<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 November 1, 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: December 11, 1997 Common
Stock, Par Value $.01 per Share, 78,845,697 shares Outstanding.
<PAGE>
KOHL'S CORPORATION
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
November 1, 1997, February 1, 1997 and
November 2, 1996 3
Condensed Consolidated Statements of Income
for the Three Months and Nine Months Ended
November 1, 1997 and November 2, 1996 4
Consolidated Statement of Changes in
Shareholders' Equity for the Nine Months
Ended November 1, 1997 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
November 1, 1997 and November 2, 1996 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
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>
November 1, February 1, November 2,
1997 1997 1996
---------------------------------------------
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
Assets
--------
Current assets:
Cash and cash equivalents $8,366 $8,906 $1,950
Merchandise inventories 752,227 423,207 587,754
Deferred income taxes 1,042 - -
Other 63,135 33,045 8,824
------------- ------------- -------------
Total current assets 824,770 465,158 598,528
Property and equipment, at cost 887,769 725,082 670,622
Less accumulated depreciation 163,750 128,855 119,314
------------- ------------- -------------
724,019 596,227 551,308
Other assets 10,258 7,615 6,523
Favorable lease rights 16,583 18,076 18,543
Goodwill 31,438 35,338 36,638
------------- ------------- -------------
Total assets $1,607,068 $1,122,414 $1,211,540
============= ============= =============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $261,198 $126,548 $209,357
Accrued liabilities 86,005 79,594 69,270
Income taxes payable 7,789 25,470 7,468
Deferred income taxes - 2,544 6,783
Current portion of long-term debt 1,769 1,663 1,425
------------- ------------- -------------
Total current liabilities 356,761 235,819 294,303
Long-term debt 310,932 312,031 395,686
Deferred income taxes 43,472 38,731 35,139
Other long-term liabilities 21,342 18,362 22,357
Shareholders' equity
Common stock--$.01 par value, 400,000,000 shares
authorized, 78,788,395, 73,920,277 and 73,907,226
issued at November 1, 1997, February 1, 1997 and
November 2, 1996 respectively. 788 739 739
Paid-in capital 481,717 193,351 191,907
Retained earnings 392,056 323,381 271,409
------------- ------------- -------------
Total shareholders' equity 874,561 517,471 464,055
------------- ------------- -------------
Total liabilities and shareholders' equity $1,607,068 $1,122,414 $1,211,540
============= ============= =============
</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 9 Months 9 Months
(13 Weeks) (13 Weeks) (39 Weeks) (39 Weeks)
Ended Ended Ended Ended
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
--------------------------------------------------------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Sales $757,773 $598,052 $1,982,257 $1,541,288
Cost of merchandise sold 503,892 399,572 1,317,121 1,029,448
----------- ----------- ------------- -------------
Gross margin 253,881 198,480 665,136 511,840
Operating expenses:
Selling, general, and administrative 173,065 138,324 472,061 371,653
Depreciation and amortization 13,392 10,334 37,913 28,063
Goodwill amortization 1,300 1,300 3,900 3,900
Preopening expenses 6,421 6,552 18,589 10,302
----------- ----------- ------------- -------------
Operating income 59,703 41,970 132,673 97,922
Interest expense, net 5,583 5,347 18,405 13,089
----------- ----------- ------------- -------------
Income before income taxes 54,120 36,623 114,268 84,833
Provision for income taxes 21,594 14,706 45,593 34,327
----------- ----------- ------------- -------------
Net income $32,526 $21,917 $68,675 $50,506
=========== =========== ============= =============
Earnings per share:
Net income $0.42 $0.30 $0.91 $0.68
=========== =========== ============= =============
Weighted average number of common shares 78,022 73,897 75,366 73,831
=========== =========== ============= =============
</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 - - - 68,675 68,675
Sale of additional shares 4,570,300 46 282,822 282,868
Exercise of stock options 297,818 3 5,544 - 5,547
-------------------------------------------------------------------
Balance at November 1, 1997 78,788,395 $788 $481,717 $392,056 $874,561
===================================================================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
9 Months 9 Months
(39 Weeks) (39 Weeks)
Ended Ended
November 1, 1997 November 2, 1996
-------------------------------------
(In thousands)
<S> <C> <C>
Operating activities
Net income $68,675 $50,506
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization 42,107 32,102
Deferred income taxes 1,155 5,517
Other noncash charges 1,593 1,213
Changes in operating assets and liabilities ( 234,015) ( 130,917)
------------- -------------
Net cash used in operating activities ( 120,485) ( 41,579)
Investing activities
Acquisition of property and equipment, net ( 163,921) ( 168,236)
Other ( 3,455) 10
------------- -------------
Net cash used in investing activities ( 167,376) ( 168,226)
Financing activities
Net borrowings under working capital loan - 9,000
Proceeds from public debt offering - 200,000
Repayments of long-term debt ( 993) ( 1,013)
Payment of financing fees on debt ( 101) ( 1,962)
Net proceeds from issuance of common shares
(including stock options) 288,415 2,911
------------- -------------
Net cash provided by financing activities 287,321 208,936
------------- -------------
Net decrease in cash and cash equivalents ( 540) ( 869)
Cash and cash equivalents at beginning of period 8,906 2,819
------------- -------------
Cash and cash equivalents at end of period $8,366 $1,950
============ ============
</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 9 Months Ended
------------ --------------
Quarter November 1, 1997 November 2, 1996
------- ---------------- ----------------
(In Thousands)
<S> <C> <C>
First $1,501 $1,171
Second 1,560 1,184
Third 1,895 1,495
------ ------
Total $4,956 $3,850
</TABLE>
Inventories would have been $9,832,000, $4,876,000 and $3,511,000 higher at
November 1, 1997, February 1, 1997 and November 2, 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.
-7-
<PAGE>
The Internal Revenue Service (the "IRS") audited the Company's federal tax
returns for fiscal years August, 1986-1991. The Company and IRS came to final
resolution on the audit of the aforementioned years in September, 1997. The
resolution did 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 $0.41 and $0.29 for the three months ended November 1,
1997 and November 2, 1996, respectively. For the nine months ended November 1,
1997 and November 2, 1996, earnings per share would have been $0.90 and $0.67,
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 AND NINE MONTHS ENDED November 1, 1997
---------------------------------------------------
Results of Operations
- ---------------------
At November 1, 1997, the Company operated 182 stores compared with 150
stores at the same time last year. In October, Kohl's opened ten new stores:
four additional stores in the Philadelphia trade area (three in New Jersey and
one in Pennsylvania); three stores in the Pittsburgh market; an additional store
in the Washington, D.C. market; its second store in Omaha, Nebraska and a store
in Binghamton, New York.
Net sales increased $159.7 million or 26.7% to $757.8 million for the three
months ended November 1, 1997 from $598.1 million for the three months ended
November 2, 1996. Of the increase, $102.4 million is attributable to the
inclusion of 22 new stores opened in 1996 and 32 new stores opened in 1997. The
remaining $57.3 million is attributable to comparable store sales growth of
10.6%.
Net sales increased $441.0 million or 28.6% to $1,982.3 million for the
nine months ended November 1, 1997 from $1,541.3 million for the nine months
ended November 2, 1996. Of the increase, $295.9 million is attributable to the
inclusion of 22 new stores opened in 1996 and 32 new stores opened in 1997. The
remaining $145.1 million is attributable to comparable store sales growth of
10.2% (excluding the discontinued electronics business).
Gross margin for the three months ended November 1, 1997 was 33.5% compared
to 33.2% in the three months ended November 2, 1996. Gross margin for the nine
months ended November 1, 1997 was 33.6% compared to 33.2% in the nine months
ended November 2, 1996. This year-to-date increase is attributable to the sales
mix and the elimination of the Company's electronic business in 1996.
Operating income for the three months ended November 1, 1997 increased
$17.7 million over the three months ended November 2, 1996. Operating income
for the nine months ended November 1, 1997, increased $34.8 million over the
nine months ended November 2, 1996. These increases 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 22.8% of net sales for the three months
ended November 1, 1997 from 23.1% of net sales for the three months ended
November 2, 1996. Selling, general and administrative expenses declined to
23.8% of net sales for the nine months ended November 1, 1997 from 24.1% of net
sales for the nine months ended November 2, 1996.
-9-
<PAGE>
Costs associated with the opening of new stores are accumulated for the
weeks prior to opening and expensed over the two week grand opening period. The
Company expensed $6.4 million of preopening expenses in the three months ended
November 1, 1997. The expenses relate to the balance of the preopening expense
for two stores which opened in the last week of the three month period ended
August 2, 1997 and the expenses of 10 new stores opened during the three months
ended November 1, 1997. The Company expensed $6.6 million in the three months
ended November 2, 1996 in opening 12 new stores and relocating one store. In the
nine months ended November 1, 1997, the Company expensed $18.6 million of
preopening expenses associated with the opening of 32 new stores and the
relocation of one store. The Company expensed $10.3 million of preopening
expenses for 22 new stores and the relocation of one store in the nine months
ended November 2, 1996. The expenses relate to the costs associated with new
store openings, including hiring and training costs for new employees, Kohl's
charge account solicitation and processing and transporting initial merchandise.
Net interest expense for the three months ended November 1, 1997
increased $0.2 million from the three months ended November 2, 1996. Net
interest expense for the nine months ended November 1, 1997 increased $5.3
million from the nine months ended November 2, 1996. The increase was due to
higher interest rates associated with the $100 million non-callable 7.375%
unsecured senior notes issued in October 1996 offset by the reduction in debt
from the equity offering.
For the three months ended November 1, 1997, net income increased 48.4% to
$32.5 million from $21.9 million in the three months ended November 2, 1996.
Earnings were $.42 per share for the three months ended November 1, 1997
compared to $.30 per share for the three months ended November 2, 1996. Net
income for the nine months ended November 1, 1997 increased 36.0% to $68.7
million or $.91 per share from $50.5 million or $.68 per share in the nine
months ended November 2, 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.
-10-
<PAGE>
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 November 1, 1997, the Company's merchandise inventories had increased
$329.0 million over the February 1, 1997 balance and $164.5 million over the
November 2, 1996 balance. These increases reflect the purchase of fall inventory
as well as inventory for new stores. The Company's working capital increased to
$468.1 million at November 1, 1997 from $229.3 million at February 1, 1997 and
$304.2 million at November 2, 1996. The increase is due primarily to higher
inventory levels and higher receivable levels, but offset in part by increased
accounts payable. The Company expects working capital levels to continue to grow
as new stores are opened.
Cash used in operating activities was $120.5 million for the nine months
ended November 1, 1997 compared to cash used of $41.6 million for the nine
months ended November 2, 1996. Excluding changes in operating assets and
liabilities, cash provided by operating activities was $113.5 million for the
nine months ended November 1, 1997 compared to $89.3 million for the nine months
ended November 2, 1996.
Capital expenditures for the nine months ended November 1, 1997 were $163.9
million compared to $168.2 million for the same period a year ago.
In August, 1997 the Company issued 4,570,300 of its common stock to the
public. Net proceeds of approximately $282.9 million were used for general
corporate purposes, including financing the Company's continued store growth and
paydown of debt.
The Company anticipates that with current working capital, cash flows from
operations, seasonal borrowings under its revolving credit facility, short-term
trade credit and other lending facilities, it will be able to satisfy its
current operating needs, planned capital expenditures and debt service
requirements.
-11-
<PAGE>
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.
-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 November 1, 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: December 12, 1997 /s/William Kellogg
---------------------------------
William Kellogg
Chairman, Chief Executive Officer
Date: December 12, 1997 /s/Arlene Meier
------------------------------------
Arlene Meier
Senior Vice President - Finance
Chief Financial Officer
-14-
<PAGE>
Exhibit 12.1
Kohl's Corporation
Ratio of Earnings to Fixed Charges
($000s)
<TABLE>
<CAPTION>
39 Weeks Ended
-------------- Fiscal Year (1)
November 1, November 2, ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income before income taxes and
extraordinary items $114,268 $84,833 $171,368 $122,729 $117,451 $96,691 $50,134
Fixed charges 44,487 31,566 44,054 30,770 19,758 16,144 21,503
Less interest capitalized
during period (1,611) (1,882) (2,829) (1,287) (603) (376) 0
---------- ----------- --------- --------- --------- --------- --------
$157,144 $114,517 $212,593 $152,212 $136,606 $112,459 $71,637
========== =========== ========= ========= ========= ========= ========
Fixed Charges
Interest (expensed or capitalized) $22,033 $15,288 $21,822 $14,895 $7,911 $6,253 $13,648
Portion of rent expense
representative of interest 22,159 16,139 22,031 15,798 11,777 9,113 6,794
Amortization of deferred
financing fees 295 139 201 77 70 778 1,061
---------- ----------- --------- --------- --------- --------- --------
$44,487 $31,566 $44,054 $30,770 $19,758 $16,144 $21,503
========== =========== ========= ========= ========= ========= ========
Ratio of earnings to fixed charges 3.53 3.63 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> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<CASH> 8,366
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 752,227
<CURRENT-ASSETS> 824,770
<PP&E> 887,769
<DEPRECIATION> 163,750
<TOTAL-ASSETS> 1,607,068
<CURRENT-LIABILITIES> 356,655
<BONDS> 311,038
0
0
<COMMON> 788
<OTHER-SE> 873,774
<TOTAL-LIABILITY-AND-EQUITY> 1,607,068
<SALES> 1,982,257
<TOTAL-REVENUES> 1,982,257
<CGS> 1,317,121
<TOTAL-COSTS> 1,849,584
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,405
<INCOME-PRETAX> 114,268
<INCOME-TAX> 45,593
<INCOME-CONTINUING> 68,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,675
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.90
</TABLE>
