EXHIBIT 99
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
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Chapter 11
Case No.: 02 B 02474
Hon. Susan Pierson Sonderby
In re
Kmart Corporation, et al.
Debtors.
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MONTHLY OPERATING REPORT FOR THE
PERIOD JANUARY 30, 2003 TO FEBRUARY 26, 2003
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: March 24, 2003
KMART CORPORATION, ET AL.
/s/ A. A. Koch
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A. A. Koch, Chief Financial Officer
KMART CORPORATION, ET AL.
U.S. TRUSTEE MONTHLY OPERATING REPORT
FOR THE FOUR-WEEK PERIOD ENDED FEBRUARY 26, 2003
I. Kmart Corporation Unaudited Consolidated Financial Statements
A. Consolidated Statement of Operations for the four-week period ended
February 26, 2003
B. Consolidated Balance Sheet as of February 26, 2003
C. Consolidated Statement of Cash Flows for the four-week period ended
February 26, 2003
D. Cash Receipts and Disbursements for the four-week period ended February
26, 2003
E. Schedule of Professional Fees and Expenses for the period January 22,
2002 through February 26, 2003
F. Notes to Unaudited Consolidated Financial Statements
II. Tax Questionnaire
KMART CORPORATION
Consolidated Statement of Operations
(Unaudited)
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($ millions)
FOUR-WEEK
PERIOD ENDED
FEBRUARY 26,
2003
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SALES $ 2,172
Cost of sales, buying & occupancy 1,715
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GROSS MARGIN 457
Selling, general and administrative expenses 490
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LOSS BEFORE INTEREST, INCOME TAXES AND
REORGANIZATION ITEMS, NET (33)
Reorganization items, net 3
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LOSS BEFORE INTEREST AND INCOME TAXES (36)
Net interest expense 18
Income taxes -
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NET LOSS $ (54)
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KMART CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
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($ MILLIONS)
FEBRUARY 26,
2003
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,007
Merchandise inventories 4,639
Other current assets 621
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TOTAL CURRENT ASSETS 6,267
Property and equipment, net 4,813
Other assets and deferred charges 245
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TOTAL ASSETS $ 11,325
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,343
Accrued payroll and other liabilities 749
Taxes other than income taxes 159
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TOTAL CURRENT LIABILITIES 2,251
Debtor-in-possession credit facility -
Capital lease obligations 618
Other long-term liabilities 185
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TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 3,054
LIABILITIES SUBJECT TO COMPROMISE 7,980
Company obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely 7 3/4% convertible
junior subordinated debentures of Kmart 646
Common stock, $1 par value, 1,500,000,000 shares authorized;
519,123,988 shares issued 519
Capital in excess of par value 1,922
Accumulated deficit (2,796)
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TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY $ 11,325
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Memo:
LIABILITIES SUBJECT TO COMPROMISE
Debt and notes payable $ 3,348
Accounts payable 2,341
Pension obligation 747
Closed store reserves 721
Public liability and workers compensation 318
Taxes payable 285
Other liabilities 220
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$ 7,980
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KMART CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
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($ millions)
FOUR-WEEK
PERIOD ENDED
FEBRUARY 26,
2003
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Cash Flows from Operating Activities
Net loss $ (54)
Adjustments to reconcile net loss to net cash provided by operating activities:
Restructuring, impairments and employee severance 39
Reorganization items, net 3
Depreciation and amortization 45
Equity income in unconsolidated subsidiaries (1)
Changes in:
Inventory 208
Accounts payable 93
Deferred taxes and other taxes payable 10
Other assets 32
Other liabilities 32
Cash used for store closings and other charges (22)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 385
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NET CASH PROVIDED BY REORGANIZATION ITEMS 18
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4)
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NET CASH USED FOR INVESTING ACTIVITIES (4)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations (5)
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NET CASH USED FOR FINANCING ACTIVITIES (5)
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NET CHANGE IN CASH AND CASH EQUIVALENTS 394
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 613
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,007
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KMART CORPORATION
Cash Receipts and Disbursements
(Unaudited)
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($ millions)
FOUR-WEEK
PERIOD ENDED
FEBRUARY 26,
2003
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Cash Receipts:
Store $ 2,191
Other 209
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CASH INFLOWS 2,400
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Cash Disbursements:
Accounts payable 1,352
Fleming 218
Payroll and benefits 302
Taxes 114
Rent 20
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CASH OUTFLOWS 2,006
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TOTAL CASH FLOWS BEFORE BORROWINGS 394
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DIP Credit Facility Borrowings (Repayments) -
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NET CASH INFLOWS $ 394
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KMART CORPORATION
SCHEDULE OF PROFESSIONAL FEES AND EXPENSES
(Unaudited)
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FOR THE PERIOD JANUARY 22, 2002 THROUGH FEBRUARY 26, 2003
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BILLED
NAME AMOUNT* PAID UNPAID HOLDBACK ACCRUED** TOTAL
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Abacus Advisory and Consulting Corporation, LLC $ 3,608,293 $ 3,608,293 $ - $ - $ - $ 3,608,293
Dewey Ballantine 400,396 - 400,396 37,959 400,396
DKW/ Miller Buckfire & Lewis 3,222,092 2,798,057 424,035 202,500 - 3,222,092
DJM 1,012,794 1,012,794 - - - 1,012,794
Erwin Katz 42,096 38,946 3,150 3,861 42,096
Ernst & Young, Corporate Finance LLC 1,204,238 1,204,238 - - - 1,204,238
FTI Policano & Manzo 6,633,917 6,121,275 512,642 512,641 - 6,633,917
Goldberg, Kohn, Bell 1,215,252 992,994 222,258 102,656 - 1,215,252
Jones, Day, Reavis & Pogue 3,238,175 3,022,502 215,673 215,672 - 3,238,175
Jones Day Committee Member Expenses 35,631 35,631 - - - 35,631
KPMG, LLP 6,895,136 5,482,425 1,412,711 515,099 - 6,895,136
Morgan, Lewis & Bockius LLP 685,123 661,997 23,126 - - 685,123
Otterbourg, Steindler, Houston & Rosen, PC 5,083,681 4,272,100 811,581 371,488 - 5,083,681
Otterbourg Committee Member Expenses 113,088 107,423 5,665 - - 113,088
PricewaterhouseCoopers LLP 8,449,354 8,264,250 185,104 185,104 - 8,449,354
Rockwood Gemini Advisors 2,396,360 2,238,860 157,500 157,500 - 2,396,360
Saybrook Capital 1,285,763 1,089,988 195,775 119,226 - 1,285,763
Skadden, Arps, Slate, Meagher & Flom (Illinois) 33,144,275 31,134,770 2,009,505 2,009,505 - 33,144,275
Standard and Poor's 339,666 - 339,666 33,009 339,666
Traub, Bonacquist & Fox 1,132,351 1,018,361 113,990 113,990 - 1,132,351
Traub Committee Member Expenses 63,581 49,127 14,454 - - 63,581
Trumbull Services 3,700,245 3,700,245 - - - 3,700,245
U.S. Trustee 470,750 470,750 - - - 470,750
Winston & Strawn 1,637,256 1,165,579 471,677 120,010 - 1,637,256
Accrued - - - - 28,540,726 28,540,726
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TOTAL $86,009,513 $78,490,605 $ 7,518,908 $ 4,700,220 $28,540,726 $114,550,239
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* Billed amounts include fees and expenses.
** Accrued amount represents services provided, but not yet billed.
KMART CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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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. Kmart
Corporation and all of its consolidated subsidiaries, whether or not
considered filing or non-filing subsidiaries, are collectively referred to
herein as "the Company."
2. 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 for the payment of certain pre-petition claims and the funding
of working capital and other general operating needs. 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 as defined in the DIP Credit Facility), 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. The DIP Credit Facility was
again amended on January 9, 2003, with the approval of the court, to allow
for the closure of additional stores and modifications to the EBITDA
covenants. As of February 26, 2003 the Company had no borrowings
outstanding and had utilized $350 million of the DIP Credit Facility for
letters of credit issued for ongoing import purchasing operations,
contractual and regulatory purposes. Outlined below is a summary of
availability under the DIP Credit Facility:
($ millions)
DIP Credit Facility capacity $2,000
5% Holdback (100)
DIP loans outstanding -
Letters of credit outstanding (350)
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Total Available as of February 26, 2003 $1,550
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3. On January 24, 2003 Kmart received approval from the Court for $2 billion
in exit financing from GE Commercial Finance, Fleet Retail Finance, Inc.
and Bank of America, N.A. This credit facility, which will be
collateralized by inventory, would replace our current $2 billion DIP
Credit Facility on the effective date of our Plan of Reorganization. The
financing is subject to satisfaction of customary conditions to closing and
would be available to Kmart to help meet its ongoing working capital needs,
including borrowings for seasonal increases in inventory.
4. Comparable store sales for the four-week period ended February 26, 2003
were 2.5% lower than the same period last year. Comparable store sales do
not include the going out of business sales at our 316 closing locations.
KMART CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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5. Reorganization items, net, of $3 million of expense includes $17 million
for stay bonuses under the Key Employee Retention Program approved by the
Court and $8 million of professional fees, partially offset by $22 million
of income related to the sale of pharmacy lists in the 316 closing stores.
6. On January 24, 2003, we filed a Plan of Reorganization and related
Disclosure Statement with the Court. On February 25, 2003, we filed our
First Amended Joint Plan of Reorganization (the "Plan of Reorganization")
and a related amended Disclosure Statement with the Court. The Plan of
Reorganization received the formal endorsement of our statutory creditors
committees and, on February 25, 2003, the Court approved our amended
Disclosure Statement. All holders of claims as of February 18, 2003
received the amended Disclosure Statement, which was mailed to creditors
and shareholders on or about March 7, 2003. We are presently scheduled to
seek confirmation of the Plan of Reorganization by the Court at a hearing
scheduled for April 14 and 15, 2003 and, if confirmed, plan to emerge from
Chapter 11 by April 30, 2003.
7. On February 3, 2003 we announced that we had terminated our supply
relationship with Fleming by means of a rejection of the 2001 contract
through Kmart's Chapter 11 reorganization. Fleming continued to supply food
and consumable products to us until March 8, 2003. We now facilitate the
supply of food and consumables ourselves. Kmart has experienced little
business interruption in the transition. As part of the bankruptcy
proceedings, Fleming has filed a claim of $1.5 billion as of March 11,
2003. On March 18, 2003, we came to an agreement with Fleming in regards to
their claim for $15 million representing an administrative claim and $450
million as a pre-petition claim. Our estimate of our liability related to
this claim is not yet represented in our results of operations in the first
quarter of 2003.
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 2003.
9. Cash Receipts and Disbursements for the four-week period ended February 26,
2003 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 February 26, 2003
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
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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 29, 2003 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. There can
be no assurance, however, that the Plan of Reorganization submitted by Kmart
will be confirmed by the Court, or that such Plan of Reorganization will be
consummated; in addition, the timing of such actions may be other than currently
planned by Kmart. A Plan of Reorganization cannot become effective until
confirmed by the Court, upon certain findings being made by the Court which are
required by the Bankruptcy Code. The Court may confirm a plan notwithstanding
the non-acceptance of the plan by an impaired class of creditors or equity
security holders if certain requirements of the Bankruptcy Code are met. If it
is determined, as is expected, that liabilities subject to compromise in the
Chapter 11 cases exceed the fair value of the assets available to satisfy them,
unsecured claims may be satisfied at less than 100% of their face value and the
equity interests of Kmart's shareholders may have no value.