CONSOLIDATED STATEMENTS OF OPERATION
(Dollars in millions, except per share data) 26 Weeks Ended July 26, 2000 26 Weeks Ended July 28, 1999 Sales $ 17,193 $ 16,858 Cost of sales, buying and occupancy 14,012 13,224 Gross margin 3,181 3,634 Selling, general and administrative expenses 3,682 3,177 Income (loss) before interest, income taxes and dividends on convertible preferred securities of subsidiary trust (501) 457 Interest expense, net 134 130 Income tax provision (benefit) (232) 108 Dividends on convertible preferred securities of subsidiary trust, net of income taxes 23 25 Continuing net income (loss) (426) 194 Discontinued operations, net of tax - (230) Net loss $ (426) $ (36) Basic/Diluted earnings per common share: Net income (loss) from continuing operations $ (0.87) $ 0.39 Discontinued operations - (0.47) Net loss $ (0.87) $ (0.08) Basic weighted average shares (millions) 481.8 494.6 Diluted weighted average shares (millions) 544.4 567.0
CONSOLIDATED BALANCE SHEETS
(Dollars in millions) July 26, 2000 July 28, 1999 ASSETS Current Assets: Cash and cash equivalents $ 333 $ 299 Merchandise inventories 6,586 7,061 Other current assets 862 622 Total current assets 7,781 7,982 Property and equipment, net 6,351 6,114 Other assets and deferred charges 397 538 TOTAL ASSETS $ 14,529 $ 14,634 LIABILITIES AND EQUITY Current Liabilities: Long-term debt due within one year $ 38 $ 81 Trade accounts payable 2,488 2,353 Accrued payroll and other liabilities 1,253 1,311 Taxes other than income taxes 268 251 Total current liabilities 4,047 3,996 Long-term debt and notes payable 1,742 1,526 Capital lease obligations 975 1,052 Other long-term liabilities 1,004 1,122 Convertible preferred securities 891 985 Common stock 480 494 Capital in excess of par value 1,551 1,676 Retained earnings 3,839 3,783 TOTAL LIABILITIES AND EQUITY $ 14,529 $ 14,634
KMART CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions) 26 Weeks Ended July 26, 2000 26 Weeks Ended July 28, 1999 CASH FLOW FROM OPERATING ACTIVITIES Net income (loss) from continuing operations $ (426) $ 194 Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities: One-time charge for strategic actions 740 - Depreciation and amortization 395 377 Equity loss in BlueLight.com 25 - Cash used for store restructuring and other charges (33) (46) Decrease (increase) in inventories 150 (525) Increase in accounts payable 284 330 Increase in accounts receivable (18) (1) Deferred income taxes and taxes payable (329) 22 Decrease in other long-term liabilities (54) (18) Changes in other assets and liabilities (114) 4 Net cash provided by continuing operations 620 337 Net cash used for discontinued operations (60) (40) Net cash provided by operating activities 560 297 CASH FLOW FROM INVESTING ACTIVITIES Capital expenditures (377) (577) Acquisition of Caldor leases - (86) Net cash used for investing activities (377) (663) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt - 44 Purchase of convertible preferred securities (80) - Purchase of common shares (56) (32) Issuance of common shares 26 34 Payments on long-term debt (45) (52) Payments on capital lease obligations (39) (39) Net cash used for financing activities (194) (45) Net decrease in cash and cash equivalents (11) (411) Cash and cash equivalents, beginning of year 344 710 Cash and cash equivalents, end of period $ 333 $ 299
The following exhibit outlines the impact of the charge for strategic actions on Kmart’s Statement of Operations for the second quarter ended July 26, 2000. Charge for Strategic Initiatives On July 25, 2000, Kmart announced a series of strategic actions designed to enhance the productivity of its store base, inventory and information systems. These initiatives include closing stores, accelerating certain inventory reductions and redefining its information technology strategy. As a result of these initiatives, Kmart recorded a pretax charge of $740 million. A total of 66 traditional Kmart and 6 Super Kmart stores will close, most by November 1, 2000. The $740 million pretax charge included $300 million to record a reserve related to the cost of closing store locations and $75 million to reflect the anticipated value of inventory at the closed locations. In addition, an assessment of inventory productivity during the second quarter indicated that certain inventories should be reduced significantly to improve return on investment. To achieve this objective, Kmart began implementing a plan to reduce inventory through chain-wide clearance sales. A pretax charge of $290 million was taken to state the inventory at its net realizable value. Finally, as a result of an ongoing assessment of its information technology infrastructure, Kmart determined in the second quarter 2000 that certain systems previously under development and related hardware were no longer part of its long-term strategy. This action and others resulted in a pretax charge of $75 million. The following table summarizes the significant components and income statement presentation of the charge for strategic actions taken during the second quarter:
The following table presents the Statement of Operations for the quarter ended July 26, 2000 before and after the charge for strategic actions:
13 Weeks Ended July 26, 2000 ($ in millions) As Reported Charge For Strategic Actions Excluding Charge For Strategic Actions Sales $ 8,998 $ - $ 8,998 Cost of sales, buying and occupancy 7,518 365 7,153 Gross margin 1,480 (365) 1,845 Selling, general and administrative expense 2,101 375 1,726 Income (loss) before interest, income taxes and dividends on convertible preferred securities of subsidiary trust (621) (740) 119 Interest expense, net 65 - 65 Income taxes (250) (269) 19 Preferred dividends of subsidiary, net of income taxes 12 - 12 Net income (loss) $ (448) $ (471) $ 23 Basic and diluted earnings per share $ (0.93) $ (0.98) $ 0.05
As of the end of the second quarter, Kmart reduced its inventory position from January 26, 2000 by $515 million as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
