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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

or

KOHL’S CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (262) 703-7000

Securities registered pursuant to section 12(b) of the Act:

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     X         No           

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes     X         No           

At August 2, 2002, the aggregate market value of the voting stock of the Registrant held by stockholders who were not affiliates of the Registrant was approximately $21,752,000,000 (based upon the closing price of Registrant’s Common Stock on the New York Stock Exchange on such date). At March 5, 2003, the Registrant had issued and outstanding an aggregate of 337,355,777 shares of its Common Stock.

Documents Incorporated by Reference:

Portions of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 1, 2003 are incorporated into Part III.

PART I

Item 1.     Business

Overview

The Company operates family-oriented, specialty department stores that feature quality, national brand merchandise priced to provide value to customers. The Company’s stores sell moderately priced apparel, shoes, accessories and home products targeted to middle-income customers shopping for their families and homes. Kohl’s offers a convenient shopping experience through easily accessible locations, well laid out stores, central checkout and good in-stock position which allows the customer to get in and out quickly. Kohl’s stores have fewer departments than traditional, full-line department stores but offer customers dominant assortments of merchandise displayed in complete selections of styles, colors and sizes. Central to the Company’s pricing strategy and overall profitability is a culture focused on maintaining a low cost structure. Critical elements of this low cost structure are the Company’s unique store format, lean staffing levels, sophisticated management information systems and operating efficiencies resulting from centralized buying, advertising and distribution. As of February 1, 2003, the Company operated 457 stores. In March 2003, the Company opened 28 additional stores and operated 485 stores in 34 states as of April 1, 2003.

As used herein, the terms “Company” and “Kohl’s” refer to Kohl’s Corporation, its consolidated subsidiaries and predecessors. The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal 2002 ended on February 1, 2003, and was a 52 week year. The Company was organized in 1988 and is a Wisconsin corporation.

You may obtain, free of charge, copies of this Annual Report on Form 10-K as well as the Company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (and amendments to those reports) filed with or furnished to the SEC as soon as reasonably practicable after such reports have been filed or furnished by accessing the Company’s website at www.kohls.com, clicking on “Investor Relations,” then “Financial Links,” then “SEC Filings.” Information contained on the Company’s website is not part of this Annual Report on Form 10-K.

Expansion

The Company’s expansion strategy is designed to achieve consistent growth. Since 1992, the Company has increased square footage an average of 21.9% per year, expanding from 79 stores located in the Midwest to a current total of 485 stores with a presence in six regions of the country: the Midwest, Mid-Atlantic, Northeast, Southcentral, Southeast and Southwest.

In support of its geographic expansion, the Company has focused on providing the solid infrastructure needed to ensure consistent execution. Kohl’s proactively invests in distribution capacity and regional management to facilitate the growth in new and existing markets. The Company’s central merchandising organization and market solution teams tailor merchandise assortments to reflect regional climates and preferences. Management information systems support the Company’s low cost culture by enhancing productivity and providing the information needed to make key merchandising decisions.

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The Kohl’s concept has proven to be transferable to markets across the country. The Company’s approach is to enter new markets with critical mass to establish a presence and to leverage marketing, regional management and distribution costs. New market entries are supported by extensive advertising and promotions designed to introduce new customers to the Kohl’s concept of brands, value and convenience. Additionally, the Company has been successful in acquiring, refurbishing and operating locations previously operated by other retailers. Of the 457 stores the Company operated as of February 1, 2003, 138 are take-over locations, which facilitated the entry into several markets including Chicago, Detroit, Minneapolis, Columbus, Boston, Philadelphia, St. Louis, and the New York region. Once a new market is established, the Company adds additional fill-in stores to further strengthen market share and enhance profitability. As of February 1, 2003, the Company operated stores in the following large and intermediate sized markets:

In fiscal 2002, Kohl’s opened 75 new stores including the initial entry in the Houston, TX market with 12 stores, the Boston, MA market with 15 stores, the Nashville, TN market with four stores and the Providence, RI market with four stores. In addition, 19 stores were added in the Midwest region, 11 stores in the Northeast region and 10 stores in other existing regions.

The Company opened four of these stores as a small-market test. These stores average 62,000 square feet compared to approximately 89,000 square feet for a prototype store. The smaller stores are designed to take the Kohl’s concept into a smaller footprint to serve trade areas of 100,000 or less in population. The small-market test stores have a layout that is similar to the larger prototype stores and includes all departments, but with an edited merchandise assortment.

A new distribution center in San Bernardino, CA was opened in December 2002 to support the Company’s planned expansion into the Southwest.

Management believes there is substantial opportunity for further growth and intends to open approximately 80 new stores in fiscal 2003. The Company entered the greater Los Angeles area with 28 stores in March. In April, the Company plans to open three stores in the San Antonio, TX market and add four stores in other existing regions. In fall of 2003, Kohl’s plans to open approximately 45 new stores including entries into the Phoenix, AZ market with ten stores, Tucson, AZ with two stores, Flagstaff, AZ with one store and the Las Vegas, NV market with three stores.

During 2004, the Company plans to open approximately 95-100 new stores. The stores will open in a combination of new and existing markets. The Company will continue to expand its presence in the Southwest region, with additional stores in the greater Los Angeles area and new market entries into Sacramento, San Diego, and Fresno, CA.

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Management believes the transferability of the Kohl’s retailing strategy, the Company’s experience in acquiring and converting pre-existing stores and in building new stores, combined with the Company’s substantial investment in management information systems, centralized distribution and headquarters functions provide a solid foundation for further expansion.

Merchandising

Kohl’s stores feature moderately priced, national brand merchandise, which provide value to customers. Kohl’s merchandise is targeted to appeal to middle-income customers shopping for their families and homes. The Company’s stores generally carry a consistent merchandise assortment with some differences attributable to regional preferences. The Company’s stores emphasize apparel and shoes for women, men, and children, soft home products, such as towels, sheets and pillows, and housewares.

Convenience

Convenience is another important cornerstone of Kohl’s business model. At Kohl’s, convenience begins before the customer enters the store, with a neighborhood location close to home. Other aspects of convenience include easily accessible entry, knowledgeable and friendly associates, wide aisles, a functional store layout, shopping carts/strollers and fast, centralized checkouts. The physical store layout coupled with the Company’s focus on strong in-stock position on color and size are aimed at providing a convenient shopping experience for an increasingly time starved customer. In addition, Kohl’s offers on-line shopping on the Company’s web-site. Designed as an added service for customers who prefer to shop from their homes, the web-site offers key items, best selling family apparel and home merchandise. The site is designed to provide an easy-to-navigate, on-line shopping environment that compliments the Company’s in-store focus on convenience.

Distribution

The Company receives substantially all of its merchandise at seven distribution centers, with the balance delivered directly to the stores by vendors or their distributors. The distribution centers ship merchandise to each store by contract carrier several times a week.

The following table summarizes key information about each distribution center.

The Company operates a 500,000 square foot fulfillment center in Monroe, Ohio that services the Company’s e-commerce business.

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Employees

As of February 1, 2003, the Company had approximately 75,000 employees, including approximately 19,000 full-time and 56,000 part-time associates. The number of associates varies during the year, peaking during the back-to-school and holiday seasons. None of the Company’s associates are represented by a collective bargaining unit. The Company believes its relations with its associates are very good.

Competition

The retail industry is highly competitive. Management considers quality, value, merchandise mix, service and convenience to be the most significant competitive factors in the industry. The Company’s primary competitors are traditional department stores, upscale mass merchandisers and specialty stores. The Company’s specific competitors vary from market to market.

Seasonality

The Company’s business, like that of most retailers, is subject to seasonal influences, with the major portion of sales and income typically realized during the last half of each fiscal year, which includes the back-to-school and holiday seasons. Approximately 15% and 30% of sales occur during the back-to-school and holiday seasons, respectively. Because of the seasonality of the Company’s business, results for any quarter are not necessarily indicative of the results that may be achieved for the fiscal year. In addition, quarterly results of operations depend significantly upon the timing and amount of revenues and costs associated with the opening of new stores.

Trademarks and Service Marks

The name “Kohl’s,” written in its distinctive block style, is a registered service mark of a wholly-owned subsidiary of the Company, and the Company considers this mark and the accompanying name recognition to be valuable to its business. This subsidiary has approximately 60 additional trademarks, trade names and service marks, most of which are used in its private label program.

Item 2. Properties

As of February 1, 2003, the Company operated 457 stores in 33 states. The Company owned 119 stores and leased 338 stores, which includes both operating and ground leases. The Company’s typical lease has an initial term of 20-25 years plus five to eight renewal options for consecutive five year extension terms.

Substantially all of the Company’s leases provide for a minimum annual rent that is fixed or adjusts to set levels during the lease term, including renewals. Approximately 42% of the leases provide for additional rent based on a percentage of sales to be paid when designated sales levels are achieved.

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The Company’s stores are located in strip shopping centers (321), community and regional malls (47), and as free standing units (89). Of the Company’s stores, 421 are one-story facilities and 36 are two-story facilities.

The Company owns its distribution centers in Menomonee Falls, Wisconsin; Findlay, Ohio; Winchester, Virginia; Blue Springs, Missouri; Mamakating, New York and San Bernardino, California. The Company also owns its corporate headquarters in Menomonee Falls, Wisconsin. The Company leases the distribution center in Corsicana, Texas and the e-commerce fulfillment center in Monroe, Ohio.

Item 3.  Legal Proceedings

The Company is involved in various legal matters arising in the normal course of business. In the opinion of management, the outcome of such proceedings and litigation will not have a material adverse impact on the Company’s financial position or results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the Company’s security holders during the last quarter of fiscal 2002.

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PART II

Item 5.  Market for Registrant’s Common Stock and Related Stockholder Matters

(a) Market information

The Common Stock has been traded on the New York Stock Exchange since May 19, 1992, under the symbol “KSS.” The prices in the table set forth below indicate the high and low prices of the Common Stock for each quarter in fiscal 2002 and 2001.

(b) Holders

At March 5, 2003, there were 6,424 holders of the Common Stock.

(c) Dividends

The Company has never paid a cash dividend, has no current plans to pay dividends on its Common Stock and intends to retain all earnings for investment in and growth of the Company’s business. The payment of future dividends, if any, will be determined by the Board of Directors in light of existing business conditions, including the Company’s earnings, financial condition and requirements, restrictions in financing agreements and other factors deemed relevant by the Board of Directors.

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Item 6.  Selected Consolidated Financial Data

The selected consolidated financial data presented below should be read in conjunction with the consolidated financial statements of the Company and related notes included elsewhere in this document. The selected consolidated financial data, except for the operating data, has been derived from the audited consolidated financial statements of the Company, which have been audited by Ernst & Young LLP, independent auditors.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The Company’s net income increased $147.7 million or 29.8% from $495.7 million in fiscal 2001 to $643.4 million in fiscal 2002. Net income increased $123.6 million or 33.2% in fiscal 2001 and $114.0 million or 44.2% in fiscal 2000.

Net Sales.    Net sales, number of stores, sales growth and net sales per selling square foot by year for the last three fiscal years were as follows:

Increases in net sales primarily reflect new store openings and comparable store sales growth. On a fiscal year basis, net sales increased $1,631.6 million, or 21.8%, from $7,488.7 million in fiscal 2001 to $9,120.3 million in fiscal 2002. Net sales increased $1,275.9 million due to the opening of 75 new stores in fiscal 2002 and to the inclusion of a full year of operating results for the 62 stores opened in fiscal 2001. Comparable store sales increased $355.7 million, or 5.3%, in fiscal 2002. In fiscal 2002, the comparable store base included 320 stores.

On a fiscal year basis, comparing the 52 weeks ended February 2, 2002, with the 53 weeks ended February 3, 2001, net sales increased $1,336.7 million, or 21.7%, from $6,152.0 million in fiscal 2000 to $7,488.7 million in fiscal 2001. Net sales increased $1,039.4 million due to the opening of 62 new stores in fiscal 2001 and to the inclusion of a full year of sales for the 61 stores opened in fiscal 2000. Comparing the 52 weeks ended February 2, 2002 with the 53 weeks ended February 3, 2001, the Company’s comparable store sales increased $297.3 million or 5.6%. On a comparable 52-week basis, comparable store sales increased 6.8% in fiscal 2001. In fiscal 2001, the comparable store base included 259 stores.

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Components of Earnings. The following table sets forth statement of operations data as a percentage of net sales for each of the last three years:

Gross Margin.    Gross margin increased $574.0 million from $2,565.1 million in fiscal 2001 to $3,139.1 million in fiscal 2002. Gross margin increased $419.2 million due to the opening of 75 new stores in fiscal 2002 and to the inclusion of a full year of operating results for the 62 stores opened in fiscal 2001. Comparable store gross margin increased $154.8 million. The Company’s gross margin as a percent of net sales was 34.4% for fiscal 2002 compared to 34.3% for fiscal 2001. The increase in gross margin rate is attributable to improved gross margin rates in most merchandise categories and a favorable change in the sales mix.

Gross margin increased $469.2 million from $2,095.9 million in fiscal 2000 to $2,565.1 million in fiscal 2001. Gross margin increased $355.3 million due to the opening of 62 new stores in fiscal 2001 and to the inclusion of a full year of operating results for the 61 stores opened in fiscal 2000. Comparable store gross margin increased $113.9 million. The Company’s gross margin as a percent of net sales was 34.3% for fiscal 2001 compared to 34.1% for fiscal 2000. In fiscal 2001, the gross margin rate increase was primarily attributable to a change in the sales mix. Women’s apparel and accessories, which increased in share of the business, achieve a higher than average gross margin rate.

The Company’s merchandise mix is reflected in the table below:

Selling, General and Administrative Expenses.    Selling, general and administrative (S,G&A) expenses include all direct store expenses such as payroll, occupancy and store supplies and all costs associated with the Company’s distribution centers, advertising and corporate functions, but exclude depreciation and amortization. The S,G&A expense as a percent of net sales decreased from 20.40% in fiscal 2001 to 19.93% in fiscal 2002. Of the 47 basis points of rate improvement, 12 basis points are due to improvement in advertising costs, 12 basis points are related to improvement in corporate expenses, 9 basis points are due to improvement in credit operations, 9 basis points are due to improvement in distribution expenses and 5 basis points are due to improvement in store operating expenses.

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S,G&A expense as a percent of net sales decreased from 20.84% in fiscal 2000 to 20.40% in fiscal 2001. Of the 44 basis points of rate improvement, 35 basis points are due to improvement in store operating expenses, 13 basis points are related to improvement in corporate expenses, 7 basis points are due to improvement in advertising costs and 7 basis points are related to improvement in distribution expenses. This was offset by a decline in credit operations leverage of 18 basis points.

Depreciation and Amortization.    The total amount of depreciation and amortization increased from fiscal 2001 to fiscal 2002 due to the addition of new stores, the remodeling of existing stores and the mix of owned versus leased stores. Depreciation and amortization remained constant as a percentage of net sales at 2.1% for fiscal 2001 and fiscal 2002.

Preopening Expenses.    Preopening expenses are expensed as incurred and relate to the costs incurred prior to new store openings which includes advertising, hiring, and training costs for new employees and processing and transporting initial merchandise. The following table sets forth the Company’s preopening costs for each of the last three years:

The average cost incurred to open the 75 stores in fiscal 2002 was $472,000 per store and the average cost incurred to open the 62 stores in fiscal 2001 was $499,000. The average cost per store fluctuates based on the mix of stores opened in new markets versus fill-in markets.

Operating Income.    Operating income increased $240.4 million or 28.3% in fiscal 2002, $198.7 million or 30.5% in fiscal 2001 and $203.0 million or 45.3% in fiscal 2000 due to the factors described above.

Interest Expense.    Net interest expense increased $5.9 million over fiscal 2001 to $56.0 million in fiscal 2002. The increase was primarily attributable to the $300 million aggregate principal amount of non-callable 6% unsecured senior debentures issued in November 2002 (see “Liquidity” discussion below). Net interest expense in fiscal 2001 increased $3.9 million over fiscal 2000 to $50.1 million. The increase was primarily attributable to the $300 million of non-callable unsecured senior notes issued in March 2001 and the Liquid Yield Option Subordinated Notes issued in June 2000 outstanding for a full year, offset in part by an increase in interest income on short-term investments.

Income Taxes.    The Company’s effective tax rate was 37.8% in fiscal 2002, 38.0% in fiscal 2001 and 38.5% in fiscal 2000. The overall decline in the effective tax rates in fiscal 2002 was primarily due to the decrease in state income taxes, net of federal tax benefits, and elimination of non-deductible amortization of goodwill. The decline in the effective tax rate in fiscal 2001 was primarily due to the decrease in state income taxes, net of federal tax benefits and non-deductible goodwill amortization as a percentage of income before taxes.

Inflation

The Company does not believe that inflation has had a material effect on the results of operations during the periods presented. However, there can be no assurance that the Company’s business will not be affected in the future.

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Liquidity and Capital Resources

The Company’s primary ongoing cash requirements are for seasonal and new store inventory purchases, the growth in credit card accounts receivable and capital expenditures in connection with expansion and remodeling programs. The Company’s primary sources of funds for its business activities are cash flow from operations and short-term trade credit. Short-term trade credit, in the form of extended payment terms for inventory purchases or third-party factor financing, represents a significant source of financing for merchandise inventories. Seasonal cash needs are met by financing secured by its proprietary accounts receivable and lines of credit available under its revolving credit facilities. The Company’s working capital and inventory levels typically build throughout the fall, peaking during the holiday selling season. In addition, the Company periodically accesses the capital markets, as needed, to finance its growth.

The Company’s working capital increased to $1,776.1 million at February 1, 2003, from $1,584.1 million at February 2, 2002. The increase was primarily attributable to an increase of short-term investments, accounts receivable and inventory, offset in part by increased accounts payable and current portion of long-term debt.

The Company’s short-term investments at February 1, 2003 increased $246.6 million over the February 2, 2002 balance of $229.4 million. The increase is primarily due to proceeds realized from the sale of unsecured senior debentures on November 21, 2002.

The Company’s accounts receivable at February 1, 2003 increased $154.9 million over the February 2, 2002 balance. The increase is primarily due to a 31.5% increase in proprietary credit card sales offset by increased payment rates. Proprietary credit card sales as a percent of total net sales increased from 31.8% for the fiscal year ended February 2, 2002, to 34.3% for the fiscal year ended February 1, 2003. The following table summarizes information related to Kohl’s proprietary credit card receivables:

The Company’s merchandise inventories increased $428.7 million over the February 2, 2002 balance of $1,198.3 million. The increase was primarily due to higher merchandise levels required to support existing stores and incremental new store locations. Accounts payable increased $215.9 million to $694.7 million at February 1, 2003, from the February 2, 2002 balance. Fluctuations in the level of accounts payable are primarily attributable to the timing and number of new store openings and invoice dating arrangements with vendors.

The increase in the current portion of long-term debt from $16.4 million at the end of fiscal 2001 to $355.5 million at the end of fiscal 2002 is primarily due to the classification as short-term of $343.3 million of Liquid Yield Option Subordinated Notes (LYONs) as of February 1, 2003 (see note 4 to the consolidated financial statements).

The Company has a $225 million Receivable Purchase Agreement (RPA) with Preferred Receivables Funding Corporation, certain investors and Bank One as agent, which is renewable annually, for approximately one year intervals, at the Company’s request and investors’ option. Pursuant to the RPA, the Company periodically sells, generally with recourse, an undivided interest in the Company’s private label credit card receivables. At February 1, 2003, and February 2, 2002, no receivables were sold. For financial reporting purposes, receivables sold are treated as secured borrowings.

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Cash provided by operating activities was $669.6 million for fiscal 2002 as compared to $541.8 million for fiscal 2001, and $372.1 million for fiscal 2000.

Capital expenditures include costs for new store openings, store remodels, distribution center openings and other base capital needs. The Company’s capital expenditures, including favorable lease rights, were $716.0 million during fiscal 2002, $662.0 million during fiscal 2001 and $481.0 million during fiscal 2000. The increases in annual expenditures are related to the number of new stores, the timing of new store capital spending, and the mix of owned, leased or acquired stores.

Total capital expenditures for fiscal 2003 are currently expected to be approximately $825 million. This estimate includes new store and remodel spending as well as base capital needs. The Company plans to open approximately 80 new stores in fiscal 2003. The total cash outlay required for a newly constructed leased store is approximately $5.5 million, which includes capital expenditures, preopening expenses and net working capital. The additional cash outlay required for a newly constructed owned store will vary depending upon land and sitework costs, but is expected to be approximately $8.0 million. The Company does not anticipate that its planned expansion will be limited by any restrictive covenants in its financing agreements.

In November 2002, the Company issued $300 million aggregate principal amount of non-callable 6% unsecured senior debentures due January 15, 2033. Net proceeds, excluding expenses, were $297.8 million and will be used for general corporate purposes, including continued store growth.

In July 2002, the Company executed two new unsecured revolving bank credit facilities. The first agreement consists of a $532 million facility maturing July 10, 2007. The second agreement consists of a $133 million facility maturing July 8, 2003 and renewable at the Company’s request and at the banks’ option. Depending on the type of advance under the new facilities, amounts borrowed bear interest at competitive bid rates; the LIBOR plus a margin, based on the Company’s long-term unsecured debt rating; or the agent bank’s base rate.

In March 2001, the Company issued $300 million aggregate principle amount of 6.30% unsecured notes due March 1, 2011. The proceeds have been used for general corporate purposes, including continued store growth.

In June 2000, the Company issued $551.5 million aggregate principal amount of Liquid Yield Option Subordinated Notes (LYONs) due 2020. Net proceeds, excluding expenses, were $319.4 million. The debt is callable by the Company beginning June 12, 2003, for cash. The holders of the securities can “put” the LYONs back to the Company after three and ten years from the date of issuance. As the holders can put the LYONs back to the Company in 2003, such securities have been reflected as current maturities of long-term debt.

The Company anticipates that it will be able to satisfy its working capital requirements, planned capital expenditures, and debt service requirements with available cash and short-term investments, proceeds from cash flows from operations, short-term trade credit, $225 million of available financing secured by its proprietary credit card accounts receivable, seasonal borrowings under its $665 million revolving credit facilities and other sources of financing. The Company expects to generate adequate cash flows from operating activities to sustain current levels of operations. The Company maintains favorable banking relations and anticipates that the necessary credit agreements will be extended or new agreements will be entered into in order to provide future borrowing requirements as needed.

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Contractual Obligations

The Company has aggregate contractual obligations of $5,711.2 million related to debt repayments, capital leases and operating leases as follows:

The Company also has outstanding letters of credit and stand-by letters of credit that total approximately $20.4 million and $2.0 million, respectively, at February 1, 2003. If certain conditions were met under these arrangements, the Company would be required to satisfy the obligations in cash. Due to the nature of these arrangements and based on historical experience, the Company does not expect to make any significant payments. Therefore, they have been excluded from the preceding table.

Critical Accounting Policies and Estimates

Allowance for Doubtful Accounts

The Company evaluates the collectibility of accounts receivable based on a combination of factors, namely aging and historical trends. Delinquent accounts are written off automatically after the passage of 180 days without receiving a full scheduled monthly payment. Accounts are written off sooner in the event of customer bankruptcy or other circumstances that make further collection unlikely. For all other accounts, the Company recognizes reserves for bad debts based on the length of time the accounts are past due and the anticipated future write offs based on historical experience.

The allowance for doubtful accounts was $20.9 million or 2.1% of gross receivables at February 1, 2003, $17.8 million or 2.1% of gross receivables at February 2, 2002 and $9.3 million or 1.3% of gross receivables at February 3, 2001. The components of the allowance for doubtful accounts are as follows:

Retail Inventory Method and Inventory Valuation

The Company values its inventory at the lower of cost or market with cost determined on the last-in, first-out (LIFO) basis using the retail inventory method (RIM). Under RIM, the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value inventories. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of the retail inventory method will result in inventories being valued at the lower of cost or market as markdowns are currently taken as a reduction of the retail value of inventories.

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Based on a review of historical clearance markdowns, current business trends and discontinued merchandise categories, an adjustment to inventory is recorded to reflect additional markdowns which are estimated to be necessary to liquidate existing clearance inventories and reduce inventories to the lower of cost or market. Management believes that the Company’s inventory valuation approximates the net realizable value of clearance inventory and results in carrying inventory at the lower of cost or market.

Vendor Allowances

The Company records vendor allowances and discounts in the income statement when the purpose for which those monies were designated is fulfilled. Allowances provided by vendors generally relate to profitability of inventory recently sold and, accordingly, are reflected as reductions to cost of merchandise sold as negotiated. Vendor allowances received for advertising or fixture programs reduce the Company’s expense or expenditure for the related advertising or fixture program.

Reserve Estimates

The Company uses a combination of insurance and self-insurance for a number of risks including workers’ compensation, general liability and employee-related health care benefits, a portion of which is paid by its associates. The Company determines the estimates for the liabilities associated with these risks by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. The estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from the current assumptions and historical trends. Under its workers’ compensation and general liability insurance policies, the Company retains the initial risk of $500,000 and $250,000, respectively, per occurrence.

Capital versus Operating Leases

The Company evaluates all lease agreements in accordance with Statement of Financial Accounting Standards No. 13, “Accounting for Leases,” to determine whether a lease is operating or capital. The Company reviews the fair market value as well as the useful life of the related assets. Both of these assumptions are subject to estimation.

The senior management of the Company has discussed the development and selection of the above critical accounting estimates with the audit committee of the Company’s board of directors.

New Accounting Pronouncements

The FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” in April 2002. This statement addresses the determination as to whether a transaction should be reported as an extraordinary item or reported in normal earnings. The adoption of this statement did not have an impact on the Company’s results of operations or financial position presented in this report.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” effective for disposal activities initiated after December 31, 2002. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized, at fair value, when the liability is incurred rather than at the time an entity commits to a plan. The Company did not incur any new liability related to a disposal cost or exit activity between adoption of this statement on January 1, 2003, and the end of the fiscal year on February 1, 2003. The Company does not expect the adoption of SFAS No. 146 to have a significant impact on its results of operations or financial position.

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The Emerging Issues Task Force released Issue No. 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor” in November 2002, applicable to fiscal years beginning after December 15, 2002. The Company records vendor allowances and discounts in the income statement when the purpose for which those monies were designated is fulfilled. As such, the Company does not expect the release to have a significant effect on its results of operations or financial position.

Forward-Looking Information/Risk Factors

Items 1, 3, 5 and 7 of this Form 10-K contain “forward-looking statements,” subject to protections under federal law. The Company intends words such as “believes,” “anticipates,” “plans,” “may,” “will,” “should,” “expects” and similar expressions to identify forward-looking statements. In addition, statements covering the Company’s future sales or financial performance and the Company’s plans, objectives, expectations or intentions are forward-looking statements, such as statements regarding the Company’s liquidity, debt service requirements, planned capital expenditures, future store openings and adequacy of capital resources and reserves. There are a number of important factors that could cause the Company’s results to differ materially from those indicated by the forward-looking statements, including among others, those risk factors described in Exhibit 99.1 attached to this 10-K and incorporated herein by this reference. Forward-looking statements relate to the date made, and the Company undertakes no obligation to update them.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary exposure to market risk consists of changes in interest rates or borrowings. At February 1, 2003, the Company’s long-term debt, excluding capital leases, was $1,359.8 million, all of which is fixed rate debt.

Long-term fixed rate debt is utilized as a primary source of capital. When these debt instruments mature, the Company may refinance such debt at then existing market interest rates, which may be more or less than interest rates on the maturing debt. If interest rates on the existing fixed rate debt outstanding at February 1, 2003, changed by 100 basis points, the Company’s annual interest expense would change by $13.6 million.

During fiscal 2002, average borrowings under the Company’s variable rate revolving credit facilities and its short-term financing of its proprietary accounts receivable were $47.4 million. If interest rates on the average fiscal 2002 variable rate debt changed by 100 basis points, the Company’s annual interest expense would change by $474,000, assuming comparable borrowing levels.

Item 8.    Financial Statements and Supplementary Data

The financial statements are included in this report beginning on page F-3.

Item 9.    Changes In and Disagreements with Accountants on Accounting and Financial Disclosures

None

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PART III

Item 10.     Directors and Executive Officers of Registrant

The information set forth under “Election of Directors” on pages 1-3, under “Director Committees and Compensation” on pages 3-4, under “Compliance with Section 16(a) of the Exchange Act” on page 9 and under “Code of Ethical Standards” on page 10 of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 1, 2003 is incorporated herein by reference.

The executive officers of the Company are as follows:

Mr. Montgomery was elected Chairman of the Board in February 2003. He was promoted to Chief Executive Officer in February 1999. He was appointed to the Board of Directors in 1994 and served as Vice Chairman from March 1996 to November 2000. Mr. Montgomery has served as Executive Vice President of Stores from February 1993 to February 1996 after joining the Company as Senior Vice President—Director of Stores in 1988. Mr. Montgomery has 32 years of experience in the retail industry.

Mr. Mansell has served as President and Director since February 1999. Mr. Mansell served as Executive Vice President—General Merchandise Manager from 1987 to 1998. Mr. Mansell joined the Company as a Divisional Merchandise Manager in 1982, and has 28 years of experience in the retail industry.

Ms. Meier has served as Chief Operating Officer since November 2000. Ms. Meier served as Executive Vice President—Chief Financial Officer from October 1994 to November 2000 and was appointed to the Board of Directors in March 2000. Ms. Meier joined the Company as Vice President—Controller in 1989. Ms. Meier has 27 years of experience in the retail industry.

Mr. Brennan joined the Company in April 2001 as Executive Vice President—Merchandise Planning and Allocation. Prior to joining the Company, Mr. Brennan served in a variety of management positions with Burdines Department Stores, a division of Federated Department Stores, Inc., since 1982. Mr. Brennan has 21 years of experience in the retail industry.

Mr. Buley has served as Executive Vice President of Stores since April 2001 and in other management positions since joining the Company in 1988. Mr. Buley has 20 years of experience in the retail industry.

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Ms. Johnson has served as Executive Vice President—Chief Financial Officer since August 2001. Ms. Johnson joined the Company in 1998 as a Senior Vice President—Finance. Prior to joining the Company, Ms. Johnson held managerial positions at The Disney Store, Inc. from 1995 to 1998. Ms. Johnson has seven years of experience in the retail industry.

Mr. Lesko has served as Executive Vice President—Administration since November 2000 and in other management positions since joining the Company in November 1997. Mr. Lesko has 28 years of experience in the retail industry.

Mr. Leto has served as Executive Vice President—General Merchandise Manager since July 1996 and added Product Development to his existing responsibilities in February 1999. Mr. Leto has 30 years of experience in the retail industry.

Mr. Moore has served as Executive Vice President—General Merchandise Manager since February 1999. Mr. Moore served as Senior Vice President of Merchandise Planning and Allocation in 1998. He joined the Company in 1997 as Vice President—Divisional Merchandise Manager. Mr. Moore has 26 years of experience in the retail industry.

Mr. Schepp has served as Executive Vice President—General Counsel since August 2001. Mr. Schepp joined the Company in 2000 as a Senior Vice President, General Counsel. Prior to joining the Company, Mr. Schepp held various managerial positions at ShopKo Stores, Inc. from 1992 to 2000, most recently as Senior Vice President, General Counsel. Mr. Schepp has 11 years of experience in the retail industry.

Mr. Sharpin has served as Executive Vice President—Human Resources since August 1998 and in other management positions since joining the Company in 1988. Mr. Sharpin has 24 years of experience in the retail industry.

Mr. Vasques has served as Executive Vice President—Marketing since 1997. He joined the Company in December 1995 as Senior Vice President, Marketing. Mr. Vasques has 33 years of experience in the retail industry.

Item 11.     Executive Compensation

The information set forth under “Executive Compensation” on pages 7-10 and “Compensation Committee Interlocks and Insider Participation” on page 4 of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 1, 2003, is incorporated herein by reference. Compensation of directors as set forth under “Director Committees and Compensation” on pages 3-4 of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 1, 2003 is incorporated herein by reference.

Item 12.     Beneficial Ownership of Stock and Related Stockholder Matters

The information set forth under “Beneficial Ownership of Shares” on pages 5-6 and under “Equity Compensation Plan Information” on page 8 of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 1, 2003, is incorporated herein by reference.

Item 13.     Certain Relationships and Related Transactions

The information set forth under “Other Transactions” on pages 9-10 of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 1, 2003, is incorporated herein by reference.

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Item 14.    Controls and Procedures

(a) The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (the “Evaluation”) as of the last day of the period covered by this Report. Based upon the Evaluation, the Company’s Chief Executive Officer, Chief Operating Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective, alerting them to material information required to be disclosed in our periodic reports filed with the SEC. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

(b) There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the Evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

The information set forth under “Fees Paid to Ernst & Young LLP” on page 15 of the the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 1, 2003, is incorporated herein by reference.

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PART IV

Item 16.     Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Documents filed as part of this report:

1. Consolidated Financial Statements:

See “Index to Consolidated Financial Statements and Schedule of Kohl’s Corporation” on page F-1, the Report of Independent Auditors on page F-2 and the Consolidated Financial Statements and Schedule on pages F-3 to F-19, all of which are incorporated herein by reference.

2. Financial Statement Schedule:

See “Index to Consolidated Financial Statements and Schedule of Kohl’s Corporation” on page F-1 and the “Financial Statement Schedule” on page F-20, all of which are incorporated herein by reference.

3. Exhibits:

See “Exhibit Index” of this Form 10-K, which is incorporated herein by reference.

(b) Reports on Form 8-K

The Company filed two reports on Form 8-K in the fourth fiscal quarter. On November 18, 2002, Kohl’s filed a report dated November 14, 2002, under Items 5 and 7 with its third quarter earnings release attached. On November 20, 2002, the Company filed a report dated November 18, 2002, under Item 7, disclosing the terms of the Underwriting Agreement dated November 18, 2002, by and between Kohl’s and Morgan Stanley & Co. Incorporated, acting severally on behalf of themselves and other underwriters named in that agreement. The second Form 8-K was filed in compliance with the Company’s undertaking in its registration statement on Form S-3, Reg. No. 333-83788.

The Exhibit Index has been omitted from this Form 10-K. Shareholders may obtain the Exhibit Index without charge by calling Kohl’s investor relations at 262-703-1440.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND SCHEDULE OF KOHL’S CORPORATION

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of

Kohl’s Corporation

We have audited the accompanying consolidated balance sheets of Kohl’s Corporation and subsidiaries (the Company) as of February 1, 2003 and February 2, 2002, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three years in the period ended February 1, 2003. Our audits also included the financial statement schedule listed in the Index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at February 1, 2003 and February 2, 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 1, 2003, in conformity with accounting practices generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Accounting Standards No. 142 “Goodwill and Other Intangible Assets” on February 3, 2002.

ERNST & YOUNG LLP

Milwaukee, Wisconsin

February 26, 2003

F-2

KOHL’S CORPORATION

CONSOLIDATED BALANCE SHEETS

($ in Thousands, Except Share and Per Share Amounts)

See accompanying notes

F-3

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)