EXHIBIT 99
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Chapter 11
Case No.: 02 B 02474
Hon. Susan Pierson Sonderby
In re
Kmart Corporation, et al.
Debtors.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
MONTHLY OPERATING REPORT FOR THE
PERIOD SEPTEMBER 26, 2002 TO OCTOBER 30, 2002
AND THE IMPACT OF RESTATEMENT ON PRIOR MONTHLY OPERATING REPORTS
DEBTORS' ADDRESS: Kmart Corporation, et al.
3100 West Big Beaver Road
Troy, MI 48084
DEBTORS' ATTORNEYS: John Wm. Butler, Jr.
J. Eric Ivester
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606-1285
REPORT PREPARER: Kmart Corporation, et al.
The undersigned, having reviewed the attached report acting as the duly
authorized agent for the Debtors in Possession declares under penalty of perjury
under the laws of the United States that the figures, statements, disbursement
itemizations, and account balances listed in this Monthly Report of the Debtors
are true and correct as of the date of this report to the best of my knowledge,
information and belief.
Date: December 23, 2002
KMART CORPORATION, ET AL.
/s/ A. A. Koch
---------------------------------------
A. A. Koch, Chief Financial Officer
KMART CORPORATION, ET AL.
U.S. TRUSTEE MONTHLY OPERATING REPORT
FOR THE FIVE-WEEK PERIOD ENDED OCTOBER 30, 2002
I. Kmart Corporation Unaudited Consolidated Financial Statements
A. Consolidated Statement of Operations for the five and thirty-nine week
periods ended October 30, 2002
B. Consolidated Balance Sheet as of October 30, 2002
C. Consolidated Statement of Cash Flows for the five and thirty-nine week
periods ended October 30, 2002
D. Cash Receipts and Disbursements for the five-week period ended
October 30, 2002
E. Schedule of Professional Fees and Expenses for the period January 22,
2002 through October 30, 2002
F. Notes to Unaudited Consolidated Financial Statements
II. Tax Questionnaire
KMART CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
- --------------------------------------------------------------------------------
($ millions)
FIVE-WEEK THIRTY-NINE-WEEK
PERIOD ENDED PERIOD ENDED
OCTOBER 30, OCTOBER 30,
2002 2002
----------------------- -----------------------
SALES $ 2,670 $ 21,887
Cost of sales, buying & occupancy 2,193 18,811
----------------------- -----------------------
GROSS MARGIN 477 3,076
Selling, general and administrative expenses 553 4,870
----------------------- -----------------------
LOSS BEFORE INTEREST, INCOME TAXES AND
REORGANIZATION ITEMS, NET (76) (1,794)
Reorganization items, net (26) 278
----------------------- -----------------------
LOSS BEFORE INTEREST AND INCOME TAXES (50) (2,072)
Net interest expense 17 102
Income taxes (8) (19)
----------------------- -----------------------
CONTINUING NET LOSS (59) (2,155)
Discontinued operations, net 6 (37)
----------------------- -----------------------
NET LOSS $ (65) $ (2,118)
======================= =======================
KMART CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
- --------------------------------------------------------------------------------
($ MILLIONS)
OCTOBER 30,
2002
-------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 381
Merchandise inventories 6,330
Other current assets 687
-------------------
TOTAL CURRENT ASSETS 7,398
Property and equipment, net 5,764
Other assets and deferred charges 230
-------------------
TOTAL ASSETS $ 13,392
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,825
Accrued payroll and other liabilities 691
Taxes other than income taxes 306
-------------------
TOTAL CURRENT LIABILITIES 2,822
Debtor-in-possession credit facility 575
Capital lease obligations 660
Other long-term liabilities 209
-------------------
TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 4,266
LIABILITIES SUBJECT TO COMPROMISE 7,128
Company obligated mandatorily redeemable convertible preferred securities of a
subsidiary trust holding solely 7-3/4% convertible
junior subordinated debentures of Kmart 874
Common stock, $1 par value, 1,500,000,000 shares authorized;
503,458,279 shares issued 503
Capital in excess of par value 1,709
Accumulated deficit (1,088)
-------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,392
===================
Memo:
LIABILITIES SUBJECT TO COMPROMISE
Debt and notes payable $ 3,324
Accounts payable 2,262
Closed store reserves 705
General liability and workers compensation 261
Other liabilities 234
Pension obligation 180
Taxes payable 162
-------------------
$ 7,128
===================
KMART CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
($ MILLIONS)
FIVE-WEEK THIRTY-NINE-WEEK
PERIOD ENDED PERIOD ENDED
OCTOBER 30, OCTOBER 30,
2002 2002
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (65) $ (2,118)
Adjustments to reconcile net loss to net cash used for operating activities:
Discontinued operations, net 6 (37)
Restructuring, impairments and other charges (6) 821
Reorganization items, net (26) 278
Depreciation and amortization 73 558
Equity income in unconsolidated subsidiaries (3) (27)
Dividends received from Meldisco - 45
Changes in:
Inventory (502) (1,202)
Accounts payable 161 859
Deferred taxes and other taxes payable (13) (23)
Other assets (49) 66
Other liabilities 25 252
Cash used for store closings and other charges (6) (147)
----------------- -----------------
NET CASH USED FOR OPERATING ACTIVITIES (405) (675)
----------------- -----------------
NET CASH USED FOR REORGANIZATION ITEMS (44) (113)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (37) (206)
----------------- -----------------
NET CASH USED FOR INVESTING ACTIVITIES (37) (206)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of debt (2) (22)
Proceeds from DIP facility 540 245
Debt issuance costs - (36)
Payments on capital lease obligations (7) (57)
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 531 130
----------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 45 (864)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 336 1,245
----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 381 381
================= =================
KMART CORPORATION
CASH RECEIPTS AND DISBURSEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
($ millions)
FIVE-WEEK
PERIOD ENDED
OCTOBER 30,
2002
-------------
Cash Receipts:
Store $ 2,670
Other 224
-------------
CASH INFLOWS 2,894
-------------
Cash Disbursements:
Accounts payable 2,429
Fleming 419
Payroll and benefits 429
Taxes 96
Rent 16
-------------
CASH OUTFLOWS 3,389
-------------
TOTAL CASH FLOWS BEFORE BORROWINGS (495)
-------------
DIP Facility Borrowings 540
-------------
NET CASH INFLOWS $ 45
=============
KMART CORPORATION
SCHEDULE OF PROFESSIONAL FEES AND EXPENSES
(Unaudited)
- --------------------------------------------------------------------------------
FOR THE PERIOD JANUARY 22, 2002 THROUGH OCTOBER 30, 2002
----------------------------------------------------------------------------------
BILLED
NAME AMOUNT* PAID UNPAID HOLDBACK ACCRUED** TOTAL
- ---- -------- ----- ------- --------- ---------- -----
Abacus Advisory and Consulting Corporation, LLC $2,681,316 $2,681,316 $ - $ - $ - $2,681,316
Dewey Ballantine*** 333,797 - 333,797 31,639 - 333,797
DKW/ Miller Buckfire & Lewis 2,157,406 1,820,847 336,559 112,500 - 2,157,406
DJM 1,001,076 1,001,076 - - - 1,001,076
Erwin Katz 33,251 16,677 16,574 3,166 - 33,251
Ernst & Young, Corporate Finance LLC 1,204,238 1,204,238 - - - 1,204,238
FTI Policano & Manzo 4,017,930 3,181,219 836,711 263,570 - 4,017,930
Goldberg, Kohn, Bell 521,097 320,143 200,954 46,590 - 521,097
Jones, Day, Reavis & Pogue 2,130,022 1,295,615 834,407 116,458 - 2,130,022
Jones Day Committee Member Expenses 33,056 32,096 960 - - 33,056
KPMG, LLP 3,240,922 2,642,743 598,179 173,780 - 3,240,922
Morgan, Lewis & Bockius LLP 641,927 535,796 106,131 - - 641,927
Otterbourg, Steindler, Houston & Rosen, PC 3,176,858 2,635,252 541,606 187,177 - 3,176,858
Otterbourg Committee Member Expenses 72,641 63,962 8,679 - - 72,641
PricewaterhouseCoopers LLP 8,449,354 8,264,250 185,104 185,104 - 8,449,354
Rockwood Gemini Advisors 1,638,994 1,064,277 574,717 90,000 - 1,638,994
Saybrook Capital 696,101 466,969 229,132 66,000 - 696,101
Skadden, Arps, Slate, Meagher & Flom (Illinois) 28,329,591 10,647,039 17,682,552 1,565,213 - 28,329,591
Traub, Bonacquist & Fox 724,442 460,733 263,709 66,633 - 724,442
Traub Committee Member Expenses 36,048 21,595 14,453 - - 36,048
Trumbull Services 3,700,245 3,700,245 - - - 3,700,245
U.S. Trustee 356,500 356,500 - - - 356,500
Winston & Strawn 617,694 532,369 85,325 27,653 - 617,694
Accrued - - - - 13,638,737 13,638,737
------------- ------------- ------------- ----------- ------------ ----------------
TOTAL $65,794,506 $42,944,957 $22,849,549 $2,935,483 $13,638,737 $79,433,243
============= ============= ============= =========== ============ ================
* Billed amounts include fees and expenses
** Accrued amount reflects services provided, but not yet billed.
*** Dewey Ballantine has turned in a Second Fee Review Application, fees and
expenses may be covered by an insurance policy.
KMART CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. On January 22, 2002 ("Petition Date"), Kmart Corporation and 37 of its U.S.
subsidiaries filed voluntary petitions for reorganization under Chapter 11
of the federal bankruptcy code ("Bankruptcy Code" or "Chapter 11") in the
United States Bankruptcy Court for the Northern District of Illinois
("Court"). The reorganization is being jointly administered under the
caption "In re Kmart Corporation, et al., Case No. 02 B 02474." Included in
the consolidated financial statements are subsidiaries operating outside of
the United States, which have not commenced Chapter 11 cases or other
similar proceedings elsewhere, and are not debtors ("non-filing
subsidiaries"). The assets and liabilities of such non-filing subsidiaries
are not considered material to the consolidated financial statements.
2. As part of the review and preparation of our Quarterly Report on Form 10-Q
for the 13 and 39 week periods ended October 30, 2002, certain adjustments
were identified as out-of-period adjustments that were not previously
identified and other adjustments were previously identified and described
in Kmart Corporation's ("Kmart," "we" "our" or "the Company") second
quarter report on Form 10-Q, filed with the Securities and Exchange
Commission on September 16, 2002. Upon review of the aggregate impact of
the new, as well as the previously disclosed and recorded adjustments,
Kmart concluded that restating our financial statements for the prior
periods was appropriate because the aggregate adjustment was material to
the current estimate of our 2002 fiscal year results.
The impact of the restatements was to decrease our net loss for the
previously reported eight monthly fiscal periods ended September 25, 2002
by $76 million and to increase the reported loss or decrease reported
income for prior fiscal years. The adjustments related to:
a) An understatement of historical accruals for leases with varying rent
payments and a related understatement of historical rent expense. This
adjustment resulted in a $2 million decrease in our net loss for the
previously reported eight months;
b) A software programming error in Kmart's accounts payable system that
resulted in some paid invoices awaiting a store report of delivery not
being appropriately treated in our financial statements. This error was
restricted to a single vendor with unique billing arrangements and
resulted in a $26 million increase in our net loss for the previously
reported eight-months;
c) Adjustments, as previously disclosed in the MOR for the five-week
period ended July 31, 2002, for certain costs formerly capitalized into
inventory. Inventory included amounts added for internal purposes to
analyze gross margin on a comparable basis across all business units
and to optimize purchasing decisions. These amounts are commonly
referred to in the retail industry as "inventory loads," and should
have been eliminated for external reporting purposes to the extent the
related inventory remained unsold at the end of the period. This
adjustment resulted in a $57 million decrease in our net loss for the
previously reported eight-months; and
d) The premature recording, as previously disclosed in the MOR for the
five-week period ended July 31, 2002, of vendor allowance transactions
in fiscal year 2000 and prior fiscal years. This adjustment resulted
in a $9 million decrease in our net loss for the previously reported
eight months.
In addition, given the restatement for the items noted above, Kmart has
also adjusted previously reported financial results for miscellaneous
immaterial items that were identified and previously recorded in the
ordinary course of business to record them in their appropriate fiscal
period. For the eight month period ended September 27, 2002 these
adjustments resulted in a $34 million decrease in our previously reported
net loss.
We have included in this report the Statements of Operations and of Cash
Flows for the current month as well for the nine month period ended October
30, 2002. The year-to-date financial statements include the cumulative
effect of the restatements discussed above. We will file an amended Annual
Report on Form 10-K/A for the 2001 fiscal year and Quarterly Reports on
Form 10-Q/A for the first two quarters of the 2002 fiscal year as soon as
practicable. The results included in the current MOR represent results
after taking into effect the restatement for these items.
3. To supplement operating cash flow during the reorganization process, the
Company secured a $2 billion senior secured debtor-in-possession financing
facility ("DIP Credit Facility") from JP Morgan Chase Bank, Fleet Retail
Finance, Inc., General Electric Capital Corporation, and Credit Suisse
First Boston. On the Petition Date, the Court gave interim approval
authorizing borrowings up to $1.15 billion of the DIP Credit Facility for
the payment of certain pre-petition claims and the funding of working
capital and other general operating needs. On March 6, 2002, the Court
approved the full amount of the $2 billion DIP Credit Facility. The DIP
Credit Facility requires that we restrict future liens, indebtedness,
capital expenditures, dividend payments and sales of assets, and that we
maintain certain financial covenants, one of which requires minimum levels
of cumulative EBITDA (earnings before interest, taxes, depreciation,
amortization and other charges), the amounts of which vary throughout the
year. The DIP Credit Facility was amended as of August 29, 2002, with the
approval of the Court, to provide additional flexibility under the
financial covenant contained therein that requires minimum levels of
cumulative EBITDA. As of October 30, 2002 the Company had $575 million of
borrowings outstanding and had utilized $332 million of the DIP Credit
Facility for letters of credit issued for ongoing import purchasing
operations, contractual and regulatory purposes. Outlined below is a
summary of availability under the DIP Credit Facility:
($ millions)
DIP Credit Facility capacity $2,000
5% Holdback (100)
DIP loans outstanding (575)
Letters of credit outstanding (332)
-----------
Total Available as of October 30, 2002 $993
-----------
4. Comparable store sales for the four-week period ended October 30, 2002 were
3.9% lower than the same period last year.
5. Discontinued operations, net of $6 million primarily relates to
adjustments to our estimated allowable claims for lease obligations.
6. Reorganization items, net, of $26 million includes a non-cash credit of $21
million related to the settlement of pre-petition liabilities, and $18
million of lease auction income. The income is partially offset by $9
million of expense for stay bonuses previously approved by the Court, $2
million of professional fees and $2 million of other reorganization
expenses.
KMART CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. Cash used for operating activities and the increase in borrowings from the
DIP Credit Facility primarily reflects a planned increase in inventory
purchases in anticipation of the holiday season. Included in cash used for
reorganization activities is cash paid under the Key Employee Retention
Plan of $53 million.
8. In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company
has recorded a valuation allowance against net deferred tax assets. Based
on the Company's bankruptcy filing, realization of such assets in future
years is uncertain. Accordingly, the Company has not recognized any tax
benefit from its losses in fiscal 2002. The tax benefit of $8 million in
the current month relates to a $14 million benefit for a special provision
of the Internal Revenue Code that allows a 10-year carryback of certain tax
losses partially offset by $6 million of income taxes paid to foreign
jurisdictions. We filed the carryback claim in conjunction with the filing
of our corporate income tax return in October 2002.
9. Cash Receipts and Disbursements for the five-week period ended October 30,
2002 are summarized as actual receipts and disbursements during the period,
as compiled from the Company's daily cash records.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CASE NAME: Kmart Corporation, et al. CASE NO.: 02 B 02474
For Month Ending October 30, 2002
TAX QUESTIONNAIRE
Debtors in possession and trustees are required to pay all taxes
incurred after the filing of their Chapter 11 petition on an as due basis.
Please indicate whether the following post petition taxes or withholdings have
been paid currently.
1. Federal Income Taxes Yes (x) No ( )
2. FICA withholdings Yes (x) No ( )
3. Employee's withholdings Yes (x) No ( )
4. Employer's FICA Yes (x) No ( )
5. Federal Unemployment Taxes Yes (x) No ( )
6. State Income Tax Yes (x) No ( )
7. State Employee withholdings Yes (x) No ( )
8. All other state taxes Yes (x) No ( )
If any of the above have not been paid, state below the tax not paid,
the amount past due and the date of last payment.
KMART CORPORATION
CAUTIONARY STATEMENT
- --------------------------------------------------------------------------------
The Company cautions readers not to place undue reliance upon the information
contained herein. The Monthly Operating Report ("Operating Report") contains
unaudited information, is limited in scope, covers a limited time period and is
in a format prescribed by the applicable bankruptcy laws. There can be no
assurance that the Operating Report is complete. The Operating Report contains
information for periods which may be shorter or otherwise different from those
contained in the Company's reports pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Such information may not be indicative of
the Company's financial condition or operating results for the periods reflected
in the Company's financial statements or in its reports pursuant to the Exchange
Act and readers are cautioned to refer to the Exchange Act filings. Moreover,
the Operating Report and other communications from the Company may include
forward-looking statements subject to various assumptions regarding the
Company's operating performance that may not be realized and are subject to
significant business, economic and competitive uncertainties and contingencies,
including those described in this report, many of which are beyond the Company's
control. Consequently, such matters should not be regarded as a representation
or warranty by the Company that such matters will be realized or are indicative
of the Company's financial condition or operating results for future periods or
the periods covered in the Company's reports pursuant to the Exchange Act.
Actual results for such periods may differ materially from the information
contained in the Operating Report and the Company undertakes no obligation to
update or revise the Operating Report.
The Operating Report, as well as other statements made by the Company, may
contain forward-looking statements that reflect, when made, the Company's
current views with respect to current events and financial performance. Such
forward looking statements are and will be, as the case may be, subject to many
risks, uncertainties and factors relating to the Company's operations and
business environment which may cause the actual results of the Company 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: the ability of the Company to continue as a going concern;
the ability of the Company to operate pursuant to the terms of the DIP facility;
the Company's ability to obtain court approval with respect to motions in the
Chapter 11 proceeding prosecuted by it from time to time; the ability of the
Company 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 for the Company 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; the ability of the Company to obtain and maintain
normal terms with vendors and service providers; the ability of our vendors to
obtain satisfactory credit terms from factors and other financing sources; the
Company's ability to maintain contracts that are critical to its operations; the
potential adverse impact of the Chapter 11 cases on the Company's liquidity or
results of operations; the ability of the Company to fund and execute its
business plan; the ability of the Company to attract, motivate and/or retain key
executives and associates; and the ability of the Company to attract and retain
customers. 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 and the quarterly report on Form 10-Q for the
Company's most recent fiscal quarter. Kmart disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Similarly, these and other factors, including the terms of any reorganization
plan ultimately confirmed, can affect the value of the Company's 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 also result in holders of Kmart common stock receiving no distribution on
account of their interests and cancellation of their interests. Holders of Kmart
common stock should assume that they could receive little or no value as part of
a plan of reorganization. In light of the foregoing, the company considers the
value of the common stock to be highly speculative and cautions equity holders
that the stock may ultimately be determined to have no value. Accordingly, the
Company urges that the appropriate caution be exercised with respect to existing
and future investments in any of these liabilities and/or securities.