Kmart on Friday announced that it intends to emerge from bankruptcy protection on April 30, at which time each of its two largest investors, ESL Investments and the Third Avenue Value Fund, will invest at least $140 million in the company.
The company predicted that it would return to profitability by 2004, and said that its recovery hinges on becoming the “store of the neighborhood.”
Kmart declared bankruptcy a year ago, and since has closed or announced the closing of more than 600 stores and the layoffs of more than 50,000 employees.
As part of Kmart’s reorganization plan, the company disclosed that in its questioning of former CEO Charles Conaway, it has found evidence that would allow Kmart to pursue legal claims against him; as of this point, however, the precise nature of the legal claims has not been disclosed by Kmart’s management and legal representatives.
It is expected, though, that Kmart may well charge that Conaway was fired “for cause,” as opposed to deciding to leave the company on his own. When Conaway resigned from Kmart last March, he said he wanted to spend more time with his family. Conaway got $4 million in severance pay and a $5 million forgiven loan, but would have to repay that money if it were found that he had mismanaged the company and was fired.
The court documents said that the allegations were left vague so as not to "lay out a road map for potential defendants,” and that under Conaway’s leadership the company underpaid vendors, inflated financial forecasts, paid employees salaries that far exceeded company norms, bought company planes and used them for personal trips.
The New York Times reported that the internal Kmart investigation revealed that a number of former Kmart executives “engaged in a broad pattern of abusive practices — like cutting off payments to suppliers, dispensing generous loans to themselves and masking personal air travel as ‘store visits’ — in the months leading up to its filing for bankruptcy protection.”
“Grossly derelict” are two words that stand out in the report, used to describe to actions of the company’s former management.
According to the report, Kmart senior management forced their underlings to make unreasonably optimistic forecasts about future performance, demoted those employees who demurred, and altered company records to conceal their activities.
While Kmart executives maintained that the company has foundered because of the difficulty it has had competing with Wal-Mart, the internal investigation revealed that senior management was spending money on loans, private planes, and even buying merchandise that the company could not afford to pay for -- defined in one case as “$850 million in excessive purchases of inventory” even as the company was hemorrhaging cash.
The NYT reports that Kmart appears to have been “a frenzied organization that seemed almost not to care that its business was in a free fall. The loan program, created to retain crucial executives, was approved by a committee of Kmart's board in October and November 2001.”
Kmart is also being investigated by the U.S. Securities and Exchange Commission (SEC), the U.S. Federal Bureau of Investigation (FBI), and the House of Representatives’ Energy and Commerce Committee.
The company predicted that it would return to profitability by 2004, and said that its recovery hinges on becoming the “store of the neighborhood.”
Kmart declared bankruptcy a year ago, and since has closed or announced the closing of more than 600 stores and the layoffs of more than 50,000 employees.
As part of Kmart’s reorganization plan, the company disclosed that in its questioning of former CEO Charles Conaway, it has found evidence that would allow Kmart to pursue legal claims against him; as of this point, however, the precise nature of the legal claims has not been disclosed by Kmart’s management and legal representatives.
It is expected, though, that Kmart may well charge that Conaway was fired “for cause,” as opposed to deciding to leave the company on his own. When Conaway resigned from Kmart last March, he said he wanted to spend more time with his family. Conaway got $4 million in severance pay and a $5 million forgiven loan, but would have to repay that money if it were found that he had mismanaged the company and was fired.
The court documents said that the allegations were left vague so as not to "lay out a road map for potential defendants,” and that under Conaway’s leadership the company underpaid vendors, inflated financial forecasts, paid employees salaries that far exceeded company norms, bought company planes and used them for personal trips.
The New York Times reported that the internal Kmart investigation revealed that a number of former Kmart executives “engaged in a broad pattern of abusive practices — like cutting off payments to suppliers, dispensing generous loans to themselves and masking personal air travel as ‘store visits’ — in the months leading up to its filing for bankruptcy protection.”
“Grossly derelict” are two words that stand out in the report, used to describe to actions of the company’s former management.
According to the report, Kmart senior management forced their underlings to make unreasonably optimistic forecasts about future performance, demoted those employees who demurred, and altered company records to conceal their activities.
While Kmart executives maintained that the company has foundered because of the difficulty it has had competing with Wal-Mart, the internal investigation revealed that senior management was spending money on loans, private planes, and even buying merchandise that the company could not afford to pay for -- defined in one case as “$850 million in excessive purchases of inventory” even as the company was hemorrhaging cash.
The NYT reports that Kmart appears to have been “a frenzied organization that seemed almost not to care that its business was in a free fall. The loan program, created to retain crucial executives, was approved by a committee of Kmart's board in October and November 2001.”
Kmart is also being investigated by the U.S. Securities and Exchange Commission (SEC), the U.S. Federal Bureau of Investigation (FBI), and the House of Representatives’ Energy and Commerce Committee.
- KC's View:
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Our standard refrain when it comes to Kmart is that while the company may have closed unproductive stores and laid off an enormous number of people, none of this convinces us that the stores and people that remain are in any better condition to rebuild the company’s relationship with consumers. Certainly, the new financing won’t hurt -- we wouldn’t turn it down -- but it could be good money after bad.
However, these stories about Kmart raise other questions. For us, one of the biggest questions concerns James Adamson, who just vacated the CEO’s office while remaining as chairman of Kmart.
Adamson was on the board during all the mismanagement, and when he left the CEO job last week, it was announced that he would get a $3.6 million bonus for his efforts.
Seems to us that these guys never learn.
