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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 01, 2020
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)
Delaware94-1390387
(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 N/A
   fiscal year, if changed since last report.

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
 Common stock, par value $.01ROSTNasdaq 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
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or 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 No

The number of shares of Common Stock, with $.01 par value, outstanding on August 14, 2020 was 356,005,661.
1


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

Page
Item 1.
Condensed Consolidated Statements of Operations–Three and six months ended August 1, 2020 and August 3, 2019
Condensed Consolidated Statements of Comprehensive Income (Loss)–Three and six months ended August 1, 2020 and August 3, 2019
Condensed Consolidated Balance Sheets–August 1, 2020, February 1, 2020, and August 3, 2019
Condensed Consolidated Statements of Cash FlowsSix months ended August 1, 2020 and August 3, 2019
7
8
15
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 Operations

Three Months EndedSix Months Ended
($000, except stores and per share data, unaudited)August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Sales$2,684,712 $3,979,869 $4,527,385 $7,776,511 
Costs and Expenses
Cost of goods sold2,080,120 2,843,850 3,970,111 5,545,518 
Selling, general and administrative519,495 591,970 934,800 1,150,220 
Interest expense (income), net28,855 (4,782)35,521 (10,417)
Total costs and expenses2,628,470 3,431,038 4,940,432 6,685,321 
Earnings (loss) before taxes56,242 548,831 (413,047)1,091,190 
Provision (benefit) for taxes on earnings (loss) 34,195 136,110 (129,252)257,327 
Net earnings (loss) $22,047 $412,721 $(283,795)$833,863 
Earnings (loss) per share
Basic$0.06 $1.15 $(0.81)$2.31 
Diluted$0.06 $1.14 $(0.81)$2.29 
Weighted-average shares outstanding (000)
Basic352,276 359,794 352,239 361,439 
Diluted354,232 362,074 352,239 364,007 
Store count at end of period1,832 1,772 1,832 1,772 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months EndedSix Months Ended
($000, unaudited)August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Net earnings (loss) $22,047 $412,721 $(283,795)$833,863 
Other comprehensive income (loss)    
Comprehensive income (loss)
$22,047 $412,721 $(283,795)$833,863 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4


Condensed Consolidated Balance Sheets

($000, except share data, unaudited)August 1, 2020February 1, 2020August 3, 2019
Assets
Current Assets
Cash and cash equivalents$3,793,043 $1,351,205 $1,382,025 
Accounts receivable162,723 102,236 130,439 
Merchandise inventory1,117,983 1,832,339 1,835,869 
Prepaid expenses and other273,612 147,048 167,585 
Total current assets5,347,361 3,432,828 3,515,918 
Property and Equipment
Land and buildings1,177,863 1,177,262 1,162,269 
Fixtures and equipment3,137,495 3,115,003 2,886,275 
Leasehold improvements1,241,819 1,219,736 1,162,935 
Construction-in-progress363,000 189,536 200,012 
  5,920,177 5,701,537 5,411,491 
Less accumulated depreciation and amortization3,214,072 3,048,101 2,906,451 
Property and equipment, net2,706,105 2,653,436 2,505,040 
Operating lease assets3,053,735 3,053,782 2,932,199 
Other long-term assets215,044 208,321 198,790 
Total assets$11,322,245 $9,348,367 $9,151,947 
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$1,009,704 $1,296,482 $1,359,829 
Accrued expenses and other557,475 462,111 474,273 
Current operating lease liabilities579,277 564,481 549,841 
Accrued payroll and benefits204,109 364,435 295,465 
Income taxes payable 14,425  
Short-term debt802,507   
Total current liabilities3,153,072 2,701,934 2,679,408 
Long-term debt2,286,295 312,891 312,665 
Non-current operating lease liabilities2,601,254 2,610,528 2,496,230 
Other long-term liabilities258,869 214,086 227,842 
Deferred income taxes155,556 149,679 139,538 
Commitments and contingencies
Stockholders’ Equity
Common stock, par value $.01 per share
   Authorized 1,000,000,000 shares
   Issued and outstanding 356,006,000, 356,775,000
   and 362,166,000 shares, respectively
3,560 3,568 3,622 
Additional paid-in capital1,512,699 1,458,307 1,412,976 
Treasury stock(465,674)(433,328)(425,012)
Retained earnings1,816,614 2,330,702 2,304,678 
Total stockholders’ equity2,867,199 3,359,249 3,296,264 
Total liabilities and stockholders’ equity$11,322,245 $9,348,367 $9,151,947 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


Condensed Consolidated Statements of Stockholders' Equity

Six Months Ended August 1, 2020
Additional
paid-in
capital
Common stockTreasury
stock
Retained
earnings
(000)Shares  AmountTotal
Balance at February 1, 2020356,775 $3,568 $1,458,307 $(433,328)$2,330,702 $3,359,249 
Net loss    (305,842)(305,842)
Common stock issued under stock
plans, net of shares
used for tax withholding318 3 5,441 (32,317) (26,873)
Stock-based compensation  24,739   24,739 
Common stock repurchased(1,171)(12)(3,576) (128,879)(132,467)
Dividends declared ($0.285 per share)
    (101,414)(101,414)
Balance at May 2, 2020355,922 $3,559 $1,484,911 $(465,645)$1,794,567 $2,817,392 
Net earnings    22,047 22,047 
Common stock issued under stock
plans, net of shares
used for tax withholding84 1 5,630 (29) 5,602 
Stock-based compensation  22,158   22,158 
Balance at August 1, 2020356,006 $3,560 $1,512,699 $(465,674)$1,816,614 $2,867,199 

Six Months Ended August 3, 2019
Additional
paid-in
capital
Common stockTreasury
stock
Retained
earnings
(000)Shares  AmountTotal
Balance at February 2, 2019368,242 $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 withholding390 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, 2019365,260 $3,653 $1,391,558 $(423,543)$2,295,858 $3,267,526 
Net earnings    412,721 412,721 
Common stock issued under stock
plans, net of shares
used for tax withholding98 1 5,610 (1,469) 4,142 
Stock-based compensation  24,924   24,924 
Common stock repurchased(3,192)(32)(9,116) (310,981)(320,129)
Dividends declared ($0.255 per share)
    (92,920)(92,920)
Balance at August 3, 2019362,166 $3,622 $1,412,976 $(425,012)$2,304,678 $3,296,264 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6


Condensed Consolidated Statements of Cash Flows
Six Months Ended
($000, unaudited)August 1, 2020August 3, 2019
Cash Flows From Operating Activities
Net (loss) earnings$(283,795)$833,863 
Adjustments to reconcile net (loss) earnings to net cash provided
by operating activities:
Depreciation and amortization179,626 166,898 
Stock-based compensation46,897 44,613 
Deferred income taxes5,877 21,868 
Change in assets and liabilities:
Merchandise inventory714,356 (85,427)
Other current assets(51,924)(55,309)
Accounts payable(289,710)187,050 
Other current liabilities(44,671)(8,529)
Income taxes(145,001)(31,193)
Operating lease assets and liabilities, net5,569 8,276 
Other long-term, net35,197 1,353 
Net cash provided by operating activities172,421 1,083,463 
Cash Flows From Investing Activities
Additions to property and equipment(250,047)(250,314)
Proceeds from investments 517 
Net cash used in investing activities(250,047)(249,797)
Cash Flows From Financing Activities
Net proceeds from issuance of short-term debt805,601  
Payments of short-term debt (3,094) 
Net proceeds from issuance of long-term debt1,976,030  
Payments of debt issuance costs(3,254) 
Issuance of common stock related to stock plans11,075 10,906 
Treasury stock purchased(32,346)(52,349)
Repurchase of common stock(132,467)(640,259)
Dividends paid(101,414)(186,642)
Net cash provided by (used in) financing activities2,520,131 (868,344)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents2,442,505 (34,678)
Cash, cash equivalents, and restricted cash and cash equivalents:
Beginning of period1,411,410 1,478,079 
End of period$3,853,915 $1,443,401 
Supplemental Cash Flow Disclosures
Interest paid$10,069 $6,341 
Income taxes paid$9,872 $266,653 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7


Notes to Condensed Consolidated Financial Statements

Three and Six Months Ended August 1, 2020 and August 3, 2019
(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 August 1, 2020 and August 3, 2019, the results of operations, comprehensive income (loss), and stockholders' equity for the three and six month periods ended August 1, 2020 and August 3, 2019, and cash flows for the six month periods ended August 1, 2020 and August 3, 2019. The Condensed Consolidated Balance Sheet as of February 1, 2020, 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 ("GAAP") 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 1, 2020.

The results of operations, comprehensive income (loss), and stockholders' equity for the three and six month periods ended August 1, 2020 and August 3, 2019 and cash flows for the six month periods ended August 1, 2020 and August 3, 2019 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

Use of accounting estimates. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company’s significant accounting estimates include valuation reserves for inventory, packaway inventory costs, useful lives of fixed assets, insurance reserves, reserves for uncertain tax positions, estimates for provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), and legal claims. Given the global economic climate and additional, or unforeseen effects, from the COVID-19 pandemic, these estimates are more challenging, and actual results could differ materially from the Company's estimates.

Revenue recognition. All of the Company's store locations, its primary source of revenue, were temporarily closed from March 20, 2020 through a portion of the second fiscal quarter of 2020 due to the COVID-19 pandemic. The Company started a phased reopening of its stores on May 14, 2020. On average, the Company's stores were open for about 75 percent of the second quarter, with the vast majority of its store locations open and operating by the end of June 2020. The following sales mix table disaggregates revenue by merchandise category for the three and six month periods ended August 1, 2020 and August 3, 2019:

Three Months EndedSix Months Ended
August 1, 2020
1
August 3, 2019August 1, 2020
1
August 3, 2019
Home Accents and Bed and Bath25 %23 %26 %24 %
Ladies25 %27 %25 %27 %
Shoes14 %14 %14 %14 %
Men's14 %15 %13 %14 %
Accessories, Lingerie, Fine Jewelry, and Fragrances13 %13 %13 %13 %
Children's9 %8 %9 %8 %
Total100 %100 %100 %100 %
1 Sales mix for the three and six month periods ended August 1, 2020 represents sales for the period the stores were open.

8


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, and restricted cash and cash equivalents in the Condensed Consolidated Balance Sheets that reconcile to the amounts shown on the Condensed Consolidated Statements of Cash Flows:
($000)August 1, 2020February 1, 2020August 3, 2019
Cash and cash equivalents$3,793,043 $1,351,205 $1,382,025 
Restricted cash and cash equivalents included in:
  Prepaid expenses and other10,348 10,235 11,048 
  Other long-term assets50,524 49,970 50,328 
Total restricted cash and cash equivalents60,872 60,205 61,376 
Total cash, cash equivalents, and restricted cash and cash equivalents$3,853,915 $1,411,410 $1,443,401 

Property and equipment. As of August 1, 2020 and August 3, 2019, the Company had $22.6 million and $13.0 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.

Operating leases. In response to the COVID-19 pandemic, the Financial Accounting Standards Board (“FASB”) provided relief under Accounting Standards Update (“ASU”) 2016-02, Leases (Accounting Standards Codification "ASC" 842). Under this relief, companies can make a policy election on how to treat lease concessions resulting directly from the COVID-19 pandemic, provided that the modified contracts result in total cash flows that are substantially the same or less than the cash flows in the original contract.

The Company made the policy election to account for lease concessions that result from the COVID-19 pandemic as if they were made under enforceable rights in the original contract. Additionally, the Company made the policy election to account for these concessions outside of the lease modification framework described under ASC 842. The Company recorded accruals for deferred rental payments and recognized rent abatements or concessions as variable lease costs in the periods incurred. Accruals for rent payment deferrals are included in Accrued expenses and other in the accompanying Condensed Consolidated Balance Sheets.

Supplemental cash flow disclosures related to leases: Operating lease assets obtained in exchange for new operating lease liabilities (includes new leases and remeasurements or modifications of existing leases) were as follows:

Three Months EndedSix Months Ended
($000)August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Operating lease assets obtained in exchange for new operating lease liabilities
$119,377 $127,585 $284,351 $335,375 

Incentive programs. On August 19, 2020, the Compensation Committee of the Board of Directors approved modifications to the management incentive plan and performance share award program for fiscal 2020 to be based on the attainment of specific management priorities related to their response to COVID-19, as measured and approved by the Compensation Committee of the Board of Directors, as an alternative to profitability-based performance goals.

Cash dividends. The Company’s Board of Directors declared a cash dividend of $0.285 per common share in March 2020, and $0.255 per common share in March, May, August, and November 2019, respectively.

In May 2020, the Company announced the suspension of its quarterly dividends.

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Litigation, claims, and assessments. Like many retailers, the Company has been named in class/representative action lawsuits, primarily in California, alleging violation of wage and hour/employment laws and consumer protection laws. Class/representative action litigation remains pending as of August 1, 2020.

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/representative 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 adopted accounting standards. In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (ASC 740). ASU 2019-12 eliminates certain exceptions in ASC 740 related to the methodology for calculating income taxes in an interim period. It also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. The Company adopted ASU 2019-12 on a prospective basis in the first quarter of fiscal 2020. The most significant impact to the Company is the removal of a limit on the tax benefit recognized on pre-tax losses in interim periods. The adoption of this standard is not expected to have a material impact on the Company's fiscal 2020 results.

Recently issued accounting standards. The Company considers the applicability and impact of all ASUs issued by the FASB. For the three and six month periods ended August 1, 2020, the ASUs issued by the FASB were assessed and determined to be either not applicable or are expected to have minimal impact on the Company's condensed consolidated financial results.

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 and six month periods ended August 1, 2020. The fair value of the Company’s financial instruments are as follows:

($000)August 1, 2020February 1, 2020August 3, 2019
Cash and cash equivalents (Level 1)
$3,793,043 $1,351,205 $1,382,025 
Restricted cash and cash equivalents (Level 1)
$60,872 $60,205 $61,376 
Investments (Level 2)
$8 $8 $8 

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The underlying assets in the Company’s non-qualified deferred compensation program as of August 1, 2020, February 1, 2020, and August 3, 2019 (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)August 1, 2020February 1, 2020August 3, 2019
Level 1$135,650 $134,440 $126,377 
Level 210,329 7,003 7,411 
Total$145,979 $141,443 $133,788 

Note C: Stock-Based Compensation

Stock-based compensation. For the three and six month periods ended August 1, 2020 and August 3, 2019, the Company recognized stock-based compensation expense as follows:

Three Months EndedSix Months Ended
($000)August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Restricted stock$17,638 $14,909 $34,120 $24,358 
Performance awards3,526 9,025 10,822 18,329 
Employee stock purchase plan994 990 1,955 1,926 
Total$22,158 $24,924 $46,897 $44,613 

Total stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Operations for the three and six month periods ended August 1, 2020 and August 3, 2019, is as follows:

Three Months EndedSix Months Ended
Statements of Operations Classification ($000)August 1, 2020August 3, 2019August 1, 2020August 3, 2019
Cost of goods sold$11,849 $13,812 $24,515 $26,934 
Selling, general and administrative10,309 11,112 22,382 17,679 
Total$22,158 $24,924 $46,897 $44,613 

The tax benefits related to stock-based compensation expense for the three and six month periods ended August 1, 2020 were $4.8 million and $10.2 million, respectively. The tax benefits related to stock-based compensation expense for the three and six month periods ended August 3, 2019 were $5.0 million and $8.7 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 and six month periods ended August 1, 2020 and August 3, 2019, shares purchased by the Company for tax withholding totaled 308 and 349,821, and 14,627 and 570,624, 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 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.
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As of August 1, 2020, shares related to unvested restricted stock and performance share awards totaled 4.1 million shares. A summary of restricted stock and performance share award activity for the six month period ended August 1, 2020, is presented below:

(000, except per share data)Number of
shares
Weighted-average
grant date
fair value
Unvested at February 1, 20204,394 $76.20 
Awarded605 97.70 
Released(905)61.29 
Forfeited(14)79.87 
Unvested at August 1, 20204,080 $82.68 

The unamortized compensation expense at August 1, 2020, was $152.4 million, which is expected to be recognized over a weighted-average remaining period of 2.2 years. The unamortized compensation expense at August 3, 2019, was $165.2 million, which was expected to be recognized over a weighted-average remaining period of 2.3 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.

Note D: Earnings (Loss) Per Share

The Company computes and reports both basic earnings (loss) per share ("EPS") and diluted EPS. Basic EPS is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings (loss) by the sum of the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period, except in cases where the effect of the common stock equivalents would be anti-dilutive. Diluted EPS reflects the total potential dilution that could occur from outstanding equity plan awards and unvested shares of both performance and non-performance based awards of restricted stock. For periods of net loss, basic and diluted EPS are the same as the effect of the assumed vesting of restricted stock units is anti-dilutive.

For the three month period ended August 1, 2020, approximately 628,900 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 six mo