Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 2019
o
 
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: 0-14678

Ross Stores, Inc.
(Exact name of registrant as specified in its charter)
Delaware
    
94-1390387
(State or other jurisdiction of incorporation or
 
(I.R.S. Employer Identification No.)
organization)
 
 
 
5130 Hacienda Drive, Dublin, California
 
94568-7579
(Address of principal executive offices)
 
(Zip Code)
 
Registrant's telephone number, including area code
 
(925) 965-4400
 
Former name, former address and former fiscal year, if
 
N/A
changed since last report.
 
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common stock, par value $.01
 
ROST
 
Nasdaq Global Select Market

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 ý No o
    
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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 ý    No o
     
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 emerging growth company. See the 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 ý     Accelerated filer o Non-accelerated filer o Smaller reporting company o Emerging growth company o

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 revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý

The number of shares of Common Stock, with $.01 par value, outstanding on May 22, 2019 was 364,695,608.

1



Ross Stores, Inc.
Form 10-Q
Table of Contents

 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 


2



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Statements of Earnings

 
Three Months Ended
($000, except stores and per share data, unaudited)
May 4, 2019


May 5, 2018

Sales
$
3,796,642

 
$
3,588,619

 
 
 
 
Costs and Expenses
 
 
 
Cost of goods sold
2,701,668

 
2,522,219

Selling, general and administrative
558,250

 
524,423

Interest income, net
(5,635
)
 
(503
)
Total costs and expenses
3,254,283

 
3,046,139

 
 
 
 
Earnings before taxes
542,359

 
542,480

Provision for taxes on earnings
121,217

 
124,228

Net earnings
$
421,142

 
$
418,252

 
 
 
 
Earnings per share
 
 
 
Basic
$
1.16

 
$
1.12

Diluted
$
1.15

 
$
1.11

 
 
 
 
 
 
 
 
Weighted average shares outstanding (000)
 
 
 
Basic
363,085

 
373,797

Diluted
365,912

 
377,062

 
 
 
 
 
 
 
 
Stores open at end of period
1,745

 
1,651

The accompanying notes are an integral part of these condensed consolidated financial statements.

3



Condensed Consolidated Statements of Comprehensive Income

 
Three Months Ended
($000, unaudited)
May 4, 2019

 
May 5, 2018

Net earnings
$
421,142

 
$
418,252

 
 
 
 
Other comprehensive (loss) income:
 
 
 
Change in unrealized gain (loss) on investments, net of tax

 
(20
)
Comprehensive income
$
421,142

 
$
418,232

The accompanying notes are an integral part of these condensed consolidated financial statements.

4



Condensed Consolidated Balance Sheets
($000, except share data, unaudited)
May 4, 2019

 
February 2, 2019

 
May 5, 2018

Assets
 
 
 
 
 
Current Assets
 
 
 
 
 
Cash and cash equivalents
$
1,366,592

 
$
1,412,912

 
$
1,302,836

Accounts receivable
121,607

 
96,711

 
109,425

Merchandise inventory
1,813,773

 
1,750,442

 
1,895,456

Prepaid expenses and other
160,733

 
143,954

 
146,362

Total current assets
3,462,705

 
3,404,019

 
3,454,079

 
 
 
 
 
 
Property and Equipment
 
 
 
 
 
Land and buildings
1,129,049

 
1,126,051

 
1,110,278

Fixtures and equipment
2,844,135

 
2,783,198

 
2,621,211

Leasehold improvements
1,139,600

 
1,175,921

 
1,103,712

Construction-in-progress
148,021

 
171,538

 
116,495

  
5,260,805

 
5,256,708

 
4,951,696

Less accumulated depreciation and amortization
2,824,433

 
2,781,507

 
2,582,481

Property and equipment, net
2,436,372

 
2,475,201

 
2,369,215

 
 
 
 
 
 
Operating lease assets
2,942,980

 

 

Other long-term assets
207,063

 
194,471

 
197,542

Total assets
$
9,049,120

 
$
6,073,691

 
$
6,020,836

 
 
 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
 
 
Current Liabilities
 
 
 
 
 
Accounts payable
$
1,296,183

 
$
1,177,104

 
$
1,299,145

Accrued expenses and other
450,762

 
431,596

 
435,606

Current operating lease liabilities
536,900

 

 

Accrued payroll and benefits
220,376

 
363,035

 
209,570

Income taxes payable
89,290

 
37,749

 
77,323

Current portion of long-term debt

 

 
84,981

Total current liabilities
2,593,511

 
2,009,484

 
2,106,625

 
 
 
 
 
 
Long-term debt
312,552

 
312,440

 
312,105

Non-current operating lease liabilities
2,514,530

 

 

Other long-term liabilities
226,788

 
321,713

 
362,445

Deferred income taxes
134,213

 
124,308

 
109,373

 
 
 
 
 
 
Commitments and contingencies


 


 


 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
Common stock, par value $.01 per share
Authorized 1,000,000,000 shares
Issued and outstanding 365,260,000, 368,242,000
and 377,079,000 shares, respectively
3,653

 
3,682

 
3,771

Additional paid-in capital
1,391,558

 
1,375,965

 
1,312,705

Treasury stock
(423,543
)
 
(372,663
)
 
(363,077
)
Accumulated other comprehensive income

 

 
7

Retained earnings
2,295,858

 
2,298,762

 
2,176,882

Total stockholders’ equity
3,267,526

 
3,305,746

 
3,130,288

Total liabilities and stockholders’ equity
$
9,049,120

 
$
6,073,691

 
$
6,020,836

The accompanying notes are an integral part of these condensed consolidated financial statements.

5



Condensed Consolidated Statements of Stockholders' Equity

 
 
 
 
 
 
Additional paid-in capital

 
 
 
Accumulated
other comprehensive income (loss)

 
 
 
 
 
 
Common stock
 
 
Treasury stock

 
 
Retained earnings

 
 
(000)
 
Shares  

 
Amount

 
 
 
 
 
Total

Balance at February 2, 2019
 
368,242

 
$
3,682

 
$
1,375,965

 
$
(372,663
)
 
$

 
$
2,298,762

 
$
3,305,746

Net earnings
 

 

 

 

 

 
421,142

 
421,142

Cumulative effect of adoption of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
accounting standard
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(leases), net
 

 

 

 

 

 
(19,614
)
 
(19,614
)
Common stock issued under stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
plans, net of shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
used for tax withholding
 
390

 
4

 
5,291

 
(50,880
)
 

 

 
(45,585
)
Stock-based compensation
 

 

 
19,689

 

 

 

 
19,689

Common stock repurchased
 
(3,372
)
 
(33
)
 
(9,387
)
 

 

 
(310,710
)
 
(320,130
)
Dividends declared ($0.255 per share)
 

 

 

 

 

 
(93,722
)
 
(93,722
)
Balance at May 4, 2019
 
365,260

 
$
3,653

 
$
1,391,558

 
$
(423,543
)
 
$

 
$
2,295,858

 
$
3,267,526






 
 
 
 
 
 
Additional paid-in capital

 
 
 
Accumulated
other comprehensive income (loss)

 
 
 
 
 
 
Common stock
 
 
Treasury stock

 
 
Retained earnings

 
 
(000)
 
Shares  

 
Amount

 
 
 
 
 
Total

Balance at February 3, 2018
 
379,618

 
$
3,796

 
$
1,292,364

 
$
(318,279
)
 
$
27

 
$
2,071,400

 
$
3,049,308

Net earnings
 

 

 

 

 

 
418,252

 
418,252

Cumulative effect of adoption of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
accounting standard
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(revenue recognition), net
 

 

 

 

 

 
19,884

 
19,884

Unrealized investment loss, net

 

 

 

 

 
(20
)
 

 
(20
)
Common stock issued under stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
plans, net of shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
used for tax withholding
 
732

 
8

 
4,674

 
(44,798
)
 

 

 
(40,116
)
Stock-based compensation
 

 

 
23,760

 

 

 

 
23,760

Common stock repurchased
 
(3,271
)
 
(33
)
 
(8,093
)
 

 

 
(247,244
)
 
(255,370
)
Dividends declared ($0.225 per share)
 

 

 

 

 

 
(85,410
)
 
(85,410
)
Balance at May 5, 2018
 
377,079

 
$
3,771

 
$
1,312,705

 
$
(363,077
)
 
$
7

 
$
2,176,882

 
$
3,130,288

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 


6



Condensed Consolidated Statements of Cash Flows
 
Three Months Ended
($000, unaudited)
May 4, 2019

 
May 5, 2018

Cash Flows From Operating Activities
 
 
 
Net earnings
$
421,142

 
$
418,252

Adjustments to reconcile net earnings to net cash provided
by operating activities:
 
 
 
Depreciation and amortization
82,757

 
79,797

Stock-based compensation
19,689

 
23,760

Deferred income taxes
16,543

 
16,842

Change in assets and liabilities:
 
 
 
Merchandise inventory
(63,331
)
 
(253,721
)
Other current assets
(41,777
)
 
(46,028
)
Accounts payable
122,654

 
238,677

Other current liabilities
(108,208
)
 
(95,966
)
Income taxes
56,206

 
90,322

Operating lease assets and liabilities, net
2,855

 

Other long-term, net
457

 
115

Net cash provided by operating activities
508,987

 
472,050

 
 
 
 
Cash Flows From Investing Activities
 
 
 
Additions to property and equipment
(95,629
)
 
(79,793
)
Proceeds from investments
517

 
505

Net cash used in investing activities
(95,112
)
 
(79,288
)
 
 
 
 
Cash Flows From Financing Activities
 
 
 
Issuance of common stock related to stock plans
5,295

 
4,682

Treasury stock purchased
(50,880
)
 
(44,798
)
Repurchase of common stock
(320,130
)
 
(255,370
)
Dividends paid
(93,722
)
 
(85,410
)
Net cash used in financing activities
(459,437
)
 
(380,896
)
 
 
 
 
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents
(45,562
)
 
11,866

 
 
 
 
Cash, cash equivalents, and restricted cash and cash equivalents:
 
 
 
Beginning of period
1,478,079

 
1,353,272

End of period
$
1,432,517

 
$
1,365,138

 
 
 
 
Supplemental Cash Flow Disclosures
 
 
 
Interest paid
$
4,219

 
$
4,219

Income taxes paid
$
48,468

 
$
17,058

The accompanying notes are an integral part of these condensed consolidated financial statements.




7



Notes to Condensed Consolidated Financial Statements

Three Months Ended May 4, 2019 and May 5, 2018
(Unaudited)

Note A: Summary of Significant Accounting Policies

Basis of presentation. The accompanying unaudited interim condensed consolidated financial statements have been prepared from the records of Ross Stores, Inc. and subsidiaries (the “Company”) without audit and, in the opinion of management, include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the Company’s financial position as of May 4, 2019 and May 5, 2018, the results of operations, comprehensive income, stockholders' equity, and cash flows for the three month periods ended May 4, 2019 and May 5, 2018. The Condensed Consolidated Balance Sheet as of February 2, 2019, presented herein, has been derived from the Company’s audited consolidated financial statements for the fiscal year then ended.

Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of these interim condensed consolidated financial statements. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, contained in the Company’s Annual Report on Form 10-K for the year ended February 2, 2019.

The results of operations, comprehensive income, stockholders' equity, and cash flows for the three month periods ended May 4, 2019 and May 5, 2018 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

Recently adopted accounting standards. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Accounting Standards Codification "ASC" 842), which along with subsequent amendments, supersedes the lease accounting requirements in ASC 840, Leases. The updated guidance requires balance sheet recognition for all leases with lease terms greater than one year including a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

The Company adopted ASC 842 as of February 3, 2019 (the "effective date"), using the optional transition method on a modified retrospective basis. The Company did not elect the transitional package of practical expedients or the use of hindsight upon adoption of the ASC. The Company elected the practical expedient to not record a lease liability and corresponding right-of-use asset for leases with terms of 12 months or less, and to account for lease and non-lease components as a single lease component. Upon adoption, the Company recorded lease liabilities based on the present value of the remaining minimum rental payments, using discount rates as of the effective date, of $2.9 billion, and the corresponding right-of-use assets of $2.9 billion. The Company also recorded a cumulative-effect adjustment to decrease beginning retained earnings of $19.6 million, primarily related to the write-off of previously capitalized initial direct costs that are no longer capitalized under ASC 842, partially offset by the write-off of the deferred gain on a previous sale-leaseback transaction that meets the sale definition under ASC 842. Reporting periods beginning on or after February 3, 2019 are presented under ASC 842, while prior period amounts and disclosures were not adjusted and continue to be reported under ASC 840. ASC 842 did not have a significant impact to the Company’s condensed consolidated statements of earnings or to the condensed consolidated statements of cash flows.

Significant accounting policies. Except for the updates to accounting policies for leases as a result of adopting ASC 842 described below, there have been no significant changes to the accounting policies followed by the Company as described in Note A to the audited consolidated financial statements for the fiscal year ended February 2, 2019.


8



Leases. As the Company’s leases generally do not provide an implicit discount rate, the Company uses the estimated collateralized incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments for use in the calculation of the lease liabilities and right-of-use assets. This rate is determined using a portfolio approach based on the risk-adjusted rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term. Operating lease liabilities and corresponding right-of-use assets include options to extend lease terms that are reasonably certain of being exercised. The Company does not record a lease liability and corresponding right-of-use asset for leases with terms of 12 months or less, and accounts for lease and non-lease components as a single lease component. The Company's lease portfolio is comprised of operating leases with the lease cost recorded on a straight-line basis over the lease term.

Prior to the adoption of ASC 842, when a lease contained “rent holidays” or required fixed escalations of the minimum lease payments, the Company recorded rental expense on a straight-line basis over the term of the lease and the difference between the average rental amount was charged to expense and the amount payable under the lease was recorded as deferred rent. The Company began recording rent expense on the lease possession date. Tenant improvement allowances were amortized over the lease term. Changes in deferred rent and tenant improvement allowances were included as a component of operating activities in the Condensed Consolidated Statements of Cash Flows.

Revenue recognition. The following sales mix table disaggregates revenue by merchandise category for the three month periods ended May 4, 2019 and May 5, 2018:

 
Three Months Ended
 
May 4, 2019

 
May 5, 2018

Ladies
27
%
 
28
%
Home Accents and Bed and Bath
25
%
 
25
%
Shoes
14
%
 
14
%
Accessories, Lingerie, Fine Jewelry, and Fragrances
13
%
 
13
%
Men's
13
%
 
12
%
Children's
8
%
 
8
%
Total
100
%
 
100
%

Cash, restricted cash, and restricted investments. Restricted cash, cash equivalents, and investments serve as collateral for certain insurance obligations of the Company. These restricted funds are invested in bank deposits, money market mutual funds, U.S. Government and agency securities, and corporate securities and cannot be withdrawn from the Company’s account without the prior written consent of the secured parties. The classification between current and long-term is based on the timing of expected payments of the insurance obligations.

The following table provides a reconciliation of cash, cash equivalents, restricted cash and equivalents in the Condensed Consolidated Balance Sheets that reconcile to the amounts shown on the Condensed Consolidated Statements of Cash Flows:
($000)
May 4, 2019

 
February 2, 2019

 
May 5, 2018

Cash and cash equivalents
$
1,366,592

 
$
1,412,912

 
$
1,302,836

Restricted cash and cash equivalents included in:
 
 
 
 
 
  Prepaid expenses and other
11,867

 
11,402

 
8,900

  Other long-term assets
54,058

 
53,765

 
53,402

Total restricted cash and cash equivalents
65,925

 
65,167

 
62,302

Total cash, cash equivalents and restricted cash and equivalents
$
1,432,517

 
$
1,478,079

 
$
1,365,138


9



In addition to the restricted cash and equivalents in the table above, the Company had restricted investments included in the Condensed Consolidated Balance Sheets as shown below:

($000)
May 4, 2019

 
February 2, 2019

 
May 5, 2018

Prepaid expenses and other
$

 
$
400

 
$
2,822

Total restricted investments
$

 
$
400

 
$
2,822


Property and equipment. As of May 4, 2019 and May 5, 2018, the Company had $14.8 million and $11.1 million, respectively, of property and equipment purchased but not yet paid. These purchases are included in Property and Equipment, Accounts payable, and Accrued expenses and other in the accompanying Condensed Consolidated Balance Sheets.

Cash dividends. Dividends included in the Condensed Consolidated Statements of Cash Flows reflect cash dividends paid during the periods shown. Dividends per share reported on the Condensed Consolidated Statements of Earnings reflect cash dividends declared during the periods shown.

The Company’s Board of Directors declared a cash dividend of $0.255 per common share in March 2019, and $0.225 per common share in March, May, August, and November 2018, respectively.

In May 2019, the Company’s Board of Directors declared a cash dividend of $0.255 per common share, payable on June 28, 2019.

Litigation, claims, and assessments. Like many retailers, the Company has been named in class action lawsuits, primarily in California, alleging violation of wage and hour/employment laws and consumer protection laws. Class action litigation remains pending as of May 4, 2019.

The Company is also party to various other legal and regulatory proceedings arising in the normal course of business. Actions filed against the Company may include commercial, product and product safety, consumer, intellectual property, environmental, and labor and employment-related claims, including lawsuits in which private plaintiffs or governmental agencies allege that the Company violated federal, state, and/or local laws. Actions against the Company are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties.

In the opinion of management, the resolution of pending class action litigation and other currently pending legal and regulatory proceedings will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

Recently issued accounting standards. The Company considers the applicability and impact of all ASUs issued by the FASB. For the three month period ended May 4, 2019, the FASB issued ASUs were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's condensed consolidated financial results.

Reclassifications. Certain items related to income taxes in the prior year’s condensed consolidated statements of cash flows have been reclassified to conform to the current years’ presentation.






10



Note B: Fair Value Measurements

The carrying value of cash and cash equivalents, short- and long-term investments, restricted cash and cash equivalents, restricted investments, accounts receivable, other long-term assets, accounts payable, and other long-term liabilities approximates their estimated fair value.

Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The inputs used to measure fair value include: Level 1, observable inputs such as quoted prices in active markets; Level 2, inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, unobservable inputs in which little or no market data exists. This fair value hierarchy requires the Company to develop its own assumptions and maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Corporate, U.S. government and agency, and mortgage-backed securities are classified within Level 1 or Level 2 because these securities are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

There were no transfers between Level 1 and Level 2 categories during the three month period ended May 4, 2019. The fair value of the Company’s financial instruments are as follows:

($000)
 
May 4, 2019

 
February 2, 2019

 
May 5, 2018

Cash and cash equivalents (Level 1)
 
$
1,366,592

 
$
1,412,912

 
$
1,302,836

 
 
 
 
 
 
 
Restricted cash and cash equivalents (Level 1)
 
$
65,925

 
$
65,167

 
$
62,302

 
 
 
 
 
 
 
Investments (Level 2)
 
$
8

 
$
125

 
$
709

 
 
 
 
 
 
 
Restricted investments (Level 2)
 
$

 
$
400

 
$
2,822


The underlying assets in the Company’s non-qualified deferred compensation program as of May 4, 2019, February 2, 2019, and May 5, 2018 (included in Other long-term assets and in Other long-term liabilities) primarily consist of participant-directed money market, stable value, stock, and bond funds. The fair value measurement for funds with quoted market prices in active markets (Level 1) and for funds without quoted market prices in active markets (Level 2) are as follows:

($000)
May 4, 2019

 
February 2, 2019

 
May 5, 2018

Level 1
$
127,785

 
$
114,181

 
$
112,073

Level 2
10,626

 
10,377

 
16,339

Total
$
138,411

 
$
124,558

 
$
128,412



Note C: Stock-Based Compensation

Stock-based compensation. For the three month periods ended May 4, 2019 and May 5, 2018, the Company recognized stock-based compensation expense as follows:

 
Three Months Ended
($000)
May 4, 2019

 
May 5, 2018

Restricted stock
$
9,449

 
$
11,508

Performance awards
9,304

 
11,424

Employee stock purchase plan
936

 
828

Total
$
19,689

 
$
23,760



11



Total stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Earnings for the three month periods ended May 4, 2019 and May 5, 2018, is as follows:

 
Three Months Ended
Statements of Earnings Classification ($000)
May 4, 2019

 
May 5, 2018

Cost of goods sold
$
13,122

 
$
11,036

Selling, general and administrative
6,567

 
12,724

Total
$
19,689

 
$
23,760


The tax benefits related to stock-based compensation expense for the three month periods ended May 4, 2019 and May 5, 2018 were $3.7 million and $4.9 million, respectively.

Restricted stock awards. The Company grants shares of restricted stock to directors, officers, and key employees. The market value of shares of restricted stock at the date of grant is amortized to expense over the vesting period of generally three to five years.

During the three month periods ended May 4, 2019 and May 5, 2018, shares purchased by the Company for tax withholding totaled 555,997 and 583,228, respectively, and are considered treasury shares which are available for reissuance.

Performance share awards. The Company has a performance share award program for senior executives. A performance share award represents a right to receive shares of restricted stock on a specified settlement date based on the Company’s attainment of a profitability-based performance goal during the performance period, which is the Company’s fiscal year. If attained, the restricted stock then vests over a service period, generally two to three years from the date the performance award was granted.
 
As of May 4, 2019, shares related to unvested restricted stock and performance share awards totaled 4.4 million shares. A summary of restricted stock and performance share award activity for the three month period ended May 4, 2019, is presented below:

(000, except per share data)
Number of
shares

 
Weighted
average
grant date
fair value

Unvested at February 2, 2019
5,130

 
$
62.50

Awarded
975

 
90.78

Released
(1,429
)
 
51.12

Forfeited
(285
)
 
69.97

Unvested at May 4, 2019
4,391

 
$
72.00


The unamortized compensation expense at May 4, 2019, was $178.7 million, which is expected to be recognized over a weighted-average remaining period of 2.5 years. The unamortized compensation expense at May 5, 2018, was $162.5 million, which was expected to be recognized over a weighted-average remaining period of 2.2 years.

Employee stock purchase plan. Under the Employee Stock Purchase Plan (“ESPP”), eligible employees participating in the quarterly offering period can choose to have up to the lesser of 10% of their annual base earnings or the IRS annual share purchase limit of $25,000 in aggregate market value to purchase the Company’s common stock. The purchase price of the stock is 85% of the closing market price on the date of purchase. Purchases occur on a quarterly basis (on the last trading day of each calendar quarter). The Company recognizes expense for ESPP purchase rights equal to the value of the 15% discount given on the purchase date.



12



Note D: Earnings Per Share

The Company computes and reports both basic earnings per share ("EPS") and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity plan awards, including unexercised stock options, and unvested shares of both performance and non-performance based awards of restricted stock.

For the three month period ended May 4, 2019, approximately 700 weighted average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for the period presented. For the three month period ended May 5, 2018, approximately 19,300 weighted average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive for the period presented.

The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations:

 
Three Months Ended
Shares in (000s)
Basic EPS

 
Effect of
dilutive
common stock
equivalents

 
Diluted
EPS

May 4, 2019
 
 
 
 
 
Shares
363,085

 
2,827

 
365,912

Amount
$
1.16

 
$
(0.01
)
 
$
1.15

 
 
 
 
 
 
May 5, 2018
 
 
 
 
 
     Shares
373,797

 
3,265

 
377,062

     Amount
$
1.12

 
$
(0.01
)
 
$
1.11




13



Note E: Leases
The Company currently leases all but two of its store locations with original, non-cancelable terms that in general range from three to ten years. Store leases typically contain provisions for three to four renewal options of five years each. The exercise of lease renewal options is at the sole discretion of the Company. Most store leases also provide for minimum annual rentals and for payment of variable lease costs. In addition, some store leases also have provisions for additional rent based on a percentage of sales (“percentage rent”) and others include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company does not have any financing leases.
The Company leases five warehouses, and has four third-party warehousing arrangements. All of these contain renewal provisions. The following table summarizes the location and expiration date of the Company’s leased warehouses:
Location
 
Lease Expiration Date
Leased Warehouses
 
 
Carlisle, Pennsylvania
 
2020
Carlisle, Pennsylvania
 
2021
Fort Mill, South Carolina
 
2024
Rock Hill, South Carolina
 
2028
Shafter, California
 
2029
 
 
 
Third-Party Warehouses
 
 
Fort Mill, South Carolina
 
2020
Moreno Valley, California
 
2023
Moreno Valley, California
 
2029
Shafter, California
 
2020

The Company leases approximately 103,000 and 5,000 square feet of office space for its Los Angeles and Boston buying offices, respectively. The lease term for these facilities expire in 2022 and 2020, respectively, and contain renewal provisions. In addition, the Company has a ground lease related to its New York buying office.

The following table presents operating lease costs included in the Condensed Consolidated Statement of Earnings for the three months ended May 4, 2019:

 
 
Three Months Ended
($000)
 
May 4, 2019
Operating lease cost 1
 
$
155,566

Variable lease costs 2
 
42,914

Net lease cost 3
 
$
198,480

 
 
 
1 Net of sublease income which was immaterial.

 
 
2 Includes property and rent taxes, insurance, common area maintenance, and percentage rent.

 
 
3 Excludes short-term lease costs which were immaterial.

 
 


14



The maturity of operating lease liabilities, including the ground lease related to the New York buying office as of May 4, 2019, are as follows:

($000)
 
Operating Leases 1

2020
 
$
581,014

2021
 
604,295

2022
 
523,113

2023
 
443,164

2024
 
349,525

Thereafter
 
1,633,681

Total lease payments
 
4,134,792

Less: interest
 
1,083,362

Present value of lease liabilities
 
$
3,051,430

Less: current operating lease liabilities
 
536,900

Non-current operating lease liabilities
 
$
2,514,530

 
 
 
1  Operating lease payments exclude $258.4 million of minimum lease payments for leases signed that have not yet commenced.


At May 4, 2019, the weighted-average remaining lease term and the weighted average discount rate for operating leases is 10.9 years and 3.6%, respectively. The weighted-average remaining lease term and the weighted average discount rate, excluding the long-term ground lease related to the New York buying office, were 6.1 years and 3.3%, respectively.
Cash paid for amounts included in the measurement of operating lease liabilities was $148.2 million for the three months ended May 4, 2019 and is included in Net cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.

Operating lease assets obtained in exchange for new operating lease liabilities (includes new leases and remeasurements or modifications of existing leases) during the three months ended May 4, 2019 was $207.8 million.
In accordance with ASC 840, the aggregate undiscounted future minimum annual lease payments under leases, including the ground lease related to the New York buying office, in effect at February 2, 2019 were as follows:
($000)
 
Total operating leases
2019
 
$
555,812

2020
 
580,712

2021
 
499,678

2022
 
424,695

2023
 
339,340

Thereafter
 
1,575,673

Total minimum lease payments
 
$
3,975,910





15



Note F: Debt

Senior notes. Unsecured senior debt, net of unamortized discounts and debt issuance costs, consisted of the following:

($000)
 
May 4, 2019

 
February 2, 2019

 
May 5, 2018

6.38% Series A Senior Notes due 2018
 
$

 
$

 
$
84,981

6.53% Series B Senior Notes due 2021
 
64,947

 
64,942

 
64,927

3.375% Senior Notes due 2024
 
247,605

 
247,498

 
247,178

Total long-term debt
 
$
312,552

 
$
312,440

 
$
397,086

Less: current portion
 

 

 
84,981

Total due beyond one year
 
$
312,552

 
$
312,440


$
312,105



As of May 4, 2019, the Company had outstanding unsecured 3.375% Senior Notes due September 2024 (the “2024 Notes”) with an aggregate principal amount of $250 million. Interest on the 2024 Notes is payable semi-annually.

As of May 4, 2019, the Company also had outstanding Series B unsecured Senior Notes in the aggregate principal amount of $65 million held by various institutional investors. The Series B notes are due in December 2021, and bear interest at 6.53%. Borrowings under these Senior Notes are subject to certain financial covenants, including interest coverage and other financial ratios. As of May 4, 2019, the Company was in compliance with these covenants.

On December 13, 2018, the Company repaid at maturity the $85 million principal amount of the Series A 6.38% unsecured Senior Notes.

As of May 4, 2019, February 2, 2019, and May 5, 2018, total unamortized discount and debt issuance costs were $2.4 million, $2.6 million, and $2.9 million, respectively, and were classified as a reduction of Long-term debt.

The 2024 Notes, and the Series B Senior Notes are subject to prepayment penalties for early payment of principal.

The aggregate fair value of the two outstanding series of Senior Notes was approximately $318 million and $316 million, as of May 4, 2019 and February 2, 2019, respectively, compared to $407 million for the then three outstanding series of Senior Notes as of May 5, 2018. The fair value is estimated by obtaining comparable market quotes which are considered to be Level 1 inputs under the fair value measurements and disclosures guidance.

The table below shows the components of interest expense and income for the three month periods ended May 4, 2019 and May 5, 2018:

 
Three Months Ended
($000)
May 4, 2019

 
May 5, 2018

Interest expense on long-term debt
$
3,283

 
$
4,645

Other interest expense
313

 
302

Capitalized interest
(765
)
 
(498
)
Interest income
(8,466
)
 
(4,952
)
Interest income, net
$
(5,635
)
 
$
(503
)

16



Revolving credit facility. The Company’s $600 million unsecured revolving credit facility expires in April 2021, and contains a $300 million sublimit for issuance of standby letters of credit (subject to increase in proportion to any increase in the size of the credit facility). The facility also contains an option allowing the Company to increase the size of its credit facility by up to an additional $200 million, with the agreement of the lenders. Interest on any borrowings under this facility is based on LIBOR plus an applicable margin (currently 100 basis points) and is payable quarterly and upon maturity. As of May 4, 2019, the Company had no borrowings or standby letters of credit outstanding under this facility and the $600 million credit facility remains in place and available.
 
The revolving credit facility is subject to a financial leverage ratio covenant. As of May 4, 2019, the Company was in compliance with this covenant.

Note G: Taxes on Earnings

As of May 4, 2019, February 2, 2019, and May 5, 2018, the reserves for unrecognized tax benefits were $83.5 million, $78.8 million, and $125.6 million, inclusive of $13.7 million, $13.0 million, and $24.0 million of related interest and penalties, respectively. In November 2018, the Company resolved uncertain tax positions related to fiscal 2015 with the Internal Revenue Service. As a result, the Company recognized a decrease in reserves for tax positions in prior periods of $52.4 million, inclusive of $12.6 million of related reserves for interest and penalties. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $66.7 million would impact the Company’s effective tax rate. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred income tax assets and liabilities. These amounts are net of federal and state income taxes.

It is reasonably possible that certain state tax matters may be concluded or statutes of limitations may lapse during the next 12 months. Accordingly, the total amount of unrecognized tax benefits may decrease by up to $9.3 million.

The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2015 through 2018. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2014 through 2018. Certain state tax returns are currently under audit by various tax authorities. The Company does not expect the results of these audits to have a material impact on the consolidated financial statements.

17



Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Ross Stores, Inc.:

Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the “Company”) as of May 4, 2019 and May 5, 2018, the related condensed consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows for the three month periods ended May 4, 2019 and May 5, 2018, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of February 2, 2019, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated April 2, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 2, 2019 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.


/s/ Deloitte & Touche LLP

San Francisco, California
June 12, 2019

18



ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed below under the caption "Forward-Looking Statements" and in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for 2018. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for 2018. All information is based on our fiscal calendar.

Overview

Ross Stores, Inc. operates two brands of off-price retail apparel and home fashion stores -- Ross Dress for Less® (“Ross”) and dd’s DISCOUNTS®. Ross is the largest off-price apparel and home fashion chain in the United States with 1,502 locations in 38 states, the District of Columbia and Guam as of May 4, 2019. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. We also operate 243 dd’s DISCOUNTS stores in 18 states that feature a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day.

Results of Operations

The following table summarizes the financial results for the three month periods ended May 4, 2019 and May 5, 2018:

 
Three Months Ended
 
May 4, 2019

 
May 5, 2018

Sales
 
 
 
Sales (millions)
$
3,797

 
$
3,589

Sales growth
5.8
%
 
8.5
%
Comparable store sales growth
2
%
 
3
%
 
 
 
 
Costs and expenses (as a percent of sales)
 
 
 
Cost of goods sold
71.2
%
 
70.3
%
Selling, general and administrative
14.7
%
 
14.6
%
Interest income, net
(0.2
%)
 
(0.0
%)
 
 
 
 
Earnings before taxes (as a percent of sales)
14.3
%
 
15.1
%

 
 
 
Net earnings (as a percent of sales)
11.1
%
 
11.7
%



19




Stores. Our expansion strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria.

 
Three Months Ended
Store Count
May 4, 2019

 
May 5, 2018

Beginning of the period
1,717

 
1,622

Opened in the period
28

 
29

Closed in the period

 

End of the period
1,745

 
1,651


Sales. Sales for the three month period ended May 4, 2019, increased $208 million, or 5.8%, compared to the three month period ended May 5, 2018, due to the opening of 94 net new stores between May 5, 2018 and May 4, 2019, and a 2% increase in “comparable” store sales (defined as stores that have been open for more than 14 complete months).

Our sales mix for the three month periods ended May 4, 2019 and May 5, 2018 is shown below:

 
Three Months Ended
 
May 4, 2019

 
May 5, 2018

Ladies
27
%
 
28
%
Home Accents and Bed and Bath
25
%
 
25
%
Shoes
14
%
 
14
%
Accessories, Lingerie, Fine Jewelry, and Fragrances
13
%
 
13
%
Men's
13
%
 
12
%
Children's
8
%
 
8
%
Total
100
%
 
100
%

We intend to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies and by continuing to strengthen our organization, diversify our merchandise mix, and more fully develop our systems to improve regional and local merchandise offerings. Although our strategies and store expansion program contributed to sales gains for the three month period ended May 4, 2019, we cannot be sure that they will result in a continuation of sales growth or in an increase in net earnings.

Cost of goods sold. Cost of goods sold for the three month period ended May 4, 2019, increased $179 million compared to the same period in the prior year, mainly due to increased sales from the opening of 94 net new stores and a 2% increase in comparable store sales.

Cost of goods sold as a percentage of sales for the three month period ended May 4, 2019, increased approximately 85 basis points from the same period in the prior year, primarily due to a 60 basis point increase in distribution expenses mainly due to favorable timing of packaway-related expenses in the prior year, a 35 basis point increase in freight costs, and buying and occupancy costs that were higher by 10 basis points each. These increases were partially offset by a 30 basis point improvement in merchandise margin.

We cannot be sure that the gross profit margins realized for the three month period ended May 4, 2019, will continue in the future.

Selling, general and administrative expenses. For the three month period ended May 4, 2019, selling, general and administrative expenses ("SG&A") increased $34 million compared to the same period in the prior year, mainly due to increased store operating costs reflecting the opening of 94 net new stores between May 5, 2018 and May 4, 2019.


20



Selling, general and administrative expenses as a percentage of sales for the three month period ended May 4, 2019, increased approximately 10 basis points from the same period in the prior year primarily due to higher wages partially offset by favorable timing of expenses.

Interest income, net. Interest income, net for the three month period ended May 4, 2019, increased compared to the same period in the prior year primarily due to an increase in interest income due to higher interest rates. Interest income, net for the three month periods ended May 4, 2019 and May 5, 2018, consists of the following:

 
Three Months Ended
($000)
May 4, 2019

 
May 5, 2018

Interest expense on long-term debt
$
3,283

 
$
4,645

Other interest expense
313

 
302

Capitalized interest
(765
)
 
(498
)
Interest income
(8,466
)
 
(4,952
)
Interest income, net
$
(5,635
)
 
$
(503
)

Taxes on earnings. Our effective tax rates for the three month periods ended May 4, 2019 and May 5, 2018, were approximately 22% and 23%, respectively. The effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns. The effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with share-based compensation, and the resolution of tax positions with various taxing authorities. We anticipate that our effective tax rate for fiscal 2019 will be between 23% and 24%.

Net earnings. Net earnings as a percentage of sales for the three month period ended May 4, 2019, was lower compared to the same period in the prior year primarily due to higher cost of goods sold and higher SG&A expenses, partially offset by higher interest income.

Earnings per share. Diluted earnings per share for the three month period ended May 4, 2019 was $1.15 compared to $1.11, for the three month period ended May 5, 2018. The 4% increase in diluted earnings per share for the three month period ended May 4, 2019, was attributable to a 1% increase in net earnings, and 3% from the reduction in weighted average diluted shares outstanding, largely due to stock repurchases under our stock repurchase program.

Financial Condition

Liquidity and Capital Resources

Our primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, payroll, operating and variable lease costs, taxes, and capital expenditures in connection with new and existing stores, and investments in distribution centers, information systems, and buying and corporate offices. We also use cash to repurchase stock under our stock repurchase program and to pay dividends, and we may use cash for the repayment of debt as it becomes due.

 
Three Months Ended
($000)
May 4, 2019

 
May 5, 2018

Cash provided by operating activities
$
508,987

 
$
472,050

Cash used in investing activities
(95,112
)
 
(79,288
)
Cash used in financing activities
(459,437
)
 
(380,896
)
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents
$
(45,562
)
 
$
11,866


21





Operating Activities

Net cash provided by operating activities was $509.0 million and $472.1 million for the three month periods ended May 4, 2019 and May 5, 2018, respectively, and was primarily driven by net earnings excluding non-cash expenses for depreciation and amortization. Our primary source of operating cash flow is the sale of our merchandise inventory. We regularly review the age and condition of our merchandise and are able to maintain current merchandise inventory in our stores through replenishment processes and liquidation of slower-moving merchandise through clearance markdowns.

The increase in cash flow from operating activities for the three month period ended May 4, 2019, compared to the same period in the prior year was primarily driven by the timing of merchandise receipts and related payments versus last year, partially offset by higher income tax payments. The timing of merchandise receipts and related payments versus last year resulted in higher accounts payable leverage (defined as accounts payable divided by merchandise inventory) which was 71%, 67%, and 69% as of May 4, 2019, February 2, 2019, and May 5, 2018, respectively.

As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling opportunities in the marketplace. Packaway merchandise is purchased with the intent that it will be stored in our warehouses until a later date. The timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation to our store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and seasonality of purchase, but typically packaway remains in storage less than six months. We expect to continue to take advantage of packaway inventory opportunities to maximize our ability to deliver bargains to our customers.

Changes in packaway inventory levels impact our operating cash flow. As of May 4, 2019, packaway inventory was 44% of total inventory compared to 46% at the end of fiscal 2018. As of May 5, 2018, packaway inventory was 49% of total inventory compared to 49% at the end of fiscal 2017.

Investing Activities

Net cash used in investing activities was $95.1 million and $79.3 million for the three month periods ended May 4, 2019 and May 5, 2018, respectively. The increase in cash used for investing activities for the three month period ended May 4, 2019 compared to the three month period ended May 5, 2018 was primarily due to an increase in our capital expenditures.

Our capital expenditures were $95.6 million and $79.8 million for the three month periods ended May 4, 2019 and May 5, 2018, respectively. Our capital expenditures include costs to build, expand, and improve distribution centers; open new stores and improve existing stores; and for various other expenditures related to our information technology systems, buying and corporate offices.

We are forecasting approximately $600 million in capital expenditures for fiscal year 2019 to fund costs for fixtures and leasehold improvements to open new Ross and dd’s DISCOUNTS stores, the upgrade or relocation of existing stores, investments in information technology systems, initial investment in our next distribution center, and for various other expenditures related to our stores, distribution centers, buying and corporate offices. We expect to fund capital expenditures with available cash and cash equivalents, and cash flow from operations.

Financing Activities

Net cash used in financing activities was $459.4 million and $380.9 million for the three month periods ended May 4, 2019 and May 5, 2018, respectively. For the three month periods ended May 4, 2019 and May 5, 2018, our liquidity and capital requirements were provided by available cash and cash equivalents, and cash flows from operations. The increase in cash used for financing activities for the three month period ended May 4, 2019, compared to the three month period ended May 5, 2018, was primarily due to an increase in the repurchase of our common stock under our stock repurchase program and higher cash dividends.

We repurchased 3.4 million and 3.3 million shares of common stock for aggregate purchase prices of approximately $320.1 million and $255.4 million during the three month periods ended May 4, 2019 and May 5, 2018, respectively. We also acquired 0.6 million and 0.6 million shares of treasury stock under our employee stock equity compensation programs, for aggregate purchase prices of approximately $50.9 million and $44.8 million during the three month periods ended May 4, 2019 and May 5, 2018, respectively. In March 2019, our Board of Directors approved a new, two-year $2.55 billion stock repurchase program through fiscal 2020.

22




For the three month periods ended May 4, 2019 and May 5, 2018, we paid cash dividends of $93.7 million and $85.4 million, respectively.

Short-term trade credit represents a significant source of financing for merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit, bank lines, and other credit sources to meet our capital and liquidity requirements, including lease payment obligations, in 2019.

We have a $600 million unsecured revolving credit facility which expires in April 2021, and contains a $300 million sublimit for issuance of standby letters of credit (subject to increase in proportion to any increase in the size of the credit facility). The facility also contains an option allowing us to increase the size of our credit facility by up to an additional $200 million, with the agreement of the lenders. Interest on any borrowings under this facility is based on LIBOR plus an applicable margin (currently 100 basis points) and is payable quarterly and upon maturity. As of May 4, 2019, we had no borrowings or standby letters of credit outstanding under this facility and the $600 million credit facility remains in place and available.

The revolving credit facility is subject to a financial leverage ratio covenant. As of May 4, 2019, we were in compliance with this covenant.

We estimate that existing cash and cash equivalent balances, cash flows from operations, bank credit lines, and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments, repayment of debt, common stock repurchases, and quarterly dividend payments for at least the next twelve months.

Contractual Obligations and Off-Balance Sheet Arrangements

The table below presents our significant contractual obligations as of May 4, 2019:

($000)
Less than
one year

 
1 - 3
years

 
3 - 5
years

 
After 5
years

 
Total¹

 
 
 
 
Recorded contractual obligations:
 
 
 
 
 
 
 
 
 
   Senior notes
$

 
$
65,000

 
$

 
$
250,000

 
$
315,000

   Operating leases
575,132

 
1,114,573

 
778,623

 
680,837

 
3,149,165

   New York buying office ground lease2
5,882

 
12,835

 
14,066

 
952,844

 
985,627

Unrecorded contractual obligations:
 
 
 
 
 
 
 
 
 
   Real estate obligations3
12,687

 
48,012

 
48,618

 
149,107

 
258,424

   Interest payment obligations
12,682

 
25,364

 
16,875

 
4,219

 
59,140

   Purchase obligations4
2,743,045

 
19,714

 
5,203

 
388

 
2,768,350

Total contractual obligations
$
3,349,428

 
$
1,285,498

 
$
863,385

 
$
2,037,395

 
$
7,535,706


1 We have a $82.5 million liability for unrecognized tax benefits that is included in Other long-term liabilities on our interim Condensed Consolidated Balance Sheet. This liability is excluded from the schedule above as the timing of payments cannot be reasonably estimated except for the item disclosed in Note G.

² Our New York buying office building is subject to a 99-year ground lease.

3 Minimum lease payments for leases signed that have not yet commenced.

4 Purchase obligations primarily consist of merchandise inventory purchase orders, commitments related to construction projects, store fixtures and supplies, and information technology services, transportation, and maintenance contracts.

Other than the unrecorded contractual obligations noted above, we do not have any material off-balance sheet arrangements as of May 4, 2019.


23



Senior notes. As of May 4, 2019, we had outstanding unsecured 3.375% Senior Notes due September 2024 with an aggregate principal amount of $250 million. Interest on the 2024 Notes is payable semi-annually.

As of May 4, 2019, we also had outstanding Series B unsecured senior notes in the aggregate principal amount of $65 million, held by various institutional investors. The Series B notes are due in December 2021 and bear interest at 6.53%. Borrowings under these Senior Notes are subject to certain financial covenants, including interest coverage and other financial ratios. As of May 4, 2019, we were in compliance with these covenants.

The 2024 Notes, and Series B senior notes are subject to prepayment penalties for early payment of principal.

Standby letters of credit and collateral trust. We use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize our insurance obligations. As of May 4, 2019, February 2, 2019, and May 5, 2018, we had $5.5 million, $7.3 million, and $7.8 million, respectively, in standby letters of credit outstanding and $58.6 million, $58.3 million and $57.3 million, respectively, in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash, cash equivalents, and investments.

Trade letters of credit. We had $12.1 million, $13.3 million, and $17.6 million in trade letters of credit outstanding at May 4, 2019, February 2, 2019, and May 5, 2018, respectively.

Dividends. In May 2019, our Board of Directors declared a cash dividend of $0.255 per common share, payable on June 28, 2019.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. Actual results may differ significantly from these estimates. During the first quarter of fiscal 2019, other than changes to our lease accounting policies as a result of adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases (Accounting Standards Codification "ASC" 842) described below, there have been no significant changes to the critical accounting policies discussed in our Annual Report on Form 10-K for the year ended February 2, 2019.

As our leases generally do not provide an implicit discount rate, we use the estimated collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments for use in the calculation of the lease liabilities and right-of-use assets. This rate is determined using a portfolio approach based on the risk-adjusted rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar lease term. Operating lease liabilities and corresponding right-of-use assets include options to extend lease terms that are reasonably certain of being exercised. We do not record a lease liability and corresponding right-of-use asset for leases with terms of 12 months or less, and account for lease and non-lease components as a single lease component. Our lease portfolio is comprised of operating leases with the lease cost recorded on a straight-line basis over the lease term.

Prior to the adoption of ASC 842, when a lease contained “rent holidays” or required fixed escalations of the minimum lease payments, we recorded rental expense on a straight-line basis over the term of the lease and the difference between the average rental amount was charged to expense and the amount payable under the lease was recorded as deferred rent. We began recording rent expense on the lease possession date. Tenant improvement allowances were amortized over the lease term. Changes in deferred rent and tenant improvement allowances were included as a component of operating activities in the Condensed Consolidated Statements of Cash Flows.

See Note A - Summary of Significant Accounting Policies (Recently Adopted Accounting Standards) and Note E - Leases in the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding the adoption of ASC 842.


24



Forward-Looking Statements

This report may contain a number of forward-looking statements regarding planned store growth, new markets, expected sales, projected earnings levels, capital expenditures, and other matters. These forward-looking statements reflect our then-current beliefs, projections, and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” "outlook," “looking ahead” and similar expressions identify forward-looking statements.

Future economic and industry trends that could potentially impact revenue, profitability, and growth are difficult to predict. Our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from those forward-looking statements and our previous expectations and projections. Such risks are not limited to but may include:

Competitive pressures in the apparel and home-related merchandise retailing industry, which are high.
Unexpected changes in the level of consumer spending on or preferences for apparel and home-related merchandise, which could adversely affect us.
Unseasonable weather that may affect shopping patterns and consumer demand for seasonal apparel and other merchandise.
Impacts from the macro-economic environment, financial and credit markets, and geopolitical conditions that affect consumer confidence and consumer disposable income.
Our need to effectively manage our inventories, markdowns, and inventory shortage in order to achieve our planned gross margins.
Our dependence on the market availability, quantity, and quality of attractive brand name merchandise at desirable discounts, and on the ability of our buyers to purchase merchandise to enable us to offer customers a wide assortment of merchandise at competitive prices.
Information or data security breaches, including cyber-attacks on our transaction processing and computer information systems, which could result in theft or unauthorized disclosure of customer, credit card, employee, or other private and valuable information that we handle in the ordinary course of our business.
Disruptions in our supply chain or in our information systems that could impact our ability to process sales and to deliver product to our stores in a timely and cost-effective manner.
Our need to obtain acceptable new store sites with favorable consumer demographics to achieve our planned growth.
Our need to expand in existing markets and enter new geographic markets in order to achieve growth.
Consumer problems or legal issues involving the quality, safety, or authenticity of products we sell, which could harm our reputation, result in lost sales, and/or increase our costs.
An adverse outcome in various legal, regulatory, or tax matters that could increase our costs.
Damage to our corporate reputation or brands that could adversely affect our sales and operating results.
Our need to continually attract, train, and retain associates with the retail talent necessary to execute our off-price retail strategies.
Our need to effectively advertise and market our business.
Risks associated with selling and importing merchandise produced in other countries.
Changes in U.S. tax, tariff, or trade policy regarding apparel and home-related merchandise produced in other countries, which could adversely affect our business.
Possible volatility in our revenues and earnings.
A natural or man-made disaster in California or in another region where we have a concentration of stores, offices, or a distribution center that could harm our business.
Our need to maintain sufficient liquidity to support our continuing operations, our new store and distribution center growth plans, and our stock repurchase program and quarterly dividends.

The factors underlying our forecasts are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.




25



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks, which primarily include changes in interest rates. We do not engage in financial transactions for trading or speculative purposes.

We may occasionally use forward contracts to hedge against fluctuations in foreign currency prices. We had no outstanding forward contracts as of May 4, 2019.

Interest that is payable on our revolving credit facility is based on variable interest rates and is, therefore, affected by changes in market interest rates. As of May 4, 2019, we had no borrowings outstanding under our revolving credit facility.

As of May 4, 2019, we have one outstanding series of unsecured 6.53% Series B Senior Notes due December 2021 with an aggregate principal amount of $65 million. We also have unsecured 3.375% Senior Notes due September 2024 with an aggregate principal amount of $250 million. Interest that is payable on our Senior Notes is based on fixed interest rates, and is therefore unaffected by changes in market interest rates.

Interest is receivable on our short- and long-term investments. Changes in interest rates may impact interest income recognized in the future, or the fair value of our investment portfolio.

A hypothetical 100 basis point increase or decrease in prevailing market interest rates would not have a material impact on our consolidated financial position, results of operations, cash flows, or the fair values of our short- and long-term investments as of and for the three month period ended May 4, 2019. We do not consider the potential losses in future earnings and cash flows from reasonably possible, near-term changes in interest rates to be material.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at that reasonable assurance level as of the end of the period covered by this report.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

Quarterly Evaluation of Changes in Internal Control Over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during the first fiscal quarter of 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our management concluded that there was no such change during the 2019 first fiscal quarter.

26



PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The matters under the caption “Litigation, claims, and assessments” in Note A of Notes to Condensed Consolidated Financial Statements are incorporated herein by reference.

ITEM 1A. RISK FACTORS

See Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 2, 2019 for a description of the risks and uncertainties associated with our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Information regarding shares of common stock we repurchased during the first quarter of fiscal 2019 is as follows:
 
Total number of shares
(or units) purchased1

 
Average price
paid per share
(or unit)

 
Total number of
shares
(or units)
purchased as
part of publicly
announced
plans or
programs

 
Maximum number
(or approximate
dollar value) of
shares (or units)
that may yet be
purchased under
the plans or
programs ($000)2

Period
 
 
 
February
 
 
 
 
 
 
 
(2/03/2019 - 3/02/2019)

 

 

 

March
 
 
 
 
 
 
 
(3/03/2019 - 4/06/2019)
2,339,266

 
$91.92
 
1,783,572

 
$2,385,831
April
 
 
 
 
 
 
 
(4/07/2019 - 5/04/2019)
1,589,344

 
$98.15
 
1,589,041

 
$2,229,870
Total
3,928,610

 
$94.44
 
3,372,613

 
$2,229,870

1 We acquired 555,997 shares of treasury stock during the quarter ended May 4, 2019. Treasury stock includes shares acquired from employees for tax withholding purposes related to vesting of restricted stock grants. All remaining shares were repurchased under our publicly announced stock repurchase program.

2 In March 2019, our Board of Directors approved a two-year $2.55 billion stock repurchase program through fiscal 2020.

27



ITEM 6. EXHIBITS
Exhibit
 
Number
Exhibit
3.1
 
 
3.2
 
 
10.1
 
 
10.2
 
 
10.3
 
 
15
 
 
31.1
 
 
31.2
 
 
32.1
 
 
32.2
 
 
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

28



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
ROSS STORES, INC.
 
 
(Registrant)
 
 
 
 
 
 
 
 
Date:
June 12, 2019
By: 
/s/Michael J. Hartshorn
 
 
 
Michael J. Hartshorn
 
 
 
Group Executive Vice President, Finance and Legal, Chief Financial Officer, and Principal Accounting Officer

29
Exhibit
Exhibit 10.1

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made effective __________, ____ (the “Effective Date”) by and between Ross Stores, Inc., a Delaware corporation, and ____________ (the “Executive”). References herein to the “Company” shall mean Ross Stores, Inc. and, where appropriate, Ross Stores, Inc. and each and any of its divisions, affiliates or subsidiaries.
RECITALS
The Company wishes to employ the Executive, and the Executive is willing to accept such employment, as ______________________.
It is now the mutual desire of the Company and the Executive to enter into a written employment agreement to govern the terms of the Executive’s employment by the Company as of and following the Effective Date on the terms and conditions set forth below.
TERMS AND CONDITIONS
In consideration for the promises of the parties set forth below, the Company and the Executive hereby agree as follows:
1.Term. Subject to the provisions of Section 6 of this Agreement, the term of employment of the Executive by the Company under this Agreement shall be as follows:
(a)    Initial Term. The initial term of employment of the Executive by the Company under this Agreement shall begin on the Effective Date and end on _____________ (the “Initial Term”), unless extended or terminated earlier in accordance with this Agreement. The Initial Term plus any Extension (as defined in Section 1(c) hereof) thereof shall be the “Term of Employment.”
(b)    Extension Intent Notice. By December 31, [2020], the Executive shall advise the CEO of the Company or his/her designee whether the Executive would like the Term of Employment extended. If the Executive does not timely notify the Company of his/her desire to extend (or not to extend) the Term of Employment, then such action shall be deemed to result in the Executive’s Voluntary Termination as of the Term of Employment end date unless the Company determines otherwise in its sole and absolute discretion.
(c)    New Agreement. Provided that, in accordance with Section 1(b) hereof, the Executive has timely notified the CEO of the Executive’s desire to extend the Executive’s employment, the Company will consider whether to offer the Executive an extension under this Agreement or a new Employment Agreement. If the Company decides in its sole and absolute discretion to offer the Executive an extension or a new Employment Agreement, the Company will notify the Executive accordingly (an "Extension Notice") not less than one hundred eighty (180) days prior to the expiration of the Term of Employment. If the Company timely provides an Extension Notice and the Executive and the Company enter into such extension (or a new



Exhibit 10.1

Employment Agreement), the Initial Term hereof will be extended by such additional period of time set forth in the Extension Notice (each an "Extension"). If the Company timely provides an Extension Notice and offers the Executive an extension or a new Employment Agreement providing at least comparable terms to the Executive’s then current Employment Agreement but the Executive does not agree to enter into such extension or new Employment Agreement, such action shall be deemed to result in Executive’s Voluntary Termination as of the Term of Employment end date unless the Company determines otherwise in its sole and absolute discretion.
2.    Position and Duties. During the Term of Employment, the Executive shall serve as ___________________________. During the Term of Employment, the Executive may engage in outside activities provided (i) such activities (including but not limited to membership on boards of directors of not-for-profit and for-profit organizations) do not conflict with the Executive’s duties and responsibilities hereunder and (ii) the Executive obtains written approval from the Company’s Chief Executive Officer of any significant outside business activity in which the Executive plans to become involved, whether or not such activity is pursued for profit.
3.    Principal Place of Employment. The Executive shall be employed at the Company’s offices in ______________, CA, except for required travel on the Company’s business to an extent substantially consistent with present business travel obligations of the Executive’s position.
4.    Compensation and Related Matters.
(a)    Salary. During the Term of Employment, the Company shall pay to the Executive a salary at a rate of not less than ________________ ($_________) per annum. The Executive’s salary shall be payable in substantially equal installments in accordance with the Company’s normal payroll practices applicable to senior executives. Subject to the first sentence of this Section 4(a), the Executive’s salary may be adjusted from time to time in accordance with normal business practices of the Company.
(b)    Bonus. During the Term of Employment, the Executive shall be eligible to receive an annual bonus paid under the Company’s existing incentive bonus plan under which the Executive is eligible (which is currently the Incentive Compensation Plan) or any replacement plan that may subsequently be established and in effect during the Term of Employment. The current target annual bonus the Executive is eligible to earn upon achievement of 100% of all applicable performance targets under such incentive bonus plan is __% of the Executive’s then effective annual salary rate. Annual bonuses are not earned until the date any such bonus is paid in accordance with the terms of the applicable bonus plan. As such, the Executive’s termination for Cause or Voluntary Termination (as described in Sections 6(c) and 6(f), respectively) prior to the Company’s payment of the bonus for a fiscal year of the Company will cause the Executive to be ineligible for any annual bonus for that fiscal year or any pro-rata portion of such bonus.
(c) Expenses. During the Term of Employment, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in performing services hereunder, including, but not limited to, all reasonable expenses of travel and living while

2



Exhibit 10.1

away from home, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company.
(d) Benefits. During the Term of Employment, the Executive shall be entitled to participate in all of the Company’s employee benefit plans and arrangements in which senior executives of the Company are eligible to participate. The Company shall not make any changes in such plans or arrangements which would adversely affect the Executive’s rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all senior executives of the Company and does not result in a proportionately greater reduction in the rights or benefits of the Executive as compared with any other similarly situated senior executive of the Company. The Executive shall be entitled to participate in, or receive benefits under, any employee benefit plan or arrangement made available by the Company in the future to its senior executives, subject to, and on a basis consistent with, the terms, conditions and overall administration of such plans and arrangements. Except as otherwise specifically provided herein, nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be in lieu of the salary or bonus otherwise payable under this Agreement.
(e) Vacations. During the Term of Employment, the Executive shall be entitled to __________ vacation days in each calendar year, determined in accordance with the Company’s vacation plan. The Executive shall also be entitled to all paid holidays given by the Company to its senior executives. Unused vacation days shall not be forfeited once they have been earned and, if still unused at the time of the Executive’s termination of employment with the Company, shall be promptly paid to the Executive at their then-current value, based on the Executive’s daily salary rate at the time of the Executive’s termination of employment.
(f)    Services Furnished. The Company shall furnish the Executive with office space and such services as are suitable to the Executive’s position and adequate for the performance of the Executive’s duties during the Term of Employment.
5.    Confidential Information and Intellectual Property.
(a)    This Agreement is intended to supplement, and not to supersede, any rights the Company may have in law or equity with respect to the protection of trade secrets or confidential or proprietary information.
(b)    Other than in the performance of the Executive’s duties hereunder, the Executive agrees not to use in any manner or disclose, distribute, publish, communicate or in any way cause to be used, disclosed, distributed, published, or communicated in any way or at any time, either while in the Company's employ or at any time thereafter, to any person not employed by the Company, or not engaged to render services to the Company, any Confidential Information (as defined below) obtained while in the employ of the Company.
(c)    Confidential Information includes any written or unwritten information which relates to and/or is used by the Company or its subsidiaries, affiliates or divisions, including, without limitation: (i) the names, addresses, buying habits and other special information regarding past,

3



Exhibit 10.1

present and potential customers, employees and suppliers of the Company; (ii) customer and supplier contracts and transactions or price lists of the Company and suppliers; (iii) methods of distribution; (iv) all agreements, files, books, logs, charts, records, studies, reports, processes, schedules and statistical information; (v) data, figures, projections, estimates, pricing data, customer lists, buying manuals or procedures, distribution manuals or procedures, and other policy and procedure manuals or handbooks; (vi) supplier information, tax records, personnel histories and records, sales information and property information; (vii) information regarding the present or future phases of business; (viii) ideas, inventions, trademarks, business information, know-how, processes, techniques, improvements, designs, redesigns, creations, discoveries, trade secrets, and developments; (ix) all computer software licensed or developed by the Company or its subsidiaries, affiliates or divisions, computer programs, computer-based and web-based training programs, and systems; and (x) finances and financial information. However, Confidential Information will not include information of the Company or its subsidiaries, affiliates or divisions that (1) became or becomes a matter of public knowledge through sources independent of the Executive, (2) has been or is disclosed by the Company or its subsidiaries, affiliates or divisions without restriction on its use, or (3) has been or is required or specifically permitted to be disclosed by law or governmental order or regulation, provided that the disclosure does not exceed the extent of disclosure required by such law, order or regulation. The Executive shall provide prompt written notice of any such order to the Company’s CEO or his or her designee sufficiently in advance of making any disclosure to permit the Company to contest the order or seek confidentiality protections, as determined in the Company’s sole and absolute discretion. The Executive agrees that, if there is any reasonable doubt whether an item is public knowledge, the Executive will not regard the item as public knowledge until and unless the Company’s CEO confirms to the Executive that the information is public knowledge.
(d)    The provisions of this Section 5 shall not preclude the Executive from disclosing such information to the Executive's professional tax advisor or legal counsel solely to the extent necessary to the rendering of their professional services to the Executive if such individuals agree to keep such information confidential.
(e)    Notwithstanding the foregoing, the U.S. Defend Trade Secrets Act of 2016 (“DTSA”) provides that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (iii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, DTSA provides that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.
(f)    The Executive agrees that upon leaving the Company’s employ the Executive will remain reasonably available to answer questions from Company officers regarding the

4



Exhibit 10.1

Executive’s former duties and responsibilities and the knowledge the Executive obtained in connection therewith.
(g)    The Executive agrees that upon leaving the Company's employ the Executive will not communicate directly or indirectly with, or give statements to, any member of the media (including print, television, radio or social media) relating to any matter (including pending or threatened lawsuits or administrative investigations) about which the Executive has knowledge or information (other than knowledge or information that is not Confidential Information) as a result of employment with the Company. The Executive further agrees to notify the CEO or his or her designee immediately after being contacted by any member of the media with respect to any matter affected by this section.
(h)    The Executive agrees that all information, inventions and discoveries, whether or not patented or patentable, protected by a copyright or copyrightable, or registered as a trademark or eligible to be registered as a trademark, made or conceived by the Executive, either alone or with others, at any time while employed by the Company, which arise out of such employment or is pertinent to any field of business or research in which, during such employment, the Company, its subsidiaries, affiliates or divisions is engaged or (if such is known to or ascertainable by the Executive) is considering engaging (“Intellectual Property”) shall (i) be and remain the sole property of the Company and the Executive shall not seek a patent or copyright or trademark protection with respect to such Intellectual Property without the prior consent of an authorized representative of the Company and (ii) be disclosed promptly to an authorized representative of the Company along with all information the Executive possesses with regard to possible applications and uses. Further, at the request of the Company, and without expense or additional compensation to the Executive, the Executive agrees to, during and after his or her employment, execute such documents and perform such other acts as the Company deems necessary to obtain, perfect, maintain, protect and enforce patents on such Intellectual Property in a jurisdiction or jurisdictions designated by the Company, and to assign and transfer to the Company or its designee all such Intellectual Property rights and all patent applications and patents relating thereto. The Executive hereby irrevocably grants the Company power of attorney to execute and deliver any such documents on the Executive’s behalf in his or her name and to do all other lawfully permitted acts to transfer the work product to the Company and further the transfer, issuance, prosecution, and maintenance of all Intellectual Property rights therein, to the full extent permitted by law, if the Executive does not promptly cooperate with the Company’s request (without limiting the rights the Company shall have in such circumstances by operation of law). The power of attorney is coupled with an interest and shall not be affected by the Executive’s subsequent incapacity.
(i)    Executive represents and warrants that, as of the Effective Date, there is no Intellectual Property that: (i) has been created by or on behalf of Executive, and/or (ii) is owned exclusively by Executive or jointly by Executive with others or in which Executive has an interest, and that relate in any way to any of the Company’s actual or proposed businesses, products, services, or research and development, and which are not assigned to the Company hereunder. Executive understands further that the Intellectual Property will not include, and the provisions of this

5



Exhibit 10.1

Agreement requiring assignment of inventions to the Company do not apply to, any invention that qualifies fully for exclusion under the provisions of Section 2870 of the California Labor Code.
(j)    The Executive and the Company agree that the Executive intends all original works of authorship within the purview of the copyright laws of the United States authored or created by the Executive in the course of the Executive’s employment with the Company will be works for hire within the meaning of such copyright law.
(k)    Upon termination of the Executive’s employment, or at any time upon request of the Company, the Executive will (i) promptly return to the Company all Confidential Information and Intellectual Property, in any form, including but not limited to letters, memoranda, reports, notes, notebooks, books of account, drawings, prints, specifications, formulae, data printouts, microfilms, magnetic tapes, disks, recordings, documents, and all copies thereof, and (ii) delete or destroy all copies of any such documents and materials not returned to the Company that remain in the Executive’s possession or control, including those stored on any non-Company devices, networks, storage locations, and media in the Executive’s possession or control.
6.    Termination. The Executive’s employment may be terminated during the Term of Employment only as follows:
(a)    Death. The Executive’s employment shall terminate upon the Executive’s death.
(b)    Disability. If, as a result of the Executive’s Disability (as defined below), the Executive shall have been absent from the Executive’s duties hereunder on a full-time basis for the entire period of six consecutive months, and, within thirty days after written notice of termination is given by the Company (which may occur before or after the end of such six-month period), the Executive shall not have returned to the performance of the Executive’s duties hereunder on a full-time basis, the Executive’s employment shall terminate. For purposes of this Agreement, the term “Disability” shall have the same meaning as ascribed to such term under the Company's long-term disability plan in which Executive is participating; provided that in the absence of such plan (or the absence of Executive's participation in such plan), Disability shall mean Executive’s inability to substantially perform his or her duties hereunder due to a medically determinable physical or mental impairment which has lasted for a period of not less than one hundred twenty (120) consecutive days.
(c)    For Cause. The Company may terminate the Executive’s employment for Cause. For this purpose, “Cause” means the occurrence of any of the following (i) the Executive’s repeated failure to substantially perform the Executive’s duties hereunder (unless such failure is a result of a Disability as defined in Section 6(b)); (ii) the Executive’s theft, dishonesty, breach of fiduciary duty for personal profit or falsification of any documents of the Company; (iii) the Executive’s material failure to abide by the applicable code(s) of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct) of the Company; (iv) knowing or intentional misconduct by the Executive as a result of which the Company is required to prepare an accounting restatement; (v) the Executive’s unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of the Company

6



Exhibit 10.1

(including, without limitation, the Executive’s improper use or disclosure of confidential or proprietary information of the Company); (vi) any intentional misconduct or illegal or grossly negligent conduct by the Executive which is materially injurious to the Company monetarily or otherwise; (vii) any material breach by the Executive of the provisions of Section 9 [Certain Employment Obligations] of this Agreement; or (viii) the Executive’s conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation, or moral turpitude, or which materially impairs the Executive’s ability to perform his or her duties with the Company. A termination for Cause shall not take effect unless: (1) the Executive is given written notice by the Company of its intention to terminate the Executive for Cause; (2) the notice specifically identifies the particular act or acts or failure or failures to act which are the basis for such termination; and (3) where practicable, the notice is given within sixty days of the Company’s learning of such act or acts or failure or failures to act.
(d)    Without Cause. The Company may terminate the Executive’s employment at any time Without Cause. A termination “Without Cause” is a termination by the Company of the Executive’s employment with the Company for any reasons other than the death or Disability of the Executive or the termination by the Company of the Executive for Cause as described in Section 6(c).
(e)    Termination by the Executive for Good Reason.
(i)    Termination Not in Connection with a Change in Control. At any time during the Term of Employment, other than within the period commencing one month prior to and ending twelve months following a Change in Control (as defined below in Section 8(e)(ii)), the Executive may terminate the Executive’s employment with the Company for “Good Reason,” which shall be deemed to occur if, within sixty days after receipt of written notice to the Company by the Executive of the occurrence of one or more of the following conditions, any of the following conditions have not been cured: (i) a failure by the Company to comply with any material provision of this Agreement (including but not limited to the reduction of the Executive’s salary or the target annual bonus opportunity set forth in Section 4(b)); (ii) a significant diminishment in the nature or scope of the authority, power, function, or duty attached to the position which the Executive currently maintains without the express written consent of the Executive; provided, that the Executive’s employment may be transferred, assigned, or re-assigned to Ross Stores, Inc. or a division, affiliate, or subsidiary of Ross Stores, Inc.; the division, affiliate, or subsidiary with respect to which the Executive is performing services may be reorganized; and the Executive’s direct reports or the person or title of the person to whom the Executive reports may be changed; and no such transfer, assignment, re-assignment, reorganization, or change shall constitute “Good Reason” for the Executive’s termination of employment under this Section 6(e)(i); or (iii) the relocation of the Executive’s Principal Place of Employment as described in Section 3 to a location that increases the regular one-way commute distance between the Executive’s residence and Principal Place of Employment by more than 25 miles without the Executive’s prior written consent. In order to constitute a termination of employment for Good Reason, the Executive must provide written notice to the Company of the existence of the condition giving rise to the Good Reason termination within sixty days of the initial existence of the condition, and in the event such condition is cured by the

7



Exhibit 10.1

Company within sixty days from its receipt of such written notice, the termination shall not constitute a termination for Good Reason.
(ii)    Termination in Connection with a Change in Control. Within the period commencing a month prior to and ending twelve months following a Change in Control, the Executive may terminate the Executive’s employment with the Company for “Good Reason,” which shall be deemed to occur if, within sixty days after receipt of written notice to the Company by the Executive of the occurrence of one or more of the following conditions, any of the following conditions have not been cured: (i) a failure by the Company to comply with any provision of this Agreement (including, but not limited to, the reduction of the Executive’s salary, the target annual bonus opportunity or any other incentive opportunity, in each case, as of immediately prior to the Change in Control); (ii) a change in title, the nature or scope of the authority, power, function, responsibilities, reporting relationships, or duty attached to the position which the Executive currently maintains without the express written consent of the Executive; (iii) the relocation of the Executive’s Principal Place of Employment as described in Section 3 to a location that increases the regular one-way commute distance between the Executive’s residence and Principal Place of Employment by more than 25 miles without the Executive’s prior written consent; (iv) a change in the benefits to which the Executive is entitled to immediately prior to the Change in Control; or (v) the failure of the Company to assign this Agreement to any successor to the Company. In order to constitute a termination of employment for Good Reason, the Executive must provide written notice to the Company of the existence of the condition giving rise to the Good Reason termination within sixty days of the initial existence of the condition, and in the event such condition is cured by the Company within sixty days from its receipt of such written notice, the termination shall not constitute a termination for Good Reason.
(f)    Voluntary Termination. The Executive may voluntarily resign from the Executive’s employment with the Company at any time (a “Voluntary Termination”). A voluntary resignation from employment by the Executive for Good Reason pursuant to Section 6(e) shall not be deemed a Voluntary Termination.
(g)    Non-Renewal Termination. If the Company does not provide Executive an Extension Notice in accordance with Section 1(c), this Agreement shall automatically expire at the end of the then current Term of Employment (a “Non-Renewal Termination”).
7.    Notice and Effective Date of Termination.
(a)    Notice. Any termination of the Executive’s employment by the Company or by the Executive during the Term of Employment (other than as a result of the death of the Executive or a Non-Renewal Termination described in Section 6(g)) shall be communicated by written notice of termination to the other party hereto. Such notice shall indicate the specific termination provision in this Agreement relied upon and, except in the case of termination Without Cause and Voluntary Termination as described in Sections 6(d) and 6(f), respectively, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under that provision.

8



Exhibit 10.1


(b)    Date of Termination. The date of termination of the Executive’s employment shall be:
(i)    if the Executive’s employment is terminated due to the Executive’s death, the date of the Executive’s death;
(ii)    if the Executive’s employment is terminated due to Disability pursuant to Section 6(b), the date of termination shall be the last to occur of the 31st day following delivery of the notice of termination to the Executive by the Company or the end of the consecutive six-month period referred to in Section 6(b);
(iii)    if the Executive’s employment is terminated for any other reason by either party, the date on which a notice of termination is delivered to the other party or, in the event of the Company’s termination of the Executive, such date as the Company may specify in such notice; and
(iv)    if the Agreement expires pursuant to a Non-Renewal Termination described in Section 6(g), the parties’ employment relationship shall terminate on the last day of the then current Term of Employment without any notice.
8.    Compensation and Benefits Upon Termination.
(a)    Termination Due To Disability, Without Cause, or For Good Reason. If the Executive’s employment terminates pursuant to Section 6(b) [Disability], Section 6(d) [Without Cause], or Section 6(e)(i) [Termination by Executive for Good Reason Not in Connection with a Change in Control], then, subject to Section 22 [Compliance with Section 409A], in addition to all salary, annual bonuses, expense reimbursements, benefits and accrued vacation days earned by the Executive pursuant to Section 4 through the date of the Executive’s termination of employment, the Executive shall be entitled to the compensation and benefits set forth in Sections 8(a)(i) through (vii), provided that within sixty days following the Executive’s termination of employment (i) the Executive has executed and delivered to the Company a general release of claims against the Company and its subsidiaries, affiliates, stockholders, directors, officers, employees, agents, successors, and assigns in the current form approved by the Company and attached as Exhibit A (subject to any amendments required by law or regulation) (the “Release”), and (ii) the Release has become irrevocable:
(i)    Salary. Commencing on the sixtieth day after the date of the Executive's termination of employment, the Company shall continue to pay to the Executive the Executive’s salary, at the rate in effect immediately prior to such termination of employment, through the remainder of the Term of Employment then in effect; provided, however, that any such salary otherwise payable during the 60-day period immediately following the date of such termination of employment shall be paid to the Executive sixty days following such termination of employment.

9



Exhibit 10.1

(ii)    Bonus. The Company shall continue to pay to the Executive an annual bonus through the remainder of the Term of Employment then in effect; provided, however, that the amount of the annual bonus determined in accordance with this Section 8(a) (ii) for the fiscal year of the Company in which such Term of Employment ends shall be prorated on the basis of the number of days of such Term of Employment occurring within such fiscal year. The amount of each annual bonus payable pursuant to this Section 8(a)(ii), prior to any proration, shall be equal to the annual bonus that the Executive would have earned had no such termination under Section 8(a) occurred, contingent on the relevant annual bonus plan performance goals for the respective year having been obtained. However, in no case shall any such post-termination annual bonus exceed 100% of the Executive's target bonus for the fiscal year of the Company in which the Executive's termination of employment occurs. Such bonuses shall be paid on the later of the date they would otherwise be paid in accordance with the applicable Company bonus plan or sixty days after the date of the Executive's termination of employment.
(iii)    Stock Options. Stock options granted to the Executive by the Company and which remain outstanding immediately prior to the date of termination of the Executive’s employment, as provided in Section 7(b), shall remain outstanding until and shall immediately become vested in full upon the Release becoming irrevocable.
(iv)    Restricted Stock. Shares of restricted stock granted to the Executive by the Company, according to the terms of the Ross Stores, Inc. Restricted Stock Agreement, which have not become vested as of the date of termination of the Executive’s employment, as provided in Section 7(b), shall immediately become vested on a pro rata basis upon the Release becoming irrevocable. The number of such additional shares of restricted stock that shall become vested as of the date of the Executive’s termination of employment shall be that number of additional shares that would have become vested through the date of such termination of employment at the rate(s) determined under the vesting schedule applicable to such shares had such vesting schedule provided for the accrual of vesting on a daily basis (based on a 365 day year). The pro rata amount of shares vesting through the date of termination shall be calculated by multiplying the number of unvested shares scheduled to vest in each respective vesting year by the ratio of the number of days from the date of grant through the date of termination and the number of days from the date of grant through the original vesting date of the respective vesting tranche. Any shares of restricted stock remaining unvested after such pro rata acceleration of vesting shall automatically be reacquired by the Company in accordance with the provisions of the applicable restricted stock agreement, and the Executive shall have no further rights in such unvested portion of the restricted stock. In addition, the Company shall waive any reacquisition or repayment rights for dividends paid on restricted stock prior to Executive’s termination of employment.
(v)    Performance Share Awards. On the Performance Share Vesting Date (as defined in the Executive's Notice of Grant of Performance Shares and Performance Share Agreement from the Company (collectively the "Performance Share Agreement")) next following the Executive's date of termination of employment, the number of Performance Shares that shall become Vested Performance Shares (as defined in the Performance Share Agreement) shall be determined by multiplying (a) that number of shares of Company Common Stock subject to the

10



Exhibit 10.1

Performance Share Agreement that would have become Vested Performance Shares had no such termination occurred; provided, however, in no case shall the number of Performance Shares that become Vested Performance Shares exceed 100% of the Target Number of Performance Shares set forth in the Performance Share Agreement by (b) the ratio of the number of full months of the Executive's employment with the Company during the Performance Period (as defined in the Performance Share Agreement) to the number of full months contained in the Performance Period. Vested Common Shares shall be issued in settlement of such Vested Performance Shares on the Settlement Date next following the date of the Executive’s termination of employment.
(vi)    Unvested Common Shares Issued in Settlement of Performance Share Awards. If the Executive terminates employment pursuant to Sections 6(b), 6(d) or 6(e)(i) after the Performance Share Vesting Date, the vesting of all Unvested Common Shares (as defined in the Performance Share Agreement) issued in settlement of the Performance Share Award shall be accelerated in full effective as of the date of such termination.
(vii)    Health Care Coverage. The Company shall continue to provide Executive with medical, dental, vision and mental health care coverage at or equivalent to the level of coverage that the Executive had at the time of the termination of employment (including coverage for the Executive’s dependents to the extent such dependents were covered immediately prior to such termination of employment) for the remainder of the Term of Employment, provided, however that in the event such coverage may no longer be extended to Executive following termination of Executive’s employment either by the terms of the Company’s health care plans or under then applicable law, the Company shall instead reimburse Executive for the amount equivalent to the Company’s cost of substantially equivalent health care coverage to Executive under ERISA Section 601 and thereafter and Section 4980B of the Internal Revenue Code (i.e., COBRA coverage) for a period not to exceed the lesser of (A) 18 months after the termination of Executive’s employment or (B) the remainder of the Term of Employment, and provided further that (1) any such health care coverage or reimbursement for health care coverage shall cease at such time that Executive becomes eligible for health care coverage through another employer and (2) any such reimbursement shall be made no later than the last day of the calendar year following the end of the calendar year with respect to which such coverage or reimbursement is provided. The Executive must notify the Company within five business days of becoming eligible for such other coverage and promptly repay the Company any benefits he or she received in error.
The Company shall have no further obligations to the Executive as a result of termination of employment described in this Section 8(a) except as set forth in Section 12.
(b)    Termination for Cause or Voluntary Termination. If the Executive’s employment terminates pursuant to Section 6(c) [For Cause] or Section 6(f) [Voluntary Termination], the Executive shall be entitled to receive only the salary, annual bonuses, expense reimbursements, benefits, and accrued vacation days earned by the Executive pursuant to Section 4 through the date of the Executive’s termination of employment. Annual bonuses are not earned until the date any such bonus is paid in accordance with the terms of the applicable bonus plan. As such, the Executive shall not be entitled to any bonus not paid prior to the date of the Executive’s termination of employment, and the Executive shall not be entitled to any prorated bonus payment

11



Exhibit 10.1

for the year in which the Executive’s employment terminates. Any stock options granted to the Executive by the Company shall continue to vest only through the date on which the Executive’s employment terminates, and unless otherwise provided by their terms, any restricted stock, performance share awards, or other equity awards that were granted to the Executive by the Company that remain unvested as of the date on which the Executive’s employment terminates shall automatically be forfeited and the Executive shall have no further rights with respect to such awards. The Company shall have no further obligations to the Executive as a result of termination of employment described in this Section 8(b) except as set forth in Section 12.
(c)    Death. If the Executive’s employment terminates pursuant to Section 6(a) [Death], (i) the Executive’s designated beneficiary or the Executive’s estate shall be entitled to receive only the salary, expense reimbursements, benefits, and accrued vacation earned by the Executive pursuant to Section 4 through the date of the Executive’s death; (ii) at the time payable under the applicable Company bonus plan, an annual bonus shall be paid to the Executive’s designated beneficiary or the Executive’s estate for the fiscal year of the Executive’s death based on the annual bonus that the Executive would have earned under the Company’s bonus plan for such fiscal year had the Executive not died, contingent on the relevant annual bonus plan performance goals for said year having been obtained, capped at 100% of the Executive’s target bonus for such fiscal year and pro-rated for the number of days the Executive is employed during such fiscal year until the Executive’s death; (iii) any shares of restricted stock granted to the Executive by the Company at least 12 months prior to the Executive’s date of death that are unvested as of such date shall immediately become fully vested and any shares of restricted stock granted to the Executive by the Company within the 12-month period ending on the Executive’s date of death that are unvested as of such date shall automatically be forfeited and the Executive shall have no further rights with respect to such restricted stock; and (iv) the Company shall waive any reacquisition or repayment rights for dividends paid on restricted stock prior to the Executive’s death.
(i)    Performance Share Awards. On the Performance Share Vesting Date next following the Executive's date of death, the number of Performance Shares that shall become Vested Performance Shares shall be determined by multiplying (a) that number of shares of Company Common Stock subject to the Performance Share Agreement that would have become Vested Performance Shares had no such termination occurred; provided, however, in no case shall the number of Performance Shares that become Vested Performance Shares exceed 100% of the Target Number of Performance Shares set forth in the Performance Share Agreement, by (b) the ratio of the number of full months of the Executive's employment with the Company during the Performance Period (as defined in the Performance Share Agreement) to the number of full months contained in the Performance Period. Vested Common Shares shall be issued in settlement of such Vested Performance Shares on the Settlement Date next following the Executive’s date of death.
(ii)    Unvested Common Shares Issued in Settlement of Performance Share Awards. If the Executive dies after the Performance Share Vesting Date, the vesting of all Unvested Common Shares issued in settlement of the Performance Share Award shall be accelerated in full effective as of the date of such termination.

12



Exhibit 10.1

(d)    Non-Renewal Termination. If the Agreement expires as set forth in Section 6(g) [Non-Renewal Termination], then, subject to Section 22 [Compliance with Section 409A], in addition to all salary, annual bonuses, expense reimbursements, benefits, and accrued vacation days earned by the Executive pursuant to Section 4 through the date of the Executive’s termination of employment, the Executive shall be entitled to the compensation set forth in Sections 8(d)(i) through (v), provided that within sixty days following the Executive’s termination of employment (i) the Executive has executed and delivered the Release to the Company, and (ii) the Release has become irrevocable:
(i)    Bonus. The Company shall pay the Executive an annual bonus for the fiscal year of the Company in which the date of the Executive’s termination of employment occurs, which shall be prorated for the number of days of such fiscal year that the Executive is employed by the Company. The amount of such annual bonus, prior to proration, shall be equal to the annual bonus that the Executive would have earned under the Company’s bonus plan for the fiscal year of the Company in which the Executive’s termination of employment occurs had the Executive remained in its employment, contingent on the relevant annual bonus plan performance goals for the year in which Executive terminates having been obtained. However, in no case shall any such post-termination annual bonus exceed 100% of the Executive's target bonus for the fiscal year of the Company in which the Executive's termination of employment occurs. Such bonus shall be paid on the later of the date they would otherwise be paid in accordance with the applicable Company bonus plan or sixty days after the date of the Executive's termination of employment.
(ii)    Stock Options. Stock options granted to the Executive by the Company and which remain outstanding immediately prior to the date of termination of the Executive’s employment, as provided in Section 7(b), shall remain outstanding until and shall immediately become vested in full upon the Release becoming irrevocable.
(iii)    Restricted Stock. Shares of restricted stock granted to the Executive by the Company which have not become vested as of the date of termination of the Executive’s employment, as provided in Section 7(b), shall immediately become vested on a pro rata basis upon the Release becoming irrevocable. The number of such additional shares of restricted stock that shall become vested as of the date of the Executive’s termination of employment shall be that number of additional shares that would have become vested through the date of such termination of employment at the rate(s) determined under the vesting schedule applicable to such shares had such vesting schedule provided for the accrual of vesting on a daily basis (based on a 365-day year). The pro rata amount of shares vesting through the date of non-renewal shall be calculated by multiplying the number of unvested shares scheduled to vest in each respective vesting year by the ratio of the number of days from the date of grant through the date of non-renewal, and the number of days from the date of grant through the original vesting date of the respective vesting tranche. Any shares of restricted stock remaining unvested after such pro rata acceleration of vesting shall automatically be reacquired by the Company in accordance with the provisions of the applicable restricted stock agreement, and the Executive shall have no further rights in such unvested portion of the restricted stock. In addition, the Company shall waive any reacquisition or repayment rights for dividends paid on restricted stock prior to Executive’s termination of employment.

13



Exhibit 10.1

(iv)    Performance Share Awards. On the Performance Share Vesting Date on or next following the Executive's date of termination of employment, the number of Performance Shares that shall become Vested Performance Shares shall be determined by multiplying (a) that number of shares of Company Common Stock subject to the Performance Share Agreement that would have become Vested Performance Shares had no such termination occurred; provided, however, in no case shall the number of Performance Shares that become Vested Performance Shares exceed 100% of the Target Number of Performance Shares set forth in the Performance Share Agreement, by (b) the ratio of the number of full months of the Executive's employment with the Company during the Performance Period (as defined in the Performance Share Agreement) to the number of full months contained in the Performance Period. Vested Common Shares shall be issued in settlement of such Vested Performance Shares on the Settlement Date next following the date of the Executive’s termination of employment.
(v)    Unvested Common Shares Issued in Settlement of Performance Share Awards. If the Executive terminates employment pursuant to Section 6(g) after the Performance Share Vesting Date, the vesting of all Unvested Common Shares issued in settlement of the Performance Share Award shall be accelerated in full effective as of the date of such termination.
(e)    Special Change in Control Provisions.
(i)    Termination of Employment in Connection with a Change in Control. If the Executive’s employment is terminated either by the Company Without Cause (as defined in Section 6(d)) or by the Executive for Good Reason (as defined in Section 6(e)(ii)), in either case within the period commencing one month prior to and ending twelve months following a Change in Control, then, subject to Section 22 [Compliance with Section 409A], the Executive shall be entitled to the compensation and benefits set forth in Sections 8(e)(i)(a) through (e) (in addition to any other payments or benefits provided under this Agreement), provided that within sixty days following the Executive’s termination of employment (i) the Executive has executed and delivered the Release to the Company, and (ii) the Release has become irrevocable:
a.    Salary. The Executive shall be entitled to a cash payment equal to 2.99 times the Executive’s then-current annual base salary, which shall be paid to the Executive sixty days following such termination of employment. The payment under this Section 8(e)(i)(a) shall take the place of any payment under Section 8(a)(i) and the Executive shall not be entitled to receive a payment under Section 8(a)(i) if the Executive is entitled to a payment under this Section 8(e)(i)(a).
b.    Bonus. The Executive shall be entitled to a cash payment equal to 2.99 times the Executive’s target annual bonus for the Company’s fiscal year then in effect on the date termination of employment occurs, which shall be paid to the Executive sixty days following such termination of employment. The payment under this Section 8(e)(i)(b) shall take the place of any payment under Section 8(a)(ii) and the Executive shall not be entitled to receive a payment under Section 8(a)(ii) if the Executive is entitled to a payment under this Section 8(e)(i)(b).     

14



Exhibit 10.1

c.    Equity. All shares of restricted stock granted to the Executive by the Company shall become vested in full upon the termination. Additionally, if the termination occurs prior to the Performance Share Vesting Date, the vesting of 100% of the Target Number of Performance Shares shall be accelerated and such Performance Shares shall be deemed Vested Performance Shares effective as of the date of the termination. The vesting of all Unvested Common Shares issued in settlement of the Performance Share Award shall be accelerated in full effective as of the date of such termination. Except as set forth in this Section 8(e)(i)(c), the treatment of stock options, performance share awards and all other equity awards granted to the Executive by the Company that remain outstanding immediately prior to the date of such Change in Control shall be determined in accordance with their terms.
d.    Estate Planning. The Executive shall be entitled to reimbursement of the Executive’s estate planning expenses (including attorneys’ fees) on the same basis, if any, as to which the Executive was entitled to such reimbursements immediately prior to such termination of employment for the remainder of the Term of Employment then in effect.
e.    Health Care Coverage. The Company shall continue to provide Executive with medical, dental, vision, and mental health care coverage at or equivalent to the level of coverage which the Executive had at the time of the termination of employment (including coverage for the Executive’s dependents to the extent such dependents were covered immediately prior to such termination of employment) for the remainder of the Term of Employment; provided, however that in the event such coverage may no longer be extended to Executive following termination of Executive’s employment either by the terms of the Company’s health care plans or under then applicable law, the Company shall instead reimburse Executive for Executive’s cost of substantially equivalent health care coverage available to Executive under ERISA Section 601 and thereafter and Section 4980B of the Internal Revenue Code (i.e., COBRA coverage) for a period not to exceed 18 months after the termination of Executive’s employment; and provided further that (1) any such health care coverage or reimbursement for health care coverage shall cease at such time that Executive becomes eligible for health care coverage through another employer and (2) any such reimbursement shall be made by the last day of the calendar year following the end of the calendar year with respect to which such coverage or reimbursement is provided. The Executive must notify the Company within five business days of becoming eligible for such other coverage and promptly repay the Company any benefits he or she received in error.
(ii)    Change in Control Defined.Change in Control” means the occurrence of any one or more of the following with respect to the Company:
(1)    any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) acquires during a twelve-month period ending on the date of the most recent acquisition by such person, in one or a series of transactions, “beneficial ownership” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty-five percent (35%) or more of the total combined voting power of the Company’s then-outstanding securities entitled to vote generally in the election of directors; provided, however, that a Change in Control shall not be deemed to have occurred if such degree of beneficial ownership results from any of the following:

15



Exhibit 10.1

(A) an acquisition by any person who, on the Effective Date of the then current Equity Incentive Plan, is the beneficial owner of thirty-five percent (35%) or more of such voting power; (B) any acquisition directly from the Company, including, without limitation, pursuant to or in connection with a public offering of securities; (C) any acquisition by the Company; (D) any acquisition by a trustee or other fiduciary under an employee benefit plan of the Company; or (E) any acquisition by an entity owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the voting securities of the Company; or    
(2)    any of the following events (“Ownership Change Event”) or series of related Ownership Change Events (collectively, a “Transaction”): (A) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities then entitled to vote generally in the election of directors; (B) a merger or consolidation in which the Company is a party; or (C) the sale, exchange, or transfer of all or substantially all of the assets of the Company (other than a sale, exchange, or transfer to one or more subsidiaries of the Company), provided that with respect to any such Transaction the stockholders of the Company immediately before the Transaction do not retain immediately after such Transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding securities entitled to vote generally in the election of directors or, in the Ownership Change Event described in clause (C), the entity to which the assets of the Company were transferred (the “Transferee”), as the case may be; or
(3)    a date specified by the Compensation Committee of the Board following approval by the stockholders of a plan of complete liquidation or dissolution of the Company. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or indirectly or through one or more subsidiary corporations or other business entities. The Committee shall determine whether multiple events described in clauses (1), (2), or (3) are related and to be treated in the aggregate as a single Change in Control, and its determination shall be final, binding and conclusive.
(iii)    Excise Tax - Best After-Tax Result. In the event that any payment or benefit received or to be received by Executive pursuant to this Agreement or otherwise (“Payments”) would (a) constitute a “parachute payment” within the meaning of Section 280G of the Code and (b) but for this section, be subject to the excise tax imposed by Section 4999 of the Code, any successor provisions, or any comparable federal, state, local, or foreign excise tax (“Excise Tax”), then, subject to the provisions of Section 8(e)(iv), such Payments shall be either (1) provided in full pursuant to the terms of this Agreement or any other applicable agreement, or (2) provided as to such lesser extent which would result in no portion of such Payments being subject to the Excise Tax (“Reduced Amount”), whichever of the foregoing amounts, taking into account the applicable federal, state, local and foreign income, employment and other taxes and the Excise Tax (including, without limitation, any interest or penalties on such taxes), results in the receipt by Executive, on an after-tax basis, of the greatest amount of payments and benefits provided for

16



Exhibit 10.1

hereunder or otherwise, notwithstanding that all or some portion of such Payments may be subject to the Excise Tax. If Executive’s payments or benefits are delivered to a lesser extent in accordance with this clause (2) above, then Executive’s aggregate benefits shall be reduced in the following order: (i) cash severance pay that is exempt from Section 409A; (ii) any other cash severance pay; (iii) reimbursement payments under Section 4(c), above; (iv) any restricted stock; (v) any equity awards other than restricted stock and stock options; and (vi) stock options. Unless the Company and Executive otherwise agree in writing, any determination required under this Section shall be made by an independent advisor designated by the Company and reasonably acceptable to Executive (“Independent Advisor”), whose determination shall be conclusive and binding upon Executive and the Company for all purposes. For purposes of making the calculations required under this Section, Independent Advisor may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code; provided that Independent Advisor shall assume that Executive pays all taxes at the highest marginal rate. The Company and Executive shall furnish to Independent Advisor such information and documents as Independent Advisor may reasonably request in order to make a determination under this Section. The Company shall bear all costs that Independent Advisor may incur in connection with any calculations contemplated by this Section. In the event that this Section 8(e)(iii) applies, then based on the information provided to Executive and the Company by Independent Advisor, Executive may, in Executive’s sole discretion and within thirty days of the date on which Executive is provided with the information prepared by Independent Advisor, determine which and how much of the Payments (including the accelerated vesting of equity compensation awards) to be otherwise received by Executive shall be eliminated or reduced (as long as after such determination the value (as calculated by Independent Advisor in accordance with the provisions of Sections 280G and 4999 of the Code) of the amounts payable or distributable to Executive equals the Reduced Amount). If the Internal Revenue Service (the “IRS”) determines that any Payment is subject to the Excise Tax, then Section 8(e)(iv) hereof shall apply, and the enforcement of Section 8(e)(iv) shall be the exclusive remedy to the Company.     
(iv)    Adjustments. If, notwithstanding any reduction described in Section 8(e)(iii) (or in the absence of any such reduction), the IRS determines that Executive is liable for the Excise Tax as a result of the receipt of one or more Payments, then Executive shall be obligated to surrender or pay back to the Company, within 120 days after a final IRS determination, an amount of such payments or benefits equal to the “Repayment Amount.” The Repayment Amount with respect to such Payments shall be the smallest such amount, if any, as shall be required to be surrendered or paid to the Company so that Executive’s net proceeds with respect to such Payments (after taking into account the payment of the excise tax imposed on such Payments) shall be maximized. Notwithstanding the foregoing, the Repayment Amount with respect to such Payments shall be zero if a Repayment Amount of more than zero would not eliminate the Excise Tax imposed on such Payments or if a Repayment Amount of more than zero would not maximize the net amount received by Executive from the Payments. If the Excise Tax is not eliminated pursuant to this Section, Executive shall pay the Excise Tax.


17



Exhibit 10.1

(v)    Acquirer Does Not Assume Performance Share Award. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “Acquirer”), may, without the consent of the Executive, assume or continue in full force and effect the Company’s rights and obligations under a Performance Share Award or substitute for the Award a substantially equivalent award for the Acquirer’s stock. For purposes of this Section, a Performance Share Award shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the applicable Company incentive plan and this Agreement, for each Performance Share or Unvested Common Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. Notwithstanding any other provision of this Agreement to the contrary, if the Acquirer elects not to assume, continue, or substitute for the outstanding Performance Share Awards in connection with a Change in Control prior to the Performance Share Vesting Date, (i) the vesting of 100% of the target number of Performance Shares shall be accelerated and such Performance Shares shall be deemed Vested Performance Shares and one Vested Common Share shall be issued to the Executive for each such Vested Performance Share immediately prior to the Change in Control and (ii) the vesting of any Unvested Common Shares issued in settlement of Performance Share Awards shall be accelerated in full effective immediately prior to the Change in Control, provided that the Executive’s employment with the Company has not terminated immediately prior to the Change in Control. The vesting of Performance Shares and settlement of Awards that were permissible solely by reason of this Section shall be conditioned upon the consummation of the Change in Control.

(vi)    Acquirer Does Not Assume Restricted Stock Award. In the event of a Change in Control, the Acquirer, may, without the consent of the Executive, assume or continue in full force and effect the Company’s rights and obligations under a Restricted Stock Award or substitute for the Award a substantially equivalent award for the Acquirer’s stock. For purposes of this Section, a Restricted Stock Award shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the applicable Company incentive plan and this Agreement, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. Notwithstanding any other provision of this Agreement to the contrary, if the Acquirer elects not to assume, continue or substitute for the outstanding Stock Award in connection with a Change in Control, the vesting of the Shares shall be accelerated in full effective immediately prior to the Change in Control, provided that the Executive’s employment with the Company has not terminated immediately prior to the Change in Control. The vesting of Shares and settlement of Awards that were permissible solely by reason of this Section shall be conditioned upon the consummation of the Change in Control.
 



18



Exhibit 10.1

9.    Certain Employment Obligations.
(a)    Employee Acknowledgement. The Company and the Executive acknowledge that (i) the Company has a special interest in and derives significant benefit from the unique skills and experience of the Executive; (ii) as a result of the Executive’s service with the Company, the Executive will use and have access to some of the Company’s proprietary and valuable Confidential Information during the course of the Executive’s employment; (iii) the Confidential Information has been developed and created by the Company at substantial expense and constitutes valuable proprietary assets of the Company, and the Company will suffer substantial damage and irreparable harm which will be difficult to compute if, during the term of the Executive’s employment or thereafter, the Executive should disclose or improperly use such Confidential Information in violation of the provisions of this Agreement; (iv) the Company will suffer substantial damage which will be difficult to compute if the Executive solicits or interferes with the Company’s employees, clients, or customers; (v) the provisions of this Agreement are reasonable and necessary for the protection of the business of the Company; and (vi) the provisions of this Agreement will not preclude the Executive from obtaining other gainful employment or service.
(b)    Non-Solicitation of Employees. During the Term of Employment and for a period of 24 months following the Executive’s termination of that employment with the Company, the Executive shall not, without the written permission of the Company or an affected affiliate, directly or indirectly (i) solicit, recruit, attempt to recruit or raid, or have or cause any other person or entity to solicit, recruit, attempt to recruit or raid, or otherwise induce the termination of employment of any person who is employed by the Company; or (ii) encourage any such person not to devote his or her full business time to the Company. Executive also shall not use any of the Company’s trade secrets to directly or indirectly solicit the employees of the Company.
(c)    Non-Solicitation of Third Parties. During the Term of Employment and for a period of 24 months following the Executive’s termination of employment with the Company, the Executive shall not in any way use any of the Company’s trade secrets to directly or indirectly solicit or otherwise influence any entity with a business arrangement with the Company, including, without limitation, suppliers, sales representatives, lenders, lessors, and lessees, to discontinue, reduce, or otherwise materially or adversely affect such relationship.
(d)    Non-Disparagement. The Executive acknowledges and agrees that the Executive will not defame or criticize the services, business, integrity, veracity, or personal or professional reputation of the Company or any of its directors, officers, employees, affiliates, or agents of any of the foregoing in either a professional or personal manner either during the term of the Executive’s employment or thereafter.
10.     Company Remedies for Executive’s Breach of Certain Obligations.
(a)    The Executive acknowledges and agrees that in the event that the Executive breaches or threatens to breach Sections 5 or 9 of this Agreement, all compensation and benefits otherwise payable pursuant to this Agreement and the vesting and/or exercisability of all stock options, restricted stock, performance shares, and other forms of equity compensation previously

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Exhibit 10.1

awarded to the Executive, notwithstanding the provisions of any agreement evidencing any such award to the contrary, shall immediately cease.
(b)    The Company shall give prompt notice to the Executive of its discovery of a breach by the Executive of Sections 5 or 9 of this Agreement. If it is determined by a vote of not less than two-thirds of the members of the Board that the Executive has breached Sections 5 or 9 of this Agreement and has not cured such breach within ten business days of such notice, then:
(i)the Executive shall forfeit to the Company (A) all stock options, stock appreciation rights, performance shares, and other equity compensation awards (other than shares of restricted stock, restricted stock units, common shares issued in settlement of performance share awards or similar awards) granted to the Executive by the Company which remain outstanding and unexercised or unpaid as of the date of such determination by the Board (the “Breach Determination Date”) and (B) all shares of restricted stock, restricted stock units, and common shares issued in settlement of performance share awards and similar awards granted to the Executive by the Company which continue to be held by the Executive as of the Breach Determination Date to the extent that such awards vested during the Forfeiture Period (as defined below); and
(ii)    the Executive shall pay to the Company all gains realized by the Executive upon (A) the exercise by or payment in settlement to the Executive on and after the commencement of the Forfeiture Period of stock options, stock appreciation rights, performance shares, and other equity compensation awards (other than shares of restricted stock, restricted stock units, or similar awards) granted to the Executive by the Company and (B) the sale on and after the commencement of the Forfeiture Period of shares or other property received by the Executive pursuant to awards of restricted stock, restricted stock units, or similar awards granted to the Executive by the Company and which vested during the Forfeiture Period.
(c)    For purposes of this Section, the gain realized by the Executive upon the exercise or payment in settlement of stock options, stock appreciation rights, performance shares, and other equity compensation awards shall be equal to (A) the closing sale price on the date of exercise or settlement (as reported on the stock exchange or market system constituting the principal market for the shares subject to the applicable award) of the number of vested shares issued to the Executive upon such exercise or settlement, reduced by the purchase price, if any, paid by the Executive to acquire such shares, or (B) if any such award was settled by payment in cash to the Executive, the gain realized by the Executive shall be equal to the amount of cash paid to the Executive. Further, for purposes of this Section, the gain realized by the Executive upon the sale of shares or other property received by the Executive pursuant to awards of restricted stock, restricted stock units, or similar awards shall be equal to the gross proceeds of such sale realized by the Executive. Gains determined for purposes of this Section shall be determined without regard to any subsequent increase or decrease in the market price of the Company’s stock or taxes paid by or withheld from the Executive with respect to such transactions.
(d)    For the purposes of this Section, the “Forfeiture Period” shall be the period ending on the Breach Determination Date and beginning on the earlier of (A) the date six months prior to

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Exhibit 10.1

the Breach Determination Date or (B) the business day immediately preceding the date of the Executive’s termination of employment with the Company.
(e)    The Executive agrees to pay to the Company immediately upon the Breach Determination Date the amount payable by the Executive to the Company pursuant to this Section.
(f)    The Executive acknowledges that money will not adequately compensate the Company for the substantial damages that will arise upon the breach or threatened breach of Sections 5 or 9 of this Agreement and that the Company will not have any adequate remedy at law. For this reason, such breach or threatened breach will not be subject to the arbitration clause in Section 19; rather, the Company will be entitled, in addition to other rights and remedies, to specific performance, injunctive relief, and other equitable relief to prevent or restrain such breach or threatened breach. The Company may obtain such relief from an arbitrator pursuant to Section 19 hereof, or by simultaneously seeking arbitration under Section 19 and a temporary injunction from a court pending the outcome of the arbitration. It shall be the Company’s sole and exclusive right to elect which approach to use to vindicate its rights. The Executive further agrees that in the event of a breach or threatened breach, the Company shall be entitled to obtain an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach, without posting a bond or having to prove irreparable harm or damages, and to obtain all costs and expenses, including reasonable attorneys’ fees and costs. In addition, the existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the restrictive covenants in this Agreement.
(g)    Recoupment. Executive hereby understands and agrees that the Executive is subject to the Company’s recoupment policy. Under the current policy applicable to the Company’s senior executives, subject to the discretion and approval of the Board, the Company may, to the extent permitted by governing law, require reimbursement of any cash payments and reimbursement and/or cancellation of any Performance Share or Common Shares issued in settlement of a Performance Share to the Executive where all of the following factors are present: (1) the award was predicated upon the achievement of certain financial results that were subsequently the subject of a material restatement, (2) the Board determines that the Executive engaged in fraud or intentional misconduct that was a substantial contributing cause to the need for the restatement, and (3) a lower award would have been made to the Executive based upon the restated financial results. In each instance, the Company may seek to recover the Executive’s entire gain received by the Executive within the relevant period, plus a reasonable rate of interest.
11.     Exercise of Stock Options Following Termination. If the Executive's employment terminates, Executive (or the Executive's estate) may exercise the Executive's right to purchase any vested stock under the stock options granted to Executive by the Company as provided in the applicable stock option agreement or Company plan. All such purchases must be made by the Executive in accordance with the applicable stock option plans and agreements between the parties.
12.     Successors; Binding Agreement. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s personal or legal

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Exhibit 10.1

representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to the Executive hereunder, all such amounts shall be paid in accordance with the terms of this Agreement and applicable law to the Executive’s beneficiary pursuant to a valid written designation of beneficiary, as determined by the Compensation Committee in its discretion, or, if there is no effective written designation of beneficiary by the Executive, to the Executive’s estate.
13.     Insurance and Indemnity. The Company shall, to the extent permitted by law, include the Executive during the Term of Employment under any directors and officers’ liability insurance policy maintained for its directors and officers, with coverage at least as favorable to the Executive in amount and each other material respect as the coverage of other officers covered thereby. The Company’s obligation to provide insurance and indemnify the Executive shall survive expiration or termination of this Agreement with respect to proceedings or threatened proceedings based on acts or omissions of the Executive occurring during the Executive’s employment with the Company. Such obligations shall be binding upon the Company’s successors and assigns and shall inure to the benefit of the Executive’s heirs and personal representatives.
14.     Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:    ___________________
___________________
___________________
___________________

If to the Company:    Ross Stores, Inc.
5130 Hacienda Drive
Dublin, CA 94568-7579
Attention: General Counsel
or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
15.     Complete Agreement; Modification, Waiver; Entire Agreement. This Agreement, along with any compensation and benefits summary, stock option, restricted stock, performance share, or other equity compensation award agreements between the parties, represents the complete agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, promises or representations of the parties, including any prior employment agreement or similar agreement between the parties, except those relating to repayment of signing and related bonuses, or relocation expense reimbursements. To the extent that the bonus payment provisions (i.e., post-termination bonus payments) provided in this Agreement differ from the provisions of the Company’s incentive bonus plans (currently the Incentive Compensation Plan) or any replacement plans, such bonus payments shall be paid pursuant to the provisions of this

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Exhibit 10.1

Agreement except to the extent expressly prohibited by law. Except as provided by Section 22 [Compliance with Section 409A], no provision of this Agreement may be amended or modified except in a document signed by the Executive and such person as may be designated by the Company. No waiver by the Executive or the Company of any breach of, or lack of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or the same condition or provision at another time. To the extent that this Agreement is in any way deemed to be inconsistent with any prior or contemporaneous compensation and benefits summary, stock option, restricted stock, performance share, or other equity compensation award agreements between the parties, or term sheet referencing such specific awards, the terms of this Agreement shall control. No agreements or representations, oral or otherwise, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be modified to comply with any federal securities law or rule or any NASDAQ listing rule adopted to comply therewith.
16.     Governing Law - Severability. The validity, interpretation, construction, performance, and enforcement of this Agreement shall be governed by the laws of the state in which the Executive’s principle place of employment described in Section 3 is located without reference to that state’s choice of law rules. If any provision of this Agreement shall be held or deemed to be invalid, illegal, or unenforceable in any jurisdiction, for any reason, the invalidity of that provision shall not have the effect of rendering the provision in question unenforceable in any other jurisdiction or in any other case or of rendering any other provisions herein unenforceable, but the invalid provision shall be substituted with a valid provision which most closely approximates the intent and the economic effect of the invalid provision and which would be enforceable to the maximum extent permitted in such jurisdiction or in such case.
17.     Mitigation. In the event the Executive’s employment with the Company terminates for any reason, the Executive shall not be obligated to seek other employment following such termination. However, any amounts due the Executive under Sections 8(a)(i), 8(a)(ii), 8(a)(vii), 8(e)(i)(a), 8(e)(i)(b), 8(e)(i)(d) or 8(e)(i)(e) (collectively, “Mitigable Severance”) shall be offset by any cash remuneration, health care coverage and/or estate planning reimbursements (collectively, “Mitigable Compensation”) attributable to any subsequent employment or consulting/independent contractor arrangement that the Executive may obtain during the period of payment of compensation under this Agreement following the termination of the Executive’s employment with the Company. For any calendar quarter, the Executive shall not be entitled to any Mitigable Severance unless the Executive certifies in writing to the Company on or before the first day of any such calendar quarter the amount and nature of Mitigable Compensation the Executive expects to receive during such quarter. In addition, the Executive must notify the Company within five busines