Sears 2014 Annual Report Download - page 35

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35
The gross margin rate for both Kmart and Sears Domestic for the year were impacted by transactions that offer
both traditional promotional marketing discounts and Shop Your Way® points. As compared to the prior year,
Kmart's gross margin rate for 2013 declined 170 basis points, with decreases experienced in a majority of categories,
particularly apparel and grocery & household. Sears Domestic's gross margin rate declined 260 basis points in 2013
due to selling merchandise to SHO at cost pursuant to the terms of the separation as expected and previously
disclosed, which accounted for approximately 120 basis points of the decline. Sears Domestic experienced margin
decreases in the home appliance and apparel categories. Sears Canada's gross margin rate declined 190 basis points
in 2013 due to an increase in inventory reserve requirements.
Selling and Administrative Expenses
Selling and administrative expenses decreased $1.3 billion to $9.4 billion in 2013 from $10.7 billion in 2012
and included significant items which aggregated to $1.7 billion and $2.7 billion in 2013 and 2012, respectively.
Excluding these items, selling and administrative expenses declined $246 million primarily due to a decrease in
payroll expense.
Selling and administrative expense rates were 25.9% and 26.7% for 2013 and 2012, respectively, and
decreased primarily as the decrease in overall selling and administrative expenses, was partially offset by lower
expense leverage due to the above noted decline in revenues.
Depreciation and Amortization
Depreciation and amortization expense decreased by $98 million during 2013 to $732 million and included
significant items which aggregated to $125 million and $156 million in 2013 and 2012, respectively. The overall
decrease in expense in 2013 is primarily due to having fewer assets available for depreciation.
Impairment Charges
We recorded impairment charges of $233 million and $330 million in 2013 and 2012, respectively, related to
the impairment of long-lived assets and goodwill, which included impairment charges of $13 million and $295
million, respectively, from Sears Canada. During 2012, we recorded impairment charges of $295 million related to
the impairment of goodwill at Sears Canada. 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 $667 million in 2013 and $468 million in 2012, which were
primarily attributable to several real estate transactions.
The gain on sales of assets in 2013 included a gain of $180 million recognized on the amendment and early
termination of the leases on two properties operated by Sears Canada, for which Sears Canada received $184 million
($191 million Canadian) in cash proceeds. We also recorded a gain on sales of assets of $357 million in 2013
recognized on the surrender and early termination of the leases of five properties operated by Sears Canada, for
which Sears Canada received $381 million ($400 million Canadian) in cash proceeds. Finally, gain on sales of assets
in 2013 also included a gain of $67 million related to the sale of a store previously operated under The Great Indoors
format, two Sears Full-line stores and two Kmart stores for which the Company received $98 million in cash
proceeds.
The gain on sales 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 $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.