Features

Buy, hold, sell

National | Kmart restocks its shelves, workers stick with their 401(k) plans, and Toys R Us closes 64 stores

Issue: "The Mormon Olympics," Feb. 16, 2002

KMart restocks
So few customers frequent the Big Kmart off Mission Gorge Road in San Diego that a kid could roller-skate through the aisles without much fear of hitting anyone. Shelves in the store are as empty as the aisles: Rows of shelf tags declare product prices where there is only empty space. Kmart may not have much control over customer traffic, but its shelves may soon be restocked. Late last month, the store reported that key vendors had resumed shipments that they had cut off after the 2,114-store chain filed for Chapter 11 bankruptcy on Jan. 22. Following the bankruptcy filing, two important vendors, Michigan-based music distributor Handleman and grocery supplier Fleming Companies of Dallas, resumed shipments. Kmart CEO Chuck Conaway said the company's restructuring plans received a big boost when the bankruptcy court in late January granted interim approval for the firm to access $1.15 billion of its $2 billion in debtor-in-possession (DIP) financing. (DIP financing occurs when a company uses assets as security for money borrowed to create cash flow during Chapter 11 reorganization. If reorganization fails, a company may be forced into Chapter 7 liquidation.) Mr. Conaway said the new DIP financing provides the firm with "unprecedented liquidity." DIP funds have allowed Kmart to continue paying its employees and suppliers and keep its stores running. Ok 401(k)?
The Enron retirement-fund debacle has employees at other firms reexamining their own pension plans-but with a surprisingly low level of concern. The Employee Benefits Research Institute (EBRI) on Jan. 31 released the results of its survey of employee-benefits specialists at companies nationwide. Of 375 respondents, about three-quarters said workers at their firms knew that many Enron employees had lost most of their retirement savings. But less than one-quarter of respondents said that fact had pushed employees to reevaluate their own 401(k) allocations. The EBRI survey, prepared by Temple University risk management professor Jack L. VanDerHei, also revealed statistics on employer-mandated 401(k) asset allocation. Of firms having a company stock option in their 401(k) plans, 43 percent reported that employees are required to invest all employer pension contributions in company stock. Of these, 60 percent restricted employees from selling the stock until they had reached a specified age or service requirement; about one in four restricted employees from selling the stock at any time during their participation in the plan. Meanwhile, a group of former Enron employees has asked a bankruptcy court to show them the money-all $1 billion of it. Last week, a bankruptcy judge let a lawsuit proceed in which pension-bilked workers are seeking $1 billion in 401(k) retirement funds lost when the energy giant went belly-up. At Enron, nearly 58 percent of 401(k) plan assets was invested in company stock that plunged in value by more than 98 percent during 2001. Child's play
The nation's second-largest toy retailer isn't playing around with profits. Toys R Us Inc. announced its intention to slash 1,900 jobs and close 64 stores as part of a plan to cut costs and boost its bottom line. Toys R Us operates 703 toy stores in the United States, 510 international toy stores, 184 Kids R Us children's clothing stores, 163 Babies R Us stores, and 49 Imaginarium stores. The Paramus, N.J.- based firm says earnings have slumped due to the economic slowdown, extensive remodeling costs, and fallout from the Sept. 11 terrorist attacks. Closing the less profitable stores, company executives said, would increase cash flow in 2002 and beyond, and would boost pretax earnings by about $45 million annually beginning in 2003.

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