Slashing for Growth: Bankrupt Kmart Cuts 37K Jobs, 326 Units

NEW YORK — The bill for Kmart Corp.’s second, and perhaps final, round of post-bankruptcy reductions is in: 326 stores, 37,000 jobs and $1.7...

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Adamson said in a statement, "The developments we are announcing today mark an important milestone in Kmart’s reorganization. When we filed our Chapter 11 cases last January, the company anticipated that it would complete the actions required to be taken during its reorganization and emerge from Chapter 11 protection by the second quarter of 2003. Now that the company has largely completed its Chapter 11 agenda, successfully obtained a commitment for exit financing and is in final negotiations with our stakeholders regarding the terms of what we believe should be a consensual plan of reorganization, we expect to meet — or even surpass — our original goal."

Kmart’s reorganization plan does not provide for any cash distribution to creditors. Under the proposals being hammered out by it statutory committees, unsecured pre-petition creditors will exchange their claims for common stock in the reorganized Kmart on a pro rata basis. Trade vendors under certain circumstances would have the benefit for up to two years of a first lien on "substantially all owned real estate that is developed and unencumbered." They also get a "subordination provision" under the contemplated reorganization plan regarding future proceeds of leasehold interests.

As is typically the case with bankruptcy proceedings, existing holders of Kmart common stock will get nothing and current shares will be extinguished.

According to Kmart, the plan of reorganization would include a provision for the creation of a creditors’ trust to pursue all legal actions arising out of its stewardship review. Beneficiaries of the trust will be Kmart’s creditors and possibly holders of trust-preferred securities and common stock.

The combination of store closures, job cuts, exit financing and a profitable month appeared to instantly generate optimism in financial circles about Kmart’s ability to survive.

Richard Hastings, credit economist for Cyber Business Credit, observed: "Kmart’s chances of emerging from bankruptcy have instantly jumped from 50 to 75 percent. It is coming at a time when vendors are ready to jump at any good news they can get their hands on. The store-closing plan will help it to stabilize profitability going forward so that December’s results will be the start of a better trend with its best stores in operation."

The economist said that Kmart had an improved December due to the "better mix of merchandise categories. Soft lines have better margins. The gross margins were 17 percent at the end of the third quarter in October and now are above 19 percent."
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