CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in Millions)	May 2, 2020			February 1, 2020			May 4, 2019
Assets
Current assets:
Cash and cash equivalents	$	2,039		$	723		$	543
Merchandise inventories		3,557			3,537			3,680
Income tax receivable		174			15			15
Other		400			374			397
Total current assets		6,170			4,649			4,635
Property and equipment, net		7,169			7,352			7,211
Operating leases		2,373			2,391			2,453
Other assets		157			163			167
Total assets	$	15,869		$	14,555		$	14,466

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,866		$	1,206		$	1,295
Accrued liabilities		1,070			1,233			1,184
Income taxes payable		68			48			40
Current portion of:
Finance lease and financing obligations		124			124			115
Operating leases		159			158			158
Total current liabilities		3,287			2,769			2,792
Long-term debt		3,449			1,856			1,855
Finance lease and financing obligations		1,351			1,367			1,225
Operating leases		2,605			2,619			2,680
Deferred income taxes		165			260			233
Other long-term liabilities		222			234			239
Shareholders’ equity:
Common stock		4			4			4
Paid-in capital		3,289			3,272			3,223
Treasury stock, at cost		(11,593	)		(11,571	)		(11,221	)
Retained earnings		13,090			13,745			13,436
Total shareholders’ equity	$	4,790		$	5,450		$	5,442
Total liabilities and shareholders’ equity	$	15,869		$	14,555		$	14,466

(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~~OPERATIONS

(Unaudited)

	Quarter Ended
(Dollars in Millions, Except per Share Data)	May 2, 2020			May 4, 2019
Net sales	$	2,160		$	3,821
Other revenue		268			266
Total revenue		2,428			4,087
Cost of merchandise sold		1,787			2,415
Operating expenses:
Selling, general, and administrative		1,066			1,275
Depreciation and amortization		227			230
Impairments, store closing, and other costs		66			49
Operating (loss) income		(718	)		118
Interest expense, net		58			52
(Loss) income before income taxes		(776	)		66
(Benefit) provision for income taxes		(235	)		4
Net (loss) income	$	(541	)	$	62
Net (loss) income per share:
Basic	$	(3.52	)	$	0.38
Diluted	$	(3.52	)	$	0.38

~~(Unaudited)~~

(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)

	Quarter Ended
(Dollars in Millions, Except per Share Data)	May 2, 2020			May 4, 2019
Common stock
Balance, beginning of period	$	4		$	4
Stock-based awards		—			—
Balance, end of period	$	4		$	4

Paid-in capital
Balance, beginning of period	$	3,272		$	3,204
Stock-based awards		17			19
Balance, end of period	$	3,289		$	3,223

Treasury stock, at cost
Balance, beginning of period	$	(11,571	)	$	(11,076	)
Treasury stock purchases		(8	)		(121	)
Stock-based awards		(20	)		(25	)
Dividends paid		6			1
Balance, end of period	$	(11,593	)	$	(11,221	)

Retained earnings
Balance, beginning of period	$	13,745		$	13,395
Change in accounting standard (a)		—			88
Net (loss) earnings		(541	)		62
Dividends paid		(114	)		(109	)
Balance, end of period	$	13,090		$	13,436

Total shareholders' equity, end of period	$	4,790		$	5,442

Common stock
Shares, beginning of period		375			374
Stock-based awards		2			1
Shares, end of period		377			375
Treasury stock
Shares, beginning of period		(219	)		(211	)
Treasury stock purchases		—			(2	)
Shares, end of period		(219	)		(213	)
Total shares outstanding, end of period		158			162

Dividends paid per common share	$	0.704		$	0.67

~~(Unaudited)~~

(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

(a)Adoption of new lease accounting standard in 2019.

See accompanying Notes to Consolidated Financial Statements

Table of Contents

KOHL’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Quarter Ended
(Dollars in Millions)	May 2, 2020			May 4, 2019
Operating activities
Net (loss) income	$	(541	)	$	62
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		227			230
Share-based compensation		15			15
Deferred income taxes		(91	)		18
Impairments, store closing, and other costs		51			49
Non-cash inventory costs		187			—
Non-cash lease expense		37			37
Other non-cash expenses		5			2
Changes in operating assets and liabilities:
Merchandise inventories		(205	)		(202	)
Other current and long-term assets		(21	)		6
Accounts payable		660			108
Accrued and other long-term liabilities		(98	)		(141	)
Income taxes		(139	)		1
Operating lease liabilities		(34	)		(49	)
Net cash provided by operating activities		53			136
Investing activities
Acquisition of property and equipment		(162	)		(238	)
Net cash used in investing activities		(162	)		(238	)
Financing activities
Proceeds from issuance of debt		2,097			—
Deferred financing costs		(19	)		—
Treasury stock purchases		(8	)		(121	)
Shares withheld for taxes on vested restricted shares		(20	)		(25	)
Dividends paid		(108	)		(108	)
Reduction of long-term borrowings		(497	)		(6	)
Finance lease and financing obligation payments		(23	)		(31	)
Proceeds from stock option exercises		—			2
Proceeds from financing obligations		3			—
Net cash provided by (used in) financing activities		1,425			(289	)
Net increase (decrease) in cash and cash equivalents		1,316			(391	)
Cash and cash equivalents at beginning of period		723			934
Cash and cash equivalents at end of period	$	2,039		$	543
Supplemental information
Interest paid, net of capitalized interest	$	39		$	32
Income taxes paid		1			7
Property and equipment acquired through:
Finance lease liabilities		8			10
Operating lease liabilities		20			49

~~(Unaudited)~~

(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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying ~~consolidated financial statements~~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.~~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~~Consolidated Financial Statements and related footnotes included in our Annual Report on Form 10-K for the fiscal year ended ~~January 28, 2017~~February 1, 2020 (Commission File No. 1-11084) as filed with the Securities and Exchange Commission.

Due to the seasonality of ~~our~~the business of Kohl’s Corporation (the “Company,” “Kohl’s,” “we,” “our,” or “us”) and the uncertainty surrounding the financial impact of the novel coronavirus (“COVID-19”) pandemic, 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.

Accounting Policies

The accounting policies the Company follows are set forth in its most recently filed Annual Report on Form 10-K. There have been no material changes to these accounting policies except as discussed below.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. We believe that our accounting estimates are appropriate after incorporating the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates.

Leases

In the first quarter of 2020, we negotiated rent deferrals for a significant number of our stores, with repayment at later dates, primarily in the third and fourth quarter of 2020 and first and second quarter of 2021. These concessions provide a deferral of rent payments with no substantive changes to the original contract. Consistent with updated guidance from the FASB in April 2020, we have elected to treat the COVID-19 pandemic-related rent deferrals as accrued liabilities. We will continue to recognize expense during the deferral periods.

Merchandise Inventories

Merchandise inventories are valued at the lower of cost or market using the Retail Inventory Method ("RIM"). Under RIM, the valuation of inventory at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventory. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market since permanent markdowns are taken as a reduction of the retail value of inventories. A reserve would be recorded if the future estimated selling price is less than cost.

As a result of the COVID-19 pandemic and store closures, we recorded a reserve of $163 million for excess seasonal inventory where the expected selling price is less than cost for the quarter ended May 2, 2020. NaN reserve was recorded as of February 1, 2020 or May 4, 2019. In addition, $24 million of inventory was written off during the first quarter of 2020 as there was no future recoverable value.

Table of Contents

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Property and Equipment and Long Lived Assets

All property and equipment and other long-lived assets are reviewed for potential impairment at least annually or when events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. If such indicators are present, it is determined whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than the carrying value of the assets. A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. Given the substantial reduction in our sales and the reduced cash flow projections as a result of the store closures due to the COVID-19 pandemic, we determined that a triggering event occurred in the first quarter of 2020 and an impairment assessment was warranted for certain stores and other long lived assets. Based on this assessment, we recorded impairment charges of $51 million in the first quarter of 2020 in Impairments, store closing, and other costs. In connection with the closure of 4 stores in the first quarter of 2019, we recorded impairment charges of $49 million in the first quarter of 2019 in Impairments, store closing, and other costs.

As of May 2, 2020, we had assets held for sale of $24 million.

Restructuring Reserve

The following table summarizes changes in the restructuring reserve during the quarter ended May 2, 2020:

(Dollars In Millions)	Severance
Balance - February 1, 2020	$	27
Payments and reversals		(16	)
Additions		2
Balance - May 2, 2020	$	13

Charges related to corporate restructuring efforts are recorded in Impairments, store, closing, and other costs.

Recent Accounting Pronouncements

During ~~2017,~~the quarter ended May 2, 2020, 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 ofexpected credit losses (ASU 2016-13). We applied 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.~~principle using a modified retrospective approach. There was no material impact ~~to the quarter ended October 28, 2017. Prior~~on our financial statements due to adoption of the new standard.

During the quarter ended May 2, 2020, we adopted the new accounting standard ~~this amount would have been recorded as~~on recognizing implementation costs related to 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~~cloud computing arrangement (ASU 2018-15). We applied 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 onprinciple using a prospective ~~basis and had an immaterial~~approach. There was no material impact on our ~~weighted average common shares outstanding for~~financial statements due to adoption of 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)~~

standard.

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~~ Income Taxes (~~ASC Topic 606)~~ ASU 2019-12) Issued ~~May 2014~~ December 2019 Effective Q1 ~~2018~~ 2021	The new standard ~~eliminates~~is designed to simplify the ~~transaction- and industry-specific revenue recognition guidance under current GAAP and replaces it with a principles-based approach~~accounting for ~~revenue recognition and disclosures.~~income taxes by removing certain exceptions to the general principles as outlined in U.S. GAAP.	~~The standard will change~~ We are evaluating the ~~way we account for sales returns, our loyalty program and certain promotional programs. Based on current estimates, we do not expect these provisions~~impact of the new 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 asset and a lease liability on our balance sheet for leases. It also changes the presentation and timing of lease-related expenses.	Less than 5% of our store leases and all of our land leases are not currently recorded on our balance sheet. Recording right of use assets and 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 assets and 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.

~~2. Store Closure and Restructure Reserve~~

~~The following table summarizes changes in the store closure and restructure reserve:~~

(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

Table of Contents

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. Revenue Recognition

The following table summarizes net sales by line of business:

	Quarter Ended
(Dollars in Millions)	May 2, 2020		May 4, 2019
Women's	$	593	$	1,224
Men's		363		749
Home		483		572
Children's		269		457
Footwear		233		421
Accessories		219		398
Net sales	$	2,160	$	3,821

Unredeemed gift cards and merchandise return card liabilities totaled $301 millionas of May 2, 2020, $334 millionas of February 1, 2020 and $280 million as of May 4, 2019. Revenue of $60 million was recognized during Q1 2020 from the February 1, 2020 ending balance.

3. Debt

Long-term debt, which includes draws on the revolving credit facility, consists of the following unsecured and secured senior ~~debt as of October 28, 2017, January 28, 2017, and October 29, 2016:~~debt:

	Effective Rate		Coupon Rate		Outstanding
Maturity (Dollars in Millions)	Effective Rate		Coupon Rate		May 2, 2020			February 1, 2020			May 4, 2019
2023	3.25	%	3.25	%	$	350		$	350		$	350
2023	4.78	%	4.75	%		184			184			184
2025	9.50	%	9.50	%		600			—			—
2025	4.25	%	4.25	%		650			650			650
2029	7.36	%	7.25	%		42			42			42
2033	6.05	%	6.00	%		113			113			113
2037	6.89	%	6.88	%		101			101			101
2045	5.57	%	5.55	%		427			427			427
Outstanding unsecured senior debt						2,467			1,867			1,867
Unamortized debt discounts and deferred financing costs						(18	)		(11	)		(12	)
Unsecured senior debt						2,449			1,856			1,855
Effective interest rate						5.90	%		4.74	%		4.74	%
Secured senior debt						1,000			—			—
Total long-term debt					$	3,449		$	1,856		$	1,855

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 $19 million at October 28, 2017, $20 million at January 28, 2017, and $21 million at October 29, 2016.~~

Our unsecured senior 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 unsecured senior debt was $2.2 billion at May 2, 2020, $2.0 billion at February 1, 2020and $1.9 billion at May 4, 2019.

Table of Contents

KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In March 2020, we fully drew down our $1.0 billion senior unsecured revolver. In April 2020, we replaced and upsized the unsecured credit facility with a $1.5 billion senior secured, asset based revolving credit facility maturing in July 2024. The revolver is secured by substantially all of our assets other than real estate, and contains customary events of default and financial, affirmative, and negative covenants, including but not limited to, a springing financial covenant related to our fixed charge coverage ratio and restrictions on indebtedness, liens, investments, asset dispositions, and restricted payments, including a restriction on dividends in 2020 if our outstanding borrowings under the credit facility exceed $1.0 billion. At May 2, 2020, $1.0 billion was outstanding on the credit facility bearing an effective interest rate of 3.41%. Outstanding borrowings under the credit facility bear interest at a variable rate based on LIBOR plus the applicable margin. NaN amounts were outstanding on the credit facility in place as of February 1, 2020 or May 4, 2019.

In April 2020, we issued $600 million of 9.50% notes with semi-annual interest payments beginning in November 2020. The notes include coupon rate step ups if our long-term debt ~~was $2.9 billion at October 28, 2017, $2.7 billion at January 28, 2017 and $3.0 billion at October 29, 2016.~~

is downgraded to below a BBB- credit rating by S&P Global Ratings or Baa3 by Moody’s Investors Service, Inc. The notes mature in May 2025. We used part of the net proceeds from this offering to repay $500 million of the borrowings under our senior secured, asset based revolving credit facility with the remaining net proceeds available for general corporate purposes.

4. Stock-Based ~~Compensation~~

Awards

The following table summarizes our stock-based ~~compensation~~awards activity for the ~~nine months~~quarter ended ~~October 28, 2017:~~May 2, 2020:

	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 1, 2020		87		$	51.78		2,312		$	56.24		1,274		$	61.55
Granted		—			—		2,242			20.13		702			20.95
Exercised/vested		—			—		(730	)		54.08		(826	)		42.72
Forfeited/expired		(20	)		49.39		(145	)		55.30		(25	)		73.55
Balance - May 2, 2020		67		$	52.49		3,679		$	34.69		1,125		$	49.75

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

In 2019, we granted 1,747,441 of stock warrants. The total vested and unvested warrants as of May 2, 2020 were 349,489 and 1,397,952, respectively.

5. 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.~~

Consolidated Financial Statements.

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KOHL’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. Net (Loss) Income Per Share

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

~~Table~~awards and stock warrants. Potentially dilutive shares include stock options, unvested restricted stock units and awards, and warrants outstanding during the period, using the treasury stock method. Potentially dilutive shares are excluded from the computations of ~~Contents~~

~~KOHL’S CORPORATION~~

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

diluted EPS if their effect would be anti-dilutive.

The information required to compute basic and diluted ~~net~~Net (loss) income per share is as follows:

	Quarter Ended
(Dollars and Shares in Millions, Except per Share Data)	May 2, 2020			May 4, 2019
Numerator—Net (loss) income	$	(541	)	$	62
Denominator—Weighted-average shares:
Basic		154			161
Dilutive impact		—			1
Diluted		154			162
Net (loss) income per share:
Basic	$	(3.52	)	$	0.38
Diluted	$	(3.52	)	$	0.38

The following potential shares of common stock were excluded from the diluted Net (loss) income per share calculation because their effect would have been anti-dilutive:

	Quarter Ended
(Shares in Millions)	May 2, 2020		May 4, 2019
Stock options, awards, units, and warrants		6		—

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

7. Subsequent Events

~~On November 3, 2017, we resolved a state tax dispute regarding the appropriate income apportionment method~~

As part of our continuing efforts 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~~leverage our existing ~~credit facility with various lenders which provides~~assets for increased liquidity and value, on May 22, 2020, we closed on a ~~$1.0 billion senior unsecured five-year revolving credit facility. Among other things, the agreement includes~~sale leaseback transaction for our San Bernardino E-commerce fulfillment and distribution centers. The transaction generated $195 millionin cash, and we expect to recognize a ~~maximum leverage ratio financial covenant (which is consistent with the ratio under our prior credit agreement) and restrictions on liens and subsidiary indebtedness.~~

gain of approximately $127 millionin Q2 2020.

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

For purposes of the following discussion, unless noted, all references to "the ~~quarter"~~quarter” and ~~"the third quarter"~~“the first quarter” are for the three fiscal months (13 weeks) ended ~~October 28, 2017~~May 2, 2020 and ~~October 29, 2016. References~~May 4, 2019.

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” and similar expressions are intended to ~~"year to date" are for the nine fiscal months ended October 28, 2017~~identify forward-looking statements. Forward-looking statements may include comments about our future sales or financial performance and ~~October 29, 2016.~~

~~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~~plans, performance, and other ~~information included in~~objectives, expectations, or intentions, such as statements regarding our ~~2016 Annual Report~~liquidity, debt service requirements, planned capital expenditures, future store initiatives, and adequacy of capital resources and reserves. Forward-looking statements are based on ~~Form 10-K (our "2016 Form 10-K"). The following discussion may contain forward-looking statements that reflect~~ our ~~plans, estimates~~management’s then current views and ~~beliefs. Our actual results could materially differ from those discussed in these forward-looking statements. Factors~~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 2019 Form 10-K or ~~contribute~~disclosed from time to ~~those differences include, but are not limited to, those discussed elsewhere in this report and~~time in our ~~2016 Form 10-K (particularly in "Risk Factors").~~

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.

Executive Summary

As of ~~October 28, 2017,~~May 2, 2020, we operated ~~1,156~~1,159 Kohl's ~~department~~ stores, a website (www.Kohls.com), and 12 FILA ~~outlets, and four Off-Aisle clearance centers.~~outlets. 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.~~

Net sales and 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 in 2016, continued to improve over previous quarters.

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

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

~~Gross margin as a percentage of net sales decreased 30 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~~online.

Key financial results for the quarter ~~was $117~~included:

•

Significantly increased financial flexibility during quarter, ending with $2.0 billion in cash

•

Swift and aggressive actions taken in response to COVID-19 resulted in positive operating cash flow

•

43.5% decrease in net sales

•

1,950 basis point decrease in gross margin as a percent of net sales

•

16.4% decrease in SG&A

•

$3.52 diluted loss per share

•

$3.22 diluted loss per share on a non-GAAP basis

Recent Developments

As discussed in our 2019 Form 10-K, the World Health Organization declared the outbreak of COVID-19 as a pandemic in March 2020. Subsequently, COVID-19 has continued to spread throughout the United States. As a result, the President of the United States declared a national emergency. Federal, state, and local governing bodies mandated various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories, and quarantining of people who may have been exposed to the virus. The response to the COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created significant disruption in the financial and retail markets, including a decrease in consumer demand for our merchandise.

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The COVID-19 pandemic has had, and will likely continue to have, significant adverse effects on our business including, but not limited to the following:

•

On March 20, 2020, the Company furloughed 85,000 store and distribution center associates, as well as some corporate office associates, as a result of temporarily closing all of our stores which limited our business to the digital channel.

•

Starting on May 4, 2020, Kohl’s began reopening stores in locations where permitted. As of June 5, 2020, we have reopened approximately 80% of our stores.

•

The Company experienced a significant decline in sales demand, and expects to continue to experience volatility in demand for its merchandise.

•

Additionally, social distancing measures or changes in consumer spending behaviors due to COVID-19 may continue to impact store traffic after normal operations are resumed and such actions could result in a loss of sales and profit. As our stores reopen, we have implemented numerous social distancing and safety measures. These include providing personal protective equipment to our employees, implementing a more rigorous cleaning process, including enhanced cleaning of high touch surfaces throughout the day, and installing protective barriers at all registers. To encourage social distancing, we installed social distancing signage and markers throughout the store, closed our fitting rooms, relocated Amazon returns to a separate area of the store, and are limiting occupancy in stores as appropriate. We have implemented a new process for handling merchandise returns, reduced store operating hours, and are providing dedicated shopping hours for at-risk individuals.

The chart below details costs that we believe are directly attributable to COVID-19:

(Dollars In Millions)		Quarter Ended
Description	Classification	May 2, 2020
Inventory write-downs	Cost of merchandise sold	$	187
Net compensation and benefits	Selling, general, and administrative		34
Supplies and other costs	Selling, general, and administrative		6
Asset write-offs and other	Impairments, store closing, and other costs		53
Total		$	280

In response to COVID-19 we have taken the following actions to preserve financial liquidity and flexibility:

•

Managed inventory receipts meaningfully lower,

•

Significantly reduced expenses across all areas of the business including marketing, technology, operations, and payroll,

•

Decreased planned capital expenditures by approximately $500 million,

•

Suspended share repurchase program,

•

Suspended regular quarterly cash dividend beginning in the second quarter of 2020,

•

Replaced and upsized the unsecured $1.0 billion revolver with a $1.5 billion secured facility, of which $1.0 billion was drawn as of quarter-end, and

•

Issued $600 million of 9.5% notes due 2025.

We cannot estimate with certainty the length or ~~$0.70 per diluted share,~~severity of this pandemic, or the extent to which the disruption may materially impact our Consolidated Financial Statements. However, we do expect the impact to continue to have a material adverse effect on our business, financial condition, and ~~13% lower than adjusted diluted earnings per share~~results of operations for the ~~third quarter of 2016 which excludes impairment, store closing and other costs.~~

full year 2020.

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

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Results of Operations

Total Revenue

	Quarter Ended
(Dollars in Millions)	May 2, 2020		May 4, 2019		Change
Net sales	$	2,160	$	3,821	$	(1,661	)
Other revenue		268		266		2
Total revenue	$	2,428	$	4,087	$	(1,659	)

Net sales declined 43.5% for the first quarter of 2020 compared to the first quarter of 2019.

•

The decrease in net sales reflects the temporary nationwide closure of our stores on March 20, 2020 due to COVID-19 which resulted in a decrease in transactions.

~~Net Sales~~

•

Digital sales increased 24% for the first quarter of 2020. Digital penetration represented 45% of net sales for the first quarter of 2020 and 21% of net sales for the first quarter of 2019.

~~In 2017, we changed~~

•

All lines of business reported increases in digital sales for the first quarter of 2020 with Home and Children’s outperforming the Company average.

•

Active continues to be a key strategic initiative and outperformed the rest of the Company.

Comparable sales is a measure that highlights the performance of our stores and digital channel by measuring the change in sales for a period over the comparable, prior-year period of equivalent length. Comparable sales ~~definition to align with our internal company reporting. Under the new definition, Kohl's~~includes all store and digital sales, ~~are included in comparable~~except sales ~~after the store has~~from stores open less than 12 months, stores that have been ~~open for 12 full months. On-line sales~~closed, and ~~sales at remodeled and relocated Kohl's~~ stores ~~are included in comparable sales, unless~~where square footage has changed by more than 10%. We measure the change in digital sales by including all sales initiated online or through mobile applications, including omnichannel transactions which are fulfilled through our stores.

As our stores were closed for over six weeks during the first quarter of 2020, we have not included a discussion of comparable sales as we do not believe it is a meaningful metric over this period of time.

We measure digital penetration as digital sales over net sales. These amounts do not take into consideration fulfillment node, digital returns processed in stores, and coupon behaviors.

Comparable sales and digital penetration measures vary across the retail industry. As a result, our comparable sales calculation and digital penetration are non-GAAP measures that may not be consistent with the similarly titled measures reported by other companies.

The ~~prior definition included sales for stores (including relocated or remodeled stores) which were open during all~~increase in Other revenue of ~~the current and prior periods.~~

~~Net sales increased $5~~$2 million ~~or 0.1%, to $4.3 billion~~ for the ~~third~~first quarter of ~~2017. Year to date, net sales decreased $162 million, or 1.3%, to $12.3 billion. Comparable sales increased 0.1% for the quarter~~2020 was driven by higher credit revenue.

Cost of Merchandise Sold and ~~decreased 1.0% year to date.~~Gross Margin

	Quarter Ended
(Dollars in Millions)	May 2, 2020			May 4, 2019			Change
Net sales	$	2,160		$	3,821		$	(1,661	)
Cost of merchandise sold		1,787			2,415			(628	)
Gross margin	$	373		$	1,406		$	(1,033	)
Gross margin as a percent of net sales		17.3	%		36.8	%		(1,950	)	bps

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, and West outperformed the Company average for both the quarter and year to date. The Mid-Atlantic and Northeast underperformed the Company average in both periods.

~~By line~~

Cost 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) 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~~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~~digital sales; and terms cash discount. Our ~~gross margin~~Cost of merchandise sold may not be comparable

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with that of other retailers because we include distribution center and buying costs in ~~selling,~~Selling, general, and administrative expenses while other retailers may include these expenses in ~~cost~~Cost of merchandise sold.

~~Gross~~

There were three primary drivers to the decrease in gross margin as a percent of net sales. First, approximately 1,500 bps of the decrease was due to inventory actions including continuing permanent markdown activity early in the first quarter of 2020 followed by an absence of sales ~~decreased 30 basis points for~~in the last half of the quarter, and ~~increased 15 basis points year to date. Both periods reflect the positive impacts of continued inventory management and improved markdowns and the negative impacts of~~establishing a reserve for excess seasonal inventory; second, higher shipping ~~costs. The quarter also reflects increases in reserves, such as loyalty rewards~~costs of approximately 250 bps due to increased digital sales penetration; and ~~sales returns, which primarily resulted from strong sales in late October.~~

third, approximately 200 bps due to mix of business and increased promotional activity.

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

	Quarter Ended
(Dollars in Millions)	May 2, 2020			May 4, 2019			Change
SG&A	$	1,066		$	1,275		$	(209	)
As a percent of total revenue		43.9	%		31.2	%		1,271		bps

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) in SG&A by expense type:~~

(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" ~~and indicates that sales growth~~.

The following table summarizes the decreases in SG&A by expense type:

	Quarter Ended
(Dollars In Millions)	May 2, 2020
Credit expenses	$	(21	)
Marketing		(51	)
Corporate and other		(60	)
Store expenses		(77	)
Total decrease	$	(209	)

SG&A expenses decreased $209 million, or 16.4%, to $1.1 billion. As a percentage of revenue, SG&A deleveraged by 1,271 bps. The decrease in SG&A was ~~less than expense growth.~~

~~SG&A as~~primarily driven by a ~~percent of sales increased, or "deleveraged," by 33 basis points for the quarter and 15 basis points year~~reduction in store expenses due to ~~date. Marketing expense reflected continued efficiencies in our non-customer facing spend. Year to date,~~temporary store closures nationwide, lower marketing expense ~~also included the benefit of not repeating a non-productive marketing event. Store~~due to reductions in all working media channels, and lower credit expenses ~~were managed consistently with~~due to lower interchange fees and payroll. Partially offsetting the decrease in ~~store sales. Our credit business had lower profits as we waived fees for our customers impacted by hurricanes. Technology~~SG&A expenses ~~increased as we migrate~~were expenses related to the ~~cloud~~COVID-19 pandemic which primarily consisted of incremental employee costs such as emergency pay, incentives and ~~invest~~benefits, and cleaning and protective supplies. Included in ~~digital~~these expenses was the retention credit benefit we were eligible for under The Coronavirus Aid, Relief, and ~~holiday capacity. Distribution costs increased as a result~~Economic Security Act (“CARES Act”). The CARES Act, enacted on March 27, 2020, provides eligible employers with an employee retention credit equal to 50% of ~~opening our fifth e-commerce fulfillment center.~~

qualified wages paid to employees who were not providing services to the Company due to the impact of COVID-19.

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Other Expenses

	Quarter Ended
(Dollars in Millions)	May 2, 2020		May 4, 2019		Change
Depreciation and amortization	$	227	$	230	$	(3	)
Impairments, store closing, and other costs		66		49		17
Interest expense, net		58		52		6

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 decreased $3 million in the first quarter of 2020 and was driven by capital reductions, as well as the maturity of our store portfolio.

In the first quarter of 2020, we incurred $66 million of Impairments, store closing, and other costs. We incurred $51 million in asset write-offs and $2 million in other costs related to capital reductions and strategy changes due to COVID-19 and $13 million in brand exit costs. In the first quarter of 2019, we incurred $49 million in lease impairment charges related to the closure of four stores.

Net interest expense increased in the first quarter as a result of higher ~~technology amortization. Interest~~interest expense ~~decreased~~due to the outstanding balance on the revolving credit facility.

Income Taxes

	Quarter Ended
(Dollars in Millions)	May 2, 2020			May 4, 2019			Change
(Benefit) provision for income taxes	$	(235	)	$	4		$	(239	)
Effective tax rate		30.3	%		6.3	%

The first quarter resulted in a benefit for income taxes driven by a net loss due to lower ~~interest on capital leases as~~sales that resulted from the ~~store portfolio matures.~~

~~Impairments, store closing and other costs includes expenses related~~temporary closure of our stores. The increase to ~~store closures and the corporate restructuring in 2016.~~

~~The provision for income taxes reflects changes in pre-tax income and the~~our effective tax ~~rate. The quarter and year-to-date periods include~~rate was primarily due to the ~~negative impacts~~benefit from the net loss carryback which offset income from taxable years where the federal statutory tax rate was 35% versus the current federal statutory tax rate of ~~higher~~21%.In addition, the Company recognized favorable ~~audit settlements~~items that lowered the 2019 effective tax rate that did not repeat 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.

2020.

(Loss) Income ~~before~~Before Income Taxes, Net (Loss) Income, and (Loss) Earnings Per Diluted Share

	Quarter Ended
	May 2, 2020									May 4, 2019
(Dollars in Millions, Except per Share Data)	Loss before Income Taxes			Net Loss			Loss Per Diluted Share			Income before Income Taxes		Net Income		Earnings Per Diluted Share
GAAP	$	(776	)	$	(541	)	$	(3.52	)	$	66	$	62	$	0.38
Impairments, store closing, and other costs		66			46			0.30			49		36		0.23
Adjusted (non-GAAP)	$	(710	)	$	(495	)	$	(3.22	)	$	115	$	98	$	0.61

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 for the periods excluding the impact of ~~store closures and restructuring charges~~certain items such as those included in ~~2016.~~the table above. 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~~majority 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

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results that may be achieved for a full fiscal year.

~~Although~~ Due to the impact of COVID-19, typical sales patterns may not occur this year.

In addition to COVID-19, we expect that our operations will continue to be influenced by general economic conditions, including food, fuel and energy prices, higher unemployment, 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~~including tariffs. There can be no ~~assurance~~assurances that such factors will not impact our business ~~will not be impacted by such factors~~ in the future.

Liquidity and Capital Resources

Financial liquidity and flexibility are a key focus of our response to COVID-19. As previously mentioned, we took various actions during the quarter to preserve our financial liquidity and flexibility.

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 •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 •Issuance of debt

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

	Quarter Ended
(Dollars in Millions)	May 2, 2020			May 4, 2019			Change
Net cash provided by (used in):
Operating activities	$	53		$	136		$	(83	)
Investing activities		(162	)		(238	)		76
Financing activities		1,425			(289	)		1,714

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~~$53 million of cash in the first ~~three quarters~~quarter of ~~2017, a decrease of $415~~2020 compared to $136 million ~~from~~in the first ~~three quarters~~quarter of ~~2016.~~2019. The decrease iswas primarily due to ~~excess inventory at the beginning of 2016 and timing of inventory receipts and the related payments.~~

~~Accounts payable as a percent of inventory increased 120 basis points~~decreased sales resulting from temporary nationwide store closures due to ~~45.6% at October 28, 2017 reflecting the positive impact of~~COVID-19 offset by extending payment terms with our ~~continued emphasis on inventory management.~~

vendors.

Investing Activities

Investing activities used cash of ~~$529~~$162 million in the first ~~three quarters~~quarter of ~~2017~~2020 and ~~$584~~ $238million in the first ~~three quarters~~quarter of ~~2016.~~2019. The decrease was primarily due to reductions in capital expenditures ~~reflects~~as a part of our response to COVID-19.

Financing Activities

Financing activities generated cash of $1.4 billion in the first quarter of 2020 compared to $289 million cash used for financing activities in the first quarter of 2019.

In March 2020, we fully drew down our $1.0 billion senior unsecured revolver. In April 2020, we replaced and upsized the unsecured credit facility with a $1.5 billion senior secured, asset based revolving credit facility maturing in July 2024. At May 2, 2020, $1.0 billion was outstanding on the credit facility bearing an effective interest rate of 3.41%.

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In April 2020, we issued $600 million of 9.50% notes with semi-annual interest payments beginning in November 2020. The notes mature in May 2025. We used part of the net ~~impact~~proceeds from this offering to repay $500 million of ~~lower new store expenditures partially offset by higher technology spending.~~

~~Financing Activities~~

~~Financing activities used cash~~the borrowings under our senior secured, asset based revolving credit facility with the remainder for general corporate purposes.

As a result of ~~$678~~the suspension of our share repurchase program in response to COVID-19, treasury stock purchases in the first quarter of 2020 were $8 million compared to $121 million in the first ~~three quarters~~quarter of ~~2017 and $810 million in the first three quarters of 2016. The decrease is primarily due to less treasury stock repurchases.~~

~~We paid cash for treasury stock purchases of $288 million in the first three quarters of 2017 and $441 million in the first three quarters of 2016.~~2019. Share repurchases are discretionary in nature. The timing and amount of repurchases isare based upon available cash balances, our stock price, and other factors.

~~We paid cash dividends of $277~~

Cash dividend payments were $108 million ($~~1.65~~0.704 per share) in the first ~~three quarters~~quarter of ~~2017~~2020 and ~~$270~~$108 million ($~~1.50~~0.67 per ~~share)~~share) in the first ~~three quarters~~quarter of ~~2016. On November 8, 2017,~~2019. In response to COVID-19, the dividend program has been suspended beginning in the second quarter of 2020. The Company remains committed to paying a dividend over the long-term following stabilization from COVID-19.

During the first quarter of 2020, both Standard and Poor’s and Fitch downgraded our ~~Board of Directors declared a quarterly cash dividend on our common stock of $0.55 per share. The dividend is payable on December 20, 2017~~long-term debt from BBB to ~~shareholders of record at the close of business on December 6, 2017.~~

BBB-. As of ~~October 28, 2017,~~May 2, 2020, our credit ratings were as follows:

	Moody’s	Standard & Poor’s	Fitch

	~~Moody’s~~	~~Standard & Poor’s~~	~~Fitch~~
Long-term debt	Baa2	BBB-	~~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)	May 2, 2020		May 4, 2019
Working capital	$	2,883	$	1,843
Current ratio		1.88		1.66

(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~~increase in our working capital and ~~the~~ current ratio ~~reflect the net impact of~~are primarily due to higher cash ~~and lower taxes payable, partially offset by lower inventory.~~

balances as a result of debt issuances.

Debt Covenant Compliance

Our senior secured, asset based revolving credit facility contains customary events of default and financial, affirmative and negative covenants, including but not limited to, a springing financial covenant relating to our fixed charge coverage ratio and restrictions on indebtedness, liens, investments, asset dispositions, and restricted payments, including a restriction on dividends in 2020 if our outstanding borrowings under the credit facility exceed $1.0 billion. These covenants vary from the calculation presented in our Annual Report on Form 10-K. As of ~~October 28, 2017,~~May 2, 2020, 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~~

2020.

Contractual Obligations

During the quarter, we issued $600 million in aggregate principal amount of 9.50% notes due 2025. We also replaced our outstanding unsecured credit facility, of which $1 billion was outstanding at the end of the quarter. See "Liquidity and Capital Resources" for additional details about these financing activities. See Note 3 of the Consolidated Financial Statements for additional details about outstanding debt. There have been no other significant changes in the contractual obligations disclosed in our ~~2016~~2019 Form 10-K.

Off-Balance Sheet Arrangements

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

May 2, 2020.

We have not created and are not a 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

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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~~U.S. GAAP 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~~Other than the items discussed in Footnote 1, there have been no significant changes in the critical accounting policies and estimates discussed in our ~~2016~~2019 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our operating results are subject to interest rate risk as our secured revolving credit facility carries variable interest rates, and the $600 million of notes issued in April 2020 include coupon rate step ups if our long-term debt is downgraded to below a BBB- credit rating by S&P Global Ratings or Baa3 by Moody’s Investors Service, Inc. There have been no other significant changes in the ~~market risks~~Quantitative and Qualitative Disclosures About Market Risk described in our ~~2016~~2019 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.

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~~May 2, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

There have been no significant changes in the ~~risk factors~~Risk Factors described in our ~~2016~~2019 Form ~~10-K.~~

~~This Form 10-Q contains "forward-looking statements" made within~~10-K, other than what is noted below.

The impact of COVID-19 has had a material adverse impact on our business, financial condition, and results of operations.

The impact of and actions taken in response to COVID-19 have had a significant impact on the ~~meaning~~retail industry generally and our business specifically, starting in the first quarter of fiscal year 2020. At present, we cannot estimate the ~~Private Securities Litigation Reform Act~~full impact of ~~1995. Words~~COVID-19, but we expect it to continue to have a material adverse impact on our business, financial condition, and results of operations.

Risks Relating to Revenues

On March 20, 2020, we temporarily closed our stores nationwide. Our stores have remained closed until recently, as we began to reopen stores in a phased approach, if and as permitted pursuant to applicable law. In connection with the store closures, we temporarily furloughed store and store distribution center associates, as well as some corporate office associates whose work was significantly reduced by the store closures. Due to the store closures, we have experienced a material decline in revenue and significant pressure on our cash flow. We cannot predict if further outbreaks would necessitate store closures again.

Our response to COVID-19 may also impact our customer loyalty. If our customer loyalty is negatively impacted or consumer discretionary spending habits change, including in connection with rising levels of unemployment, our market share and revenue may suffer as a result. To the extent the pandemic significantly impacts spending or payment patterns of our private label credit card holders, we may receive lower fees from our private label credit card program.

Risks Relating to Operations

Because we temporarily closed all of our stores, we took steps to reduce operating costs and improve efficiency, including furloughing a substantial number of our personnel. These steps may have an impact on our ability to attract and retain associates in the future. If we are unable to attract and retain associates in the future, such as ~~"believes," “anticipates,” “plans,” "may," "intends," "will," "should,"~~

~~“expects”~~those associates who find other employment during the furlough period, we may experience operational challenges as we re-open our stores. These risks related to our business, financial condition, and ~~similar expressions~~results of operations, are ~~intended~~especially heightened given the uncertainty as to ~~identify forward-looking statements. Forward-looking statements~~the extent and duration of COVID-19’s impact. We may ~~include comments about~~also face demands or requests from our ~~future sales~~associates for additional compensation, healthcare benefits or ~~financial performance~~other terms as a result of COVID-19 that could increase costs, and we could experience labor disputes or disruptions as we continue to implement our ~~plans, performance,~~COVID-19 mitigation plans. We cannot predict if further outbreaks would necessitate additional store closures again.

Our management team is focused on mitigating the impact of COVID-19, which has required and ~~other objectives, expectations or intentions, such as statements regarding~~will continue to require a large investment of time and focus. We reallocated certain of our ~~liquidity, debt service requirements,~~resources, including decreasing planned capital expenditures ~~future store~~by approximately $500 million and significantly reducing expenses across the business including expenses related to marketing, technology, and operations. This focus on mitigating the impact of COVID-19 could result in the delay of new initiatives, including brand launches. It has also required us to take measures to make modifications to our stores and ~~adequacy~~their operation to help protect the health and well-being of ~~capital resources~~our customers, associates and ~~reserves. Forward-looking statements~~others as they are ~~based~~re-opened. To the extent these measures are ineffective or perceived as ineffective, it may harm our reputation and customer loyalty and make our customers less likely to shop in our stores.

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Most of our corporate office associates continue to work remotely, as our offices are opening pursuant to a phased approach. As a result, we face certain operational risks, including heightened cybersecurity risks that may continue past the time when our associates return to work. We cannot predict if further outbreaks would necessitate corporate office closures again.

In addition, we cannot predict the impact that COVID-19 will have on our ~~management’s then current views~~suppliers, vendors, and ~~assumptions~~other business partners, and each of their financial conditions; however, any material effect on these parties could adversely impact us.

Risks Relating to Liquidity

In light of the impact of COVID-19 on our business, we have taken several actions to increase our cash position and preserve financial flexibility, including borrowing $1.0 billion under our senior secured, asset based revolving credit facility and issuing $600 million in aggregate principal amount of 9.50% notes due in 2025, and accordingly, our long-term debt has increased substantially since February 1, 2020. This increase in our level of debt may adversely impact our financial and operating activities or ability to incur additional debt. In addition, as a result of the risks described above, we may be required to raise additional capital, and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects, our credit ratings, and the outlook for the retail industry as a whole. As a result of COVID-19, some credit agencies have downgraded our credit ratings. If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our credit rating levels, our industry, or our Company, our access to capital and the cost of debt financing will be further negatively impacted. Accordingly, a downgrade may cause our cost of borrowing to further increase. Further, COVID-19 has led to a disruption and volatility in the capital markets generally, which has also increased the cost of accessing financing. Our access to additional financing and its cost continues to depend on a number of factors, including economic conditions, financing markets and the outlook for our business and the retail industry as a whole.

In addition, the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations or cause future financing to be unavailable due to our covenant restrictions then in effect. Also, if we are ~~subject~~unable to ~~certain risks~~comply with the covenants under our senior secured, asset based revolving credit facility, the lenders under that agreement will have the right to terminate their commitments thereunder and ~~uncertainties~~declare the outstanding loans thereunder to be immediately due and payable. A default under our senior secured, asset based revolving credit facility could trigger a cross-default, acceleration or other consequences under other indebtedness or financial instruments to which we are a party. There is no guarantee that debt financings will be available in the future to fund our obligations, or will be available on terms consistent with our expectations. Additionally, the impact of COVID-19 on the financial markets is expected to adversely impact our ability to raise funds through additional financings.

COVID-19 could also cause ~~actual results to differ materially from those projected. Any such forward-looking statements are qualified by the important~~or aggravate other risk factors ~~described~~that we identify in ~~Part I, Item 1A of~~ our ~~2016~~2019 Form 10-K, which in turn could materially and adversely impact our business, financial condition and results of operations. Further, COVID-19 may also affect our business, financial condition and results of operations in a manner that is not presently known to us or ~~disclosed from time~~that we currently do not consider to ~~time in~~present significant risks to our ~~filings with the SEC, that could cause actual~~business, financial condition and 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.~~

of operations.

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

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

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:~~May 2, 2020:

(Dollars in Millions, Except per Share Data)	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
February 2 - 29, 2020		23,356	$	43.04		-	$	734
March 1 - April 4, 2020		847,950		29.79		286,208		726
April 5 - May 2, 2020		32,369		37.86		-		726
Total		903,675	$	30.43		286,208	$	726

(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
3.1		Text of Amendments to the Company’s Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated April 15, 2020.
3.2		Amended and Restated Bylaws of Kohl’s Corporation, as amended through April 15, 2020 (complete version).
~~Exhibit~~ ~~Number~~ 4.1		~~Description~~
~~10.1~~		~~Amended and restated employment agreement between Kohl's Department Stores, Inc. and Kohl's Corporation and Michelle Gass, effective~~Credit Agreement, dated as of ~~September 25, 2017,~~April 16, 2020, by and among the Company and its subsidiaries, and Wells Fargo Bank, National Association, as agent, and the other lenders party thereto, incorporated by reference to Exhibit 10.1 of the ~~Company's current report~~Company’s Current Report on Form 8-K dated ~~September 25, 2017.~~April 16, 2020.*
31.1
~~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~~		Inline XBRL Instance Document
101.SCH
~~101.SCH~~		Inline XBRL Taxonomy Extension Schema
101.CAL
~~101.CAL~~		Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF
~~101.DEF~~		Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB
~~101.LAB~~		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE
~~101.PRE~~		Inline XBRL Taxonomy Extension Presentation Linkbase
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101)

*A management contract or compensatory plan or arrangement.

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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: June 5, 2020		~~Kohl’s Corporation~~ ~~(Registrant)~~ /s/ Jill Timm

~~Date:~~	~~December 1, 2017~~	~~/s/ Bruce Besanko~~
		~~Bruce Besanko~~ Jill Timm 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)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	KSS	New York Stock Exchange

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

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:

~~PART I~~	~~FINANCIAL INFORMATION~~
~~Item 1.~~	~~Financial Statements:~~	3
	Consolidated Balance Sheets	3
	Consolidated Statements of ~~Income~~Operations	4
	Consolidated ~~Statement~~Statements of Changes in Shareholders' Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10 12
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 22
Item 6.	Exhibits	18 23
Signatures		19 24


☒
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, 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



(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



	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



	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



							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