Kohl's 2009 Annual Report Download

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Table of Contents




(Mark One)
xAnnual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 30, 2010
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 No. 1-11084

(Exact name of registrant as specified in its charter)
 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

 
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code 
Securities registered pursuant to Section 12(b) of the Act:
 
Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X No .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No X .
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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulations S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer X Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X .
At August 1, 2009, the aggregate market value of the voting stock of the Registrant held by stockholders who were not affiliates of the Registrant was
approximately $14.8 billion (based upon the closing price of Registrant’s Common Stock on the New York Stock Exchange on such date). At March 10,
2010, the Registrant had outstanding an aggregate of 306,974,796 shares of its Common Stock.

Portions of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 13, 2010 are incorporated into Parts II and III.

Table of contents

  • Page 1
    ...1-11084 to KOHL'S CORPORTTION (Exact name of registrant as specified in its charter) WISCONSIN (State or other jurisdiction of incorporation or organization) N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin (Address of principal executive offices) 39-1630919 (I.R.S. Employer Identification...

  • Page 2
    ... About Market Risk Financial Statements and Supplementary Data Changes In and Disagreements with Accountants on Accounting and Financial Disclosures Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of...

  • Page 3
    ... on increasing market share by expanding Kohl's appeal to a broader range of customers and by creating value and differentiation with private and exclusive brands which are available "Only at Kohl's." New brand launches in 2009 included: • • Dana Buchman - a classic lifestyle brand, spanning...

  • Page 4
    ... each location's inventory and sales history. Another important inventory management initiative is to increase our speed-to-market through our concept-to customer strategy. Two years ago, it took 45 weeks from the start of development to the delivery of products to the stores. Today, our cycle time...

  • Page 5
    ... Analysis of Financial Condition and Results of Operations." Expansion Our expansion strategy has been, and will continue to be, designed to achieve profitable growth. At the time of our initial public offering in 1992, we had 79 stores in the Midwest. As of year-end 2009, we operated 1,058 stores...

  • Page 6
    ... ship merchandise to each store by contract carrier several times a week. We also operate a 940,000 square foot fulfillment center in Monroe, Ohio that services our e-commerce business. Additionally, we plan to open a 970,000 square foot e-commerce fulfillment center in San Bernardino, California in...

  • Page 7
    ...Contents Tvailable Information Our internet website is www.Kohls.com. Through the "Investor Relations" portion of this website, we make available, free of charge, our proxy statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, SEC Forms 3, 4 and 5 and...

  • Page 8
    ... and capital market conditions in the United States and other parts of the world have deteriorated significantly and have adversely affected access to capital and increased the cost of capital. If our existing cash, cash generated from operations and funds available on our lines of credit are...

  • Page 9
    ...revenue from fees related to extending credit. In connection with the April 2006 sale of our proprietary credit card accounts to JPMorgan Chase & Co. ("JPMorgan Chase"), we entered into a revenue-sharing agreement with JPMorgan Chase, which issues Kohl's branded private label credit cards to new and...

  • Page 10
    ...includes the back-to-school and holiday seasons. This seasonality causes our operating results to vary considerably from quarter to quarter and could materially adversely affect the market price of our common stock. We may be unable to source merchandise in a timely and cost-effective manner, which...

  • Page 11
    ... business is dependent on our information systems. In particular, we rely on our information systems to effectively manage sales, distribution, merchandise planning and allocation functions. We also generate sales though the operations of our Kohls.com website. The failure of our information systems...

  • Page 12
    ... summarize key information about our stores. Number of Stores Tdditions/ (Closures) Selling Square Footage Tdditions/ (Closures) 2008 2009 2008 2009 Mid-Ttlantic: Delaware Maryland Pennsylvania Virginia West Virginia Total Mid-Atlantic Midwest: Illinois Indiana Iowa Michigan Minnesota 5 17 43...

  • Page 13
    ...Number of Stores Tdditions/ (Closures) Selling Square Footage Tdditions/ (Closures) 2008 2009 2008 2009 West: Northwest: Alaska Idaho Montana Oregon Washington Wyoming Total...954 8,829 Southwest: Arizona California Colorado Nevada New Mexico Utah Total Southwest Total West Total Kohl's 13 25 90...

  • Page 14
    Table of Contents Number of Stores by Greater Metropolitan Trea Tdditions/ 2008 (Closures) 2009 New York City Los Angeles Chicago Philadelphia Atlanta Dallas/Fort Worth Detroit Boston 60 41 50 34 25 25 25 23 2 12 - - 2 - (1) 62 53 50 34 27 25 24 24 24 San Francisco Washington DC Milwaukee ...

  • Page 15
    ... distribution centers. Year Location Opened Square Footage States Serviced Tpproximate Store Capacity Findlay, Ohio Winchester, Virginia Blue Springs, Missouri 1994 1997 1999 2001 2002 2002 2005 780,000 420,000 540,000 540,000 Corsicana, Texas Mamakating, New York San Bernardino, California...

  • Page 16
    ..., Ohio. Additionally, we plan to open a 970,000 square foot e-commerce fulfillment center in San Bernardino, California in June 2010 to provide increased capacity to support our growing e-commerce business. During the fourth quarter of 2009, we closed our Menomonee Falls, Wisconsin distribution...

  • Page 17
    ... traded on the New York Stock Exchange since May 19, 1992, under the symbol "KSS." The prices in the table set forth below indicate the high and low sales prices of our Common Stock per the New York Stock Exchange Composite Price History for each quarter in 2009 and 2008. Price Range High Low 2009...

  • Page 18
    ... 2005 2006 2007 2008 2009 Kohl's Corporation S&P 500 Index $ 100.00 100.00 100.00 S&P 500 Department Stores Index $ 96.89 111.63 116.76 $ 160.35 128.37 167.93 $ 100.68 126.05 107.22 $ 80.47 76.43 50.65 $ 110.41 101.76 84.67 (f) Recent Sales of Unregistered Securities; Use of Proceeds...

  • Page 19
    ... of the employees' restricted stock during the three fiscal months ended January 30, 2010: Total Number of Shares Purchased as Total Number of Shares Purchased During Period Period Tverage Price Paid Per Share Part of Publicly Tnnounced Plans or Maximum Tpproximate Dollar Value of Shares that...

  • Page 20
    ... sales per selling square foot (b) Total square feet of selling space (end of period, in thousands) Number of stores open (end of period) Return on average shareholders' equity (c) Balance Sheet Data (end of period): Working capital Property and equipment, net Total assets Long-term debt and capital...

  • Page 21
    ... incentive compensation and changes made to our non-management compensation structure. SG&A expenses for the year increased at a rate faster than sales, but at a rate slower than new store growth of 5.5%. Our cost control initiatives are focused on sustainable productivity improvements, not one-time...

  • Page 22
    ... stores. We estimate that opening new stores in existing markets negatively impacted comparable store sales by approximately 1% in 2009. Drivers of the changes in comparable stores sales were as follows: 2009 2008 2007 Selling price per unit Units per transaction Average transaction value Number...

  • Page 23
    ...improvement in key private brands such as Sonoma, Croft and Barrow and Apt 9 which achieved strong fourth quarter increases. E-commerce revenues increased 38.0% to $492 million for 2009. The sales growth is primarily the result of increased style and size selections offered on-line compared with our...

  • Page 24
    ... and administrative expenses ("SG&A") include compensation and benefit costs (including stores, headquarters, buying and merchandising and distribution centers); occupancy and operating costs of our retail, distribution and corporate facilities; freight expenses associated with moving merchandise...

  • Page 25
    ... costs for new employees, processing and transporting initial merchandise, and rent expense. The average cost per store fluctuates based on the mix of stores opened in new markets compared to existing markets, with new markets being more expensive. Preopening expenses for 2009 increased despite...

  • Page 26
    ... source of financing for merchandise inventories. Seasonal cash needs may be met by the line of credit available under our revolving credit facility. Our working capital and inventory levels typically build throughout the fall, peaking during the November and December holiday selling season. We...

  • Page 27
    ... of operating cash flow for 2009 was a $258 million increase in cash flows from accounts payable activities. Short-term trade credit, in the form of extended payment terms for inventory purchases, represents a significant source of financing for merchandise inventories. At January 30, 2010, total...

  • Page 28
    ... the timing of distribution center openings. We do not anticipate that our expansion plans will be limited by any restrictive covenants in our financing agreements. We believe that our capital structure is well positioned to support our expansion plans. We anticipate that internally generated cash...

  • Page 29
    ...to this Annual Report on Form 10-K for the calculation of this ratio. The decreases in working capital and the current ratio as of year-end 2008 compared to year-end 2007 were primarily due to lower inventory levels and a higher accounts payable balance. The debt/capitalization ratio reflects higher...

  • Page 30
    ... during fiscal 2010. Free Cash Flow. We generated free cash flow of $1.6 billion in 2009, more than double our 2008 free cash flow of $684 million. Free cash flow is a non-GAAP financial measure which we define as net cash provided by operating activities less capital expenditures. Free cash flow...

  • Page 31
    ... or the availability of capital resources. Critical Tccounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts. A discussion...

  • Page 32
    ... to the consolidated financial statements, "Business and Summary of Accounting Policies." Insurance Reserve Estimates We use 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...

  • Page 33
    ... of the design and operation of our disclosure controls and procedures (the "Evaluation") at a reasonable assurance level as of the last day of the period covered by this Report. Based upon the Evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure...

  • Page 34
    ... public accounting firm, has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report, included herein, on the effectiveness of our internal control over financial reporting. (c) Changes in Internal Control...

  • Page 35
    ... with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Kohl's Corporation as of January 30, 2010 and January 31, 2009, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the...

  • Page 36
    ..., Merchandise Planning and Allocation, and also served as Executive Vice President, General Merchandise Manager Men's and Children's from April 2004 to September 2007. Prior to joining Kohl's, Mr. Brennan served in a variety of management positions with Burdines Department Stores, a division...

  • Page 37
    ... 2009 Governance & Nominating Committee member Denotes Chair Item 11. Executive Compensation See the information provided in the applicable portions of the "Questions and Answers About our Board of Directors and Corporate Governance Matters" and "Item 1: Election of Directors" sections of our 2010...

  • Page 38
    ... F-1, the Report of Independent Registered Public Accounting Firm on page F-2 and the Consolidated Financial Statements beginning on page F-3, all of which are incorporated herein by reference. 2. Financial Statement Schedule: All schedules have been omitted as they are not applicable. 3. Exhibits...

  • Page 39
    ... (Principal Executive Officer) /s/ WESLEY S. MCDONALD Wesley S. McDonald Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) Dated: March 18, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by...

  • Page 40
    ... not filed herewith. 10.1 Private Label Credit Card Program Agreement dated as of March 5, 2006, by and between Kohl's Department Stores, Inc., and Chase Bank USA, National Association, incorporated herein by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the fiscal year...

  • Page 41
    ... Employment Agreement between Kohl's Corporation and Kohl's Department Stores, Inc. and John Worthington dated as of September 1, 2009, incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K dated August 26, 2009.* Form of Executive Compensation Agreement between...

  • Page 42
    ...Committee Incentive Program.* Ratio of Earnings to Fixed Charges. Subsidiaries of the Registrant. Consent of Ernst & Young LLP. Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of the Chief Financial Officer pursuant to Section...

  • Page 43
    ... Public Accounting Firm F-2 F-3 F-4 Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Schedules have been omitted as they are not applicable...

  • Page 44
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), Kohl's Corporation's internal control over financial reporting as of January 30, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 45
    ... Current portion of capital leases Total current liabilities Long-term debt and capital leases Deferred income taxes Other long-term liabilities $ 1,188 1,002 184 16 2,390 2,052 $ 881 841 105 17 1,844 2,053 320 407 377 488 Shareholders' equity: Common stock-$0.01 par value, 800 million shares...

  • Page 46
    Table of Contents KOHL'S CORPORTTION CONSOLIDTTED STTTEMENTS OF INCOME (In Millions, Except Per Share Data) 2009 2008 2007 Net sales Cost of merchandise sold (exclusive of depreciation shown separately below) Gross margin Operating expenses: Selling, general, and administrative Depreciation and ...

  • Page 47
    ...at January 31, 2009 Net income Other comprehensive income: Unrealized gain on investments, net of tax of $6 Total comprehensive income Exercise of stock options Net income tax impact from stock option activity Share-based compensation expense Treasury stock purchases Balance at January 30, 2010 349...

  • Page 48
    ... discount and deferred financing fees Share-based compensation expense Excess tax benefits from share-based compensation expense Deferred income taxes Other non-cash revenues and expenses Changes in operating assets and liabilities: Merchandise inventories Other current and long-term assets Accounts...

  • Page 49
    ... of Tccounting Policies Business As of January 30, 2010, Kohl's Corporation operated 1,058 family-oriented department stores that feature exclusive and national brand apparel, footwear, accessories, soft home products and housewares targeted to middle-income customers. Our stores are located in 49...

  • Page 50
    ... markdowns are currently taken as a reduction of the retail value of inventory. We record an additional reserve when the future estimated selling price is less than cost. Property and Equipment Property and equipment consist of the following: Jan. 30, 2010 (In Millions) Jan. 31, 2009 Land...

  • Page 51
    ...to customers include gift cards and merchandise return cards that have been issued but not presented for redemption. Self-Insurance We use a combination of insurance and self-insurance for a number of risks including workers' compensation, general liability and employee-related health care benefits...

  • Page 52
    ...' compensation insurance policy and $250,000 per occurrence under our general liability policy. We also have a lifetime medical payment limit of $1.5 million per plan participant. Total estimated liabilities for workers' compensation, general liability and employee-related health benefits, excluding...

  • Page 53
    ... and operating costs of our retail, distribution and corporate facilities Net revenues from the Kohl's credit card agreement with JPMorgan Chase Freight expenses associated with moving merchandise from our distribution centers to our retail stores, and among distribution and retail facilities...

  • Page 54
    ...Business and Summary of Tccounting Policies (continued) Preopening Costs Preopening expenses relate to the costs associated with new store openings, including advertising, hiring and training costs for new employees, processing and transporting initial merchandise and rent expense. Preopening costs...

  • Page 55
    ... using significant unobservable inputs or valuation techniques. Level 3: The fair value for our ARS is based on third-party pricing models and is classified as a Level 3 pricing category. We utilized a discounted cash flow model to estimate the current fair market value for each of the F-13

  • Page 56
    ...and maturity. The discount rate was calculated using the closest match available for other insured asset backed securities. A market failure scenario was employed as recent successful auctions of these securities were very limited. The following table presents a rollforward of our long-term ARS, all...

  • Page 57
    ... of the debt agreements. We also have outstanding trade letters of credit and stand-by letters of credit totaling approximately $37 million at January 30, 2010, issued under uncommitted lines with two banks. Interest payments, net of amounts capitalized, were $133 million for 2009, $145 million for...

  • Page 58
    ... 5. Benefit Plans We have an Employee Stock Ownership Plan ("ESOP") for the benefit of our non-management associates. Contributions are made at the discretion of the Board of Directors. ESOP expenses totaled $17 million for 2009, $8 million for 2008 and $19 million for 2007. Shares of our stock...

  • Page 59
    ...a material change in our financial position. A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows: 2009 (In Millions) 2008 Balance at beginning of year Increases due to: Tax positions taken in prior years Tax positions taken in current year Decreases...

  • Page 60
    ... which were granted to officers and key employees under our 1992 and 1994 Long-Term Compensation Plans. The following table summarizes the number of options and nonvested stock authorized and available for grant as of January 30, 2010: 1997 Plan 2003 Plan (In Thousands) Total Options and nonvested...

  • Page 61
    ... value of options exercised represents the excess of our stock price at the time the option was exercised over the exercise price and was $20 million in 2009, $1 million in 2008 and $58 million in 2007. Additional information related to stock options outstanding and exercisable at January 30, 2010...

  • Page 62
    ... Selling, General and Administrative expense in our Consolidated Statements of Income. Such expense totaled $64 million for 2009, $55 million for 2008 and $54 million for 2007. Total unrecognized share-based compensation expense for all share-based payment plans was $118 million at January 30, 2010...

  • Page 63
    ...to changes in stock prices during the year and timing of issuance of shares, the sum of quarterly net income per share may not equal the annual net income per share. 10. Related Party One of our directors is also a shareholder of a law firm which performs legal services for us. We have agreements...

  • Page 64
    ...,000 for Compensation Committee members and $15,000 for Audit Committee and Executive Committee members. All retainers are paid in arrears in quarterly installments. Stock options are granted to non-employee directors from time to time. These grants are typically made at the time the director joins...

  • Page 65
    ... to the officers' work on one of Kohl's corporate strategic action committees. Eligible executives who serve on a designated strategic action committee for the full fiscal year are eligible to participate in the Program. An executive newly hired or promoted into an eligible position during a fiscal...

  • Page 66
    ... 12.1 Kohl's Corporation Ratio of Earnings to Fixed Charges (Dollars in Millions) 2009 2008 2007 Earnings Income before income taxes Fixed Charges Less: interest capitalized during period $1,588 462 (5) $ 1,425 408 (8) $1,742 347 $2,045 Fixed Charges Interest (expensed or capitalized) Portion...

  • Page 67
    ... Name State of Incorporation or Formation Kohl's Department Stores, Inc. Delaware Kohl's Illinois, Inc.* Nevada Delaware Delaware Delaware Kohl's Indiana, Inc.* Kohl's Indiana, L.P. Kohl's Michigan, L.P. Kohl's Value Services, Inc.* Virginia Kohl's Cares, LLC* Wisconsin Wisconsin...

  • Page 68
    ...) of Kohl's Corporation and in the related prospectuses, of our reports dated March 19, 2010, with respect to the consolidated financial statements of Kohl's Corporation, and the effectiveness of internal control over financial reporting of Kohl's Corporation, included in this Annual Report (Form 10...

  • Page 69
    ... 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. Date: March 18, 2010 /s/ Kevin Mansell Kevin Mansell Chairman, President and Chief Executive Officer...

  • Page 70
    ... 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. Date: March 18, 2010 /s/ Wesley S. McDonald Wesley S. McDonald Chief Financial Officer

  • Page 71
    ... of the Company foi the annual peiiod ended Januaiy 30, 2010 (the "Repoit") fully complies with the iequiiements of Section 13(a) oi 15(d) of the Secuiities Exchange Act of 1934, and That the infoimation contained in the Repoit faiily piesents, in all mateiial iespects, the financial condition and...

  • Page 72
    ...(a) or 15(d) of the Securities Exchange Act of 1934, and That the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 18, 2010 /s/ Wesley S. McDonald Wesley S. McDonald Chief Financial Officer

  • Page 73