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 August 3, 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.)
N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 703-7000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 Days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: September 10, 1996 Common
Stock, Par Value $.01 per Share, 73,887,746 Shares Outstanding.
KOHL'S CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
August 3, 1996, February 3, 1996 and
July 29, 1995 3
Condensed Consolidated Statements of Income
for the Three Months and Six Months Ended
August 3, 1996 and July 29, 1995 4
Consolidated Statement of Changes in
Shareholders' Equity for the Six Months
Ended August 3, 1996 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
August 3, 1996 and July 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 9-12
PART II. OTHER INFORMATION
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)
August 3, February 3, July 29,
1996 1996 1995
----------- ----------- -----------
(Unaudited) (Audited) (Unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 4,650 $ 2,819 $ 1,528
Merchandise inventories 440,541 320,325 351,228
Other 12,360 7,020 11,575
-------- -------- --------
Total current assets 457,551 330,164 364,331
Property and equipment, at cost 586,496 502,406 423,446
Less accumulated depreciation 109,681 93,238 79,128
-------- -------- --------
476,815 409,168 344,318
Other assets 5,636 4,564 5,388
Favorable lease rights 19,567 20,491 22,431
Goodwill 37,938 40,538 43,138
-------- -------- --------
Total assets $997,507 $804,925 $779,606
======== ======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $159,266 $ 68,810 $137,039
Accrued liabilities 57,311 57,259 41,740
Income taxes payable 6,362 21,628 5,374
Deferred income taxes 6,865 5,674 10,224
Current portion of long-term debt 1,425 1,425 1,345
-------- -------- --------
Total current liabilities 231,229 154,796 195,722
Long-term debt 269,532 187,699 177,844
Deferred income taxes 32,189 30,731 25,009
Other long-term liabilities 23,161 21,061 23,480
Shareholders' equity
Common stock-$.01 par value, 400,000,000 shares
authorized, 73,857,108, 73,736,670 and 73,552,136
issued at August 3, 1996, February 3, 1996 and
July 29, 1995 respectively. 738 737 736
Paid-in capital 191,166 188,998 185,625
Retained earnings 249,492 220,903 171,190
-------- -------- --------
Total shareholders' equity 441,396 410,638 357,551
-------- -------- --------
Total liabilities and shareholders' equity $997,507 $804,925 $779,606
======== ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
3
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months 3 Months 6 Months 6 Months
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
Ended Ended Ended Ended
August 3, 1996 July 29, 1995 August 3, 1996 July 29, 1995
-------------- ------------- -------------- -------------
(In thousands except per share data)
Sales $474,598 $363,536 $943,236 $731,901
Cost of merchandise sold 318,040 242,279 629,876 486,266
-------- -------- -------- --------
Gross margin 156,558 121,257 313,360 245,635
Operating expenses:
Selling, general, and administrative 117,439 91,389 233,329 183,940
Depreciation and amortization 9,064 6,507 17,729 13,163
Goodwill amortization 1,300 1,300 2,600 2,600
Preopening expenses 111 -- 3,750 1,492
-------- -------- -------- --------
Operating income 28,644 22,061 55,952 44,440
Interest expense, net 3,640 3,237 7,742 5,690
-------- -------- -------- --------
Income before income taxes 25,004 18,824 48,210 38,750
Provision for income taxes 10,176 7,681 19,621 15,811
-------- -------- -------- --------
Net income $ 14,828 $ 11,143 $ 28,589 $ 22,939
======== ======== ======== ========
Earnings per share:
Net income $ 0.20 $ 0.15 $ 0.39 $ 0.31
======== ======== ======== ========
Weighted average number of common shares 73,824 73,538 73,798 73,528
======== ======== ======== ========
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 - - - 28,589 28,589
Exercise of stock options 120,438 1 2,168 - 2,169
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Balance at August 3, 1996 73,857,108 $738 $191,166 $249,492 $441,396
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See Accompanying Notes to Condensed Consolidated Financial Statements
5
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
6 Months 6 Months
(26 Weeks) (26 Weeks)
Ended Ended
August 3, 1996 July 29, 1995
---------------------------------
(In thousands)
OPERATING ACTIVITIES
Net income $28,589 $22,939
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 20,418 15,802
Deferred income taxes 2,649 9,478
Other noncash charges 735 592
Changes in operating assets and liabilities (48,949) (87,162)
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Net cash provided by (used in) operating activities 3,442 (38,351)
INVESTING ACTIVITIES
Acquisition of property and equipment, net (84,090) (52,571)
Other (626) (1,081)
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Net cash used in investing activities (84,716) (53,652)
FINANCING ACTIVITIES
Net borrowings (repayments) under working capital loan (17,500) 63,300
Proceeds from public debt offering 100,000 -
Repayments of long-term debt (667) (538)
Payment of financing fees on debt (897) -
Net proceeds from issuance of common shares
(including stock options) 2,169 363
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Net cash provided by financing activities 83,105 63,125
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Net increase (decrease) in cash and cash equivalents 1,831 (28,878)
Cash and cash equivalents at beginning of period 2,819 30,406
----------- -----------
Cash and cash equivalents at end of period $4,650 $1,528
========== ==========
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.
6 Months Ended
LIFO Expense ------------------------------
Quarter August 3, 1996 July 29, 1995
------------ -------------- -------------
(In Thousands)
First $1,171 $1,104
Second 1,184 1,090
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Total $2,355 $2,194
Inventories would have been $2,016,000 higher at August 3, 1996, $339,000
lower at February 3, 1996 and $3,253,000 higher at July 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 $30 million ($18
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.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED AUGUST 3, 1996
RESULTS OF OPERATIONS
At August 3, 1996, the Company operated 138 stores compared with 109
stores at the same time last year. The Company successfully opened two new
stores during the last week of the quarter: Toledo, Ohio and the fourth store
in the Kansas City market.
Net sales increased $111.1 million or 30.6% to $474.6 million for the
three months ended August 3, 1996 from $363.5 million for the three months ended
July 29, 1995. Of the increase, $73.5 million is attributable to the inclusion
of 19 new stores opened in 1995 and ten new stores opened in 1996. The
remaining $37.6 million is attributable to comparable store sales growth of
10.4%. The Company completed its discontinuance of the electronics business
during the second quarter. Excluding electronics, comparable store sales
increased 11.9%.
Net sales increased $211.3 million or 28.9% to $943.2 million for the
six months ended August 3, 1996 from $731.9 million for the six months ended
July 29, 1995. Of the increase, $140.8 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 ten new stores opened in 1996. The remaining $70.5 million
is attributable to comparable store sales growth of 9.9%. Excluding
electronics, comparable store sales increased 11.4%.
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 August 3, 1996 with the thirteen weeks ended
August 5, 1995, total sales increased 29.1%. Comparable store sales increased
9.9% on this basis. Excluding electronics, comparable store sales increased
11.4% on this basis. Matching the twenty-six weeks ended August 3, 1996 with
the twenty-six weeks ended August 5, 1995, total sales increased 26.0% and
comparable sales increased 7.9% on this basis. Excluding electronics, comparable
stores sales increased 9.3% on this basis.
Gross margin for the three months ended August 3, 1996 was 33.0%
compared to 33.4% in the three months ended July 29, 1995. Gross margin for the
six months ended August 3, 1996 was 33.2% compared to 33.6% in the six months
ended July 29, 1995. These decreases are primarily attributable to clearance
markdowns taken
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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 August 3, 1996 increased
$6.6 million or 29.8% over the three months ended July 29, 1995. Operating
income for the six months ended August 3, 1996, increased $11.5 million or 25.9%
over the six months ended July 29, 1995. These increases 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 August 3, 1996 from 25.1% of net sales for the three months ended July 29,
1995. Selling, general and administrative expenses declined to 24.7% of net
sales for the six months ended August 3, 1996 from 25.1% of net sales for the
six months ended July 29, 1995.
Costs associated with the opening of new stores are accumulated for
the 6-8 weeks prior to opening and expensed over the two week grand opening
period. The Company expensed $0.1 million of preopening expenses associated
with the opening of the two stores in the last week of the three months ended
August 3, 1996. The balance of the preopening expense related to these two
stores will be expensed in the three months ended November 2, 1996. The Company
expensed no preopening expense for the three months ended July 29, 1995. In the
six months ended August 3, 1996, the Company expensed $3.8 million of preopening
expenses associated with the opening of ten stores, with the balance of the
preopening expense of two stores to be expensed in the three months ended
November 2, 1996. The Company expensed $1.5 million of preopening expenses for
three stores opened in the six months ended July 29, 1995. These expenses
relate to the costs associated with new store openings, including hiring and
training costs for new employees, Kohl's charge account solicitation, and
processing and transporting initial merchandise.
Net interest expense for the three months ended August 3, 1996
increased $0.4 million from the three months ended July 29, 1995. Net interest
expense for the six months ended August 3, 1996 increased $2.1 million from the
six months ended July 29, 1995. The increase was due to higher interest rates
associated with the $100 million non-callable 6.7% unsecured senior notes issued
in February 1996 and increased spending on capital and working capital
requirements of new stores. The Company expects interest expense to continue to
increase during the remainder of fiscal 1996 based on increased borrowings for
new store's capital and working capital requirements and higher interest rates.
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For the three months ended August 3, 1996, net income increased 33.1% to
$14.8 million from $11.1 million in the three months ended July 29, 1995.
Earnings were $.20 per share for the three months ended August 3, 1996 compared
to $.15 per share for the three months ended July 29, 1995. Net income for the
six months ended August 3, 1996 increased 24.6% to $28.6 million or $.39 per
share from $22.9 million or $.31 per share in the six months ended July 29,
1995.
SEASONALITY & INFLATION
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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 debt securities
under the Company's shelf registration statement 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 August 3, 1996, the Company's merchandise inventories had increased
$120.2 million over the February 3, 1996 balance and $89.3 million over the July
29, 1995 balance. These increases reflect the purchase of fall inventory as
well as inventory for new stores. The Company's working capital increased to
$226.3 million at August 3, 1996 from $175.4 million at February 3, 1996 and
$168.6 million at July 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.
Cash provided from operating activities was $3.4 million for the six
months ended August 3, 1996 compared to cash used of $38.4 million for the six
months ended July 29, 1995. Excluding changes in operating assets and
liabilities, cash provided by operating activities was $52.4 million for the six
months ended August 3, 1996 compared to $48.8 million for the six months ended
July 29, 1995.
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Capital expenditures for the six months ended August 3, 1996 were $84.1
million (no additional assets under capital lease) compared to $59.0 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 ten new stores for the six months ended August 3, 1996 compared to
three new stores for the six months ended July 29, 1995 and the relocation of
the Company's corporate headquarters within Menomonee Falls in July 1996 to an
owned facility.
Total capital expenditures for fiscal 1996 are currently expected to
be approximately $200.0 million (excluding assets under capital leases). 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's long-term debt increased from $187.7 million at February
3, 1996 to $269.5 million at August 3, 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. The proceeds were used to
paydown borrowings under its $200 million unsecured revolving credit facility
and will support future Company growth. The notes mature on February 1, 2006.
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, offerings of debt securities, 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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Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4.2 Amendment No. 4 to the Revolving Credit Agreement dated
July 19, 1996 among Kohl's Department Stores, Inc. various
commercial banking institutions and the Bank of New York,
an Administrative Agent, the Bank of Nova Scotia as Agent,
and the First National Bank of Chicago, as Agent.
10.16 Articles of Incorporation as Amended
12.1 Statement regarding calculation of ratio of earnings to
fixed charges.
27 Financial Data Schedule - Article 5 of Regulation S-X
b) Reports on Form 8-K
There were no reports on Form 8-K filed for three months ended
August 3, 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: September 12, 1996 /s/ William Kellogg
---------------------------------
William Kellogg
Chairman, Chief Executive Officer
Date: September 12, 1996 /s/ Arlene Meier
---------------------------------
Arlene Meier
Senior Vice President - Finance
Chief Financial Officer
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