UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 3, 2001 ------------------------------------ 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 (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 ______ ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: December 4, 2001 Common ----------------------- Stock, Par Value $.01 per Share, 334,955,061 shares Outstanding. - ---------------------------------------------------------------
KOHL'S CORPORATION INDEX <TABLE> <S> <C> PART I. FINANCIAL INFORMATION Item 1 Financial Statements: Condensed Consolidated Balance Sheets at November 3, 2001, February 3, 2001 and October 28, 2000 3 Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended November 3, 2001 and October 28, 2000 4 Condensed Statement of Changes in Shareholders' Equity for the Nine Months Ended November 3, 2001 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 3, 2001 and October 28, 2000 6 Notes to Condensed Consolidated Financial Statements 7 - 9 Item 2 Management's Discussion and Analysis of Financial Conditions and Results of Operations 10 - 14 PART II. OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 15 Signatures 16 </TABLE> -2-
PART I. FINANCIAL INFORMATION Item 1. Financial Statements KOHL'S CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> November 3, February 3, October 28, 2001 2001 2000 -------------- -------------- -------------- (Unaudited) (Audited) (Unaudited) (In thousands, except share amounts) <S> <C> <C> <C> Assets ------------- Current assets: Cash and cash equivalents $ 8,306 $ 123,621 $ 4,149 Short-term investments - 48,600 - Accounts receivable, net 804,966 681,256 629,971 Merchandise inventories 1,701,856 1,003,290 1,325,172 Deferred income taxes 43,439 39,531 22,839 Other 44,860 25,398 35,136 -------------- -------------- -------------- Total current assets 2,603,427 1,921,696 2,017,267 Property and equipment, net 2,027,466 1,726,450 1,625,679 Other assets 78,103 65,634 59,939 Favorable lease rights 172,953 126,635 130,575 Goodwill 10,638 14,538 15,838 -------------- -------------- -------------- Total assets $ 4,892,587 $ 3,854,953 $ 3,849,298 ============== ============== ============== Liabilities and Shareholders' Equity ------------------------------------------- Current liabilities: Accounts payable $ 678,257 $ 399,939 $ 485,618 Accrued liabilities 201,580 188,662 154,841 Income taxes payable 47,153 112,927 14,296 Short-term debt 165,000 5,000 225,000 Current portion of long-term debt 16,358 16,568 16,589 -------------- -------------- -------------- Total current liabilities 1,108,348 723,096 896,344 Long-term debt 1,093,507 803,081 825,112 Deferred income taxes 104,662 84,256 79,839 Other long-term liabilities 43,469 41,881 39,188 Shareholders' equity: Common stock-$.01 par value, 800,000,000 shares authorized, 334,692,977, 332,167,129 and 331,680,294 issued at November 3, 2001, February 3, 2001 and October 28, 2000, respectively. 3,347 3,322 3,317 Paid-in capital 990,190 912,107 896,782 Retained earnings 1,549,064 1,287,210 1,108,716 -------------- -------------- -------------- Total shareholders' equity 2,542,601 2,202,639 2,008,815 -------------- -------------- -------------- Total liabilities and shareholders' equity $ 4,892,587 $ 3,854,953 $ 3,849,298 ============== ============== ============== </TABLE> See accompanying Notes to Condensed Consolidated Financial Statements 3
KOHL'S CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <TABLE> <CAPTION> 3 Months (13 Weeks) Ended 9 Months (39 Weeks) Ended ------------------------------------ ----------------------------------- November 3, October 28, November 3, October 28, 2001 2000 2001 2000 --------------- --------------- --------------- --------------- (In thousands, except per share data) <S> <C> <C> <C> <C> Net sales $ 1,760,346 $ 1,444,929 $ 4,764,429 $ 3,928,955 Cost of merchandise sold 1,152,038 949,609 3,098,488 2,569,762 ------------- ------------- ------------- ------------- Gross margin 608,308 495,320 1,665,941 1,359,193 Operating expenses: Selling, general, and administrative 381,002 315,959 1,063,143 885,448 Depreciation and amortization 38,963 31,887 111,552 89,030 Goodwill amortization 1,300 1,300 3,900 3,900 Preopening expenses 11,208 8,365 26,651 30,315 ------------- ------------- ------------- ------------- Operating income 175,835 137,809 460,695 350,500 Interest expense, net 13,651 12,812 36,983 35,104 ------------- ------------- ------------- ------------- Income before income taxes 162,184 124,997 423,712 315,396 Provision for income taxes 61,954 48,251 161,858 121,742 ------------- ------------- ------------- ------------- Net income $ 100,230 $ 76,746 $ 261,854 $ 193,654 ============= ============= ============= ============= Earnings per share: Basic Net income $ 0.30 $ 0.23 $ 0.78 $ 0.59 Average number of shares 334,616 331,196 333,853 329,616 Diluted Net income $ 0.29 $ 0.23 $ 0.77 $ 0.57 Average number of shares 342,292 339,693 341,848 337,587 </TABLE> See accompanying Notes to Condensed Consolidated Financial Statements 4
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, except share amounts) <S> <C> <C> <C> <C> <C> Balance at February 3, 2001 332,167,129 $ 3,322 $ 912,107 $ 1,287,210 $ 2,202,639 Exercise of stock options 2,525,848 25 29,941 - 29,966 Income tax benefit from exercise of stock options - - 48,142 - 48,142 Net income - - - 261,854 261,854 ----------- ----------- ----------- ------------- ----------- Balance at November 3, 2001 334,692,977 $ 3,347 $ 990,190 $ 1,549,064 $ 2,542,601 =========== =========== =========== ============= =========== </TABLE> See accompanying Notes to Condensed Consolidated Financial Statements 5
KOHL'S CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> 9 Months (39 Weeks) Ended -------------------------------------- November 3, 2001 October 28, 2000 ------------------ ------------------ (In thousands) <S> <C> <C> Operating activities Net income $ 261,854 $ 193,654 Adjustments to reconcile net income to net cash (used in) provided by operating activities Depreciation and amortization 116,039 93,267 Amortization of debt discount 6,797 3,382 Deferred income taxes 16,498 12,702 Other noncash charges 3,459 3,371 Income tax benefit from exercise of stock options 48,142 89,191 Changes in operating assets and liabilities: Accounts receivable (123,710) (124,961) Merchandise inventories (698,566) (530,733) Other current assets (19,462) (1,754) Accounts payable 278,318 149,186 Accrued and other long-term liabilities 12,470 (8,227) Income taxes (65,774) (49,659) --------------- -------------- Net cash used in operating activities (163,935) (170,581) Investing activities Acquisition of property and equipment and favorable lease rights, net (451,106) (353,926) Sale of short-term investments 48,600 27,500 Other (20,644) (16,543) --------------- -------------- Net cash used in investing activities (423,150) (342,969) Financing activities Proceeds from short-term debt 160,000 140,000 Net borrowings under working capital loan - 24,000 Proceeds from public debt offering, net 299,503 319,379 Repayments of long-term debt and capital lease obligations (16,084) (11,642) Payments of financing fees on debt (1,615) (7,113) Proceeds from stock option exercises 29,966 40,467 --------------- -------------- Net cash provided by financing activities 471,770 505,091 --------------- -------------- Net decrease in cash and cash equivalents (115,315) (8,459) Cash and cash equivalents at beginning of period 123,621 12,608 --------------- -------------- Cash and cash equivalents at end of period $ 8,306 $ 4,149 =============== ============== </TABLE> See accompanying Notes to Condensed Consolidated Financial Statements 6
KOHL'S CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for fiscal year end financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and footnotes thereto included in the Company's Form 10-K (Commission File No. 1-11084) filed with the Securities and Exchange Commission. 2. Reclassifications Certain reclassifications have been made to the prior periods financial statements to conform to the fiscal 2001 presentation. 3. New Accounting Pronouncements During June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized. Full year amortization expense of goodwill for fiscal year 2001 is projected to be $5.2 million. The remaining balance of goodwill at the end of fiscal year 2001 is projected to be $9.3 million. In accordance with SFAS No. 142, the Company will cease amortization of its remaining goodwill balance beginning in fiscal year 2002. The Company will perform the required impairment tests of goodwill and has not yet determined the extent of any impairment losses on its existing goodwill. However, such losses, if any, are not expected to be material to the consolidated financial statements. 4. Merchandise Inventories The Company uses the last-in, first out (LIFO) method of -7-
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 each quarter, as well as to provide users with the information to compare to other companies not on LIFO. LIFO Expense Quarter Fiscal 2001 Fiscal 2000 ------- ----------- ----------- (In Thousands) First $1,786 $1,844 Second 1,819 1,884 Third 2,112 2,168 ------ ------ Total $5,717 $5,896 ====== ====== Inventories would have been $10,568,000 $4,851,000 and $8,879,000 higher at November 3, 2001, February 3, 2001 and October 28, 2000, respectively, if they had been valued using the first-in, first-out (FIFO) method. 5. Debt On March 8, 2001, the Company issued $300 million aggregate principle amount of non-callable 6.30% unsecured senior notes due March 1, 2011. Net proceeds were $297.4 million and have been used for general corporate purposes, including continued store growth. 6. 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. -8-
7. 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: 9 Months Ended November 3, 2001 October 28, 2000 ---------------- ---------------- (In Thousands) Denominator for basic earnings per share - weighted average shares 333,853 329,616 The impact of dilutive employee stock options 7,995 7,971 ------- ------- Denominator for diluted earnings per share 341,848 337,587 ======= ======= -9-
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS ---------------------------------------------- THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 3, 2001 --------------------------------------------------- Results of Operations - --------------------- At November 3, 2001, the Company operated 382 stores compared with 320 stores at the same time last year. During the quarter, the Company continued to execute its growth strategy by opening 28 new stores. In August, the Company opened two stores in El Paso, TX and two additional stores in the Chicago, IL market. In October, the Company opened 24 stores including entering the Oklahoma City, OK market with four stores and the Austin, TX market with three stores. At the same time, the Company opened additional stores in the following markets: three stores in Atlanta, GA; two stores in Louisville, KY; two stores in Baltimore, MD and one store each in the Dallas, TX; Kansas City, MO; Philadelphia, PA; Minneapolis, MN markets. The remaining stores opened in October were in the following cities: Howell, NJ; Midland, MI; Greenville, SC; Coralville, IA; Cedar Falls, IA and Bloomington, IN. The 28 store openings during the quarter brings the total new stores opened during fiscal 2001 to 62. In fiscal 2002, the Company plans to open approximately 70 new stores, including 37 in the first quarter. Key plans for the first quarter of fiscal 2002 include entering the Houston market with 12 stores, the Boston market with 13 stores and the Nashville market with four stores. In addition, the Company will open two additional stores in Dallas, TX; and stores in Rocky Point, NY; Walkill, NY; Clifton, NJ; Ramsey, NJ; Huntsville, AL and Indianapolis, IN. Net sales increased $315.4 million or 21.8% to $1,760.3 million for the three months ended November 3, 2001 from $1,444.9 million for the three months ended October 28, 2000. Of the increase, $217.3 million is attributable to the inclusion of 22 new stores opened in 2000, 62 new stores opened in 2001. The remaining $98.1 million is attributable to comparable store sales growth of 7.1%. Net sales increased $835.4 million or 21.3% to $4,764.4 million for the nine months ended November 3, 2001 from $3,929.0 million for the nine months ended October 28, 2000. Of the increase, $632.9 million is attributable to the inclusion of 61 new stores opened in 2000, 62 new stores opened in 2001. The remaining $202.5 million is attributable to comparable stores sales growth of 5.9%. -10-
Gross margin for the three months ended November 3, 2001 was $608.3 or 34.6% compared to $495.3 or 34.3% for the three months ended October 28, 2000. Gross margin for the nine months ended November 3, 2001 was $1,665.9 or 35.0% compared to $1,359.2 or 34.6% for the nine months ended October 28, 2000. These increases are primarily attributable to the mix of merchandise sold and continued improvements related to inventory management. Selling, general and administrative expenses declined to 21.6% of net sales for the three months ended November 3, 2001 from 21.9% of net sales for the three months ended October 28, 2000. Selling, general and administrative expenses for the nine months ended November 3, 2001 declined to 22.3% of net sales from 22.5% for the nine months ended October 28, 2000. These decreases are a result of leverage achieved on the increase in net sales. Depreciation and amortization for the three months ended November 3, 2001 was $40.3 million compared to $33.2 million for the three months ended October 28, 2000. Depreciation and amortization for the nine months ended November 3, 2001 was $115.5 million compared to $92.9 million for the nine months ended October 28, 2000. These increases are primarily attributable to capital spending related to new store openings. Preopening expense for the three months ended November 3, 2001 was $11.2 million compared to $8.4 million for the three months ended October 28, 2000. Preopening expense for the nine months ended November 3, 2001 was $26.7 million compared to $30.3 million for the nine months ended October 28, 2000. The three month increase is primarily due to an increase in the number of new stores opened. The nine month decrease is primarily due to the mix of new market and fill-in locations versus the prior year. 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 November 3, 2001 increased $38.0 million or 27.6% over the three months ended October 28, 2000. Operating income for the nine months ended November 3, 2001 increased $110.2 million or 31.4% over the nine months ended October 28, 2000. Net interest expense for the three months ended November 3, 2001 was $13.7 million compared to $12.8 million for the three months ended October 28, 2000. Net interest expense for the nine months ended November 3, 2001 was $37.0 million compared to $35.1 million for the nine months ended October 28, 2000. These increases are a result of increased net borrowings offset by lower interest rates. -11-
Net income for the three months ended November 3, 2001 increased 30.6% to $100.2 million from $76.7 million in the three months ended October 28, 2000. Earnings were $0.29 per diluted share for the three months ended November 3, 2001 compared to $0.23 per diluted share for the three months ended October 28, 2000. Net income for the nine months ended November 3, 2001 increased 35.2% to $261.9 million or $0.77 per diluted share from $193.7 million or $0.57 per diluted share for the nine months ended October 28, 2000. Seasonality & Inflation - ----------------------- The Company's business, like that of most retailers, is subject to seasonal influences, with the major portion of sales and income typically realized during the last half of each fiscal year, which includes the back-to-school and holiday seasons. Approximately 16% 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 seasonal and new store inventory purchases, growth in credit card accounts receivable and capital expenditures in connection with the expansion and remodeling programs. The Company's primary sources of funds for its business activities are cash flow from operations, financing secured by 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. In addition, the Company periodically accesses the capital markets, as needed, to finance its growth. -12-
The Company's working capital increased to $1,495.1 million at November 3, 2001 from $1,198.6 million at February 3, 2001 and from $1,120.9 million at October 28, 2000. Of the $374.2 million increase from October 28, 2000, $175.0 million is attributable to higher credit card receivables and $184.0 million is related to an increase in merchandise inventories required to support existing stores and new store locations offset in part by an increase in accounts payable. These increases are reflective of the Company's store growth and increase in net sales. The remaining increase is primarily related to reduced short-term debt secured by the Company's propriety credit card receivables due primarily to the issuance of $300 million unsecured senior notes. Cash used in operating activities was $163.9 million for the nine months ended November 3, 2001 compared to $170.6 million for the nine months ended October 28, 2000. Excluding changes in operating assets and liabilities, cash provided by operating activities was $452.8 million for the nine months ended November 3, 2001 compared to $395.6 million for the nine months ended October 28, 2000. Capital expenditures for the nine months ended November 3, 2001 were $451.1 million compared to $353.9 million for the same period a year ago. The increase in expenditures is primarily attributable to the timing of spending related to new stores and the mix of leased versus owned locations. Total capital expenditures for fiscal 2001 are expected to be approximately $700 million. This estimate includes the purchase of favorable lease rights for 15 stores from Bradlees Inc., the renovation and refixturing of the properties, the capital required to open distribution facilities, new store spending as well as base capital needs. 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 opened 34 new stores during the first half of the year, four stores in August and 24 additional stores in October. At the end of fiscal 2001, a distribution center is scheduled to open in Mamakating, New York to support the northeast expansion, including the entry into the greater Boston market. In addition, Kohl's has acquired the lease rights to a distribution facility in Corsicana, Texas. This facility is expected to open by the end of the year and will serve existing Texas locations and support further expansion in the region, including the entry into Houston in spring 2002. -13-
Total capital expenditures for fiscal 2002 are expected to be approximately $700 million. In March 2001, the Company issued $300 million aggregate principle amount of non-callable 6.3% unsecured senior notes due March 2011. The proceeds have been used for general corporate purposes, including continued store growth. The Company anticipates that it will be able to satisfy its working capital requirements, planned capital expenditures and debt service requirements with short term trade credit, $225 million of available financing secured by its proprietary credit card accounts receivable, seasonal borrowings under its $300 million revolving credit facility and other sources of financing. The Company expects to generate adequate cash flows from operating activities to sustain current levels of operations. The Company maintains favorable banking relations and anticipates that the necessary credit agreements will be extended or new agreements will be entered into in order to provide future borrowing requirements as needed. Forward Looking Statements - -------------------------- Item 2 of this Form 10-Q contains "forward-looking statements," subject to protections under federal law. The Company intends words such as "believes", "anticipates", "plans", "may", "will", "should", "expects", and similar expressions to identify forward-looking statements. In addition, statements covering the Company's future sales or financial performance and the Company's plans, objectives, expectations or intentions are forward-looking statements, such as statements regarding the Company's liquidity, debt service requirements, planned capital expenditures, future store openings and adequacy and capital resources. Such statements are subject to certain risks and uncertainties that could cause the Company's results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include but are not limited to those described in Exhibit 99.1 to the Company's annual report on Form 10-K filed with the SEC on April 17, 2001, which is expressly incorporated herein by reference, and such other factors as may periodically be described in the Company's filings with the SEC. -14-
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits 12.1 Statement regarding calculation of ratio of earnings to fixed charges. b) Reports on Form 8-K There were no reports on Form 8-K filed for three months ended November 3, 2001. -15-
SIGNATURES ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Kohl's Corporation (Registrant) Date: December 7, 2001 /s/ R. Lawrence Montgomery ---------------------------- R. Lawrence Montgomery Chief Executive Officer and Director Date: December 7, 2001 /s/ Patricia Johnson -------------------------------- Patricia Johnson Chief Financial Officer -16-