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:

                                                       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
             (Dollars in millions, except per share amounts)

                                                 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
                          (Dollars in millions)


                                                    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
                          (Dollars in millions)

                                                      13-weeks     13-weeks
                                                        Ended        Ended
                                                        May 1,       May 2,
                                                         2002         2001

   Net loss                                            $(1,449)      $(233)
   Adjustments to reconcile net loss
    to net cash provided by (used for) operating
    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           -

   Capital expenditures                                    (52)       (262)
   Investment in                               -         (15)
  Net cash used for investing activities                   (52)       (277)

   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
  *  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
  *  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
  *  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

Web site:

© Transform SR Brands, LLC