August 12, 1999 Robert M. Burton Shawn M. Kahle
Divisional Vice President, Investor
Relations
(248) 643-1040
Vice President, Corporate Affairs
(248) 637-4201
|
KMART CORPORATION REPORTS
44
PERCENT INCREASE
IN 1999 SECOND QUARTER INCOME FROM CONTINUING OPERATIONS
TROY, Mich., August 12, 1999--Kmart Corporation (NYSE:KM) today reported income from continuing operations of $134 million, or $0.26 per share, for the 13 weeks ended July 28, 1999, compared with net income before non-recurring charges of $93 million, or $0.19 per share for the 13 weeks ended July 29, 1998. "We are pleased with our second quarter performance," said Floyd Hall, Chairman, President and CEO. "In terms of sales growth, expense ratios and operating performance, this is the best second quarter and first half Kmart has achieved since 1993. These results also continue to build our earnings momentum with 13 consecutive quarters of improved operating results." As previously reported, net income for the second quarter 1999 included a non-recurring, non-cash charge for discontinued operations of $230 million aftertax, or $.41 per share, relating to the disposition of certain Builders Square operating leases. Net income for the second quarter 1998 included a non-recurring charge of $13 million aftertax or $.03 per share, relating to a Voluntary Early Retirement Program (VERP) in the Company’s distribution centers. Including both items, a net loss of $96 million was recorded for the second quarter of 1999, compared with net income of $80 million for the second quarter of 1998. Total consolidated sales in the second quarter of 1999 were $8.757 billion, an increase of 7.9% from $8.116 billion for the second quarter of 1998. Comparable sales for the quarter increased 5.9%. The gross margin rate for the quarter was 21.9% of sales as compared with 21.9% last year. Selling, general and administrative (SG&A) expenses for the quarter were $1.640 billion compared with $1.561 billion for 1998, resulting in a SG&A to sales ratio of 18.7% for 1999 versus 19.2% for 1998. Sales from consolidated operations for the first six months of 1999 were $16.901 billion, up 8.1% from $15.631 billion for the first half of fiscal 1998. On a comparable store basis, consolidated sales rose 6.2% for the same period. Income from continuing operations was $201 million, or $.40 per share, for the first half of 1999 as compared with net income before non-recurring items of $140 million, or $0.29 per share, in the first half of 1998. Adjusting for the non-recurring charges noted previously, net loss for the first half of 1999 was $29 million as compared with net income of $127 million for the comparable 1998 period. Kmart Corporation serves America with 2,151 Kmart retail outlets. Kmart Corporation common stock is listed on the New York, Pacific, and Chicago Stock Exchanges. |
KMART
CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Amounts in millions, except per share data) |
13 Weeks |
13 Weeks |
|
Sales |
$ 8,757 |
$ 8,116 |
|
Cost of sales, buying and occupancy |
6,835 | 6,336 |
|
Gross margin |
1,922 |
1,708 |
|
Selling, general and administrative expenses |
1,640 |
1,561 |
| Voluntary Early Retirement Program |
-
|
19
|
|
Income before interest, income taxes and dividends on convertible preferred securities |
282 |
200 |
|
Interest expense, net |
64 |
70 |
|
Income tax provision |
72 |
38 |
|
Dividends on convertible preferred securities, net of income taxes |
12 |
12 |
| Income from continuing operations |
134
|
80
|
| Disconinued operations, net of tax: Provision for lease obligations resulting from guarantee of previously owned Builders Square locations |
(230)
|
-
|
|
Net income (loss) |
$ (96) |
$ 80 |
|
Basic earnings per common share: |
|
|
| Income from continuing operations |
$
0.27
|
$
0.16
|
|
Discontinued operations |
(0.47)
|
-
|
|
Net income (loss) |
$ (0.20) |
$ 0.16 |
| Diluted earnings per share: | ||
| Income from continuing operations |
$
0.26
|
$
0.16
|
| Discontinued operations |
(0.41)
|
-
|
| Net income (loss) |
$
(0.15)
|
$
0.16
|
|
Basic weighted average shares outstanding |
495.2 |
492.9 |
|
Diluted weighted average shares outstanding |
567.0 |
570.6 |
KMART CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Amounts in millions, except per share data) |
26 Weeks |
26 Weeks |
|
Sales |
$ 16,901 |
$ 15,631 |
|
Cost of sales, buying and occupancy |
13,252 | 12,244 |
|
Gross margin |
3,649 |
3,387 |
|
Selling, general and administrative expenses |
3,181 |
3,010 |
| Voluntary Early Retirement Program |
-
|
19 |
|
Income before interest, income taxes and dividends on convertible preferred securities |
468 |
358 |
|
Interest expense, net |
130 |
144 |
|
Income tax provision |
112 |
62 |
|
Dividends on convertible preferred securities, net of income taxes |
25 |
25 |
| Income from continuing operations |
201
|
127
|
| Disconinued operations, net of tax: Provision for lease obligations resulting from guarantee of previously owned Builders Square locations |
(230)
|
-
|
|
Net income (loss) |
$ (29) |
$ 127 |
|
Basic earnings per common share: |
|
|
| Income from continuing operations |
$
0.41
|
$
0.26
|
|
Discontinued operations |
(0.47)
|
-
|
|
Net income (loss) |
$ (0.06) |
$ 0.26 |
| Diluted earnings per share: | ||
| Income from continuing operations |
$
0.40
|
$
0.26
|
| Discontinued operations |
(0.41)
|
-
|
| Net income (loss) |
$
(0.01)
|
$
0.26
|
|
Basic weighted average shares outstanding |
494.6 |
491.3 |
|
Diluted weighted average shares outstanding |
567.0 |
568.2 |
KMART CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Amounts in millions, except per share data) |
26 Weeks
|
26 Weeks | ||
|
Cash Flow From Operating Activities: | ||||
|
Income from continuing operations |
$ 201 |
$ 127 | ||
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | ||||
| Depreciation and amortization |
377
|
332
| ||
| Cash used for store restructuring and other changes |
(81)
|
(65)
| ||
|
Increase in inventories |
(525) |
(441) | ||
|
Increase in accounts payable |
306 |
411 | ||
|
Increase in accounts receivable |
(1) |
(65) |
||
| Increase in sales tax payable |
30
|
36
| ||
|
Deferred income taxes and taxes payable |
26 |
160 | ||
|
Decrease in other long-term liabilities |
(23) |
(38) |
||
Changes in certain assets and liabilities |
(13) |
5 | ||
| Voluntary early retirement |
-
|
19 | ||
|
Net cash provided by operating activities |
297 |
481 | ||
|
Cash Flow From Investing Activities: | ||||
|
Acquistion of Caldor leases |
(86) |
- |
||
|
Proceeds from sale of Canadian operations |
- |
87 | ||
|
Capital expenditures |
(577) |
(400) | ||
|
Net cash used for investing activities |
(663) |
(313) | ||
|
Cash Flow From Financing Activities: | ||||
|
Proceeds from issuance of long-term debt |
44 |
- | ||
|
Payments on long-term debt |
(52) |
(116) | ||
|
Purchase of common shares |
(32) |
(8) | ||
|
Issuance of common shares |
34
|
57 |
||
| Payments on capital lease obligations |
(39)
|
(43)
| ||
|
Net cash used for financing activities |
(45) |
(110) |
||
|
Net change in cash and equivalents: |
(411) |
58 | ||
|
Cash and equivalents at beginning of year |
710 |
498 | ||
|
Cash and equivalents at end of period |
$ 299 |
$ 556 | ||
KMART CORPORATION
CONSOLIDATED BALANCE SHEETS
|
(Amounts in millions) |
7-28-99 |
7-29-98 | |||
|
ASSETS |
|||||
|
Current Assets: | |||||
|
Cash and equivalents |
$ 299 |
$ 556 | |||
|
Merchandise inventories |
7,061 |
6,808 | |||
Other current assets |
622 |
673 |
|||
| Total current assets |
7,982 |
8,037 | |||
|
Property and equipment, net |
6,114 |
5,642 | |||
|
Other assets and deferred charges |
538 |
447 |
|||
|
TOTAL ASSETS |
$ 14,634 |
$ 14,126 |
|||
|
LIABILITIES AND EQUITY |
|||||
|
Current Liabilities: |
|||||
|
Long-term debt due within one year |
$ 81 |
$ 51 | |||
|
Trade accounts payable |
2,353 |
2,334 | |||
|
Accrued payrolls and other liabilities |
1,304 |
1,199 | |||
|
Taxes other than income taxes |
251 |
241 | |||
|
Total current liabilities |
3,989 |
3,825 | |||
|
Long-term debt and notes payable |
1,526 |
1,636 |
|||
|
Capital lease obligations |
1,052 |
1,136 |
|||
|
Other long-term liabilities |
1,122 |
927 | |||
|
Convertible preferred securities, net |
985 |
983 | |||
|
Common stock |
494 |
493 | |||
|
Capital in excess of par value |
1,676 |
1,659 | |||
|
Retained earnings |
3,790 |
3,467 | |||
|
TOTAL LIABILITIES AND EQUITY |
$ 14,634 |
$ 14,126 | |||
KMART CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 11, 1999, Hechinger Company, successor to Builders Square, filed for Chapter 11 bankruptcy protection. As a result of the filing, Kmart Corporation recorded a non-cash charge of $354 million, $230 million aftertax. The charge reflects Kmart’s best estimate of the impact of Hechinger's default on lease obligations for up to 110 former Builders Square locations.
During the first half of 1999, Kmart entered into an agreement to purchase the operating leases of sixteen Caldor locations for $86 million. The acquired stores are located in the Northeastern United States and will continue to strengthen our position in this market. The acquired stores are currently being converted to the Big Kmart format and are expected to open in the second half of 1999.
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