P&G Not Impacted by Kmart’s Bankruptcy Filing

Procter & Gamble Co. executives said they expect Kmart Corporation’s filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code on Jan. 21 to have no material impact on P&G’s sales or earnings results. Approximately 75% of P&G’s Kmart volume is supplied through third party distributors, which in turn supply Kmart; the remaining 25% is supplied directly to Kmart.

Kmart’s bankruptcy declaration is the largest in the retail business since Federated Department Stores Inc. filed for Chapter 11 in 1990 and emerged two years later.

Kmart cited the fierce competition with discount rivals Wal-Mart and Target as factors in the filing. The filing also came a day after a major food distributor, Fleming Cos., said it had cut off most shipments to Kmart because the discounter failed to make its regular weekly payment for deliveries and owes Fleming $78 million. Other suppliers have delayed or stopped shipments to Kmart in recent days. But P&G is not so quick to pull out.

“We have been managing this situation closely for some time now,” said Rob A. Steele, president, P&G North America, yesterday. “Our objective has been to meet the needs of consumers who buy goods at Kmart and minimize our financial liability at the same time. We’re pleased with our accounts receivable position which includes shipments to and payments from Kmart up to and including today.”

Steele added that P&G is currently working closely with Kmart to ensure products will reach consumers with the least possible interruption.

Kmart said that it will reorganize and hopes to emerge from Chapter 11 in 2003. More than two thousand Kmart stores will remain open. In addition, Kmart said it had secured a $2 billion senior secured debtor-in-possession financing facility from Credit Suisse First Boston, Fleet Retail Finance Inc., General Electric Capital Corp. and J.P. Morgan Chase Bank.

Kmart said its decision to seek bankruptcy protection was based on a combination of factors, including its below-plan sales and earnings performance in the fourth quarter.