10-Q 1 0001.txt FORM 10-Q 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 October 28, 2000 ----------------------------------- 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 -------- KOHL'S CORPORATION -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) WISCONSIN 39-1630919 -------------------------------- --------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (262) 703-7000 -------------- 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: December 6, 2000 Common Stock, ------------------------------ Par Value $.01 per Share, 331,702,194 shares Outstanding. -------------------------------------------------------- KOHL'S CORPORATION INDEX PART I. FINANCIAL INFORMATION Item 1 Financial Statements: Condensed Consolidated Balance Sheets at October 28, 2000, January 29, 2000 and October 30, 1999 3 Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended October 28, 2000 and October 30, 1999 4 Condensed Consolidated Statement of Changes in Shareholders' Equity for the Nine Months Ended October 28, 2000 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 28, 2000 and October 30, 1999 6 Notes to Condensed Consolidated Financial Statements 7-8 Item 2 Management's Discussion and Analysis of Financial Conditions and Results of Operations 9-14 PART II. OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 15 Signatures 16 -2- KOHL'S CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
October 28, January 29, October 30, 2000 2000 1999 ------------------------------------------------------- (Unaudited) (Audited) (Unaudited) (In thousands) Assets ------ Current assets: Cash and cash equivalents $ 4,149 $ 12,608 $ 16,066 Short-term investments - 27,500 20,000 Accounts receivable trade, net 629,971 505,010 294,672 Merchandise inventories 1,325,172 794,439 1,010,965 Deferred income taxes 22,839 22,184 16,449 Other 22,785 11,130 14,580 -------------- -------------- ------------- Total current assets 2,004,916 1,372,871 1,372,732 Property and equipment, net 1,625,679 1,352,956 1,226,585 Other assets 59,939 42,422 37,749 Favorable lease rights 130,575 133,023 140,202 Goodwill 15,838 19,738 21,038 -------------- -------------- ------------- Total assets $ 3,836,947 $ 2,921,010 $ 2,798,306 ============== ============== ============= Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 485,618 $ 336,432 $ 471,671 Accrued liabilities 142,490 143,784 135,509 Income taxes payable 14,296 63,955 30,068 Short-term debt 225,000 85,000 - Current portion of long-term debt 16,589 11,589 11,578 -------------- -------------- ------------- Total current liabilities 883,993 640,760 648,826 Long-term debt 825,112 494,993 495,416 Deferred income taxes 79,839 66,482 60,442 Other long-term liabilities 39,188 33,272 32,772 Shareholders' equity Common stock -$.01 par value,800,000,000 shares authorized, 331,680,294,326,197,268, and 325,981,040 issued at October 28, 2000, January 29, 2000 and October 30,1999 respectively. 3,317 3,262 3,260 Paid-in capital 896,782 767,179 763,104 Retained earnings 1,108,716 915,062 794,486 --------------- -------------- ------------- Total shareholders' equity 2 ,008,815 1,685,503 1,560,850 --------------- -------------- ------------- Total liability and shareholders' equity $ 3,836,947 $ 2,921,010 $ 2,798,306 =============== ============== =============
See accompanying Notes to Condensed Consolidated Financial Statements 3 KOHL'S CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
3 Months 3 Months 9 Months 9 Months (13 Weeks) (13 Weeks) (39 Weeks) (39 Weeks) Ended Ended Ended Ended October 28, October 30, October 28, October 30, 2000 1999 2000 1999 -------------------------------------------------------------- (in thousands, except per share data) Net sales $ 1,444,929 $ 1,099,852 $ 3,928,955 $ 2,949,611 Cost of merchandise sold 949,609 724,193 2,569,762 1,935,520 ----------- ----------- ----------- ----------- Gross margin 495,320 375,659 1,359,193 1,014,091 Operating expenses: Selling, general, and administrative 317,790 246,751 891,377 681,653 Depreciation and amortization 31,887 22,060 89,030 60,382 Goodwill amortization 1,300 1,300 3,900 3,900 Preopening expenses 8,365 11,033 30,315 24,088 ----------- ----------- ----------- ----------- Operating income 135,978 94,515 344,571 244,068 Interest expense, net 10,981 8,033 29,175 19,653 ----------- ----------- ----------- ----------- Income before income taxes 124,997 86,482 315,396 224,415 Provision for income taxes 48,251 33,468 121,742 86,849 ----------- ----------- ----------- ----------- Net income $ 76,746 $ 53,014 $ 193,654 $ 137,566 =========== =========== =========== =========== Earnings per share: Basic Net income $ 0.23 $ 0.16 $ 0.59 $ 0.42 Average number of shares 331,196 325,906 329,616 324,145 Diluted Net income $ 0.23 $ 0.16 $ 0.57 $ 0.41 Average number of shares 339,693 335,350 337,587 333,684
See accompanying Notes to Condensed Consolidated Financial Statements 4 KOHL'S CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
Common Stock Paid-In Retained ------------------------ Shares Amount Capital Earnings Total ----------- ----------- ----------- ----------- ----------- (In thousands) Balance at January 29, 2000 326,197 $ 3,262 $ 767,179 $ 915,062 $ 1,685,503 Exercise of stock options 5,483 55 40,412 - 40,467 Income tax benefit tax from exercise of stock options - - 89,191 - 89,191 Net income - - - 193,654 193,654 ----------- ----------- ----------- ----------- ----------- Balance at October 28, 2000 331,680 $ 3,317 $ 896,782 $ 1,108,716 $ 2,008,815 =========== =========== =========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements 5 KOHL'S CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
9 Months 9 Months (39WeekS) (39Weeks) Ended Ended October 28, 2000 October 30, 1999 ---------------------------------------- (In thousands) Operating activities Net income $ 193,654 $ 137,566 Adjustments to reconcile net income to net cash (used in) provided by operating activities Depreciation and amortization 93,267 64,463 Amortization of debt discount 3,382 38 Deferred income taxes 12,702 4,618 Other noncash charges 3,371 2,291 Income tax benefit from exercise of stock options 89,191 44,906 Changes in operating assets and liabilities: Accounts receivable (124,961) (22,053) Merchandise Inventories (530,733) (393,603) Other current assets (11,655) (3,889) Accounts payable 149,186 253,686 Accrued and other long-term liabilities 1,674 22,397 Income taxes (49,659) (18,504) --------- --------- Net cash (used in) provided by operating activities (170,581) 91,916 Investing activities Acquisition of property and equipment and favorable lease rights, net (353,926) (483,844) Proceeds from sale of assets - 4,350 Sale of short-term investments. net 27,500 6,736 Other (16,543) (14,220) --------- --------- Net cash used in investing activities (342,969) (486,978) Financing activities Proceeds from short-term debt 140,000 - Net borrowings (repayments) under credit facilities 24,000 (1,600) Proceeds from debt offering, net 319,379 197,258 Payments of long-term debt and capital lease obligations (11,642) (1,147) Payment of financing fees on debt (7,113) (1,84O) Net proceeds from issuance of common shares 40,467 215,599 --------- --------- Net cash provided by financing activities 505,091 408,270 --------- --------- Net (decrease) increase in cash and cash equivalents (8,459) 13,208 Cash and cash equivalents at beginning of period 12,608 2,858 --------- --------- Cash and cash equivalents at end of period $ 4,149 $ 16,066 ========= =========
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 6, 2000, effected in the form of a stock dividend. 2. Reclassifications Certain reclassifications have been made to the prior periods financial statements to conform to the fiscal 2000 presentation. 3. Merchandise Inventories The Company uses the last-in, first out (LIFO) method of accounting for merchandise inventory because it results in a better matching of cost 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.
LIFO Expense ------------------------------------ 9 Months Ended Quarter October 28, 2000 October 30, 1999 ------- ---------------- ---------------- (In Thousands) First $1,844 $1,363 Second 1,884 1,409 Third 2,168 1,651 ------ ------ Total $5,896 $4,423 ====== ======
Inventories would have been $8,879,000, $2,983,000 and $6,344,000 higher at October 28, 2000, January 29, 2000 and October 30, 1999, respectively, if they had been valued using the first-in, first-out (FIFO) method. -7- 4. Debt On June 12 and June 29, 2000, the Company issued $554.4 million aggregate principal amount of Liquid Yield Option Subordinated Notes (LYONs) due June 12, 2020. 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 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 (issue price and all accreted original issue discount). The holders of the securities can "put" the LYONs back to the Company after three years and ten years during specified 30- day windows at specified amounts reflective of the accretion of the 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. 5. Contingencies The Company is involved in various legal matters arising in the normal course of business. In the opinion of management, the outcome of such proceedings and litigation will not have a material adverse impact on the Company's financial position or results of operations. 6. Net Income Per Share The numerator for the calculation of basic and diluted net income per share is net income. The denominator is summarized as follows (in thousands):
3 Months Ended 9 Months Ended October 28, October 30, October 28, October 30, 2000 1999 2000 1999 ---- ---- ---- ---- Denominator for basic earnings per share -weighted average shares 331,196 325,906 329,616 324,145 Employee stock options 8,497 9,444 7,971 9,539 ------- ------- ------- ------- Denominator for diluted earnings per share 339,693 335,350 337,587 333,684 ======= ======= ======= =======
-8- MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS ---------------------------------------------- THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2000 --------------------------------------------------- Results of Operations --------------------- At October 28, 2000, the Company operated 320 stores compared with 257 stores at the same time last year. During the quarter, the Company opened 22 new stores. In August, Kohl's opened eight new stores: two stores in Chicago, IL; two stores in Denver, CO; and additional stores in Dallas/Fort Worth, TX; Harrisburg, PA; Pittsburgh, PA; and a store in Neenah, WI. In October, the Company opened 14 stores entering Tulsa, OK with three stores and Flint, MI with one store. In addition, it added three stores on Long Island, two stores in Denver and one store each in Chicago, Detroit, St. Louis, Philadelphia and Winston/Salem increasing the total number of new store openings for 2000 to 61. In fiscal 2001, Kohl's plans to open 55-60 new stores, including approximately 34 in the first quarter of the year. Key plans for the first quarter of fiscal 2001 include entering the Atlanta market with 15 stores; continued expansion in the Northeast with the opening of four stores in the Hartford/New Haven, CT market, entry into Arkansas with three stores and opening additional stores in the Midwest and Mid-Atlantic markets. Net sales increased $345.0 million or 31.4% to $1,444.9 million for the three months ended October 28, 2000 from $1,099.9 million for the three months ended October 30, 1999. Of the increase, $247.5 million is attributable to the inclusion of 28 new stores opened in 1999 and 61 new stores opened in 2000. The remaining $97.5 million is attributable to comparable store sales growth of 9.4%. Net sales increased $979.4 million or 33.2% to $3,929.0 million for the nine months ended October 28, 2000 from $2,949.6 million for the nine months ended October 30, 1999. Of the increase, $771.5 million is attributable to the inclusion of 46 new stores opened in 1999 and 61 new stores opened in 2000. The remaining $207.9 million is attributable to comparable stores sales growth of 7.6%. Gross margin for the three months ended October 28, 2000 was 34.3% compared to 34.2% for the three months ended October 30, 1999. Gross margin for the nine months ended October 28, 2000 was 34.6% compared to 34.4% for the nine months ended October 30, 1999. These increases are primarily attributable to the mix of merchandise sold. -9- Selling, general and administrative expenses declined to 22.0% of net sales for the three months ended October 28, 2000 from 22.4% of net sales for the three months ended October 30, 1999. Selling, general and administrative expenses for the nine months ended October 28, 2000 declined to 22.7% of net sales from 23.1% for the nine months ended October 30, 1999. The decrease was a result of leverage achieved on the increase in net sales. Depreciation and amortization for the three months ended October 28, 2000 was $33.2 million compared to $23.4 million for the three months ended October 30, 1999. Depreciation and amortization for the nine months ended October 28, 2000 was $92.9 million compared to $64.3 million for the nine months ended October 30, 1999. These increases are primarily attributable to capital spending related to new store openings. Preopening expense for the three months ended October 28, 2000 was $8.4 million compared to $11.0 million for the three months ended October 30, 1999. The decrease is primarily due to a decrease in the number of new stores opened. Preopening expense for the nine months ended October 28, 2000 was $30.3 million compared to $24.1 million for the nine months ended October 30, 1999. The increase is primarily due to an increase in the number of new stores opened. Preopening expenses relate to the costs associated with new store openings, including advertising, hiring and training costs for new employees, and processing and transporting initial merchandise. As a result of the above factors, operating income for the three months ended October 28, 2000, increased $41.5 million or 43.9% over the three months ended October 30, 1999. Operating income for the nine months ended October 28, 2000, increased $100.5 million or 41.2% over the nine months ended October 30, 1999. Net interest expense for the three months ended October 28, 2000 increased $2.9 million from the three months ended October 30, 1999. Net interest expense for the nine months ended October 28, 2000 increased $9.5 million from the nine months ended October 30, 1999. The increase was primarily attributable to the interest accrued for the $554.4 million aggregate principal amount, of Liquid Yield Option Subordinated Notes issued in June, 2000. For the three months ended October 28, 2000, net income increased 44.8% to $76.7 million from $53.0 million in the three months ended October 30, 1999. Earnings were $0.23 per diluted share for the three months ended October 28, 2000 compared to $0.16 per diluted share for the three months ended October 30, 1999. Net income for the nine months ended October 28, 2000 increased 40.8% to $193.7 million or $0.57 per diluted share from $137.6 million or $0.41 per diluted share for the nine months ended October 30, 1999. -10- Seasonality & Inflation ----------------------- The Company's business, like that of most retailers, is subject to seasonal influences, with the major portion of sales and income realized during the last half of each fiscal year, which includes the back-to-school and holiday seasons. Approximately 17% and 30% of sales occur during the back-to-school and holiday seasons, respectively. Because of the seasonality of the Company's business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. In addition, quarterly results of operations depend significantly upon the timing and amount of revenues and costs associated with the opening of new stores. The Company does not believe that inflation has had a material effect on the results during the periods presented. However, there can be no assurance that the Company's business will not be affected in the future. Financial Condition and Liquidity --------------------------------- The Company's primary ongoing cash requirements are for seasonal and new store inventory purchases, growth in credit card accounts receivable, and for capital expenditures in connection with the Company's expansion and remodeling programs. The Company's primary sources of funds for its business activities are cash flow from operations, financing secured by its proprietary credit card 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. The Company's working capital increased to $1,120.9 million at October 28, 2000 from $732.1 million at January 29, 2000 and from $723.9 million at October 30, 1999. The increase in working capital was primarily attributable to an increase in inventory partially offset by accounts payable and an increase in accounts receivable. -11- The Company's merchandise inventories increased $530.7 million over the January 29, 2000 balance and $314.2 million over the October 30, 1999 balance. These increases reflect the purchase of fall inventory as well as inventory for new stores. Accounts payable increased $149.2 million from January 29, 2000 and $13.9 million from the October 30, 1999 balance. 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. The Company's accounts receivable increased $335.3 million over the October 30, 1999 balance. The increase is attributable to an increase in proprietary credit card sales and a change in the structure of the transaction related to financing secured by proprietary credit card accounts receivable. Prior to December 1999, the Company financed accounts receivable off-balance sheet and, accordingly, the amount sold at October 30, 1999 was reflected as a reduction of the accounts receivable balance. The structure of the transaction met the true sale requirements of SFAS No. 125, "Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities." Subsequent to December 1999,the accounts receivable financing transaction no longer met the true sale requirements of SFAS No. 125. Accordingly, the proceeds are included in the ending receivable balance, and the debt is reflected as short term debt on the balance sheet. The following table provides a comparison of accounts receivable and receivables financed.
October 28, January 29, October 30, 2000 2000 1999 ----------- ----------- ----------- Net accounts receivable $629,971 $505,010 $ 474,672 Receivables off-balance sheet - - (180,000) -------- -------- --------- Net accounts receivable on-balance sheet $629,971 $505,010 $ 294,672 ======== ======== ========= Short-term debt secured by accounts receivable $225,000 $ 85,000 $ -
Cash used in operating activities was $170.6 million for the nine months ended October 28, 2000 compared to cash provided by operating activities of $91.9 million for the nine months ended October 30, 1999. Excluding changes in operating assets and liabilities, cash provided by operating activities was $395.6 million for the nine months ended October 28, 2000 compared to $253.9 million for the nine months ended October 30, 1999. -12- Capital expenditures for the nine months ended October 28, 2000 were $353.9 million compared to $483.8 million for the same period a year ago. The decrease in expenditures in 2000 is primarily attributable to the timing of spending related to new stores. Total capital expenditures for fiscal 2000 are currently expected to range between $475-$500 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. In June 2000, the Company issued $554.4 million, aggregate principal amount, of Liquid Yield Option Subordinated Notes (LYONs). The LYONs mature on June 12, 2020. The zero coupon LYON's 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 LYON is convertible 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. The holders of securities can "put" the LYONs back to the Company after three and ten years. The proceeds were initially used to pay off borrowings under the Company's outstanding revolving credit facility and accounts receivable program. Additionally, the proceeds were used to fund general corporate purposes, including store expansion. 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, $225 million of available financing secured by its proprietary credit card accounts receivable, seasonal borrowings under its $300 million revolving credit facility, short-term trade credit and other sources of financing. Forward Looking Statements -------------------------- Item 2 of this form 10-Q, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements regarding sales, earnings, growth and capital expenditures plans and capital requirements. Such statements are subject to certain risks and uncertainties which could cause Kohl's actual results to differ materially from those anticipated by the forward-looking statements. These factors include but are not limited to: competition, fluctuations in consumer demand, seasonal business -13- trends, economic conditions, government activities, conditions affecting the availability, acquisition, development and ownership of real estate and other factors as may periodically be described in Kohl's filings with the SEC. No assurance can be given that the future results covered by the forward-looking statements will be achieved. -14- Item 6. Exhibits and Reports on Form 8-K a) Exhibits 12.1 Statement regarding calculation of ratio of earnings to fixed charges. 27.1 Financial Data Schedule - Article 5 of Regulation S-X, nine months ended October 28, 2000. 27.2 Financial Data Schedule - Article 5 of Regulation S-X, nine months ended October 30, 1999 (restated). b) Reports on Form 8-K There were no reports on Form 8-K filed for three months ended October 28, 2000. -15- SIGNATURES ---------- 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: December 8, 2000 /s/ R. Lawrence Montgomery ---------------------------- R. Lawrence Montgomery Chief Executive Officer Date: December 8, 2000 /s/ Arlene Meier ---------------------------- Arlene Meier Chief Operating Officer