<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 2, 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, Menomonee Falls, Wisconsin 53051
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 703-7000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 Days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: June 4, 1998 Common Stock, Par
Value $.01 per Share, 157,987,427 shares Outstanding.
<PAGE>
KOHL'S CORPORATION
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
May 2, 1998, January 31, 1998 and
May 3, 1997 3
Condensed Consolidated Statements of Income
for the Three Months Ended May 2, 1998
and May 3, 1997 4
Consolidated Statement of Changes in
Shareholders' Equity for the Three Months
Ended May 2, 1998 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
May 2, 1998 and May 3, 1997 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of 11
Security Holders
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
KOHL'S CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
May 2, January 31, May 3,
1998 1998 1997
--------------------------------------------
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
Assets
--------
Current assets:
Cash and cash equivalents $ 17,551 $ 44,161 $ 2,191
Accounts receivable, trade 183,079 239,617 13,185
Merchandise inventories 623,486 515,790 537,893
Deferred income taxes 5,226 6,615 -
Other 8,335 5,259 6,443
------------ ------------ ------------
Total current assets 837,677 811,442 559,712
Property and equipment, at cost 972,380 926,534 787,858
Less accumulated depreciation 191,055 176,885 139,801
------------ ------------ ------------
781,325 749,649 648,057
Other assets 16,181 12,643 7,919
Favorable lease rights 15,388 15,849 17,615
Goodwill 28,838 30,138 34,038
------------ ------------ ------------
Total assets $ 1,679,409 $ 1,619,721 $ 1,267,341
============ ============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 209,403 $ 150,679 $ 191,927
Accrued liabilities 84,479 95,185 79,208
Income taxes payable 17,358 38,482 6,824
Deferred income taxes - - 3,052
Current portion of long-term debt 1,845 1,845 1,663
------------ ------------ ------------
Total current liabilities 313,085 286,191 282,674
Long-term debt 311,142 310,366 390,173
Deferred income taxes 46,185 45,104 40,221
Other long-term liabilities 25,931 23,278 19,383
Shareholders' equity
Common stock-$.01 par value, 400,000,000 shares
authorized, 157,947,202, 157,757,956 and 148,110,730
issued at May 2, 1998, January 31, 1998 and
May 3, 1997, respectively. 1,579 1,578 1,480
Paid-in capital 489,985 488,550 194,721
Retained earnings 491,502 464,654 338,689
------------ ------------ ------------
Total shareholders' equity 983,066 954,782 534,890
------------ ------------ ------------
Total liabilities and shareholders' equity $ 1,679,409 $ 1,619,721 $ 1,267,341
============ ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months 3 Months
(13 Weeks) (13 Weeks)
Ended Ended
May 2, May 3,
1998 1997
---------- ----------
(In thousands except per share data)
<S> <C> <C>
Sales $ 744,571 $ 600,547
Cost of merchandise sold 491,102 397,377
---------- ----------
Gross margin 253,469 203,170
Operating expenses:
Selling, general, and administrative 180,353 146,751
Depreciation and amortization 14,984 11,700
Goodwill amortization 1,300 1,300
Preopening expenses 7,542 12,112
---------- ----------
Operating income 49,290 31,307
Interest expense, net 5,059 5,836
---------- ----------
Income before income taxes 44,231 25,471
Provision for income taxes 17,383 10,163
---------- ----------
Net income $ 26,848 $ 15,308
========== ==========
Earnings per share:
Basic
Net income $ 0.17 $ 0.10
Average number of shares 157,867 147,984
Diluted
Net income $ 0.17 $ 0.10
Average number of shares 162,181 151,076
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
KOHL'S CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------- Paid-In Retained
Shares Amount Capital Earnings Total
-----------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1998 157,758 $1,578 $488,550 $464,654 $954,782
Net income - - - 26,848 26,848
Exercise of stock options (net) 189 1 1,435 - 1,436
-----------------------------------------------------
Balance at May 2, 1998 157,947 $1,579 $489,985 $491,502 $983,066
=====================================================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months
(13 Weeks) (13 Weeks)
Ended Ended
May 2, 1998 May 3, 1997
--------------------------
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 26,848 $ 15,308
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 16,335 13,063
Deferred income taxes 2,470 1,998
Other noncash charges 1,234 506
Changes in operating assets and liabilities (25,921) (54,407)
-------- --------
Net cash provided by (used in) operating activities 20,966 (23,532)
Investing activities
Acquisition of property and equipment, net (45,846) (63,071)
Other (3,942) (359)
-------- --------
Net cash used in investing activities (49,788) (63,430)
Financing activities
Net borrowings under working capital loan - 78,500
Proceeds from long-term debt 1,213 -
Repayments of long-term debt (437) (358)
Payment of financing fees on debt - (6)
Net proceeds from exercise of stock options 1,436 2,111
-------- --------
Net cash provided by financing activities 2,212 80,247
-------- --------
Net decrease in cash and cash equivalents (26,610) (6,715)
Cash and cash equivalents at beginning of period 44,161 8,906
-------- --------
Cash and cash equivalents at end of period $ 17,551 $ 2,191
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
KOHL'S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for fiscal year end financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-K (Commission File No. 1-
11084) filed with the Securities and Exchange Commission.
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.
2. Inventories
The Company uses the last-in, first out (LIFO) method of accounting for
merchandise inventory because it results in a better matching of cost and
revenues. The following information is provided to show the effects of the LIFO
provision on the quarter, as well as to provide users with the information to
compare to other companies not on LIFO.
<TABLE>
<CAPTION>
LIFO Expense 3 Months Ended
------------ ------------------------
Quarter May 2, 1998 May 3, 1997
------- ----------- -----------
(In Thousands)
<S> <C> <C>
First $1,861 $1,501
</TABLE>
Inventories would have been $6,644,000, $4,783,000 and $6,377,000 higher at
May 2, 1998, January 31, 1998 and May 3, 1997, respectively if they had been
valued using the first-in, first-out (FIFO) method.
3. Contingencies
The Company is involved in various legal matters arising in the normal
course of business. In the opinion of management, the outcome of such
proceedings and litigation will not have a material adverse impact on the
Company's financial position or results of operations.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
----------------------------------------------
THREE MONTHS ENDED May 2, 1998
------------------------------
Results of Operations
- ---------------------
At May 2, 1998, the Company operated 197 stores compared with 170 stores at
the same time last year. During the quarter the Company successfully opened 15
stores including three stores in Knoxville, TN; three stores in Richmond, VA;
two stores in Greensboro, NC; two stores in Pittsburgh, PA and stores in
Winston-Salem, NC; Shawnee, KS; Fairfax, VA; Turnersville, NJ and Muncie, IN.
The Company plans to open 17 stores in the third quarter: three stores in the
Washington, D.C. trade area; two stores in the Philadelphia trade area; two
stores in Charlotte, NC; two stores in Detroit, MI; two stores in Chicago, IL;
two stores in Columbus, OH and stores in Toledo, OH; Charleston, WV; Akron, OH
and Lawrence, KS.
Net sales increased $144.1 million or 24.0% to $744.6 million for the three
months ended May 2, 1998 from $600.5 million for the three months ended May 3,
1997. Of the increase, $78.2 million is attributable to the inclusion of 32 new
stores opened in 1997 and 15 new stores opened in 1998. The remaining $65.9
million is attributable to comparable store sales growth of 12.0%.
Gross margin for the three months ended May 2, 1998 was 34.0% compared to
33.8% in the three months ended May 3, 1997. This increase is primarily
attributable to a change in merchandise mix.
The Company incurred $7.5 million of pre-opening expenses associated with the
opening of 15 stores in the three months ended May 2, 1998 compared to $12.1
million for 20 stores and the relocation of one store in the three months ended
May 3, 1997. The expenses relate to the cost associated with new store
openings, including hiring and training costs for new employees, Kohl's charge
account solicitations and processing and transporting initial merchandise.
Operating income for the three months ended May 2, 1998, increased $18.0
million or 57.4% over the three months ended May 3, 1997. Excluding pre-opening
expenses, operating income increased 30.9%. This increase resulted primarily
from the increased sales and the Company's ability to leverage its selling,
general and administrative expenses as net sales increased. Selling, general
and administrative expenses declined to 24.2% of net sales for the three months
ended May 2, 1998 from 24.4% of net sales for the three months ended May 3,
1997.
-8-
<PAGE>
Net interest expense for the three months ended May 2, 1998 decreased $0.8
million from the three months ended May 3, 1997. The decrease was primarily due
to interest income on short-term investments. Although the current plan is to
open 32 new stores in 1998, the Company does not expect interest expense to
increase in fiscal 1998.
For the three months ended May 2, 1998, net income increased 75.4% to $26.8
million from $15.3 million in the three months ended May 3, 1997. Earnings were
$.17 per share for the three months ended May 2, 1998 compared to $.10 per share
for the three months ended May 3, 1997.
Seasonality & Inflation
- -----------------------
The Company's business is seasonal, reflecting increased consumer buying in
the "back-to-school" and Christmas seasons. The Company's financial position
and operations are also affected by the timing of new store openings. Inflation
did not materially affect the Company's net income during the periods presented.
Financial Condition and Liquidity
- ---------------------------------
The Company's primary ongoing cash requirements are for inventory
purchases, capital expenditures in connection with the Company's expansion and
remodeling programs and pre-opening 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.
At May 2, 1998, the Company's merchandise inventories had increased $107.7
million over the January 31, 1998 balance and $85.6 million over the May 3, 1997
balance. These increases reflect the purchase of summer inventory as well as
inventory for new stores. The Company's working capital decreased to $524.6
million at May 2, 1998 from $525.3 million at January 31, 1998 and increased
from $277.0 million at May 3, 1997. Of the $247.6 million increase from May 3,
1997, $170.6 million is attributable to higher credit card receivables as the
Company internally financed a higher percentage of receivables. The remaining
increase was primarily the result of higher merchandise inventory levels
required to support existing stores and incremental new store locations offset
in part by increased accounts payable.
-9-
<PAGE>
Cash provided by operating activities was $21.0 million for the three
months ended May 2, 1998 compared to cash used in operating activities of $23.5
million for the three months ended May 3, 1997. The increase in cash provided
resulted primarily from increased profitability and proceeds from sales of
proprietary accounts receivable. Excluding changes in operating assets and
liabilities, cash provided by operating activities was $46.9 million for the
three months ended May 2, 1998 compared to $30.9 million for the three months
ended May 3, 1997.
Capital expenditures for the three months ended May 2, 1998 were $45.8
million compared to $63.1 million for the same period a year ago. The decrease
in expenditures in 1998 is primarily attributable to the opening of fifteen new
stores for the three months ended May 2, 1998 compared to twenty new stores and
the construction of the Winchester, Virginia distribution center for the three
months ended May 3, 1997.
Total capital expenditures for fiscal 1998 are currently expected to be
approximately $240.0 million (excluding assets under capital leases). The
actual amount of the Company's future annual capital expenditures will depend
primarily on the number of new stores opened, whether such stores are owned or
leased by the Company and the number of existing stores remodeled or
refurbished.
The Company anticipates that it will be able to satisfy its current
operating needs, planned capital expenditures and debt service requirements with
current working capital, cash flows from operations, seasonal borrowings under
its revolving credit facility, short-term trade credit and other lending
facilities.
Information in this document contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, such as
statements relating to debt service requirements and planned capital
expenditures. Forward-looking statements can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should" or "anticipates" or the negative thereof or other variations thereon.
No assurance can be given that the future results covered by the forward-looking
statements will be achieved.
-10-
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Kohl's Corporation was held on May
27, 1998:
1. To elect three directors to serve for a three-year term.
2. To ratify the appointment of Ernst & Young LLP as independent
auditors.
3. To consider shareholder proposal concerning foreign suppliers.
Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934 and there was no solicitation in opposition to
management's solicitations. All of management's nominees for directors as
listed in the proxy statement were elected.
The results of the voting were as follows:
1. Election of directors
John F. Herma
For - 70,996,565 shares
Withheld - 1,146,735 shares
R. Lawrence Montgomery
For - 70,989,229 shares
Withheld - 1,154,071 shares
Frank V. Sica
For - 70,994,229 shares
Withheld - 1,149,071 shares
2. Ratification of Ernst & Young LLP as independent auditors
For - 72,044,055 shares
Against - 34,304 shares
Abstain - 64,941 shares
3. To consider shareholder proposal concerning foreign suppliers
For - 6,505,624 shares
Against - 59,306,797 shares
Abstain - 1,801,456 shares
Broker No Vote - 4,529,423 shares
-11-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
12.1 Statement regarding calculation of ratio of earnings to
fixed charges.
27 Financial Data Schedule - Article 5 of Regulation S-X
b) Reports on Form 8-K
There were no reports on Form 8-K filed for
three months ended May 2, 1998
-12-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Kohl's Corporation
(Registrant)
Date: June 5, 1998 /s/William Kellogg
---------------------------------
William Kellogg
Chairman, Chief Executive Officer
Date: June 5, 1998 /s/Arlene Meier
---------------------------------
Arlene Meier
Executive Vice President - Finance
Chief Financial Officer
-13-
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
Kohl's Corporation
Ratio of Earnings to Fixed Charges
($000s)
13 Weeks Ended
------------------ Fiscal Year (1)
May 2, May 3, ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
- --------
Income before income taxes and
extraordinary items $44,231 $25,471 $235,063 $171,368 $122,729 $117,451 $96,691
Fixed charges 15,103 13,439 57,683 44,054 30,770 19,758 16,144
Less interest capitalized
during period (445) (643) (2,043) (2,829) (1,287) (603) (376)
------- ------- -------- -------- -------- -------- --------
$58,889 $38,267 $290,703 $212,593 $152,212 $136,606 $112,459
======= ======= ======== ======== ======== ======== ========
Fixed Charges
- -------------
Interest (expensed or capitalized) $ 6,059 $ 6,647 $ 26,541 $21,822 $14,895 $ 7,911 $6,253
Portion of rent expense
representative of interest 8,994 6,729 30,798 22,031 15,798 11,777 9,113
Amortization of deferred
financing fees 50 63 344 201 77 70 778
------- ------- -------- -------- -------- -------- --------
$15,103 $13,439 $57,683 $44,054 $30,770 $19,758 $16,144
======= ======= ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 3.90 2.85 5.04 4.83 4.95 (2) 6.91 6.97
======= ======= ======== ======== ======== ======== ========
</TABLE>
(1) Fiscal 1997, 1996, 1994 and 1993 are 52 week years and fiscal 1995 is a 53
week year.
(2) Excluding the credit operations non-recurring expense of $14,052, the ratio
of earnings to fixed charges would be 5.40.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 17,551
<SECURITIES> 0
<RECEIVABLES> 183,079
<ALLOWANCES> 0
<INVENTORY> 623,486
<CURRENT-ASSETS> 837,677
<PP&E> 972,380
<DEPRECIATION> 191,055
<TOTAL-ASSETS> 1,679,409
<CURRENT-LIABILITIES> 313,085
<BONDS> 311,142
0
0
<COMMON> 1,579
<OTHER-SE> 981,487
<TOTAL-LIABILITY-AND-EQUITY> 1,679,409
<SALES> 744,571
<TOTAL-REVENUES> 744,571
<CGS> 491,102
<TOTAL-COSTS> 695,281
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,059
<INCOME-PRETAX> 44,231
<INCOME-TAX> 17,383
<INCOME-CONTINUING> 26,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,848
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
