UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 5, 2001
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to _______________
Commission file number 1-11084
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KOHL'S CORPORATION
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-1630919
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (262) 703-7000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 Days.
Yes X No _____
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: June 13, 2001 Common Stock,
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Par Value $.01 per Share, 334,385,719 shares Outstanding.
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KOHL'S CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
May 5, 2001, February 3, 2001 and
April 29, 2000. 3
Condensed Consolidated Statements of Income
for the Three Months Ended May 5, 2001
and April 29, 2000 4
Condensed Consolidated Statement of Changes
In Shareholders' Equity for the Three Months
Ended May 5, 2001 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
May 5, 2001 and April 29, 2000 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
2
KOHL'S CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
May 5, February 3, April 29,
2001 2001 2000
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(Unaudited) (Audited) (Unaudited)
(In thousands, except share amounts)
Assets
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Current assets:
Cash and cash equivalents $ 13,493 $ 123,621 $ 3,639
Short-term investments 144,030 48,600 -
Accounts receivable trade, net 712,032 681,256 547,887
Merchandise inventories 1,134,129 1,003,290 994,493
Income taxes receivable - - 10,595
Deferred income taxes 36,569 39,531 16,736
Other 46,224 25,599 39,396
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Total current assets 2,086,477 1,921,897 1,612,746
Property and equipment, net 1,818,746 1,726,450 1,479,627
Other assets 71,163 65,634 46,229
Favorable lease rights 176,301 126,635 131,999
Goodwill 13,238 14,538 18,438
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Total assets $ 4,165,925 $ 3,855,154 $ 3,289,039
============= ============= =============
Liabilities and Shareholders' Equity
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Current liabilities:
Accounts payable $ 387,314 $ 399,939 $ 461,860
Accrued liabilities 189,197 188,863 151,828
Income taxes payable 30,065 112,927 -
Short-term debt 5,000 5,000 225,000
Current portion of long-term debt 16,568 16,568 16,589
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Total current liabilities 628,144 723,297 855,277
Long-term debt 1,089,434 803,081 520,654
Deferred income taxes 89,769 84,256 69,643
Other long-term liabilities 40,933 41,881 35,614
Shareholders' equity
Common stock-$.01 par value, 800,000,000 shares authorized,
333,409,969, 332,167,129 and 329,423,752 issued at May 5, 2001,
February 3, 2001 and April 29, 2000,
respectively. 3,334 3,322 3,294
Paid-in capital 951,990 912,107 836,877
Retained earnings 1,362,321 1,287,210 967,680
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Total shareholders' equity 2,317,645 2,202,639 1,807,851
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Total liabilities and shareholders' equity $ 4,165,925 $ 3,855,154 $ 3,289,039
============ ============= =============
See accompanying Notes to Condensed Consolidated Financial Statements
3
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months 3 Months
(13 Weeks) (13 Weeks)
Ended Ended
May 5, April 29,
2001 2000
-----------------------------------------
(In thousands, except per share data)
Net sales $ 1,488,333 $ 1,228,666
Cost of merchandise sold 967,535 802,746
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Gross margin 520,798 425,920
Operating expenses:
Selling, general, and administrative 338,241 282,034
Depreciation and amortization 35,512 27,240
Goodwill amortization 1,300 1,300
Preopening expenses 13,235 19,129
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Operating income 132,510 96,217
Interest expense, net 10,576 10,452
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Income before income taxes 121,934 85,765
Provision for income taxes 46,823 33,147
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Net income $ 75,111 $ 52,618
============ ============
Earnings per share:
Basic
Net income $ 0.23 $ 0.16
Average number of shares 332,784 327,806
Diluted
Net income $ 0.22 $ 0.16
Average number of shares 341,142 336,353
See accompanying Notes to Condensed Consolidated Financial Statements
4
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Common Stock
------------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
-------------- -------------- ------------------ ----------------- ------------
(In thousands, except share amounts)
Balance at February 3, 2001 332,167,129 $ 3,322 $ 912,107 $ 1,287,210 $ 2,202,639
Exercise of stock options 1,242,840 12 16,411 - 16,423
Income tax benefit from exercise of
stock options - - 23,472 - 23,472
Net income - - - 75,111 75,111
-------------- -------------- ------------------ ----------------- ------------
Balance at May 5, 2001 333,409,969 $ 3,334 $ 951,990 $ 1,362,321 $ 2,317,645
============== ============== ================== ================= ============
See accompanying Notes to Condensed Consolidated Financial Statements
5
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
3 Months 3 Months
(13 Weeks) (13 Weeks)
Ended Ended
May 5, 2001 April 29, 2000
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(In thousands)
Operating activities
Net income $ 75,111 $ 52,618
Adjustments to reconcile net income to net cash (used in)
provided by operating activities
Depreciation and amortization 36,997 28,606
Amortization of debt discount 2,252 23
Deferred income taxes 8,475 8,609
Other noncash charges 1,126 1,069
Income tax benefit from exercise of stock options 23,472 45,285
Changes in operating assets and liabilities:
Accounts receivable (30,776) (42,877)
Merchandise inventories (130,839) (200,054)
Other current assets (20,625) (18,229)
Accounts payable (12,625) 125,428
Accrued and other long-term liabilities (313) (720)
Income taxes (82,862) (74,550)
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Net cash used in operating activities (130,607) (74,792)
Investing activities
Acquisition of property and equipment
and favorable lease rights, net (176,110) (151,063)
(Sale) Purchase of short-term investments, net (95,430) 27,500
Other (6,971) (5,676)
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Net cash used in investing activities (278,511) (129,239)
Financing activities
Proceeds from short-term debt - 140,000
Net borrowings under credit facilities - 41,000
Proceeds from (payments of) long-term debt and capital lease obligations 284,101 (10,362)
Payments of financing fees on debt (1,534) (21)
Net proceeds from issuance of common shares
including stock options 16,423 24,445
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Net cash provided by financing activities 298,990 195,062
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Net decrease in cash and cash equivalents (110,128) (8,969)
Cash and cash equivalents at beginning of period $ 123,621 $ 12,608
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Cash and cash equivalents at end of period $ 13,493 $ 3,639
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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) filed with the Securities and Exchange Commission (SEC).
Shareholders' equity, share and per share amounts for all periods
presented have been adjusted for the 2 for 1 stock split declared by the
Company's Board of Directors on March 6, 2000, effected in the form of a stock
dividend.
2. Reclassifications
Certain reclassifications have been made to the prior period financial
statements to conform to the fiscal 2001 presentation.
3. Merchandise Inventories
The Company uses the last-in, first out (LIFO) method of accounting for
merchandise inventory because it results in a better matching of costs 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 3 Months Ended
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Quarter May 5, 2001 April 29, 2000
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(In Thousands)
First $1,786 $1,844
Inventories would have been $6,637,000, $4,851,000 and $4,827,000 higher at
May 5, 2001, February 3, 2001 and April 29, 2000, respectively, if they had been
valued using the first-in, first-out (FIFO) method.
7
4. Debt
On March 8, 2001, the Company issued $300 million aggregate principal
amount of non-callable 6.30% unsecured senior notes due March 1, 2011. Net
proceeds were $297.4 million and will be used for general corporate purposes,
including continued store growth.
5. Contingencies
The Company is involved in various legal matters arising in the normal
course of business. In the opinion of management, the outcome of such
proceedings and litigation will not have a material adverse impact on the
Company's financial position or results of operations.
6. Net Income Per Share
The numerator for the calculation of basic and diluted net income per share
is net income. The denominator is summarized as follows (in thousands):
3 Months Ended
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May 5, 2001 April 29, 2000
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Denominator for
basic earnings
per share
weighted average
shares 332,784 327,806
Employee stock
options 8,358 8,547
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Denominator for
diluted earnings
per share 341,142 336,353
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8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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THREE MONTHS ENDED MAY 5, 2001
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Results of Operations
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At May 5, 2001, the Company operated 354 stores compared with 298 stores at
the same time last year. During the quarter, the Company opened 34 stores
including entering the Atlanta, GA market with 15 stores and the
Fayetteville/Ft. Smith market in Arkansas with three stores. The remaining 16
stores included the addition of four stores in the Northeast in the Hartford/New
Haven, CT market and 12 new stores in other existing regions.
Net sales increased $259.6 million or 21.1% to $1,488.3 million for the
three months ended May 5, 2001 from $1,228.7 million for the three months ended
April 29, 2000. Of the increase, $201.2 million is attributable to the
inclusion of 61 new stores opened in 2000 and 34 new stores opened in 2001. The
remaining $58.4 million is attributable to comparable store sales growth of
5.3%.
Gross margin for the three months ended May 5, 2001 was 35.0% compared to
34.7% in the three months ended April 29, 2000. This increase is primarily
attributable to a change in merchandise mix and improvements related to
inventory management.
Selling, general and administrative expenses declined to 22.7% of net sales
for the three months ended May 5, 2001 from 23.0% of net sales for the three
months ended April 29, 2000. The decrease was a result of leverage achieved on
the increase in net sales.
Depreciation and amortization for the three months ended May 5, 2001 was
$36.8 million compared to $28.5 million for the three months ended April 29,
2000. The increase is primarily attributable to capital spending related to new
store openings.
Preopening expense for the three months ended May 5, 2001 was $13.2 million
compared to $19.1 million for the three months ended April 29, 2000. The
decrease is primarily due to the number of new stores opened and the mix of new
market and fill-in locations versus prior year. Approximately $5.1 million of
preopening costs for the 34 new stores opened in the first quarter of 2001 was
expensed in fiscal 2000 and $13.2 million was expensed during the three months
ended May 5, 2001. Preopening expenses relate to the costs associated with new
store openings, including advertising, hiring and training costs for new
employees, and processing and transporting initial merchandise.
As a result of the above factors, operating income for the three months
ended May 5, 2001, increased $36.3 million or 37.7% over the three months ended
April 29, 2000.
9
Net interest expense for the three months ended May 5, 2001, was $10.6
million compared to $10.5 million for the three months ended April 29, 2000. The
Company incurred incremental interest expense of $2.7 million as a result of the
$300 million of unsecured senior notes issued on March 8, 2001. This was
partially offset by an increase in interest income of approximately $2.5 million
related to the short term investment of the debt proceeds and an increase in the
amount of interest capitalized of approximately $0.3 million.
Net income for the three months ended May 5, 2001, increased 42.7% to $75.1
million from $52.6 million for the three months ended April 29, 2000. Earnings
were $0.22 per diluted share for the three months ended May 5, 2001 compared to
$0.16 per diluted share for the three months ended April 29, 2000.
Seasonality & Inflation
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The Company's business, like that of most retailers, is subject to seasonal
influences, with the major portion of sales and income typically realized during
the last half of each fiscal year, which includes the back-to-school and holiday
seasons. Approximately 16% and 30% of sales typically occur during the back-to-
school and holiday seasons, respectively. Because of the seasonality of the
Company's business, results for any quarter are not necessarily indicative of
the results that may be achieved for a full fiscal year. In addition, quarterly
results of operations depend significantly upon the timing and amount of
revenues and costs associated with the opening of new stores.
The Company does not believe that inflation has had a material effect on
the results during the periods presented. However, there can be no assurance
that the Company's business will not be affected in the future.
Financial Condition and Liquidity
- ---------------------------------
The Company's primary ongoing cash requirements are for seasonal and new
store inventory purchases, the growth in credit card accounts receivable and
capital expenditures in connection with expansion and remodeling programs. The
Company's primary sources of funds for its business activities are cash flow
from operations, financing secured by its proprietary accounts receivable,
borrowings under its revolving credit facility and short-term trade credit.
Short-term trade credit, in the form of extended payment terms for inventory
purchases or third party factor financing, represents a significant source of
financing for merchandise inventories. The Company's working capital and
inventory levels typically build throughout the fall, peaking during the holiday
selling season. In addition, the Company periodically accesses capital markets,
as needed, to finance its growth.
10
At May 5, 2001, the Company's working capital increased to $1,458.3 million
at May 5, 2001 from $1,198.6 million at February 3, 2001 and $757.5 million at
April 29, 2000. Of the $700.8 million increase from April 29, 2000, $164.1
million is attributable to an increase in credit card receivables and $139.6
million is related to an increase in merchandise inventory to support new store
locations. The remaining increase is primarily related to the debt issuance of
$300 million unsecured senior notes in March 2001. The investment of debt
proceeds resulted in an increase in short term investments and a reduction in
short term debt as the Company had no borrowings secured by its proprietary
accounts receivable at May 5, 2001.
Cash used in operating activities was $130.6 million for the three months
ended May 5, 2001 compared to $74.8 million for the three months ended April 29,
2000. The change is primarily due to the increase in the investment in
inventory and the related accounts payable vendor dating negotiated during the
three months ended April 29, 2000 to support the opening of the greater New York
metro area locations. Excluding changes in operating assets and liabilities,
cash provided by operating activities was $147.4 million for the three months
ended May 5, 2001 compared to $136.2 million for the three months ended April
29, 2000.
Capital expenditures for the three months ended May 5, 2001 were $176.1
million compared to $151.1 million for the same period a year ago. The increase
in expenditures is primarily attributable to the timing of spending related to
new stores.
The Company opened 34 new stores during the quarter and plans to open 28
additional stores in Fall 2001. At the end of fiscal 2001, a distribution
center is scheduled to open in Mamakating, New York to support Northeast
Expansion. In addition, Kohl's has acquired the lease rights to a distribution
facility in Corsicana, Texas. This facility is expected to open by the end of
the year and will serve existing Texas locations and support further expansion
in the region.
Total capital expenditures for fiscal 2001 are currently expected to be
approximately $700 million. This estimate includes the purchase of favorable
lease rights for 15 stores from Bradlees Inc., the renovation and refixturing of
the properties, the capital required to open distribution facilities, new store
spending as well as base capital needs. The actual amount of the Company's
future annual capital expenditures will depend primarily on the number of new
stores opened, whether such stores are owned or leased by the Company and the
number of existing stores remodeled or refurbished.
11
In March 2001, the Company issued $300 million aggregate principal amount
of non-callable 6.30% unsecured senior notes due March 2011. The proceeds will
be used for general corporate purposes, including continued store growth.
The Company anticipates that it will be able to satisfy its working capital
requirements, planned capital expenditures and debt service requirements with
proceeds from cash flows from operations, short term trade credit, $225 million
of available financing secured by its proprietary credit card accounts
receivable, seasonal borrowings under its $300 million revolving credit facility
and other sources of financing. The Company expects to generate adequate cash
flows from operating activities to sustain current levels of operations. The
Company maintains favorable banking relations and anticipates that the necessary
credit agreements will be extended or new agreements will be entered into in
order to provide future borrowing requirements as needed.
Forward Looking Statements
- --------------------------
Item 2 of this Form 10-Q contains "forward-looking statements," subject to
protections under federal law. The Company intends words such as "believes,"
"anticipates," "plans," "may," "will," "should," "expects" and similar
expressions to identify forward-looking statements. In addition, statements
covering Company's future sales or financial performance and the Company's
plans, objectives, expectations or intentions are forward-looking statements,
such as statements regarding the Company's liquidity, debt service requirements,
planned capital expenditures, future store openings and adequacy of capital
resources. There are a number of important factors that could cause the
Company's results to differ materially from those indicated by the forward-
looking statements. Among these factors are those risk factors described in
Exhibit 99.1 to the Company's annual report on form 10-K filed with the SEC on
April 17, 2001 and such factors as may periodically be described in the
Company's filings with the SEC.
12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports on Form 8-K
12.1 Statement regarding calculation of ratio
of earnings to fixed charges.
(b) Reports on Form 8-K
The Company filed one current report on Form 8-K dated March 1, 2001
with respect to Item 5-Other Events.
13
SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Kohl's Corporation
(Registrant)
Date: June 15, 2001 /s/R. Lawrence Montgomery
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R. Lawrence Montgomery
Chief Executive Officer and Director
Date: June 15, 2001 /s/Arlene Meier
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Arlene Meier
Chief Operating Officer
14