- The Washington Times - Friday, January 18, 2002

Kmart officials have discussed the possibility of a Chapter 11 bankruptcy filing with area employees as the struggling discount retailer moves closer to the inevitable action.
The Troy, Mich., retailer announced yesterday it had replaced its chairman and president and that it was continuing to review its finances.
Kmart is the nation's third-largest discounter behind Wal-Mart Stores and Target, but has been struggling to compete against the lower prices of its main rivals. The chain has about 20 stores in the Washington area and plans to open the first Kmart in the District early this summer.
Kmart's troubles picked up speed earlier this month after officials announced that 2001 results would break even at best because of disappointing holiday sales and suggested they might seek additional financing.
Shares of Kmart on the New York Stock Exchange continue to drop. Yesterday, it closed at $1.56 a share, down $1.28 from Monday's close.
During a morning meeting yesterday at the Laurel store, Kmart management explained the reason for a possible Chapter 11 filing and told employees their jobs are safe for now, according to one employee who was a bit confused about the effect the chain's financial woes will have on her.
After hearing television reports on Kmart's problems, she was concerned yesterday she would arrive at work and not have a job. At the morning meeting, managers explained bankruptcy protection and said they should start looking for another job if Kmart files for Chapter 7 liquidation.
"I'm not satisfied," she said. "I'll be looking [for another job] anyway."
Other employees at the store were not concerned.
"I don't think anyone's really worried about it," said another worker. "If [the chain] goes under, oh well, it's just a job."
On Jan. 2, Prudential Securities Inc. said it would not be surprised if Kmart filed for Chapter 11 "if trends do not improve" in the next six months. The investment firm downgraded the discount retailer's stock from "hold" to "sell."
Standard & Poor's took Kmart off its 500 index at the market's close Wednesday.
Also Wednesday, S&P; lowered the retailer's credit rating on certain lease transactions for the second time this week. S&P; previously placed Kmart on CreditWatch with negative implications.
Industry experts have been able only to speculate about a Chapter 11 filing, which bankruptcy experts say would mark the biggest retail bankruptcy in history.
Justin Pettit, a partner with Stern, Stewart & Co., said it's hard to determine what the effect of Thursday's changes will be.
"I think [Chapter 11] is absolutely still an option," Mr. Pettit said. "I think the Chapter 11 fear is almost self-fulfilling. I don't think we have enough information yet to stop the downward spiral."
District officials don't seem worried about the fate of the new 112,000-square-foot Kmart that is being built at the Brentwood impound lot between Rhode Island Avenue and Brentwood Road in Northeast.
"The corporate [problems] do not affect this project," said D.C. Council member Harold Brazil, at-large Democrat. "I'm confident we're headed in the right direction."
Mr. Brazil said the city has been assured that there is enough money set aside to handle the D.C. project and it will be completed on time.
Yesterday, Kmart named James B. Adamson, who servies on its board of directors, to be chairman, replacing Charles Conaway, who remains as chief executive. Kmart also said Mark S. Schwartz, who joined the company in September 2000 and most recently was president and chief operating officer, is "no longer with the company."
Kmart said it is continuing to evaluate its finances and business plans for the 2002 and 2003 fiscal years. The company said it also is continuing discussions with its lenders regarding financing.
Kmart has about 275,000 employees and 2,105 stores in all 50 states, Puerto Rico, U.S. Virgin Islands and Guam.
This article is based in part on wire service reports.

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