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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-11084
KOHL'S CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1630919
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
N56 W17000 Ridgewood Drive 53051
Menomonee Falls, Wisconsin (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code (414) 703-7000
Securities registered pursuant to section 12(b) of the Act:
Name of each exchange
on
Title of each class which registered
------------------- -----------------------
Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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. X Yes 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. [ ]
At April 5, 1999, the aggregate market value of the voting stock of the
registrant held by stockholders who were not affiliates of the registrant was
$9,741,231,548 (based upon the closing price of Registrant's Common Stock on
the New York Stock Exchange on such date). At April 5, 1999 the registrant had
issued and outstanding an aggregate of 162,712,408 shares of its Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of Registrant's Proxy Statement dated April 19, 1999 are
incorporated into Part III.
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PART I
Item 1. Business
As of April 1999, the Company operates 226 family oriented, specialty
department stores primarily in the Midwest and Mid-Atlantic areas of the
United States that feature quality, national brand merchandise which provides
exceptional value to customers. The Company's stores sell moderately priced
apparel, shoes, accessories, soft home products and housewares targeted to
middle-income customers shopping for their families and homes. 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 used herein, the term the "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 1998 ended on
January 30, 1999 and was a 52 week year.
Expansion
Since 1986, the Company has expanded from 40 stores to the current total of
226 stores both by acquiring and converting pre-existing stores and by opening
new stores. Management believes there is substantial opportunity for further
growth and intends to open approximately 40-45 new stores in fiscal 1999. Six
stores opened in March 1999: two additional stores in the Chicago market; and
additional stores in the Philadelphia, PA; Omaha, NE and Detroit, MI markets
and a store in Goshen, IN. Seven stores opened in April 1999: two stores in
the York, PA market; a store in Lexington, KY; two additional stores in the
Washington, D.C market and additional stores in the Detroit, MI; and
Indianapolis, IN markets. Kohl's will enter the Denver, CO market with five
stores in the second quarter. In August, Kohl's plans to enter the St. Louis,
MO market with six stores and to open additional stores in the Richmond, VA;
and Washington, D.C. markets; and a store in Hickory, NC. In October, Kohl's
plans to enter the Dallas/Ft. Worth, TX market with 10-13 stores and to open
additional stores in the Chicago, IL; Grand Rapids, MI; and Denver, CO
markets; a store in Harrisburg, PA and a store in Lansing, MI.
As demonstrated on the following page, Kohl's expansion strategy is to open
additional stores in existing markets, where it can leverage advertising,
purchasing, transportation and other regional overhead expenses; in contiguous
markets, where it can extend regional operating efficiencies; and in new
markets which offer similar opportunity to successfully implement the Kohl's
retailing strategy.
2
Store Expansion
Total at Fiscal Fiscal Fiscal Fiscal Total at
January 28, 1995 1996 1997 1998 January 30, Announced
Market Area 1995 New New New New 1999 Fiscal 1999
----------- ----------- ------ ------ ------ ------ ----------- -----------
Chicago, IL............. 23 1 1 -- 2 27 3
Philadelphia, PA........ -- -- -- 12 3 15 1
Washington, DC.......... -- -- -- 9 4 13 3
Milwaukee, WI........... 12 -- -- -- (1)(b) 11 --
Minneapolis/St. Paul,
MN..................... 8 2 1 -- -- 11 --
Detroit, MI............. 10 (2)(a) -- -- 2 10 2
Columbus, OH............ 6 -- -- -- 2 8 --
Cleveland, OH........... -- 4 3 -- -- 7 --
Indianapolis, IN........ 6 -- -- -- -- 6 1
Cincinnati, OH.......... 3 2 -- -- -- 5 --
Kansas City, KS, MO..... -- 3 1 -- 1 5 --
Charlotte, NC........... -- -- 3 -- 2 5 --
Pittsburgh, PA.......... -- -- -- 3 2 5 --
Dayton, OH.............. 3 -- -- -- -- 3 --
Madison, WI............. 3 -- -- -- -- 3 --
Winston
Salem/Greensboro, NC... -- -- -- -- 3 3 --
Richmond, VA............ -- -- -- -- 3 3 1
Knoxville, TN........... -- -- -- -- 3 3 --
Denver, CO.............. -- -- -- -- -- -- 6
St. Louis, MO........... -- -- -- -- -- -- 6
Dallas/Ft. Worth, TX.... -- -- -- -- -- -- 10-13
Other................... 34 10 13 8 5 70 7-9
--- --- --- --- --- --- -----
Total............... 108 20 22 32 31 213 40-45
=== === === === === === =====
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(a) The Company closed two underperforming stores
(b) The Company closed one underperforming store
Kohl's retailing strategy has proven to be readily transferable to new
markets. For example, Kohl's has successfully opened new stores in small
markets such as Kalamazoo and Knoxville; intermediate markets such as Kansas
City and Charlotte, and large markets such as Chicago and Philadelphia. In
addition, the Kohl's concept has been successful in retailing formats such as
strip shopping centers, community and regional malls and free-standing stores.
Management believes the transferability of the Kohl's retailing strategy, the
Company's experience in acquiring and converting pre-existing stores and in
opening new stores, and the Company's substantial investment in management
information systems, centralized distribution and headquarters functions
provide a solid foundation for further expansion.
In determining where to open new stores, the Company evaluates: demographic
information, the availability of prime real estate locations, existing and
potential competitors, and the potential impact on existing stores. In
addition, the Company develops pro forma projections that take into account
the economies of scale available in advertising, distribution and regional
expenses.
3
Merchandising
Kohl's stores feature moderately priced, department store national brands
which provide exceptional value to customers. Kohl's merchandise is targeted
to appeal to middle-income customers shopping for their families and homes.
All of the Company's stores carry a consistent merchandise assortment. The
Company's stores emphasize apparel and shoes for children, women and men, soft
home products, such as towels, sheets and pillows, and housewares. The
Company's merchandise mix is reflected by the following table:
Merchandise Mix
(percent of net sales)
Fiscal Year
-----------------
1998 1997 1996
----- ----- -----
Apparel................................................. 61.5% 61.2% 60.6%
Accessories/Shoes....................................... 18.5% 18.8% 19.1%
Soft Home/Housewares.................................... 12.1% 12.2% 12.5%
Hardlines............................................... 7.9% 7.8% 7.8%
The Company purchases approximately 40% of its merchandise from 20
suppliers. No individual supplier exceeds 10% of the Company's annual
purchases.
Distribution
The Company receives 99% of its merchandise at three 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 Menomonee Falls, Wisconsin distribution center opened in 1981. This
500,000 square foot facility services the Company's stores in northern
Illinois, Wisconsin, Minnesota, Kansas, Iowa, Missouri, Nebraska, North Dakota
and South Dakota.
The Company opened a distribution center in Findlay, Ohio in August 1994.
This 650,000 square foot facility services the Company's stores in central
Illinois, Ohio, Michigan, Indiana, Kentucky, Tennessee and West Virginia.
The Company opened a 350,000 square foot distribution center in Winchester,
Virginia in the summer of 1997. This facility is currently being expanded by
approximately 50,000 square feet to increase its capacity. The facility
services the Company's stores in New York, North Carolina, Pennsylvania,
Virginia, Maryland, Delaware and New Jersey.
After Winchester's expansion is completed, these three facilities will be
capable of supporting approximately 300 store locations. The Company plans to
open its fourth distribution center in Blue Springs, Missouri by spring 2000.
This 542,000 square foot facility is being built to handle 80-100 stores and
will service the Company's stores in Colorado, Texas, Kansas, Missouri,
Nebraska and central Iowa.
Employees
As of January 30, 1999, the Company had approximately 33,800 employees,
including approximately 10,700 full-time and approximately 23,100 part-time
associates. The number of associates varies during the year, peaking during
the "back-to-school" and Christmas holiday seasons. None of the Company's
associates is represented by a collective bargaining unit. The Company
believes its relations with its associates are very good.
4
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, up-scale 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 realized during the last
half of each fiscal year, which includes the back-to-school and holiday
seasons. Approximately 17% 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 a full 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 the Company, and the Company considers this mark and the
accompanying name recognition to be valuable to its business. The Company has
approximately 40 additional trademarks, trade names and service marks, most of
which are used in its private label program.
Item 2. Properties
As of January 30, 1999, the Company operated 213 stores in 22 states. The
Company owned 51 stores, owned 37 stores with ground leases and leased 125
stores under operating leases. The typical ground lease has an initial term of
between 15 and 25 years, with 2 to 6 renewal periods of 5 to 10 years each,
exercisable at the Company's option. The typical operating lease has an initial
term of between 15 and 20 years, with 2 to 6 renewal periods of 5 to 10 years
each, exercisable at the Company's option.
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 56% of the leases provide for additional rent based on
a percentage of sales to be paid when designated sales levels are achieved. At
January 30, 1999, the average minimum annual rent of the 125 leased stores was
$6.25 per square foot, and the average minimum annual rent of the 37 stores
operated under ground leases was $2.71 per square foot.
5
The Company's stores are located in strip shopping centers (130), community
and regional malls (43), and as free standing units (40). Of the Company's
stores, 183 are one story facilities and 30 are two story facilities.
Number of
Stores at
January 30,
1999
-----------
Illinois...................................................... 33
Ohio.......................................................... 31
Wisconsin..................................................... 27
Pennsylvania.................................................. 17
Michigan...................................................... 16
Indiana....................................................... 15
Minnesota..................................................... 13
Virginia...................................................... 9
Maryland...................................................... 8
North Carolina................................................ 8
Kansas........................................................ 7
New Jersey.................................................... 6
Iowa.......................................................... 4
Kentucky...................................................... 3
Missouri...................................................... 3
Nebraska...................................................... 3
Tennessee..................................................... 3
Delaware...................................................... 2
West Virginia................................................. 2
New York...................................................... 1
North Dakota.................................................. 1
South Dakota.................................................. 1
---
Total..................................................... 213
===
The Company owns its distribution centers in Menomonee Falls, Wisconsin;
Findlay, Ohio and Winchester, Virginia. The Company also owns its corporate
headquarters in Menomonee Falls, Wisconsin.
Item 3. Legal Proceedings
See Note 9 to the Company's Consolidated Financial Statements concerning
routine legal matters.
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 1998.
6
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." On March 9, 1998, the Company's Board of
Directors declared a 2 for 1 stock split effected in the form of a stock
dividend on the Company's common stock. The record date for the stock split
was April 10, 1998. The prices in the table set forth below indicate the high
and low prices of the Common Stock for each quarter in fiscal 1998 and 1997,
adjusted by the Company to give effect retroactively to the stock split.
Price Range
-------------------
High Low
--------- ---------
Fiscal 1998
First Quarter......................................... $43 15/32 $34 11/16
Second Quarter........................................ 57 5/8 40 1/2
Third Quarter......................................... 58 15/16 34 1/16
Fourth Quarter........................................ 67 3/4 45 1/8
Fiscal 1997
First Quarter......................................... $25 9/16 $19 7/16
Second Quarter........................................ 31 19/32 24 7/8
Third Quarter......................................... 37 3/8 29
Fourth Quarter........................................ 37 11/16 31 5/16
(b) Holders
At April 5, 1999, there were 5,643 holders of record 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. In addition, financial
covenants and other restrictions in the Company's financing agreements limit
the payment of dividends on the Common Stock. The payment of future dividends,
if any, will be determined by the Board of Directors in light of existing
conditions, including the Company's earnings, financial condition and
requirements, restrictions in financing agreements, business conditions and
other factors deemed relevant by the Board of Directors.
7
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.
Fiscal Year Ended
----------------------------------------------------------
January January February February January
30, 31, 1, 3, 28,
1999 1998 1997 1996 (a) 1995
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands, Except Per Share and Per Square
Foot Data)
Statement of Operations
Data:
Net sales............... $3,681,763 $3,060,065 $2,388,221 $1,925,669 $1,554,100
Cost of merchandise
sold................... 2,447,301 2,046,468 1,608,688 1,294,653 1,037,740
---------- ---------- ---------- ---------- ----------
Gross margin 1,234,462 1,013,597 779,533 631,016 516,360
Selling, general and
administrative
expenses............... 810,162 678,793 536,226 436,442 356,893
Depreciation and
amortization 70,049 57,380 44,015 33,931 27,402
Preopening expenses..... 16,388 18,589 10,302 10,712 8,190
Credit operations, non-
recurring(b)........... -- -- -- 14,052 --
---------- ---------- ---------- ---------- ----------
Operating income........ 337,863 258,835 188,990 135,879 123,875
Interest expense, net... 21,114 23,772 17,622 13,150 6,424
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 316,749 235,063 171,368 122,729 117,451
Provision for income
taxes.................. 124,483 93,790 68,890 50,077 48,939
---------- ---------- ---------- ---------- ----------
Net income.............. $ 192,266 $ 141,273 $ 102,478 $ 72,652 $ 68,512
========== ========== ========== ========== ==========
Per share(c):
Basic................. $ 1.22 $ 0.93 $ 0.69 $ 0.49 $ 0.47
Diluted............... $ 1.18 $ 0.91 $ 0.68 $ 0.49 $ 0.46
Operating Data:
Comparable store sales
growth(d).............. 7.9% 10.0% 11.3% 5.9% 6.1%
Net sales per selling
square foot(e)......... $ 265 $ 267 $ 261 $ 257 $ 258
Total square feet of
selling space (in
thousands; end of
period)................ 15,111 12,533 10,064 8,378 6,824
Number of stores open
(end of period)........ 213 182 150 128 108
Capital expenditures
including capitalized
leases................. $ 248,878 $ 202,735 $ 223,423 $ 138,797 $ 132,800
Balance Sheet Data (end
of period):
Working capital......... $ 559,207 $ 525,251 $ 229,339 $ 175,368 $ 114,637
Property and equipment,
net.................... 933,011 749,649 596,227 409,168 298,737
Total assets............ 1,936,095 1,619,721 1,122,483 805,385 658,717
Total long-term debt.... 310,912 310,366 312,031 187,699 108,777
Shareholders' equity.... 1,162,779 954,782 517,471 410,638 334,249
See footnotes on next page
8
(footnotes for Selected Consolidated Financial Data)
(a) Fiscal 1995 contained 53 weeks.
(b) Effective September 1, 1995, the Company terminated its agreement with
Citicorp Retail Services (CRS) under which it sold its private label credit
card receivables to CRS and established its own credit operation. In
connection with this transaction, the Company incurred a one-time charge of
$14.1 million ($8.3 million after-tax).
(c) All per share data has been adjusted to reflect the 2 for 1 stock splits
effected in April 1998 and April 1996.
(d) Comparable store sales for each period are based on sales of stores
(including relocated or expanded stores) open throughout the full period
and throughout the full prior period. Comparable store sales growth for
fiscal 1996 compares the 52 weeks of fiscal 1996 versus the same 52 week
calendar in fiscal 1995 and excludes the discontinued electronics business.
Comparable store sales growth for fiscal 1995 has been adjusted to reflect
the elimination of the 53rd week in fiscal 1995.
(e) Net sales per selling square foot is calculated using net sales of stores
that have been open for the full year, divided by their square footage of
selling space.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
Item 7. FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Sales
Net sales for the last three years, number of stores, sales growth and net
sales per selling square foot by year were as follows:
Fiscal Year
----------------------------------
1998 1997 1996
---------- ---------- ----------
Net sales (in thousands).................... $3,681,763 $3,060,065 $2,388,221
Number of stores open (end of period)....... 213 182 150
Sales growth--all stores.................... 20.3% 28.1% 24.0%
Sales growth--comparable stores(a).......... 7.9% 10.0% 11.3%
Net sales per selling square foot(b)........ $ 265 $ 267 $ 261
- --------
(a) Comparable store sales growth for each period is based on sales of stores
(including relocated or expanded stores) open throughout the full period
and throughout the full prior period. Comparable sales growth for fiscal
1996 compares the 52 weeks of fiscal 1996 versus the same 52 week calendar
in fiscal 1995 and excludes the discontinued electronics business.
(b) Net sales per selling square foot is calculated using net sales of stores
that have been open for the full year divided by their square footage of
selling space.
Increases in net sales primarily reflect new store openings and comparable
store sales growth. Net sales increased $621.7 million, or 20.3%, from
$3,060.1 million in fiscal 1997 to $3,681.8 million in fiscal 1998. Of the
increase, $408.6 million is attributable to the opening of 32 new stores in
fiscal 1998 and to the inclusion of a full year of operating results for 32
stores opened in fiscal 1997. The remaining $213.1 million is attributable to
the increase in comparable store sales.
Net sales increased $671.8 million, or 28.1%, from $2,388.2 million in
fiscal 1996 to $3,060.1 million in fiscal 1997. Of the increase, $455.8
million is attributable to the opening of 32 new stores in fiscal 1997 and to
the inclusion of a full year of operating results for 22 stores opened in
fiscal 1996. The remaining $216.0 million is attributable to the increase in
comparable stores sales.
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:
Fiscal Year
-------------------
1998 1997 1996
----- ----- -----
Net sales.................................................. 100.0% 100.0% 100.0%
Cost of merchandise sold................................... 66.5 66.9 67.4
----- ----- -----
Gross margin............................................... 33.5 33.1 32.6
Selling, general and administrative expenses............... 22.0 22.2 22.5
Depreciation and amortization.............................. 1.9 1.8 1.8
Preopening expenses........................................ .4 .6 .4
----- ----- -----
Operating income........................................... 9.2 8.5 7.9
Interest expense, net...................................... .6 .8 .7
----- ----- -----
Income before income taxes................................. 8.6 7.7 7.2
Income taxes............................................... 3.4 3.1 2.9
----- ----- -----
Net income................................................. 5.2% 4.6% 4.3%
===== ===== =====
10
Gross Margin. The Company's gross margin has increased from 32.6% in fiscal
1996 to 33.5% in fiscal 1998. This increase is primarily attributable to a
change in merchandise mix and improvements related to inventory management.
Selling, General and Administrative Expenses. Selling, general and
administrative 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 headquarters functions, but exclude
depreciation and amortization. Although the total amount of selling, general,
and administrative expenses increased from fiscal 1996 to fiscal 1998 due to
the addition of new stores, such expenses decreased as a percent of net sales.
Selling, general and administrative expenses decreased from 22.5% in fiscal
1996 to 22.0% in fiscal 1998. This decline reflects the leveraging of store
payroll, distribution and headquarters expenses as a result of the increased
sales.
Depreciation and Amortization. The total amount of depreciation and
amortization increased from fiscal 1996 to fiscal 1998 due to the addition of
new stores, the remodeling of existing stores, the opening of the distribution
center in Winchester, Virginia and the opening of the new corporate office.
Depreciation and amortization increased as a percentage of net sales from 1.8%
in fiscal 1996 to 1.9% in fiscal 1998.
Preopening Expenses. Effective January 30, 1999, the Company wrote-off all
previously deferred preopening costs ($1.0 million) and pursuant to SOP 98-5,
"Reporting on the Costs of Start-Up Activities", will expense all future
preopening costs as incurred. The Company incurred $16.4 million of preopening
expenses in fiscal 1998. Approximately $15.4 million related to the opening of
32 stores in fiscal 1998. The remaining $1.0 million is associated with the
opening of eighteen stores in the spring of 1999. The Company incurred $18.6
million with the opening of 32 stores in fiscal 1997 and $10.3 million with
the opening of 22 stores in fiscal 1996. These expenses relate to the costs
associated with new store openings, including hiring and training costs for
new employees, Kohl's charge account solicitation and processing and
transporting initial merchandise.
Operating Income. Operating income increased $79.0 million, or 30.5%, in
fiscal 1998, $69.8 million, or 37.0%, in fiscal 1997 and increased $53.1
million, or 39.1% in fiscal 1996 due to the factors described above.
Interest Expense. Net interest expense decreased $2.7 million to $21.1
million in fiscal 1998. The decrease was primarily due to a reduction in
borrowings under its revolving credit facility and increased interest income
on short-term investments. Net interest expense increased $6.2 million to
$23.8 million in fiscal 1997 and increased $4.5 million to $17.6 million in
fiscal 1996. The increase in fiscal 1997 was due primarily to the $100 million
non-callable 7.375% unsecured senior notes issued in October 1996. Interest
expense on the $60 million senior notes issued in March 1994, the $200 million
non-callable senior notes issued in 1996 and $48.4 million capital lease debt
is fixed and known until maturity.
Income Taxes. The Company's effective tax rate was 39.3% in fiscal 1998,
39.9% in fiscal 1997 and 40.2% in fiscal 1996. The overall decline in the
effective tax rates in fiscal 1998 and fiscal 1997 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.
Impact of Year 2000
The Company currently has a Year 2000 Readiness Plan implemented. Detailed
in the plan are compliance definitions and testing guidelines for in-house
developed applications and computer hardware platforms. The plan defines a
methodology for assessing in-house developed applications and provides a means
for documentation. Team members and their responsibilities are defined
including senior executives that participate on the Year 2000
11
steering committee. The plan includes three phases to address the Year 2000
issue and a status of these key milestones is summarized below:
Year 2000 Readiness Plan
Phases Current Status
------------------------ --------------
Assessment Complete
Remediation Complete
Verification On schedule
.Replacement code systems August 1999 target completion date
.Packaged financial systems September 1999 target completion date
.Non IS systems (including September 1999 target completion date
merchandise vendor EDI
transactions)
The phases of the Year 2000 Readiness Plan are defined below:
. The Assessment phase involved the inventory of all in-house developed
applications, purchased software and hardware, merchandise vendors, non-
IT systems, utilities and service providers. The Assessment phase also
included developing a plan for addressing each item and/or vendor to
ensure Year 2000 compliance. This phase is complete.
. The Remediation phase involved implementing the changes required to reach
compliance and unit testing. This included correspondence with vendors
that have products or services that impact the Company's ability to
continue normal business operations. This phase is also complete.
. The Verification phase is system testing the change(s) in similar
environments. This includes testing with vendors and service provider
organizations. The rollout of the packaged financial systems has started
and will be completed by the end of August 1999. Even though the packaged
financial systems are identified Year 2000 compliant, the Company will be
conducting integrated testing in September 1999. The Company has
installed a Year 2000 test lab that is identical to the production
environment so that Year 2000 date simulation testing can be performed
without affecting production files. The Verification testing phase,
except for all packaged financial systems, will be completed in August
1999.
Several years ago, the Company changed its client server and mainframe date
routine standards to incorporate four digits for all new systems development.
As a result, there are many systems that need only to be certified and have
the interfaces reviewed and tested. There are however, a number of legacy and
package financial systems that are not Year 2000 compliant. The Company has
assessed these systems and presently believes that with modification to
existing software and conversions to new software, the Year 2000 issue will
not pose significant operational problems. The Company is utilizing both
internal and external resources to reprogram, or replace and test the software
for Year 2000 modifications.
The Company has initiated formal communications with all significant
suppliers to determine the extent to which the Company's interface systems are
vulnerable to those parties' failure to remediate their own Year 2000 issues.
The Company is currently unit testing merchandise vendor EDI transactions and
non-IS systems and is 50% complete. The Company continues to refine its
contingency plans and is enhancing and adding to the plans for each business
area. The Company has identified that it may experience certain inconveniences
or inefficiencies as a result of a supplier's failure to remediate its Year
2000 issues. The Company believes however, the vast majority of the Company's
business will proceed without any significant interruption.
The Company's total Year 2000 project costs and estimates to complete
include the impact of third party Year 2000 issues based on presently
available information. However, there can be no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's systems.
The total cost of the Year 2000 project is estimated at $10 million and is
being funded through operating cash flows. Of the total project cost,
approximately $6 million is attributable to the purchase of new software and
hardware that will be capitalized. The remaining $4 million of programming and
testing costs will be
12
expensed as incurred and is not expected to have a material effect on the
results of the operations. Of the capitalized portion, approximately $4 million
is for a new financial system. The new financial system was a previously
planned project that supports the Company's growth, provides significant
business enablement and eliminates a substantial Year 2000 effort. To date, the
Company has incurred approximately $5.4 million ($1.8 million expensed and $3.6
million capitalized) related to the assessment of, and preliminary efforts on,
its Year 2000 project and the development of a modification plan, purchase of
new systems and systems modifications.
The cost of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. In addition to
the Company's reliance on certain third parties to remediate their own Year
2000 issues, specific factors that might cause such material differences
include, but are not limited to, the continued availability and cost of
personnel trained in this area and the ability to locate and correct all
relevant computer codes.
Inflation
The Company does not believe that inflation has had a material effect on the
results during the periods presented. However, there can be no assurance that
the Company's business will not be affected in the future.
Liquidity and Capital Resources
The Company's primary ongoing cash requirements are for inventory purchases,
capital expenditures in connection with expansion and remodeling programs and
preopening expenses. The Company's primary sources of funds for its business
activities are cash flow from operations, sale of its proprietary accounts
receivable, borrowings under its revolving credit facility 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. The Company's working capital
and inventory levels typically build throughout the fall, peaking during the
holiday selling season.
The Company's working capital increased to $559.2 million at January 30,
1999 from $525.3 million at January 31, 1998. Of this increase, $31.1 million
is attributable to higher credit card receivables as the Company internally
financed a larger balance of receivables in fiscal 1998. The remaining increase
was primarily the result of higher merchandise levels required to support
existing stores and incremental new store locations offset in part by increased
accounts payable.
In conjunction with the adoption of SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities", the
Company established Kohl's Receivable Corporation (KRC), a wholly owned
subsidiary of the Company. KRC is a special purpose entity and its assets are
legally isolated from the Company. KRC entered into an agreement with a bank,
renewable at KRC's request and bank's option, under which it periodically
sells, generally with recourse, an undivided interest in a revolving pool of
the Company's private label credit card receivables up to a maximum of $225
million. At January 30, 1999, a $113 million interest had been sold under this
agreement and reflected as a reduction of accounts receivable as this sale met
the requirements of SFAS No. 125.
Cash provided by operating activities was $230.7 million for fiscal 1998 as
compared to cash used in operating activities of $50.2 million for fiscal 1997.
Cash provided by operating activities was $103.9 million for fiscal 1996.
Excluding changes in operating assets and liabilities, cash provided by
operating activities was $265.8 million for fiscal 1998, $199.0 million for
fiscal 1997 and $153.4 million for fiscal 1996.
The Company's capital expenditures were $248.9 during fiscal 1998, $202.7
during fiscal 1997 and $223.4 million during fiscal 1996. The increase in
capital expenditures in 1998 is primarily attributable to the Company's
remodeling program and new store spending in fiscal 1998. The decrease in
expenditures from fiscal 1996 to fiscal 1997 is primarily attributable to the
amount of spending for 1997's new stores incurred in 1996 and to the completion
of its corporate office construction in 1996.
13
In March 1999, the Company purchased the right to occupy 33 store locations
previously operated by Caldor Corporation. The Company plans to take
possession of the stores after Caldor completes its going out of business
sale, and expects that the stores will be open for business in spring 2000.
The Company paid $142 million for the right to occupy the stores and expects
to invest approximately $165 million more to renovate and refixture the
stores. To fund the renovation and refixturing, the Company issued 2,800,000
shares of its common stock to the public in March 1999.
Total capital expenditures for fiscal 1999 are currently expected to range
between $550-$575 million. This estimate includes the purchase of favorable
lease rights from Caldor Corporation and renovation and refixturing of the
properties. The actual amount of the Company's future annual capital
expenditures will depend primarily on the number of new stores opened, whether
such stores are owned or leased by the Company and the number of existing
stores remodeled or refurbished.
The Company plans to open approximately 40-45 new stores in fiscal 1999.
The total cash outlay required for a newly constructed leased store, including
capital expenditures, preopening expenses and net working capital, is
approximately $5.0 million. The additional cash outlay required for new owned
stores will vary depending upon land and sitework costs, but is expected to be
approximately $7.5 million per location. The Company does not anticipate that
its planned expansion will be limited by any restrictive covenants in its
financing agreements.
The Company anticipates that it will be able to satisfy its current
operating needs, planned capital expenditures and debt service requirements
with proceeds from the March 1999 stock offering, current working capital,
cash flows from operations, seasonal borrowings under its $300 million
revolving credit facility, short-term trade credit and other sources of
financing.
Information in this document contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, such as
statements relating to store openings, debt service requirements and planned
capital expenditures. Forward-looking statements can be identified by the use
of forward-looking terminology such as "believes", "expects", "plans", "may",
"will", "should" or "anticipates" or the negative thereof or other variations
thereon. No assurance can be given that the future results covered by the
forward-looking statements will be achieved.
Item 7A Quantitative and Qualitative Disclosures About Market Risk
The Company's primary exposure to market risk consists of changes in
interest rates on borrowings. At January 30, 1999, the Company's long-term
debt excluding capital leases was $264.1 million. Of this amount, $260 million
is fixed rate debt.
Long-term fixed rate debt is utilized as a primary source of capital. When
these debt instruments mature, the Company intends to refinance such debt at
then-existing market interest rates which may be more or less than the
interest rates on the maturing debt. If interest rates on the existing fixed
rate debt outstanding at January 30, 1999, declined by 100 basis points for
fiscal 1999, the Company's interest expense would be reduced by $2.6 million.
During fiscal 1998, average borrowings under the Company's variable rate
revolving credit facility were $10 million. If market interest rates
(including LIBOR and commercial paper) on average fiscal 1998 variable rate
debt changed by 100 basis points for fiscal 1999, the Company's interest
expense would change by $.1 million.
Item 8. Financial Statements and Supplementary Data
The financial statements are included in this report beginning on page F-1.
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure
None
14
Part III.
Item 10. Executive Officers of Registrant
The information set forth under "Election of Directors" on pages 1-2 and
under "Compliance with Sec. 16(a) of the Exchange Act" on page 5 of
Registrant's Proxy Statement dated April 19, 1999 is incorporated herein by
reference. The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Jay H. Baker 64 Director
Caryn Blanc 41 Executive Vice President--Merchandise Planning and
Logistics
John F. Herma 51 Chief Operating Officer, Secretary and Director
William S. Kellogg 55 Chairman and Director
John Lesko 46 Executive Vice President--Chief Information Officer
Richard Leto 47 Executive Vice President--General Merchandise
Manager and Product
Development
Kevin Mansell 46 President and Director
Arlene Meier 47 Executive Vice President--Chief Financial Officer
R. Lawrence Montgomery 50 Vice Chairman, Chief Executive Officer and Director
Jack Moore 44 Executive Vice President--General Merchandise
Manager
Jeffrey Rusinow 44 Executive Vice President--Regional Director of
Stores and Store Administration
Don Sharpin 50 Executive Vice President--Human Resources
Gary Vasques 51 Executive Vice President--Marketing
Mr. Baker served as President from 1986-1998. Mr. Baker has announced that
he plans to retire on December 31, 1999. During 1999, he will assist in the
transition of leadership in merchandising and marketing to Mr. Mansell. Mr.
Baker has 36 years of experience in the retail industry.
Ms. Blanc has served as Executive Vice President--Logistics since 1991 and
added Merchandise Planning to her existing responsibilities in February 1999.
Ms. Blanc has served in other management positions with the Company since
1988. Ms. Blanc joined the Company in 1978, and has 21 years of experience in
the retail industry.
Mr. Herma has served as Chief Operating Officer since 1986. Mr. Herma
joined the Company as Director of Human Resources in 1980 and has 28 years of
experience in the retail industry.
Mr. Kellogg has served as Chairman since 1979 and served as Chief Executive
Officer from 1979 to 1998. Mr. Kellogg joined the Company in 1967, and has 32
years of experience in the retail industry.
Mr. Lesko joined the Company in November 1997. From January 1997 to
November 1997, Mr. Lesko served as Senior Vice President, Information Systems
of Jack Eckerd Corporation, a division of the J.C. Penney Company. Prior to
1997, Mr. Lesko served as Executive Vice President, Marketing and Information
Systems for Thrift Drug, a wholly owned subsidiary of J.C. Penney Company. Mr.
Lesko has 24 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. Prior to joining the Company, Mr. Leto
served as Executive Vice President, Merchandising for the R. H. Macy
Corporation. Mr. Leto has 26 years of experience in the retail industry.
Mr. Mansell was promoted to President and Director in February 1999. Mr.
Mansell has 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 24 years of experience in the retail industry.
15
Ms. Meier has served as Executive Vice President--Chief Financial Officer
since October 1994. Ms. Meier joined the Company as Vice President--Controller
in 1989. Ms. Meier has 23 years of experience in the retail industry.
Mr. Montgomery was promoted to Chief Executive Officer in February 1999 and
has served as Vice Chairman since March 1996. Mr. Montgomery served as
Executive Vice President of Stores from February 1993 to February 1996. Mr.
Montgomery joined the Company as Senior Vice President--Director of Stores in
1988. Mr. Montgomery has 28 years of experience in the retail industry.
Mr. Moore was promoted to Executive Vice President--General Merchandise
Manager in February 1999. Mr. Moore joined the Company in 1997 as a Vice
President--Divisional Merchandise Manager. Mr. Moore also served as Senior
Vice President of Merchandise Planning and Allocation. Prior to joining the
Company, Mr. Moore served in various management positions at Dayton Hudson
Department Stores. Mr. Moore has 22 years of experience in the retail
industry.
Mr. Rusinow has served as Executive Vice President--Regional Manager of
Stores since January 1998 and added Store Administration to his existing
responsibilities in February 1999. Mr. Rusinow has served in other management
positions with the Company since joining the Company in 1994. Prior to joining
the Company, Mr. Rusinow served as Executive Vice President, Stores and
Merchandising for the department store division of Hudson's Bay Company, based
in Toronto, Canada. Mr. Rusinow has 21 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 with the Company since joining
the Company in 1988. Mr. Sharpin has 20 years of experience in the retail
industry.
Mr. Vasques has served as Executive Vice President--Marketing since
December 1995. Prior to joining the Company, Mr. Vasques served as Senior Vice
President--Marketing of Caldor from 1991 to November 1995. Mr. Vasques has 29
years of experience in the retail industry.
Item 11. Executive Compensation
The information set forth under "Executive Compensation" on pages 6-9 of
Registrant's Proxy Statement dated April 19, 1999 is incorporated herein by
reference. Compensation of directors as set forth under "Director Committees
and Compensation" on page 3 of Registrant's Proxy Statement dated April 19,
1999 is incorporated herein by reference.
Item 12. Beneficial Ownership of Stock
The information set forth under "Beneficial Ownership of Shares" on pages
4-5 of Registrant's Proxy Statement dated April 19, 1999 is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under "Compensation Committee Interlocks and
Insider Participation" on page 3, and "Other Agreements" on page 9 of
Registrant's Proxy Statement dated April 19, 1999 is incorporated herein by
reference.
16
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE OF KOHL'S CORPORATION
Page
----
Consolidated Financial Statements
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Income........................................ F-4
Consolidated Statements of Changes in Shareholders' Equity............... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts........................... F-18
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 January 30, 1999 and January
31, 1998, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended January 30, 1999. 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 generally accepted auditing
standards. 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 January 30, 1999 and January 31, 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended January 30, 1999, in conformity with generally accepted
accounting principles. 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.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 5, 1999, except for
Note 12 for which the date is
March 18, 1999
F-2
KOHL'S CORPORATION
CONSOLIDATED BALANCE SHEETS
January January
30, 1999 31, 1998
---------- ----------
(In Thousands)
ASSETS
------
Current assets:
Cash and cash equivalents.............................. $ 2,858 $ 44,161
Short-term investments................................. 26,736 --
Accounts receivable trade, net......................... 270,704 239,617
Merchandise inventories................................ 617,362 515,790
Deferred income taxes.................................. 14,412 6,615
Other.................................................. 7,366 5,259
---------- ----------
Total current assets................................. 939,438 811,442
Property and equipment, net.............................. 933,011 749,649
Other assets............................................. 25,027 12,643
Favorable lease rights................................... 13,681 15,849
Goodwill................................................. 24,938 30,138
---------- ----------
Total assets......................................... $1,936,095 $1,619,721
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable....................................... $ 212,926 $ 150,679
Accrued liabilities.................................... 117,200 95,185
Income taxes payable................................... 48,572 38,482
Current portion of long-term debt...................... 1,533 1,845
---------- ----------
Total current liabilities............................ 380,231 286,191
Long-term debt........................................... 310,912 310,366
Deferred income taxes.................................... 53,787 45,104
Other long-term liabilities.............................. 28,386 23,278
Shareholders' equity:
Common stock--$.01 par value, 400,000,000 shares
authorized, 158,394,735 and 157,757,956 shares issued
at January 30, 1999 and January 31, 1998,
respectively.......................................... 1,584 1,578
Paid-in capital........................................ 504,275 488,550
Retained earnings...................................... 656,920 464,654
---------- ----------
Total shareholders' equity........................... 1,162,779 954,782
---------- ----------
Total liabilities and shareholders' equity........... $1,936,095 $1,619,721
========== ==========
See accompanying notes
F-3
KOHL'S CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended
----------------------------------
January January February
30, 1999 31, 1998 1, 1997
---------- ---------- ----------
(In Thousands, Except Per Share
Data)
Net sales................. $3,681,763 $3,060,065 $2,388,221
Cost of merchandise sold.. 2,447,301 2,046,468 1,608,688
---------- ---------- ----------
Gross margin.............. 1,234,462 1,013,597 779,533
Operating expenses:
Selling, general and
administrative......... 810,162 678,793 536,226
Depreciation and
amortization........... 64,849 52,180 38,815
Goodwill amortization... 5,200 5,200 5,200
Preopening expenses..... 16,388 18,589 10,302
---------- ---------- ----------
Total operating expenses.. 896,599 754,762 590,543
---------- ---------- ----------
Operating income.......... 337,863 258,835 188,990
Other (income) expense:
Interest expense........ 22,672 24,261 17,745
Amortization of deferred
financing costs........ 200 344 201
Interest income......... (1,758) (833) (324)
---------- ---------- ----------
Income before income
taxes.................... 316,749 235,063 171,368
Provision for income
taxes.................... 124,483 93,790 68,890
---------- ---------- ----------
Net income................ $ 192,266 $ 141,273 $ 102,478
========== ========== ==========
Net income per share:
Basic................... $ 1.22 $ 0.93 $ 0.69
Diluted................. $ 1.18 $ 0.91 $ 0.68
See accompanying notes
F-4
KOHL'S CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Total
-------------- Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
------- ------ -------- -------- -------------
(In Thousands)
Balance at February 3, 1996..... 147,473 $1,475 $188,260 $220,903 $ 410,638
Exercise of stock options....... 367 3 3,102 -- 3,105
Income tax benefits of stock
options........................ -- -- 1,250 -- 1,250
Net income...................... -- -- -- 102,478 102,478
------- ------ -------- -------- ----------
Balance at February 1, 1997..... 147,840 1,478 192,612 323,381 517,471
Issuance of common shares....... 9,141 92 282,776 -- 282,868
Exercise of stock options....... 777 8 7,062 -- 7,070
Income tax benefit of stock
options........................ -- -- 6,100 -- 6,100
Net income...................... -- -- -- 141,273 141,273
------- ------ -------- -------- ----------
Balance at January 31, 1998..... 157,758 1,578 488,550 464,654 954,782
Exercise of stock options....... 637 6 5,880 -- 5,886
Income tax benefit of stock
options........................ -- -- 9,845 -- 9,845
Net income...................... -- -- -- 192,266 192,266
------- ------ -------- -------- ----------
Balance at January 30, 1999..... 158,395 $1,584 $504,275 $656,920 $1,162,779
======= ====== ======== ======== ==========
See accompanying notes
F-5
KOHL'S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
-----------------------------------
January 30, January 31, February 1,
1999 1998 1997
----------- ----------- -----------
(In Thousands)
Operating activities
Net income................................ $ 192,266 $ 141,273 $ 102,478
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 70,249 57,724 44,216
Deferred income taxes................... 886 (2,786) 4,870
Other noncash charges................... 2,353 2,784 1,843
Changes in operating assets and
liabilities:
Accounts receivable trade............. (31,087) (212,906) (26,181)
Merchandise inventories............... (101,572) (92,583) (102,635)
Other current assets.................. (2,107) 1,144 231
Accounts payable...................... 62,247 24,318 56,904
Accrued and other long-term
liabilities.......................... 27,366 17,795 18,339
Income taxes payable.................. 10,090 13,012 3,842
--------- --------- ---------
Net cash provided by (used in) operating
activities............................... 230,691 (50,225) 103,907
Investing activities
Acquisition of property and equipment..... (248,878) (202,735) (223,423)
Proceeds from sale of property and
equipment................................ 1,292 295 752
Purchase of short-term investments, net... (26,736) -- --
Other..................................... (14,587) (6,534) (2,063)
--------- --------- ---------
Net cash used in investing activities..... (288,909) (208,974) (224,734)
Financing activities
Proceeds from public debt offering........ -- -- 200,000
Net borrowings (repayments) under credit
facilities............................... 1,600 -- (74,000)
Payment of financing fees on debt......... -- (101) (2,011)
Repayment of other long-term debt, net.... (416) (1,483) (1,430)
Net proceeds from issuance of common
shares................................... 15,731 296,038 4,355
--------- --------- ---------
Net cash provided by financing activities. 16,915 294,454 126,914
--------- --------- ---------
Net increase (decrease) in cash and cash
and equivalents.......................... (41,303) 35,255 6,087
Cash and cash equivalents at beginning of
period................................... 44,161 8,906 2,819
--------- --------- ---------
Cash and cash equivalents at end of
period................................... $ 2,858 $ 44,161 $ 8,906
========= ========= =========
See accompanying notes
F-6
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 30, 1999
1. Business and Summary of Accounting Policies
Business
Kohl's Corporation (the Company) operates family oriented, specialty
department stores primarily in the Midwest and Mid-Atlantic areas of the
United States that feature national brand apparel, shoes, accessories, soft
home products and housewares targeted to middle-income customers.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Accounting Period
The Company's fiscal year end is the Saturday closest to January 31. The
financial statements reflect the results of operations and cash flows for the
fiscal years ended January 30, 1999 (fiscal 1998), January 31, 1998 (fiscal
1997) and February 1, 1997 (fiscal 1996), which all include 52 weeks.
Cash Equivalents
Cash equivalents represent debt securities with an original maturity of
three months or less, which are held to maturity. Debt securities are stated
at cost which approximates market value.
Short-term Investments
Short-term investments are classified as available-for-sale securities and
are highly liquid debt instruments. These securities have a put option feature
that allows the Company to liquidate the investments at its discretion. These
investments are stated at cost, which approximates market value.
Inventories
Merchandise inventories are valued at the lower of cost or market with cost
determined by the last-in, first-out (LIFO) method. Inventories would have
been $1,921,000 higher at January 30, 1999, and $4,783,000 higher at January
31, 1998 if they had been valued using the first-in, first-out (FIFO) method.
Property and Equipment
The cost of property and equipment is generally depreciated on a straight-
line basis over the estimated useful lives of the assets. Property rights
under capital leases and improvements to leased property are amortized on a
straight-line basis over the term of the lease or useful life of the assets,
whichever is less. The annual provisions for depreciation and amortization
have been principally computed using the following ranges of useful lives:
Buildings and improvements... 20-40 years
Store fixtures and equipment. 3-20 years
Property under capital
leases...................... 20-40 years
Construction in progress includes land and improvements for locations not
yet opened at the end of each fiscal year.
F-7
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Business and Summary of Accounting Policies (continued)
Favorable Lease Rights
Favorable lease rights are being amortized over a composite average life,
including options, of 20 years and reflect accumulated amortization of
$18,820,000 at January 30, 1999 and $17,350,000 at January 31, 1998.
Goodwill
Goodwill is being amortized on a straight-line basis over 15 years.
Accumulated amortization was $52,466,000 at January 30, 1999 and $47,266,000
at January 31, 1998.
Long-Lived Assets
The Company annually considers whether indicators of impairment of long-
lived assets held for use (including favorable leasehold rights and goodwill )
are present and determines that if such indicators are present whether the sum
of the estimated undiscounted future cash flows attributable to such assets is
less than their carrying amounts. The Company evaluated the ongoing value of
its property and equipment and other long-lived assets as of January 30, 1999
and January 31, 1998, and determined that there was no significant impact on
the Company's results of operations.
Preopening Costs
Costs associated with the opening of new stores have been accumulated for
the period prior to opening and expensed in conjunction with the grand opening
period. The expenses relate to the costs associated with new store openings,
including hiring and training costs for new employees, Kohl's charge account
solicitation and processing and transporting initial store merchandise.
Effective January 30, 1999, the Company wrote off all previously deferred pre-
opening costs ($1.0 million) and, pursuant to Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities", will expense all future pre-
opening costs as incurred.
Advertising
Advertising costs are expensed as incurred and totaled $147,619,000,
$117,879,000 and $90,660,000 in fiscal 1998, 1997 and 1996, respectively.
Income Taxes
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes.
Net Income Per Share
The numerator for the calculation of basic and diluted net income per share
is net income. The denominator is summarized as follows (in thousands):
Fiscal Year
-----------------------
1998 1997 1996
------- ------- -------
Denominator for basic earnings per share--
weighted average shares........................ 158,067 152,471 147,705
Employee stock options.......................... 4,566 3,606 2,300
------- ------- -------
Denominator for diluted earnings per share...... 162,633 156,077 150,005
======= ======= =======
F-8
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Business and Summary of Accounting Policies (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Net income for the fiscal
years 1998, 1997 and 1996 is the same as comprehensive income defined pursuant
to SFAS 130.
2. Selected Balance Sheet Information
Property and equipment consist of the following:
January 30, January 31,
1999 1998
----------- -----------
(In Thousands)
Land.............................................. $ 98,491 $ 78,332
Buildings and improvements........................ 505,475 389,665
Store fixtures and equipment...................... 377,772 334,068
Property under capital leases..................... 55,700 58,569
Construction in progress.......................... 104,042 65,900
---------- --------
Property and equipment, at cost................... 1,141,480 926,534
Less accumulated depreciation..................... 208,469 176,885
---------- --------
$ 933,011 $749,649
========== ========
Accrued liabilities consist of the following:
January 30, January 31,
1999 1998
----------- -----------
(In Thousands)
Payroll and related fringe benefits............... $ 24,565 $22,007
Sales and property taxes.......................... 33,761 30,717
Other accruals.................................... 58,874 42,461
-------- -------
$117,200 $95,185
======== =======
3. Accounts Receivable Financing
In 1996, the Company had an agreement with a bank under which it
periodically sold, generally with recourse, an undivided interest in a
revolving pool of its private label credit card receivables. The income and
expense on the entire pool of receivables was recorded in selling, general and
administrative expenses when earned or incurred.
Effective for all transactions occurring after December 31, 1996, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", which provides accounting and reporting standards for sales,
securitizations and
F-9
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Accounts Receivable Financing (continued)
servicing of receivables and other financial assets. The adoption of SFAS No.
125 did not have a material effect on the Company.
In conjunction with the adoption of SFAS No. 125, the Company established
Kohl's Receivable Corporation (KRC), a wholly owned subsidiary of the Company.
KRC is a special purpose entity as defined in SFAS No. 125, and its assets are
legally isolated from the Company. On January 30, 1997, the Company repurchased
the private label credit card receivables previously sold to a bank. The
Company then sold or contributed all of its receivables to KRC. The Company
continues to sell all of its receivables to KRC without recourse as defined in
SFAS No. 125. Similar to the agreement the Company previously had with a bank,
KRC entered into a one year agreement with the same bank, renewable at KRC's
request and bank's option, under which KRC periodically sells, generally with
recourse, an undivided interest in the revolving pool of the Company's private
label credit card receivables up to a maximum of $225 million. The agreement
contains certain covenants which require KRC to maintain a minimum portfolio
quality. Based on this two-tier structure of selling receivables by the Company
to KRC and from KRC to the bank, and a supporting legal opinion, the true sale
requirements of SFAS No. 125 were met.
At January 30, 1999 and January 31, 1998, a $113.0 million and $43.5 million
interest, respectively, had been sold under this agreement and reflected as a
reduction of accounts receivable as the respective sales met the requirements
of SFAS No. 125. The Company maintains an allowance for doubtful accounts for
retained receivables based upon management's estimates of the Company's risk of
credit loss which totaled $4.1 million and $4.7 million at January 30, 1999 and
January 31, 1998, respectively.
The revenue from the credit program, net of expenses is summarized below and
is included in selling, general and administrative expenses in the accompanying
consolidated statements of income. In fiscal 1996, the Company has reflected
the income and expense for all receivables (sold and unsold) in the schedule.
Subsequent to January 30, 1997, this income and expense is presented only for
receivables not sold by KRC to the bank. Pursuant to SFAS No. 125 requirements
and the new structure put in place, once the receivables are sold to the bank,
the Company retains no rights in bad debts or finance charge income for
financial statement purposes. As this income and expense is no longer an income
or expense item of the Company, it has not been presented as part of the
Company's results of operations.
Fiscal Year
-----------------------
1998 1997 1996
------- ------- -------
(In Thousands)
Finance charges and other income................. $38,744 $16,528 $33,859
Operating expenses:
Cost of financing program...................... -- -- 10,816
Provision for doubtful accounts................ 7,831 4,502 11,493
Other credit and collection expenses........... 10,740 5,477 11,375
------- ------- -------
Total operating expenses..................... 18,571 9,979 33,684
------- ------- -------
Net revenue of credit program included in
selling, general and administrative expenses.... $20,173 $ 6,549 $ 175
======= ======= =======
For fiscal years 1998, 1997 and 1996, the average interest in receivables
sold to the bank was $120 million, $154 million and $168 million, respectively.
This represents 37%, 64% and 88% of the average receivables outstanding during
the respective periods.
F-10
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Debt
Debt consists of the following:
January 30, January 31,
1999 1998
----------- -----------
(In Thousands)
Senior notes...................................... $ 60,000 $ 60,000
Public offered debt............................... 200,000 200,000
Capital leases.................................... 48,392 50,827
Other............................................. 4,053 1,384
-------- --------
Total debt........................................ 312,445 312,211
Less current portion.............................. 1,533 1,845
-------- --------
Total long-term debt.......................... $310,912 $310,366
======== ========
The Company has issued $60 million of 6.57% unsecured senior notes. The
notes will mature in 2004, with required prepayments due each year beginning
March 31, 2000. The notes contain various covenants that limit, among other
things, additional indebtedness and payment of dividends, as well as requiring
the Company to meet certain financial tests.
The public offered debt consists of $100 million of non-callable 6.70%
unsecured senior notes which mature on February 1, 2006 and $100 million of
non-callable 7.375% unsecured senior notes which mature on October 15, 2011.
The Company, using discounted cash flow analyses, based upon the Company's
current incremental borrowing rates for similar types of borrowing
arrangements, estimates the fair value of the senior notes and the publicly
offered debt to be approximately $62 million and $217 million, respectively, at
January 30, 1999.
The Company has a $300 million unsecured revolving bank credit facility (the
Credit Facility) which matures on June 13, 2003. The Credit Facility can be
extended each year for an additional one year with the banks' consents provided
that the Company meets certain financial covenants. Depending on the type of
advance, amounts borrowed bear interest at competitive bid rates; the LIBOR
plus a margin, depending on the Company's long-term unsecured debt rating; or
the agent bank's base rate. A facility fee of 0.07% to 0.225%, depending on the
Company's long-term unsecured debt rating, is charged on the entire commitment.
As of January 30, 1999, the facility fee was 0.09%. The Credit Facility
contains various covenants that limit, among other things, additional
indebtedness and payment of dividends, as well as requiring the Company to meet
certain financial tests. No amounts were outstanding under this facility at
January 30, 1999 or January 31, 1998.
Interest payments were $22,950,000, $24,158,000, $11,754,000 in fiscal 1998,
1997 and 1996, respectively.
Annual maturates of long-term debt, excluding capital lease obligations, for
the next five years are: $301,000 in 1999; $10,412,000 in 2000; $15,333,000 in
2001, $15,340,000 in 2002 and $11,740,000 in 2003.
5. Commitments
The Company leases property and equipment. Many of the store leases obligate
the Company to pay real estate taxes, insurance and maintenance costs, and
contain multiple renewal options, exercisable at the Company's option, that
range from two additional five-year periods to eight ten-year periods.
F-11
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Commitments (Continued)
Rent expense charged to operations was $89,508,000, $72,286,000 and
$52,848,000 in fiscal 1998, 1997 and 1996, respectively. Rent expense includes
contingent rents, based on sales, of $4,209,000, $3,847,000 and $3,485,000 in
fiscal 1998, 1997 and 1996, respectively.
Rent expense incurred on store leases with various entities owned by a
director of the Company and his affiliates, which is included in the total
rent expense above, was $4,323,000, $3,789,000, and $3,741,000 in fiscal 1998,
1997 and 1996, respectively.
Leased property under capital leases consists of the following:
January 30, January 31,
1999 1998
----------- -----------
(In Thousands)
Buildings and improvements........................ $55,700 $58,569
Less accumulated depreciation..................... 15,177 14,750
------- -------
$40,523 $43,819
======= =======
Future minimum lease payments at January 30, 1999, under leases that have
initial or remaining noncancellable terms in excess of one year, are as
follows:
Capital Operating
Leases Leases
-------- ----------
(In Thousands)
Fiscal year:
1999............................................... $ 6,558 $ 94,143
2000............................................... 6,641 99,902
2001............................................... 6,613 96,327
2002............................................... 6,631 94,575
2003............................................... 6,525 94,839
Thereafter......................................... 87,102 1,295,168
-------- ----------
120,070 $1,774,954
==========
Less amount representing interest.................... 71,678
--------
Present value of minimum lease payments.............. $ 48,392
========
Included in the operating lease schedule above is $453,635,000 of minimum
lease payments for stores that will open in 1999 and 2000.
6. Benefit Plans
The Company has an Employee Stock Ownership Plan (ESOP) for the benefit of
its associates other than executive officers. Contributions are made at the
discretion of the Board of Directors. The Company recorded expenses of
$3,300,000, $2,610,000 and $1,734,000 in fiscal 1998, 1997 and 1996,
respectively. Shares of Company common stock held by the ESOP are included as
shares outstanding for purposes of the income per share computations.
The Company also has a defined contribution savings plan covering all full-
time and certain part-time associates which provides for monthly employer
contributions based on a percentage of qualifying contributions made by
participating associates. Total expense was $2,531,000, $2,221,000 and
$1,755,000 in fiscal 1998, 1997 and 1996, respectively. In addition, beginning
in 1996 the Company made defined annual contributions to the
F-12
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Benefit Plans (Continued)
savings plan on the behalf of all qualifying full-time and part-time
associates based on a percentage of qualifying payroll earnings. Total expense
was $3,629,000, $2,978,000 and $2,395,000 in fiscal 1998, 1997 and 1996,
respectively.
On April 12, 1996, the Company terminated a defined benefit pension plan,
and subsequently settled the accumulated benefit obligation. Employees were
offered the choice of transferring the lump sum value of pension benefits to
the Kohl's savings plan or having a nonparticipant annuity contract purchased
for them. Defined benefits are not provided under any successor plan and the
plan ceased to exist as an entity. As a result of the termination, the Company
recognized a gain of $1,540,000 in fiscal 1996. Pension expense, exclusive of
the gain on termination, totaled $470,000.
7. Income Taxes
Deferred income taxes consist of the following:
January 30, January 31,
1999 1998
----------- -----------
(In Thousands)
Deferred tax liabilities--
Property and equipment.......................... $65,773 $53,034
Deferred tax assets:
Merchandise inventories......................... 9,684 1,013
Accrued and other liabilities................... 11,360 9,138
Accrued rent liability.......................... 5,354 4,394
------- -------
26,398 14,545
------- -------
Net deferred tax liability.................... $39,375 $38,489
======= =======
The components of the provision (credit) for income taxes are as follows:
Fiscal Year
-------------------------
1998 1997 1996
-------- ------- -------
(In Thousands)
Current Federal................................. $104,336 $82,184 $53,105
Current State................................... 19,261 14,392 10,915
Deferred........................................ 886 (2,786) 4,870
-------- ------- -------
$124,483 $93,790 $68,890
======== ======= =======
The provision for income taxes differs from the amount that would be
provided by applying the statutory U.S. corporate tax rate due to the
following items:
Fiscal Year
--------------------------
1998 1997 1996
-------- ------- -------
Provision at statutory rate.................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax
benefit..................................... 3.9 4.2 4.5
Goodwill amortization........................ 0.6 0.8 1.1
Other........................................ (.2) (.1) (.4)
-------- ------- -------
Provision for income taxes................... 39.3% 39.9% 40.2%
======== ======= =======
Amounts paid for income taxes (In Thousands). $103,628 $74,826 $58,230
======== ======= =======
F-13
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Preferred and Common Stock
The Company's authorized capital stock includes 10,000,000 shares of $.01
par value preferred stock of which none have been issued.
On March 9, 1998, the Company's Board of Directors declared a 2 for 1 stock
split effected in the form of a stock dividend on the Company's common stock.
Shareholders' equity, and all share and per share amounts have been
retroactively adjusted to reflect this dividend.
The 1992 and 1994 Long-Term Compensation Plans provide for the granting of
options to purchase shares of the Company's common stock to officers and key
employees. The 1997 Stock Option Plan provides for granting of similar stock
options to outside directors. The following table presents the number of
options initially authorized and options available to grant under each of the
plans:
1992 Plan 1994 Plan 1997 Plan Total
---------- ---------- --------- ----------
Options initially
authorized............... 11,400,000 12,000,000 200,000 23,600,000
Options available for
grant:
January 31, 1998........ 235,548 9,089,050 160,000 9,484,598
January 30, 1999........ 52,739 7,727,525 160,000 7,940,264
Generally, 25% of the options become exercisable one year after their
respective grant date and another 25% becomes exercisable each succeeding
year. Options which are surrendered or terminated without issuance of shares
are available for future grants.
The following table summarizes the Company's stock options at January 30,
1999, January 31, 1998 and February 1, 1997 and the changes for the years then
ended:
Number of Weighted Average
Options Exercise Price
---------- ----------------
Balance at February 3, 1996.................. 8,920,852 $ 9.56
Granted.................................... 2,828,450 17.11
Surrendered................................ (439,512) 9.43
Exercised.................................. (367,214) 8.49
---------- ------
Balance at February 1, 1997.................. 10,942,576 11.57
Granted.................................... 2,225,910 33.12
Surrendered................................ (279,310) 14.63
Exercised.................................. (776,802) 9.37
---------- ------
Balance at January 31, 1998.................. 12,112,374 15.58
Granted.................................... 1,709,125 57.70
Surrendered................................ (164,791) 26.55
Exercised.................................. (636,779) 10.01
---------- ------
Balance at January 30, 1999.................. 13,019,929 $21.28
========== ======
Options exercisable:
Weighted Average
Shares Exercise Price
--------- ----------------
January 30, 1999............................... 7,014,805 $12.11
January 31, 1998............................... 5,522,000 $ 9.71
February 1, 1997............................... 4,281,000 $ 8.21
F-14
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Preferred and Common Stock (continued)
Exercise prices for options outstanding at January 30, 1999, ranged from
$3.50-$61.75. Additional information related to these options segregated by
exercise price range is as follows:
Exercise Price Range
-----------------------------
$3.50 to $12.00 to $30.00 to
$11.99 $29.99 $61.75
--------- --------- ---------
Options outstanding.............................. 4,296,263 5,060,941 3,662,725
Weighted average exercise price of options
outstanding..................................... $8.15 $15.24 $45.01
Weighted average remaining contractual life of
options outstanding............................. 4.7 7.0 14.3
Options exercisable.............................. 3,780,413 2,810,056 424,336
Weighted average exercise price of options
exercisable..................................... $8.03 $14.30 $34.00
The Company continues to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related Interpretations
in accounting for its employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
As required by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company did calculate the pro forma effect on net income and net income per
share of accounting for employee stock options under the fair value method
proscribed by SFAS No. 123 in the table below. The weighted-average fair
values of options granted during fiscal 1998, 1997 and 1996 were estimated
using a Black-Scholes option pricing model to be $26.83, $15.19, and $7.42,
respectively. The model used the following assumptions for all years: risk
free interest rate of 5.0%; dividend yield of 0%; volatility factors of the
Company's common stock of 30%; and a 7-8 year expected life of the option.
Fiscal Year
--------------------------
1998 1997 1996
-------- -------- --------
Pro forma net income.......................... $183,785 $137,320 $100,814
Pro forma net income per share:
Basic....................................... $ 1.16 $ 0.90 $ 0.68
Diluted..................................... $ 1.14 $ 0.89 $ 0.68
The SFAS No. 123 expense reflected above only includes options granted
since fiscal 1995 and, therefore, may not be representative of future expense.
9. Contingencies
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.
F-15
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Quarterly Financial Information (Unaudited)
Fiscal Year 1998
------------------------------------------------
First Second Third Fourth Total
-------- -------- -------- ---------- ----------
(In Thousands, Except Per Share Data)
Net sales...................... $744,571 $758,747 $888,897 $1,289,548 $3,681,763
Gross margin................... 253,469 256,577 299,622 424,794 1,234,462
Net income..................... 26,848 31,348 40,008 94,062 192,266
Basic net income per share..... .17 .20 .25 .59 1.22
Diluted net income per share... .17 .19 .25 .58 1.18
Fiscal Year 1997
------------------------------------------------
First Second Third Fourth Total
-------- -------- -------- ---------- ----------
(In Thousands, Except Per Share Data)
Net sales...................... $600,547 $623,937 $757,773 $1,077,808 $3,060,065
Gross margin................... 203,170 208,085 253,881 348,461 1,013,597
Net income..................... 15,308 20,841 32,526 72,598 141,273
Basic net income per share..... .10 .14 .21 .46 .93
Diluted net income per share... .10 .14 .20 .45 .91
Due to changes in stock prices during the year and timing of issuance of
shares, the cumulative total of quarterly net income per share amounts may not
equal the net income per share for the year.
The Company uses the LIFO method of accounting for merchandise inventory
because it results in a better matching of costs and revenues. The following
information is provided to show the effects of the LIFO provision on each
quarter, as well as to provide users with the information to compare to other
companies not on LIFO.
Fiscal Year
----------------
LIFO (Credit) Expense 1998 1997
--------------------- ------- -------
(In Thousands)
Quarter
First................................................. $ 1,861 $ 1,501
Second................................................ 1,896 1,560
Third................................................. 1,900 1,895
Fourth................................................ (8,519) (5,049)
------- -------
Total year.......................................... $(2,862) $ (93)
======= =======
The Company estimates its LIFO provision throughout the year based on
expected inflation. The provision is adjusted to actual inflation indices at
year-end.
11. Related Parties
A director of the Company is also a shareholder of a law firm which performs
legal services for the Company. Legal fees incurred with this law firm totaled
approximately $657,000, $505,000 and $920,000 in fiscal 1998, 1997 and 1996,
respectively.
Another director was previously affiliated with an investment banker which
has performed services for the Company. Investment banker fees incurred with
this investment banker totaled approximately $8.8 million and $1.3 million in
fiscal 1997 and 1996, respectively. No fees were paid in fiscal 1998.
F-16
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
12. Subsequent Events
In March 1999, the Company purchased the right to occupy 33 store locations
previously operated by Caldor Corporation. The Company plans to take
possession of the stores after Caldor completes its going out of business
sale, and expects that the stores will be open for business in spring 2000.
The Company paid $142 million for the rights to occupy the stores and expects
to invest approximately $165 million more to renovate and refixture the
stores. To fund the renovation and refixturing of the former Caldor stores,
the Company issued 2,800,000 shares of its common stock to the public in March
1999 for net proceeds of approximately $199 million.
F-17
KOHL'S CORPORATION
SCHEDULE II
Valuation and Qualifying Accounts
(Dollars in Thousands)
Years Ended
-----------------------------------
January 30, January 31, February 1,
1999 1998 1997
----------- ----------- -----------
Accounts Receivable--Allowances:
Balance at Beginning of Period........... $ 4,669 $ 700 $ 4,513
Charged to Costs and Expenses............ 7,831 4,502 11,493
Deductions--Bad Debts Written off, Net of
Recoveries and Other Allowances......... (7,668) (4,357) (10,908)
Other (1)................................ (763) 3,824 (4,398)
------- ------- --------
Balance at End of Period................... $ 4,069 $ 4,669 $ 700
======= ======= ========
- --------
(1) Adjustment to the accounts receivable allowance for receivables sold
pursuant to SFAS No. 125.
F-18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned,
Kohl's Corporation
By: /s/ William S. Kellogg
-------------------------------------
William S. Kellogg
Chairman of the Board
Dated: April 19, 1999
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ William S. Kellogg /s/ Frank Sica
- ------------------------------------ --------------------------------
William S. Kellogg Frank Sica
Chairman and Director Director
/s/ Jay H. Baker /s/ Herbert Simon
- ------------------------------------ --------------------------------
Jay H. Baker Herbert Simon
Director Director
/s/ John F. Herma /s/ Peter M. Sommerhauser
- ------------------------------------ --------------------------------
John F. Herma Peter M. Sommerhauser
Chief Operating Officer and Director Director
/s/ R. Lawrence Montgomery /s/ R. Elton White
- ------------------------------------ --------------------------------
R. Lawrence Montgomery R. Elton White
Vice Chairman, Chief Executive Officer Director
and Director
/s/ Kevin Mansell /s/ James Ericson
- ------------------------------------ --------------------------------
Kevin Mansell James Ericson
President and Director Director
/s/ Arlene Meier
- ------------------------------------
Arlene Meier
Chief Financial Officer (Principal
Financial and Accounting Officer)
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Articles of Incorporation of the Company, as amended, incorporated
herein by reference to Exhibit 10.16 of the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 3, 1996.
3.2 Bylaws of the Company, incorporated herein by reference to Exhibit
10.14 of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended May 4, 1996.
4.1 Revolving Credit Agreement dated as of June 13, 1997 among Kohl's
Corporation, Kohl's Department Stores, Inc., various commercial
banking institutions, The Bank of New York, as Administrative Agent,
and The First National Bank of Chicago, as Syndication Agent,
incorporated herein by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended August 2,
1997.
4.2 Amendment to Revolving Credit Agreement dated as of June 5, 1998,
incorporated herein by reference to Exhibit 4.1 of the Company's
registration statement on Form S-3 (File No. 333-73257).
4.3 Certain other long-term debt is described in Note 4 of the Notes to
Consolidated Financial Statements. The Company agrees to furnish to
the Commission, upon request, copies of any instruments defining the
rights of holders of any such long-term debt described in Note 4 and
not filed herewith.
10.1 Employment Agreement between the Company and William S. Kellogg,
incorporated herein by reference to Exhibit 10.6 of the Company's
registration statement on Form S-1 (File No. 33-46883).*
10.2 Employment Agreement between the Company and Jay H. Baker,
incorporated herein by reference to Exhibit 10.7 of the Company's
registration statement on Form S-1 (File No. 33-46883).*
10.3 Employment Agreement between the Company and John F. Herma,
incorporated herein by reference to Exhibit 10.8 of the Company's
registration statement on Form S-1 (File No. 33-46883).*
10.4 Employment Agreement between the Company and R. Lawrence Montgomery,
incorporated herein by reference to Exhibit 10.4 of the Company's
Annual Report on Form 10-K for the fiscal year ended January 31,
1998.*
10.5 Executive Medical Plan, incorporated herein by reference to Exhibit
10.9 of the Company's registration statement on Form S-1 (File No. 33-
46883).*
10.6 Executive Life Insurance Plan, incorporated herein by reference to
Exhibit 10.10 of the Company's registration statement on Form S-1
(File No. 33-46883).*
10.7 Executive Accidental Death and Dismemberment Plan, incorporated herein
by reference to Exhibit 10.11 of the Company's registration statement
on Form S-1 (File No. 33-46883).*
10.8 Executive Committee Bonus Plan, incorporated herein by reference to
Exhibit 10.12 of the Company's registration statement on Form S-1
(File No. 33-46883).*
_________________________
* A management contract or compensatory plan or arrangement.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.9 1992 Long Term Compensation Plan, incorporated herein by reference to
Exhibit 10.13 of the Company's registration statement on Form S-1
(File No. 33-46883).*
10.10 1994 Long-Term Compensation Plan, incorporated herein by reference to
Exhibit 10.15 of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 4, 1996.*
10.11 1997 Stock Option Plan for Outside Directors, incorporated herein by
reference to Exhibit 4.4 of the Company's registration statement on
Form S-8 (File No. 333-26409), filed on May 2, 1997.*
10.12 Amended and Restated Agreements dated December 10, 1998 between the
Company and Ms. Blanc.*
10.13 Amended and Restated Agreements dated December 10, 1998 between the
Company and Mr. Mansell.*
10.14 Amended and Restated Agreements dated December 10, 1998 between the
Company and Mr. Montgomery.*
10.15 Receivables Sale Agreement dated as of January 31, 1997 by and between
Kohl's Department Stores, Inc. and Kohl's Receivables Corporation,
incorporated herein by reference to Exhibit 10.13 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 1, 1997.
10.16 Receivables Purchase Agreement dated as of January 31, 1997 by and
among Kohl's Receivables Corporation, Preferred Receivables Funding
Corporation and The First National Bank of Chicago, as agent,
incorporated herein by reference to Exhibit 10.14 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 1, 1997.
10.17 Amendment 2 to Receivables Purchase Agreement, dated as of May 3,
1997, incorporated herein by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 2, 1997.
10.18 Amendment 3 to Receivables Purchase Agreement, dated as of July 24,
1997, incorporated herein by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 2, 1997.
10.19 Amendment 4 to Receivables Purchase Agreement, dated as of January 29,
1998, incorporated herein by reference to Exhibit 10.19 of the
Company's Annual Report on Form 10-K for the fiscal year ended January
31, 1998.
10.20 Amendment 5 to Receivables Purchase Agreement, dated as of January 28,
1999.
12.1 Statement regarding calculation of ratio of earnings to fixed charges.
13.1 1998 Annual Report.
21.1 Subsidiaries of the Registrant.
24.1 Consent of Ernst & Young LLP.
27. Financial Data Schedules - Article 5 of Regulation S-X, 12 months
ended January 30, 1999.
_________________________
* A management contract or compensatory plan or arrangement.