UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended February 2, 2002
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 No. 1-11084
KOHL'S CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1630919
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
N56 W17000 Ridgewood 53051
Drive, (Zip Code)
Menomonee Falls, Wisconsin
(Address of principal
executive offices)
Registrant's telephone number, including area code (262) 703-7000
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
At March 26, 2002 the aggregate market value of the voting stock of the
Registrant held by stockholders who were not affiliates of the registrant was
$20,554,153,994 (based upon the closing price of Registrant's Common Stock on
the New York Stock Exchange on such date). At March 26, 2002, the Registrant
had issued and outstanding an aggregate of 336,103,418 shares of its Common
Stock.
Documents Incorporated by Reference:
1. Portions of Registrant's Proxy Statement dated April 12, 2002 are
incorporated into Part III.
PART I
Item 1. Business
The Company currently operates 420 family-oriented, specialty department
stores that feature quality, national brand merchandise priced to provide value
to customers. The Company's stores sell moderately priced apparel, shoes,
accessories and home products targeted to middle-income customers shopping for
their families and homes. Kohl's offers a convenient shopping experience
through easily accessible locations, well laid out stores, central checkout and
good in-stock position which allows the customer to get in and out quickly.
Kohl's stores have fewer departments than traditional, full-line department
stores but offer customers dominant assortments of merchandise displayed in
complete selections of styles, colors and sizes. Central to the Company's
pricing strategy and overall profitability is a culture focused on maintaining
a low cost structure. Critical elements of this low cost structure are the
Company's unique store format, lean staffing levels, sophisticated management
information systems and operating efficiencies resulting from centralized
buying, advertising and distribution.
As used herein, the term the "Company" and "Kohl's" refer to Kohl's
Corporation, its consolidated subsidiaries and predecessors. The Company's
fiscal year ends on the Saturday closest to January 31. Fiscal 2001 ended on
February 2, 2002, and was a 52 week year. The Company is a Wisconsin
corporation organized in 1993.
Expansion
The Company's expansion strategy is designed to achieve consistent growth.
Since 1992, the Company has increased square footage an average of 22.0% per
year, expanding from 79 stores located in the Midwest to a current total of 420
stores with a presence in six regions of the country: the Midwest, Northeast,
Southcentral, Mid-Atlantic, Southeast and Southwest.
Number of Stores
- ------------------------------
At Fiscal Year End
- ------------------ As of April
Region States 1992 1997 2001 2002
------ ----------------------------- ---- ---- ---- -----------
Midwest.......... IA,IL,IN,MI,MN,ND,NE,OH,SD,WI 79 136 177 178
Mid-Atlantic..... MD, PA, VA, WV -- 28 55 55
Northeast........ CT, MA, NH, NJ, NY, RI -- 4 47 65
Southcentral..... AR, KS, MO, OK, TX -- 8 52 66
Southeast........ AL, GA, KY, NC, SC, TN -- 6 40 45
Southwest........ CO -- -- 11 11
-- --- --- ---
Total..... 79 182 382 420
== === === ===
In support of its geographic expansion, the Company has focused on providing
the solid infrastructure needed to ensure consistent execution. Kohl's
proactively invests in distribution capacity and regional management to
facilitate the growth in new and existing markets. The Company's central
merchandise organization tailors merchandise assortments to reflect regional
climates and preferences. Management information systems support the Company's
low cost culture by enhancing productivity and providing the information needed
to make key merchandising decisions.
The Kohl's concept has proven to be transferable to markets across the
country. The Company's approach is to enter new markets with critical mass to
establish a presence and to leverage marketing, regional management and
distribution costs. New market entries are supported by extensive advertising
and promotions designed to introduce new customers to the Kohl's concept of
brands, value and convenience. Additionally, the Company has been successful in
acquiring, refurbishing and operating locations previously operated by other
retailers. Of the 420 stores currently operated, 116 are take-over locations,
which facilitated the entry into several new markets
2
including Chicago, Detroit, Ohio, Boston, Philadelphia, St. Louis, and the New
York region. Once a new market is established, the Company adds additional
fill-in stores to further strengthen market share and enhance profitability.
The Company currently operates stores in the following large and intermediate
sized markets:
Number of stores
February 2, 2002
----------------
Greater New York metropolitan area.... 36
Chicago............................... 36
Washington D.C./Baltimore............. 21
Greater Philadelphia metropolitan area 21
Dallas/Fort Worth..................... 19
Atlanta............................... 18
Milwaukee............................. 16
Minneapolis/St. Paul.................. 15
Detroit............................... 14
Cleveland............................. 11
Denver................................ 11
Indianapolis.......................... 10
Columbus.............................. 8
St. Louis............................. 8
Kansas City........................... 7
Pittsburgh............................ 7
Cincinnati/Dayton..................... 6
Charlotte............................. 6
In fiscal 2001, Kohl's opened 62 new stores entering the Southeast with 23
new stores including the initial entry in the Atlanta, GA market with 18
stores. Fourteen stores were added to the Southcentral region including four
stores in the Oklahoma City, OK market, three stores in the Austin, TX market,
three stores in the Fayetteville, AR market and two stores in the El Paso, TX
market. In addition, 14 stores were added to the Midwest region and eleven
stores were added to the Mid-Atlantic, Northeast and Southwest regions.
Management believes there is substantial opportunity for further growth and
intends to open approximately 70 new stores in fiscal 2002. In the first
quarter, Kohl's opened 38 stores including entering the Houston, TX market with
12 stores; the Boston, MA market with 13 stores and the Nashville, TN market
with four stores. In addition, the Company added two stores in Dallas, TX; five
stores in the Northeast region and one store each in the Midwest and Southeast
regions. In fall of 2002, Kohl's plans to open approximately 32 stores
including an entry into the Providence, RI market with four stores; two
additional stores in the Boston, MA market; 14 additional stores in the Midwest
region; five additional stores in the Northeast region and seven new stores in
other existing regions.
During 2003, Kohl's plans to open approximately 80 new stores beginning with
an entry into the Los Angeles, CA market in the spring. In the fall season,
Kohl's plans to enter the Phoenix, AZ and Las Vegas, NV markets. A distribution
center, located in San Bernardino, CA, is currently under construction and will
be opened at the end of fiscal 2002 to support the Company's growth in this
region.
Management believes the transferability of the Kohl's retailing strategy,
the Company's experience in acquiring and converting pre-existing stores and in
building new stores, combined with the Company's substantial investment in
management information systems, centralized distribution and headquarters
functions provide a solid foundation for further expansion.
Merchandising
Kohl's stores feature moderately priced, department store national brand
names, which provide value to customers. Kohl's merchandise is targeted to
appeal to middle-income customers shopping for their families and
3
homes. The Company's stores generally carry a consistent merchandise assortment
with some differences attributable to regional preferences. The Company's
stores emphasize apparel and shoes for women, men, and children, soft home
products, such as towels, sheets and pillows, and housewares.
Convenience
Convenience is another important cornerstone of Kohl's business model. At
Kohl's, convenience begins before the customer enters the store, with a
neighborhood location close to home. Other aspects of convenience include
easily accessible entry, knowledgeable and friendly associates, wide aisles, a
functional store layout, shopping carts/strollers and fast, centralized
checkouts. The physical store layout coupled with the Company's focus on strong
in-stock position on color and size are aimed at providing a convenient
shopping experience for an increasingly time starved customer. In addition,
Kohl's introduced on-line shopping on the Company's existing web-site in 2001.
Designed as an added service for customers who prefer to shop from their homes,
the web-site offers key items, best selling family apparel and home
merchandise. The site is designed to provide an easy-to-navigate, on-line
shopping environment that compliments the Company's in-store focus on
convenience.
Distribution
The Company receives substantially all of its merchandise at six
distribution centers, with the balance delivered directly to the stores by
vendors or their distributors. The distribution centers ship merchandise to
each store by contract carrier several times a week.
The following table summarizes key information about each distribution
center:
Fiscal
Year Square Approximate
Distribution Center Location Opened Footage States Serviced Store Capacity
- ---------------------------- ------ ------- ------------------------------------------------ --------------
Menomonee Falls, Wisconsin. 1981 500,000 Illinois, Wisconsin, Minnesota, northern Indiana 90
Findlay, Ohio (a).......... 1994 750,000 Ohio, Michigan, Indiana, North Carolina, 120
Kentucky, Tennessee, West Virginia, Alabama
Winchester, Virginia....... 1997 400,000 New Jersey, Pennsylvania, Maryland, Virginia, 100
New York, Delaware, South Carolina
Blue Springs, Missouri..... 1999 540,000 Georgia, Missouri, Colorado, Minnesota, 100
Kansas, Oklahoma, southern Illinois, Iowa,
Nebraska, Arkansas, South Dakota,
North Dakota
Corsicana, Texas........... 2001 350,000 Texas 45
Mamakating, New York....... 2002 605,000 Massachusetts, Connecticut, New Hampshire 100
- --------
(a) This facility was expanded by approximately 100,000 square feet to increase
capacity during fiscal 2001
The Company plans to open its seventh distribution center in San Bernardino,
CA at the end of fiscal 2002 to support the Company's growth into the
Southwestern region.
The Company opened a 500,000 square foot fulfillment center in Monroe, OH in
March 2001. The facility services the Company's e-commerce business.
Employees
As of February 2, 2002, the Company had approximately 60,000 employees,
including approximately 17,500 full-time and approximately 42,500 part-time
associates. The number of associates varies during the year, peaking during the
back-to-school and holiday seasons. None of the Company's associates is
represented by a collective bargaining unit. The Company believes its relations
with its associates are very good.
4
Competition
The retail industry is highly competitive. Management considers quality,
value, merchandise mix, service and convenience to be the most significant
competitive factors in the industry. The Company's primary competitors are
traditional department stores, upscale mass merchandisers and specialty stores.
The Company's specific competitors vary from market to market.
Seasonality
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 31% of sales occur during the
back-to-school and holiday seasons, respectively. Because of the seasonality of
the Company's business, results for any quarter are not necessarily indicative
of the results that may be achieved for the 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.
Trademarks and Service Marks
The name "Kohl's," written in its distinctive block style, is a registered
service mark of a wholly-owned subsidiary of the Company, and the Company
considers this mark and the accompanying name recognition to be valuable to its
business. This subsidiary has approximately 60 additional trademarks, trade
names and service marks, most of which are used in its private label program.
Item 2. Properties
As of February 2, 2002, the Company operated 382 stores in 29 states. The
Company owned 93 stores, owned 76 stores with ground leases and leased 213
stores under operating leases. The Company's typical lease has an initial term
of 20-25 years plus five to eight renewal options for consecutive five year
extension terms.
Substantially all of the Company's leases provide for a minimum annual rent
that is fixed or adjusts to set levels during the lease term, including
renewals. Approximately 45% of the leases provide for additional rent based on
a percentage of sales to be paid when designated sales levels are achieved.
5
The Company's stores are located in strip shopping centers (266), community
and regional malls (43), and as free standing units (73). Of the Company's
stores, 346 are one-story facilities and 36 are two-story facilities.
Number of
Stores at
February 2,
2002
-----------
Illinois......... 42
Ohio............. 32
Wisconsin........ 29
Pennsylvania..... 26
Michigan......... 25
Texas............ 24
Indiana.......... 20
Georgia.......... 18
New Jersey....... 18
Minnesota........ 17
New York......... 17
Virginia......... 13
Connecticut...... 12
Maryland......... 12
North Carolina... 12
Colorado......... 11
Missouri......... 11
Kansas........... 7
Oklahoma......... 7
Iowa............. 6
Kentucky......... 5
Nebraska......... 4
Tennessee........ 4
Arkansas......... 3
Delaware......... 2
West Virginia.... 2
North Dakota..... 1
South Carolina... 1
South Dakota..... 1
---
Total..... 382
===
The Company owns its distribution centers in Menomonee Falls, Wisconsin;
Findlay, Ohio; Winchester, Virginia; Blue Springs, Missouri and Mamakating, New
York. The Company also owns its corporate headquarters in Menomonee Falls,
Wisconsin and the California distribution center scheduled to open in fiscal
2002. The Company leases the distribution center in Corsicana, Texas and the
e-commerce fulfillment center in Monroe, Ohio.
Item 3. Legal Proceedings
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders during
the last quarter of fiscal 2001.
6
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
(a) Market information
The Common Stock has been traded on the New York Stock Exchange since May
19, 1992, under the symbol "KSS." On March 6, 2000, the Company's Board of
Directors declared a 2 for 1 stock split effected in the form of a stock
dividend on the Company's common stock. The record date for the stock split was
April 7, 2000. The prices in the table set forth below indicate the high and
low prices of the Common Stock for each quarter in fiscal 2001 and 2000,
adjusted to give effect to the stock split.
Price Range
-------------
High Low
------ ------
Fiscal 2001
First Quarter. $72.24 $48.70
Second Quarter 67.95 55.00
Third Quarter. 60.12 42.00
Fourth Quarter 71.85 58.10
Fiscal 2000
First Quarter. $54.78 $34.06
Second Quarter 66.50 44.00
Third Quarter. 64.75 49.06
Fourth Quarter 72.20 48.44
(b) Holders
At March 26, 2002, there were 6,238 holders of the Common Stock.
(c) Dividends
The Company has never paid a cash dividend, has no current plans to pay
dividends on its Common Stock and intends to retain all earnings for investment
in and growth of the Company's business. In addition, financial covenants and
other restrictions in the Company's financing agreements limit the payment of
dividends on the Common Stock. The payment of future dividends, if any, will be
determined by the Board of Directors in light of existing business conditions,
including the Company's earnings, financial condition and requirements,
restrictions in financing agreements, and other factors deemed relevant by the
Board of Directors.
7
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data presented below should be read in
conjunction with the consolidated financial statements of the Company and
related notes included elsewhere in this document. The selected consolidated
financial data, except for the operating data, has been derived from the
audited consolidated financial statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors.
Fiscal Year Ended
----------------------------------------------------------------
February 2, February 3, January 29, January 30, January 31,
2002 2001 (a) 2000 1999 1998
----------- ----------- ----------- ----------- -----------
(Dollars in Thousands, Except Per Share and Per Square Foot Data
Statement of Operations Data
Net sales................................... $7,488,654 $6,151,996 $4,557,112 $3,681,763 $3,060,065
Cost of merchandise sold.................... 4,923,527 4,056,139 3,014,073 2,447,301 2,046,468
---------- ---------- ---------- ---------- ----------
Gross margin................................ 2,565,127 2,095,857 1,543,039 1,234,462 1,013,597
Selling, general and administrative expenses 1,527,478 1,282,367 975,269 810,162 678,793
Depreciation and amortization............... 157,165 126,986 88,523 70,049 57,380
Preopening expenses......................... 30,509 35,189 30,972 16,388 18,589
---------- ---------- ---------- ---------- ----------
Operating income............................ 849,975 651,315 448,275 337,863 258,835
Interest expense, net....................... 50,111 46,201 27,163 21,114 23,772
---------- ---------- ---------- ---------- ----------
Income before income taxes.................. 799,864 605,114 421,112 316,749 235,063
Provision for income taxes.................. 304,188 232,966 162,970 124,483 93,790
---------- ---------- ---------- ---------- ----------
Net income.................................. $ 495,676 $ 372,148 $ 258,142 $ 192,266 $ 141,273
========== ========== ========== ========== ==========
Net income per share (b):
Basic.................................... $ 1.48 $ 1.13 $ 0.80 $ 0.61 $ 0.46
Diluted.................................. $ 1.45 $ 1.10 $ 0.77 $ 0.59 $ 0.45
Operating Data:
Comparable store sales growth (c)........... 6.8% 9.0% 7.9% 7.9% 10.0%
Net sales per selling square foot (d)....... $ 283 $ 281 $ 270 $ 265 $ 267
Total square feet of selling space (in
thousands; end of period)................. 28,576 23,610 18,757 15,111 12,533
Number of stores open (end of period)....... 382 320 259 213 182
Balance Sheet Data (end of period):
Working capital............................. $1,584,073 $1,198,600 $ 732,111 $ 559,207 $ 525,251
Property and equipment, net................. 2,199,494 1,726,450 1,352,956 933,011 749,649
Total assets................................ 4,929,586 3,855,154 2,931,047 1,936,095 1,619,721
Total long-term debt........................ 1,095,420 803,081 494,993 310,912 310,366
Shareholders' equity........................ 2,791,406 2,202,639 1,685,503 1,162,779 954,782
- --------
(a) Fiscal 2000 contained 53 weeks
(b) All per share data has been adjusted to reflect the 2 for 1 stock splits
effected in April 2000 and April 1998.
(c) Comparable store sales growth for each period is based on sales of stores
(including relocated or expanded stores) open throughout the full period
and throughout the full prior period. Comparable store sales growth for
fiscal 2001 compares the 52 weeks of fiscal 2001 versus the 52 weeks ended
January 27, 2001. Comparable store sales growth for fiscal 2000 was
calculated based on the 52 weeks ended January 27, 2001 versus the 52 weeks
of fiscal 1999.
(d) Net sales per selling square foot is calculated using net sales of stores
that have been open for the full year divided by their square footage of
selling space.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7. Results of Operations
The Company's net income increased $123.6 million or 33.2% from $372.1
million in fiscal 2000 to $495.7 million in fiscal 2001. This represented the
sixth consecutive year of earnings growth over 30%. Net income increased $114.0
million or 44.2% in fiscal 2000 and $65.9 million or 34.3% in fiscal 1999.
Net Sales
Net sales for the last three years, number of stores, sales growth and net
sales per selling square foot by year were as follows:
Fiscal Year
----------------------------------
2001 2000 1999
---------- ---------- ----------
Net sales (in thousands)............. $7,488,654 $6,151,996 $4,557,112
Number of stores open (end of period) 382 320 259
Sales growth--all stores............. 21.7% 35.0% 23.8%
Sales growth--comparable stores (a).. 6.8% 9.0% 7.9%
Net sales per selling square foot (b) $ 283 $ 281 $ 270
- --------
(a) Comparable store sales growth for each period is based on sales of stores
(including relocated or expanded stores) open throughout the full period
and throughout the full prior year. Fiscal 2001 comparable sales growth
compares the 52 weeks of fiscal 2001 to the 52 weeks ended January 27,
2001. Fiscal 2000 comparable sales growth was calculated based on the 52
weeks ended January 27, 2001 versus the 52 weeks of fiscal 1999.
(b) Net sales per selling square foot is calculated using net sales of stores
that have been open for the full year divided by their square footage of
selling space.
Net Sales. Increases in net sales primarily reflect new store openings and
comparable store sales growth. On a fiscal year basis, comparing the 52 weeks
ended February 2, 2002 with the 53 weeks ended February 3, 2001, net sales
increased $1,336.7 million, or 21.7%, from $6,152.0 million in fiscal 2000 to
$7,488.7 million in fiscal 2001. Net sales increased $1,039.4 million due to
the opening of 62 new stores in fiscal 2001 and to the inclusion of a full year
of operating results for the 61 stores opened in fiscal 2000. Comparable store
sales increased $297.3 million. On a comparable 52-week basis, comparable store
sales increased 6.8% in fiscal 2001.
On a fiscal year basis, comparing the 53 weeks ended February 3, 2001 with
the 52 weeks ended January 29, 2000, net sales increased $1,594.9 million, or
35.0%, from $4,557.1 million in fiscal 1999 to $6,152.0 million in fiscal 2000.
Net sales increased $1,174.6 million due to the opening of 61 new stores in
fiscal 2000 and to the inclusion of a full year of sales for the 46 stores
opened in fiscal 1999. Comparable store sales increased $420.3 million. On a
comparable 52-week basis, comparable store sales increased 9.0% in fiscal 2000.
9
Components of Earnings
The following table sets forth statement of operations data as a percentage
of net sales for each of the last three years:
Fiscal Year
-------------------
2001 2000 1999
----- ----- -----
Net sales................................... 100.0% 100.0% 100.0%
Cost of merchandise sold.................... 65.7 65.9 66.1
----- ----- -----
Gross margin................................ 34.3 34.1 33.9
Selling, general and administrative expenses 20.4 20.8 21.4
Depreciation and amortization............... 2.1 2.1 1.9
Preopening expenses......................... 0.4 0.6 0.7
----- ----- -----
Operating income............................ 11.4 10.6 9.8
Interest expense, net....................... 0.7 0.8 0.6
----- ----- -----
Income before income taxes.................. 10.7 9.8 9.2
Provision for income taxes.................. 4.1 3.8 3.6
----- ----- -----
Net Income.................................. 6.6% 6.0% 5.6%
===== ===== =====
Gross Margin. Gross margin increased $469.2 million from $2,095.9 in fiscal
2000 to $2,565.1 in fiscal 2001. Gross margin increased $355.3 million due to
the opening of 62 new stores in fiscal 2001 and to the inclusion of a full year
of operating results for the 61 stores opened in fiscal 2000. Comparable store
gross margin increased $113.9 million. The Company's gross margin as a percent
of net sales was 34.3% for fiscal 2001 compared to 34.1% for fiscal 2000. The
rate increase is primarily attributable to a change in the sales mix as shown
on the following table. Women's apparel and accessories, which increased in
share of the business, achieve a higher than average gross margin rate.
Gross margin increased $552.9 million from $1,543.0 in fiscal 1999 to
$2,095.9 in fiscal 2000. Gross margin increased $383.3 million due to the
opening of 61 new stores in fiscal 2000 and to the inclusion of a full year of
operating results for the 46 stores opened in fiscal 1999. Comparable store
gross margin increased $169.6 million. The Company's gross margin as a percent
of net sales was 34.1% for fiscal 2000 compared to 33.9% for fiscal 1999. In
fiscal 2000, the gross margin rate increase is also primarily attributable to a
change in the sales mix and the rate was positively impacted by higher sales of
Women's apparel.
The Company's merchandise mix is reflected in the table below:
Fiscal Year
- -----------------
2001 2000 1999
----- ----- -----
Womens..... 31.3% 30.1% 28.8%
Mens....... 20.1% 20.8% 21.0%
Home....... 18.5% 18.8% 19.3%
Childrens.. 12.8% 12.7% 12.9%
Footwear... 8.8% 9.4% 9.8%
Accessories 8.5% 8.2% 8.2%
Selling, General and Administrative Expenses. Selling, general and
administrative (S,G&A) expenses include all direct store expenses such as
payroll, occupancy and store supplies and all costs associated with the
Company's distribution centers, advertising and corporate functions, but
exclude depreciation and amortization. The S,G&A expense as a percent of net
sales decreased from 21.4% in fiscal 1999 to 20.4% in fiscal 2001. Of the 100
basis points of rate improvement, 25 basis points are due to improvement in
store operating expenses, 29 basis points are due to improvement in advertising
costs and 46 basis points are related to improvement in corporate and
distribution expenses. The Company plans S,G&A expenses with a goal of
achieving 15 to 20 basis points of leverage in S,G&A expense on a mid single
digit comparable store sales increase. For the fiscal years 1999 through 2001,
comparable store sales exceeded a mid single digit increase each year and as a
result, the Company achieved leverage greater than 20 basis points per year.
10
Depreciation and Amortization. The total amount of depreciation and
amortization increased from fiscal 1999 to fiscal 2001 due to the addition of
new stores, the remodeling of existing stores and the mix of owned versus
leased stores. Depreciation and amortization increased as a percentage of net
sales from 1.9% in fiscal 1999 to 2.1% in fiscal 2001.
Preopening Expenses. Preopening expenses are expensed as incurred and
relate to the costs associated with new store openings, including advertising,
hiring, and training costs for new employees and processing and transporting
initial merchandise. The following table sets forth the Company's preopening
costs for each of the last three years:
Preopening Expenses
Fiscal Year
Year of Store ----------------------- Total
Opening 2001 2000 1999 Spending
------------- ------- ------- ------- --------
(In Thousands)
2002..... $ 4,724 $ -- $ -- $ 4,724
2001..... 25,785 5,137 -- 30,922
2000..... -- 30,052 7,422 37,474
1999..... -- -- 23,550 23,550
------- ------- ------- -------
Total.... $30,509 $35,189 $30,972 $96,670
======= ======= ======= =======
The average cost incurred to open the 62 stores in fiscal 2001 was $499,000
per store and the average cost incurred to open the 61 stores in fiscal 2000
was $614,000. The average cost per store fluctuates based on the mix of stores
opened in new markets versus fill-in markets.
Operating Income. Operating income increased $198.7 million or 30.5% in
fiscal 2001, $203.0 million or 45.3% in fiscal 2000 and $110.4 million or 32.7%
in fiscal 1999 due to the factors described above.
Interest Expense. Net interest expense increased $3.9 million in fiscal
2001 to $50.1 million. The increase was primarily attributable to the $300
million of non-callable unsecured senior notes issued in March 2001 (see
"Liquidity" discussion below) and the Liquid Yield Option Subordinated Notes
issued in June 2000 outstanding for a full year, offset in part by an increase
in interest income on short term investments. Net interest expense increased
$19.0 million to $46.2 million in fiscal 2000. The increase was primarily
attributable to the $551.5 million Liquid Yield Option Subordinated Notes
issued in June 2000 and the $200 million of non-callable unsecured debentures
issued in June 1999 outstanding for a full year in fiscal 2000. Net interest
expense increased $6.1 million to $27.2 million in fiscal 1999. The increase in
fiscal 1999 was primarily due to the $200 million of non-callable unsecured
debentures issued in June 1999.
Income taxes. The Company's effective tax rate was 38.0% in fiscal 2001,
38.5% in fiscal 2000 and 38.7% in fiscal 1999. The overall decline in the
effective tax rates in fiscal 2001, 2000 and 1999 was primarily due to the
decrease in state income taxes, net of federal tax benefits and non-deductible
goodwill amortization as a percentage of income before taxes.
Inflation
The Company does not believe that inflation has had a material effect on the
results of operations during the periods presented. However, there can be no
assurance that the Company's business will not be affected in the future.
Liquidity and Capital Resources
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,
11
financing secured by its proprietary accounts receivable, borrowings under its
revolving credit facility and short-term trade credit. Short-term trade credit,
in the form of extended payment terms for inventory purchases or third-party
factor financing, represents a significant source of financing for merchandise
inventories. The Company's working capital and inventory levels typically build
throughout the fall, peaking during the holiday selling season. In addition,
the Company periodically accesses the capital markets, as needed, to finance
its growth.
The Company's working capital increased to $1,584.1 million at February 2,
2002, from $1,198.6 million at February 3, 2001. The increase was primarily
attributable to an increase of short-term investments, accounts receivable and
inventory, offset in part by increased accounts payable.
The Company's short-term investments increased $180.8 million over the
February 3, 2001 balance. The increase is primarily due to an increase in sales
and cash flow from operations.
The Company's accounts receivable at February 2, 2002 increased $154.7
million over the February 3, 2001 balance. The increase is primarily due to an
increase in proprietary credit card sales. The Company's proprietary credit
card sales as a percent of total net sales increased from 30.1% for the fiscal
year ended February 3, 2001 to 31.8% for the fiscal year ended February 2, 2002.
The Company's merchandise inventories increased $195.0 million over the
February 3, 2001 balance. The increase was primarily the result of higher
merchandise levels required to support existing stores and incremental new
store locations. Accounts payable increased $78.9 million from February 3,
2001. Fluctuations in the level of accounts payable are primarily attributable
to the timing and number of new store openings and invoice dating arrangements
with vendors.
In December 1999, the Company entered into a $225 million Receivable
Purchase Agreement (RPA) with Preferred Receivables Funding Corporation,
certain investors and Bank One as agent. The RPA is renewable at the Company's
request and investors' option, under which it periodically sells, generally
with recourse, an undivided interest in the Company's private label credit card
receivables. At February 2, 2002 and February 3, 2001, no receivables were
sold. At January 29, 2000, proceeds received upon the sale of $85 million of
receivables under the RPA was reflected as short-term debt.
Cash provided by operating activities was $541.8 million for fiscal 2001 as
compared to $372.1 million for fiscal 2000, and $157.5 million for fiscal 1999.
Excluding changes in operating assets and liabilities, cash provided by
operating activities was $684.7 million for fiscal 2001, $510.5 million for
fiscal 2000 and $355.4 million for fiscal 1999.
Capital expenditures include costs for new store openings, store remodels,
distribution center openings and other base capital needs. These expenditures
fluctuate from year to year as a result of the timing of new store capital
spending, the mix of owned, leased or acquired stores, the number of stores
remodeled and timing of opening distribution centers. The Company's capital
expenditures were $662.0 million during fiscal 2001, $481.0 million during
fiscal 2000 and $625.4 million during fiscal 1999.
Total capital expenditures for fiscal 2002 are currently expected to be
approximately $740 million. This estimate includes new store spending as well
as base capital needs. The Company plans to open approximately 70 new stores in
fiscal 2002. The Company does not anticipate that its planned expansion will be
limited by any restrictive covenants in its financing agreements.
In March 2002, the Company filed a shelf registration statement with the
SEC. When effective, the registration statement will allow the Company to
publicly offer and sell securities from time to time for an aggregate offering
price of up to $300 million.
In March 2001, the Company issued $300 million aggregate principle amount of
6.30% unsecured notes due March 1, 2011. The proceeds have been used for
general corporate purposes, including continued store growth.
12
In June 2000, the Company issued $551.5 million aggregate principal amount
of Liquid Yield Option Subordinated Notes (LYONs). Net proceeds, excluding
expenses, were $319.4 million. The debt is callable by the Company beginning
June 12, 2003, for cash. The holders of the securities can "put" the LYONs back
to the Company after three and ten years from the date of issuance. The
proceeds were initially used to pay off borrowings under the Company's
outstanding revolving credit facility and accounts receivables program and for
general corporate purposes, including store expansion.
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.
Critical Accounting Policies
The Company evaluates the collectibility of accounts receivable based on a
combination of factors. Delinquent accounts are written off automatically after
the passage of 180 days without receiving a full scheduled monthly payment.
Accounts are written off sooner in the event of customer bankruptcy or other
circumstances that make further collection unlikely. For all other accounts,
the Company recognizes reserves for bad debts based on the length of time the
accounts are past due and the anticipated future write offs based on historical
experience.
The allowance for doubtful accounts was $17,780.3 million or 2.1% of gross
receivables at February 2, 2002 compared to $9,281.6 or 1.3% of gross
receivables at February 3, 2001. The increase as a percent of gross receivables
is attributable to the increase in the rate of write offs related to customer
bankruptcies and delinquent accounts due to the economic environment in fiscal
2001. (See Schedule II for further detail on the components of the allowance
for doubtful accounts).
Inventories are stated at the lower of cost or market with cost determined
on the last-in, first-out (LIFO) basis using the retail inventory method (RIM).
Under RIM, the valuation of inventories at cost and the resulting gross margins
are calculated by applying a cost-to-retail ratio to the retail value
inventories. RIM is an averaging method that has been widely used in the retail
industry due to its practicality. Also, it is recognized that the use of the
retail inventory method will result in valuing inventories at the lower of cost
or market if markdowns are currently taken as a reduction of the retail value
of inventories.
Based on a review of historical clearance markdowns, current business trends
and discontinued merchandise categories, a reserve is recorded to reflect
markdowns that have not been taken but which are estimated to be necessary to
reduce inventories to the lower of cost or market. Management believes that the
Company's inventory valuation reasonably approximates the net realizable value
of clearance inventory and results in carrying inventory at the lower of cost
or market.
Forward-Looking Information/Risk Factors
Items 1, 2, 3, 5, 7 and 7A of this Form 10-K contain "forward-looking
statements," subject to protections under federal law. The Company intends
words such as "believes," "anticipates," "plans," "may," "will," "should,"
"expects" and similar expressions to identify forward-looking statements. In
addition, statements covering the Company's future sales or financial
performance and the Company's plans, objectives, expectations or intentions are
forward-looking statements, such as statements regarding the Company's
liquidity, debt service requirements, planned capital expenditures, future
store openings and adequacy of capital resources and reserves. 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, including
among others, those risk factors described in Exhibit 99.1 attached to this
10-K and incorporated herein by this reference.
13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary exposure to market risk consists of changes in
interest rates or borrowings. At February 2, 2002, the Company's long-term debt
excluding capital leases was $1,067.1 million, all of which is fixed rate debt.
Long-term fixed rate debt is utilized as a primary source of capital. When
these debt instruments mature, the Company intends to refinance such debt at
then existing market interest rates, which may be more or less than interest
rates on the maturing debt. If interest rates on the existing fixed rate debt
outstanding at February 2, 2002, changed by 100 basis points, the Company's
annual interest expense would change by $10.7 million.
During fiscal 2001, average borrowings under the Company's variable rate
revolving credit facility and its short term financing of its proprietary
accounts receivable were $27.5 million. If interest rates on the average fiscal
2001 variable rate debt changed by 100 basis points, the Company's annual
interest expense would change by $275,000, assuming comparable borrowing levels.
Item 8. Financial Statements and Supplementary Data
The financial statements are included in this report beginning on page F-3.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosures
None
14
PART III
Item 10. Executive Officers of Registrant
The information set forth under "Election of Directors" on pages 1-3 and
under "Compliance with Section 16(a) of the Exchange Act" on page 8 of
Registrant's Proxy Statement dated April 12, 2002 is incorporated herein by
reference.
The executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
R. Lawrence Montgomery 53 Chief Executive Officer and Director
Kevin Mansell......... 49 President and Director
Arlene Meier.......... 50 Chief Operating Officer, Treasurer and Director
Donald A. Brennan..... 41 Executive Vice President--Merchandise Planning and Allocation
Beryl J. Buley........ 40 Executive Vice President--Stores
Patricia Johnson...... 44 Executive Vice President--Chief Financial Officer
John Lesko............ 49 Executive Vice President--Administration
Richard Leto.......... 50 Executive Vice President--General Merchandise Manager
and Product Development
Jack Moore............ 47 Executive Vice President--General Merchandise Manager
Richard D. Schepp..... 41 Executive Vice President--General Counsel, Secretary
Don Sharpin........... 53 Executive Vice President--Human Resources
Gary Vasques.......... 54 Executive Vice President--Marketing
Mr. Montgomery was promoted to Chief Executive Officer in February 1999. He
was appointed to the Board of Directors in 1994 and served as Vice Chairman
from March 1996 to November 2000. Mr. Montgomery served as Executive Vice
President of Stores from February 1993 to February 1996 after joining the
Company as Senior Vice President--Director of Stores in 1988. Mr. Montgomery
has 31 years of experience in the retail industry.
Mr. Mansell served as President and Director since February 1999. Mr.
Mansell served as Executive Vice President--General Merchandise Manager from
1987 to 1998. Mr. Mansell joined the Company as a Divisional Merchandise
Manager in 1982, and has 27 years of experience in the retail industry.
Ms. Meier served as Chief Operating Officer since November 2000. Ms. Meier
served as Executive Vice President--Chief Financial Officer from October 1994
to November 2000 and was appointed to the Board of Directors in March 2000. Ms.
Meier joined the Company as Vice President--Controller in 1989. Ms. Meier has
26 years of experience in the retail industry.
Mr. Brennan joined the Company in April 2001 as Executive Vice President,
Merchandise Planning and Allocation. Prior to joining the Company, Mr. Brennan
served in a variety of management positions with Burdines Department Stores, a
division of Federated Department Stores, Inc. since 1982. Mr. Brennan has 20
years of experience in the retail industry.
Mr. Buley served as Executive Vice President of Stores since April 2001 and
in other management positions since joining the Company in 1988. Mr. Buley has
19 years of experience in the retail industry.
15
Ms. Johnson served as Executive Vice President, Chief Financial Officer
since August 2001. Ms. Johnson joined the Company in 1998 as a Senior Vice
President--Finance. Prior to joining the Company, Ms. Johnson held managerial
positions at The Disney Store, Inc. from 1995 to 1998, and held several
management positions with Family Restaurants, Inc. from 1990 to 1995. Ms.
Johnson has six years of experience in the retail industry.
Mr. Lesko served as Executive Vice President--Administration since November
2000 and in other management positions since joining the Company in November
1997. Prior to joining the Company, Mr. Lesko served as Senior Vice President,
Information Systems of Jack Eckerd Corporation, a division of the J.C. Penney
Company, from January 1997 to November 1997. Mr. Lesko has 27 years of
experience in the retail industry.
Mr. Leto served as Executive Vice President--General Merchandise Manager
since July 1996 and added Product Development to his existing responsibilities
in February 1999. Prior to joining the Company, Mr. Leto served as Executive
Vice President, Merchandising for the R. H. Macy Corporation. Mr. Leto has 29
years of experience in the retail industry.
Mr. Moore served as Executive Vice President--General Merchandise Manager
since February 1999. Mr. Moore served as Senior Vice President of Merchandise
Planning and Allocation in 1998. He joined the Company in 1997 as Vice
President--Divisional Merchandise Manager. Prior to joining the Company, Mr.
Moore served in various management positions at Dayton Hudson Department
Stores. Mr. Moore has 25 years of experience in the retail industry.
Mr. Schepp served as Executive Vice President--General Counsel since August
2001. Mr. Schepp joined the Company in 2000 as a Senior Vice President, General
Counsel. Prior to joining the Company, Mr. Schepp held various managerial
positions at ShopKo Stores, Inc. from 1992 to 2000, most recently Senior Vice
President, General Counsel. Mr. Schepp has 10 years of experience in the retail
industry.
Mr. Sharpin served as Executive Vice President--Human Resources since August
1998 and in other management positions since joining the Company in 1988. Mr.
Sharpin has 23 years of experience in the retail industry.
Mr. Vasques served as Executive Vice President--Marketing since 1997. He
joined the Company in December 1995 as Senior Vice President, Marketing. Mr.
Vasques has 32 years of experience in the retail industry.
Item 11. Executive Compensation
The information set forth under "Executive Compensation" on pages 7-10 of
Registrant's Proxy Statement dated April 12, 2002, is incorporated herein by
reference. Compensation of directors as set forth under "Director Committees
and Compensation" on pages 3-4 of Registrant's Proxy Statement dated April 12,
2002 is incorporated herein by reference.
Item 12. Beneficial Ownership of Stock
The information set forth under "Beneficial Ownership of Shares" on pages
5-6 of Registrant's Proxy Statement dated April 12, 2002, is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under "Other Transactions" on page 10 of
Registrant's Proxy Statement dated April 12, 2002 is incorporated herein by
reference.
16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Consolidated Financial Statements:
See "Index to Consolidated Financial Statements and Schedule of
Kohl's Corporation" on page F-1, the Report of Independent Auditors on
page F-2 and the Consolidated Financial Statements and Schedule on pages
F-3 to F-19, all of which are incorporated herein by reference.
2. Financial Statement Schedule:
See "Index to Consolidated Financial Statements and Schedule of
Kohl's Corporation" on page F-1 and the "Financial Statement Schedule"
on page F-19, all of which are incorporated herein by reference.
3. Exhibits:
See "Exhibit Index" of this Form 10-K, which is incorporated herein
by reference.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K in the fourth fiscal
quarter.
The Exhibit Index has been omitted from the printed version of this Form
10-K. Shareholders may obtain the Exhibit Index without charge by calling
Kohl's investor relations at 262-703-1440.
17
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULE OF KOHL'S CORPORATION
Page
Consolidated Financial Statements
Report of Independent Auditors........................... F-2
Consolidated Balance Sheets.............................. F-3
Consolidated Statements of Income........................ F-4
Consolidated Statement of Changes in Shareholders' Equity F-5
Consolidated Statements of Cash Flows.................... F-6
Notes to Consolidated Financial Statements............... F-7
Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts........... F-19
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Kohl's Corporation
We have audited the accompanying consolidated balance sheets of Kohl's
Corporation and subsidiaries (the Company) as of February 2, 2002 and February
3, 2001, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended February 2, 2002. Our audits also included the financial statement
schedule listed in the Index. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
February 2, 2002 and February 3, 2001, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
February 2, 2002, in conformity with accounting practices generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 1, 2002
F-2
KOHLS CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in Thousands, Except Per Share Amounts)
February 2, February 3,
2002 2001
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 106,722 $ 123,621
Short-term investments....................................................... 229,377 48,600
Accounts receivable trade, net of allowance for doubtful accounts of $17,780
and $9,282................................................................. 835,946 681,256
Merchandise inventories...................................................... 1,198,307 1,003,290
Deferred income taxes........................................................ 52,292 39,531
Other........................................................................ 41,400 25,599
---------- ----------
Total current assets..................................................... 2,464,044 1,921,897
Property and equipment, net..................................................... 2,199,494 1,726,450
Other assets.................................................................... 81,850 65,634
Favorable lease rights.......................................................... 174,860 126,635
Goodwill........................................................................ 9,338 14,538
---------- ----------
Total assets............................................................. $4,929,586 $3,855,154
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 478,870 $ 399,939
Accrued liabilities.......................................................... 259,598 188,863
Income taxes payable......................................................... 125,085 112,927
Short-term debt.............................................................. -- 5,000
Current portion of long-term debt............................................ 16,418 16,568
---------- ----------
Total current liabilities................................................ 879,971 723,297
Long-term debt.................................................................. 1,095,420 803,081
Deferred income taxes........................................................... 114,228 84,256
Other long-term liabilities..................................................... 48,561 41,881
Shareholders' equity:
Common stock-$.01 par value, 800,000,000 shares authorized, 335,138,497 and
332,167,129 shares issued.................................................. 3,351 3,322
Paid-in capital.............................................................. 1,005,169 912,107
Retained earnings............................................................ 1,782,886 1,287,210
---------- ----------
Total shareholders' equity............................................... 2,791,406 2,202,639
---------- ----------
Total liabilities and shareholders' equity............................... $4,929,586 $3,855,154
========== ==========
See accompanying notes
F-3
KOHL'S CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended
------------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------
(In Thousands, Except Per Share Data
Net sales.............................. $7,488,654 $6,151,996 $4,557,112
Cost of merchandise sold............... 4,923,527 4,056,139 3,014,073
---------- ---------- ----------
Gross margin........................... 2,565,127 2,095,857 1,543,039
Operating expenses:
Selling, general and administrative. 1,527,478 1,282,367 975,269
Depreciation and amortization....... 151,965 121,786 83,323
Goodwill amortization............... 5,200 5,200 5,200
Preopening expenses................. 30,509 35,189 30,972
---------- ---------- ----------
Total operating expenses............... 1,715,152 1,444,542 1,094,764
Operating income....................... 849,975 651,315 448,275
Other expense (income):
Interest expense.................... 57,351 49,332 29,470
Interest income..................... (7,240) (3,131) (2,307)
---------- ---------- ----------
Income before income taxes............. 799,864 605,114 421,112
Provision for income taxes............. 304,188 232,966 162,970
---------- ---------- ----------
Net income............................. $ 495,676 $ 372,148 $ 258,142
========== ========== ==========
Net income per share:
Basic............................... $ 1.48 $ 1.13 $ 0.80
Diluted............................. $ 1.45 $ 1.10 $ 0.77
See accompanying notes
F-4
KOHL'S CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Total
-------------- Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
------- ------ ---------- ---------- -------------
(In Thousands)
Balance at January 30, 1999...................... 316,789 $3,168 $ 502,691 $ 656,920 $1,162,779
Issuance of common shares........................ 5,600 56 199,570 -- 199,626
Exercise of stock options........................ 3,808 38 17,610 -- 17,648
Income tax benefit from exercise of stock options -- -- 47,308 -- 47,308
Net income....................................... -- -- -- 258,142 258,142
------- ------ ---------- ---------- ----------
Balance at January 29, 2000...................... 326,197 3,262 767,179 915,062 1,685,503
Exercise of stock options........................ 5,970 60 45,819 -- 45,879
Income tax benefit from exercise of stock options -- -- 99,109 -- 99,109
Net income....................................... -- -- -- 372,148 372,148
------- ------ ---------- ---------- ----------
Balance at February 3, 2001...................... 332,167 3,322 912,107 1,287,210 2,202,639
Exercise of stock options........................ 2,971 29 36,099 -- 36,128
Income tax benefit from exercise of stock options -- -- 56,963 -- 56,963
Net income....................................... -- -- -- 495,676 495,676
------- ------ ---------- ---------- ----------
Balance at February 2, 2002...................... 335,138 $3,351 $1,005,169 $1,782,886 $2,791,406
======= ====== ========== ========== ==========
See accompanying notes
F-5
KOHL'S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
----------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------
- (In Thousands)
Operating activities
Net income........................................................... $ 495,676 $ 372,148 $ 258,142
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................... 157,939 127,491 88,776
Deferred income taxes............................................. 17,211 427 4,923
Other noncash charges............................................. 4,783 4,624 3,536
Amortization of debt discount..................................... 9,110 5,782 61
Changes in operating assets and liabilities:
Accounts receivable, trade.................................... (154,690) (176,246) (232,391)
Merchandise inventories....................................... (195,017) (208,851) (177,077)
Other current assets.......................................... (15,801) (4,432) (2,527)
Accounts payable.............................................. 78,931 63,507 118,447
Accrued and other long-term liabilities....................... 74,554 39,544 32,932
Income taxes.................................................. 69,121 148,081 62,691
--------- --------- ---------
Net cash provided by operating activities............................ 541,817 372,075 157,513
Investing activities
Acquisition of property and equipment and favorable lease rights, net (662,011) (480,981) (625,392)
Proceeds from sale of property and equipment......................... -- -- 4,350
Net purchase of short-term investments............................... (180,777) (21,100) (764)
Other................................................................ (28,520) (25,036) (20,151)
--------- --------- ---------
Net cash used in investing activities................................ (871,308) (527,117) (641,957)
Financing activities
Net (repayments of) proceeds from short-term debt.................... (5,000) (80,000) 85,000
Proceeds from public debt offering, net.............................. 299,503 319,379 197,258
Net repayments under credit facilities............................... -- -- (1,600)
Repayments of other long-term debt, net.............................. (16,424) (12,094) (1,582)
Payments of financing fees on debt................................... (1,615) (7,109) (2,156)
Net proceeds from issuance of common shares.......................... 36,128 45,879 217,274
--------- --------- ---------
Net cash provided by financing activities............................ 312,592 266,055 494,194
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents................. (16,899) 111,013 9,750
Cash and cash equivalents at beginning of year....................... 123,621 12,608 2,858
--------- --------- ---------
Cash and cash equivalents at end of year............................. $ 106,722 $ 123,621 $ 12,608
========= ========= =========
See accompanying notes
F-6
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Summary of Accounting Policies
Business
As of February 2, 2002, Kohl's Corporation (the Company) operated 382 family
oriented, specialty department stores located in 29 states that feature
national brand apparel, shoes, accessories, soft home products and housewares
targeted to middle-income customers.
Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany accounts and transactions have been
eliminated.
Accounting Period
The Company's fiscal year end is the Saturday closest to January 31. The
financial statements reflect the results of operations and cash flows for the
fiscal years ended February 2, 2002 (fiscal 2001), February 3, 2001 (fiscal
2000) and January 29, 2000 (fiscal 1999). Fiscal 2001 and 1999 include 52 weeks
and fiscal 2000 includes 53 weeks.
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. Actual results
could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior year's financial
statements to conform to the fiscal 2001 presentation.
Cash Equivalents
Cash equivalents represent debt securities with a maturity of three months
or less when purchased, which are held to maturity. Debt securities owned are
stated at cost which approximates market value.
Short-term Investments
Short-term investments are classified as available-for-sale securities and
are highly liquid. These securities generally have a put option feature that
allows the Company to liquidate the investments at its discretion. These
investments are stated at cost, which approximates market value.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market, with cost
determined by the last-in, first-out (LIFO) method. Inventories would have been
$7,110,000 higher at February 2, 2002, and $4,851,000 higher at February 3,
2001, if they would have been valued using the first-in, first-out (FIFO)
method.
F-7
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Business and Summary of Accounting Principles (continued)
Property and Equipment
Property and equipment is carried at cost and generally depreciated on a
straight-line basis over the estimated useful lives of the assets. Property
rights under capital leases and improvements to leased property are amortized
on a straight-line basis over the term of the lease or useful life of the
asset, whichever is less. The annual provisions for depreciation and
amortization have been principally computed using the following ranges of
useful lives:
Buildings and improvements... 20-40 years
Store fixtures and equipment. 3-20 years
Property under capital leases 20-40 years
Construction in progress includes land and improvements for locations not
yet opened and for the expansion and remodel of existing locations at the end
of each fiscal year.
Capitalized Interest
The Company capitalizes interest on the acquisition and construction of new
locations and expansion of existing locations and depreciates that amount over
the lives of the related assets. The total interest capitalized was $6,929,000,
$3,478,000 and $4,405,000 in 2001, 2000 and 1999, respectively.
Favorable Lease Rights
Favorable lease rights are generally amortized on a straight-line basis over
the remaining base lease term plus certain options. Accumulated amortization
was $32,181,000 at February 2, 2002, and $25,259,000 at February 3, 2001. The
favorable lease rights balance at February 2, 2002, includes $55,147,000
related to stores acquired in 2001. These stores are expected to open in 2002,
and amortization will begin at that time.
Goodwill
Goodwill is being amortized on a straight-line basis over 15 years.
Accumulated amortization was $68,066,000 at February 2, 2002, and $62,866,000
at February 3, 2001. (See New Accounting Pronouncements).
Long-Lived Assets
The Company annually considers whether indicators of impairment of
long-lived assets held for use (including favorable lease rights and goodwill)
are present and determines that if such indicators are present whether the sum
of the estimated undiscounted future cash flows attributable to such assets is
less than their carrying amounts. The Company evaluated the ongoing value of
its property and equipment and other long-lived assets as of February 2, 2002,
and February 3, 2001, and determined that there was no significant impact on
the Company's results of operations. (See New Accounting Pronouncements).
Comprehensive Income
Net income for all years presented is the same as comprehensive income.
Revenue Recognition
Revenue from sales of the Company's merchandise is recognized at the time of
sale, net of any returns.
F-8
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Business and Summary of Accounting Policies (continued)
Advertising
Advertising costs which are included in selling, general and administrative
expenses, are expensed as incurred and totaled $267,274,000, $223,717,000 and
$176,009,000 in fiscal 2001, 2000 and 1999, respectively.
Preopening Costs
Preopening expenses, which are expensed as incurred, relate to the costs
associated with new store openings, including advertising, hiring and training
costs for new employees, and processing and transporting initial merchandise.
Income Taxes
Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes.
Net Income Per Share
The information required to compute basic and diluted net income per share
is as follows:
Fiscal Year
-----------------------------
2001 2000 1999
-------- -------- --------
(In Thousands)
Numerator for basic earnings per share--net income............... $495,676 $372,148 $258,142
Interest expense related to convertible notes, net of tax........ 5,562 --(a) --
-------- -------- --------
Numerator for diluted earnings per share......................... $501,238 $372,148 $258,142
======== ======== ========
Denominator for basic earnings per share--weighted average shares 334,141 330,204 324,628
Impact of dilutive employee stock options........................ 6,857 7,871 9,228
Shares issued upon assumed conversion of convertible notes....... 3,946 --(a) --
-------- -------- --------
Denominator for diluted earnings per share....................... 344,944 338,075 333,856
======== ======== ========
- --------
(a) The convertible debt securities are not included in the computation of
diluted earnings per share as their impact is antidilutive. (See Footnote
10 to the Company's consolidated financial statements for quarterly
information).
New Accounting Pronouncements
During June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets," effective for fiscal years beginning after December 15,
2001. Under SFAS No. 142, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized. Full year amortization expense of
goodwill for fiscal year 2001 was $5,200,000 and the remaining balance of
goodwill is $9,338,000. In accordance with SFAS No. 142, the Company will cease
amortization of its remaining goodwill and does not expect any impairment
losses on its existing goodwill as a result of the transitional impairment
tests.
In August 2001, The Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
effective for fiscal years beginning after December 15, 2001.
F-9
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Business and Summary of Accounting Policies (continued)
SFAS No. 144 addresses financial accounting and reporting for impairment or
disposal of long-lived assets and supersedes SFAS No. 121. The Company does not
expect the adoption of SFAS No. 144 to have a significant impact on the
Company's results of operations or financial position.
2. Selected Balance Sheet Information
Property and equipment consist of the following:
February 2, February 3,
2002 2001
----------- -----------
(In Thousands)
Land......................... $ 217,058 $ 175,892
Buildings and improvements... 1,372,836 1,097,343
Store fixtures and equipment. 738,759 609,736
Property under capital leases 54,862 54,862
Construction in progress..... 306,467 174,105
---------- ----------
Total property and equipment. 2,689,982 2,111,938
Less accumulated depreciation 490,488 385,488
---------- ----------
$2,199,494 $1,726,450
========== ==========
Depreciation expense for property and equipment totaled $131,899,000,
$107,083,000 and $76,851,000 for fiscal 2001, 2000 and 1999, respectively.
Accrued liabilities consist of the following:
February 2, February 3,
2002 2001
----------- -----------
(In Thousands)
Payroll and related fringe benefits $ 56,332 $ 35,592
Sales and property taxes........... 53,923 54,478
Other accruals..................... 149,343 98,793
-------- --------
$259,598 $188,863
======== ========
3. Accounts Receivable Financing
On December 23, 1999, the Company entered into an agreement with Preferred
Receivables Funding Corporation, certain investors and Bank One as agent. Under
this agreement, as amended, the Company periodically sells, generally with
recourse, an undivided interest in the revolving pool of its private label
credit card receivables up to a maximum of $225 million. The annual agreement
is renewable at the Company's request and the investors' option. No receivables
were sold as of February 2, 2002 and February 3, 2001.
Prior to December 23, 1999, the Company's private label credit card
receivables were sold without recourse or were contributed to its wholly owned
subsidiary and special purpose entity, Kohl's Receivables Corporation (KRC).
Under an agreement, KRC then periodically sold, generally with recourse, an
undivided interest in the revolving pool of these receivables to the same
investors. Based on this two-tier structure of selling receivables, and a
supporting legal opinion, the sale accounting requirements were met, as defined
by SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Accordingly, interests sold prior to December
23, 1999, were reflected as a reduction of accounts receivable. On December 31,
1999, KRC was merged into the Company.
F-10
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Accounts Receivable Financing (continued)
The cost of the current financing program is based on the bank's A1/P-1
commercial paper rate, approximately 1.8% and 6.5% at February 2, 2002 and
February 3, 2001 respectively, plus certain fees. The agreement is secured by
interests in the receivables and contains covenants which require the Company
to maintain a minimum portfolio quality and meet certain financial tests.
During fiscal 1999, the average receivables off balance sheet totaled
approximately $86.0 million. The receivables off balance sheet met the sale
requirements of SFAS No. 125 and therefore the Company had no exposure to bad
debts and retained no rights to finance charge income, with respect to
receivables, for financial statement purposes. For the receivables on balance
sheet, the revenues from the credit program, net of operating expenses, are
summarized below.
Fiscal Year
-------------------------
2001 2000 1999
-------- -------- -------
(In Thousands)
Finance charges and other income.............................. $126,492 $103,018 $63,879
Operating expenses:
Provision for doubtful accounts............................ 41,284 22,677 13,402
Other credit and collection expenses....................... 36,615 29,561 18,264
-------- -------- -------
Total operating expenses................................... 77,899 52,238 31,666
-------- -------- -------
Net revenue of credit program included in selling, general and
administrative expenses..................................... $ 48,593 $ 50,780 $32,213
======== ======== =======
F-11
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Debt
The Company had no outstanding short-term debt at February 2, 2002 and $5.0
million of short-term debt outstanding at February 3, 2001.
Long-term debt consists of the following:
February 2, 2002 February 3, 2001
------------------- ---------------
Weighted
Average
Maturing Rate Amount Rate Amount
-------- -------- ---------- ---- --------
($ In Thousands)
Notes and debentures:
Senior debt
Through 2004........... 6.57% $ 35,000 6.57% $ 50,000
2006 (a)............... 6.70% 100,000 6.70% 100,000
2011 (a)............... 6.59% 399,545 7.38% 100,000
2029 (a)............... 7.36% 197,503 7.36% 197,411
Subordinated debt 2020 (b). 2.75% 334,045 2.75% 325,069
---------- --------
Total notes and debentures.... 5.53% $1,066,093 5.29% $772,480
Capital lease obligations..... 44,699 45,937
Other......................... 1,046 1,232
Less: Current portion......... (16,418) (16,568)
---------- --------
Long-term debt................ $1,095,420 $803,081
========== ========
- --------
(a) Non-callable and unsecured notes and debentures were issued under one
indenture as amended. In March 2001, the Company issued $300 million of
senior notes at a discount, with a yield to maturity of 6.32% due 2011.
(b) In June 2000, the Company issued $551.5 million aggregate principal amount
of unsecured Liquid Yield Option Subordinated Notes (LYONs). The zero
coupon LYONs were issued at a discount to yield an effective interest rate
of 2.75% per year and are subordinated to all existing and future senior
indebtedness of the Company. Net proceeds, excluding expenses, were
approximately $319.4 million. Each $1,000 principal amount of LYON is
convertible at the holder's option, at any time, into 7.156 shares of the
Company's common stock. The debt is callable by the Company beginning June
12, 2003 for cash at the issue price, plus all accreted original issue
discount. The holders of the securities can "put" the LYONs back to the
Company after three years and ten years from the date of issuance at
specified amounts reflective of the issue price, plus all accreted original
issue discount. The Company has the option to redeem these putted
securities for either cash or the Company's common stock, or any
combination thereof. The issue price, plus all accreted original issue
discount at February 2, 2002 and February 3, 2001, is reflected in the
above table.
Using discounted cash flow analyses based upon the Company's current
incremental borrowing rates for similar types of borrowing arrangements, the
Company estimates the fair value of long-term debt, including current portion
and excluding capital leases, to be approximately $1,124.0 million at February
2, 2002, and $807.5 million at February 3, 2001.
The Company has a $300 million unsecured revolving bank credit facility
which matures on June 13, 2003. Depending on the type of advance, amounts
borrowed bear interest at competitive bid rates; the LIBOR plus a margin, based
on the Company's long-term unsecured debt rating; or the agent bank's base
rate. No amounts were outstanding under this facility at February 2, 2002, or
February 3, 2001.
F-12
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Debt (continued)
The various debt agreements contain certain covenants that limit, among
other things, additional indebtedness and payment of dividends, as well as
requiring the Company to meet certain financial tests.
Interest payments, net of amounts capitalized, were $41,639,000, $46,450,000
and $27,038,000 in fiscal 2001, 2000 and 1999, respectively.
Annual maturities of long-term debt, excluding capital lease obligations,
for the next five years are: $15,070,000 in 2002; $10,178,000 in 2003;
$10,084,000 in 2004; $87,000 in 2005 and $628,000 in 2006. The annual maturity
amounts do not include the amount of convertible debt securities that could be
"put" back to the Company in 2003.
5. Commitments
The Company leases property and equipment. Many of the store leases obligate
the Company to pay real estate taxes, insurance and maintenance costs, and
contain multiple renewal options, exercisable at the Company's option, that
generally range from two additional five-year periods to eight ten-year
periods. Rent expense charged to operations was $177,153,000, $145,617,000 and
$111,863,000 in fiscal 2001, 2000 and 1999, respectively. Rent expense includes
contingent rents, based on sales, of $3,901,000, $3,521,000 and $3,487,000 in
fiscal 2001, 2000 and 1999, respectively.
Property under capital leases consists of the following:
February 2, February 3,
2002 2001
----------- -----------
(In Thousands)
Buildings and improvements... $54,862 $54,862
Less accumulated amortization 20,009 18,209
------- -------
$34,853 $36,653
======= =======
Amortization expense related to capital leases totaled $1,800,000,
$1,867,000 and $2,004,000 for fiscal 2001, 2000 and 1999, respectively.
Future minimum lease payments at February 2, 2002, are as follows:
Capital Operating
Leases Leases
------- ----------
(In Thousands)
Fiscal Year:
2002................................... $ 5,872 $ 186,090
2003................................... 5,773 198,129
2004................................... 6,002 197,197
2005................................... 6,063 195,322
2006................................... 6,014 194,069
Thereafter............................. 56,109 2,459,061
------- ----------
85,833 $3,429,868
==========
Less amount representing interest...... 41,134
-------
Present value of minimum lease payments $44,699
=======
Included in the operating lease schedule above are $739,043,000 of minimum
lease payments for stores that will open in 2002 and 2003.
F-13
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Benefit Plans
The Company has an Employee Stock Ownership Plan (ESOP) for the benefit of
its associates other than executive officers. Contributions are made at the
discretion of the Board of Directors. The Company recorded expenses of
$8,535,000, $6,315,000 and $4,408,000 in fiscal 2001, 2000 and 1999,
respectively. Shares of Company common stock held by the ESOP are included as
shares outstanding for purposes of the net income per share computations.
The Company also has a defined contribution savings plan covering all
full-time and certain part-time associates which provides for monthly employer
contributions based on a percentage of qualifying contributions made by
participating associates. The participants direct their contributions and/or
their account balances among any of the Plan's eight investment alternatives.
Total expense was $4,147,000, $3,670,000 and $3,020,000 in fiscal 2001, 2000
and 1999, respectively.
The Company also made defined annual contributions to the savings plan on
the behalf of all qualifying full-time and part-time associates based on a
percentage of qualifying payroll earnings. The participants direct these
contributions and/or their account balances among any of the Plan's eight
investment alternatives. The total contribution expense was $6,210,000,
$5,198,000 and $4,168,000 in fiscal 2001, 2000 and 1999, respectively.
7. Income Taxes
Deferred income taxes consist of the following:
February 2, February 3,
2002 2001
----------- -----------
(In Thousands)
Deferred tax liabilities:
Property and equipment........ $133,844 $103,091
Deferred tax assets:
Merchandise inventories....... 38,156 34,094
Accrued and other liabilities. 23,398 15,764
Accrued rent liability........ 10,354 8,508
-------- --------
71,908 58,366
-------- --------
Net deferred tax liability....... $ 61,936 $ 44,725
======== ========
The components of the provision for income taxes are as follows:
Fiscal Year
--------------------------
2001 2000 1999
-------- -------- --------
(In Thousands)
Current Federal $258,195 $204,989 $135,586
Current State.. 28,782 27,550 22,461
Deferred....... 17,211 427 4,923
-------- -------- --------
$304,188 $232,966 $162,970
======== ======== ========
F-14
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Income Taxes (continued)
The provision for income taxes differs from the amount that would be
provided by applying the statutory U.S. corporate tax rate due to the following
items:
Fiscal Year
- --------------------------
2001 2000 1999
-------- ------- -------
Provision at statutory rate................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 3.1 3.4 3.6
Goodwill amortization......................... 0.2 0.3 0.4
Other......................................... (0.3) (0.2) (0.3)
-------- ------- -------
Provision for income taxes.................... 38.0% 38.5% 38.7%
======== ======= =======
Amounts paid for income taxes (in thousands).. $218,831 $85,063 $95,075
======== ======= =======
8. Preferred and Common Stock
The Company's authorized capital stock includes 10,000,000 shares of $.01
par value preferred stock of which none have been issued.
On March 6, 2000, the Company's Board of Directors declared a 2 for 1 stock
split which was effected in the form of a stock dividend on the Company's
common stock. Shareholders' equity and all share and per share amounts have
been retroactively adjusted to reflect these dividends.
The 1992 and 1994 Long-Term Compensation Plans provide for the granting of
options to purchase shares of the Company's common stock to officers and key
employees. The 1997 Stock Option Plan provides for granting of similar stock
options to outside directors. The following table presents the number of
options initially authorized and options available to grant under each of the
plans:
1992 Plan 1994 Plan 1997 Plan Total
---------- ---------- --------- ----------
Options initially authorized 22,800,000 24,000,000 400,000 47,200,000
Options available for grant.
February 3, 2001......... 238,597 9,732,811 308,000 10,279,408
February 2, 2002......... 295,901 7,324,662 297,000 7,917,563
The majority of options granted vest in four equal annual installments.
Remaining options granted vest in five to ten year increments. Options which
are surrendered or terminated without issuance of shares are available for
future grants.
F-15
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Preferred and Common Stock (continued)
The following table summarizes the Company's stock options at February 2,
2002, February 3, 2001, and January 29, 2000, and the changes for the years
then ended:
Number of Weighted Average
Options Exercise Price
---------- ----------------
Balance at January 30, 1999 26,039,858 $10.64
Granted................. 4,434,750 35.13
Surrendered............. (518,388) 14.95
Exercised............... (3,807,798) 5.04
---------- ------
Balance at January 29, 2000 26,148,422 15.53
Granted................. 2,592,975 63.49
Surrendered............. (908,217) 23.78
Exercised............... (5,969,861) 7.68
---------- ------
Balance at February 3, 2001 21,863,319 23.01
Granted................. 2,887,325 65.11
Surrendered............. (525,480) 37.85
Exercised............... (2,971,368) 12.15
---------- ------
Balance at February 2, 2002 21,253,796 $29.87
========== ======
Options exercisable at:
Weighted
Average
Exercise
Shares Price
---------- --------
February 2, 2002 11,907,265 $18.32
February 3, 2001 11,508,871 $13.20
January 29, 2000 13,628,550 $ 8.60
Exercise prices for options outstanding at February 2, 2002, ranged from
$1.75--$71.82. Additional information related to these options segregated by
exercise price range is as follows:
Exercise Price Range
--------------------------------
$1.75 to $9.50 to $35.50 to
$9.49 $35.49 $71.82
---------- ---------- ----------
Options outstanding................................... 7,253,245 5,940,700 8,059,851
Weighted average exercise price of options outstanding $ 6.57 $ 24.63 $ 54.72
Weighted average remaining contractual life of options
outstanding......................................... 3.4 11.3 13.9
Options exercisable................................... 5,688,895 4,409,099 1,809,271
Weighted average exercise price of options exercisable $ 6.51 $ 22.93 $ 44.22
The Company continues to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the number of options is fixed and the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
F-16
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Preferred and Common Stock (continued)
As required by SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company calculated the pro forma effect on net income and net income per share
of accounting for employee stock options under the fair value method prescribed
by SFAS No. 123 in the table below. The weighted-average fair values of options
granted during fiscal 2001, 2000 and 1999 were estimated using a Black-Scholes
option pricing model to be $34.78, $30.00 and $17.27, respectively. The model
uses the following assumptions for all years: risk free interest rate between
4.75%-6.0%; dividend yield of 0%; volatility factors of the Company's common
stock of 30-40%; and a 7-8 year expected life of the option.
Fiscal Year
--------------------------
2001 2000 1999
-------- -------- --------
Pro forma net income (in thousands) $471,188 $348,618 $246,513
Pro forma net income per share:
Basic........................... $ 1.39 $ 1.06 $ 0.76
Diluted......................... $ 1.38 $ 1.04 $ 0.74
The SFAS No. 123 expense reflected above only includes options granted since
fiscal 1995 and, therefore, may not be representative of future expense.
9. 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.
10. Quarterly Financial Information (Unaudited)
Financial Information
Fiscal Year 2001
---------------------------------------------------------
First Second Third Fourth Total
---------- ---------- ---------- ---------- ----------
(In Thousands, Except Per Share Data)
Net sales.................... $1,488,333 $1,515,750 $1,760,346 $2,724,225 $7,488,654
Gross margin................. 520,798 536,835 608,308 899,186 2,565,127
Net income................... 75,111 86,513 100,230 233,822 495,676
Weighted average basic shares 332,784 334,159 334,616 334,999 334,141
Basic net income per share... $ 0.23 $ 0.26 $ 0.30 $ 0.70 $ 1.48
Diluted shares............... 341,142 342,118 342,292 346,121(a) 344,944(a)
Diluted net income per share. $ 0.22 $ 0.25 $ 0.29 $ 0.68(b) $ 1.45(c)
- --------
(a) Diluted shares include 3,946,000 shares related to the assumed conversion
of convertible debt securities.
(b) The convertible debt securities have a dilutive impact on net income per
share. In the calculation of diluted net income per share, the numerator is
$235,233,000 which adds back $1,411,000 of interest on convertible debt
securities, net of tax, for the fourth quarter.
(c) The convertible debt securities have a dilutive impact on net income per
share. In the calculation of diluted net income per share for the year, the
numerator is $501,238,000 which adds back $5,562,000 of interest on
convertible debt securities, net of tax.
F-17
KOHL'S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Quarterly Financial Information (Unaudited) (continued)
Fiscal Year 2000
---------------------------------------------------------
First Second Third Fourth Total
---------- ---------- ---------- ---------- ----------
(In Thousands Except Per Share Data)
Net sales.................... $1,228,666 $1,255,360 $1,444,929 $2,223,041 $6,151,996
Gross margin................. 425,920 437,953 495,320 736,664 2,095,857
Net income................... 52,618 64,290 76,746 178,494 372,148
Weighted average basic shares 327,806 329,848 331,196 331,859 330,204
Basic net income per share... $ 0.16 $ 0.19 $ 0.23 $ 0.54 $ 1.13
Diluted shares............... 336,353 338,973 339,693 344,055(a) 338,075
Diluted net income per share. $ 0.16 $ 0.19 $ 0.23 $ 0.52(b) $ 1.10
- --------
(a) Diluted shares include 3,946,000 shares related to the assumed conversion
of convertible debt securities.
(b) The convertible debt securities have a dilutive impact on net income per
share for the fourth quarter. In the calculation of diluted net income per
share, the numerator is $179,956,000 which adds back $1,462,000, of
interest on convertible debt securities, net of tax.
Due to changes in stock prices during the year and timing of issuance of
shares, the cumulative total of quarterly net income per share amounts may not
equal the net income per share for the year.
LIFO
The Company uses the LIFO method of accounting for merchandise inventories
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 each
quarter, as well as to provide users with the information to compare to other
companies not on LIFO.
Fiscal Year
----------------
LIFO Expense (Credit) 2001 2000
--------------------- ------- -------
(In Thousands)
First........... $ 1,786 $ 1,844
Second.......... 1,819 1,884
Third........... 2,112 2,168
Fourth.......... (3,458) (4,028)
------- -------
Total year...... $ 2,259 $ 1,868
======= =======
The Company estimates its LIFO provision throughout the year based on
expected inflation. The provision is adjusted to actual inflation indices in
the fourth quarter.
11. Related Parties
A director of the Company is also a shareholder of a law firm, which
performs legal services for the Company.
Rent expense incurred on store leases with various entities owned or
controlled by a director of the Company and his affiliates, which is included
in the total rent expense above, was $4,407,000, $4,253,000 and $4,353,000 in
fiscal 2001, 2000 and 1999, respectively.
F-18
KOHL'S CORPORATION
SCHEDULE II
Valuation and Qualifying Accounts
(Dollars in Thousands)
Fiscal Year Ended
----------------------------------
February 2, February 3, January 29,
2002 2001 2000
----------- ----------- -----------
Accounts Receivable Allowances
Balance at Beginning of Year.................................. $ 9,282 $ 7,171 $ 4,069
Charged to Costs and Expenses................................. 41,284 22,677 13,402
Deductions-Bad Debts Written Off, Net of Recoveries and Other
Allowances.................................................. (32,786) (20,566) (12,277)
Other (1)..................................................... -- -- 1,977
-------- -------- --------
Balance at End of Year........................................ $ 17,780 $ 9,282 $ 7,171
======== ======== ========
- --------
(1) Adjustments to the accounts receivable allowance for receivables sold
pursuant to SFAS No. 125
F-19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/S/ R. LAWRENCE MONTGOMERY
By: _______________________________
R. Lawrence Montgomery
Chief Executive Officer
Dated: April 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/S/ R. LAWRENCE MONTGOMERY
______________________ ____________________________________________
William S. Kellogg R. Lawrence Montgomery
Chairman and Director Chief Executive Officer and Director
(Principal Executive Officer)
/S/ KEVIN MANSELL /S/ ARLENE MEIER
______________________ ____________________________________________
Kevin Mansell Arlene Meier
President and Director Chief Operating Officer and Director
/S/ STEVEN A. BURD
______________________ ____________________________________________
Jay H. Baker Steven A. Burd
Director Director
/S/ JAMES ERICSON
______________________ ____________________________________________
Wayne Embry James Ericson
Director Director
/S/ JOHN F. HERMA /S/ FRANK V. SICA
______________________ ____________________________________________
John F. Herma Frank V. Sica
Director Director
/S/ HERBERT SIMON /S/ PETER M. SOMMERHAUSER
______________________ ____________________________________________
Herbert Simon Peter M. Sommerhauser
Director Director
/S/ R. ELTON WHITE /S/ PATRICIA JOHNSON
______________________ ____________________________________________
R. Elton White Patricia Johnson
Director Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: April 12, 2002
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation of the Company, as amended, incorporated
herein by reference to Exhibit 3.1 of the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended July 31, 1999.
3.2 Bylaws of the Company, incorporated herein by reference to Exhibit 3.2
of the Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 2000.
4.1 Revolving Credit Agreement dated as of June 13, 1997 among Kohl's
Corporation, Kohl's Department Stores, Inc., various commercial
banking institutions, The Bank of New York, as Administrative Agent,
and The First National Bank of Chicago, as Syndication Agent,
incorporated herein by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended August 2,
1997.
4.2 Amendment to Revolving Credit Agreement dated as of June 5, 1998,
incorporated herein by reference to Exhibit 4.1 of the Company's
registration statement on Form S-3 (File No. 333-73257).
4.3 Indenture dated as of December 1, 1995 between the Company and The
Bank of New York as trustee, incorporated herein by reference to
Exhibit 4.3 of the Company's Annual Report on Form 10-K for the fiscal
year ended February 3, 1996.
4.4 First Supplemental Indenture dated as of June 1, 1999 between the
Company and The Bank of New York, incorporated herein by reference to
Exhibit 4.2 of the Company's Registration Statement on Form S-4 (Reg.
No. 333-83031).
4.5 Second Supplemental Indenture dated as of March 8, 2001 between the
Company and The Bank of New York, as trustee, incorporated herein by
reference to Exhibit 4.5 of the Company's Annual Report on Form 10-K
for the fiscal year ended February 3, 2001.
4.6 Third Supplemental Indenture dated January 15, 2002 between the
Company and The Bank of New York, as trustee, incorporated herein by
reference to Exhibit 4.6 of the Company's registration statement on
Form S-3 (Reg. No. 333-83788), filed on March 6, 2002.
4.7 Indenture dated as of June 12, 2000 between the Company and The Bank
of New York, as trustee, incorporated herein by reference to Exhibit
4.1 of the Company's registration statement on Form S-3 (Reg. No.
333-43988).
4.8 Registration Rights Agreement dated June 12, 2000 between the Company
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, incorporated herein by reference to Exhibit 4.2 of the
Company's registration statement on Form S-3 (Reg. No. 333-43988).
4.9 Certain other long-term debt is described in Note 4 of the Notes to
Consolidated Financial Statements. The Company agrees to furnish to
the Commission, upon request, copies of any instruments defining the
rights of holders of any such long-term debt described in Note 4 and
not filed herewith.
10.1 Amended and Restated Executive Deferred Compensation Plan,
incorporated herein by reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 3,
2001.*
10.2 Employment Agreement between the Company and R. Lawrence Montgomery,
incorporated herein by reference to Exhibit 10.4 of the Company's
Annual Report on Form 10-K for the fiscal year ended January 31,
1998.*
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10.3 Employment Agreement between the Company and Kevin Mansell,
incorporated herein by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended May 1,
1999.*
10.4 Executive Medical Plan, incorporated herein by reference to Exhibit
10.9 of the Company's registration statement on Form S-1 (File No.
33-46883).*
10.5 Executive Life Insurance Plan, incorporated herein by reference to
Exhibit 10.10 of the Company's registration statement on Form S-1
(File No. 33-46883).*
10.6 Executive Accidental Death and Dismemberment Plan, incorporated herein
by reference to Exhibit 10.11 of the Company's registration statement
on Form S-1 (File No. 33-46883).*
10.7 Executive Bonus Plan, incorporated herein by reference to Exhibit
10.12 of the Company's registration statement on Form S-1 (File No.
33-46883).*
10.8 1992 Long Term Compensation Plan, incorporated herein by reference to
Exhibit 10.13 of the Company's registration statement on Form S-1
(File No. 33-46883).*
10.9 1994 Long-Term Compensation Plan, incorporated herein by reference to
Exhibit 10.15 of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended May 4, 1996.*
10.10 1997 Stock Option Plan for Outside Directors, incorporated herein by
reference to Exhibit 4.4 of the Company's registration statement on
Form S-8 (File No. 333-26409), filed on May 2, 1997.*
10.11 Amended and Restated Agreements dated December 10, 1998 between the
Company and Mr. Mansell, incorporated herein by reference to Exhibit
10.13 of the Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999.*
10.12 Amended and Restated Agreements dated December 10, 1998 between the
Company and Mr. Montgomery, incorporated herein by reference to
Exhibit 10.14 of the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1999.*
10.13 First Amendment to Employment Agreement between the Company and Mr.
Montgomery, dated November 15, 2000, incorporated herein by reference
to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the
fiscal year ended February 3, 2001.*
10.14 Employment Agreement between the Company and Arlene Meier dated
November 15, 2000, incorporated herein by reference to Exhibit 10.14
of the Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 2001.*
10.15 Receivables Purchase Agreement dated December 23, 1999 by and among
the Company, Kohl's Department Stores, Inc., PREFCO, various Investors
and Bank One, NA, as agent, incorporated herein by reference to
Exhibit 10.16 of the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 2000.
10.16 Amendment No. 1 to Receivables Purchase Agreement dated December 20,
2000 by and among the Company, Kohl's Department Stores, Inc., PREFCO,
various Investors and Bank One, NA, as agent, incorporated herein by
reference to Exhibit 10.16 of the Company's Annual Report on Form 10-K
for the fiscal year ended February 3, 2001.
10.17 Amendment No. 2 to Receivables Purchase Agreement dated December 20,
2001 by and among the Company, Kohl's Department Stores, Inc., PREFCO,
various Investors and Bank One, NA, as agent.
10.18 Amendment No. 3 to Receivables Purchase Agreement dated as of
February 4, 2002 by and among the Company, Kohl's Department Stores,
Inc., PREFCO, various Investors and Bank One, NA, as agent.
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12.1 Statement regarding calculation of ratio of earnings to fixed charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
99.1 Cautionary Statements Regarding Forward Looking Information and Risk
Factors.
* A management contract or compensatory plan or arrangement.
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