Kmart Secures $2 Billion Financing Package and Files for Chapter 11 Reorganization to Aggressively Address Financial and Operational Challenges
All 2,114 Kmart Stores Open for Business;
Credit Cards, Gift Certificates, Store Credits To Be Honored As Usual
$2 Billion DIP Financing Package Arranged by JPMorgan Securities, Inc. and
Fleet Securities, Inc.; Includes Vendor Lien for Customary Trade Relationship
Vendors; Will Fund Operations, Including Employee Salaries and Benefits, and
Post-Petition Vendor Payments During Reorganization Process
Completion of Fast-Track Reorganization Targeted for 2003
"We are determined to complete our reorganization as quickly and smoothly
as possible, while taking full advantage of this chance to make a fresh start
and reposition Kmart for the future," says Kmart CEO Conaway
TROY, Mich., Jan. 22 /PRNewswire-FirstCall/ --
Kmart Corporation (NYSE: KM) announced today that, in order to aggressively
address the financial and operational challenges that have hampered its
performance, the Company and 37 of its U.S. subsidiaries have filed voluntary
petitions for reorganization under chapter 11 of the U.S. Bankruptcy Code. In
its filings in the U.S. Bankruptcy Court for the Northern District of
Illinois, in Chicago, the Company indicated that it will reorganize on a fast-
track basis and has targeted emergence from chapter 11 in 2003.
Kmart also announced that, to fund its turnaround and continuing
operations, it has secured a $2 billion senior secured debtor-in-possession
(DIP) financing facility from Credit Suisse First Boston, Fleet Retail
Finance, Inc., General Electric Capital Corporation and JPMorgan Chase Bank,
which will act in various capacities including as collateral monitors,
documentation agents and syndication agents. The DIP facility, which remains
subject to Bankruptcy Court approval, will be used to supplement the Company's
existing cash flow during the reorganization process. JPMorgan Securities
Inc. and Fleet Securities, Inc. arranged the financing. The Company expects
to be able to access $1.15 billion of the DIP facility upon court approval of
an interim financing order; the full facility is subject to final court
approval at a later date.
The Company said its decision to seek judicial reorganization was based on
a combination of factors, including a rapid decline in its liquidity resulting
from Kmart's below-plan sales and earnings performance in the fourth quarter,
the evaporation of the surety bond market, and an erosion of supplier
confidence. Other factors include intense competition in the discount
retailing industry, unsuccessful sales and marketing initiatives, the
continuing recession, and recent capital market volatility.
Charles C. Conaway, Chief Executive Officer of Kmart, said: "We are
committed and determined to complete our reorganization as quickly and as
smoothly as possible, while taking full advantage of this chance to make a
fresh start and reposition Kmart for the future. We deeply regret any adverse
effect today's action will have on our associates, vendors and business
partners. I also regret the impact of our filing on all Kmart shareholders,
including many of our associates. But after considering a wide range of
alternatives, it became clear that this course of action was the only way to
truly resolve the Company's most challenging problems. I am confident that,
with our tremendous resources and dedicated supplier and associate
communities, Kmart will emerge from this process as a stronger, more dynamic,
more profitable enterprise with a well-defined position in the discount retail
sector."
All 2,114 Kmart stores are open and serving customers. The Company's
credit cards, checks, gift certificates and store credits will be honored as
always and its return policies have not been affected by the filing. Kmart
associates are being paid in the usual manner and their medical, dental, life
insurance, disability, and other benefits are expected to continue without
disruption.
The Company's pension plan and savings plans are maintained independently
of the Company and are protected under federal law. The Company will continue
to administer the plans as usual. Other retiree benefits are also expected to
continue without disruption. The Company also said that approximately 3.5% of
its total 401(k) savings plan assets consist of Kmart shares purchased by its
employees and approximately 10.5% of the assets consist of shares provided by
the Company to match employee investments. Total Kmart share holdings in its
401(k) savings plan represent about 6% of Kmart's total outstanding common
shares.
Conaway said: "When I joined Kmart 18 months ago, I found a company with
many strengths, including dedicated associates, great store locations, a proud
100-year history, and some of the best known and loved brands in retailing --
including the great Kmart name itself. We remain determined to build on this
foundation and continue Kmart's transformation."
Kmart also announced that Ronald B. Hutchison has been named Executive
Vice President and Chief Restructuring Officer, a new position, effective
immediately. He and James B. Adamson, who was elected non-executive Chairman
of Kmart's Board of Directors on January 17, 2002, will be actively engaged in
advising Kmart on reorganization matters and working with the senior
management team to rebuild and reposition the Company.
Hutchison, 51, was most recently Chief Financial Officer of Advantica
Restaurant Group, Inc. where he was one of the key architects of the company's
successful reorganization. He was also involved in the financial
reorganization of Leaseway Transportation, a transportation holding company
that emerged from chapter 11 in the early 1990s.
Kmart Chairman James B. Adamson said, "We are gratified by the support of
our lenders in arranging our $2 billion of debtor-in-possession (DIP)
financing, an important vote of confidence in the Company, our people, and our
potential. We are also pleased that the banks have agreed to allow our
vendors an opportunity to receive a second lien on the Company's collateral
for their post-petition accounts payable, provided that the vendors resume
normal trade terms and full merchandise shipments within the first 60 days of
the reorganization case. With that support, and with the protection of
chapter 11, we are confident the Company will move forward in a better
position to restructure for the future. Fortunately, Kmart has a number of
strengths upon which we can build, including a substantial core group of
profitable stores in highly desirable locations."
Conaway outlined the strategic, operational and financial initiatives that
the Company intends to continue or implement during the reorganization
process, including:
* Investing in key merchandising and marketing initiatives to enhance
Kmart's strategic positioning as the authority for what Moms value by offering
exclusive brands that will differentiate Kmart from its competitors;
* Optimizing the supply chain to maximize efficiencies and service
capabilities;
* Investing in critical technology, standardized information technology
platforms, merchandising opportunities and supply chain enhancements;
* Evaluating the performance of every store and terms of every lease in
the Kmart portfolio by the end of the first quarter of 2002 with the objective
of closing unprofitable or underperforming stores this year to increase cash
flow and return on invested capital;
* Seeking Bankruptcy Court approval to immediately terminate the leases
of approximately 350 stores that were closed previously by Kmart or are
currently being leased by other tenants at rents below Kmart's obligation,
thereby resulting in an immediate annual savings of approximately $250
million; and
* Pursuing opportunities to reduce annual expenses by an additional $350
million through reengineering the organization, staff reductions, office
consolidations, and other actions.
Kmart said that it filed more than 30 first day motions in the bankruptcy
court in Chicago to support its approximately 240,000 associates and 4,000
vendors, together with its customers and other stakeholders. The court
filings include requests to obtain interim financing authority and maintain
existing cash management programs; to retain legal, financial, real estate and
other professionals to support the Company's reorganization cases; and for
other relief.
During the restructuring process, vendors, suppliers and other business
partners will be paid under normal terms for goods and services provided
during the reorganization. In its filing documents, Kmart and its U.S.
subsidiaries listed total assets of $17 billion of assets at book value and
total liabilities of $11.3 billion as of the fiscal quarter ended October 31,
2001. Kmart's foreign subsidiaries are not covered by the filing and are
operating as normal.
More information about Kmart's reorganization case is available at the
following toll-free numbers: Associates -- 877-638-8856 (available after
10 a.m. Eastern Time today); Customers -- 877-475-6278 (available after
10 a.m. Eastern Time today); Vendors and Suppliers -- 877-453-5693.
A video news release featuring Kmart Chief Executive Officer Charles C.
Conaway will be uplinked today (January 22, 2002) from 10:30 a.m. to 11 a.m.
on Telestar 6, Transponder K16, Audio 6.2 and 6.8. For additional
information, visit www.bluelight.com and click on Kmart Corporate News.
Kmart Corporation is a $37 billion company that serves America with more
than 2,100 Kmart and Kmart SuperCenter retail outlets and through its e-
commerce shopping site, www.bluelight.com .
Safe Harbor Statement
The foregoing, as well as other statements made by Kmart, may contain
forward-looking statements regarding Kmart. They reflect, when made, the
Company's current views with respect to current events and financial
performance, and 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. The Company intends that such forward-looking statements be
subject to the Safe Harbor created by Section 27(a) of the Securities Act of
1933 and Section 21E of the Securities and Exchange Act of 1934. The words
and phrases "expect," "estimate," "anticipate" and similar expressions
identify forward-looking statements. Certain 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; court approval of the Company's first day papers
and other motions 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 trade credit,
and shipments and terms with vendors and service providers for current orders;
the Company's ability to maintain contracts that are critical to its
operations; potential adverse developments with respect to the Company's
liquidity or results of operations; the ability to fund and execute its
business plan; the ability to attract, retain and compensate 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 quarterly report on Form 10-Q
for the quarter ended November 27, 2001. 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.
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SOURCE Kmart Corporation
-0- 01/22/2002
/CONTACT: Kmart Media Relations: +1-248-463-1021, or Kmart Investor
Relations: +1-248-463-1040/
/Web site: bluelight.com /
(KM)
CO: Kmart Corporation
ST: Michigan
IN: REA
SU: BCY FNC RCN
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