Kmart Reaffirms Liquidity Outlook
Kmart Corporation (NYSE: KM) today announced that it will not seek authority to increase the size of its DIP facility. The Company also reaffirmed its belief that its current $2 billion debtor-in-possession (DIP) credit facility will provide more than sufficient liquidity during its peak borrowing period. Kmart's latest projections show that at the peak of its seasonal inventory build the Company will have $1.1 billion of cash and available credit under the DIP facility, allowing Kmart to continue to meet its post-petition obligations to vendors on a timely basis.
Earlier this month Kmart announced that it intended to seek authority from its existing DIP lenders to increase the maximum size of the DIP facility in an amount to be designated by the Company, not to exceed $500 million, in order to provide additional comfort to suppliers and the factoring community. Upon completion of an amendment to the DIP agreement regarding facility size, the syndication of additional financing would have been pursued in a separate transaction. However, following an assessment of current conditions in the retail financing market after review with the three statutory committees in the Company's reorganization case, Kmart has determined that the expansion of the DIP facility is unnecessary and unwarranted.
Kmart said it expects to receive approval this month of an amendment to the DIP agreement that would adjust the covenant pertaining to the Company's cumulative earnings before interest, taxes, depreciation, amortization and other charges (EBITDA) over specified periods to provide Kmart with additional flexibility and better reflect the Company's sales performance since the commencement of its chapter 11 reorganization case. Kmart noted that its filing with the Bankruptcy Court in Chicago last week provided for separation of the proposed covenant amendment from the proposed facility sizing amendment.
"We are pleased with the significant progress Kmart has achieved since its voluntary chapter 11 reorganization filing in January 2002, particularly in addressing the needs and concerns of our vendors," said Kmart Chairman and Chief Executive Officer James B. Adamson. "Substantially all of our vendors have resumed shipments to us under normal terms, our outstanding accounts payable are being processed on a more efficient and timely basis, and our inventory levels are being managed effectively. At the same time, we have aggressively pursued opportunities to reduce costs and attack the systemic problems that have impacted sales. As a result of these actions, we expect to achieve a significant improvement in EBITDA for the year."
Adamson continued, "Upon further analysis of the potential cost of expanding the DIP facility, particularly since we do not envision a need for the additional funds, we concluded that it would not be in the best interest of the Company or our stakeholders to proceed further with the potential increase."
Kmart's liquidity continues to be strong. As previously reported, the Company had approximately $2.5 billion in cash on hand and available credit under the DIP facility as of the end of July 2002. Earlier this week Kmart announced cost reduction initiatives that are expected to achieve savings of $66 million this year and $130 million annually thereafter.
Kmart Corporation is a mass merchandising company that serves America with more than 1,800 Kmart and Kmart SuperCenter retail outlets. Kmart in 2001 had sales of $36 billion.
Cautionary Statement Regarding Forward-Looking Information
Statements made by Kmart which address activities, events or developments that we expect or anticipate may occur in the future are forward-looking statements. 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 30, 2002 or in other filings made, from time to time, by Kmart with the Securities and Exchange Commission. 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, including the terms of any reorganization plan ultimately confirmed, can affect the value of our various pre-petition liabilities, common stock and/or other equity securities. No assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies. A plan of reorganization could result in holders of Kmart common stock receiving no value for their interests. Because of such possibilities, the value of the common stock is highly speculative. Accordingly, we urge that appropriate caution be exercised with respect to existing and future investments in any of these liabilities and/or securities.
SOURCE: Kmart Corporation
CONTACT: Kmart Media Relations, +1-248-463-1021
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