Kohl’s
Annual Report 2018

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One) XAnnual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended February 2, 2019 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 1-11084KOHL’S CORPORATION(Exact name of registrant as specified in its charter) Wisconsin 39-1630919(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051(Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code (262) 703-7000Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $.01 Par Value New York Stock ExchangeSecurities 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 thepreceding 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 every Interactive Data File required to be submitted 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 such files). Yes X No .Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X .Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerginggrowth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X .At August 3, 2018, the aggregate market value of the voting stock of the Registrant held by stockholders who were not affiliates of the Registrant was approximately$12.1 billion (based upon the closing price of Registrant’s Common Stock on the New York Stock Exchange on such date). At March 13, 2019, the Registrant had outstandingan aggregate of 163,166,004 shares of its Common Stock.Documents Incorporated by Reference:Portions of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 15, 2019 are incorporated into Part III.Table of ContentsKOHL’S CORPORATIONINDEX PART I Item 1.Business3Item 1A.Risk Factors5Item 1B.Unresolved Staff Comments11Item 2.Properties11Item 3.Legal Proceedings12Item 4.Mine Safety Disclosures12Item 4A.Executive Officers12 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities14Item 6.Selected Consolidated Financial Data17Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations18Item 7A.Quantitative and Qualitative Disclosures About Market Risk33Item 8.Financial Statements and Supplementary Data34Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosures57Item 9A.Controls and Procedures57Item 9B.Other Information59 PART III Item 10.Directors, Executive Officers and Corporate Governance59Item 11.Executive Compensation59Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters59Item 13.Certain Relationships and Related Transactions, and Director Independence60Item 14.Principal Accounting Fees and Services60 PART IV Item 15.Exhibits and Financial Statement Schedules61Item 16.Form 10-K Summary63 SIGNATURES64 2 Table of Contents PART IItem 1. BusinessKohl’s Corporation (the “Company," “Kohl’s,” "we," "our" or "us") was organized in 1988 and is a Wisconsin corporation. As of February 2,2019, we operated 1,159 Kohl's department stores, a website (www.Kohls.com), 12 FILA outlets, and four Off-Aisle clearance centers. Our Kohl'sstores and website sell moderately-priced proprietary and national brand apparel, footwear, accessories, beauty and home products. Our Kohl'sstores generally carry a consistent merchandise assortment with some differences attributable to local preferences. Our website includesmerchandise that is available in our stores, as well as merchandise that is available only online. Our merchandise mix includes both national brands and proprietary brands that are available only at Kohl's. Our proprietary portfolio includeswell-known established private brands such as Apt. 9, Croft & Barrow, Jumping Beans, SO and Sonoma Goods for Life and exclusive brands thatare developed and marketed through agreements with nationally-recognized brands such as Food Network, LC Lauren Conrad, Elle and SimplyVera Vera Wang. National brands generally have higher selling prices, but lower gross margins, than proprietary 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 tofiscal years rather than to calendar years. The following fiscal periods are presented in this report. Fiscal YearEndedNumber ofWeeks 2018February 2, 2019 52 2017February 3, 2018 53 2016January 28, 2017 52 For discussion of our financial results, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results ofOperations."DistributionWe receive substantially all of our store merchandise at our nine retail distribution centers. A small amount of our merchandise is delivereddirectly 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. Digital sales may be picked up in our stores or are shipped from a Kohl’sfulfillment center, retail distribution center or store; by a third-party fulfillment center; or directly by a third-party vendor.3 Table of ContentsSee Item 2, “Properties,” for additional information about our distribution centers.EmployeesDuring 2018, we employed an average of approximately 129,000 associates, including approximately 34,000 full-time and 95,000 part-timeassociates. The number of associates varies during the year, peaking during the back-to-school and holiday seasons. None of our associates arerepresented by a collective bargaining unit. We believe our relations with our associates are very good.CompetitionThe retail industry is highly competitive. Management considers style, quality, price and convenience to be the most significant competitivefactors in the industry. Merchandise mix, brands, service, loyalty programs, credit availability, and customer experience and convenience are alsokey competitive factors. Our primary competitors are traditional department stores, 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 VendorsWe purchase merchandise from numerous domestic and foreign suppliers. All business partners must meet certain requirements to dobusiness 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. We expectthat all business partners will comply with these Terms of Engagement and quickly remediate any deficiencies, if noted, to maintain our businessrelationship.A third-party purchasing agent sources approximately 25% of the merchandise we sell. No vendors individually accounted for more than10% of our net purchases in 2018. We have no significant long-term purchase commitments or arrangements with any of our suppliers and believethat we are not dependent on any one supplier. We believe we have good working relationships with our suppliers.SeasonalityOur business, like that of most retailers, is subject to seasonal influences. The majority of our sales and income are typically realized duringthe second half of each fiscal year. The back-to-school season extends from August through September and represents approximately 15% of ourannual sales. Approximately 30% of our annual sales occur during the holiday season in the months of November and December. Because of theseasonality 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 MarksKOHL'S® is a registered trademark owned by one of our wholly-owned subsidiaries. We consider this mark and the accompanying goodwillto be valuable to our business. This subsidiary has over 200 additional registered trademarks, most of which are used in connection with ourprivate brand products.Available InformationOur corporate website is https://corporate.kohls.com. Through the “Investors” portion of this website, we make available, free of charge, ourproxy 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 anyamendments to those reports as soon as reasonably practicable after such material has been filed with, or furnished to, the Securities andExchange Commission (“SEC”).4 Table of ContentsThe 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 ReportThe information contained on our website is not part of this Annual Report on Form 10-K. Paper copies of any of the materials listed abovewill be provided without charge to any shareholder submitting a written request to our Investor Relations Department at N56 W17000 RidgewoodDrive, Menomonee Falls, Wisconsin 53051 or via e-mail to Investor.Relations@Kohls.com.Item 1A. Risk FactorsThis 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 identifyforward-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, plannedcapital expenditures, future business initiatives, and adequacy of capital resources and reserves. A number of important factors could cause ourresults 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, expenses and operating results could be negatively impacted by a number of factors including, but not limited tothose described below. Many of these risk factors are outside of our control. If we are not successful in managing these risks, they could have anegative impact on our sales, gross margin, expenses, and/or operating results.Macroeconomic and Industry RisksGeneral economic conditions, consumer spending levels and/or other conditions could decline.Consumer spending habits, including spending for the merchandise that we sell, are affected by many factors including prevailing economicconditions, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy and fuel costs, income tax rates andpolicies, consumer confidence, consumer perception of economic conditions, and the consumer’s disposable income, credit availability and debtlevels. The moderate-income consumer, which is our core customer, is especially sensitive to these factors. A slowdown in the U.S. economy oran uncertain economic outlook could adversely affect consumer spending habits. As all of our stores are located in the United States, we areespecially 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 theoccurrence of terrorist acts or other hostilities in or affecting the United States, could lead to a decrease in spending by consumers.Our competitors could make changes to their pricing and other practices.The retail industry is highly competitive. We compete for customers, associates, locations, merchandise, services and other importantaspects of our business with many other local, regional and national retailers. Those5 Table of Contentscompetitors include traditional department stores, mass merchandisers, off-price retailers, specialty stores, internet and catalog businesses, andother forms of retail commerce.We consider style, quality, price, and convenience to be the most significant competitive factors in our industry. The continuing migrationand evolution of retailing to digital channels have increased our challenges in differentiating ourselves from other retailers especially as it relates tonational brands. In particular, consumers can quickly and conveniently comparison shop with digital tools, which can lead to decisions basedsolely on price. Unanticipated changes in the pricing and other practices of our competitors may adversely affect our performance.Tax and trade policies could adversely change.Uncertainty with respect to tax and trade policies, tariffs and government regulations affecting trade between the United States and othercountries has recently increased. We source the majority of our merchandise from manufacturers located outside of the United States, primarily inAsia. Major developments in tax policy or trade relations, such as the imposition of tariffs on imported products, could have a material adverseeffect on our business, results of operations and liquidity.Operational RisksWe may be unable to offer merchandise that resonates with existing customers and attracts new customers as well assuccessfully manage our inventory levels.Our business is dependent on our ability to anticipate fluctuations in consumer demand for a wide variety of merchandise. Failure toaccurately predict constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions could create inventoryimbalances and adversely affect our performance and long-term relationships with our customers. Additionally, failure to accurately predictchanging 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.A third-party purchasing agent sources approximately 25% of the merchandise we sell. The remaining merchandise is sourced from a widevariety of domestic and international vendors. Our ability to find qualified vendors and access products in a timely and efficient manner is asignificant challenge which is typically even more difficult for goods sourced outside the United States, substantially all of which are shipped byocean to ports in the United States. Political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity andcosts, work stoppages, port strikes, port congestion and delays and other factors relating to foreign trade are beyond our control and couldadversely impact our performance.Increases in the price of merchandise, raw materials, fuel and labor or their reduced availability could increase our cost of merchandisesold. The price and availability of raw materials may fluctuate substantially, depending on a variety of factors, including demand, weather, supplyconditions, transportation costs, energy prices, work stoppages, government regulation and policy, economic climates, market speculation andother unpredictable factors. An inability to mitigate these cost increases, unless sufficiently offset with our pricing actions, might cause a decreasein our profitability. Any related pricing actions might cause a decline in our sales volume. Additionally, a reduction in the availability of rawmaterials could impair our ability to meet our production or purchasing requirements in a timely manner. Both the increased cost and loweravailability of merchandise, raw materials, fuel and labor may also have an adverse impact on our cash and working capital needs as well as thoseof our suppliers.If any of our significant vendors were to become subject to bankruptcy, receivership or similar proceedings, we may be unable to arrangefor alternate or replacement contracts, transactions or business relationships on terms as favorable as current terms, which could adversely affectour sales and operating results.6 Table of ContentsOur vendors may not adhere to our Terms of Engagement or to applicable laws.A substantial portion of our merchandise is received from vendors and factories outside of the United States. We require all of our suppliersto comply with all applicable local and national laws and regulations and our Terms of Engagement for Kohl's Business Partners. These Terms ofEngagement 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 incompliance with these standards or applicable laws. Significant or continuing noncompliance with such standards and laws by one ormore suppliers could have a negative impact on our reputation and our results of operations.Our marketing may be ineffective.We believe that differentiating Kohl's in the marketplace is critical to our success. We design our marketing and loyalty programs toincrease awareness of our brands and to build personalized connections with new and existing customers. We believe these programs willstrengthen customer loyalty, increase the number and frequency of customers that shop our stores and website and increase our sales. If ourmarketing and loyalty programs are not successful, our sales and operating results could be adversely affected.The reputation and brand image of Kohl’s and the brands and products we sell could be damaged.We believe the Kohl's brand name and many of our proprietary brand names are powerful sales and marketing tools. We devote significantresources to develop, promote and protect proprietary brands that generate national recognition. In some cases, the proprietary brands or themarketing of such brands are tied to or affiliated with well-known individuals. We also affiliate the Kohl’s brand with third-party national brands thatwe sell in our store and through our partnerships with companies in pursuit of strategic initiatives. Damage to the reputations (whether or notjustified) of the Kohl’s brand, our proprietary brand names or any affiliated individuals or companies with which we have partnered, could arise fromproduct 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; perceptions of the national vendors and/orthird party companies with which we partner; or various other forms of adverse publicity, especially in social media outlets. This type ofreputational damage may result in a reduction in sales, earnings, and shareholder value.There may be concerns about the safety of products that we sell.If our merchandise offerings do not meet applicable safety standards or our customers' expectations regarding safety, we could experiencelost sales, experience increased costs, and/or be exposed to legal and reputational risk. Events that give rise to actual, potential or perceivedproduct safety concerns could expose us to government enforcement action and/or private litigation. Reputational damage caused by real orperceived product safety concerns could have a negative impact on our sales and operating results.We may be unable to adequately maintain and/or update our information systems.The efficient operation of our business is dependent on our information systems. In particular, we rely on our information systems toeffectively manage sales, distribution, and merchandise planning and allocation functions. We also generate sales through the operations of ourKohls.com website. We frequently make investments that will help maintain and update our existing information systems. We also depend on thirdparties as it relates to our information systems. In particular, we are currently migrating certain systems and applications to cloud environmentsthat are hosted by third-party service providers. The potential problems and interruptions associated with implementing technology initiatives, thefailure of our information systems to perform as designed or the failure to successfully partner with our third party service providers, such as ourcloud platform providers, could disrupt our business and harm our sales and profitability.7 Table of ContentsOur information technology projects may not yield their intended results.We regularly have internal information technology projects in process. Although the technology is intended to increase productivity andoperating efficiencies, these projects may not yield their intended results or may deliver an adverse user or customer experience. We may incursignificant costs in connection with the implementation, ongoing use, or discontinuation of technology projects, or fail to successfully implementthese technology initiatives or achieve the anticipated efficiencies from such projects, any of which could adversely affect our operations, liquidityand financial condition. Weather conditions and natural disasters could adversely affect consumer shopping patterns and disrupt our operations.A significant portion of our business is apparel and is subject to weather conditions. As a result, our operating results may be adverselyaffected by severe or unexpected weather conditions. Frequent or unusually heavy snow, ice or rain storms; natural disasters such asearthquakes, tornadoes, floods, fires, and hurricanes; or extended periods of unseasonable temperatures could adversely affect our performanceby affecting consumer shopping patterns and diminishing demand for seasonal merchandise. In addition, these events could cause physicaldamage to our properties or impact our supply chain, making it difficult or impossible to timely deliver seasonally appropriate merchandise.Although we maintain crisis management and disaster response plans, our mitigation strategies may be inadequate to address such a majordisruption event. We may be unable to successfully execute an omnichannel strategy.Customer expectations about the methods by which they purchase and receive products or services are evolving. Customers areincreasingly 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 thepurchasing process. Our ability to compete with other retailers and to meet our customer expectations may suffer if we are unable to providerelevant customer-facing technology and omnichannel experiences. 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 holiday season whensales volumes are especially high. Consequently, our results of operations could be adversely affected.Our business is seasonal in nature, which could negatively affect our revenues, operating results and cash requirements.Our business is subject to seasonal influences, with a major portion of sales and income historically realized during the second half of thefiscal year, which includes the back-to-school and holiday seasons.If we do not adequately stock or restock popular products, particularly during the back-to-school and holiday seasons, we may fail to meetcustomer demand, which could affect our revenue and our future growth. If we overstock products, we may be required to take significantinventory markdowns or write-offs, which could reduce profitability.We may experience an increase in costs associated with shipping digital orders due to complimentary upgrades, split shipments, andadditional long-zone shipments necessary to ensure timely delivery for the holiday season. If too many customers access our website within ashort 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 shipvendors may be unable to deliver merchandise on a timely basis.8 Table of ContentsThis seasonality causes our operating results and cash needs to vary considerably from quarter to quarter. Additionally, any decrease insales or profitability during the second half of the fiscal year could have a disproportionately adverse effect on our results of operations.Changes in 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. Theproprietary 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 isdefined as the sum of finance charges, late fees and other revenue less write-offs of uncollectible accounts. Changes in funding costs related tointerest rate fluctuations are shared similar to the revenue when interest rates exceed defined amounts. Though management currently believesthat increases in funding costs will be largely offset by increases in finance charge revenue, increases in funding costs could adversely impact theprofitability of this program.Changes in credit card use and applications, payment patterns, credit fraud 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 andcollect payments could negatively affect our results.We may be unable to attract, develop and retain quality associates while controlling costs, which could adversely affect ouroperating results.Our performance is dependent on attracting and retaining a large number of quality associates, including our senior management team andother key associates. Many associates are in entry-level or part-time positions with historically high rates of turnover. Many of our strategicinitiatives require that we hire and/or develop associates with appropriate experience. Our staffing needs are especially high during the holidayseason. Competition for these associates is intense. We cannot be sure that we will be able to attract and retain a sufficient number of qualifiedpersonnel in future periods.Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wagerates, minimum wage legislation, actions by our competitors in compensation levels, potential labor organizing efforts, and changingdemographics. Competitive and regulatory pressures have already significantly increased our labor costs. Further changes that adversely impactour ability to attract and retain quality associates could adversely affect our performance and/or profitability. In addition, changes in federal andstate 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 time and joint/co-employment could cause us to incur additional costs, which could negatively impact our profitability.Capital RisksWe may be unable to raise additional capital or maintain bank credit on favorable terms, which could adversely affect ourbusiness 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 historicallymaintained lines of credit with financial institutions. Changes in the credit and capital markets, including market disruptions, limited liquidity andinterest rate fluctuations, may increase the cost of financing or restrict our access to these potential sources of future liquidity. Our continuedaccess to these liquidity sources on favorable terms depends on multiple factors, including our operating performance and maintaining strong debtratings. If our credit ratings fall below desirable levels, our ability to access the debt markets and our cost of funds for new debt issuances couldbe adversely impacted. Additionally, if unfavorable capital market conditions exist if and when we were to seek additional financing, we may not beable to raise sufficient capital on favorable terms and on a timely basis (if at all). If our access to capital was to become significantly constrainedor our cost of capital was to increase significantly our financial condition, results of operations and cash flows could be adversely affected.9 Table of ContentsOur capital allocation could be inefficient or ineffective.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, capitalefficiency reflects how well we manage our other key risks. The actions taken to address other specific risks may affect how well we manage themore general risk of capital efficiency. If we do not properly allocate our capital to maximize returns, we may fail to produce optimal financialresults and we may experience a reduction in shareholder value.Legal and Regulatory RisksRegulatory and legal matters could adversely affect our business operations and change 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 totime. The costs and other effects of new or changed legal requirements cannot be determined with certainty. For example, new legislation orregulations may result in increased costs directly for our compliance or indirectly to the extent such requirements increase prices of goods andservices, 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 and regulatory environments for developments that may impact us. Failure to detectchanges and comply with such laws and regulations may result in an erosion of our reputation, disruption of business and/or loss of associatemorale. Additionally, we are regularly involved in various litigation matters that arise out of the conduct of our business. Litigation or regulatorydevelopments could adversely affect our business operations and financial performance. Our efforts to protect the security of sensitive or confidential customer, associate or company information could be unsuccessful,which 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, retain, process and transmit sensitive and confidential customer, associate andcompany information. We also engage third-party vendors that provide technology, systems and services to facilitate our collection, retention,processing and transmission of this information. The protection of this data is extremely important to us, our associates and our customers. Aswith other companies, our facilities and systems and those of our third-party vendors are vulnerable to cybersecurity threats, security breaches,system failures, acts of vandalism, fraud, misappropriation, malware and other malicious or harmful code, misplaced or lost data, programmingand/or human errors, insider threats, or other similar events. Despite our substantial investments in personnel, training and implementation ofprograms, procedures, and plans to protect the security, confidentiality, integrity and availability of our information and to prevent, detect, containand respond to cybersecurity threats, there is no assurance that these measures will be adequate to prevent all such cybersecurity threats,particularly given the ever-evolving and increasingly sophisticated methods of cyber-attack that may be difficult or impossible to anticipate and/ordetect. In addition, the regulatory environment related to data privacy and cybersecurity is constantly changing, which may increase ourcompliance costs and impact our customers’ shopping experience. Any data security incident involving the breach, misappropriation, loss or otherunauthorized disclosure of sensitive and/or confidential information, whether by us or our vendors, could disrupt our operations, damage ourreputation and customers' willingness to shop in our stores or on our website, violate applicable laws, regulations, orders and agreements, andsubject us to additional costs and liabilities which could be material. 10 Table of ContentsItem 1B. Unresolved Staff CommentsNot applicable.Item 2. PropertiesStoresAs of February 2, 2019, we operated 1,159 Kohl's department stores with 82.6 million selling square feet in 49 states. We also operate fourOff-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 February 2, 2019: Number of Stores by StateMid-Atlantic Region: Northeast Region: South Central Region:Delaware5 Connecticut22 Arkansas8Maryland23 Maine5 Kansas12Pennsylvania50 Massachusetts25 Louisiana8Virginia31 New Hampshire11 Missouri27West Virginia7 New Jersey38 Oklahoma11 New York51 Texas84 Rhode Island4 Vermont2 Total Mid-Atlantic 116 Total Northeast158 Total South Central 150 Midwest Region: Southeast Region: West Region:Illinois66 Alabama14 Alaska1Indiana40 Florida51 Arizona26Iowa18 Georgia32 California117Michigan46 Kentucky17 Colorado24Minnesota27 Mississippi5 Idaho5Nebraska7 North Carolina31 Montana3North Dakota4 South Carolina16 Nevada12Ohio59 Tennessee20 New Mexico5South Dakota4 Oregon11Wisconsin41 Utah12 Washington19 Wyoming2Total Midwest312 Total Southeast186 Total West237 Location OwnershipStrip centers780 Owned412Community & regional malls82 Leased510Freestanding297 Ground leased23711 Table of ContentsDistribution CentersThe following table summarizes key information about each of our distribution centers: YearOpened SquareFootage Store distribution centers: Findlay, Ohio 1994 780,000 Winchester, Virginia 1997 450,000 Blue Springs, Missouri 1999 540,000 Corsicana, Texas 2001 540,000 Mamakating, New York 2002 605,000 San Bernardino, California 2002 575,000 Macon, Georgia 2005 560,000 Patterson, California 2006 365,000 Ottawa, Illinois 2008 330,000 Online fulfillment centers: Monroe, Ohio 2001 1,225,000 San Bernardino, California 2010 970,000 Edgewood, Maryland 2011 1,450,000 DeSoto, Texas 2012 1,515,000 Plainfield, Indiana 2017 975,000 We own all of the distribution centers except Corsicana, Texas, which is leased.Corporate FacilitiesWe own our corporate headquarters in Menomonee Falls, Wisconsin. We also own or lease additional buildings and office space, which areused by various corporate departments, including our credit operations.Item 3. Legal ProceedingsWe are not currently a party to any material legal proceedings but are subject to certain legal proceedings and claims from time to time thatarise out of the conduct of our business.Item 4. Mine Safety DisclosuresNot applicable.Item 4A. Executive OfficersOur executive officers as of February 2, 2019 were as follows: NameAgePositionMichelle Gass50Chief Executive OfficerSona Chawla51PresidentDouglas Howe58Chief Merchandising OfficerBruce Besanko60Chief Financial OfficerMarc Chini60Senior Executive Vice President, Chief People OfficerRatnakar Lavu48Senior Executive Vice President, Chief Technology OfficerGreg Revelle41Senior Executive Vice President, Chief Marketing Officer 12 Table of ContentsMichelle GassMs. Gass has served as our CEO and as a director since May 2018. Ms. Gass was promoted to CEO-elect in October 2017. She joinedthe Company in 2013 as Chief Customer Officer and was named Chief Merchandising and Customer Officer in June 2015. Prior to Kohl’s, Ms.Gass spent more than 16 years with Starbucks Corporation holding a variety of leadership roles across marketing, global strategy andmerchandising, including President, Starbucks Europe, Middle East and Africa. Prior to Starbucks, Ms. Gass was with Procter and Gamble. Ms.Gass has over 25 years of experience in the retail and consumer goods industries. She is currently a director for PepsiCo Inc., a global food andbeverage company. From April 2014 to February 2017, Ms. Gass also served as a director of Cigna Corporation, a global health servicecompany. Sona ChawlaMs. Chawla has served as President since May 2018. She served as Chief Operating Officer and President-elect from October 2017 to May2018. Ms. Chawla joined the Company as Chief Operating Officer in November 2015. Prior to joining the Company, Ms. Chawla served onWalgreen Company’s senior leadership team in the roles of President, Digital and Chief Marketing Officer from February 2014 to November 2015,President, E-Commerce from 2011 to February 2014 and Senior Vice President, E-Commerce from 2008 to 2011. Prior to Walgreens, Ms. Chawlaserved as Vice President, Global Online Business with Dell, Inc. (2006-2008) and previously was a key executive at Wells Fargo & Companyserving as Executive Vice President, Online Sales, Service and Marketing (2005-2006), Executive Vice President, Web Channel Management(2003-2005) and Senior Vice President, Enterprise Internet Services (2000-2003). Before Wells Fargo, Ms. Chawla worked at Andersen Consulting(now Accenture) and Mitchell Madison Group. Ms. Chawla has 18 years of experience in retail and digital. From 2012 to November 2015, Ms.Chawla served as a director of Express, Inc., a specialty retail apparel chain. She is currently a director of CarMax, Inc., the nation’s largestretailer of used vehicles. Douglas HoweMr. Howe has served as Chief Merchandising Officer since May 2018. Prior to joining the Company, he served in several senior leadershiproles with Qurate Retail Group, leading QVC’s and HSN’s product leadership as Chief Merchandising Officer from December 2017 to April 2018,Executive Vice President of Merchandising from July 2015 to December 2017, Executive Vice President of Merchandising and Planning from 2010to July 2015, and Executive Vice President of Strategic Multichannel Planning and Merchandising from 2008 to 2010. Prior to joining QVC in 2001as Vice President of Merchandising, Fashion and Beauty, Mr. Howe previously served as Executive Vice President of Product Design andDevelopment for Old Navy, as well Senior Vice President of Strategy, Design and Development for Walmart. Mr. Howe has over 25 years ofexperience in the retail industry. Bruce H. BesankoMr. Besanko has served as Chief Financial Officer since July 2017. Prior to joining the Company, he spent four years with Supervalu, Inc.as Executive Vice President, Chief Operating Officer and Chief Financial Officer from October 2015 to July 2017 and Executive Vice Presidentand Chief Financial Officer from 2013 to October 2015. Mr. Besanko served as Executive Vice President, Chief Financial Officer and ChiefAdministrative Officer at OfficeMax, Inc. from 2008 to 2013. Mr. Besanko held several finance leadership positions at Circuit City from 2007 to2008, The Yankee Candle Company, Inc. from 2005 to 2007, Best Buy Co., Inc. from 2002 to 2005, Sears Roebuck & Company from 1996 to2002 and Atlantic Richfield Company, Inc. from 1992 to 1996. In addition to his business experience, Mr. Besanko served 26 years in the U.S. AirForce where he rose to the rank of Lieutenant Colonel. Mr. Besanko has 23 years of experience in the retail industry. He is currently a director ofDiebold Nixdorf, a multinational financial and retail technology company. 13 Table of ContentsMarc A. ChiniMr. Chini has served as Senior Executive Vice President – Chief People Officer since November 2018. Prior to joining the Company, heserved as Executive Vice President, Chief Human Resources Officer of Synchrony Financial from 2013 to November 2018. Previously, Mr. Chiniworked for General Electric Company for more than 30 years, including serving as Vice President of Human Resources GE Corporate Staff (2011-2013), Executive Vice President of Human Resources for NBC Universal (2007-2011), Vice President of Human Resources for GE Infrastructure(2005-2006), GE Aviation & Locomotive (2003-2005), and GE Aviation (1998-2003). Prior to beginning his Human Resources career with GeneralElectric in 1984, Mr. Chini served in various Human Resources roles for McGraw-Edison and Liberty Life. Ratnakar LavuMr. Lavu has served as Senior Executive Vice President – Chief Technology Officer since April 2018. He served as Executive VicePresident – Chief Technology Officer from February 2016 to April 2018 and Executive Vice President – Digital Technology from April 2014 toFebruary 2016. He joined the Company as Senior Vice President – Information Technology, Digital Innovation & Global E-Commerce in2011. Prior to joining the Company, he served as Chief Technology Officer of Redbox Automated Retail LLC from 2009 to 2011. Prior to that, heserved in a variety of management positions at Macys.com from 2000 to 2009, including Group Vice President E-Commerce and InformationTechnology from 2008 to 2009 and Vice President, Technology for Macys.com and Bloomingdales.com from 2006 to 2008. Mr. Lavu has 18 yearsof experience in the retail industry. Greg RevelleMr. Revelle has served as Senior Executive Vice President – Chief Marketing Officer since April 2018. He joined the Company in April 2017as Executive Vice President – Chief Marketing Officer. Prior to joining the Company, he served as Executive Vice President, Chief MarketingOfficer & General Manager of Financial Services for Best Buy Co., Inc. from November 2014 to March 2017 and Senior Vice President, ChiefMarketing Officer & General Manager of E-Commerce at AutoNation from 2012 to November 2014. Prior to that, he worked at Expedia, Inc. asVice President & General Manager, Worldwide Online Marketing from 2009 to 2012 and Vice President, Corporate Development and Strategy from2005 to 2009. Before Expedia, Mr. Revelle worked at Credit Suisse as an Investment Banking Analyst. Mr. Revelle has nine years of experiencein the online marketing and retail industries. He is currently a director of Cars.com, a digital automotive platform. PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket informationOur Common Stock has been traded on the New York Stock Exchange ("NYSE") since May 19, 1992, under the symbol “KSS.” On February 27, 2019, our Board of Directors approved a 10% increase in our dividend to $0.67 per common share. The dividend will be paidon April 3, 2019 to shareholders of record as of March 20, 2019. In 2018, we paid aggregate cash dividends of $400 million.HoldersAs of March 13, 2019, there were approximately 3,700 record holders of our Common Stock.14 Table of ContentsPerformance GraphThe graph below compares our cumulative five-year shareholder return to that of the Standard & Poor’s (“S&P”) 500 Index and a Peer GroupIndex that is consistent with the retail peer groups used in the Compensation Discussion & Analysis section of our Proxy Statement for our May15, 2019 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.; TargetCorporation; and The TJX Companies, Inc. The Peer Group Index excludes Sears Holding Corporation as they are in bankruptcy proceedings. ThePeer Group Index is weighted by the market capitalization of each component company at the beginning of each period. The graph assumes aninvestment of $100 on February 1, 2014 and reinvestment of dividends. The calculations exclude trading commissions and taxes. Company / Index Feb 1,2014 Jan 31,2015 Jan 30,2016 Jan 28,2017 Feb 3,2018 Feb 2,2019 Kohl’s Corporation $100.00 $121.26 $104.25 $85.43 $146.53 $159.40 S&P 500 Index 100.00 114.22 113.46 137.14 168.46 168.36 Peer Group Index 100.00 127.95 121.41 113.11 123.50 130.95Recent Sales of Unregistered Securities; Use of Proceeds from Registered SecuritiesWe did not sell any equity securities from 2016 through 2018 that were not registered under the Securities Act.Purchases of Equity Securities by the Issuer and Affiliated PurchasersIn 2016, our Board of Directors increased the remaining share repurchase authorization under our existing share repurchase program to $2.0billion. Purchases under the repurchase program may be made in the open market, through block trades and other negotiated transactions. Weexpect to execute the share repurchase program primarily in open market transactions, subject to market conditions. There is no fixed terminationdate for the repurchase program, and the program may be suspended, discontinued or accelerated at any time.15 Table of ContentsThe following table contains information for shares repurchased and shares acquired from employees in lieu of amounts required to satisfyminimum tax withholding requirements upon the vesting of the employees’ restricted stock during the three fiscal months ended February 2, 2019: Period TotalNumberof SharesPurchasedDuringPeriod AveragePricePaid PerShare Total Numberof SharesPurchased asPart ofPubliclyAnnouncedPlans orPrograms ApproximateDollar Value ofShares that MayYet Be PurchasedUnder thePlans orPrograms(Dollars inMillions) November 4 - December 1, 2018 487,226 $72.16 473,087 $1,291 December 2, 2018 – January 5, 2019 846,310 63.31 817,900 1,239 January 6 - February 2, 2019 514,269 68.25 513,740 1,203 Total 1,847,805 $67.00 1,804,727 1,20316 Table of ContentsItem 6. Selected Consolidated Financial DataThe selected consolidated financial data presented below should be read in conjunction with our consolidated financial statements andrelated notes included elsewhere in this document. (Dollars in Millions, Except per Share and per Square Foot Data) 2018 2017 (e)(f) 2016 (f) 2015 (f) 2014 (f) Net sales Dollars $19,167 $19,036 $18,636 $19,162 $18,992 Net sales increase (decrease) 0.7% 2.1% (2.7)% 0.9% (0.1)% Comparable sales (a) 1.7% 1.5% (2.4)% 0.7% (0.3)% Per selling square foot (b) $231 $229 $224 $228 $226 Total revenue $20,229 $20,084 $19,681 $20,151 $19,921 Gross margin as a percent of sales 36.4% 36.0% 35.9% 36.0% 36.3% Selling, general and administrative expenses ("SG&A") Dollars $5,601 $5,501 $5,430 $5,399 $5,248 As a percent of total revenue 27.7% 27.4% 27.6% 26.8% 26.3% Operating income Dollars Reported (GAAP) $1,361 $1,416 $1,183 $1,553 $1,689 Adjusted (non-GAAP) (c) $1,465 $1,416 $1,369 $1,553 $1,689 As a percent of total revenue Reported (GAAP) 6.7% 7.1% 6.0% 7.7% 8.5% Adjusted (non-GAAP) (c) 7.2% 7.1% 7.0% 7.7% 8.5% Net income Reported (GAAP) $801 $859 $556 $673 $867 Adjusted (non-GAAP) (c) $927 $703 $673 $781 $867 Diluted earnings per share Reported (GAAP) $4.84 $5.12 $3.11 $3.46 $4.24 Adjusted (non-GAAP) (c) $5.60 $4.19 $3.76 $4.01 $4.24 Dividends per share $2.44 $2.20 $2.00 $1.80 $1.56 Balance sheet Total assets $12,469 $13,389 $13,623 $13,660 $14,393 Working capital $2,105 $2,671 $2,264 $2,352 $2,710 Long-term debt $1,861 $2,797 $2,795 $2,792 $2,780 Capital lease and financing obligations $1,638 $1,717 $1,816 $1,916 $1,968 Shareholders’ equity $5,527 $5,419 $5,170 $5,484 $5,983 Cash flow Net cash provided by operating activities $2,107 $1,691 $2,153 $1,484 $2,027 Capital expenditures $578 $672 $768 $690 $682 Free cash flow (d) $1,403 $881 $1,269 $681 $1,237 Kohl's store information Number of stores 1,159 1,158 1,154 1,164 1,162 Total square feet of selling space (in thousands) 82,620 82,804 82,757 83,810 83,750 (a)Kohl's store sales are included in comparable sales after the store has been open for 12 full months. Digital sales and sales at remodeled and relocated Kohl's stores are included in comparablesales, unless square footage has changed by more than 10%. 2018 compares the 52 weeks ended February 2, 2019 and February 3, 2018. 2017 compares the 52 weeks ended January 27, 2018and January 28, 2017.(b)Net sales per selling square foot includes in-store and digital merchandise sales.(c)Pre-tax adjustments include impairments, store closing and other costs of $104 million in 2018 and $186 million in 2016; debt extinguishment losses of $63 million in 2018 and $169 million in 2015;and tax settlement and reform benefits of $156 million in 2017. 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 andfinancing obligation payments. See GAAP to non-GAAP reconciliation in Liquidity and Capital Resources.(e)Fiscal 2017 was a 53-week year. The impact of the 53rd week is approximated as follows: net sales were $170 million; other revenues were $10 million; SG&A was $40 million; interest was $3million; net income was $15 million; and diluted earnings per share were approximately $0.10.(f)Refer to Note 2 of our Consolidated Financial Statements for details on the adoption of the new revenue recognition standard and the impact on previously reported results.17 Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsExecutive SummaryAs of February 2, 2019, we operated 1,159 Kohl's department stores, a website (www.Kohls.com), 12 FILA outlets, and four Off-Aisleclearance centers. Our Kohl's stores and website sell moderately-priced proprietary and national brand apparel, footwear, accessories, beauty andhome 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 online.Key financial results for 2018 included: •Sales increased 0.7% to $19.2 billion reflecting a 1.7% increase in our comparable sales which was partially offset by incrementalsales in the 53rd week of 2017. •Gross margin as a percentage of net sales increased 32 basis points as effective inventory management contributed to fewerpermanent and promotional markdowns. These increases were partially offset by higher shipping costs resulting from digital salesgrowth. •Selling, general and administrative expenses ("SG&A") as a percentage of total revenue increased 30 basis points. The increase wasprimarily driven by strategic technology investments. •Net income on a GAAP basis was $801 million, or $4.84 per diluted share. •On a non-GAAP basis, our net income increased 32% to $927 million and our diluted earnings per share increased 34% to $5.60.See "Results of Operations" and "Liquidity and Capital Resources" for additional details about our financial results, how we definecomparable sales, and a reconciliation of GAAP to non-GAAP net income and diluted earnings per share.2019 OutlookOur current expectations for 2019 are as follows: Comparable salesIncrease 0 - 2%Gross margin as a percent of salesIncrease up to 10 bpsSelling, general and administrative expensesIncrease 1 - 2%Depreciation and amortization$930 millionInterest expense, net$210 millionEffective tax rate24 - 25%Earnings per diluted share$5.80 - $6.15Capital expenditures$850 millionShare repurchases$400 - $500 millionThis guidance includes the impact of the new lease standard which we are required to adopt in 2019 but excludes any non-recurringcharges. For additional details on the lease standard, see Note 1 to our Consolidated Financial Statements.Results of Operations53rd WeekFiscal 2017 was a 53-week year. During the 53rd week, net sales were approximately $170 million; other revenue was approximately $10million; SG&A expenses were approximately $40 million; and interest was approximately $3 million. The 53rd week increased our 2017 net incomeby approximately $15 million and our diluted earnings per share by approximately $0.10. For 2018, comparable sales compare the 52-weekperiods ended18 Table of ContentsFebruary 2, 2019 and February 3, 2018. For 2017, comparable sales compare the 52-week periods ended January 27, 2018 and January 28,2017. Net SalesAs an omnichannel retailer, it is often difficult to distinguish between a "store" sale and a "digital" sale. Below is a list of some omnichannelexamples: •Digital customers can choose to have most online orders either shipped to their home or picked up in any of our stores. •Approximately 75% of our digital customers also shop in our stores. •Digital orders may be shipped from a dedicated E-Commerce fulfillment center, a store, a retail distribution center, third parties or anycombination of the above. •Stores increase digital sales by providing customers opportunities to view, touch and/or try on physical merchandise before orderingonline. •Online purchases can easily be returned in our stores. •Kohl's Cash coupons and Yes2You rewards can be redeemed online or in store regardless of where they were earned. •In-store customers can order from online kiosks in our stores. •Customers who utilize our mobile app while in the store may receive mobile coupons to use when they check out.Because we do not have a clear distinction between "store" sales and "digital" sales, we do not report them separately.Kohl’s store sales are included in comparable sales after the store has been open for 12 full months. Digital sales and sales at remodeledand relocated Kohl’s stores are included in comparable sales unless square footage has changed by more than 10%. The following graph summarizes net sales dollars and comparable sales (Dollars in Millions):2018 compared to 2017Net sales increased $131 million, or 0.7%, to $19.2 billion for 2018. The increase was primarily due to a 1.7% increase in comparable salesmostly reflecting higher average transaction values. The increase was partially offset by $170 million of sales in the 53rd week of 2017.19 Table of ContentsBy line of business, Men’s, Children’s and Footwear were the strongest categories. Home and Women’s also reported positive comparablesales. Accessories was slightly negative.Geographically, all regions reported higher comparable sales in 2018. 2017 compared to 2016Net sales increased $400 million, or 2.1%, to $19.0 billion for 2017. Approximately $170 million of the increase was due to the 53rd week inthe fiscal 2017 calendar. The remaining increase was primarily due to a 1.5% increase in comparable sales. The increase in comparable salesreflects higher average transaction values.By line of business, Home and Footwear were the strongest categories. Men’s also outperformed the Company average. Accessories andChildren’s also reported higher comparable sales. Comparable sales trends in the Women’s business improved each quarter, but sales decreasedfor the year.Geographically, all regions reported higher comparable sales in 2017. Other RevenueOther revenue includes revenue from credit card operations, third-party advertising on our website, unused gift cards and merchandise returncards (breakage), and other non-merchandise revenue. The following graph summarizes other revenue (Dollars in Millions):Other revenue increased $14 million in 2018 and $3 million in 2017. The increase in 2018 is due to higher credit card revenue, third-partyadvertising on our website and breakage. The increase in 2017 is due to $10 million of revenue earned in the 53rd week and higher third-partyadvertising on our website, partially offset by lower credit card revenue.Cost of Merchandise Sold and Gross MarginCost of merchandise sold includes the total cost of products sold, including product development costs, net of vendor payments other thanreimbursement of specific, incremental and identifiable costs; inventory shrink; markdowns; freight expenses associated with moving merchandisefrom our vendors to our distribution centers; shipping expenses for digital sales; terms cash discount; and depreciation of product developmentfacilities and equipment. Our cost of merchandise sold may not be comparable with that of other retailers because we include distribution centerand buying costs in selling, general and administrative expenses while other retailers may include these expenses in cost of merchandise sold.20 Table of ContentsThe following graph summarizes cost of merchandise sold and gross margin as a percent of net sales (Dollars in Millions): Gross margin is calculated as net sales less cost of merchandise sold. Gross margin as a percent of net sales increased 32 basis points in2018 and 13 basis points in 2017. The increases were driven by effective inventory management which contributed to fewer permanent andpromotional markdowns, partially offset by higher shipping costs resulting from digital growth. Selling, General and Administrative ExpensesSG&A includes compensation and benefit costs (including stores, corporate headquarters, buying and merchandising, and distributioncenters); occupancy and operating costs of our retail, distribution and corporate facilities; expenses from our Kohl’s credit card operations; freightexpenses 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; and other non-operatingrevenues and expenses. We do not include depreciation and amortization in SG&A. The classification of these expenses varies across the retailindustry.Many of our expenses, including store payroll and distribution costs, are variable in nature. These costs generally increase as salesincrease and decrease as sales decrease. We measure both the change in these variable expenses and the expense as a percent of sales. If theexpense as a percent of sales decreased from the prior year, the expense "leveraged". If the expense as a percent of sales increased over theprior year, the expense "deleveraged".The following graph summarizes the increases and (decreases) in SG&A by expense type (Dollars in Millions):21 Table of ContentsSG&A increased $100 million, or 2%, to $5.6 billion for 2018. The increase is net of approximately $40 million of incremental expense in2017 due to the 53rd week in the fiscal 2017 calendar. As a percentage of revenue, SG&A deleveraged by 30 basis points.The increase in technology expenses reflects higher spend as we migrate technology systems to the cloud. Leadership changes drove theincrease in corporate expenses. Distribution costs, which exclude payroll related to online originated orders that were shipped from our stores,were $312 million for 2018 and increased $9 million due to higher transportation costs. Marketing costs reflect higher digital and personalizationspend. In our stores, increases in expenses driven by omnichannel support of ship-from-store and buy online, pick-up in store operations wereoffset by productivity improvements. Expenses from our credit card operations decreased due to savings in payroll and operating costs. The following graph summarizes the increases and (decreases) in SG&A by expense type (Dollars in Millions):SG&A increased $71 million, or 1%, to $5.5 billion for 2017. Approximately $40 million of the increase was due to the 53rd week in the fiscal2017 calendar. As a percentage of revenue, SG&A leveraged by 20 basis points. The increase in corporate expenses was driven by higher incentive compensation as a result of our strong financial performance in2017. The increase in technology expenses reflects higher costs as we migrate to the cloud. Distribution costs, which exclude payroll related toonline originated orders that were shipped from our stores, were $303 million for 2017. The increase of $23 million was due to growth in digitalsales and the opening of our fifth E-Commerce facility. In our stores, decreases in controllable expenses were substantially offset by higher storepayroll due to on-going wage pressure and omnichannel support of ship-from-store and buy online, pick-up in store operations. Expenses from ourcredit card operations decreased due to lower operating costs. Marketing costs reflect efficiencies in our non-customer facing spend and thebenefit of not repeating a non-productive marketing event. Other Expenses (Dollars in Millions) 2018 2017 2016 Depreciation and amortization $964 $991 $938 Interest expense, net 256 299 308 Impairments, store closing and other costs 104 — 186 Loss on extinguishment of debt 63 — — 22 Table of ContentsThe changes in depreciation and amortization reflect the net impact of lower depreciation due to maturing of our stores, higher amortizationdue to investments in technology, higher depreciation from our fifth E-Commerce fulfillment center which opened in 2017, and a $22 million write-off in 2017 of information technology projects that no longer fit into our strategic and cloud migration plans.The decrease in interest expense in 2018 was driven by the benefits of debt reductions in 2018. Higher interest income due to higher yieldsand investment balances and lower interest on capital leases as the portfolio matures also contributed to the decreases in both periods.Impairments, store closing and other costs include the following expenses related to closing four stores, consolidating call center locationswhich support both Kohl’s charge and online customers, a voluntary retirement program, and the impairment of certain assets in 2018. In 2016, thecosts related to closing 18 stores and the organizational realignment at our corporate office: (Dollars in Millions)2018 2017 2016 Severance, early retirement, and other$32 $— $17 Impairments: Buildings and other store assets 36 — 53 Intangible and other assets 36 — 23 Store leases: Record future obligations — — 114 Write-off net obligations — — (21)Total$104 $— $186Loss on the extinguishment of debt of $63 million in 2018 resulted from a $413 million make whole call and a $500 million cash tender offerin 2018. Income Taxes(Dollars in Millions) 2018 2017 2016 Provision for income taxes $241 $258 $319 Effective tax rate 23.2% 23.1% 36.5%On December 22, 2017, H.R. 1, originally the Tax Cuts & Jobs Act, was signed into law making significant changes to the Internal RevenueCode. Changes include a corporate rate decrease from 35% to 21%, effective January 1, 2018, as well as a variety of other changes including theacceleration of expensing of certain business assets and reductions in the amount of executive pay that could qualify as a tax deduction.Our effective tax rate in 2018 includes the full year benefit of the decrease in the corporate rate. For 2017, the reduction in the tax rate wasprorated, resulting in a statutory federal tax rate of 33.7%. In 2017, we recorded a total tax benefit of $136 million related to the federal tax ratereduction and the re-measurement of our deferred tax assets and liabilities as well as a $20 million benefit from the settlement of a significantstate tax dispute. These items reduced our 2017 effective tax rate by 10.9 percentage points. 23 Table of ContentsAdjusted Net Income and Earnings per Diluted Share (Dollars in Millions, Except per Share Data)Income beforeTaxes Net IncomeEarnings perDiluted Share2018 GAAP $1,042 $801 $4.84 Impairments, store closing and other costs 104 78 0.47 Loss on extinguishment of debt 63 48 0.29 Adjusted (non-GAAP) $1,209 $927 $5.60 2017 GAAP $1,117 $859 $5.12 Federal tax reform benefits — (136) (0.81)State tax settlement — (20) (0.12)Adjusted (non-GAAP) $1,117 $703 $4.19 2016 GAAP $875 $556 $3.11 Impairments, store closing and other costs 186 117 0.65 Adjusted (non-GAAP) $1,061 $673 $3.76We believe adjusted results are useful because they provide enhanced visibility into our results for the periods excluding the impact ofunique items such as those included in the table above. However, these non-GAAP financial measures are not intended to replace GAAPmeasures.InflationWe expect that our operations will continue to be influenced by general economic conditions, including food, fuel and energy prices, higherwages and by costs to source our merchandise. There can be no assurance that our business will not be impacted by such factors in the future.Liquidity and Capital ResourcesThe following table presents our primary cash requirements and sources of funds.Cash RequirementsSources of Funds• Operational needs, including salaries, rent, taxesand other costs of running our business• Capital expenditures• Inventory• Share repurchases• Dividend payments• Debt reduction• Cash flow from operations• Short-term trade credit, in theform of extended payment terms• Line of credit under our revolvingcredit facilityOur working capital and inventory levels typically build throughout the fall, peaking during the November and December holiday sellingseason.The following table includes cash balances and changes: (Dollars in Millions) 2018 2017 2016 Cash and cash equivalents $934 $1,308 $1,074 Net cash provided by (used in): Operating activities $2,107 $1,691 $2,153 Investing activities (572) (649) (756) Financing activities (1,909) (808) (1,030) Free cash flow (a) $1,403 $881 $1,269 (a)Non-GAAP financial measure24 Table of ContentsOperating ActivitiesNet cash provided by operations increased $416 million to $2.1 billion in 2018. The increase was primarily attributable to changes inaccounts payable and other operating assets and liabilities.Net cash provided by operations decreased $462 million to $1.7 billion in 2017. The decrease was primarily attributable to changes inaccounts payable.Investing ActivitiesNet cash used in investing activities decreased $77 million to $572 million in 2018. The decrease was primarily due to the timing oftechnology spending.Net cash used in investing activities decreased $107 million to $649 million in 2017. The decrease was primarily due to the completion of thebeauty rollout, corporate improvements, and new stores in 2016. The following chart summarizes capital expenditures by major category:We expect total capital expenditures of approximately $850 million in fiscal 2019. The increase is driven by omnichannel investments as weconstruct our sixth E-commerce fulfillment center. The total actual amount of our future capital expenditures will depend on store strategies;construction of and renovations to distribution centers; mix of owned, leased or acquired stores; and technology and corporate spending. We donot anticipate that our capital expenditures will be limited by any restrictive covenants in our financing agreements.Financing ActivitiesNet cash used in financing activities increased $1.1 billion to $1.9 billion in 2018, primarily due to $943 million of debt reductions during theyear.Net cash used in financing activities decreased $222 million to $808 million in 2017, primarily due to a $251 million decrease in treasurystock purchases. Share repurchases are discretionary in nature. The timing and amount of repurchases are based upon available cash balances,our stock price and other factors.We may again seek to retire or purchase our outstanding debt through open market cash purchases, privately negotiated transactions orotherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and otherfactors. The amounts involved could be material.25 Table of ContentsAs of February 2, 2019, our credit ratings were as follows: Moody’sStandard & Poor’sFitchLong-term debtBaa2BBB-BBBDuring 2018, we paid cash dividends of $400 million as detailed in the following table: First Quarter Second Quarter Third Quarter Fourth Quarter Declaration date February 28 May 16 August 14 November 14 Record date March 14 June 13 September 12 December 12 Payment date March 28 June 27 September 26 December 26 Amount per common share $0.61 $0.61 $0.61 $0.61On February 27, 2019, our Board of Directors declared a quarterly cash dividend on our common stock of $0.67 per share, a 10% increaseover our prior dividend. The dividend is payable April 3, 2019 to shareholders of record at the close of business on March 20, 2019.Free Cash FlowWe generated $1.4 billion of free cash flow for 2018; an increase of $522 million, or 59%, over 2017. As discussed above, the increase isprimarily the result of changes in operating assets and liabilities. Free cash flow is a non-GAAP financial measure which we define as net cashprovided by operating activities and proceeds from financing obligations (which generally represent landlord reimbursements of construction costs)less capital expenditures and capital lease and financing obligation payments. Free cash flow should be evaluated in addition to, and notconsidered a substitute for, other financial measures such as net income and net cash provided by operating activities. We believe that free cashflow represents our ability to generate additional cash flow from our business operations. See the key financial ratio calculations section below.Liquidity RatiosThe following table provides additional measures of our liquidity: (Dollars in Millions) 2018 2017 Working capital $2,105 $2,671 Current ratio 1.77 1.99Liquidity measures our ability to meet short-term cash needs. Working capital decreased $566 million and our current ratio decreased 22basis points over year-end 2017 primarily due to lower cash balances as a result of debt reductions.Return on Investment RatiosThe following table provides additional measures of our return on investments: 2018 2017 2016 Return on assets ("ROA") 6.1% 6.4% 4.1%Return on gross investment ("ROI") (a) 13.4% 14.0% 12.6%Excluding non-recurring items (a) ROA 7.0% 5.2% 4.9% ROI 14.0% 14.0% 13.6% (a)Non-GAAP financial measuresChanges in earnings drove changes in our return on investment ratios.26 Table of ContentsWe believe that ROI is a useful financial measure in evaluating our operating performance. When analyzed in conjunction with our netearnings and total assets and compared with the return on assets, it provides investors with a useful tool to evaluate our ongoing operations andour 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 similarlytitled measures reported by other companies. ROI should be evaluated in addition to, and not considered a substitute for, other financial measuressuch as return on assets. See the key financial ratio calculations below for our ROI and ROA and ROI excluding non-recurring items calculations. Capital Structure RatiosThe following table provides additional measures of our capital structure: 2018 2017 Debt/capitalization 38.8% 45.4% Adjusted debt to adjusted EBITDAR (a) 2.16 2.54 (a)Non-GAAP financial measureThe decreases in our capital structure ratios are primarily due to debt reductions in 2018.Adjusted Debt to EBITDAR is a non-GAAP financial measure which we define as our adjusted outstanding debt balance divided by adjustedEBITDAR. We believe that our debt levels are best analyzed using this measure. Our current goals are to maintain a ratio that demonstrates ourcommitment to an investment grade rating and allows us to operate with an efficient capital structure for our size, growth plans and industry. OurAdjusted Debt to EBITDAR calculation may not be comparable to similarly-titled measures reported by other companies. Adjusted Debt toEBITDAR should be evaluated in addition to, and not considered a substitute for, other financial measures such as debt/capitalization. See thekey financial ratio calculations section below for our Adjusted Debt to EBITDAR calculation.Our debt agreements contain various covenants including limitations on additional indebtedness and a maximum permitted debt ratio. As ofFebruary 2, 2019, we were in compliance with all debt covenants and expect to remain in compliance during 2019. See the key financial ratiocalculations section below for our debt covenant calculation. Key Financial Ratio Calculations The following tables include our ROA and ROI calculations. All ratios except ROA are non-GAAP financial measures. (Dollars in Millions)2018 2017 2016 Net income$801 $859 $556 Impairments, store closing and other costs 78 - 117 Loss on extinguishment of debt 48 - - Federal tax reform benefits - (136) - State tax settlement - (20) - Adjusted net income 927 703 673 Average total assets (a)$13,161 $13,467 $13,637 ROA (b) 6.1% 6.4% 4.1% Adjusted ROA (b) 7.0% 5.2% 4.9% (a)Represents average of five most recent quarter-end balances. (b)Net income or adjusted net income, as applicable, divided by average total assets.27 Table of Contents (Dollars in Millions)2018 2017 2016 Operating income$1,361 $1,416 $1,183 Depreciation and amortization 964 991 938 Rent expense 301 293 276 EBITDAR 2,626 2,700 2,397 Impairments, store closing and other costs 104 - 186 Adjusted EBITDAR$2,730 $2,700 $2,583 Average: (a) Total assets$13,161 $13,467 $13,637 Cash equivalents and long-term investments (b) (753) (629) (476) Other assets (33) (32) (35) Accumulated depreciation and amortization 7,812 7,217 6,558 Accounts payable (1,580) (1,548) (1,515) Accrued liabilities (1,235) (1,213) (1,252) Other long-term liabilities (658) (674) (620) Capitalized rent (c) 2,831 2,767 2,654 Gross investment (“AGI”)$19,545 $19,355 $18,951 ROI (d) 13.4% 14.0% 12.6% Adjusted ROI (d) 14.0% 14.0% 13.6% (a)Represents average of five most recent quarter-end balances (b)Represents excess cash not required for operations (c)Represents ten times store rent and five times equipment/other rent (d)EBITDAR or adjusted EBITDAR, as applicable, divided by gross investmentThe following table reconciles net cash provided by operating activities (a GAAP measure) to free cash flow (a non-GAAP measure): (Dollars in Millions) 2018 2017 2016 Net cash provided by operating activities $2,107 $1,691 $2,153 Acquisition of property and equipment (578) (672) (768) Capital lease and financing obligation payments (126) (138) (127) Proceeds from financing obligations - - 11 Free cash flow $1,403 $881 $1,269The following table includes our debt/capitalization and Adjusted Debt to Adjusted EBITDAR calculations: (Dollars in Millions) 2018 2017 Capital lease and financing obligations $1,638 $1,717 Long-term debt 1,861 2,797 Debt 3,499 4,514 Equity 5,527 5,419 Capitalization $9,026 $9,933 Debt/capitalization 38.8% 45.4% Total debt $3,499 $4,514 Rent x 8 2,408 2,344 Adjusted debt $5,907 $6,858 Operating income $1,361 $1,416 Depreciation and amortization 964 991 Rent expense 301 293 EBITDAR 2,626 2,700 Impairments, store closing and other costs 104 - Adjusted EBITDAR $2,730 $2,700 Adjusted debt to adjusted EBITDAR 2.16 2.5428 Table of ContentsThe following table includes our debt ratio calculation, as defined by our debt agreements: (Dollars in Millions)2018 Included Indebtedness Consolidated indebtedness $3,511 Permitted exclusions for L/C obligations - Permitted exclusions for unamortized debt discount (2) Subtotal 3,509 Rent x 8 2,408 Included indebtedness $5,917 Debt Compliance EBITDAR Net income $801 Impairments, store closing and other costs 104 Interest charges 256 Income taxes 241 Depreciation and amortization 964 Loss on extinguishment of debt 63 Capital losses from the disposition of fixed assets - Other non-cash expenses reducing net income 100 Subtotal 2,529 Non-cash items increasing net income (7) Capital gains from the disposition of fixed assets (1) Subtotal 2,521 Rent 301 Consolidated EBITDAR $2,822 Debt ratio (a) 2.10 Maximum permitted debt ratio 3.75 (a)Included Indebtedness divided by Consolidated EBITDAR29 Table of ContentsContractual ObligationsOur contractual obligations as of February 2, 2019 were as follows: Maturing in: (Dollars in Millions) Total 2019 2020and2021 2022and2023 2024andafter Recorded contractual obligations: Outstanding long-term debt $1,873 $— $— $534 $1,339 Capital lease and financing obligations 1,157 103 218 170 666 3,030 103 218 704 2,005 Unrecorded contractual obligations: Interest payments: Long-term debt 1,169 89 177 171 732 Capital lease and financing obligations 2,054 157 286 250 1,361 Operating leases (a) 4,977 275 535 498 3,669 Other (b) 856 386 275 142 53 9,056 907 1,273 1,061 5,815 Total $12,086 $1,010 $1,491 $1,765 $7,820 (a)Our leases typically require that we pay taxes, insurance and maintenance costs in addition to the minimum rental payments included in the table above. Suchcosts vary from period to period and totaled $183 million for 2018, $184 million for 2017, and $179 million for 2016. The lease term includes cancelable optionperiods 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 2019 or later, as well as payments associated withtechnology and marketing agreements. Off-Balance Sheet ArrangementsWe have not provided any financial guarantees as of year-end 2018.We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debtor operating our business. We do not have any arrangements or relationships with entities that are not consolidated into the financial statementsthat are reasonably likely to materially affect our financial condition, liquidity, results of operations or capital resources.Critical Accounting Policies and EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to makeestimates and assumptions that affect the reported amounts. Management has discussed the development, selection and disclosure of theseestimates and assumptions with the Audit Committee of our Board of Directors. There have been no significant changes in the critical accountingpolicies and estimates discussed in our 2018 Form 10-K.Retail Inventory Method and Inventory ValuationMerchandise inventories are valued at the lower of cost or market using the retail inventory method (“RIM”). Under RIM, the valuation ofinventory at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventory. RIM is anaveraging 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 thelower of cost or market since permanent markdowns are taken as a reduction of the retail value of inventories. We would record an additionalreserve if the future estimated selling price is less than cost.RIM inherently requires management judgment and estimates, such as the amount and timing of permanent markdowns to clearunproductive or slow-moving inventory, which may impact the ending inventory valuation as well30 Table of Contentsas 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 perform an annual physical inventory count atthe majority of our stores and distribution centers. The shrinkage rate from the most recent physical inventory, in combination with current eventsand historical experience, is used as the standard for the shrinkage accrual rate for the next inventory cycle. Historically, our actual physicalinventory count results have shown our estimates to be reliable.Vendor AllowancesWe frequently receive allowances from our vendors for discounts that we have taken in order to sell the vendor’s merchandise and/or tosupport 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 isrecorded in inventory.We also receive support from vendors for marketing and other costs that we have incurred to sell the vendors’ merchandise. To the extentthe 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 ininventory and reflected as a reduction of costs of merchandise sold when the related merchandise is sold.Insurance Reserve EstimatesWe are primarily self-insured for costs related to workers’ compensation, general liability, and employee-related health care benefits. We usea third-party actuary to estimate the liabilities associated with these risks. The actuary considers historical claims experience, demographic andseverity factors, health care trends, and actuarial assumptions to estimate the liabilities associated with these risks. Historically, our actuarialestimates have not been materially different from actual results.Impairment of Long-Lived AssetsWe review our long-lived assets for impairment when events or changes in circumstances, such as decisions to close a store or significantoperating losses, indicate the carrying value of the asset may not be recoverable. All long-lived assets are reviewed for impairment at leastannually.If our evaluations, which are performed on an undiscounted cash flow basis, indicate that the carrying amount of the asset may not berecoverable, 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 mostsignificant of these estimates is the cash flow expected to result from the use and eventual disposition of the asset. When determining the streamof projected future cash flows associated with an individual store, management estimates future store performance including sales, gross margin,and controllable expenses, such as store payroll and occupancy expense. Projected cash flows must be estimated for future periods throughoutthe 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 numberof factors including general economic conditions, changes in competitive landscape and our ability to effectively manage the operations of thestore.Other than stores which we have closed and the trademark that was impaired in the fourth quarter of 2018, we have not historicallyexperienced any significant impairment of long-lived assets. Additionally, impairment of an31 Table of Contentsindividual building and related improvements, net of accumulated depreciation, would not generally be material to our financial results.Store Closure ReserveIn 2016, we closed numerous leased stores prior to their scheduled lease expiration. In addition to future rent obligations, the closed storereserve includes estimates for operating and other expenses expected to be incurred over the remaining lease term, some of which extend throughJanuary 2030.Income TaxesWe regularly evaluate the likelihood of realizing the benefit for income tax positions we have taken in various federal and state filings byconsidering all relevant facts, circumstances and information available to us. If we believe it is more likely than not that our position will besustained, we recognize a benefit at the largest amount which we believe is cumulatively greater than 50% likely to be realized.Unrecognized tax benefits require significant management judgment regarding applicable statutes and their related interpretation, the statusof various income tax audits and our particular facts and circumstances. Also, as audits are completed or statutes of limitations lapse, it may benecessary to record adjustments to our taxes payable, deferred tax assets, tax reserves or income tax expense. Although we believe we haveadequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different.LeasesAccounting for leased properties requires compliance with technical accounting rules and significant judgment by management. Applicationof these accounting rules and assumptions made by management will determine whether we are considered the owner for accounting purposes orwhether 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 relatedfinancing or capital lease obligation on our balance sheet. The asset is then depreciated over its expected lease term. Rent payments for theseproperties 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 basisover 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 toexercise such options would result in an economic penalty. The expected lease term is used in determining whether the lease isaccounted for as an operating lease or a capital lease. A lease is considered a capital lease if the lease term exceeds 75% of theleased asset’s useful life. The expected lease term is also used in determining the depreciable life of the asset or the straight-line rentrecognition period. Increasing the expected lease term will increase the probability that a lease will be considered a capital lease andwill generally result in higher rent expense for an operating lease and higher interest and depreciation expenses for a leased propertyrecorded on our balance sheet. •Incremental borrowing rate—We estimate our incremental borrowing rate using treasury rates for debt with maturities comparable tothe expected lease term plus our credit spread. The incremental borrowing rate is primarily used in determining whether the lease isaccounted for as an operating lease or a capital lease. A lease is considered a capital lease if the net present value of the leasepayments is greater than 90% of the32 Table of Contents fair market value of the property. Increasing the incremental borrowing rate decreases the net present value of the lease payments andreduces the probability that a lease will be considered a capital lease. For leases which are recorded on our balance sheet with arelated capital lease or financing obligation, the incremental borrowing rate, subject to certain limitations, is also used in allocating ourrental 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 marketdata as provided by third-party appraisers or consideration received from the landlord. Fair market value is used in determining whetherthe 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 thelease payments is greater than 90% of the fair market value of the property. Increasing the fair market value reduces the probabilitythat a lease will be considered a capital lease. Fair market value is also used in determining the amount of property and relatedfinancing obligation to be recognized on our balance sheet for certain leased properties which are considered owned for accountingpurposes.Item 7A. Quantitative and Qualitative Disclosures About Market RiskAll of our long-term debt at year-end 2018 is at fixed interest rates and, therefore, is not affected by changes in interest rates. When ourlong-term debt instruments mature, we may refinance them at the existing market interest rates, which may be more or less than interest rates onthe 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 otherrevenue less write-offs of uncollectible accounts. We also share the costs of funding the outstanding receivables as interest rates exceed definedrates. As a result, our share of profits from the credit card portfolio may be negatively impacted by increases in interest rates. The reducedprofitability, if any, will be impacted by various factors, including our ability to pass higher funding costs on to the credit card holders and theoutstanding receivable balance. Recent increases in interest rates have not had a material impact on our financial results. The impact of futureincreases, if any, cannot be reasonably estimated at this time.33 Table of ContentsItem 8. Financial Statements and Supplementary Data Index to Consolidated Financial StatementsPageConsolidated Financial Statements Report of Independent Registered Public Accounting Firm35Consolidated Balance Sheets36Consolidated Statements of Income37Consolidated Statements of Changes in Shareholders’ Equity38Consolidated Statements of Cash Flows39Notes to Consolidated Financial Statements401. Business and Summary of Accounting Policies402. Revenue Recognition483. Debt494. Lease Commitments505. Benefit Plans506. Income Taxes517. Stock-Based Compensation538. Contingencies559. Quarterly Financial Information (Unaudited)55Schedules have been omitted as they are not applicable. 34 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors of Kohl’s CorporationOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Kohl’s Corporation (the “Company“) as of February 2, 2019 and February3, 2018, the related consolidated statements of income, changes in shareholders’ equity and cash flows, for each of the three years in the periodended February 2, 2019, and the related notes (collectively referred to as the “consolidated financial statements“). In our opinion, the consolidatedfinancial statements present fairly, in all material respects, the financial position of the Company at February 2, 2019 and February 3, 2018, andthe results of its operations and its cash flows for each of the three years in the period ended February 2, 2019, in conformity with U.S. generallyaccepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theCompany’s internal control over financial reporting as of February 2, 2019, based on criteria established in Internal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 22, 2019expressed an unqualified opinion thereon.Adoption of ASU No. 2014-09As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue recognition ineach of the three years in the period ended February 2, 2019 due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers.Basis for OpinionThese financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on theCompany‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our auditsincluded performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts anddisclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis forour opinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 1986.Milwaukee, WisconsinMarch 22, 2019 35 Table of ContentsKOHL’S CORPORATIONCONSOLIDATED BALANCE SHEETS (Dollars in Millions)February 2,2019February 3,2018 As Adjusted (a)Assets Current assets: Cash and cash equivalents $934 $1,308 Merchandise inventories 3,475 3,542 Other 426 530 Total current assets 4,835 5,380 Property and equipment, net 7,428 7,773 Other assets 206 236 Total assets $12,469 $13,389 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $1,187 $1,271 Accrued liabilities 1,364 1,213 Income taxes payable 64 99 Current portion of capital lease and financing obligations 115 126 Total current liabilities 2,730 2,709 Long-term debt 1,861 2,797 Capital lease and financing obligations 1,523 1,591 Deferred income taxes 184 211 Other long-term liabilities 644 662 Shareholders’ equity: Common stock - 374 and 373 million shares issued 4 4 Paid-in capital 3,204 3,078 Treasury stock, at cost, 211 and 205 million shares (11,076) (10,651)Accumulated other comprehensive loss — (11)Retained earnings 13,395 12,999 Total shareholders’ equity $5,527 $5,419 Total liabilities and shareholders’ equity $12,469 $13,389 (a)Refer to Note 2 for details on the adoption of the new revenue recognition accounting standard and the impact on previously reported results. See accompanying Notes to Consolidated Financial Statements 36 Table of ContentsKOHL’S CORPORATIONCONSOLIDATED STATEMENTS OF INCOME (Dollars in Millions, Except per Share Data) 2018 2017 2016 As Adjusted (a) As Adjusted (a) Net sales $19,167 $19,036 $18,636 Other revenue 1,062 1,048 1,045 Total revenue 20,229 20,084 19,681 Cost of merchandise sold 12,199 12,176 11,944 Operating expenses: Selling, general and administrative 5,601 5,501 5,430 Depreciation and amortization 964 991 938 Impairments, store closing and other costs 104 — 186 Operating income 1,361 1,416 1,183 Interest expense, net 256 299 308 Loss on extinguishment of debt 63 — — Income before income taxes 1,042 1,117 875 Provision for income taxes 241 258 319 Net income $801 $859 $556 Net income per share: Basic $4.88 $5.14 $3.12 Diluted $4.84 $5.12 $3.11 (a)Refer to Note 2 for details on the adoption of the new revenue recognition accounting standard and the impact on previously reported results. See accompanying Notes to Consolidated Financial Statements 37 Table of ContentsKOHL’S CORPORATIONCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Common Stock Treasury Stock AccumulatedOther (Dollars in Millions, Except per Share Data) Shares Amount Paid-InCapital Shares Amount ComprehensiveLoss (a) RetainedEarnings Total Balance at January 30, 2016 (previouslyreported) 370 $4 $2,944 (184) $(9,769) $(17) $12,329 $5,491 Change in accounting standard (b) — — — — — — (7) (7)Balance at January 30, 2016(as adjusted) 370 4 2,944 (184) (9,769) (17) 12,322 5,484 Comprehensive income — — — — — 3 556 559 Stock options and awards, net of tax 1 — 59 — (17) — — 42 Dividends paid ($2.00 per common share) — — — — 5 — (363) (358)Treasury stock purchases — — — (13) (557) — — (557)Balance at January 28, 2017(as adjusted) (b) 371 4 3,003 (197) (10,338) (14) 12,515 5,170 Comprehensive income — — — — — 3 859 862 Stock options and awards, net of tax 2 — 75 — (14) — — 61 Dividends paid ($2.20 per common share) — — — — 7 — (375) (368)Treasury stock purchases — — — (8) (306) — — (306)Balance at February 3, 2018(as adjusted) (b) 373 4 3,078 (205) (10,651) (11) 12,999 5,419 Comprehensive income — — — — — 11 801 812 Stock options and awards, net of tax 1 — 126 — (34) — — 92 Dividends paid ($2.44 per common share) — — — — 5 — (405) (400)Treasury stock purchases — — — (6) (396) — — (396)Balance at February 2, 2019 374 $4 $3,204 (211) $(11,076) $— $13,395 $5,527 (a)Includes loss on interest rate derivative and reclassification adjustment for interest expense included in net income. Tax effects of interest rate derivatives were $1 million in2018 and $2 million in 2017 and 2016. (b)Refer to Note 2 for details on the adoption of the new revenue recognition accounting standard and the impact on previously reported results. See accompanying Notes to Consolidated Financial Statements 38 Table of ContentsKOHL’S CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Millions)201820172016 As Adjusted (a) As Adjusted (a) Operating activities Net income $801 $859 $556 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 964 991 938 Share-based compensation 87 55 41 Deferred income taxes (31) (61) 13 Impairments, store closing and other costs 72 — 57 Loss on extinguishment of debt 63 — — Other non-cash revenues and expenses 18 2 30 Changes in operating assets and liabilities: Merchandise inventories 79 264 249 Other current and long-term assets 72 (81) (46) Accounts payable (84) (236) 256 Accrued and other long-term liabilities 67 (52) 82 Income taxes (1) (50) (23) Net cash provided by operating activities 2,107 1,691 2,153 Investing activities Acquisition of property and equipment (578) (672) (768) Other 6 23 12 Net cash used in investing activities (572) (649) (756) Financing activities Treasury stock purchases (396) (306) (557) Shares withheld for taxes on vested restricted shares (34) (14) (17) Dividends paid (400) (368) (358) Reduction of long-term borrowing (943) — — Premium paid on redemption of debt (46) — — Capital lease and financing obligation payments (126) (138) (127) Proceeds from stock option exercises 36 18 18 Proceeds from financing obligations — — 11 Net cash used in financing activities (1,909) (808) (1,030) Net increase (decrease) in cash and cash equivalents (374) 234 367 Cash and cash equivalents at beginning of period 1,308 1,074 707 Cash and cash equivalents at end of period $934 $1,308 $1,074 Supplemental information Interest paid, net of capitalized interest $282 $297 $299 Income taxes paid 308 272 314 Non-cash investing and financing activities Property and equipment acquired through additional liabilities $41 $42 $54 (a)Refer to Note 2 for details on the adoption of the new revenue recognition accounting standard and the impact on previously reported results. See accompanying Notes to Consolidated Financial Statements 39 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business and Summary of Accounting PoliciesBusinessAs of February 2, 2019, we operated 1,159 department stores, a website (www.Kohls.com), 12 FILA outlets, and four Off-Aisle clearancecenters. Our Kohl's stores and website sell moderately-priced proprietary and national brand apparel, footwear, accessories, beauty and homeproducts. Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences. Ourwebsite includes merchandise which is available in our stores, as well as merchandise which is available only online.Our authorized capital stock consists of 800 million shares of $0.01 par value common stock and 10 million shares of $0.01 par valuepreferred stock.ConsolidationThe 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 PeriodOur fiscal year ends on the Saturday closest to January 31st each year. Unless otherwise stated, references to years in these notes relateto fiscal years rather than to calendar years. The following fiscal periods are presented in these notes: Fiscal year Ended Number ofWeeks 2018 February 2, 2019 52 2017 February 3, 2018 53 2016 January 28, 2017 52 Use of EstimatesThe preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements andaccompanying notes. Actual results could differ from those estimates.Cash and Cash EquivalentsIn addition to money market investments, cash equivalents include commercial paper and certificates of deposit with original maturities ofthree 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 $89 million at February 2, 2019 and $83 million at February 3, 2018.40 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Merchandise InventoriesMerchandise inventories are valued at the lower of cost or market using the retail inventory method (“RIM”). Under RIM, the valuation ofinventory at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventory. RIM is anaveraging 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 thelower of cost or market since permanent markdowns are taken as a reduction of the retail value of inventories. We would record an additionalreserve if the future estimated selling price is less than cost.Property and EquipmentProperty and equipment consist of the following: (Dollars in Millions)Feb 2,2019Feb 3,2018 Land $1,110 $1,115 Buildings and improvements: Owned 8,048 8,062 Leased 1,816 1,813 Fixtures and equipment 1,489 1,700 Information technology 2,628 2,337 Construction in progress 299 152 Total property and equipment, at cost 15,390 15,179 Less accumulated depreciation and amortization (7,962) (7,406) Property and equipment, net $7,428 $7,773Construction in progress includes property and equipment which is not ready for its intended use.Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method overthe estimated useful lives of the assets. Leased property and improvements to leased property are amortized on a straight-line basis over the termof 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 improvements5-40 years Fixtures and equipment3-15 years Information technology3-8 years Store Closure and Restructure ReserveThe following table summarizes changes in the store closure and restructure reserve during 2018: (Dollars in Millions) Store LeaseObligations Severance Total Balance - February 3, 2018 $87 - $87 Payments and reversals (21) - (21) Additions 1 31 32 Balance - February 2, 2019 $67 $31 $98 41 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Long-Lived AssetsAll property and equipment and other long-lived assets are reviewed for potential impairment when events or changes in circumstancesindicate that the asset’s carrying value may not be recoverable. If such indicators are present, it is determined whether the sum of the estimatedundiscounted future cash flows attributable to such assets is less than the carrying value of the assets. A potential impairment has occurred ifprojected future undiscounted cash flows are less than the carrying value of the assets. We recorded impairments of $72 million in 2018 and $76million in 2016.Accrued LiabilitiesAccrued liabilities consist of the following: (Dollars in Millions) Feb 2,2019 Feb 3,2018 Gift cards and merchandise return cards $330 $330 Sales, property and use taxes 160 151 Payroll and related fringe benefits 154 173 Credit card liabilities 122 125 Accrued capital 117 62 Other 481 372 Accrued liabilities $1,364 $1,213Self-InsuranceWe 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 fullydeveloped 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 healthcare risks. These liabilities include amounts for both reported claims and incurred, but not reported losses. The total liabilities, net of collateral heldby third parties, for these risks were $56 million as of February 2, 2019 and $53 million as of February 3, 2018.Our self-insured retention for property losses differs based on the type of claim. For the calendar year ended December 31, 2018, theretained amount for catastrophic claims such as earthquakes, floods and windstorms, varied from 2 - 5% of the insurance claim. For otherstandard claims, such as fire and building damages, we were self-insured for the first $250,000 per occurrence of the property loss. Treasury StockWe account for repurchases of common stock and shares withheld in lieu of taxes when restricted stock vests using the cost method withcommon stock in treasury classified in the Consolidated Balance Sheets as a reduction of shareholders’ equity.42 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Revenue Recognition Net Sales Net sales includes revenue from the sale of merchandise and shipping revenues. Net sales are recognizedwhen merchandise is received by the customer and we have fulfilled all performance obligations. We do not haveany sales that are recorded as commissions. The following table summarizes net sales by line of business: (Dollars in Millions)2018 2017 2016 Women's$5,366 $5,711 $5,591 Men's 4,025 3,807 3,727 Home 3,642 3,617 3,541 Children's 2,492 2,475 2,423 Footwear 1,917 1,785 1,595 Accessories 1,725 1,641 1,759 Net sales$19,167 $19,036 $18,636 We maintain various rewards programs whereby customers earn rewards based on their spending and other promotional activities. Therewards are typically in the form of dollar-off discounts which can be used on futurepurchases. These programs create performance obligations which require us to defer a portion of the original saleuntil the rewards are redeemed. Sales are recorded net of returns. At the end of each reporting period, we record areserve based on historical return rates and patterns which reverses sales that we expect to be returned in thefollowing period. Revenue from the sale of Kohl's gift cards is recognized when the gift card is redeemed. Liabilitiesfor performance obligations resulting from our rewards programs, return reserves, and unredeemed gift cards andmerchandise return cards totaled $413 million as of February 2, 2019 and $422 million as of February 3, 2018. Net sales do not include sales tax as we are considered a pass-through conduit for collecting and remittingsales taxes. Other Revenue Other revenue consists primarily of revenue from our credit card operations, unredeemed gift and merchandise return cards (breakage), andother non-merchandise revenues. Revenue from credit card operations includes our share of the finance charges and interest fees, less charge-offs of the Kohl’s credit cardpursuant to the Private Label Credit Card Program Agreement. Expenses related to our credit card operations are reported in SG&A. Income from unredeemed gift cards and merchandise return cards (breakage) is recorded in proportion andover the time period the cards are actually redeemed.43 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Cost of Merchandise Sold and Selling, General and Administrative ExpensesThe following table illustrates the primary costs classified in Cost of Merchandise Sold and Selling, General and Administrative Expenses: Cost of Merchandise SoldSelling, General andAdministrative Expenses • Total cost of products sold including product development costs, netof vendor payments other than reimbursement of specific,incremental and identifiable costs • Inventory shrink • Markdowns • Freight expenses associated with moving merchandise from ourvendors to our distribution centers • Shipping expenses for digital sales • Terms cash discount • Depreciation of product development facilities and equipment • Compensation and benefit costs including:• Stores• Corporate headquarters, including buying and merchandising• Distribution centers • Occupancy and operating costs of our retail, distribution andcorporate facilities • Expenses related to our Kohl’s credit card operations • Freight expenses associated with moving merchandise from ourdistribution centers to our retail stores and between distribution andretail facilities • Marketing expenses, offset by vendor payments for reimbursementof specific, incremental and identifiable costs • Other non-operating revenues and expensesThe classification of these expenses varies across the retail industry.Vendor AllowancesWe receive consideration for a variety of vendor-sponsored programs, such as markdown allowances, volume rebates, and promotion andmarketing support. The vendor consideration is recorded as earned either as a reduction of inventory costs or Selling, General and AdministrativeExpenses. Promotional and marketing allowances are intended to offset our marketing costs to promote vendors’ merchandise. Markdownallowances and volume rebates are recorded as a reduction of inventory costs.Fair ValueFair 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-countertraded financial instruments. The prices for the financial instruments are determined using prices for recentlytraded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, suchas 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 wherethere is little, if any, market activity for the financial instrument. The prices are determined using significantunobservable inputs or valuation techniques.Current assets and liabilities are reported at cost, which approximates fair value.44 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) LeasesWe 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 overruns ornon-standard tenant improvements (e.g. roof or HVAC systems). As a result of this involvement, we are deemed the “owner” for accountingpurposes 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 arereimbursed a portion of the construction costs via adjusted rental payments and/or cash payments or have terms which fix the rental payments fora significant percentage of the leased asset’s economic life. These items generally are considered “continuing involvement” which precludes usfrom derecognizing the assets from our Balance Sheet when construction is complete. In conjunction with these leases, we also record financingobligations equal to the cash proceeds or fair market value of the assets received from the landlord. At the end of the lease term, includingexercise 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, rentalpayments under the lease are recognized as a reduction of the financing obligation and interest expense.Some of our leased property and equipment are recorded as capital leases. These assets are included in property and equipment anddepreciated over the term of the lease. We do not report rent expense for capital leases. Rather, rental payments under the lease are recognizedas a reduction of the capital lease obligation and interest expense.All other leases are considered operating leases. Assets subject to an operating lease and the related lease payments are not recorded onour 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 thebuilding or land, whichever is earlier. The lease term includes cancelable option periods where failure to exercise such options would result in aneconomic penalty. Failure to exercise such options would result in the recognition of accelerated depreciation expense of the related assets.MarketingMarketing costs are expensed when the marketing is first seen. Marketing costs, net of related vendor allowances, are as follows: (Dollars in Millions) 2018 2017 2016 Gross marketing costs $1,133 $1,124 $1,164 Vendor allowances (143) (138) (148) Net marketing costs $990 $986 $1,016 Net marketing costs as a percent of total revenue 4.9% 4.9% 5.2% 45 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Income TaxesIncome taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recordedbased on differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized forincome tax purposes. Deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect whenthe differences are expected to reverse. We establish valuation allowances for deferred tax assets when we believe it is more likely than not thatthe asset will not be realizable for tax purposes. We recognize interest and penalty expense related to unrecognized tax benefits in our provisionfor income tax expense.Net Income Per ShareBasic net income per share is net income divided by the average number of common shares outstanding during the period. Diluted netincome 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 and Shares in Millions, Except per Share Data) 2018 2017 2016 Numerator—net income $801 $859 $556 Denominator—weighted average shares Basic 164 167 178 Impact of dilutive share-based awards 1 1 1 Diluted 165 168 179 Anti-dilutive shares - 2 3 Net income per share: Basic $4.88 $5.14 $3.12 Diluted $4.84 $5.12 $3.11 Share-Based AwardsStock-based compensation expense is generally recognized on a straight-line basis over the vesting period based on the fair value ofawards which are expected to vest. The fair value of all share-based awards is estimated on the date of grant.46 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Recent Accounting PronouncementsThe following table provides a brief description of issued, but not yet effective, accounting standards: StandardDescriptionEffect on our Financial StatementsLeases(ASC Topic 842) Issued February 2016 Effective Q1 2019We will adopt the new standardeffective February 3, 2019, as required,using a modified prospective transitionmethod. The new standard includes several practical expedients that wereavailable to reduce the burden of implementing the standard. •We will not restate prior period financials.•We elected the package of practical expedients, which, amongother things, allowed us to carryforward our historical leaseclassifications.•We did not elect the hindsight practical expedient which would allowus to revisit key assumptions, such as lease term, that weremade when we originally entered into the lease. •We are combining lease and non-lease costs.Adoption of the new standard is expected to result in the recording ofadditional assets and liabilities of approximately $2 billion as of February3, 2019. Substantially all of the change will be due to recording right-of-use assets and lease liabilities for land and other operating leases on thebalance sheet. The difference between additional lease assets and leaseliabilities, net of tax, will be recorded as an adjustment to retainedearnings. Adoption of the new standard is expected to increase 2019 net incomeby approximately $5 million. We expect Selling, General andAdministrative expense will increase by approximately $25 million,Depreciation and Amortization will decrease by approximately $25 millionand Interest will decrease by approximately $10 million. Substantially allof the income statement changes will be due to leases that changedclassification under the new standard. Cloud Computing(ASU 2018-15) Issued August 2018 Effective Q1 2020Under the new standard, implementationcosts related to a cloud computingarrangement will be deferred or expensedas incurred, in accordance with theexisting internal-use software guidancefor similar costs.The new standard also prescribes thebalance sheet, income statement, andcash flow classification of the capitalizedimplementation costs and relatedamortization expense. We are evaluating the impact of the new standard, but believe it isgenerally consistent with our current accounting for cloud computingarrangements and will not have a material impact on our financials.g 47 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 2. Revenue Recognition Effective February 4, 2018, we adopted Revenue from Contracts with Customers (ASC Topic 606) as required. We adopted the newstandard using the full retrospective method. The standard eliminated the transaction and industry specific revenue recognition guidance underprior U.S. GAAP and replaced it with the principles-based approach for revenue recognition and disclosures. Under the standard, revenue isrecognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects toreceive in exchange for those goods or services. The following tables summarize the impact of adoption of the new standard by financial statement line item: 2017(Dollars in Millions, Except per Share Data)As Previously Reported New StandardAdjustment Adjusted Net sales$19,095 $(59)$19,036 Other revenue 1,048 1,048 Total revenue 989 20,084 Cost of merchandise sold 12,176 - 12,176 Gross margin 6,919 Operating expenses: Selling, general and administrative 4,512 989 5,501 Depreciation and amortization 991 - 991 Operating income 1,416 - 1,416 Interest expense, net 299 - 299 Income before income taxes 1,117 - 1,117 Provision for income taxes 258 - 258 Net income$859 $- $859 Net income per share: Basic$5.14 $- $5.14 Diluted$5.12 $- $5.12 2016(Dollars in Millions, Except per Share Data)As Previously Reported New StandardAdjustment Adjusted Net sales$18,686 $(50)$18,636 Other revenue 1,045 1,045 Total revenue 995 19,681 Cost of merchandise sold 11,944 11,944 Gross margin 6,742 Operating expenses: Selling, general and administrative 4,435 995 5,430 Depreciation and amortization 938 - 938 Impairments, store closing and other costs 186 - 186 Operating income 1,183 - 1,183 Interest expense, net 308 - 308 Income before income taxes 875 - 875 Provision for income taxes 319 - 319 Net income$556 $- $556 Net income per share: Basic$3.12 $- $3.12 Diluted$3.11 $- $3.11 48 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) February 3, 2018(Dollars in Millions)As PreviouslyReported New StandardAdjustment Adjusted Assets Current assets: Cash and cash equivalents$1,308 $- $1,308 Merchandise inventories 3,542 - 3,542 Other 481 49 530 Total current assets 5,331 49 5,380 Property and equipment, net 7,773 - 7,773 Other assets 236 - 236 Total assets$13,340 $49 $13,389 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable$1,271 $- $1,271 Accrued liabilities 1,155 58 1,213 Income taxes payable 99 - 99 Current portion of capital lease and financing obligations 126 - 126 Total current liabilities 2,651 58 2,709 Long-term debt 2,797 - 2,797 Capital lease and financing obligations 1,591 - 1,591 Deferred income taxes 213 (2) 211 Other long-term liabilities 662 - 662 Total shareholders’ equity 5,426 (7) 5,419 Total liabilities and shareholders’ equity$13,340 $49 $13,389 The adoption of the new standard had no impact on our basic or diluted earnings per share or our net cash provided by (used in)operating, financing, or investing activities. 3. DebtLong-term debt includes the following unsecured senior debt: Maturity(Dollars in Millions)EffectiveRateCouponRateOutstanding Feb 2, 2019Feb 3, 2018 2021 4.81% 4.00%$ - $650 2023 3.25% 3.25% 350 350 2023 4.78% 4.75% 184 300 2025 4.25% 4.25% 650 650 2029 7.36% 7.25% 42 99 2033 6.05% 6.00% 113 166 2037 6.89% 6.88% 101 150 2045 5.57% 5.55% 433 450 Outstanding long-term debt 1,873 2,815 Unamortized debt discounts and deferred financingcosts (12) (18) Long-term debt $1,861 $2,797 Effective interest rate 4.74% 4.88%s Our long-term debt is classified as Level 1, financial instruments with unadjusted, quoted prices listed on active market exchanges. Theestimated fair value of our long-term debt was $1.8 billion at February 2, 2019 and $2.9 billion at February 3, 2018. 49 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) In 2018, we reduced our outstanding debt by $943 million including $500 million of which was repurchased pursuant to a cash tender offer,$413 million of which was the voluntary redemption of our 2021 bonds, and $30 million of which was bonds we repurchased on the open market. Inconjunction with the debt reduction, we recorded a $63 million loss on extinguishment of debt which includes $46 million of premiums paid toholders of the debt, $12 million related to an interest rate hedge, and $5 million of deferred financing fees and original issue discounts. Theseactions extended the remaining maturity of the portfolio for an additional two years.Our various debt agreements contain covenants including limitations on additional indebtedness and certain financial tests. As of February2, 2019, we were in compliance with all covenants of the various debt agreements.We also had outstanding trade letters of credit totaling approximately $54 million at February 2, 2019 issued under uncommitted lines withtwo banks. 4. Lease CommitmentsRent expense charged to operations was $301 million for 2018, $293 million for 2017, and $276 million for 2016. In addition to rentpayments, we are often required to pay real estate taxes, insurance and maintenance costs on leased properties. These items are not included inthe future minimum lease payments listed below. Many store leases include multiple renewal options, exercisable at our options that generallyrange from four to eight additional five-year periods.Future minimum lease payments at February 2, 2019 were as follows: (Dollars in Millions) Capital Leaseand FinancingObligations OperatingLeases Fiscal year: 2019 $260 $275 2020 263 270 2021 241 265 2022 222 254 2023 198 244 Thereafter 2,027 3,669 3,211 $4,977 Non-cash gain on future sale of property 481 Amount representing interest (2,054) Present value of lease payments $1,638 5. Benefit PlansWe have a defined contribution savings plan covering all full-time and certain part-time associates. Participants in this plan may invest up to99% of their base compensation, subject to certain statutory limits. We match 100% of the first 5% of each participant’s contribution, subject tocertain statutory limits.We also offer a non-qualified deferred compensation plan to a group of executives which provides for pre-tax compensation deferrals up to75% of salary and 100% of bonus. Deferrals and credited investment returns are 100% vested.50 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The total costs for these benefit plans were $50 million for 2018, $49 million for 2017, and $47 million for 2016. 6. Income TaxesDeferred income taxes consist of the following: (Dollars in Millions) Feb 2,2019 Feb 3,2018 Deferred tax liabilities: Property and equipment $756 $788 Merchandise inventories 73 63 Total deferred tax liabilities 829 851 Deferred tax assets: Capital lease and financing obligations 425 445 Accrued and other liabilities, including stock-basedcompensation 136 108 Accrued step rent liability 79 76 Federal benefit on state tax reserves 29 30 Unrealized loss on interest rate swap — 5 Total deferred tax assets 669 664 Net deferred tax liability $160 $187Deferred tax assets included in other long-term assets totaled $24 million as of February 2, 2019 and $25 million as of February 3, 2018.The components of the provision for income taxes were as follows: (Dollars in Millions) 2018 2017 2016 Current federal $229 $299 $272 Current state 43 26 25 Deferred federal (36) (86) 16 Deferred state 5 19 6 Provision for income taxes $241 $258 $319 On December 22, 2017, H.R. 1, originally the Tax Cuts & Jobs Act, was signed into law making significant changes to the Internal RevenueCode. Changes include a corporate rate decrease from 35% to 21%, effective January 1, 2018, as well as a variety of other changes including theacceleration of expensing of certain business assets and reductions in the amount of executive pay that could qualify as a tax deduction. On December 22, 2017, Staff Accounting Bulletin No. 118 was issued to address the application of U.S. GAAP in situations when aregistrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certainincome tax effects of the Act. As of December 22, 2018, all impacts of the Act were analyzed and recorded. Adjustments recorded in 2018 werenot material.The effective tax rate differs from the amount that would be provided by applying the statutory U.S. corporate tax rate due to the followingitems: 51 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 2018 2017 2016 Provision at statutory rate 21.0% 33.7% 35.0% State income taxes, net of federal tax benefit 3.8 1.0 2.4 Re-measurement of deferred tax assets and liabilities — (10.9) — Other federal tax credits (1.0) (0.7) (0.9) Other (0.6) — — Provision for income taxes 23.2% 23.1% 36.5% The re-measurement of deferred tax assets and liabilities in 2017 includes the following impacts: •Revaluation of deferred taxes that existed on December 22, 2017, the enactment date of the Act •Deferred taxes that were created after December 22, 2017. These items were deducted at the federal statutory rate of 33.7%, butwill reverse at the 21% rate.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 allopen tax years in these jurisdictions. The federal returns subject to examination are for 2008 through 2018 tax years, excluding the 2014 tax year.State returns subject to examination vary depending upon the state. Generally, 2015 through 2018 tax years are subject to state examination. Theearliest state open period is 2006. 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.A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows: (Dollars in Millions) 2018 2017 Balance at beginning of year $135 $149 Increases due to tax positions taken in current year 13 18 Decreases due to: Tax positions taken in prior years (3) (13) Settlements with taxing authorities (3) (16) Lapse of applicable statute of limitations (9) (3) Balance at end of year $133 $135Not included in the unrecognized tax benefits reconciliation above are gross unrecognized accrued interest and penalties of $31 million atFebruary 2, 2019 and $33 million at February 3, 2018. Interest and penalty expenses were $5 million in 2018, $4 million in 2017, and $6 million in2016.Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $110 million as of February 2, 2019 and $112million as of February 3, 2018. It is reasonably possible that our unrecognized tax positions may change within the next 12 months, primarily as aresult 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 asignificant 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 currentassets totaled $29 million as of February 2, 2019 and $62 million as of February 3, 2018. 52 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 7. Stock-Based CompensationWe currently grant share-based compensation pursuant to the Kohl’s Corporation 2017 Long-Term Compensation Plan, which provides forthe granting of various forms of equity-based awards, including nonvested stock, performance share units and options to purchase shares of ourcommon stock, to officers, key employees and directors. As of February 2, 2019, there were 9.0 million shares authorized and 8.3 million sharesavailable for grant under the 2017 Long-Term Compensation Plan. Options and nonvested stock that are surrendered or terminated withoutissuance of shares are available for future grants. We also have outstanding options and other awards which were granted under previouscompensation plans.Annual grants are typically made in the first quarter of the fiscal year. Grants to newly-hired and promoted employees and otherdiscretionary grants are made periodically throughout the remainder of the year.Stock OptionsThe majority of stock options granted to employees vest in five equal annual installments. Outstanding options granted to employees after2005 have a term of seven years. Outstanding options granted to employees prior to 2006 have a term of up to 15 years. Outstanding optionsgranted 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 eachoption award was estimated using a Black-Scholes option valuation model.The following table summarizes our stock option activity: 2018 2017 2016 (Shares in Thousands) Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Balance at beginning of year 1,139 $50.51 2,350 $53.29 3,076 $52.65 Exercised (1,001) 50.37 (359) 50.94 (410) 46.86 Forfeited/expired (2) 53.52 (852) 58.00 (316) 55.39 Balance at end of year 136 $51.48 1,139 $50.51 2,350 $53.29 The intrinsic value of options exercised represents the excess of our stock price at the time the option was exercised over the exerciseprice and was $16 million in 2018, $3 million in 2017, and $2 million in 2016. Additional information related to stock options outstanding and exercisable at February 2, 2019 is summarized below: (Shares in Thousands) Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Shares WeightedAverageRemainingContractualLife (inyears) WeightedAverageExercisePrice Shares WeightedAverageRemainingContractualLife (inyears) WeightedAverageExercisePrice $ 46.20 - $ 58.09 136 1.7 $51.48 116 1.6 $51.03 Intrinsic value (in thousands) $2,072 $1,820 53 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The intrinsic value of outstanding and exercisable stock options represents the excess of our closing stock price on February 2,2019 ($66.69) over the exercise price multiplied by the applicable number of stock options.Nonvested Stock AwardsWe have also awarded shares of nonvested common stock to eligible key employees and to our Board of Directors. Substantially all awardshave restriction periods tied primarily to employment and/or service. Employee awards generally vest over five years. Director awards vest overthe term to which the director was elected, generally one year. In lieu of cash dividends, holders of nonvested stock awards are granted restrictedstock 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 fromemployees 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.The following table summarizes nonvested stock activity, including restricted stock equivalents issued in lieu of cash dividends: 2018 2017 2016 (Shares in Thousands) Shares WeightedAverageGrantDate FairValue Shares WeightedAverageGrantDate FairValue Shares WeightedAverageGrantDate FairValue Balance at beginning of year 2,811 $45.60 2,163 $52.75 2,211 $57.37 Granted 1,086 63.25 1,624 39.69 1,128 46.61 Vested (1,202) 47.69 (772) 52.14 (935) 55.54 Forfeited (94) 49.08 (204) 59.58 (241) 55.54 Balance at end of year 2,601 $51.90 2,811 $45.60 2,163 $52.75 The aggregate fair value of awards at the time of vesting was $57 million in 2018, $40 million in 2017 and $52 million in 2016. Performance Share UnitsWe grant performance-based share units ("performance share units") to certain executives. The performance measurement period for theseperformance share units is three fiscal years. The fair market value of the grants is 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 financialperformance over the vesting periods. The number of performance share units earned will be modified up or down based on Kohl’s Relative TotalShareholder Return against a defined peer group during the vesting periods. The payouts, if earned, will be settled in Kohl's common stock afterthe end of each multi-year performance periods.54 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) The following table summarizes performance share unit activity by year of grant: 2018 2017 2016 (Shares in Thousands) Shares WeightedAverageGrantDate FairValue Shares WeightedAverageGrantDate FairValue Shares WeightedAverageGrantDate FairValue Balance at beginning of year 660 $44.97 512 $57.82 357 $63.58 Granted 253 61.47 365 40.83 309 47.89 Vested (38) 78.35 (106) 57.58 — — Forfeited (5) 46.91 (111) 78.35 (154) 59.74 Balance at end of year 870 $51.68 660 $44.97 512 $57.82Other Required DisclosuresStock-based compensation expense, other than that included in Impairments, store closing and other costs, is included in Selling, Generaland Administrative Expenses in our Consolidated Statements of Income. Stock-based compensation expense totaled $87 million for 2018, $55million for 2017 and $44 million for 2016. At February 2, 2019, we had approximately $109 million of unrecognized share-based compensationexpense, which is expected to be recognized over a weighted-average period of 1.3 years.8. ContingenciesAt any time, we may be subject to investigations, legal proceedings, or claims related to the on-going operation of our business, includingclaims both by and against us. Such proceedings typically involve claims related to various forms of liability, contract disputes, allegations ofviolations of laws or regulations or other actions brought by us or others including our employees, consumers, competitors, suppliers orgovernmental agencies. We routinely assess the likelihood of any adverse outcomes related to these matters on a case by case basis, as well asthe potential ranges of losses and fees. We establish accruals for our potential exposure, as appropriate, for significant claims against us whenlosses become probable and reasonably estimable. Where we are able to reasonably estimate a range of potential losses relating to significantmatters, we record the amount within that range that constitutes our best estimate. We also disclose the nature of and range of loss for claimsagainst us when losses are reasonably possible and material. These accruals and disclosures are determined based on the facts andcircumstances related to the individual cases and require estimates and judgments regarding the interpretation of facts and laws, as well as theeffectiveness of strategies or other factors beyond our control. 9. Quarterly Financial Information (Unaudited) 2018 (Dollars and Shares in Millions, Except per Share Data) First Second Third Fourth Total revenue $4,208 $4,570 $4,628 $6,823 Cost of merchandise sold $2,496 $2,605 $2,752 $4,345 Selling, general and administrative expenses $1,259 $1,272 $1,375 $1,694 Loss on extinguishment of debt $42 — — $21 Impairments, store closing and other costs — — — $104 Net income $75 $292 $161 $272 Basic shares 165 165 164 162 Basic net income per share $0.46 $1.77 $0.98 $1.68 Diluted shares 167 166 165 163 Diluted net income per share $0.45 $1.76 $0.98 $1.67 55 Table of ContentsKOHL’S CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 2017 As adjusted (a) (Dollars and Shares in Millions, Except per Share Data) First Second Third Fourth Total revenue $4,065 $4,395 $4,567 $7,057 Cost of merchandise sold $2,428 $2,525 $2,727 $4,497 Selling, general and administrative expenses $1,214 $1,220 $1,340 $1,726 Net income $66 $208 $117 $468 Basic shares 170 168 166 165 Basic net income per share $0.39 $1.24 $0.70 $2.83 Diluted shares 171 168 166 167 Diluted net income per share $0.39 $1.24 $0.70 $2.81 (a)Refer to Note 2 for details on the adoption of the new revenue recognition accounting standard and the impact on previously reported resultsDue to changes in stock prices during the year and timing of share repurchases and issuances, the sum of quarterly net income per sharemay not equal the annual net income per share.56 Table of ContentsItem 9. Changes In and Disagreements with Accountants on Accounting and Financial DisclosuresNoneItem 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresUnder the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, wecarried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (the “Evaluation”) at areasonable 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 andprocedures are effective at the reasonable assurance level. "Disclosure controls and procedures" is defined by Rule 13a-15(e) of the SecuritiesExchange Act of 1934 (the "Exchange Act") as controls and other procedures that are designed to ensure that information required to be disclosedin the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified bythe SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to ourmanagement, 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 howremote.Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal controlsystem was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentationof our published financial statements.All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to beeffective can provide only reasonable assurance with respect to financial statement preparation and presentation.Our management assessed the effectiveness of our internal control over financial reporting as of February 2, 2019. In making thisassessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control—Integrated Framework (2013 Framework). Based on this assessment, our management has concluded that as of February 2,2019, 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 thisAnnual Report on Form 10-K and, as part of its audit, has issued an attestation report, included herein, on the effectiveness of our internal controlover financial reporting.Changes in Internal Control Over Financial ReportingDuring the last fiscal quarter, there were no changes in our internal controls that have materially affected or are reasonably likely tomaterially affect such controls, including any corrective actions with regard to significant deficiencies and material weaknesses.57 Table of ContentsReport of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Kohl’s CorporationOpinion on Internal Control over Financial ReportingWe have audited Kohl’s Corporation’s internal control over financial reporting as of February 2, 2019, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)(the COSO criteria). In our opinion, Kohl’s Corporation (the Company) maintained, in all material respects, effective internal control over financialreporting as of February 2, 2019, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated balance sheets of the Company as of February 2, 2019 and February 3, 2018, and the related consolidated statements of income,changes in shareholders’ equity and cash flows for each of the three years in the period ended February 2, 2019, and the related notes and ourreport dated March 22, 2019, expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. Weare a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit toobtain 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 proceduresas we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe 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 ofany evaluation of effectiveness to future periods are subject to the risk that58 Table of Contentscontrols may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate. /s/ Ernst & Young LLP Milwaukee, WisconsinMarch 22, 2019Item 9B. Other InformationNone PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceFor information with respect to our Directors, the Board of Directors’ committees and our written code of ethics, see the applicable portionsof the “Questions and Answers About our Board of Directors and Corporate Governance Matters” and “Item One: Election of Directors” sections ofthe Proxy Statement for our May 15, 2019 Annual Meeting of Shareholders (“our 2019 Proxy”), which information is incorporated herein byreference. For information with respect to Section 16 reports, see the information provided in the “Section 16(a) Beneficial Ownership ReportingCompliance” section of our 2019 Proxy, which information is incorporated herein by reference.Any amendment to or waiver from the provisions of the Code of Ethics that is applicable to our Chief Executive Officer, Chief FinancialOfficer or other key finance associates will be disclosed on the “Corporate Governance” portion of http://corporate.kohls.com. We intend to satisfyour disclosure requirements under item 5.05 of form 8-K regarding any amendments or waivers by posting such information at this location or ourwebsite.See also Item 4A, Executive Officers of Part 1.Item 11. Executive CompensationSee the information provided in the applicable portions of the “Questions and Answers About our Board of Directors and CorporateGovernance Matters” and “Item One: Election of Directors” sections of our 2019 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 MattersSee the information provided in the “Security Ownership of Certain Beneficial Owners, Directors and Management” section of our 2019Proxy, which information is incorporated herein by reference.59 Table of ContentsThe following table includes shares of common stock outstanding and available for issuance under our existing equity compensation plansas of February 2, 2019: Plan Category(a)Number of Securities to be IssuedUpon Exercise of OutstandingOptions, Warrants and Rights (b)Weighted-Average Exercise Priceof Outstanding Options, Warrantsand Rights (c)Number of Securities RemainingAvailable for Future IssuanceUnder Equity CompensationPlans (excluding securitiesreflected in column (a)) Equity compensation plans approved by security holders 136,209 $51.48 8,260,763 Equity compensation plans not approved by security holders(a) — — — Total 136,209 $51.48 8,260,763 (a)All of our existing equity compensation plans have been approved by shareholders.Item 13. Certain Relationships and Related Transactions, and Director IndependenceSee the information provided in the “Independence Determinations & Related Person Transactions” section of our 2019 Proxy, whichinformation is incorporated herein by reference.Item 14. Principal Accounting Fees and ServicesSee the information provided in the “Fees Paid to Ernst & Young” section of our 2019 Proxy, which information is incorporated herein byreference.60 Table of ContentsPART IVItem 15. Exhibits and Financial Statement SchedulesDocuments filed as part of this report 1.Consolidated Financial Statements:See Index to Consolidated Financial Statements, the Report of Independent Registered Public Accounting Firm and the ConsolidatedFinancial Statements, in Part II, Item 8 of this Form 10-K. 2.Financial Statement Schedule:All schedules have been omitted as they are not applicable. 3.Exhibits:ExhibitDescription Document if Incorporated by Reference3.1Amended and Restated Articles of Incorporation of the Company Exhibit 3.1 of the Company’s Current Report on Form 8-K filedon May 16, 20113.2Amended and Restated Bylaws of the Company Exhibit 3.1 of the Company’s Current Report on Form 8-K filedon November 13, 20154.1Second Amended and Restated Credit Agreement dated asof November 3, 2017 by and among the Company, the Lendersparty thereto, Wells Fargo Bank, National Association, asAdministrative Agent, Swing Line Lender and Issuing Bank, Bank ofAmerica, N.A., JPMorgan Chase Bank, N.A., The Bank of Tokyo-Mitsubishi UFJ, Ltd. and U.S. Bank National Association, asSyndication Agents, Swing Line Lenders and Issuing Banks, CapitalOne, N.A., Goldman Sachs Bank USA and Morgan Stanley SeniorFunding, Inc., as Documentation Agents, and Wells FargoSecurities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated,JP Morgan Chase Bank, N.A., The Bank of Tokyo-Mitsubishi UFJ,Ltd. and U.S. Bank National Association, as Joint Lead Arrangersand Bookrunner Exhibit 4.1 of the Company's Current Report on Form 8-K filedon November 3, 20174.2Certain other long-term debt is described in Note 2 of the Notes toConsolidated Financial Statements. The Company agrees to furnishto the Commission, upon request, copies of any instruments definingthe rights of holders of any such long-term debt described in Note 2and not filed herewith. 10.1Private Label Credit Card Program Agreement dated as of August11, 2010 by and between Kohl’s Department Stores, Inc. and CapitalOne, National Association Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Qfor the fiscal quarter ended July 31, 201010.2Amendment to Private Label Credit Card Program Agreement datedas of May 13, 2014 by and between Kohl's Department Stores, Inc.and Capital One, National Association Exhibit 10.2 of the Company's Quarterly Report on Form 10-Qfor the fiscal quarter ended May 3, 201410.3Amended and Restated Executive Deferred Compensation Plan* Exhibit 10.1 of the Company’s Annual Report on Form 10-Kfor the fiscal year ended February 1, 200310.4Kohl’s Corporation 2005 Deferred Compensation Plan, as amendedand restated effective January 1, 2005* Exhibit 10.4 of the Company’s Annual Report on Form 10-Kfor the fiscal year ended January 28, 2006 61 Table of ContentsExhibit Description Document if Incorporated by Reference10.5 Summary of Executive Medical Plan* Exhibit 10.6 of the Company’s Annual Report on Form 10-K forthe fiscal year ended January 29, 200510.6 Summary of Executive Life and Accidental Death andDismemberment Plans* Exhibit 10.7 of the Company’s Annual Report on Form 10-K forthe fiscal year ended January 29, 200510.7 Kohl’s Corporation Annual Incentive Plan* Annex B to the Proxy Statement on Schedule 14A filed onMarch 24, 2016 in connection with the Company’s 2016 AnnualMeeting of Shareholders10.8 1997 Stock Option Plan for Outside Directors* Exhibit 4.4 of the Company's registration statements on FormS-8 (File No. 333-26409), filed on May 2, 1997 10.9 Amended and Restated 2003 Long-Term Compensation Plan* Exhibit 10.1 of the Company's Quarterly Report on Form 10-Qfor the fiscal quarter ended August 2, 2008 10.10 Kohl’s Corporation 2010 Long-Term Compensation Plan* Annex A to the Proxy Statement on Schedule 14A filed onMarch 24, 2016 in connection with the Company’s 2016 AnnualMeeting10.11 Form of Executive Performance Share Agreement pursuant to theKohl’s Corporation 2010 Long Term Compensation Plan* Exhibit 99.1 of the Company’s Current Report on Form 8-K filedon January 15, 201410.12 Form of Executive Restricted Stock Agreement pursuant to theKohl’s Corporation 2010 Long Term Compensation Plan (4-yearvesting)* Exhibit 99.2 of the Company’s Current Report on Form 8-K filedon January 15, 201410.13 Form of Outside Director Restricted Stock Agreement pursuant tothe Kohl’s Corporation 2010 Long Term Compensation Plan* Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Qfor the fiscal quarter ended May 1, 201010.14 Kohl's Corporation 2017 Long-Term Compensation Plan* Annex A to the Proxy Statement on Schedule 14A filed onMarch 13, 2017 in connection with the company's 2017 AnnualMeeting 10.15 Form of Executive Restricted Stock Agreement pursuant to theKohl's Corporation 2017 Long-Term Compensation Plan* Exhibit 10.2 of the Company's Quarterly Report on Form 10-Qfor the fiscal quarter ended July 29, 2017 10.16 Form of Executive Performance Share Unit Agreement pursuant tothe Kohl's Corporation 2017 Long-Term Compensation Plan* Exhibit 10.1 of the Company's Quarterly Report on Form 10-Qfor the fiscal quarter ended July 29, 201710.17 Non-Employee Director Compensation Program* Exhibit 10.1 of the Company's Quarterly Report on Form 10-Qfor the fiscal quarter ended November 3, 2018 10.18 Amended and Restated Employment Agreement between Kohl’sCorporation and Kohl’s Department Stores, Inc. and Kevin Manselldated as of November 14, 2014* Exhibit 99.1 of the Company’s Current Report on Form 8-K filedon November 14, 2014 62 Table of ContentsExhibit Description Document if Incorporated by Reference 10.19 Amended and Restated Employment Agreement between Kohl’sDepartment Stores, Inc. and Kohl’s Corporation and Michelle Gasseffective as of September 25, 2017* Exhibit 10.1 of the Company's Current Report on Form 8-K filed onSeptember 29, 2017 10.20 Amended and Restated Employment Agreement between Kohl’sDepartment Stores, Inc. and Kohl’s Corporation and Sona Chawlaeffective as of September 25, 2017* Exhibit 10.3 of the Company's Current Report on Form 8-K filed onSeptember 29, 201710.21 Employment Agreement between Kohl’s Department Stores, Inc. andKohl’s Corporation and Bruce H. Besanko effective as of July 10,2017* Exhibit 10.2 of the Company's Current Report on Form 8-K filed onJuly 14, 201710.22 Employment Agreement between Kohl's Department Stores, Inc. andKohl's Corporation and Doug Howe effective as of May 14, 2018* Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q forthe fiscal quarter ended August 4, 201810.23 Form of SEVP Employment Agreement* Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q forthe fiscal quarter ended May 5, 201821.1 Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP. 31.1 Certification of the Chief Executive Officer pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002. 32.1 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. 32.2 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. Item 16. Form 10-K SummaryNot applicable.63 Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized. Kohl’s Corporation By:/s/ MICHELLE GASS Michelle Gass Chief Executive Officer and Director (Principal Executive Officer) /s/ BRUCE BESANKO Bruce Besanko Chief Financial Officer (Principal Financial and Accounting Officer) Dated: March 22, 2019Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalfof the Registrant and in the capacities and on the date indicated above: /s/ FRANK V. SICAFrank V. SicaChairman /s/ PETER BONEPARTH Peter BoneparthDirector /s/ JOHN E. SCHLIFSKEJohn E. SchlifskeDirector /s/ STEVEN A. BURDSteven A. BurdDirector /s/ ADRIANNE SHAPIRAAdrianne ShapiraDirector /s/ H. CHARLES FLOYDH. Charles FloydDirector /s/ STEPHANIE A. STREETERStephanie A. StreeterDirector /s/ MICHELLE GASSMichelle GassChief Executive OfficerDirector (Principal Executive Officer) /s/ NINA G. VACANina G. VacaDirector /s/ JONAS PRISINGJonas PrisingDirector /s/ STEPHEN E. WATSONStephen E. WatsonDirector 64 Exhibit 21.1 SUBSIDIARIES Name State of Incorporation or FormationKohl's Department Stores, Inc. DelawareKohl's Inc.* NevadaKohl's Indiana, Inc.* DelawareKohl's Indiana, L.P. DelawareKohl's Michigan, L.P. DelawareKohl's Value Services, Inc.* VirginiaKohl's Cares, LLC* WisconsinKWAL, LLC Wisconsin *These subsidiaries are wholly-owned subsidiaries of Kohl's Department Stores, Inc.  Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the following Registration Statements (Form S-3 Nos. 333-225182, 333-205569 and Form S-8 Nos.333-26409, 333-105264, 333-143086, 333-167338, 333-217823) of Kohl’s Corporation, of our reports dated March 22, 2019, with respect to theconsolidated 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 February 2, 2019./s/ Ernst & Young LLPMilwaukee, WisconsinMarch 22, 2019 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Michelle Gass, 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 necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-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 underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; and d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during theregistrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materiallyaffected, 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 financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalentfunctions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare 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'sinternal control over financial reporting. Dated: March 22, 2019/s/ MICHELLE GASS Michelle Gass Chief Executive Officer (Principal Executive Officer) Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Bruce Besanko, 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 necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-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 underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is madeknown 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; and d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during theregistrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materiallyaffected, 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 financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalentfunctions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare 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'sinternal control over financial reporting. Dated: March 22, 2019/s/ BRUCE BESANKO Bruce Besanko Chief Financial Officer (Principal Financial Officer)  Exhibit 32.1 CERTIFICATION OF PERIODIC REPORTBY CHIEF EXECUTIVE OFFICERPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Michelle Gass, Chief Executive Officer of Kohl's Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of2002, 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 February 2, 2019 (the “Report”) fully complies with therequirements 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 ofthe Company. Dated: March 22, 2019/s/ MICHELLE GASS Michelle Gass Chief Executive Officer (Principal Executive Officer)  Exhibit 32.2 CERTIFICATION OF PERIODIC REPORTBY CHIEF FINANCIAL OFFICERPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Bruce Besanko, Chief Financial Officer of Kohl's Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of2002, 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 February 2, 2019 (the “Report”) fully complies with therequirements 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 ofthe Company. Dated: March 22, 2019/s/ BRUCE BESANKO Bruce Besanko Chief Financial Officer (Principal Financial Officer) 

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