Kohl's 2014 Annual Report Download

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

ýAnnual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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or
¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition period from ____________ to ___________
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
(Exact name of registrant as specified in its charter)
 
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X No .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No X .
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulations S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer X Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X .
At August 1, 2014, the aggregate market value of the voting stock of the Registrant held by stockholders who were not affiliates of the Registrant was approximately $11.0
billion (based upon the closing price of Registrant’s Common Stock on the New York Stock Exchange on such date). At March 11, 2015, the Registrant had outstanding an
aggregate of 202,802,328 shares of its Common Stock.
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Portions of the Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on May 14, 2015 are incorporated into Parts II and III.

Table of contents

  • Page 1
    ... closing price of Registrant's Common Stock on the New York Stock Exchange on such date). At March 11, 2015, the Registrant had outstanding an aggregate of 202,802,328 shares of its Common Stock. Documents Incorporated by Reference: Portions of the Proxy Statement for the Registrant's Annual Meeting...

  • Page 2
    ... Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Exhibits and Financial Statement...

  • Page 3
    ... and national brands. Exclusive brands are developed and marketed through agreements with nationally-recognized brands. Examples of our exclusive brands include Food Network, Jennifer Lopez, Marc Anthony, Rock & Republic and Simply Vera Vera Wang. Exclusive brands have selling prices which are...

  • Page 4
    ... We frequently add new products, brands and categories in order to maintain freshness in our inventory assortment and drive customer traffic to our stores and website. In 2014, we launched the Fitbit, IZOD, Juicy Couture, Gaiam, Nespresso and PUMA brands as well as various Jumping Beans collections...

  • Page 5
    .... We believe our relations with our associates are very good. Competition The retail industry is highly competitive. Management considers style, quality and price to be the most significant competitive factors in the industry. Merchandise mix, brands, service, customer experience and convenience are...

  • Page 6
    ... Information contained on our website is not part of this Annual Report on Form 10-K. Paper copies of any of the materials listed above will be provided without charge to any shareholder submitting a written request to our Investor Relations Department at N56 W17000 Ridgewood Drive, Menomonee Falls...

  • Page 7
    .... We design our marketing programs to increase awareness of our brands and to build personalized connections with our customers. We believe our marketing programs will strengthen customer loyalty, increase the number and frequency of customers that shop our stores and website and increase our sales...

  • Page 8
    ... an increase in costs associated with shipping on-line orders due to complimentary upgrades, split shipments, and additional longzone shipments necessary to ensure timely delivery for the holiday season. If too many customers access our website within a short period of time due to increased holiday...

  • Page 9
    ... merchandise sales and generate additional revenue from fees related to extending credit. The proprietary Kohl's credit card accounts are owned by an unrelated third-party, but we share in the net risk-adjusted revenue of the portfolio, which is defined as the sum of finance charges, late fees...

  • Page 10
    ... of confidential information, whether by us or our vendors, could disrupt our operations, damage our reputation and customers' willingness to shop in our stores or on our website, violate applicable laws, regulations, orders and agreements, and subject us to additional costs and liabilities...

  • Page 11
    ... key information about our stores. Number of Stores 2013 Net Change 2014 2013 Number of Stores Net Change 2014 Mid-Ttlantic Region: Delaware Maryland Pennsylvania Virginia West Virginia Total Mid-Atlantic Midwest Region: Illinois Indiana Iowa Michigan Minnesota Nebraska North Dakota Ohio South...

  • Page 12
    ...,000 1,200,000 We own our corporate headquarters in Menomonee Falls, Wisconsin. We also own or lease additional buildings and office space which are used by various corporate departments, including our credit operations. Item 3. Legal Proceedings We are not currently a party to any material legal...

  • Page 13
    ... high and low sales prices of our Common Stock per the New York Stock Exchange Composite Price History and our quarterly cash dividends per common share for each quarter in 2014 and 2013. 2014 High Low Dividend High 2013 Low Dividend Fourth Quarter Third Quarter Second Quarter First Quarter $61.54...

  • Page 14
    ... Compensation Discussion & Analysis section of our Proxy Statement for our May 14, 2015 Annual Meeting of Shareholders. The Peer Group Index was calculated by Capital IQ, a Standard & Poor's business and includes Bed, Bath & Beyond Inc.; The Gap, Inc.; J.C Penney Company, Inc.; Limited Brands, Inc...

  • Page 15
    ... the vesting of the employees' restricted stock during the three fiscal months ended January 31, 2015: Total Number of Shares Purchased as Part of Publicly Tnnounced Plans or Programs Period Total Number of Shares Purchased During Period Tverage Price Paid Per Share Tpproximate Dollar Value of...

  • Page 16
    ... of Income and Balance Sheet Data have been derived from our audited consolidated financial statements. 2014 2013 2012 (d) 2011 2010 (Dollars in Millions, Except Per Share and Per Square Foot Data) Statements of Income Data: Net sales Cost of merchandise sold Gross margin Selling, general and...

  • Page 17
    ... 31, 2015, we operated 1,162 family-focused, value-oriented department stores and a website (www.Kohls.com) that sell moderately-priced private label, exclusive and national brand apparel, footwear, accessories, beauty and home products. Our stores generally carry a consistent merchandise assortment...

  • Page 18
    ... the store. Below is a list of some omni-channel examples Stores increase on-line sales by providing customers opportunities to view, touch and/or try on physical merchandise before ordering on-line. On-line purchases can easily be returned in our stores. Kohl's Cash coupons and Yes2You rewards can...

  • Page 19
    ... the Company average. Active was the strongest category in the Men's,Women's, and Footwear businesses. Electrics and luggage reported the highest sales increases in the Home business. Net sales per selling square foot (which includes on-line sales and stores open for the full current period...

  • Page 20
    ... the retail industry. The following table summarizes the changes in SG&A by expense type: 2014 2013 (Dollars In Millions) Corporate expenses Marketing costs, excluding credit card operations Distribution costs Store expenses Net revenues from credit card operations SG&A in 53rd week Total increase...

  • Page 21
    ... 2012. As a percentage of sales, SG&A increased, or "deleveraged", by approximately 60 basis points in 2013. The increase in SG&A was due primarily to higher distribution costs, increased marketing, investments in technology and infrastructure related to our on-line business. These increases were...

  • Page 22
    ... costs of running our business • Capital expenditures • Inventory (seasonal and new store) • Share repurchases • Dividend payments Source of Funds • Cash flow from operations • Short-term trade credit, in the form of extended payment terms • Line of credit under our revolving credit...

  • Page 23
    ...677 million in 2014 and 15 million shares for $799 million in 2013. Share repurchases are discretionary in nature. The timing and amount of repurchases is based upon available cash balances, our stock price and other factors. The shares were purchased as part of our share repurchase program. We have...

  • Page 24
    ...short-term cash needs. Working capital increased $283 million and our current ratio increased 6 basis points over year-end 2013. In 2013, working capital increased $372 million and our current ratio increased 7 basis points over year-end 2012. The increases were primarily due to higher cash balances...

  • Page 25
    ... to manage our business and debt levels to get our overall ratio back to our target goal over the next several years. We currently have no plans for new debt in 2015. Our Adjusted Debt to EBITDAR calculation may not be comparable to similarly-titled measures reported by other companies. Adjusted...

  • Page 26
    ...includes our Adjusted Debt to EBITDAR and debt/capitalization (a comparable GAAP measure) calculations: 2014 2013 (Dollars in Millions) 2012 Total Debt (net of discount) Rent x 8 Adjusted Debt Total Equity EBITDAR per above Debt/capitalization (a) Tdjusted Debt to EBITDTR (b) (a) Total debt divided...

  • Page 27
    ...well as payments associated with technology and marketing agreements. We have not included $146 million of long-term liabilities for unrecognized tax benefits and the related interest and penalties in the contractual obligations table because we are not able to reasonably estimate the timing of cash...

  • Page 28
    ... of goods, among other things. We generally perform an annual physical inventory count at the majority of our stores and distribution centers. The shrink reserve is based on sales and actual shrink results from previous inventories. We did not make any material changes in the methodologies used to...

  • Page 29
    ... 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 liability for incurred, but not reported, health care claims. This estimate uses historical claims information as well as estimated health care trends...

  • Page 30
    ... market interest rates, which may be more or less than interest rates on the maturing debt. We share in the net risk-adjusted revenue of the Kohl's credit card portfolio as defined by the sum of finance charges, late fees and other revenue less write-offs of uncollectible accounts. We also share...

  • Page 31
    ... without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely...

  • Page 32
    ... standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Kohl's Corporation as of January 31, 2015 and February 1, 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for...

  • Page 33
    ... his retail career in 1985. Mr. McDonald was promoted to Senior Executive Vice President, Chief Financial Officer in December 2010 and is responsible for financial planning and analysis, investor relations, financial reporting, accounting operations, tax, treasury, non-merchandise purchasing, credit...

  • Page 34
    ... and Chief Executive Officer, Department Store Division of Dayton-Hudson Corporation (a) Audit Committee member (b) Compensation Committee member (c) Governance & Nominating Committee member * Denotes Chair Item 11. Executive Compensation See the information provided in the applicable portions of...

  • Page 35
    ... F-1, the Report of Independent Registered Public Accounting Firm on page F-2 and the Consolidated Financial Statements beginning on page F-3, all of which are incorporated herein by reference. 2. Financial Statement Schedule: All schedules have been omitted as they are not applicable. 3. Exhibits...

  • Page 36
    ... (Principal Executive Officer) /S/ WESLEY S. M CDONALD Wesley S. McDonald Senior Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) Dated: March 20, 2015 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

  • Page 37
    ... long-term debt described in Note 2 and not filed herewith. Private Label Credit Card Program Agreement dated as of August 11, 2010 by and between Kohl's Department Stores, Inc and Capital One, National Association, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report...

  • Page 38
    ...to Exhibit 99.1 of the Company's Current Report on Form 8-K dated as of January 15, 2014.* Form of Executive Stock Option Agreement pursuant to the Kohl's Corporation 2010 Long Term Compensation Plan, incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for...

  • Page 39
    ... Employment Agreement between Kohl's Corporation and Kohl's Department Stores, Inc. and its Senior Executive Vice Presidents, incorporated herein by reference to Exhibit 10.22 of the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2013.* Ratio of Earnings to Fixed Charges...

  • Page 40
    ... Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Shareholders' Equity Consolidated Statements of Cash Flows...

  • Page 41
    ... balance sheets of Kohl's Corporation (the "Company") as of January 31, 2015 and February 1, 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended January 31, 2015. These financial...

  • Page 42
    ...Current portion of capital lease and financing obligations Total current liabilities Long-term debt Capital lease and financing obligations Deferred income taxes Other long-term liabilities Shareholders' equity: Common stock - 367 and 364 million shares issued Paid-in capital Treasury stock, at cost...

  • Page 43
    Table of Contents KOHL'S CORPORTTION CONSOLIDTTED STTTEMENTS OF INCOME (In Millions, Except per Share Data) 2014 2013 2012 Net sales Cost of merchandise sold Gross margin Operating expenses: Selling, general and administrative Depreciation and amortization Operating income Interest expense, net ...

  • Page 44
    ... Comprehensive Loss Common Stocs Shares Tmount Paid-In Capital Treasury Stocs Shares Tmount Retained Earnings Total Balance at January 28, 2012 Comprehensive income Stock options and awards, net of tax Dividends paid ($1.28 per common share) Treasury stock purchases Balance at February 2, 2013...

  • Page 45
    ...deferred financing costs Proceeds from financing obligations Capital lease and financing obligation payments Proceeds from stock option exercises Excess tax benefits from share-based compensation Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash...

  • Page 46
    ... Summary of Tccounting Policies Business As of January 31, 2015, we operated 1,162 department stores in 49 states and a website (www.Kohls.com) that sell moderately-priced private label, exclusive and national brand apparel, footwear, accessories, beauty and home products. Our stores generally carry...

  • Page 47
    ... Accrued liabilities consist of the following: Jan 31, 2015 Feb 1, 2014 5-40 years 3-15 years 3-8 years (Dollars In Millions) Gift cards and merchandise return cards Payroll and related fringe benefits Sales, property and use taxes Credit card liabilities Other Accrued liabilities $ 307 135 185...

  • Page 48
    ... We use a combination of insurance and self-insurance for a number of risks including workers' compensation, general liability, and employee-related health care benefits, a portion of which is paid by our associates. Liabilities associated with these losses include estimates of both reported losses...

  • Page 49
    ... expenses associated with moving merchandise from our vendors to our distribution centers • Shipping and handling expenses of sales generated on-line • Terms cash discount • Compensation and benefit costs including: • Stores • Corporate headquarters, including buying and merchandising...

  • Page 50
    ...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. Level 3: We carry our current assets and liabilities at cost...

  • Page 51
    ...be entitled in exchange for those goods or services. We are required to adopt the new pronouncement in the first quarter of fiscal 2017 using one of two retrospective application methods. We are evaluating the application method and the impact of this new statement on our financial statements. F-12

  • Page 52
    ...31, 2015, issued under uncommitted lines with two banks. 3 . Lease Commitments Rent expense charged to operations was $277 million for 2014, $270 million for 2013, and $265 million for 2012. In addition to rent payments, we are often required to pay real estate taxes, insurance and maintenance costs...

  • Page 53
    ...compensation plan to a group of executives which provides for pre-tax compensation deferrals up to 100% of salary and/or bonus. Deferrals and credited investment returns are 100% vested. The total costs for these benefit plans were $43 million for 2014, $49 million for 2013, and $53 million for 2012...

  • Page 54
    ...to the Kohl's Corporation 2010 Long-Term Compensation Plan, which provides for the granting of various forms of equity-based awards, including nonvested stock, performance share units and options to purchase shares of our common stock, to officers, key employees and directors. As of January 31, 2015...

  • Page 55
    ...excess of our stock price at the time the option was exercised over the exercise price and was $30 million in both 2014 and 2013 and $20 million in 2012. Additional information related to stock options outstanding and exercisable at January 31, 2015, segregated by exercise price range, is summarized...

  • Page 56
    ... Stock-based compensation expense is included in Selling, General and Administrative expense in our Consolidated Statements of Income. Such expense totaled $48 million for 2014, $55 million for 2013 and $50 million for 2012. At January 31, 2015, we had approximately $92 million of unrecognized share...

  • Page 57
    ...$ $ $ 6,099 2,075 334 213 1.57 215 1.56 Due to changes in stock prices during the year and timing of share repurchases and issuances, the sum of quarterly net income per share may not equal the annual net income per share. 9. Related Party Transactions One of our directors is also a shareholder of...

  • Page 58
    ... granted to non-employee Directors from time to time pursuant to our 2010 Long Term Compensation Plan. These grants are typically made following a Director's initial election to the Board and each time the Director is re-elected by the shareholders to serve a new term. The annual awards, which are...

  • Page 59
    ... AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is executed as of this 1st day of April, 2012, by and between Kohl's Department Stores, Inc. and Kohl's Corporation (collectively referred to in this Agreement as "Company") and Kenneth G. Bonning ("Executive"). The Company and Executive entered into...

  • Page 60
    ... Renewal Term, Executive will be eligible to participate in the plans, programs and policies including, without limitation, group medical insurance, fringe benefits, paid vacation, expense reimbursement and incentive pay plans, which the Company makes available to senior executives of the Company in...

  • Page 61
    ...to cure such breach within thirty (30) calendar days after receiving such demand; provided, however, that no cure period shall be required for breaches of Articles IV, V, VI or VII, below, of this Agreement; or (v) conviction of Executive, after all applicable rights of appeal have been exhausted or...

  • Page 62
    ... of the average level of bona fide services performed by Executive over the immediately preceding 36-month period. 3.2 Rights Upon Termination. (a) Termination By Company for Cause, By Executive Other Than For Good Reason or By Executive's Non-Renewal. If Executive's employment is terminated by...

  • Page 63
    ... current Initial Term or Renewal Term of this Agreement, but not to exceed two and nine-tenths (2.9) years; plus (y) an amount equal to the average (calculated at the sole discretion of the Company) of the three (3) most recent annual incentive compensation plan payments, if any, paid to Executive...

  • Page 64
    ...at the sole discretion of the Company) of the three (3) most recent annual incentive compensation plan payments, if any, paid to Executive prior to the effective date of termination times the number of years, rounded to the nearest tenth, remaining in the then-current Renewal Term, but not to exceed...

  • Page 65
    ... period of time provided for in this Agreement is longer than the end of the 18-month period for which Executive is eligible for COBRA, the Company will, until the end of such longer period, pay the normal monthly employer's cost of coverage under the Company's group health insurance plans to, at...

  • Page 66
    ...calendar days of Executive becoming eligible for health insurance coverage under another employer's group health insurance plan, Executive agrees to inform the Company of such fact in writing. In no event will the Health Insurance Continuation to be provided by the Company pursuant to this Agreement...

  • Page 67
    ... contractual relationships and terms, technical processes, designs, inventions, research programs and results, source code, short-term and long-range planning, projections, information systems, sales objectives and performance, profits and profit margins, and seasonal plans, goals and objectives.

  • Page 68
    ... the Company's behalf (including relationships with customers, suppliers, vendors, employees and other associates) and to maintain business information for the Company's exclusive ownership and use. As a result, Executive acknowledges and agrees that the restrictions contained in this Article V are...

  • Page 69
    ... working hours during his employment with the Company, or (c) originated, discovered or developed in whole or in part using materials, labor, facilities, Confidential Information, Trade Secrets, or equipment furnished by the Company. 6.3 Non-Disparagement. Executive agrees not to engage at any time...

  • Page 70
    Kohl's Department Stores, Inc. N56 W17000 Ridgewood Drive Menomonee Falls, WI 53051 Attn: Kevin Mansell, Chairman, President, and CEO (b) If to Executive: Any notice to be given to the Executive may be addressed to him at the address as it appears on the payroll records of the Company or any ...

  • Page 71
    ...with the Company and Executive's continued employment by the Company, and the benefits provided to Executive under this Agreement, constitute the consideration for Executive's undertakings hereunder. 8.10 Amendment. This Agreement may be altered, amended or modified only in a writing, signed by both...

  • Page 72
    ... Code Section 409A and preserves to the maximum extent possible the economic value of the relevant payment or benefit under this Agreement to Executive. [Signatures on Following Page] IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year written above. KOHL'S DEPARTMENT...

  • Page 73
    EXHIBIT A BASE COMPENSATION Executive's annual base compensation as of the date of this Agreement is Seven Hundred Fifteen Thousand Eight Hundred and no/100 Dollars ($715,800). EXHIBIT B PRIOR OBLIGATIONS None.

  • Page 74

  • Page 75
    Exhibit 12.1 Kohl's Corporation Ratio of Earnings to Fixed Charges (Dollars in Millions) 2014 Earnings Incomn bncorn incomn taxns Fixnd chargns Lnss: intnrnst capitaliznd during pnriod Fixed charges Intnrnst (nxpnnsnd or capitaliznd) Portion oc rnnt nxpnnsn rnprnsnntativn oc intnrnst Amortization oc...

  • Page 76
    ... 21.1 Name Kohl's Department Stores, Inc. Kohl's Illinois, Inc.* Kohl's Indiana, Inc.* Kohl's Indiana, L.P. Kohl's Michigan, L.P. Kohl's Value Services, Inc.* Kohl's Cares, LLC* KWAL, LLC Subsidiaries State of Incorporation or Formation Delaware Nevada Delaware Delaware Delaware Virginia Wisconsin...

  • Page 77
    ...) of Kohl's Corporation, of our reports dated March 20, 2015, with respect to the consolidated financial statements of Kohl's Corporation and the effectiveness of internal control over financial reporting of Kohl's Corporation included in this Annual Report (Form 10-K) of Kohl's Corporation for the...

  • Page 78
    ...and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: March 20, 2015 /s/ Kevin Mansell Kevin Mansell Chairman, Chief Executive Officer and...

  • Page 79
    ... and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: March 20, 2015 /s/ Wesley S. McDonald Wesley S. McDonald Senior Executive Vice...

  • Page 80
    ... knswledge, sn the date si this Certiiicatisn: 1. 2. This Annual Repsrt sn Fsrm 10cK si the Csmpany isr the annual perisd ended January 31, 2015 (the "Repsrt") iully csmplies with the requirements si Sectisn 13(a) sr 15(d) si the Securities Exchange Act si 1934; and That the inisrmatisn csntained in...

  • Page 81
    ... of the Securities Exchange Act of 1934; and That the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 20, 2015 /s/ Wesley S. McDonald Wesley S. McDonald Senior Executive Vice President and...

  • Page 82