UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission file number 1-11084
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KOHL'S CORPORATION
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-1630919
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
N54 W13600 Woodale Drive, Menomonee Falls, Wisconsin 53051
- - ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 783-5800
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 Days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: June 6, 1996 Common Stock, Par
Value $.01 per Share, 73,797,223 Shares Outstanding.
KOHL'S CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
May 4, 1996, February 3, 1996 and
April 29, 1995 3
Condensed Consolidated Statements of Income
for the Three Months Ended May 4, 1996 and
April 29, 1995 4
Consolidated Statement of Changes in
Shareholders' Equity for the Three Months
Ended May 4, 1996 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
May 4, 1996 and April 29, 1995 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of
Security Holders 12
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
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KOHL'S CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
May 4 February 3 April 29
1996 1996 1995
----------- ------------ -----------
(Unaudited) (Audited) (Unaudited)
Assets
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Current assets:
Cash and cash equivalents $1,832 $2,819 $1,444
Merchandise inventories 397,190 320,325 310,709
Other 11,237 7,020 10,417
----------- ----------- -----------
Total current assets 410,259 330,164 322,570
Property and equipment, at cost 542,846 502,406 393,518
Less accumulated depreciation 101,223 93,238 73,145
----------- ----------- -----------
441,623 409,168 320,373
Other assets 5,488 4,564 4,903
Favorable lease rights 20,029 20,491 23,005
Goodwill 39,238 40,538 44,438
----------- ----------- -----------
Total assets $916,637 $804,925 $715,289
=========== =========== ===========
Liabilities and Shareholders' Equity
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Current liabilities:
Accounts payable $135,109 $68,810 $110,001
Accrued liabilities 58,820 57,259 42,402
Income taxes payable 9,955 21,628 4,802
Deferred income taxes 7,139 5,674 8,509
Current portion of long-term debt 1,425 1,425 1,345
----------- ----------- -----------
Total current liabilities 212,448 154,796 167,059
Long-term debt 225,369 187,699 155,829
Deferred income taxes 31,678 30,731 23,562
Other long-term liabilities 21,891 21,061 22,727
Shareholders' equity
Common stock-$.01 par value, 200,000,000 shares
authorized, 73,789,772, 73,736,670 and 73,517,662
issued at May 4, 1996, February 3, 1996 and
April 29, 1995 respectively. 738 737 735
Paid-in capital 189,849 188,998 185,330
Retained earnings 234,664 220,903 160,047
----------- ----------- -----------
Total shareholders' equity 425,251 410,638 346,112
----------- ----------- -----------
Total liabilities and shareholders' equity $916,637 $804,925 $715,289
=========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements
3
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months 3 Months
(13 Weeks) (13 Weeks)
Ended Ended
May 4, 1996 April 29, 1995
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(In thousands except per share data)
Sales $468,638 $368,365
Cost of merchandise sold 311,836 243,987
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Gross margin 156,802 124,378
Operating expenses:
Selling, general, and administrative 115,890 92,551
Depreciation and amortization 8,665 6,656
Goodwill amortization 1,300 1,300
Preopening expenses 3,639 1,492
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Operating income 27,308 22,379
Interest expense, net 4,102 2,453
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Income before income taxes 23,206 19,926
Provision for income taxes 9,445 8,130
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Net income $13,761 $11,796
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Earnings per share:
Net income $0.19 $0.16
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Weighted average number of common shares 73,771 73,514
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See accompanying Notes to Condensed Consolidated Financial Statements
4
KOHL'S CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock
----------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
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(In thousands, except share data)
Balance at February 3, 1996 73,736,670 $737 $188,998 $220,903 $410,638
Net income - - - 13,761 13,761
Exercise of stock options 53,102 1 851 - 852
Balance at May 4, 1996 73,789,772 $738 $189,849 $234,664 $425,251
=======================================================================
See Accompanying Notes to Condensed Consolidated Financial Statements
5
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
3 Months 3 Months
(13 Weeks) (13 Weeks)
Ended Ended
May 4, 1996 April 29, 1995
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(In thousands)
Operating activities
Net income $13,761 $11,796
Adjustments to reconcile net income to net
cash (used in) provided by operating activities
Depreciation and amortization 10,010 7,976
Deferred income taxes 2,412 6,316
Other noncash charges 263 279
Changes in operating assets and liabilities (24,328) (72,893)
------------ ------------
Net cash (used in) provided by operating activities 2,118 (46,526)
Investing activities
Acquisition of property and equipment, net (40,440) (22,624)
Other (295) (626)
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Net cash used in investing activities (40,735) (23,250)
Financing activities
Net borrowings(repayments) under working capital loan (62,000) 41,000
Proceeds from public debt offering 100,000 -
Repayments of long-term debt (330) (253)
Payment of financing fees on debt (892) -
Net proceeds from issuance of common shares
(including stock options) 852 67
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Net cash provided by financing activities 37,630 40,814
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Net decrease in cash and cash equivalents (987) (28,962)
Cash and cash equivalents at beginning of period 2,819 30,406
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Cash and cash equivalents at end of period $1,832 $1,444
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See accompanying Notes to Condensed Consolidated Financial Statements
6
KOHL'S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for fiscal year end financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. For further information, refer to the financial statements and
footnotes thereto included in the Company's Form 10-K (Commission File No. 1-
11084) filed with the Securities and Exchange Commission.
Shareholders' equity, share and per share amounts for all periods presented
have been adjusted for the 2 for 1 stock split declared by the Company's Board
of Directors on March 11, 1996 effected in the form of a stock dividend. The
dilutive effect of stock options on earnings per share is immaterial.
2. INVENTORIES
The Company uses the last-in, first out (LIFO) method of accounting for
merchandise inventory because it results in a better matching of cost and
revenues. The following information is provided to show the effects of the LIFO
provision on the quarter, as well as to provide users with the information to
compare to other companies not on LIFO.
LIFO Expense 3 Months Ended
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Quarter May 4, 1996 April 29, 1995
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Total Total
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(In Thousands)
First $1,171 $1,104
Inventories would have been $832,000 higher at May 4, 1996, $339,000 lower
at February 3, 1996 and $2,163,000 at April 29, 1995 if they had been valued
using the first-in, first-out (FIFO) method.
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3. CONTINGENCIES
The Company is involved in various legal matters arising in the normal
course of business. In the opinion of management, the outcome of such
proceedings and litigation will not have a material adverse impact on the
Company's financial position or results of operations.
The Internal Revenue Service (the "IRS") is currently auditing the
Company's federal income tax returns for fiscal years ended August 1986, 1987
and 1988. In January 1994, the IRS proposed approximately $20 million of tax
consisting primarily of an adjustment to the LIFO inventory method used by the
Company. The impact of the proposed adjustments before interest had previously
been substantially reflected in the Company's deferred income tax accounts. If
the Company were unsuccessful on all issues asserted by the IRS, the estimated
interest to date on the adjustments would be approximately $28 million ($17
million after tax). The Company is contesting the proposed adjustments
vigorously within the administrative appeals process of the IRS and intends to
litigate if necessary. The Company's management and tax advisors strongly
believe that the Company's positions are correct and consistent with governing
tax law and regulations, and expect the Company will prevail. Management does
not believe the ultimate resolution of these issues will have a material adverse
impact on the Company's results of operations or liquidity.
NEW ACCOUNTING PRONOUNCEMENT
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets including
goodwill used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed. The Company adopted
Statement 121 in the first quarter of 1996 and no adjustment was necessary.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
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THREE MONTHS ENDED MAY 4, 1996
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RESULTS OF OPERATIONS
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At May 4, 1996, the Company operated 136 stores compared with 109 stores at
the same time last year. The Company successfully opened eight new stores
during the quarter. In March, the Company opened four new stores: Niles, Ohio;
Springfield, Missouri and two stores in Wichita, Kansas. In April, the Company
opened four new stores: Jackson, Michigan; Louisville, Kentucky; and the fifth
and sixth stores in the Cleveland, Ohio market.
Net sales increased $100.2 million or 27.2% to $468.6 million for the three
months ended May 4, 1996 from $368.4 million for the three months ended April
29, 1995. Of the increase, $65.9 million is attributable to the inclusion of 22
new stores opened in 1995 (net of the sales of two underperforming stores closed
in 1995) and eight new stores opened in 1996. The remaining $34.3 million is
attributable to comparable store sales growth of 9.6%.
Due to a shift in the fiscal accounting calendar, the fiscal quarter ending
dates are one week later this year than a year ago. On a calendar basis,
matching the thirteen weeks ended May 4, 1996 with the thirteen weeks ended May
6, 1995, total sales increased 23.1%. Comparable store sales increased 6.0% on
this basis.
Gross margin for the three months ended May 4, 1996 was 33.5% compared to
33.8% in the three months ended April 29, 1995. This decrease is primarily
attributable to clearance markdowns taken to eliminate the Company's electronics
business. A low-cost operating environment and continued focus on expense
control allows the Company to profitably offer value to its customers.
Operating income for the three months ended May 4, 1996 increased $4.9
million or 22.0% over the three months ended April 29, 1995. This increase
resulted primarily from the increased sales and the Company's ability to
leverage its selling, general and administrative expenses as net sales
increased. Selling, general and administrative expenses declined to 24.7% of
net sales for the three months ended May 4, 1996 from 25.1% of net sales for the
three months ended April 29, 1995.
The Company incurred $3.6 million of preopening expenses associated with
the opening of eight stores in the three months ended May 4, 1996 compared to
$1.5 million for three stores opened in the three months ended April 29, 1995.
These expenses relate to the costs associated with new store openings, including
hiring and training costs for new employees, opening new charge accounts,
processing and transporting initial merchandise and advertising of the Kohl's
name and retailing concept.
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Net interest expense for the three months ended May 4, 1996 increased $1.6
million from the three months ended April 29, 1995. This increase was due to
interest associated with an initial $100 million of non-callable 6.7% unsecured
senior notes (Notes) the Company issued on February 6, 1996 under the Company's
$250 million shelf registration of January 25, 1996. Although the Company
expects interest expense to increase in fiscal 1996, the exact effect cannot be
quantified because it will depend on a number of factors, including the number
of stores opened, the Company's cash flow, interest rates and whether new stores
are leased or owned by the Company.
For the three months ended May 4, 1996, net income increased 16.7% to $13.8
million from $11.8 million in the three months ended April 29, 1995. Earnings
were $.19 per share for the three months ended May 4, 1996 compared to $.16 per
share for the three months ended April 29, 1995.
Seasonality & Inflation
- - -----------------------
The Company's business is seasonal, reflecting increased consumer buying in
the "back-to-school" and Christmas seasons. The Company's financial position
and operations are also affected by the timing of new store openings. Inflation
did not materially affect the Company's net income during the periods presented.
Financial Condition and Liquidity
- - ---------------------------------
The Company's primary ongoing cash requirements are for inventory
purchases, capital expenditures in connection with the Company's expansion and
remodeling programs and preopening expenses. The Company's primary sources of
funds for its business activities are cash flow from operations, borrowings
under its revolving credit facility, the availability of the shelf offering 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 Christmas selling season.
At May 4, 1996, the Company's merchandise inventories had increased $76.9
million over the February 3, 1996 balance and $86.5 million over the April 29,
1995 balance. These increases reflect the purchase of summer inventory as well
as inventory for new stores. The Company's working capital increased to $197.8
million at May 4, 1996 from $175.4 million at February 3, 1996 and $155.5
million at April 29, 1995. The increase is due primarily to higher inventory
levels offset in part by increased accounts payable. The Company expects
working capital levels to continue to grow as new stores are opened.
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Cash provided from operating activities was $2.1 million for the three
months ended May 4, 1996 compared to cash used of $46.5 million for the three
months ended April 29, 1995. Excluding changes in operating assets and
liabilities, cash provided by operating activities was $26.5 million for the
three months ended May 4, 1996 compared to $26.4 million for the three months
ended April 29, 1995.
Capital expenditures for the three months ended May 4, 1996 were $40.4
million (no additional assets under capital lease) compared to $29.0 million
(including $6.4 million of assets under capital leases) for the same period a
year ago. The increase in expenditures in 1996 is primarily attributable to the
opening of eight new stores for the three months ended May 4, 1996 compared to
three new stores for the three months ended April 29, 1996 and the relocation of
the Company's corporate headquarters within Menomonee Falls in the summer of
1996 to an owned facility.
The Company's long-term debt increased from $187.7 million at February 3,
1996 to $225.4 million at May 4, 1996. On February 6, 1996 the Company issued
$100 million non-callable 6.70% unsecured senior notes under the Company's $250
million shelf registration statement of January 25, 1996. The proceeds were
used to repay borrowings under its $200 million unsecured revolving credit
facility and will support future Company growth. The notes mature on February
1, 2006.
Total capital expenditures for fiscal 1996 are currently expected to be
approximately $200.0 million (excluding assets under capital leases). On May
6, 1996 the Company announced plans to enter the Philadelphia market in the
spring of 1997. The Company will lease up to eleven former Clover stores. This
opportunity has increased the estimated 1996 capital spending from approximately
$160 million to $200 million. The actual amount of the Company's future annual
capital expenditures will depend primarily on the number of new stores opened,
whether such stores are owned or leased by the Company and the number of
existing stores remodeled or refurbished.
The Company anticipates that it will be able to satisfy its current
operating needs, planned capital expenditures and debt service requirements with
current working capital, cash flows from operations, seasonal borrowings under
its revolving credit facility, short-term trade credit and other lending
facilities.
Information in this document contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, such as
statements relating to debt service requirements and planned capital
expenditures. Forward-looking statements can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should" or "anticipates" or the negative thereof or other variations thereon.
No assurance can be given that the future results covered by the forward-looking
statements will be achieved.
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PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Kohl's Corporation was held on May
29, 1996:
1. To elect two directors to serve for a three-year term.
2. To ratify the appointment of Ernst & Young LLP as independent auditors.
3. To amend the Company's Articles of Incorporation to increase the
number of shares of Common Stock authorized for issuance.
4. To amend the Company's 1994 Long-Term Compensation Plan to
increase the number of shares of Common Stock reserved for issuance.
Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934 and there was no solicitation in opposition to
management's solicitations. All of management's nominees for directors as
listed in the proxy statement were elected.
The results of the voting were as follows:
1. Election of directors
William S. Kellogg
For - 32,311,911 shares
Withheld - 553,142 shares
R. Elton White
For - 32,396,929 shares
Withheld - 468,124 shares
2. Ratification of Ernst & Young LLP as independent auditors
For - 32,849,646 shares
Against - 5,241 shares
Abstain - 10,166 shares
3. To amend the Company's Articles of Incorporation to increase the number of
shares of Common Stock authorized for issuance from 200,000,000 shares to
400,000,000 shares.
For - 30,555,661 shares
Against - 2,284,308 shares
Abstain - 25,084 shares
4. To amend the Company's 1994 Long-Term Compensation Plan to increase the
number of shares of Common Stock reserved for issuance from 3,000,000 shares to
6,000,000 shares.
For - 24,673,351 shares
Against - 6,915,556 shares
Abstain - 41,186 shares
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Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.10 Amendment No. 2 dated April 16, 1996 and Amendment No. 3
dated May 17, 1996 to the Receivables Purchase Agreement
dated as of September 1, 1995 by and among Kohl's
Department Stores, Inc., Preferred Receivables Funding
Corporation and The First National Bank of Chicago as
agent, incorporated herein by reference.
10.14 Bylaws
10.15 Kohl's Corporation 1994 Long-Term
Compensation Plan
12.1 Statement regarding calculation of
ratio of earnings to fixed charges.
b) Reports on Form 8-K
There were no reports on Form 8-K filed for
three months ended May 4, 1996
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SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Kohl's Corporation
(Registrant)
Date: June 12, 1996 /s/ William Kellogg
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William Kellogg
Chairman, Chief Executive Officer
Date: June 12, 1996 /s/ Arlene Meier
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Arlene Meier
Senior Vice President - Finance
Chief Financial Officer
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