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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 July 29, 2023
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

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 11, 2023 was 338,632,172.
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 EndedSix Months Ended
($000, except stores and per share data, unaudited)July 29, 2023July 30, 2022July 29, 2023July 30, 2022
Sales$4,934,905 $4,583,009 $9,429,591 $8,916,109 
Costs and Expenses
Cost of goods sold3,569,367 3,399,535 6,861,973 6,595,981 
Selling, general and administrative807,898 667,063 1,554,120 1,336,559 
Interest (income) expense, net(37,214)10,667 (68,611)28,363 
Total costs and expenses4,340,051 4,077,265 8,347,482 7,960,903 
Earnings before taxes594,854 505,744 1,082,109 955,206 
Provision for taxes on earnings148,535 121,227 264,599 232,244 
Net earnings$446,319 $384,517 $817,510 $722,962 
Earnings per share
Basic$1.33 $1.11 $2.42 $2.09 
Diluted$1.32 $1.11 $2.41 $2.08 
Weighted-average shares outstanding (000)
Basic336,231 344,884 337,140 345,969 
Diluted337,932 346,106 339,003 347,470 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


Condensed Consolidated Statements of Comprehensive Income
Three Months EndedSix Months Ended
($000, unaudited)July 29, 2023July 30, 2022July 29, 2023July 30, 2022
Net earnings$446,319 $384,517 $817,510 $722,962 
Other comprehensive income    
Comprehensive income
$446,319 $384,517 $817,510 $722,962 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4


Condensed Consolidated Balance Sheets
($000, except share data, unaudited)July 29, 2023January 28, 2023July 30, 2022
Assets
Current Assets
Cash and cash equivalents$4,583,606 $4,551,876 $3,903,670 
Accounts receivable175,410 145,694 167,503 
Merchandise inventory2,300,063 2,023,495 2,716,878 
Prepaid expenses and other214,673 183,654 197,020 
Total current assets7,273,752 6,904,719 6,985,071 
Property and Equipment
Land and buildings1,490,681 1,495,006 1,486,450 
Fixtures and equipment4,027,874 3,961,733 3,759,071 
Leasehold improvements1,463,585 1,433,647 1,366,999 
Construction-in-progress518,405 319,319 158,446 
  7,500,545 7,209,705 6,770,966 
Less accumulated depreciation and amortization4,189,940 4,028,178 3,841,192 
Property and equipment, net3,310,605 3,181,527 2,929,774 
Operating lease assets3,164,685 3,098,134 3,025,814 
Other long-term assets238,260 232,083 239,263 
Total assets$13,987,302 $13,416,463 $13,179,922 
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$2,150,999 $2,009,924 $2,085,680 
Accrued expenses and other689,866 638,561 611,186 
Current operating lease liabilities668,028 655,976 647,504 
Accrued payroll and benefits435,300 279,710 300,611 
Income taxes payable25,449 52,075  
Total current liabilities3,969,642 3,636,246 3,644,981 
Long-term debt2,458,615 2,456,510 2,454,413 
Non-current operating lease liabilities2,653,632 2,593,961 2,525,512 
Other long-term liabilities231,945 224,104 231,285 
Deferred income taxes218,726 217,059 196,780 
Commitments and contingencies
Stockholders’ Equity
Common stock, par value $.01 per share
   Authorized 1,000,000,000 shares
   Issued and outstanding 338,982,000, 342,753,000
   and 347,552,000 shares, respectively
3,390 3,428 3,475 
Additional paid-in capital1,885,406 1,820,249 1,769,424 
Treasury stock(623,185)(584,750)(574,529)
Retained earnings3,189,131 3,049,656 2,928,581 
Total stockholders’ equity4,454,742 4,288,583 4,126,951 
Total liabilities and stockholders’ equity$13,987,302 $13,416,463 $13,179,922 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


Condensed Consolidated Statements of Stockholders’ Equity
Six Months Ended July 29, 2023
Common stockAdditional
paid-in
capital
Treasury
stock
Retained
earnings
(000)Shares  AmountTotal
Balance at January 28, 2023342,753 $3,428 $1,820,249 $(584,750)$3,049,656 $4,288,583 
Net earnings— — — — 371,191 371,191 
Common stock issued under stock plans, net of shares
used for tax withholding461 4 6,145 (37,522)— (31,373)
Stock-based compensation— — 33,063 — — 33,063 
Common stock repurchased, inclusive of excise tax(2,169)(22)(9,729)— (226,523)(236,274)
Dividends declared ($0.335 per share)
— — — — (114,794)(114,794)
Balance at April 29, 2023341,045 $3,410 $1,849,728 $(622,272)$3,079,530 $4,310,396 
Net earnings— — — — 446,319 446,319 
Common stock issued under stock plans, net of shares
used for tax withholding89 1 6,208 (913)— 5,296 
Stock-based compensation— — 39,429 — — 39,429 
Common stock repurchased, inclusive of excise tax(2,152)(21)(9,959)— (222,713)(232,693)
Dividends declared ($0.335 per share)
— — — — (114,005)(114,005)
Balance at July 29, 2023338,982 $3,390 $1,885,406 $(623,185)$3,189,131 $4,454,742 
The accompanying notes are an integral part of these condensed consolidated financial statements.

Six Months Ended July 30, 2022
Common stockAdditional
paid-in
capital
Treasury
stock
Retained
earnings
(000)Shares  AmountTotal
Balance at January 29, 2022351,720 $3,517 $1,717,530 $(535,895)$2,874,898 $4,060,050 
Net earnings— — — — 338,445 338,445 
Common stock issued under stock plans, net of shares
used for tax withholding1,131 11 5,906 (38,113)— (32,196)
Stock-based compensation— — 36,071 — — 36,071 
Common stock repurchased(2,524)(25)(10,266)— (229,274)(239,565)
Dividends declared ($0.310 per share)
— — — — (108,908)(108,908)
Balance at April 30, 2022350,327 $3,503 $1,749,241 $(574,008)$2,875,161 $4,053,897 
Net earnings— — — — 384,517 384,517 
Common stock issued under stock plans, net of shares
used for tax withholding153 1 5,974 (521)— 5,454 
Stock-based compensation— — 26,803 — — 26,803 
Common stock repurchased(2,928)(29)(12,594)— (222,812)(235,435)
Dividends declared ($0.310 per share)
— — — — (108,285)(108,285)
Balance at July 30, 2022347,552 $3,475 $1,769,424 $(574,529)$2,928,581 $4,126,951 
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)July 29, 2023July 30, 2022
Cash Flows From Operating Activities
Net earnings$817,510 $722,962 
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization197,924 189,181 
Stock-based compensation72,492 62,874 
Deferred income taxes1,667 59,138 
Change in assets and liabilities:
Merchandise inventory(276,568)(454,605)
Other current assets(60,431)(71,290)
Accounts payable144,775 (288,454)
Other current liabilities235,490 (265,399)
Income taxes(24,152)(13,941)
Operating lease assets and liabilities, net5,172 4,660 
Other long-term, net2,402 (1,391)
Net cash provided by (used in) operating activities1,116,281 (56,265)
Cash Flows From Investing Activities
Additions to property and equipment(363,459)(243,346)
Net cash used in investing activities(363,459)(243,346)
Cash Flows From Financing Activities
Issuance of common stock related to stock plans12,358 11,892 
Treasury stock purchased(38,435)(38,634)
Repurchase of common stock(464,890)(475,000)
Dividends paid(228,799)(217,193)
Net cash used in financing activities(719,766)(718,935)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents33,056 (1,018,546)
Cash, cash equivalents, and restricted cash and cash equivalents:
Beginning of period4,612,241 4,982,382 
End of period$4,645,297 $3,963,836 
Supplemental Cash Flow Disclosures
Interest paid$40,158 $40,158 
Income taxes paid $287,084 $187,047 
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 July 29, 2023 and July 30, 2022
(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 July 29, 2023 and July 30, 2022, and the results of operations, comprehensive income, and stockholders’ equity for the three and six month periods ended July 29, 2023 and July 30, 2022, and the cash flows for the six month periods ended July 29, 2023 and July 30, 2022. The Condensed Consolidated Balance Sheet as of January 28, 2023, 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 January 28, 2023.

The results of operations, comprehensive income, and stockholders’ equity for the three and six month periods ended July 29, 2023 and July 30, 2022, and the cash flows for the six month periods ended July 29, 2023 and July 30, 2022 presented herein are not necessarily indicative of the results to be expected for the full fiscal year. The fiscal year ending February 3, 2024 is referred to as fiscal 2023 and is a 53-week year. The fiscal year ended January 28, 2023 is referred to as fiscal 2022 and was a 52-week year.

Recently adopted accounting standards. In September 2022, the FASB issued Accounting Standards Update (ASU) 2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, to enhance transparency about an entity’s use of supplier finance programs. The ASU requires enhanced and additional disclosures about the key terms of supplier finance programs including a description of where in the financial statements any related amounts are presented. The Company adopted ASU 2022-04 in the first quarter of fiscal 2023 on a retrospective basis, excluding the rollforward requirements which will be adopted in fiscal 2024 on a prospective basis. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements for the three and six month periods ended July 29, 2023 and is not expected to have a material impact on the Company’s fiscal 2023 financial statements.

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 and other inventory carrying costs, useful lives of fixed assets, insurance reserves, reserves for uncertain tax positions, and legal claims. The uncertainties and potential impacts from macroeconomic factors, such as inflation, increase the challenge of making these estimates; actual results could differ materially from the Company’s estimates.

Revenue recognition. The following sales mix table disaggregates revenue by merchandise category for the three and six month periods ended July 29, 2023 and July 30, 2022:

8


Three Months EndedSix Months Ended
July 29, 2023

July 30, 2022July 29, 2023July 30, 2022
Home Accents and Bed and Bath24 %24 %25 %25 %
Ladies24 %25 %24 %25 %
Men’s16 %16 %15 %15 %
Accessories, Lingerie, Fine Jewelry, and Cosmetics15 %14 %15 %14 %
Shoes13 %13 %13 %13 %
Children’s8 %8 %8 %8 %
Total100 %100 %100 %100 %

Cash and cash equivalents. Cash equivalents consist of highly liquid, fixed income instruments purchased with an original maturity of three months or less. The institutions where these instruments are held could potentially subject the Company to concentrations of credit risk. The Company manages its risk associated with these instruments primarily by holding its cash and cash equivalents across a highly diversified set of banks and other financial institutions.

Restricted cash and cash equivalents. Restricted cash and cash equivalents serve as collateral for certain insurance obligations. These restricted funds are invested in bank deposits, money market funds, and U.S. Government and agency 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 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)July 29, 2023January 28, 2023July 30, 2022
Cash and cash equivalents$4,583,606 $4,551,876 $3,903,670 
Restricted cash and cash equivalents included in:
  Prepaid expenses and other12,955 12,677 11,432 
  Other long-term assets48,736 47,688 48,734 
Total restricted cash and cash equivalents61,691 60,365 60,166 
Total cash, cash equivalents, and restricted cash and cash equivalents$4,645,297 $4,612,241 $3,963,836 
Property and equipment. As of July 29, 2023 and July 30, 2022, the Company had $34.6 million and $24.4 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. Supplemental cash flow disclosures related to operating lease assets obtained in exchange for operating lease liabilities (includes new leases and remeasurements or modifications of existing leases) were as follows:

Three Months EndedSix Months Ended
($000)July 29, 2023July 30, 2022July 29, 2023July 30, 2022
Operating lease assets obtained in exchange for operating lease liabilities
$207,218 $126,236 $390,851 $314,081 

Cash dividends. On August 16, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.335 per common share, payable on September 29, 2023. The Company’s Board of Directors declared a cash dividend of $0.335 per common share in February and May 2023, and $0.310 per common share in March, May, August, and November 2022.

Stock repurchase program. In March 2022, the Company’s Board of Directors approved a two-year program to repurchase up to $1.9 billion of the Company’s common stock through fiscal 2023. During the six month period ended July 29, 2023, the Company repurchased 4.3 million shares of common stock for $464.9 million, excluding excise tax due
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under the Inflation Reduction Act of 2022. The Company repurchased 5.5 million shares of common stock for $475.0 million during the six month period ended July 30, 2022.

Litigation, claims, and assessments. Like many retailers, the Company has been named in class/representative action lawsuits, primarily in California, alleging violations by the Company of wage and hour laws. Class/representative action litigation remains pending as of July 29, 2023.

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 currently 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.

Supply chain finance program. The Company facilitates a voluntary supply chain finance program (the “program”) to provide certain suppliers with the opportunity to sell receivables due from the Company to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third-party bank administers the program. The Company’s responsibility is limited to making payment on the terms originally negotiated with each supplier, regardless of whether a supplier sells its receivable to a financial institution. The Company is not a party to the agreements between the participating financial institutions and the suppliers in connection with the program and receives no financial incentives from the suppliers or the financial institutions. No guarantees are provided by the Company under the program and the Company’s rights and obligations to its suppliers are not affected by the program. The range of payment terms negotiated with a supplier is consistent, irrespective of whether a supplier participates in the program.

All outstanding payments owed under the program are recorded within Accounts payable in the Consolidated Balance Sheets. The Company accounts for all payments made under the program as a reduction to operating cash flows in Accounts payable within the Consolidated Statements of Cash Flows. The amounts owed to a participating financial institution under the program and included in Accounts payable were $165.6 million, $119.2 million, and $167.6 million at July 29, 2023, January 28, 2023, and July 30, 2022, respectively.

Note B: Fair Value Measurements

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, 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.

The fair value of the Company’s financial instruments are as follows:

($000)July 29, 2023January 28, 2023July 30, 2022
Cash and cash equivalents (Level 1)
$4,583,606 $4,551,876 $3,903,670 
Restricted cash and cash equivalents (Level 1)
$61,691 $60,365 $60,166 

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The underlying assets in the Company’s nonqualified deferred compensation program as of July 29, 2023, January 28, 2023, and July 30, 2022 (included in Other long-term assets and in Other long-term liabilities) primarily consist of participant-directed money market, stock, and bond funds. The fair value measurement for funds with quoted market prices in active markets (Level 1) are as follows:

($000)July 29, 2023January 28, 2023July 30, 2022
Level 1$161,091 $155,496 $158,223 

Note C: Stock-Based Compensation

For the three and six month periods ended July 29, 2023 and July 30, 2022, the Company recognized stock-based compensation expense as follows:

Three Months EndedSix Months Ended
($000)July 29, 2023July 30, 2022July 29, 2023July 30, 2022
Restricted stock$24,055 $20,947 $45,548 $41,160 
Performance awards14,278 4,801 24,762 19,614 
Employee stock purchase plan1,096 1,055 2,182 2,100 
Total$39,429 $26,803 $72,492 $62,874 

Total stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Earnings for the three and six month periods ended July 29, 2023 and July 30, 2022 is as follows:

Three Months EndedSix Months Ended
Statements of Earnings Classification ($000)July 29, 2023July 30, 2022July 29, 2023July 30, 2022
Cost of goods sold$21,306 $15,675 $38,631 $34,221 
Selling, general and administrative18,123 11,128 33,861 28,653 
Total$39,429 $26,803 $72,492 $62,874 

The tax benefits related to stock-based compensation expense for the three and six month periods ended July 29, 2023 were $8.2 million and $15.2 million, respectively. The tax benefits related to stock-based compensation expense for the three and six month periods ended July 30, 2022 were $5.3 million and $12.8 million, respectively.

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

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 three years from the date the performance award was granted.

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As of July 29, 2023, shares related to unvested restricted stock, restricted stock units, and performance share awards totaled 4.2 million shares. A summary of restricted stock, restricted stock units, and performance share award activity for the six month period ended July 29, 2023, is presented below:

(000, except per share data)Number of
shares
Weighted-average
grant date
fair value
Unvested at January 28, 20233,943 $99.69 
Awarded1,188 108.90 
Released(936)94.48 
Forfeited(35)101.61 
Unvested at July 29, 20234,160 $103.61 

The unamortized compensation expense at July 29, 2023 was $217.6 million which is expected to be recognized over a weighted-average remaining period of 2.1 years. The unamortized compensation expense at July 30, 2022 was $239.1 million which was expected to be recognized over a weighted-average remaining period of 2.2 years.

During the three and six month periods ended July 29, 2023 and July 30, 2022, shares purchased by the Company for tax withholding totaled 8,842 and 376,128, and 6,751 and 415,216, respectively, and are considered treasury shares which are available for reissuance.

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 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 and unvested shares of both performance and non-performance based awards of restricted stock and restricted stock units.

For the three and six month periods ended July 29, 2023, approximately 14,000 and 18,000 weighted-average shares were excluded from the calculation of diluted EPS, respectively, because their effect would have been anti-dilutive for the periods presented. For the three and six month periods ended July 30, 2022, approximately 1,509,000 and 747,000 weighted-average shares were excluded from the calculation of diluted EPS, respectively, because their effect would have been anti-dilutive for the periods presented.

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

Three Months EndedSix Months Ended
Shares in (000s)Basic EPSEffect of
dilutive
common stock
equivalents
Diluted
EPS
Basic EPSEffect of
dilutive
common
stock
equivalents
Diluted
EPS
July 29, 2023
Shares336,231 1,701 337,932 337,140 1,863 339,003 
Amount$1.33 $(0.01)$1.32 $2.42 $(0.01)$2.41 
July 30, 2022 
     Shares
344,884 1,222 346,106 345,969 1,501 347,470 
     Amount
$1.11 $ $1.11 $2.09 $(0.01)$2.08 

Note E: Debt

Long-term debt. Unsecured senior debt (the “Senior Notes”), net of unamortized discounts and debt issuance costs, consisted of the following:

($000)July 29, 2023January 28, 2023July 30, 2022
3.375% Senior Notes due 2024
$249,484 $249,257 $249,032 
4.600% Senior Notes due 2025
697,800 697,161 696,523 
0.875% Senior Notes due 2026
496,652 496,038 495,425 
4.700% Senior Notes due 2027
240,116 239,899 239,684 
4.800% Senior Notes due 2030
132,688 132,602 132,516 
1.875% Senior Notes due 2031
495,537 495,254 494,972 
5.450% Senior Notes due 2050
146,338 146,299 146,261 
Total Long-term debt$2,458,615 $2,456,510 $2,454,413 

Interest on all Senior Notes is payable semi-annually and the Senior Notes are subject to prepayment penalties for early payment of principal.

As of July 29, 2023, January 28, 2023, and July 30, 2022, total unamortized discount and debt issuance costs were $16.4 million, $18.5 million, and $20.6 million, respectively, and were classified as a reduction of Long-term debt.

The aggregate fair value of the seven outstanding series of Senior Notes was approximately $2.3 billion as of July 29, 2023 and January 28, 2023, and approximately $2.4 billion as of July 30, 2022. 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.

Revolving credit facilities. The Company’s $1.3 billion senior unsecured revolving credit facility (“Credit Facility”) expires in February 2027 and may be extended at the Company’s request for up to two additional one-year periods subject to customary conditions. The Credit Facility contains a $300 million sublimit for issuance of standby letters of credit. It also contains an option allowing the Company to increase the size of its Credit Facility by up to an additional $700 million, with the agreement of the committing lenders. Interest on borrowings under this Credit Facility is a term rate based on the
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Secured Overnight Financing Rate (“Term SOFR”) (or an alternate benchmark rate, if Term SOFR is no longer available) plus an applicable margin and is payable quarterly and upon maturity.

The Credit Facility is subject to a quarterly Consolidated Adjusted Debt to Consolidated EBITDAR financial leverage ratio covenant. As of July 29, 2023, the Company was in compliance with the financial covenant, had no borrowings or standby letters of credit outstanding under the Credit Facility, and the $1.3 billion Credit Facility remained in place and available.

The table below shows the components of interest expense and income for the three and six month periods ended July 29, 2023 and July 30, 2022:

Three Months EndedSix Months Ended
($000)July 29, 2023July 30, 2022July 29, 2023July 30, 2022
Interest expense on long-term debt$21,133 $21,125 $42,299 $42,279 
Other interest expense372 406 745 794 
Capitalized interest(2,818)(1,175)(4,926)(3,826)
Interest income(55,901)(9,689)(106,729)(10,884)
Interest (income) expense, net$(37,214)$10,667 $(68,611)$28,363 

Note F: Taxes on Earnings

The Company’s effective tax rates for the three month periods ended July 29, 2023 and July 30, 2022, were approximately 25% and 24%, respectively. The Company’s effective tax rate for the six month periods ended July 29, 2023 and July 30, 2022, was approximately 24%. The Company’s effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and uncertain tax positions.

As of July 29, 2023, January 28, 2023, and July 30, 2022, the reserves for unrecognized tax benefits were $63.3 million, $60.6 million, and $69.3 million, inclusive of $7.5 million, $7.1 million, and $8.5 million of related interest and penalties, respectively. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $50.6 million would impact the Company’s effective tax rate. It is reasonably possible that certain federal and 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 $13.1 million. 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.

The Company is open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2019 through 2022. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2018 through 2022. Certain federal and 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 condensed consolidated financial statements.
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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 July 29, 2023 and July 30, 2022, the related condensed consolidated statements of earnings, comprehensive income, and stockholders’ equity, for the three and six month periods ended July 29, 2023 and July 30, 2022, and cash flows for the six month periods ended July 29, 2023 and July 30, 2022, 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 January 28, 2023, 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 March 27, 2023, 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 January 28, 2023, 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
September 5, 2023
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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 also those in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for fiscal 2022. 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 in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for fiscal 2022. 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 1,722 locations in 41 states, the District of Columbia, and Guam as of July 29, 2023. 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 339 dd’s DISCOUNTS stores in 22 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.

There remains uncertainty in the current macroeconomic and geopolitical environments, and prolonged inflationary pressures continue to negatively impact the discretionary spending of our low-to-moderate income customers. As a result of today’s uncertain external conditions and inflationary pressures, shoppers continue to seek even stronger values when visiting our stores. We plan to carefully manage our expenses and inventory, while closely monitoring market share trends for the off-price industry. We believe our market share can continue to grow through continued focus on bringing value and convenience to our consumers.

Results of Operations

The following table summarizes the financial results for the three and six month periods ended July 29, 2023 and July 30, 2022:

Three Months EndedSix Months Ended
July 29, 2023July 30, 2022July 29, 2023July 30, 2022
Sales
Sales (millions)$4,935$4,583$9,430$8,916
Sales growth (decline) 7.7 %(4.6 %)5.8 %(4.3 %)
Comparable store sales growth (decline)1
5 %(7 %)3 %(7 %)
Costs and expenses (as a percent of sales)
Cost of goods sold72.3 %74.2 %72.8 %74.0 %
Selling, general and administrative16.4 %14.5 %16.5 %15.0 %
Interest (income) expense, net(0.8 %)0.3 %(0.7 %)0.3 %
Earnings before taxes (as a percent of sales)12.1 %11.0 %11.4 %10.7 %
Net earnings (as a percent of sales)9.0 %8.4 %8.7 %8.1 %
1 Comparable stores are stores open for more than 14 complete months.

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Stores. Our long-term 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.

We opened 27 new stores in the second quarter of fiscal 2023 and remain on track to open a total of approximately 100 locations this year.

The following table summarizes the stores opened and closed during the three and six month periods ended July 29, 2023 and July 30, 2022:

Three Months EndedSix Months Ended
Store CountJuly 29, 2023July 30, 2022July 29, 2023July 30, 2022
Ross Dress for Less
Beginning of the period1,704 1,648 1,693 1,628 
Opened in the period18 21 29 
1
43 
Closed in the period —  (2)
2
Total Ross Dress for Less stores end of period
1,722 1,669 1,722 1,669 
dd’s DISCOUNTS
Beginning of the period330 303 322 295 
Opened in the period9 17 16 
Closed in the period —  — 
Total dd’s DISCOUNTS stores end of period
339 311 339 311 
Total stores end of period2,061 1,980 2,061 1,980 
1 Includes the reopening of a store previously temporarily closed due to a weather event.
2 Includes the temporary closure of a store impacted by a weather event.

Sales. Sales for the three month period ended July 29, 2023 increased $351.9 million, or 7.7%, compared to the three month period ended July 30, 2022, primarily due to a 5% comparable store sales increase and the opening of 81 net new stores between July 30, 2022 and July 29, 2023.

Sales for the six month period ended July 29, 2023 increased $513.5 million, or 5.8%, compared to the six month period ended July 30, 2022, primarily due to a 3% comparable store sales increase and the opening of 81 net new stores between July 30, 2022 and July 29, 2023.

Our sales mix for the three and six month periods ended July 29, 2023 and July 30, 2022 is shown below:

Three Months EndedSix Months Ended
July 29, 2023

July 30, 2022July 29, 2023July 30, 2022
Home Accents and Bed and Bath24 %24 %25 %25 %
Ladies24 %25 %24 %25 %
Men’s16 %16 %15 %15 %
Accessories, Lingerie, Fine Jewelry, and Cosmetics15 %14 %15 %14 %
Shoes13 %13 %13 %13 %
Children’s8 %%8 %%
Total100 %100 %100 %100 %

We intend to address the uncertain and competitive climate for apparel and home goods by pursuing and refining our existing strategies, continuing to strengthen our merchant organization, refining our merchandise mix, and further
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developing our systems to improve our merchandise offerings. We cannot be sure that our strategies and store expansion program will result in sales growth or an increase in net earnings.

Cost of goods sold. Cost of goods sold for the three and six month periods ended July 29, 2023 increased $169.8 million and $266.0 million, respectively, compared to the three and six month periods ended July 30, 2022, primarily due to the respective 5% and 3% comparable store sales increases, higher sales from the opening of 81 net new stores between July 30, 2022 and July 29, 2023, and higher buying costs, partially offset by lower ocean and domestic freight costs.

Cost of goods sold as a percentage of sales for the three month period ended July 29, 2023 decreased approximately 185 basis points compared to the three month period ended July 30, 2022, primarily due to a 200 basis point increase in merchandise margin mainly due to lower ocean freight costs, a 60 basis point decrease in domestic freight costs, 20 basis points of leverage in occupancy costs, and a 5 basis point decrease in distribution costs. Partially offsetting these items was a 100 basis point increase in buying costs primarily due to higher incentive compensation expense.

Cost of goods sold as a percentage of sales for the six month period ended July 29, 2023 decreased approximately 120 basis points compared to the six month period ended July 30, 2022, primarily due to a 160 basis point increase in merchandise margin mainly due to lower ocean freight costs, a 60 basis point decrease in domestic freight costs, and 10 basis points of leverage in occupancy costs. Partially offsetting these items were an 85 basis point increase in buying costs primarily due to higher incentive compensation expense and a 25 basis point increase in distribution costs primarily due to the deleveraging effect from the opening of our Brookshire, Texas distribution center and higher wages.

We expect lower ocean and domestic freight costs and higher incentive compensation expense to continue through fiscal 2023.

Selling, general and administrative expenses. For the three and six month periods ended July 29, 2023, selling, general and administrative expenses (“SG&A”) increased $140.8 million and $217.6 million, respectively, compared to the three and six month periods ended July 30, 2022. These increases were primarily due to higher incentive compensation expense, higher store wages, and the opening of 81 net new stores between July 30, 2022 and July 29, 2023.

SG&A as a percentage of sales for the three and six month periods ended July 29, 2023 increased 180 and 150 basis points, respectively, compared to the three and six month periods ended July 30, 2022, primarily due to higher incentive compensation expense and higher store wages.

We expect SG&A to continue to increase as a result of higher incentive compensation expense and higher store wages.

Interest (income) expense, net. For the three and six month periods ended July 29, 2023, interest (income) expense, net increased $47.9 million and $97.0 million, respectively, compared to the three and six month periods ended July 30, 2022, primarily due to increased interest income from higher interest rates.

Interest (income) expense, net for the three and six month periods ended July 29, 2023 and July 30, 2022 consists of the following:

Three Months EndedSix Months Ended
($000)July 29, 2023July 30, 2022July 29, 2023July 30, 2022
Interest expense on long-term debt$21,133 $21,125 $42,299 $42,279 
Other interest expense372 406 745 794 
Capitalized interest(2,818)(1,175)(4,926)(3,826)
Interest income(55,901)(9,689)(106,729)(10,884)
Interest (income) expense, net$(37,214)$10,667 $(68,611)$28,363 

Taxes on earnings. Our effective tax rates for the three month periods ended July 29, 2023 and July 30, 2022 were approximately 25% and 24%, respectively. Our effective tax rate for the six month periods ended July 29, 2023 and July 30, 2022 was approximately 24%. Our effective tax rate is impacted by changes in tax law and accounting guidance, location of new stores, level of earnings, tax effects associated with stock-based compensation, and uncertain tax positions.

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Net earnings. Net earnings as a percentage of sales for the three month periods ended July 29, 2023 and July 30, 2022 were 9.0% and 8.4%, respectively. Net earnings as a percentage of sales for the three month period ended July 29, 2023 was higher primarily due to lower cost of goods sold and higher interest income, partially offset by higher SG&A expenses.

Net earnings as a percentage of sales for the six month periods ended July 29, 2023 and July 30, 2022 were 8.7% and 8.1%, respectively. Net earnings as a percentage of sales for the six month period ended July 29, 2023 was higher primarily due to lower cost of goods sold and higher interest income, partially offset by higher SG&A expenses.

Earnings per share. Diluted earnings per share for the three month period ended July 29, 2023 was $1.32 compared to $1.11 for the three month period ended July 30, 2022. Diluted earnings per share for the six month period ended July 29, 2023 was $2.41 compared to $2.08 for the six month period ended July 30, 2022. The $0.21 and $0.33 increases in the diluted earnings per share for the three and six month periods ended July 29, 2023 were primarily attributable to a 16% and 13% increase in net earnings, respectively, and a 3% reduction in weighted-average diluted shares outstanding largely due to stock repurchases under our stock repurchase program.

Financial Condition

Liquidity and Capital Resources

The 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, 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 active stock repurchase programs, pay dividends, and repay debt as it becomes due.

Six Months Ended
($000)July 29, 2023July 30, 2022
Cash provided by (used in) operating activities$1,116,281 $(56,265)
Cash used in investing activities(363,459)(243,346)
Cash used in financing activities(719,766)(718,935)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents$33,056 $(1,018,546)

Operating Activities

Net cash provided by operating activities was $1.1 billion for the six month period ended July 29, 2023. This was primarily driven by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation. Net cash used in operating activities was $0.1 billion for the six month period ended July 30, 2022. This was primarily driven by higher packaway inventory receipts and higher associated payments, combined with shorter payment terms, and by payment of fiscal 2021 incentive bonuses, partially offset by net earnings excluding non-cash expenses for depreciation, amortization, and stock-based compensation.

The increase in cash flow provided by operating activities for the six month period ended July 29, 2023 compared to the same period in the prior year was primarily driven by higher accounts payable leverage (defined as accounts payable divided by merchandise inventory), lower incentive compensation payments, and higher net earnings.

Accounts payable leverage was 94% and 77% as of July 29, 2023 and July 30, 2022, respectively. The increase in accounts payable leverage was primarily due to the timing of inventory receipts and related payments versus last year.

As a regular part of our business, packaway inventory levels will vary over time based on availability of compelling merchandise purchase opportunities in the marketplace and our decisions on the timing for release of that inventory to our stores. 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 for 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.
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Changes in packaway inventory levels impact our operating cash flow. As of July 29, 2023, packaway inventory was 38% of total inventory, compared to 40% at the end of fiscal 2022. As of July 30, 2022, packaway inventory was 41% of total inventory, compared to 40% at the end of fiscal 2021.

Investing Activities

Net cash used in investing activities was $363.5 million and $243.3 million for the six month periods ended July 29, 2023 and July 30, 2022, respectively, and was related to our capital expenditures. 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 and buying and corporate offices.

The increase in cash used in investing activities for the six month period ended July 29, 2023, compared to the same period in the prior year, was primarily due to higher capital expenditures related to the construction of our new Buckeye, Arizona distribution center, the construction and build-out of new stores, and various information technology projects.

Capital expenditures for fiscal 2023 are currently projected to be approximately $800 million. Our planned capital expenditures for fiscal 2023 are for investments in our supply chain to support long-term growth, including construction of our next distribution centers, costs for fixtures and leasehold improvements to open new Ross and dd’s DISCOUNTS stores, investments in information technology systems, and for various other expenditures related to our stores, distribution centers, and buying and corporate offices. We expect to fund capital expenditures with available cash.

Financing Activities

Net cash used in financing activities was $719.8 million and $718.9 million for the six month periods ended July 29, 2023 and July 30, 2022, respectively, primarily resulting from stock repurchases under our current stock repurchase program and payment of dividends.

Revolving credit facilities. We have a $1.3 billion senior unsecured revolving credit facility (“Credit Facility”). As of July 29, 2023, we had no borrowings or standby letters of credit outstanding under the Credit Facility, the $1.3 billion Credit Facility remained in place and available, and we were in compliance with the financial covenant. Refer to Note E: Debt in the Notes to Condensed Consolidated Financial Statements for additional information.

Senior notes. As of July 29, 2023, we had approximately $2.5 billion of outstanding unsecured Senior Notes. Refer to Note E: Debt in the Notes to Condensed Consolidated Financial Statements for additional information.

Other financing activities. In March 2022, our Board of Directors approved a two-year program to repurchase up to $1.9 billion of our common stock through fiscal 2023.

For the six month period ended July 29, 2023, we repurchased 4.3 million shares of common stock for $464.9 million, excluding excise tax due under the Inflation Reduction Act of 2022. We repurchased 5.5 million shares of common stock for $475.0 million during the six month period ended July 30, 2022. During each of the six month periods ended July 29, 2023 and July 30, 2022, we also acquired 0.4 million shares of treasury stock to cover employee tax withholding obligations under our employee equity compensation programs for aggregate purchase prices of approximately $38.4 million and $38.6 million, respectively.

On August 16, 2023, our Board of Directors declared a quarterly cash dividend of $0.335 per common share, payable on September 29, 2023. The Board of Directors declared a cash dividend of $0.335 per common share in February and May 2023, and $0.310 per common share in March, May, August, and November 2022.

For the six month periods ended July 29, 2023 and July 30, 2022, we paid cash dividends of $228.8 million and $217.2 million, respectively.

Short-term trade credit represents a significant source of financing for our 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 credit, and other credit sources to meet our capital and liquidity requirements, including lease and interest payment obligations.

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We ended the second quarter of fiscal 2023 with $4.6 billion of unrestricted cash balances, which were held primarily in overnight money market funds invested in U.S. treasury and government instruments across a highly diversified set of banks and other financial institutions. We also have $1.3 billion available under our Credit Facility. We estimate that existing cash and cash equivalent balances, cash flows from operations, bank credit, and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments, common stock repurchases, quarterly dividend payments, and interest payment obligations for at least the next 12 months.

Contractual Obligations and Off-Balance Sheet Arrangements

The table below presents our significant contractual obligations as of July 29, 2023:

($000)Less than
one year
Greater than
one year
Total¹
Recorded contractual obligations:
   Senior notes$— $2,474,991 $2,474,991 
   Operating leases 704,810 2,695,278 3,400,088 
   New York buying office ground lease2
7,552 1,105,311 1,112,863 
Unrecorded contractual obligations:
   Real estate obligations3
11,288 180,365 191,653 
   Interest payment obligations80,316 394,976 475,292 
   Purchase obligations4
4,150,967 63,030 4,213,997 
Total contractual obligations$4,954,933 $6,913,951 $11,868,884 
1 We have a $59.9 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.
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 July 29, 2023.

Standby letters of credit and collateral trust. We use standby letters of credit outside of our Credit Facility in addition to a funded trust to collateralize some of our insurance obligations. As of July 29, 2023 and January 28, 2023, we had $2.6 million in standby letters of credit outstanding and $59.1 million and $57.8 million, respectively, in a collateral trust. As of July 30, 2022, we had $3.3 million in standby letters of credit outstanding and $56.9 million in a collateral trust. The standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash and cash equivalents.

Trade letters of credit. We had $33.7 million, $7.6 million, and $26.6 million in trade letters of credit outstanding at July 29, 2023, January 28, 2023, and July 30, 2022, respectively.

Dividends. In August 2023, our Board of Directors declared a cash dividend of $0.335 per common share, payable on September 29, 2023.

Critical Accounting Estimates

During the second quarter of fiscal 2023, there have been no significant changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the year ended January 28, 2023.

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Forward-Looking Statements

This report contains a number of forward-looking statements regarding, without limitation, projected sales, costs and earnings, planned new store growth, capital expenditures, liquidity, and other matters. These forward-looking statements reflect our then-current beliefs, plans, 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 impact from inflation, interest rate increases, ongoing military conflicts and economic sanctions, the COVID-19 pandemic, climate change, and other economic, regulatory, consumer spending, and industry trends that could potentially adversely affect our revenue, profitability, operating conditions, 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, plans, and projections. Such risks are not limited to but may include:

Impacts from the macroeconomic environment, including inflation, interest rates, housing costs, energy and fuel costs, financial and credit market conditions, recession concerns, geopolitical conditions (including the current Russia-Ukraine conflict), the COVID-19 pandemic, or public health and public safety issues, that affect our costs, consumer confidence, and consumer disposable income.
Unexpected changes in the level of consumer spending on, or preferences for, apparel and home-related merchandise, which could adversely affect us.
Competitive pressures in the apparel and home-related merchandise retailing industry.
Our need to effectively manage our inventories, markdowns, and inventory shortage in order to achieve our planned gross margins.
Risks associated with importing and selling merchandise produced in other countries, including risks from supply chain disruption, shipping delays, and higher than expected ocean freight costs.
Unseasonable weather or extreme temperatures that may affect shopping patterns and consumer demand for seasonal apparel and other merchandise.
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 anticipate consumer preferences and 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, including from ransomware or other cyber-attacks, 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 new store openings.
Our need to expand in existing markets and enter new geographic markets in order to achieve planned market penetration.
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, or the adoption of new federal or state tax legislation that increases tax rates or adds new taxes, 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.
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.
An additional public health or public safety crisis, demonstrations, 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 and our new store openings.

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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.

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 July 29, 2023.

Interest that is payable on our Credit Facility is based on variable interest rates and is therefore affected by changes in market interest rates. As of July 29, 2023, we had no borrowings outstanding under the Credit Facility.

As of July 29, 2023, we have outstanding seven series of unsecured Senior Notes. Interest that is payable on all series of our Senior Notes is based on fixed interest rates, and is therefore unaffected by changes in market interest rates.

We receive interest payments on our cash and cash equivalents and restricted cash and cash equivalents. Changes in interest rates may impact the interest income we recognize in the future.

A hypothetical 100 basis point increase or decrease in prevailing market interest rates would not have had a material negative impact on our condensed consolidated financial position, results of operations, cash flows, or the fair values of our cash and cash equivalents and restricted cash and cash equivalents as of and for the three and six month periods ended July 29, 2023. 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 second fiscal quarter of 2023 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 second fiscal quarter of 2023.

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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 January 28, 2023 for a description of 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 second quarter of fiscal 2023 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
May
(4/30/2023 - 5/27/2023)585,615 $103.65585,031 $654,900 
June
(5/28/2023-7/01/2023)886,786 $105.81878,528 $561,920 
July
(7/02/2023- 7/29/2023)688,314 $111.59688,314 $485,110 
Total2,160,715 $107.062,151,873 $485,110 

1 We acquired 8,842 shares of treasury stock during the quarter ended July 29, 2023. 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 2022, our Board of Directors approved a two-year program to repurchase up to $1.9 billion of our common stock through fiscal 2023.


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ITEM 6. EXHIBITS
Exhibit
NumberExhibit
3.1
 
3.2
10.1
15
 
31.1
 
31.2
 
32.1
 
32.2
 
101.INSXBRL Instance Document. (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.)
101.SCHInline XBRL Taxonomy Extension Schema
 
101.CALInline XBRL Taxonomy Extension Calculation Linkbase
 
101.DEFInline XBRL Taxonomy Extension Definition Linkbase
 
101.LABInline XBRL Taxonomy Extension Label Linkbase
 
101.PREInline XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File. (The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.)
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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:September 5, 2023
By: 
/s/Jeffrey P. Burrill
 Jeffrey P. Burrill
Senior Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer)

26
Document

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made effective June 19, 2023 (the “Effective Date”) by and between Ross Stores, Inc., a Delaware corporation, and Barbara Rentler (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
A.The Company wishes to employ the Executive, and the Executive is willing to accept such employment, as Chief Executive Officer.
B.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 begin on the Effective Date and end on March 31, 2027 (the “Term of Employment”), unless extended or terminated earlier in accordance with this Agreement.
2.Position and Duties. The Executive shall continue to serve as Chief Executive Officer of the Company (“CEO”), with overall responsibility for its corporate policy making, organization and operation, and accomplishment of its plans and objectives, through and until the earlier of the last day of the Company’s fiscal year beginning in 2025 or (ii) the effective date of the selection of a successor as CEO. On the earlier of the first day of the Company’s fiscal year beginning in 2026 or the effective date of the appointment of a successor as CEO, the Executive shall cease to hold the office of CEO, but will continue to serve as an employee with the title of Senior Advisor thru March 31, 2027. 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 Chairman 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 New York, NY, 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 thru the last day of the Company’s fiscal year beginning in 2025, the Company shall pay to the Executive a salary at a rate of not less than One Million Four Hundred Fifty Thousand Dollars ($1,450,000) per annum. During the Term of Employment from the first day of the Company’s fiscal year
        


beginning in 2026 thru March 31, 2027, the Company shall pay to the Executive a salary at a rate of not less than One Million Two Hundred Thousand Dollars ($1,200,000) 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 (i) 200% of the Executive’s then effective annual salary rate thru the last day of Company’s fiscal year beginning in 2025 and (ii) 150% of the Executive’s annual salary rate from the first day of the fiscal year beginning in 2026 thru March 31, 2027, with a full bonus for the fiscal year beginning in 2027 (without pro-ration). 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 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 twenty-five 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.
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(f) Services Furnished. The Company shall furnish the Executive with office space and such administrative services as are suitable to the Executive’s position and adequate for the performance of the Executive’s duties during the Term of Employment.
(g) Lifetime Benefits. The Executive and her spouse shall be entitled to the lifetime benefits specified in Section 4(g) of her Executive Employment Agreement, dated March 16, 2021 (the “2021 Agreement”), subject to the terms and conditions of such Section.
(h) Retention Bonus. The Executive shall be entitled to the Retention Bonus specified in Section 4(h) of the 2021 Agreement, subject to the terms and conditions of such Section.

(i) Performance Share Awards – 2024 thru 2027. The Executive shall be eligible to receive Performance Share Awards for the fiscal years beginning in 2024, 2025, 2026 and 2027 (“2024, 2025, 2026 and 2027 PS Grants”, respectively) consistent with the existing practice of the Company. Except as otherwise provided in the applicable Performance Share Agreements, Unvested Common Shares issued in settlement of the 2025, 2026 and 2027 PS Grants shall vest and become Vested Common Shares on March 31, 2027, provided the Executive continues service with the Company through such date. The terms and conditions of such awards shall be set forth in the respective Notices of Grant of Performance Shares and Performance Share Agreements and the 2017 Equity Incentive Plan or successor plan (the “PS Documents”). Capitalized terms in this Section 4(i) shall have the meanings assigned to such terms in the PS Documents.    

(j) Restricted Stock Awards – 2024 thru 2026. The Executive shall be eligible to receive Restricted Stock Share Awards for the fiscal years beginning in 2024, 2025, and 2026 consistent with the existing practice of the Company. The terms and conditions of such awards shall be set forth in the respective Notices of Grant of Restricted Stock and Restricted Stock Agreements and the 2017 Equity Incentive Plan or successor plan (the “RS Documents”). Capitalized terms in this Section 4(j) shall have the meanings assigned to such terms in the RS Documents.


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, present and potential customers, employees and suppliers of the
3



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 Chairman 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 Chairman 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 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
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Information) as a result of employment with the Company. The Executive further agrees to notify the Chairman 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 Executive’s 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 Executive’s 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.
(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.
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(l) Nothing in this Agreement shall limit the Executive’s right to disclose sexual harassment or sexual assault disputes.
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 Executive’s 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 (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 Executive’s 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).
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(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(d)(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 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.
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(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.
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) 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.
(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); and
(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.
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 (provided, however, that the Company may modify such release in Exhibit A from time to time solely as needed to comply with federal, state or local laws in effect at the time such release is to be executed) (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
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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.
(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 (“Fiscal Year”) 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 annual bonus, prior to proration, attributable to any Fiscal Year commencing on or after the first day of the Fiscal Year in which the Executive’s termination of employment occurs, exceed 100% of the Executive's target bonus for the Fiscal Year 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 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)
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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 prior to proration 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, all Unvested Common Shares (as defined in the Performance Share Agreement) issued in settlement of the Performance Share Award shall become vested 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 eligible dependents to the extent such dependents were covered immediately prior to such termination of employment) for the remainder of the Term of Employment, except coverage for dependent will end when dependent is no longer eligible for coverage, if earlier than the Term of Employment end date, 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 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 the Executive 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 13.
(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 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
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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 13.
(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, any unpaid annual bonus for the fiscal year of the Company occurring immediately prior to the fiscal year in which the Executive’s death occurred, 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 prior to proration 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, all Unvested Common Shares issued in settlement of the Performance Share Award shall become vested in full effective as of the date of such termination.
(d)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
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Executive shall be entitled to the compensation and benefits set forth in Sections 8(d)(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(d)(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(d)(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(d)(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(d)(i)(b).     
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, 100% of the Target Number of Performance Shares shall be deemed Vested Performance Shares effective as of the date of the termination. All Unvested Common Shares issued in settlement of the Performance Share Award shall become vested effective as of the date of such termination. Except as set forth in this Section 8(d), 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 eligible dependents to the extent such dependents were covered immediately prior to such termination of employment) for the remainder of the Term of Employment, except coverage for dependents will end when dependent is no longer eligible for coverage, if earlier than the Term of Employment end date; 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
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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 Executive 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: (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.
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(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(d)(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 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(d)(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(d)(iv) hereof shall apply, and the enforcement of Section 8(d)(iv) shall be the exclusive remedy to the Company.     
(iv)Adjustments. If, notwithstanding any reduction described in Section 8(d)(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
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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.
(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 Target Number of Performance Shares shall become fully vested 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) any Unvested Common Shares issued in settlement of Performance Share Awards shall become fully vested 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, all of the Shares shall become vested 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.