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Kmart Media Relations
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KMART CORPORATION REPORTS FISCAL YEAR 2002
AND FOURTH-QUARTER FINANCIAL RESULTS
Company Files January and February 2003 Monthly Operating Reports
TROY, Mich., March 24, 2003 - Kmart Corporation (Pink Sheets: KMRTQ) today
announced its financial results for the fiscal year and fourth quarter ended
January 29, 2003. These results were filed with the Securities and Exchange
Commission in an Annual Report on Form 10-K. Kmart has also filed monthly
operating reports for January and February 2003 with the United States
Bankruptcy Court for the Northern District of Illinois and with the SEC on
Form 8-K.
Fiscal 2002 Results
- -------------------
For the 52 weeks ended January 29, 2003, Kmart reported total sales of $30.76
billion, compared with $36.15 billion in fiscal 2001. As previously reported,
Kmart closed 283 underperforming stores, or 13% of its existing store base, in
the second quarter of 2002. On a same-store basis, sales declined 10.1% in
fiscal 2002 from the previous year.
Kmart reported a net loss of $3.22 billion, or $6.36 per share, in fiscal
2002, versus a loss of $2.45 billion, or $4.95 per share during fiscal year
2001. Excluding non-comparable items such as special charges, reorganization
items and results of discontinued operations, the Company's net loss in fiscal
2002 was $846 million, or $1.67 per share, versus a net loss of $1.54 billion,
or $3.12 per share, in the 2001 fiscal year.
Special charges affecting fiscal 2002 results consisted primarily of charges
relating to the closure of 283 stores in the second quarter, charges recorded
in the fourth quarter related to the announced closure of an additional 316
stores in 2003, asset impairments and corporate cost reduction initiatives.
Special charges affecting fiscal 2001 results consisted of charges related to
asset impairments and the restructuring of the Company's supply chain
operations and e-commerce business. See the Supplemental Schedule included
within this press release, which provides a reconciliation of net loss, as
reported to net loss, as adjusted.
Julian B. Day, President and Chief Executive Officer of Kmart, said: "In
addition to the Company's Chapter 11 filing in January of last year, Kmart's
2002 financial results reflect the impact of significant charges associated
with our restructuring efforts as well as a decrease in sales associated with
the store closings and reduced customer traffic."
Day continued, "As we draw closer to emergence from Chapter 11, we remain
focused on achieving a cost structure and organization that is aligned with
our reduced store base. Our objective is to ensure that the Company emerges
from the reorganization process with a restructured balance sheet, stronger
store portfolio, and an efficient, cost-effective organization positioned to
compete in the discount retail sector. Our fast-track reorganization timetable
remains on schedule, as we expect to emerge from Chapter 11 on or before April
30, 2003. Creditors are in the process of voting on our First Amended Joint
Plan of Reorganization, and we anticipate the Plan will be confirmed in
mid-April and the Company will complete its Chapter 11 reorganization by April
30, 2003."
February 2003 Results
- ---------------------
In its monthly operating report for the four-week period ended February 26,
2003, the first month of the 2003 fiscal year, Kmart reported a net loss of
$54 million on sales of $2.17 billion. Same-store sales declined 2.5% compared
to February 2002. Inventory clearance sales at the 316 closing stores are not
included in the same store sales results. Total sales, which include the
closing stores, decreased by 1.3%.
As of February 26, 2003, the Company's balance sheet cash position was
slightly more than $1 billion, of which approximately $260 million represented
cash at stores. In addition, Kmart had no borrowings outstanding as of
February 26, 2003 under its debtor-in-possession (DIP) facility and had
borrowing availability under its DIP facility of approximately $1.55 billion.
Day said, "We have adopted a disciplined, low-risk approach to managing our
business. Although this Company has a long way to go, we are encouraged by
February's financial results, which demonstrate signs of progress,
particularly in achieving positive cash flow, controlling costs and enhancing
gross margin. As we continue to control costs and improve margins moving
forward, we remain focused on driving same-store sales increasing customer
traffic, enhancing our in-stock positions and improving overall customer
experience."
Fourth Quarter and January 2003 Results
- ---------------------------------------
Net sales for the fourth quarter of 2002 were $8.87 billion, compared with
$10.88 billion in the 2001 fourth quarter. On a same-store basis, which
excludes the 283 stores closed in the second quarter of 2002, sales declined
9.8% from the fourth quarter of 2001.
Kmart reported a net loss of $1.10 billion, or $2.13 per share, in the fourth
quarter of 2002, compared with a net loss of $1.65 billion, or $3.31 per
share, in the same quarter a year ago.
In its monthly operating report for the four-week period ended January 29,
2003, the final month of the 2002 fourth quarter and fiscal year, Kmart
reported a net loss of $1.41 billion on net sales of $1.70 billion. The net
loss for the month includes several charges relating to the Company's
previously announced plan to close 316 stores in early 2003. These include a
non-cash charge of $695 million relating to the impairment of long-lived
assets at the closing stores and a charge of $471 million related to the
write-down of inventory to its estimated selling value in connection with the
liquidation sales at the closing stores. In addition, Kmart recorded a charge
of $36 million related to the planned reduction of staff at the Company's
headquarters and in certain corporate support functions. Same store sales in
January were 8.9% lower than the same period last year.
<table>
<caption>
KMART CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
52-weeks 52-weeks
Ended Ended
January 29, January 30,
2003 2002
-------------- -----------
<s> <c> <c>
Sales $ 30,762 $ 36,151
Cost of sales, buying and occupancy 26,258 29,853
-------- --------
Gross margin 4,504 6,298
Selling, general and administrative expenses 6,544 7,588
Equity income in unconsolidated subsidiaries 34 -
Restructuring, impairment and other charges 739 1,091
-------- --------
Continuing loss before interest, income taxes, reorganization items and
dividends on convertible preferred securities of subsidiary trust (2,745) (2,381)
Interest expense, net (contractual interest for fiscal years 2002
and 2001 was $426 and $352, respectively) 155 344
Reorganization items, net 386 (183)
Benefit from income taxes (24) -
Dividends on convertible preferred securities of subsidiary trust, net of
income taxes of $0 and $0, respectively (contractual dividend for
fiscal years 2002 and 2001 was $65 and $72, net of tax, respectively) - 70
-------- --------
Net loss from continuing operations (3,262) (2,612)
Discontinued operations, net of income taxes ($0) 43 166
-------- --------
Net loss $ (3,219) $ (2,446)
======== ========
Basic and diluted loss per common share:
Net loss from continuing operations $ (6.44) $ (5.29)
Discontinued operations 0.08 0.34
-------- --------
Net loss $ (6.36) $ (4.95)
======== ========
Basic and diluted weighted average shares (millions) 506.4 494.1
</table>
<table>
<caption>
KMART CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
January 29, January 30,
2003 2002
--------------------------------
Current Assets:
<s> <c> <c>
Cash and cash equivalents $ 613 $ 1,245
Merchandise inventories 4,825 5,796
Other current assets 664 800
-------- --------
Total current assets 6,102 7,841
Property and equipment, net 4,892 6,093
Other assets and deferred charges 244 249
-------- --------
Total Assets $ 11,238 $ 14,183
======== ========
Current Liabilities:
Accounts payable $ 1,248 $ 89
Accrued payroll and other liabilities 710 420
Taxes other than income taxes 162 143
-------- --------
Total current liabilities 2,120 652
Debtor-in-possession credit facility - 330
Capital lease obligations 623 857
Other long-term liabilities 181 132
-------- --------
Total liabilities not subject to compromise 2,924 1,971
Total liabilities subject to compromise 7,969 8,093
Company obligated mandatorily redeemable convertible preferred securities of a
subsidiary trust holding solely 7 3/4% convertible junior subordinated
debentures of Kmart (redemption value $648 and $898, respectively) 646 889
Common stock, $1 par value, 1,500,000,000 shares authorized; 519,123,988 and
503,294,515 shares issued and outstanding, respectively 519 503
Capital in excess of par value 1,922 1,695
(Accumulated deficit) retained earnings (2,742) 1,032
-------- --------
Total Liabilities and Shareholders' (Deficit) Equity $ 11,238 $ 14,183
======== ========
</table>
<table>
<caption>
KMART CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
52-weeks 52-weeks
Ended Ended
January 29, January 30,
2003 2002
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<s> <c> <c>
Net loss $(3,219) $(2,446)
Adjustments to reconcile net loss from continuing operations
to net cash provided by operating activities:
Discontinued operations (43) (166)
Restructuring, impairments and other charges 739 1,091
Inventory writedown and other charges 1,291 163
Reorganization items, net 386 (183)
Depreciation and amortization 737 824
Equity income in unconsolidated subsidiaries (34) -
Dividends received from Meldisco 45 51
(Increase) decrease in inventories (168) 560
Increase in accounts payable 401 1,046
Deferred income taxes and taxes payable 23 (55)
Changes in other assets 161 295
Changes in other liabilities 67 (23)
Cash used for store closings (134) (230)
------- -------
Net cash provided by operating activities 252 927
------- -------
Net cash used for reorganization items (135) (6)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (252) (1,385)
Investment in BlueLight.com - (45)
------- -------
Net cash used for investing activities (252) (1,430)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt - 1,494
Net borrowings on DIP Credit Facility (330) 330
Debt issuance costs (42) (49)
Issuance of common shares - 56
Payments on debt (31) (320)
Payments on capital lease obligations (94) (86)
Payments of dividends on preferred securities of subsidiary trust - (72)
------- -------
Net cash provided by (used for) financing activities (497) 1,353
------- -------
Net change in cash and cash equivalents (632) 844
Cash and cash equivalents, beginning of year 1,245 401
------- -------
Cash and cash equivalents, end of year $ 613 $ 1,245
======= =======
</table>
KMART CORPORATION
SUPPLEMENTAL SCHEDULE - NET LOSS RECONCILIATION
(Dollars in millions, UNAUDITED)
The following unaudited table provides a reconciliation of net loss as
reported to net loss, as adjusted for special charges, reorganization items
and discontinued operations for the 52 weeks ended January 29, 2003 and
January 30, 2002.
<table>
<caption>
Net Loss Loss per common share
----------------------------- ------------------------------------
2002 2001 2002 2001
<s> <c> <c> <c> <c>
Net Loss, as reported $ (3,219) $ (2,446) $ (6.36) $ (4.95)
Less Special charges (1), (2) 2,030 1,254 4.01 2.54
Less Reorganization items, net (2) 386 (183) 0.76 (0.37)
Less Discontinued operations (2) (43) (166) (0.08) (0.34)
----------------------- --------------------------
Net Loss, adjusted $ (846) $ (1,541) $ (1.67) $ (3.12)
======================= ==========================
</table>
<table>
<caption>
Corporate
Markdowns Long-lived Cost Supply
for Inventory Asset Reduction Chain BlueLight.
Liquidation Impairments Initiatives Operations com Other Total
------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c>
Restructuring, Impairment
and Other Charges $ - $ 695 $ 50 $ - $ (6) $ - $ 739
Gross Margin 1,256 - - 7 - 30 1,293
SG&A - - - 2 - (4) (2)
----------------------------------------------------------------------------
2002 Total Special Charges, net (1) $ 1,256 $ 695 $ 50 $ 9 $ (6) $ 26 $ 2,030
============================================================================
Restructuring, Impairment
and Other Charges $ - $ 971 $ - $ - $ 97 $ 23 $ 1,091
Gross Margin - - - 75 - - 75
SG&A - - - 88 - - 88
---------------------------------------------------------------------------
2001 Total Special Charges, net (1) $ - $ 971 $ - $ 163 $ 97 $ 23 $ 1,254
===========================================================================
</table>
(1) Special charges are transactions that are not, in management's
judgement, representative of on-going operations of our business. In
determining what amounts constitute a special charge, management
considered the nature, magnitude and frequency of their occurrence.
Summarized above is the impact of implementing key corporate
initiatives, asset impairments, and significant inventory liquidations
as a result of the stores closed in connection with Kmart's bankruptcy
proceedings. Management believes that operating results excluding
special charges, reorganization items and discontinued operations may
serve as a useful indication of trends in operations when reviewed in
the context of reported results. Summarized above are special charges
included in Kmart's financial statements for fiscal years 2002 and 2001.
(2) In accordance with SFAS No. 109, the Company has recorded a valuation
allowance against deferred tax assets. Accordingly, special charges,
reorganization items and discontinued operations as presented in the
tables above include no tax benefit.
Kmart Corporation is a mass merchandising company that serves America through
its Kmart and Kmart SuperCenter retail outlets. The Company's common stock is
currently quoted on the Pink Sheets Electronic Quotation Service
(www.pinksheets.com) under the symbol KMRTQ.
Cautionary Statement Regarding Forward-Looking Information and Related Matters
Bankruptcy law does not permit solicitation of acceptances of the Plan of
Reorganization until the Court approves the applicable Disclosure Statement
relating to the Plan of Reorganization as providing adequate information of a
kind, and in sufficient detail, as far as is reasonably practicable in light
of the nature and history of the debtor and the condition of the debtor's
books and records, that would enable a hypothetical reasonable investor
typical of the holder of claims or interests of the relevant class to make an
informed judgment about the Plan of Reorganization. On February 25, 2003, the
Bankruptcy Court approved the Company's Disclosure Statement with respect to
the First Amended Joint Plan of Reorganization and authorized a balloting and
solicitation process that will conclude on April 4, 2003. A hearing on
confirmation of the First Amended Joint Plan of Reorganization is scheduled to
commence in the Bankruptcy Court on April 14, 2003. Accordingly, this
announcement is not intended to be, nor should it be construed as, a
solicitation for a vote on the Plan, which can only occur based on the
official disclosure statement package that was mailed on or about March 7,
2003. The Company will emerge from Chapter 11 if and when the Plan receives
the requisite creditor approvals and is confirmed by the Bankruptcy Court.
Statements made by Kmart which address activities, events or developments that
we expect or anticipate may occur in the future, including certain of the
information contained in the Plan of Reorganization and Disclosure Statement,
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that reflect the Company's current views with
respect to current and future events and financial performance. Such
forward-looking statements are and will be, as the case may be, subject to
many risks and uncertainties, including, but not limited to, Kmart's having
filed for bankruptcy and factors relating to Kmart's operations and the
business environment in which Kmart operates, which may cause the actual
results of Kmart to be materially different from any future results expressed
or implied by such forward-looking statements. Factors that could cause actual
results to differ materially from these forward-looking statements include
those set forth in Kmart's Annual Report on Form 10-K for the fiscal year
ended January 29, 2003, or in other filings made, from time to time, by Kmart
with the Securities and Exchange Commission (the "Company Filings"). The
forward-looking statements speak only as of the date when made and Kmart does
not undertake to update such statements.
Similarly, these and other factors set forth in the Company Filings, including
the terms of the final reorganization plan ultimately confirmed by the
Bankruptcy Court, can affect the value of the Company's various pre-petition
liabilities, common stock and/or other securities. Until Kmart's plan of
reorganization is confirmed by the Bankruptcy Court, the recoveries of
pre-petition claims holders are subject to change.
If the final plan of reorganization confirmed by the Bankruptcy Court is
consistent with the plan of reorganization recently filed with the Court, it
would result in the cancellation of the existing Kmart common stock, with
holders thereof receiving no distributions under the plan other than,
possibly, for a minor interest in a creditor litigation trust to be
established pursuant to the plan. 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 appropriate caution be exercised with
respect to existing and future investments in Kmart common stock or any claims
relating to pre-petition liabilities and/or other Kmart securities.