Kmart Holding Corporation Reports First Quarter 2003 Results
Company Closes Quarter With Strong Liquidity Position
Kmart Holding Corporation (NASDAQ: KMRT) announced today the Company's financial results for the first quarter of fiscal 2003 and the filing of its quarterly report on Form 10-Q with the Securities & Exchange Commission.
For the 13 weeks ended April 30, 2003, Kmart reported a net loss of $862 million, versus a net loss of $1.44 billion for the 13 weeks ended May 1, 2002.
Loss before interest, reorganization items, income taxes, and discontinued operations was $32 million for the 13 weeks ended April 30, 2003 versus a loss of $920 million for the first quarter of last year. Last year's results include a charge of $542 million recorded in the first quarter of 2002 in connection with the store closing liquidation sales. This charge is included in cost of sales, buying and occupancy in the accompanying unaudited Condensed Consolidated Statements of Operations.
Net sales for the 13 weeks ended April 30, 2003, were $6.18 billion, a decrease of 13.9 percent from $7.18 billion in 2002. On a same-store basis, sales declined 3.2 percent from the first quarter of 2002.
Julian C. Day, President and Chief Executive Officer of Kmart, said, "This management team is very focused on building the financial foundation of the new Company. We are strengthening our business by driving profitable sales, identifying opportunities to further improve efficiency and reduce costs, and enhancing the productivity of our assets. We have increased gross margin, decreased SG&A and carefully managed our inventory. With the strong support of our new Board of Directors, we will continue to concentrate on increasing the long-term value of this enterprise."
As of April 30, 2003, Kmart had approximately $1.23 billion in cash and cash equivalents, and borrowing availability of approximately $1.5 billion on its $2 billion credit facility, including outstanding letters of credit.
Gross margin increased $674 million to $1.42 billion, for the 13 weeks ended April 30, 2003, from $745 million for the 13 weeks ended May 1, 2002. Gross margin, as a percentage of sales, increased to 23.0 percent for the 13 weeks ended April 30, 2003, from 10.4 percent for the 13 weeks ended May 1, 2002. The increase in gross margin is primarily related to the previously mentioned charge of $542 million recorded in the first quarter of 2002 in connection with the store closing liquidation sales. In addition, the Company's gross margin rate was favorably impacted by 2003 closing store liquidation sales, a decrease in sales of food and consumables, which carry lower margins, and a decrease in promotional markdowns, partially offset by the impact of clearance markdowns.
Selling, general and administrative expenses (SG&A), which includes advertising costs (net of co-op recoveries of $69 million in fiscal 2002) decreased $249 million for the 13 weeks ended April 30, 2003, to $1.42 billion, or 23.0 percent of sales, from $1.67 billion, or 23.3 percent of sales, for the 13 weeks ended May 1, 2002. The dollar decrease in SG&A is primarily the result of the closure of 283 stores in the second quarter of 2002 and lower payroll and other related expenses in the first quarter of 2003 stemming from corporate headquarters cost reduction initiatives. In addition, SG&A was favorably impacted by a decrease in utility expenses and electronic media advertising, and lower depreciation expense as a result of the impairment charge recorded in the fourth quarter of fiscal 2002. These decreases were partially offset by co-op recoveries recorded to SG&A in 2002 that are recorded to cost of sales, buying and occupancy in 2003, resulting from the application of EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor," an increase in pension expense, and higher premiums for our workers' compensation insurance.
Fresh Start Accounting
In connection with the Company's emergence from bankruptcy, the consolidated financial statements apply the provisions of fresh start accounting in accordance with Generally Accepted Accounting Principles (GAAP). Under fresh start accounting, a new reporting entity, the "Successor Company," is deemed to be created, and the recorded amounts of assets and liabilities are adjusted to reflect their fair value. As a result, the reported historical financial statements of the "Predecessor Company" for periods prior to April 30, 2003, as presented below, generally are not comparable to those of the Successor Company.
In applying fresh start accounting, adjustments to reflect the fair value of assets and liabilities, on a net basis, and the write-off of the Predecessor Company's equity accounts resulted in a charge of $5.6 billion. The restructuring of Kmart's capital structure and resulting discharge of pre- petition debt resulted in gain of $5.6 billion. The charge for the revaluation of the assets and liabilities and the gain on the discharge of pre-petition debt are recorded in Reorganization items, net in the unaudited Condensed Consolidated Statement of Operations. In addition, the excess of fair value of net assets over reorganization value ("negative goodwill") was allocated on a pro-rata basis and reduced non-current assets (property and equipment, net), to $10 million in accordance with GAAP.
The Board of Directors of Kmart Holding Corporation has established the following committees: Audit, Compensation and Incentives, Corporate Governance, and Finance. The members of the committees are as follows:
* Audit - Ann Reese, Chair, E. David Coolidge III and Brandon Stranzl; * Compensation and Incentives - Edward S. Lampert, Chair, Ann Reese and Thomas J. Tisch; * Corporate Governance - Steven T. Mnuchin, Chair, William Foss and Thomas J. Tisch; and * Finance - Edward S. Lampert, Chair, William C. Crowley, Julian C. Day and Steven T. Mnuchin. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions, except per share data) (Unaudited) Predecessor Company 13 Weeks Ended April 30, May 1, 2003 2002 Sales $6,181 $7,181 Cost of sales, buying and occupancy 4,762 6,436 Gross margin 1,419 745 Selling, general and administrative expenses 1,421 1,670 Restructuring, impairment and other charges 37 - Equity income in unconsolidated subsidiaries 7 5 Loss before interest, reorganization items, income taxes and discontinued operations (32) (920) Interest expense, net (contractual interest for 13 week periods ended April 30, 2003 and May 1, 2002 was $124 and $102, respectively) 57 33 Reorganization items, net 769 251 Benefit from income taxes (6) (12) Loss before discontinued operations (852) (1,192) Discontinued operations (10) (250) Net loss $(862) $(1,442) Basic/diluted loss before discontinued operations $(1.63) $(2.37) Discontinued operations (0.02) (0.50) Basic/diluted net loss per common share $(1.65) $(2.87) Basic/diluted weighted average shares (millions) 522.7 502.9 CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in millions, except share data) (Unaudited) Successor Predecessor Company Company April 30, May 1, January 29, 2003 2002 2003 ASSETS Current Assets Cash and cash equivalents $1,232 $1,829 $613 Merchandise inventories 4,431 5,255 4,825 Receivable from Plan Investors 187 - - Accounts receivable 382 316 473 Other current assets 322 281 191 Total current assets 6,554 7,681 6,102 Property and equipment, net 10 5,972 4,892 Other assets and deferred charges 96 219 244 Total Assets $6,660 $13,872 $11,238 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities Long-term debt due within one year $8 $ - $ - Accounts payable 1,160 1,658 1,248 Accrued payroll and other liabilities 1,321 659 710 Taxes other than income taxes 274 237 162 Total current liabilities 2,763 2,554 2,120 Long-term debt and notes payable 108 - - Capital lease obligations 415 694 623 Pension obligation 854 - - Other long-term liabilities 807 140 181 Total liabilities not subject to compromise 4,947 3,388 2,924 Liabilities subject to compromise - 7,805 7,969 Company obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely 7 3/4% convertible junior subordinated debentures of Predecessor Company (redemption value $898 and $648, respectively) - 889 646 Successor preferred stock 20,000,000 shares authorized; 0 outstanding - - - Predecessor common stock $1 par value, 1,500,000,000 shares authorized; 502,689,273 and 519,123,988 shares outstanding, respectively - 503 519 Successor common stock $0.01 par value, 500,000,000 shares authorized, 89,677,509 shares outstanding 1 - - Capital in excess of par value 1,712 1,697 1,922 Accumulated deficit - (410) (2,742) Total Liabilities and Shareholders' Equity (Deficit) $6,660 $13,872 $11,238 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions) (Unaudited) Predecessor Company 13 Weeks Ended April 30, May 1, 2003 2002 Cash Flows From Operating Activities Net loss $(862) $(1,442) Adjustments to reconcile net loss to net cash provided by operating activities: Discontinued operations non-cash charges 40 247 Restructuring, impairments and other charges 2 558 Reorganization items, net 769 251 Depreciation and amortization 177 181 Equity income in unconsolidated subsidiaries (7) (5) Dividends received from Meldisco 36 45 Cash used for store closings and other charges (64) (39) Change in: Inventories 480 (109) Accounts payable (117) 1,104 Deferred income taxes and taxes payable (16) (9) Other assets 125 198 Other liabilities 32 40 Net cash provided by operating activities 595 1,020 Net cash (used for) provided by reorganization items (19) 12 Cash Flows From Investing Activities Proceeds from sale of property and equipment 64 - Capital expenditures (4) (52) Net cash provided by (used for) investing activities 60 (52) Cash Flows From Financing Activities Net borrowings on DIP Credit Facility - (300) Payments on debt (1) (47) Debt issuance costs - (30) Payments on capital lease obligations (16) (19) Net cash used for financing activities (17) (396) Net change in cash and cash equivalents 619 584 Cash and cash equivalents, beginning of year 613 1,245 Cash and cash equivalents, end of period $1,232 $1,829
Kmart Corporation is a mass merchandising company that serves America through Kmart and Kmart SuperCenter retail outlets.
Cautionary Statement Regarding Forward-Looking Information and Other Matters
Statements made by Kmart which address activities, events or developments that we expect or anticipate may occur in the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company's current views with respect to current and future events and financial performance. Such forward-looking statements are and will be, as the case may be, subject to many risks and uncertainties, including, but not limited to, its affiliates having filed for bankruptcy and factors relating to Kmart's operations and the business environment in which Kmart operates, which may cause the actual results of Kmart to be materially different from any future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include Kmart's ability to operate pursuant to its exit financing facility; the ability of the Company to obtain and maintain normal terms with its vendors; the ability of Kmart to attract and retain customers; and those set forth in Kmart Corporation's Annual Report on Form 10-K for the fiscal year ended January 29, 2003, or in other filings made, from time to time, by Kmart with the Securities and Exchange Commission (the "Company Filings"). The forward-looking statements speak only as of the date when made and Kmart does not undertake to update such statements.
SOURCE: Kmart Holding Corporation
CONTACT: Kmart Media Relations, +1-248-463-1021, or Kmart Investor
Web site: http://www.kmart.com/