EX-99 3 k76585exv99.txt MONTHLY OPERATING REPORT 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 FEBRUARY 27, 2003 TO MARCH 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: May 6, 2003 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 FOUR-WEEK PERIOD ENDED MARCH 26, 2003 I. Kmart Corporation Unaudited Consolidated Financial Statements A. Consolidated Statement of Operations for the four-week period ended March 26, 2003 B. Consolidated Balance Sheet as of March 26, 2003 C. Consolidated Statement of Cash Flows for the four-week period ended March 26, 2003 D. Cash Receipts and Disbursements for the four-week period ended March 26, 2003 E. Schedule of Professional Fees and Expenses for the period January 22, 2002 through March 26, 2003 F. Notes to Unaudited Consolidated Financial Statements II. Tax Questionnaire KMART CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) -------------------------------------------------------------------------------- ($ MILLIONS)
FOUR-WEEK PERIOD ENDED MARCH 26, 2003 ------------ SALES $1,896 Cost of sales, buying & occupancy 1,504 ------------ GROSS MARGIN 392 Selling, general and administrative expenses 445 ------------ LOSS BEFORE INTEREST, INCOME TAXES AND REORGANIZATION ITEMS, NET (53) Reorganization items, net 412 ------------ LOSS BEFORE INTEREST (465) Net interest expense 18 ------------ NET LOSS $ (483) ============
KMART CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited) -------------------------------------------------------------------------------- ($ MILLIONS)
MARCH 26, 2003 ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,044 Merchandise inventories 4,742 Other current assets 642 ------------ TOTAL CURRENT ASSETS 6,428 Property and equipment, net 4,745 Other assets and deferred charges 245 ------------ TOTAL ASSETS $ 11,418 ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable $ 1,451 Accrued payroll and other liabilities 815 Taxes other than income taxes 151 ------------ TOTAL CURRENT LIABILITIES 2,417 Debtor-in-possession credit facility - Capital lease obligations 613 Other long-term liabilities 190 ------------ TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE 3,220 LIABILITIES SUBJECT TO COMPROMISE 8,391 Company obligated mandatorily redeemable convertible preferred convertible securities of a subsidiary trust holding solely 7 3/4% convertible junior subordinated debentures of Kmart 577 Common stock, $1 par value, 1,500,000,000 shares authorized; 523,781,474 shares issued 524 Capital in excess of par value 1,985 Accumulated deficit (3,279) ------------ TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 11,418 ============ Memo: LIABILITIES SUBJECT TO COMPROMISE Debt and notes payable $ 3,347 Accounts payable 2,361 Pension obligation 754 Closed store reserves 723 Public liability and workers compensation 320 Taxes payable 285 Other liabilities 601 ------------ $ 8,391 ============
KMART CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) -------------------------------------------------------------------------------- ($ MILLIONS)
FOUR-WEEK PERIOD ENDED MARCH 26, 2003 ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (483) Adjustments to reconcile net loss to net cash provided by operating activities: Restructuring, impairments and employee severance 11 Reorganization items, net 412 Depreciation and amortization 54 Equity income in unconsolidated subsidiaries (4) Changes in: Inventory (64) Accounts payable 128 Deferred taxes and other taxes payable 2 Other assets (14) Other liabilities 49 Cash used for store closings and other charges (40) ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 51 ------------ NET CASH USED FOR REORGANIZATION ITEMS (8) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures - ------------ NET CASH USED FOR INVESTING ACTIVITIES - ------------ CASH FLOWS FROM FINANCING ACTIVITIES Payments of debt (1) Payments on capital lease obligations (5) ------------ NET CASH USED FOR FINANCING ACTIVITIES (6) ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS 37 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,007 ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $1,044 ------------
KMART CORPORATION CASH RECEIPTS AND DISBURSEMENTS (Unaudited) -------------------------------------------------------------------------------- ($ MILLIONS)
FOUR-WEEK PERIOD ENDED MARCH 26, 2003 ------------ Cash Receipts: Store $ 1,975 Other 152 ------------ CASH INFLOWS 2,127 ------------ Cash Disbursements: Accounts payable 1,546 Fleming 131 Payroll and benefits 295 Taxes 102 Rent 15 Other 1 ------------ CASH OUTFLOWS 2,090 ------------ NET CASH INFLOWS $ 37 ------------
KMART CORPORATION Schedule of Professional Fees and Expenses (Unaudited)
FOR THE PERIOD JANUARY 22, 2002 THROUGH MARCH 26, 2003 ------------------------------------------------------------------------------------------- BILLED NAME AMOUNT* PAID UNPAID HOLDBACK ACCRUED** TOTAL ---- ------------ ------------ ------------ ------------ ------------ ------------ Abacus Advisory and Consulting Corporation, LLC $ 3,978,395 $ 3,608,293 $ 370,102 $ - $ - $ 3,978,395 Dewey Ballantine 400,396 - 400,396 37,959 400,396 DKW/ Miller Buckfire & Lewis 3,222,092 3,019,572 202,520 202,500 - 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 7,398,362 6,811,877 586,485 586,485 - 7,398,362 Goldberg, Kohn, Bell 1,215,252 1,112,596 102,656 102,656 - 1,215,252 Jones, Day, Reavis & Pogue 3,629,703 3,377,791 251,912 251,912 - 3,629,703 Jones Day Committee Member Expenses 35,631 35,631 - - - 35,631 KPMG, LLP 6,895,136 6,311,934 583,202 515,099 - 6,895,136 Morgan, Lewis & Bockius LLP 685,123 685,123 - - - 685,123 Otterbourg, Steindler, Houston & Rosen, PC 5,641,092 4,712,193 928,899 425,468 - 5,641,092 Otterbourg Committee Member Expenses 122,542 113,088 9,454 - - 122,542 PricewaterhouseCoopers LLP 8,449,354 8,264,250 185,104 185,104 - 8,449,354 Rockwood Gemini Advisors 2,640,532 2,460,532 180,000 180,000 - 2,640,532 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 339,666 306,657 33,009 33,009 339,666 Traub, Bonacquist & Fox 1,175,421 1,057,615 117,806 117,806 - 1,175,421 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 1,516,837 120,419 120,010 - 1,637,256 Accrued - - - - 34,757,989 34,757,989 ------------ ------------ ------------ ------------ ------------ ------------ TOTAL $ 88,389,695 $ 82,094,847 $ 6,294,848 $ 4,890,600 $ 34,757,989 $123,147,684 ------------ ------------ ------------ ------------ ------------ ------------
* Billed amounts include fees and expenses. ** Accrued amount represents services provided, but not yet billed. 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. 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), 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 March 26, 2003 the Company had no borrowings outstanding and had utilized $395 million of the DIP Credit Facility for letters of credit issued for ongoing import purchasing operations, contractual and regulatory purposes. Outlined below is a summary of availability under the DIP Credit Facility:
($ millions) DIP Credit Facility capacity $2,000 5% Holdback (100) DIP loans outstanding - Letters of credit outstanding (395) -------- Total Available as of March 26, 2003 $1,505 --------
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 May 6, 2003, the date of our emergence from Chapter 11. 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 five-week period ended April 2, 2003 were 7.4% lower than the same period last year. Comparable store sales do not include the going-out-of-business sales at our 316 closing locations. Due to the timing of the Easter holiday in 2003, the holiday sales will be reflected in our April 2003 financial results. KMART CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 5. Reorganization items, net, of $412 million of expense includes $385 for pre-petition liabilities related to the rejection of the Fleming contract, $17 million for stay bonuses under the Key Employee Retention Program approved by the Court, $9 million of professional fees and $1 million of other reorganization expenses. 6. On January 24, 2003, we filed a Plan of Reorganization and related Disclosure Statement with the Court. On or about 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 Plan of Reorganization and 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. 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. Kmart now administers and manages the supply chain operations related to the supply and distribution of food, consumable and core pantry products. Kmart has experienced little business interruption in the transition. As part of the bankruptcy proceedings, Fleming filed a claim of $1.5 billion as of March 11, 2003. In March, Kmart and Fleming came to an agreement on a settlement of Fleming's claims, and on March 27, 2003, the Court approved our settlement of all claims asserted by Fleming. Under the settlement, Kmart paid Fleming $15 million of Fleming's net post-petition administrative claim, which exceeded $30 million. Additionally, Fleming's general unsecured claim was reduced from approximately $1.5 billion to $385 million. A charge for this claim was recorded in Reorganization items, net in the Consolidated Statement of Operations. 8. On March 31, 2003, we completed the implementation of our previously announced strategic restructuring actions aimed at aligning our corporate headquarter and other administrative functions with the Company's on-going store base and to prepare the organization for emergence from Chapter 11 reorganization in May. As part of the initiative, the Company eliminated approximately 400 positions at Kmart's corporate headquarters and approximately 123 nationally located, corporate-support positions. The Company also eliminated approximately 137 vacant positions. We recorded a charge for the estimated cost of these actions in our January 2003 Statement of Operations. 9. 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. 10. Cash Receipts and Disbursements for the four-week period ended March 26, 2003 are summarized as actual receipts and disbursements during the period, as compiled from the Company's daily cash records. 11. Subsequent to March 26, 2003, Kmart's Plan of Reorganization, as modified, was confirmed on April 22, 2003 and the order was docketed on April 23, 2003. Kmart emerged from Chapter 11 on May 6, 2003. 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 March 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 -------------------------------------------------------------------------------- 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, including, but not limited to, Kmart's having filed for bankruptcy and factors relating to the Company's operations and the business environment in which Kmart operates, 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, Kmart's ability to operate pursuant to its exit financing facility; the ability of the Company to obtain and maintain normal terms with its vendors and other service providers; 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.