Kohl's 2015 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 July 31, 2015, the aggregate market value of the voting stock of the Registrant held by stockholders who were not affiliates of the Registrant was approximately $12.0
billion (based upon the closing price of Registrant’s Common Stock on the New York Stock Exchange on such date). At March 9, 2016, the Registrant had outstanding an
aggregate of 185,168,909 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 11, 2016 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 9, 2016, the Registrant had outstanding an aggregate of 185,168,909 shares of its Common Stock. Documents Incorporated by Reference: Portions of the Proxy Statement for the Registrant's Annual Meeting...

  • Page 2
    ... Market Risk Financial Statements and Supplementary Data Changes In and Disagreements with Accountants on Accounting and Financial Disclosures Controls and Procedures Other Information 12 15 16 29 29 29 30 32 Directors, Executive Officers and Corporate Governance Executive Compensation Security...

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

  • Page 4
    ... with our private label program. Tvailable Information Our corporate website is www.KohlsCorporation.com. Through the "Investors" portion of this website, we make available, free of charge, our proxy statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form...

  • Page 5
    ... the provisions of the Code of Ethics that is applicable to our Chief Executive Officer, Chief Financial Officer or other key finance associates will be disclosed on the "Corporate Governance" portion of the website. Information contained on our website is not part of this Annual Report on Form 10...

  • Page 6
    ... design our marketing and loyalty programs to increase awareness of our brands and to build personalized connections with our customers. We believe these programs will strengthen customer loyalty, increase the number and frequency of customers that shop our stores and website and increase our sales...

  • Page 7
    ... of our pricing and return policies; litigation; vendor violations of our Terms of Engagement; or various other forms of adverse publicity, especially in social media outlets. Damage to our reputation may generate negative customer sentiment, potentially resulting in a reduction in sales, earnings...

  • Page 8
    ... Kohl's credit card accounts are owned by an unrelated third-party, but we share in the net risk-adjusted revenue of the portfolio, which is defined as the sum of finance charges, late fees and other revenue less write-offs of uncollectible accounts. Changes in funding costs related to interest rate...

  • Page 9
    ... laws, regulations, orders and agreements, and subject us to additional costs and liabilities which could be material. Item 1B. Unresolved Staff Comments Not applicable Item 2. Properties Stores As of January 30, 2016, we operated 1,164 stores with 83.8 million selling square feet in 49 states...

  • Page 10
    ...key information about our stores as of January 30, 2016: Number of Stores by State Number of Stores by State Mid-Ttlantic Region: Delaware Maryland Pennsylvania Virginia West Virginia Total Mid-Atlantic Midwest Region: Illinois Indiana Iowa Michigan Minnesota Nebraska North Dakota Ohio South Dakota...

  • Page 11
    ... the distribution centers except Corsicana, Texas, which is leased. Corporate Facilities We own our corporate headquarters in Menomonee Falls, Wisconsin. We also own or lease additional buildings and office space which are used by various corporate departments, including our credit operations. Item...

  • Page 12
    ... 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 2015 and 2014. 2015 High Low Dividend High 2014 Low Dividend Fourth Quarter Third Quarter Second Quarter First Quarter $50.86...

  • Page 13
    ... Proxy Statement for our May 11, 2016 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.; Macy's, Inc.; Nordstrom, Inc.; Ross Stores, Inc...

  • Page 14
    ... upon the vesting of the employees' restricted stock during the three fiscal months ended January 30, 2016: Total Number of Shares Purchased as Part of Publicly Tnnounced Plans or Programs Tpproximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (Dollars in Millions...

  • Page 15
    ... be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document. 2015 2014 2013 2012 (d) 2011 (Dollars in Millions, Except per Share and per Square Foot Data) Statements of Income Data: Net sales Cost of merchandise sold Gross margin Selling...

  • Page 16
    ... teams. All of the Greatness Agenda initiatives are designed to increase sales, primarily by increasing the number of customers that shop at our stores and on-line. As a retailer, product is the core of our business. During 2015, we increased our emphasis on national brands as we believe they drive...

  • Page 17
    ..."on-line" sale. Below is a list of some omni-channel examples Stores increase on-line sales by providing customers opportunities to view, touch and/or try on physical merchandise before ordering on-line. On-line purchases can easily be returned in our stores. Kohl's Cash coupons and Yes2You rewards...

  • Page 18
    ... merchandise from our vendors to our distribution centers; shipping and handling expenses of omni-channel sales; and terms cash discount. Our gross margin may not be comparable with that of other retailers because we include distribution center and buying costs in selling, general and administrative...

  • Page 19
    ... Corporate expense increased over 2014 due to technology and infrastructure investments related to our omni-channel strategy and other various corporate costs. Distribution costs, which exclude payroll related to on-line originated orders that were shipped from our stores, were $278 million for 2015...

  • Page 20
    ...", by approximately 20 basis points in 2014. The increase in SG&A was due primarily to higher distribution costs, increased marketing, and investments in technology and infrastructure related to our on-line business, offset by higher credit card revenue. Other Expenses 2015 2014 (Dollars in Millions...

  • Page 21
    ... corporate campus, increased IT spending and the purchase and build out of a call center in Texas, partially offset by decreased new store spending. Proceeds from sales of investments in auction rate securities were $82 million in 2014. All of our auction rate securities were sold in 2014. Despite...

  • Page 22
    ...of January 30, 2016, our credit ratings were as follows: Moody's Standard & Poor's Fitch Long-term debt Baa1 BBB BBB+ Though we have no current intentions to do so, we may again seek to retire or purchase our outstanding debt through open market cash purchases, privately negotiated transactions...

  • Page 23
    ...to meet short-term cash needs. In 2015, working capital decreased $359 million and our current ratio decreased 8 basis points from year-end 2014 due to a decrease in cash, which was partially offset by an increase in inventory and decrease in accounts payable. In 2014, working capital increased $309...

  • Page 24
    ... 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 2016. Our Adjusted Debt to EBITDAR calculation may not be comparable to similarly-titled measures reported by other companies. Adjusted...

  • Page 25
    ...Depreciation and amortization Net interest Provision for income taxes EBITDAR Stock based compensation Other non-cash revenues and expenses Adjusted Debt Compliance EBITDAR Debt Ratio (a) Maximum permitted Debt Ratio (a) Included Indebtedness divided by Adjusted Debt Compliance EBITDAR The following...

  • Page 26
    ..., legally binding minimum lease and interest payments for stores opening in 2016 or later, as well as payments associated with technology and marketing agreements. We have not included $162 million of long-term liabilities for unrecognized tax benefits and the related interest and penalties in the...

  • Page 27
    ... 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 value our inventory or to estimate the markdown and shrink reserves during 2015, 2014 or 2013...

  • Page 28
    ... 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 29
    ... than interest rates on the maturing debt. We share in the net risk-adjusted revenue of the Kohl's credit card portfolio as defined by the sum of finance charges, late fees and other revenue less write-offs of uncollectible accounts. We also share the costs of funding the outstanding receivables if...

  • Page 30
    ... 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 31
    ... the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Kohl's Corporation as of January 30, 2016 and January 31, 2015, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows...

  • Page 32
    ... and was named Chief Merchandising and Customer Officer in June 2015. She is responsible for all of Kohl's merchandising, planning and allocation, and product development functions as well as the company's overall customer engagement strategy, including marketing, public relations, social media and...

  • Page 33
    Table of Contents Members of our Board of Directors as of January 30, 2016 were as follows: Kevin Mansell Chairman, President, Chief Executive Officer, Kohl's Corporation Peter Boneparth (b) (c) Former Senior Advisor, Irving Place Capital Partners Former President and Chief Executive Officer, Jones...

  • Page 34
    ... Certain Beneficial Owners and Management and Related Stocsholder Matters See the information provided in the "Security Ownership of Certain Beneficial Owners, Directors and Management" and "Equity Compensation Plan Information" sections of our 2016 Proxy, which information is incorporated herein by...

  • 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
    ... and Director (Principal Executive Officer) /S/ WESLEY S. M CDONALD Wesley S. McDonald Chief Financial Officer (Principal Financial and Accounting Officer) Dated: March 18, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 37
    ... 10.1 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2010. Amendment to Private Label Credit Card Program Agreement dated as of May 13, 2014 by and between Kohl's Department Stores, Inc. and Capital One, National Association, incorporated herein by reference...

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

  • Page 39
    ... May 2, 2015.* Employment Agreement dated as of November 16, 2015 by and between Kohl's Department Stores, Inc., Kohl's Corporation and Sona Chawla.* Ratio of Earnings to Fixed Charges. Subsidiaries of the Registrant, incorporated by reference to Exhibit 21.1 of the Company's Annual Report on Form...

  • Page 40
    ...Changes in Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 1. Business and Summary of Accounting Policies 2. Debt 3. Lease Commitments 4. Benefit Plan 5. Income Taxes 6. Stock-Based Compensation 7. Contingencies 8. Quarterly Financial Information...

  • Page 41
    ... balance sheets of Kohl's Corporation (the Company) as of January 30, 2016 and January 31, 2015, 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 30, 2016. 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 - 370 and 367 million shares issued Paid-in capital Treasury stock, at cost...

  • Page 43
    ... CONSOLIDTTED STTTEMENTS OF INCOME (Dollars in Millions, Except per Share Data) 2015 2014 2013 Net sales Cost of merchandise sold Gross margin Operating expenses: Selling, general and administrative Depreciation and amortization Operating income Interest expense, net Loss on extinguishment of debt...

  • Page 44
    ...paid ($1.56 per common share) Treasury stock purchases Balance at January 31, 2015 Comprehensive income Stock options and awards, net of tax Dividends paid ($1.80 per common share) Treasury stock purchases Balance at January 30, 2016...) See accompanying Notes to Consolidated Financial Statements F-5

  • Page 45
    ... issuance of debt Deferred financing costs Reduction of long-term borrowings Premium paid on redemption of debt Capital lease and financing obligation payments Proceeds from stock option exercises Excess tax benefits from share-based compensation Proceeds from financing obligations Net cash used in...

  • Page 46
    ...Policies Business As of January 30, 2016, we operated 1,164 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 consistent merchandise...

  • Page 47
    ... basis over the term of the lease or useful life of the asset, whichever is less. The annual provisions for depreciation and amortization generally use the following ranges of useful lives: Buildings and improvements Store fixtures and equipment Computer hardware and software Long-Lived Tssets All...

  • Page 48
    ...: Jan 30, 2016 Jan 31, 2015 (Dollars in Millions) Gift cards and merchandise return cards Payroll and related fringe benefits Sales, property and use taxes Credit card liabilities Marketing Accrued capital Shipping and other distribution costs Other Accrued liabilities Self-Insurance $ 323 117...

  • Page 49
    ...sales • Terms cash discount • 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 Net revenues from the Kohl's credit card...

  • Page 50
    ... or Selling, General and Administrative ("SG&A") expenses based on the application of Accounting Standards Codification ("ASC") No. 605, Subtopic 50, "Customer Payments and Incentives." Promotional and marketing allowances are intended to offset our marketing costs to promote vendors' merchandise...

  • Page 51
    ... 1. Business and Summary of Tccounting Policies (continued) All other leases are considered operating leases in accordance with ASC No. 840. Assets subject to an operating lease and the related lease payments are not recorded on our balance sheet. Rent expense is recognized on a straight-line basis...

  • Page 52
    ... for those goods or services. This ASU is effective in the first quarter of 2018. It will change the way we account for sales returns, our loyalty program and certain promotional programs. Based on current estimates, we do not expect this ASU to have a material impact on our financial statements and...

  • Page 53
    ...2. Debt Long-term debt consists of the following unsecured senior debt: January 30, 2016 Maturity Effective Rate Coupon Rate Outstanding Outstanding January 31, 2015 (Dollars in Millions) 2021 2023 2023 2025 2029 2033 2037 2045 2017 Unamortized debt discount Deferred financing costs Long-term debt...

  • Page 54
    ... at January 30, 2016 were as follows: Capital Lease and Financing Obligations Operating Leases (Dollars in Millions) Fiscal year: 2016 2017 2018 2019 2020 Thereafter Non-cash gain on future sale of property Amount representing interest Present value of lease payments 4. Benefit Plans $ 293 286...

  • Page 55
    ... differs from the amount that would be provided by applying the statutory U.S. corporate tax rate due to the following items: 2015 2014 2013 Provision at statutory rate State income taxes, net of federal tax benefit Tax-exempt interest income Other federal tax credits Provision for income taxes 35...

  • Page 56
    ...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 30, 2016...

  • Page 57
    ...outstanding and exercisable stock options represents the excess of our closing stock price on January 30, 2016 ($49.75) over the exercise price multiplied by the applicable number of stock options. Nonvested stock awards We have also awarded shares of nonvested common stock to eligible key employees...

  • Page 58
    ...Carlo valuation at grant date Performance period Other required disclosures 160,000 $78.82 2015-2017 14,000 $62.39 2014-2016 170,000 $57.37 2014-2016 Stock-based compensation expense is included in Selling, General and Administrative expense in our Consolidated Statements of Income. Such expense...

  • Page 59
    ... 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. Subsequent Events On February 25, 2016, we announced plans to close 18 underperforming stores in fiscal 2016. We...

  • Page 60
    ... 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 61
    ... 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 62
    ... or exchange for another benefit. Further, any reimbursements to be provided by the Company pursuant to this Agreement shall be paid to the Executive no later than the calendar year following the calendar year in which the Executive incurs the expenses. ARTICLE III TERMINATION 3.1 Right to...

  • Page 63
    ... 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 Company's Non-Renewal or By Executive Due to Resignation Other Than For Good Reason . If Executive's employment is...

  • Page 64
    ... any Company stock options granted to Executive shall cease on the effective date of termination, and any unvested stock options shall lapse and be forfeited as of such date. (d) Termination By Company Without Cause or By Executive for Good Reason. i. No Change of Control. If Executive's employment...

  • Page 65
    ... of the Company or any employee benefit plan or plans sponsored by the Company or any subsidiary of the Company, directly or indirectly, of beneficial ownership (within the meaning of Exchange Act Rule 13d-3) of thirty-three percent (33%) or more of the then outstanding shares of common stock of the...

  • Page 66
    ..., the Health Insurance Benefits shall continue to be provided to Executive's Eligible Dependants, in each case for as long as each individual would have continued to qualify as an eligible dependant under the terms of the applicable insurance and medical plans had Executive been living. The Company...

  • Page 67
    ..., source code, short-term and long-range planning, projections, information systems, sales objectives and performance, profit and profit margins, and seasonal plans, goals and objectives; (ii) information that is marked or otherwise designated or treated as confidential or proprietary by the Company...

  • Page 68
    ... to find gainful employment. For purposes of this Article V, the term "Company" means Kohl's Department Stores, Inc. and its parent companies, subsidiaries and other affiliates. 5.2 Restricted Services Obligation. In addition to the obligations Executive owes to the Company while an employee of the...

  • Page 69
    ... Section 8.1): (a) If to the Company: 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/her at the address as it appears on the...

  • Page 70
    ... the benefits provided to Executive under this Agreement as well as those described in the Company's November 12, 2015 offer of employment, constitute the consideration for Executive's undertakings hereunder. 8.10 Amendment. This Agreement may be altered, amended or modified only in writing, signed...

  • Page 71
    ... state or local laws or regulations. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year written above. KOHL'S DEPARTMENT STORES, INC.: By: /s/ Kevin Mansell Kevin Mansell Chairman, President and Chief Executive Officer EXECUTIVE: By: /s/ Sona Chawla Sona Chawla

  • Page 72
    EXHIBIT A BASE COMPENSATION Executive's annual base compensation as of the date of this Agreement is One Million One Hundred Thousand and no/100 Dollars ($1,100,000).

  • Page 73
    EXHIBIT B PRIOR OBLIGATIONS Executive's obligations set forth in "Walgreen Co. Restrictive Covenant Agreement", as provided to Company's executive search consultant.

  • Page 74
    Exhibit 12.1 Kohl's Corporation Ratio of Earnings to Fixed Charges (Dollars in Millions) 2015 Earnings Incomn bncorn incomn taxns nxcluding loss on nxtinguishmnnt oc dnbt Fixnd chargns Lnss: intnrnst capitaliznd during pnriod Fixed charges Intnrnst (nxpnnsnd or capitaliznd) Portion oc rnnt nxpnnsn ...

  • Page 75
    ...) of Kohl's Corporation, of our reports dated March 18, 2016, 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...

  • Page 76
    ...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 18, 2016 /s/ Kevin Mansell Kevin Mansell Chairman, Chief Executive Officer and...

  • Page 77
    ... 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 18, 2016 /s/ Wesley S. McDonald Wesley S. McDonald Chief Financial Officer...

  • Page 78
    ..., ts the undersigned's knswledge, sn the date si this Certiiicatisn: 1. 2. This Annual Repsrt sn Fsrm 10cK si the Csmpany isr the annual perisd ended January 30, 2016 (the "Repsrt") iully csmplies with the requirements si Sectisn 13(a) sr 15(d) si the Securities Exchange Act si 1934; and That the...

  • Page 79
    ... Securities Exchange Act of 1934; and That the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 18, 2016 /s/ Wesley S. McDonald Wesley S. McDonald Chief Financial Officer (Principal Financial...

  • Page 80