EXHIBIT 99.1
KMART HOLDING CORPORATION ANNOUNCES FOURTH QUARTER AND
FULL YEAR RESULTS
STRONG FOURTH QUARTER PROFITABILITY
IMPROVEMENT IN SAME STORE SALES TREND
TROY, MICH., MARCH 9, 2005 -- Kmart Holding Corporation (Nasdaq: KMRT) announced
today results for the fourth quarter and full year of Fiscal 2004. For the 13
weeks ended January 26, 2005, the Company reported net income of $309 million,
or $3.09 per diluted share compared to $270 million or $2.78 per diluted share
for the same period in Fiscal 2003. Adjusted net income and adjusted diluted
earnings per share, excluding gains on sales of assets and bankruptcy-related
recoveries, were $259 million or $2.59 per diluted share, an increase of 20% and
16% over the prior year, respectively.
Following is a reconciliation of adjusted results to GAAP results:
13-WEEKS ENDED
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(dollars in millions) JANUARY 26, 2005 JANUARY 28, 2004
- ----------------------------------- ---------------- ----------------
Adjusted operating income $ 437 $ 411
Gain on sales of assets 35 86
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GAAP Operating income $ 472 $ 497
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Adjusted net income $ 259 $ 215
Gain on sales of assets 21 53
Bankruptcy-related recoveries 29 2
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GAAP Net income $ 309 $ 270
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Adjusted diluted earnings per share $ 2.59 $ 2.23
Gain on sales of assets 0.21 0.53
Bankruptcy-related recoveries 0.29 0.02
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GAAP diluted earnings per share $ 3.09 $ 2.78
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Same-store sales declined by 4.5% during the fourth quarter of Fiscal 2004,
which represents a significant improvement compared to the two previous quarters
in which the decline was 12.8% and 14.9% and compared to the prior year fourth
quarter in which the decline was 13.5%.
Aylwin Lewis, President and Chief Executive Officer of Kmart, said, "After a
strong first two months of the fourth quarter, we continued to deliver solid
financial results through the close of 2004. While we are pleased with our
performance, our return to solid, profitable operations is only the first stage
in our effort to revitalize this organization. We look forward to what still
needs to be accomplished and plan to continue our
momentum by further improving our operations and the customer shopping
experience in 2005."
Operating income for the 13-weeks ended January 26, 2005 was $472 million
compared to $497 million in the prior year. Adjusted operating income, excluding
gains on sales of assets, was $437 million in the fourth quarter of Fiscal 2004
compared to $411 million in the fourth quarter of Fiscal 2003.
Net income for the fourth quarter of Fiscal 2004 includes a charge of
approximately $7 million after-tax or $0.07 per diluted share for the early
amortization of debt issuance costs associated with the Company's decision to
terminate it's credit facility in January, 2005. Net income for the fourth
quarter of Fiscal 2003 includes a charge of approximately $8 million after-tax
or $0.08 per diluted share for the early amortization of the debt issuance
costs associated with the Company's decision to reduce the size of the credit
facility.
Adjusted operating income, adjusted net income and adjusted diluted earnings per
share are non-GAAP measures. The Company has provided these adjusted figures to
provide a more meaningful comparison of ongoing results and analysis of the
Company's operating performance, as they reflect core operations excluding
significant gains realized on sales of assets. Non-GAAP measures should be
evaluated in conjunction with, and are not a substitute for, GAAP financial
measures.
Net income and diluted earnings per share for Fiscal 2004 were $1,106 million
and $11.00 per share, respectively. Gains on sales of assets and
bankruptcy-related recoveries contributed $579 million and $37 million,
respectively, after-tax to net income in Fiscal 2004. Included in Net income is
a charge of $14 million after-tax or $0.14 per diluted share for the early
amortization of debt issuance costs associated with the Company's decision to
reduce the size, amend, restate and then terminate the credit facility.
Operating activities provided net cash of approximately $1.1 billion in Fiscal
2004. Net income after gains on sales of assets of $579 after-tax and
bankruptcy-related items of $37 million after-tax provided $490 million of
operating cash flow in the current year. Cash flows were positively impacted by
improvements in working capital, including incremental accounts payable due to
improved terms with our vendors and timing of receipts.
Investing activities generated $332 million in Fiscal 2004 due largely from
proceeds of $444 million from the sale of owned and assignment of leased
properties to Sears and Home Depot. An additional $118 million was received for
the sale of non-core assets. Proceeds from the sale of assets during the current
year were offset by capital expenditures of $230 million.
Kmart's cash balance on January 26, 2005 was approximately $3.4 billion,
exceeding prior expectations of $3.2 billion and an increase of approximately
$1.3 billion over the prior year. The $3.4 billion excludes approximately $400
million related to the sale of stores to Sears, recorded in accounts receivable,
pursuant to the previously announced store sale transaction. Inventory levels
were $3.3 billion at the end of Fiscal 2004, consistent with prior year-end
inventory of $3.2 billion.
As previously announced, a special meeting will be held on March, 24, 2005 to
vote on the proposed merger of Kmart and Sears, Roebuck.
For further information regarding Kmart's results, please refer to the Company's
Fiscal 2004 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 9, 2005 at www.sec.gov.
DISCUSSION OF YEAR-TO-DATE ADJUSTED EBITDA
Year-to-date adjusted EBITDA (Year-to-date earnings before interest, taxes,
depreciation, amortization, net gain on sales of assets, bankruptcy-related
recoveries and certain other items) 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 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 as it excludes a number of important cash and non-cash recurring
items. Management compensates for this limitation by using GAAP measures, as
well, in managing the business.
FISCAL 2004
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Net income $ 1,106
Adjustments to reconcile to Year-to-date Adjusted EBITDA:
Income tax provision 669
Interest expense, net 108
Depreciation and amortization 26
Net gain on sales of assets (946)
Bankruptcy-related recoveries (59)
Other 38
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Year-to-date Adjusted EBITDA $ 942
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COMPARABILITY OF FINANCIAL STATEMENTS:
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 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 to Predecessor Company results
are not included herein. As referenced within this news release, results of
operations for the period ended April 30, 2003 refer to the Predecessor Company.
About Kmart Holding Corporation
Kmart Holding Corporation 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, Jaclyn Smith, Joe Boxer, Martha
Stewart Everyday, and Route 66. For more information visit the Company's website
at www.kmart.com.
###
Cautionary Statement Regarding Forward-Looking Information and Other Matters:
Statements or reports made by or on behalf of 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, as amended, that reflect, when made, Kmart's
current views with respect to current events and financial performance. The
words "believe," "expect," "anticipate," "project," and similar expressions,
among others, generally identify "forward-looking statements," which articulate
our position as of the date the statement was made. 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.
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. 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. The forward-looking statements contained herein or otherwise that we
make or are made on 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.
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;
Kmart's ability to successfully implement business strategies and otherwise fund
and execute planned changes in various aspects of the business; the successful
integration of Kmart's and Sears' business and operations if the merger is
approved by the shareholders; marketplace demand for the products of Kmart's key
brand partners, as well as the engagement of appropriate new brand partners;
changes in consumer spending and Kmart's ability to anticipate buying patterns
and implement appropriate inventory strategies; Kmart's ability to reverse its
negative same-store sales trend; competitive pressures and other third party
actions, including pressures from pricing and other promotional activities of
competitors, as well as new competitive store openings; Kmart's ability to
properly monitor its inventory needs in order to timely acquire desired goods in
appropriate quantities and/or fulfill labor needs at planned costs; Kmart's
ability to attract and retain customers; Kmart's ability to maintain contracts,
including leases, that are critical to its operations; Kmart's ability to
develop a market niche; regulatory and legal developments; general economic
conditions; changes in consumer confidence, tastes, preferences and spending;
the availability and level of consumer debt; the possibility that new business
and strategic options will be identified, potentially including selective
acquisitions, dispositions, restructurings, joint ventures and partnerships;
trade restrictions, tariffs, and other factors potentially affecting the ability
to find qualified vendors and access products in an efficient manner; the
outcome of pending legal proceedings; social and political conditions such as
war, political unrest and terrorism or natural disasters; the possibility of
negative investment returns in Kmart's pension plan; changes in interest rates;
other factors affecting business beyond Kmart's control; the effect of
seasonable buying patterns, which are difficult to forecast with certainty; and
Kmart's ability to attract, motivate and/or retain key executives and
associates. Additional factors that could cause Kmart's results to differ
materially in connection with the pending business combination with Sears,
Roebuck and Co. can be found in Sears Holding Corporation's Registration
Statement on Form S-4 (Registration No. 333-120954) filed with the SEC and
available at the SEC's Internet site www.sec.gov.
CONTACT: Kmart Media Relations
248-463-1021
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
FISCAL 4TH QUARTER
JANUARY 26, 2005 JANUARY 28, 2004
---------------- ----------------
Sales $ 5,909 $ 6,328
Cost of sales, buying and occupancy 4,402 4,740
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Gross margin 1,507 1,588
Selling, general and administrative expenses 1,070 1,177
Net gain on sales of assets (35) (86)
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Operating income 472 497
Interest expense, net 23 69
Bankruptcy-related recoveries (46) (4)
Equity income in unconsolidated subsidiaries - (2)
-------- --------
Income before income taxes 495 434
Provision for income taxes 186 164
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Net income $ 309 $ 270
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Basic net income per common share $ 3.48 $ 3.02
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Diluted net income per common share $ 3.09 $ 2.78
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Basic weighted average shares (millions) 88.7 89.5
Diluted weighted average shares (millions) 101.1 99.6
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
PREDECESSOR
SUCCESSOR COMPANY COMPANY
------------------------------- --------------
FISCAL YEAR 39-WEEKS ENDED 13-WEEKS ENDED
2004 JANUARY 28, 2004 APRIL 30, 2003
----------- ---------------- --------------
Sales $ 19,701 $ 17,072 $ 6,181
Cost of sales, buying and occupancy 14,670 13,084 4,762
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Gross margin 5,031 3,988 1,419
Selling, general and administrative expenses 4,156 3,581 1,421
Net gain on sales of assets (946) (89) -
Restructuring, impairment and other charges - - 37
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Operating income (loss) 1,821 496 (39)
Interest expense, net 108 127 57
Bankruptcy-related recoveries (59) (4) -
Equity income in unconsolidated subsidiaries (3) (5) (7)
Reorganization items, net - - 769
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Income (loss) from continuing operations before income taxes 1,775 378 (858)
Provision for (benefit from) income taxes 669 144 (6)
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Income (loss) from continuing operations 1,106 234 (852)
Discontinued operations (net of income taxes of $0) - - (10)
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Net income (loss) $ 1,106 $ 234 $ (862)
========= ========= =========
Basic income (loss) per common share from continuing operations $ 12.39 $ 2.61 $ (1.63)
Discontinued operations - - (0.02)
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Basic net income (loss) per common share $ 12.39 $ 2.61 $ (1.65)
========= ========= =========
Diluted income (loss) per common share from continuing operations $ 11.00 $ 2.51 $ (1.63)
Discontinued operations - - (0.02)
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Diluted net income (loss) per common share $ 11.00 $ 2.51 $ (1.65)
========= ========= =========
Basic weighted average shares (millions) 89.3 89.6 522.7
Diluted weighted average shares (millions) 101.4 93.3 522.7
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
JANUARY 26, 2005 JANUARY 28, 2004
---------------- ----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,435 $ 2,088
Merchandise inventories 3,281 3,238
Accounts receivable, net 646 301
Other current assets 179 184
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TOTAL CURRENT ASSETS 7,541 5,811
Property and equipment, net 315 153
Deferred tax asset 726 33
Other assets and deferred charges 69 77
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TOTAL ASSETS $ 8,651 $ 6,074
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Mortgages payable due within one year $ 4 $ 4
Accounts payable 1,092 820
Accrued expenses and other liabilities 717 671
Taxes other than income taxes 273 281
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TOTAL CURRENT LIABILITIES 2,086 1,776
LONG-TERM LIABILITIES
Long-term debt and mortgages payable 91 76
Capital lease obligations 276 374
Pension obligations 1,004 873
Unfavorable operating leases 294 342
Other long-term liabilities 431 424
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TOTAL LIABILITIES 4,182 3,865
SHAREHOLDERS' EQUITY
Preferred stock 20,000,000 shares authorized; no shares outstanding - -
Common stock $0.01 par value, 500,000,000 shares authorized;
88,693,006 and 89,633,760 shares issued, respectively 1 1
Treasury stock, at cost (86) (1)
Capital in excess of par value 3,291 1,974
Retained earnings 1,340 234
Accumulated other comprehensive (loss) income (77) 1
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TOTAL SHAREHOLDERS' EQUITY 4,469 2,209
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,651 $ 6,074
========= =========
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
PREDECESSOR
SUCCESSOR COMPANY COMPANY
-------------------------------- -------------
39-WEEKS 13-WEEKS
FISCAL YEAR ENDED ENDED
2004 JANUARY 28, 2004 APRIL 30, 2003
----------- ---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,106 $ 234 $ (862)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 69 53 177
Store closings inventory charges 14 - -
Net gain on sales of assets (946) (89) -
Net gain on bankruptcy-related settlements (59) (4) -
Deferred income taxes 597 137 -
Equity income in unconsolidated subsidiaries (3) (5) (7)
Restructuring, impairments and other charges - - 44
Reorganization items, net - - 769
Net cash received from bankruptcy-related settlements 10 4 -
Dividends received from Meldisco 3 - 36
Cash used for store closings and other charges - (15) (64)
Cash used for payments of exit costs and other
reorganization items - (481) (19)
Change in:
Merchandise inventories (57) 1,193 480
Accounts receivable 44 86 114
Accounts payable 272 (340) (117)
Taxes payable 77 (197) (16)
Other assets 53 34 9
Other liabilities (112) 126 32
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,068 736 576
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of assets 562 182 64
Capital expenditures (230) (108) (4)
--------- --------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 332 74 60
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations (49) (75) (16)
Payments on debt (4) (37) (1)
Debt issuance costs - (48) -
Fees paid to Plan Investors - (13) -
Purchase of treasury stock - (4) -
Issuance of common shares - 140 -
Proceeds from issuance of debt - 83 -
--------- --------- ---------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (53) 46 (17)
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,347 856 619
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,088 1,232 613
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,435 $ 2,088 $ 1,232
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