Kmart Corporation Reports First Quarter 2002 Results
Kmart Corporation (NYSE: KM) announced today the financial results for its first quarter of fiscal 2002. This period covers the first three full months following Kmart's voluntary Chapter 11 filing on January 22, 2002. Operating reports for each of these three months have previously been filed with the U.S. Bankruptcy Court in Chicago and the Securities and Exchange Commission.
For the 13 weeks ended May 1, 2002, Kmart reported a net loss of $1.45 billion, or $2.88 per share, versus a net loss of $233 million, or $0.48 per share, for the 13 weeks ended May 2, 2001. Excluding non-comparable and reorganization items, the Company's net loss was $408 million, or $0.81 per share, in the first quarter of 2002 compared with a net loss of $218 million, or $0.45 per share, in the first quarter of 2001.
Net sales for the 13-week period ended May 1, 2002 were $7.64 billion, a decrease of 8.4 percent from $8.34 billion in 2001. On a same-store basis, sales declined 8.8 percent from the first quarter of 2001. Excluding the 283 stores that were closed this year, the same-store sales decline was 11.7 percent.
James B. Adamson, Chairman and Chief Executive Officer of Kmart, said, "Kmart's significant losses and sales decline in the first quarter reflect the many challenges the Company faced in the period following our voluntary Chapter 11 filing. These challenges included reduced inventory levels as vendors withheld shipments in the early days of the reorganization and reduced store traffic arising from the bankruptcy filing."
Excluding non-comparable and reorganization items, gross margin as a percentage of sales increased to 18.3 percent for the 13 weeks ended May 1, 2002, from 18.0 percent in the first quarter of 2001. This increase is attributable to decreased sales, as a percent of total sales, of food and consumables, which carry lower margin rates, and a shift from clearance sales to regular sales, partially offset by reduced retail pricing and decreased vendor allowances.
Selling, General and Administrative expenses (SG&A) increased $79 million from the year-ago quarter. SG&A, as a percent of sales, was 23.4 percent in the first quarter of 2002 compared with 20.5 percent in the first quarter of 2001. This increase is due primarily to severance and contractual obligations, increased bonus accruals, utility rate increases, decreased co-op recoveries, and increased expenses for general liability claims. These were partially offset by the elimination of a previous bonus program for store associates.
Adamson said, "While there is still much hard work ahead, we are pleased with the early progress we are making in addressing in-stock levels, customer service and store traffic. Nearly all of our vendors have resumed shipments to us and in-stock levels in the stores have improved. Likewise, our focus on improving the physical condition of our stores and enhancing customer service helped produce a successful Customer Appreciation sale in early June."
As of May 1, 2002, Kmart had approximately $1.1 billion in available cash and approximately $1.6 billion available under its debtor-in-possession credit facility.
Reconciliation of net loss
The following unaudited table reconciles net loss as reported to net loss adjusted for non-comparable and reorganization items for the 13 weeks ended May 1, 2002 and May 2, 2001, respectively:
(Unaudited)
13-weeks 13-weeks
Ended Ended
May 1, May 2,
2002 2001
($ Millions, except per share amounts)
Net loss, as reported $(1,449) $(233)
Non-comparable items:
Markdowns for inventory liquidation 758 -
Accelerated depreciation 18 -
Charge for employee severance and VERP - 23
Total non-comparable items 776 23
Tax benefit on non-comparable items - (8)
Total non-comparable items, net of tax 776 15
Reorganization items, net 265 -
Net loss adjusted for non-comparable and
reorganization items $(408) $(218)
Net loss per share adjusted for non-comparable
and reorganization items $(0.81) $(0.45)
Net loss per share, as reported $(2.88) $(0.48)
Basic and diluted weighted average shares
(in millions) 502.9 488.5
During the first quarter of fiscal 2002, Kmart recorded a charge of $758 million to write-down inventory in the 283 stores that were closed in May and June, and inventory transferred from the remaining stores to the closing stores. Of this charge, $384 million relates to the write-down of inventory at the closed stores to estimated selling value. Another $266 million relates to the write-down of inventory that was transferred from other Kmart stores to the closed stores and included in the liquidation sales. The remaining $108 million of the charge related to liquidation fees and expenses associated with the store closing sales.
Kmart recorded a total charge of $265 million for reorganization items in the first quarter of 2002, including a store-closing charge of $233 million for lease terminations and other costs associated with the 283 closed stores.
KMART CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
(Unaudited)
13-weeks 13-weeks
Ended Ended
May 1, May 2,
2002 2001
Sales $7,639 $8,337
Cost of sales, buying and occupancy 7,016 6,834
Gross margin 623 1,503
Selling, general and administrative expenses 1,791 1,712
Equity income (loss) in unconsolidated
subsidiaries 5 (16)
Charge for employee severance and Voluntary
Early Retirement Program (VERP) - 23
Loss before interest, income taxes,
reorganization items and dividends on
convertible preferred securities of subsidiary
trust (1,163) (248)
Interest expense, net
(contractual interest for 13 weeks ended
May 1, 2002 was $93) 33 83
Income tax benefit (12) (109)
Reorganization items, net 265 -
Dividends on convertible preferred securities
of subsidiary trust, net of income taxes of
$0 and $6, respectively (contractual dividend
for the 13 weeks ended May 1, 2002 was $18) - 11
Net loss $(1,449) $(233)
Basic/Diluted net loss per common share $(2.88) $(0.48)
Basic and diluted weighted average shares
(millions) 502.9 488.5
KMART CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(Unaudited)
May 1, January 30,
2002 2002
Current Assets:
Cash and cash equivalents $1,829 $1,245
Merchandise inventories 5,284 5,822
Other current assets 624 817
Total current assets 7,737 7,884
Property and equipment, net 6,044 6,161
Other assets and deferred charges 223 253
Total Assets $14,004 $14,298
Current Liabilities:
Accounts payable $1,680 $103
Accrued payroll and other liabilities 638 378
Taxes other than income taxes 237 143
Total current liabilities 2,555 624
Long-term debt and notes payable - 330
Capital lease obligations 694 857
Other long-term liabilities 87 79
Total liabilities not subject to compromise 3,336 1,890
Liabilities subject to compromise 7,767 8,060
Company obligated mandatorily redeemable
convertible preferred securities of a
subsidiary trust holding solely 7 3/4%
convertible junior subordinated
debentures of Kmart (redemption value
$898 and $898, respectively) 889 889
Common stock, $1 par value, 1,500,000,000
shares authorized; 502,689,273 and
503,294,515 shares outstanding, respectively 503 503
Capital in excess of par value 1,697 1,695
(Accumulated deficit) retained earnings (188) 1,261
Total Liabilities and Shareholders' Equity $14,004 $14,298
KMART CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
13-weeks 13-weeks
Ended Ended
May 1, May 2,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,449) $(233)
Adjustments to reconcile net loss
to net cash provided by (used for) operating
activities:
Restructuring, impairments and other charges 776 23
Reorganization items, net 265 -
Depreciation and amortization 187 200
Equity (income) loss in unconsolidated subsidiaries (5) 16
Dividends received from Meldisco 45 51
Cash used for store closings and other charges (38) (26)
Changes in Operating Assets and Liabilities:
Increase in inventories (112) (951)
Increase in accounts payable 1,108 508
Deferred income taxes and taxes payable (9) (28)
Other assets 154 173
Other liabilities 69 9
Net cash provided by (used for) continuing operations 991 (258)
Net cash used for discontinued operations (1) (20)
Net cash provided by (used for) operating activities 990 (278)
Net cash provided by reorganization items 12 -
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (52) (262)
Investment in BlueLight.com - (15)
Net cash used for investing activities (52) (277)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt - 592
Issuance of common shares - 22
Payments on debt (347) (6)
Payments on capital lease obligations (19) (21)
Payments of dividends on preferred securities
of subsidiary trust - (18)
Net cash (used for) provided by financing activities (366) 569
Net change in cash and cash equivalents 584 14
Cash and cash equivalents, beginning of year 1,245 401
Cash and cash equivalents, end of period $1,829 $415
Kmart Corporation is a $36 billion company that serves America with more than 1,800 Kmart and Kmart SuperCenter retail outlets and through its e- commerce shopping site, .
Cautionary Statement Regarding Forward-looking Information
The foregoing, as well as other statements made by Kmart, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, when made, Kmart's current views with respect to current events and financial performance. Statements, other than those based on historical facts, which address activities, events or developments that we expect or anticipate may occur in the future are forward- looking statements, which are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Such forward- looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to Kmart operations and business environment which may cause the actual results of Kmart to be materially different from any future results, express or implied, by such forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:
General Factors
* general economic conditions,
* weather conditions, including those which affect buying patterns of our
customers,
* changes in consumer spending and our ability to anticipate buying
patterns and implement appropriate inventory strategies,
* competitive pressures and other third party actions,
* ability to timely acquire desired goods and/or fulfill labor needs at
planned costs,
* our ability to successfully implement business strategies and otherwise
execute planned changes in various aspects of the business,
* regulatory and legal developments,
* our ability to attract, motivate and/or retain key executives and
associates,
* our ability to attract and retain customers,
* other factors affecting business beyond our control,
Bankruptcy Related Factors
* our ability to continue as a going concern,
* our ability to operate pursuant to the terms of the DIP Credit
Facility,
* our ability to obtain court approval with respect to motions in the
Chapter 11 proceeding prosecuted by it from time to time,
* our ability to develop, prosecute, confirm and consummate one or more
plans of reorganization with respect to the Chapter 11 cases,
* risks associated with third parties seeking and obtaining court
approval to terminate or shorten the exclusivity period that we have to
propose and confirm one or more plans of reorganization, for the
appointment of a Chapter 11 trustee or to convert the cases to
Chapter 7 cases,
* our ability to obtain and maintain normal terms with vendors and
service providers,
* our ability to maintain contracts that are critical to our operations,
* the potential adverse impact of the Chapter 11 cases on our liquidity
or results of operations, and
* our ability to fund and execute our business plan.
Consequently, all of the forward-looking statements are qualified by these cautionary statements and there can be no assurance that the results or developments anticipated will be realized or that they will have the expected effects on our business or operations.
Similarly, these and other factors, including the terms of any reorganization plan ultimately confirmed, can affect the value of our various pre-petition liabilities, common stock and/or other equity securities. No assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies. A plan of reorganization could result in holders of Kmart common stock receiving no value for their interests. Because of such possibilities, the value of the common stock is highly speculative. Accordingly, we urge that appropriate caution be exercised with respect to existing and future investments in any of these liabilities and/or securities.
Other risk factors are listed from time to time in the Company's SEC reports, including, but not limited to the annual report on Form 10-K for the year ended January 30, 2002. The forward-looking statements contained herein or otherwise that we make or are made in our behalf speak only as of the date of this report, or if not contained herein, as of the date when made, and we do not undertake to update these risk factors or such forward looking statements.
SOURCE: Kmart Corporation
CONTACT: Kmart Media Relations, +1-248-463-1021
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