NEW YORK — Bankrupt Kmart Corp. said Monday it would restate its financial statements for the last three-and-a-half years.
This story first appeared in the December 10, 2002 issue of WWD. Subscribe Today.
None of the adjustments should impact Kmart’s liquidity or add to its obligations requiring a future use of cash, said the firm in a statement. As of this past Friday, Kmart carried $495 million of outstanding borrowings and had used $330 million of its debtor-in-position credit facility for letters of credit. DIP financing available as of Friday was $1.07 billion.
For an in-depth look at Kmart’s travails over the past year, see page 4, Section II, of today’s WWD, which was printed before the restatements were reported and does therefore not reflect their impact.
Kmart pointed out that the peak borrowing period for its seasonal inventory build had passed and it has begun to repay outstanding DIP borrowings, all such borrowings are slated to be repaid by the end of the month.
“We have decided to restate our financial statements to ensure that the most accurate and transparent information is available,” said chairman and chief executive James Adamson. “We do not expect this restatement to impact our progress in any way. We remain focused on finalizing a comprehensive business plan and taking other actions necessary to fulfill our goal of filing a proposed plan of reorganization and emerging from Chapter 11 court protection as soon as practicable.”
Some of the adjustments were identified as out-of-period adjustments during the preparation of the firm’s third-quarter report to the Securities and Exchange Commission, while others were previously described in Kmart’s second-quarter report. It was the combined heft of the new and previously disclosed adjustments and their material impact on 2002 results that prompted the restatements.
Preliminarily, Kmart expects the adjustments to reduce its reported losses for the 26 weeks ended July 30 by less than $100 million. As reported, for the six months ended July 31, the firm reported losses of $1.83 billion, or $3.63 a share. Sales for the six months retreated 12.1 percent to $15.16 billion.
On an aggregate basis, the adjustments are expected to pile on less than $100 million in additional losses for the three proceeding years. Net losses for the three-year period were previously said to be approximately $2 billion.
Additionally, the firm said it anticipates recording an adjustment to its 1999 fiscal year opening retained earnings balance to reflect adjustments attributable to fiscal years 1998 and prior.
Kmart said it would also adjust previously reported financial results for miscellaneous immaterial items that were identified, and which had been recorded in the ordinary course of business. These items will be shifted to the appropriate fiscal periods.
One of the adjustments that came to light Monday related to an understatement of historical accruals for certain leases with varying rent payments and a related understatement of historical rent expense, said the firm. Another adjustment just disclosed stemmed from a software programming error in Kmart’s accounts payable system. The error resulted in some paid invoices awaiting a store report of delivery not being appropriately treated in the company’s financial statements.
Shortly after Kmart’s Jan. 22 bankruptcy filing, it launched an internal investigation into its stewardship under previous management, prompted by an anonymous letter from employees, which was also sent to the SEC.
In its annual report filed in May, Kmart said it was cooperating with the SEC and the U.S. attorney’s office in Detroit. The Federal Bureau of Investigation also joined in, and the SEC and the U.S. attorney’s office are still investigating matters of accounting and corporate stewardship.