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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 April 29, 2000
----------------------------------
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
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KOHL'S CORPORATION
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-1630919
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (262) 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 ______
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: May 26, 2000 Common Stock,
----------------------------
Par Value $.01 per Share, 329,669,427 shares Outstanding.
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KOHL'S CORPORATION
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
April 29, 2000, January 29, 2000 and
May 1, 1999 3
Condensed Consolidated Statements of Income
for the Three Months Ended April 29, 2000
and May 1, 1999 4
Condensed Consolidated Statement of Changes
In Shareholders' Equity for the Three Months
Ended April 29, 2000 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
April 29, 2000 and May 1, 1999 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of 12-13
Security Holders
Item 6 Exhibits 14
Signatures 15
</TABLE>
2
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KOHL'S CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 29, January 29, May 1,
2000 2000 1999
--------------------------------------------------------------
(Unaudited) (Audited) (Unaudited)
(In thousands)
<S> <C> <C> <C>
Assets
------------
Current assets:
Cash and cash equivalents $ 3,639 $ 12,608 $ 2,960
Short-term investments - 27,500 15,000
Accounts receivable trade, net 544,328 501,162 235,764
Merchandise inventories 994,493 794,439 721,955
Income taxes receivable 10,595 - 12,680
Deferred income taxes 16,736 22,184 14,548
Other 23,516 8,630 14,130
------------ ------------ ------------
Total current assets 1,593,307 1,366,523 1,017,037
Property and equipment, net 1,479,627 1,352,956 984,831
Other assets 46,229 42,422 28,930
Favorable lease rights 131,999 133,023 141,053
Goodwill 18,438 19,738 23,638
------------ ------------ ------------
Total assets $3,269,600 $2,914,662 $2,195,489
============ ============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 454,155 $ 330,084 $ 237,079
Accrued liabilities 140,094 143,784 108,036
Income taxes payable - 63,955 -
Short term debt 225,000 85,000 -
Current portion of long-term debt 16,589 11,589 1,578
------------ ------------ ------------
Total current liabilities 835,838 634,412 346,693
Long-term debt 520,654 494,993 308,878
Deferred income taxes 69,643 66,482 56,670
Other long-term liabilities 35,614 33,272 28,520
Shareholders' equity
Common stock-$.01 par value, 800,000,000 shares
authorized, 329,423,752, 326,197,268, and 325,525,924
issued at April 29, 2000, January 29, 2000 and
May 1, 1999, respectively. 3,294 3,262 3,256
Paid-in capital 836,877 767,179 755,233
Retained earnings 967,680 915,062 696,239
------------ ------------ ------------
Total shareholders' equity 1,807,851 1,685,503 1,454,728
------------ ------------ ------------
Total liabilities and shareholders' equity $3,269,600 $2,914,662 $2,195,489
============ ============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
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KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months
(13 Weeks) (13 Weeks)
Ended Ended
April 29, May 1,
2000 1999
---------------------------------
(In thousands, except per share data)
<S> <C> <C>
Net sales $1,228,666 $910,256
Cost of merchandise sold 802,746 597,128
------------ -----------
Gross margin 425,920 313,128
Operating expenses:
Selling, general, and administrative 284,256 216,032
Depreciation and amortization 27,240 18,577
Goodwill amortization 1,300 1,300
Preopening expenses 19,129 7,945
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Operating income 93,995 69,274
Interest expense, net 8,230 5,132
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Income before income taxes 85,765 64,142
Provision for income taxes 33,147 24,823
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Net income $ 52,618 $ 39,319
============ ===========
Earnings per share:
Basic
Net income $ 0.16 $ 0.12
Average number of shares 327,806 320,871
Diluted
Net income $ 0.16 $ 0.12
Average number of shares 336,353 330,752
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
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KOHL'S CORPORATION
CONDENSED 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 29, 2000 326,197 $3,262 $767,179 $915,062 $1,685,503
Exercise of stock options 3,227 32 24,413 - 24,445
Income tax benefit from stock options - - 45,285 - 45,285
Net income - - - 52,618 52,618
-------- --------- --------- ----------- ----------
Balance at April 29, 2000 329,424 $3,294 $836,877 $967,680 $1,807,851
======== ========= ========= =========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
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KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months
(13 Weeks) (13 Weeks)
Ended Ended
April 29, 2000 May 1, 1999
--------------------------------------------
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 52,618 $ 39,319
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 28,628 19,927
Deferred income taxes 8,609 2,747
Other noncash charges 1,069 732
Changes in operating assets and liabilities:
Accounts receivable (43,166) 34,940
Merchandise inventories (200,054) (104,593)
Other current assets (14,886) (6,764)
Accounts payable 124,071 24,153
Accrued and other long-term liabilities (2,417) (7,587)
Income taxes (74,550) (61,252)
------------- -------------
Net cash used in operating activities (120,078) (58,378)
Investing activities
Acquisition of property and equipment
and favorable lease rights, net (151,062) (203,344)
Proceeds from sale of assets - 4,350
Purchase of short-term investments, net 27,500 11,736
Other (5,676) (4,903)
------------- -------------
Net cash used in investing activities (129,238) (192,161)
Financing activities
Proceeds from short-term debt 140,000 -
Net borrowings (repayments) under credit facilities 41,000 (1,600)
Net repayments of other long-term debt (10,362) (389)
Payment of financing fees on debt (21) -
Net proceeds from issuance of common shares 69,730 252,630
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Net cash provided by financing activities 240,347 250,641
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Net increase (decrease) in cash and cash equivalents (8,969) 102
Cash and cash equivalents at beginning of period 12,608 2,858
------------- -------------
Cash and cash equivalents at end of period $ 3,639 $ 2,960
============= =============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
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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 6, 2000, effected in the form of a stock dividend.
2. Merchandise 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.
LIFO Expense 3 Months Ended
------------ -------------------------------
Quarter April 29, 2000 May 1, 1999
------- -------------- -----------
(In Thousands)
First $1,844 $1,363
Inventories would have been $4,827,000, $2,983,000 and $3,284,000 higher at
April 29, 2000, January 29, 2000 and May 1, 1999, 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
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adverse impact on the Company's financial position or results of operations.
4. Net Income Per Share
The numerator for the calculation of basic and diluted net income per share
is net income. The denominator is summarized as follows (in thousands):
3 Months Ended
-------------------------------
April 29, 2000 May 1, 1999
-------------- -----------
Denominator for
basic earnings
per share -
weighted average
shares 327,806 320,871
Employee stock
options 8,547 9,881
------- -------
Denominator for
diluted earnings
per share 336,353 330,752
======= =======
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
THREE MONTHS ENDED April 29, 2000
---------------------------------
Results of Operations
---------------------
At April 29, 2000, the Company operated 298 stores compared with 226 stores
at the same time last year. During the quarter, the Company successfully opened
39 stores including the conversion of 33 stores previously operated by Caldor
Corporation in New York, New Jersey, Connecticut and Maryland. In addition, four
new stores in the Dallas/Fort Worth, TX market and one new store in Rochester,
MN and Arnold, MO were opened.
The Company plans to open eight stores in August, 2000; two additional
stores in Chicago, two in Denver and additional stores in Ft. Worth, TX;
Harrisburg, PA; Pittsburgh, PA and Neenah, WI. In October, 2000, the Company
plans to open approximately 13 stores including three on Long Island, entering
Tulsa, OK with three stores and additional stores in Chicago, Denver, St. Louis,
North Carolina and Michigan.
Net sales increased $318.4 million or 35.0% to $1,228.7 million for the
three months ended April 29, 2000 from $910.3 million for the three months ended
May 1, 1999. Of the increase, $257.1 million is attributable to the inclusion of
46 new stores opened in 1999 and 39 new stores opened in 2000. The remaining
$61.3 million is attributable to comparable store sales growth of 6.9%.
Gross margin for the three months ended April 29, 2000 was 34.7% compared
to 34.4% in the three months ended May 1, 1999. This increase is primarily
attributable to a change in merchandise mix and improvements related to
inventory management.
Selling, general and administrative expenses declined to 23.1% of net sales
for the three months ended April 29, 2000 from 23.7% of net sales for the three
months ended May 1, 1999. The decrease was a result of leverage achieved on the
increase in net sales.
Depreciation and amortization for the three months ended April 29, 2000 was
$27.2 million compared to $18.6 million for the three months ended May 1, 1999.
The increase is primarily attributable to capital spending related to new store
openings.
Preopening expense for the three months ended April 29, 2000 was $19.1
million compared to $7.9 million for the three months ended May 1, 1999. The
increase is primarily due to an increase in the number of new stores opened. For
new stores opened in March and April, 2000 approximately $7.4 million in
preopening costs was expensed in fiscal 1999 and $19.1 million was expensed
during the three months ended April 29, 2000 for a total average cost per store
of approximately $0.7 million. Preopening expenses relate to the costs
associated with new store openings, including advertising, hiring and training
costs for new employees, and processing and transporting initial merchandise.
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As a result of the above factors, operating income for the three months
ended April 29, 2000, increased $24.7 million or 35.7% over the three months
ended May 1, 1999.
Net income for the three months ended April 29, 2000, increased 33.8% to
$52.6 million from $39.3 million for the three months ended May 1, 1999.
Earnings were $0.16 per diluted share for the three months ended April 29, 2000
compared to $0.12 per diluted share for the three months ended May 1, 1999.
Seasonality & Inflation
-----------------------
The Company's business, like that of most retailers, is subject to seasonal
influences, with the major portion of sales and income realized during the last
half of each fiscal year, which includes the back-to-school and holiday seasons.
Approximately 17% and 30% of sales occur during the back-to-school and holiday
seasons, respectively. Because of the seasonality of the Company's business,
results for any quarter are not necessarily indicative of the results that may
be achieved for a full fiscal year. In addition, quarterly results of operations
depend significantly upon the timing and amount of revenues and costs associated
with the opening of new stores.
The Company does not believe that inflation has had a material effect on
the results during the periods presented. However, there can be no assurance
that the Company's business will not be affected in the future.
Financial Condition and Liquidity
---------------------------------
The Company's primary ongoing cash requirements are for inventory
purchases, growth in outstanding accounts receivable, capital expenditures in
connection with 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 $300 million 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 holiday selling season.
In addition, the Company periodically accesses capital markets, as needed, to
finance its growth. In March 1999, the Company issued 5,600,000 shares
(2,800,000 shares pre-split) of common stock to the public with net proceeds of
approximately $200 million. The Company also issued $200 million of non-
callable, unsecured 30 year debentures on June 1, 1999.
At April 29, 2000, the Company's merchandise inventories had increased
$200.1 million over the January 29, 2000 balance and
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$272.5 million over the May 1, 1999 balance. These increases reflect the
purchase of summer inventory as well as inventory for new stores. The Company's
working capital increased to $757.5 million at April 29, 2000 from $732.1
million at January 29, 2000 and $670.3 million at May 1, 1999. Of the $87.2
million increase from May 1, 1999, $83.6 million is attributable to higher
credit card receivables, net of related short-term debt, 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.
Cash used in operating activities was $120.1 million for the three months
ended April 29, 2000 compared to $58.4 million for the three months ended May 1,
1999. Excluding changes in operating assets and liabilities, cash provided by
operating activities was $90.9 million for the three months ended April 29, 2000
compared to $62.7 million for the three months ended May 1, 1999.
Total capital expenditures for fiscal 2000 are currently expected to range
between $450-$500 million. 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.
Capital expenditures for the three months ended April 29, 2000 were $151.1
million compared to $203.3 million for the same period a year ago. The decrease
in expenditures is primarily attributable to the timing of spending on new
stores.
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
sources of financing.
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.
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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
23, 2000:
1. To elect four directors to serve for a three-year term.
2. To ratify the appointment of Ernst & Young LLP as independent
auditors.
3. To consider and act upon a shareholder proposal.
4. To act upon any other business that may properly come before the
meeting or any adjournment thereof.
Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934 and there was no solicitation in opposition to
management's solicitations. All of management's nominees for directors as listed
in the proxy statement were elected.
The results of the voting were as follows:
1. Election of directors
Jay H. Baker
For - 141,513,684 shares
Withheld - 3,443,731 shares
Kevin B. Mansell
For - 147,512,636 shares
Withheld - 3,444,779 shares
Herbert Simon
For - 146,818,038 shares
Withheld - 4,139,377 shares
Peter M. Sommerhauser
For - 146,825,253 shares
Withheld - 4,132,162 shares
2. Ratification of Ernst & Young LLP as independent auditors
For - 150,779,674 shares
Against - 116,261 shares
Abstain - 61,480 shares
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3. To consider and act upon a shareholder proposal.
For - 10,548,340 shares
Against - 111,444,418 shares
Abstain - 18,493,247 shares
Broker no votes - 10,471,410 shares
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Item 6. Exhibits
(a) Exhibits
12.1 Statement regarding calculation of ratio
of earnings to fixed charges.
27.1 Financial Data Schedule - Article 5 of
Regulation S-X, 3 Months ended April 29, 2000.
27.2 Financial Data Schedule - Articles of Regulation S-X, 3
Months ended May 1, 1999, (restated)
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SIGNATURES
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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: /s/ William Kellogg
-----------------------------------
William Kellogg
Chairman
Date: /s/ Arlene Meier
-----------------------------------
Arlene Meier
Executive Vice President - Finance
Chief Financial Officer
15
