Term Paper: Annual Report Every Company

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[. . .] As can be seen by the Kmart Annual Report, financial analysis can be tricky. One has to look at all of the factors and not just one. It is important to read the text portions of the annual report, as well as to scrutinize the numbers carefully. Many analysts develop their own methods and decide to place emphasis on one element over another. This can be dangerous, even for those with years of practice. It is easy to miss something when too much weight is placed on one particular ratio or portion of the report. It is important to not only ask what the condition is, but also to ask what the possible reason for this are.

Kmart would seem doomed in the face of Chapter 11. However, this may not necessarily be true. Their future all depends on the outcome of the Chapter 11. If they can devise an adequate plan while under reorganization then they may be able to recover and return to profitability. But that has not been decided as of yet.

An examination of Kmart's financial report demonstrates the importance of the information contained in the report. It also demonstrates how to the untrained eye, it can be misread and misinterpreted. The entire report must be taken as a whole and all of the sections weighed against one another. This information must be considered in light of the management and accounting narratives. The fall of Kmart could be seen by the mid- year quarterly report and those who could use this information could predict the upcoming financial difficulties.

Kmart has an uncertain future, and this future could be seen in the financial reports when weighed over time. The financial report in this case made a good tool to forecast future performance. In order to recover from this disaster, Kmart' supper management will have to employ some tricky methods in order to recover from the current downturn.

Endnotes

Bernstein, Leopold. A. And Wild, John J. 1997. Financial Statement Analysis and Annual Report Booklet Package. 6th edition. Columbus, Ohio.McGraw-Hill/Irwin Publishers.

Kmart Corporation. 2002a. Annual Report. (SEC form 10-K) 2001. Edgars-online. Pgs. 25-27. [online] http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=0000950124-02-001856&nad= [Accessed November, 2002.]]

Kmart Corporation, op. cit. p. 25. See Appendix I.

10 Kmart Corporation, op. Cit. p. 26. See Appendix II.

11 Ibid.

12 Ibid.

13 Kmart Corporation. 2002b Annual Report 2001. Management's Discussion and Analysis (MD & A).[online] http://biz.yahoo.com/e/020515/km10-k.html [Accessed November, 2002].

14 Kmart Corporation, op cit. p. 27. 2002a. See Appendix III.

15 Ibid.

References

Bernstein, Leopold. A. And Wild, John J. 1997. Financial Statement Analysis and Annual Report

Booklet Package. 6th edition. Columbus, Ohio.McGraw-Hill/Irwin Publishers.

Kmart Corporation. 2002a. Annual Report. (SEC form 10-K) 2001. Edgars-online. Pgs. 25-27.

A online] http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=0000950124-02-001856&nad= [Accessed November, 2002.]]

Kmart Corporation. 2002b Annual Report 2001. Management's Discussion and Analysis (MD & A).[online] http://biz.yahoo.com/e/020515/km10-k.html [Accessed November, 2002].

APPENDIX I

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED JANUARY 30, 2002, JANUARY 31, 2001 AND JANUARY 26, 2000

DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

Sales

Cost of sales, buying and occupancy

Gross margin

Selling, general and administrative expenses

Equity income (loss) in unconsolidated subsidiaries

Restructuring, impairment and other charges

Continuing income (loss) before interest, income taxes, reorganization items and dividends on convertible preferred securities of subsidiary trust

Interest expense, net (contractual interest for fiscal year 2001 was $352)

Reorganization items

Income tax provision (benefit)

Dividends on convertible preferred securities of subsidiary trust, net of income taxes of $0, $25 and $27, respectively (contractual dividend for fiscal year 2001 was $72)

Net income (loss) from continuing operations

Discontinued operations, net of income taxes of $0 and $124.

Net income (loss)

BASIC EARNINGS (LOSS) PER COMMON SHARE

Net income (loss) from continuing operations

Discontinued operations

Net income (loss)

DILUTED EARNINGS (LOSS) PER COMMON SHARE

Net income (loss) from continuing operations

Discontinued operations

Net income (loss)

Basic weighted average shares (millions)

Diluted weighted average share (millions)

See accompanying Notes to Consolidated Financial Statements

APPNENDIX II

CONSOLIDATED BALANCE SHEETS

AS OF JANUARY 30, 2002 AND JANUARY 31, 2001

DOLLARS IN MILLIONS, EXCEPT SHARE DATA)

ASSETS

CURRENT ASSETS

Cash and cash equivalents

Merchandise inventories

Other current assets

TOTAL CURRENT ASSETS

Property and equipment, net

Other assets and deferred charges

TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Long-term debt due within one year

Accounts payable

Accrued payroll and other liabilities

Taxes other than income taxes

TOTAL CURRENT LIABILITIES

Long-term debt and notes payable

Capital lease obligations

Other long-term liabilities

TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE

Liabilities subject to compromise

Company obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely

3/4% convertible junior subordinated debentures of Kmart redemption value of $898 and $898, respectively)

Common stock, $1 par value, 1,500,000,000 shares authorized;

503,294,515 and 486,509,736 shares issued, respectively

Capital in excess of par value

Retained earnings

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

See accompanying Notes to Consolidated Financial Statements

APPENSIX III

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JANUARY 30, 2002, JANUARY 31, 2001, AND JANUARY 26, 2000

DOLLARS IN MILLIONS)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss) from continuing operations

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:

Restructuring, impairment and other charges

Reorganization items

Depreciation and amortization

Equity (income) loss in unconsolidated subsidiaries

Dividends received from Meldisco

Decrease (increase) in inventories

Increase (decrease) in accounts payable

Deferred income taxes and taxes payable

Changes in other assets

Changes in other liabilities

Cash used for store closings

Net cash provided by continuing operations

Net cash used for discontinued operations

NET CASH PROVIDED BY OPERATING ACTIVITIES

NET CASH USED FOR REORGANIZATION ITEMS

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures

Investment in BlueLight.com

Acquisition of Caldor leases

NET CASH USED FOR INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of debt

Debt issuance costs

Issuance of common shares

Purchase of convertible preferred securities of subsidiary trust

Purchase of common shares

Payments on debt

Payments on capital lease obligations

Payments of dividends on preferred securities of… [END OF PREVIEW]

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