CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in Millions)	November 3, 2018			February 3, 2018			October 28, 2017
Assets				As Adjusted (a)			As Adjusted (a)
Current assets:
Cash and cash equivalents	$	1,047		$	1,308		$	736
Merchandise inventories		4,844			3,542			4,632
Other		446			530			379
Total current assets		6,337			5,380			5,747
Property and equipment, net		7,538			7,773			7,974
Other assets		243			236			226
Total assets	$	14,118		$	13,389		$	13,947

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,583		$	1,271		$	2,113
Accrued liabilities		1,289			1,213			1,294
Income taxes payable		14			99			24
Current portion of capital lease and financing obligations		121			126			131
Total current liabilities		4,007			2,709			3,562
Long-term debt		2,272			2,797			2,796
Capital lease and financing obligations		1,528			1,591			1,622
Deferred income taxes		201			211			272
Other long-term liabilities		657			662			673
Shareholders’ equity:
Common stock		4			4			4
Paid-in capital		3,185			3,078			3,039
Treasury stock, at cost		(10,952	)		(10,651	)		(10,633	)
Accumulated other comprehensive loss		(8	)		(11	)		(12	)
Retained earnings		13,224			12,999			12,624
Total shareholders’ equity		5,453			5,419			5,022
Total liabilities and shareholders’ equity	$	14,118		$	13,389		$	13,947

(a)

Refer to Note 2 for details on the adoption of the new revenue recognition accounting standard and the impact on previously reported results.

(Dollars in Millions) October 28,
2017 January 28,
2017 October 29,
2016
Assets (Unaudited) (Audited) (Unaudited)
Current assets:
Cash and cash equivalents $ 736
$ 1,074
$ 597
Merchandise inventories 4,632
3,795
4,721
Other 332
378
336
Total current assets 5,700
5,247
5,654
Property and equipment, net 7,974
8,103
8,203
Other assets 226
224
219
Total assets $ 13,900
$ 13,574
$ 14,076

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 2,113
$ 1,507
$ 2,097
Accrued liabilities 1,237
1,224
1,235
Income taxes payable 24
112
66
Current portion of capital lease and financing obligations 131
131
128
Total current liabilities 3,505
2,974
3,526
Long-term debt 2,796
2,795
2,794
Capital lease and financing obligations 1,622
1,685
1,702
Deferred income taxes 275
272
298
Other long-term liabilities 673
671
649
Shareholders’ equity:
Common stock 4
4
4
Paid-in capital 3,039
3,003
2,981
Treasury stock, at cost (10,633 ) (10,338 ) (10,221 )
Accumulated other comprehensive loss (12 ) (14 ) (15 )
Retained earnings 12,631
12,522
12,358
Total shareholders’ equity 5,029
5,177
5,107
Total liabilities and shareholders’ equity $ 13,900
$ 13,574
$ 14,076

See accompanying Notes to Consolidated Financial Statements

Table of Contents

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended
(Dollars in Millions, Except per Share Data)	November 3, 2018		October 28, 2017		November 3, 2018		October 28, 2017
			As Adjusted (a)				As Adjusted (a)
Net sales	$	4,369	$	4,312	$	12,632	$	12,274
Other revenue		259		255		774		753
Total revenue		4,628		4,567		13,406		13,027
Cost of merchandise sold		2,752		2,727		7,854		7,680
Operating expenses:
Selling, general, and administrative		1,375		1,340		3,907		3,774
Depreciation and amortization		243		243		725		724
Operating income		258		257		920		849
Interest expense, net		63		74		197		225
Loss on extinguishment of debt		—		—		42		—
Income before income taxes		195		183		681		624
Provision for income taxes		34		66		152		233
Net income	$	161	$	117	$	529	$	391
Net income per share:
Basic	$	0.98	$	0.70	$	3.21	$	2.33
Diluted	$	0.98	$	0.70	$	3.19	$	2.32

~~(Unaudited)~~

(a)

Refer to Note 2 for details on the adoption of the new revenue recognition accounting standard and the impact on previously reported results.

(Dollars in Millions, Except per Share Data) Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016
Net sales $ 4,332
$ 4,327
$ 12,319
$ 12,481
Cost of merchandise sold 2,737
2,720
7,693
7,812
Gross margin 1,595
1,607
4,626
4,669
Operating expenses:
Selling, general and administrative 1,095
1,080
3,053
3,074
Depreciation and amortization 243
232
724
700
Impairments, store closing and other costs —
(6 ) —
186
Operating income 257
301
849
709
Interest expense, net 74
76
225
233
Income before income taxes 183
225
624
476
Provision for income taxes 66
79
233
173
Net income $ 117
$ 146
$ 391
$ 303
Net income per share:
Basic $ 0.70
$ 0.83
$ 2.33
$ 1.68
Diluted $ 0.70
$ 0.83
$ 2.32
$ 1.68

See accompanying Notes to Consolidated Financial Statements

Table of Contents

KOHL’S CORPORATION

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

	Three Months Ended November 3, 2018
	Common Stock						Treasury Stock						Accumulated Other Comprehensive Loss
(Dollars in Millions, Except per Share Data)	Shares		Amount		Paid-In Capital		Shares			Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at August 4, 2018		374	$	4	$	3,163		(207	)	$	(10,835	)	$	(8	)	$	13,163		$	5,487
Comprehensive income		—		—		—		—			—			—			161			161
Stock options and awards, net of tax		—		—		22		—			(8	)		—			—			14
Dividends paid ($0.61 per common share)		—		—		—		—			1			—			(100	)		(99	)
Treasury stock purchases		—		—		—		(2	)		(110	)		—			—			(110	)
Balance at November 3, 2018		374	$	4	$	3,185		(209	)	$	(10,952	)	$	(8	)	$	13,224		$	5,453

~~(Unaudited)~~

	Three Months Ended October 28, 2017
	Common Stock						Treasury Stock						Accumulated Other Comprehensive Loss
(Dollars in Millions, Except per Share Data)	Shares		Amount		Paid-In Capital		Shares			Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at July 29, 2017 (previously reported)		372	$	4	$	3,026		(203	)	$	(10,596	)	$	(12	)	$	12,606		$	5,028
Change in accounting standard (a)		—		—		—		—			—			—			(7	)		(7	)
Balance at July 29, 2017 (as adjusted)		372	$	4	$	3,026		(203	)	$	(10,596	)	$	(12	)	$	12,599		$	5,021
Comprehensive income		—		—		—		—			—			—			117			117
Stock options and awards, net of tax		1		—		13		—			—			—			—			13
Dividends paid ($0.55 per common share)		—		—		—		—			1			—			(92	)		(91	)
Treasury stock purchases		—		—		—		(2	)		(38	)		—			—			(38	)
Balance at October 28, 2017		373	$	4	$	3,039		(205	)	$	(10,633	)	$	(12	)	$	12,624		$	5,022

(a)

Refer to Note 2 for details on the adoption of the new revenue recognition accounting standard and the impact on previously reported results.

(Dollars in Millions, Except per Share Data) Common Stock Paid-In Capital Treasury Stock Accumulated Other Comprehensive Loss Retained Earnings
Shares Amount Shares Amount Total
Balance at January 28, 2017 371
$ 4
$ 3,003
(197 ) $ (10,338 ) $ (14 ) $ 12,522
$ 5,177
Comprehensive income —
—
—
—
—
2
391
393
Stock options and awards,
net of tax 2
—
36
—
(12 ) —
—
24
Dividends paid ($1.65 per common share) —
—
—
—
5
—
(282 ) (277 )
Treasury stock purchases —
—
—
(8 ) (288 ) —
—
(288 )
Balance at October 28, 2017 373
$ 4
$ 3,039
(205 ) $ (10,633 ) $ (12 ) $ 12,631
$ 5,029

See accompanying Notes to Consolidated Financial Statements

Table of Contents

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN SHAREHOLDERS’ EQUITY - (Continued)

(Unaudited)

	Nine Months Ended November 3, 2018
	Common Stock						Treasury Stock						Accumulated Other Comprehensive Loss
(Dollars in Millions, Except per Share Data)	Shares		Amount		Paid-In Capital		Shares			Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at February 3, 2018 (previously reported)		373	$	4	$	3,078		(205	)	$	(10,651	)	$	(11	)	$	13,006		$	5,426
Change in accounting standard (a)		—		—		—		—			—			—			(7	)		(7	)
Balance at February 3, 2018 (as adjusted)		373	$	4	$	3,078		(205	)	$	(10,651	)	$	(11	)	$	12,999		$	5,419
Comprehensive income		—		—		—		—			—			3			529			532
Stock options and awards, net of tax		1		—		107		—			(29	)		—			—			78
Dividends paid ($1.83 per common share)		—		—		—		—			3			—			(304	)		(301	)
Treasury stock purchases		—		—		—		(4	)		(275	)		—			—			(275	)
Balance at November 3, 2018		374	$	4	$	3,185		(209	)	$	(10,952	)	$	(8	)	$	13,224		$	5,453

	Nine Months Ended October 28, 2017
	Common Stock						Treasury Stock						Accumulated Other Comprehensive Loss
(Dollars in Millions, Except per Share Data)	Shares		Amount		Paid-In Capital		Shares			Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance at January 28, 2017 (previously reported)	371		$	4	$	3,003		(197	)	$	(10,338	)	$	(14	)	$	12,522		$	5,177
Change in accounting standard (a)		—		—		—		—			—			—			(7	)		(7	)
Balance at January 28, 2017 (as adjusted)	371		$	4	$	3,003		(197	)	$	(10,338	)	$	(14	)	$	12,515		$	5,170
Comprehensive income		—		—		—		—			—			2			391			393
Stock options and awards, net of tax		2		—		36		—			(12	)		—			—			24
Dividends paid ($1.65 per common share)		—		—		—		—			5			—			(282	)		(277	)
Treasury stock purchases		—		—		—		(8	)		(288	)		—			—			(288	)
Balance at October 28, 2017		373	$	4	$	3,039		(205	)	$	(10,633	)	$	(12	)	$	12,624		$	5,022

~~(Unaudited)~~

(a)

Refer to Note 2 for details on the adoption of the new revenue recognition accounting standard and the impact on previously reported results.

(Dollars in Millions)
Nine Months Ended
October 28,
2017 October 29,
2016
Operating activities
Net income $ 391
$ 303
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 724
700
Share-based compensation 34
31
Deferred income taxes 2
40
Other non-cash revenues and expenses (4 ) 20
Impairments, store closing and other costs —
57
Changes in operating assets and liabilities:
Merchandise inventories (829 ) (679 )
Other current and long-term assets 47
20
Accounts payable 606
846
Accrued and other long-term liabilities (11 ) 23
Income taxes (91 ) (77 )
Net cash provided by operating activities 869
1,284
Investing activities
Purchases of property and equipment (547 ) (591 )
Proceeds from sales of property and equipment 18
7
Net cash used in investing activities (529 ) (584 )
Financing activities
Treasury stock purchases (288 ) (441 )
Shares withheld for taxes on vested restricted shares (12 ) (15 )
Dividends paid (277 ) (270 )
Capital lease and financing obligation payments (101 ) (95 )
Proceeds from stock option exercises —
6
Proceeds from financing obligations —
5
Net cash used in financing activities (678 ) (810 )
Net decrease in cash and cash equivalents (338 ) (110 )
Cash and cash equivalents at beginning of period 1,074
707
Cash and cash equivalents at end of period $ 736
$ 597
Supplemental information
Interest paid, net of capitalized interest $ 192
$ 198
Income taxes paid 322
217
Non-cash investing and financing activities
Property and equipment acquired through additional liabilities $ 42
$ 39

See accompanying Notes to Consolidated Financial Statements

Table of Contents

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
(Dollars in Millions)	November 3, 2018			October 28, 2017
Operating activities				As Adjusted (a)
Net income	$	529		$	391
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		725			724
Share-based compensation		71			34
Deferred income taxes		(13	)		2
Loss on extinguishment of debt		42			—
Other non-cash revenues and expenses		15			(4	)
Changes in operating assets and liabilities:
Merchandise inventories		(1,293	)		(829	)
Accrued and other long-term liabilities		38			(14	)
Accounts payable		1,312			606
Other current and long-term assets		70			50
Income taxes		(73	)		(91	)
Net cash provided by operating activities		1,423			869
Investing activities
Acquisition of property and equipment		(458	)		(547	)
Other		6			18
Net cash used in investing activities		(452	)		(529	)
Financing activities
Treasury stock purchases		(275	)		(288	)
Shares withheld for taxes on vested restricted shares		(29	)		(12	)
Dividends paid		(301	)		(277	)
Reduction of long-term borrowings		(530	)		—
Premium paid on redemption of debt		(35	)		—
Capital lease and financing obligation activity		(95	)		(101	)
Proceeds from stock option exercises		33			—
Net cash used in financing activities		(1,232	)		(678	)
Net decrease in cash and cash equivalents		(261	)		(338	)
Cash at beginning of period		1,308			1,074
Cash at end of period	$	1,047		$	736
Supplemental information
Interest paid, net of capitalized interest	$	192		$	192
Income taxes paid		266			322
Non-cash investing and financing activities
Property and equipment acquired through additional liabilities	$	20		$	42

(a)

Refer to Note 2 for details on the adoption of the new revenue recognition accounting standard and the impact on previously reported results.

See accompanying Notes to Consolidated Financial Statements

Table of Contents

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ~~("GAAP"~~(“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for fiscal year end consolidated 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 consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended ~~January 28, 2017~~February 3, 2018 (Commission File No. 1-11084) as filed with the Securities and Exchange Commission.

Due to the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

We operate as a single business unit.

During 2017, we adopted the new accounting standard on share-based payments as required. The guidance simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of excess tax benefits in the Statements of Cash Flows. The adoption of the new standard resulted in the following:

Net tax detriments related to share-based compensation awards of $8 million for the nine months ended October 28, 2017 were recognized as increases to income tax expense in our Statements of Income. There was no impact to the quarter ended October 28, 2017. Prior to adoption of the new standard, this amount would have been recorded as a decrease in additional paid-in capital in our Balance Sheet. This change was accounted for prospectively and will likely create volatility in our future effective tax rate.

Accounting rules require us to use the treasury stock method when calculating potential common shares used to determine diluted earnings per share. The new standard requires that assumed proceeds under the treasury stock method be modified to exclude the amount of excess tax benefits that would have been recognized in additional paid-in capital. These changes were applied on a prospective basis and had an immaterial impact on our weighted average common shares outstanding for the quarter and nine months ended October 28, 2017.

The new standard requires that excess tax benefits from share-based employee awards be reported as operating activities in the Statements of Cash Flows. Previously, these cash flows were included in financing activities. We elected to retrospectively apply the presentation requirements. The retrospective application had a $4 million impact on our net cash provided by operating activities and net cash used in financing activities for the nine months ended October 29, 2016.

We elected not to change our policy on accounting for forfeitures and continue to estimate the total number of awards for which the requisite service period will not be rendered. At this time, we have not changed our policy on statutory withholding requirements and will continue to allow employees to withhold up to the minimum statutory withholding requirements.

~~Table of Contents~~

~~KOHL’S CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The following table provides a brief description of issued, but not yet effective, accounting standards:


Standard	Description
~~Standard~~	~~Description~~	Effect on our Financial Statements
~~Revenue from Contracts with Customers~~ ~~(ASC Topic 606)~~ ~~Issued May 2014~~ ~~Effective Q1 2018~~	The standard eliminates the transaction- and industry-specific revenue recognition guidance under current GAAP and replaces it with a principles-based approach for revenue recognition and disclosures.	The standard will change the way we account for sales returns, our loyalty program and certain promotional programs. Based on current estimates, we do not expect these provisions of the standard will have a material impact on our financial statements. ~~We have evaluated the principal versus agent provisions of the standard and expect to continue to record sales gross as we are the principal in the transactions.~~ We continue to evaluate the impact the standard will have on the presentation of net earnings of our credit card operations, which are currently reported in Selling, General and Administrative Expenses. ~~We will elect an adoption methodology after we have evaluated the impact that all provisions of the standard will have on our financial statements.~~
Leases (ASC Topic 842) Issued February 2016 Effective Q1 2019	Among other things, the new standard requires us to recognize a ~~right of use~~right-of-use asset and a lease liability on our balance sheet for ~~leases.~~each lease. It also changes the presentation and timing of lease-related expenses.	~~Less than~~ Approximately 5% of our store leases and all of our land leases are not currently recorded on our balance sheet. Recording ~~right of use~~right-of-use assets and lease liabilities for these and other non-store leases is expected to have a material impact on our balance sheet. We are also evaluating the impact that recording ~~right of use~~right-of-use assets and lease liabilities will have on our income statement and the financial statement impact that the standard will have on leases which are currently recorded on our balance sheet.
Cloud Computing (ASU 2018-15) Issued August 2018 Effective Q1 2020	Under the new standard, implementation costs related to a cloud computing arrangement will be deferred or expensed as incurred, in accordance with the existing internal-use software guidance for similar costs. The new standard also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense.	We are evaluating the impact of the new standard, but believe it is generally consistent with our current accounting for cloud computing arrangements and will not have a material impact on our financials.

In 2017, we recorded provisional amounts for certain income tax effects of the Tax Cuts & Jobs Act (the “Act"), as addressed in Staff Accounting Bulletin No. 118 (“SAB 118”). During the nine months ended November 3, 2018, we made immaterial adjustments to the previously recorded provisional amounts related to the Act. Any additional adjustments related to the Act, while not expected to be material, will be recorded as income tax expense during the period in which the adjustment is finalized.

Table of Contents

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. Revenue Recognition

Effective February 4, 2018, we adopted Revenue from Contracts with Customers (ASC Topic 606) as required. We adopted the new standard using the full retrospective method. The standard eliminated the transaction and industry specific revenue recognition guidance under prior U.S. GAAP and replaced it with a principles-based approach for revenue recognition and disclosures. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.

Net Sales

Net sales includes revenue from the sale of merchandise and shipping revenues. Net sales are recognized when merchandise is received by the customer and we have fulfilled all performance obligations. We do not have any sales that are recorded as commissions.

The following table summarizes net sales by line of business for the periods ended November 3, 2018 and October 28, 2017:

	Three Months Ended				Nine Months Ended
(Dollars in Millions)	November 3, 2018		October 28, 2017		November 3, 2018		October 28, 2017
Women's	$	1,287	$	1,276	$	3,982	$	3,883
Men's		925		890		2,668		2,550
Home		719		713		2,090		2,035
Children's		650		640		1,569		1,534
Footwear		465		473		1,334		1,288
Accessories		323		320		989		984
Net Sales	$	4,369	$	4,312	$	12,632	$	12,274

We maintain various rewards programs whereby customers earn rewards based on their spending and other promotional activities. The rewards are typically in the form of dollar off discounts which can be used on future purchases. These programs create performance obligations which require us to defer a portion of the original sale until the rewards are redeemed. Sales are recorded net of returns. At the end of each reporting period, we record a reserve based on historical return rates and patterns which reverses sales that we expect to be returned in the following period. Revenue from the sale of Kohl's gift cards is recognized when the gift card is redeemed. Liabilities for performance obligations resulting from our rewards programs, return reserves, and unredeemed gift cards and merchandise return cards totaled $337 million as of November 3, 2018, $422 million as of February 3, 2018 and $335 million as of October 28, 2017.

Net sales do not include sales tax as we are considered a pass-through conduit for collecting and remitting sales taxes.

Other Revenue

Other revenue consists primarily of revenue from our credit card operations, unredeemed gift and merchandise return cards (breakage), and other non-merchandise revenues.

Revenue from credit card operations includes our share of the finance charges and interest fees, less charge-offs of the Kohl’s credit card pursuant to the Private Label Credit Card Program Agreement. Expenses related to our credit card operations are reported in SG&A.

Income from unredeemed gift cards and merchandise return cards (breakage) is recorded in proportion and over the time period the cards are actually redeemed.

Table of Contents

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables summarize the impact of adoption of the new standard by financial statement line item:

Three Months Ended October 28, 2017 (Dollars in Millions, Except per Share Data)	As Previously Reported		New Standard Adjustment			Adjusted
Net sales	$	4,332	$	(20	)	$	4,312
Other revenue				255			255
Total revenue				235			4,567
Cost of merchandise sold		2,737		(10	)		2,727
Gross margin		1,595
Operating expenses:
Selling, general and administrative		1,095		245			1,340
Depreciation and amortization		243		-			243
Operating income		257		-			257
Interest expense, net		74		-			74
Income before income taxes		183		-			183
Provision for income taxes		66		-			66
Net income	$	117	$	-		$	117
Net income per share:
Basic	$	0.70	$	-		$	0.70
Diluted	$	0.70	$	-		$	0.70

Nine Months Ended October 28, 2017 (Dollars in Millions, Except per Share Data)	As Previously Reported		New Standard Adjustment			Adjusted
Net sales	$	12,319	$	(45	)	$	12,274
Other revenue				753			753
Total revenue				708			13,027
Cost of merchandise sold		7,693		(13	)		7,680
Gross margin		4,626
Operating expenses:
Selling, general and administrative		3,053		721			3,774
Depreciation and amortization		724		-			724
Operating income		849		-			849
Interest expense, net		225		-			225
Income before income taxes		624		-			624
Provision for income taxes		233		-			233
Net income	$	391	$	-		$	391
Net income per share:
Basic	$	2.33	$	-		$	2.33
Diluted	$	2.32	$	-		$	2.32

Table of Contents

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

October 28, 2017 (Dollars in Millions)	As Previously Reported		New Standard Adjustment			Adjusted
Assets
Current assets:
Cash and cash equivalents	$	736	$	-		$	736
Merchandise inventories		4,632		-			4,632
Other		332		47			379
Total current assets		5,700		47			5,747
Property and equipment, net		7,974		-			7,974
Other assets		226		-			226
Total assets	$	13,900	$	47		$	13,947

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,113	$	-		$	2,113
Accrued liabilities		1,237		57			1,294
Income taxes payable		24		-			24
Current portion of capital lease and financing obligations		131		-			131
Total current liabilities		3,505		57			3,562
Long-term debt		2,796		-			2,796
Capital lease and financing obligations		1,622		-			1,622
Deferred income taxes		275		(3	)		272
Other long-term liabilities		673		-			673
Total shareholders’ equity		5,029		(7	)		5,022
Total liabilities and shareholders’ equity	$	13,900	$	47		$	13,947

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KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

February 3, 2018 (Dollars in Millions)	As Previously Reported		New Standard Adjustment			Adjusted
Assets
Current assets:
Cash and cash equivalents	$	1,308	$	-		$	1,308
Merchandise inventories		3,542		-			3,542
Other		481		49			530
Total current assets		5,331		49			5,380
Property and equipment, net		7,773		-			7,773
Other assets		236		-			236
Total assets	$	13,340	$	49		$	13,389

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,271	$	-		$	1,271
Accrued liabilities		1,155		58			1,213
Income taxes payable		99		-			99
Current portion of capital lease and financing obligations		126		-			126
Total current liabilities		2,651		58			2,709
Long-term debt		2,797		-			2,797
Capital lease and financing obligations		1,591		-			1,591
Deferred income taxes		213		(2	)		211
Other long-term liabilities		662		-			662
Total shareholders’ equity		5,426		(7	)		5,419
Total liabilities and shareholders’ equity	$	13,340	$	49		$	13,389

The adoption of the new standard had no impact on our basic or diluted earnings per share or our net cash provided by (used in) operating, financing, or investing activities.

3. Store Closure and Restructure Reserve

The following table summarizes changes in the store closure and restructure ~~reserve:~~reserve during the nine months ended November 3, 2018:

(Dollars in Millions)
Balance - February 3, 2018	$	87
Payments, reversals and additions		(13	)
Balance - November 3, 2018	$	74

(Dollars in Millions)
Store Lease
Obligations
Severance Total
Balance - January 28, 2017 $ 103
$ 3
$ 106
Payments (8 ) (2 ) (10 )
Reversals (5 ) —
(5 )
Balance - October 28, 2017 $ 90
$ 1
$ 91

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KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. Debt

Long-term debt consists of the following unsecured senior ~~debt as of October 28, 2017, January 28, 2017, and October 29, 2016:~~debt:

							Outstanding
Maturity (Dollars in Millions)	Effective Rate			Coupon Rate			November 3, 2018		February 3, 2018 & October 28, 2017
2021		4.81	%		4.00	%	$	413	$	650
2023		3.25	%		3.25	%		350		350
2023		4.78	%		4.75	%		184		300
2025		4.25	%		4.25	%		650		650
2029		7.36	%		7.25	%		42		99
2033		6.05	%		6.00	%		112		166
2037		6.89	%		6.88	%		101		150
2045		5.57	%		5.55	%		433		450
		4.76	%				$	2,285	$	2,815

Maturity
(Dollars in Millions)
Effective
Rate
Coupon Rate Outstanding
2021 4.81 % 4.00 % $ 650
2023 3.25 % 3.25 % 350
2023 4.78 % 4.75 % 300
2025 4.25 % 4.25 % 650
2029 7.36 % 7.25 % 99
2033 6.05 % 6.00 % 166
2037 6.89 % 6.88 % 150
2045 5.57 % 5.55 % 450
4.88 % $ 2,815

Long-term debt is net of unamortized debt discounts and deferred financing costs of $13 million at November 3, 2018, $18 million at February 3, 2018, and $19 million at October 28, ~~2017, $20 million at January 28, 2017, and $21 million at October 29, 2016.~~

2017.

Our long-term debt is classified as Level 1, financial instruments with unadjusted, quoted prices listed on active market exchanges. The estimated fair value of our long-term debt was $2.3 billion at November 3, 2018 and $2.9 billion at both February 3, 2018 and October 28, ~~2017, $2.7 billion at January 28, 2017~~2017.

Year to date, we have reduced our outstanding debt by $530 million including $500 million which was repurchased pursuant to a cash tender offer and ~~$3.0 billion at October 29, 2016.~~

4.$30 million which was repurchased on the open market. In conjunction with the debt reduction, we recorded a one-time $42 million loss on extinguishment of debt which includes $35 million of premium paid to holders of the debt, $4 million related to an interest rate hedge, and $3 million of deferred financing fees and original issue discounts.

5. Stock-Based Compensation

The following table summarizes our stock-based compensation activity for the nine months ended ~~October 28, 2017:~~November 3, 2018:

	Stock Options					Nonvested Stock Awards					Performance Share Units
(Shares and Units in Thousands)	Shares			Weighted Average Exercise Price		Shares			Weighted Average Grant Date Fair Value		Units			Weighted Average Grant Date Fair Value
Balance - February 3, 2018		1,139		$	50.51		2,811		$	45.60		660		$	44.97
Granted		—			—		1,017			63.57		187			65.71
Exercised/vested		(992	)		50.46		(1,102	)		47.56		(38	)		78.35
Forfeited/expired		(2	)		53.38		(78	)		48.78		(5	)		46.91
Balance - November 3, 2018		145		$	51.87		2,648		$	51.62		804		$	48.21

Stock Options Nonvested Stock Awards Performance Share Units
(Shares and Units in Thousands)
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average Grant Date Fair Value
Units
Weighted
Average Grant Date Fair Value
Balance - January 28, 2017 2,350
$ 53.29
2,163
$ 52.75
512
$ 57.82
Granted —
—
1,580
39.50
420
43.17
Exercised/vested —
—
(678 ) 52.45
(105 ) 57.58
Forfeited/expired (804 ) 58.33
(158 ) 50.60
—
—
Balance - October 28, 2017 1,546
$ 50.67
2,907
$ 45.74
827
$ 50.41

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KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5.6. Contingencies

We are subject to certain legal proceedings and claims arising out of the conduct of our business. In the opinion of management, the outcome of these proceedings and litigation will not have a material adverse impact on our consolidated financial statements.

7. Net Income Per Share

Basic net income per share is net income divided by the average number of common shares outstanding during the period. Diluted net income per share includes incremental shares assumed for share-based awards.

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~~KOHL’S CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The information required to compute basic and diluted net income per share is as follows:

	Three Months Ended				Nine Months Ended
(Dollar and Shares in Millions, Except per Share Data)	November 3, 2018		October 28, 2017		November 3, 2018		October 28, 2017
Numerator—Net income	$	161	$	117	$	529	$	391
Denominator—Weighted average shares:
Basic		164		166		165		168
Impact of dilutive stock-based awards		1		—		1		—
Diluted		165		166		166		168
Antidilutive shares		—		2		—		3
Net income per share:
Basic	$	0.98	$	0.70	$	3.21	$	2.33
Diluted	$	0.98	$	0.70	$	3.19	$	2.32

Three Months Ended Nine Months Ended
(Dollar and Shares in Millions, Except per Share Data) October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016
Numerator—Net income $ 117
$ 146
$ 391
$ 303
Denominator—Weighted average shares:
Basic 166
177
168
180
Impact of dilutive stock-based awards —
—
—
—
Diluted 166
177
168
180
Antidilutive shares 2
3
3
4
Net income per share:
Basic $ 0.70
$ 0.83
$ 2.33
$ 1.68
Diluted $ 0.70
$ 0.83
$ 2.32
$ 1.68

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~~7. Subsequent Events~~

On November 3, 2017, we resolved a state tax dispute regarding the appropriate income apportionment method to be used in that state. The resolution relates to fiscal years 2004-2012. As a result of the settlement, we plan to record a $30 million pre-tax benefit in the quarter ended February 3, 2018.

On November 3, 2017, we amended and restated our existing credit facility with various lenders which provides for a $1.0 billion senior unsecured five-year revolving credit facility. Among other things, the agreement includes a maximum leverage ratio financial covenant (which is consistent with the ratio under our prior credit agreement) and restrictions on liens and subsidiary indebtedness.

Item 2. Management’s Discussion and Analysis ofof Financial Condition and Results of Operations

For purposes of the following discussion, unless noted, all references to "the quarter" and "the third quarter" are for the three fiscal months (13 weeks) ended November 3, 2018 and October 28, ~~2017 and October 29, 2016.~~2017. References to "year to date" are for the nine fiscal months (39 weeks) ended November 3, 2018 and October 28, ~~2017 and October 29, 2016.~~

2017.

The following discussion should be read in conjunction with our Consolidated Financial Statements and the related notes included elsewhere in this report, as well as the financial and other information included in our ~~2016~~2017 Annual Report on Form 10-K (our ~~"2016~~"2017 Form 10-K"). The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed elsewhere in this report and in our ~~2016~~2017 Form 10-K (particularly in "Risk Factors").

Executive Summary

As of ~~October 28, 2017,~~November 3, 2018, we operated ~~1,156~~1,159 Kohl's department stores, a website (www.Kohls.com), 12 FILA outlets, and four Off-Aisle clearance centers. Our Kohl's stores and website sell moderately-priced ~~private label, exclusive~~proprietary and national brand apparel, footwear, accessories, beauty and home products. Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences. Our website includes merchandise which is available in our stores, as well as merchandise that is available only on-line.

Key financial results for the quarter included:

~~Net sales and~~

2.5% increase in comparable sales ~~both increased 0.1% for the quarter. The increases were driven by higher average transaction value which was partially offset by fewer transactions. Transactions, though lower than~~on a shifted basis

25 basis point increase in ~~2016, continued to improve over previous quarters.~~

~~Inventory,~~ gross margin ~~and expenses were within our expectations in an improved, but still challenging,~~as a percent of net sales ~~environment:~~

~~Inventory dollars per store decreased 2%.~~

~~Gross margin~~

SG&A as a percentage of ~~net sales decreased 30~~total revenue deleveraged 37 basis points ~~to 36.8%.~~

~~Selling, general and administrative expenses (“SG&A”) increased $15 million. As a percent of net sales, SG&A increased 33 basis points.~~

~~Net income for the quarter was $117 million, or $0.70 per diluted share, and 13% lower than adjusted~~

40% increase in diluted earnings per share ~~for the third quarter of 2016 which excludes impairment, store closing and other costs.~~

See "Results of Operations" and "Liquidity and Capital Resources" for additional details about our financial results.

Results of Operations

Net Sales

Net sales increased $57 million, or 1.3%, to $4.4 billion for the third quarter of 2018. Year to date, net sales increased $358 million, or 2.9%. Results reported on a “shifted basis” are adjusted for the 53^rd week in fiscal 2017 ~~we changed our~~by comparing the periods ended November 3, 2018 and November 4, 2017. On a shifted basis comparable sales ~~definition~~increased 2.5% for the quarter and 2.1% year to ~~align with our internal company reporting. Under~~date. On a fiscal basis, which compares the ~~new definition, Kohl's~~fiscal periods ended November 3, 2018 and October 28, 2017, comparable sales increased 1.0% for the quarter and 2.9% year to date. Kohl’s store sales are included in comparable sales after the store has been open for 12 full months. ~~On-line~~Digital sales and sales at remodeled and relocated ~~Kohl's~~Kohl’s stores are included in comparable sales, unless square footage has changed by more than 10%.

The ~~prior definition included~~following results are on a shifted comparable sales basis:

The increases in comparable sales reflect higher average transaction value for both the quarter and year-to-date periods. For the quarter, we also saw a positive trend in transactions.

By line of business, all businesses except Accessories reported increases in comparable sales for ~~stores (including relocated or remodeled stores) which were open during~~both the quarter and year-to-date periods. Women’s was positive for the second consecutive quarter. Men’s and Children’s led the Company for the quarter. Year to date, Men’s and Footwear led the Company.

Geographically, all regions reported increases in comparable sales for both the quarter and year-to-date periods. The Midwest region outperformed the Company average in both periods, while the Southeast underperformed the Company average.

Table of ~~the current and prior periods.~~

~~Net sales~~Contents

Other Revenue

Other revenue increased $5$4 million, or ~~0.1%~~2%, to ~~$4.3 billion~~$259 million for the third quarter of ~~2017.~~2018 and $21 million, or 3%, to $774 million year to date. Higher revenue earned from third-party advertisers on our website contributed to the increases in both periods. Year to date, ~~net sales decreased $162 million, or 1.3%, to $12.3 billion. Comparable sales increased 0.1% for~~ the ~~quarter~~increase also includes higher credit revenue and ~~decreased 1.0% year to date.~~

Transactions were lower than last year in both periods, but third quarter results improved over prior quarter trends. In both periods, average transaction value increased as increases in selling price per unit were partially offset by decreases in units per transaction.

~~From a regional perspective, the South Central, Southeast,~~unredeemed gift card and ~~West outperformed the Company average for both the quarter~~merchandise return card revenue (breakage).

Cost of Merchandise Sold and ~~year to date. The Mid-Atlantic and Northeast underperformed the Company average in both periods.~~

By line of business, Footwear, Home, and Men's outperformed the Company average for the quarter and year to date. Accessories and Women's underperformed in both periods. Children's outperformed in the third quarter, but underperformed year to date.

Gross Margin

	Quarter								Year to Date
(Dollars in Millions)	2018			2017			Change		2018			2017			Change
Net sales	$	4,369		$	4,312		$	57	$	12,632		$	12,274		$	358
Cost of merchandise sold		2,752			2,727			25		7,854			7,680		174
Gross margin	$	1,617		$	1,585		$	32	$	4,778		$	4,594		$	184
Gross margin as a percent of net sales		37.0	%		36.8	%	25 bp			37.8	%		37.4	%	39 bp

Quarter Year to Date
(Dollars in Millions) 2017 2016 Change 2017 2016 Change
Gross margin $1,595 $1,607 $ (12 ) $4,626 $4,669 $ (43 )
As a percent of net sales 36.8 % 37.1 % (30) bp
37.6 % 37.4 % 15 bp

~~Gross margin~~

Cost of merchandise sold includes the total cost of products sold, including product development costs, net of vendor payments other than reimbursement of specific, incremental and identifiable costs; inventory shrink; markdowns; freight expenses associated with moving merchandise from our vendors to our distribution centers; shipping expenses for on-line sales; and terms cash discount. Our ~~gross margin~~cost of merchandise sold may not be comparable with that of other retailers because we include distribution center and buying costs in selling, general and administrative expenses while other retailers may include these expenses in cost of merchandise sold.

~~Gross~~

The increase in gross margin as a percent of net sales ~~decreased 30 basis points for~~reflects the ~~quarter~~benefit of less permanent and ~~increased 15 basis points year~~promotional markdowns due to ~~date. Both periods reflect the positive impacts of continued~~our ongoing inventory management and improved markdowns and the negative impacts of higher shipping costs. The quarter also reflects increases in reserves, such as loyalty rewards and sales returns, which primarily resulted from strong sales in late October.

initiatives.

Selling, General and Administrative Expenses ("SG&A")

	Quarter								Year to Date
(Dollars in Millions)	2018			2017			Change		2018			2017			Change
SG&A	$	1,375		$	1,340		$	35	$	3,907		$	3,774		$	133
As a percent of total revenue		29.7	%		29.3	%	37 bp			29.1	%		29.0	%	17 bp

Quarter Year to Date
(Dollars in Millions) 2017 2016 Change 2017 2016 Change
SG&A $ 1,095
$ 1,080
$ 15
$ 3,053
$ 3,074
$ (21 )
As a percent of net sales 25.3 % 25.0 % 33 bp
24.8 % 24.6 % 15 bp

SG&A expenses include compensation and benefit costs (including stores, headquarters, buying, and distribution centers); occupancy and operating costs of our retail, distribution and corporate facilities; freight expenses associated with moving merchandise from our distribution centers to our retail stores and among distribution and retail facilities; marketing expenses, offset by vendor payments for reimbursement of specific, incremental and identifiable costs; ~~net revenues from~~expenses related to our ~~Kohl’s~~ credit card operations; and other administrative revenues and expenses. We do not include depreciation and amortization in SG&A. The classification of these expenses varies across the retail industry.

The following table summarizes the increases and ~~(decreases)~~decreases in SG&A by expense type:

(Dollars in Millions)	Quarter			Year to Date
Corporate costs	$	25		$	60
Technology		15			51
Distribution costs		6			11
Store expenses		—			14
Marketing		(11	)		(3	)
Total increase	$	35		$	133

(Dollars In Millions) Quarter Year to Date
Marketing, excluding credit card operations $ (5 ) $ (34 )
Store expenses (5 ) (21 )
Corporate expenses (1 ) (5 )
Decrease in net profits from credit card operations 6
3
Distribution costs 5
11
Technology expenses 15
25
Total increase (decrease) $ 15
$ (21 )

Many of our expenses, including store payroll and distribution costs, are variable in nature. These costs generally increase as sales increase and decrease as sales decrease. We measure both the change in these variable expenses and the expense as a percent of sales. If the expense as a percent of sales decreased from the prior year, the expense "leveraged" ~~and indicates that the expense was well-managed or effectively generated additional sales.~~. If the expense as a percent of sales increased over the prior year, the expense "deleveraged".

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For both periods, stores and ~~indicates that sales growth was less than expense~~marketing expenses leveraged. As planned, technology expenses did not leverage as we made deliberate investments in the cloud and other technology initiatives to drive future efficiencies and growth.

~~SG&A as a percent of sales increased, or "deleveraged," by 33 basis points~~ Corporate expenses also deleveraged due to higher incentives for the quarter and ~~15 basis points year to date. Marketing expense reflected continued efficiencies in our non-customer facing spend. Year to date, marketing expense also included~~leadership changes for the benefit of not repeating a non-productive marketing event. Store expenses were managed consistently with the decrease in store sales. Our credit business had lower profits as we waived fees for our customers impacted by hurricanes. Technology expenses increased as we migrate to the cloud and invest in digital and holiday capacity. Distribution costs increased as a result of opening our fifth e-commerce fulfillment center.

year-to-date period.

Other Expenses

	Quarter							Year to Date
(Dollars in Millions)	2018		2017		Change			2018		2017		Change
Depreciation and amortization	$	243	$	243	$	-		$	725	$	724	$	1
Interest expense, net		63		74		(11	)		197		225		(28	)
Loss on extinguishment of debt		—		—		—			42		—		42

Quarter Year to Date
(Dollars in Millions) 2017 2016 Change 2017 2016 Change
Depreciation and amortization $ 243
$ 232
$ 11
$ 724
$ 700
$ 24
Interest expense, net 74
76
(2 ) 225
233
(8 )
Impairments, store closing and other costs —
(6 ) 6
—
186
(186 )
Provision for income taxes 66
79
(13 ) 233
173
60
Effective tax rate 36.1 % 35.0 % 110 bps
37.3 % 36.3 % 100 bps

~~In both periods, depreciation~~

Depreciation and amortization ~~increased as a result of higher technology amortization.~~ was consistent with last year for both periods.

Interest expense, net decreased due to ~~lower~~the benefits of the $500 million debt tender transaction executed in March 2018, as well as increased interest income due to higher yield and investment balances.

We recognized a one-time $42 million loss on ~~capital leases as~~extinguishment of debt in the ~~store portfolio matures.~~

~~Impairments, store closing and other costs includes expenses~~first quarter of 2018 related to ~~store closures and~~our $500 million cash tender offer.

Income Taxes

	Quarter									Year to Date
(Dollars in Millions)	2018			2017			Change			2018			2017			Change
Provision for income taxes	$	34		$	66		$	(32	)	$	152		$	233		$	(81	)
Effective tax rate		17.6	%		36.1	%					22.3	%		37.3	%

The decreases in the ~~corporate restructuring in 2016.~~

~~The~~ provision for income taxes ~~reflects changes in pre-tax income~~ and the effective tax ~~rate. The quarter and year-to-date periods include~~rate were primarily due to the ~~negative impacts~~benefit of ~~higher~~tax reform as well as favorable audit settlements in 2016 and accounting rules adopted in 2017 which require us to recognize income tax benefits and detriments related to share-based awards as income tax expense rather than as equity on our balance sheet.

results.

Income before Income Taxes, Net Income and Earnings Per Diluted Share

	Year to Date
	2018						2017
(Dollars in Millions, Except per Share Data)	Income before Income Taxes		Net Income		Earnings Per Diluted Share		Income before Income Taxes		Net Income		Earnings Per Diluted Share
GAAP	$	681	$	529	$	3.19	$	624	$	391	$	2.32
Loss on extinguishment of debt		42		32		0.19		—		—		—
Adjusted (Non-GAAP)	$	723	$	561	$	3.38	$	624	$	391	$	2.32

Quarter

2017 2016
Income before Income Taxes Net Income Earnings Per Diluted Share Income before Income Taxes Net Income Earnings Per Diluted Share
(Dollars in Millions, Except per Share Data)
GAAP $ 183
$ 117
$ 0.70
$ 225
$ 146
$ 0.83
Impairments, store closing and other costs —
—
—
(6 ) (4 ) (0.03 )
Adjusted (Non-GAAP) $ 183
$ 117
$ 0.70
$ 219
$ 142
$ 0.80

Year to Date

2017 2016
Income before Income Taxes Net Income Earnings Per Diluted Share Income before Income Taxes Net Income Earnings Per Diluted Share
(Dollars in Millions, Except per Share Data)
GAAP $ 624
$ 391
$ 2.32
$ 476
$ 303
$ 1.68
Impairments, store closing and other costs —
—
—
186
117
0.65
Adjusted (Non-GAAP) $ 624
$ 391
$ 2.32
$ 662
$ 420
$ 2.33

We believe the adjusted results in the table above are useful because they provide enhanced visibility into our results excluding the ~~impact~~loss on extinguishment of ~~store closures and restructuring charges in 2016.~~debt. However, these non-GAAP financial measures are not intended to replace the comparable GAAP measures.

Seasonality and Inflation

Our business, like that of most retailers, is subject to seasonal influences, with the major portion of sales and income typically realized during the second half of each fiscal year, which includes the back-to-school and holiday seasons. Approximately 15% of annual sales typically occur during the back-to-school season and 30% during the holiday season. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

~~Although we~~

We expect that our operations will continue to be influenced by general economic conditions, including food, fuel and energy prices, higher wages and by costs to source our ~~merchandise, we do not believe that inflation has had a material effect on our results of operations. However, there~~merchandise. There can be no assurance that our business will not be impacted by such factors in the future.

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Liquidity and Capital Resources

The following table presents our primary ~~cash requirements~~uses and sources of ~~funds.~~

cash.



Cash ~~Requirements~~Uses		Cash Sources ~~of Funds~~
•Operational needs, including salaries, rent, taxes and other costs of running our business •Capital expenditures •Inventory •Dividend payments •Share repurchases • ~~Dividend payments~~ Debt reduction		•Cash flow from operations •Short-term trade credit, in the form of ~~favorable~~extended payment terms •Line of credit under our revolving credit facility

Our working capital and inventory levels typically build throughout the fall, peaking during the November and December holiday selling season.

							Increase/(Decrease) in Cash
(Dollars in Millions)	2018			2017			$			%
Net cash provided by (used in):
Operating activities	$	1,423		$	869		$	554			64	%
Investing activities		(452	)		(529	)		77			15	%
Financing activities		(1,232	)		(678	)		(554	)		(82	)%

Increase (Decrease)
in Cash
(Dollars in Millions) 2017 2016 $ %
Net cash provided by (used in):
Operating activities $ 869
$ 1,284
$ (415 ) (32 )%
Investing activities (529 ) (584 ) 55
9 %
Financing activities (678 ) (810 ) 132
16 %

Operating Activities

Operating activities generated ~~$869 million~~$1.4 billion of cash in the first three quarters of ~~2017, a decrease~~2018, an increase of ~~$415~~$554 million ~~from~~over the first three quarters of ~~2016.~~2017. The ~~decrease is~~increase was primarily due to ~~excess~~changes in accounts payable and merchandise inventory atdue to our inventory management initiatives and to timing shifts caused by the ~~beginning of 2016 and timing of inventory receipts and the related payments.~~

~~Accounts payable as a percent of inventory increased 120 basis points to 45.6% at October 28, 2017 reflecting the positive impact of our continued emphasis on inventory management.~~

53^rd week in 2017.

Investing Activities

Investing activities used cash of $452 million in the first three quarters of 2018 and $529 million in the first three quarters of ~~2017~~2017. The decrease was primarily due to lower spending on E-commerce fulfillment centers and ~~$584 million~~timing of technology spending.

Financing Activities

Financing activities used cash of $1.2 billion in the first three quarters of ~~2016. The decrease in capital expenditures reflects the net impact~~2018, an increase of ~~lower new store expenditures partially offset by higher technology spending.~~

~~Financing Activities~~

~~Financing activities used cash of $678~~$554 million inover the first three quarters of ~~2017 and $810~~2017.

In the first nine months of 2018, we reduced our outstanding debt by $530 million, including $500 million which was repurchased pursuant to a cash tender offer in the first ~~three quarters of 2016. The decrease is primarily due~~quarter and $30 million which was repurchased on the open market. We may again seek to ~~less treasury stock repurchases.~~

retire or purchase our outstanding debt through open market cash purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

We paid cash for treasury stock purchases of $275 million in the first three quarters of 2018 and $288 million in the first three quarters of ~~2017 and $441 million in the first three quarters of 2016.~~2017. Share repurchases are discretionary in nature. The timing and amount of repurchases is based upon available cash balances, our stock price and other factors.

We paid cash dividends of $301 million ($1.83 per share) in the first three quarters of 2018 and $277 million ($1.65 per share) in the first three quarters of ~~2017 and $270 million ($1.50 per share) in the first three quarters of 2016.~~2017. On November ~~8, 2017,~~14, 2018, our Board of Directors declared a quarterly cash dividend on our common stock of ~~$0.55~~$0.61 per share. The dividend is payable on December ~~20, 2017~~26, 2018 to shareholders of record at the close of business on December ~~6, 2017.~~

12, 2018.

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As of ~~October 28, 2017,~~November 3, 2018, our credit ratings were as follows:

	Moody’s	Standard & Poor’s	Fitch

	~~Moody’s~~	~~Standard & Poor’s~~	~~Fitch~~
Long-term debt	Baa2	BBB-	BBB

~~Free Cash Flow~~

Free cash flow is a non-GAAP financial measure which we define as net cash provided by operating activities and proceeds from financing obligation payments (which generally represent landlord reimbursements of construction costs) less capital expenditures and capital lease and financing obligation payments. Free cash flow should be evaluated in addition to, and not considered a substitute for, other financial measures such as net income and net cash provided by operating activities. We believe that free cash flow represents our ability to generate additional cash flow from our business operations.

~~The following table reconciles net cash provided by operating activities (a GAAP measure) to free cash flow (a non-GAAP measure).~~

(Dollars in Millions) 2017 2016 Increase (Decrease) in Free Cash Flow
Net cash provided by operating activities $ 869
$ 1,284
$ (415 )
Acquisition of property and equipment (547 ) (591 ) 44
Capital lease and financing obligation payments (101 ) (95 ) (6 )
Proceeds from financing obligations —
5
(5 )
Free cash flow $ 221
$ 603
$ (382 )

Key Financial Ratios

Key financial ratios that provide certain measures of our liquidity are as follows:

(Dollars in Millions)	November 3, 2018			October 28, 2017
Working capital	$	2,330		$	2,185
Current ratio		1.58			1.61
Debt/capitalization		41.8	%		47.5	%

(Dollars in Millions) October 28, 2017 October 29, 2016
Working capital $ 2,195
$ 2,128
Current ratio 1.63
1.60
Debt/capitalization 47.5 % 47.5 %

The increases in our working capital and ~~the~~ current ratio ~~reflect~~include a $311 million increase in cash despite $530 million in debt reductions during the ~~net impact~~first nine months of ~~higher cash and~~2018. The debt/capitalization ratio reflects the benefit of lower ~~taxes payable, partially offset by lower inventory.~~

debt outstanding.

Debt Covenant Compliance

As of ~~October 28, 2017,~~November 3, 2018, we were in compliance with all debt covenants and expect to remain in compliance during the remainder of fiscal ~~2017.~~

(Dollars in Millions)
Included Indebtedness
Total debt $ 4,568
Less unamortized debt discount (5 )
Subtotal 4,563
Rent x 8 2,304
Included Indebtedness $ 6,867
Debt Compliance EBITDAR - Rolling 12-month
Net income $ 644
Rent expense 288
Depreciation and amortization 962
Net interest 300
Provision for income taxes 379
EBITDAR 2,573
Stock based compensation 44
Other non-cash revenues and expenses (8 )
Debt Compliance EBITDAR $ 2,609
Debt Ratio (a) 2.63
Maximum permitted Debt Ratio 3.75

~~(a) Included Indebtedness divided by Debt Compliance EBITDAR~~

2018.

Contractual Obligations

~~There~~

Aside from the $530 million reduction in outstanding debt and the resulting decline in our interest expense, there have been no significant changes in the contractual obligations disclosed in our ~~2016~~2017 Form 10-K.

Off-Balance Sheet Arrangements

We have not provided any financial guarantees as of ~~October 28, 2017.~~

November 3, 2018.

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our financial condition, liquidity, results of operations or capital resources.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts. Management has discussed the development, selection and disclosure of its estimates and assumptions with the Audit Committee of our Board of Directors. There have been no significant changes in the critical accounting policies and estimates discussed in our ~~2016~~2017 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in the market risks described in our ~~2016~~2017 Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (the “Evaluation”) at a reasonable assurance level as of the last day of the period covered by this report.

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Based upon the Evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at the reasonable assurance level. Disclosure controls and procedures are defined by Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act") as controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~October 28, 2017~~November 3, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

There have been no significant changes in the risk factors described in our ~~2016~~2017 Form 10-K.

This Form 10-Q contains "forward-looking statements" made within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believes," “anticipates,” “plans,” "may," "intends," "will," "should,"

~~“expects”~~ “expects” and similar expressions are intended to identify forward-looking statements. Forward-looking statements may include comments about our future sales or financial performance and our plans, performance, and other objectives, expectations or intentions, such as statements regarding our liquidity, debt service requirements, planned capital expenditures, future store initiatives, and adequacy of capital resources and reserves. Forward-looking statements are based on our management’s then current views and assumptions and, as a result, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Any such forward-looking statements are qualified by the important risk factors described in Part I, Item 1A of our ~~2016~~2017 Form 10-K or disclosed from time to time in our filings with the SEC, that could cause actual results to differ materially from those predicted by the forward-looking statements. Forward-looking statements relate to the date initially made, and we undertake no obligation to update them.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not sell any securities during the quarter ended ~~October 28, 2017~~November 3, 2018, which were not registered under the Securities Act of 1933, as amended.

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The following table contains information for shares of common stock repurchased and shares acquired from employees in lieu of amounts required to satisfy minimum tax withholding requirements upon the vesting of the employees’ ~~restricted stock~~stock-based compensation during the three fiscal months ended ~~October 28, 2017:~~November 3, 2018:

(Dollars in Millions)	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
August 5 - September 1, 2018		409,837	$	77.04		382,828	$	1,408
September 2 - October 6, 2018		636,828		77.04		559,120		1,364
October 7 - November 3, 2018		523,364		73.15		518,400		1,327
Total		1,570,029	$	75.72		1,460,348	$	1,327

(Dollars in Millions) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 30 - August 26, 2017 440,174
$ 39.94
436,408
$ 1,640
August 27 - September 30, 2017 157,686
41.14
150,158
1,634
October 1 - October 28, 2017 354,191
43.43
351,384
1,619
Total 952,051
$ 41.44
937,950
$ 1,619

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Item 6. Exhibits



Exhibit		Description
~~Exhibit~~ ~~Number~~ 10.1		~~Description~~ Non-Employee Director Compensation Program.
~~10.1~~ 31.1		Amended and restated employment agreement between Kohl's Department Stores, Inc. and Kohl's Corporation and Michelle Gass, effective as of September 25, 2017, incorporated by reference to Exhibit 10.1 of the Company's current report on Form 8-K dated September 25, 2017.*

~~10.2~~		Amended and restated employment agreement between Kohl's Department Stores, Inc. and Kohl's Corporation and Sona Chawla, effective as of September 25, 2017, incorporated by reference to Exhibit 10.3 of the Company's current report on Form 8-K dated September 25, 2017.*

~~10.3~~		Amended and restated employment agreement between Kohl's Department Stores, Inc. and Kohl's Corporation and Richard D. Schepp, effective as of September 25, 2017, incorporated by reference to Exhibit 10.5 of the Company's current report on Form 8-K dated September 25, 2017.*

~~31.1~~		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
~~31.2~~		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
~~32.1~~		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
~~32.2~~		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
~~101.INS~~		XBRL Instance Document
101.SCH
~~101.SCH~~		XBRL Taxonomy Extension Schema
101.CAL
~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase
101.DEF
~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase
101.LAB
~~101.LAB~~		XBRL Taxonomy Extension Label Linkbase
101.PRE
~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase

*A management contract or compensatory plan or arrangement.

~~SIGNATURES~~

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SIGNATURES

Pursuant to the requirements of the Securities 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, 2018		~~Kohl’s Corporation~~ ~~(Registrant)~~

~~Date:~~	~~December 1, 2017~~	/s/ Bruce Besanko
		Bruce Besanko On behalf of the Registrant and as Chief Financial Officer (Principal Financial Officer)



Wisconsin		39-1630919
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin		53051
(Address of principal executive offices)		(Zip Code)



Large accelerated filer	ý	☒	Accelerated filer	¨	☐
Non-accelerated filer		¨¬☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨	☐
			Emerging growth company	¨	☐

PART I	FINANCIAL INFORMATION


~~PART I~~	~~FINANCIAL INFORMATION~~
Item 1.	Financial Statements:	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated ~~Statement~~Statements of Changes in Shareholders' Equity	5
	Consolidated Statements of Cash Flows	6 7
	Notes to Consolidated Financial Statements	7 8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10 15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16 19
Item 4.	Controls and Procedures	16 19

PART II	OTHER INFORMATION
Item 1A.	Risk Factors	16 20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17 20
Item 6.	Exhibits	18 22
Signatures		19 23


☒
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



(Dollars in Millions)	October 28, 2017			January 28, 2017			October 29, 2016
Assets	(Unaudited)			(Audited)			(Unaudited)
Current assets:
Cash and cash equivalents	$	736		$	1,074		$	597
Merchandise inventories	4,632			3,795			4,721
Other	332			378			336
Total current assets	5,700			5,247			5,654
Property and equipment, net	7,974			8,103			8,203
Other assets	226			224			219
Total assets	$	13,900		$	13,574		$	14,076

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,113		$	1,507		$	2,097
Accrued liabilities	1,237			1,224			1,235
Income taxes payable	24			112			66
Current portion of capital lease and financing obligations	131			131			128
Total current liabilities	3,505			2,974			3,526
Long-term debt	2,796			2,795			2,794
Capital lease and financing obligations	1,622			1,685			1,702
Deferred income taxes	275			272			298
Other long-term liabilities	673			671			649
Shareholders’ equity:
Common stock	4			4			4
Paid-in capital	3,039			3,003			2,981
Treasury stock, at cost	(10,633		)	(10,338		)	(10,221		)
Accumulated other comprehensive loss	(12		)	(14		)	(15		)
Retained earnings	12,631			12,522			12,358
Total shareholders’ equity	5,029			5,177			5,107
Total liabilities and shareholders’ equity	$	13,900		$	13,574		$	14,076



(Dollars in Millions)	Store Lease Obligations			Severance			Total
Balance - January 28, 2017	$	103		$	3		$	106
Payments	(8		)	(2		)	(10		)
Reversals	(5		)	—			(5		)
Balance - October 28, 2017	$	90		$	1		$	91



Maturity (Dollars in Millions)	Effective Rate		Coupon Rate		Outstanding
2021	4.81	%	4.00	%	$	650
2023	3.25	%	3.25	%	350
2023	4.78	%	4.75	%	300
2025	4.25	%	4.25	%	650
2029	7.36	%	7.25	%	99
2033	6.05	%	6.00	%	166
2037	6.89	%	6.88	%	150
2045	5.57	%	5.55	%	450
	4.88	%			$	2,815



	Quarter
	2017						2016
	Income before Income Taxes		Net Income		Earnings Per Diluted Share		Income before Income Taxes			Net Income			Earnings Per Diluted Share
(Dollars in Millions, Except per Share Data)	Income before Income Taxes		Net Income		Earnings Per Diluted Share		Income before Income Taxes			Net Income			Earnings Per Diluted Share
GAAP	$	183	$	117	$	0.70	$	225		$	146		$	0.83
Impairments, store closing and other costs	—		—		—		(6		)	(4		)	(0.03		)
Adjusted (Non-GAAP)	$	183	$	117	$	0.70	$	219		$	142		$	0.80



							Increase (Decrease) in Cash
(Dollars in Millions)	2017			2016			$			%
Net cash provided by (used in):
Operating activities	$	869		$	1,284		$	(415	)	(32	)%
Investing activities	(529		)	(584		)	55			9	%
Financing activities	(678		)	(810		)	132			16	%



(Dollars in Millions)	October 28, 2017			October 29, 2016
Working capital	$	2,195		$	2,128
Current ratio	1.63			1.60
Debt/capitalization	47.5		%	47.5		%



(Dollars in Millions)
Included Indebtedness
Total debt	$	4,568
Less unamortized debt discount	(5		)
Subtotal	4,563
Rent x 8	2,304
Included Indebtedness	$	6,867
Debt Compliance EBITDAR - Rolling 12-month
Net income	$	644
Rent expense	288
Depreciation and amortization	962
Net interest	300
Provision for income taxes	379
EBITDAR	2,573
Stock based compensation	44
Other non-cash revenues and expenses	(8		)
Debt Compliance EBITDAR	$	2,609
Debt Ratio (a)	2.63
Maximum permitted Debt Ratio	3.75



(Dollars in Millions)	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 30 - August 26, 2017	440,174	$	39.94	436,408	$	1,640
August 27 - September 30, 2017	157,686	41.14		150,158	1,634
October 1 - October 28, 2017	354,191	43.43		351,384	1,619
Total	952,051	$	41.44	937,950	$	1,619