TROY, Mich. -- Kmart Corp. here said last week it will record charges of $600 million to $800 million in first-quarter 2002 for the 283 stores the company announced in March that it would close.
esults for fiscal 2001 filed last week with the Securities and Exchange Commission.
According to media sources, the FBI is investigating Kmart for possible criminal violations. However, a Kmart spokesman would only confirm that the company is cooperating with the U.S. Attorney's Office for the Eastern district of Michigan in an investigation that began earlier this year. No other information was available as to why the FBI might be examining Kmart.
Meanwhile, the filing had been delayed as Kmart investigated its internal accounting procedures, in conjunction with the SEC and law enforcement authorities, according to Kmart. The company added that the accounting investigation is continuing, along with an internal investigation of certain practices of the company's previous management.
However, Kmart said it was prepared to restate earnings for the first, second and third quarters of fiscal 2001, as well as disclose a change in the accounting for vendor allowances begun in fourth-quarter 2001.
Kmart said its practice of accounting for vendor allowances based on an estimated annual level it expected to receive -- rather than the amount it actually was entitled to receive through the fulfillment of written agreements -- was a major factor forcing the company to revise its past earnings downward.
The company said it had revised its accounting method, and that it will recognize cost recovery from an allowance only when a formal supplier agreement exists and only to the extent Kmart has fulfilled its obligations under the agreement. The company noted that it had begun using this method with its results for fourth-quarter 2001, but in line with generally accepted accounting principles it needed to restate its earnings for the previous quarters as well.
Kmart reported a net loss for the 52-week fiscal year of $2.42 billion, compared with a net loss in the previous 53-week fiscal year of $244 million. The loss per share was $4.89, compared with 48 cents in the previous year.
Net sales for the year declined 2.4% to $36.15 billion, and same-store sales decreased 0.1%.
James B. Adamson, Kmart's chairman and chief executive officer, said management would unveil "a new strategic business plan to reposition the company" later this year.
"In the meantime, we are continuing to place a strong emphasis on reducing costs and generating positive cash flow," he added.
In first-quarter 2001, the originally reported loss of $25 million was restated as $233 million, with the loss per share revised downward from 5 cents to 48 cents. The company said it had previously overstated vendor allowances by $311 million.
In the second quarter, the net loss originally reported as $95 million was restated as $377 million, with the loss per share revised downward from 19 cents to 77 cents. The company said it had previously overstated vendor allowances in the quarter by $211 million.
In the third quarter, the net loss originally reported as $224 million was restated as $235 million. The company said it has previously overstated vendor allowances in the quarter by $32 million.
Kmart said it will file more complete restatements of its quarterly results for fiscal 2001 "as soon as is practicable."
In a separate development, Kmart said last week it has streamlined its management and realigned its field organization into two geographic divisions, down from five divisions.
The company said it has named Dave Marisco -- formerly senior vice president, sales and advertising -- division president, Eastern division, and Doug Meissner -- formerly division president, Northeast -- division president, Western division.
Kmart also said it has named Paul Hueber -- formerly division president, international and specialty operations -- senior vice president, operations administration. Marisco, Meissner and Hueber will report to Julian Day, Kmart's president and chief operating officer.
As a result of the streamlining, Kmart said several senior executives are no longer with the company, including two from the supercenters division: Mike Jardina, division president, and Steve Falcon, regional vice president.
