Closing Kmart stores may start sales Monday

3 in Md. are among 300 slated to be cut by chain

January 28, 2003|By KNIGHT RIDDER/TRIBUNE

CHICAGO - Going-out-of-business sales could begin Monday at some of the 300 Kmart Corp. stores chosen to close as the retailer tries to leave bankruptcy, the company's attorney said in court yesterday.

Ronald B. Hutchison, Kmart's chief restructuring officer, said yesterday at the start of a two-day court hearing that with the judge's approval, the liquidation sales would begin next week and could be wrapped up by April.

Kmart returns to bankruptcy court this morning to ask Judge Susan Pierson Sonderby to approve its plans to close about 300 stores, putting about 35,000 workers out of their jobs.

In Maryland, stores in Catonsville on U.S. 40, in Westminster on Englar Road and in Joppatowne on Joppa Farm Road are scheduled to close, sometime after inventory is sold off through clearance sales, the company said. Kmart will have a hearing next month on its reorganization plan and disclosure statement. Sonderby requested that Kmart rewrite the disclosure statement, at nearly 300 pages, and summary of its plan "in layman's terms."

Kmart became the largest retailer to declare bankruptcy a year ago and has already closed 283 stores and laid off 22,000 employees.

When the cost cutting is done, Kmart will be a third of its pre-bankruptcy size and will have abandoned entire markets - the state of Alaska, and several cities in Texas such as Dallas, Austin and Houston.

Kmart is supposed to emerge from bankruptcy by April 30 with wealthy investor Edward S. Lampert of Greenwich, Conn., the largest single owner of the company.

Lampert's company, ESL Investments, could wind up holding more than 40 percent of the stock in the new Kmart, with a second investment company, Third Avenue Value Fund, holding another 10 percent, according to documents filed in court Friday describing Kmart's reorganization plan.

Lampert and Third Avenue are prepared to kick in as much as $352 million to rescue Kmart, a century-old retailer that began in Detroit.

Kmart's bankers would be paid off in cash, at about 40 cents on the dollar, while bond holders and creditors would get stock in the new Kmart. Shareholders would get little, if anything.

Kmart's finances unraveled in 2001 under former chairman and chief executive Charles C. Conaway and former President Mark Schwartz, as top executives abused the company's corporate jets, drove luxury leased cars, hid growing losses in the books and pushed the company toward insolvency with excess purchases of inventory, according to an internal Kmart investigation.

Anonymous letter writers claiming to be employees have written 65 letters alleging corruption, accounting irregularities, improper relationships with vendors and corporate greed, sparking investigations by Kmart's board, the Securities and Exchange Commission and the FBI.

At the heart of the excesses at Kmart: $28 million in loans given to 25 top executives in the weeks and months before it declared bankruptcy.

Kmart recently fired the last of those 25 executives, saying it was putting the loan program behind it. Its reorganization plan says that just two of them, Lee Viliborghi and Lorna Nagler, repaid their loans. Viliborghi received $300,000; Nagler got $750,000.

Kmart has asked the rest to repay the money, but Hutchison said it is "not realistic to expect all will."

In its reorganization plan, Kmart once again pleaded with the anonymous letter writers to come forward with audit tapes, audio tapes and videotapes that they claim to possess "substantiating their sometimes vague or cryptic allegations."

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