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(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 28, 2017
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition period from ____________ to ___________
Commission file number 1-11084
KOHL’S CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin
(State or other jurisdiction of incorporation or organization)
39-1630919
(I.R.S. Employer Identification No.)
N56 W17000 Ridgewood Drive, Menomonee Falls,
Wisconsin
(Address of principal executive offices)
Registrant’s telephone number, including area code (262) 703-7000
53051
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.01 Par Value
Name of each exchange on which registered
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. .
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 July 29, 2016, the aggregate market value of the voting stock of the Registrant held by stockholders who were not
affiliates of the Registrant was approximately $7.5 billion (based upon the closing price of Registrant’s Common Stock on the
New York Stock Exchange on such date). At March 8, 2017, the Registrant had outstanding an aggregate of 172,356,294 shares
of its Common Stock.
Portions of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 10, 2017 are
incorporated into Part III.
Documents Incorporated by Reference:
Table of Contents
KOHL’S CORPORATION
INDEX
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 4A.
Executive Officers
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures 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 Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
EXHIBIT INDEX
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
3
5
10
10
11
11
11
13
15
16
29
30
30
30
32
32
32
32
32
32
33
33
34
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Item 1. Business
PART I
Kohl’s Corporation (the “Company," “Kohl’s,” "we," "our" or "us") was organized in 1988 and is a Wisconsin
corporation. As of January 28, 2017, we operated 1,154 Kohl's department stores, a website (www.Kohls.com), 12
FILA outlets, and three Off-Aisle clearance centers. Our Kohl's stores and website sell moderately-priced private
label, exclusive and national brand apparel, footwear, accessories, beauty and home products. Our Kohl's stores
generally carry a consistent merchandise assortment with some differences attributable to local preferences. Our
website includes merchandise that is available in our stores, as well as merchandise that is available only on-line.
Our merchandise mix includes both national brands and private and exclusive brands that are available only
at Kohl's. National brands generally have higher selling prices, but lower gross margins, than private and exclusive
brands. Most of our private brands are well-known established brands such as Apt. 9, Croft & Barrow, Jumping
Beans, SO and Sonoma Goods for Life. Despite having lower selling prices, private brands generally have higher
gross margins than exclusive and national brands. Exclusive brands are developed and marketed through
agreements with nationally-recognized brands. Examples of our exclusive brands include Food Network, Jennifer
Lopez, Marc Anthony, Rock & Republic and Simply Vera Vera Wang. Exclusive brands have selling prices that are
generally lower than national brands, but higher than private brands. Their gross margins are generally higher than
national brands, but lower than private brands.
The following tables summarize our sales penetration by line of business and brand type over the last three
years:
Our fiscal year ends on the Saturday closest to January 31st each year. Unless otherwise stated, references to
years in this report relate to fiscal years rather than to calendar years. The following fiscal periods are presented in
this report.
Fiscal Year
2016
2015
2014
Ended
January 28, 2017
January 30, 2016
January 31, 2015
Number of
Weeks
52
52
52
For discussion of our financial results, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Distribution
We receive substantially all of our store merchandise at our nine retail distribution centers. A small amount of
our merchandise is delivered directly to the stores by vendors or their distributors. The retail distribution centers,
which are strategically located throughout the United States, ship merchandise to each store by contract carrier
several times a week. On-line sales may be picked up in our stores or are shipped from a Kohl’s fulfillment center,
retail distribution center or store; by a third-party fulfillment center; or directly by a third-party vendor.
See Item 2, “Properties,” for additional information about our distribution centers.
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Employees
As of January 28, 2017, we employed approximately 138,000 associates, including approximately 32,000 full-
time and 106,000 part-time associates. The number of associates varies during the year, peaking during the back-
to-school and holiday seasons. None of our associates are represented by a collective bargaining unit. We believe
our relations with our associates are very good.
Competition
The retail industry is highly competitive. Management considers style, quality and price to be the most
significant competitive factors in the industry. Merchandise mix, brands, service, loyalty programs, credit availability,
and customer experience and convenience are also key competitive factors. Our primary competitors are traditional
department stores, upscale mass merchandisers, off-price retailers, specialty stores, internet and catalog
businesses and other forms of retail commerce. Our specific competitors vary from market to market.
Merchandise Vendors
We purchase merchandise from numerous domestic and foreign suppliers. All business partners must meet
certain requirements in order to do business with us. Our Terms of Engagement include provisions regarding laws
and regulations, employment practices, ethical standards, environmental and legal requirements, communication,
monitoring/compliance, record keeping, subcontracting and corrective action. Our expectation is that all business
partners will comply with these Terms of Engagement and quickly remediate any deficiencies, if noted, in order to
maintain our business relationship.
Approximately 30% of the merchandise we sell is sourced through a third-party purchasing agent. No vendors
individually accounted for more than 5% of our net purchases during fiscal 2016. We have no significant long-term
purchase commitments or arrangements with any of our suppliers, and believe that we are not dependent on any
one supplier. We believe we have good working relationships with our suppliers.
Seasonality
Our business, like that of most retailers, is subject to seasonal influences. The majority of our sales and
income are typically realized during the second half of each fiscal year. The back-to-school season extends from
August through September and represents approximately 15% of our annual sales. Approximately 30% of our
annual sales occur during the holiday season in the months of November and December. Because of the
seasonality of our business, results for any quarter are not necessarily indicative of the results that may be
achieved for the fiscal year.
Trademarks and Service Marks
The name “Kohl’s” is a registered service mark of one of our wholly-owned subsidiaries. We consider this
mark and the accompanying name recognition to be valuable to our business. This subsidiary has over 190
additional registered trademarks, trade names and service marks, most of which are used in connection with our
private label program.
Available Information
Our corporate website is https://corporate.kohls.com. Through the “Investors” 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 any amendments to those reports as soon as reasonably
practicable after such material has been filed with, or furnished to, the Securities and Exchange Commission
(“SEC”).
The following have also been posted on our website, under the caption “Investors” and sub-caption "Corporate
Governance":
• Committee charters of our Board of Directors’ Audit Committee, Compensation Committee and
Governance & Nominating Committee
• Corporate Governance Guidelines
• Code of Ethics
• Corporate Social Responsibility Report
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Any amendment to or waiver from the provisions of the Code of Ethics that is applicable to our Chief Executive
Officer, Chief Financial Officer or other key finance associates will be disclosed on the “Corporate Governance”
portion of the website.
Information contained on our website is not part of this Annual Report on Form 10-K. Paper copies of any of
the materials listed above will be provided without charge to any shareholder submitting a written request to our
Investor Relations Department at N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051 or via e-mail
to Investor.Relations@Kohls.com.
Item 1A. Risk Factors
This Form 10-K contains “forward-looking statements” made within the meaning of the Private Securities
Litigation Reform Act of 1995. Words such as "believes," "anticipates," "plans," "may," "intends," "will," "should,"
"expects" and similar expressions are intended to identify forward-looking statements. Forward-looking statements
also include comments about our future sales or financial performance and our plans, performance and other
objectives, expectations or intentions, such as statements regarding our liquidity, debt service requirements,
planned capital expenditures, future store initiatives, adequacy of capital resources and reserves and statements
contained in the "2017 Outlook" and "Liquidity and Capital Resources - Investing Activities" sections of
"Management's Discussion and Analysis of Financial Condition and Results of Operations". There are a number of
important factors that could cause our results to differ materially from those indicated by the forward-looking
statements including, among others, those risk factors described below. Forward-looking statements relate to the
date made, and we undertake no obligation to update them.
Our sales, gross margin and operating results could be negatively impacted by a number of factors including,
but not limited to those described below. Many of these risk factors are outside of our control. If we are not
successful in managing these risks, they could have a negative impact on our sales, gross margin and/or operating
results.
Macroeconomic and Industry Risks
Declines in general economic conditions, consumer spending levels and other conditions could lead
to reduced consumer demand for our merchandise.
Consumer spending habits, including spending for the merchandise that we sell, are affected by many factors
including prevailing economic conditions, levels of employment, salaries and wage rates, prevailing interest rates,
housing costs, energy and fuel costs, income tax rates and policies, consumer confidence, consumer perception of
economic conditions, and the consumer’s disposable income, credit availability and debt levels. The moderate
income consumer, which is our core customer, is especially sensitive to these factors. A continued or incremental
slowdown in the U.S. economy and the uncertain economic outlook could continue to adversely affect consumer
spending habits. As all of our stores are located in the United States, we are especially susceptible to deteriorations
in the U.S. economy.
Consumer confidence is also affected by the domestic and international political situation. The outbreak or
escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the United States, could lead
to a decrease in spending by consumers.
Actions by our competitors.
The retail industry is highly competitive. We compete for customers, associates, locations, merchandise,
services and other important aspects of our business with many other local, regional and national retailers. Those
competitors include traditional department stores, upscale mass merchandisers, off-price retailers, specialty stores,
internet and catalog businesses and other forms of retail commerce.
We consider style, quality and price to be the most significant competitive factors in our industry. The
continuing migration and evolution of retailing to on-line and mobile channels has increased our challenges in
differentiating ourselves from other retailers especially as it relates to national brands. In particular, consumers are
able to quickly and conveniently comparison shop with digital tools, which can lead to decisions based solely on
price. Unanticipated changes in the pricing and other practices of our competitors may adversely affect our
performance.
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Changes in tax and trade policies.
Uncertainty with respect to tax and trade policies, tariffs and government regulations affecting trade between
the United States and other countries has recently increased. We source the majority of our merchandise from
manufacturers located outside of the United States, primarily in Asia. Major developments in tax policy or trade
relations, such as the disallowance of tax deductions for imported merchandise and certain interest expense and
the imposition of unilateral tariffs on imported products, could have a material adverse effect on our business,
results of operations and liquidity.
Operational Risks
Our inability to offer merchandise that resonates with existing customers and helps to attract new
customers and failure to successfully manage our inventory levels.
Our business is dependent on our ability to anticipate fluctuations in consumer demand for a wide variety of
merchandise. Failure to accurately predict constantly changing consumer tastes, preferences, spending patterns
and other lifestyle decisions could create inventory imbalances and adversely affect our performance and long-term
relationships with our customers. Additionally, failure to accurately predict changing consumer tastes may result in
excess inventory, which could result in additional markdowns and adversely affect our operating results.
We may be unable to source merchandise in a timely and cost-effective manner.
Approximately 30% of the merchandise we sell is sourced through a third-party purchasing agent. The
remaining merchandise is sourced from a wide variety of domestic and international vendors. Our ability to find
qualified vendors and access products in a timely and efficient manner is a significant challenge which is typically
even more difficult for goods sourced outside the United States, substantially all of which is shipped by ocean to
ports in the United States. Political or financial instability, trade restrictions, tariffs, currency exchange rates,
transport capacity and costs, work stoppages, port strikes, port congestion and delays and other factors relating to
foreign trade are beyond our control and could adversely impact our performance.
Increases in the price of merchandise, raw materials, fuel and labor or their reduced availability could increase
our cost of merchandise sold. The price and availability of raw materials may fluctuate substantially, depending on a
variety of factors, including demand, weather, supply conditions, transportation costs, energy prices, work
stoppages, government regulation and government policy, economic climates, market speculation and other
unpredictable factors. An inability to mitigate these cost increases, unless sufficiently offset with our pricing actions,
might cause a decrease in our profitability. Any related pricing actions might cause a decline in our sales volume.
Additionally, a decrease in the availability of raw materials could impair our ability to meet our production or
purchasing requirements in a timely manner. Both the increased cost and lower availability of merchandise, raw
materials, fuel and labor may also have an adverse impact on our cash and working capital needs as well as those
of our suppliers.
If any of our significant vendors were to become subject to bankruptcy, receivership or similar proceedings, we
may be unable to arrange for alternate or replacement contracts, transactions or business relationships on terms as
favorable as current terms, which could adversely affect our sales and operating results.
Failure of our vendors to adhere to our Terms of Engagement and applicable laws.
A substantial portion of our merchandise is received from vendors and factories outside of the United
States. We require all of our suppliers to comply with all applicable local and national laws and regulations and our
Terms of Engagement for Kohl's Business Partners. These Terms of Engagement include provisions regarding laws
and regulations, employment practices, ethical standards, environmental and legal requirements, communication,
monitoring/compliance, record keeping, subcontracting and corrective action. From time to time, suppliers may not
be in compliance with these standards or applicable laws. Significant or continuing noncompliance with such
standards and laws by one or more suppliers could have a negative impact on our reputation and our results of
operations.
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Ineffective marketing.
We believe that differentiating Kohl's in the marketplace is critical to our success. We design our marketing
and loyalty programs to increase awareness of our brands and to build personalized connections with our
customers. We believe these programs will strengthen customer loyalty, increase the number and frequency of
customers that shop our stores and website and increase our sales. If our marketing and loyalty programs are not
successful, our sales and operating results could be adversely affected.
Damage to the reputation of the Kohl's brand or our private and exclusive brands.
We believe the Kohl's brand name and many of our private and exclusive brand names are powerful sales and
marketing tools. We devote significant resources to promoting and protecting them. We develop and promote
private and exclusive brands that have generated national recognition. In some cases, the brands or the marketing
of such brands are tied to or affiliated with well-known individuals. Damage to the reputations (whether or not
justified) of the Kohl’s brand, our private and exclusive brand names or any affiliated individuals, could arise from
product failures; concerns about human rights, working conditions and other labor rights and conditions where
merchandise is produced; perceptions of our pricing and return policies; litigation; vendor violations of our Terms of
Engagement; or various other forms of adverse publicity, especially in social media outlets. Damage to our
reputation may generate negative customer sentiment, potentially resulting in a reduction in sales, earnings, and
shareholder value.
Product safety concerns.
If our merchandise offerings do not meet applicable safety standards or our customers' expectations regarding
safety, we could experience lost sales, experience increased costs and/or be exposed to legal and reputational risk.
Events that give rise to actual, potential or perceived product safety concerns could expose us to government
enforcement action and/or private litigation. Reputational damage caused by real or perceived product safety
concerns, could have a negative impact on our sales and operating results.
Disruptions in our information systems or an inability to adequately maintain and update those
systems.
The efficient operation of our business is dependent on our information systems. In particular, we rely on our
information systems to effectively manage sales, distribution, and merchandise planning and allocation functions.
We also generate sales though the operations of our Kohls.com website. We frequently make investments that will
help maintain and update our existing information systems. The potential problems and interruptions associated
with implementing technology initiatives or the failure of our information systems to perform as designed could
disrupt our business and harm sales and profitability.
Weather conditions could adversely affect consumer shopping patterns.
A significant portion of our business is apparel and is subject to weather conditions. As a result, our operating
results may be adversely affected by severe or unexpected weather conditions. Frequent or unusually heavy snow,
ice or rain storms; natural disasters such as earthquakes, tornadoes, floods and hurricanes; or extended periods of
unseasonable temperatures could adversely affect our performance by affecting consumer shopping patterns,
diminishing demand for seasonal merchandise and/or causing physical damage to our properties.
Inability to successfully execute a profitable omni-channel strategy.
Our business has evolved from an in-store only shopping experience to an omni-channel experience which
includes in-store, on-line, mobile, social media and/or other interactions. We strive to offer a desirable omni-channel
shopping experience for our customers and use social media as a way to interact with our customers and enhance
their shopping experiences.
Customer expectations about the methods by which they purchase and receive products or services are also
evolving. Customers are increasingly using technology and mobile devices to rapidly compare products and prices
and to purchase products. Once products are purchased, customers are seeking alternate options for delivery of
those products. We must continually anticipate and adapt to these changes in the purchasing process. Our ability to
compete with other retailers and to meet our customer expectations may suffer if we are unable to provide relevant
customer-facing technology. Our ability to compete may also suffer if Kohl’s, our suppliers, or our third-party
shipping and delivery vendors are unable to effectively and efficiently fulfill and deliver orders, especially during the
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holiday season when sales volumes are especially high. Consequently, our results of operations could be adversely
affected.
Our omni-channel business currently generates a lower operating margin than we have historically reported
when we were primarily a store-only retailer. This profitability variance is due to a variety of factors including, but not
limited to, an increase in the volume of lower margin merchandise, especially home products; costs to ship
merchandise to our customers; and investments to provide the infrastructure necessary to expand our omni-
channel strategy. There has been rapid growth in penetration of these less profitable omni-channel sales. There can
be no assurances that future profitability will return to historical levels.
Our revenues, operating results and cash requirements are affected by the seasonal nature of our
business.
Our business is subject to seasonal influences, with a major portion of sales and income historically realized
during the second half of the fiscal year, which includes the back-to-school and holiday seasons.
If we do not properly stock or restock popular products, particularly during the back-to-school and holiday
seasons, we may fail to meet customer demand, which could affect our revenue and our future growth. If we
overstock products, we may be required to take significant inventory markdowns or write-offs, which could reduce
profitability.
We may experience an increase in costs associated with shipping on-line orders due to complimentary
upgrades, split shipments, and additional long-zone shipments necessary to ensure timely delivery for the holiday
season. If too many customers access our website within a short period of time, we may experience system
interruptions that make our website unavailable or prevent us from efficiently fulfilling orders, which may reduce the
volume of goods we sell and the attractiveness of our products and services. Also, third-party delivery and direct
ship vendors may be unable to deliver merchandise on a timely basis.
This seasonality causes our operating results and cash needs to vary considerably from quarter to quarter.
Additionally, any decrease in sales or profitability during the second half of the fiscal year could have a
disproportionately adverse effect on our results of operations.
Changes in our credit card operations could adversely affect our sales and/or profitability.
Our credit card operations facilitate merchandise sales and generate additional revenue from fees related to
extending credit. The proprietary Kohl's credit card accounts are owned by an unrelated third-party, but we share in
the net risk-adjusted revenue of the portfolio, which is defined as the sum of finance charges, late fees and other
revenue less write-offs of uncollectible accounts. Changes in funding costs related to interest rate fluctuations are
shared similar to the revenue when interest rates exceed defined amounts. Though management currently believes
that increases in funding costs will be largely offset by increases in finance charge revenue, increases in funding
costs could adversely impact the profitability of this program.
Changes in credit card use, payment patterns and default rates may also result from a variety of economic,
legal, social and other factors that we cannot control or predict with certainty. Changes that adversely impact our
ability to extend credit and collect payments could negatively affect our results.
An inability to attract and retain quality associates could result in higher payroll costs and adversely
affect our operating results.
Our performance is dependent on attracting and retaining a large number of quality associates. Many of those
associates are in entry level or part-time positions with historically high rates of turnover. Many of our strategic
initiatives require that we hire and/or develop associates with appropriate experience. Our staffing needs are
especially high during the holiday season. Competition for these associates is intense. We cannot be sure that we
will be able to attract and retain a sufficient number of qualified personnel in future periods.
Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment
levels, prevailing wage rates, minimum wage legislation, actions by our competitors in compensation levels and
changing demographics. Competitive and regulatory pressures have already significantly increased our labor costs.
Further changes that adversely impact our ability to attract and retain quality associates could adversely affect our
performance and/or profitability. In addition, changes in federal and state laws relating to employee benefits,
including, but not limited to, sick time, paid time off, leave of absence, wage-and-hour, overtime, meal-and-break
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time and joint/co-employment could cause us to incur additional costs, which could negatively impact our
profitability.
Capital Risks
Our inability to raise additional capital and maintain bank credit on favorable terms could adversely
affect our business and financial condition.
We have historically relied on the public debt markets to raise capital to partially fund our operations and
growth. We have also historically maintained lines of credit with financial institutions. Changes in the credit and
capital markets, including market disruptions, limited liquidity and interest rate fluctuations, may increase the cost of
financing or restrict our access to these potential sources of future liquidity. Our continued access to these liquidity
sources on favorable terms depends on multiple factors, including our operating performance and maintaining
strong debt ratings. If our credit ratings fall below desirable levels, our ability to access the debt markets
and our cost of funds for new debt issuances could be adversely impacted. Additionally, if unfavorable capital
market conditions exist if and when we were to seek additional financing, we may not be able to raise sufficient
capital on favorable terms and on a timely basis (if at all). If our access to capital was to become significantly
constrained or our cost of capital was to increase significantly, our financial condition, results of operations and cash
flows could be adversely affected.
Inefficient or ineffective allocation of capital could adversely affect our operating results and/or
shareholder value.
Our goal is to invest capital to maximize our overall long-term returns. This includes spending on inventory,
capital projects and expenses, managing debt levels, and periodically returning value to our shareholders through
share repurchases and dividends. To a large degree, capital efficiency reflects how well we manage our other key
risks. The actions taken to address other specific risks may affect how well we manage the more general risk of
capital efficiency. If we do not properly allocate our capital to maximize returns, we may fail to produce optimal
financial results and we may experience a reduction in shareholder value.
Legal and Regulatory Risks
Regulatory and litigation developments could adversely affect our business operations and financial
performance.
Various aspects of our operations are subject to federal, state or local laws, rules and regulations, any of which
may change from time to time. The costs and other effects of new or changed legal requirements cannot be
determined with certainty. For example, new legislation or regulations may result in increased costs directly for our
compliance or indirectly to the extent such requirements increase prices of goods and services, reduce the
availability of raw materials or further restrict our ability to extend credit to our customers.
We continually monitor the state and federal legal/regulatory environment for developments that may impact
us. Failure to detect changes and comply with such laws and regulations may result in an erosion of our reputation,
disruption of business and/or loss of associate morale. Additionally, we are regularly involved in various litigation
matters that arise out of the conduct of our business. Litigation or regulatory developments could adversely affect
our business operations and financial performance.
Unauthorized disclosure of sensitive or confidential customer, associate or company information
could severely damage our reputation, expose us to risks of litigation and liability, disrupt our operations
and harm our business.
As part of our normal course of business, we collect, process and retain sensitive and confidential customer,
associate and company information. The protection of this data is extremely important to us, our associates and our
customers. Despite the considerable security measures we have in place, our facilities and systems, and those of
our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses,
misplaced or lost data, programming and/or human errors, or other similar events. Any security breach involving the
misappropriation, loss or other unauthorized disclosure of confidential information, whether by us or our vendors,
could disrupt our operations, damage our reputation and customers' willingness to shop in our stores or on our
website, violate applicable laws, regulations, orders and agreements, and subject us to additional costs and
liabilities which could be material.
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Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Stores
As of January 28, 2017, we operated 1,154 Kohl's department stores with 82.8 million selling square feet in 49
states. Our typical, or “prototype,” store has approximately 88,000 gross square feet of retail space and serves
trade areas of 150,000 to 200,000 people. Most “small” stores are 55,000 to 68,000 gross square feet and serve
trade areas of 100,000 to 150,000 people. We also operate three Off-Aisle clearance centers and 12 FILA outlets.
Our typical store lease has an initial term of 20-25 years and four to eight renewal options for consecutive five-
year extension terms. Substantially all of our leases provide for a minimum annual rent that is fixed or adjusts to set
levels during the lease term, including renewals. Approximately one-fourth of the leases provide for additional rent
based on a percentage of sales over designated levels.
The following tables summarize key information about our Kohl's stores as of January 28, 2017:
Number of Stores by State
Mid-Atlantic Region:
Delaware
Maryland
Pennsylvania
Virginia
West Virginia
Total Mid-Atlantic
Midwest Region:
Illinois
Indiana
Iowa
Michigan
Minnesota
Nebraska
North Dakota
Ohio
South Dakota
Wisconsin
Total Midwest
5
23
50
31
7
116
Northeast Region:
Connecticut
Maine
Massachusetts
New Hampshire
New Jersey
New York
Rhode Island
67
Vermont
39
Total Northeast
18 Southeast Region:
46
Alabama
27
Florida
Georgia
7
Kentucky
4
58
Mississippi
North Carolina
4
41
South Carolina
Tennessee
311
Total Southeast
South Central Region:
Arkansas
Kansas
Louisiana
Missouri
Oklahoma
Texas
Total South Central
22
5
25
11
37
51
3
2 West Region:
156
14
51
32
17
5
30
16
20
185
Alaska
Arizona
California
Colorado
Idaho
Montana
Nevada
New Mexico
Oregon
Utah
Washington
Wyoming
Total West
8
12
8
27
11
84
150
1
26
116
24
5
3
12
5
11
12
19
2
236
Store Type
Location
Ownership
Prototype
Small
969 Strip centers
185 Community & regional malls
777 Owned
83 Leased
Freestanding
294 Ground leased
412
505
237
10
Table of Contents
Distribution Centers
The following table summarizes key information about each of our distribution centers.
Store distribution centers:
Findlay, Ohio
Winchester, Virginia
Blue Springs, Missouri
Corsicana, Texas
Mamakating, New York
San Bernardino, California
Macon, Georgia
Patterson, California
Ottawa, Illinois
On-line fulfillment centers:
Monroe, Ohio
San Bernardino, California
Edgewood, Maryland
DeSoto, Texas
Plainfield, Indiana
Year
Opened
Square
Footage
1994
1997
1999
2001
2002
2002
2005
2006
2008
2001
2010
2011
2012
Expected 2017
780,000
420,000
540,000
540,000
605,000
575,000
560,000
360,000
328,000
1,200,000
970,000
1,450,000
1,200,000
936,000
We own all of the distribution centers except Corsicana, Texas, which is leased.
Corporate Facilities
We own our corporate headquarters in Menomonee Falls, Wisconsin. We also own or lease additional
buildings and office space, which are used by various corporate departments, including our credit operations.
Item 3. Legal Proceedings
We are not currently a party to any material legal proceedings, but are subject to certain legal proceedings
and claims from time to time that arise out of the conduct of our business.
Item 4. Mine Safety Disclosures
Not applicable.
Item 4A. Executive Officers
Our executive officers as of January 28, 2017 were as follows:
Name
Kevin Mansell
Sona Chawla
Michelle Gass
Wesley S. McDonald
Richard D. Schepp
Age
64
49
48
54
56
Position
Chairman, Chief Executive Officer and President
Chief Operating Officer
Chief Merchandising and Customer Officer
Chief Financial Officer
Chief Administrative Officer
Mr. Mansell is responsible for Kohl’s strategic direction, long-term growth and profitability. He has served as
Chairman since September 2009, Chief Executive Officer since August 2008 and President and Director since
February 1999. Mr. Mansell began his retail career in 1975.
Ms. Chawla joined Kohl's in November 2015 as Chief Operating Officer and is responsible for Kohl's full omni-
channel operations. She oversees all store operations, logistics and supply chain network, information and digital
technology, and omni-channel strategy, planning and operations. Previously, she had served with Walgreens as
11
Table of Contents
President of Digital and Chief Marketing Officer from February 2014 to November 2015 and President, E-
Commerce from January 2011 to February 2014. Ms. Chawla began her retail and digital career in 2000.
Ms. Gass joined Kohl's in June 2013 as Chief Customer Officer and was named Chief Merchandising and
Customer Officer in June 2015. She is responsible for all of Kohl's merchandising, planning and allocation, and
product development functions as well as the company's overall customer engagement strategy, including
marketing, public relations, social media and philanthropic efforts. Previously, she served in a variety of
management positions with Starbucks Coffee Company since 1996, most recently as President, Starbucks Coffee
EMEA (Europe, Middle East, Russia and Africa) from 2011 to May 2013. Ms. Gass began her retail career in 1991.
From April 2014 to February 2017, Ms. Gass served as a director of Cigna Corporation, a global health service
company.
Mr. McDonald was promoted to the principal officer position of Chief Financial Officer in June 2015 and is
responsible for financial planning and analysis, investor relations, financial reporting, accounting operations, tax,
treasury, non-merchandise purchasing, credit and capital investment. Previously, he had served as Senior
Executive Vice President, Chief Financial Officer since December 2010. Mr. McDonald began his retail career in
1988. Mr. McDonald announced his retirement in November 2016, but will remain as Chief Financial Officer until a
date to be mutually agreed upon by himself and the Company, but no later than July 2017. He is currently a director
of Wingstop Inc., a restaurant operator and franchisor.
Mr. Schepp was promoted to the principal officer position of Chief Administrative Officer in June 2015 and is
responsible for Kohl's human resources, legal, risk management and compliance, real estate, business
development and store construction and design functions. He previously served as Senior Executive Vice
President, Human Resources, General Counsel and Secretary from April 2013 to June 2015, Senior Executive Vice
President General Counsel and Secretary from May 2011 to April 2013 and Executive Vice President, General
Counsel and Secretary from August 2001 to May 2011. Mr. Schepp began his retail career in 1992.
12
Table of Contents
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market information
Our Common Stock has been traded on the New York Stock Exchange ("NYSE") 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 and our quarterly cash dividends per common
share for each quarter in 2016 and 2015.
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
2016
Low
$59.43 $39.00
37.70
34.49
39.69
46.15
45.07
51.13
2015
Dividend
Low
High
$0.50 $50.86 $42.85
44.06
61.60
61.17
74.51
61.44
79.07
0.50
0.50
0.50
Dividend
$0.45
0.45
0.45
0.45
On February 22, 2017, our Board of Directors approved a 10% increase in our dividend to $0.55 per common
share. The dividend will be paid on March 22, 2017 to shareholders of record as of March 8, 2017. In 2016, we paid
aggregate cash dividends of $358 million.
Holders
As of March 8, 2017, there were approximately 4,000 record holders of our Common Stock.
Performance Graph
The graph below compares our cumulative five-year shareholder return to that of the Standard & Poor’s 500
Index and a Peer Group Index that is consistent with the retail peer group used in the Compensation Discussion &
Analysis section of our Proxy Statement for our May 10, 2017 Annual Meeting of Shareholders. The Peer Group
Index was calculated by S&P Global, a Standard & Poor’s business and includes Bed, Bath & Beyond Inc.; The
Gap, Inc.; J.C. Penney Company, Inc.; L Brands, Inc.; Macy’s, Inc.; Nordstrom, Inc.; Ross Stores, Inc.; Sears
Holding Corporation; Target Corporation; and The TJX Companies, Inc. The Peer Group Index is weighted by the
market capitalization of each component company at the beginning of each period. The graph assumes an
investment of $100 on January 28, 2012 and reinvestment of dividends. The calculations exclude trading
commissions and taxes.
Company / Index
Kohl’s Corporation
S&P 500 Index
Peer Group Index
Jan 28,
2012
Feb 2,
2013
Feb 1,
2014
Jan 31,
2015
Jan 30,
2016
Jan 28,
2017
$100.00 $101.27 $114.50 $138.87 $119.39 $97.81
100.00
100.00
117.61
120.64
141.49
133.20
161.61
170.06
160.54 194.04
160.37 148.61
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Table of Contents
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
We did not sell any equity securities during 2016 that were not registered under the Securities Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In November 2016, our Board of Directors increased the remaining share repurchase authorization under our
existing share repurchase program to $2.0 billion. Purchases under the repurchase program may be made in the
open market, through block trades and other negotiated transactions. We expect to execute the share repurchase
program primarily in open market transactions, subject to market conditions. There is no fixed termination date for
the repurchase program, and the program may be suspended, discontinued or accelerated at any time.
The following table contains information for shares repurchased and shares acquired from employees in lieu
of amounts required to satisfy minimum tax withholding requirements upon the vesting of the employees’ restricted
stock during the three fiscal months ended January 28, 2017:
Period
October 30 – November 26, 2016
November 27 – December 31, 2016
January 1 – January 28, 2017
Total
Total
Number
of Shares
Purchased
During
Period
498,349
378,960
1,865,261
2,742,570
Average
Price
Paid Per
Share
$43.60
50.53
41.14
$42.88
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
495,607
356,899
1,847,000
2,699,506
Approximate
Dollar Value of
Shares that May
Yet Be
Purchased
Under the Plans
or Programs
(Dollars in
Millions)
$2,000
1,982
1,906
$1,906
14
Table of Contents
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data presented below should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this document.
(Dollars in Millions, Except per Share and per Square Foot Data)
Net sales
Dollars
Net sales increase (decrease)
Comparable sales (a)
Per selling square foot (b)
Gross margin
Dollars
As a percent of sales
Selling, general and administrative expenses
Dollars
As a percent of sales
Operating income
Dollars
Reported (GAAP)
Excluding non-recurring items (Non-GAAP) (c)
As a percent of sales
Reported (GAAP)
Excluding non-recurring items (Non-GAAP) (c)
Net income
Reported (GAAP)
Excluding non-recurring items (Non-GAAP) (c)
Diluted earnings per share
Reported (GAAP)
Excluding non-recurring items (Non-GAAP) (c)
Dividends per share
Balance sheet
Total assets
Working capital
Long-term debt
Capital lease and financing obligations
Shareholders’ equity
Cash flow
Cash flow from operations
Capital expenditures
Free cash flow (d)
Return on average shareholders’ equity
Reported (GAAP)
Excluding non-recurring items (Non-GAAP) (c)
Kohl's store information
Number of stores
Total square feet of selling space (in thousands)
2016
2015
2014
2013
2012 (e)
$18,686
$ 19,204
$19,023
$19,031
$ 19,279
(2.7)%
(2.4)%
224
$
1.0%
0.7%
228
$
0.0 %
(0.3)%
226
$
(1.3)%
(1.2)%
227
$
2.5%
0.3%
231
$
$ 6,742
$ 6,939
$ 6,925
$ 6,944
$ 6,990
36.1%
36.1%
36.4%
36.5%
36.3%
$ 4,435
$ 4,452
$ 4,350
$ 4,313
$ 4,267
23.7%
23.2%
22.9%
22.7%
22.1%
$ 1,183
$ 1,369
$ 1,553
$ 1,553
$ 1,689
$ 1,689
$ 1,742
$ 1,742
$ 1,890
$ 1,890
6.3%
7.3%
8.1%
8.1%
8.9%
8.9%
9.2%
9.2%
9.8%
9.8%
$
$
$
$
$
556
673
3.11
3.76
2.00
$13,574
$ 2,273
$ 2,795
$ 1,816
$ 5,177
$
$
$
$
$
673
781
3.46
4.01
1.80
$
$
$
$
$
867
867
4.24
4.24
1.56
$ 13,606
$ 2,362
$ 2,792
$ 1,916
$ 5,491
$14,333
$ 2,721
$ 2,780
$ 1,968
$ 5,991
$
$
$
$
$
889
889
4.05
4.05
1.40
$14,228
$ 2,412
$ 2,777
$ 2,069
$ 5,978
$
$
$
$
$
986
986
4.17
4.17
1.28
$ 13,761
$ 2,061
$ 2,478
$ 2,061
$ 6,048
$ 2,148
$
768
$ 1,264
$ 1,474
690
$
671
$
$ 2,024
$
682
$ 1,234
$ 1,884
$
643
$ 1,127
$ 1,265
785
$
381
$
10.6%
12.5%
11.8%
13.5%
14.7%
14.7%
14.8%
14.8%
15.8%
15.8%
1,154
82,757
1,164
83,810
1,162
83,750
1,158
83,671
1,146
83,098
(a) Comparable sales include sales for stores (including relocated or remodeled stores), which were open during both the current and prior year periods.
We also include on-line sales in our comparable sales. Fiscal 2013 compares the 52 weeks ended February 1, 2014 and February 2, 2013. Fiscal
2012 compares the 52 weeks ended January 26, 2013 and January 28, 2012.
(b) Net sales per selling square foot includes on-line sales and stores open for the full current period. 2012 excludes the impact of the 53rd week.
(c) Non-recurring items include $186 million ($117 million, net of tax) of impairments, store closing, and other costs in 2016, and $169 million ($108
million, net of tax) of debt extinguishment losses in 2015. See GAAP to Non-GAAP reconciliation in Results of Operations.
(d) Free cash flow is a non-GAAP financial measure which we define as net cash provided by operating activities and proceeds from financing
obligations less capital expenditures and capital lease and financing obligation payments. See GAAP to Non-GAAP reconciliation in Liquidity and
Capital Resources.
(e) Fiscal 2012 was a 53-week year. During the 53rd week, total sales were $169 million; selling, general and administrative expenses were
approximately $30 million; interest was approximately $2 million; net income was approximately $15 million and diluted earnings per share was
approximately $0.06.
15
Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
As of January 28, 2017, we operated 1,154 Kohl's department stores, a website (www.Kohls.com), 12 FILA
outlets, and three Off-Aisle clearance centers. Our Kohl's stores and website sell moderately-priced private label,
exclusive and national brand apparel, footwear, accessories, beauty and home products. Our Kohl's stores
generally carry a consistent merchandise assortment with some differences attributable to local preferences. Our
website includes merchandise which is available in our stores, as well as merchandise that is available only on-line.
Sales were $18.7 billion for 2016, 2.7% lower than 2015. On a comparable store basis, sales decreased
2.4%. The decrease was primarily driven by fewer transactions in our stores partially offset by higher average
transaction value.
Inventory, gross margin and expenses were well-managed in a challenging sales environment.
•
Inventory per store decreased 5%.
• Gross margin as a percentage of sales decreased 6 basis points to 36.1% driven by fewer promotional
markdowns which were offset by higher shipping costs.
• Sales, general and administrative expenses ("SG&A") decreased $17 million on strong expense
management against the lower sales volume.
Net income for the year was $556 million, or $3.11 per diluted share. Excluding impairments, store closing and
other costs in 2016 and loss on extinguishment of debt in 2015, net income was $673 million, or $3.76 per diluted
share, 6% lower than last year.
See "Results of Operations" and "Liquidity and Capital Resources" for additional details about our financial
results, how we define comparable sales, the impairment, store closing and other costs in 2016 and the loss on
extinguishment of debt in 2015.
2017 Outlook
Our current expectations for 2017 are as follows:
Net sales
Comparable sales
Gross margin as a percent of sales
Selling, general and administrative expenses
Depreciation and amortization
Interest expense, net
Including 53rd Week
Decrease (1.3) - Increase 0.7%
Decrease (2) - 0%
Increase 10 - 15 bps
Increase 0.5 - 2%
$960 million
$300 million
Excluding 53rd Week
Decrease (2) - 0%
Decrease (2) - 0%
Increase 10 - 15 bps
Increase 0 - 1.5%
$960 million
$297 million
Effective tax rate
Earnings per diluted share
Capital expenditures
Share repurchases
37.5%
$3.50 - $3.80
$700 million
$350 million
37.5%
$3.40 - $3.70
$700 million
$350 million
16
Table of Contents
Results of Operations - 2016 compared to 2015
Net Sales
As our omni-channel strategy continues to mature, it is increasingly difficult to distinguish between a "store"
sale and an "on-line" sale. Below is a list of some omni-channel examples:
• Stores increase on-line sales by providing customers opportunities to view, touch and/or try on physical
merchandise before ordering on-line.
• On-line purchases can easily be returned in our stores.
• Kohl's Cash coupons and Yes2You rewards can be earned and redeemed on-line or in store regardless of
where they were earned.
•
In-store customers can order from on-line kiosks in our stores.
• Buy on-line and pick-up in store is available in all stores.
• Customers who utilize our mobile app while in the store may receive mobile coupons to use when they
check out.
• On-line orders may be shipped from a dedicated on-line fulfillment center, a store, a retail distribution
center, direct ship vendors or any combination of the above.
• More than 75% of our on-line customers also shop in our stores.
Because we do not have a clear distinction between "store" sales and "on-line" sales, we do not separately
report on-line sales.
Comparable sales include sales for stores (including relocated or remodeled stores) which were open during
both the current and prior year periods. We also include on-line sales in our comparable sales.
The following table summarizes net sales:
Net sales (in Millions)
Net sales per selling square foot (a)
2016
2015
Change
$ 18,686 $ 19,204
228
$
224 $
(2.7)%
(1.8)%
(a) Net sales per selling square foot includes on-line sales and stores open for the full current period.
Drivers of the 2.4% decrease in comparable sales were as follows:
Selling price per unit
Units per transaction
Average transaction value
Number of transactions
Comparable sales
1.5 %
1.6
3.1
(5.5)
(2.4)%
From a regional perspective, the West, Southeast, and Midwest outperformed the Company average in 2016.
The South Central, Mid-Atlantic and Northeast underperformed the Company average for the year.
By line of business, Footwear and Men's outperformed the Company average in 2016. All other categories
underperformed the Company average for the year.
Net sales per selling square foot decreased 2% to $224 in 2016, which is consistent with the decrease in
comparable sales.
Gross Margin
(Dollars in Millions)
Gross margin
As a percent of net sales
2016
$ 6,742
2015
$ 6,939
$
36.1%
36.1%
Change
(197)
6 bp
17
Table of Contents
Gross margin includes the total cost of products sold, including product development costs, net of vendor
payments other than reimbursement of specific, incremental and identifiable costs; inventory shrink; markdowns;
freight expenses associated with moving merchandise from our vendors to our distribution centers; shipping and
handling expenses of on-line sales; and terms cash discount. Our gross margin may not be comparable with that of
other retailers because we include distribution center and buying costs in selling, general and administrative
expenses while other retailers may include these expenses in cost of merchandise sold.
Gross margin as a percent of sales was consistent with 2015, as higher merchandise margin was substantially
offset by higher shipping costs.
Selling, General and Administrative Expenses
(Dollars in Millions)
SG&A
As a percent of net sales
2016
$ 4,435
2015
$ 4,452
$
23.7%
23.2%
Change
(17)
55 bp
SG&A expenses 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 from our distribution centers to our retail stores and
among distribution and retail facilities; marketing expenses, offset by vendor payments for reimbursement of
specific, incremental and identifiable costs; net revenues from our Kohl’s credit card operations; and other
administrative revenues and expenses. We do not include depreciation and amortization in SG&A. The
classification of these expenses varies across the retail industry.
The following table summarizes the increases and (decreases) in SG&A by expense type:
(Dollars in Millions)
Store expenses
Corporate expenses
Distribution costs
Marketing costs, excluding credit card operations
Increase in net earnings from credit card operations
Total decrease
$
$
(4)
(2)
2
15
(28)
(17)
Many of our expenses, including store payroll and distribution costs, are variable in nature. These costs
generally increase as sales increase and decrease as sales decrease. We measure both the change in these
variable expenses and the expense as a percent of sales. If the expense as a percent of sales decreased from the
prior year, the expense "leveraged" and indicates that the expense was well-managed or effectively generated
additional sales. If the expense as a percent of sales increased over the prior year, the expense "deleveraged" and
indicates that sales growth was less than expense growth. SG&A as a percent of sales increased, or "deleveraged,"
by 55 basis points in 2016.
The decrease in store expenses includes reductions in store controllable expense, partially offset by higher
store payroll due to on-going wage pressure and omni-channel support of ship-from-store and buy on-line, pick-up
in store operations.
The decrease in corporate expenses reflects higher technology spending which was more than offset by
expense management in other corporate areas.
Distribution costs, which exclude payroll related to on-line originated orders that were shipped from our stores,
were $280 million for 2016, $2 million higher than 2015. Distribution costs increased due to higher fulfillment costs
related to our growing on-line business partially offset by lower store distribution costs.
Marketing costs increased in 2016 as we increased our spending on digital media.
Earnings from our credit card operations, net of servicing and other credit-related expenses, were $484 million
in 2016, $28 million higher than 2015. The increase is due to higher finance charges and late fees due to growth in
the portfolio. Additionally, lower marketing costs were partially offset by higher servicing costs.
18
Table of Contents
Other Expenses
(Dollars in Millions)
Depreciation and amortization
Interest expense, net
Impairments, store closing and other costs
Provision for income taxes
Effective tax rate
$
2016
2015
Change
$
938
308
186
319
36.5%
$
934
327
—
384
36.3%
4
(19)
186
(65)
27 bp
The increase in depreciation and amortization reflects higher information technology ("IT") amortization which
was partially offset by lower store depreciation due to maturing of our stores and store closures.
The decrease in net interest expense is due to lower interest on capital leases as the portfolio matures and
stores were closed as well as favorable interest rates achieved during our $1.1 billion debt refinancing in 2015.
Impairments, store closing and other costs includes the following costs related to closing 18 stores in 2016
and the organizational realignment at our corporate office:
(Dollars in Millions)
Store leases:
Record future obligations
Write-off net obligations
Impairments:
Software licenses
Buildings and other store assets
Severance and other
Total
$
114
(21)
23
53
17
186
$
The increase in the effective tax rate is due to favorable state tax audit settlements in 2015 that were not
repeated in 2016.
Net Income and Earnings Per Diluted Share
(Dollars in Millions, Except per Share Data)
GAAP
Impairments, store closing and other costs
Adjusted (Non-GAAP)
Income
before
Taxes
$
875 $
186
$ 1,061 $
2016
Net
Income
Earnings
per Diluted
Share
556 $
117
673 $
3.11
0.65
3.76
We believe adjusted results are useful because they provide enhanced visibility into our results for the periods
excluding the impact of impairments, store closing and other costs in 2016. However, these non-GAAP financial
measures are not intended to replace GAAP measures.
Results of Operations - 2015 compared to 2014
Net Sales
The following table summarizes net sales:
Net sales (in Millions)
Net sales per selling square foot (a)
2015
2014
Change
$ 19,204 $ 19,023
226
$
228 $
1.0%
0.9%
(a) Net sales per selling square foot includes on-line sales and stores open for the full current period.
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Table of Contents
Drivers of the 0.7% increase in comparable sales were as follows:
Selling price per unit
Units per transaction
Average transaction value
Number of transactions
Comparable sales
1.3%
(0.4)
0.9
(0.2)
0.7%
From a regional perspective, the West, Southeast, and Midwest outperformed the Company average in 2015.
The South Central, Mid-Atlantic and Northeast underperformed the Company average.
By line of business, Footwear and Home outperformed the Company average in 2015. Men's and Women's
were consistent with the Company average. Children's and Accessories both underperformed the Company
average.
Net sales per selling square foot increased 0.9% to $228 in 2015, which is consistent with the increase in
comparable sales.
Gross Margin
(Dollars in Millions)
Gross margin
As a percent of net sales
2015
$ 6,939
36.1%
2014
$ 6,925
14
$
36.4% (27) bp
Change
The decrease in gross margin as a percent of sales is due to an increase in shipping costs resulting from
growth in on-line originated sales, partially offset by an increase in our merchandise margin.
Selling, General and Administrative Expenses
(Dollars in Millions)
SG&A
As a percent of net sales
2015
$ 4,452
23.2%
2014
$ 4,350
Change
102
$
22.9% (32) bp
The following table summarizes the increases and (decreases) in SG&A by expense type:
(Dollars in Millions)
Store expenses
Corporate expenses
Distribution costs
Marketing costs, excluding credit card operations
Increase in net earnings from credit card operations
Total increase
$
$
77
46
6
(4)
(23)
102
The increase in store expenses is primarily attributable to higher store payroll due to on-going wage pressure
and omni-channel support of ship-from-store and buy on-line, pick-up in store operations. Property taxes and
common area maintenance also increased.
Corporate expense increased due to technology and infrastructure investments related to our omni-channel
strategy and other various corporate costs.
Distribution costs, which exclude payroll related to on-line originated orders that were shipped from our stores,
were $278 million for 2015, $6 million higher than 2014. The increase is due to higher fulfillment costs related to our
growing on-line business which were partially offset by lower store distribution costs.
Marketing costs decreased in 2015 as we decreased our spending in newspaper inserts and direct mail
through optimized circulation and shifted spending to digital media.
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Table of Contents
Earnings from our credit card operations, net of servicing and other credit-related expenses, were $456 million,
$23 million higher than 2014. The increase is due to higher finance charge revenues and late fees, partially offset
by higher bad debt expense, all which were the result of growth in the portfolio. Additionally, lower marketing spend
was partially offset by increased servicing costs.
Other Expenses
(Dollars in Millions)
Depreciation and amortization
Interest expense, net
Loss on extinguishment of debt
Provision for income taxes
Effective tax rate
$
2015
2014
Change
$
934
327
169
384
36.3%
$
48
886
(13)
340
169
—
(98)
482
35.7% (60) bp
The increase in depreciation and amortization was due to higher IT amortization which was partially offset by
lower store depreciation due to maturing of our stores.
The decrease in net interest expense was the result of refinancing our debt at lower interest rates during 2015.
During 2015, we completed a cash tender offer and redemption for $1,085 million of senior unsecured debt.
We recognized a $169 million loss on extinguishment of debt which included a $163 million bond tender premium
paid to holders of the debt and a $6 million non-cash write-off of deferred financing costs and original issue
discounts associated with the extinguished debt.
Changes in our effective tax rate were primarily due to favorable state audit settlements during 2014.
Net Income and Earnings Per Diluted Share
(Dollars in Millions, Except per Share Data)
GAAP
Loss on extinguishment of debt
Adjusted (Non-GAAP)
Income
before
Taxes
$ 1,057 $
169
$ 1,226 $
2015
Net
Income
Earnings
per Diluted
Share
673 $
108
781 $
3.46
0.55
4.01
We believe adjusted results are useful because they provide enhanced visibility into our results for the periods
excluding the loss on extinguishment of debt in 2015. However, these non-GAAP financial measures are not
intended to replace GAAP measures.
Inflation
Although we expect that our operations will be influenced by general economic conditions, including food, fuel
and energy prices, and by costs to source our merchandise, we do not believe that inflation has had a material
effect on our results of operations. However, there can be no assurance that our business will not be impacted by
such factors in the future.
Liquidity and Capital Resources
The following table presents our primary cash requirements and sources of funds.
Cash Requirements
• Operational needs, including salaries,
rent, taxes and other costs of running
our business
• Capital expenditures
• Inventory (seasonal and new store)
• Share repurchases
• Dividend payments
Sources of Funds
• Cash flow from operations
• Short-term trade credit, in the form of
extended payment terms
• Line of credit under our revolving credit
facility
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Our working capital and inventory levels typically build throughout the fall, peaking during the November and
December holiday selling season.
The following table includes cash balances and changes.
(Dollars in Millions)
Cash and cash equivalents
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Operating Activities
2016
2015
2014
$ 1,074 $
707 $ 1,407
$ 2,148 $ 1,474 $ 2,024
(593)
(681)
(756)
(1,025)
(1,493)
(995)
Net cash provided by operations increased $674 million to $2.1 billion in 2016. The increase reflects a 5%
decrease in inventory per store as a result of our inventory reduction initiatives and increases in accounts payable
due to timing of spring merchandise receipts and negotiations which extended payment terms with many of our
vendors. The decrease in inventory and increase in accounts payable increased our accounts payable as a percent
of inventory ratio to 39.7%, an 870 basis point increase over the prior year ratio.
Net cash provided by operations decreased $550 million to $1.5 billion in 2015. The decrease is due to
increases in our inventory balances and decreases in our accounts payable balance, due in part to the port strike in
2014.
Investing Activities
Net cash used in investing activities increased $75 million to $756 million in 2016, primarily due to higher
spending for a fifth E-Commerce fulfillment center which we expect to open in 2017.
Net cash used in investing activities increased $88 million to $681 million in 2015. Substantially all of the
increase is due to proceeds from our final auction rate securities sales in 2014. Despite the non-liquid nature of
these investments following market conditions that arose in 2008, we were able to sell substantially all of our
investments at par.
The following table summarizes expected and actual capital expenditures by major category as a percentage
of total capital expenditures:
Information technology
Store strategies
Base capital
Total
2017
Estimate
50%
2016
2015
2014
46%
44%
45%
20
30
28
26
36
20
33
22
100% 100% 100% 100%
We expect total capital expenditures of approximately $700 million in fiscal 2017. The actual amount of our
future capital expenditures will depend on the number and timing of new stores and refreshes; expansion and
renovations to distribution centers; the mix of owned, leased or acquired stores; and IT and corporate spending.
We do not anticipate that our capital expenditures will be limited by any restrictive covenants in our financing
agreements.
Financing Activities
Net cash used in financing activities decreased $468 million to $1.0 billion in 2016, primarily due to lower
treasury stock repurchases. We paid cash for treasury stock repurchases of $557 million in 2016 and $1.0 billion in
2015. Share repurchases are discretionary in nature. The timing and amount of repurchases is based upon
available cash balances, our stock price and other factors.
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Net cash used in financing activities increased $498 million to $1.5 billion in 2015. The increase was due to a
$324 million increase in treasury share repurchases and $160 million net cash used for the debt refinancing in
2015.
During 2015, we completed a cash tender offer and redemption for $1.1 billion of our higher coupon senior
unsecured debt. We recognized a $169 million loss on extinguishment of debt which included a $163 million bond
tender premium paid to holders of the debt and a $6 million non-cash write-off of deferred financing costs and
original issue discounts associated with the extinguished debt.
In July 2015, we issued $650 million of 4.25% notes due in July 2025 and $450 million of 5.55% notes due in
July 2045. Both notes include semi-annual, interest-only payments beginning January 17, 2016. Proceeds of the
issuances and cash on hand were used to pay the principal, premium and accrued interest of the acquired and
redeemed debt.
On July 1, 2015, we entered into an Amended and Restated Credit Agreement with various lenders which
provides for $1.0 billion senior unsecured five-year revolving credit facility that will mature in June 2020. Among
other things, the agreement includes a maximum leverage ratio financial covenant (which is consistent with the ratio
under our prior credit agreement) and restrictions on liens and subsidiary indebtedness.
Though we have no current plans to do so, we may again seek to retire or purchase our outstanding debt
through open market cash purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will
depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The
amounts involved could be material.
As of January 28, 2017, our credit ratings were as follows:
Long-term debt
Moody’s
Baa2
Standard
& Poor’s
BBB-
Fitch
BBB
During 2016, we paid cash dividends of $358 million as detailed in the following table:
Declaration date
Record date
Payment date
Amount per common share
First Quarter
February 25
March 9
March 23
$0.50
Second Quarter
May 12
June 8
June 22
$0.50
Fourth Quarter
Third Quarter
November 11
August 11
September 7
December 7
September 21 December 21
$0.50
$0.50
On February 22, 2017, our Board of Directors approved a 10% increase in our dividend to $0.55 per common
share. The dividend will be paid on March 22, 2017 to shareholders of record as of March 8, 2017.
Liquidity Ratios
The following table provides additional measures of our liquidity.
(Dollars in Millions)
Working capital
Current ratio
Free cash flow (a)
(a) Non-GAAP financial measure
2016
$2,273
1.76
$1,264
2015
$2,362
1.87
$671
Liquidity measures our ability to meet short-term cash needs. In 2016, working capital decreased $89 million
and our current ratio decreased 11 basis points from year-end 2015 due to a decrease in inventory and an increase
in accounts payable, which was partially offset by an increase in cash.
We generated $1.3 billion of free cash flow for 2016; an increase of $593 million over 2015. As discussed
above, the increase is primarily the result of a decrease in inventory and an increase in accounts payable. Free
cash flow is a non-GAAP financial measure which we define as net cash provided by operating activities and
proceeds from financing obligations (which generally represent landlord reimbursements of construction costs) less
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capital expenditures and capital lease and financing obligation payments. Free cash flow should be evaluated in
addition to, and not considered a substitute for, other financial measures such as net income and cash flow
provided by operations. We believe that free cash flow represents our ability to generate additional cash flow from
our business operations. See the key financial ratio calculations section above.
Return on Investment Ratios
The following table provides additional measures of our return on investments.
Ratio of earnings to fixed charges
Return on assets
Return on gross investment ("ROI") (a)
(a) Non-GAAP financial measure
2016
2.8
4.1%
12.6%
2015
3.1
4.7%
14.5%
2014
3.6
6.1%
15.2%
Lower earnings, including impairments, store closing and other costs in 2016 and loss on extinguishment of
debt in 2015, caused decreases in all three of our return on investment ratios. See Exhibit 12.1 to this Annual
Report on Form 10-K for the calculation of our ratio of earnings to fixed charges and the key financial ratio
calculations below for the return on assets and ROI calculations.
We believe that ROI is a useful financial measure in evaluating our operating performance. When analyzed in
conjunction with our net earnings and total assets and compared with return on assets, it provides investors with a
useful tool to evaluate our ongoing operations and our management of assets from period to period. ROI is a non-
GAAP financial measure which we define as earnings before interest, taxes, depreciation, amortization and rent
(“EBITDAR”) divided by average gross investment. Our ROI calculation may not be comparable to similarly-titled
measures reported by other companies. ROI should be evaluated in addition to, and not considered a substitute for,
other financial measures such as return on assets.
Capital Structure Ratios
The following table provides additional measures of our capital structure.
Debt/capitalization
Adjusted Debt to Adjusted EBITDAR (a)
(a) Non-GAAP financial measure
2016
47.2%
2.65
2015
46.3%
2.52
2014
44.3%
2.45
Our debt agreements contain various covenants including limitations on additional indebtedness and a
maximum permitted debt ratio. As of January 28, 2017, we were in compliance with all debt covenants and expect
to remain in compliance during 2017. See the key financial ratio calculations section below for our debt covenant
calculation.
The increases in our debt/capitalization ratios are primarily due to treasury stock repurchases in both years.
The increases in our Adjusted Debt to Adjusted EBITDAR ratio were primarily due to lower Adjusted
EBITDAR. Adjusted Debt to Adjusted EBITDAR is a non-GAAP financial measure which we define as our adjusted
outstanding debt balance divided by Adjusted EBITDAR. We believe that our debt levels are best analyzed using
this measure. Our current goals are to maintain an Adjusted Debt to Adjusted EBITDAR ratio that demonstrates our
commitment to an investment grade rating and allows us to operate with an efficient capital structure for our size,
growth plans and industry. We are currently exceeding our target goal to take advantage of a favorable, low interest
rate debt environment. We currently have no plans for new debt in 2017. Our Adjusted Debt to Adjusted EBITDAR
calculation may not be comparable to similarly-titled measures reported by other companies. Adjusted Debt to
Adjusted EBITDAR should be evaluated in addition to, and not considered a substitute for, other financial measures
such as debt/capitalization. See the key financial ratio calculations section below for our Adjusted Debt to Adjusted
EBITDAR calculation.
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Key Financial Ratio Calculations
The following table reconciles net cash provided by operating activities (a GAAP measure) to free cash flow (a
non-GAAP measure).
(Dollars in Millions)
Net cash provided by operating activities
Acquisition of property and equipment
Capital lease and financing obligation payments
Proceeds from financing obligations
Free cash flow
2016
2015
$ 2,148 $ 1,474 $ 2,024
(682)
(690)
(768)
2014
(127)
(114)
(114)
11
1
6
$ 1,264 $
671 $ 1,234
The following table includes our ROI and return on assets calculations:
(Dollars in Millions)
Operating income
Depreciation and amortization
Rent expense
EBITDAR
Average: (a)
Total assets
Cash equivalents and long-term investments (b)
Other assets
Accumulated depreciation and amortization
Accounts payable
Accrued liabilities
Other long-term liabilities
Capitalized rent (c)
Gross Investment (“AGI”)
Return on Assets (“ROA”) (d)
Return on Gross Investment (“ROI”) (e)
(a) Represents average of 5 most recent quarter end balances
(b) Represents excess cash not required for operations
(c) Represents 10 times store rent and 5 times equipment/other rent
(d) Net income divided by average total assets
(e) EBITDAR divided by Gross Investment
2016
$ 1,183
2015
$ 1,553
2014
$ 1,689
938
276
934
279
886
277
$ 2,397
$ 2,766
$ 2,852
$ 13,584
$ 14,288
$ 14,286
(476)
(35)
6,558
(1,515)
(1,188)
(620)
2,654
(703)
(40)
6,203
(1,623)
(1,175)
(556)
2,672
(647)
(32)
5,743
(1,624)
(1,119)
(551)
2,667
$ 18,962
$ 19,066
$ 18,723
4.1%
12.6%
4.7%
14.5%
6.1%
15.2%
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The following table includes our debt ratio calculation, as defined by our debt agreements, as of January 28,
2017:
(Dollars in Millions)
Included Indebtedness
Total debt
Less unamortized debt discount
Subtotal
Rent x 8
Included Indebtedness
Debt Compliance Adjusted EBITDAR
Net income
Rent expense
Depreciation and amortization
Net interest
Provision for income taxes
EBITDAR
Impairments, store closing and other costs
Adjusted EBITDAR
Stock based compensation
Other non-cash revenues and expenses
Debt Compliance Adjusted EBITDAR
Debt Ratio (a)
Maximum permitted Debt Ratio
$
$
$
$
4,631
(5)
4,626
2,208
6,834
556
276
938
308
319
2,397
186
2,583
41
14
2,638
2.59
3.75
(a) Included Indebtedness divided by Adjusted Debt Compliance EBITDAR
The following table includes our Adjusted Debt to Adjusted EBITDAR and debt/capitalization calculations:
(Dollars in Millions)
Total Debt (net of discount)
Rent x 8
Adjusted Debt
Total Equity
Adjusted EBITDAR as calculated above
Debt/capitalization (a)
Adjusted Debt to Adjusted EBITDAR (b)
(a) Total debt divided by total debt and total equity
(b) Adjusted debt divided by Adjusted EBITDAR
2016
$4,626
2015
$4,726
2014
$4,761
2,208
2,232
2,216
$6,834
$6,958
$6,977
$5,177
$5,491
$5,991
$2,583
$2,766
$2,852
47.2% 46.3% 44.3%
2.52
2.65
2.45
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Contractual Obligations
Our contractual obligations as of January 28, 2017 were as follows:
(Dollars in Millions)
Recorded contractual obligations:
Long-term debt
Capital lease and financing obligations
Unrecorded contractual obligations:
Interest payments:
Long-term debt
Capital lease and financing obligations
Operating leases (a)
Other (b)
Total
Maturing in:
2018
and
2019
2020
and
2021
2022
and
after
Total
2017
$ 2,815 $
1,345
4,160
1,716
2,300
5,309
1,075
10,400
$14,560 $
— $
— $
650 $ 2,165
123
123
132
163
253
294
225
225
263
302
503
322
194
844
803
2,968
263
266
486
225
1,058
1,569
4,067
234
1,390
842
965 $ 1,615 $ 2,084 $ 9,896
6,928
1,240
(a) Our leases typically require that we pay real estate taxes, insurance and maintenance costs in addition to the minimum rental payments
included in the table above. Such costs vary from period to period and totaled $177 million for 2016, $179 million for 2015 and $175
million for 2014. The lease term includes cancelable option periods where failure to exercise such options would result in an economic
penalty.
(b) Other includes royalties, legally binding minimum lease and interest payments for stores opening in 2017 or later, as well as payments
associated with technology and marketing agreements.
Off-Balance Sheet Arrangements
We have not provided any financial guarantees as of year-end 2016.
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of
raising capital, incurring debt or operating our business. We do not have any arrangements or relationships with
entities that are not consolidated into the financial statements that are reasonably likely to materially affect our
financial condition, liquidity, results of operations or capital resources.
Critical Accounting 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. Management has
discussed the development, selection and disclosure of these estimates and assumptions with the Audit Committee
of our Board of Directors. There have been no significant changes in the critical accounting policies and estimates
discussed in our 2015 Form 10-K.
Retail Inventory Method and Inventory Valuation
We value our inventory at the lower of cost or market with cost determined on the first-in, first-out (“FIFO”)
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 of the inventories. The use of RIM
will generally result in inventories being valued at the lower of cost or market as permanent markdowns are taken
as a reduction of the retail value of inventories.
RIM inherently requires management judgment and estimates, such as the amount and timing of permanent
markdowns to clear unproductive or slow-moving inventory, which may impact the ending inventory valuation as
well as gross margin. Factors considered in the determination of permanent markdowns include current and
anticipated demand, customer preferences, age of the merchandise, fashion trends and weather conditions.
Inventory shrinkage is estimated as a percent of sales for the period between the last physical inventory count
and the balance sheet date. Shrink is the difference between the recorded amount of inventory and the physical
inventory. We generally perform an annual physical inventory count at the majority of our stores and distribution
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centers. The shrinkage rate from the most recent physical inventory, in combination with current events and
historical experience, is used as the standard for the shrinkage accrual rate for the next inventory cycle. Historically,
our actual physical inventory count results have shown our estimates to be reliable.
Vendor Allowances
We frequently receive allowances from our vendors for discounts that we have taken in order to sell the
vendor’s merchandise and/or to support gross margins earned on those sales. This markdown support generally
relates to sold inventory or permanent markdowns and, accordingly, is reflected as a reduction to cost of
merchandise sold. Markdown support related to merchandise that has not yet been sold is recorded in inventory.
We also receive support from vendors for marketing and other costs that we have incurred to sell the vendors’
merchandise. To the extent the reimbursements are for specific, incremental and identifiable costs incurred to sell
the vendor's products and do not exceed the costs incurred, they are recognized as a reduction of selling, general,
and administrative expenses. If these criteria are not met, the support is recorded in inventory and reflected as a
reduction of costs of merchandise sold when the related merchandise is sold.
Insurance Reserve Estimates
We are primarily self-insured for costs related to workers’ compensation, general liability, and employee-
related health care benefits. We use a third-party actuary to estimate the liabilities associated with these risks. The
actuary considers historical claims experience, demographic and severity factors, health care trends, and actuarial
assumptions to estimate the liabilities associated with these risks. Historically, our actuarial estimates have not
been materially different from actual results.
Impairment of Long-Lived Assets
We review our long-lived assets for impairment when events or changes in circumstances, such as decisions
to close a store or significant operating losses, indicate the carrying value of the asset may not be recoverable. All
long-lived assets are reviewed for impairment at least annually.
If our evaluations, which are performed on an undiscounted cash flow basis, indicate that the carrying amount
of the asset may be not be recoverable, the potential impairment is measured as the excess of carrying value over
the fair value of the impaired asset.
Identifying impaired assets and quantifying the related impairment loss, if any, requires significant estimates by
management. The most significant of these estimates is the cash flow expected to result from the use and eventual
disposition of the asset. When determining the stream of projected future cash flows associated with an individual
store, management estimates future store performance including sales growth rates, gross margin, and controllable
expenses, such as store payroll and occupancy expense. Projected cash flows must be estimated for future periods
throughout the remaining life of the property, which may be as many as 40 years in the future. The accuracy of
these estimates will be impacted by a number of factors including general economic conditions, changes in
competitive landscape and our ability to effectively manage the operations of the store.
Other than the stores which we closed in 2016, we have not historically experienced any significant
impairment of long-lived assets. Additionally, impairment of an individual building and related improvements, net of
accumulated depreciation, would not generally be material to our financial results.
Store Closure Reserve
In 2016, we closed numerous leased stores prior to their scheduled lease expiration. In addition to future rent
obligations, the closed store reserve includes estimates for operating and other expenses expected to be incurred
over the remaining lease term, some of which extend through January 2030.
Income Taxes
We regularly evaluate the likelihood of realizing the benefit for income tax positions we have taken in various
federal and state filings by considering all relevant facts, circumstances and information available to us. If we
believe it is more likely than not that our position will be sustained, we recognize a benefit at the largest amount
which we believe is cumulatively greater than 50% likely to be realized.
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Unrecognized tax benefits require significant management judgment regarding applicable statutes and their
related interpretation, the status of various income tax audits and our particular facts and circumstances. Also, as
audits are completed or statutes of limitations lapse, it may be necessary to record adjustments to our taxes
payable, deferred tax assets, tax reserves or income tax expense. Although we believe we have adequately
reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will
not be different.
Leases
Accounting for leased properties requires compliance with technical accounting rules and significant judgment
by management. Application of these accounting rules and assumptions made by management will determine
whether we are considered the owner for accounting purposes or whether the lease is accounted for as a capital or
operating lease.
If we are considered the owner for accounting purposes or the lease is considered a capital lease, we record
the property and a related financing or capital lease obligation on our balance sheet. The asset is then depreciated
over its expected lease term. Rent payments for these properties are recognized as interest expense and a
reduction of the financing or capital lease obligation.
If the lease is considered an operating lease, it is not recorded on our balance sheet and rent expense is
recognized on a straight-line basis over the expected lease term.
The most significant estimates used by management in accounting for property leases and the impact of these
estimates are as follows:
• Expected lease term—Our expected lease term includes both contractual lease periods and cancelable
option periods where failure to exercise such options would result in an economic penalty. The expected
lease term is used in determining whether the lease is accounted for as an operating lease or a capital
lease. A lease is considered a capital lease if the lease term exceeds 75% of the leased asset’s useful life.
The expected lease term is also used in determining the depreciable life of the asset or the straight-line rent
recognition period. Increasing the expected lease term will increase the probability that a lease will be
considered a capital lease and will generally result in higher rent expense for an operating lease and higher
interest and depreciation expenses for a leased property recorded on our balance sheet.
Incremental borrowing rate—We estimate our incremental borrowing rate using treasury rates for debt
with maturities comparable to the expected lease term and our credit spread. The incremental borrowing
rate is primarily used in determining whether the lease is accounted for as an operating lease or a capital
lease. A lease is considered a capital lease if the net present value of the lease payments is greater than
90% of the fair market value of the property. Increasing the incremental borrowing rate decreases the net
present value of the lease payments and reduces the probability that a lease will be considered a capital
lease. For leases which are recorded on our balance sheet with a related capital lease or financing
obligation, the incremental borrowing rate is also used in allocating our rental payments between interest
expense and a reduction of the outstanding obligation.
•
• Fair market value of leased asset—The fair market value of leased retail property is generally estimated
based on comparable market data as provided by third-party appraisers or consideration received from the
landlord. Fair market value is used in determining whether the lease is accounted for as an operating lease
or a capital lease. A lease is considered a capital lease if the net present value of the lease payments is
greater than 90% of the fair market value of the property. Increasing the fair market value reduces the
probability that a lease will be considered a capital lease. Fair market value is also used in determining the
amount of property and related financing obligation to be recognized on our balance sheet for certain
leased properties which are considered owned for accounting purposes.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
All of our long-term debt at year-end 2016 is at fixed interest rates and, therefore, is not affected by changes in
interest rates. When our long-term debt instruments mature, we may refinance them at then existing market interest
rates, which may be more or less than interest rates on the maturing debt.
We share in the net risk-adjusted revenue of the Kohl’s credit card portfolio as defined by the sum of finance
charges, late fees and other revenue less write-offs of uncollectible accounts. We also share the costs of funding
the outstanding receivables as interest rates exceed defined rates. As a result, our share of profits from the credit
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card portfolio may be negatively impacted by increases in interest rates. The reduced profitability, if any, will be
impacted by various factors, including our ability to pass higher funding costs on to the credit card holders and the
outstanding receivable balance, and cannot be reasonably estimated at this time.
Item 8. Financial Statements and Supplementary Data
The financial statements are included in this report beginning on page F-3.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures
None
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we carried out an evaluation of the effectiveness 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 have concluded that our
disclosure controls and procedures are effective at the reasonable assurance level. "Disclosure controls and
procedures" is defined by Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act") as controls
and other procedures that are designed to ensure that information required to be disclosed in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified by the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, to allow timely decisions regarding required disclosures.
It should be noted that the design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated
goals under all potential future conditions, regardless of how remote.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Our internal control system was designed to provide reasonable assurance to our management and
Board of Directors regarding the preparation and fair presentation of our published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation.
Our management assessed the effectiveness of our internal control over financing reporting as of January 28,
2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013
Framework). Based on this assessment, our management has concluded that as of January 28, 2017, our internal
control over financial reporting was effective based on those criteria.
Ernst & Young LLP, an independent registered 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.
Changes in Internal Control Over Financial Reporting
During the last fiscal quarter, there were no changes in our internal controls that have materially affected or
are reasonably likely to materially affect such controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Kohl's Corporation
We have audited Kohl’s Corporation’s internal control over financial reporting as of January 28, 2017, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). Kohl’s Corporation’s
management is responsible for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Kohl’s Corporation maintained, in all material respects, effective internal control over financial
reporting as of January 28, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Kohl’s Corporation as of January 28, 2017 and January 30,
2016, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity,
and cash flows for each of the three years in the period ended January 28, 2017 of Kohl’s Corporation and our
report dated March 17, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
March 17, 2017
31
Table of Contents
Item 9B. Other Information
None
Item 10. Directors, Executive Officers and Corporate Governance
PART III
For information with respect to our Directors, the Board of Directors’ committees and our written code of
ethics, see the applicable portions of the “Questions and Answers About our Board of Directors and Corporate
Governance Matters” and “Item One: Election of Directors” sections of the Proxy Statement for our May 10, 2017
Annual Meeting of Shareholders (“our 2017 Proxy”), which information is incorporated herein by reference. For
information with respect to Section 16 reports, see the information provided in the “Section 16(a) Beneficial
Ownership Reporting Compliance” section of our 2017 Proxy, which information is incorporated herein by reference.
See also Item 4A, Executive Officers of Part 1 hereof.
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 One: Election of Directors” sections of our 2017 Proxy,
including the "Compensation Committee Report" and "Compensation Discussion & Analysis", which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
See the information provided in the “Security Ownership of Certain Beneficial Owners, Directors and
Management” and “Equity Compensation Plan Information” sections of our 2017 Proxy, which information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
See the information provided in the “Independence Determinations & Related Person Transactions” section of
our 2017 Proxy, which information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
See the information provided in the “Fees Paid to Ernst & Young” section of our 2017 Proxy, which information
is incorporated herein by reference.
32
Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules
Documents filed as part of this report
1. Consolidated Financial Statements:
See “Index to Consolidated Financial Statements” on page 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:
See “Exhibit Index” of this Form 10-K, which is incorporated herein by reference.
Item 16. Form 10-K Summary
Not applicable.
33
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities 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
By:
/S/ KEVIN MANSELL
Kevin Mansell
Chairman, Chief Executive Officer, President and
Director
(Principal Executive Officer)
/S/ WESLEY S. MCDONALD
Wesley S. McDonald
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: March 17, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the date indicated above:
/S/ KEVIN MANSELL
Kevin Mansell
Chairman, President, Chief Executive Officer
and Director (Principal Executive Officer)
/S/ PETER BONEPARTH
Peter Boneparth
Director
/S/ STEVEN A. BURD
Steven A. Burd
Director
/S/ Adrianne Shapira
Adrianne Shapira
Director
/S/ JOHN E. SCHLIFSKE
John E. Schlifske
Director
/S/ FRANK V. SICA
Frank V. Sica
Director
/S/ JONAS PRISING
Jonas Prising
Director
/S/ STEPHANIE A. STREETER
Stephanie A. Streeter
Director
/S/ NINA G. VACA
Nina G. Vaca
Director
/S/ STEPHEN E. WATSON
Stephen E. Watson
Director
34
Table of Contents
EXHIBIT INDEX
Exhibit
Number
3.1
3.2
4.1
4.2
10.1(a)
10.1(b)
10.1(c)
10.2
10.3
10.4
10.5
10.6
Description
Amended and Restated Articles of Incorporation of the Company, incorporated herein by reference
to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 16, 2011.
Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit 3.1 of
the Company’s Current Report on Form 8-K filed on November 13, 2015.
Amended and Restated Credit Agreement dated as of July 1, 2015 by and among the Company, the
Lenders party thereto, Bank of America, N.A., as Administrative Agent, an Issuing Bank and a Swing
Line Lender, U.S. Bank National Association and Wells Fargo Bank, National Association, as Issuing
Banks, Swing Line Lenders and Syndication Agents, Morgan Stanley Senior Funding, Inc., as
Documentation Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, U.S. Bank National
Association and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Bookrunners,
incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on July
2, 2015.
Certain other long-term debt is described in Note 3 of the Notes to Consolidated Financial
Statements. The Company agrees to furnish to the Commission, upon request, copies of any
instruments defining the rights of holders of any such long-term debt described in Note 3 and not
filed herewith.
Form of Chief Executive Officer Restricted Stock Agreement Pursuant to the Kohl's Corporation
2010 Long Term Compensation Plan, incorporated herein by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2016.*
Private Label Credit Card Program Agreement dated as of August 11, 2010 by and between Kohl’s
Department Stores, Inc. and Capital One, National Association, incorporated herein by reference to
Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,
2010.
Amendment to Private Label Credit Card Program Agreement dated as of May 13, 2014 by and
between Kohl's Department Stores, Inc. and Capital One, National Association, incorporated herein
by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 3, 2014.
Amended and Restated Executive Deferred Compensation Plan, incorporated herein by reference
to Exhibit 10.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 1,
2003.*
Kohl’s Corporation 2005 Deferred Compensation Plan, as amended and restated effective January
1, 2005, incorporated herein by reference to Exhibit 10.4 of the Company’s Annual Report on
Form 10-K for the fiscal year ended January 28, 2006.*
Summary of Executive Medical Plan, incorporated herein by reference to Exhibit 10.6 of the
Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2005.*
Summary of Executive Life and Accidental Death and Dismemberment Plans, incorporated herein
by reference to Exhibit 10.7 of the Company’s Annual Report on Form 10-K for the fiscal year ended
January 29, 2005.*
Kohl’s Corporation Annual Incentive Plan, incorporated herein by reference to Annex B to the Proxy
Statement on Schedule 14A filed on March 24, 2016 in connection with the Company’s 2016 Annual
Meeting of Shareholders.*
35
Table of Contents
Exhibit
Number
10.7
10.8
10.9
10.10
10.11
10.12
Description
1994 Long-Term Compensation Plan, incorporated herein by reference to Exhibit 10.15 of the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 1996.*
1997 Stock Option Plan for Outside Directors, incorporated herein by reference to Exhibit 4.4 of the
Company’s registration statement on Form S-8 (File No. 333-26409), filed on May 2, 1997.*
Amended and Restated 2003 Long-Term Compensation Plan, incorporated herein by reference to
the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 2, 2008.*
Kohl’s Corporation 2010 Long Term Compensation Plan, incorporated herein by reference to Annex
A to the Proxy Statement on Schedule 14A filed on March 24, 2016 in connection with the
Company’s 2016 Annual Meeting.*
Form of Executive Performance Share Agreement pursuant to the Kohl’s Corporation 2010 Long
Term Compensation Plan, incorporated herein by reference to Exhibit 99.1 of the Company’s
Current Report on Form 8-K filed on January 15, 2014.*
Form of Executive Stock Option Agreement pursuant to the Kohl's Corporation 2010 Long Term
Compensation Plan, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended May 1, 2010.*
10.13(a)
Form of Executive Restricted Stock Agreement pursuant to the Kohl’s Corporation 2010 Long Term
Compensation Plan (5-year vesting), incorporated herein by reference to Exhibit 10.2 of the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 2010.*
10.13(b)
Form of Executive Restricted Stock Agreement pursuant to the Kohl’s Corporation 2010 Long Term
Compensation Plan (4-year vesting), incorporated herein by reference to Exhibit 99.2 of the
Company’s Current Report on Form 8-K filed on January 15, 2014.*
10.13(c)
Form of Executive Restricted Stock Agreement pursuant to the Kohl’s Corporation 2010 Long Term
Compensation Plan (2-year vesting), incorporated herein by reference to Exhibit 10.4 of the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 3, 2014.*
10.14
10.15
Form of Outside Director Stock Option Agreement pursuant to the Kohl’s Corporation 2010 Long
Term Compensation Plan, incorporated herein by reference to Exhibit 10.3 of the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 2010.*
Form of Outside Director Restricted Stock Agreement pursuant to the Kohl’s Corporation 2010 Long
Term Compensation Plan, incorporated herein by reference to Exhibit 10.4 of the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 2010.*
10.16
Summary of Outside Director Compensation.*
10.17
10.18
Amended and Restated Employment Agreement between Kohl’s Corporation and Kohl’s
Department Stores, Inc. and Kevin Mansell dated as of November 14, 2014, incorporated herein by
reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed on November 14,
2014.*
Amended and Restated Employment Agreement between Kohl’s Department Stores, Inc. and Kohl’s
Corporation and Michelle Gass effective as of June 10, 2015, incorporated by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K filed on June 12, 2015.*
36
Table of Contents
Exhibit
Number
10.19(a)
Description
Amended and Restated Employment Agreement between Kohl’s Department Stores, Inc. and Kohl’s
Corporation and Wesley S. McDonald effective as of June 10, 2015, incorporated by reference to
Exhibit 10.2 of the Company's Current Report on Form 8-K filed on June 12, 2015.*
10.19(b)
Agreement dated as of November 9, 2016 by and between Kohl's Department Stores, Inc., Kohl's
Corporation and Wesley S. McDonald.*
10.20
10.22
Amended and Restated Employment Agreement between Kohl’s Department Stores, Inc. and Kohl’s
Corporation and Richard D. Schepp effective as of June 10, 2015, incorporated by reference to
Exhibit 10.3 of the Company's Current Report on Form 8-K filed on June 12, 2015.*
Employment Agreement dated as of November 16, 2015 by and between Kohl's Department Stores,
Inc., Kohl's Corporation and Sona Chawla, incorporated by reference to Exhibit 10.22 of the
Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2016.*
12.1
Ratio of Earnings to Fixed Charges.
21.1
Subsidiaries of the Registrant, incorporated by reference to Exhibit 21.1 of the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 2015.
23.1
Consent of Ernst & Young LLP.
31.1
31.2
32.1
32.2
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 302 of the Sarbanes-Oxley Act of
2002.
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
*
A management contract or compensatory plan or arrangement.
37
Table of Contents
Index to Consolidated Financial Statements
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
1. Business and Summary of Accounting Policies
2. Impairments, Store Closing and Other Costs
3. Debt
4. Lease Commitments
5. Benefit Plans
6. Income Taxes
7. Stock-Based Compensation
8. Contingencies
9. Quarterly Financial Information (Unaudited)
Schedules have been omitted as they are not applicable.
Page
F-2
F-3
F-4
F-4
F-5
F-6
F-7
F-7
F-14
F-14
F-15
F-15
F-16
F-17
F-20
F-20
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Kohl's Corporation
We have audited the accompanying consolidated balance sheets of Kohl’s Corporation (the Company) as of
January 28, 2017 and January 30, 2016, and the related consolidated statements of income, comprehensive
income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended January 28,
2017. These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Kohl’s Corporation at January 28, 2017 and January 30, 2016, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended January 28,
2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, 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 28, 2017, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 Framework) and our report dated March 17, 2017 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
March 17, 2017
F-2
KOHL’S CORPORATION
CONSOLIDATED BALANCE SHEETS
Table of Contents
(Dollars in Millions)
Assets
Current assets:
Cash and cash equivalents
Merchandise inventories
Other
Total current assets
Property and equipment, net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Income taxes payable
Current portion of capital lease and financing obligations
Total current liabilities
Long-term debt
Capital lease and financing obligations
Deferred income taxes
Other long-term liabilities
Shareholders’ equity:
Common stock - 371 and 370 million shares issued
Paid-in capital
Treasury stock, at cost, 197 and 184 million shares
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
January 28,
2017
January 30,
2016
$
$
$
$
1,074 $
3,795
378
5,247
8,103
224
13,574 $
707
4,038
331
5,076
8,308
222
13,606
1,507 $
1,224
112
131
2,974
2,795
1,685
272
671
1,251
1,206
130
127
2,714
2,792
1,789
257
563
4
3,003
(10,338)
(14)
12,522
5,177
13,574 $
4
2,944
(9,769)
(17)
12,329
5,491
13,606
See accompanying Notes to Consolidated Financial Statements
F-3
Table of Contents
KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions, Except per Share Data)
Net sales
Cost of merchandise sold
Gross margin
Operating expenses:
Selling, general and administrative
Depreciation and amortization
Impairments, store closing and other costs
Operating income
Interest expense, net
Loss on extinguishment of debt
Income before income taxes
Provision for income taxes
Net income
Net income per share:
Basic
Diluted
2016
2015
$ 18,686 $ 19,204 $ 19,023
12,098
12,265
11,944
2014
6,742
6,939
6,925
4,435
4,452
4,350
938
186
934
—
886
—
1,183
1,553
1,689
308
—
875
319
556 $
327
169
1,057
384
673 $
340
—
1,349
482
867
3.12 $
3.11 $
3.48 $
3.46 $
4.28
4.24
$
$
$
See accompanying Notes to Consolidated Financial Statements
KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Millions)
Net income
Other comprehensive income, net of tax:
Reclassification adjustment for interest expense on interest rate
derivatives included in net income
Unrealized gains on investments
Other comprehensive income
Comprehensive income
2016
2015
2014
$
556 $
673 $
867
3
—
3
559 $
$
3
—
3
3
11
14
676 $
881
See accompanying Notes to Consolidated Financial Statements
F-4
Table of Contents
KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in Millions, Except per
Share Data)
Balance at February 1, 2014
Comprehensive income
Stock options and awards, net
of tax
Dividends paid ($1.56 per
common share)
Treasury stock purchases
Balance at January 31, 2015
Comprehensive income
Stock options and awards, net
of tax
Dividends paid ($1.80 per
common share)
Treasury stock purchases
Balance at January 30, 2016
Comprehensive income
Stock options and awards, net
of tax
Dividends paid ($2.00 per
common share)
Treasury stock purchases
Common Stock
Treasury Stock
Shares Amount
Paid-In
Capital
4 $ 2,598
—
—
Shares
Amount
(153) $ (8,052)
—
(1)
—
(12)
—
(19)
4
(677)
145
—
—
Accumulated
Other
Comprehensive
Loss
$(34)
14
—
—
—
Retained
Earnings
$ 11,462 $ 5,978
Total
867
881
—
126
(321)
(317)
— (677)
2,743
(166)
(8,744)
(20)
12,008
5,991
—
201
—
—
—
(1)
—
—
(27)
3
(17)
(1,001)
3
—
—
—
673
676
—
174
(352)
(349)
— (1,001)
2,944
(184)
(9,769)
(17)
12,329
5,491
—
59
—
—
—
—
—
—
(17)
5
(13)
(557)
3
—
—
—
556
559
—
42
(363)
(358)
— (557)
364 $
—
3
—
—
367
—
3
—
—
370
—
1
—
—
—
—
—
4
—
—
—
—
4
—
—
—
—
Balance at January 28, 2017
371 $
4 $ 3,003
(197) $(10,338)
$(14)
$ 12,522 $ 5,177
See accompanying Notes to Consolidated Financial Statements
F-5
Table of Contents
(Dollars in Millions)
Operating activities
Net income
KOHL’S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Share-based compensation
Excess tax benefits from share-based compensation
Deferred income taxes
Other non-cash expenses, net
Loss on extinguishment of debt
Impairments, store closing and other costs
Changes in operating assets and liabilities:
Merchandise inventories
Other current and long-term assets
Accounts payable
Accrued and other long-term liabilities
Income taxes
Net cash provided by operating activities
Investing activities
Acquisition of property and equipment
Sales of investments in auction rate securities
Other
Net cash used in investing activities
Financing activities
Treasury stock purchases
Shares withheld for taxes on vested restricted shares
Dividends paid
Proceeds from issuance of debt, net
Reduction of long-term borrowings
Premium paid on redemption of debt
Capital lease and financing obligation payments
Proceeds from stock option exercises
Excess tax benefits from share-based compensation
Proceeds from financing obligations
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental information
Interest paid, net of capitalized interest
Income taxes paid
Non-Cash investing and financing activities
Property and equipment acquired through additional liabilities
2016
2015
2014
$
556 $
673 $
867
938
41
(5)
13
30
—
57
934
48
(10)
(38)
24
169
—
886
48
(3)
49
31
—
—
249
(45)
256
81
(23)
2,148
(215)
43
(260)
53
53
1,474
68
(30)
146
30
(68)
2,024
(768)
(690)
(682)
—
12
—
9
82
7
(756)
(681)
(593)
(557)
(1,001)
(17)
(27)
(358)
(349)
— 1,088
— (1,085)
(163)
—
(127)
18
5
11
(114)
147
10
1
(677)
(19)
(317)
—
—
—
(114)
123
3
6
(1,025)
(1,493)
(995)
367
707
$ 1,074 $
(700)
1,407
436
971
707 $ 1,407
$
$
299 $
314
318 $
372
329
502
54 $
63 $
41
See accompanying Notes to Consolidated Financial Statements
F-6
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Summary of Accounting Policies
Business
As of January 28, 2017, we operated 1,154 department stores, a website (www.Kohls.com), 12 FILA outlets,
and three Off-Aisle clearance centers. Our Kohl's stores and website sell moderately-priced private label, exclusive
and national brand apparel, footwear, accessories, beauty and home products. Our Kohl's stores generally carry a
consistent merchandise assortment with some differences attributable to local preferences. Our website includes
merchandise which is available in our stores, as well as merchandise which is available only on-line.
Our authorized capital stock consists of 800 million shares of $0.01 par value common stock and 10 million
shares of $0.01 par value preferred stock.
Consolidation
The consolidated financial statements include the accounts of Kohl’s Corporation and its subsidiaries including
Kohl’s Department Stores, Inc., its primary operating company. All intercompany accounts and transactions have
been eliminated.
Accounting Period
Our fiscal year ends on the Saturday closest to January 31st each year. Unless otherwise stated, references to
years in this report relate to fiscal years rather than to calendar years. The following fiscal periods are presented in
this report.
Fiscal year
2016
2015
2014
Ended
January 28, 2017
January 30, 2016
January 31, 2015
Number of
Weeks
52
52
52
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
In addition to money market investments, cash equivalents include commercial paper and certificates of
deposit with original maturities of three months or less. We carry these investments at cost which approximates fair
value.
Also included in cash and cash equivalents are amounts due from credit card transactions with settlement
terms of less than five days. Credit and debit card receivables included within cash were $81 million at January 28,
2017 and $92 million at January 30, 2016.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market with cost determined on the first-in, first-out
(“FIFO”) basis using the retail inventory method (“RIM”). Under RIM, the valuation of inventory at cost and the
resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value inventory. RIM is an
averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in
inventory being valued at the lower of cost or market since permanent markdowns are currently taken as a
reduction of the retail value of inventory. We would record an additional reserve if the future estimated selling price
is less than cost.
F-7
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. Business and Summary of Accounting Policies (continued)
Property and Equipment
Property and equipment consist of the following:
(Dollars in Millions)
Land
Buildings and improvements:
Owned
Leased
Store fixtures and equipment
Computer hardware and software
Construction in progress
Total property and equipment, at cost
Less accumulated depreciation and amortization
Property and equipment, net
Jan 28,
2017
Jan 30,
2016
$ 1,118 $ 1,110
8,004
1,801
1,711
1,939
318
7,999
1,848
1,804
1,590
167
14,891
14,518
(6,210)
$ 8,103 $ 8,308
(6,788)
Construction in progress includes buildings, building improvements, and computer hardware and software
which is not ready for its intended use.
Property and equipment is recorded at cost, less accumulated depreciation. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets. Leased property and improvements to leased
property are amortized on a straight-line basis over the term of the lease or useful life of the asset, whichever is
less.
The annual provisions for depreciation and amortization generally use the following ranges of useful lives:
Buildings and improvements
Store fixtures and equipment
Computer hardware and software
Long-Lived Assets
5-40 years
3-15 years
3-8 years
All property and equipment and other long-lived assets are reviewed for potential impairment when events or
changes in circumstances indicate that the asset’s carrying value may not be recoverable. If such indicators are
present, it is determined whether the sum of the estimated undiscounted future cash flows attributable to such
assets is less than the carrying value of the assets. A potential impairment has occurred if projected future
undiscounted cash flows are less than the carrying value of the assets. An impairment relating to store closures was
recorded in 2016. No material impairments were recorded in 2015 or 2014 as a result of the tests performed.
F-8
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. Business and Summary of Accounting Policies (continued)
Accrued Liabilities
Accrued liabilities consist of the following:
(Dollars in Millions)
Gift cards and merchandise return cards
Sales, property and use taxes
Payroll and related fringe benefits
Accrued capital
Marketing
Credit card liabilities
Other
Accrued liabilities
Jan 28,
2017
Jan 30,
2016
$
329 $
183
147
102
82
67
323
184
117
64
77
88
314
1,224 $
353
1,206
$
Self-Insurance
We use a combination of insurance and self-insurance for a number of risks.
We retain the initial risk of $500,000 per occurrence in workers’ compensation claims and $250,000 per
occurrence in general liability claims. We record reserves for workers’ compensation and general liability claims
which include the total amounts that we expect to pay for a fully developed loss and related expenses, such as fees
paid to attorneys, experts and investigators.
We are fully self-insured for employee-related health care benefits, a portion of which is paid by our
associates.
We use a third-party actuary to estimate the liabilities associated with workers’ compensation, general liability
and employee-related health care risks. These liabilities include amounts for both reported claims and incurred, but
not reported losses. Total liabilities for these risks were $65 million as of January 28, 2017 and $58 million as of
January 30, 2016.
Our self-insured retention for property losses differs based on the type of claim. For catastrophic claims such
as earthquakes, floods and windstorms, the retained amount varies from 2 - 5% of the insurance claim. For other
standard claims, such as fire and building damages, we are self-insured for the first $250,000 per occurrence of the
property loss.
Treasury Stock
We account for repurchases of common stock and shares withheld in lieu of taxes when restricted stock vests
using the cost method with common stock in treasury classified in the Consolidated Balance Sheets as a reduction
of shareholders’ equity.
F-9
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. Business and Summary of Accounting Policies (continued)
Other Comprehensive Income
The tax effects of each component of other comprehensive income are as follows:
(Dollars in Millions)
Interest rate derivatives:
Before-tax amounts
Tax expense
After-tax amounts
Unrealized gains on investments:
Before-tax amounts
Tax expense
After-tax amounts
Other comprehensive income
Revenue Recognition
2016
2015
2014
$
5 $
(2)
3
—
—
—
3 $
$
5 $
(2)
3
—
—
—
3 $
5
(2)
3
18
(7)
11
14
Revenue from the sale of merchandise at our stores is recognized at the time of sale, net of any returns. Sales
of merchandise shipped to our customers are recorded based on estimated receipt of merchandise by the
customer. Net sales do not include sales tax as we are considered a pass-through conduit for collecting and
remitting sales taxes.
Revenue from Kohl's gift card sales is recognized when the gift card is redeemed. Gift card breakage revenue
is recognized based on historical redemption patterns and represents the balance of gift cards for which we believe
the likelihood of redemption by a customer is remote.
Cost of Merchandise Sold and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in Cost of Merchandise Sold and Selling, General
and Administrative Expenses:
Cost of Merchandise Sold
Selling, General and
Administrative Expenses
• Total cost of products sold including product
• Compensation and benefit costs including:
development costs, net of vendor payments other
than reimbursement of specific, incremental and
identifiable costs
• Inventory shrink
• Markdowns
• Freight expenses associated with moving
merchandise from our vendors to our distribution
centers
• Shipping and handling expenses of on-line sales
• Terms cash discount
• Stores
• Corporate headquarters, including buying and
merchandising
• Distribution centers
• Occupancy and operating costs of our retail,
distribution and corporate facilities
• Net revenues from the Kohl’s credit card program
• Freight expenses associated with moving
merchandise from our distribution centers to our
retail stores and between distribution and retail
facilities
• Marketing expenses, offset by vendor payments for
reimbursement of specific, incremental and
identifiable costs
• Other administrative revenues and expenses
The classification of these expenses varies across the retail industry.
F-10
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. Business and Summary of Accounting Policies (continued)
Vendor Allowances
We receive consideration for a variety of vendor-sponsored programs, such as markdown allowances, volume
rebates and promotion and marketing support. The vendor consideration is recorded as earned either as a
reduction of inventory costs or Selling, General and Administrative Expenses. Promotional and marketing
allowances are intended to offset our marketing costs to promote vendors’ merchandise. Markdown allowances and
volume rebates are recorded as a reduction of inventory costs.
Loyalty Program
We maintain a customer loyalty program in which customers earn points based on their spending and other
promotional activities. Upon accumulating certain point levels, customers receive rewards to apply to future
purchases. We accrue the cost of anticipated redemptions related to the program when the points are earned at the
initial purchase. The costs of the program are recorded in Cost of Merchandise Sold.
Fair Value
Fair value measurements are required to be classified and disclosed in one of the following pricing categories:
Level 1:
Financial instruments with unadjusted, quoted prices listed on active market exchanges.
Level 2:
Financial instruments lacking unadjusted, quoted prices from active market exchanges, including
over-the-counter traded financial instruments. The prices for the financial instruments are
determined using prices for recently traded financial instruments with similar underlying terms as
well as directly or indirectly observable inputs, such as interest rates and yield curves that are
observable at commonly quoted intervals.
Level 3:
Financial instruments that are not actively traded on a market exchange. This category includes
situations where there is little, if any, market activity for the financial instrument. The prices are
determined using significant unobservable inputs or valuation techniques.
Current assets and liabilities are reported at cost, which approximate fair value.
Leases
We lease certain property and equipment used in our operations.
We are often involved extensively in the construction of leased stores. In many cases, we are responsible for
construction cost over runs or non-standard tenant improvements (e.g. roof or HVAC systems). As a result of this
involvement, we are deemed the “owner” for accounting purposes during the construction period, so are required to
capitalize the construction costs on our Balance Sheet. Upon completion of the project, we perform a sale-
leaseback analysis to determine if we can remove the assets from our Balance Sheet. In many of our leases, we
are reimbursed a portion of the construction costs via adjusted rental payments and/or cash payments or have
terms which fix the rental payments for a significant percentage of the leased asset’s economic life. These items
generally are considered “continuing involvement” which precludes us from derecognizing the assets from our
Balance Sheet when construction is complete. In conjunction with these leases, we also record financing obligations
equal to the cash proceeds or fair market value of the assets received from the landlord. At the end of the lease
term, including exercise of any renewal options, the net remaining financing obligation over the net carrying value of
the fixed asset will be recognized as a non-cash gain on sale of the property. We do not report rent expense for the
properties which are owned for accounting purposes. Rather, rental payments under the lease are recognized as a
reduction of the financing obligation and interest expense.
Some of our property and equipment is held under capital leases. These assets are included in property and
equipment and depreciated over the term of the lease. We do not report rent expense for capital leases. Rather,
rental payments under the lease are recognized as a reduction of the capital lease obligation and interest expense.
F-11
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. Business and Summary of Accounting Policies (continued)
All other leases are considered operating leases. Assets subject to an operating lease and the related lease
payments are not recorded on our Balance Sheet. Rent expense is recognized on a straight-line basis over the
expected lease term.
The lease term for all types of leases begins on the date we become legally obligated for the rent payments or
we take possession of the building or land, whichever is earlier. The lease term includes cancelable option periods
where failure to exercise such options would result in an economic penalty. Failure to exercise such options would
result in the recognition of accelerated depreciation expense of the related assets.
Marketing
Marketing costs are expensed when the marketing is first seen. Marketing costs, net of related vendor
allowances, are as follows:
(Dollars in Millions)
Gross marketing costs
Vendor allowances
Net marketing costs
2016
$
$
1,164
(148)
1,016
$
$
2015
1,171
(160)
1,011
$
$
2014
1,189
(165)
1,024
Net marketing costs as a percent of net sales
5.4%
5.3%
5.4%
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets
and liabilities are recorded based on differences between the amounts of assets and liabilities recognized for
financial reporting purposes and such amounts recognized for income tax purposes. Deferred tax assets and
liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences
are expected to reverse. We establish valuation allowances for deferred tax assets when we believe it is more likely
than not that the asset will not be realizable for tax purposes. We recognize interest and penalty expense related to
unrecognized tax benefits in our provision for income tax expense.
Net Income Per Share
Basic net income per share is net income divided by the average number of common shares outstanding
during the period. Diluted net income per share includes incremental shares assumed for share-based awards.
The information required to compute basic and diluted net income per share is as follows:
(Dollars in Millions, Except per Share Data)
Numerator—net income
Denominator—weighted average shares
Basic
Impact of dilutive employee stock options (a)
Diluted
Net income per share:
Basic
Diluted
2016
2015
2014
$
556 $
673 $
867
178
1
179
193
2
195
$
$
3.12 $
3.11 $
3.48 $
3.46 $
203
1
204
4.28
4.24
(a) Excludes 3 million share-based awards for 2016, 1 million share-based awards for 2015 and 3 million share-based
awards for 2014 as the impact of such awards was antidilutive.
F-12
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. Business and Summary of Accounting Policies (continued)
Share-Based Awards
Stock-based compensation expense is generally recognized on a straight-line basis over the vesting period
based on the fair value of awards which are expected to vest. The fair value of all share-based awards is estimated
on the date of grant.
Recent Accounting Pronouncements
The following table provides a brief description of issued, but not yet effective, accounting standards:
Description
Effect on our Financial Statements
Standard
Compensation -
Stock
Compensation
(ASC Topic 718)
Issued March
2016
Effective Q1
2017
Revenue from
Contracts with
Customers
(ASC Topic 606)
Issued May
2014
Effective Q1
2018
The new standard modifies
several aspects of accounting and
reporting for share-based payment
transactions. Under the new
standard, we will recognize excess
income tax benefits and tax
deficiencies related to share-
based payments as income tax
expense in our income statement,
rather than as additional paid-in
capital on our balance sheet.
The new standard also allows us
to change the way we account for
forfeitures and for shares withheld
from employees to satisfy income
tax obligations.
The standard eliminates the
transaction- and industry-specific
revenue recognition guidance
under current U.S. GAAP and
replaces it with a principles-based
approach for revenue recognition
and disclosures.
Leases
(ASC Topic 842)
Issued February
2016
Effective Q1
2019
Among other things, the new
standard requires us to recognize
a right of use asset and a lease
liability on our balance sheet for
leases. It also changes the
presentation and timing of lease-
related expenses.
F-13
Generally, the new standard will result in higher tax
expense when our stock price declines and lower tax
expense when our stock price increases. Based on
options and restricted shares outstanding as of year-
end, every $1 change in our stock price would change
our effective tax rate by approximately 3 basis points.
We do not expect to change our accounting for
forfeitures or shares withheld for taxes.
The standard will change the way we account for sales
returns, our loyalty program and certain promotional
programs. Based on current estimates, we do not
expect these provisions of the standard will have a
material impact on our financial statements.
We are currently evaluating the impact other
provisions of the standard may have on our financial
statements, including principal vs agent considerations
and presentation of net earnings of our credit card
operations. Under current accounting, substantially all
merchandise sales are reported gross as we are
considered the principal in the transaction and net
credit card earnings are reported in Selling, General
and Administrative Expenses.
We will elect an adoption methodology after we have
evaluated the impact that all provisions of the standard
will have on our financial statements.
Approximately 5% of our store leases and all of our
land leases are not currently recorded on our balance
sheet. Recording right of use assets and liabilities for
these and other non-store leases is expected to have
a material impact on our balance sheet. We are also
evaluating the impact that recording right of use assets
and liabilities will have on our income statement and
the financial statement impact that the standard will
have on leases which are currently recorded on our
balance sheet.
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2. Impairments, Store Closing and Other Costs
During 2016, we closed 18 underperforming stores and recorded the following costs related to the store
closures and the organizational realignment at our corporate office:
(Dollars in Millions)
Store leases:
Record future obligations
Write-off net obligations
Impairments:
Software licenses
Buildings and other store assets
Severance and other
Impairments, store closing and other costs
$ 114
(21)
23
53
17
$ 186
The store lease future obligation charge represents the discounted value of rents and other lease liabilities
under non-cancelable lease terms and will be paid over the next 13 years. All of the severance will be paid out
within two years. The remaining charge is primarily non-cash write-offs of assets and liabilities that were previously
recorded on our Balance Sheet.
The following table summarizes changes in the store closure and restructure reserve during 2016:
(Dollars in Millions)
Charges
Payments
Store Lease
Obligations
$
114 $
(11)
103 $
Severance
Total
15
(12)
3 $
129
(23)
106
Balance at end of year
$
3. Debt
Long-term debt includes the following unsecured senior debt as of January 28, 2017 and January 30, 2016:
Maturity
(Dollars in Millions)
2021
2023
2023
2025
2029
2033
2037
2045
Effective
Rate
4.81%
3.25%
4.78%
4.25%
7.36%
6.05%
6.89%
5.57%
4.88%
Coupon
Rate
4.00%
3.25%
4.75%
4.25%
7.25%
6.00%
6.88%
5.55%
Outstanding
$ 650
350
300
650
99
166
150
450
2,815
$
Long-term debt is net of unamortized debt discounts and deferred financing costs of $20 million at January 28,
2017 and $23 million at January 30, 2016.
Our long-term debt is classified as Level 1, financial instruments with unadjusted, quoted prices listed on active
market exchanges. The estimated fair value of our long-term debt was $2.7 billion at January 28, 2017 and $2.8
billion at January 30, 2016.
During 2015, we completed a cash tender offer and redemption for $1,085 million of senior unsecured debt.
We recognized a $169 million loss on extinguishment of debt which included a $163 million bond tender premium
F-14
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
paid to holders of the debt and a $6 million non-cash write-off of deferred financing costs and original issue
discounts associated with the extinguished debt.
3. Debt (continued)
We have various facilities upon which we may draw funds, including a 5-year, $1 billion senior unsecured
revolving credit facility which matures in June 2020.
Our various debt agreements contain covenants including limitations on additional indebtedness and certain
financial tests. As of January 28, 2017, we were in compliance with all covenants of the various debt agreements.
We also have outstanding trade letters of credit and stand-by letters of credit totaling approximately $54
million at January 28, 2017, issued under uncommitted lines with two banks.
4. Lease Commitments
Rent expense charged to operations was $276 million for 2016, $279 million for 2015, and $277 million for
2014. In addition to rent payments, we are often required to pay real estate taxes, insurance and maintenance costs
on leased properties. These items are not included in the future minimum lease payments listed below. Many store
leases include multiple renewal options, exercisable at our option, that generally range from four to eight additional
five-year periods.
Future minimum lease payments at January 28, 2017 were as follows:
(Dollars in Millions)
Fiscal year:
2017
2018
2019
2020
2021
Thereafter
Capital Lease
and Financing
Obligations
Operating
Leases
$
286 $
253
254
249
245
241
4,067
5,309
272
255
238
222
2,372
3,645 $
471
(2,300)
1,816
Non-cash gain on future sale of property
Amount representing interest
Present value of lease payments
$
5. Benefit Plans
We have a defined contribution savings plan covering all full-time and certain part-time associates. Participants
in this plan may invest up to 100% of their base compensation, subject to certain statutory limits. We match 100% of
the first 5% of each participant’s contribution, subject to certain statutory limits.
We also offer a non-qualified deferred compensation plan to a group of executives which provides for pre-tax
compensation deferrals up to 100% of salary and/or bonus. Deferrals and credited investment returns are 100%
vested.
The total costs for these benefit plans were $47 million for 2016, $49 million for 2015, and $43 million for 2014.
F-15
Table of Contents
6. Income Taxes
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred income taxes consist of the following:
(Dollars in Millions)
Deferred tax liabilities:
Property and equipment
Merchandise inventories
Total deferred tax liabilities
Deferred tax assets:
Capital lease and financing obligations
Accrued and other liabilities, including stock-based compensation
Accrued step rent liability
Federal benefit on state tax reserves
Unrealized loss on interest rate swap
Merchandise inventories
Total deferred tax assets
Net deferred tax liability
Jan 28,
2017
Jan 30,
2016
$ 1,226 $ 1,319
—
95
1,321
1,319
711
194
111
47
9
—
752
151
106
45
11
24
1,072
1,089
$
249 $
230
Deferred tax assets included in other long-term assets totaled $23 million as of January 28, 2017 and $27
million as of January 30, 2016.
The components of the provision for income taxes were as follows:
(Dollars in Millions)
Current federal
Current state
Deferred federal
Deferred state
Provision for income taxes
2016
2015
2014
$
$
272 $
25
16
6
319 $
397 $
400
34
(35)
(12)
36
48
(2)
384 $
482
Our effective tax rate differs from the amount that would be provided by applying the federal statutory tax rate
due to the following items:
Federal statutory rate
State income taxes, net of federal tax benefit
Other federal tax credits
Effective tax rate
2015
2014
2016
35.0% 35.0% 35.0%
2.1
1.3
2.4
(0.8)
(0.9)
36.5% 36.3% 35.7%
(0.6)
We have analyzed filing positions in all of the federal and state jurisdictions where we are required to file
income tax returns, as well as all open tax years in these jurisdictions. The only federal returns subject to
examination are for the 2009 through 2016 tax years. State returns subject to examination vary depending upon the
state. Generally, the 2013 through 2016 tax years are subject to state examination. The earliest open period is
2005. Certain states have proposed adjustments which we are currently appealing. If we do not prevail on our
appeals, we do not anticipate that the adjustments would result in a material change in our financial position.
F-16
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6. Income Taxes (continued)
A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows:
(Dollars in Millions)
Balance at beginning of year
Increases due to:
Tax positions taken in prior years
Tax positions taken in current year
Decreases due to:
Tax positions taken in prior years
Settlements with taxing authorities
Lapse of applicable statute of limitations
Balance at end of year
2016
2015
$ 139 $ 123
3
15
—
(6)
16
19
(6)
(10)
(2)
(3)
$ 149 $ 139
Not included in the unrecognized tax benefits reconciliation above are gross unrecognized accrued interest
and penalties of $29 million at January 28, 2017 and $23 million at January 30, 2016. We had $6 million in interest
and penalty expense for 2016, none for 2015, and $2 million for 2014.
Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $110 million as
of January 28, 2017 and $101 million as of January 30, 2016. It is reasonably possible that our unrecognized tax
positions may change within the next 12 months, primarily as a result of ongoing audits. While it is possible that one
or more of these examinations may be resolved in the next year, it is not anticipated that a significant impact to the
unrecognized tax benefit balance will occur.
We have both payables and receivables for current income taxes recorded on our Balance Sheet. Receivables
included in other current assets totaled $27 million as of January 28, 2017 and $26 million as of January 30, 2016.
7. Stock-Based Compensation
We currently grant share-based compensation pursuant to the Kohl’s Corporation 2010 Long-Term
Compensation Plan, which provides for the granting of various forms of equity-based awards, including nonvested
stock, performance share units and options to purchase shares of our common stock, to officers, key employees
and directors. As of January 28, 2017, there were 18.5 million shares authorized and 7.3 million shares available for
grant under the 2010 Long-Term Compensation Plan. Options and nonvested stock that are surrendered or
terminated without issuance of shares are available for future grants. We also have outstanding options which were
granted under previous compensation plans.
Annual grants are typically made in the first quarter of the fiscal year. Grants to newly-hired and promoted
employees and other discretionary grants are made periodically throughout the remainder of the year.
Stock Options
The majority of stock options granted to employees vest in five equal annual installments. Outstanding options
granted to employees after 2005 have a term of seven years. Outstanding options granted to employees prior to
2006 have a term of up to 15 years. Outstanding options granted to directors have a term of 10 years.
All stock options have an exercise price equal to the fair market value of the common stock on the date of
grant. The fair value of each option award was estimated using a Black-Scholes option valuation model. The
weighted average fair value of options granted in 2014 was $12.23.
F-17
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
7. Stock-Based Compensation (continued)
The following table summarizes our stock option activity:
2016
2015
2014
(Shares in Thousands)
Balance at beginning of year
Granted
Exercised
Forfeited/expired
Balance at end of year
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
Shares
Weighted
Average
Exercise
Price
Shares
11,375 $ 56.05
3,076 $ 52.65
—
—
(410)
(316)
55.39
2,350 $ 53.29
46.86
6,211 $ 52.95
—
—
186
(2,815)
(320)
52.79
57.36
(2,647)
(2,703)
54.69
46.87
72.21
3,076 $ 52.65
6,211 $ 52.95
The intrinsic value of options exercised represents the excess of our stock price at the time the option was
exercised over the exercise price and was $2 million in 2016, $52 million in 2015 and $30 million in 2014.
Additional information related to stock options outstanding and exercisable at January 28, 2017, segregated
by exercise price range, is summarized below:
(Shares in Thousands)
Stock Options Outstanding
Stock Options Exercisable
Range of Exercise Prices
$ 41.08 – $ 50.00
$ 50.01 – $ 60.00
$ 60.01 – $ 77.62
Balance at end of year
Weighted
Average
Remaining
Contractual
Life (in
years)
Weighted
Average
Exercise
Price
2.4 $ 47.76
53.26
1.6
66.56
0.3
1.7 $ 53.29
Shares
831
1,170
349
2,350
Shares
623
1,026
349
1,998
Weighted
Average
Remaining
Contractual
Life (in
years)
Weighted
Average
Exercise
Price
2.3 $ 47.79
1.3
0.3
53.25
66.56
1.4 $ 53.88
All of our outstanding or exercisable stock options had exercise prices in excess of our stock price on January
28, 2017 ($39.00).
Nonvested Stock Awards
We have also awarded shares of nonvested common stock to eligible key employees and to our Board of
Directors. Substantially all awards have restriction periods tied primarily to employment and/or service. Employee
awards generally vest over five years. Director awards vest over the term to which the director was elected,
generally one year. In lieu of cash dividends, holders of nonvested stock awards are granted restricted stock
equivalents which vest consistently with the underlying nonvested stock awards.
The fair value of nonvested stock awards is the closing price of our common stock on the date of grant. We
may acquire shares from employees in lieu of amounts required to satisfy minimum tax withholding requirements
upon the vesting of the employee’s unvested stock award. Such shares are then designated as treasury shares.
F-18
Table of Contents
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
7. Stock-Based Compensation (continued)
The following table summarizes nonvested stock activity, including restricted stock equivalents issued in lieu of
cash dividends:
(Shares in Thousands)
Balance at beginning of year
Granted
Vested
Forfeited
Balance at end of year
2016
2015
2014
Weighted
Average
Grant
Date Fair
Value
Shares
2,211 $ 57.37
46.61
1,128
(935)
55.54
55.54
(241)
2,163 $ 52.75
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Grant
Date Fair
Value
Shares
Shares
2,431 $ 52.29
955
65.02
(957)
52.61
(218)
55.16
2,211 $ 57.37
2,653 $ 50.56
910
56.13
(818)
50.69
51.47
(314)
2,431 $ 52.29
The aggregate fair value of awards at the time of vesting was $52 million in 2016, $50 million in 2015 and $41
million in 2014.
Performance Share Units
We grant performance-based restricted stock units ("performance share units") to certain executives. The
performance measurement period for these performance share units is three fiscal years. The fair market value of
the grants are determined using a Monte-Carlo valuation on the date of grant.
The actual number of shares which will be earned at the end of the three-year vesting periods will vary based
on our cumulative financial performance over the vesting periods. The number of performance share units earned
will be modified up or down based on Kohl’s Relative Total Shareholder Return against a defined peer group during
the vesting periods. The payouts, if earned, will be settled in Kohl's common stock after the end of each multi-year
performance periods.
The following table summarizes performance share unit activity by year of grant:
(Shares in Thousands)
Balance at beginning of year
Granted
Vested
Forfeited
Balance at end of year
Other Required Disclosures
2016
2015
2014
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Grant
Date Fair
Value
Shares
Weighted
Average
Grant
Date Fair
Value
Shares
Shares
357 $ 63.58
47.89
309
—
—
(154)
59.74
512 $ 57.82
221 $ 56.76
70.50
177
—
—
(41)
56.71
357 $ 63.58
300 $ 55.33
60.76
18
50.72
(34)
(63)
54.41
221 $ 56.76
Stock-based compensation expense, other than that included in Impairments, store closing and other costs, is
included in Selling, General and Administrative Expenses in our Consolidated Statements of Income. Stock-based
compensation expense totaled $44 million for 2016 and $48 million for both 2015 and 2014. At January 28, 2017,
we had approximately $79 million of unrecognized share-based compensation expense, which is expected to be
recognized over a weighted-average period of 2 years.
F-19
Table of Contents
8. Contingencies
KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At any time, we may be subject to investigations, legal proceedings, or claims related to the on-going operation
of our business, including claims both by and against us. Such proceedings typically involve claims related to
various forms of liability, contract disputes, allegations of violations of laws or regulations or other actions brought by
us or others including our employees, consumers, competitors, suppliers or governmental agencies. We routinely
assess the likelihood of any adverse outcomes related to these matters on a case by case basis, as well as the
potential ranges of losses and fees. We establish accruals for our potential exposure, as appropriate, for significant
claims against us when losses become probable and reasonably estimable. Where we are able to reasonably
estimate a range of potential losses relating to significant matters, we record the amount within that range that
constitutes our best estimate. We also disclose the nature of and range of loss for claims against us when losses
are reasonably possible and material. These accruals and disclosures are determined based on the facts and
circumstances related to the individual cases and require estimates and judgments regarding the interpretation of
facts and laws, as well as the effectiveness of strategies or other factors beyond our control.
9. Quarterly Financial Information (Unaudited)
(Dollars in Millions, Except per Share Data)
Net sales
Gross margin
Selling, general and administrative expenses
Impairments, store closing and other costs
Net income
Basic shares
Basic net income per share
Diluted shares
Diluted net income per share
(Dollars in Millions, Except per Share Data)
Net sales
Gross margin
Selling, general and administrative expenses
Loss on extinguishment of debt
Net income
Basic shares
Basic net income per share
Diluted shares
Diluted net income per share
2016
First
Second
Third
Fourth
$ 3,972 $ 4,182 $ 4,327 $ 6,205
$ 1,412 $ 1,650 $ 1,607 $ 2,072
$ 1,008 $
986 $ 1,080 $ 1,360
$
$
$
$
64 $
17 $
183
128 $
140 $
180
(6)
146 $
177
0.09 $
0.77 $
0.83 $
184
181
177
0.09 $
0.77 $
0.83 $
—
252
174
1.45
175
1.44
2015
First
Second
Third
Fourth
$ 4,123 $ 4,267 $ 4,427 $ 6,387
$ 1,523 $ 1,662 $ 1,643 $ 2,112
$ 1,016 $ 1,005 $ 1,099 $ 1,332
— $
127 $
200
131 $
130 $
196
38
120 $
191
0.64 $
0.66 $
0.63 $
202
197
192
0.63 $
0.66 $
0.63 $
—
296
187
1.58
187
1.58
$
$
$
Due to changes in stock prices during the year and timing of share repurchases and issuances, the sum of
quarterly net income per share may not equal the annual net income per share.
F-20
Exhibit 10.16
OUTSIDE DIRECTOR COMPENSATION
Pursuant to our 2016 Non-Employee Director Compensation Program, directors who are not our
employees or employees of our subsidiaries receive an annual retainer fee of $100,000. The independent Lead
Director receives an additional retainer fee of $40,000. Chairpersons of the Compensation Committee and the Audit
Committee receive an additional $20,000 retainer fee, and the Chairperson of the Governance & Nominating
Committee receives an additional $15,000 retainer fee. Non-employee directors also receive retainer fees for
membership on the Board of Directors’ standing committees and Executive Committee. Committee member
retainers are $5,000 for Governance & Nominating Committee members, $10,000 for Compensation Committee
members and $15,000 for Audit Committee and Executive Committee members. Directors receive no additional
compensation for participation in Board of Directors’ or committee meetings. Directors are, however, reimbursed for
travel and other expenses related to attendance at these meetings as well as travel and other expenses related to
attendance at educational seminars approved in advance by the Governance & Nominating Committee.
Equity awards are granted to non-employee Directors from time to time pursuant to our 2010 Long Term
Compensation Plan. These grants are typically made following a Director’s initial election to the Board and each
time the Director is re-elected by the shareholders to serve a new term. The annual awards, which are comprised of
restricted shares, typically have a “grant date fair value” of approximately $110,000, calculated in accordance with
FASB ASC Topic 718. The restricted shares vest on the first anniversary of the date of grant.
Exhibit 10.19(b)
AGREEMENT DATED AS OF NOVEMBER 9, 2016 BY AND BETWEEN KOHL'S DEPARTMENT
STORES, INC., KOHL'S CORPORATION AND WESLEY S. MCDONALD
THIS LETTER AGREEMENT (the “Letter Agreement”) shall serve to memorialize our agreements with
respect to the terms of your retirement and as an amendment of certain specific terms of the June 10, 2015
Amended and Restated Employment Agreement (the “Employment Agreement”) between you and Kohl’s
Department Stores, Inc. and Kohl’s Corporation (collectively referred to as “Company”). In the event of any conflict
between this Letter Agreement and the Employment Agreement, this Letter Agreement shall control.
1. Retirement on Transition Date.
Pursuant to your request, we have agreed that you will retire from full-time day to day service as Company’s
Chief Financial Officer (“CFO”) on a future date which shall be mutually agreed upon, but no later than July 1, 2017
(such date as agreed upon is referred to in this Letter Agreement as the “Transition Date”). Except as expressly set
forth in this Letter Agreement, you formally resign from all offices, positions, titles and capacities you now hold or
have held with Company and its affiliates, effective on the Transition Date. Company hereby accepts this
resignation. You acknowledge and agree that, provided you do not voluntarily terminate your employment with
Company or Company does not terminate your employment for Cause (as defined in the Employment Agreement)
prior to the Transition Date, (1) your retirement shall be considered a “Termination by Resignation” pursuant to
Section 3.1(e) of the Employment Agreement and (2) for purposes of Company’s nonqualified deferred
compensation plans, the Transition Date shall be the date of your “separation from service” as determined under
Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”). From the date of this Letter
Agreement until the Transition Date, you will continue in your current capacity as Chief Financial Officer and an
Executive Officer, managing the business and your team in a “business as usual” manner. As of the date of this
Letter Agreement, you agree and acknowledge that the terms of this Letter Agreement supersede and replace any
rights you may have upon a termination of employment under Section 3.2 of your Employment Agreement and as of
the Transition Date, the term of your employment as CFO under the Employment Agreement shall expire.
2. Transition Period.
Notwithstanding the expiration of your term of employment as CFO under the Employment Agreement on
the Transition Date, for a period of one (1) year beyond the Transition Date (the “Transition Period”) you will
continue to be an employee of Company as a non-executive Senior Advisor. During the Transition Period, you
agree to be available for reasonable periods of time to provide transitional assistance or to work on special projects,
all at the discretion of the Chief Executive Officer of Company. For as long as you provide such assistance and
work on special projects as requested during the Transition Period, you will continue to earn and receive your
current level of salary and benefits during the Transition Period, except as otherwise provided in this Letter
Agreement. To the extent you provide the services requested during the Transition Period, you will be eligible for
full, non-prorated participation in the Fiscal 2016 and 2017 Annual Incentive Plans. You will not be eligible to
participate in the Annual Incentive Plan for Fiscal 2018 or for any year thereafter. Except as otherwise provided in
this Letter Agreement, you will continue to be treated as an employee for purposes of all of Company’s benefit plans
during the Transition Period except for Company’s nonqualified deferred compensation plans. At the end of the
Transition Period your employment with Company will end and you will be entitled to no further compensation or
benefits but for those provided by this Letter Agreement. At the end of the Transition Period or, if earlier, upon
request by Company, you agree to immediately return to Company all documents, records, and materials belonging
and/or relating to Company, and all copies of all such materials. At the end of the Transition Period, or if earlier,
upon request Company, you further agree to destroy such records maintained by you on your own computer
equipment.
3. Equity Awards.
From the date of this Letter Agreement, you will no longer be eligible for any equity awards such as stock
options, performance share units or restricted shares under Company’s Long-Term Compensation Plans. Provided
you remain employed until the Transition Date in accordance with Paragraph 1 above and that you provide the
services requested during the Transition Period in accordance with Paragraph 2 above, Company will treat your
retirement as an “early retirement” for purposes of all of your outstanding stock options and as an “retirement” for
Exhibit 10.19(b)
purposes of all of your outstanding performance share units held by you on the Transition Date, where the last day
of your employment and your retirement date for purposes of those awards will be the last date of the Transition
Period. In addition, provided that you remain employed until the Transition Date in accordance with Paragraph 1
above, any of your restricted shares that are scheduled to vest during the Transition Period shall immediately vest
on the Transition Date. From the date of this Letter Agreement until the Transition Date, any provisions in your
restricted share award agreements and the Long Term Incentive Plans regarding accelerated vesting in the event of
a termination of your employment by Company without cause or by you for good reason or in the event of a change
of control of Company shall not apply to your outstanding restricted shares.
In the event of your death or Disability or in the event of a Change of Control (all terms as defined in the
Long-Term Compensation Plans or applicable award agreements) during the Transition Period, no accelerated
vesting under any awards shall occur as a result of any such event and instead, the vesting that would apply in the
event you had continued to perform services during the Transition Period will apply to such awards (i.e., as a
retirement). Except as otherwise provided in this Paragraph 3, all other terms and conditions of your equity awards
under Company’s Long-Term Compensation Plans shall be as provided in the applicable award agreements.
4. Health Insurance Benefits.
Provided you remain employed until the Transition Date in accordance with Paragraph 1 above and that you
provide the services requested during the Transition Period in accordance with Paragraph 2 above, for an unlimited
period of time following the Transition Period you may continue to participate in Company’s executive health
insurance program and supplemental executive medical plan, as provided to Company’s executives from time to
time (the “Health Insurance Benefits”). In the event of your death, the Health Insurance Benefits shall continue to
be available to your eligible dependents, in each case for as long as each individual would have continued to qualify
as an eligible dependent under the terms of the applicable insurance and medical plans had you been living.
Company’s responsibility to provide the Health Insurance Benefits described in the preceding paragraph
shall at all times be contingent upon:
(1)
(2)
The Health Insurance Benefits being reasonably available to Company with respect to you and your
eligible dependents, as the case may be; and
You or your eligible dependents, as the case may be, shall reimburse Company for all premiums
paid for the Health Insurance Benefits, as determined by Company in good faith from time to time.
Company shall provide a quarterly invoice for such reimbursement. The current premium for your
Health Insurance Benefits is $1,208.51 per month.
Company’s responsibility to provide the Health Insurance Benefits described in this Letter Agreement will
cease forever on the date on which you first become eligible for health insurance coverage under another
employer’s group health insurance plan. You shall inform Company in writing within five (5) calendar days of your
becoming eligible for such coverage.
In no event will the Health Insurance Benefits in one taxable year affect the amount of Health Insurance
Benefits to be provided in any other taxable year, nor will your right to Health Insurance Benefits be subject to
liquidation or exchange for another benefit.
5. Release of Claims.
(1)
In exchange for the benefits provided to you upon execution of this Letter Agreement and
throughout the Transition Period, which you acknowledge are greater in their totality than those which you would
receive absent this Letter Agreement, you agree, on behalf of yourself, your heirs, successors and assigns, to
release Company, its parents, subsidiaries, affiliates, and related entities and their respective past and present
officers, directors, stockholders, managers, members, partners, agents, and employees (“Released Parties”), from
any claims arising on or before the date you sign this Letter Agreement. This release includes, but is not limited to,
giving up any claims related in any way to your employment by Company, your resignation and transition of
employment with Company and wages and other remuneration, including, but not limited to, any current or former
severance, bonus or other incentive plans or programs offered by Company, except as explicitly provided for in this
Exhibit 10.19(b)
Letter Agreement. This release of claims includes any claims, whether they are presently known or unknown, or
anticipated or unanticipated by you, and includes, but is not limited to, all matters in law, in equity, in contract, or in
tort, or pursuant to statute, including damages, attorneys’ fees, costs, and expenses, and, without limiting the
generality of the foregoing, all claims arising under Title VII of the Civil Rights Act, the Americans with Disabilities
Act, the Age Discrimination in Employment Act, the Family and Medical Leave Act, the Worker Adjustment and
Retraining Notification Act, the Equal Pay Act, the Employee Retirement Income Security Act (with respect to
unvested benefits), the Civil Rights Act of 1991, the Wisconsin Fair Employment Act, the Wisconsin Wage Claim
and Payment Law, the Wisconsin Cessation of Health Care Benefits Law, the Wisconsin Family and Medical Leave
Law, the Wisconsin Personnel Records Statute, the Wisconsin Employment Peace Act, all as amended, or any
other federal, state or local law, statute or ordinance affecting your employment with or transition from employment
with Company.
However, this release of claims does not apply to any claims that may arise after the date you execute this
Letter Agreement, nor does this release of claims apply to or affect any claim that controlling law clearly states may
not be released, including by settlement. This general release does not apply to any vested rights that you may have
in Company’s 401(k) plan. Likewise, this release shall not prevent, restrict or in any way limit your right to file a charge
or complaint with a government agency (including, without limitation, the Equal Employment Opportunity Commission
or the Securities and Exchange Commission) or participate in an investigation or proceeding initiated or conducted by
a government agency; provided, however, this release of claims does prevent you from making any personal recovery
against Company or the Released Parties, including the recovery of money damages, as a result of filing a charge or
complaint with a government agency against Company and/or any of the Released Parties.
(2)
In exchange for the benefits provided to you under this Letter Agreement at the completion of and
following the Transition Period, which you acknowledge are greater in their totality than those which you would
receive absent this Letter Agreement, you agree to sign and return the Complete and Permanent Release
(“Release”) which is attached hereto as Exhibit A; provided, however, that you may not sign the Release until after
the last day of the Transition Period, and the signed Release must be delivered to Company on or before the
twenty-one (21st) day following the last day of the Transition Period. You acknowledge and agree that upon your
failure to sign and return the Release to Company in a timely manner or your revocation of the Release as specified
in Exhibit A, Company’s obligation to furnish the benefits provided to you under this Letter Agreement at the
completion of and following the Transition Period, will automatically be terminated.
6. Confidentiality. You acknowledge and agree that, as an integral part of its business, Company has expended a
great deal of time, money and effort to develop and maintain confidential, proprietary and trade secret information to
compete against similar businesses and that this information, if misused or disclosed, would be harmful to
Company’s business and competitive position in the marketplace. You further acknowledge and agree that in your
position with Company, Company provided and continues to provide you with access to its confidential, proprietary
and trade secret information, strategies and other confidential business information that would be of considerable
value to competitive businesses. As a result, you acknowledge and agree that the following restrictions contained in
this Paragraph 6 are reasonable, appropriate and necessary for the protection of Company’s confidential,
proprietary and trade secret information. For purposes of this Paragraph 6, the term “Company” means Kohl’s
Department Stores, Inc. and its parent companies, subsidiaries and other affiliates.
(1)
From the date you sign this Letter Agreement and thereafter, you will not directly or
indirectly use or disclose any Trade Secrets. The term “Trade Secret” shall have that meaning set forth
under applicable law. This term is deemed by the Company to specifically include all of Company’s
computer source, object or other code and confidential information received from a third party with whom
the Company has a binding agreement restricting disclosure of such confidential information. Nothing in this
Letter Agreement shall limit or supersede any common law, statutory or other protections of trade secrets
where such protections provide Company with greater rights or protections for a longer duration than
provided in this Letter Agreement. With respect to the disclosure of a Trade Secret and in accordance with
18 U.S.C. § 1833, you shall not be held criminally or civilly liable under any federal or state trade secret law
for the disclosure of a Trade Secret that: (i) is made in confidence to a federal, state, or local government
official, either directly or indirectly, or to an attorney, provided that, the information is disclosed solely for the
purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other
Exhibit 10.19(b)
document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to the public. You
are further notified that if you file a lawsuit for retaliation by Company for reporting a suspected violation of
law, you may disclose Company’s Trade Secrets to your attorney and use the Trade Secret information in
the court proceeding, provided that, you file any document containing the Trade Secret under seal so that it
is not disclosed to the public, and does not disclose the Trade Secret, except pursuant to court order.
(2)
From the date you sign this Letter Agreement through the Transition Period and for a period
of two (2) years following the end of the Transition Period, you will not directly or indirectly use or disclose
any Confidential Information, unless such information ceases to be deemed Confidential Information by
means of one of the exclusions set forth below. The term “Confidential Information” shall mean all non-
Trade Secret information of, about or related to Company, whether created by, for or provided to Company,
which is not known to the public or Company’s competitors, generally, including, but not limited to strategic
growth plans, pricing policies and strategies, employment records and policies, operational methods,
marketing plans and strategies, advertising plans and strategies, product development techniques and
plans, business acquisition and divestiture plans, resources, sources of supply, suppliers and supplier
contractual relationships and terms, technical processes, designs, inventions, research programs and
results, source code, short-term and long-range planning, projections, information systems, sales objectives
and performance, profit and profit margins, and seasonal plans, goals and objectives. Notwithstanding the
foregoing, the terms “Trade Secret” and “Confidential Information” shall not include, and the obligations set
forth in this Paragraph 6 shall not apply to, any information which: (i) can be demonstrated by you to have
been known by you prior to your employment by Company; (ii) is or becomes generally available to the
public through no act or omission on your part; (iii) is obtained by you in good faith from a third party who
discloses such information to you on a non-confidential basis without violating any obligation of
confidentiality or secrecy relating to the information disclosed; or (iv) is independently developed by you
outside the scope of your employment without use of Confidential Information or Trade Secrets.
This Paragraph 6 shall supersede and replace Article IV of the Employment Agreement.
7. Restricted Services. You acknowledge and agree that Company is one of the leading retail companies in the
United States, with department stores throughout the United States, and that Company compensated and continues
to compensate executives like you to, among other things, develop and maintain valuable goodwill and relationships
on Company’s behalf (including relationships with customers, suppliers, vendors, employees and other associates)
and to maintain business information for Company’s exclusive ownership and use. As a result, you acknowledge
and agree that the restrictions contained in this Paragraph 7 are reasonable, appropriate and necessary for the
protection of Company’s goodwill, customer, supplier, vendor, employee and other associate relationships and
Confidential Information and Trade Secrets. You further acknowledge and agree that the restrictions contained in
this Paragraph 7 will not pose an undue hardship on you or your ability to find gainful employment. For purposes of
this Paragraph 7, the term “Company” means Kohl’s Department Stores, Inc. and its parent companies, subsidiaries
and other affiliates.
From the date you sign this Letter Agreement through the Transition Period and for the one (1) year period
following the end of the Transition Period, you will not, directly or indirectly, provide Restricted Services (defined
below) to or on behalf of any Competitive Business (defined below) or directly or indirectly, provide any Competitive
Business with any advice or counsel in the nature of Restricted Services. The term “Restricted Services” shall
mean services of any kind or character comparable to those you provided to Company during the eighteen (18)
month period immediately preceding the date you sign this Letter Agreement. The term “Competitive Business”
means Amazon.com, Inc., Belk, Inc., Bon-Ton Stores, Inc., Burlington Stores, Inc., Dillard’s, Inc., J.C. Penney
Company, Inc., Macy’s, Inc., Nordstrom Co., Ross Stores, Inc., Sears Holdings Corporation, Stage Stores, Inc.,
Target Corporation, The Gap, Inc., The TJX Companies, Inc. and Walmart Stores, Inc., including any successors,
subsidiaries or affiliates of such entities.
This Paragraph 7 shall supersede and replace Article V of the Employment Agreement.
8. Business Ideas and Non-Disparagement.
Exhibit 10.19(b)
You shall immediately disclose to Company a list of all inventions, patents, applications for patent,
(1)
copyrights, and applications for copyright in which you currently hold an interest. Company will own, and you
hereby assign to Company, all rights in all Business Ideas. All Business Ideas which are or form the basis for
copyrightable works shall be considered “works for hire” as that term is defined by United States Copyright Law.
Any works that are not found to be “works for hire” are hereby assigned to Company. From the date you sign this
Letter Agreement through the Transition Period and for one (1) year following the end of the Transition Period, you
will promptly disclose all Business Ideas to Company and execute all documents which Company may reasonably
require to perfect its patent, copyright and other rights to such Business Ideas throughout the world. You will
cooperate with Company to assist Company in perfecting its rights to any Business Ideas including executing all
documents which Company may reasonably require. For purposes of this Paragraph 8, the term “Company” means
Kohl’s Department Stores, Inc. and its parent companies, subsidiaries and other affiliates. The term “Business
Ideas” means all ideas, inventions, data, software, developments and copyrightable works, whether or not
patentable or registrable, which you originate, discover or develop, either alone or jointly with others while you are
employed by Company and for one (1) year thereafter and which are: (i) related to any business known by you to be
engaged in or contem-plated by Company; (ii) originated, discovered or developed during your working hours during
your employment with Company; or (iii) originated, discovered or developed in whole or in part using materials,
labor, facilities, Confidential Information, Trade Secrets, or equipment furnished by Company.
You agree not to engage at any time in any form of conduct or make any statements or representations, or
(2)
direct any other person or entity to engage in any conduct or make any statements or representations, that
disparage, criticize or otherwise impair the reputation of Company, its affiliates, parents and subsidiaries and their
respective past and present officers, directors, stockholders, partners, members, agents and employees. Company
agrees not to engage at any time in any form of conduct or make any statements or representations, or direct any
other person or entity to engage in any conduct or make any statements or representations, that disparage, criticize
or otherwise impair your reputation. Nothing contained in this Paragraph 8 shall preclude either party or their
representatives from providing truthful testimony or statements pursuant to subpoena or other legal process or in
response to inquiries from any government agency or entity.
This Paragraph 8 shall supersede and replace Article VI of the Employment Agreement.
9. Employee Non-Solicitation. From the date you sign this Letter Agreement through the Transition Period and
for a period of one (1) year following the end of the Transition Period, you shall not directly or indirectly encourage
any Company employee to terminate his/her employment with Company unless you do so in the course of
performing your duties for Company and such encouragement is in Company’s best interests. For purposes of this
Paragraph 9, the term “Company” means Kohl’s Department Stores, Inc. and its parent companies, subsidiaries and
other affiliates. This Paragraph 9 shall supersede and replace Article VII of the Employment Agreement.
10. General Provisions.
10.1 Consistency With Applicable Law. You acknowledge and agree that nothing in this Agreement prohibits
you from reporting possible violations of law to any governmental agency or entity or making other disclosures that
are protected under the whistleblower provisions of federal, state or local laws or regulations.
Severability. The obligations imposed by, and the provisions of, this Letter Agreement are severable and
10.2
should be construed independently of each other. If any court of competent jurisdiction determines that any
provision of this Letter Agreement is invalid or unenforceable, then such invalidity or unenforceability shall have no
effect on the other provisions hereof, which shall remain valid, binding and enforceable and in full force and effect,
and such invalid or unenforceable provision shall not affect the validity of any other provision.
10.3 Assignability. This Letter Agreement and the rights and duties set forth herein may not be assigned by
you, but may be assigned by Company, in whole or in part. This Letter Agreement shall be binding on and inure to
the benefit of each party and such party’s respective heirs, legal representatives, successors and assigns.
10.4
covenant agreement between Company and you, you agree that Company may suspend all payments and benefits
Effect of Breach. In the event that you breach any provision of this Letter Agreement or any restrictive
to you as a result of this Letter Agreement, recover from you any damages suffered as a result of such breach and
recover from you any reasonable attorneys’ fees or costs it incurs as a result of such breach. In addition, you agree
that Company shall be entitled to injunctive or other equitable relief, without the necessity of posting bond, as a
result of a breach by you of any provision of this Letter Agreement.
10.5 Governing Law; Construction. This Letter Agreement shall be governed by the internal laws of the State
of Wisconsin, without regard to any rules of construction concerning the draftsman hereof.
Exhibit 10.19(b)
Please confirm your agreement with the foregoing by signing and returning to the Corporation a copy of this
letter.
KOHL’S DEPARTMENT STORES, INC.
KOHL’S CORPORATION
By:
/s/ Kevin Mansell
Kevin Mansell
Chairman, President & Chief Executive Officer
Accepted and agreed to as of this 9th day of November, 2016.
By:
/s/ Wesley S. McDonald
Wesley S. McDonald
EXHIBIT A
COMPLETE AND PERMANENT RELEASE
* NOT VALID IF EXECUTED BEFORE COMPLETION OF TRANSITION PERIOD *
Exhibit 10.19(b)
Kohl’s Corporation and Kohl’s Department Stores, Inc. (collectively referred to as the “Company”) and Wesley
S. McDonald (“Executive”) are party to a Transition Letter Agreement, dated November 9, 2016 (“Letter Agreement”).
The Letter Agreement provides, in relevant part, that in consideration for the Company’s provision of benefits to
Executive at and after the end of the Transition Period (as defined in the Letter Agreement), Executive will execute
this Complete and Permanent Release (“Release”). In exchange for this consideration, the sufficiency of which
Executive acknowledges, Executive agrees as follows:
1.
Executive, on behalf of himself, his heirs, successors, and assigns, releases the Company,
its parents, subsidiaries, affiliates, and related entities and their respective past and present officers, directors,
stockholders, managers, members, partners, agents, and employees (“Released Parties”) from any and all
claims Executive may have against the Released Parties arising out of or relating to any act, omission, matter,
cause or event occurring prior to the date hereof.
2.
The claims released include, but are not limited to, those arising out of or relating in any way to
Executive’s employment with the Company, the Transition Period (as that term is defined in the Letter Agreement), the
conclusion of Executive’s employment, or any actions or inactions of the Company relating to Executive in any way,
including but not limited to, all matters in law, in equity, in contract, or in tort, or pursuant to statute, including damages,
attorneys’ fees, costs, and expenses, and, without limiting the generality of the foregoing, all claims arising under Title
VII of the Civil Rights Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Worker Adjustment
and Retraining Notification Act, the Equal Pay Act, the Employee Retirement Income Security Act (with respect to
unvested benefits), the Civil Rights Act of 1991, the Wisconsin Fair Employment Act, the Wisconsin Wage Claim and
Payment Law, the Wisconsin Cessation of Health Care Benefits Law, the Wisconsin Family and Medical Leave Law,
the Wisconsin Personnel Records Statute, the Wisconsin Employment Peace Act, all as amended, or any other federal,
state or local law, statute or ordinance affecting your employment with or transition from employment with Company.
Executive’s acceptance of this Release also will release any and all claims under the federal Age Discrimination in
Employment Act (“ADEA”).
3.
This Release applies both to claims that are now known or are later discovered. However, this Release
does not apply to any claims that may arise after the date Executive executes this Release, nor does this Release
apply to any claims that may not be released under applicable law. Likewise, this Release does not apply to or affect
claims for benefits under applicable worker’s compensation laws, or any claim that controlling law clearly states may
not be released, including by settlement. This Release does not apply to any vested rights that Executive may have
in the Company’s qualified retirement plan or benefits specifically provided for in the Letter Agreement. This Release
shall not limit or restrict Executive’s right under the ADEA to challenge the validity of this Release in a court of law and
such challenge shall not be considered a breach of this Release. By signing below, Executive acknowledges and
agrees that, as of the date Executive signs this Release, there are no pending complaints, charges, or lawsuits filed
by Executive against the Company or any of the Released Parties, and further acknowledges that Executive is the
sole and lawful owner of all rights, title, and interest in and to all matters released under this Release and that Executive
has not assigned or transferred (or purported to assign or transfer) any of such released matters to any person or
entity.
4.
Executive acknowledges that this Release shall not prevent, restrict or in any way limit Executive’s
right to file a charge or complaint with a government agency (including, without limitation, the Equal Employment
Opportunity Commission or the Securities and Exchange Commission (“SEC”)) or participate in an investigation or
proceeding initiated or conducted by a government agency; provided, however, this Release shall preclude Executive
from making any personal recovery against the Released Parties, including the recovery of money damages, as a
result of filing a charge or complaint with a government agency against any of the Released Parties. Notwithstanding
this Paragraph 4, nothing contained in this Release shall impede Executive’s ability to report possible federal securities
law violations to the SEC and other governmental agencies.
5.
As used in this Release, the term “claims” shall be construed broadly and shall be read to include, for
example, the terms “rights,” “causes of action (whether arising in law or equity),” “damages,” “demands,” “obligations,”
“grievances,” and “liabilities” of any kind or character. Similarly, the term “release” shall be construed broadly and shall
be read to include, for example, the terms “discharge” and “waive.”
Exhibit 10.19(b)
6.
The Company wishes to ensure that Executive voluntarily agrees to the terms contained in this Release
and does so only after Executive fully understands them. Accordingly, the following provisions shall apply:
(A)
Executive has been advised, and is hereby advised, to consult with an attorney of Executive’s
choosing before signing this Release;
(B)
Executive acknowledges and agrees that Executive has read this Release, understands its
contents, and may accept its terms by signing and dating it (which date shall be no earlier than the first day
after the end of the Transition Period), and returning the signed and dated Release, via mail, hand delivery,
or overnight delivery so that it is received by General Counsel, Kohl’s Department Stores, Inc., N56
W17000 Ridgewood Drive, Menomonee Falls, WI 53055 on or before 5:00 p.m. Central Time on the 21st
calendar day following the end of the Transition Period;
(C)
Executive understands that this Release includes a final general release, including a
release of all claims under the ADEA;
(D)
Executive understands that Executive has seven (7) calendar days after signing this
Release to revoke Executive’s acceptance of it (“Revocation Period”). Such revocation will not be effective
unless written notice of the revocation is received, via mail, hand delivery, or overnight delivery so that it is
received by General Counsel, Kohl’s Department Stores, Inc., N56 W17000 Ridgewood Drive, Menomonee
Falls, WI 53055, on or before 5:00 p.m. Central Time on the first workday following the end of the
Revocation Period; and
(E)
If Executive gives timely notice of revocation of this Release, it shall become null and void,
and all rights and claims of the parties which would have existed, but for the acceptance of this Release’s
terms, shall be restored.
7.
This Release shall be binding on the successors of the Company and Executive, is not
assignable by Executive, and is governed by Wisconsin law without regard to its principles of conflict of laws.
This Release and Executive’s entitlement to additional benefits under the Letter Agreement will not be effective until
Executive has signed and delivered this Release, as provided in Paragraph 6(B), above, and Executive has declined
to exercise Executive’s revocation rights within the Revocation Period.
I agree with and accept the terms contained in this
Release and agree to be bound by them.
Dated:
Wesley S. McDonald
KOHL'S CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
Exhibit 12.1
(Dollars in Millions)
Earnings
2016
2015
2014
Income before income taxes, including non-recurring items
Fixed charges
$
875 $ 1,057 $ 1,349
512
484
524
Less: Interest capitalized during period
Fixed charges
Interest (expensed or capitalized)
Portion of rent expense representative of interest
Amortization of deferred financing fees
Ratio of earnings to fixed charges
(1)
(2)
$ 1,358 $ 1,569 $ 1,871
0
$
309 $
329 $
173
2
181
2
$
484 $
2.8
512 $
3.1
342
180
2
524
3.6
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements (Form S-8 #333-26409, Form
S-8 #333-105264, Form S-8 #333-143086, Form S-8 #333-167338, and Form S-3 #333-205569) of Kohl’s
Corporation, of our reports dated March 17, 2017, 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-K) of Kohl’s Corporation for the year ended January 28, 2017.
Exhibit 23.1
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
March 17, 2017
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin Mansell, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Kohl's Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
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. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. 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
d. 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 (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
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 (or persons performing the equivalent functions):
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: March 17, 2017
/s/ Kevin Mansell
Kevin Mansell
Chairman, Chief Executive Officer and
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Wesley S. McDonald, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Kohl's Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
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. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. 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
d. 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 (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
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 (or persons performing the equivalent functions):
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: March 17, 2017
/s/ Wesley S. McDonald
Wesley S. McDonald
Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
Exhibit 32.1
CERTIFICATION OF PERIODIC REPORT
BY CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin Mansell, 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. This Annual Report on Form 10-K of the Company for the annual period ended January 28, 2017 (the
“Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. 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 17, 2017
/s/ Kevin Mansell
Kevin Mansell
Chairman, Chief Executive Officer and
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION OF PERIODIC REPORT
BY CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Wes S. McDonald, 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. This Annual Report on Form 10-K of the Company for the annual period ended January 28, 2017 (the
“Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. 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 17, 2017
/s/ Wesley S. McDonald
Wesley S. McDonald
Chief Financial Officer
(Principal Financial and Chief Accounting