<PAGE>
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 33-80323
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THIS PROSPECTUS SHALL NOT CONSTITUTE AN +
+OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY +
+SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR +
+SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued October 4, 1996)
(To Prospectus dated January 26, 1996)
$100,000,000
LOGO
% NOTES DUE 2011
-----------
Interest payable April and October
-----------
THE NOTES ARE NOT REDEEMABLE PRIOR TO MATURITY OR SUBJECT TO ANY SINKING
FUND. THE NOTES WILL BE REPRESENTED BY A GLOBAL NOTE REGISTERED IN THE
NAME OF A NOMINEE OF THE DEPOSITORY TRUST COMPANY, AS DEPOSITARY (THE
"DEPOSITARY"). BENEFICIAL INTERESTS IN THE NOTES WILL BE SHOWN ON,
AND TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, RECORDS
MAINTAINED BY THE DEPOSITARY (WITH RESPECT TO PARTICIPANTS'
INTERESTS) AND ITS PARTICIPANTS. EXCEPT AS DESCRIBED IN THE
ACCOMPANYING PROSPECTUS, NOTES IN DEFINITIVE FORM WILL NOT
BE ISSUED.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
PRICE % AND ACCRUED INTEREST
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
-------------- -------------- -------------
<S> <C> <C> <C>
Per Note............................ % % %
Total............................... $ $ $
</TABLE>
- -----
(1) Plus accrued interest from October , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting expenses payable by the Company estimated at $170,000.
-----------
The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that delivery of the
Notes will be made on or about October , 1996 through the book-entry
facilities of The Depository Trust Company, against payment therefor in
immediately available funds.
-----------
MORGAN STANLEY & CO.
Incorporated
WILLIAM BLAIR & COMPANY
MERRILL LYNCH & CO.
October , 1996
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company............................................................... S-3
Recent Developments....................................................... S-3
Use of Proceeds........................................................... S-3
Capitalization............................................................ S-4
Selected Consolidated Financial Data...................................... S-5
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-7
Business.................................................................. S-11
Description of the Notes.................................................. S-15
Underwriters.............................................................. S-16
Legal Matters............................................................. S-16
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Information by Reference......................... 3
The Company............................................................... 3
Use of Proceeds........................................................... 3
Ratios of Earnings to Fixed Charges....................................... 4
Description of Debt Securities............................................ 4
Plan of Distribution...................................................... 13
Legal Matters............................................................. 14
Experts................................................................... 14
</TABLE>
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
THE COMPANY
The Company operates family oriented, specialty department stores primarily
in the Midwest that feature quality, national brand merchandise priced to
provide 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. The
Company'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.
RECENT DEVELOPMENTS
Net sales and sales growth for the 4 weeks and 30 weeks ended August 31,
1996 and August 26, 1995 were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
PERIOD ENDED INCREASE
--------------------- -----------------
AUGUST 31, AUGUST 26, ALL COMPARABLE
1996 1995 STORES STORES (A)
---------- ---------- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
4 weeks................................. $ 187.5 $158.1 18.6% 8.9%
30 weeks................................ $1,130.7 $890.0 27.0% 11.0%
</TABLE>
- --------
(a) Comparable store sales growth for each period is based on sales of stores
(including relocated or expanded stores and excluding the discontinued
electronics business) open throughout the full period and throughout the
full prior period.
Due to a shift in the fiscal accounting calendar, the fiscal month ending
dates are one week later this year than a year ago. On a calendar basis,
matching the periods ended August 31, 1996 with the periods ended September 2,
1995, net sales increased 18.8% for the month and 24.7% year-to-date.
Comparable store sales on this basis increased 8.1% for the month and 9.1%
year-to-date.
At August 31, 1996, the Company operated 138 stores compared with 117 stores
at the same time in the previous year. During September, the Company opened 7
additional stores, bringing the current number to 145 stores.
USE OF PROCEEDS
The net proceeds from the sale of the Notes are estimated to be
approximately $99.1 million. The Company expects to use the net proceeds to
repay borrowings under its revolving credit facility. At August 31, 1996, the
interest rate payable under the Company's revolving credit facility was 5.75%
per annum.
S-3
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of August 3, 1996, and as adjusted to give effect to the issuance
and sale of the Notes offered hereby and the application of the estimated net
proceeds of $99.1 million. Although, for purposes of the table, it is assumed
that only $56.5 million of the net proceeds were applied to repay borrowings
under the Company's revolving credit facility, as of the date hereof,
borrowings under the facility are in excess of $100.0 million. This table
should be read in conjunction with the consolidated financial statements and
related notes and the other financial information included and incorporated in
this Prospectus Supplement and the Prospectus.
<TABLE>
<CAPTION>
AS OF AUGUST 3, 1996
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Revolving credit facility................................ $ 56,500 $ --
Capitalized lease obligations............................ 51,700 51,700
6.57% unsecured senior notes, due 2004................... 60,000 60,000
6.70% notes, due 2006.................................... 100,000 100,000
Notes offered hereby..................................... -- 100,000
Other.................................................... 1,332 1,332
-------- --------
Total long-term debt................................... 269,532 313,032
Shareholders' equity:
Common stock; 73,857,108 shares outstanding.............. 738 738
Paid-in capital.......................................... 191,166 191,166
Retained earnings........................................ 249,492 249,492
-------- --------
Total shareholders' equity............................. 441,396 441,396
-------- --------
Total capitalization................................. $710,928 $754,428
======== ========
</TABLE>
S-4
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
In September 1992, the Company changed its fiscal year end from the last
Saturday in August to the Saturday closest to January 31, commencing January
30, 1993. The selected consolidated financial data presented below for the
fiscal years ended February 3, 1996, January 28, 1995, January 29, 1994 and
January 30, 1993 and as of February 3, 1996, January 28, 1995, January 29,
1994, January 30, 1993 and February 1, 1992 are derived from consolidated
financial statements of the Company, which have been audited by Ernst & Young
LLP, independent auditors. This information should be read in conjunction with
the consolidated financial statements of the Company and related notes
incorporated into this Prospectus Supplement. The selected consolidated
financial data for the fiscal year ended February 1, 1992 and for the six
months ended August 3, 1996 and July 29, 1995 and as of August 3, 1996 and
July 29, 1995 are derived from unaudited consolidated financial statements of
the Company which, in the opinion of management, include all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the financial position and results of operations as of the dates and for the
periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
------------------- ---------------------------------------------------------------
AUGUST 3, JULY 29, FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1,
1996 1995 1996(a) 1995 1994 1993 1992(a)
--------- -------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $943,236 $731,901 $1,925,669 $1,554,100 $1,305,746 $1,096,856 $930,537
Cost of merchandise
sold................... 629,876 486,266 1,294,653 1,037,740 869,236 722,610 618,664
-------- -------- ---------- ---------- ---------- ---------- --------
Gross margin............ 313,360 245,635 631,016 516,360 436,510 374,246 311,873
Selling, general and
administrative
expenses............... 233,329 183,940 436,442 356,893 305,547 269,158 229,567
Incentive compensation
change(b).............. -- -- -- -- -- 17,735 --
Depreciation and
amortization........... 20,329 15,763 33,931 27,402 23,201 19,834 17,551
Preopening expenses..... 3,750 1,492 10,712 8,190 5,360 2,992 5,334
Credit operations, non-
recurring(c)........... -- -- 14,052 -- -- -- --
-------- -------- ---------- ---------- ---------- ---------- --------
Operating income........ 55,952 44,440 135,879 123,875 102,402 64,527 59,421
Interest expense,
net(d)................. 7,742 5,690 13,150 6,424 5,711 14,393 26,008
-------- -------- ---------- ---------- ---------- ---------- --------
Income before income
taxes and extraordinary
items.................. 48,210 38,750 122,729 117,451 96,691 50,134 33,413
Income taxes............ 19,621 15,811 50,077 48,939 41,029 21,442 14,537
-------- -------- ---------- ---------- ---------- ---------- --------
Income before
extraordinary items.... 28,589 22,939 72,652 68,512 55,662 28,692 18,876
Extraordinary items(e).. -- -- -- -- (1,769) (2,121) 1,329
-------- -------- ---------- ---------- ---------- ---------- --------
Net income.............. $ 28,589 $ 22,939 $ 72,652 $ 68,512 $ 53,893 $ 26,571 $ 20,205
======== ======== ========== ========== ========== ========== ========
Per common share(f)(g):
Income before
extraordinary items... $ .39 $ .31 $ .99 $ .93 $ .76 $ .44 $ .35
Extraordinary items.... -- -- -- -- (.02) (.03) .03
Net income............. .39 .31 .99 .93 .74 .41 .38
OPERATING DATA:
Comparable store sales
growth(h).............. 11.4% 5.8% 5.9% 6.1% 8.3% 10.5% 8.2%
Net sales per selling
square foot(i)......... $ 114 $ 106 $ 257 $ 258 $ 255 $ 239 $ 235
Total square feet of
selling space (in
thousands; end of
period)................ 9,157 6,935 8,378 6,824 5,523 4,771 4,331
Number of stores open
(end of period)........ 138 109 128 108 90 79 75
Capital expenditures
including capitalized
leases................. $ 84,090 $ 58,959 $ 138,797 $ 132,800 $ 64,813 $ 46,337 $ 17,396
Ratio of earnings to
fixed charges(j)....... 3.40 3.78 4.95 6.91 6.97 3.33 2.08
BALANCE SHEET DATA (END OF PERIOD):
Working capital......... $226,322 $168,609 $ 175,368 $ 114,637 $ 86,856 $ 105,564 $ 43,588
Property and equipment,
net.................... 476,815 344,318 409,168 298,737 186,626 141,196 107,276
Total assets............ 997,507 779,606 804,925 658,717 469,289 444,797 349,079
Total long-term debt.... 269,532 177,844 187,699 108,777 51,852 95,096 211,125
Shareholders' equity.... 441,396 357,551 410,638 334,249 262,502 207,400 24,275
</TABLE>
See footnotes on next page
S-5
<PAGE>
(footnotes from previous page)
(a) Fiscal 1995 and fiscal 1991 each contained 53 weeks
(b) In connection with the Company's initial public offering, the Company
amended two incentive plans to set the value of the phantom stock units
previously granted thereunder at the initial public offering price of
$7.00 per share. The related non-recurring incentive compensation charge
reduced net income by $10.6 million, or $.16 per share, for fiscal 1992.
Distributions, including interest accrued at 6% on the vested portion, are
paid out on an annual basis with the final payment in 2002.
(c) 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).
(d) On June 1, 1992, the Company used the net proceeds of the initial public
offering and $14.6 million of borrowings under its revolving credit
facility to redeem all $105.0 million of its Senior Subordinated Notes and
the remaining $13.2 million of its Junior Subordinated Notes and to pay
related accrued interest. If the initial public offering and the related
reduction of indebtedness had occurred on February 2, 1992, interest
expense for fiscal 1992 would have been reduced by $3.1 million and income
before extraordinary items would have been $30.7 million or $.44 per
share.
(e) The extraordinary items reflect an after-tax charge of $1.8 million to
write off unamortized deferred financing costs in connection with the
termination of certain credit facilities in January 1994, an after-tax
charge of $2.1 million to write off unamortized deferred financing fees
and the obligations under an interest rate cap agreement associated with
the redemption of the Company's Senior Subordinated Notes in June 1992 and
an after-tax gain of $1.3 million on the purchase of certain of the
Company's Junior Subordinated Notes in November 1991.
(f) In calculating earnings per share prior to the initial public offering,
the dilutive effect of certain restricted shares has been reduced using
the treasury stock method based on the tax benefits received by the
Company when the restrictions lapse on such shares. Following the initial
public offering, calculations of earnings per share reflect all shares as
outstanding.
(g) All per share data has been adjusted to reflect the 2-for-1 stock split
declared by the Company's Board of Directors on March 11, 1996.
(h) Comparable store sales for each period are based on sales of stores
(including relocated or expanded stores) open throughout the current and
prior year. Comparable store sales growth for fiscal 1995, fiscal 1992 and
fiscal 1991 have been adjusted to reflect the elimination of the 53rd week
in fiscal 1995 and fiscal 1991, respectively. Comparable store sales
growth for fiscal 1996 has been adjusted to exclude the discontinued
electronics business.
(i) Net sales per selling square foot is calculated using net sales of stores
that have been open for the full period, divided by their square footage
of selling space.
(j) Earnings consist of consolidated income from operations before income
taxes, plus fixed charges less capitalized interest. Fixed charges consist
of interest (expensed or capitalized), the interest portion of rental
expense and the amortization of deferred financing costs.
S-6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Years 1993-1995
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 follow:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales (in thousands).................... $1,925,669 $1,554,100 $1,305,746
Number of stores open (end of period)....... 128 108 90
Sales growth--all stores.................... 23.9% 19.0% 19.0%
Sales growth--comparable stores(a).......... 5.9% 6.1% 8.3%
Net sales per selling square foot(b)........ $ 257 $ 258 $ 255
</TABLE>
- --------
(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
1995 has been adjusted to reflect the elimination of the 53rd week in
fiscal 1995.
(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 $371.6 million, or 23.9%, to $1,925.7
million in fiscal 1995. Of the increase, $274.6 million is attributable to the
opening of 22 new stores in fiscal 1995 and to the inclusion of a full year's
sales for 18 stores opened in fiscal 1994 (net of two underperforming stores
closed in 1995). The remaining $97.0 million increase is attributable to the
increase in comparable store sales.
Net sales increased $248.4 million, or 19.0%, to $1,554.1 million in fiscal
1994. Of the increase, $174.5 million is attributable to the opening of 18 new
stores in fiscal 1994 and to the inclusion of a full year's sales for 11
stores opened in fiscal 1993. The remaining $73.9 million increase is
attributable to the increase in comparable store 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:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
Cost of merchandise sold................................... 67.2 66.8 66.6
----- ----- -----
Gross margin............................................... 32.8 33.2 33.4
Selling, general & administrative expenses................. 22.7 23.0 23.4
Depreciation and amortization.............................. 1.7 1.7 1.8
Preopening expenses........................................ .6 .5 .4
Credit operations, non-recurring........................... .7 -- --
----- ----- -----
Operating income........................................... 7.1 8.0 7.8
Interest expense, net...................................... .7 .4 .4
----- ----- -----
Income before income taxes................................. 6.4 7.6 7.4
Income taxes............................................... 2.6 3.2 3.1
----- ----- -----
Income before extraordinary items.......................... 3.8% 4.4% 4.3%
===== ===== =====
</TABLE>
S-7
<PAGE>
Gross Margin. The Company's gross margin has decreased from 33.4% in fiscal
1993 to 32.8% in fiscal 1995. This decrease is primarily attributable to a
more competitive pricing strategy and the Company's response to a more
promotional environment. A low-cost operating environment and continued focus
on expense control allow the Company to profitably offer value to its
customers.
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 1993 to fiscal 1995 due to
the addition of new stores, such expenses decreased as a percent of net sales
from 23.4% in fiscal 1993 to 22.7% in fiscal 1995. This decline reflects the
leveraging of headquarters expenses as a result of the increased sales.
Depreciation and Amortization. Although the total amount of depreciation and
amortization increased from fiscal 1993 to fiscal 1995 due to the addition of
new stores, the remodeling of existing stores and the opening of the
distribution center in Findlay, Ohio, depreciation and amortization declined
as a percentage of net sales from 1.8% in fiscal 1993 to 1.7% in fiscal 1995.
Preopening Expenses. The Company incurred $10.7 million of preopening
expenses associated with the opening of 22 stores in fiscal 1995, $8.2 million
with the opening of 18 stores in fiscal 1994 and $5.4 million with the opening
of 11 stores in fiscal 1993. These expenses relate to the costs associated
with new store openings, including costs of hiring and training new employees,
opening new charge accounts and advertising of the Kohl's name and retailing
concept. The Company's recent experience is that, on average, preopening
expenses for a new store are approximately $0.5 million.
Credit Operations, Non-Recurring. In fiscal 1995, the Company terminated its
agreement with CRS under which it sold its private label credit card
receivables to CRS and established its own credit operations. In connection
with this transaction, the Company incurred a one-time charge of $14.1 million
which included contractual amounts due to CRS, establishment of an initial
allowance for doubtful accounts for the receivables acquired and other costs
related to the credit operation.
Operating Income. Operating income increased $12.0 million, or 9.7%, in
fiscal 1995 and increased $21.5 million, or 21.0%, in fiscal 1994 due to the
factors described above. Excluding the $14.1 million non-recurring credit
operations charge in fiscal 1995, operating income increased $26.1 million, or
21.0%, in fiscal 1995 compared to fiscal 1994.
Interest Expense. Net interest expense increased $6.7 million to $13.1
million in fiscal 1995 and increased $0.7 million to $6.4 million in fiscal
1994. Of the increase in fiscal 1995, $2.0 million was due to interest
associated with capital leases added in 1994 and 1995 and the remainder
primarily to increased average borrowings and higher interest rates. Of the
increase in fiscal 1994, $1.3 million was due to interest associated with
capital leases added in 1994 and 1993 while higher interest rates were more
than offset by lower average borrowings.
Income Taxes. The Company's effective tax rate was 40.8% in fiscal 1995,
41.7% in fiscal 1994 and 42.4% in fiscal 1993. The overall decline in the
effective tax rates in fiscal 1995 and fiscal 1994 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.
Extraordinary Item. In connection with the termination of certain of its
existing credit facilities in January 1994, the Company wrote off unamortized
deferred financing costs and incurred an extraordinary charge of $2.9 million
($1.8 million after tax).
S-8
<PAGE>
Six Months Ended August 3, 1996
Net sales increased $211.3 million, or 28.9%, to $943.2 million for the six
months ended August 3, 1996 from $731.9 million for the six months ended July
29, 1995. Of the increase, $140.8 million is attributable to the inclusion of
22 new stores opened in 1995 (net of the sales of two underperforming stores
closed in 1995) and ten new stores opened in 1996. The remaining $70.5 million
is attributable to comparable stores sales growth of 11.4%.
Due to a shift in the fiscal accounting calendar, the fiscal quarter ending
dates are one week later this year than a year ago. On a calendar basis,
matching the twenty-six weeks ended August 3, 1996 with the twenty-six weeks
ended August 5, 1995, total sales increased 26.0% and comparable sales
(excluding the discontinued electronics business) increased 9.3%.
Gross margin for the six months ended August 3, 1996 was 33.2% compared to
33.6% in the six months ended July 29, 1995. This decrease is primarily
attributable to clearance markdowns taken to eliminate the Company's
electronics business. A low-cost operating environment and continued focus on
expense control allows the Company to profitably offer value to its customers.
Operating income for the six months ended August 3, 1996 increased $11.5
million or 25.9% over the six months ended July 29, 1995. This increase
resulted primarily from the 28.9% increase in sales and the Company's ability
to leverage its selling, general and administrative expenses as net sales
increased. Selling, general and administrative expenses declined to 24.7% of
net sales for the six months ended August 3, 1996 from 25.1% of net sales for
the six months ended July 29, 1995.
Costs associated with the opening of new stores are accumulated for the 6-8
weeks prior to opening and expensed over the two-week grand opening period. In
the six months ended August 3, 1996, the Company expensed $3.8 million of
preopening expenses associated with the opening of ten stores, with the balance
of the preopening expense of two stores to be expensed in the three months
ended November 2, 1996. The Company expensed $1.5 million of preopening
expenses for three stores opened in the six months ended July 29, 1995.
Net interest expense for the six months ended August 3, 1996 increased $2.1
million from the six months ended July 29, 1995. The increase was due to higher
interest rates associated with the $100 million non-callable 6.7% unsecured
senior notes issued in February 1996 and increased spending on capital and
working capital requirements of new stores. The Company expects interest
expense to continue to increase during the remainder of fiscal 1996 based on
increased borrowings for new stores' capital and working capital requirements
and higher interest rates.
Net income for the six months ended August 3, 1996 increased 24.6% to $28.6
million or $.39 per share from $22.9 million or $.31 per share in the six
months ended July 29, 1995.
SEASONALITY AND INFLATION
The Company's business is seasonal, reflecting increased consumer buying in
the "back-to-school" and Christmas selling seasons. The Company's net sales and
income are also affected by the timing of new store openings. Inflation did not
materially affect the Company's net income during the periods presented.
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, borrowings under its revolving credit
facility, sales of debt securities pursuant to the Company's shelf registration
statement 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 Christmas selling season.
S-9
<PAGE>
At August 3, 1996, the Company's merchandise inventories had increased
$120.2 million over the February 3, 1996 balance and $89.3 million over the
July 29, 1995 balance. These increases reflect the purchase of fall inventory
as well as inventory for new stores. The Company's working capital increased
to $226.3 million at August 3, 1996 from $175.4 million at February 3, 1996
and $168.6 million at July 29, 1995. The increase is due primarily to higher
inventory levels offset in part by increased accounts payable. The Company
expects working capital levels to continue to grow as new stores are opened.
Cash provided by operating activities was $28.7 million for fiscal 1995,
$95.5 million for fiscal 1994 and $63.0 million for fiscal 1993. Excluding
changes in operating assets and liabilities, cash provided by operating
activities was $119.8 million for fiscal 1995, $107.5 million for fiscal 1994
and $87.6 million for fiscal 1993.
Cash provided from operating activities was $3.4 million for the six months
ended August 3, 1996 compared to cash used of $38.4 million for the six months
ended July 29, 1995. Excluding changes in operating assets and liabilities,
cash provided by operating activities was $52.4 million for the six months
ended August 3, 1996 compared to $48.8 million for the six months ended July
29, 1995.
The Company's capital expenditures were $138.8 million (including $6.4
million of assets under capital leases) during fiscal 1995, $132.8 million
(including $25.3 million of assets under capital leases) during fiscal 1994,
and $64.8 million (including $6.0 million of assets under capital leases)
during fiscal 1993. The increase in expenditures from fiscal 1994 to fiscal
1995 is attributable to the opening of more new stores, of which 8 new stores
are owned in fiscal 1995 compared with 3 new owned stores in fiscal 1994,
offset by the completion of the distribution center in Findlay, Ohio in 1994.
The increase in expenditures from fiscal 1993 to fiscal 1994 is attributable
to the opening of more new stores, the completion of the distribution center
in Findlay, Ohio and the Company's store remodeling program.
Capital expenditures for the six months ended August 3, 1996 were $84.1
million (no additional assets under capital lease) compared to $59.0 million
(including $6.4 million of assets under capital leases) for the same period a
year ago. The increase in expenditures in 1996 is primarily attributable to
the opening of ten new stores for the six months ended August 3, 1996 compared
to three new stores for the six months ended July 29, 1995 and the relocation
of the Company's corporate headquarters within Menomonee Falls in July 1996 to
an owned facility.
Total capital expenditures for fiscal 1996 are currently expected to be
approximately $200.0 million (excluding assets under capital leases). This
estimate includes the cost of construction of the Company's corporate
headquarters, expenditures related to the initial construction of the
Winchester, Virginia distribution center and expenditures related to stores
that will be opened in the spring of 1997 in the Philadelphia and Washington,
D.C. markets. 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's long-term debt increased from $187.7 million at February 3,
1996 to $269.5 million at August 3, 1996. On February 6, 1996 the Company
issued $100 million non-callable 6.70% unsecured senior notes under the
Company's $250 million shelf registration statement. The proceeds were used to
paydown borrowings under its $200 million unsecured revolving credit facility
and will support future Company growth. The notes mature on February 1, 2006.
The Company plans to open 22 stores in fiscal 1996 (17 of which have already
been opened) and 25 to 30 stores in fiscal 1997. The total cash outlay
required for a newly constructed leased store, including capital expenditures,
preopening expenses and net working capital, is approximately $4.5 million.
The additional cash outlay required for new owned stores will vary depending
upon land and sitework costs, but is expected to be approximately $6.5 million
per location. The Company does not anticipate that its planned expansion will
be limited by any restrictive covenants in its financing agreements.
S-10
<PAGE>
Effective September 1, 1995, the Company terminated its agreement with CRS
under which it sold its private label credit card receivables to CRS and
established its own credit operation. Concurrent with this transaction, the
Company entered into a one year agreement with a bank, renewable at the
Company's request and bank's option, under which it periodically sells,
generally with recourse, an undivided interest in a revolving pool of its
private label credit card receivables up to a maximum of $200 million. The
agreement currently expires on May 31, 1997. The cost of the accounts
receivable financing program is based upon the bank's A-1/P-1 commercial paper
rate plus certain fees. The agreement contains certain covenants which are
similar to those contained in the Company's credit facilities. At August 3,
1996, a $169 million interest had been sold under this agreement and is
reflected as a reduction of accounts receivable in the Company's consolidated
balance sheet. The Company maintains an allowance for doubtful accounts,
including an amount for the undivided interest in receivables sold, based upon
management's estimates of the Company's risk of credit loss.
The Internal Revenue Service (the "IRS") is currently auditing the Company's
federal income tax returns for fiscal years ended August 1986, 1987 and 1988.
In January 1994, the IRS proposed approximately $20 million of tax consisting
primarily of an adjustment to the LIFO inventory method used by the Company.
The impact of the proposed adjustments before interest had previously been
reflected in the Company's deferred income tax accounts. The Company is
contesting the proposed adjustments vigorously within the administrative
appeals process of the IRS and has reached a tentative resolution of the matter
which, if finalized, would not have a material adverse impact on the Company's
results of operations or liquidity.
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 sale of the Notes, current working capital, cash flows from
operations, seasonal borrowings under its revolving credit facility, short-term
trade credit and other lending facilities.
BUSINESS
The Company currently operates 145 family oriented, specialty department
stores primarily in the Midwest 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.
EXPANSION
Since 1986, the Company has expanded from 40 stores to the current total of
145 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 an additional 5 stores in fiscal 1996. The Company
plans to open an additional 25 to 30 stores in fiscal 1997.
As demonstrated in the table below, 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.
S-11
<PAGE>
STORE EXPANSION
<TABLE>
<CAPTION>
ANNOUNCED
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ---------
MARKET AREA TOTAL NEW NEW NEW TOTAL NEW
- ----------- ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Chicago, IL...................... 16 5 2 1 24 1
Milwaukee, WI.................... 11 1 12
Minneapolis/St. Paul, MN......... 6 2 2 10 1
Detroit, MI...................... 10 (2)(a) 8
Indianapolis, IN................. 6 6
Columbus, OH..................... 5 1 6
Cincinnati, OH................... 3 2 5
Cleveland, OH.................... 4 4 3
Dayton, OH....................... 3 3
Madison, WI...................... 2 1 3
Kansas City, KS, MO.............. 3 3 1
Charlotte, NC.................... 3
Other............................ 23 5 6 10 44 13
--- --- --- --- --- ---
Total........................ 79 11 18 20 128 22
=== === === === === ===
</TABLE>
- --------
(a) The Company closed two underperforming stores.
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 Holland, Michigan; intermediate markets such as Dayton, Ohio;
and large markets such as Chicago, Illinois. In addition, Kohl's 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.
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. In spring
of 1996, the Company phased out its electronics business, which is included in
Hardlines in the table below. This business was 2.1% of the total net sales in
fiscal 1995, 3.3% in fiscal 1994 and 4.2% in fiscal 1993. The Company's
merchandise mix is reflected by the following table:
MERCHANDISE MIX
(PERCENT OF NET SALES)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Apparel................................................. 58.2% 57.0% 56.2%
Accessories/Shoes....................................... 19.2% 19.3% 19.5%
Soft Home/Housewares.................................... 12.5% 12.7% 12.1%
Hardlines............................................... 10.1% 11.0% 12.2%
</TABLE>
S-12
<PAGE>
DISTRIBUTION
The Company receives 99% of its merchandise at two 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 two existing facilities are capable
of supporting up to 200 store locations.
The Menomonee Falls, Wisconsin distribution center opened in 1981. In 1992,
the Company expanded the distribution center from 360,000 to 500,000 square
feet. The facility services the Company's stores in Illinois, Wisconsin,
Minnesota, Nebraska, South Dakota, North Dakota, Missouri, Kansas and Iowa.
The Company opened its second distribution center in August 1994. This
650,000 square foot facility, located in Findlay, Ohio, services the Company's
stores in Michigan, Ohio, Pennsylvania, Kentucky, North Carolina and Indiana.
To support its expansion plans, the Company is currently constructing a
third distribution center which is scheduled to open in mid-1997. This 350,000
square foot facility will be located in Winchester, Virginia and will service
the mid-Atlantic states.
EMPLOYEES
As of August 31, 1996, the Company had approximately 21,400 employees,
including approximately 6,800 full-time and approximately 14,600 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.
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.
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 35 additional trademarks, trade names and service marks, most of
which are used in its private label program.
PROPERTIES
As of October 1, 1996, the Company operated 145 stores in 15 states. The
Company owned 33 stores, owned 22 stores with ground leases and leased 90
stores under operating leases. The typical 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. 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.
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 half of the leases provide for additional rent based
on a percentage of sales to be paid when designated sales levels are achieved.
At October 1, 1996, the average minimum annual rent of the 90 leased stores
was $5.62 per square foot, and the average minimum annual rent of the 22
stores operated under ground leases was $2.24 per square foot.
S-13
<PAGE>
The Company's stores are located in strip shopping centers (79), community
and regional malls (43), and as free standing units (23). Of the Company's
stores, 124 are one story facilities and 21 are two story facilities.
<TABLE>
<CAPTION>
NUMBER OF
STORES AT
OCTOBER 1, 1996
---------------
<S> <C>
Illinois.................................................. 30
Wisconsin................................................. 28
Ohio...................................................... 27
Michigan.................................................. 14
Indiana................................................... 12
Minnesota................................................. 12
Kansas.................................................... 5
Iowa...................................................... 4
Missouri.................................................. 3
North Carolina............................................ 3
Kentucky.................................................. 2
Pennsylvania.............................................. 2
Nebraska.................................................. 1
North Dakota.............................................. 1
South Dakota.............................................. 1
---
Total................................................. 145
===
</TABLE>
The Company owns distribution centers in Menomonee Falls, Wisconsin and in
Findlay, Ohio and owns its corporate headquarters in Menomonee Falls.
S-14
<PAGE>
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the "Offered
Securities") supplements and, to the extent inconsistent therewith, replaces
the description of the general terms and provisions of the Debt Securities set
forth in the accompanying Prospectus, to which description reference is hereby
made.
GENERAL
The Company is offering $100,000,000 aggregate principal amount of the Notes
pursuant hereto. The Notes will be direct, unsecured obligations of the
Company. The indebtedness represented by the Notes will rank pari passu with
the Company's guarantees of the obligations of Kohl's Department Stores, Inc.
both under the revolving bank credit facility and $60 million of unsecured
senior notes and senior to all indebtedness of the Company that by its terms
is subordinated in right of payment. The Company currently has no such
subordinated indebtedness.
The Notes will mature on October , 2011. The Notes will not be redeemable
prior to maturity and will not be entitled to the benefit of any sinking fund.
The Notes will bear interest from October , 1996 at the rate set forth on
the cover page of this Prospectus Supplement, payable semi-annually on April
and October of each year, commencing on April , 1997. Interest on the
Notes will be payable to the persons in whose names the Notes are registered
at the close of business on the preceding March and September ,
respectively. The Notes will be issued in fully registered form only, in
denominations of $1,000 and multiples thereof.
The Notes will be subject to legal defeasance and covenant defeasance as
described under the caption "Description of Debt Securities--Defeasance of
Offered Debt Securities or Certain Covenants in Certain Circumstances" in the
accompanying Prospectus.
BOOK-ENTRY SYSTEM
Upon issuance, all Notes will be represented by a fully registered Global
Note which will be deposited with, or on behalf of, The Depository Trust
Company, New York, New York and registered in the name of the
Depositary's nominee. Except as provided in the Prospectus, owners of
beneficial interests in the Global Note will not be entitled to have Notes
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in definitive form and will not be considered the owners or
holders thereof for any purpose under the Indenture.
The Depositary has advised the Company that it is a limited-purpose trust
company which was created to hold securities for its participating
organizations (the "Participants") and to facilitate the clearance and
settlement of securities transactions between Participants in such securities
through electronic book-entry changes in accounts of its Participants.
Participants include securities brokers and dealers (including the
Underwriters), banks and trust companies, clearing corporations and certain
other organizations. Access to the Depositary's system is also available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("indirect participants"). Persons who are not Participants may
beneficially own securities held by the Depositary only through Participants
or indirect participants.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. So long as the Notes are represented by a Global Note, all
payments of principal and interest will be made by the Company in immediately
available funds.
The Notes will trade in the Depositary's Same-Day Funds Settlement System
until maturity, and secondary market trading in the Notes will therefore be
required by the Depositary to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading activity in the Notes.
S-15
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective principal amounts of Notes set forth opposite the names of such
Underwriters below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
NAME OF NOTES
---- ------------
<S> <C>
Morgan Stanley & Co. Incorporated........................... $
William Blair & Company.....................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
------------
Total................................................... $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the
Notes offered hereby if any are taken.
The Underwriters initially propose to offer part of the Notes directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess
of % of the principal amount of the Notes. Any Underwriter may allow, and
such dealers may reallow, a concession not in excess of % of the principal
amount of the Notes to certain other dealers. After the initial offering of
the Notes, the offering price and other selling terms may from time to time be
varied by the Underwriters.
The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Notes, as permitted by applicable
laws and regulations. The Underwriters are not obligated, however, to make a
market in the Notes and any such market making may be discontinued at any time
at the sole discretion of the Underwriters. Accordingly, no assurance can be
given as to the liquidity of, or trading markets for, the Notes.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
Mr. Frank V. Sica, a director of the Company, is a Managing Director in the
Merchant Banking Division of Morgan Stanley & Co. Incorporated, which has from
time to time performed investment banking and other services for the Company.
LEGAL MATTERS
Certain legal matters in connection with the Notes will be passed upon for
the Company by Godfrey & Kahn, S.C., Milwaukee, Wisconsin and for the
Underwriters by Shearman & Sterling, New York, New York. Mr. Peter M.
Sommerhauser is a shareholder of Godfrey & Kahn, S.C. and a director of the
Company.
S-16
<PAGE>
PROSPECTUS
KOHL'S CORPORATION
DEBT SECURITIES
----------------
Kohl's Corporation (the "Company") intends to issue from time to time in one
or more series its unsecured and unsubordinated debt securities (the "Debt
Securities"), consisting of debentures, notes, bonds and/or other unsecured
evidences of indebtedness, at an aggregate initial offering price not to
exceed $250,000,000, or the equivalent thereof if Debt Securities are
denominated in one or more foreign currencies or foreign currency units, at
prices and on terms to be determined at or prior to the time of sale.
Specific terms of the Debt Securities in respect of which this Prospectus is
being delivered (the "Offered Securities") will be set forth in an
accompanying supplement to this Prospectus (each, a "Prospectus Supplement"),
together with the terms of the offering of the Offered Securities, the initial
offering price and the net proceeds to the Company from the sale thereof.
The accompanying Prospectus Supplement will also contain information, where
applicable, as to any listing on a securities exchange or quotation of the
Offered Securities.
The Offered Securities may be sold through underwriters, dealers or agents
or may be sold directly to purchasers. If any underwriters, dealers or agents
are involved in the sale of any Offered Securities, their names and any
applicable fee, commission or discount arrangements will be set forth in the
accompanying Prospectus Supplement. The net proceeds to the Company of the
sale of Offered Securities will be the purchase price of such Offered
Securities less attributable issuance expenses, including underwriters',
dealers' or agents' compensation arrangements. See "Plan of Distribution" for
possible indemnification arrangements for underwriters, dealers and agents.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
January 26, 1996
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT.
NEITHER THIS PROSPECTUS NOR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT CONSTITUTES
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES
HEREBY OR THEREBY OFFERED IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE OR, IN THE CASE OF INFORMATION
INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE DATE OF FILING WITH THE
SECURITIES AND EXCHANGE COMMISSION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Copies of such material
can be obtained by mail from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549, at prescribed
rates. In addition, such reports, proxy statements and other information can
be inspected and copied at the public reference facility referenced above and
at the Commission's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center,
13th Floor, New York, New York 10048. Such reports, proxy statements and other
information concerning the Company can also be inspected and copied at the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which
exchange the Company's Common Stock is traded.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to the Debt Securities. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
For further information concerning the Company and the Debt Securities,
reference is hereby made to the Registration Statement. Any statements
contained herein concerning the provisions of any document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of
such document so filed. Each such statement is qualified in its entirety by
such reference.
2
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended January 28, 1995;
and
2. Quarterly Reports on Form 10-Q for the fiscal quarters ended April 29,
1995, July 29, 1995 and October 28, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Debt Securities shall be deemed to
be incorporated by reference in this Prospectus and shall be deemed a part
hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Prospectus, or in any other subsequently filed
document which is also, or is deemed to be, incorporated by reference,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part of this Prospectus, except
as so modified or superseded. The Company will provide without charge to each
person to whom this Prospectus has been delivered, on written or oral request
of such person, a copy (without exhibits, unless such exhibits are
specifically incorporated by reference into such documents) of any or all
documents incorporated by reference in this Prospectus. Requests for such
copies should be addressed to Secretary, Kohl's Corporation, N54 W13600
Woodale Drive, Menomonee Falls, Wisconsin 53051, telephone number (414) 783-
5800.
THE COMPANY
The Company operates family oriented, specialty department stores primarily
in the Midwest that feature quality, national brand merchandise priced to
provide 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. The
Company'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.
The Company's principal executive offices are located at N54 W13600 Woodale
Drive, Menomonee Falls, Wisconsin 53051, and its telephone number is (414)
783-5800.
USE OF PROCEEDS
The net proceeds from the sale of the Offered Securities will be used as set
forth in the applicable Prospectus Supplement.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (1)
-----------------------------------------------------------
NINE MONTHS (39 WEEKS) JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1, JANUARY 26,
ENDED OCTOBER 28, 1995 1995 1994 1993 1992 1991
- ---------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
3.26(2) 6.91 6.97 3.33 2.08 1.60
</TABLE>
- --------
(1) All years are 52 week years, except for the year ended February 1, 1992,
which had 53 weeks.
(2) Excludes the fourth quarter, which is historically the Company's most
profitable quarter.
For purposes of computing the above ratios of earnings to fixed charges,
earnings consist of consolidated income from operations before income taxes,
plus fixed charges less capitalized interest. Fixed charges consist of
interest (expensed or capitalized), the interest portion of rental expense and
the amortization of deferred financing costs.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities offered hereby are to be issued under an Indenture,
dated as of December 1, 1995 (the "Indenture"), between the Company and The
Bank of New York, as Trustee (the "Trustee"). The following provides a summary
of the material provisions of the Indenture, a copy of which was filed as an
exhibit to the Registration Statement. The summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all provisions of the Indenture, including the definition therein of certain
terms.
GENERAL
The Debt Securities will rank equally with all other unsecured and
unsubordinated indebtedness of the Company. Substantially all of the assets of
the Company are owned by its subsidiaries. Therefore, the Company's rights and
the rights of its creditors, including holders of Debt Securities, to
participate in the assets of any subsidiary upon such subsidiary's liquidation
or reorganization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company may itself be a creditor with
recognized claims against the subsidiary.
The Indenture does not limit the aggregate principal amount of the Debt
Securities or of any particular series of Offered Securities and provides that
Debt Securities may be issued thereunder from time to time in one or more
series. All Debt Securities of any series need not be issued at the same time
or bear interest at the same rate or mature on the same date.
The Prospectus Supplement will set forth the initial offering price, the
aggregate principal amount and the following terms of the Debt Securities in
respect of which this Prospectus is delivered: (1) the title of such Debt
Securities; (2) any limit on the aggregate principal amount of such Debt
Securities; (3) the date or dates on which principal on such Debt Securities
will be payable; (4) the rate or rates and, if applicable, the method used to
determine the rate, including any commodity, commodity index, stock exchange
index or financial index, at which such Debt Securities will bear interest, if
any, the date or dates from which such interest will accrue, the dates on
which such interest shall be payable and the record date for the interest
payable on any interest payment date; (5) the place or places where principal
of, premium, if any, and interest on such Debt Securities will be payable; (6)
the period or periods within which, the price or prices at which and the terms
and conditions upon which the Debt Securities may be redeemed; (7) the
obligation, if any, of the Company to redeem or purchase the Debt Securities
pursuant to any sinking fund or analogous provisions or at the option of a
holder thereof; (8) the denominations of such Debt Securities, if other than
denominations of $1,000 and any integral multiple thereof; (9) the portion of
principal amount of such Debt Securities that shall be payable upon
acceleration, if other than
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the principal amount thereof; (10) the currency of denomination of such Debt
Securities; (11) the designation of the currency or currencies in which
payment of principal of and interest on such Debt Securities will be made;
(12) the manner in which the amounts of payment of principal and premium, if
any, or interest on such Debt Securities will be determined, if such amounts
may be determined by reference to an index based on a currency or currencies
other than that in which the Debt Securities are denominated or designated to
be payable or by reference to a commodity, commodity index, stock exchange
index or financial index; (13) if payments of principal of, premium, if any,
or interest on the Debt Securities are to be made in currency other than the
denominated currency, the manner in which the exchange rate with respect to
such payments will be determined; (14) the forms of the Debt Securities in
bearer or fully registered form and, if in fully registered form, whether the
Debt Securities are to be issued in whole or in part in the form of one or
more Global Notes; (15) the terms, if any, on which such Debt Securities may
be converted into or exchanged for stock or other securities of the Company or
other entities, any specific terms relating to the adjustment thereof and the
period during which such Debt Securities may be so converted or exchanged;
(16) any other terms of such Debt Securities, including, without limitation,
any other events of default or covenants with respect to Debt Securities of
such series, which other terms will not be inconsistent with the provisions of
the Indenture; and (17) any depositories, interest rate calculation agents,
exchange rate calculation agents or other agents with respect to the Debt
Securities other than those originally appointed.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
principal of and any premium and interest on the Offered Securities will be
payable, and the Offered Securities will be exchangeable and transfers thereof
will be registrable, at the corporate trust office of the Trustee, provided
that, at the option of the Company, payment of any interest may be made by
check mailed to the address of the person entitled thereto as it appears in
the Security register. Unless otherwise indicated in the Prospectus Supplement
relating thereto, payment of any interest due on any Offered Security will be
made to the Person in whose name such Offered Security is registered at the
close of business on the regular record date for such interest. (Sections 2.5
and 2.14)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Offered Securities will be issued only in fully registered form without
coupons in denominations of $1,000 or any integral multiple thereof, and no
service charge will be made for any transfer or exchange of such Offered
Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
(Sections 2.1, 2.3 and 2.8)
Debt Securities may be issued under the Indenture as Original Issue Discount
Securities to be offered and sold at a substantial discount from the principal
amount thereof. Special federal income tax, accounting and other
considerations applicable thereto will be described in the Prospectus
Supplement relating to any such Original Issue Discount Securities.
GLOBAL NOTES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Notes that will be deposited with or on behalf of a
depositary located in the United States (a "Depositary") identified in the
Prospectus Supplement relating to such series.
The specific terms of the depositary arrangement with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will
apply to all depositary arrangements:
Unless otherwise specified in an applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Note to be deposited with
or on behalf of a Depositary will be represented by a Global Note registered
in the name of such Depositary or its nominee. Upon the issuance of a Global
Note in registered form, the Depositary for such Global Note will credit, on
its book-entry registration and transfer system, the respective principal
amounts of the Debt Securities represented by such Global Note to the accounts
of institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited
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shall be designated by the underwriters, dealers or agents participating in
the distribution of such Debt Securities or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of
beneficial interests in such Global Notes will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests by participants in such Global Notes will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary or its nominee for such Global Note. Ownership of
beneficial interests in Global Notes by persons that hold through participants
will be effected only through records maintained by such participants. The
laws of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to own or transfer beneficial interests in a
Global Note.
So long as the Depositary for a Global Note, or its nominee, is the
registered owner of such Global Note, such Depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Note for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in such
Global Note will not be entitled to have Debt Securities of the series
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Debt Securities of such series in
definitive form and will not be considered the owners or holders thereof under
the Indenture. Accordingly, each person owning a beneficial interest in a
Global Note must rely on the procedures of the Depositary for such Global Note
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a
holder under the Indenture. The Company understands that under existing
industry practices, if it requests any action of holders or if any owner of a
beneficial interest in a Global Note desires to give or take any action which
a holder is entitled to give or take under the Indenture, the Depositary for
such Global Note would authorize the participants holding the relevant
beneficial interests to give or take such action, and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
holding through them.
Payment of principal of, premium, if any, and any interest on Debt
Securities registered in the name of or held by a Depositary or its nominee
will be made to the Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Note representing such Debt
Securities. None of the Company, the Trustee, any Paying Agent or Security
Registrar for such Debt Securities or any other agent of the Company or
Trustee will have any responsibility or liability for any aspect of the
records relating to or payment made on account of beneficial ownership
interests in a Global Note for such Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for Debt Securities of a series,
upon receipt of any payment of principal, premium, or interest in respect of a
permanent Global Note, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note as shown on the records of such
Depositary. The Company also expects that payments by participants to owners
of beneficial interest in such Global Note held through such participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in "street
name," and will be the responsibility of such participants.
A Global Note may not be transferred except as a whole by the Depositary for
such Global Note to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or other nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee
of such successor. If a Depositary for Debt Securities of a series is at any
time unwilling or unable to continue as Depositary or ceases to be a clearing
agency registered under the Exchange Act and a successor depositary is not
appointed by the Company within ninety days, or if there shall have occurred
and be continuing an Event of Default or an event which, with the giving of
notice or lapse of time, or both, would constitute an Event of Default with
respect to such Debt Securities, then the Company will issue Debt Securities
in definitive registered form in exchange for the Global Note or Notes
representing such Debt Securities. In addition, the Company may at any time
and in its sole discretion determine not to have any Debt Securities
represented by one or more Global Notes and, in such event, will issue Debt
Securities in definitive registered form in exchange for all the
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Global Notes representing such Debt Securities. In any such instance, an owner
of a beneficial interest in a Global Note will be entitled to physical
delivery in definitive form of Debt Securities of the series represented by
such Global Note equal in principal amount to such beneficial interest and to
have such Debt Securities registered in its name. It is expected that
instructions for registering the Debt Securities in definitive form would be
based upon directions received from the Depositary with respect to ownership
of the beneficial interests in the Global Note.
CERTAIN COVENANTS OF THE COMPANY
Restrictions on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, issue, assume or guarantee any Indebtedness secured
by any Mortgage upon any Operating Property or Operating Asset of the Company
or any Restricted Subsidiary, whether such assets are now owned or hereafter
acquired, without in any such case effectively providing that the Debt
Securities (together with, if the Company shall so determine, any other
Indebtedness ranking equally with the Debt Securities) shall be secured at
least equally and ratably with such Indebtedness except that the foregoing
restrictions shall not apply to:
(i) (A) the giving, simultaneously with or within 180 days after the
latest of (1) the acquisition or completion of construction or completion
of substantial reconstruction, renovation, remodeling, expansion or
improvement (each, a "substantial improvement") of such property, or (2)
the placing in operation of such property after the acquisition or
completion of any such construction or substantial improvement, of a
purchase money Mortgage on such property (including security for inventory
financing in the ordinary course of business and vendors' rights under
purchase contracts under an agreement whereby title is retained for the
purpose of securing the purchase price thereof), or (B) the acquiring of
property not theretofore owned by the Company or such Restricted Subsidiary
subject to any then existing Mortgage securing Indebtedness (whether or not
assumed), including in each case Indebtedness incurred for reimbursement of
funds previously expended for any such purpose, provided, however, that in
each case (y) such Mortgage is limited to any or all of (i) such acquired
or constructed property or substantial improvement (including accretions
thereto), (ii) the real property on which any construction or substantial
improvement occurs, or (iii) with respect to distribution centers, any
equipment used directly in the operation of, or the business conducted on,
the real property on which any construction or substantial improvement
occurs, and (z) the total amount of the Indebtedness secured by such
Mortgage, together with all other Indebtedness to persons other than the
Company or a Restricted Subsidiary secured by Mortgages on such property,
shall not exceed the lesser of (i) the total costs of such Mortgaged
property, including any such construction or substantial improvement, to
the Company or a Restricted Subsidiary, or (ii) the fair market value
thereof immediately following the acquisition, construction or substantial
improvement thereof by the Company or a Restricted Subsidiary;
(ii) the giving by the Company or a Restricted Subsidiary of a Mortgage
on real property or, with respect to distribution centers, on equipment
used directly in the operation of, or the business conducted on, such
Mortgaged real property, which is the sole security for Indebtedness (w)
incurred within three years after the latest of (1) the date of issuance of
the first series of Debt Securities under the Indenture, (2) the
acquisition of the real property or (3) the completion of construction or
substantial improvement on such real property, (x) incurred for the purpose
of reimbursing itself for the cost of acquisition and/or the cost of
improvement of such real property and equipment, (y) the amount of which
does not exceed the lesser of the aggregate cost of such real property,
improvements and equipment or the fair market value thereof, and (z) the
holder of which shall be entitled to enforce payment of such Indebtedness
solely by resorting to the security therefor, without any liability on the
part of the Company or such Restricted Subsidiary for any deficiency;
(iii) Mortgages (1) existing on the date of the Indenture, (2) on assets
of a Restricted Subsidiary existing on the date it became a Subsidiary or
(3) on the assets of a Subsidiary that is newly designated as a Restricted
Subsidiary if any such Mortgage would have been permitted under the
provisions of this paragraph if such Mortgage was created while such
Subsidiary was a Restricted Subsidiary;
(iv) Mortgages in favor of the Company or a Restricted Subsidiary;
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(v) Mortgages securing only the Indebtedness issued under the Indenture;
and
(vi) Mortgages to secure Indebtedness incurred to extend, renew,
refinance or replace Indebtedness secured by any Mortgages referred to in
the foregoing clauses (i) to (v), provided that the principal amount of the
extended, renewed, refinanced or replaced Indebtedness does not exceed the
principal amount of Indebtedness so extended, renewed, refinanced or
replaced, plus transaction costs and fees, and that any such Mortgage
applies only to the same property or assets subject to the prior permitted
Mortgage (and, in the case of real property, improvements). (Section 4.5)
At December 30, 1995, KDS had approximately $1.3 million of Indebtedness
secured by a Mortgage on an Operating Property.
Restrictions on Sale and Leaseback Transactions. Without equally and ratably
securing the Debt Securities (together with, if the Company shall so
determine, any other Indebtedness ranking equally with the Debt Securities),
the Company will not, nor will it permit any Restricted Subsidiary to, enter
into any arrangement with any person providing for the leasing by the Company
or any Restricted Subsidiary of any Operating Property or Operating Asset that
has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such person with the intention of taking back a lease of such
property (a "Sale and Leaseback Transaction") unless the terms of such sale or
transfer have been determined by the Company's Board of Directors to be fair
and arms'-length and (i) within 180 days after the receipt of the proceeds of
such sale or transfer, the Company or any Restricted Subsidiary applies an
amount equal to the greater of the net proceeds of such sale or transfer or
the fair value of such Operating Property or Operating Asset at the time of
such sale or transfer to the prepayment or retirement (other than any
mandatory prepayment or retirement) of Senior Funded Debt of the Company or a
Restricted Subsidiary or (ii) the Company or such Restricted Subsidiary would
be entitled, at the effective date of such sale or transfer, to incur
Indebtedness secured by a Mortgage on such Operating Property or Operating
Assets, in an amount at least equal to the Attributable Debt in respect
thereof, without equally and ratably securing the Debt Securities pursuant to
the "Restrictions on Liens" described above. The foregoing restriction will
not apply to (w) any Sale and Leaseback Transaction for a term of not more
than three years including renewals, (x) any Sale and Leaseback Transaction
with respect to Operating Property (and, with respect to distribution centers,
equipment used directly in the operation of, or the business conducted on,
such Operating Property) if a binding commitment with respect thereto is
entered into within three years after the latest of (1) the date of issuance
of the first series of Debt Securities under the Indenture or (2) the date
such Operating Property was acquired (as the term "acquired" is used in the
definition of Operating Property), (y) any Sale and Leaseback Transaction with
respect to Operating Assets if a binding commitment with respect thereto is
entered into within 180 days after the later of the date such property was
acquired and, if applicable, the date such property was first placed in
operation, or (z) any Sale and Leaseback Transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries provided that the
lessor shall be the Company or a Wholly Owned Restricted Subsidiary. (Section
4.6)
Exempted Debt. Notwithstanding the restrictions in the Indenture on (i)
Mortgages and (ii) Sale and Leaseback Transactions, the Company or its
Restricted Subsidiaries may, in addition to amounts permitted under such
restrictions, issue, assume or guaranty Indebtedness secured by Mortgages, or
enter into Sale and Leaseback Transactions, provided that, after giving effect
thereto, the aggregate outstanding amount of all such Indebtedness secured by
Mortgages plus Attributable Debt resulting from such Sale and Leaseback
Transactions (collectively, the "Exempted Debt") does not exceed 15% of
Consolidated Net Tangible Assets. (Sections 4.5 and 4.6)
No Special Protection in the Event of a Highly Leveraged Transaction. Unless
otherwise indicated in the Prospectus Supplement relating thereto, the terms
of the Offered Debt Securities will not afford the holders special protection
in the event of a highly leveraged transaction.
CERTAIN DEFINITIONS
Set forth below are certain significant terms which are defined in Section
1.1 of the Indenture:
"Attributable Debt" in respect of a Sale and Leaseback Transaction means, at
the time of determination, the present value (discounted at the imputed rate
of interest of such transaction determined in accordance with
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generally accepted accounting principles) of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such
Sale and Leaseback Transaction (including any period for which such lease has
been extended or may, at the option of the lessor, be extended). The term "net
rental payments" under any lease for any period shall mean the sum of the
rental and other payments required to be paid in such period by the lessee
thereunder, not including any amounts required to be paid by such lessee
(whether or not designated as rental or additional rental) on account of
maintenance and repairs, insurance, taxes, assessments, water rates or similar
charges required to be paid by such lessee thereunder or any amounts required
to be paid by such lessee thereunder contingent upon the amount of sales,
maintenance and repairs, insurance, taxes, assessments, water rates or similar
charges.
"Capitalized Lease Obligations" means obligations created pursuant to leases
which are required to be shown on the liability side of a balance sheet in
accordance with generally accepted accounting principles.
"Consolidated Net Tangible Assets" means the total amount of assets (less
depreciation and valuation reserves and other reserves and items deductible
from gross book value of specific asset accounts under generally accepted
accounting principles) which under generally accepted accounting principles
would be included on a balance sheet of the Company and its Restricted
Subsidiaries after deducting therefrom (i) all liability items except Funded
Debt, Capitalized Lease Obligations, stockholders' equity and reserves for
deferred income taxes, (ii) all goodwill, trade names, trademarks, patents,
favorable lease rights, unamortized debt discount and expense and other like
intangibles (other than leasehold costs and investments in so-called safe
harbor leases), which in each such case would be so included on such balance
sheet, net of accumulated amortization, and (iii) all amounts which would be
so included on such balance sheet in respect of Investments (less applicable
reserves) in Unrestricted Subsidiaries in excess of the amount of such
Investments at November 25, 1995. At November 25, 1995, the amount of
Investments in Unrestricted Subsidiaries totaled approximately $74.3 million.
"Funded Debt" means Indebtedness which matures more than one year from the
date of computation, or which is extendable or renewable at the sole option of
the obligor so that it may become payable more than one year from such date;
provided, however, that Funded Debt shall not include (i) obligations created
pursuant to leases, (ii) any Indebtedness or portion thereof maturing by its
terms within one year from the time of any computation of the amount of
outstanding Funded Debt unless such Indebtedness shall be extendable or
renewable at the sole option of the obligor in such manner that it may become
payable more than one year from such time, or (iii) any Indebtedness for the
payment or redemption of which money in the necessary amount shall have
deposited in trust either at or before the maturity date thereof.
"Indebtedness" of any person means indebtedness for borrowed money and
indebtedness under purchase money mortgages or other purchase money liens or
conditional sales or similar title retention agreements, in each case where
such indebtedness has been created, incurred, or assumed by such person to the
extent such indebtedness would appear as a liability upon a balance sheet of
such person prepared in accordance with generally accepted accounting
principles, guarantees by such person of such indebtedness, and indebtedness
for borrowed money secured by any mortgage, pledge or other lien or
encumbrance upon property owned by such person, even though such person has
not assumed or become liable for the payment of such indebtedness.
"Investment" means and includes any investment in stock, evidences of
Indebtedness, loans or advances, however made or acquired, but shall not
include accounts receivable of the Company or of any Restricted Subsidiary
arising from transactions in the ordinary course of business, or any evidences
of Indebtedness, loans or advances made in connection with the sale to any
Subsidiary of accounts receivable of the Company or any Restricted Subsidiary
arising from transactions in the ordinary course of business of the Company or
any Restricted Subsidiary.
"KDS" means Kohl's Department Stores, Inc., a Delaware corporation.
"Mortgage" means any mortgage, security interest, pledge, lien or other
encumbrance.
"Operating Assets" means all merchandise inventories, furniture and
equipment (including all transportation and warehousing equipment, store racks
and showcases but excluding office equipment and data processing equipment)
owned by the Company or a Restricted Subsidiary.
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"Operating Property" means all real property and improvements thereon owned
by the Company or a Restricted Subsidiary and constituting, without
limitation, any store, warehouse, service center or distribution center
wherever located; provided that such term shall not include any store,
warehouse, service center or distribution center which the Company's Board of
Directors declares by resolution not to be of material importance to the
business of the Company and its Restricted Subsidiaries. Operating Property is
treated as having been "acquired" on the day the Operating Property is placed
in operation by the Company or a Restricted Subsidiary after the later of (a)
its acquisition from a third party, including an Unrestricted Subsidiary, (b)
completion of its original construction or (c) completion of its substantial
reconstruction, renovation, remodeling, expansion or improvement (whether or
not constituting an Operating Property prior to such reconstruction,
renovation, remodeling, expansion or improvement).
"Restricted Subsidiary" means KDS and any other Subsidiary so designated by
the Board of Directors or duly authorized officers of the Company in
accordance with the Indenture provided that (a) the Board of Directors or duly
authorized officers of the Company may, subject to certain limitations,
designate any Unrestricted Subsidiary as a Restricted Subsidiary and any
Restricted Subsidiary (other than KDS) as an Unrestricted Subsidiary and (b)
any Subsidiary of which the majority of the voting stock is owned directly or
indirectly by one or more Unrestricted Subsidiaries shall be an Unrestricted
Subsidiary. As of January 17, 1996, KDS was the only Restricted Subsidiary.
"Senior Funded Debt" means all Funded Debt of the Company or any person
(except Funded Debt, the payment of which is subordinated to the payment of
the Debt Securities).
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having voting power under ordinary circumstances to elect a
majority of the board of directors of said corporation or business entity is
at the time owned or controlled by the Company, or by the Company and one or
more Subsidiaries, or by any one or more Subsidiaries.
"Unrestricted Subsidiary" means any Subsidiary other than a Restricted
Subsidiary.
MERGER AND CONSOLIDATION
The Indenture provides that the Company may, without the consent of the
Holders of the Debt Securities, consolidate with or merge into any other
corporation, or convey, transfer or lease its properties and assets
substantially as an entirety to any person, provided that in any such case (i)
the successor corporation shall be a domestic corporation and such corporation
shall assume by a supplemental indenture the Company's obligations under the
Indenture and the Debt Securities, (ii) immediately after such transaction, no
Event of Default shall have happened and be continuing, and (iii) if, as a
result of any such merger, consolidation, or such conveyance, transfer or
lease an Operating Property of the Company would become subject to a Mortgage
which would not be permitted under "Restrictions on Liens" described above,
the Debt Securities would be secured, equally and ratably with (or prior to)
all Indebtedness so secured. Upon compliance with these provisions by a
successor corporation, the Company (except in the case of a lease) would be
relieved of its obligations under the Indenture and the Debt Securities.
(Sections 5.1 and 5.2)
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture with respect to
Debt Securities of any series: (a) default in payment of any interest on any
Debt Security of that series when due and payable, continued for 30 days; (b)
default in payment of all or any part of principal of or premium, if any, on
any Debt Security of that series at its maturity; (c) default in the deposit
of any sinking fund payment, when and as due by the terms of a Debt Security
of that series; (d) default in the performance or breach of any other covenant
or warranty of the Company in the Indenture (other than a covenant or warranty
a default in whose performance or whose breach is elsewhere in the Indenture
specifically dealt with or which has been included in the Indenture solely for
the
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benefit of series of Debt Securities other than that series), continued for 60
days after written notice as provided in the Indenture; (e) acceleration of
any Indebtedness, having an aggregate minimum principal amount of $25 million,
for money borrowed by the Company under the terms of the instrument under
which such Indebtedness is issued or secured, if such acceleration is not
discharged within 10 days after written notice as provided in the Indenture;
(f) certain events in bankruptcy, insolvency or reorganization; and (g) any
other Event of Default provided with respect to Debt Securities of that
series. No Event of Default with respect to a particular series of Debt
Securities issued under the Indenture (except as to such events in bankruptcy,
insolvency or reorganization) necessarily constitutes an Event of Default with
respect to any other series of Debt Securities issued thereunder. (Section
6.1)
If an Event of Default with respect to Debt Securities of any series at the
time Outstanding shall occur and be continuing, then and in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Debt Securities of that Series may, by a notice in writing to the
Company (and to the Trustee if given by Holders), declare to be due and
payable immediately the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities, such portion of the principal
amount as may be specified in the terms of that series) of all Debt Securities
of that series. However, at any time after such a declaration of acceleration
with respect to Debt Securities of any series has been made, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in principal amount of Outstanding Debt
Securities of that series may, subject to certain conditions, rescind and
annul such acceleration if all Events of Default, other than the non-payment
of accelerated principal, with respect to Debt Securities of that series have
been cured or waived as provided in the Indenture. (Section 6.2) For
information as to waiver of defaults, see "Modification and Waiver" herein.
Reference is made to the Prospectus Supplement relating to any series of
Offered Debt Securities which are Original Issue Discount Securities for the
particular provisions relating to acceleration of a portion of the principal
amount of such Original Issue Discount Securities upon the occurrence of an
Event of Default and the continuation thereof.
The Indenture provides that the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
discretion of any of the Holders, unless such Holders shall have offered to
the Trustee reasonable security and indemnity. (Section 7.1) Subject to such
provisions for security and indemnification of the Trustee and certain other
rights of the Trustee, the Holders of a majority in principal amount of the
Outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceedings for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee with
respect to the Debt Securities of that series. (Section 6.12)
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to Debt
Securities of that series and unless also the Holders of at least 25% in
principal amount of the Outstanding Debt Securities of that series shall have
made written request, and offered reasonable security and indemnity, to the
Trustee to institute such proceeding as trustee, and the Trustee shall not
have received from the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
(Section 6.7) Notwithstanding the foregoing, the Holder of any Debt Security
will have an absolute and unconditional right to receive payment of the
principal of (and premium, if any) and any interest on such Debt Security on
or after the due dates expressed in such Debt Security and to institute suit
for the enforcement of any such payment. (Section 6.8)
The Indenture requires the Company to furnish to the Trustee annually a
statement as to compliance with the Indenture. (Section 4.8) The Indenture
provides that the Trustee may withhold notice to the Holders of Debt
Securities of any series of any default (except in payment of principal, any
premium, interest or any sinking fund payments) with respect to Debt
Securities of such series if it considers it in the interest of the Holders of
Debt Securities of such series to do so. (Section 7.5)
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MODIFICATION AND WAIVER
Modification and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of 66 2/3% in principal amount of
the Outstanding Debt Securities of each series affected by such modifications
or amendments; provided, however, that no such modification or amendment may,
without the consent of the Holder of each Outstanding Debt Security affected
thereby, (a) change the stated maturity date of the principal of, or any
installment of principal of or interest on, any Debt Security, (b) reduce the
principal amount of, or the premium (if any) or any interest on, any Debt
Security or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon acceleration, (c) change the place
or currency of payment of principal of, or premium (if any) or interest on,
any Debt Security, (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any Debt Security after the stated
maturity date, or (e) reduce the percentage in principal amount of Outstanding
Debt Securities of any series, the consent of whose Holders is required for
modification or amendment of the Indenture, for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults.
(Sections 9.2 and 9.3)
The Holders of a majority in principal amount of the Outstanding Debt
Securities of any series may, on behalf of the Holders of all Debt Securities
of that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive provisions of the Indenture. (Section 9.2)
The Holders of a majority in principal amount of the Outstanding Debt
Securities of any series may, on behalf of the Holders of all Debt Securities
of that series, waive any past default under the Indenture with respect to
that series except a default in the payment of the principal of (or premium,
if any) or any interest on any Debt Security of that series or in respect of a
provision which under the Indenture cannot be modified or amended without the
consent of the Holder of each Outstanding Debt Security of that series
affected. (Section 6.13)
DEFEASANCE OF OFFERED DEBT SECURITIES OR CERTAIN COVENANTS IN CERTAIN
CIRCUMSTANCES
Defeasance and Discharge. The Indenture provides that unless otherwise
provided by the terms of the applicable series of Debt Securities the Company
may be discharged from any and all obligations in respect of the Debt
Securities of any series (except for certain obligations to register the
transfer or exchange of Debt Securities of such series, to replace stolen,
lost or mutilated Debt Securities of such series, to maintain paying agencies
and hold moneys for payment in trust) upon the deposit with the Trustee, in
trust, of money and/or U.S. Government Obligations (as defined), which through
the payment of interest and principal thereof in accordance with their terms
will provide money in an amount sufficient to pay any installment of principal
(and premium, if any) and interest on and any mandatory sinking fund payments
in respect of the Debt Securities of such series on the stated maturity of
such payments in accordance with the terms of the Indenture and such Debt
Securities. Such discharge may only occur if the Company has received from, or
there has been published by, the United States Internal Revenue Service a
ruling, or there has been a change in the federal income tax law, in each case
to the effect that Holders of the Debt Securities of such series will not
recognize income, gain or loss for United States federal income tax purposes
as a result of such deposit, defeasance and discharge and will be subject to
United States federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred; and such discharge will not be applicable to any
Debt Securities of such series then listed on the New York Stock Exchange or
any other securities exchange if such deposit would cause said Debt Securities
to be delisted as a result thereof. (Section 8.3)
Defeasance of Certain Covenants. The Indenture provides that unless
otherwise provided by the terms of the applicable series of Debt Securities,
(i) the Company may omit to comply with certain restrictive covenants
described in Sections 4.2 through 4.8 and Section 5.1 of the Indenture,
including the restrictive covenants described under the caption "Certain
Covenants of the Company" and (ii) cross accelerations constituting an Event
of Default under Section 6.1(5) of the Indenture shall be inapplicable to such
series. The Company, in order to exercise such option, will be required to
deposit irrevocably with the Trustee money and/or U.S. Government Obligations
(as defined) which through the payment of interest and principal thereof in
accordance with their terms will provide money in an amount sufficient to pay
principal (and premium, if any) and interest
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on and any mandatory sinking fund payments in respect of the Debt Securities
of such series on the stated maturity of such payments in accordance with the
Terms of the Indenture and such Debt Securities. The Company will also be
required to deliver to the Trustee an opinion of counsel to the effect that
the deposit and related covenant defeasance will not cause the Holders of the
Debt Securities of such series to recognize income, gain or loss for federal
income tax purposes as a result of such deposit and related covenant
defeasance and will be subject to United States federal income tax on the same
amount and in the same manner and at the same times as would have been the
case if such deposit and related covenant defeasance had not occurred.
(Section 8.4)
Defeasance and Events of Default. In the event the Company exercises its
option to omit compliance with certain covenants of the Indenture with respect
to any series of Debt Securities and the Debt Securities of such series are
declared due and payable because of the occurrence of any Event of Default,
the amount of money and U.S. Government Obligations on deposit with the
Trustee will be sufficient to pay amounts due on the Debt Securities of such
series at the time of their Stated Maturity but may not be sufficient to pay
amounts due on the Debt Securities of such series at the time of the
acceleration resulting from such Event of Default. However, the Company shall
remain liable for such payments.
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture. The Bank of New
York maintains normal banking relations with the Company, including
participating in and acting as Administrative Agent under the Company's
revolving credit agreement.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to or through underwriters,
dealers, or agents, and also may sell the Offered Securities to one or more
other purchasers or through a combination of any such methods of sale.
The Prospectus Supplement with respect to the Offered Securities sets forth
the terms of the offering (and, in certain circumstances, any reoffering),
including the name or names of any underwriters, agents or other purchasers,
the purchase price in respect of the Offered Securities, the proceeds to the
Company, any initial public offering price, any discounts, commissions and
other items constituting compensation from the Company and any discounts,
concessions or commissions allowed or reallowed or paid by any underwriters to
other dealers.
The distribution of the Offered Securities may be effected by one or more
agents, broker-dealers, underwriters or other purchasers from time to time in
one or more transactions in the over-the counter market, in negotiated
transactions, or in a combination of such methods of sale, at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. If underwriters or dealers are used in the sale, the Offered
Securities will be acquired by the underwriters or dealers for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The Offered Securities may be
offered to the public through underwriting syndicates represented by managing
underwriters or by underwriters without a syndicate. Unless otherwise set
forth in the Prospectus Supplement, the obligations of any agent, broker-
dealer, underwriter or other purchaser to purchase Offered Securities will be
subject to satisfaction of certain conditions, and such underwriters will be
obligated to purchase all such Offered Securities if any are purchased. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time. The Offered
Securities may be sold directly by the Company or through agents designated by
the Company from time to time. Unless otherwise indicated in the Prospectus
Supplement, any agent will be acting on a best efforts basis for the period of
its appointment.
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If so indicated in the Prospectus Supplement, the Company may authorize
underwriters, dealers or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase from the Company at the
offering price set forth in the Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a future date. Such
contracts will be subject only to those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the commissions
payable for solicitation of such contracts.
Agents and underwriters may from time to time purchase and sell the Offered
Securities in the secondary market, but are not obligated to do so, and there
can be no assurance that there will be a secondary market for the Offered
Securities or liquidity in the secondary market if one develops. From time to
time, agents and underwriters may make a market in the Offered Securities.
Underwriters, agents and other purchasers who participate in the
distribution of the Offered Securities may be entitled under agreements which
may be entered into by the Company to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended, or to contribution with respect to payments which the
underwriters, agents or other purchasers may be required to make in respect
thereof. Such underwriters, agents and other purchasers may be customers of,
engage in transactions with, or perform services for the Company in the
ordinary course of business.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the Offered Securities
will be passed upon for the Company by Godfrey & Kahn, S.C., Milwaukee,
Wisconsin and for any underwriters or agents by counsel as may be specified in
an accompanying Prospectus Supplement. Mr. Peter M. Sommerhauser is a
shareholder of Godfrey & Kahn, S.C. and a director of the Company. As of
December 31, 1995, Mr. Sommerhauser owned 92,052 shares of Common Stock of the
Company and had sole or shared voting and investment power with respect to an
additional 4,815,434 shares held in trusts for the benefit of the families of
certain executive officers of the Company and an additional 54,580 shares held
by charitable foundations.
EXPERTS
The consolidated financial statements of Kohl's Corporation appearing in
Kohl's Corporation Annual Report (Form 10-K) for the year ended January 28,
1995 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are, and audited
consolidated financial statements to be included in subsequently filed
documents will be, incorporated herein by reference in reliance upon such
reports of Ernst & Young LLP pertaining to such financial statements (to the
extent covered by consents filed with the Securities and Exchange Commission)
given upon the authority of such firm as experts in accounting and auditing.
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