BlueLight Special on Software, Aisle 5

Big K readies itself to ramp up supply chain operations

Troy, MI  September 6, 2001  It looks like the home of the BlueLight Special is about to get a supply chain facelift.

Kmart Corp. today announced plans to restructure certain aspects of its overall operations. The focus of this restructuring program will be on the supply chain infrastructure, including the reconfiguration of Kmart's distribution center network and implementation of new operating software across its supply chain.

"Reconfiguration of the distribution center network entails the replacement of two aging distribution centers with two state-of-the-art facilities, which will improve productivity and the flow of goods to nearly half of our stores," said Chuck Conaway, chairman and CEO of Kmart Corp. "Implementation of the program will begin in this month. In addition, the distribution of slower-moving goods will be centralized to one newly-designated center to improve efficiency across all other centers and facilitate the expansion of our BlueLight Always campaign."

New operating software will be implemented across Kmart's supply chain beginning this quarter. Completion of the implementation is expected by the end of the second quarter of 2002.

In conjunction with these actions, Kmart expects to record special charges totaling approximately $195 million ($124 million, after taxes) over the next three quarters.  Approximately $130 million of the charges relate to the impairment of supply chain software and hardware that will no longer be utilized and to accelerate depreciation on assets that will continue to be used until their replacement. Approximately $65 million of the charges relate to costs to exit the outdated distribution centers. Cash outlays related to the supply chain strategy will be approximately $45 million.

Approximately $150 million of the charge will be recognized in the third quarter of 2001.  As certain components of the company's supply chain software will continue to be utilized until replaced, depreciation will be accelerated to reflect the revised useful lives and these assets will be fully-amortized by mid-2002. The expected incremental depreciation aggregates $15 million in the fourth quarter 2001, and $30 million in 2002.