SEC internet exercise and compliance procedures

SEC Internet Exercise - Kmart Corporation

The company that I have chosen to research is the Kmart Corporation. They operate in the retail-variety stores sector. Their main headquarters is located in Troy, Michigan with retail outlets primarily situated in the Midwest. Their ticker symbol is KM.

The company's most recent 10-K was filed with the SEC on May 15, 2002. The 10-K for this company is 77 pages long. The company has been in business for many years and has hundreds of filings posted on the SEC website. For purposes of this report only those filed in 2002 will be considered. In 2002, the Kmart Corporation has Filed 10-Q, 10-Q/A, 8-K, NT 10-K, SC 13G, SC13G/A. The Kmart Corporation has filed many other forms in previous years.

Question

The SEC website has a page entitled "Descriptions of SEC Forms." This page is subdivided into sections categorizing each type of form. The major section headings are Overview of the Most Common Corporate Filings, 1933 Act Registration Statements, Investment Company Registration Statements, and Trust Indenture Act of 1939 - Forms. The page is organized in table format with complete descriptions of the forms included in each section. The definitions for all of the forms listed in Question 1 are found on this page.

Question 3.

The most recent 10-K for the company reveals that Kmart is a very large company. Total sales revenues for 2001 were $36,151,000. Total Assets were $14,298,000. The company has over 200,000 employees in 2002. The company showed a loss of $2,418,000 for fiscal year 2001. Management's Discussion and Analysis begin on page 10 of the 10-K. According to management, Kmart is subject to many risk factors. They have recently filed for protection under Bankruptcy Code Chapter 11. Kmart failed to meet target sales goals for the year due to general economic conditions. This is the main reason cited for the decline in sales. The MD & A was useful as it is not only helpful as an investor to know what the numbers say, but why they occurred. It is good information to use for investment decisions. Sometimes a company may have low numbers due to an expansion, which will create a short-term deficit, but a long-term gain. In the case of Kmart, however, as an investor, I would use a wait and see strategy due to the explanations in the management's discussion.

Question

Kmart provides a complete description of executive compensation and benefits beginning on page 59 of the 10-K. The CEO received a salary of $495,500, other annual compensation of $13,315, $702,000 in securities options, $2,000,000 in stock awards and miscellaneous awards of $28,122. The Executive Vice President of Merchandising received $456,864 in salary, $584,820 in other annual compensation, $715,000 in stock options, $1,750,000 in stock, and $25,524 in other compensation. The executives at Kmart receive hefty compensation. All of their compensation is not in salary, but is in other assets. It is interesting to note that for 1999, and 2000 all top executives earned bonuses in direct relation to the numbers reflected on the total company net profit/loss line. This year they received no bonuses.

Question

The SEC has a section on their website, which explains their role, history and organizational structure. On this page we fin the following quote about their importance.

The laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it. To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public, which provides a common pool of knowledge for all investors to use to judge for themselves if a company's securities are a good investment. Only through the steady flow of timely, comprehensive and accurate information can people make sound investment decisions."(SEC, 1999)

Question

On its website Kmart provides Annual Reports from 1995-2001. The accounting firm of Pricewaterhouse Cooper audited the 2001 financial disclosures. The Annual Report for 2001 is based on the audited information. The Kmart website gives complete financial information on its website through links to other services and websites such as the SEC. The following audited Balance Sheet was obtained from Nasdaq.com (http://www.nasdaq.com/asp/ExtendFund.asp?kind=extendfund&symbol=KM&selected=KM&documentType=balance&period=ann) asthe link to the 2001 Annual Report on the Kmart site did not seem to function.

Annual Balance Sheet

Get Quarterly Data (values in 000's)

Period Ending:

Current Assets

Cash and Cash Equivalents

Inventory

Other Current Assets

Total Current Assets

Long-Term Assets

Fixed Assets

Other Assets

Deferred Asset Charges

Total Assets

Current Liabilities

Accounts Payable

Short-Term Debt/Current Portion of Long-Term Debt

Total Current Liabilities

Long-Term Debt

Other Liabilities

Total Liabilities

Redeemable Stocks

Stock Holders Equity

Common Stocks

Capital Surplus

Retained Earnings

Total Equity

Kmart provides an excellent Investor Relations section of their website. It contains more than enough information to make a wise investment decision. For convenience it has provided information from other websites, which you can acccess from their website without searching for it yourself. They have links to the SEC website and Yahoo!Finance to name a few.

Question

The Kmart website offers the current and historical stock prices for the company. This service is provided by Yahoo!Finance and gives the last 15 minutes stock price. The end of day closing price for Kmart on June, 19, 2002 was 0.86. The closing price for yesterday as reported on www.nasdaq.comwas0.87. This is due to the fact that one site rounds and the other does not round the last digit. Other good sources of information are Morningstar and the Wall Street Journal. Stock information for Kmart is most easily accessed through their own website, rather than through another source.

Question

As a protection to investors to insure that the companies issue accurate and true financial statements, the SEC requires that the firm hire an independent auditor to audit the financial statements of the company. This is to ensure that the information given in the financial statements is not misleading. As a result of this, the SEC has decided to look to the Independence Standards Board (ISB) for guidance in what is considered to be an independent audit of the financial statements released to the public. The SEC had formerly adopted it own rules for the determination of what constitutes and independent audit. These rules were found to be inadequate. As a result many of the so-called "third-parties" were found to have a financial interest in the company that they were auditing. The ISB was formed to adopt better guidelines for independent auditor/company relations.