Form 10-Q
Table of Contents

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 2, 2003

 

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

incorporation or organization)

  (I.R.S. Employer 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 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: August 26, 2003 Common Stock, Par Value $.01 per Share, 339,472,719 shares outstanding.

 



Table of Contents

KOHL’S CORPORATION

INDEX

 

PART I

  

FINANCIAL INFORMATION

Item 1

  

Financial Statements:

    
    

Condensed Consolidated Balance Sheets at August 2, 2003, February 1, 2003, and August 3, 2002

   3
     Condensed Consolidated Statements of Income for the Three Months and Six Months Ended August 2, 2003, and August 3, 2002    4
    

Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Six Months Ended August 2, 2003

   5
    

Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 2, 2003, and August 3, 2002

   6
    

Notes to Condensed Consolidated Financial Statements

   7-10

Item 2

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   11-18

Item 3

  

Quantitative and Qualitative Disclosures about Market Risk

   19

Item 4

  

Controls and Procedures

   19

PART II

  

OTHER INFORMATION

    

Item 6

  

Exhibits and Reports on Form 8 – K

   20-21
    

Signatures and Certifications

   22

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

KOHL’S CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

 

    

August 2,

2003


  

February 1,

2003


  

August 3,

2002


     (Unaudited)    (Audited)    (Unaudited)
Assets                     

Current assets:

                    

Cash and cash equivalents

   $ 107,978    $ 90,085    $ 85,039

Short-term investments

     35,036      475,991      113,230

Accounts receivable, net

     950,142      990,810      828,458

Merchandise inventories

     1,716,763      1,626,996      1,454,419

Deferred income taxes

     34,146      56,693      40,593

Other

     77,285      43,519      56,373
    

  

  

Total current assets

     2,921,350      3,284,094      2,578,112

Property and equipment, net

     2,980,460      2,739,290      2,425,389

Favorable lease rights, net

     186,088      180,420      171,007

Goodwill

     9,338      9,338      9,338

Other assets

     101,887      102,361      89,945
    

  

  

Total assets

   $ 6,199,123    $ 6,315,503    $ 5,273,791
    

  

  

Liabilities and Shareholders’ Equity                     

Current liabilities:

                    

Accounts payable

   $ 701,852    $ 694,748    $ 590,942

Accrued liabilities

     295,149      315,630      246,148

Income taxes payable

     57,542      142,150      69,253

Current portion of long-term debt and capital leases

     12,440      355,464      11,141
    

  

  

Total current liabilities

     1,066,983      1,507,992      917,484

Long-term debt

     996,392      1,006,353      1,047,211

Capital leases

     67,782      52,431      42,484

Deferred income taxes

     205,257      171,951      134,847

Other long-term liabilities

     69,245      64,859      52,251
    

  

  

Total liabilities

     2,405,659      2,803,586      2,194,277

Shareholders’ equity:

                    

Common stock

     3,393      3,373      3,368

Paid-in capital

     1,140,646      1,082,277      1,062,251

Retained earnings

     2,649,425      2,426,267      2,013,895
    

  

  

Total shareholders’ equity

     3,793,464      3,511,917      3,079,514
    

  

  

Total liabilities and shareholders’ equity

   $ 6,199,123    $ 6,315,503    $ 5,273,791
    

  

  

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

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KOHL’S CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In Thousands, Except per Share Data)

 

    

Three Months

(13 Weeks) Ended


  

Six Months

(26 Weeks) Ended


    

August 2,

2003


  

August 3,

2002


  

August 2,

2003


  

August 3,

2002


Net sales

   $ 2,208,459    $ 1,921,830    $ 4,326,203    $ 3,792,418

Cost of merchandise sold

     1,471,656      1,234,773      2,848,135      2,448,594
    

  

  

  

Gross margin

     736,803      687,057      1,478,068      1,343,824

Operating expenses:

                           

Selling, general, and administrative

     473,823      423,698      947,948      835,525

Depreciation and amortization

     57,009      47,426      112,426      91,395

Preopening expenses

     2,492      2,939      17,974      19,878
    

  

  

  

Operating income

     203,479      212,994      399,720      397,026

Interest expense, net

     23,208      13,013      40,974      25,628
    

  

  

  

Income before income taxes

     180,271      199,981      358,746      371,398

Provision for income taxes

     68,126      75,593      135,588      140,389
    

  

  

  

Net income

   $ 112,145    $ 124,388    $ 223,158    $ 231,009
    

  

  

  

Net income per share:

                           

Basic

                           

Basic

   $ 0.33    $ 0.37    $ 0.66    $ 0.69

Average number of shares

     338,954      336,662      338,484      336,260

Diluted

                           

Diluted

   $ 0.33    $ 0.36    $ 0.65    $ 0.67

Average number of shares

     343,665      343,439      343,139      342,942

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

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KOHL’S CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(In Thousands, Except Share Amounts)

 

     Common Stock

   Paid-In
Capital


   Retained
Earnings


   Total

     Shares

   Amount

        

Balance at February 1, 2003

   337,322,102    $ 3,373    $ 1,082,277    $ 2,426,267    $ 3,511,917

Exercise of stock options

   2,007,357      20      26,697      —        26,717

Income tax benefit from exercise of stock options

   —        —        31,672      —        31,672

Net income

   —        —        —        223,158      223,158
    
  

  

  

  

Balance at August 2, 2003

   339,329,459    $ 3,393    $ 1,140,646    $ 2,649,425    $ 3,793,464
    
  

  

  

  

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

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KOHL’S CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

 

    

Six Months

(26 Weeks) Ended


 
     August 2, 2003

    August 3, 2002

 

Operating activities

                

Net income

   $ 223,158     $ 231,009  

Adjustments to reconcile net income to net cash provided by operating activities

                

Depreciation and amortization

     119,047       91,810  

Amortization of debt discount

     3,468       4,658  

Deferred income taxes

     55,853       32,318  

Changes in operating assets and liabilities:

                

Accounts receivable

     40,668       7,488  

Merchandise inventories

     (89,767 )     (256,112 )

Other current assets

     (33,766 )     (14,973 )

Accounts payable

     7,104       112,072  

Accrued and other long-term liabilities

     (16,095 )     (8,119 )

Income taxes

     (52,936 )     (20,557 )
    


 


Net cash provided by operating activities

     256,734       179,594  

Investing activities

                

Acquisition of property and equipment and favorable lease rights, net

     (334,646 )     (310,096 )

Net sales of short-term investments

     440,955       116,147  

Other

     (13,814 )     (12,556 )
    


 


Net cash provided by (used in) investing activities

     92,495       (206,505 )

Financing activities

                

Payments of convertible and other long-term debt, net

     (357,868 )     (15,660 )

Payments of financing fees on debt

     (185 )     (936 )

Proceeds from stock option exercises

     26,717       21,824  
    


 


Net cash (used in) provided by financing activities

     (331,336 )     5,228  
    


 


Net increase (decrease) in cash and cash equivalents

     17,893       (21,683 )

Cash and cash equivalents at beginning of period

     90,085       106,722  
    


 


Cash and cash equivalents at end of period

   $ 107,978     $ 85,039  
    


 


 

See accompanying Notes to Condensed Consolidated Financial Statements

 

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KOHL’S CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 2003 presentation.

 

3. New Accounting Pronouncements

 

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 requires expanded and more prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method on reported results.

 

The Company has not adopted a method under SFAS No. 148 to expense stock options but rather continues to apply the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for those plans. No stock-based employee compensation expense is reflected in net income for the first or second quarters of fiscal 2003 or 2002 as all options granted under those plans had an exercise price equal to the market value of the underlying common stock at the date of grant. The following table illustrates the pro forma effect on net income and earnings per share assuming the fair value recognition provisions of SFAS No. 123 would have been adopted for options granted since fiscal 1995.

 

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     Three Months Ended

   Six Months Ended

     August 2,
2003


   August 3,
2002


   August 2,
2003


   August 3,
2002


     (In Thousands, Except per Share Data)

Net income as reported

   $ 112,145    $ 124,388    $ 223,158    $ 231,009

Less total stock-based employee compensation expense determined under fair value method for all awards, net of tax

     8,849      9,197      18,007      18,398
    

  

  

  

Pro forma net income

   $ 103,296    $ 115,191    $ 205,151    $ 212,611
    

  

  

  

Net income per share:

                           

Basic-as reported

   $ 0.33    $ 0.37    $ 0.66    $ 0.69

Basic-pro forma

   $ 0.30    $ 0.34    $ 0.61    $ 0.63

Diluted-as reported

   $ 0.33    $ 0.36    $ 0.65    $ 0.67

Diluted-pro forma

   $ 0.30    $ 0.34    $ 0.60    $ 0.62

 

The Black-Scholes option pricing model was used to estimate the weighted-average fair values of options granted. For the three months ended August 2, 2003 and August 3, 2002, the weighted-average fair values of options granted were $20.50 and $27.13, respectively. The fair values of options granted for the six months ended August 2, 2003 and August 3, 2002, were $19.88 and $27.29, respectively. The model uses the following assumptions for all periods: risk free interest rate of 3.5%-4.0%; dividend yield of 0%; volatility factors of the Company’s common stock of 32%; and a 6 year expected life of the option.

 

The SFAS No. 123 expense reflected above only includes options granted since fiscal 1995 and, therefore, may not be representative of future expense.

 

The Emerging Issues Task Force released Issue No. 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor,” in November 2002, applicable to fiscal years beginning after December 15, 2002. The Company records vendor allowances and discounts in the income statement when the purpose for which those monies were designated is fulfilled. As such, the release did not have any effect on its results of operations or financial position.

 

4. Merchandise Inventories

 

The Company uses the last–in, first-out (LIFO) method of accounting for merchandise inventories. The Company did not record a LIFO expense for the three and six months ended August 2, 2003. The Company recorded a LIFO expense of $2.3

 

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million for the three months ended August 3, 2002 and $4.5 million for the six months ended August 3, 2002.

 

Inventories would have been $4,980,000 higher at August 2, 2003, and February 1, 2003, and $11,658,000 higher at August 3, 2002, if they had been valued using the first-in, first-out (FIFO) method.

 

5. Debt

 

On June 13, 2003, the holders of approximately 99.5% of the Company’s outstanding Liquid Yield Option Subordinated Notes (LYONs) due 2020 exercised their options to redeem their notes, in accordance with the terms of the LYONs. The remaining LYONs were called by the Company on August 1, 2003. The Company elected to redeem these notes for cash. The total amount payable by the Company for the LYONs redeemed was $346.6 million, which was paid with available funds. In conjunction with the redemption, the Company wrote-off the remaining deferred financing costs, during the second quarter of 2003, related to the LYONs totaling $6.1 million, which is included in interest expense.

 

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.

 

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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

   Six Months Ended

     August 2,
2003


   August 3,
2002


   August 2,
2003


   August 3,
2002


     (In Thousands)

Numerator for dilutive earnings per share

   $ 112,145    $ 124,388    $ 223,158    $ 231,009

Denominator for basic earnings per share—weighted average shares

     338,954      336,662      338,484      336,260

Impact of dilutive employee stock options (a)

     4,711      6,777      4,655      6,682

Denominator for dilutive earnings per share (b)

     343,665      343,439      343,139      342,942

(a)   For the three months ended August 2, 2003 and August 3, 2002, 4,863,477 and 86,850 options, respectively, were not included in the earnings per share calculation as the impact of such options was antidilutive. For the six months ended August 2, 2003 and August 3, 2002, 4,923,627 and 171,650 options, respectively, were not included in the earnings per share calculation as the impact of such options was antidilutive.
(b)   The convertible debt securities are not included in the computation of diluted earnings per share for the periods ended August 2, 2003 and August 3, 2002 as their impact is antidilutive.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Results of Operations

 

Store Locations

 

At August 2, 2003, the Company operated 492 stores compared with 420 stores at the same time last year. Total square feet of selling space increased 18.0% from 31.6 million at August 3, 2002 to 37.3 million at August 2, 2003. During the first half of the year, the Company opened 35 stores, 28 in March and 7 in April. In March, the Company opened 28 new stores in the Los Angeles, CA market. In April, the Company entered the San Antonio, TX market with three stores and opened one store each in Kalamazoo, MI; West Springfield, MA; Hooksett, NH; and Doylestown, PA.

 

Kohl’s plans to open another 50 stores in the second half of the year, two in August and 48 in October. The Company plans to enter the Phoenix, AZ market with 10 stores, the Little Rock, AR market with three stores, the Las Vegas, NV market with three stores, the Birmingham, AL market with two stores, the Tucson, AZ market with two stores and the Flagstaff, AZ market with one store. In addition, the Company will add 11 stores in the Midwest Region, five stores in the Mid-Atlantic region, five stores in the Northeast region, four stores in the Southeast region, two stores in the Southcentral region, and two stores in the Southwest region. This raises the Company’s projected new store openings for fiscal 2003 from 80 stores to 85 stores.

 

The Company plans to open approximately 95 new stores in fiscal 2004. The Company anticipates opening approximately half the stores in the first quarter including the Company’s continued expansion in the Southwest region with entry into the Sacramento, CA market with seven stores, the San Diego, CA market with five stores, and the Fresno, CA market with three stores.

 

Net Sales

 

Net sales increased $286.7 million or 14.9% to $2,208.5 million for the three months ended August 2, 2003, from $1,921.8 million for the three months ended August 3, 2002. Net sales increased $264.9 million due to the opening of 35 new stores in 2003 and the inclusion of 75 new stores opened in 2002. The remaining $21.8 million increase is attributable to comparable store sales growth of 1.1%

 

Net sales increased $533.8 million or 14.1% to $4,326.2 million for the six months ended August 2, 2003, from $3,792.4 million for the six months ended August 3, 2002. Net sales increased $557.9 million due to the opening of 35 new stores in 2003 and the inclusion of 75 new stores opened in 2002. The offsetting $24.1 million decrease is attributable to a decline in comparable store sales of 0.7%

 

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Gross Margin

 

Gross margin increased $49.7 million to $736.8 million for the three months ended August 2, 2003, from $687.1 million for the three months ended August 3, 2002. Gross margin increased $73.7 million due to the opening of 35 new stores in the first half of the year and to the inclusion of a full year of operating results for the 75 stores opened in fiscal 2002. Comparable store gross margin decreased $24.0 million primarily due to a higher markdown rate than last year. Gross margin increased $134.3 million to $1,478.1 million for the six months ended August 2, 2003, from $1,343.8 million for the six months ended August 3, 2002. Gross margin increased $166.1 million due to the opening of 35 new stores in the first half of 2003 and to the inclusion of a full year of operating results for the 75 stores opened in fiscal 2002. Comparable store gross margin decreased $31.8 million primarily due to a higher markdown rate than last year as well as a slight decrease in comparable store sales. The Company’s gross margin as a percent of net sales was 33.4% for the three months ended August 2, 2003, and 35.8% for the three months ended August 3, 2002. The Company’s gross margin as a percent of net sales was 34.2% for the six months ended August 2, 2003, and 35.4% for the six months ended August 3, 2002. The decrease in the gross margin rate for the three and six months ended August 2, 2003, was due to aggressively marking down and selling seasonal merchandise to ensure the Company was properly set for the Back to School season.

 

Operating Expenses

 

Selling, general and administrative (S,G&A) expenses include all direct store expenses such as payroll, occupancy and store supplies and all costs associated with the Company’s distribution centers, advertising and corporate functions, but exclude depreciation and amortization and preopening expenses. S,G&A expenses increased $50.1 million or 11.8% to $473.8 million for the three months ended August 2, 2003, from $423.7 million for the three months ended August 3, 2002. S,G&A expenses increased $112.4 million or 13.5% to $947.9 million for the six months ended August 2, 2003, from $835.5 million for the six months ended August 3, 2002. The S,G&A expenses decreased to 21.5% of net sales for the three months ended August 2, 2003, from 22.0% of net sales for the three months ended August 3, 2002, a decrease of 59 basis points. Store operating expenses as a percent of sales increased by 23 basis points, which was partially offset by a reduction in the incentive compensation accrual, and advertising costs increased by 5 basis points for the three months ended August 2, 2003. Expenses as a percent of sales related to credit operations declined by 6 basis points, distribution center costs declined by 28 basis points and other corporate expenses declined by 53 basis points, primarily due to a reduction in the incentive compensation accrual, for the three months ended August 2, 2003. The S,G&A expenses decreased to 21.9% of net sales for the six months ended August 2, 2003, from 22.0% of net sales for the six months ended August 3, 2002, a decrease of 12 basis points. Store operating expenses as a percent of sales increased by 56 basis points, which was partially offset by a reduction in the incentive compensation accrual, and advertising costs increased by 18 basis points for the six months ended August 2, 2003. Expenses as a percent of sales related to credit operations

 

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declined by 23 basis points, distribution center costs declined by 27 basis points and other corporate expenses declined by 36 basis points, primarily due to a reduction in the incentive compensation accrual for the six months ended August 2, 2003. As earnings did not increase over last year for the six months ended August 2, 2003, no bonus was earned under the plan.

 

Depreciation and amortization for the three months ended August 2, 2003, was $57.0 million compared to $47.4 million for the three months ended August 3, 2002. Depreciation and amortization for the six months ended August 2, 2003, was $112.4 million compared to $91.4 million for the six months ended August 3, 2002. The increase is primarily attributable to the addition of new stores and the remodeling and expansion of existing stores.

 

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 August 2, 2003, was $2.5 million compared to $2.9 million for the three months ended August 3, 2002. Preopening expense for the six months ended August 2, 2003, was $18.0 million compared to $19.9 million for the six months ended August 3, 2002. The decrease is primarily due to a decline in the number of new stores opened during the first half of the year and the timing of related expenses.

 

Operating Income

 

As a result of the above factors, operating income for the three months ended August 2, 2003, decreased $9.5 million or 4.5% from the three months ended August 3, 2002 and operating income for the six months ended August 2, 2003, increased $2.7 million or 0.7% over the six months ended August 3, 2002.

 

Net Interest Expense

 

Net interest expense for the three months ended August 2, 2003, was $23.2 million compared to $13.0 million for the three months ended August 3, 2002. Net interest expense for the six months ended August 2, 2003, was $41.0 million compared to $25.6 million for the six months ended August 3, 2002. The increase is primarily attributable to the $300 million aggregate principal amount of non-callable 6% unsecured senior debentures issued in November 2002 and the second quarter of 2003 write-off of the remaining $6.1 million of deferred financing fees related to the LYONs redeemed in 2003.

 

Net Income

 

Net income for the three months ended August 2, 2003, decreased 9.8% to $112.1 million from $124.4 million for the three months ended August 3, 2002. Earnings were $0.33 per diluted share for the three months ended August 2, 2003, compared to $0.36 per diluted share for the three months ended August 3, 2002. Net income for the six months ended August 2, 2003, decreased 3.4% to $223.2 million from $231.0 million for

 

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the six months ended August 3, 2002. Earnings were $0.65 per diluted share for the six months ended August 2, 2003, compared to $0.67 per diluted share for the six months ended August 3, 2002.

 

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 15% and 30% 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 its results during the periods presented. However, there can be no assurance that the Company’s business will not be affected by such factors 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 and short-term trade credit. 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. Seasonal cash needs are met by financing secured by its proprietary accounts receivable and lines of credit available under its revolving credit facilities. In addition, the Company periodically accesses the capital markets, as needed, to finance its growth. The Company believes it has sufficient lines of credit and expects to generate adequate cash flows from operating activities to sustain current levels of operations.

 

Proprietary credit card sales increased to $1,507.5 million or 34.8% of net sales for the six months ended August 2, 2003, from $1,268.0 million or 33.4% of net sales for the six months ended August 3, 2002. The following table summarizes information related to the Company’s proprietary credit card receivables:

 

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     August 2,
2003


    February 1,
2003


    August 3,
2002


 
     (In Thousands)  

Gross accounts receivable

   $ 971,853     $ 1,011,690     $ 847,453  

Allowance for doubtful accounts (a)

   $ 21,711     $ 20,880     $ 18,995  

Allowance as a % of gross accounts receivable

     2.2 %     2.1 %     2.2 %

Accounts receivable turnover (rolling 4 quarters) (b)

     3.5 x     3.5 x     3.3 x

(a)   Delinquent accounts are written off automatically after the passage of 180 days without receiving a full scheduled monthly payment. Accounts are written off sooner in the event of customer bankruptcy or other circumstances that make further collection unlikely. Bad debts written off, net of recoveries and other allowances, for the six months ended August 2, 2003 were 2.2% of gross accounts receivable compared to 2.4% of gross accounts receivable for the six months ended August 3, 2002.
(b)   Turnover is computed using a rolling four quarters of credit card sales divided by average quarterly gross accounts receivable.

 

The Company’s merchandise inventories increased $262.3 million over the August 2, 2002, balance and $89.8 million over the February 1, 2003, balance. The increase in inventory is consistent with total selling square footage growth. Accounts payable increased $110.9 million from August 3, 2002, and increased $7.1 million from February 1, 2003. Fluctuations in the level of accounts payable are primarily attributable to changes in inventory levels, the timing of inventory receipts and invoice dating arrangements with vendors.

 

Capital expenditures for the six months ended August 2, 2003, were $334.6 million compared to the $310.1 million for the same period a year ago. The increase in expenditures is primarily attributable to the timing and number of new store openings. The Company opened 35 new stores in the first half of fiscal 2003 and will open 50 stores during the third quarter of fiscal 2003. In fiscal 2002, the Company opened 38 stores in the first half of fiscal 2002 and 37 stores in the third quarter of fiscal 2002.

 

Total capital expenditures for fiscal 2003 are expected to be approximately $800 to $825 million. This estimate includes new store spending as well as remodeling and base capital needs. The actual amount of the Company’s future annual capital

 

15


Table of Contents

expenditures will depend primarily on the number of new stores opened and whether such stores are owned or leased and the number of existing stores remodeled or refurbished.

 

The Company has two unsecured revolving bank credit facilities that were executed in June, 2002, the first of which is a $532 million facility maturing July 10, 2007. The second facility is a $133 million facility, which was renewed through July 8, 2004. The Company also has a $225 million Receivable Purchase Agreement (RPA). Pursuant to the RPA, which is renewable annually at the Company’s request and the RPA investors’ option, the Company periodically sells, generally with recourse, an undivided interest in the Company’s private label credit card receivables. No amounts were outstanding under the RPA or under the Company’s revolving bank credit facilities as of August 2, 2003 and August 3, 2002.

 

On June 13, 2003, the holders of approximately 99.5% of the Company’s outstanding (LYONs) due 2020 exercised their options to redeem their notes, in accordance with the terms of the LYONs. The remaining LYONs were called by the Company on August 1, 2003. The total amount payable by the Company for the LYONs redeemed was $346.6 million, which was paid with available funds.

 

Contractual Obligations

 

The Company has aggregate contractual obligations of $5,568.0 million related to debt repayments, capital leases and operating leases as follows:

 

     Fiscal Year

     Remaining
2003


   2004

   2005

   2006

   2007

   Thereafter

   Total

     (In Thousands)

Long-term debt

   $ 64    $ 10,134    $ 138    $ 100,416    $ 374    $ 895,399    $ 1,006,525

Capital leases (a)

     1,087      2,173      2,316      2,555      2,908      59,050      70,089

Operating leases (b)

     121,338      264,960      270,069      258,087      255,665      3,321,258      4,491,377
    

  

  

  

  

  

  

Total

   $ 122,489    $ 277,267    $ 272,523    $ 361,058    $ 258,947    $ 4,275,707    $ 5,567,991
    

  

  

  

  

  

  


(a)   Annual commitments on capital leases are net of interest.
(b)   Included in the operating lease schedule above is $1,068.1 million of minimum lease payments for stores that are scheduled to open in the third quarter of fiscal 2003 and in fiscal 2004.

 

The Company also has outstanding letters of credit and stand-by letters of credit that total approximately $66.0 million, at August 2, 2003. If certain conditions were met under these arrangements, the Company would be required to satisfy the obligations in cash. Due to the nature of these arrangements and based on historical experience, the Company does not expect to make any significant payments. Therefore, they have been excluded from the preceding table.

 

16


Table of Contents

Critical Accounting Policies and Estimates

 

Allowance for Doubtful Accounts

 

The Company evaluates the collectibility of accounts receivable based on a combination of factors, namely aging and historical trends. Delinquent accounts are written off automatically after the passage of 180 days without receiving a full scheduled monthly payment. Accounts are written off sooner in the event of customer bankruptcy or other circumstances that make further collection unlikely. For all other accounts, the Company recognizes reserves for bad debts based on the length of time the accounts are past due and the anticipated future write-offs based on historical experience.

 

Retail Inventory Method and Inventory Valuation

 

The Company values its inventory at the lower of cost or market with cost determined on the last-in, first-out (LIFO) basis using the retail inventory method (RIM). Under RIM, the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value inventories. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of the retail inventory method will result in inventories being valued at the lower of cost or market as markdowns are currently taken as a reduction of the retail value of inventories.

 

Based on a review of historical clearance markdowns, current business trends and discontinued merchandise categories, an adjustment to inventory is recorded to reflect additional markdowns which are estimated to be necessary to liquidate existing clearance inventories and reduce inventories to market value. Management believes that the Company’s inventory valuation approximates the net realizable value of clearance inventory and results in carrying inventory at the lower of cost or market.

 

Vendor Allowances

 

The Company records vendor allowances and discounts in the income statement when the purpose for which those monies were designated is fulfilled. Allowances provided by vendors generally relate to profitability of inventory recently sold and, accordingly, are reflected as reductions to cost of merchandise sold as negotiated. Vendor allowances received for advertising or fixture programs reduce the Company’s expense or expenditure for the related advertising or fixture program.

 

Reserve Estimates

 

The Company uses a combination of insurance and self-insurance for a number of risks including workers’ compensation, general liability and employee-related health care benefits, a portion of which is paid by its associates. The Company determines the estimates for the liabilities associated with these risks by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. The

 

17


Table of Contents

estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from the current assumptions and historical trends. Under its workers’ compensation and general liability insurance policies, the Company retains the initial risk of $500,000 and $250,000, respectively, per occurrence.

 

Capital versus Operating Leases

 

The Company evaluates all lease agreements in accordance with Statement of Financial Accounting Standards No. 13, “Accounting for Leases,” to determine whether a lease is operating or capital. The Company reviews the fair market value as well as the useful life of the related assets. Both of these assumptions are subject to estimation.

 

The senior management of the Company has discussed the development and selection of the above critical accounting estimates with the audit committee of the Company’s board of directors.

 

18


Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

The Company’s primary exposure to market risk consists of changes in interest rates or borrowings. At August 2, 2003, the Company’s long-term debt, excluding capital leases, was $1,006.5 million, all of which is fixed rate debt.

 

Long-term fixed rate debt is utilized as a primary source of capital. When these debt instruments mature, the Company may refinance such debt at then existing market interest rates, which may be more or less than interest rates on the maturing debt. If interest rates on the existing fixed rate debt outstanding at August 2, 2003, changed by 100 basis points, the Company’s annual interest expense would change by $10.1 million.

 

Item 4. Controls and Procedures

 

As of August 2, 2003, 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 Interim 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 Interim Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s Exchange Act filings in a timely manner.

 

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

 

Items 2 and 3 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 March 21, 2003, which is expressly incorporated herein by reference, and such other factors as may periodically be described in the Company’s filings with the SEC.

 

19


Table of Contents

PART II. OTHER INFORMATION

 

Item 6. Exhibits and Reports on Form 8-K

 

a)    

  Exhibits     
   

10.1

   Extension No. 1, Waiver No. 1 and Amendment No. 1 dated as of June 30, 2003, under the 364-Day Credit Agreement dated as of July 10, 2002, among Kohl’s Corporation, the lenders party thereto, Bank One, NA, as Syndication Agent, U.S. Bank, National Association, Wachovia Bank, National Association and Fleet National Bank, as Co-Documentation Agents and The Bank of New York, as Administrative Agent.
   

12.1

   Statement regarding calculation of ratio of earnings to fixed charges.
   

31.1

   Certification of Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   

31.2

   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   

32.1

   Certification of Periodic Report by Interim Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   

32.2

   Certification of Periodic Report by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

b)

 

Reports on Form 8-K

   

The Company furnished or filed three reports on Form 8-K in the second fiscal quarter:

   

(i)     on May 16, 2003, the Company furnished a report dated May 15, 2003, under Items 7 and 9, providing a press release announcing its fiscal 2003 first quarter financial results;

   

(ii)    on June 13, 2003, the Company filed a report dated June 13, 2003, under Item 5, announcing that the holders of approximately 99.5% of its outstanding Liquid Yield Option Subordinated Notes (LYONs) due 2020 had exercised their option to redeem their notes for cash in

 

20


Table of Contents
   

accordance with the terms of the LYONs, that the deadline for holders to notify Kohl’s of their election to redeem the LYONs had expired, that the total amount payable by the Company for the LYONs being redeemed was approximately $345 million, which would be paid by the Company from available funds, and that the remaining LYONs are callable by the Company at any time; and

   

(iii)    on July 23, 2003, the Company filed a report dated July 22, 2003, under Items 5 and 7, providing a press release announcing that Wesley McDonald had joined the Company as Executive Vice President, Chief Financial Officer.

 

21


Table of Contents

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: September 2, 2003

     

/s/ R. Lawrence Montgomery


       

R. Lawrence Montgomery

Chief Executive Officer and Director

Date: September 2, 2003

     

/s/ Arlene Meier


       

Arlene Meier

Chief Operating Officer and Interim Chief

Financial Officer

 

22

Exclusion No. 1, Waiver No. 1, and Amd. 1 under 364 day Credit Agreement

Exhibit 10.1

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1 (this “Extension”), dated as of June 30, 2003, under the 364-Day Credit Agreement, dated as of July 10, 2002, among Kohl’s Corporation (the “Borrower”), the Lenders party thereto, Bank One, NA, as Syndication Agent, U.S. Bank, National Association, Wachovia Bank, National Association and Fleet National Bank, as Co-Documentation Agents, and The Bank of New York, as the Administrative Agent (as amended, supplemented or otherwise modified from time to time, the “364-Day Credit Agreement”).

 

RECITALS

 

I. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the 364-Day Credit Agreement.

 

II. The Borrower has requested to extend the Revolving Credit Commitment Expiration Date in accordance with Section 2.14 of the 364-Day Credit Agreement.

 

Accordingly, in consideration of the Recitals and the terms and conditions hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged, the parties hereto agree as follows:

 

1. The Revolving Credit Commitment Expiration Date is hereby extended to July 8, 2004.

 

2. In connection with this Extension only, the Lenders hereby waive the requirement contained in Section 2.14(a) of the 364-Day Credit Agreement that the consent of Lenders to the Extension be received on or before the 15th day prior to the existing Revolving Credit Commitment Expiration Date, provided that such consent is received prior to the existing Revolving Credit Commitment Expiration Date.

 

3. Section 11.21 of the 364-Day Credit Agreement is hereby amended by adding the following after the period at the end thereof:

 

Notwithstanding anything herein to the contrary, each Credit Party may disclose to any and all persons, without limitation of any kind, any information with respect to the U.S. federal income tax treatment and U.S. federal income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to such Credit Party relating to such tax treatment and tax structure.

 

4. Paragraphs 1, 2 and 3 hereof shall not be effective until such time as the following conditions are satisfied:

 

(a) on or before the existing Revolving Credit Commitment Expiration Date, the Administrative Agent shall have received this Extension duly executed


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

by (i) the Borrower, and (ii) Required Lenders having aggregate Revolving Credit Commitment Amounts equal to or greater than $66,500,000;

 

(b) the Borrower shall have paid to the Administrative Agent, for the account of each Lender, an extension consent fee in an amount not less than 0.02% of such Lender’s Revolving Credit Commitment Amount as in effect immediately after giving effect to this Extension;

 

(c) immediately before and after giving effect thereto, no Default shall exist; and

 

(d) the Administrative Agent shall have received such certificates, legal opinions and other documents as it shall reasonably request in connection herewith.

 

5. The Borrower (a) reaffirms and admits the validity and enforceability of each Loan Document and all of its obligations thereunder, (b) agrees and admits that it has no defense to or offset against any such obligation, and (c) represents and warrants that, as of the date of the execution and delivery hereof by the Borrower, no Default has occurred and is continuing.

 

6. In all other respects, the Loan Documents shall remain in full force and effect, and no waiver, consent, amendment or extension in respect of any term or condition of any Loan Document shall be deemed to be a waiver, consent, amendment or extension in respect of any other term or condition contained in any Loan Document.

 

7. This Extension may be executed in any number of counterparts all of which, when taken together, shall constitute one agreement. In making proof of this Extension, it shall only be necessary to produce the counterpart executed and delivered by the party to be charged.

 

8. THIS EXTENSION IS BEING EXECUTED AND DELIVERED IN, AND IS INTENDED TO BE PERFORMED IN, THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCEABLE IN ACCORDANCE WITH, AND BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK.


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

IN WITNESS WHEREOF, the parties hereto have caused this Extension No. 1 and Waiver to be duly executed and delivered by their proper and duly authorized persons as of the day and year first above written.

 

KOHL’S CORPORATION

By:

 

/s/ Arlene Meier


Name: Arlene Meier

Title: Chief Operating Officer


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

THE BANK OF NEW YORK, individually

and as Administrative Agent

By:

 

/s/ William M. Barnum


Name: William M. Barnum

Title: Vice President

            (212) 635-1019


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

U.S. BANK, NATIONAL ASSOCIATION

By:

 

/s/ Caroline V Krider


Name: Caroline V Krider

Title: Vice President & Senior Lender


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

BANK ONE, NA (main office Chicago)

By:

 

/s/ Vincent R. Henchek


Name: Vincent R. Henchek

Title: Director


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

WACHOVIA BANK, NATIONAL

ASSOCIATION

By:

 

/s/ Thomas M. Harper


Name: Thomas M. Harper

Title: Senior Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

FLEET NATIONAL BANK

By:

 

/s/ Alexis Griffin


Name: Alexis Griffin

Title: Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

MORGAN STANLEY BANK

By:

 

/s/ Michael Hart


Name: Michael Hart

Title: Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

BANK OF AMERICA, N.A.

By:

 

/s/ Temple H. Abney


Name: Temple H. Abney

Title: Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

COMERICA BANK

By:

 

/s/ James B. Haeffner


Name: James B. Haeffner

Title: First Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

FIFTH THIRD BANK

By:

 

/s/ Ann – Drea Burns


Name: Ann – Drea Burns

Title: Commercial Officer


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

M&I BANK

By:

 

/s/ James R. Miller


Name: James R. Miller

Title: Vice President

By:

 

/s/ Daniel A. Defnet


Name: Daniel A. Defnet

Title: Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

MERRILL LYNCH BANK USA

By:

 

/s/ David L. Millett


Name: David L. Millett

Title: Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

UNION BANK OF CALIFORNIA, N.A.

By:

 

/s/ Timothy P. Streb


Name: Timothy P. Streb

Title: Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

WELLS FARGO BANK, NATIONAL

ASSOCIATION

By:

 

/s/ Mark H. Halldorson


Name: Mark H. Halldorson

Title: Vice President

By:

 

/s/ Douglas A. Lindstrom


Name: Douglas A. Lindstrom

Title: Vice President

          Wells Fargo Bank, National Association


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

NATIONAL CITY BANK

By:

 

/s/ Brian T. Strayton


Name: Brian T. Strayton

Title: Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

THE NORTHERN TRUST COMPANY

By:

 

/s/ Edmund H. Lester


Name: Edmund H. Lester

Title: Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

THE HUNTINGTON NATIONAL BANK

By:

 

/s/ Pamela LeRose


Name: Pamela LeRose

Title: Vice President


KOHL’S CORPORATION

 

EXTENSION NO. 1, WAIVER NO. 1 AND AMENDMENT NO. 1

 

UMB BANK, N.A.

By:

 

/s/ Robert P. Elbert


Name: Robert P. Elbert

Title: Senior Vice President

 

Statement re: Computation of Ratio of Earnings to Fixed Charges

Exhibit 12.1

 

Kohl’s Corporation

Ratio of Earnings to Fixed Charges

($000s)

 

     26 Weeks Ended

    Fiscal Year (1)  
     August 2,     August 3,    
 
     2003

    2002

    2002

    2001

    2000

    1999

    1998

 

Earnings

                                                        

Income before income taxes

   $ 358,746     $ 371,398     $ 1,034,374     $ 799,864     $ 605,114     $ 421,112     $ 316,749  

Fixed charges

     99,822       75,980       161,091       142,244       116,753       82,835       63,135  

Less interest capitalized during period

     (4,173 )     (4,993 )     (9,820 )     (6,929 )     (3,478 )     (4,405 )     (1,878 )
    


 


 


 


 


 


 


     $ 454,395     $ 442,385     $ 1,185,645     $ 935,179     $ 718,389     $ 499,542     $ 378,006  
    


 


 


 


 


 


 


Fixed Charges

                                                        

Interest (expensed or capitalized)

   $ 40,327     $ 31,833     $ 68,298     $ 63,506     $ 52,305     $ 33,813     $ 24,550  

Portion of rent expense representative of interest

     52,874       43,732       91,822       77,964       63,943       48,769       38,385  

Amortization of deferred financing fees

     6,621       415       971       774       505       253       200  
    


 


 


 


 


 


 


     $ 99,822     $ 75,980     $ 161,091     $ 142,244     $ 116,753     $ 82,835     $ 63,135  
    


 


 


 


 


 


 


Ratio of earnings to fixed charges

     4.55       5.82       7.36       6.57       6.15       6.03       5.99  
    


 


 


 


 


 


 



(1)   Fiscal 2002, 2001, 1999 and 1998 were 52 week years and fiscal 2000 was a 53 week year.
Certification by the Interim CFO

Exhibit 31.1

 

CERTIFICATIONS

 

I, Arlene Meier, certify that:

 

1.   I have reviewed this quarterly report on Form 10-Q of Kohl’s Corporation;

 

2.   Based on my knowledge, this 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;

 

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 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 Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 

  a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

 

  b.   evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

  c.   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

 

  a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: September 2, 2003

 

/s/ ARLENE MEIER


Arlene Meier

Chief Operating Officer and Interim Chief

Financial Officer

(Principal Financial Officer)

Certification by the CEO

Exhibit 31.2

 

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 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;

 

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 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 Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 

  a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

 

  b.   evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

  c.   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

 

  a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: September 2, 2003

 

/s/ R. LAWRENCE MONTGOMERY


R. Lawrence Montgomery

Chief Executive Officer and Director

(Principal Executive Officer)

Certification by the Interim CFO

Exhibit 32.1

 

CERTIFICATION OF PERIODIC REPORT

 

I, Arlene Meier, Chief Operating Officer and Interim Chief Financial Officer of Kohl’s Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the undersigned’s knowledge, on the date of this Certification:

 

1.   the Quarterly Report on Form 10-Q of the Company for the quarterly period ended August 2, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: September 2, 2003

 

/s/ Arlene Meier


Arlene Meier

Chief Operating Officer

Interim Chief Financial Officer

Certification by the CEO pursuant to Section 906

Exhibit 32.2

 

CERTIFICATION OF PERIODIC REPORT

 

I, R. Lawrence Montgomery, Chief Executive Officer of Kohl’s Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the undersigned’s knowledge, on the date of this Certification:

 

1.   the Quarterly Report on Form 10-Q of the Company for the quarterly period ended August 2, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: September 2, 2003

 

/s/ R. Lawrence Montgomery


R. Lawrence Montgomery

Chief Executive Officer and

Director