EXHIBIT 99.1
RELEASE DATE:
December 5, 2003
CONTACT:
Kmart Media Relations
(248) 463-1021
Kmart Investor Relations
(248) 463-1040
KMART HOLDING CORPORATION
REPORTS THIRD QUARTER 2003 RESULTS
NET LOSS NARROWS; MARGIN, OPERATING COSTS IMPROVE
ZERO BORROWING LEVEL SUSTAINED THROUGH PEAK BUYING SEASON
TROY, MICHIGAN, December 5, 2003 - Kmart Holding Corporation (NASDAQ: KMRT)
announced today the Company's financial results for the third quarter of fiscal
2003.
For the 13 weeks ended October 29, 2003, Kmart Holding Corporation (Kmart)
reported a net loss of $23 million, or ($0.26) per share. Kmart Corporation
reported a net loss of $383 million for the 13 weeks ended October 30, 20021.
Loss before interest, reorganization items, income taxes and discontinued
operations was $10 million for the third quarter of 2003, versus a loss of $328
million in the same period a year ago.
Net sales for the 13 weeks ended October 29, 2003, were $5.092 billion, a
decrease of 21.2 percent from $6.459 billion a year ago. On a same-store basis,
sales declined 8.6 percent for the third quarter of 2003, compared to the third
quarter of 2002. The decrease in same-store sales is due primarily to the
year-over-year comparison with several Company-wide promotional events that were
taking place a year ago, and the reduction in the frequency of mid-week
advertising circulars in the current year. The decrease in total sales is
attributable to the decrease in same-store sales and the closure of 316 stores
during the first quarter of fiscal 2003.
Julian C. Day, President and Chief Executive Officer of Kmart, said: "We
continue to actively manage our business in a disciplined fashion steadily
increasing our margin realization, reducing operating costs, enhancing the
productivity of our assets and improving the overall store experience for our
customers. Our focus on profitable sales and a consequent reduction in losses
from clearance sales and promotional events resulted in a decrease in same-store
sales in the third quarter. The actions we have taken to drive profitability
contributed to a mid-teens decline in November same-store sales, but allowed us
to operate the Company profitably in November 2003." Last year the Company
reported a loss for November (neither period included the Thanksgiving Holiday
weekend).
As of October 29, 2003, Kmart had approximately $0.9 billion in cash and cash
equivalents, and borrowing availability of approximately $1.6 billion on its $2
billion credit facility inclusive of outstanding letters of credit. In light of
its favorable liquidity position, the Company has since voluntarily reduced the
size of its credit facility to $1.5 billion to reduce the overall cost of the
facility.
Day added, "The strength of our liquidity position is especially noteworthy, as
we have progressed through the peak buying period for the holiday season with no
direct borrowings drawn from our credit facility. In fact, at our point of
lowest liquidity, the Company had over $800 million in cash and cash
equivalents."
Gross margin increased $61 million to $1.167 billion, for the 13 weeks ended
October 29, 2003, from $1.106 billion for the 13 weeks ended October 30, 2002.
Gross margin, as a percentage of sales, increased to 22.9 percent for the 13
weeks ended October 29, 2003, from 17.1 percent for the comparable period in the
prior year. The overall improvement in gross margin rate is primarily
attributable to lower distribution costs as a result of the Company's
in-sourcing of pantry, food and consumable products, lower depreciation expense
resulting from impairment charges taken while operating in bankruptcy and as a
result of the write-off of long-lived assets in conjunction with the application
of Fresh-Start accounting. A lower rate of inventory shrinkage, supplier cost
reductions and an improved sales mix stemming from a significant decrease in
promotional sales events and mid-week circulars also contributed to the margin
improvement. Gross margin also benefited from the reclassification of co-op
advertising recoveries recorded in Cost of sales, buying and occupancy in 2003,
as required under generally accepted accounting principles. These improvements
in the gross margin rate were 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 $108 million in 2002), decreased $270 million
to $1.178 billion for the 13 weeks ended October 29, 2003 compared to $1.448
billion for the 13 weeks ended October 30, 2002. The decrease in SG&A is
primarily due to the reduction of the Company's store base after closing 316
stores during the first quarter of fiscal 2003, as well as a decrease in payroll
and other related expenses from corporate headquarters' cost reduction
initiatives. In addition, lower depreciation expense resulting from impairment
charges taken while operating in bankruptcy and the write-off of long-lived
assets in conjunction with Fresh-Start accounting combined with a decrease in
advertising expense contributed to the improvement in SG&A expenses.
Collectively, these reductions were partially offset by the impact of the
reclassification of co-op recoveries, as discussed above. SG&A, as a percentage
of sales, increased to
23.1 percent for the 13 weeks ended October 29, 2003, from 22.4 percent for the
comparable period in the prior year. As a percent of sales, the increase is due
primarily to the reclassification of co-op advertising recoveries as discussed
above.
DISCLOSURE OF FINANCIAL INFORMATION IN ACCORDANCE WITH REGULATION FD
Year-to-date Adjusted EBITDA
Year-to-date Adjusted EBITDA (Year-to-date earnings before interest, taxes,
depreciation, amortization, reorganization costs, fresh start valuation charges,
restructuring, impairment and other charges and other bankruptcy-related items)
was $166 million. Disclosure of Year-to-date Adjusted EBITDA is being made for
purposes of communicating to employees year-to-date performance results as
compared to the performance goals outlined in the Company's incentive
compensation program, and accordingly, to comply with the disclosure
requirements under Regulation FD.
Year-to-date Adjusted EBITDA is a non-GAAP financial measure. Year-to-date
Adjusted EBITDA is not the same as EBITDA defined in Kmart's credit facility.
Year-to-date Adjusted EBITDA is a Company-defined metric used solely by Kmart's
management for the administration of the Company's incentive compensation
program for eligible employees. Year-to-date Adjusted EBITDA is not a measure or
indicator of the overall financial condition or performance of Kmart and should
not be used by investors as a basis for formulating investment decisions. Set
forth below and as required under Regulation G, is a reconciliation of the
Condensed Consolidated Statements of Operations to Year-to-date Adjusted EBITDA:
Net loss for the 13 weeks ended October 29, 2003 (Successor) $ (23)
Net loss for the 13 weeks ended July 30, 2003 (Successor) (5)
Net loss for the 13 weeks ended April 30, 2003 (Predecessor) (862)
-----
(890)
Year-to-date adjustments to reconcile Net Loss for the
26-weeks ended October 29, 2003 and the 13-weeks ended
April 30, 2003 to year-to-date adjusted EBITDA:
Discontinued operations 10
Interest expense, net 102
Benefit from income taxes (21)
Depreciation and amortization 141
Reorganization items, net 769
Restructuring, impairment and other charges 37
Post-emergence bankruptcy-related items, net 27
Other 1
-----
Year-to-date adjusted EBITDA $ 166
=====
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SUCCESSOR PREDECESSOR SUCCESSOR PREDECESSOR PREDECESSOR
COMPANY COMPANY COMPANY COMPANY COMPANY
13-WEEKS ENDED 13-WEEKS ENDED 26-WEEKS ENDED 13-WEEKS ENDED 39-WEEKS ENDED
OCTOBER 29, 2003 OCTOBER 30, 2002 OCTOBER 29, 2003 APRIL 30, 2003 OCTOBER 30, 2002
---------------- ---------------- ---------------- -------------- ----------------
Sales $ 5,092 $ 6,459 $ 10,744 $ 6,181 $ 20,823
Cost of sales, buying and occupancy 3,925 5,353 8,344 4,762 17,784
-------- --------- --------- -------- ---------
Gross margin 1,167 1,106 2,400 1,419 3,039
Selling, general and administrative expenses 1,178 1,448 2,401 1,421 4,653
Restructuring, impairment and other charges -- (6) -- 37 8
Equity income in unconsolidated subsidiaries (1) (8) (3) (7) (27)
-------- --------- --------- -------- ---------
(Loss) income before interest, reorganization
items, income taxes and discontinued operations (10) (328) 2 (32) (1,595)
Interest expense, net 24 37 45 57 102
Reorganization items, net -- 4 -- 769 259
Benefit from income taxes (11) (7) (15) (6) (19)
-------- --------- --------- -------- ---------
Loss before discontinued operations (23) (362) (28) (852) (1,937)
Discontinued operations (net of income taxes of
of $0, $0 and $0, respectively) -- (21) -- (10) (181)
-------- --------- --------- -------- ---------
Net loss $ (23) $ (383) $ (28) $ (862) $ (2,118)
======== ========= ========= ======== =========
Basic/diluted loss before discontinued operations $ (0.26) $ (0.72) $ (0.32) $ (1.63) $ (3.85)
Discontinued operations -- (0.04) -- (0.02) (0.36)
-------- --------- --------- -------- ---------
Basic/diluted net loss per common share $ (0.26) $ (0.76) $ (0.32) $ (1.65) $ (4.21)
======== ========= ========= ======== =========
Basic/diluted weighted average shares (millions) 89.6 502.5 89.6 522.7 502.7
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
SUCCESSOR
COMPANY PREDECESSOR COMPANY
------------ ---------------------------
OCTOBER 29, JANUARY 29, OCTOBER 30,
2003 2003 2002
------------ ---------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 941 $ 613 $ 381
Merchandise inventories 4,404 4,825 6,330
Other current assets 552 664 687
-------- -------- --------
TOTAL CURRENT ASSETS 5,897 6,102 7,398
Property and equipment, net 115 4,892 5,764
Other assets and deferred charges 105 244 230
-------- -------- --------
TOTAL ASSETS $ 6,117 $ 11,238 $ 13,392
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Long-term debt due within one year $ 61 $ -- $ --
Accounts payable 1,203 1,248 1,825
Accrued payroll and other liabilities 733 710 691
Taxes other than income taxes 295 162 306
-------- -------- --------
TOTAL CURRENT LIABILITIES 2,292 2,120 2,822
-------- -------- --------
LONG-TERM LIABILITIES
Long-term debt and mortgages payable 24 -- 575
Capital lease obligations 419 623 660
Pension obligation 867 -- --
Unfavorable operating leases 322 -- --
Other long-term liabilities 486 181 209
-------- -------- --------
TOTAL LONG-TERM LIABILITIES 2,118 804 1,444
TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 4,410 2,924 4,266
LIABILITIES SUBJECT TO COMPROMISE -- 7,969 7,128
Predecessor Company obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust holding solely 7-3/4% convertible
junior subordinated debentures (redemption value $648 and
$883, respectively) -- 646 874
SHAREHOLDERS' EQUITY (DEFICIT)
Successor Company preferred stock 20,000,000 shares authorized;
no shares outstanding -- -- --
Predecessor Company common stock $1 par value, 1,500,000,000 shares
authorized; 519,123,988 and 503,458,279 shares outstanding, respectively -- 519 503
Successor Company common stock $0.01 par value, 500,000,000 shares
authorized; 89,655,445 shares outstanding 1 -- --
Capital in excess of par value 1,735 1,922 1,709
Treasury stock, at cost (1) -- --
Accumulated deficit (28) (2,742) (1,088)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 1,707 (301) 1,124
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 6,117 $ 11,238 $ 13,392
======== ======== ========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
SUCCESSOR
COMPANY PREDECESSOR COMPANY
----------------- ----------------------------------
26-WEEKS 13-WEEKS 39-WEEKS
ENDED ENDED ENDED
OCTOBER 29, 2003 APRIL 30, 2003 OCTOBER 30, 2002
----------------- -------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (28) $ (862) $(2,118)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Restructuring, impairments and other charges -- 44 788
Reorganization items, net -- 769 278
Depreciation and amortization 10 177 558
Equity income in unconsolidated subsidiaries (3) (7) (27)
Dividends received from Meldisco -- 36 45
Cash used for store closings and other charges (11) (64) (147)
Cash used for payments of exit costs and other
reorganization items (470) (19) (113)
Change in:
Inventories 27 480 (1,202)
Accounts payable 43 (117) 859
Deferred income taxes and taxes payable (4) (16) (23)
Other assets (10) 123 49
Other liabilities 50 32 252
------- ------- -------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (396) 576 (801)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 93 64 13
Capital expenditures (61) (4) (206)
------- ------- -------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 32 60 (193)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 60 -- --
Proceeds from DIP Credit Facility -- -- 245
Payments on debt (36) (1) (22)
Purchase of treasury stock (3) -- --
Debt issuance costs (46) -- (36)
Payments on capital lease obligations (29) (16) (57)
Fees paid to Plan Investors (13) -- --
Issuance of common shares 140 -- --
------- ------- -------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 73 (17) 130
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (291) 619 (864)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,232 613 1,245
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 941 $ 1,232 $ 381
------- ------- -------
Footnote 1:
Upon emergence from bankruptcy on May 6, 2003, Kmart Corporation (Predecessor
Company) applied the provisions of Fresh-Start accounting effective as of April
30, 2003, at which time a new reporting entity, Kmart Holding Corporation
(Kmart), was deemed to be created. As a result of applying Fresh-Start
accounting, the reported historical financial statements of the Predecessor
Company for periods ended prior to May 1, 2003 generally are not comparable to
those of Kmart. Therefore, comparisons of earnings per share data are not
included herein. As referenced within this news release, results of operations
for the 13 weeks ended April 30, 2003 and periods ended in fiscal 2002 refer to
the Predecessor Company.
About Kmart Holding Corporation
Kmart Holding Corporation (NASDAQ: KMRT) and its subsidiaries (together,
"Kmart") is a mass merchandising company that offers customers quality products
through a portfolio of exclusive brands that include THALIA SODI, DISNEY, JACLYN
SMITH, JOE BOXER, KATHY IRELAND, MARTHA STEWART EVERYDAY, ROUTE 66 and SESAME
STREET. Kmart operates more than 1,500 stores in 49 states and is one of the 10
largest employers in the country with 170,000 associates. For more information
visit the Company's website at www.kmart.com.
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 Kmart's current views with respect to current events and financial
performance. Such forward-looking statements are based upon assumptions
concerning future conditions that may ultimately prove to be inaccurate and
involve risks, uncertainties and factors that could cause actual results to
differ materially from any anticipated 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, factors relating to Kmart's internal operations and the external
environment in which it operates; marketplace demand for the products of Kmart's
key brand partners as well as the engagement of appropriate new brand partners;
increasing competition from other retailers; Kmart's ability to operate pursuant
to its credit facility; outcome of negotiations on collective bargaining
agreements and other labor issues with unions representing employees in our
distribution centers; Kmart's ability to obtain and maintain normal terms with
its vendors, attract and retain customers, obtain and maintain appropriate
inventory, implement its business plan and strategies, attract, motivate and/or
retain key executives and associates; and other risks detailed in Kmart's
Securities and Exchange Commission filings. Kmart undertakes no obligation to
release publicly the results of any revisions to these forward-looking
statements to reflect events or circumstances after the date such statements
were made.
# # #