<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 1-11084
KOHL'S CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WISCONSIN 39-1630919
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
N56 W17000 RIDGEWOOD DRIVE 53051
MENOMONEE FALLS, WISCONSIN (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code (414) 703-7000
Securities registered pursuant to section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- -----------------------
<S> <C>
Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At April 2, 1998, the aggregate market value of the voting stock of the
registrant held by stockholders who were not affiliates of the registrant was
$6,711,929,375 (based upon the closing price of Registrant's Common Stock on
the New York Stock Exchange on such date). At April 2, 1998 the registrant had
issued and outstanding an aggregate of 78,963,875 shares of its Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of Registrant's Proxy Statement dated April 20, 1998 are
incorporated into Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS
The Company currently operates 197 family oriented, specialty department
stores primarily in the Midwest and Mid-Atlantic areas of the United States
that feature quality, national brand merchandise which provides exceptional
value to customers. The Company's stores sell moderately priced apparel,
shoes, accessories, soft home products and housewares targeted to middle-
income customers shopping for their families and homes. Kohl's stores have
fewer departments than traditional, full-line department stores, but offer
customers dominant assortments of merchandise displayed in complete selections
of styles, colors and sizes. Central to the Company's pricing strategy and
overall profitability is a culture focused on maintaining a low cost
structure. Critical elements of this low cost structure are the Company's
unique store format, lean staffing levels, sophisticated management
information systems and operating efficiencies resulting from centralized
buying, advertising and distribution.
As used herein, the term the "Company" and "Kohl's" refer to Kohl's
Corporation, its consolidated subsidiaries and predecessors. The Company's
fiscal year ends on the Saturday closest to January 31. Fiscal 1997 ended on
January 31, 1998 and was a 52 week year.
EXPANSION
Since 1986, the Company has expanded from 40 stores to the current total of
197 stores both by acquiring and converting pre-existing stores and by opening
new stores. Management believes there is substantial opportunity for further
growth and intends to open approximately 32 new stores in fiscal 1998. Seven
opened in March 1998: three stores in Knoxville, Tennessee; three stores in
the Winston-Salem/Greensboro, North Carolina market and a store in Shawnee,
Kansas. Eight stores opened in April: three stores in Richmond, Virginia; two
additional stores in the Pittsburgh, Pennsylvania market; a store in Fairfax,
Virginia; a store in Turnersville, New Jersey and a store in Muncie, Indiana.
The remaining stores will open in the second half of the year.
As demonstrated on the following page, Kohl's expansion strategy is to open
additional stores in existing markets, where it can leverage advertising,
purchasing, transportation and other regional overhead expenses; in contiguous
markets, where it can extend regional operating efficiencies; and in new
markets which offer similar opportunity to successfully implement the Kohl's
retailing strategy.
2
<PAGE>
STORE EXPANSION
<TABLE>
<CAPTION>
TOTAL AT FISCAL FISCAL FISCAL FISCAL TOTAL AT ANNOUNCED
JANUARY 29, 1994 1995 1996 1997 JANUARY 31, FISCAL
MARKET AREA 1994 NEW NEW NEW NEW 1998 1998
- ----------- ----------- ------ ------ ------ ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Chicago, IL............. 21 2 1 1 -- 25 3
Milwaukee, WI........... 11 1 -- -- -- 12 --
Minneapolis/St. Paul,
MN..................... 6 2 2 1 -- 11 --
Detroit, MI............. 10 -- (2)(a) -- -- 8 2
Cleveland, OH........... -- -- 4 3 -- 7 --
Indianapolis, IN........ 6 -- -- -- -- 6 --
Columbus, OH............ 6 -- -- -- -- 6 2
Cincinnati, OH.......... -- 3 2 -- -- 5 --
Kansas City, KS, MO..... -- -- 3 1 -- 4 1
Dayton, OH.............. -- 3 -- -- -- 3 --
Madison, WI............. 2 1 -- -- -- 3 --
Charlotte, NC........... -- -- -- 3 -- 3 2
Philadelphia, PA........ -- -- -- -- 12 12 3
Pittsburgh, PA.......... -- -- -- -- 3 3 2
Washington, DC.......... -- -- -- -- 9 9 4
Winston
Salem/Greensboro, NC... -- -- -- -- -- -- 3
Richmond, VA............ -- -- -- -- -- -- 3
Knoxville, TN........... -- -- -- -- -- -- 3
Other................... 28 6 10 13 8 65 4
--- --- --- --- --- --- ---
Total............... 90 18 20 22 32 182 32
=== === === === === === ===
</TABLE>
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(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 Kalamazoo, Michigan; intermediate markets such as Kansas City,
and large markets such as Chicago, Illinois. In addition, the Kohl's concept
has been successful in retailing formats such as strip shopping centers,
community and regional malls and free-standing stores. Management believes the
transferability of the Kohl's retailing strategy, the Company's experience in
acquiring and converting pre-existing stores and in opening new stores, and
the Company's substantial investment in management information systems,
centralized distribution and headquarters functions provide a solid foundation
for further expansion.
In determining where to open new stores, the Company evaluates: demographic
information, the availability of prime real estate locations, existing and
potential competitors, and the potential impact on existing stores. In
addition, the Company develops pro forma projections that take into account
the economies of scale available in advertising, distribution and regional
expenses.
MERCHANDISING
Kohl's stores feature moderately priced, department store national brands
which provide exceptional value to customers. Kohl's merchandise is targeted
to appeal to middle-income customers shopping for their families and homes.
All of the Company's stores carry a consistent merchandise assortment. The
Company's stores emphasize apparel and shoes for children, women and men, soft
home products, such as towels, sheets and pillows, and housewares. The Company
eliminated its electronics business in fiscal 1996, which is included in
Hardlines in the table below. This business was 0.3% of the total net sales in
fiscal 1996 and 2.1% in fiscal 1995. The Company's merchandise mix is
reflected by the following table:
3
<PAGE>
MERCHANDISE MIX
(PERCENT OF NET SALES)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Apparel................................................. 61.2% 60.6% 58.2%
Accessories/Shoes....................................... 18.8% 19.1% 19.2%
Soft Home/Housewares.................................... 12.2% 12.5% 12.5%
Hardlines............................................... 7.8% 7.8% 10.1%
</TABLE>
DISTRIBUTION
The Company receives 99% of its merchandise at three distribution centers,
with the balance delivered directly to the stores by vendors or their
distributors. The distribution centers ship merchandise to each store by
contract carrier several times a week. The three existing facilities are
capable of supporting 250-300 store locations.
The Menomonee Falls, Wisconsin distribution center opened in 1981. This
500,000 square foot facility services the Company's stores in Chicago,
Illinois, Wisconsin, Minnesota, Kansas, Iowa, Missouri, Nebraska, North Dakota
and South Dakota.
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 Central Illinois, Ohio, Michigan, Indiana, Kentucky, Tennessee and
West Virginia.
The Company opened its third distribution center in Winchester, Virginia in
the summer of 1997. This 350,000 square foot facility services the Company's
stores in New York, North Carolina, Pennsylvania, Virginia, Maryland, Delaware
and New Jersey.
EMPLOYEES
As of January 31, 1998, the Company had approximately 32,200 employees,
including approximately 9,200 full-time and approximately 23,000 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 40 additional trademarks, trade names and service marks, most of
which are used in its private label program.
4
<PAGE>
ITEM 2. PROPERTIES
As of January 31, 1998, the Company operated 182 stores in 21 states. The
Company owned 44 stores, owned 30 stores with ground leases and leased 108
stores under operating leases. The typical ground lease has an initial term of
between 15 and 25 years, with 2 to 6 renewal periods of 5 to 10 years each,
exercisable at the Company's option. The typical operating lease has an
initial term of between 15 and 20 years, with 2 to 6 renewal periods of 5 to
10 years each, exercisable at the Company's option.
Substantially all of the Company's leases provide for a minimum annual rent
that is fixed or adjusts to set levels during the lease term, including
renewals. Approximately 40% of the leases provide for additional rent based on
a percentage of sales to be paid when designated sales levels are achieved. At
January 31, 1998, the average minimum annual rent of the 108 leased stores was
$6.05 per square foot, and the average minimum annual rent of the 30 stores
operated under ground leases was $2.55 per square foot.
The Company's stores are located in strip shopping centers (99), community
and regional malls (44), and as free standing units (39). Of the Company's
stores, 156 are one story facilities and 26 are two story facilities.
<TABLE>
<CAPTION>
NUMBER OF
STORES AT
JANUARY 31,
1998
-----------
<S> <C>
Illinois...................................................... 31
Wisconsin..................................................... 28
Ohio.......................................................... 27
Pennsylvania.................................................. 15
Michigan...................................................... 14
Indiana....................................................... 14
Minnesota..................................................... 13
Kansas........................................................ 5
Maryland...................................................... 5
Virginia...................................................... 5
Iowa.......................................................... 4
North Carolina................................................ 3
Missouri...................................................... 3
Nebraska...................................................... 3
New Jersey.................................................... 3
Kentucky...................................................... 3
Delaware...................................................... 2
South Dakota.................................................. 1
North Dakota.................................................. 1
New York...................................................... 1
West Virginia................................................. 1
---
Total..................................................... 182
===
</TABLE>
The Company owns its distribution centers in Menomonee Falls, Wisconsin;
Findlay, Ohio and Winchester, Virginia. The Company also owns its corporate
headquarters in Menomonee Falls, Wisconsin.
ITEM 3. LEGAL PROCEEDINGS
See Note 9 to the Company's Consolidated Financial Statements concerning
routine legal matters and a certain audit of the Company's Federal income tax
returns.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the last quarter of fiscal 1997.
5
<PAGE>
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) Market information
The Common Stock has been traded on the New York Stock Exchange since May
19, 1992, under the symbol "KSS." On March 9, 1998, the Company's Board of
Directors declared a 2 for 1 stock split to be effected in the form of a stock
dividend on the Company's common stock. The record date for the stock split
was April 10, 1998. Distribution of the additional shares will be made on or
about April 27, 1998. The prices in the table set forth below indicate the
high and low prices of the Common Stock for each quarter in fiscal 1997 and
1996, as reported on the New York Stock Exchange Composite Tape adjusted by
the Company to give effect retroactively to the stock split.
<TABLE>
<CAPTION>
PRICE RANGE
------------------
HIGH LOW
--------- --------
<S> <C> <C>
FISCAL 1997
First Quarter.......................................... $25 9/16 $19 7/16
Second Quarter......................................... 31 9/16 24 7/8
Third Quarter.......................................... 37 3/8 29
Fourth Quarter......................................... 37 11/16 31 5/16
FISCAL 1996
First Quarter.......................................... $17 3/4 $14 3/16
Second Quarter......................................... 18 9/16 13 3/8
Third Quarter.......................................... 20 1/2 16 3/16
Fourth Quarter......................................... 21 18 1/16
</TABLE>
(b) Holders
At April 2, 1998, there were 4,840 holders of record of the Common Stock.
(c) Dividends
The Company has never paid a cash dividend, has no current plans to pay
dividends on its Common Stock and intends to retain all earnings for
investment in and growth of the Company's business. In addition, financial
covenants and other restrictions in the Company's financing agreements limit
the payment of dividends on the Common Stock. The payment of future dividends,
if any, will be determined by the Board of Directors in light of existing
conditions, including the Company's earnings, financial condition and
requirements, restrictions in financing agreements, business conditions and
other factors deemed relevant by the Board of Directors.
6
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with the consolidated financial statements of the Company and
related notes included elsewhere in this document. The selected consolidated
financial data, except for the operating data, has been derived from the
audited consolidated financial statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------
JANUARY FEBRUARY FEBRUARY JANUARY JANUARY
31, 1, 3, 28, 29,
1998 1997 1996(A) 1995 1994
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE
FOOT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $3,060,065 $2,388,221 $1,925,669 $1,554,100 $1,305,746
Cost of merchandise
sold................... 2,046,468 1,608,688 1,294,653 1,037,740 869,236
---------- ---------- ---------- ---------- ----------
Gross margin............ 1,013,597 779,533 631,016 516,360 436,510
Selling, general and
administrative
expenses............... 678,793 536,226 436,442 356,893 305,547
Depreciation and
amortization........... 57,380 44,015 33,931 27,402 23,201
Preopening expenses..... 18,589 10,302 10,712 8,190 5,360
Credit operations, non-
recurring(b)........... -- -- 14,052 -- --
---------- ---------- ---------- ---------- ----------
Operating income........ 258,835 188,990 135,879 123,875 102,402
Interest expense, net... 23,772 17,622 13,150 6,424 5,711
---------- ---------- ---------- ---------- ----------
Income before income
taxes and
extraordinary items.... 235,063 171,368 122,729 117,451 96,691
Income taxes............ 93,790 68,890 50,077 48,939 41,029
---------- ---------- ---------- ---------- ----------
Income before
extraordinary item..... 141,273 102,478 72,652 68,512 55,662
Extraordinary item(c)... -- -- -- -- (1,769)
---------- ---------- ---------- ---------- ----------
Net income.............. $ 141,273 $ 102,478 $ 72,652 $ 68,512 $ 53,893
========== ========== ========== ========== ==========
Per share(d):
Basic................. $ 0.93 $ 0.69 $ 0.49 $ 0.47 $ 0.37
Diluted............... $ 0.91 $ 0.68 $ 0.49 $ 0.46 $ 0.36
OPERATING DATA:
Comparable store sales
growth(e).............. 10.0% 11.3% 5.9% 6.1% 8.3%
Net sales per selling
square foot(f)......... $ 267 $ 261 $ 257 $ 258 $ 255
Total square feet of
selling space
(in thousands; end of
period)................ 12,533 10,064 8,378 6,824 5,523
Number of stores open
(end of period)........ 182 150 128 108 90
Capital expenditures
including
capitalized leases..... $ 202,735 $ 223,423 $ 138,797 $ 132,800 $ 64,813
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 525,251 $ 229,339 $ 175,368 $ 114,637 $ 86,856
Property and equipment,
net.................... 749,649 596,227 409,168 298,737 186,626
Total assets ........... 1,619,721 1,122,483 805,385 658,717 469,289
Total long-term debt.... 310,366 312,031 187,699 108,777 51,852
Shareholders' equity.... 954,782 517,471 410,638 334,249 262,502
</TABLE>
See footnotes on next page
7
<PAGE>
(footnotes for Consolidated Financial Data)
(a) Fiscal 1995 contained 53 weeks.
(b) Effective September 1, 1995, the Company terminated its agreement with
Citicorp Retail Services (CRS) under which it sold its private label
credit card receivables to CRS and established its own credit operation.
In connection with this transaction, the Company incurred a one-time
charge of $14.1 million ($8.3 million after-tax). See Note 3 of Notes to
Consolidated Financial Statements.
(c) The extraordinary item reflects 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.
(d) 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 9, 1998 and to be
distributed on or about April 27, 1998. Excluding the extraordinary item
for the fiscal year ended January 29, 1994, basic and diluted earnings per
share were $0.38.
(e) Comparable store sales for each period are based on sales of stores
(including relocated or expanded stores) open throughout the full period
and throughout the full prior period. Comparable store sales growth for
fiscal 1996 compares the 52 weeks of fiscal 1996 versus the same 52 week
calendar in fiscal 1995 and excludes the discontinued electronics
business. Comparable store sales growth for fiscal 1995 has been adjusted
to reflect the elimination of the 53rd week in fiscal 1995.
(f) 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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
ITEM 7. FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Net sales for the last three years, number of stores, sales growth and net
sales per selling square foot by year were as follow:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales (in thousands).................... $3,060,065 $2,388,221 $1,925,669
Number of stores open (end of period)....... 182 150 128
Sales growth--all stores.................... 28.1% 24.0% 23.9%
Sales growth--comparable stores(a) ......... 10.0% 11.3% 5.9%
Net sales per selling square foot(b) ....... $ 267 $ 261 $ 257
</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
1996 compares the 52 weeks of fiscal 1996 versus the same 52 week calendar
in fiscal 1995 and excludes the discontinued electronics business.
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 $671.8 million, or 28.1%, from
$2,388.2 million in fiscal 1996 to $3,060.1 million in fiscal 1997. Of the
increase, $455.8 million is attributable to the opening of 32 new stores in
fiscal 1997 and to the inclusion of a full year of operating results for 22
stores opened in fiscal 1996. The remaining $216.0 million is attributable to
the increase in comparable store sales.
Net sales increased $462.5 million, or 24.0%, from $1,925.7 million in
fiscal 1995 to $2,388.2 million in fiscal 1996. Of the increase, $312.4
million is attributable to the opening of 22 new stores in fiscal 1996 and to
the inclusion of a full year of operating results for 22 stores opened in
fiscal 1995 (net of two underperforming stores closed in 1995). The remaining
$150.1 million 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
-------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
Cost of merchandise sold................................... 66.9 67.4 67.2
----- ----- -----
Gross margin............................................... 33.1 32.6 32.8
Selling, general and administrative expenses............... 22.2 22.5 22.7
Depreciation and amortization.............................. 1.8 1.8 1.7
Preopening expenses........................................ .6 .4 .6
Credit operations, non-recurring........................... -- -- .7
----- ----- -----
Operating income........................................... 8.5 7.9 7.1
Interest expense, net...................................... .8 .7 .7
----- ----- -----
Income before income taxes................................. 7.7 7.2 6.4
Income taxes............................................... 3.1 2.9 2.6
----- ----- -----
Net income................................................. 4.6% 4.3% 3.8%
===== ===== =====
</TABLE>
9
<PAGE>
Gross Margin. The Company's gross margin has increased from 32.8% in fiscal
1995 to 33.1% in fiscal 1997. This increase is primarily attributable to a
change in merchandise mix.
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 1995 to fiscal 1997 due to
the addition of new stores, such expenses decreased as a percent of net sales.
Selling, general and administrative expenses decreased from 22.7% in fiscal
1995 to 22.2% in fiscal 1997. This decline reflects the leveraging of store
payroll, distribution, advertising and headquarters expenses as a result of
the increased sales.
Depreciation and Amortization. The total amount of depreciation and
amortization increased from fiscal 1995 to fiscal 1997 due to the addition of
new stores, the remodeling of existing stores, the opening of the distribution
center in Winchester, Virginia and the opening of the new corporate office.
Depreciation and amortization increased as a percentage of net sales from 1.7%
in fiscal 1995 to 1.8% in fiscal 1997.
Preopening. The Company incurred $18.6 million of preopening expenses
associated with the opening of 32 stores in fiscal 1997, $10.3 million with
the opening of 22 stores in fiscal 1996 and $10.7 million with the opening of
22 stores in fiscal 1995. These expenses relate to the costs associated with
new store openings, including hiring and training costs for new employees,
Kohl's charge account solicitation and processing and transporting initial
merchandise. The Company's recent experience is that preopening expenses for a
new store are approximately $0.5 million.
Credit Operations, Non-Recurring. In fiscal 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
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 $69.8 million, or 37.0%, in
fiscal 1997 and increased $53.1 million, or 39.1% in fiscal 1996 due to the
factors described above. Excluding the $14.1 million non-recurring credit
operations charge in fiscal 1995, operating income increased $39.0 million or
26.1% in fiscal 1996 compared to fiscal 1995.
Interest Expense. Net interest expense increased $6.2 million to $23.8
million in fiscal 1997 and increased $4.5 million to $17.6 million in fiscal
1996. The increase in fiscal 1997 was due primarily to the $100 million non-
callable 7.375% unsecured senior notes issued in October 1996. The increase in
fiscal 1996 was due primarily to higher interest rates associated with $100
million non-callable 6.7% unsecured senior notes issued in February 1996 and
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. Although the current plan is to open 32 new stores in 1998, the
Company does not expect interest expense to increase in fiscal 1998. Interest
expense on the $60 million senior notes issued in March 1994, the $200 million
non-callable senior notes issued in 1996 and $52.3 million capital lease debt
is fixed and known until maturity.
Income Taxes. The Company's effective tax rate was 39.9% in fiscal 1997,
40.2% in fiscal 1996, and 40.8% in fiscal 1995. The overall decline in the
effective tax rates in fiscal 1997 and fiscal 1996 was primarily due to the
decrease in state income taxes, net of federal tax benefits and non-deductible
goodwill amortization as a percentage of income before taxes.
IMPACT OF YEAR 2000
The Company changed its date routine standards to incorporate four digits
for all new systems development a number of years ago. As a result, there are
many systems that need only to be certified and have their interfaces reviewed
and tested. There are, however, a number of legacy and package financial
systems that are not Year 2000 compliant. The Company has assessed these
systems and presently believes that with modification to
10
<PAGE>
existing software and conversions to new software, the Year 2000 issue will
not pose significant operational problems. The Company will utilize both
internal and external resources to reprogram, or replace and test the software
for Year 2000 modifications. The Company anticipates completing the necessary
project code modifications within one year and completion of all testing in
1999.
The Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. The Company's total Year 2000 project cost and estimates to complete
include the impact of third party Year 2000 issues based on presently
available information. However, there can be no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's systems.
The total cost of the Year 2000 project is estimated at $10 million and is
being funded through operating cash flows. Of the total project cost,
approximately $6 million is attributable to the purchase of new software and
hardware which will be capitalized. The remaining $4 million of reprogramming
and testing costs will be expensed as incurred and is not expected to have a
material effect on the results of operations. Of the capital, approximately $4
million is for a new financial system. The new financial system was a
previously planned project that supports the company growth, provides
significant business enablement and eliminates a substantial Year 2000 effort.
To date, the Company has incurred approximately $1.5 million ($200,000
expensed and $1.3 million capitalized) related to the assessment of, and
preliminary efforts on, its Year 2000 project and the development of a
modification plan, purchase of new systems and systems modifications.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. In addition to
the Company's reliance on certain third parties to remediate their own Year
2000 issues, specific factors that might cause such material differences
include, but are not limited to, the continued availability and cost of
personnel trained in this area and the ability to locate and correct all
relevant computer codes.
SEASONALITY AND INFLATION
The Company's business is seasonal, reflecting increased consumer buying in
the "back-to-school" and Christmas 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, sale of its proprietary accounts
receivable, borrowings under its revolving credit facility and short-term
trade credit. Short-term trade credit, in the form of extended payment terms
for inventory purchases or third-party factor financing, represents a
significant source of financing for merchandise inventories. The Company's
working capital and inventory levels typically build throughout the fall,
peaking during the Christmas selling season.
The Company's working capital increased to $525.3 million at January 31,
1998 from $229.3 million at February 1, 1997. Of this increase, $212.9 million
is attributable to higher credit card receivables as the Company internally
financed a much larger percentage of receivables in fiscal 1997. The remaining
increase was primarily the result of higher merchandise levels required to
support existing stores and incremental new store locations offset in part by
increased accounts payable.
Cash used in operating activities was $50.2 million for fiscal 1997 as
compared to cash provided by operating activities of $103.9 million for fiscal
1996 and $27.3 million for fiscal 1995. Excluding changes in operating assets
and liabilities, cash provided by operating activities was $199.0 million for
fiscal 1997, $153.4 million for fiscal 1996 and $118.5 million for fiscal
1995.
11
<PAGE>
The Company's capital expenditures were $202.7 million (no additional assets
under capital leases) during fiscal 1997, $223.4 million (no additional assets
under capital leases) during fiscal 1996, and $138.8 million (including $6.4
million of assets under capital leases) during fiscal 1995. The decrease in
expenditures from fiscal 1996 to fiscal 1997 is primarily attributable to the
amount of spending for 1997's new stores incurred in 1996 and to the
completion of its corporate office construction in 1996. The increase in
expenditures from fiscal 1995 to fiscal 1996 is attributable to new store
spending for 1996 new stores, 1997 new stores in the Washington, D.C. and
Philadelphia markets, the completion of the corporate office and the start of
the third distribution center in Winchester, Virginia.
Total capital expenditures for fiscal 1998 are currently expected to be
approximately $220 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 plans to open approximately 32 new stores in fiscal 1998. The
total cash outlay required for a newly constructed leased store, including
capital expenditures, preopening expenses and net working capital, is
approximately $5.0 million. The additional cash outlay required for new owned
stores will vary depending upon land and sitework costs, but is expected to be
approximately $7.5 million per location. The Company does not anticipate that
its planned expansion will be limited by any restrictive covenants in its
financing agreements.
In August, 1997, the Company issued 9,140,600 shares (after adjusting for
the March 9, 1998 stock split) 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.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, which provides accounting and reporting standards for sales,
securitizations and servicing of receivables and other financial assets. SFAS
No. 125 was effective for all transactions occurring after December 31, 1996.
In conjunction with the adoption of SFAS No. 125, the Company established
Kohl's Receivable Corporation (KRC), a wholly owned subsidiary of the Company.
KRC is a special purpose entity and its assets are legally isolated from the
Company. KRC entered into an agreement with a bank, renewable at KRC's request
and bank's option, under which it periodically sells, generally with recourse,
an undivided interest in a revolving pool of the Company's private label
credit card receivables up to a maximum of $225 million. At January 31, 1998,
a $43.5 million interest had been sold under this agreement and reflected as a
reduction of accounts receivable as this sale met the requirements of SFAS No.
125.
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 $300 million 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", "plans", "may",
"will", "should" or "anticipates" or the negative thereof or other variations
thereon. No assurance can be given that the future results covered by the
forward-looking statements will be achieved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For analysis of the Company's market risk, see discussion of interest rates
under Results of Operations in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included in this report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
12
<PAGE>
PART III
ITEM 10. EXECUTIVE OFFICERS OF REGISTRANT
The information set forth under "Election of Directors" on pages 1-2 and
under "Compliance with Sec. 16(a) of the Exchange Act" on page 5 of
Registrant's Proxy Statement dated April 20, 1998 is incorporated herein by
reference. The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jay H. Baker 63 President and Director
Caryn Blanc 40 Executive Vice President--Distribution and Store
Administration
John F. Herma 50 Chief Operating Officer, Secretary and Director
William S. Kellogg 54 Chairman, Chief Executive Officer and Director
John Lesko 45 Executive Vice President--Chief Information
Officer
Richard Leto 46 Executive Vice President--General Merchandise
Manager
Kevin Mansell 45 Executive Vice President--General Merchandise
Manager
Arlene Meier 46 Executive Vice President--Chief Financial
Officer
R. Lawrence Montgomery 49 Vice Chairman and Director
Jeffrey Rusinow 43 Executive Vice President--Regional Manager of
Stores
Gary Vasques 50 Executive Vice President--Marketing
</TABLE>
Mr. Baker has served as President since 1986. In this capacity, Mr. Baker
oversees the Company's general merchandising and marketing functions. Mr.
Baker has 35 years of experience in the retail industry.
Ms. Blanc has served as Executive Vice President--Distribution and Store
Administration since 1991 and in other management positions with the Company
since 1988. Ms. Blanc joined the Company in 1978, and has 20 years of
experience in the retail industry.
Mr. Herma has served as Chief Operating Officer since 1986. Mr. Herma joined
the Company as Director of Human Resources in 1980 and has 27 years of
experience in the retail industry.
Mr. Kellogg has served as Chairman and Chief Executive Officer since 1979.
Mr. Kellogg joined the Company in 1967, and has 31 years of experience in the
retail industry.
Mr. Lesko joined the Company in November 1997. From January 1997 to November
1997, Mr. Lesko served as Senior Vice President, Information Systems of Jack
Eckerd Corporation, a division of the J.C. Penney Company. Prior to 1997, Mr.
Lesko served as Executive Vice President, Marketing and Information Systems
for Thrift Drug, a wholly owned subsidiary of J.C. Penney Company. Mr. Lesko
has 23 years of experience in the retail industry.
Mr. Leto has served as Executive Vice President--General Merchandise Manager
since July 1996. Prior to joining the Company, Mr. Leto served as Executive
Vice President, Merchandising for the R. H. Macy Corporation. Mr. Leto has 25
years of experience in the retail industry.
Mr. Mansell has served as Executive Vice President--General Merchandise
Manager since 1987. Mr. Mansell joined the Company as a Divisional Merchandise
Manager in 1982, and has 23 years of experience in the retail industry.
Ms. Meier has served as Executive Vice President--Chief Financial Officer
since October 1994. Ms. Meier joined the Company as Vice President--Controller
in 1989. Ms. Meier has 22 years of experience in the retail industry.
13
<PAGE>
Mr. Montgomery was appointed Vice Chairman in March 1996. Mr. Montgomery
served as Executive Vice President of Stores from February 1993 to February
1996. Mr. Montgomery joined the Company as Senior Vice President--Director of
Stores in 1988. Mr. Montgomery has 27 years of experience in the retail
industry.
Mr. Rusinow has served as Executive Vice President--Regional Manager of
Stores since January 1998 and in other management positions with the Company
since joining the Company in 1994. Prior to joining the Company, Mr. Rusinow
served as Executive Vice President, Stores and Merchandising for the
department store division of Hudson's Bay Company, based in Toronto, Canada.
Mr. Rusinow has 20 years of experience in the retail industry.
Mr. Vasques has served as Executive Vice President--Marketing since December
1995. Prior to joining the Company, Mr. Vasques served as Senior Vice
President--Marketing of Caldor from 1991 to November 1995. Mr. Vasques has 28
years of experience in the retail industry.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation" on pages 6-9 of
Registrant's Proxy Statement dated April 20, 1998 is incorporated herein by
reference. Compensation of directors as set forth under "Director Committees
and Compensation" on page 3 of Registrant's Proxy Statement dated April 20,
1998 is incorporated herein by reference.
ITEM 12. BENEFICIAL OWNERSHIP OF STOCK
The information set forth under "Beneficial Ownership of Shares" on pages 4-
5 of Registrant's Proxy Statement dated April 20, 1998 is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Compensation Committee Interlocks and
Insider Participation" on page 3, and "Other Agreements" on page 9 of
Registrant's Proxy Statement dated April 20, 1998 is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(a) 1. Consolidated Financial Statements of Kohl's Corporation
Report of Independent Auditors.................................... F-2
Consolidated Balance Sheets....................................... F-3
Consolidated Statements of Income................................. F-4
Consolidated Statements of Changes in Shareholders' Equity........ F-5
Consolidated Statements of Cash Flows............................. F-6
Notes to Consolidated Financial Statements........................ F-7
2. Financial Statement Schedules
Schedules are not included because they are not applicable or required.
3. Exhibits
The exhibits to this report are listed in the exhibit index elsewhere
herein.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
January 31, 1998.
</TABLE>
14
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF KOHL'S CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................. F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Income.......................................... F-4
Consolidated Statements of Changes in Shareholders' Equity................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Kohl's Corporation
We have audited the accompanying consolidated balance sheets of Kohl's
Corporation and subsidiaries (the Company) as of January 31, 1998 and February
1, 1997, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended January 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
at January 31, 1998 and February 1, 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended January 31, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 9, 1998
F-2
<PAGE>
KOHL'S CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY FEBRUARY
31, 1,
ASSETS 1998 1997
------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 44,161 $ 8,906
Accounts receivable trade, net......................... 239,617 26,711
Merchandise inventories................................ 515,790 423,207
Deferred income taxes.................................. 6,615 --
Other.................................................. 5,259 6,403
---------- ----------
Total current assets................................. 811,442 465,227
Property and equipment, at cost.......................... 926,534 725,082
Less accumulated depreciation............................ 176,885 128,855
---------- ----------
749,649 596,227
Other assets............................................. 12,643 7,615
Favorable lease rights................................... 15,849 18,076
Goodwill................................................. 30,138 35,338
---------- ----------
Total assets......................................... $1,619,721 $1,122,483
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable....................................... $ 150,679 $ 126,361
Accrued liabilities.................................... 95,185 79,850
Income taxes payable................................... 38,482 25,470
Deferred income taxes.................................. -- 2,544
Current portion of long-term debt...................... 1,845 1,663
---------- ----------
Total current liabilities............................ 286,191 235,888
Long-term debt........................................... 310,366 312,031
Deferred income taxes.................................... 45,104 38,731
Other long-term liabilities.............................. 23,278 18,362
Shareholders' equity:
Common stock--$.01 par value, 400,000,000 shares
authorized, 157,757,956 and 147,840,554 issued at
January 31, 1998 and February 1, 1997, respectively... 1,578 1,478
Paid-in capital........................................ 488,550 192,612
Retained earnings...................................... 464,654 323,381
---------- ----------
Total shareholders' equity........................... 954,782 517,471
---------- ----------
Total liabilities and shareholders' equity........... $1,619,721 $1,122,483
========== ==========
</TABLE>
See accompanying notes
F-3
<PAGE>
KOHL'S CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
JANUARY FEBRUARY FEBRUARY
31, 1, 3,
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net sales................. $3,060,065 $2,388,221 $1,925,669
Cost of merchandise sold.. 2,046,468 1,608,688 1,294,653
---------- ---------- ----------
Gross margin.............. 1,013,597 779,533 631,016
Operating expenses:
Selling, general and
administrative......... 678,793 536,226 436,442
Depreciation and
amortization........... 52,180 38,815 28,731
Goodwill amortization... 5,200 5,200 5,200
Preopening expenses..... 18,589 10,302 10,712
Credit operations, non-
recurring.............. -- -- 14,052
---------- ---------- ----------
Total operating expenses.. 754,762 590,543 495,137
---------- ---------- ----------
Operating income.......... 258,835 188,990 135,879
Other (income) expense:
Interest expense........ 24,261 17,745 13,487
Amortization of deferred
financing costs........ 344 201 77
Interest income......... (833) (324) (414)
---------- ---------- ----------
Income before income
taxes.................... 235,063 171,368 122,729
Provision for income
taxes.................... 93,790 68,890 50,077
---------- ---------- ----------
Net income................ $ 141,273 $ 102,478 $ 72,652
========== ========== ==========
Net income per share:
Basic................... $ 0.93 $ 0.69 $ 0.49
Diluted................. $ 0.91 $ 0.68 $ 0.49
</TABLE>
See accompanying notes
F-4
<PAGE>
KOHL'S CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- ------ -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at January 28, 1995..... 147,020 $1,470 $184,528 $148,251 $334,249
Exercise of stock options....... 453 5 2,416 -- 2,421
Income tax benefit of stock
options........................ -- -- 1,316 -- 1,316
Net income...................... -- -- -- 72,652 72,652
------- ------ -------- -------- --------
Balance at February 3, 1996..... 147,473 1,475 188,260 220,903 410,638
Exercise of stock options....... 367 3 3,102 -- 3,105
Income tax benefit of stock
options........................ -- -- 1,250 -- 1,250
Net income...................... -- -- -- 102,478 102,478
------- ------ -------- -------- --------
Balance at February 1, 1997..... 147,840 1,478 192,612 323,381 517,471
Issuance of common shares ...... 9,141 92 282,776 -- 282,868
Exercise of stock options....... 777 8 7,062 -- 7,070
Income tax benefit of stock
options........................ -- -- 6,100 -- 6,100
Net income...................... -- -- -- 141,273 141,273
------- ------ -------- -------- --------
Balance at January 31, 1998..... 157,758 $1,578 $488,550 $464,654 $954,782
======= ====== ======== ======== ========
</TABLE>
See accompanying notes
F-5
<PAGE>
KOHL'S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................. $ 141,273 $102,478 $ 72,652
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization......... 57,724 44,216 34,008
Deferred income taxes................. (2,786) 4,870 10,650
Other noncash charges................. 2,784 1,843 1,215
Changes in operating assets and
liabilities:
Accounts receivable trade........... (212,906) (26,181) (530)
Merchandise inventories............. (92,583) (102,635) (72,359)
Other current assets................ 1,144 231 1,361
Accounts payable.................... 24,318 56,904 (29,535)
Accrued and other long-term
liabilities........................ 17,795 18,339 2,423
Income taxes payable................ 13,012 3,842 7,450
--------- --------- ---------
Net cash provided by (used in) operating
activities............................. (50,225) 103,907 27,335
INVESTING ACTIVITIES
Acquisition of property and equipment... (202,735) (223,423) (132,409)
Proceeds from sale of property and
equipment.............................. 295 752 1,577
Other................................... (6,534) (2,063) (524)
--------- --------- ---------
Net cash used in investing activities... (208,974) (224,734) (131,356)
FINANCING ACTIVITIES
Proceeds from public debt offering...... -- 200,000 --
Net borrowings (repayments) under Credit
Facility............................... -- (74,000) 74,000
Payment of financing fees on debt....... (101) (2,011) --
Repayment of other long-term debt....... (1,483) (1,430) (1,303)
Net proceeds from issuance of common
shares................................. 296,038 4,355 3,737
--------- --------- ---------
Net cash provided by financing
activities............................. 294,454 126,914 76,434
--------- --------- ---------
Net increase (decrease) in cash and cash
and equivalents........................ 35,255 6,087 (27,587)
Cash and cash equivalents at beginning
of period.............................. 8,906 2,819 30,406
--------- --------- ---------
Cash and cash equivalents at end of
period................................. $ 44,161 $ 8,906 $ 2,819
========= ========= =========
</TABLE>
See accompanying notes
F-6
<PAGE>
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
1. BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
BUSINESS
Kohl's Corporation (the Company) operates family oriented, specialty
department stores primarily in the Midwest and Mid-Atlantic areas of the
United States that feature national brand apparel, shoes, accessories, soft
home products and housewares targeted to middle-income customers.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
ACCOUNTING PERIOD
The Company's fiscal year end is the Saturday closest to January 31. The
financial statements reflect the results of operations and cash flows for the
fiscal years ended January 31, 1998 (fiscal 1997), February 1, 1997 (fiscal
1996) and February 3, 1996 (fiscal 1995), which include 52 weeks, 52 weeks and
53 weeks, respectively.
CASH EQUIVALENTS
Cash equivalents represent short-term investments with an original maturity
of three months or less, which are held to maturity. Short-term investments
are stated at cost which approximates market.
INVENTORIES
Merchandise inventories are valued at the lower of cost or market with cost
determined by the last-in, first-out (LIFO) method. Inventories would have
been $4,783,000 higher at January 31, 1998, and $4,876,000 higher at February
1, 1997 if they had been valued using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
The cost of property and equipment is generally depreciated on a straight-
line basis over the estimated useful lives of the assets. Property rights
under capital leases and improvements to leased property are amortized on a
straight-line basis over the term of the lease or useful life of the assets,
whichever is less. The annual provisions for depreciation and amortization
have been principally computed using the following ranges of useful lives:
<TABLE>
<S> <C>
Buildings and improvements... 18-40 years
Store fixtures and equipment. 3-20 years
Property under capital
leases...................... 20-40 years
</TABLE>
Construction in progress includes land and improvements for locations not
yet opened at the end of each fiscal year.
FAVORABLE LEASE RIGHTS
Favorable lease rights are being amortized over a composite average life,
including options, of 20 years and reflect accumulated amortization of
$17,350,000 at January 31, 1998 and $15,307,000 at February 1, 1997.
F-7
<PAGE>
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is being amortized on a straight-line basis over 15 years.
Accumulated amortization was $47,266,000 at January 31, 1998 and $42,066,000
at February 1, 1997.
LONG-LIVED ASSETS
The Company annually considers whether indicators of impairment of long-
lived assets held for use (including favorable leasehold rights and goodwill)
are present and determines that if such indicators are present whether the sum
of the estimated undiscounted future cash flows attributable to such assets is
less than their carrying amounts. The Company evaluated the ongoing value of
its property and equipment and other long-lived assets as of January 31, 1998,
and determined that there was no significant impact on the Company's results
of operations.
PREOPENING COSTS
Costs associated with the opening of new stores are accumulated for the
period prior to opening and expensed in conjunction with the grand opening
period. The expenses relate to the costs associated with new store openings,
including hiring and training costs for new employees, Kohl's charge account
solicitation and processing and transporting initial merchandise.
ADVERTISING
Advertising costs are expensed as incurred and totaled $117,879,000,
$90,660,000 and $73,011,000 in fiscal 1997, 1996 and 1995, respectively.
INCOME TAXES
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes.
NET INCOME PER SHARE
In February, 1997 the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings per Share", which specifies the computation,
presentation and disclosure requirements of earnings per share. All net income
per share amounts for all periods have been presented to conform to SFAS No.
128 disclosure requirements. The numerator for the calculation of basic and
diluted net income per share is net income. The denominator is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Denominator for basic earnings per share--
weighted average shares........................ 152,471 147,705 147,170
Employee stock options.......................... 3,606 2,300 1,158
------- ------- -------
Denominator for diluted earnings per share...... 156,077 150,005 148,328
======= ======= =======
</TABLE>
Shareholders' equity, share and per share amounts for all periods presented
have been adjusted for the 2 for 1 stock split declared by the Company's Board
of Directors on March 9, 1998, effected in the form of a stock dividend.
F-8
<PAGE>
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial
statements to conform to the fiscal 1997 presentation.
2. SELECTED BALANCE SHEET INFORMATION
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Land.............................................. $ 78,332 $ 48,438
Buildings and improvements........................ 389,665 235,346
Store fixtures and equipment...................... 334,068 275,632
Property under capital leases..................... 58,569 58,569
Construction in progress.......................... 65,900 107,097
-------- --------
$926,534 $725,082
======== ========
Accrued liabilities consist of the following:
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Payroll and related fringe benefits............... $ 22,007 $ 20,364
Sales and property taxes.......................... 30,717 20,963
Other accruals.................................... 42,461 38,523
-------- --------
$ 95,185 $ 79,850
======== ========
</TABLE>
3. ACCOUNTS RECEIVABLE FINANCING
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), which included contractual amounts due
to CRS ($5.4 million), establishment of an initial allowance for doubtful
accounts for the receivables acquired ($3.6 million), and other costs related
to the credit operation ($5.1 million).
Concurrent with the September 1, 1995 termination agreement with CRS, 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 sold,
generally with recourse, an undivided interest in a revolving pool of its
private label credit card receivables.
In 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
provides accounting and reporting standards for sales, securitizations and
F-9
<PAGE>
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACCOUNTS RECEIVABLE FINANCING (CONTINUED)
servicing of receivables and other financial assets. The adoption of SFAS No.
125, which was effective for all transactions occurring after December 31,
1996, did not have a material effect on the Company.
In conjunction with the adoption of SFAS No. 125, the Company established
Kohl's Receivable Corporation (KRC), a wholly owned subsidiary of the Company.
KRC is a special purpose entity and its assets are legally isolated from the
Company. On January 30, 1997, the Company repurchased the private label credit
card receivables previously sold to a bank. The Company then sold or
contributed all of its receivables to KRC. Similar to the agreement the
Company previously had with a bank, KRC entered into an agreement with the
same bank, renewable at KRC's request and bank's option, under which it
periodically sells, generally with recourse, an undivided interest in a
revolving pool of the Company's private label credit card receivables up to a
maximum of $225 million. The agreement contains certain covenants which
require the Company to maintain a minimum portfolio quality.
At January 31, 1998 and at February 1, 1997, a $43.5 million interest and a
$191 million interest, respectively, had been sold under this agreement and
reflected as a reduction of accounts receivable; as the respective sales met
the requirements of SFAS No. 125. The Company maintains an allowance for
doubtful accounts for retained receivables based upon management's estimates
of the Company's risk of credit loss which totaled $4.7 million at January 31,
1998.
The cost of the credit program, net of finance charge income is summarized
below and is included in selling, general and administrative expenses in the
accompanying consolidated statements of income. From September 1, 1995 through
February 3, 1996 and in fiscal 1996, the Company has reflected the entire
balances of income and expense in the schedule. Subsequent to January 30,
1997, this income and expense is presented only for receivables not sold by
KRC to the bank as described above.
<TABLE>
<CAPTION>
FISCAL YEAR SEPTEMBER 1, 1995
--------------- THROUGH
1997 1996 FEBRUARY 3, 1996
------- ------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Finance charges and other income...... $16,528 $33,859 $10,376
Operating expenses:
Cost of financing program........... -- 10,816 4,452
Provision for doubtful accounts..... 4,502 11,493 3,161
Other credit and collection
expenses........................... 5,477 11,375 3,433
------- ------- -------
Total operating expenses.......... 9,979 33,684 11,046
------- ------- -------
Net revenue (cost) of credit program
included in selling, general and
administrative expenses.............. 6,549 175 (670)
Pro forma cost to finance the
receivables not sold to KRC
(unaudited).......................... 5,130 -- --
------- ------- -------
Pro forma net revenue (cost) of credit
program (unaudited).................. $ 1,419 $ 175 $ (670)
======= ======= =======
</TABLE>
For fiscal years 1997, 1996 and from September 1, 1995 through February 3,
1996, the average interest in receivables sold to the bank was $154 million,
$168 million and $165 million, respectively. This represents 64%, 88% and 97%
of the average receivables outstanding during the respective periods. To aid
in comparability of the net (cost) revenue of the credit program, the Company
has provided an unaudited pro forma adjustment in fiscal 1997 to reflect the
cost of internally financing a larger percentage of receivables than in prior
periods.
F-10
<PAGE>
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Senior notes...................................... $ 60,000 $ 60,000
Public offered debt............................... 200,000 200,000
Capital leases.................................... 50,827 52,297
Other............................................. 1,384 1,397
-------- --------
Total debt........................................ 312,211 313,694
Less current portion.............................. 1,845 1,663
-------- --------
Total long-term debt.......................... $310,366 $312,031
======== ========
</TABLE>
On March 31, 1994 the Company issued $60 million of 6.57% unsecured senior
notes. The notes will mature in 2004, with required prepayments due each year
beginning March 31, 2000. The notes contain various covenants that limit,
among other things, additional indebtedness and payment of dividends, as well
as requiring the Company to meet certain financial tests.
On February 6, 1996, the Company issued $100 million of non-callable 6.70%
unsecured senior notes which mature on February 1, 2006. On October 15, 1996,
the Company issued another $100 million of non-callable 7.375% unsecured
senior notes which mature on October 15, 2011. The proceeds were used to repay
borrowings under the Credit Facility and support Company growth.
The Company, using discounted cash flow analyses, based upon the Company's
current incremental borrowing rates for similar types of borrowing
arrangements, estimates the fair value of the senior and publicly offered
notes to be approximately $61 million and $208 million, respectively, at
January 31, 1998.
The Company has a $300 million unsecured revolving bank credit facility (the
Credit Facility) which matures on June 13, 2002. The Credit Facility can be
extended each year for an additional one year with the banks' consents
provided that the Company meets certain financial covenants. Depending on the
type of advance, amounts borrowed bear interest at competitive bid rates; the
LIBOR plus a margin, depending on the Company's long-term unsecured debt
rating; or the agent bank's base rate. A facility fee of 0.07% to 0.225%,
depending on the Company's long-term unsecured debt rating, is charged on the
entire commitment. As of January 31, 1998, the facility fee was 0.09%. The
Credit Facility contains various covenants that limit, among other things,
additional indebtedness and payment of dividends, as well as requiring the
Company to meet certain financial tests. No amounts were outstanding under
this facility at January 31, 1998 or February 1, 1997.
During fiscal 1995, the Company entered into capital leases having minimum
lease payments with a present value at inception totaling $6,388,000. There
were no new capital leases entered into in fiscal 1996 or 1997.
Interest payments were $24,158,000, $11,754,000 and $13,575,000 in fiscal
1997, 1996 and 1995, respectively.
Annual maturities of long-term debt, excluding capital lease obligations,
for the next five years are: $256,000 in 1998; $271,000 in 1999; $287,000 in
2000; $10,250,000 in 2001 and $15,251,000 in 2002.
F-11
<PAGE>
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS
The Company leases property and equipment. Many of the store leases obligate
the Company to pay real estate taxes, insurance and maintenance costs, and
contain multiple renewal options, exercisable at the Company's option, that
range from two additional five-year periods to five ten-year periods.
Rent expense charged to operations was $72,286,000, $52,848,000 and
$39,357,000 in fiscal 1997, 1996 and 1995, respectively. Rent expense includes
contingent rents, based on sales, of $3,847,000, $3,485,000 and $4,250,000 in
fiscal 1997, 1996 and 1995, respectively.
Rent expense incurred on store leases with various entities owned by a
director of the Company and his affiliates, which are included in the total
rent expense above, were $3,789,000, $3,741,000 and $3,196,000 in fiscal 1997,
1996 and 1995, respectively.
Leased property under capital leases consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Buildings and improvements........................ $58,569 $58,569
Less accumulated amortization..................... 14,750 12,322
------- -------
$43,819 $46,247
======= =======
</TABLE>
Future minimum lease payments at January 31, 1998, under leases that have
initial or remaining noncancellable terms in excess of one year, are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Fiscal year:
1998............................................... $ 7,047 $ 77,700
1999............................................... 6,809 79,843
2000............................................... 6,619 74,619
2001............................................... 6,477 73,082
2002............................................... 6,264 72,281
Thereafter......................................... 89,260 976,002
-------- ----------
122,476 $1,353,527
==========
Less amount representing interest.................... 71,649
--------
Present value of minimum lease payments.............. $ 50,827
========
</TABLE>
Included in the operating lease schedule above is $332,213,000 of minimum
lease payments for stores that will open in 1998.
6. BENEFIT PLANS
The Company has an Employee Stock Ownership Plan (ESOP) for the benefit of
its associates other than executive officers. Contributions are made at the
discretion of the Board of Directors. The Company recorded expenses of
$2,610,000, $1,734,000 and $1,700,000 in fiscal 1997, 1996 and 1995,
respectively. Shares of Company common stock held by the ESOP are included as
shares outstanding for purposes of the income per share computations.
F-12
<PAGE>
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. BENEFIT PLANS (CONTINUED)
The Company also has a defined contribution savings plan covering all full-
time and certain part-time associates which provides for monthly employer
contributions based on a percentage of qualifying contributions made by
participating associates. Total expense was $2,221,000, $1,755,000 and
$1,296,000 in fiscal 1997, 1996 and 1995, respectively. In addition, beginning
in 1996 the Company made defined annual contributions to the savings plan on
the behalf of all qualifying full-time and part-time associates based on a
percentage of qualifying payroll earnings. Total expense was $2,978,000 and
$2,395,000 in fiscal 1997 and 1996, respectively.
On April 12, 1996, the Company terminated a defined benefit pension plan,
and subsequently settled the accumulated benefit obligation. Employees were
offered the choice of transferring the lump sum value of pension benefits to
the Kohl's savings plan or having a nonparticipant annuity contract purchased
for them. Defined benefits are not provided under any successor plan and the
plan ceased to exist as an entity. As a result of the termination, the Company
recognized a gain of $1,540,000 in fiscal 1996. Pension expense, exclusive of
the gain on termination, totalled $470,000 and $1,816,000 in fiscal 1996 and
1995, respectively.
7. INCOME TAXES
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Merchandise inventories......................... $ -- $ 7,934
Property and equipment.......................... 53,034 40,333
Other........................................... -- 3,799
------- -------
53,034 52,066
Deferred tax assets:
Merchandise inventories......................... 1,013 --
Accrued and other liabilities................... 10,936 6,830
Incentive plan liabilities...................... 2,596 3,961
------- -------
14,545 10,791
------- -------
Net deferred tax liability........................ $38,489 $41,275
======= =======
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current Federal.................................. $82,184 $53,105 $31,565
Current State.................................... 14,392 10,915 7,862
Deferred......................................... (2,786) 4,870 10,650
------- ------- -------
$93,790 $68,890 $50,077
======= ======= =======
</TABLE>
F-13
<PAGE>
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount that would be
provided by applying the statutory U.S. corporate tax rate due to the
following items:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Provision at statutory rate................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax
benefit...................................... 4.2 4.5 4.9
Goodwill amortization......................... 0.8 1.1 1.5
Other......................................... (.1) (.4) (.6)
------- ------- -------
Provision for income taxes.................... 39.9% 40.2% 40.8%
======= ======= =======
Amounts paid for income taxes
(In Thousands)............................... $74,826 $58,230 $30,877
======= ======= =======
</TABLE>
8. PREFERRED AND COMMON STOCK
The Company's authorized capital stock includes 10,000,000 shares of $.01
par value preferred stock of which none have been issued.
On March 9, 1998, the Company's Board of Directors declared a 2 for 1 stock
split to be effected in the form of a stock dividend on the Company's common
stock. The record date for the stock split is April 10, 1998. Distribution of
the additional shares will be made on or about April 27, 1998. Shareholders'
equity, and all share and per share amounts have been retroactively adjusted
to reflect this dividend.
The 1992 and 1994 Long-Term Compensation Plans provide for the granting of
options to purchase shares of the Company's common stock to officers and key
employees. The 1997 Stock Option Plan provides for granting of similar stock
options to outside directors. The following table presents the number of
options initially authorized and options available to grant under each of the
plans:
<TABLE>
<CAPTION>
1992 PLAN 1994 PLAN 1997 PLAN TOTAL
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Options initially authorized
............................ 11,400,000 12,000,000 200,000 23,600,000
Options available for grant:
February 1, 1997 .......... 440,298 10,790,900 -- 11,231,198
January 31, 1998........... 235,548 9,089,050 160,000 9,484,598
</TABLE>
F-14
<PAGE>
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. PREFERRED AND COMMON STOCK (CONTINUED)
The following table summarizes the Company's stock options at January 31,
1998, February 1, 1997 and February 3, 1996 and the changes for the years then
ended:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF OPTIONS PER SHARE
---------- --------------
<S> <C> <C>
Balance at January 28, 1995................... 7,288,192 $ 3.500-13.437
Granted..................................... 2,254,800 $10.062-13.437
Surrendered................................. (169,072) $ 3.500-13.437
Exercised................................... (453,068) $ 3.500-12.312
---------- --------------
Balance at February 3, 1996................... 8,920,852 $ 3.500-13.437
Granted..................................... 2,828,450 $14.281-20.000
Surrendered................................. (439,512) $ 3.500-13.437
Exercised................................... (367,214) $ 3.500-13.437
---------- --------------
Balance at February 1, 1997................... 10,942,576 $ 3.500-20.000
Granted..................................... 2,225,910 $19.625-36.719
Surrendered................................. (279,310) $ 8.656-22.375
Exercised................................... (776,802) $ 3.500-18.500
---------- --------------
Balance at January 31, 1998................... 12,112,374 $ 3.500-36.719
========== ==============
</TABLE>
The weighted-average exercise price for all options outstanding is $15.58,
$11.57 and $9.56 at January 31, 1998, February 1, 1997 and February 3, 1996,
respectively. The weighted-average remaining contractual life of the options
at January 31, 1998 is 8.2 years.
Generally, 25% of the options become exercisable one year after their
respective grant date and another 25% becomes exercisable each succeeding
year. Options which are surrendered or terminated without issuance of shares
are available for future grants. There were approximately 5,522,000, 4,281,000
and 2,648,000 options exercisable at January 31, 1998, February 1, 1997 and
February 3, 1996, respectively.
The Company continues to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations
in accounting for its employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
As required by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company did calculate the pro forma effect on net income and net income per
share of accounting for employee stock options under the fair value method
proscribed by SFAS No. 123 in the table below. The weighted-average fair
values of options granted during fiscal 1997, 1996 and 1995 were estimated
using a Black-Scholes option pricing model to be $15.19, $7.42 and $5.30,
respectively. The model used the following assumptions for all years: risk
free interest rate of 5.0%; dividend yield 0%; volatility factors of the
Company's common stock of 30%; and a 7 year expected life of the option.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Pro forma net income........................... $137,320 $100,814 $72,241
Pro forma net income per share:
Basic........................................ $ 0.90 $ 0.68 $ 0.49
Diluted...................................... $ 0.89 $ 0.68 $ 0.49
</TABLE>
The SFAS No. 123 expense reflected above only includes options granted since
fiscal 1995 and, therefore, may not be representative of future expense.
F-15
<PAGE>
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
9. CONTINGENCIES
The Company is involved in various legal matters arising in the normal
course of business. In the opinion of management, the outcome of such
proceedings and litigation will not have a material adverse impact on the
Company's financial position or results of operations.
The Internal Revenue Service (the IRS) audited the Company's federal income
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.
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR 1997
------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales...................... $600,547 $623,937 $757,773 $1,077,808 $3,060,065
Gross margin................... 203,170 208,085 253,881 348,461 1,013,597
Net income..................... 15,308 20,841 32,526 72,598 141,273
Basic net income per share..... .10 .14 .21 .46 .93
Diluted net income per share... .10 .14 .20 .45 .91
<CAPTION>
FISCAL YEAR 1996
------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales...................... $468,638 $474,598 $598,052 $ 846,933 $2,388,221
Gross margin................... 156,802 156,558 198,480 267,693 779,533
Net income..................... 13,761 14,828 21,917 51,972 102,478
Basic net income per share..... .09 .10 .15 .35 .69
Diluted net income per share... .09 .10 .15 .35 .68
</TABLE>
Due to changes in stock prices during the year and timing of issuance of
shares, the cumulative total of quarterly net income per share amounts may not
equal the net income per share for the year.
The Company uses the LIFO method of accounting for merchandise inventory
because it results in a better matching of costs and revenues. The following
information is provided to show the effects of the LIFO provision on each
quarter, as well as to provide users with the information to compare to other
companies not on LIFO.
<TABLE>
<CAPTION>
FISCAL YEAR
---------------
LIFO (CREDIT) EXPENSE 1997 1996
--------------------- ------- ------
(IN THOUSANDS)
<S> <C> <C>
Quarter
First................................................... $ 1,501 $1,171
Second.................................................. 1,560 1,184
Third................................................... 1,895 1,495
Fourth.................................................. (5,049) 1,365
------- ------
Total year............................................ $ (93) $5,215
======= ======
</TABLE>
F-16
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED.
Kohl's Corporation
/s/ William S. Kellogg
By: _________________________________
William S. Kellogg
Chairman, Chief Executive Officer
(Principal Executive Officer) and
Director
Dated:
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED:
/s/ William S. Kellogg
_____________________________________ _____________________________________
William S. Kellogg Frank V. Sica
Chairman, Chief Executive Officer Director
and Director
/s/ Jay H. Baker
_____________________________________ _____________________________________
Jay H. Baker Herbert Simon
President and Director Director
/s/ John F. Herma /s/ Peter M. Sommerhauser
_____________________________________ _____________________________________
John F. Herma Peter M. Sommerhauser
Chief Operating Officer and Director Director
/s/ R. Lawrence Montgomery
_____________________________________ _____________________________________
R. Lawrence Montgomery R. Elton White
Vice Chairman--Director Director
/s/ Arlene Meier /s/ James Ericson
_____________________________________ _____________________________________
Arlene Meier James Ericson
Chief Financial Officer (Principal Director
Financial and Accounting Officer)
II-1
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation of the Company, as amended, incorporated
herein by reference to Exhibit 10.16 of the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended August 3, 1996.
3.2 Bylaws of the Company, incorporated herein by reference to Exhibit
10.14 of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended May 4, 1996.
4.1 Revolving Credit Agreement dated as of June 13, 1997 among Kohl's
Corporation, Kohl's Department Stores, Inc., various commercial
banking institutions, The Bank of New York, as Administrative Agent,
and The First National Bank of Chicago, as Syndication Agent,
incorporated herein by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended August 2,
1997.
4.2 Indenture dated as of December 1, 1995 between the Company and The
Bank of New York, as Trustee, incorporated herein by reference to
Exhibit 4.3 of the Company's Annual Report on Form 10-K for the fiscal
year ended February 3, 1996.
4.3 Certain other long-term debt is described in Note 4 of the Notes to
Consolidated Financial Statements. The Company agrees to furnish to
the Commission, upon request, copies of any instruments defining the
rights of holders of any such long-term debt described in Note 4 and
not filed herewith.
10.1 Employment Agreement between the Company and William S. Kellogg,
incorporated herein by reference to Exhibit 10.6 of the Company's
registration statement on Form S-1 (File No. 33-46883).*
10.2 Employment Agreement between the Company and Jay H. Baker,
incorporated herein by reference to Exhibit 10.7 of the Company's
registration statement on Form S-1 (File No. 33-46883).*
10.3 Employment Agreement between the Company and John F. Herma,
incorporated herein by reference to Exhibit 10.8 of the Company's
registration statement on Form S-1 (File No. 33-46883).*
10.4 Employment Agreement between the Company and R. Lawrence Montgomery.*
10.5 Executive Medical Plan, incorporated herein by reference to Exhibit
10.9 of the Company's registration statement on Form S-1 (File No. 33-
46883).*
10.6 Executive Life Insurance Plan, incorporated herein by reference to
Exhibit 10.10 of the Company's registration statement on Form S-1
(File No. 33-46883).*
10.7 Executive Accidental Death and Dismemberment Plan, incorporated herein
by reference to Exhibit 10.11 of the Company's registration statement
on Form S-1 (File No. 33-46883).*
10.8 Executive Committee Bonus Plan, incorporated herein by reference to
Exhibit 10.12 of the Company's registration statement on Form S-1
(File No. 33-46883).*
10.9 1992 Long-Term Compensation Plan, incorporated herein by reference to
Exhibit 10.13 of the Company's registration statement on Form S-1
(File No. 33-46883).*
- -----------------
* A management contract or compensatory plan or arrangement.
<PAGE>
Exhibit
Number Description
- ------- -----------
10.10 1994 Long-Term Compensation Plan, incorporated herein by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 30, 1994.
10.11 1997 Stock Option Plan for Outside Directors, incorporated herein by
reference to Exhibit 4.4 of the Company's registration statement on
Form S-8 (File No. 333-26409), filed on May 2, 1997.*
10.12 Amended and Restated Agreements dated December 10, 1995 between the
Company and Ms. Blanc, incorporated herein by reference to Exhibit
10.11 of the Company's Annual Report on Form 10-K for the fiscal year
ended February 3, 1996.*
10.13 Amended and Restated Agreements dated December 10, 1995 between the
Company and Mr. Mansell, incorporated herein by reference to Exhibit
10.12 of the Company's Annual Report on Form 10-K for the fiscal year
ended February 3, 1996.*
10.14 Amended and Restated Agreements dated December 10, 1995 between the
Company and Mr. Montgomery, incorporated herein by reference to
Exhibit 10.13 of the Company's Annual Report on Form 10-K for the
fiscal year ended February 3, 1996.*
10.15 Receivables Sale Agreement dated as of January 31, 1997 by and between
Kohl's Department Stores, Inc. and Kohl's Receivables Corporation,
incorporated herein by reference to Exhibit 10.13 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 1, 1997.
10.16 Receivables Purchase Agreement dated as of January 31, 1997 by and
among Kohl's Receivables Corporation, Preferred Receivables Funding
Corporation and The First National Bank of Chicago, as agent,
incorporated herein by reference to Exhibit 10.14 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 1, 1997.
10.17 Amendment 2 to Receivables Purchase Agreement, dated as of May 3,
1997, incorporated herein by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 2, 1997.
10.18 Amendment 3 to Receivables Purchase Agreement, dated as of July 24,
1997, incorporated herein by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 2, 1997.
10.19 Amendment 4 to Receivables Purchase Agreement, dated as of January 29,
1998.
12.1 Statement regarding calculation of ratio of earnings to fixed charges.
13.1 1997 Annual Report.
21.1 Subsidiaries of the Registrant.
24.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule - Article 5 of Regulation S-X.
27.2 Financial Data Schedule - Article 5 of Regulation S-X, 12 Months
ended February 1, 1997, (restated).
27.3 Financial Data Schedule - Article 5 of Regulation S-X, 12 Months
ended February 3, 1996, (restated).
27.4 Financial Data Schedule - Article 5 of Regulation S-X, 3 Months ended
May 3, 1997, (restated).
27.5 Financial Data Schedule - Article 5 of Regulation S-X, 6 Months ended
August 2, 1997, (restated).
27.6 Financial Data Schedule - Article 5 of Regulation S-X, 9 Months ended
November 1, 1997, (restated).
27.7 Financial Data Schedule - Article 5 of Regulation S-X, 3 Months ended
May 4, 1996, (restated).
27.8 Financial Data Schedule - Article 5 of Regulation S-X, 6 Months ended
August 3, 1996, (restated).
27.9 Financial Data Schedule - Article 5 of Regulation S-X, 9 Months ended
November 2, 1996, (restated).
_________________
* A management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of the 31st day of January, 1998,
by and between KOHL'S DEPARTMENT STORES, INC., a Delaware corporation
("Corporation"), and R. Lawrence Montgomery ("Executive").
W I T N E S S E T H :
WHEREAS, the Corporation desires to employ the Executive in the capacity
and under the terms set forth herein and the Executive desires to be employed by
the Corporation on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Corporation and the Executive agree as
follows:
ARTICLE I
---------
Employment Duties
-----------------
During the term of the Executive's employment hereunder, the Corporation
shall employ the Executive and the Executive shall serve as Vice Chairman of the
Corporation. Subject to the authority and direction of the Chairman and Chief
Executive Officer and Board of Directors of the Corporation, the Executive shall
have supervision and control over, and responsibility for, the general
management and day-to-day operation of the Corporation. The Executive shall also
have such other powers and duties as may from time to time be prescribed by the
Board of Directors of the Corporation; provided, however, that such duties are
reasonably consistent with the duties
<PAGE>
normally performed by a Vice Chairman. The Executive's principal place of
employment shall be at the Corporation's headquarters in Menomonee Falls,
Wisconsin; provided, however, that the Executive acknowledges and agrees that he
may from time to time be required to travel outside Milwaukee, Wisconsin on
behalf of the Corporation. The Executive shall devote his entire working time
and efforts to the business affairs of the Corporation and its affiliates and
shall faithfully and to the best of his ability perform his duties hereunder,
provided that Executive may take reasonable amounts of time to serve on
corporate, civil or charitable boards or committees if such activities do not
interfere with the performance of Executive's duties hereunder. The Executive
hereby agrees to serve as an officer of the Corporation and of affiliates of the
Corporation as part of his contemplated duties hereunder without additional
compensation therefor.
ARTICLE II
----------
Term
----
The term of the Executive's employment (the "Employment Term") under this
Agreement shall commence as of the date first above written (the "Anniversary
Date"), and shall, except as it may otherwise be subject to termination
hereunder, continue thereafter until the third anniversary of such Anniversary
Date; provided, however, that at the end of each day during the Employment Term
the Employment Term shall be automatically extended for one (1) day unless
either party shall give written
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notice to the other not less than thirty (30) days prior thereto that the
Employment Term shall not be so extended.
ARTICLE III
-----------
Compensation
------------
3.1. Salary. The Corporation shall pay to the Executive an annual base
salary in the amount of Four Hundred Sixty Thousand, Twenty-four Dollars
($460,024) during the Employment Term ("Annual Base Salary"). The Executive's
Annual Base Salary shall be payable in equal installments not less frequently
than monthly. Executive's Annual Base Salary shall be reviewed by the Board of
Directors of the Corporation at least annually and may be increased by such
amount as the Board of Directors, in its sole discretion, may determine, taking
into consideration the profitability of the Corporation relative to its business
plan and such other factors as the Board of Directors may deem relevant for that
purpose. Annual Base Salary shall not be reduced after any such increase and the
term Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
3.2. Bonuses. The Executive shall participate in bonus plans
established for the executive officers of the Corporation on terms no less
favorable than those applicable to other employees of the Corporation of
comparable status with the Executive.
3
<PAGE>
ARTICLE IV
----------
Termination of Employment
-------------------------
4.1. Causes for Termination. Notwithstanding the term set forth in Article
II, above, Executive's employment hereunder may be terminated prior to the
expiration of such term upon occurrence of any of the following events:
4.11. Death. The Executive's employment shall terminate upon the
Executive's death.
4.12. Disability. The Executive's employment shall terminate in the
event of the Disability of the Executive. For purposes of this Agreement,
the term "Disability" shall be defined as the inability of the Executive to
perform his normal duties as a full-time employee of the Corporation for a
continuous period of two hundred seventy (270) consecutive days by reason
of physical or mental illness or incapacity, or for periods of physical or
mental illness or incapacity aggregating two hundred fifteen (215) business
days in any consecutive twelve (12) month period. If the Corporation
determines in good faith that the Disability of Executive has occurred it
may give the Executive written notice of its intention to terminate the
Executive's employment. In such event, Executive's employment with the
Corporation shall terminate on the thirtieth (30th) day after receipt of
such notice by the Executive unless within such thirty (30) day period
Executive shall have returned to full-time performance of
4
<PAGE>
his duties or Executive shall deliver written notice to the Corporation
disagreeing that a Disability has occurred. If there is any dispute as to
whether Executive is disabled, such question shall be submitted to a
licensed physician for the purpose of making such determination. An
examination of the Executive shall be made within thirty (30) days after
written notice by the Corporation to the Executive by a licensed physician
appointed by the Corporation. The Executive shall submit to such
examination and provide such information as such physician may request. If
the Executive shall disagree with the determination of the physician
appointed by the Corporation, he may request an examination to be conducted
by a physician of his own choosing. If the two (2) physicians shall
disagree, the two (2) physicians shall jointly appoint an independent
physician, whose determination shall be binding and conclusive on all
parties concerned for purposes of this Agreement. The termination shall be
deemed effective as of the date of the final determination of Disability.
4.13. Cause. The Corporation may terminate the Executive for
"Cause." A termination for Cause is a termination upon (a) the continued
failure by Executive to substantially perform his duties with the
Corporation (other than any such failure resulting from termination by
Executive for Good Reason) after a written demand for substantial
performance is delivered to Executive that
5
<PAGE>
specifically identifies the manner in which the Corporation believes that
Executive has not substantially performed his duties, and Executive has
failed to resume substantial performance of his duties on a continuous
basis within sixty (60) days after receiving such demand; (b) the willful
engaging by Executive in conduct which is demonstrably and materially
injurious to the Corporation, monetarily or otherwise; (c) any dishonest or
fraudulent conduct which results or is intended to result in gain to
Executive or Executive's personal enrichment at the expense of the
Corporation; or (d) Executive's conviction of a felony, misdemeanor or
criminal offense (other than traffic violations and other minor offenses).
4.14. Good Reason. The Executive may terminate his employment for
"Good Reason." "Good Reason" shall mean the occurrence of any of the
following:
(a) A change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from his
status, title, position or responsibilities as in effect immediately
prior thereto; the assignment to the Executive of any duties or
responsibilities which, in the Executive's reasonable judgment, are
inconsistent with his status, title, position or responsibilities in
effect immediately prior to such assignment; or any
6
<PAGE>
removal of the Executive from or failure to reappoint or reelect him to
any position, except in connection with the termination of his
employment for Disability, Cause, as a result of his death or by the
Executive other than for Good Reason.
(b) The insolvency or the filing (by any party, including the
Corporation) of a petition for bankruptcy of the Corporation.
(c) Any material breach by the Corporation of this Agreement.
(d) Any purported termination of the Executive's employment for Cause
by the Corporation which does not comply with the terms of this
Agreement.
(e) The failure of the Corporation to obtain an agreement,
satisfactory to the Executive, from any successor or assign of the
Corporation, to assume and agree to perform this Agreement, as
contemplated in Section 9.4 hereof.
Provided, however, that no termination shall be for Good Reason until the
Corporation shall have had at least thirty (30) days to cure any conduct
alleged to have caused Good Reason after a written demand shall have been
delivered to the Corporation specifying the alleged conduct.
The Executive's right to terminate his employment pursuant to this
Section 4.14 shall not be affected by his incapacity due to physical or
mental illness. The
7
<PAGE>
Executive's continued employment or failure to give Notice of Termination
shall not constitute consent to, or a waiver of rights with respect to, any
circumstances constituting Good Reason hereunder.
Subject to the thirty (30) day cure period set forth above, any good
faith determination of Good Reason made by the Executive shall be
conclusive.
4.15. Voluntary. The Executive's employment shall terminate upon the
Executive's voluntary resignation as an employee of the Corporation.
4.2. Notice of Termination. Any purported termination by the Corporation or
by the Executive (other than by death of the Executive) shall be communicated by
Notice of Termination to the other. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) the Termination Date. For purposes of this
Agreement, no such purported termination of employment shall be effective
without such Notice of Termination.
4.3. Termination Date, etc. "Termination Date" shall mean in the case of
the Executive's death, his date of death, in the event of Executive's
Disability, the date set forth in
8
<PAGE>
Paragraph 4.12, or in all other cases, the date specified in the Notice of
Termination subject to the following:
(a) If the Executive's employment is terminated by the Corporation,
the date specified in the Notice of Termination shall be at least thirty
(30) days after the date the Notice of Termination is given to the
Executive, Provided, however, that in the case of Disability, the Executive
shall not have returned to the full-time performance of his duties during
such period of at least thirty (30) days.
(b) If the Executive's employment is terminated for Good Reason, the
date specified in the Notice of Termination shall not be less than thirty
(30) nor more than sixty (60) days after the date the Notice of Termination
is given to the Corporation.
(c) Except in the case of a termination for Disability subject to the
provisions of Paragraph 4.12, in the event that within thirty (30) days
following the date of receipt of the Notice of Termination, one party
notifies the other that a dispute exists concerning the basis for
termination, the Executive's employment hereunder shall not be terminated
except after the dispute is finally resolved and a Termination Date is
determined either by a mutual written agreement of the parties, or by a
binding and final judgment order or decree of a court of competent
9
<PAGE>
jurisdiction (the time for appeal therefrom having expired and no appeal
having been perfected).
ARTICLE V
---------
Obligations of the Corporation Upon Termination
------------------------------------------------
5.1. Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Term, the Corporation shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(a) The Corporation shall pay to the Executive in a lump sum in
cash within ten (10) days after the Termination Date the aggregate of the
following amounts:
(1) The sum of:
(i) The Executive's Annual Base Salary through the
Termination Date to the extent not theretofore paid.
(ii) The product of (x) the sum of the average bonuses
paid or payable, including any amounts that were deferred, and
the average value of any stock options and stock appreciation
rights awarded (computed solely by reference to the difference
between the value of the stock to which it relates and the
exercise price or base value thereof) to the Executive in respect
of the three (3) fiscal years immediately preceding the fiscal
year in which the Effective Date occurs (the
10
<PAGE>
"Recent Average Bonus") and (y) a fraction, the numerator of
which is the number of days completed in the current fiscal year
through the Termination Date, and the denominator of which is
365; and
(iii) Except as provided in Paragraph 5.1(b), any
compensation previously deferred by the Executive (together with
any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid.
The sum of the amounts described in clauses (i), (ii) and
(iii)shall be hereinafter referred to as the "Accrued Obligations";
(2) The amount equal to the product of (i) the number of
days remaining in the Employment Term as of the Termination Date had
the Executive's employment not been terminated (the "Remaining
Employment Term") divided by 365, and (ii) the sum of (x) the
Executive's Annual Base Salary (increased for this purpose by any
Section 401(k) deferrals, cafeteria plan elections, or other deferrals
that would have increased Executive's Annual Base Salary if paid in
cash to Executive when earned) and (y) the Executive's Recent Average
Bonus.
(b) To the extent not theretofore paid or provided, the
Corporation shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the Executive is
eligible to receive
11
<PAGE>
after a termination of Employment under any plan, program, Policy or
practice or contract or agreement of the Corporation (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
5.2. Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Term, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, except that the Corporation shall pay or provide the Accrued
Obligations, six (6) months of Annual Base Salary, and the other Benefits. The
Accrued Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within thirty (30) days of the Termination
Date. The six (6) months of Annual Base Salary shall be paid during the six (6)
month period following the Termination Date on a monthly basis. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
section shall include, and the Executive's family shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the
Corporation to surviving families of peer executives of the Corporation.
5.3. Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Term, this Agreement shall
terminate without further obligations to the Executive, except that the Company
shall pay or provide the Accrued Obligations, six (6) months of Annual Base
12
<PAGE>
Salary (subject to reduction as provided below) and the Other Benefits. The
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
thirty (30) days of the Termination Date. The six (6) months of Annual Base
Salary shall be paid during the six (6) month period following the termination
on a monthly basis. The six (6) months of Annual Base Salary shall be reduced by
any amounts paid to the Executive for such six (6) month period under any
disability insurance or program paid by the Corporation. With respect to the
provision of other Benefits, the term Other Benefits as utilized in this section
shall include, and the Executive shall be entitled to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Corporation to disabled executives and/or their families to other peer
executives and their families.
5.4. Cause; Other Than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Term, or if the Executive
voluntarily terminates employment during the Employment Term for other than Good
Reason, this Agreement (other than Paragraph 7.3, if applicable, and Article
VIII thereof) shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive Annual Base Salary through the Date
of Termination, any other amounts earned or accrued through the Termination
Date, and the amount of any compensation previously deferred by the Executive,
in each case to the extent theretofore unpaid;
13
<PAGE>
provided that if Executive voluntarily terminates Executive shall receive the
benefits normally provided upon normal or early retirement with respect to other
peer Executives and their families to the extent he qualifies therefore. All
salary or compensation hereunder shall be paid to the Executive in a lump sum in
cash within thirty (30) days of the Date of Termination.
5.5. Delinquent Payments. If any of the payments referred to in this
Article V are not paid within the time specified after the Termination Date
(hereinafter a "Delinquent Payment"), in addition to such principal sum, the
Corporation will pay to the Executive interest on all such Delinquent Payments
computed at the prime rate as announced from time to time by Bankers Trust
Company, New York, New York, or its successor, compounded monthly.
5.6. No Mitigation. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced (except to the extent expressly set forth
herein) whether or not the Executive obtains other employment.
5.7. Excise Tax Payments.
(a) Notwithstanding anything contained in this Agreement to the
contrary, in the event that any payment or distribution to or for the
benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise in
connection with,
14
<PAGE>
or arising out of, his employment with the Corporation (a "Payment" or
"Payments"), would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code")), or any
interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any interest and penalties, are
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including any
Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) A determination shall be made as to whether and when Gross-
Up Payment is required pursuant to this Section 5.7 and the amount of such
Gross-Up Payment, such determination to be made within fifteen (15)
business days of the Termination Date, or such other time as requested by
the Corporation or by the Executive (provided the Executive reasonably
believes that any of the Payments may be subject to the Excise Tax) . Such
determination shall be made by a national independent accounting firm
selected by the Executive (the "Accounting Firm"). All fees, costs and
expenses (including, but not limited to, the cost of retaining experts) of
the Accounting Firm shall be borne by
15
<PAGE>
the Corporation and the Corporation shall pay such fees, costs and expenses
as they become due. The Accounting Firm shall provide detailed supporting
calculations, acceptable to the Executive, both to the Company and the
Executive. The Gross-Up Payment, if any, as determined pursuant to this
Section 5.7(b) shall be paid by the Corporation to the Executive within
five (5) business days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive with respect to a Payment or Payments, it shall
furnish the Executive with an unqualified opinion that no Excise Tax will
be imposed with respect to any such Payment or Payments. Any such initial
determination by the Accounting Firm of the Gross-Up Payment shall be
binding upon the Corporation and the Executive subject to the application
of Section 5.7 (c).
(c) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment
(or a portion thereof) will be paid which should not have been paid (an
"Overpayment") or a Gross-Up Payment (or a portion thereof) which should
have been paid will not have been paid (an 'Underpayment"). An Underpayment
shall be deemed to have occurred upon notice (formal or informal) to the
Executive from any governmental taxing authority that the tax liability of
the Executive (whether in respect of the then current taxable year of the
16
<PAGE>
Executive or in respect of any prior taxable year of the Executive) may be
increased by reason of the imposition of the Excise Tax on a Payment or
Payments with respect to which the Company has failed to make a sufficient
Gross-Up Payment. An Overpayment shall be deemed to have occurred upon a
"Final Determination" (as hereinafter defined) that the Excise Tax shall
not be imposed upon a Payment or Payments with respect to which the
Executive had previously received a Gross-Up Payment. A Final Determination
shall be deemed to have occurred when the Executive has received from the
applicable governmental taxing authority a refund of taxes or other
reduction in his tax liability by reason of the Overpayment and upon either
(i) the date a determination is made by, or an agreement is entered into
with, the applicable governmental taxing authority which finally and
conclusively binds the Executive and such taxing authority, or in the event
that a claim is brought before a court of competent jurisdiction, the date
upon which a final determination has been made by such court and either all
appeals have been taken and finally resolved or the time for all appeals
has expired or (ii) the expiration of the statute of limitations with
respect to the Executive's applicable tax return. If an Underpayment
occurs, the Executive shall promptly notify the Corporation and the
Corporation shall pay to the Executive at least five (5) business days
prior to the date on which the applicable
17
<PAGE>
governmental taxing authority has requested payment, an additional Gross-Up
Payment equal to the amount of the Underpayment plus any interest and
penalties imposed on the Underpayment. If an Overpayment occurs, the amount
of the Overpayment shall be treated as a loan by the Corporation to the
Executive and the Executive shall, within ten (10) business days of the
occurrence of such Overpayment, pay to the Corporation the amount of the
Overpayment plus interest at an annual rate equal to the rate provided for
in Section 1274 (b)(2)(B) of the Code from the date the Gross-Up Payment
(to which the Overpayment relates) was paid to the Executive.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined that an Excise Tax will be imposed
on any Payment or Payments, the Corporation shall pay to the applicable
governmental taxing authorities as Excise Tax withholding, the amount of
the Excise Tax that the Corporation has actually withheld from the Payment
or Payments.
ARTICLE VI
----------
Expenses
--------
During the term of the Executive's employment hereunder, the
Corporation shall promptly pay or reimburse the Executive for all reasonable and
necessary business expenses
18
<PAGE>
incurred by the Executive in the interest of the Corporation. The Executive
shall be required to submit an itemized account of such expenditures and such
proof as may be reasonably necessary to establish to the satisfaction of the
Corporation that the expenses incurred by the Executive were ordinary and
necessary business expenses incurred on behalf of the Corporation.
ARTICLE VII
-----------
Fringe Benefits
---------------
7.1. Benefits. During the term of the Executive's employment
hereunder, the Executive shall be entitled to participate in any benefit plans
and programs which the Corporation may from time to time make available to its
executive employees, including, without limitation (i) health and dental
insurance (family plan); (ii) supplemental executive medical plan (without
maximum limit); (iii) long term disability insurance; (iv) annual physical; (v)
business travel accident insurance; and (vi) financial consulting (up to Three
Thousand Five Hundred Dollars ($3,500.00) per year). The Executive acknowledges
that he shall have no vested rights in any such programs except as expressly
provided under the terms thereof and that such programs may be terminated,
modified, altered or reduced as well as supplemented.
7.2. Life Insurance. During the term of the Executive's employment
hereunder, the Corporation shall provide the Executive with term life insurance
equal to not less than three (3) times the annual salary of the Executive;
provided,
19
<PAGE>
however, that the Executive shall have the option to purchase, at his own
expense, additional insurance equal to his annual salary under such term life
insurance policy.
7.3. Health Insurance. Notwithstanding anything contained herein to
the contrary, in the event the Executive's employment with the Corporation is
terminated (i) at the expiration of the Employment Term, or (ii) prior to such
date for any reason other than (A) a termination for Cause, or (B) a voluntary
termination by the Executive for any reason other than "Good Reason" or other
than approved by the Board of Directors of the Corporation, the Corporation
shall continue, until the Executive's death, to provide the Executive and his
spouse and dependents with health insurance and a supplemental executive medical
plan (with coverage similar to that received by the Executive at the time of
such termination and covering the Executive, his spouse and his dependents (as
defined in such insurance and medical plan), provided such insurance is
reasonably available to the Corporation with respect to the Executive.
7.4. Automobile. The Executive shall be provided with an automobile of
a quality and value comparable to the automobile provided to Executive as of the
date of this Agreement for the Executive's use during the term of this
Agreement. Every two (2) years during the term of this Agreement, the Executive
shall be entitled to exchange the automobile then in his possession for a new
automobile of a quality and value comparable to the vehicle
20
<PAGE>
being replaced. The Corporation shall provide or reimburse the Executive for all
reasonable insurance and maintenance for such automobile, including repairs, gas
and oil.
7.5. Vacation. The Executive shall be entitled to such vacation time
as the Corporation may from time to time make available to its executive
employees.
ARTICLE VIII
------------
Non-Competition and Confidential Information
--------------------------------------------
8.1. Non-Competition. The Executive agrees that he shall not at any
time while he is employed hereunder or at any time during the Restricted Period
(as hereinafter defined), for any reason, either directly or indirectly, whether
as agent, stockholder (except as the holder of not more than five percent (5%)
of the stock of a publicly held company, provided the Executive does not
participate in the business of such company or render advice or assistance to
it), employee, officer, director, trustee, partner, consultant, proprietor or
otherwise:
(i) Engage in, render advice or assistance to, or in any way be
connected with any Competitive Entity (as hereinafter defined) located in
the Restricted Area (as hereinafter defined).
(ii) Except on behalf of the Corporation, entice or attempt to
entice any of the suppliers or customers of the Corporation, so as to
cause, or attempt to cause, any of said suppliers or customers not to do
business with the
21
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Corporation or to reduce or adversely change the nature of the business
done with the Corporation.
(iii) For purposes of this Paragraph 8, the following definitions
shall apply:
(A) A "Competitive Entity" shall be defined as any
business, person, firm, association, partnership, corporation or other
entity which (x) is engaged directly or indirectly in the retail
department store business or (y) which competes with the business of
the Corporation as such business is conducted from time to time during
the course of the Executive's employment hereunder.
(B) The term "Restricted Area" shall be defined during the
Executive's employment as fifty (50) miles from any store operated by
the Corporation from time to time during the course of the Executive's
employment, and after the termination of the Executive's employment it
shall be defined as fifty (50) miles from any store operated by the
Corporation during the one (1) year period prior to the termination of
the Executive's employment or during the Restricted Period.
(C) The term Restricted Period" shall be defined as two (2)
years from the date of termination of the Executive's employment
hereunder; provided, hereunder, that the Restricted Period shall be
extended
22
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for the period during which it is determined that the Executive is in
violation of the provisions of this Paragraphs 8.1 or 8.2.
8.2. Confidential Information. The Executive agrees that he shall not,
at any time while he is employed hereunder and during the Restricted Period,
disclose to any person who is not at the time of such disclosure, a person to
whom such disclosure has been authorized by the Board or Chief Executive officer
any confidential information regarding the Corporation or its business obtained
by the Executive while in the employ of the Corporation, including without
limitation, financial information, marketing information and pricing information
(the "Confidential Information"). The Executive acknowledges that he also
understands and agrees that the foregoing shall not constitute a waiver by the
Corporation of any right to protect its trade secrets, including rights under
Section 134.90 of the Wisconsin Statutes and any successor provision thereto.
8.3. Return of Material. The Executive agrees upon termination of his
employment with the Corporation immediately to surrender to the Corporation all
correspondence, letters, contracts, manuals, mailing lists, marketing data,
ledgers, supplies, and all other materials or records of any kind relating to
the Corporation or its business then in his possession or under his control, as
well as all copies of any of the foregoing.
8.4. Specific Performance. The Executive recognizes that irrevocable
injury may result to the Corporation and its
23
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business and properties, in the event of a breach by him of the restrictions
imposed by this Article VIII and that the Executive's acceptance of such
restrictions was a material factor in the Corporation's decision to enter into
this Agreement. The Executive agrees that if he shall engage in any acts in
violation of this Article VIII, the Corporation shall be entitled, in addition
to such other remedies and damages as may be available to it, to an injunction
prohibiting Executive from engaging in any such acts.
ARTICLE IX
----------
Miscellaneous
-------------
9.1. Insurance. The Executive agrees to perform all acts and execute
all instruments necessary in connection with the obtaining by the Corporation of
life insurance or disability insurance on the Executive.
9.2. Waiver of Breach. No waiver by either party hereto of any breach
of any provision of this Agreement shall be deemed a waiver by such party of any
subsequent breach.
9.3. Notice. Any notice required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given and received in
all respects when personally delivered or when deposited in the United States
mail, certified or registered mail, postage prepaid, return receipt requested,
addressed as follows:
IF TO THE Kohl's Department Stores, Inc.
CORPORATION: N56 W17000 Ridgewood Drive
Menomonee Falls, WI 53051
Attention: Chairman
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With a Copy to: Kohl's Department Stores, Inc.
N56 W17000 Ridgewood Drive
Menomonee Falls, WI 53051
Attention: General Counsel
IF TO THE R. Lawrence Montgomery
EXECUTIVE: 6360 North Lake Drive
Whitefish Bay, WI 53217
9.4. Assignment. This Agreement shall not be assignable by the
Corporation without the written consent of the Executive, except that if the
Corporation shall merge or consolidate with or into or transfer all or
substantially all of its assets, including goodwill, to another corporation or
other form of business organization, the Corporation shall require any successor
corporation in such merger, consolidation or transfer to assume and perform this
Agreement. The Executive may not assign, pledge or encumber any interest in this
Agreement or any part thereof without the written consent of the Corporation.
9.5. Complete Agreement; Amendment. once the term of this Agreement
commences, this Agreement shall contain the full and complete understanding and
agreement of the parties and supersede all prior agreements and understandings
between the parties with respect to the subject matter hereof. This Agreement
may not be modified, amended, terminated or discharged orally.
9.6. Fees and Expenses. The Corporation shall pay all legal fees and
related expenses (including the costs of experts, evidence and counsel)
reasonably incurred by the Executive as they become due as a result of a
position taken in good faith by the Executive with respect to (i) the
Executive's termination of
25
<PAGE>
employment.(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment), (ii) the Executive's hearing
before the Board as contemplated in Section 4.13 of this Agreement, (iii) the
Executive's seeking to obtain or enforce any right or benefit provided by this
Agreement or by any other plan or arrangement maintained by the Corporation
under which the Executive is or may be entitled to receive benefits or (iv) a
dispute between the Executive and the Internal Revenue Service (or any other
taxing authority) with regard to an "Underpayment" (as defined in Section 5.7 of
this Agreement).
9.7. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
9.8. Withholding Taxes. The Corporation shall deduct from all payments
to the Executive hereunder any federal, state or local withholding or other
taxes or charges which the Corporation is from time to time required to deduct
under applicable law, and all amounts payable to the Executive hereunder are
stated herein before any such deduction. The Corporation shall have the right to
rely upon written opinion of legal counsel, which may be independent legal
counsel or legal counsel regularly employed by the Corporation, if any questions
should arise as to any such deductions.
26
<PAGE>
9.9. Governing Law. This Agreement and all questions or its
interpretation, performance, enforceability and the rights and remedies of the
parties hereto shall be governed by and determined in accordance with the laws
of the State of Wisconsin.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day, month and year first above written.
KOHL'S DEPARTMENT STORES, INC.
By:/s/ William S. Kellogg
--------------------------------
William S. Kellogg, CEO
EXECUTIVE:
/s/ R. Lawrence Montgomery
-----------------------------------
R. Lawrence Montgomery
27
<PAGE>
EXHIBIT 10.19
AMENDMENT NO. 4 TO
RECEIVABLES PURCHASE AGREEMENT
THIS AMENDMENT NO. 4 (this "Amendment"), is entered into as of January 29,
1998, by and among KOHL'S RECEIVABLES CORPORATION, a Wisconsin corporation (the
"Seller"), the INVESTORS, PREFERRED RECEIVABLES FUNDING CORPORATION ("PREFCO"),
and THE FIRST NATIONAL BANK OF CHICAGO, as Agent (in such capacity, the
"Agent"), with respect to the RECEIVABLES PURCHASE AGREEMENT, dated as of
January 31, 1997, by and among the Seller, the Investors, PREFCO and the Agent
(the "Receivables Purchase Agreement"). Unless defined elsewhere herein,
capitalized terms used in this Amendment shall have the meanings assigned to
such terms in the Receivables Purchase Agreement.
PRELIMINARY STATEMENT
The parties desire to amend the Receivables Purchase Agreement to
extend the Liquidity Termination Date as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree to as
follows:
SECTION 1. AMENDMENT. Subject to the terms and conditions hereinafter set
forth, and in reliance on the representations and warranties set forth in
Section 2 hereof, each of the parties hereby agrees that the definition of
"Liquidity Termination Date" as set forth in Exhibit I to the Agreement is
hereby amended and restated in its entirety to read as follows:
"Liquidity Termination Date" means January 28, 1999 or such later date
to which the Agent and the Purchasers may agree in accordance with Section
1.1(d).
SECTION 2. REPRESENTATIONS AND WARRANTIES.
------------------------------
2.1. Seller Representations. As of the date hereof, the Seller
represents and warrants to the Agent and the Purchasers that:
(a) Corporate Existence and Power. Each of the Seller and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, and has all
corporate power and all governmental licenses, authorizations, consents and
approvals required to carry on its business in each jurisdiction in which
its business is conducted, except for such failures which will not,
individually or in the aggregate, have a Material Adverse Effect.
<PAGE>
(b) No Conflict. The execution, delivery and performance by the
Seller of this Amendment, and the Seller's use of the proceeds of purchases
made under the Receivables Purchase Agreement, as amended hereby, are
within its corporate powers, have been duly authorized by all necessary
corporate action, do not contravene or violate (i) its certificate of
incorporation or by-laws, (ii) any law, rule or regulation applicable to
it, (iii) any restrictions under any agreement, contract or instrument to
which it is a party or by which it or any of its property is bound, or (iv)
any order, writ, judgment, award, injunction or decree binding on or
affecting it or its property, and do not result in the creation or
imposition of any Adverse Claim on assets of the Seller (except created
under the Receivables Purchase Agreement); and no transaction contemplated
by the Receivables Purchase Agreement, as amended hereby, requires
compliance with any bulk sales act or similar law. This Amendment, and each
of the Transaction Documents to which the Seller is a party, have been duly
executed and delivered by the Seller.
(c) Governmental Authorization. Other than the filing of the
financing statements required under the Receivables Purchase Agreement, all
of which filings have previously been made, no authorization or approval or
other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution, delivery
and performance by the Seller of the Receivables Purchase Agreement, as
amended hereby.
(d) Binding Effect. The Receivables Purchase Agreement, as amended
hereby, constitutes the legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors'
rights generally or general equitable principles.
(e) Absence of Certain Events. No Servicer Default, Potential Servicer
Default, Termination Event or Potential Termination Event exists and is
continuing as of the date hereof.
2.2. Investor Representations. As of the date hereof, each of the
Investors represents and warrants to the other parties hereto that:
(a) Due Execution. This Amendment has been duly executed and delivered
by such Investor.
2
<PAGE>
(b) Binding Effect. The Receivables Purchase Agreement, as amended
hereby, constitutes the legal, valid and binding obligation of such
Investor, enforceable against it in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors'
rights generally or general equitable principles.
SECTION 3. CONDITIONS PRECEDENT. This Amendment shall become effective as
of the date first above written only upon receipt by the Agent of counterparts
of this Amendment duly executed by each of the parties hereto.
SECTION 4. MISCELLANEOUS.
4.1. Choice of Law. This Amendment shall be construed in accordance
with the internal laws (and not the law of conflicts) of the State of Illinois.
4.2. Counterparts; Severability. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same Agreement. Any
provisions of this Amendment which are prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
4.3. Ratification. Except as expressly amended hereby, each of the
Transaction Documents shall remain unaltered and in full force and effect and is
hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers as of the date
hereof.
KOHL'S RECEIVABLES CORPORATION
By: /s/Arlene Meier
------------------------------
Name: Arlene Meier
----------------------------
Title: Chief Financial Officer
---------------------------
3
<PAGE>
PREFERRED RECEIVABLES FUNDING CORPORATION
By: /s/ Mark R. Matthews
------------------------------------
Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO,
as an Investor and as Agent
By: /s/ Mark R. Matthews
------------------------------------
Authorized Signatory
4
<PAGE>
THE BANK OF NEW YORK
By: /s/ William A. Kerr
------------------------------------
Name: William A. Kerr
----------------------------------
Title: SVP
---------------------------------
5
<PAGE>
BANKBOSTON, N.A.
By: /s/ Peter L. Griswold
------------------------------------
Name: Peter L. Griswold
----------------------------------
Title: Director
---------------------------------
6
<PAGE>
COMERICA BANK
By: /s/ Gregory N. Block
------------------------------------
Name: Gregory N. Block
----------------------------------
Title: Vice President
---------------------------------
7
<PAGE>
CORESTATES BANK N.A.
By: /s/ Anne Marie Fitzsimmons-Hughes
------------------------------------
Name: Anne Marie Fitzsimmons-Hughes
----------------------------------
Title: Vice President
---------------------------------
8
<PAGE>
Exhibit 12.1
Kohl's Corporation
Ratio of Earnings to Fixed Charges
($000s)
<TABLE>
<CAPTION>
Fiscal Year (1)
------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings
Income before income taxes and
extraordinary items $235,063 $171,368 $122,729 $117,451 $96,691 $50,134
Fixed charges 57,683 44,054 30,770 19,758 16,144 21,503
Less interest capitalized
during period (2,043) (2,829) (1,287) (603) (376) 0
-------- -------- -------- -------- -------- -------
$290,703 $212,593 $152,212 $136,606 $112,459 $71,637
======== ======== ======== ======== ======== =======
Fixed Charges
Interest (expensed or capitalized) $ 26,541 $ 21,822 $ 14,895 $ 7,911 $ 6,253 $13,648
Portion of rent expense
representative of interest 30,798 22,031 15,798 11,777 9,113 6,794
Amortization of deferred
financing fees 344 201 77 70 778 1,061
-------- -------- -------- -------- -------- -------
$ 57,683 $ 44,054 $ 30,770 $ 19,758 $ 16,144 $21,503
======== ======== ======== ======== ======== =======
Ratio of earnings to fixed charge 5.04 4.83 4.95 (2) 6.91 6.97 3.33
======== ======== ======== ======== ======== =======
</TABLE>
(1) Fiscal 1997, 1996, 1994, 1993 and 1992 are 52 week years and fiscal 1995 is
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.
<PAGE>
Exhibit 21.1
Subsidiaries
------------
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
Kohl's Department Stores, Inc. Delaware
Kohl's Investment Corporation Delaware
Kohl's Illinois Corporation* Nevada
Kohl's Receivables Corporation* Wisconsin
Kohl's Pennsylvania, Inc.* Pennsylvania
</TABLE>
*These subsidiaries are wholly owned subsidiaries of Kohl's Department Stores,
Inc.
<PAGE>
Exhibit 24.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 #33-46883) pertaining to the Long Term Compensation Plan and the
Registration Statement (Form S-3 #33-80323) pertaining to the 1996 Debt Offering
of Kohl's Corporation of our report dated March 9, 1998, with respect to the
consolidated financial statements of Kohl's Corporation included in the Annual
Report (Form 10-K) for the year ended January 31, 1998.
Milwaukee, Wisconsin ERNST & YOUNG LLP
April 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 44,161
<SECURITIES> 0
<RECEIVABLES> 239,617
<ALLOWANCES> 4,669
<INVENTORY> 515,790
<CURRENT-ASSETS> 811,442
<PP&E> 926,534
<DEPRECIATION> 176,885
<TOTAL-ASSETS> 1,619,721
<CURRENT-LIABILITIES> 286,191
<BONDS> 310,366
0
0
<COMMON> 1,578
<OTHER-SE> 953,204
<TOTAL-LIABILITY-AND-EQUITY> 1,619,721
<SALES> 3,060,065
<TOTAL-REVENUES> 3,060,065
<CGS> 2,046,468
<TOTAL-COSTS> 2,801,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,772
<INCOME-PRETAX> 235,063
<INCOME-TAX> 93,790
<INCOME-CONTINUING> 141,273
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141,273
<EPS-PRIMARY> .93
<EPS-DILUTED> .91
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 8,906
<SECURITIES> 0
<RECEIVABLES> 26,711
<ALLOWANCES> 0
<INVENTORY> 423,207
<CURRENT-ASSETS> 465,227
<PP&E> 725,082
<DEPRECIATION> 128,855
<TOTAL-ASSETS> 1,122,483
<CURRENT-LIABILITIES> 235,888
<BONDS> 312,031
0
0
<COMMON> 1,478
<OTHER-SE> 515,993
<TOTAL-LIABILITY-AND-EQUITY> 1,122,483
<SALES> 2,388,221
<TOTAL-REVENUES> 2,388,221
<CGS> 1,608,688
<TOTAL-COSTS> 2,199,231
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,622
<INCOME-PRETAX> 171,368
<INCOME-TAX> 68,890
<INCOME-CONTINUING> 102,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,478
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.68
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> FEB-03-1996
<CASH> 2,819
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 320,572
<CURRENT-ASSETS> 330,624
<PP&E> 502,406
<DEPRECIATION> 93,238
<TOTAL-ASSETS> 805,385
<CURRENT-LIABILITIES> 155,256
<BONDS> 187,699
0
0
<COMMON> 737
<OTHER-SE> 409,901
<TOTAL-LIABILITY-AND-EQUITY> 805,385
<SALES> 1,925,669
<TOTAL-REVENUES> 1,925,669
<CGS> 1,294,653
<TOTAL-COSTS> 1,789,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,150
<INCOME-PRETAX> 122,729
<INCOME-TAX> 50,077
<INCOME-CONTINUING> 72,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,652
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<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> 0.10
<EPS-DILUTED> 0.10
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> AUG-02-1997
<CASH> 2,205
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 553,242
<CURRENT-ASSETS> 571,853
<PP&E> 828,148
<DEPRECIATION> 151,125
<TOTAL-ASSETS> 1,306,910
<CURRENT-LIABILITIES> 284,950
<BONDS> 404,262
0
0
<COMMON> 741
<OTHER-SE> 556,556
<TOTAL-LIABILITY-AND-EQUITY> 1,306,910
<SALES> 1,224,484
<TOTAL-REVENUES> 1,224,484
<CGS> 813,229
<TOTAL-COSTS> 1,151,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,822
<INCOME-PRETAX> 60,148
<INCOME-TAX> 23,999
<INCOME-CONTINUING> 36,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,149
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<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> 356,761
<BONDS> 310,932
0
0
<COMMON> 788
<OTHER-SE> 873,773
<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> 0.46
<EPS-DILUTED> 0.45
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<CASH> 1,832
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 397,190
<CURRENT-ASSETS> 410,259
<PP&E> 542,846
<DEPRECIATION> 101,223
<TOTAL-ASSETS> 916,637
<CURRENT-LIABILITIES> 212,448
<BONDS> 225,369
0
0
<COMMON> 738
<OTHER-SE> 424,513
<TOTAL-LIABILITY-AND-EQUITY> 916,637
<SALES> 468,638
<TOTAL-REVENUES> 468,638
<CGS> 311,836
<TOTAL-COSTS> 441,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,102
<INCOME-PRETAX> 23,206
<INCOME-TAX> 9,445
<INCOME-CONTINUING> 13,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,761
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 4,650
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 440,541
<CURRENT-ASSETS> 457,551
<PP&E> 586,496
<DEPRECIATION> 109,681
<TOTAL-ASSETS> 997,507
<CURRENT-LIABILITIES> 231,229
<BONDS> 269,532
0
0
<COMMON> 738
<OTHER-SE> 440,658
<TOTAL-LIABILITY-AND-EQUITY> 997,507
<SALES> 943,236
<TOTAL-REVENUES> 943,236
<CGS> 629,876
<TOTAL-COSTS> 887,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,742
<INCOME-PRETAX> 48,210
<INCOME-TAX> 19,621
<INCOME-CONTINUING> 28,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,589
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> NOV-02-1996
<CASH> 1,950
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 587,090
<CURRENT-ASSETS> 597,304
<PP&E> 670,622
<DEPRECIATION> 119,314
<TOTAL-ASSETS> 1,210,316
<CURRENT-LIABILITIES> 293,079
<BONDS> 395,686
0
0
<COMMON> 739
<OTHER-SE> 463,316
<TOTAL-LIABILITY-AND-EQUITY> 1,210,316
<SALES> 1,541,288
<TOTAL-REVENUES> 1,541,288
<CGS> 1,029,448
<TOTAL-COSTS> 1,443,366
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,089
<INCOME-PRETAX> 84,833
<INCOME-TAX> 34,327
<INCOME-CONTINUING> 50,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,506
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
