<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1997
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to _____________________
Commission file number 1-11084
--------
KOHL'S CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1630919
- ------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 703-7000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 Days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: June 10, 1997 Common Stock,
Par Value $.01 per Share, 74,068,166 Shares Outstanding.
<PAGE>
KOHL'S CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1 Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets at
May 3, 1997, February 1, 1997 and
May 4, 1996 3
Condensed Consolidated Statements of Income
for the Three Months Ended May 3, 1997 and
May 4, 1996 4
Consolidated Statement of Changes in
Shareholders' Equity for the Three Months
Ended May 3, 1997 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
May 3, 1997 and May 4, 1996 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of
Security Holders 12
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
-2-
<PAGE>
KOHL'S CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
May 3, February 1, May 4,
1997 1997 1996
----------------------------------------
(Unaudited) (Audited) (Unaudited)
Assets
--------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $2,191 $8,906 $1,832
Merchandise inventories 537,887 423,207 397,352
Other 19,611 33,045 11,650
---------- ---------- --------
Total current assets 559,689 465,158 410,834
Property and equipment, at cost 787,858 725,082 542,846
Less accumulated depreciation 139,801 128,855 101,223
---------- ---------- --------
648,057 596,227 441,623
Other assets 7,919 7,615 5,488
Favorable lease rights 17,615 18,076 20,029
Goodwill 34,038 35,338 39,238
---------- ---------- --------
Total assets $1,267,318 $1,122,414 $917,212
========== ========== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $192,288 $126,548 $135,684
Accrued liabilities 78,824 79,594 58,820
Income taxes payable 6,824 25,470 9,955
Deferred income taxes 3,052 2,544 7,139
Current portion of long-term debt 1,663 1,663 1,425
---------- ---------- --------
Total current liabilities 282,651 235,819 213,023
Long-term debt 390,173 312,031 225,369
Deferred income taxes 40,221 38,731 31,678
Other long-term liabilities 19,383 18,362 21,891
Shareholders' equity
Common stock-$.01 par value, 400,000,000 shares
authorized, 74,055,365, 73,920,277 and 73,789,772
issued at May 3, 1997, February 1, 1997 and
May 4, 1996 respectively. 740 739 738
Paid-in capital 195,461 193,351 189,849
Retained earnings 338,689 323,381 234,664
---------- ---------- --------
Total shareholders' equity 534,890 517,471 425,251
---------- ---------- --------
Total liabilities and shareholders' equity $1,267,318 $1,122,414 $917,212
========== ========== ========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months
(13 Weeks) (13 Weeks)
Ended Ended
May 3, May 4,
1997 1996
----------------------------------
(In thousands except per share data)
<S> <C> <C>
Sales $600,547 $468,638
Cost of merchandise sold 397,377 311,836
--------- ---------
Gross margin 203,170 156,802
Operating expenses:
Selling, general, and administrative 146,751 115,890
Depreciation and amortization 11,700 8,665
Goodwill amortization 1,300 1,300
Preopening expenses 12,112 3,639
--------- ---------
Operating income 31,307 27,308
Interest expense, net 5,836 4,102
--------- ---------
Income before income taxes 25,471 23,206
Provision for income taxes 10,163 9,445
--------- ---------
Net income $15,308 $13,761
========= =========
Earnings per share:
Net income $0.21 $0.19
========= =========
Weighted average number of common shares 73,992 73,771
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
KOHL'S CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
-----------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at February 1, 1997 73,920,277 $739 $193,351 $323,381 $517,471
Net income - - - 15,308 15,308
Exercise of stock options 135,088 1 2,110 - 2,111
-----------------------------------------------------------
Balance at May 3, 1997 74,055,365 $740 $195,461 $338,689 $534,890
===========================================================
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months
(13 Weeks) (13 Weeks)
Ended Ended
May 3, 1997 May 4, 1996
-------------------------
(In thousands)
<S> <C> <C>
Operating activities
Net income $15,308 $13,761
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 13,063 10,010
Deferred income taxes 1,998 2,412
Other noncash charges 506 263
Changes in operating assets and liabilities (54,407) (24,328)
--------- ---------
Net cash provided by (used in) operating activities (23,532) 2,118
Investing activities
Acquisition of property and equipment, net (63,071) (40,440)
Other (359) (295)
--------- ---------
Net cash used in investing activities (63,430) (40,735)
Financing activities
Net borrowings under working capital loan 78,500 (62,000)
Proceeds from public debt offering - 100,000
Repayments of long-term debt (358) (330)
Payment of financing fees on debt (6) (892)
Net proceeds from issuance of common shares
(including stock options) 2,111 852
--------- ---------
Net cash provided by financing activities 80,247 37,630
--------- ---------
Net decrease in cash and cash equivalents (6,715) (987)
Cash and cash equivalents at beginning of period 8,906 2,819
--------- ---------
Cash and cash equivalents at end of period $2,191 $1,832
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
KOHL'S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for fiscal year end financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-K (Commission File No. 1-
11084) filed with the Securities and Exchange Commission.
2. Inventories
The Company uses the last-in, first out (LIFO) method of accounting for
merchandise inventory because it results in a better matching of cost and
revenues. The following information is provided to show the effects of the LIFO
provision on the quarter, as well as to provide users with the information to
compare to other companies not on LIFO.
<TABLE>
<CAPTION>
LIFO Expense 3 Months Ended
------------ --------------
Quarter May 3, 1997 May 4, 1996
------- ----------- -----------
Total Total
----- -----
(In Thousands)
<S> <C> <C>
First $1,501 $1,171
</TABLE>
Inventories would have been $6,377,000, $4,876,000 and $832,000 higher at
May 3, 1997, February 1, 1997 and May 4, 1996, respectively, if they had been
valued using the first-in, first-out (FIFO) method.
3. Contingencies
The Company is involved in various legal matters arising in the normal
course of business. In the opinion of management, the outcome of such
proceedings and litigation will not have a material adverse impact on the
Company's financial position or results of operations.
The Internal Revenue Service (the "IRS") has audited the Company's federal
income tax returns for fiscal years ended August
-7-
<PAGE>
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 contested 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.
4. New Accounting Pronouncement
In February 1997, the FASB issued Statement No. 128, Earnings Per Share,
which specifies the computation, presentation and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. Statement 128 will require reporting of both basic and
diluted EPS effective for annual and interim periods ending after December 15,
1997.
If the Company were reporting pursuant to Statement 128, earnings per share
would have been $0.20 and $0.18 for the periods ended May 3, 1997 and May 4,
1996, respectively. The dilutive effect is a result of unexercised stock
options.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
----------------------------------------------
THREE MONTHS ENDED May 3, 1997
------------------------------
Results of Operations
- ---------------------
At May 3, 1997, the Company operated 170 stores compared with 136 stores at
the same time last year. During the quarter, the Company successfully opened
twenty new stores including eight new stores in the Washington, D.C./Baltimore
markets; seven in the Philadelphia market; two in Wilmington, DE; one in
Evansville, IN; one in Allentown, PA and one in Winchester, VA. In addition, the
Company relocated one of its Indianapolis stores to a larger location. In
August, Kohl's will open an additional store in the Philadelphia market and its
second store in Louisville, Kentucky. In October, Kohl's will open four
additional stores in the Philadelphia trade area (three in New Jersey and one in
Pennsylvania), an additional store in the Washington, D.C. market, its second
store in Omaha, Nebraska, and enter the Pittsburgh market with three stores. To
support the expansion in the Mid-Atlantic, the Company will open a distribution
center in Winchester, VA this summer.
Net sales increased $131.9 million or 28.1% to $600.5 million for the three
months ended May 3, 1997 from $468.6 million for the three months ended May 4,
1996. Of the increase, $92.2 million is attributable to the inclusion of 22 new
stores opened in 1996 and twenty new stores opened in 1997. The remaining $39.7
million is attributable to comparable store sales growth of 9.3% (excluding the
discontinued electronics business).
Gross margin for the three months ended May 3, 1997 was 33.8% compared to
33.5% in the three months ended May 4, 1996. This increase is primarily
attributable to the elimination of the Company's electronics business in 1996.
The Company incurred $12.1 million of preopening expenses associated with
the opening of twenty stores and the relocation of one store in the three months
ended May 3, 1997 compared to $3.6 million for eight stores opened in the three
months ended May 4, 1996. These expenses include hiring and training costs for
new employees, Kohl's charge account solicitation and processing and
transporting initial merchandise.
Operating income for the three months ended May 3, 1997 increased $4.0
million or 14.6% over the three months ended May 4, 1996. Excluding pre-opening
expenses, operating income increased 40.3%. This increase resulted primarily
from the increased 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 24.4% of net sales for the three months
ended May 3, 1997 from 24.7% of net sales for the three months ended May 4,
1996.
-9-
<PAGE>
Net interest expense for the three months ended May 3, 1997 increased $1.7
million from the three months ended May 4, 1996. This increase was due to higher
interest rates associated with the $100 million non-callable 7.375% unsecured
senior notes issued in October 1996 and increased spending on capital and
working capital requirements of new stores. The Company expects interest expense
to increase for fiscal 1997 over fiscal 1996. Interest expense is fixed on $60
million of senior notes issued in 1994, $200 million of non-callable senior
notes issued in 1996 and $52.3 million of capital lease debt. In addition, the
Company will borrow under its revolving credit facility for seasonal working
capital needs.
For the three months ended May 3, 1997, net income increased 11.2% to $15.3
million from $13.8 million in the three months ended May 4, 1996. Earnings were
$.21 per share for the three months ended May 3, 1997 compared to $.19 per share
for the three months ended May 4, 1996.
Seasonality & Inflation
- -----------------------
The Company's business is seasonal, reflecting increased consumer buying in
the "back-to-school" and Christmas seasons. The Company's financial position and
operations are also affected by the timing of new store openings. Inflation did
not materially affect the Company's net income during the periods presented.
Financial Condition and Liquidity
- ---------------------------------
The Company's primary ongoing cash requirements are for inventory
purchases, capital expenditures in connection with the Company's 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, 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.
At May 3, 1997, the Company's merchandise inventories had increased $114.7
million over the February 1, 1997 balance and $140.5 million over the May 4,
1996 balance. These increases reflect the purchase of summer inventory as well
as inventory for new stores. The Company's working capital increased to $277.0
million at May 3, 1997 from $229.3 million at February 1, 1997 and $197.8
million at May 4, 1996. 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.
-10-
<PAGE>
Cash used in operating activities was $23.5 million for the three months
ended May 3, 1997 compared to cash provided of $2.1 million for the three months
ended May 4, 1996. Excluding changes in operating assets and liabilities, cash
provided by operating activities was $30.9 million for the three months ended
May 3, 1997 compared to $26.5 million for the three months ended May 4, 1996.
Capital expenditures for the three months ended May 3, 1997 were $63.1
million compared to $40.4 million for the same period a year ago. The increase
in expenditures in 1997 is primarily attributable to the opening of twenty new
stores and the construction of a third distribution center for the three months
ended May 3, 1997 compared to eight new stores for the three months ended May 4,
1996.
The Company's long-term debt increased from $312.0 million at February 1,
1997 to $390.2 million at May 3, 1997 primarily as a result of the Company's
growth.
Total capital expenditures for fiscal 1997 are currently expected to be
approximately $200.0 million (excluding assets under capital leases). 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 anticipates that it will be able to satisfy its current
operating needs, planned capital expenditures and debt service requirements with
current working capital, cash flows from operations, seasonal borrowings under
its revolving credit facility, short-term trade credit and other lending
facilities.
Information in this document contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, such as
statements relating to debt service requirements and planned capital
expenditures. Forward-looking statements can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should" or "anticipates" or the negative thereof or other variations thereon.
No assurance can be given that the future results covered by the forward-looking
statements will be achieved.
-11-
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Kohl's Corporation was held on May
28, 1997:
1. To elect three directors to serve for a three-year term.
2. To ratify the appointment of Ernst & Young LLP as independent auditors.
3. To consider and act upon a proposal to adopt the Company's 1997 Stock
Option Plan for Outside Directors.
Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934 and there was no solicitation in opposition to
management's solicitations. All of management's nominees for directors as
listed in the proxy statement were elected.
The results of the voting were as follows:
1. Election of directors
Jay H. Baker
For - 65,319,233 shares
Withheld - 2,186,464 shares
Herbert Simon
For - 57,096,976 shares
Withheld - 10,408,721 shares
Peter Sommerhauser
For - 65,313,007 shares
Withheld - 2,192,690 shares
2. Ratification of Ernst & Young LLP as independent auditors
For - 67,432,928 shares
Against - 54,594 shares
Abstain - 18,175 shares
3. To consider and act upon a proposal to adopt the Company's 1997 Stock
Option Plan for Outside Directors.
For - 48,188,147 shares
Against - 19,199,336 shares
Abstain - 118,214 shares
-12-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
12.1 Statement regarding calculation of ratio of earnings to
fixed charges.
27 Financial Data Schedule - Article 5 of Regulation S-X
b) Reports on Form 8-K
There were no reports on Form 8-K filed for three months ended May
3, 1997
-13-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Kohl's Corporation
(Registrant)
Date: June 13, 1997 /s/William Kellogg
---------------------------------
William Kellogg
Chairman, Chief Executive Officer
Date: June 13, 1997 /s/Arlene Meier
------------------------------------
Arlene Meier
Executive Vice President - Finance
Chief Financial Officer
-14-
<PAGE>
Exhibit 12.1
Kohl's Corporation
Ratio of Earnings to Fixed Charges
($000s)
<TABLE>
<CAPTION>
Fiscal Quarter Ended
-------------------- Fiscal Year (1)
May 3, May 4, --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income before income taxes and
extraordinary items $25,471 $23,206 $171,368 $122,729 $117,451 $96,691 $50,134
Fixed charges 13,439 9,377 44,054 30,770 19,758 16,144 21,503
Less interest capitalized
during period (643) (176) (2,829) (1,287) (603) (376) 0
------- ------- -------- -------- -------- -------- -------
$38,267 $32,407 $212,593 $152,212 $136,606 $112,459 $71,637
======= ======= ======== ======== ======== ======== =======
Fixed Charges
Interest (expensed or capitalized) $6,647 $4,443 $21,822 $14,895 $7,911 $6,253 $13,648
Portion of rent expense
representative of interest 6,729 4,889 22,031 15,798 11,777 9,113 6,794
Amortization of deferred
financing fees 63 45 201 77 70 778 1,061
------- ------- -------- -------- -------- -------- -------
$13,439 $9,377 $44,054 $30,770 $19,758 $16,144 $21,503
======= ======= ======== ======== ======== ======== =======
Ratio of earnings to fixed charges 2.85 3.46 4.83 4.95 (2) 6.91 6.97 3.33
======= ======= ======== ======== ======== ======== =======
</TABLE>
(1) Fiscal 1996,1994, 1993 and 1992 are 52 week years and fiscal 1995 is a 53
week year.
(2) Excluding the credit operations non-recurring expense of $14,052, the ratio
of earnings to fixed charges would be 5.40.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 2,191
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 537,887
<CURRENT-ASSETS> 559,689
<PP&E> 787,858
<DEPRECIATION> 139,801
<TOTAL-ASSETS> 1,267,318
<CURRENT-LIABILITIES> 282,651
<BONDS> 390,173
0
0
<COMMON> 740
<OTHER-SE> 534,150
<TOTAL-LIABILITY-AND-EQUITY> 1,267,318
<SALES> 600,547
<TOTAL-REVENUES> 600,547
<CGS> 397,377
<TOTAL-COSTS> 569,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,836
<INCOME-PRETAX> 25,471
<INCOME-TAX> 10,163
<INCOME-CONTINUING> 15,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,308
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
