<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 July 29, 2000
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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
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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: September 1, 2000 Common
------------------------
Stock, Par Value $.01 per Share, 330,841,800 shares Outstanding.
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KOHL'S CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
July 29, 2000, January 29, 2000 and
July 31, 1999 3
Condensed Consolidated Statements of Income
for the Three Months and Six Months Ended
July 29, 2000 and July 31, 1999 4
Consolidated Statement of Changes in
Shareholders' Equity for the Six Months
Ended July 29, 2000 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
July 29, 2000 and July 31, 1999 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K 13
Signatures 14
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KOHL'S CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 29, January 29, July 31,
2000 2000 1999
----------------------------------------------------
(Unaudited) (Audited) (Unaudited)
(In thousands)
Assets
---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,925 $ 12,608 $ 2,960
Short-term investments - 27,500 58,753
Accounts receivable trade, net 531,885 501,162 395,005
Merchandise inventories 1,007,340 794,439 753,964
Deferred income taxes 22,346 22,184 17,863
Other 20,981 8,630 9,327
------------ ---------- -----------
Total current assets 1,586,477 1,366,523 1,237,872
Property and equipment, net 1,539,271 1,352,956 1,086,985
Other assets 57,285 42,422 33,969
Favorable lease rights 132,361 133,023 140,628
Goodwill 17,138 19,738 22,338
------------ ---------- -----------
Total assets $ 3,332,532 $2,914,662 $ 2,521,792
============ ========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 323,671 $ 330,084 $ 286,844
Accrued liabilities 134,994 143,784 120,081
Income taxes payable 15,771 63,955 11,901
Short term debt 35,000 85,000 -
Current portion of long-term debt 16,589 11,589 11,578
------------ ---------- -----------
Total current liabilities 526,025 634,412 430,404
Long-term debt 804,594 494,993 498,667
Deferred income taxes 74,013 66,482 58,036
Other long-term liabilities 37,079 33,272 30,638
Shareholders' equity
Common stock-$.01 par value, 800,000,000 shares
authorized, 330,101,803, 326,197,268, and 325,765,044
issued at July 29, 2000, January 29, 2000 and
July 31, 1999, respectively. 3,301 3,262 3,258
Paid-in capital 855,550 767,179 759,317
Retained earnings 1,031,970 915,062 741,472
------------ ---------- -----------
Total shareholders' equity 1,890,821 1,685,503 1,504,047
------------ ---------- -----------
Total liabilities and shareholders' equity $ 3,332,532 $2,914,662 $ 2,521,792
=========== ========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
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KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months 6 Months 6 Months
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
Ended Ended Ended Ended
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
---------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 1,255,360 $ 939,503 $ 2,484,026 $ 1,849,759
Cost of merchandise sold 817,407 614,199 1,620,153 1,211,327
------------ --------- ----------- -----------
Gross margin 437,953 325,304 863,873 638,432
Operating expenses:
Selling, general, and administrative 289,331 218,870 573,587 434,902
Depreciation and amortization 29,903 19,745 57,143 38,322
Goodwill amortization 1,300 1,300 2,600 2,600
Preopening expenses 2,821 5,110 21,950 13,055
------------ --------- ----------- -----------
Operating income 114,598 80,279 208,593 149,553
Interest expense, net 9,962 6,488 18,194 11,620
------------ --------- ----------- -----------
Income before income taxes 104,636 73,791 190,399 137,933
Provision for income taxes 40,346 28,558 73,491 53,381
------------ --------- ----------- -----------
Net income $ 64,290 $ 45,233 $ 116,908 $ 84,552
============ ========= =========== ===========
Earnings per share:
Basic
Net income $ 0.19 $ 0.14 $ 0.36 $ 0.26
Average number of shares 329,848 325,647 328,827 323,259
Diluted
Net income $ 0.19 $ 0.13 $ 0.35 $ 0.25
Average number of shares 338,973 335,097 337,455 333,003
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
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KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<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 3,905 39 31,133 - 31,172
Income tax benefit from stock options - - 57,238 - 57,238
Net income - - - 116,908 116,908
--------- ----------- ----------- ----------- ----------
Balance at July 29, 2000 330,102 3,301 $ 855,550 $1,031,970 $1,890,821
========= =========== =========== =========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
6 Months 6 Months
(26 Weeks) (26 Weeks)
Ended Ended
July 29, 2000 July 31, 1999
-------------------------------------------
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 116,908 $ 84,552
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization 59,923 41,051
Amortization of debt discount 1,175 -
Deferred income taxes 7,369 798
Other noncash charges 2,197 1,659
Tax benefit from exercise of stock options 57,238 42,365
Changes in operating assets and liabilities:
Accounts receivable (30,723) (124,301)
Merchandise inventories (212,901) (136,602)
Other current assets (12,351) (1,961)
Accounts payable (6,413) 73,918
Accrued and other long-term liabilities (7,180) 5,648
Income taxes (48,184) (36,671)
----------------- -----------------
Net cash used in operating activities (72,942) (49,544)
Investing activities
Acquisition of property and equipment
and favorable lease rights, net (239,107) (323,960)
Proceeds from sale of assets - 4,350
Sale/(Purchase) of short-term investments, net 27,500 (32,017)
Other (11,448) (9,038)
----------------- -----------------
Net cash used in investing activities (223,055) (360,665)
Financing activities
Repayments of short-term debt (50,000) -
Net borrowings under credit facilities 5,300 1,300
Proceeds from debt offering, net 319,379 197,258
Payments of long-term debt and capital lease obligations (11,253) (758)
Payment of financing fees on debt (7,284) (1,840)
Net proceeds from issuance of common shares 31,172 214,351
----------------- -----------------
Net cash provided by financing activities 287,314 410,311
----------------- -----------------
Net increase (decrease) in cash and cash equivalents (8,683) 102
Cash and cash equivalents at beginning of period 12,608 2,858
----------------- -----------------
Cash and cash equivalents at end of period $ 3,925 $ 2,960
================= =================
</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 6, 2000, effected in the form of a stock dividend.
2. Reclassifications
The Company reclassified tax benefits resulting from the exercise of stock
options on its Consolidated Statements of Cash Flows in accordance with the
Emerging Issues Task Force No. 00-15, "Classification in the Statement of Cash
Flows of the Income Tax Benefit Realized by a Company upon Employee Exercise of
a Nonqualified Stock Option".
3. 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 6 Months Ended
------------
Quarter July 29,2000 July 31, 1999
------- ------------ -------------
(In Thousands)
First $1,844 $1,363
Second 1,884 1,409
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Total $3,728 $2,772
Inventories would have been $6,711,000, $2,983,000 and $4,694,000 higher at
July 29, 2000, January 29, 2000 and July 31, 1999, respectively if they had been
valued using the first-in, first-out (FIFO) method.
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<PAGE>
4. Debt
On June 12 and June 29, 2000, the Company issued $554.4 million aggregate
principal amount of Liquid Yield Option Subordinated Notes (LYONS) due June 12,
2020. The zero coupon LYON's were issued at a discount to yield an effective
interest rate of 2.75% per year and are subordinated to all existing and future
senior indebtedness of the Company. Net proceeds, excluding expenses, were
$319.4 million. Each LYON is convertible at the holder's option, at any time,
into 7.156 shares of the Company's common stock. The debt is callable by the
Company beginning June 12, 2003 for cash (issue price and all accreted original
issue discount). The holders of the securities can "put" the LYON's back to the
Company after three years and ten years during specified 30 day windows at
specified amounts reflective of the accretion of the original issue discount.
The Company has the option to redeem these putted securities for either cash or
the Company's common stock, or any combination thereof.
5. 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.
6. 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:
6 Months Ended
July 29, 2000 July 31, 1999
------------- -------------
(In Thousands)
Denominator for basic
earnings per share
-weighted average
shares 328,827 323,259
Employee stock options 8,628 9,744
------- -------
Denominator for diluted
earnings per share 337,455 333,003
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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THREE MONTHS AND SIX MONTHS ENDED July 29, 2000
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Results of Operations
---------------------
At July 29, 2000, the Company operated 298 stores compared with 231 stores
at the same time last year. During the first half of the year, the Company
successfully opened 39 new stores including the conversion of 33 stores
previously operated by Caldor Corporation in New York, New Jersey, Connecticut
and Maryland; four new stores in the Dallas/Fort Worth, TX market and one new
store each in Rochester, MN and Arnold, MO. The Company opened eight additional
stores in August: two stores in Chicago, IL; two stores in Denver, CO and
additional stores in Dallas/Fort Worth, TX; Harrisburg, PA; Pittsburgh, PA and a
store in Neenah, WI. In October, Kohl's plans to open 14 stores entering Tulsa,
OK with three stores and Flint, MI with one store. In addition, the Company will
open three stores on Long Island, two stores in Denver and one store each in
Chicago, Detroit, St. Louis, Philadelphia and Winston/Salem. The 22 store
openings during the second half of the year brings the total to 61 new stores
during fiscal 2000.
The Company plans to open 55-60 new stores in the year 2001. Approximately
34 are planned to open in the first half: 15 stores in Atlanta, GA; three stores
in Arkansas and additional stores in the Midwest and Mid-Atlantic markets.
Net sales increased $315.9 million or 33.6% to $1,255.4 million for the
three months ended July 29, 2000 from $939.5 million for the three months ended
July 31, 1999. Of the increase, $250.9 million is attributable to the inclusion
of 33 new stores opened in 1999 and 39 new stores opened in 2000. The remaining
$65.0 million is attributable to comparable store sales growth of 7.1%.
Net sales increased $634.2 million or 34.3% to $2,484.0 million for the six
months ended July 29, 2000 from $1,849.8 million for the six months ended July
31, 1999. Of the increase, $513.8 million is attributable to the inclusion of 46
new stores opened in 1999 and 39 new stores opened in 2000. The remaining $120.4
million is attributable to comparable stores sales growth of 6.8%.
Gross margin for the three months ended July 29, 2000 was $438.0 million or
34.9% compared to 34.6% for the three months ended July 31, 1999. Gross margin
for the six months ended July 29, 2000 was $863.9 million or 34.8% compared to
34.5% for the six months ended July 31, 1999. These increases are primarily
attributable to a change in merchandise mix and improvements related to
inventory management.
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<PAGE>
Selling, general and administrative expenses declined to 23.0% of net sales
for the three months ended July 29, 2000 from 23.3% of net sales for the three
months ended July 31, 1999. Selling, general and administrative expenses for the
six months ended July 29, 2000 declined to 23.1% of net sales from 23.5% for the
six months ended July 31, 1999. The decrease was a result of leverage achieved
on the increase in net sales.
Depreciation and amortization for the three months ended July 29, 2000 was
$31.2 million compared to $21.0 million for the three months ended July 31,
1999. Depreciation and amortization for the six months ended July 29, 2000 was
$59.7 million compared to $40.9 million for the six months ended July 31, 1999.
These increases are primarily attributable to capital spending related to new
store openings.
Preopening expense for the three months ended July 29, 2000 was $2.8
million compared to $5.1 million for the three months ended July 31, 1999.
Preopening expense for the six months ended July 29, 2000 was $21.9 million
compared to $13.1 million for the six months ended July 31, 1999. The increase
is primarily due to an increase in the number of new stores opened. 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.
As a result of the above factors, operating income for the three months
ended July 29, 2000, increased $34.3 million or 42.7% over the three months
ended July 31, 1999. Operating income for the six months ended July 29, 2000,
increased $59.0 million or 39.5% over the six months ended July 31, 1999.
Net interest expense for the three months ended July 29, 2000 increased
$3.5 million from the three months ended July 31, 1999. Net interest expense for
the six months ended July 29, 2000 increased $6.6 million from the six months
ended July 31, 1999. The increase was primarily attributed to the interest
accrued for the $554.4 million, aggregate principal amount, of Liquid Yield
Option Subordinated Notes issued in June 2000.
For the three months ended July 29, 2000, net income increased 42.2% to
$64.3 million from $45.2 million in the three months ended July 31, 1999.
Earnings were $0.19 per diluted share for the three months ended July 29, 2000
compared to $0.13 per diluted share for the three months ended July 31, 1999.
Net income for the six months ended July 29, 2000 increased 38.2% to $116.9
million or $0.35 per diluted share from $84.6 million or $.25 per diluted share
for the six months ended July 31, 1999.
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<PAGE>
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 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, sales 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 holiday
selling season.
At July 29, 2000, the Company's merchandise inventories had increased
$212.9 million over the January 29, 2000 balance and $253.4 million over the
July 31, 1999 balance. These increases reflect the purchase of fall inventory as
well as inventory for new stores. The Company's working capital increased to
$1,060.5 million at July 29, 2000 from $732.1 million at January 29, 2000 and
increased from $807.5 million at July 31, 1999. Of the $253.0 million increase
from July 31, 1999, $101.9 million is attributable to higher credit card
receivables, net of the amounts financed by a bank as the Company internally
financed a larger balance of receivables in fiscal 2000. 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.
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<PAGE>
Cash used for operating activities was $74.1 million for the six months
ended July 29, 2000 compared to $49.5 million for the six months ended July 31,
1999. Excluding changes in operating assets and liabilities, cash provided by
operating activities was $243.7 million for the six months ended July 29, 2000
compared to $170.4 million for the six months ended July 31, 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 six months ended July 29, 2000 were $239.1
million compared to $324.0 million for the same period a year ago. The decrease
in expenditures is primarily attributable to the timing of spending related to
new stores.
In June 2000, the Company issued $554.4 million, aggregate principal amount,
of Liquid Yield Option Subordinated Notes (LYONS). The LYON's mature on June 12,
2020. The zero coupon LYON's were issued at a discount to yield an effective
interest rate of 2.75% per year and are subordinated to all existing and future
senior indebtedness of the Company. Net proceeds, excluding expenses, were at
$319.4 million. The proceeds were initially used to pay borrowings under the
Company's outstanding revolving credit facility and accounts receivable program.
Additionally, the proceeds will be used to fund general corporate purposes,
including store expansion.
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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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4.2 Liquid Yield Option Notes due 2020 Indenture dated
June 12, 2000, between Kohl's Corporation and Bank of
New York, trustee, incorporated herein by reference to
Exhibit 4.1 of the Company's Registration Statement on
Form S-3 (Reg. No. 333-43988).
12.1 Statement regarding calculation of ratio of earnings to
fixed charges.
27.1 Financial Data Schedule - Article 5 of Regulation S-X,
six months ended July 29, 2000
27.2 Financial Data Schedule - Article 5 of Regulation S-X,
six months ended July 31, 1999 (restated)
b) Reports on Form 8-K
The Company filed one current report of Form 8-K dated June 5,
2000 with respect to Item 5 - Other Events.
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<PAGE>
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: September 8, 2000 /s/ R. Lawrence Montgomery
----------------------------
R. Lawrence Montgomery
Vice Chairman -
Chief Executive Officer
Date: September 8, 2000 /s/ Arlene Meier
----------------------------
Arlene Meier
Executive Vice President - Finance
Chief Financial Officer
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