UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)15(d)
OF THISTHE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31,October 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ___________________________________
Commission file number 1-11084
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KOHL'S CORPORATION
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-1630919
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414)(262) 703-7000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 Days.
Yes X No_____
---No ______
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: September 7,December 6, 1999 Common Stock,
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Par Value $.01 per Share, 162,947,401163,025,086 shares Outstanding.
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KOHL'S CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
July 31, 1999, January 30, 1999 and August 1, 1998 3
Condensed Consolidated Statements of Income for the
Three Months and Six Months Ended July 31, 1999 and
August 1, 1998 4
Consolidated Statement of Changes in Shareholders' Equity
for the Six Months Ended July 31, 1999 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended July 31, 1999 and August 1, 1998 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-15
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
October 30, 1999, January 30, 1999 and
October 31, 1998 3
Condensed Consolidated Statements of Income
for the Three Months and Nine Months Ended
October 30, 1999 and October 31, 1998 4
Condensed Consolidated Statement of Changes in
Shareholders' Equity for the Nine Months
Ended October 30, 1999 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
October 30, 1999 and October 31, 1998 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
Signatures 17
-2-
KOHL'S CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31,October 30, January 30, August 1,October 31,
1999 1999 1998
-------------------------------------------------------
(Unaudited) (Audited) (Unaudited)
------------- ------------- -------------
(In thousands)
Assets
------
Current assets:
Current assets:
Cash and cash equivalents $2,960 $2,858 $2,534$ 16,066 $ 2,858 $ 2,757
Short-term investments 58,75320,000 26,736 14,85015,000
Accounts receivable trade, net 395,005291,713 270,704 191,519123,459
Merchandise inventories 753,9641,010,965 617,362 634,805832,338
Deferred income taxes 17,86316,449 14,412 8,5206,576
Other 9,32712,476 7,366 4,572
--------- --------- ---------5,180
------------- ------------- -------------
Total current assets 1,237,8721,367,669 939,438 856,800985,310
Property and equipment, net 1,086,9851,226,584 933,011 831,116883,602
Other assets 33,96937,749 25,027 18,56920,783
Favorable lease rights 140,628140,202 13,681 14,92614,153
Goodwill 22,33821,038 24,938 27,538
--------- --------- ---------26,238
------------- ------------- -------------
Total assets $2,521,792$2,793,242 $1,936,095 $1,748,949
========= ========= =========$1,930,086
============= ============= =============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $286,844 $212,926 $239,827$ 466,013 $ 212,926 $ 315,770
Accrued liabilities 120,081136,103 117,200 90,25588,283
Income taxes payable 11,90130,068 48,572 14,36313,141
Current portion of long-term debt 11,578 1,533 1,877
--------- --------- ---------1,559
------------- ------------- -------------
Total current liabilities 430,404643,762 380,231 346,322418,753
Long-term debt 498,667495,416 310,912 312,659379,076
Deferred income taxes 58,03660,442 53,787 48,10251,318
Other long-term liabilities 30,63832,772 28,386 26,44124,001
Shareholders' equity
Common stock-$.01 par value, 800,000,000 shares
authorized, 162,882,522,162,990,520, 158,394,735, and 158,054,978158,202,170
issued at July 31,October 30, 1999, January 30, 1999 and
August 1,October 31, 1998, respectively. 1,6291,630 1,584 1,5811,582
Paid-in capital 760,946764,734 504,275 490,994492,498
Retained earnings 741,472794,486 656,920 522,850
--------- --------- ---------562,858
------------- ------------- -------------
Total shareholders' equity 1,504,0471,560,850 1,162,779 1,015,425
--------- --------- ---------1,056,938
------------- ------------- -------------
Total liabilities and shareholders' equity $2,521,792$2,793,242 $1,936,095 $1,748,949
========= ========= =========$1,930,086
============= ============= =============
See accompanying Notes to Condensed Consolidated Financial Statements
3
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months 3 Months 69 Months 69 Months
(13 Weeks) (13 Weeks) (26(39 Weeks) (26(39 Weeks)
Ended Ended Ended Ended
JulyOctober 30, October 31, August 1, JulyOctober 30, October 31, August 1,
1999 1998 1999 1998
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(In thousands, except per share data)
Net sales $939,503 $758,747 $1,849,759 $1,503,318$1,099,852 $888,897 $2,949,611 $2,392,215
Cost of merchandise sold 614,199 502,170 1,211,327 993,272
--------- --------- ----------- -----------724,193 589,275 1,935,520 1,582,547
-------------- -------------- ------------- --------------
Gross margin 325,304 256,577 638,432 510,046375,659 299,622 1,014,091 809,668
Operating expenses:
Selling, general, and administrative 218,870 182,771 434,902 363,124246,751 202,156 681,653 565,280
Depreciation and amortization 19,745 15,660 38,322 30,64422,060 16,839 60,382 47,483
Goodwill amortization 1,300 1,300 2,600 2,6003,900 3,900
Preopening expenses 5,110 - 13,055 7,542
--------- --------- ----------- -----------11,033 8,049 24,088 15,591
-------------- -------------- ------------- --------------
Operating income 80,279 56,846 149,553 106,13694,515 71,278 244,068 177,414
Interest expense, net 6,488 5,201 11,620 10,260
--------- --------- ----------- -----------8,033 5,367 19,653 15,627
-------------- -------------- ------------- --------------
Income before income taxes 73,791 51,645 137,933 95,87686,482 65,911 224,415 161,787
Provision for income taxes 28,558 20,297 53,381 37,680
--------- --------- ----------- -----------33,468 25,903 86,849 63,583
-------------- -------------- ------------- --------------
Net income $45,233 $31,348 $84,552 $58,196
========= ========= =========== ===========$ 53,014 $ 40,008 $ 137,566 $ 98,204
============== ============== ============= ==============
Earnings per share:
Basic
Net income $0.28 $0.20 $0.52 $0.37$ 0.33 $ 0.25 $ 0.85 $ 0.62
Average number of shares 162,823 158,022 161,630 157,944162,953 158,132 162,073 158,007
Diluted
Net income $0.27 $0.19 $0.51 $0.36$ 0.32 $ 0.25 $ 0.82 $ 0.60
Average number of shares 167,548 162,752 166,502 162,475167,675 162,723 166,842 162,492
See accompanying Notes to Condensed Consolidated Financial StatementsStatements.
4
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock
---------------------------------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
------- ------ -------- ---------- -------------------------- --------------- --------------- ---------------- ---------------
(In thousands)
Balance at January 30, 1999 158,395 $1,584 $504,275 $656,920 $1,162,779
Issuance of common shares 2,800 28 199,598 - 199,626
Exercise of stock options 1,688 17 14,7081,796 18 15,955 - 14,72515,973
Income tax benefit from stock options - - 42,36544,906 - 42,36544,906
Net income - - - 84,552 84,552
------- ----- ------- ------- ---------137,566 137,566
---------------- --------------- --------------- ---------------- ---------------
Balance at July 31,October 30, 1999 162,883 $1,629 $760,946 $741,472 $1,504,047
======= ===== ======= ======= =========162,991 $1,630 $764,734 $794,486 $1,560,850
================ =============== =============== ================ ===============
See accompanying Notes to Condensed Consolidated Financial Statements
5
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
69 Months 69 Months
(26(39 Weeks) (26(39 Weeks)
Ended Ended
JulyOctober 30, 1999 October 31, 1999 August 1, 1998
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(In thousands)
Operating activities
Operating activities
Net income $84,552 $58,196$ 137,566 $ 98,204
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 41,051 33,34464,501 51,532
Deferred income taxes 798 1,0934,618 6,253
Other noncash charges 1,659 1,3142,291 1,573
Changes in operating assets and liabilities:
Accounts receivable (124,301) 48,098(21,009) 116,158
Merchandise inventories (136,602) (119,015)(393,603) (316,548)
Other current assets (1,961) 687(5,110) 79
Accounts payable 73,918 89,148253,087 165,091
Accrued and other long-term liabilities 5,648 (3,081)23,172 (4,677)
Income taxes (36,671) (24,119)
---------------- -----------------(18,504) (25,341)
------------------ ------------------
Net cash provided by (used in) operating activities (91,909) 85,66547,009 92,324
Investing activities
Acquisition of property and equipment
and favorable lease rights, net (323,960) (110,390)(483,843) (183,784)
Proceeds from sale of assets 4,350 -
Purchase1,292
Sale (purchase) of short-term investments, net (32,017) (14,850)6,736 (15,000)
Other (9,038) (6,824)
---------------- -----------------(14,220) (9,562)
------------------ ------------------
Net cash used in investing activities (360,665) (132,064)(486,977) (207,054)
Financing activities
Net borrowings (repayments) under credit facilities 1,300 2,000(1,600) 69,500
Proceeds from debt offering, net 197,258 -
Net borrowings (repayments)repayments of other long-term debt (758) 325(1,147) (126)
Payment of financing fees on debt (1,840) -
Net proceeds from issuance of common shares 256,716 2,447
---------------- -----------------260,505 3,952
------------------ ------------------
Net cash provided by financing activities 452,676 4,772
---------------- -----------------453,176 73,326
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 102 (41,627)13,208 (41,404)
Cash and cash equivalents at beginning of period 2,858 44,161
---------------- ----------------------------------- ------------------
Cash and cash equivalents at end of period $2,960 $2,534
================ =================$ 16,066 $ 2,757
================== ==================
See accompanying Notes to Condensed Consolidated Financial Statements
6
KOHL'S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1. Basis of Presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for fiscal year end financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-K (Commission File No. 1-11084)1-
11084) filed with the Securities and Exchange Commission.
Shareholders' equity, share and per share amounts for all periods presented
have been adjusted for the 2 for 1 stock split declared by the Company's Board
of Directors on March 9, 1998, effected in the form of a stock dividend.
Certain reclassifications have been made to the prior years'year financial
statements to conform to the fiscal 1999 presentation.
2. Merchandise Inventories
The Company uses the last-in, first out (LIFO) method of accounting for
merchandise inventory because it results in a better matching of cost and
revenues. The following information is provided to show the effects of the LIFO
provision on the quarter, as well as to provide users with the information to
compare to other companies not on LIFO.
LIFO Expense 6 Months Ended
------------
Quarter July 31, 1999 August 1, 1998
------- ------------- --------------
(In Thousands)
First $1,363 $1,861
Second 1,409 1,896
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Total $2,772 $3,757
LIFO Expense
------------ 9 Months Ended
Quarter October 30, 1999 October 31, 1998
------- ---------------- ----------------
(In Thousands)
First $1,363 $1,861
Second 1,409 1,896
Third 1,651 1,900
------ ------
Total $4,423 $5,657
Inventories would have been $4,694,000,$6,344,000, $1,921,000 and $8,540,000$10,440,000 higher
at July 31,October 30, 1999, January 30, 1999 and August 1,October 31, 1998, respectively if they
had been valued using the first-in, first-out (FIFO) method.
-7-
3. Contingencies
The Company is involved in various legal matters arising in the normal
course of business. In the opinion of management, the outcome of such
proceedings and litigation will not have a material adverse impact on the
Company's financial position or results of operations.
4. Net Income Per Share
The numerator for the calculation of basic and diluted net income per share
is net income. The denominator is summarized as follows (in thousands):
6 Months Ended
July 31, 1999 August 1, 1998
--------------------------------
Denominator for
basic earnings
per share -
weighted average
shares 161,630 157,944
Employee stock
options 4,872 4,531
------- -------
Denominator for
diluted earnings
per share 166,502 162,475
3 Months Ended 9 Months Ended
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
---- ---- ---- ----
Denominator for basic
earnings per share
-weighted average
shares 162,953 158,132 162,073 158,007
Employee stock options 4,722 4,591 4,769 4,485
------- ------- ------- -------
Denominator for diluted
earnings per share 167,675 162,723 166,842 162,492
======= ======= ======= =======
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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THREE MONTHS AND SIXNINE MONTHS ENDED July 31,October 30, 1999
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Results of Operations
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At July 31,October 30, 1999, the Company operated 231257 stores compared with 197214
stores at the same time last year. During the quarter, the Company successfully opened five26 new
stores inand relocated one store. The new stores opened included the Denver, CO market. The Company opened nine stores on August
20th: sixfollowing: 6
in the St. Louis, MO market, a store11 in the Dallas/Ft. Worth, TX market, stores in
Hickory, NC, and Lansing, MI, and additional stores in the Richmond, VA andVA;
Washington, D.C. markets. In October, Kohl's
plans to open 17 stores: 11 in Dallas/Ft. Worth, TX market and additional stores
in the; Harrisburg, PA; Chicago, IL; Lansing, MI; Minneapolis, MN; Grand Rapids, MI
and the Denver, CO markets. InOn November 5th, the Company plans to openopened two additional
stores in the Dallas/Ft. Worth, TX market.market, increasing the total number of new
store openings for 1999 to 46. To support the expansion in the St. Louis, Denver
and Dallas/Ft. Worth markets, the Company will open a distribution center in
Blue Springs, MO in December, 1999.
The Company plans to open 55-60 new stores in the year 2000. Approximately
38 are planned to open in the first half of the year: 3332 stores in New York, New
Jersey Connecticut and MarylandConnecticut previously operated by Caldor and additional stores in
the Dallas/Ft. Worth, TX, St. Louis, MO, Baltimore, MD and Rochester, MN
markets.
Net sales increased $180.8$211.0 million or 23.8%23.7% to $939.5$1,099.9 million for the
three months ended July 31,October 30, 1999 from $758.7$888.9 million for the three months
ended August
1,October 31, 1998. Of the increase, $114.0$152.2 million is attributable to the
inclusion of 17 new stores opened in 1998 and 1844 new stores opened in 1999. The
remaining $66.8$58.8 million is attributable to comparable store sales growth of
8.8%6.9%.
Net sales increased $346.5$557.4 million or 23.0%23.3% to $1,849.8$2,949.6 million for the
sixnine months ended July 31,October 30, 1999 from $1,503.3$2,392.2 million for the sixnine months
ended August
1,October 31, 1998. Of the increase, $207.9$365.9 million is attributable to the
inclusion of 32 new stores opened in 1998 and 1844 new stores opened in 1999. The
remaining $138.6$191.5 million is attributable to comparable stores sales growth of
9.7%8.6%.
Gross margin for the three months ended July 31,October 30, 1999 was 34.6%34.2% compared
to 33.7% for the three months ended October 31, 1998. Gross margin for the nine
months ended October 30, 1999 was 34.4% compared to 33.8% for the threenine months
ended August 1, 1998. Gross margin for the six months
ended JulyOctober 31, 1999 was 34.5% compared to 33.9% for the six months ended August
1, 1998. These increases are primarily attributable to a change
in merchandise mix and improvements related to inventory management.
-9-
Effective January 30, 1999, the Company implemented SOP 98-5, "Reporting on
the Costs of Start-upStart-Up Activities", which requires preopening costs to be
expensed as incurred. For the 46 new stores opened in March, April, and May,during fiscal 1999,
approximately $1 million in preopening costs was expensed in fiscal 1998 and
$8.2$23.5 million was expensed during the sixnine months ended July 31,October 30, 1999 for a
total average cost per store of $0.5 million. In addition, the Company incurred
$4.9approximately $0.6 million in preopening costs for stores to be opened later in fiscal
1999.2000. The expenses relate to the cost associated with new store openings,
including advertising, hiring and training costs for new employees, and
processing and transporting initial merchandise.
Operating income for the three months ended July 31,October 30, 1999, increased
$23.4$23.2 million or 41.2%32.6% over the three months ended August 1,October 31, 1998. Operating
income for the sixnine months ended July 31,October 30, 1999 increased $43.4$66.7 million or
40.9%37.6% over the sixnine months ended August 1,October 31, 1998. Excluding pre-opening expenses, operating
income increased 43.0% for the six months ended July 31, 1999. These increases resulted from the
increased sales, improved gross margin and the Company's ability to leverage its
selling, general and administrative expenses as net sales increased. Selling,
general and administrative expenses declined to 23.3%22.4% of net sales for the three
months ended July 31,October 30, 1999 from 24.1%22.7% of net sales for the three months ended
August 1,October 31, 1998. Selling, general and administrative expenses declined to 23.5%23.1%
of net sales for the sixnine months ended July 31,October 30, 1999 from 24.2%23.6% of the net
sales for the sixnine months ended August 1,October 31, 1998.
Net interest expense for the three months ended July 31,October 30, 1999 increased
$1.3$2.7 million from the three months ended August 1,October 31, 1998. Net interest expense
for the sixnine months ended July 31,October 30, 1999 increased $1.4$4.0 million from the sixnine
months ended August 1,October 31, 1998. The increase was primarily attributed to the $200
million 7.25% unsecured debentures issued in June 1999.
For the three months ended July 31,October 30, 1999, net income increased 44.3%32.5% to
$45.2$53.0 million from $31.3$40.0 million in the three months ended August 1,October 31, 1998.
Earnings were $.27$.32 per diluted share for the three months ended July 31,October 30, 1999
compared to $.19$.25 per diluted share for the three months ended August 1,October 31, 1998.
Net income for the sixnine months ended July 31,October 30, 1999 increased 45.3%40.1% to $84.6$137.6
million or $.51$.82 per diluted share from $58.2$98.2 million or $.36$.60 per diluted share
in the sixnine months ended August 1,October 31, 1998.
-10-
Seasonality & Inflation
- -----------------------
The Company's business, like that of most retailers, is subject to seasonal
influences, with the major portion of sales and income realized during the last
half of each fiscal year, which includes the back-to-school and holiday seasons.
Approximately 17% and 30% of sales occur during the back-to-school and holiday
seasons, respectively. Because of the seasonality of the Company's business,
results for any quarter are not necessarily indicative of the rsultsresults that may
be achieved for a full fiscal year. In addition, quarterly results of
operations depend significantly upon the timing and amount of revenues and costs
associated with the opening of new stores.
The Company does not believe that inflation has had a material effect on
the results during the periods presented. However, there can be no assurance
that the Company's business will not be affected in the future.
Impact of Year 2000
- -------------------
The Company currently has a Year 2000 Readiness Plan implemented. Detailed
in the plan are compliance definitions and testing guidelines for in-house
developed applications and computer hardware platforms. The plan defines a
methodology for assessing in-house developed applications and provides a means
for documentation. Team members and their responsibilities are defined
including senior executives that participate on the Year 2000 steering
committee. The plan includes three phases to address the Year 2000 issue and a
status of these key milestones is summarized below:
Year 2000 Readiness Plan Phases Current Status
- --------------------------------------------------------------- --------------
Assessment Complete
Remediation Complete
Verification
. Replacement code systems Complete
. Packaged financial systems October 1999 target completion dateComplete
. Non-IS systemsystems (including September 1999 target completion dateComplete
merchandise vendor EDI
transactions)
. Contingency Planning Complete
The phases of the Year 2000 Readiness Plan are defined below:
. The Assessment phase involved the inventory of all in-house developed
applications, purchased software and hardware, merchandise vendors, non-IT
systems, utilities and service providers. The Assessment phase also
included developing a plan for addressing each item and/or vendor to ensure
Year 2000 compliance.
This phase is complete.
-11-
. The Remediation phase involved implementing the changes required to reach
compliance and unit testing. This included correspondence with vendors that
have products or services that impact the Company's ability to continue
normal business operations.
This phase is also complete.
. The Verification phase iswas system testing the changes in similar
environments. This includesincluded testing with vendors and service provider
organizations.
. The Contingency Planning Phase was undertaken to prepare for potential Year
2000 disruptions. This phase involved developing and implementing Company
wide initiatives in order to effectively respond to Year 2000 disruptions.
In that regard, the Company continues to refine its contingency plans and
is enhancing and adding to the plans for each business area. A plan for the
night of December 31, 1999 and days to follow has been developed. The
staffing portion of the plan includes on-site coverage by the Company's
associates.
The Company has installed a Year 2000 test lab that is identical to the
production environment so that Year 2000 date simulation testing can be
performed without affecting production files. The Verification testing phase,
except for all packaged financial systems and non-IS systems, is complete.
The rollout of the packaged financial systems is approximately 75% complete
and will be finished by the end of October 1999. Even though the packaged
financial systems are identified Year 2000 compliant, the Company will be
conducting integrated testing in October 1999.
The Company has initiatedhad formal communications with all significant suppliers
to determine the extent to which the Company's interface systems are vulnerable
to those parties' failure to remediate their own Year 2000 issues. The Company is currently unit testing merchandise vendor EDI transactionsDepending on
the circumstances, formal certifications of Year 2000 compliance have been
requested and non-IS systems and is over 90% complete. The Company continues to refine its
contingency plans and is enhancing and adding to the plans for each business
area.received. The Company has identified that it may experience certain inconveniencesno knowledge of any primary or inefficiencies as a result of a supplier's failure to remediate its Year 2000
issues. The Company believes however, the vast majority of the Company's
business will proceed without any significant interruption.
The Company's total Year 2000 project costs and estimates to complete
include the impact of third partycritical
supplier with potential Year 2000 issues based on presently available
information. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted and would
notmay have ana material adverse effect
on the Company's systems.performance.
The total cost of the Year 2000 project is estimated at $9was $8.4 million and is beingwas
funded through operating cash flows. Of the total project cost, approximately $5$7.1 million iswas
attributable to the purchase of new software and hardware and related
development costs that will bewas capitalized. The remaining $4$1.3 million of
programming and testing costs will bewas expensed as incurred and isdid not expected to have a
material effect on the results of the operations. Of the capitalized portion,
approximately $4$5 million iswas for athe purchase and installation of new financial
system.systems. The new financial system
was asystems were previously planned projectprojects that supportssupport
the Company's growth, providesprovide significant business enablement and -12-
eliminateseliminate a
substantial Year 2000 effort.
To date, theThe Company has incurred
approximately $7.1 million ($2.6 million expensed and $4.5 million capitalized)
related to the assessment of, and preliminary efforts on, itsbelieves that Year 2000 project
andissues will not have a material
adverse impact on the development of a modification plan, purchase of new systems and systems
modifications.
The cost of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates.Company's performance. However, there can be no guarantee
that these estimatesYear 2000 issues will be achieved and
actual results could differ materially from those anticipated. In additionnot impact the Company's business due to the
Company's reliance on certain third parties to remediate their own Year 2000
issues specific factors that might cause such material differences include, but
are not limited to,and the continued availability and cost of personnel trained in
this area and theCompany's ability to locate and correct all relevant computer
codes.codes should a Year 2000 issue arise.
-12-
Financial Condition and Liquidity
- ---------------------------------
The Company's primary ongoing cash requirements are for inventory
purchases, capital expenditures in connection with the Company's expansion and
remodeling programs and pre-opening expenses. The Company's primary sources of
funds for its business activities are cash flow from operations, sales of its
proprietary accounts receivable, borrowings under its revolving credit facility
and short-term trade credit. Short-term trade credit, in the form of extended
payment terms for inventory purchases or third party factor financing,
represents a significant source of financing for merchandise inventories. The
Company's working capital and inventory levels typically build throughout the
fall, peaking during the holiday selling season.
At July 31,October 30, 1999, the Company's merchandise inventories had increased
$136.6$393.6 million over the January 30, 1999 balance and $119.2$178.6 million over the
August 1,October 31, 1998 balance. These increases reflect the purchase of fall
inventory as well as inventory for new stores. The Company's working capital
increased to $807.5$723.9 million at July 31,October 30, 1999 from $559.2 million at January
30, 1999 and increased from $510.5$566.6 million at August 1,October 31, 1998. Of the $297.0$157.3
million increase from August 1,October 31, 1998, $203.5$168.3 million is attributable to higher
credit card receivables as the Company sold a lower percentage of receivables.
The remaining increasevariance was primarily the result of higher merchandise inventory
levels required to support existing stores and incremental new storesstore locations
offset in part by increased accounts payable.
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Cash used in operating activities was $91.9 million for the six months ended
July 31, 1999 compared to cash provided by operating activities of $85.7was $47.0 million for the sixnine months
ended August 1,October 30, 1999 compared to $92.3 million for the nine months ended
October 31, 1998. Excluding changes in operating assets and liabilities, cash
provided by operating activities was $128.1$209.0 million for the sixnine months ended
July 31,October 30, 1999 compared to $93.9$157.6 million for the sixnine months ended August 1,October
31, 1998.
In March 1999, the Company purchased the right to occupy 33 store locations
previously operated by Caldor Corporation for $142 million. The Company expects
these stores will be open for business in spring 2000. The Company expects to
invest approximately $165 million more to renovate and refixture the stores. To
fund the renovation and refixturing, the Company issued 2,800,000 shares of its
common stock to the public in March 1999 for net proceeds of approximately $200
million.
Capital expenditures including the acquisition of the rights to occupy the
Caldor stores, for the sixnine months ended July 31,October 30, 1999 were $324.0$483.8
million compared to $110.4$183.8 million for the same period a year ago. The increase
in expenditures in 1999 is primarily attributable to the March 1999 acquisition
of the rights to occupy 33 stores previously operated by Caldor Corporation and
the Caldor stores,related expenditures to renovate and refixture these locations. The
remaining increase is attributed to the Company's new storesstore spending in the fiscal
1999 and the
construction of a fourth distribution center. Total capital expenditures for
fiscal 1999 are currently expected to range between $575-$600 million. This estimate includes the purchase of favorable
lease rights from Caldor Corporation and renovation and refixturing of the
properties. The
actual amount of the Company's future annual capital expenditures will depend
primarily on the number of new stores opened, whether such stores are owned or
leased by the Company and the number of existing stores remodeled or
refurbished.
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To fund the renovation and refixturing of the Caldor stores, the Company
issued 2,800,000 shares of its common stock to the public in March 1999 for net
proceeds of approximately $200 million.
In June 1999, the Company issued $200 million redeemable 7.25% unsecured
debentures. The debentures mature on June 1, 2029. The proceeds will beare being used
for general corporate purposes and continued store growth.
The Company anticipates that it will be able to satisfy its current
operating needs, planned capital expenditures and debt service requirements with
current working capital, cash flows from operations, seasonal borrowings under
its $300 million revolving credit facility, short-term trade credit and other
sources of financing.
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Information in this document contains "foward-looking"forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, such as
statements relating to debt service requirements and planned capital
expenditures. Foward-lookingForward-looking statements can be identified by the use of
foward-
lookingforward-looking terminology such as "believes", "expects", "may", "will",
"should" or "anticipates" or the negative thereof or other variations theron.thereon.
No assurance can be given that the future results covered by the foward-lookingforward-looking
statements will be achieved.
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Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Articles of Incorporation, as amended
4.1 First Supplemental Indenture dated as of
June 1, 1999 to Indenture dated as of
December 1, 1995, between Kohl's Corporation
and the Bank of New York, a trustee, incorporated
herein by reference to Exhibit 4.2Bylaws of the Company's
Registration Statement on Form S-4 (Reg. No. 333-83031)Company, as amended.
12.1 Statement regarding calculation of ratio of earnings to
fixed charges.
27.1 Financial Data Schedule - Article 5 of Regulation S-X, sixnine
months ended July 31, 1999October 30, 1999.
27.2 Financial Data Schedule - Article 5 of Regulation S-X, sixnine
months ended August 1,October 31, 1998 (restated).
b) Reports on Form 8-K
There were no reports on Form 8-K filed for three months ended
July 31, 1999
-16-October 30, 1999.
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SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed inon its behalf by the
undersigned thereunto duly authorized.
Kohl's Corporation
(Registrant)
Date: SeptemberDecember 14, 1999 /s/ R. Lawrence Montgomery
---------------------------------------------------------
R. Lawrence Montgomery
Vice Chairman--Chairman -
Chief Executive Officer
Date: SeptemberDecember 14, 1999 /s/ Arlene Meier
---------------------------------------------------------
Arlene Meier
Executive Vice President - Finance
Chief Financial Officer
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