page 35

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Fairview Corporation Limited for which Sears Canada received $171 million ($170 million Canadian) in cash
proceeds. 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, the gain on
sales of assets included a gain of $21 million recognized on the sale of two stores operated under The Great Indoors
format and $12 million recognized on the sale of a store operated under the Kmart format.
Operating Loss
We recorded an operating loss of $838 million and $1.5 billion in 2012 and 2011, respectively. Operating loss
for 2012 included non-cash charges related to pension settlements and the impairment of Sears Canada goodwill
balances, expenses related to domestic pension plans, store closings and store impairments and severance and
transaction costs, as well as the gains on sales of assets which aggregated to an operating loss of $705 million.
Operating loss for 2011 included a non-cash charge of $551 million 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
the sales of assets which aggregated to an operating loss of $964 million. Excluding these items, operating loss
improved $404 million primarily due to the improvement in gross margin rate and a decrease in selling and
administrative expenses, which were partially offset by a decline in gross margin dollars, given lower sales.
Interest Expense
We incurred $267 million and $289 million in interest expense during 2012 and 2011, respectively. The
decrease is due to lower average outstanding borrowings.
Income Taxes
Our income tax effective rate was 4.4% in 2012 and 78.2% in 2011. The 2012 tax rate continues to reflect the
effect of not recognizing the benefit of current period losses in certain domestic jurisdictions where it is not more
likely than not that such benefits will be realized. The prior year tax rate is the result of significant tax matters in
2011 which included a non-cash charge of $1.8 billion to establish a valuation allowance against certain deferred
income tax assets.
Business Segment Results
Kmart
Kmart results and key statistics were as follows:
millions, except number of stores 2013 2012 2011
Merchandise sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,194 $ 14,567 $ 15,285
Comparable store sales % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.6)% (3.7)% (1.4)%
Cost of sales, buying and occupancy . . . . . . . . . . . . . . . . . . . . . . . 10,329 11,158 11,818
Gross margin dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,865 3,409 3,467
Gross margin rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.7 % 23.4 % 22.7 %
Selling and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,083 3,284 3,371
Selling and administrative expense as a percentage of revenues. . 23.4 % 22.5 % 22.1 %
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 147 149
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 10 15
Gain on sales of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66) (37) (34)
Total costs and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,545 14,562 15,319
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (351) $ 5 $ (34)
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (129) $ 201 $ 172
Total Kmart stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,152 1,221 1,305