Kmart Holding Corporation Reports First Quarter 2003 Results

Company Closes Quarter With Strong Liquidity Position

Kmart Holding Corporation (NASDAQ: KMRT) announced today the Company's financial results for the first quarter of fiscal 2003 and the filing of its quarterly report on Form 10-Q with the Securities & Exchange Commission.

For the 13 weeks ended April 30, 2003, Kmart reported a net loss of $862 million, versus a net loss of $1.44 billion for the 13 weeks ended May 1, 2002.

Loss before interest, reorganization items, income taxes, and discontinued operations was $32 million for the 13 weeks ended April 30, 2003 versus a loss of $920 million for the first quarter of last year. Last year's results include a charge of $542 million recorded in the first quarter of 2002 in connection with the store closing liquidation sales. This charge is included in cost of sales, buying and occupancy in the accompanying unaudited Condensed Consolidated Statements of Operations.

Net sales for the 13 weeks ended April 30, 2003, were $6.18 billion, a decrease of 13.9 percent from $7.18 billion in 2002. On a same-store basis, sales declined 3.2 percent from the first quarter of 2002.

Julian C. Day, President and Chief Executive Officer of Kmart, said, "This management team is very focused on building the financial foundation of the new Company. We are strengthening our business by driving profitable sales, identifying opportunities to further improve efficiency and reduce costs, and enhancing the productivity of our assets. We have increased gross margin, decreased SG&A and carefully managed our inventory. With the strong support of our new Board of Directors, we will continue to concentrate on increasing the long-term value of this enterprise."

As of April 30, 2003, Kmart had approximately $1.23 billion in cash and cash equivalents, and borrowing availability of approximately $1.5 billion on its $2 billion credit facility, including outstanding letters of credit.

Gross margin increased $674 million to $1.42 billion, for the 13 weeks ended April 30, 2003, from $745 million for the 13 weeks ended May 1, 2002. Gross margin, as a percentage of sales, increased to 23.0 percent for the 13 weeks ended April 30, 2003, from 10.4 percent for the 13 weeks ended May 1, 2002. The increase in gross margin is primarily related to the previously mentioned charge of $542 million recorded in the first quarter of 2002 in connection with the store closing liquidation sales. In addition, the Company's gross margin rate was favorably impacted by 2003 closing store liquidation sales, a decrease in sales of food and consumables, which carry lower margins, and a decrease in promotional markdowns, partially offset by the impact of clearance markdowns.

Selling, general and administrative expenses (SG&A), which includes advertising costs (net of co-op recoveries of $69 million in fiscal 2002) decreased $249 million for the 13 weeks ended April 30, 2003, to $1.42 billion, or 23.0 percent of sales, from $1.67 billion, or 23.3 percent of sales, for the 13 weeks ended May 1, 2002. The dollar decrease in SG&A is primarily the result of the closure of 283 stores in the second quarter of 2002 and lower payroll and other related expenses in the first quarter of 2003 stemming from corporate headquarters cost reduction initiatives. In addition, SG&A was favorably impacted by a decrease in utility expenses and electronic media advertising, and lower depreciation expense as a result of the impairment charge recorded in the fourth quarter of fiscal 2002. These decreases were partially offset by co-op recoveries recorded to SG&A in 2002 that are recorded to cost of sales, buying and occupancy in 2003, resulting from the application of EITF 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor," an increase in pension expense, and higher premiums for our workers' compensation insurance.

Fresh Start Accounting

In connection with the Company's emergence from bankruptcy, the consolidated financial statements apply the provisions of fresh start accounting in accordance with Generally Accepted Accounting Principles (GAAP). Under fresh start accounting, a new reporting entity, the "Successor Company," is deemed to be created, and the recorded amounts of assets and liabilities are adjusted to reflect their fair value. As a result, the reported historical financial statements of the "Predecessor Company" for periods prior to April 30, 2003, as presented below, generally are not comparable to those of the Successor Company.

In applying fresh start accounting, adjustments to reflect the fair value of assets and liabilities, on a net basis, and the write-off of the Predecessor Company's equity accounts resulted in a charge of $5.6 billion. The restructuring of Kmart's capital structure and resulting discharge of pre- petition debt resulted in gain of $5.6 billion. The charge for the revaluation of the assets and liabilities and the gain on the discharge of pre-petition debt are recorded in Reorganization items, net in the unaudited Condensed Consolidated Statement of Operations. In addition, the excess of fair value of net assets over reorganization value ("negative goodwill") was allocated on a pro-rata basis and reduced non-current assets (property and equipment, net), to $10 million in accordance with GAAP.

Board Committees

The Board of Directors of Kmart Holding Corporation has established the following committees: Audit, Compensation and Incentives, Corporate Governance, and Finance. The members of the committees are as follows:

  *  Audit - Ann Reese, Chair, E. David Coolidge III and Brandon Stranzl;
  *  Compensation and Incentives - Edward S. Lampert, Chair, Ann Reese and
     Thomas J. Tisch;
  *  Corporate Governance - Steven T. Mnuchin, Chair, William Foss and
     Thomas J. Tisch; and
  *  Finance - Edward S. Lampert, Chair, William C. Crowley, Julian C. Day
     and Steven T. Mnuchin.


             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (Dollars in millions, except per share data)
                               (Unaudited)

                                                    Predecessor Company
                                                       13 Weeks Ended

                                                 April 30,           May 1,
                                                   2003               2002
   Sales                                          $6,181             $7,181
   Cost of sales, buying and occupancy             4,762              6,436

   Gross margin                                    1,419                745
   Selling, general and administrative
    expenses                                       1,421              1,670
   Restructuring, impairment and other
    charges                                           37                  -
   Equity income in unconsolidated
    subsidiaries                                       7                  5

   Loss before interest, reorganization
    items, income taxes and
    discontinued operations                          (32)              (920)
   Interest expense, net (contractual
    interest for 13 week periods ended
    April 30, 2003 and May 1, 2002 was
    $124 and $102, respectively)                      57                 33
   Reorganization items, net                         769                251
   Benefit from income taxes                          (6)               (12)

   Loss before discontinued operations              (852)            (1,192)

   Discontinued operations                           (10)              (250)

   Net loss                                        $(862)           $(1,442)

   Basic/diluted loss before
    discontinued operations                       $(1.63)            $(2.37)
   Discontinued operations                         (0.02)             (0.50)
   Basic/diluted net loss per common
    share                                         $(1.65)            $(2.87)

   Basic/diluted weighted average
    shares (millions)                              522.7              502.9


                  CONDENSED CONSOLIDATED BALANCE SHEETS
                 (Dollars in millions, except share data)
                               (Unaudited)


                                        Successor         Predecessor
                                         Company            Company
                                         April 30,     May 1,    January 29,
                                            2003        2002        2003
  ASSETS
  Current Assets
    Cash and cash equivalents              $1,232      $1,829        $613
    Merchandise inventories                 4,431       5,255       4,825
    Receivable from Plan Investors            187           -           -
    Accounts receivable                       382         316         473
    Other current assets                      322         281         191
  Total current assets                      6,554       7,681       6,102

  Property and equipment, net                  10       5,972       4,892
  Other assets and deferred charges            96         219         244
  Total Assets                             $6,660     $13,872     $11,238

  LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

  Current Liabilities
    Long-term debt due within one year         $8         $ -         $ -
    Accounts payable                        1,160       1,658       1,248
    Accrued payroll and other liabilities   1,321         659         710
    Taxes other than income taxes             274         237         162
  Total current liabilities                 2,763       2,554       2,120

  Long-term debt and notes payable            108           -           -
  Capital lease obligations                   415         694         623
  Pension obligation                          854           -           -
  Other long-term liabilities                 807         140         181
  Total liabilities not subject to
   compromise                               4,947       3,388       2,924

  Liabilities subject to compromise             -       7,805       7,969

  Company obligated mandatorily
   redeemable convertible preferred
   securities of a subsidiary trust
   holding solely 7 3/4% convertible
   junior subordinated debentures of
   Predecessor Company
   (redemption value $898 and $648,
   respectively)                                -         889         646
  Successor preferred stock 20,000,000
   shares authorized;
   0 outstanding                                -           -           -
  Predecessor common stock $1 par
   value, 1,500,000,000 shares
   authorized;
   502,689,273 and 519,123,988 shares
   outstanding, respectively                    -         503         519
  Successor common stock $0.01 par
   value, 500,000,000 shares
   authorized, 89,677,509 shares
   outstanding                                  1           -           -
  Capital in excess of par value            1,712       1,697       1,922
  Accumulated deficit                           -        (410)     (2,742)
  Total Liabilities and Shareholders'
   Equity (Deficit)                        $6,660     $13,872     $11,238



             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (Dollars in millions)
                               (Unaudited)


                                                    Predecessor Company
                                                      13 Weeks Ended
                                                April 30,            May 1,
                                                   2003               2002
  Cash Flows From Operating Activities
        Net loss                                   $(862)           $(1,442)
        Adjustments to reconcile net
         loss to net cash provided by
         operating activities:
                  Discontinued operations
                   non-cash charges                   40                247
                  Restructuring, impairments and
                   other charges                       2                558
                  Reorganization items, net          769                251
                  Depreciation and amortization      177                181
                  Equity income in
                   unconsolidated subsidiaries        (7)                (5)
                  Dividends received from Meldisco    36                 45
                  Cash used for store closings
                   and other charges                 (64)               (39)
                  Change in:
                    Inventories                      480               (109)
                    Accounts payable                (117)             1,104
                    Deferred income taxes and
                     taxes payable                   (16)                (9)
                    Other assets                     125                198
                    Other liabilities                 32                 40

  Net cash provided by operating activities          595              1,020

  Net cash (used for) provided by
   reorganization items                              (19)                12

  Cash Flows From Investing Activities
        Proceeds from sale of property
         and equipment                                64                  -
        Capital expenditures                          (4)               (52)
  Net cash provided by (used for)
   investing activities                               60                (52)

  Cash Flows From Financing Activities
        Net borrowings on DIP Credit Facility          -               (300)
        Payments on debt                              (1)               (47)
        Debt issuance costs                            -                (30)
        Payments on capital lease obligations        (16)               (19)
  Net cash used for financing activities             (17)              (396)

  Net change in cash and cash equivalents            619                584
  Cash and cash equivalents, beginning of year       613              1,245
  Cash and cash equivalents, end of period        $1,232             $1,829


Kmart Corporation is a mass merchandising company that serves America through Kmart and Kmart SuperCenter retail outlets.

Cautionary Statement Regarding Forward-Looking Information and Other Matters

Statements made by Kmart which address activities, events or developments that we expect or anticipate may occur in the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the Company's current views with respect to current and future events and financial performance. Such forward-looking statements are and will be, as the case may be, subject to many risks and uncertainties, including, but not limited to, its affiliates 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 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; the ability of Kmart to attract and retain customers; and those set forth in Kmart Corporation's Annual Report on Form 10-K for the fiscal year ended January 29, 2003, or in other filings made, from time to time, by Kmart with the Securities and Exchange Commission (the "Company Filings"). The forward-looking statements speak only as of the date when made and Kmart does not undertake to update such statements.

SOURCE: Kmart Holding Corporation

CONTACT: Kmart Media Relations, +1-248-463-1021, or Kmart Investor
Relations, +1-248-463-1040

Web site: http://www.kmart.com/








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