As of February 1, 2020, we operated 1,159 stores, a website (www.Kohls.com) and 12 FILA outlets. Our Kohl's stores and website sell moderately-priced private and national brand apparel, footwear, accessories, beauty and home products. Our Kohl's stores generally carry a consistent merchandise assortment with some differences attributable to local preferences. Our website includes merchandise which is available in our stores, as well as merchandise which is available only 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 value preferred stock.

The consolidated financial statements include the accounts of Kohl’s Corporation and its subsidiaries including Kohl’s, Inc., its primary operating company. All intercompany accounts and transactions have been eliminated.

Our fiscal year ends on the Saturday closest to January 31^st each year. Unless otherwise stated, references to years in these notes relate to fiscal years rather than to calendar years. The following fiscal periods are presented in these notes:

Fiscal year	Ended	Number of Weeks
2019	February 1, 2020		52
2018	February 2, 2019		52
2017	February 3, 2018		53

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

In addition to money market investments, cash equivalents include commercial paper and certificates of deposit with original maturities of three months or less. We carry these investments at cost which approximates fair value.

Also included in cash and cash equivalents are amounts due from credit card transactions with settlement terms of less than five days. Credit and debit card receivables included within cash were $87 million at February 1, 2020 and $89 million at February 2, 2019.

Merchandise inventories are valued at the lower of cost or market using RIM. Under RIM, the valuation of inventory at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventory. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market since permanent markdowns are taken as a reduction of the retail value of inventories. We would record an additional reserve if the future estimated selling price is less than cost.

(Dollars in Millions)	Feb 1, 2020				Feb 2, 2019
Land		$	1,107			$	1,110
Buildings and improvements:
Owned			7,869				8,048
Leased			867				1,816
Fixtures and equipment			1,426				1,489
Information technology			2,806				2,628
Construction in progress			279				299
Total property and equipment, at cost			14,354				15,390
Less accumulated depreciation and amortization			(7,002	)			(7,962	)
Property and equipment, net		$	7,352			$	7,428

Construction 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 over the estimated useful lives of the assets. Leased property and improvements to leased property are amortized on a straight-line basis over the term of the lease or useful life of the asset, whichever is less. As of February 1, 2020, we had assets held for sale of $24 million. Leases are further described in Note 3 of the Consolidated Financial Statements.

The annual provisions for depreciation and amortization generally use the following ranges of useful lives:

All property and equipment and other long-lived assets are reviewed for potential impairment when events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. If such indicators are present, it is determined whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than the carrying value of the assets. A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. We recorded impairments of $73 million in 2019 and $72 million in 2018 in Impairments, store closing and other costs.

Charges related to corporate restructuring efforts are recorded in Impairments, store closing and other costs.

(Dollars in Millions)	Feb 1, 2020		Feb 2, 2019
Gift cards and merchandise return cards	$	334	$	330
Sales, property and use taxes		182		160
Payroll and related fringe benefits		101		154
Credit card liabilities		84		122
Accrued capital		104		117
Other		428		481
Accrued liabilities	$	1,233	$	1,364

We retain the initial risk of $500,000 per occurrence in workers’ compensation claims and $250,000 per occurrence in general liability claims. We record reserves for workers’ compensation and general liability claims which include the total amounts that we expect to pay for a fully developed loss and related expenses, such as fees paid to attorneys, experts and investigators.

We are fully self-insured for employee-related health care benefits, a portion of which is paid by our associates.

We use a third-party actuary to estimate the liabilities associated with workers’ compensation, general liability and employee-related health care risks. These liabilities include amounts for both reported claims and incurred, but not reported losses. The total liabilities, net of collateral held by third parties, for these risks were $79 million as of February 1, 2020 and $68 million as of February 2, 2019.

For property losses we are subject to a $5 million self-insured retention (“SIR”). Maintenance deductibles (retained amount) apply in addition to the SIR as follows: for catastrophic claims such as earthquakes, floods and windstorms, the maintenance deductible varies from 2-5% of the insurance claim. Similarly, for other standard claims, such as fire and building damages, the maintenance deductible of $250,000 applies per occurrence for the property loss. All maintenance deductibles erode the $5 million SIR. Once the SIR is incurred the maintenance deductibles apply.

We account for repurchases of common stock and shares withheld in lieu of taxes when restricted stock vests using the cost method with common stock in treasury classified in the Consolidated Balance Sheets as a reduction of shareholders’ equity.

Net sales includes revenue from the sale of merchandise and shipping revenues. Net sales are recognized when merchandise is received by the customer and we have fulfilled all performance obligations. We do not have any sales that are recorded as commissions.

(Dollars in Millions)	2019		2018 (1)		2017 (1)
Women's	$	5,289	$	5,436	$	5,436
Men's		4,072		4,075		3,994
Home		3,579		3,675		3,660
Children's		2,437		2,436		2,404
Footwear		1,822		1,846		1,820
Accessories		1,686		1,699		1,722
Net Sales	$	18,885	$	19,167	$	19,036

We maintain various rewards programs whereby customers earn rewards based on their spending and other promotional activities. The rewards are typically in the form of dollar-off discounts which can be used on future

purchases. These programs create performance obligations which require us to defer a portion of the original sale

until the rewards are redeemed. Sales are recorded net of returns. At the end of each reporting period, we record a

reserve based on historical return rates and patterns which reverses sales that we expect to be returned in the

following period. Revenue from the sale of Kohl's gift cards is recognized when the gift card is redeemed. Unredeemed gift card and merchandise return card liabilities totaled $334 million as of February 1, 2020 and $330 million as of February 2, 2019. Revenue of $189 million was recognized during 2019 from the February 1, 2019 balance.

Net sales do not include sales tax as we are considered a pass-through conduit for collecting and remitting

Other revenue consists primarily of revenue from our credit card operations, unredeemed gift cards and merchandise return cards (breakage), and other 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 card pursuant to the Private Label Credit Card Program Agreement. Expenses related to our credit card operations are reported in SG&A.

Revenue from unredeemed gift cards and merchandise return cards (breakage) is recorded in proportion and

The following table illustrates the primary costs classified in Cost of Merchandise Sold and Selling, General and Administrative Expenses:

Cost of Merchandise Sold

Selling, General and

Administrative Expenses

• Total cost of products sold including product development costs, net of vendor payments other than reimbursement of specific, incremental and identifiable costs

• Inventory shrink

• Markdowns

• Freight expenses associated with moving merchandise from our vendors to our distribution centers

• Shipping 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 and corporate facilities

• Expenses related to our Kohl’s credit card operations

• Freight expenses associated with moving merchandise from our distribution centers to our retail stores and between distribution and retail facilities

• Marketing expenses, offset by vendor payments for reimbursement of specific, incremental and identifiable costs

• Other non-operating revenues and expenses

We receive consideration for a variety of vendor-sponsored programs, such as markdown allowances, volume rebates, and promotion and marketing support. The vendor consideration is recorded as earned either as a reduction of inventory costs or Selling, General and Administrative Expenses. Promotional and marketing allowances are intended to offset our marketing costs to promote vendors’ merchandise. Markdown allowances and volume rebates are recorded as a reduction of inventory costs.

Fair value measurements are required to be classified and disclosed in one of the following pricing categories:

Level 1:		Financial instruments with unadjusted, quoted prices listed on active market exchanges.

Level 2:		Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over-the-counter traded financial instruments. The prices for the financial instruments are determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3:		Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or valuation techniques.

Current assets and liabilities are reported at cost, which approximates fair value. Cash and cash equivalents are classified as Level 1 as carrying value approximates fair value because maturities are less than three months.

Marketing costs are expensed when the marketing is first seen. Marketing costs, net of related vendor allowances, are as follows:

(Dollars in Millions)	2019				2018				2017
Gross marketing costs		$	1,156			$	1,133			$	1,124
Vendor allowances			(130	)			(143	)			(138	)
Net marketing costs		$	1,026			$	990			$	986
Net marketing costs as a percent of total revenue			5.1	%			4.9	%			4.9	%

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recorded based on differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. Deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We establish valuation allowances for deferred tax assets when we believe it is more likely than not that the asset will not be realizable for tax purposes. We recognize interest and penalty expense related to unrecognized tax benefits in our provision for income tax expense.

Basic net income per share is net income divided by the average number of common shares outstanding during the period. Diluted net income per share includes incremental shares assumed for share-based awards.

The information required to compute basic and diluted net income per share is as follows:

(Dollars and Shares in Millions, Except per Share Data)	2019			2018			2017
Numerator—net income	$		691	$		801	$	859
Denominator—weighted average shares
Basic			157			164		167
Impact of dilutive share-based awards			1			1		1
Diluted			158			165		168
Anti-dilutive shares/warrants		1			—			2
Net income per share:
Basic	$		4.39	$		4.88	$	5.14
Diluted	$		4.37	$		4.84	$	5.12

Stock-based compensation expense is generally recognized on a straight-line basis over the vesting period based on the fair value of awards which are expected to vest. The fair value of all share-based awards is estimated on the date of grant.

The following table provides a brief description of issued, but not yet effective, accounting standards:

Standard	Description	Effect on our Financial Statements
Cloud Computing (ASU 2018-15) Issued August 2018 Effective Q1 2020	Under the new standard, implementation costs related to a cloud computing arrangement will be deferred or expensed as incurred, in accordance with the existing internal-use software guidance for similar costs. The new standard also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense.	We are evaluating the impact of the new standard and consider it to be generally consistent with our current accounting for cloud computing arrangements. We do not expect adoption will have a material impact on our financial statements.
Current Expected Credit Losses (ASU 2016-13) Issued June 2016 Effective Q1 2020	Under the new standard, credit losses for financial assets measured at amortized cost should be determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. The amendments will be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption as required.	We are evaluating the impact of the new standard, but believe it will not have a material impact on our financial statements. We do not expect revenue from our credit card operation will be materially impacted by the adoption of this standard.
Income Taxes (ASU 2019-12) Issued December 2019 Effective Q1 2021	The new standard is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles as outlined in U.S. GAAP.	We are evaluating the impact of the new standard on our financial statements.