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Kmart Income Rises In Fourth Quarter

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Kmart Holding Corporation announced today results for the fourth quarter and full year of Fiscal 2004.

For the 13 weeks ended January 26, 2005, the Company reported net income of $309 million, or $3.09 per diluted share compared to $270 million or $2.78 per diluted share for the same period in Fiscal 2003. Adjusted net income and adjusted diluted earnings per share, excluding gains on sales of assets and bankruptcy-related recoveries, were $259 million or $2.59 per diluted share, an increase of 20% and 16% over the prior year, respectively.

Same-store sales declined by 4.5% during the fourth quarter of Fiscal 2004, which represents a significant improvement compared to the two previous quarters in which the decline was 12.8% and 14.9% and compared to the prior year fourth quarter in which the decline was 13.5%.

Aylwin Lewis, President and Chief Executive Officer of Kmart, said, “After a strong first two months of the fourth quarter, we continued to deliver solid financial results through the close of 2004. While we are pleased with our performance, our return to solid, profitable operations is only the first stage in our effort to revitalize this organization. We look forward to what still needs to be accomplished and plan to continue our momentum by further improving our operations and the customer shopping experience in 2005.”

Operating income for the 13-weeks ended January 26, 2005 was $472 million compared to $497 million in the prior year. Adjusted operating income, excluding gains on sales of assets, was $437 million in the fourth quarter of Fiscal 2004 compared to $411 million in the fourth quarter of Fiscal 2003.

Net income for the fourth quarter of Fiscal 2004 includes a charge of approximately $7 million after-tax or $0.07 per diluted share for the early amortization of debt issuance costs associated with the Company’s decision to terminate its credit facility in January, 2005. Net income for the fourth quarter of Fiscal 2003 includes a charge of approximately $8 million after-tax or $0.08 per diluted share for the early amortization of the debt issuance costs associated with the Company’s decision to reduce the size of the credit facility.

Adjusted operating income, adjusted net income and adjusted diluted earnings per share are non-GAAP measures. The Company has provided these adjusted figures to provide a more meaningful comparison of ongoing results and analysis of the Company’s operating performance, as they reflect core operations excluding significant gains realized on sales of assets. Non-GAAP measures should be evaluated in conjunction with, and are not a substitute for, GAAP financial measures.

Net income and diluted earnings per share for Fiscal 2004 were $1,106 million and $11.00 per share, respectively. Gains on sales of assets and bankruptcy-related recoveries contributed $579 million and $37 million, respectively, after-tax to net income in Fiscal 2004. Included in Net income is a charge of $14 million after-tax or $0.14 per diluted share for the early amortization of debt issuance costs associated with the Company’s decision to reduce the size, amend, restate and then terminate the credit facility.

Operating activities provided net cash of approximately $1.1 billion in Fiscal 2004. Net income after gains on sales of assets of $579 after-tax and bankruptcy related items of $37 million after-tax provided $490 million of operating cash flow in the current year. Cash flows were positively impacted by improvements in working capital, including incremental accounts payable due to improved terms with our vendors and timing of receipts.

Investing activities generated $332 million in Fiscal 2004 due largely from proceeds of $444 million from the sale of owned and assignment of leased properties to Sears and Home Depot. An additional $118 million was received for the sale of non-core assets. Proceeds from the sale of assets during the current year were offset by capital expenditures of $230 million.

Kmart’s cash balance on January 26, 2005 was approximately $3.4 billion, exceeding prior expectations of $3.2 billion and an increase of approximately $1.3 billion over the prior year. The $3.4 billion excludes approximately $400 million related to the sale of stores to Sears, recorded in accounts receivable, pursuant to the previously announced store sale transaction. Inventory levels were $3.3 billion at the end of Fiscal 2004, consistent with prior year-end inventory of $3.2 billion.

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Kmart Income Rises In Fourth Quarter
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