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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 November 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 number 1-11084
-------
KOHL'S CORPORATION
- --------------------------------------------------------------------------------
(Exact name of the registrant as specified in its charter)
WISCONSIN 39-1630919
- -------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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: November 25, 2002 Common
-----------------------------
Stock, Par Value $.01 per Share, 337,183,942 shares outstanding.
- ---------------------------------------------------------------
KOHL'S CORPORATION
INDEX
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
November 2, 2002, February 2, 2002 and November 3, 2001 3
Condensed Consolidated Statements of Income for the
Three Months and Nine Months Ended November 2, 2002
and November 3, 2001 4
Condensed Consolidated Statement of Changes in
Shareholders' Equity for the Nine Months Ended
November 2, 2002 5
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended November 2, 2002 and
November 3, 2001 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2 Management's Discussion and Analysis of Financial
Conditions and Results of Operations 11-15
Item 4 Controls and Procedures 16
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8 - K 17
Signatures 18
Certifications 19-22
-2-
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
KOHL'S CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
November 2, February 2, November 3,
2002 2002 2001
----------- -------------- ------------
(Unaudited) (Audited) (Unaudited)
(In thousands)
Assets
------------
Current assets:
Cash and cash equivalents $ 92,501 $ 106,722 $ 8,306
Short-term investments - 229,377 -
Accounts receivable, net 975,512 835,946 804,966
Merchandise inventories 2,078,371 1,198,307 1,701,856
Deferred income taxes 46,513 52,292 43,439
Other 48,868 41,400 44,860
----------- ----------- -----------
Total current assets 3,241,765 2,464,044 2,603,427
Property and equipment, net 2,568,519 2,199,494 2,027,466
Other assets 94,397 81,850 78,103
Favorable lease rights 178,990 174,860 172,953
Goodwill 9,338 9,338 10,638
----------- ----------- -----------
Total assets $ 6,093,009 $ 4,929,586 $ 4,892,587
=========== =========== ===========
Liabilities and Shareholders' Equity
------------------------------------------
Current liabilities:
Accounts payable $ 865,428 $ 478,870 $ 678,257
Accrued liabilities 267,819 259,598 201,580
Income taxes payable 46,533 125,085 47,153
Short-term debt 225,000 - 165,000
Current portion of long-term debt 11,116 16,418 16,358
----------- ----------- -----------
Total current liabilities 1,415,896 879,971 1,108,348
Long-term debt 1,236,940 1,095,420 1,093,507
Deferred income taxes 151,674 114,228 104,662
Other long-term liabilities 61,523 48,561 43,469
Shareholders' equity:
Common stock 3,371 3,351 3,347
Paid-in capital 1,076,289 1,005,169 990,190
Retained earnings 2,147,316 1,782,886 1,549,064
----------- ----------- -----------
Total shareholders' equity 3,226,976 2,791,406 2,542,601
----------- ----------- -----------
Total liabilities and shareholders' equity $ 6,093,009 $ 4,929,586 $ 4,892,587
=========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements
3
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months (13 Weeks) Ended Nine Months (39 Weeks) Ended
------------------------------------ -----------------------------------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
---------------- ---------------- ---------------- ---------------
(In thousands, except per share data)
Net sales $ 2,143,390 $ 1,760,346 $ 5,935,808 $ 4,764,429
Cost of merchandise sold 1,399,097 1,152,038 3,847,691 3,098,488
------------- -------------- --------------- ---------------
Gross margin 744,293 608,308 2,088,117 1,665,941
Operating expenses:
Selling, general, and administrative 455,217 381,002 1,290,742 1,063,143
Depreciation and amortization 49,065 38,963 140,460 111,552
Goodwill amortization - 1,300 - 3,900
Preopening expenses 11,737 11,208 31,615 26,651
------------- -------------- --------------- ---------------
Operating income 228,274 175,835 625,300 460,695
Interest expense, net 13,769 13,651 39,397 36,983
------------- -------------- --------------- ---------------
Income before income taxes 214,505 162,184 585,903 423,712
Provision for income taxes 81,084 61,954 221,473 161,858
------------- -------------- --------------- ---------------
Net income $ 133,421 $ 100,230 $ 364,430 $ 261,854
============= ============== =============== ===============
Net income per share:
Basic $ 0.40 $ 0.30 $ 1.08 $ 0.78
Diluted $ 0.39 $ 0.29 $ 1.06 $ 0.77
See accompanying Notes to Condensed Consolidated Financial Statements
4
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Common Stock Paid-In Retained
--------------------------
Shares Amount Capital Earnings Total
------------ ------------ ------------- ----------- -------------
(In thousands, except share amounts)
Balance at February 2, 2002 335,138,497 $ 3,351 $ 1,005,169 $ 1,782,886 $ 2,791,406
Exercise of stock options 2,021,981 20 27,970 - 27,990
Income tax benefit from exercise of stock options - - 43,150 - 43,150
Net income - - - 364,430 364,430
------------ ------------ ------------- ----------- -------------
Balance at November 2, 2002 337,160,478 $ 3,371 $ 1,076,289 $ 2,147,316 $ 3,226,976
============ ============ ============= =========== =============
See accompanying Notes to Condensed Consolidated Financial Statements
5
KOHL'S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months (39 Weeks) Ended
---------------------------------------------
November 2, 2002 November 3, 2001
------------------ ----------------
(In thousands)
Operating activities
Net income $ 364,430 $ 261,854
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 141,144 116,039
Amortization of debt discount 7,000 6,797
Deferred income taxes 43,225 16,498
Changes in operating assets and liabilities:
Accounts receivable (139,566) (123,710)
Merchandise inventories (880,064) (698,566)
Other current assets (7,468) (19,462)
Accounts payable 386,558 278,318
Accrued and other long-term liabilities 22,823 15,929
Income taxes (35,402) (17,632)
-------------- -------------
Net cash used in operating activities (97,320) (163,935)
Investing activities
Acquisition of property and equipment
and favorable lease rights, net (494,810) (451,106)
Net sales of short-term investments 229,377 48,600
Other (21,982) (20,644)
-------------- -------------
Net cash used in investing activities (287,415) (423,150)
Financing activities
Proceeds from short-term debt 225,000 160,000
Net borrowings under revolving credit facility 133,500 -
Proceeds from public debt offering, net - 299,503
Payments of other long-term debt, net (15,026) (16,084)
Payments of financing fees on debt (950) (1,615)
Proceeds from stock option exercises 27,990 29,966
-------------- -------------
Net cash provided by financing activities 370,514 471,770
-------------- -------------
Net decrease in cash and cash equivalents (14,221) (115,315)
Cash and cash equivalents at beginning of period 106,722 123,621
-------------- -------------
Cash and cash equivalents at end of period $ 92,501 $ 8,306
============== =============
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 accounting principles generally accepted in the United States 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.
2. Reclassifications
Certain reclassifications have been made to the prior periods'
financial statements to conform to the fiscal 2002 presentation.
3. 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. The Company adopted this statement on February 3, 2002. Under SFAS No.
142, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized. Goodwill is now subject to fair value based impairment
tests. In addition, a transitional goodwill impairment test is required as of
the adoption date. The Company completed the transitional impairment test during
the first quarter of 2002 and determined there was no impairment losses on
existing goodwill. The remaining balance of goodwill is $9.3 million. In
accordance with SFAS No. 142, the Company ceased amortization of its remaining
goodwill. Under SFAS No. 142, the Company would have had $1.3 million and $3.9
million of additional pretax income and net income for the three and nine months
ended November 3, 2001. The impact on basic and diluted earnings per share would
have been less than $0.01 for the three months ended November 3, 2001, and $0.01
per share for the nine months ended November 3, 2001.
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. SFAS No. 144
addresses financial accounting and reporting for impairment or disposal of
long-lived assets and supersedes SFAS No. 121. The Company adopted SFAS No. 144
on February 3, 2002. The adoption of this statement did not have an impact on
the Company's results of operations or financial position.
7
In June 2002, the Financial Accounting Standards Board issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities,"
effective for any exit or disposal activities that are initiated after December
31, 2002. This statement addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This statement requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under Issue 94-3 a liability for an exit cost, as
defined, was recognized at the date of an entity's commitment to an exit plan.
The Company does not anticipate that adoption of SFAS 146 will have a material
effect on earnings or financial position.
4. Merchandise Inventories
The Company uses the last-in, first-out (LIFO) method of accounting for
merchandise inventories. 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
------------
Quarter Fiscal 2002 Fiscal 2001
------- ----------- -----------
(In thousands)
First $2,243 $1,786
Second 2,305 1,819
Third 2,571 2,112
------ ------
Total Year to Date $7,119 $5,717
====== ======
Inventories would have been $14,229,000, $7,110,000, and $10,568,000
higher at November 2, 2002, February 2, 2002, and November 3, 2001,
respectively, if they had been valued using the first-in, first-out (FIFO)
method.
5. Debt
In July 2002, the Company executed two new unsecured revolving bank
credit facilities. The first agreement consists of a $532 million facility
maturing July 10, 2007. The second agreement consists of a $133 million facility
maturing July 8, 2003. These agreements replace a $300 million unsecured
revolving bank credit facility which would have matured on June 13, 2003.
Depending on the type of advance under the new facilities, 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. As of
November 2, 2002, $133.5 million was outstanding on the facility maturing July
10, 2007, with a weighted average effective interest rate of 2.17%. No amounts
were outstanding under any of these facilities as of November 3, 2001.
8
6. 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.
7. Net Income Per Share
The calculations of the numerator and denominator for basic and diluted
net income per share are summarized as follows:
Three Months Ended
-----------------------------------------------
November 2, 2002 November 3, 2001
---------------- ----------------
(In thousands)
Numerator for basic earnings per share -
net income $133,421 $100,230
Interest expense related to convertible
notes, net of tax 1,435 - (a)
-------- --------
Numerator for dilutive earnings per share $134,856 $100,230
======== ========
Denominator for basic earnings per share
- - weighted average shares 336,923 334,616
Impact of dilutive employee stock options 5,897 7,676
Shares issued upon assumed conversion
of convertible notes 3,946 - (a)
-------- --------
Denominator for dilutive earnings per share 346,766 342,292
======== ========
(a) The convertible debt securities are not included in the computation of
diluted earnings per share as their impact is antidilutive.
9
For the nine months ended November 2, 2002, and November 3, 2001, the
numerator for the calculation of basic and diluted earnings per share is net
income. The denominator is summarized as follows:
Nine Months Ended
----------------------------------------------------
November 2, 2002 November 3, 2001
---------------- ----------------
(In thousands)
Denominator for basic earnings per share
- - weighted average shares 336,509 333,853
Impact of dilutive employee stock options 6,303 7,995
-------- --------
Denominator for dilutive earnings per share 342,812 341,848
======== ========
8. Subsequent Event
On November 21, 2002, the Company issued $300 million aggregate
principal amount of non-callable 6% unsecured senior notes due January 15, 2033.
Net proceeds were $295.1 million and will be used for general corporate
purposes, including continued store growth. These debentures were sold under the
shelf registration statement on Form S-3 filed with the SEC, which was effective
June 6, 2002.
10
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 2,
2002
Results of Operations
At November 2, 2002, the Company operated 457 stores compared with 382
stores at the same time last year. During the quarter, the Company opened 33
prototype stores, five in August and 28 in October. In August, the Company
opened two new stores in the Columbia, SC market; one store in the Detroit, MI
market; one store in the Toledo, OH market; and an additional store in
Manchester, CT. In October, the Company entered the Providence, RI market with
four stores and added three stores in the Milwaukee, WI market; two stores in
the Boston, MA market; two stores in the Philadelphia, PA market; five stores in
Ohio; three stores in New Jersey; two stores in Minnesota; and one additional
store each in New York, Virginia, North Carolina, Iowa, Illinois, Indiana and
Texas.
In addition, the Company opened 4 stores as a small market test. These
stores average 62,000 square feet and are designed to take the Kohl's concept
into a smaller footprint for lower population markets. Three of these stores
opened in August: one in Wisconsin, one in Iowa and one in Michigan. The fourth
opened in October in North Carolina. The 37 new store openings during the
quarter brings the total number of stores the Company opened this year to 75.
The Company has completed construction of a distribution center in San
Bernardino, CA, which is scheduled to open by the end of the year and will
support the Company's growth in the southwest region.
In 2003, the Company plans to open approximately 80 new stores. The
Company anticipates opening 35 stores in the first quarter including the
Company's entry into Southern California with 28 stores. In addition, the
Company will open three stores in the San Antonio, TX market and one store each
in Grand Rapids, MI; Springfield, MA; Boston, MA and Philadelphia, PA. In the
fall season, the Company plans to open approximately 45 new stores including
entries into the Phoenix, AZ and Las Vegas, NV markets.
Net sales increased $383.0 million or 21.8% to $2,143.4 million for the
three months ended November 2, 2002, from $1,760.3 million for the three months
ended November 3, 2001. Net sales increased $282.7 million due to the opening of
75 new stores in 2002 and the inclusion of 28 new stores opened in the third
quarter of 2001. The remaining $100.3 million is attributable to comparable
store sales growth of 5.9%.
Net sales increased $1,171.4 million or 24.6% to $5,935.8 million for
the nine months ended November 2, 2002, from $4,764.4 million for the nine
months ended November 3, 2001. Net sales increased $817.7 million due to the
opening of 75 new
11
stores in 2002 and the inclusion of 62 new stores opened in 2001. The remaining
$353.7 million is attributable to comparable store sales growth of 8.1%.
Gross margin for the three months ended November 2, 2002, was $744.3
million, or 34.7% compared to $608.3 million, or 34.6% for the three months
ended November 3, 2001. Gross margin for the nine months ended November 2, 2002,
was $2,088.1 million, or 35.2% compared to $1,665.9 million, or 35.0% for the
nine months ended November 3, 2001. The increase in gross margin was primarily
due to the growth in sales and improved margin rate in some merchandise
categories for the three months and nine months ended November 2, 2002.
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 and preopening. The S,G&A
expenses declined to 21.2% of net sales for the three months ended November 2,
2002, from 21.6% of net sales for the three months ended November 3, 2001. Of
the 41 basis points of rate improvement, 18 basis points are due to leverage of
advertising costs while the remainder is due to improvement of distribution and
store operating costs. The S,G&A expenses declined to 21.7% of net sales for the
nine months ended November 2, 2002, from 22.3% of net sales for the nine months
ended November 3, 2001. Of the 57 basis points of rate improvement, 25 basis
points are due to leverage of advertising costs, 23 basis points are related to
improved store operating costs, and the remainder is due to the leverage of
other S,G&A costs.
Depreciation and amortization for the three months ended November 2,
2002, was $49.1 million compared to $40.3 million for the three months ended
November 3, 2001. Depreciation and amortization for the nine months ended
November 2, 2002, was $140.5 million compared to $115.5 million for the nine
months ended November 3, 2001. The increase is primarily attributable to the
addition of new stores, the opening of two new distribution centers in the
fourth quarter of fiscal 2001 and the remodeling and expansion of existing
stores, offset by no amortization of goodwill in fiscal 2002.
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.
Preopening expense for the three months ended November 2, 2002, was $11.7
million compared to $11.2 million for the three months ended November 3, 2001.
Preopening expense for the nine months ended November 2, 2002, was $31.6 million
compared to $26.7 million for the nine months ended November 3, 2001. The
increase is primarily due to an increase in the number of new stores opened and
the timing of related expenses.
As a result of the above factors, operating income for the three months
ended November 2, 2002, increased $52.4 million or 29.8% over the three months
ended November 3, 2001. Operating income for the nine months ended November 2,
2002, increased $164.6 million or 35.7% over the nine months ended November 3,
2001.
12
Net interest expense for the three months ended November 2, 2002, was
$13.8 million compared to $13.7 million for the three months ended November 3,
2001. Net interest expense for the nine months ended November 2, 2002, was $39.4
million compared to $37.0 million for the nine months ended November 3, 2001.
The Company incurred incremental interest expense as a result of the $300
million of non-callable unsecured notes issued March 2001.
Net income for the three months ended November 2, 2002, increased 33.1%
to $133.4 million from $100.2 million for the three months ended November 3,
2001. Earnings were $0.39 per diluted share for the three months ended November
2, 2002, compared to $0.29 per diluted share for the three months ended November
3, 2001. Net income for the nine months ended November 2, 2002, increased 39.2%
to $364.4 million from $261.9 million for the nine months ended November 3,
2001. Earnings were $1.06 per diluted share for the nine months ended November
2, 2002, compared to $0.77 per diluted share for the nine months ended November
3, 2001.
Seasonality & Inflation
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 typically
occur during the back-to-school and holiday seasons, respectively. Because of
the seasonality of the Company's business, results for any quarter are not
necessarily indicative of the results that may be achieved for a full fiscal
year. In addition, quarterly results of operations depend significantly upon the
timing and amount of revenues and costs associated with the opening of new
stores.
The Company does not believe that inflation has had a material effect
on the results during the periods presented. However, there can be no assurance
that the Company's business will not be affected in the future.
Financial Condition and Liquidity
The Company's primary ongoing cash requirements are for seasonal and
new store inventory purchases, the growth in credit card accounts receivable and
capital expenditures in connection with expansion and remodeling programs. The
Company's primary sources of funds for its business activities are cash flow
from operations, $225 million of available financing secured by its proprietary
credit card accounts receivable, seasonal borrowings under its $665 million
revolving credit facilities and short-term trade credit. As of November 2, 2002,
accounts receivable of $225 million were sold pursuant to the Company's
proprietary credit card accounts receivable financing program and $133.5 million
was outstanding on the revolving credit facility. As of November 3, 2001, $160
million of accounts receivable were sold and no amounts were outstanding under
the revolving credit facility.
13
Short-term trade credit, in the form of extended payment terms for
inventory purchases, 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 expects to generate adequate cash flows from
operating activities to sustain current levels of operations.
In July 2002, the Company executed two new unsecured revolving bank
credit facilities. The new agreements consist of a $532 million facility
maturing July 10, 2007, and an additional $133 million facility maturing July
8, 2003. The credit facilities replace the $300 million bank credit facility
that was in place and will be used for general corporate purposes, including
continued store growth.
In November 2002, the Company issued $300 million aggregate principal
amount of non-callable 6% unsecured senior notes due January 15, 2033, and
received net proceeds of approximately $295.1 million. The proceeds will be used
for general corporate purposes, including continued store growth. Pending such
uses, the Company will invest the proceeds in short-term interest bearing
securities.
Cash used in operating activities was $97.3 million for the nine months
ended November 2, 2002, compared to $163.9 million for the nine months ended
November 3, 2001. Excluding changes in operating assets and liabilities, cash
provided by operating activities was $555.8 million for the nine months ended
November 2, 2002, compared to $401.2 million for the nine months ended November
3, 2001.
The following table summarizes information related to the Company's
proprietary credit card receivables:
November 2, February 2, November 3,
2002 2002 2001
----------- ----------- -----------
Gross accounts receivable $ 996,107 $ 853,726 $ 817,813
Allowance for doubtful accounts $ 20,595 $ 17,780 $ 12,847
Allowance as a % of gross accounts
receivable 2.1% 2.1% 1.6%
Accounts receivable turnover (rolling 4
quarters) * 3.4x 3.2x 3.1x
* Credit card sales divided by average quarterly gross
accounts receivable
14
Proprietary credit card sales increased to $2,064.8 million or 34.8% of
net sales for the nine months ended November 2, 2002, from $1,554.4 million or
32.6% of net sales for the nine months ended November 3, 2001. The Company's
payment percent of billed balances ranged from 27% to 28% for the nine months
ended November 2, 2002, versus 24% to 26% for the nine months ended November 3,
2001. The increase in the allowance for doubtful accounts 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, which has continued in 2002.
The Company's merchandise inventories increased $376.5 million over the
November 3, 2001, balance and $880.1 million over the February 2, 2002, balance.
The increase from November 3, 2001, to November 2, 2002, was primarily the
result of higher merchandise levels required to support existing stores and new
store locations. The increase from February 2, 2002, to November 2, 2002, was
primarily due to the seasonality of the Company's business as well as higher
merchandise levels required to support existing stores and new store locations.
Accounts payable increased $187.2 million from November 3, 2001, and $386.6
million from February 2, 2002. Fluctuations in the level of accounts payable are
primarily attributable to the increase in inventory levels, the timing of
inventory receipts and invoice dating arrangements with vendors.
Capital expenditures for the nine months ended November 2, 2002, were
$494.8 million compared to the $451.1 million for the same period a year ago.
The increase in expenditures is primarily attributable to the timing and number
of new store openings.
Total capital expenditures for fiscal 2002 are expected to be
approximately $750 million. This estimate includes new store spending as well as
base capital needs. The actual amount of the Company's future annual capital
expenditures will depend primarily on the number of new stores opened, whether
such stores are owned or leased by the Company and the number of existing stores
remodeled or refurbished. During fiscal 2002, the Company opened 75 new stores.
In fiscal 2003, the Company plans to open approximately 80 additional stores.
15
Item 4. Controls and Procedures
Within the 90-day period prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rules 13a-14 and 15d-14
of the Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's Exchange Act
filings.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.
Forward Looking Statements
Item 2 of this form 10-Q contains "forward looking statements," subject
to protections under federal law. The Company intends words such as "believes",
"anticipates", "plans", "may", "will", "should", "expects", and similar
expressions to identify forward-looking statements. In addition, statements
covering 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, planned capital
expenditures, future store openings and adequacy of capital resources and
reserves. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those anticipated by the
forward looking statements. These risks and uncertainties include but are not
limited to those described in Exhibit 99.1 to the Company's annual report on
Form 10-K filed with the SEC on April 15, 2002, which is expressly incorporated
herein by reference, and such other factors as may periodically be described in
the Company's filings with the SEC.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
12.1 Statement regarding calculation of ratio of earnings to
fixed charges.
99.1 Certification of Periodic Report by Chief Financial
Officer
99.2 Certification of Periodic Report by Chief Executive
Officer
b) Reports on Form 8-K
The Company filed one current report on Form 8-K, dated August
13, 2002, with respect to Item 7 (Financial Statements and
Exhibits) and Item 9 (Regulation FD Disclosure), to report that
each R. Lawrence Montgomery, the Chief Executive Officer, and
Patricia Johnson, the Chief Financial Officer of the Company,
submitted to the SEC sworn statements pursuant to SEC Order No.
4-460.
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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 9, 2002 /s/ R. Lawrence Montgomery
--------------------------
R. Lawrence Montgomery
Chief Executive Officer and Director
Date: December 9, 2002 /s/ Patricia Johnson
--------------------
Patricia Johnson
Chief Financial Officer
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CERTIFICATIONS
I, R. Lawrence Montgomery, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Kohl's Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as such
term is defined in paragraph (c) of Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function(s)):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
19
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: December 9, 2002
/s/ R. LAWRENCE MONTGOMERY
--------------------------
R. Lawrence Montgomery
Chief Executive Officer
(Principal Executive Officer)
20
I, Patricia Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Kohl's Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as such
term is defined in paragraph (c) of Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function(s)):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most
21
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: December 9, 2002
/s/ PATRICIA JOHNSON
--------------------
Patricia Johnson
Chief Financial Officer
(Principal Financial Officer)
22