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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405
(Mark one)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
Commission file number 0-14678
ROSS STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1390387
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
8333 Central Avenue, Newark, 94560-3433
California
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, (510) 505-4400
including area code
Securities registered pursuant None
to Section 12(b) of
the Act:
Securities registered pursuant
to Section 12(g)
of the Act:
Name of each exchange
Title of each class on which registered
---------------------------- -----------------------------
Common stock, par value $.01 NASDAQ/NMS
Indicate by check mark whether the registrant has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent files pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of April 4, 1997 was
$1,226,764,835.52. Shares of voting stock held by each director
and executive officer and each person who on that date owned 10%
or more of the outstanding voting stock have been excluded in
that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
The number of shares of Common Stock, with $.01 par value,
outstanding on April 4, 1997 was 49,597,180.
Documents incorporated by reference:
Portions of the Proxy Statement for Registrant's 1997 Annual
Meeting of Stockholders, which will be filed on or before
June 2, 1997, are incorporated herein by reference into Part
III.
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2
PART I
ITEM 1. BUSINESS
Ross Stores, Inc. ("Ross" or "company") operates a chain of off-
price retail apparel stores which target value conscious men and women
between the ages of 25 and 54 in white collar, middle-to-upper middle
income households which the company believes to be the largest
customer segment in the retailing industry. The decisions of the
company, from merchandising, purchasing and pricing, to the location
of its stores, are aimed at this customer base. The company offers
its merchandise at low everyday prices, generally 20% to 60% below
regular prices of most department and specialty stores. The company
believes it derives a competitive advantage by offering a wide
assortment of quality brand-name merchandise within each of its
merchandise categories in an attractive easy-to-shop environment.
Ross Stores' mission is to offer competitive values to its target
customers by focusing on the following key strategic objectives:
Achieve an appropriate level of brands and labels at strong
discounts throughout the store;
Meet customer needs on a more regional basis;
Deliver an in-store shopping experience that reflects the
expectations of the off-price customer; and
Manage real estate growth to maintain dominance or achieve parity
with the competition in key markets.
The original Ross Stores, Inc. was incorporated in California in
1957. In August 1982, the company was purchased by some of its
current stockholders and restaffed with a new management team. The
six stores acquired at the time were completely refurbished in the
company's current off-price format and stocked with new merchandise.
In June 1989 the company reincorporated in the state of Delaware.
Merchandising, Purchasing and Pricing
Ross seeks to provide its target customers with a wide assortment
of first quality, in-season, name brand apparel, accessories and
footwear for the entire family at everyday savings of 20% to 60% from
regular department and specialty store prices, as well as similar
savings on fragrances, gift items for the home and bed and bath
merchandise and accessories. Although not a fashion leader, the
company sells recognizable branded merchandise that is current and
fashionable in each category. The company reviews its merchandise mix
each week, enabling it to respond to merchandise trends and purchasing
opportunities in the market. The company's merchandising strategy is
reflected in its advertising, which emphasizes its strong value
message -- Ross' customers get great savings on name brand merchandise
every day of the year.
Merchandising. The Ross merchandising strategy incorporates a
combination of in-season and past-season apparel, shoes and
accessories for the entire family, as well as fragrances and giftware
and linens for the home. The company's emphasis on brand names
reflects management's conviction that brand-name merchandise sold at
compelling discounts will continue to be an important determinant of
its success. Ross leaves the brand-name label on the merchandise it
sells.
The company has established a merchandise assortment which it
believes is attractive to its target customer group. Although Ross
offers fewer classifications of merchandise than most department
stores, the company generally offers a large selection of brand names
within each classification with a wide assortment of vendors, prices,
colors, styles and fabrics within each size. Over the past year, the
company has continued to diversify its merchandise offerings by adding
new product categories such as small sporting goods and exercise
equipment, small electronics, tabletop lamps, small furnishings,
educational toys and games. Other recent additions include luggage,
gourmet food and cookware. For fiscal 1996, the overall merchandise
sales mix was approximately 95% first quality merchandise and 5%
irregulars. The respective departments accounted for total sales in
1996 approximately as follows: Ladies 38%, Men's 22%,
3
Accessories, Hosiery and Lingerie 10%, Shoes 10%, Children's 9%, and
Fragrances, Home Accents and Bed and Bath 11%.
Purchasing. During the past three years, no single vendor has
accounted for more than 3% of the company's purchases. The company
continues to add new vendors and believes it has adequate sources of
first quality merchandise to meet its requirements. The company
purchases the vast majority of its merchandise directly from
manufacturers and has not experienced any difficulty in obtaining
sufficient inventory.
The company believes that its ability to effectively execute
certain off-price buying strategies is a key factor in its business.
Ross buyers use a number of methods that enable the company to offer
customers name brand merchandise at strong everyday discounts relative
to department and specialty stores. By purchasing later in the
merchandise buying cycle than department and specialty stores, Ross is
able to take advantage of imbalances of manufacturer-projected supply
of merchandise.
Ross, unlike most department and specialty stores, does not
require that manufacturers provide it with promotional and markdown
allowances, return privileges and delayed deliveries. In addition,
deliveries are made to one of the company's two distribution centers.
These flexible requirements further enable the company's buyers to
obtain significant discounts on in-season purchases.
The company has increased its emphasis in recent years on
opportunistic purchases created by manufacturer overruns and canceled
orders both during and at the end of a season. These buys are
referred to as "closeout" or "packaway" purchases. Closeouts can be
shipped to stores in season. Closeouts allow the company to get in
season goods in its stores at lower prices. Packaway merchandise is
purchased with the intent that it will be stored in the company's
warehouses until the beginning of the next selling season. Packaway
purchases are an effective method of increasing the percentage of
prestige and national brands at competitive savings within the
merchandise assortments. Packaway merchandise is mainly fashion
basics and therefore, not usually affected by seasonal shifts in
fashion trends.
Throughout the 1990s, Ross gradually increased the amount of
packaway inventories. More recently in 1996 and early 1997, the
company further increased these important resources in response to
compelling opportunities available in the marketplace. It is
management's belief that the stronger discounts the company is able to
offer on packaway merchandise are a key driver of Ross' business. As
a result, while in-store inventories at the end of fiscal 1996 were
about even on a comparable store basis to the prior year, total
consolidated inventories were up 26% due to the investment at year-end
in additional packaway goods and inventory for the new stores.
Ross' buying offices are located in New York City and Los
Angeles, the nation's two largest apparel markets. These strategic
locations allow buyers to be in the market on a daily basis, sourcing
opportunities and negotiating purchases with vendors and
manufacturers. These locations also enable the company's buyers to
strengthen vendor relationships -- a key determinant in the success of
its off-price buying strategies.
The company's buyers have an average of ten years of experience,
including experience with other retailers such as Bloomingdale's,
Burlington Coat Factory, Dayton Hudson, Lord & Taylor, Macy's,
Marshalls, TJ Maxx and Value City. In keeping with its strategy, over
the past five years, the company increased the size of its
merchandising staff by about 200%. Management believes that this
increase enables its merchants to spend even more time in the market
which, in turn, should strengthen the company's ability to procure the
most desirable brands at competitive discounts.
The combination of the above off-price buying strategies enables
the company to purchase merchandise at net prices which are lower than
prices paid by department and specialty stores.
Pricing. The company's policy is to sell brand name merchandise
which can generally be priced at 20% to 60% less than most department
and specialty store regular prices. The Ross pricing policy is to
affix
4
a ticket displaying the company's selling price as well as the
estimated comparable selling price of that item at department and
specialty stores.
The Ross pricing strategy differs from that of a department or
specialty store. Ross purchases its merchandise at lower prices and
marks it up less than a department or specialty store. This strategy
enables Ross to offer customers consistently low prices. Ticketed
prices are not increased and are reviewed weekly for possible
markdowns based on the rate of sales and the end of fashion seasons to
promote faster turnover of inventory and accelerate the flow of fresh
merchandise.
The Ross Store
As of February 1, 1997, the company operated 309 stores. They
are conveniently located in predominantly community and neighborhood
strip shopping centers in heavily populated urban and suburban areas.
Where the size of the market permits, the company clusters stores to
maximize economies of scale in advertising, distribution and
management. During 1996, the average Ross store employed
approximately 43 full- and part-time people.
The company believes a key element of its success is the
attractive, easy-to-shop environment in its stores which allows
customers to shop at their own pace. The Ross store is designed for
customer convenience in its merchandise presentation, dressing rooms,
checkout and merchandise return areas. The Ross store's sales area is
based on a prototype single floor design with a racetrack aisle
layout. A customer can locate desired departments by signs displayed
just below the ceiling of each department. Ross encourages its
customers to select among sizes and prices through prominent category
and sizing markers, promoting a self-service atmosphere. At most
stores, shopping carts are available at the entrance for customer
convenience. Checkout stations are located at store entrances for
customer ease and efficient employee assignment.
It is the company's policy to minimize transaction time for the
customer at the checkout counter by using electronic systems for
scanning each ticket at the point of sale and authorizing credit for
personal checks and credit cards in a matter of seconds.
Approximately 37% of payments are made with credit cards. Ross
provides cash or credit card refunds on all merchandise returned with
a receipt within 30 days.
Operating Costs
Consistent with the other aspects of its business strategy, Ross
strives to keep operating costs as low as possible. Among the factors
which have enabled the company to operate at low costs are:
Reduced in-store labor costs resulting from (i) a store design
that creates a self-selection retail format and (ii) the utilization
of labor saving technologies.
Economies of scale with respect to both general and
administrative costs as a result of centralized merchandising,
marketing and purchasing decisions.
Model store layout criteria which facilitate conversion of
existing buildings to the Ross format.
A fully-integrated, on-line management information system which
enables the company to respond quickly when making purchasing,
merchandising and pricing decisions.
Distribution
Each Ross store is serviced by the company's two distribution
centers located in Newark California (approximately 494,000 square
feet) and Carlisle, Pennsylvania (approximately 424,000 square feet).
Having a distribution center on each coast enhances cost efficiencies
per unit and decreases turn-around time in getting the merchandise
from the vendors to the stores. Shipments are made by contract
carriers to the stores about five times a week depending on location.
5
The company's new Distribution Center Information System was
successfully implemented in fiscal 1996. The company's objective is
to automate as many functions as possible thereby reducing paper flow
and its associated costs.
Control Systems
The company's management information system fully integrates data
from significant phases of its operations and is a key element in the
company's planning, purchasing, distribution and pricing decisions.
The system enables Ross to respond to changes in the retail market and
to increase speed and accuracy in its merchandise distribution.
Data from the current and last fiscal year can be monitored on
levels ranging from merchandise classification units to overall totals
for the company. Merchandise is tracked by the system from the
creation of its purchase order, through its receipt at the
distribution center, through the distribution planning process, and
ultimately to the point of sale.
In addition to its new Distribution Center Information System,
the company also successfully completed implementation of its new
store-based systems which are designed to speed up, simplify and
automate most transactions at the point of sale and the stores' back
offices.
Advertising
The company utilizes extensive advertising which emphasizes
quality, brand-name merchandise at low everyday prices. The company
predominantly uses television advertising. This reflects the
company's belief that overall television is the best medium for
presenting Ross' everyday low price message.
Trademarks
The trademark for Ross Dress For Less has been registered with
the United States Patent and Trademark Office.
Employees
On February 1, 1997, the company had 14,853 employees which
includes an estimated 9,420 part-time employees. Additionally, the
company hires temporary employees -- especially during the peak
seasons. The company's employees are non-union. Management of the
company considers the relationship between the company and its
employees to be excellent.
Competition
The company believes that the principal competitive factors in
the off-price retail apparel industry are offering large discounts on
name brand merchandise appealing to its target customer and
consistently providing a store environment that is convenient and easy
to shop. To execute this concept, the company
has strengthened its buying organization and is making buying
decisions based on regional and/or local factors as well as improving
cost efficiencies to leverage expenses and to mitigate competitive
pressures on gross margin. The company believes that it is well
positioned to compete on the basis of each of these factors.
Nevertheless, the national apparel retail market is highly
fragmented. Ross faces intense competition for business from
department stores, specialty stores, discount stores, other off-price
retailers and manufacturer-owned outlet stores, many of which are
units of large national or regional chains that have substantially
greater resources than Ross. The retail apparel business may become
even more competitive in the future.
6
Forward-Looking Statements and Factors Affecting Future Performance
This report includes a number of forward-looking statements which
reflect the company's current views with respect to future events and
financial performance, including statements in the Business and the
MD&A sections concerning the company's operations and competitive
strengths. In this report the words, "expect," "anticipate,"
"estimate," "believe" and similar expressions identify forward-looking
statements.
The company's continued success depends, in part, upon its
ability to increase sales at existing locations, to open new stores
and to operate stores on a profitable basis. There can be no
assurance that the company's existing strategies and store expansion
program will result in a continuation of revenue and profit growth.
Future economic and industry trends that could potentially impact
revenue and profitability remain difficult to predict.
As a result, the forward-looking statements that are contained
herein are subject to certain risks and uncertainties that could cause
the company's actual results to differ materially from historical
results or current expectations. These factors include, without
limitation, ongoing competitive pressures in the apparel industry,
obtaining acceptable store locations, a continuation or exacerbation
of the current over-capacity problem affecting the industry, or
changes in the level of consumer spending on or preferences in apparel
or home related merchandise. In addition, the company's corporate
headquarters, one distribution center and 46% of its stores are
located in California. Therefore, a downturn in the California
economy or a major natural disaster could significantly impact the
company's operating results and financial condition.
In addition to the above factors, the apparel industry is highly
seasonal. The combined sales of the company for the third and fourth
(holiday) fiscal quarters are higher than the combined sales for the
first two fiscal quarters. The company has realized a significant
portion of its profits in each fiscal year during the fourth quarter.
Intensified price competition, lower-than-anticipated consumer demand
or other seasonal factors, if they were to occur during the last six
months, and in particular during the fourth quarter, could adversely
affect the company's fiscal year results.
ITEM 2. PROPERTIES
Stores
From August 1982 to February 1, 1997, the company expanded from
six stores in California to 309 stores in 17 states: Arizona,
California, Colorado, Florida, Hawaii, Idaho, Maryland, Nevada, New
Jersey, New Mexico, Oklahoma, Oregon, Pennsylvania, Texas, Utah,
Virginia and Washington. All stores are leased, with the exception of
one.
During fiscal 1996, the company opened 21 new Ross `Dress For
Less' stores and closed 4 existing locations. The typical new Ross
store is approximately 28,480 square feet, yielding approximately
22,855 square feet of selling space. As of February 1, 1997, the
company's 309 stores generally ranged in size from about 24,000 to
30,000 gross square feet and had an average of 22,000 square feet of
selling space.
During the fiscal year ended February 1, 1997, no one store
accounted for more than approximately 1% of the company's sales. The
company carries earthquake insurance on its corporate headquarters,
both distribution centers and on its stores in California.
The company's real estate strategy is to open additional stores
mainly in existing market areas, to increase its market penetration
and reduce overhead and advertising expenses as a percentage of sales
in each market. Important considerations in evaluating a new market
are the availability of potential sites, demographic characteristics,
competition and population density of the market. In fiscal 1997 and
1998, the company plans to focus its new store growth in existing
markets and adjacent regions in existing states. In addition,
management continues to seek opportunistic real estate acquisitions.
A recent example of this type of opportunistic expansion strategy is
the company's recent acquisition of the leasehold rights to all of TJX
Companies stores in the state of Hawaii during 1996. With its two
previously existing Hawaii locations, Ross
7
now operates a total of seven stores in Hawaii, providing economies of
scale in distribution, supervision and advertising expenses.
Where possible, the company has obtained sites in existing
buildings requiring minimal alterations. This has allowed Ross to
establish stores in new locations in a relatively short period of time
at reasonable costs in a given market. To date, the company has been
able to secure leases in suitable locations for its stores. At
February 1, 1997, the majority of the company's stores had unexpired
original lease terms ranging from three to ten years with two to three
renewal options of five years each. The average unexpired original
lease term of its leased stores is six years, or 19 years if renewal
options are included. (See Note D to the Consolidated Financial
Statements.) Most of the company's store leases contain a provision
for percentage rental payments after a specified sales level has been
achieved.
Distribution Centers
The company has exercised its right to purchase its Newark,
California distribution center for $24.8 million. Completion of this
transaction is pending the landlord's appeal. The Newark facility is
also the company's corporate headquarters. The company also owns its
distribution center in Carlisle, Pennsylvania. In August 1996, the
company paid off that facility's outstanding mortgage value of $9.7
million.
The company's two distribution centers currently have processing
capacity to support store growth through 1999. This reflects the
company's recent investment in distribution systems along with the
potential to expand work shifts. Management currently is studying
alternatives to support long-term packaway and distribution
requirements.
ITEM 3. LEGAL PROCEEDINGS
The company is a party to routine litigation incident to its
business. Management believes that none of these legal proceedings
will have a material adverse effect on the company's consolidated
financial statements taken as a whole or results of operations of the
company. Some of the lawsuits to which the company is a party are
covered by insurance and are being defended by the company's insurance
carriers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
EXECUTIVE OFFICERS OF THE REGISTRANT
The following list sets forth the names and ages of all
executive officers of the company, indicating each person's
principal occupation or employment during the past five years.
The term of office is at the pleasure of the Board of Directors.
Name Age Position
Michael A. Balmuth 46 Vice Chairman and
Chief Executive Officer
Melvin A. Wilmore 51 Director, President and
Chief Operating Officer
James S. Fassio 42 Senior Vice President,
Property Development
Barry S. Gluck 44 Senior Vice President and
General Merchandising Manager
James S. Jacobs 52 Senior Vice President,
Store Operations
Irene Jamieson 46 Senior Vice President and
General Merchandising Manager
Stephen F. Joyce 55 Senior Vice President,
Human Resources
Barbara Levy 42 Senior Vice President and
General Merchandising Manager
_____________________
Mr. Balmuth joined the Board of Directors as Vice Chairman
and became Chief Executive Officer on September 1, 1996. Prior
to this he served as the company's Executive Vice President,
Merchandising since July 1993 and Senior Vice President and
General Merchandise Manager since November 1989. Before joining
Ross, he was Senior Vice President and General Merchandise
Manager at Bon Marche in Seattle from September 1988 through
November 1989. From April 1986 to September 1988, he served as
Executive Vice President and General Merchandise Manager for
Karen Austin Petites.
Mr. Wilmore has served as President, Chief Operating Officer
and a member of the Board of Directors since March 1993. Prior
to this, he served as Executive Vice President and Chief
Operating Officer since December 1991. From October 1989 to
December 1991, he was President and Chief Executive Officer of
Live Specialty Retail, a division of LIVE Entertainment, Inc.
From March 1988 to June 1989, he was President/General Partner of
Albert's Acquisition Corporation. From March 1987 to March 1988,
Mr. Wilmore was engaged in the acquisition of Albert's Hosiery
and Bodywear by Albert's Acquisition Corporation. From April
1984 to March 1987, he was the President and Chief Operating
Officer of Zale Jewelry Stores, a division of Zale Corporation.
Mr. Fassio has served as Senior Vice President, Property
Development since March 1991. He joined the company in June 1988
as Vice President of Real Estate. Prior to joining Ross, Mr.
Fassio was Vice President, Real Estate and Construction at
Craftmart and Property Director of Safeway Stores, Inc.
Mr. Gluck has served as Senior Vice President and General
Merchandise Manager since August 1993. He joined the company in
February 1989 as Vice President and Divisional Merchandise
Manager. Prior to joining Ross, Mr. Gluck served as General
Merchandise Manager, Vice President for Today's Man from May 1987
to February 1989.
Mr. Jacobs has served as Senior Vice President, Store
Operations since November 1988. From November 1986 to October
1988, he served as Regional Vice President, Director of Stores
for the J.W. Robinson's division of May Department Stores.
9
Ms. Jamieson became Senior Vice President and General
Merchandise Manager in January 1995. From December 1992 to
January 1995, she served as Vice President and Divisional
Merchandise Manager. Prior to joining Ross, Ms. Jamieson served
as Vice President and Divisional Merchandise Manager of the Home
Store for Lord & Taylor from September 1983 to December 1992.
Mr. Joyce has served as Senior Vice President, Human
Resources since July 1988. Before joining Ross, he was Vice
President, Human Resources at Denny's, Inc. since February 1983.
Ms. Levy has served as Senior Vice President and General
Merchandise Manager since May 1993. Prior to joining Ross, Ms.
Levy was with R. H. Macy & Co., Inc. most recently as Senior Vice
President and General Merchandise Manager from January 1992 to
April 1993 and before that as their Regional Director - Stores
from May 1989 to January 1992 and from August 1985 to May 1989 as
their Divisional Merchandise Manager - Better Sportswear.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
General Information. See the information set forth under
the caption "Quarterly Financial Data (Unaudited)" under Note J
to the Consolidated Financial Statements in Item 8 of this
document which is incorporated herein by reference. The
company's stock is traded on the Nasdaq National Market tier of
The Nasdaq Stock MarketSM under the symbol ROST. There were 828
stockholders of record as of April 4, 1997.
Stock Dividend. On January 30, 1997, the Board of Directors
authorized a two-for-one stock split in the form of a 100% stock
dividend. The dividend was paid on March 5, 1997 to stockholders
of record on February 11, 1997. Market prices, share and per
share numbers and values and dividends reported herein have been
adjusted to give retroactive effect to the stock dividend.
Cash Dividends. During fiscal 1994, 1995 and 1996, the
company paid a quarterly cash dividend of $0.025, $0.03 and
$0.035, respectively, per common share. On January 30, 1997, the
Board of Directors increased the quarterly dividend to $0.045 per
common share.
11
ITEM 6. SELECTED FINANCIAL DATA
($000, except per share data) 1996 1995 1994 1993 1992 1991
Operations
Sales $1,689,810 $1,426,397 $1,262,544 $1,122,033 $1,043,0622 $926,377
Cost of goods sold and
occupancy 1,194,136 1,031,455 920,265 814,745 742,749 656,504
Percent of sales 70.7% 72.3% 72.9% 72.6% 71.2% 70.9%
General, selling and
administrative 332,439 293,051 263,777 235,558 221,795 203,120
Percent of sales 19.7% 20.5% 20.9% 21.0% 21.3% 21.9%
Depreciation and
amortization 28,754 27,033 24,017 20,539 18,740 15,922
Interest (360) 2,737 3,528 2,318 3,071 5,395
Insurance proceeds (10,412)
Earnings before taxes 134,841 72,121 61,369 48,873 56,707 45,436
Percent of sales 8.0% 5.1% 4.9% 4.4% 5.4% 4.9%
Provision for taxes
on earnings 53,936 28,849 24,548 19,549 22,683 17,720
Net earnings 80,905 43,272 36,821 29,324 34,024 27,716
Percent of sales 4.8% 3.0% 2.9% 2.6% 3.3% 3.0%
Number of fully-diluted shares
at year-end (000) 51,397 50,112 49,446 51,582 52,498 50,992
Earnings per fully-diluted
common share $1.57 $.86 $.74 $.57 $.65 $.54
Cash dividends declared per
common share $.150 $.125 $.105 $.025
Fiscal 1995 is a 53-week year; all other fiscal years are 52 weeks.
All shares and per share information are adjusted to reflect the effect of
the two-for-one stock split effected in the form of a stock dividend on
March 5, 1997.
12
SELECTED FINANCIAL DATA
($000, except per share data) 1996 1995 1994 1993 1992 1991
Financial Position
Merchandise inventory $373,689 $295,965 $275,183 $228,929 $221,048 $185,041
Property and equipment, net 192,647 181,376 171,251 144,152 128,070 126,848
Total assets 659,478 541,152 506,241 437,371 419,870 357,690
Working capital 134,802 121,692 131,846 125,047 121,012 77,448
Current ratio 1.4:1 1.6:1 1.7:1 1.8:1 1.8:1 1.6:1
Total debt 0 9,806 46,069 33,308 33,525 40,723
Stockholders' equity 328,843 291,516 254,551 228,222 209,595 162,583
Book value per common share
outstanding at year-end $6.67 $5.92 $5.21 $4.62 $4.12 $3.32
Total debt as a percent of
total capitalization 0% 3% 15% 13% 14% 20%
Return on average
stockholders' equity 26% 16% 15% 13% 18% 19%
Operating Statistics
Number of stores opened 21 21 35 22 23 20
Number of stores closed 4 4 3 2 3 2
Number of stores at year-end 309 292 275 243 223 203
Comparable store sales
increase (decline)
(52-week basis) 13% 2% 2% (1%) 3% 2%
Sales per square foot of selling
space (52-week basis) $259 $230 $227 $222 $222 $214
Square feet of selling space
at year-end (000) 6,677 6,276 5,901 5,210 4,879 4,518
Number of employees at
year-end 14,853 11,935 10,516 8,949 8,156 7,397
Number of common
stockholders of record
at year-end 826 1,022 1,168 1,275 1,381 1,340
Fiscal 1995 is a 53-week year; all other fiscal years are 52 weeks.
All per share information is adjusted to reflect the effect of the
two-for-one stock split effected in the form of a stock dividend on
March 5, 1997.
Based on average annual selling square footage.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the fiscal years ended February 1, 1997, February 3, 1996 and
January 28, 1995 (referred to as 1996, 1995 and 1994). All share
and per share information has been adjusted to reflect the effect
of the company's two-for-one stock split effected in the form of
a 100% stock dividend on March 5, 1997.
Results of Operations
Stores. Total stores open at the end of 1996, 1995 and 1994
were 309, 292 and 275, respectively. During 1996, the company
opened 21 new stores and closed 4 stores. During 1995, the
company opened 21 new stores and closed 4 stores. During 1994,
the company opened 35 new stores and closed 3 stores.
Sales. Sales were $1.690 billion, $1.426 billion and $1.263
billion in 1996, 1995 and 1994, with each year consisting of 52,
53 and 52 weeks, respectively. Comparable store sales increased
13% for 1996, increased 2% for 1995 on a 52 week basis and
increased 2% for 1994. The increases in sales for 1996, 1995 and
1994 were due to an increase in comparable store sales and a
greater number of stores in operation (and the 53rd week in
1995). The company anticipates that the competitive climate for
apparel and off-price retailers will continue in 1997.
Management expects to address that challenge by continuing to
strengthen the merchandise organization, diversify the
merchandise mix and purchase goods more opportunistically.
Although the company's existing strategies and store expansion
program contributed to sales and earnings gains in 1996, 1995 and
1994, there can be no assurance that these strategies will result
in a continuation of revenue and profit growth.
Cost of Goods Sold and Occupancy. Cost of goods sold and
occupancy as a percentage of sales was 70.7%, 72.3% and 72.9% for
1996, 1995 and 1994, respectively. The reduction in the cost of
goods sold and occupancy ratio in 1996 resulted primarily from
the higher sales, lower markdowns as a percentage of sales, an
increase in the initial mark-up from purchasing more
opportunistically and leverage on occupancy costs. The reduction
in the cost of goods sold and occupancy ratio in 1995 resulted
primarily from increased levels of opportunistic and in-season
purchases which created better values for customers. There can be
no assurance that the improvement experienced in 1996 will
continue in future years.
General, Selling and Administrative Expenses. General,
selling and administrative expenses as a percentage of sales were
19.7%, 20.5% and 20.9% for 1996, 1995 and 1994, respectively.
During 1996, the ratio as a percentage of sales declined
primarily due to the leverage realized from the significant
increase in comparable store sales combined with continued strong
cost controls. As a result, even with the investments made in
expanding the merchandise organization over the years, expenses
as a percent of sales each year have decreased from the prior
year.
The largest component of general, selling and administrative
expenses is payroll. The total number of employees, including
both full and part-time, at year-end 1996, 1995 and 1994 was
approximately 14,900, 11,900 and 10,500, respectively.
Depreciation and Amortization. Depreciation and
amortization as a percentage of sales has remained relatively
constant over the last three years, due primarily to the
consistent level of assets in each store.
Interest. Due to lower borrowings in 1996, interest expense
decreased from 1995. The reduction in borrowings in 1996 was due
to higher earnings levels, higher cash flows from issuances under
stock plans and improved inventory turnover, which more than
offset expenditures for the repurchase of common stock, capital
investments and an overall increase in inventory. Similarly,
lower borrowings in 1995 resulted in a decrease in interest
expense from 1994. The reduction in borrowings in 1995 was due
in part to improved inventory turnover which more than offset
expenditures for the repurchase of common stock and capital
investments.
Insurance Proceeds. In March 1994, a section of the roof at
the company's distribution center in Carlisle, Pennsylvania
collapsed due to unusually heavy snow accumulation. The
distribution center in Newark, California was utilized to support
the flow of goods to the stores until July 1994, when the east
coast
14
distribution center began operating at normal capacity again. In
October 1994, the company entered into a settlement agreement
with its insurance carrier for claims related to the impact on
business that resulted from the roof collapse. This settlement
included proceeds of $10.4 million for business interruption.
Taxes on Earnings. The company's effective rate for 1996,
1995 and 1994 was 40%, which represents the applicable statutory
rates reduced by the federal benefit received for state taxes.
Financial Condition
Liquidity and Capital Resources. During 1996, 1995 and
1994, liquidity and capital requirements were provided by cash
flows from operations, bank borrowings and trade credit. The
company's store sites, central office, as well as the buying
offices, are leased and except for certain leasehold improvements
and equipment, do not represent long-term capital investments.
Commitments related to operating leases are described in Note D
to the Consolidated Financial Statements. The company's east
coast distribution center is now owned outright by the company as
the mortgage was paid off in full on August 30, 1996. The
company has exercised its right to purchase its Newark,
California distribution center and corporate headquarters for
$24.8 million. Completion of this transaction is pending the
landlord's appeal. Short-term trade credit represents a
significant source of financing for investments in merchandise
inventory. Trade credit arises from customary trade practices
with the company's vendors. Management regularly reviews the
adequacy of credit available to the company from all sources and
has been able to maintain adequate lines to meet the capital and
liquidity requirements of the company.
During 1996, the primary uses of cash, other than for
operating expenditures, were for merchandise inventory and
property and equipment to open 21 new stores, a planned increase
in packaway inventory, the remodeling of seven stores, the
repurchase in the open market of 4.5 million shares of the
company's common stock, and quarterly dividend payments. During
1995, the primary uses of cash, other than for operating
expenditures, were for merchandise inventory and property and
equipment to open 21 new stores, the remodeling of eight stores,
the repurchase in the open market of 1.5 million shares of the
company's common stock, and quarterly dividend payments. During
1994, the primary uses of cash, other than for operating
expenditures, were for merchandise inventory and property and
equipment to open 35 new stores, the remodeling of 32 stores, a
planned increase in packaway merchandise, the repurchase in the
open market of 1.6 million shares of the company's common stock,
the acquisition of lease rights for eight new stores, and
quarterly dividend payments. In 1996, 1995 and 1994, the company
spent approximately $37 million, $42 million and $52 million,
respectively, for capital expenditures, net of leased equipment,
that included fixtures and leasehold improvements to open 21, 21
and 35 stores, respectively, remodeling costs for seven, eight
and 32 stores, respectively, modifications to the New York buying
office, purchase of previously leased equipment and various
expenditures for existing stores and the central office. Also in
1996, 1995 and 1994, the company spent approximately $80.4
million, $12.1 million and $12.9 million, respectively, for
repurchases of the company's common stock in the open market.
The company currently anticipates opening 15 to 25 stores
annually through 1998. The company anticipates that this growth
will be financed primarily from cash flows from operating
activities and available credit facilities.
The company's Board of Directors declared quarterly
dividends of $.03 per common share in January, May, August and
November 1995, and $.035 per common share in January, May, August
and November 1996. In January 1997, a 29% increase in the
quarterly dividend payment to $.045 per common share was declared
by the Board of Directors, payable on or about April 7, 1997.
The company uses cash flows from operating activities and
available cash resources to provide for dividends.
In February 1996, the company announced that its Board of
Directors authorized an expansion in the company's stock
repurchase program. The company repurchased a total of 4.5
million shares in 1996. The buyback of an additional three
million shares has been authorized for 1997. The company
anticipates funding this program through cash flows from
operating activities and available credit facilities.
The company has available under its principal bank credit
agreement a $110 million revolving credit facility, which expires
in July 1998 and short-term credit facilities at February 1, 1997
totaling $35 million. These facilities are available until
canceled by either party. At year-end 1996, 1995 and 1994, there were no
15
outstanding balances under any credit facility. In June 1994,
the company signed a revolving term loan credit agreement with a
bank due July 2001 for $60 million. The company had no
outstanding balance on this term loan at year-end 1996. For
additional information relating to these obligations, refer to
Note C to the Consolidated Financial Statements.
Working capital was $135 million at the end of 1996,
compared to $122 million at the end of 1995 and $132 million at
the end of 1994. At year-end 1996, 1995 and 1994, the company's
current ratios were 1.4:1, 1.6:1 and 1.7:1, respectively. The
percentage of long-term debt to total capitalization at year-end
1996, 1995 and 1994 was 0%, 3% and 15%, respectively.
The company's primary source of liquidity is the sale of its
merchandise inventory. Management regularly reviews the age and
condition of the merchandise and is able to maintain current
inventory in its stores through the replenishment processes and
liquidation of non-current merchandise through markdowns and
clearances.
The company realized stronger cash flows in 1996 and 1995
due to increased earnings, tighter inventory controls with
improved inventory turnover and increased cash generated by the
issuance of common stock related to stock plans. These resources
enabled the company to pay down all bank borrowings at each year-
end.
The company estimates that cash flows from operations, bank
credit lines and trade credit are adequate to meet operating cash
needs as well as to provide for the three million share stock
repurchase, dividend payments and planned capital additions
during the upcoming year.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CONSOLIDATED BALANCE SHEETS
February 1, February 3,
($000, except per share data) 1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $44,777 $23,426
Accounts receivable 7,832 7,598
Merchandise inventory 373,689 295,965
Prepaid expenses and other 13,289 13,474
_______ _______
Total Current Assets 439,587 340,463
PROPERTY AND EQUIPMENT
Land and buildings 24,115 24,102
Fixtures and equipment 164,980 156,811
Leasehold improvements 135,810 123,829
Construction-in-progress 23,798 16,808
_______ _______
348,703 321,550
Less accumulated depreciation and amortization 156,056 140,174
_______ _______
192,647 181,376
Deferred income taxes and other assets 27,244 19,313
______ ______
Total Assets $659,478 $541,152
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $184,101 $137,653
Accrued expenses and other 61,761 42,944
Accrued payroll and benefits 36,356 27,619
Income taxes payable 22,567 10,555
_______ _______
Total Current Liabilities 304,785 218,771
Long-term debt 9,806
Deferred income taxes and other liabilities 25,850 21,059
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share
Authorized 100,000,000 shares
Issued and outstanding 49,332,000 and
49,202,000 shares 493 492
Additional paid-in capital 164,166 133,163
Retained earnings 164,184 157,861
_______ _______
328,843 291,516
_______ _______
Total Liabilities and Stockholders' Equity $659,478 $541,152
See notes to consolidated financial statements.
17
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended Year Ended Year Ended
February 1, February 3, January 28,
($000, except share data) 1997 1996 1995
SALES $1,689,810 $1,426,397 $1,262,544
COSTS AND EXPENSES
Cost of goods sold and occupancy 1,194,136 1,031,455 920,265
General, selling and administrative 332,439 293,051 263,777
Depreciation and amortization 28,754 27,033 24,017
Interest expense (income) (360) 2,737 3,528
Insurance proceeds (10,412)
_________ _________ __________
1,554,969 1,354,276 1,201,175
_________ _________ _________
Earnings before taxes 134,841 72,121 61,369
Provision for taxes on earnings 53,936 28,849 24,548
_________ ________ ________
Net earnings $80,905 $43,272 $36,821
_________ _________ ________
EARNINGS PER SHARE
Primary $1.58 $.87 $.75
Fully-diluted $1.57 $.86 $.74
WEIGHTED AVERAGE SHARES OUTSTANDING (000)
Primary 51,311 49,504 49,414
Fully-diluted 51,397 50,112 49,446
Fiscal 1995 is a 53-week year; all other years are 52 weeks.
See notes to consolidated financial statements.
18
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-In Retained
(000) Shares Amount Capital Earnings Total
BALANCE AT JANUARY 29, 1994 49,390 $494 $121,826 $105,902 $228,222
Common stock issued under stock
plans, including tax benefit 1,116 10 7,495 7,505
Stock repurchased (1,640) (16) (4,114) (8,725) (12,855)
Net earnings 36,821 36,821
Dividends declared (5,142) (5,142)
______ ___ _______ _______ _______
BALANCE AT JANUARY 28, 1995 48,866 488 125,207 128,856 254,551
Common stock issued under stock
plans, including tax benefit 1,848 18 11,954 11,972
Stock repurchased (1,512) (14) (3,998) (8,128) (12,140)
Net earnings 43,272 43,272
Dividends declared (6,139) (6,139)
______ ___ _______ _______ _______
BALANCE AT FEBRUARY 3, 1996 49,202 492 133,163 157,861 291,516
Common stock issued under stock
plans, including tax benefit 4,617 46 44,301 44,347
Stock repurchased (4,487) (45) (13,298) (67,087) (80,430)
Net earnings 80,905 80,905
Dividends declared (7,495) (7,495)
______ ____ ________ _______ ________
BALANCE AT FEBRUARY 1, 1997 49,332 $493 $164,166 $164,184 $328,843
See notes to consolidated financial statements.
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
February 1, February 3, January 28,
($000) 1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $80,905 $43,272 $36,821
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of property and
equipment 28,754 27,033 24,017
Other amortization 6,613 4,982 4,995
Deferred income taxes (7,366) (2,898) 923
Change in assets and liabilities:
Merchandise inventory (77,724) (20,782) (46,254)
Other current assets - net (49) (4,380) 2,543
Accounts payable 45,964 27,813 19,787
Other current liabilities - net 39,566 7,976 7,261
Other 437 4,968 (4,877)
_______ _______ _______
Net cash provided by operating activities 117,100 87,984 45,216
_______ _______ _______
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (37,105) (41,706) (52,055)
________ ________ ________
Net cash used in investing activities (37,105) (41,706) (52,055)
________ ________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayment) of long-term debt (9,905) (36,349) 12,666
Issuance of common stock related to stock plans 38,703 7,946 3,202
Repurchase of common stock (80,430) (12,140) (12,855)
Dividends paid (7,012) (5,890) (4,900)
________ ________ ________
Net cash (used in) financing activities (58,644) (46,433) (1,887)
________ ________ ________
Net increase (decrease) in cash and cash equivalents 21,351 (155) (8,726)
Cash and cash equivalents:
Beginning of year 23,426 23,581 32,307
______ ______ ______
End of year $44,777 $23,426 $23,581
Fiscal 1995 is a 53-week year; all other years are 52 weeks.
See notes to consolidated financial statements.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal years ended February 1, 1997, February 3,
1996 and January 28, 1995 (referred to as 1996, 1995 and 1994).
Note A: Summary of Significant Accounting Policies
Business. The company is an off-price retailer of first
quality, in-season, branded apparel, shoes, gift items for the
home, bed and bath items, and accessories for the entire family.
At February 1, 1997, the company operated 309 stores. The
company's headquarters, one distribution center and 45% of its
stores are located in California.
Principles of Consolidation. The consolidated financial
statements include the accounts of all subsidiaries. Intercompany
transactions and accounts have been eliminated. Certain
reclassifications have been made in the 1994 and 1995 financial
statements to conform to the 1996 presentations. The 1995 year
consisted of 53 weeks while 1996 and 1994 each had 52 weeks.
Stock Dividend. All share and per share information have
been adjusted to reflect the effect of the company's two-for-one
stock split effected in the form of a 100% stock dividend on
March 5, 1997.
Accounting Estimates. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Cash Equivalents. Cash equivalents are highly liquid, fixed
income instruments purchased with a maturity of three months or
less.
Merchandise Inventory. Merchandise inventory is stated at
the lower of cost or market determined under the unit cost
method.
Deferred Store Opening Expenses. Pre-opening expenses are
deferred until the store's grand opening date, at which time the
deferred costs are expensed.
Advertising. Advertising costs are expensed when incurred.
In 1996, 1995 and 1994, advertising expenses were $39 million,
$37 million and $37 million, respectively.
Deferred Rent. Many of the company's leases signed since
1988 contain fixed escalations of the minimum annual lease
payments during the original term of the lease. For these
leases, the company recognizes rental expense on a straight-line
basis and records the difference between the average rental
amount charged to expense and the amount payable under the lease
as deferred rent. At the end of 1996 and 1995, the balance of
deferred rent was $9.7 million and $8.9 million, respectively,
and is included in other long-term liabilities.
Intangible Assets. Included in other assets are lease
rights and interests, consisting of payments made to acquire
store leases, which are amortized over the remaining applicable
life of the lease. Also included in other assets is the excess
of cost over the acquired net assets, which is amortized on a
straight-line basis over a period of 40 years.
Property and Equipment. Property and equipment are stated
at cost. Depreciation is calculated using the straight-line
method over the estimated useful life of the asset, typically
ranging from five to twelve years for equipment and 20 to 40
years for real property. The cost of leasehold improvements is
amortized over the useful life of the asset or the applicable
lease term, whichever is less. Computer hardware and software
costs are included in fixtures and equipment and are amortized
over their useful life of five years.
21
Estimated Fair Value of Financial Instruments. The carrying
value of cash and cash equivalents, accounts receivable, accounts
payable and long-term debt approximates their estimated fair
value.
Stock-Based Compensation. The company accounts for stock-
based awards to employees using the intrinsic value method in
accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees.
Impact of New Accounting Standards. Effective February 3,
1996, the company adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of, (SFAS 121), which
requires that long-lived assets, including identifiable
intangible assets, used by an entity be reviewed for impairment
whenever events or changes indicate that the carrying amount of
that asset may not be recoverable. Based upon the company's
review as of February 1, 1997 and February 3, 1996, no
adjustments were required to the carrying value of such assets.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, (SFAS
128), Earnings per Share (EPS). SFAS 128 requires dual
presentation of basic EPS and diluted EPS on the face of all
income statements issued after December 15, 1997 for all entities
with complex capital structures. Basic EPS is computed as net
income divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through
stock options, warrants and other convertible securities. The
pro forma effect assuming adoption of SFAS 128 at the beginning
of each period is presented below.
1996 1995 1994
Pro forma EPS:
Basic $1.62 $.88 $.75
Diluted $1.58 $.87 $.75
Taxes on Earnings. Income taxes are accounted for under an
asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the company's
financial statements or tax returns. In estimating future tax
consequences, the company generally considers all expected future
events other than changes in the tax law or rates.
Earnings Per Share. Earnings per share are based on primary
and fully-diluted weighted average common shares and common stock
equivalents outstanding during the year, as calculated under the
treasury stock method. The company's common stock equivalents
consist of outstanding stock options.
Note B: Statements of Cash Flows Supplemental Disclosures
Total cash paid for interest and taxes is as follows:
($000) 1996 1995 1994
Interest $831 $3,421 $3,828
Income taxes $42,590 $24,239 $24,614
22
Note C: Long-Term Debt
Long-term debt at year-end consists of the following:
($000) 1996 1995
Mortgage $ 0 $9,806
___ ______
$ 0 $9,806
The weighted average interest rates on borrowings during 1996,
1995 and 1994 were 8.3%, 7.1% and 7.1%, respectively. The
increase in 1996 over 1995 reflects the 9.5% interest rate on the
mortgage debt on the east coast distribution center and the lower
level of borrowings during the year which resulted in the
mortgage debt becoming a larger percent of the average debt
during the year.
Mortgage. On August 8, 1991, the company obtained a $10.8
million mortgage at 9.5% interest, collateralized by the land and
building of its east coast distribution center, with interest and
principal based on a 20-year amortization period. On August 30,
1996, the company paid in full the outstanding balance on the
mortgage loan. The outstanding principal and accrued interest
paid was $9.7 million.
Term Loan. On June 22, 1994, and amended on June 20, 1995
and June 12, 1996, the company signed a term loan credit
agreement with a bank due July 2001 for $60 million. Capital
repayment is not required until the end of the loan period, July
1, 2001, and no amounts were outstanding as of year-end 1996.
The interest rate is based on the London Interbank Offered Rate
(LIBOR).
Bank Credit Facilities. The company has available under its
principal credit agreement a $110 million revolving credit
facility which expires in July 1998. The credit facility is also
available for the issuance of letters of credit. Interest is
payable monthly under several pricing options, including the
bank's prime rate. At year-end 1996 and 1995, the company had
$12.2 million and $13.3 million, respectively, in outstanding
letters of credit. Borrowing under the credit facility is
subject to the company maintaining certain levels of tangible net
worth, fixed charge coverage and leverage ratios. As of February
1, 1997, the company is in compliance with these bank covenants.
In addition, the company has $35 million in short-term bank
lines of credit which are available until canceled by either
party. When utilized, interest is payable upon maturity under
several pricing options.
Included in accounts payable are checks outstanding in
excess of cash balances of approximately $35.4 million and $20.3
million at year-end 1996 and 1995, respectively. The company can
utilize its revolving line of credit to cover payment of these
checks as they clear the bank.
Note D: Leases
The company leases its distribution center and corporate
office located in Newark, California under a 15-year,
noncancelable lease agreement expiring 2002. The lease contains
six renewal options of five years each. The company has
exercised its right to purchase its Newark, California
distribution center and corporate headquarters for $24.8 million.
Completion of this transaction is pending the landlord's appeal.
In addition, the company leases its store sites, selected
computer and related equipment, and distribution center equipment
under operating leases with original, noncancelable terms that in
general range from three to fifteen years, expiring through 2012.
Store leases typically contain provisions for two to three
renewal options of five years each. Most store leases also
provide for minimum annual rentals, with provisions for
additional rent based on percentage of sales and for payment of
certain expenses.
23
The aggregate future minimum annual lease payments under leases
in effect at year-end 1996 are as follows:
($000) Amounts
1997 $99,778
1998 95,840
1999 89,828
2000 74,004
2001 62,517
Later years 180,048
________
Total $602,015
Total rent expense for all operating leases is as follows:
($000) 1996 1995 1994
Minimum rentals $91,746 $84,340 $76,593
Note E: Taxes on Earnings
The provision for taxes consists of the following:
($000) 1996 1995 1994
CURRENTLY PAYABLE
Federal $49,628 $25,746 $18,987
State 11,674 6,001 4,638
______ ______ ______
61,302 31,747 23,625
DEFERRED
Federal (6,385) (2,715) 565
State (981) (183) 358
_______ _______ ___
(7,366) (2,898) 923
_______ _______ _______
Total $53,936 $28,849 $24,548
In 1996, 1995 and 1994, the company realized tax benefits of
$6.3 million, $1.7 million and $0.7 million, respectively,
related to stock options exercised and the vesting of restricted
stock which were credited to additional paid-in capital.
24
The provisions for taxes for financial reporting purposes are
different from the tax provision computed by applying the
statutory federal income tax rate. The differences are
reconciled as follows:
1996 1995 1994
Federal income taxes at the statutory rate 35% 35% 35%
Increased income taxe resulting from
state income taxes, net of federal benefit 5% 5% 5%
___ ___ ___
40% 40% 40%
The components of the net deferred tax liability at year-end are
as follows:
($000) 1996 1995
DEFERRED TAX ASSETS
California franchise taxes $2,031 $1,055
Straight-line rent 4,135 3,782
Deferred compensation 5,986 4,273
Reserve for uninsured losses 1,323 1,370
Employee benefits 6,011 4,902
All other 3,234 1,602
______ ______
22,720 16,984
DEFERRED TAX LIABILITIES
Depreciation (14,789) (14,046)
Prepaid expenses (2,794) (5,250)
Supplies (1,535) (1,465)
Other (39) (26)
________ ________
(19,157) (20,787)
________ ________
NET DEFERRED TAX
ASSETS (LIABILITIES) $3,563 ($3,803)
Note F: Insurance Proceeds
In March 1994, a section of the roof at the company's
distribution center in Carlisle, Pennsylvania collapsed due to
unusually heavy snow accumulation. In October 1994, the company
entered into a settlement agreement with its insurance carrier
for claims related to the impact on business that resulted from
the roof collapse. This settlement included proceeds of $10.4
million for business interruption.
Note G: Employee Benefit Plans
The company has available to certain employees a profit
sharing retirement plan. Under the plan, employee and company
contributions and accumulated plan earnings qualify for favorable
tax treatment under Section 401(k) of the Internal Revenue Code.
In 1987, the company adopted an Incentive Compensation Program,
which provides cash awards to key management employees based on
the company's and the individual's performance. In 1991, the
company began offering an Executive
25
Supplemental Retirement Plan, which allows eligible employees to
purchase individual life insurance policies and/or annuity
contracts. In 1993, the company made available to management a
Nonqualified Deferred Compensation Plan which allows management
to contribute on a pre-tax basis in addition to the 401(k) Plan.
This plan does not qualify under Section 401(k) of the Internal
Revenue Code.
Note H: Stockholders' Equity
Preferred Stock. The company has four million shares of
preferred stock authorized, with a par value of $.01 per share.
No preferred stock has been issued or outstanding during the past
three years.
Common Stock. The company's Board of Directors has approved
repurchase programs over the past several years that resulted in
the buyback of 1,640,000 shares at an average price of $7.84 in
1994, 1,511,000 shares at an average price of $8.03 in 1995, and
4,489,000 shares at an average price of $17.93 in 1996. In
February 1997, the company's Board of Directors authorized an
expansion and continuation of these repurchase programs for an
additional 3,000,000 shares of the company's common stock.
Dividends. The company's Board of Directors declared
dividends of $.03 per common share in January, May, August and
November 1995; $.035 per common share in January, May, August and
November 1996; and $.045 per common share in January 1997.
Stock-Based Compensation Plans. At February 1, 1997, the
company had four stock-based compensation plans which are
described below. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, (SFAS
123), which establishes a fair value method of accounting for
stock options and other equity instruments. Had compensation
cost for these stock option and stock purchase plans been
determined based on the fair value at the grant dates for awards
under those plans consistent with the methods of SFAS 123, the
company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
($000, except per share data) 1996 1995
Net Income As reported $80,905 $43,272
Pro forma $79,011 $42,480
Primary earnings per share As reported $1.58 $0.87
Pro forma $1.54 $0.86
Fully-diluted earnings per share As reported $1.57 $0.86
Pro forma $1.54 $0.85
The impact of outstanding non-vested stock options granted prior
to 1995 has been excluded from the pro forma calculation;
accordingly, the 1995 and 1996 pro forma adjustments are not
indicative of future period pro forma adjustments, when the
calculation will apply to all applicable stock options.
1992 Stock Option Plan. The company's 1992 Stock Option
Plan allows for the granting of incentive and non-qualified stock
options. Stock options are to be granted at prices not less than
the fair market value of the common shares on the date the option
is granted, expire ten years from the date of grant, and normally
vest over a period not exceeding four years from the date of
grant. Options under the plan are exercisable upon grant,
subject to the company's conditional right to repurchase unvested
shares.
Outside Directors Stock Option Plan. The company's Outside
Directors Stock Option Plan provides for the automatic grant of
stock options at pre-established times and for fixed numbers of
shares to each non-employee director. Stock options are to be
granted at exercise prices not less than the fair market value of
the common shares on the date the option is granted, expire ten
years from the date of grant, and normally vest over a period not
exceeding three years from the date of the grant.
26
A summary of the activity under the company's two option
plans for 1994, 1995 and 1996 is presented below:
Weighted-
Average
Number of Exercise
(000) Shares Price
Outstanding and exercisable at
January 29, 1994 4,766 $ 7.11
Granted 1,490 $ 7.79
Exercised (363) $ 4.25
Forfeited (183) $ 8.90
Outstanding and exercisable at
January 28, 1995 5,710 $ 7.41
Granted 1,534 $ 6.19
Exercised (967) $ 4.84
Forfeited (278) $ 7.87
Outstanding and exercisable at
February 3, 1996 5,999 $ 7.49
Granted 1,286 $15.07
Exercised (3,904) $ 7.95
Forfeited (148) $ 9.01
Outstanding and exercisable at
February 1, 1997 3,233 $ 9.89
At year-end 1994, 1995 and 1996, there were 2.2 million, 3.3
million and 2.3. million shares, respectively, available for
future issuance under these plans.
The weighted average fair values per share of options granted
during 1995 and 1996 were $1.89 and $4.72, respectively. For
determining pro forma earnings per share, the fair values for
each option granted were estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions
for 1995 and 1996, respectively: (i) dividend yield of 1.1% and
0.8%, (ii) expected volatility of 43.2% and 43.8%, (iii) risk-
free interest rate of 6.7% and 5.9%, and (iv) expected life of
3.3 years and 3.4 years. The company's calculations are based on
a multiple option approach, and forfeitures are recognized as
they occur.
27
The following table summarizes information about stock options
outstanding and exercisable at February 1, 1997:
Weighted Average
Number of Remaining
Range of Exercise Shares Contractual Exercise
Prices (000) Life Price
$2.88 to $4.31 234 3.94 $4.24
$4.94 to $5.88 827 8.12 5.85
$5.94 to $7.94 592 7.37 7.38
$8.00 to $13.44 462 7.16 9.95
$13.56 to $13.56 823 9.13 13.56
$13.63 to $26.19 295 9.65 20.43
_____ ____ _____
Totals 3,233 7.94 $9.89
===== ==== =====
Employee Stock Purchase Plan. Under the Employee Stock
Purchase Plan, eligible full-time employees can choose to have up
to 10% of their annual base earnings withheld to purchase the
company's common stock. The purchase price of the stock is 85%
of the lower of the beginning of the offering period or end of
the offering period market price. During 1996, 1995 and 1994,
employees purchased approximately 155,000, 261,000 and 232,000
shares, respectively, of the company's common stock under the
plan at weighted average per share prices of $17.78, $8.96 and
$4.78, respectively. The weighted average fair values of the
1995 and 1996 awards were $3.02 and $6.72 per share,
respectively. Through February 1, 1997, approximately 1,438,000
shares had been issued under this plan and 562,000 shares
remained available for future issuance.
For determining pro forma earnings per share, the fair value
of the employees' purchase rights was estimated using the Black-
Scholes option pricing model using the following assumptions for
1995 and 1996, respectively: (i) dividend yield of 1.7% and
0.8%, (ii) expected volatility of 34.8% and 48.1%, (iii) risk-
free interest rate of 5.9% and 5.5%, and (iv) expected life of
1.0 year and 1.0 year.
Restricted Stock Plan. The company's Restricted Stock Plan
provides for stock awards to officers and certain key employees.
All awards under the plan entitle the participant to full
dividend and voting rights. Unvested shares are restricted as to
disposition and subject to forfeiture under certain
circumstances. Upon issuance of restricted shares, unearned
compensation is charged to stockholders' equity for the cost of
restricted stock and recognized as amortization expense ratably
over the vesting period of generally two to five years. At year-
end 1996, 1995 and 1994, the unamortized compensation expense was
$7.1 million, $4.1 million and $4.7 million, respectively. A
summary of restricted stock award activity follows:
Restricted Stock Plan (000) 1996 1995 1994
Shares available for grant beginning of year 1,431 451 990
New shares authorized 2,000 1,600
Restricted shares granted (559) (666) (556)
Restricted shares forfeited 46 17
----- ----- ---
Awards available for grant at end of year 2,872 1,431 451
Weighted average market value per share
on grant date $15.46 $6.31 $7.93
28
Note I: Legal Proceedings
The company is party to various legal proceedings arising
from normal business activities. In the opinion of management,
resolution of these matters will not have a material adverse
effect on the company's consolidated financial statements taken
as a whole.
Note J: Quarterly Financial Data (Unaudited)
13 Weeks 13 Weeks 13 Weeks 13 Weeks 52 Weeks
Ended Ended Ended Ended Ended
($000, except per share May 4, August 3, November 2, February 1, February 1,
data) 1996 1996 1996 1997 1997
Sales $370,948 $405,656 $403,383 $509,823 $1,689,810
Gross margin, after
occupancy 106,890 120,038 119,586 149,160 495,674
Net earnings 13,936 18,649 16,354 31,966 80,905
Net earnings per fully-
diluted share .27 .36 .32 .63 1.57
Dividends declared per
share on common stock .035 .035 .08 .150
Closing stock price
High 17 7/16 20 13/16 21 5/16 26 3/16 26 3/16
Low 9 15/16 14 1/2 16 111/128 20 7/16 9 15/16
All per share information is adjusted to reflect the effect of the
two-for-one stock split effected in the form of a stock dividend on
March 5, 1997.
Includes $.035 per share dividend declared November 1996 and $.045
per share dividend declared January 1997.
Includes $.030 per share dividend declared November 1995 and $.035 dividend
declared in January 1996.
Ross Stores, Inc. common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market (SM) under the symbol ROST.
13 Weeks 13 Weeks 13 Weeks 14 Weeks 53 Weeks
Ended Ended Ended Ended Ended
($000, except per share April 29, July 29, October 28, February 3, February 3,
data) 1995 1995 1995 1996 1996
Sales $297,434 $351,202 $330,682 $447,079 $1,426,397
Gross margin, after
occupancy 78,815 96,972 93,127 126,028 394,942
Net earnings 3,868 10,336 7,909 21,159 43,272
Net earnings per fully-
diluted share .08 .21 .16 .42 .86
Dividends declared per
share on common stock .030 .030 .065 .125
Closing stock price
High 6 1/8 6 5/16 8 15/32 10 3/8 10 3/8
Low 4 13/16 4 29/32 5 127/128 9 1/8 4 13/16
All per share information is adjusted to reflect the effect of the
two-for-one stock split effected in the form of a stock dividend on
March 5, 1997.
Includes $.035 per share dividend declared November 1996 and $.045
per share dividend declared January 1997.
Includes $.030 per share dividend declared November 1995 and $.035
per share dividend declared in January 1996.
Ross Stores, Inc. common stock trades on the Nasdaq National Market
tier of The Nasdaq Stock Market(SM) under the symbol ROST.
29
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Ross Stores, Inc.
Newark, California
We have audited the accompanying consolidated balance sheets
of Ross Stores, Inc. and subsidiaries (the "Company") as of
February 1, 1997 and February 3, 1996, and the related
consolidated statements of earnings, stockholders' equity, and
cash flows for each of the three years in the period ended
February 1, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position
of the Company as of February 1, 1997 and February 3, 1996, and
the results of its operations and its cash flows for each of the
three years in the period ended February 1, 1997 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Francisco, California
March 7, 1997
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated herein by
reference to the sections entitled (i) "Executive Officers of the
Registrant" at the end of Part I of this report; (ii)
"Information Regarding Nominees and Incumbent Directors" of the
Ross Stores, Inc. Proxy Statement for the Annual Meeting of
Stockholders to be held on Wednesday, July 16, 1997 (the "Proxy
Statement"); and (iii) "Compliance With Section 16(a) of the
Exchange Act" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein
by reference to the sections of the Proxy Statement entitled (i)
"Compensation Committee Interlocks and Insider Participation";
(ii) "Compensation of Directors"; (iii) "Employment Contracts,
Termination of Employment and Change-in-Control Arrangements";
and (iv) the following tables, and their footnotes, Summary
Compensation, Option Grants in Last Fiscal Year and Aggregated
Option Exercises and Year-End Value.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein
by reference to the section of the Proxy Statement entitled
"Stock Ownership of Certain Beneficial Owners and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein
by reference to the sections of the Proxy Statement entitled (i)
"Compensation of Directors" and (ii) "Certain Transactions".
PART IV
31
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following financial statements, schedules and
exhibits are filed as part of this report or are
incorporated herein as indicated:
1. List of Financial Statements.
The following consolidated financial statements included
herein as Item 8:
Consolidated Balance Sheets at February 1, 1997 and
February 3, 1996.
Consolidated Statements of Earnings for the years
ended February 1, 1997, February 3, 1996 and
January 28, 1995.
Consolidated Statements of Stockholders' Equity
for the years ended February 1, 1997, February 3,
1996 and January 28, 1995.
Consolidated Statements of Cash Flows for the
years ended February 1, 1997, February 3, 1996 and
January 28, 1995.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. List of Financial Statement Schedules.
Schedules are omitted because they are not
required, not applicable, or shown in the financial
statements or notes thereto which are contained in
this Report.
3. List of Exhibits (in accordance with Item 601
of Regulation S-K).
Incorporated herein by reference to the list
of Exhibits contained in the Exhibit Index which
begins on page 33 of this Report.
(b) Reports on Form 8-K.
None.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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: April 30, 1997 By: /s/Michael Balmuth
Michael Balmuth
Vice Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/Michael Balmuth Vice Chairman and April 30, 1997
Michael Balmuth Chief Executive Officer
/s/M. Wilmore President, Chief Operating April 30, 1997
Melvin A. Wilmore Officer, Principal
Financial and Accounting
Officer and Director
/s/Norman A. Ferber Chairman of the Board April 30, 1997
Norman A. Ferber
/s/Stuart G. Moldaw Chairman Emeritus April 30, 1997
Stuart G. Moldaw
/s/G. Orban Director April 30, 1997
George P. Orban
/s/Philip Schlein Director April 30, 1997
Philip Schlein
/s/Donald H. Seiler Director April 30, 1997
Donald H. Seiler
/s/D. L. Weaver Director April 30, 1997
Donna L. Weaver
33
INDEX TO EXHIBITS
Exhibit
Number Exhibit
3.1 Certificate of Incorporation, as amended, incorporated
by reference to Exhibit 3.1 to the Registration
Statement on Form 8-B (the "Form 8-B") filed September
1, 1989 by Ross Stores, Inc., a Delaware corporation
("Ross Stores").
3.2 Amended By-laws, dated August 25, 1994, incorporated by
reference to Exhibit 3.2 to the Form 10-Q filed by Ross
Stores for its quarter ended July 30, 1994.
10.1 Agreement of Lease, dated November 24, 1986, for Ross
Stores' corporate headquarters and distribution center
in Newark, CA, incorporated by reference to Exhibit
10.5 to the Form 8-B.
10.2 Revolving Credit Agreement, dated July 31, 1993, among
Ross Stores, Wells Fargo Bank, National Association,
Bank of America, National Trust and Savings
Association, and Security Pacific National Bank
("Banks"); and Wells Fargo Bank, National Association
("Wells Fargo"), as agent for Banks, incorporated by
reference to Exhibit 10.17 on the Form 10-Q filed by
Ross Stores for its quarter ended July 31, 1993.
10.3 First Amendment to Revolving Credit Agreement,
effective on July 31, 1994, by and among Ross Stores,
Banks and Wells Fargo, as agent for Banks, incorporated
by reference to Exhibit 10.5 to the Form 10-Q filed by
Ross Stores for its quarter ended July 30, 1994.
10.4 Second Amendment to Revolving Credit Agreement,
effective on June 15, 1995, by and among Ross Stores,
Banks and Wells Fargo, as agent for Banks, incorporated
by reference to Exhibit 10.4 to the Form 10-Q filed by
Ross Stores for its quarter ended July 29, 1995.
10.5 Third Amendment to Revolving Credit Agreement,
effective on December 2, 1996, by and among Ross
Stores, Banks and Wells Fargo, as agent for Banks.
10.6 Credit Agreement, dated as of June 22, 1994, among Ross
Stores, Bank of America National Trust and Savings
Association as Agent, the Industrial Bank of Japan as
Co-Agent and the other financial institutions party
thereto, incorporated by reference to Exhibit 10.6 to
the Form 10-Q filed by Ross Stores for its quarter
ended July 30, 1994.
10.7 First Amendment to Credit Agreement, dated as of June
20, 1995, among Ross Stores, Bank of America National
Trust and Savings Association as Agent, the Industrial
Bank of Japan as Co-Agent, incorporated by reference to
Exhibit 10.6 to the Form 10-Q filed by Ross Stores for
its quarter ended July 29, 1995.
10.8 Second Amendment to Credit Agreement, dated as of June
12, 1996, Ross Stores, Bank of America National Trust
and Savings Association as Agent, the Industrial Bank
of Japan as Co-Agent, incorporated by reference to
Exhibit 10.7 to the Form 10-Q filed by Ross Stores for
its quarter ended August 3, 1996.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS 10.9 - 10.34)
10.9 Amended and Restated 1992 Stock Option Plan,
incorporated by reference to the appendix to the Proxy
Statement filed by Ross Stores on April 24, 1995 for
its Annual Stockholders Meeting held May 25, 1995
("1995 Proxy Statement").
34
Exhibit
Number Exhibit
10.10 Third Amended and Restated Ross Stores Employee Stock Purchase
Plan, incorporated by reference to the appendix to the 1995
Proxy Statement.
10.11 Third Amended and Restated Ross Stores 1988 Restricted Stock
Plan, incorporated by reference to the appendix to the Proxy
Statement filed by Ross Stores on April 24, 1996 for its Annual
Stockholders Meeting held May 30, 1996 ("1996 Proxy
Statement").
10.12 1991 Outside Directors Stock Option Plan, incorporated by
reference to the appendix to the 1996 Proxy Statement.
10.13 Ross Stores Executive Medical Plan, incorporated by reference
to Exhibit 10.13 to the 1993 Form 10-K filed by Ross Stores for
its year ended January 29, 1994 ("1993 Form 10-K").
10.14 Third Amended and Restated Ross Stores Executive Supplemental
Retirement Plan, incorporated by reference to Exhibit 10.14 to
the 1993 Form 10-K.
10.15 Ross Stores Non-Qualified Deferred Compensation Plan,
incorporated by reference to Exhibit 10.15 to the 1993 Form 10-K.
10.16 Ross Stores Incentive Compensation Plan, incorporated by
reference to the appendix to the 1996 Proxy Statement.
10.17 Amended and Restated Employment Agreement between Ross Stores
and Norman A. Ferber, effective as of June 1, 1995,
incorporated by reference to Exhibit 10.17 to the Form 10-Q
filed by Ross Stores for its quarter ended October 28, 1995.
10.18 Amendment to Amended and Restated Employment Agreement between
Ross Stores and Norman A. Ferber, entered into July 29, 1996,
incorporated by reference to Exhibit 10.17 to the Form 10-Q
filed by Ross Stores for its quarter ended August 3, 1996.
10.19 Agreement between Ross Stores and Norman A. Ferber, dated
August 22, 1995, incorporated by reference to Exhibit 10.18 to
the Form 10-Q filed by Ross Stores for its quarter ended
October 28, 1995.
10.20 Employment Agreement between Ross Stores and Melvin A. Wilmore,
effective as of March 15, 1994, incorporated by reference to
Exhibit 10.20 to the Form 10-Q filed by Ross Stores for its
quarter ended April 30, 1994.
10.21 Amendment to Employment and Stock Grant Agreement by and
between Ross Stores and Melvin A. Wilmore, effective as of
March 16, 1995, incorporated by reference to Exhibit 10.20 to
the Form 10-Q filed by Ross Stores for its quarter ended
October 28, 1995.
10.22 Second Amendment to Employment Agreement by and between Ross
Stores and Melvin A. Wilmore, effective as of June 1, 1995,
incorporated by reference to Exhibit 10.21 to the Form 10-Q
filed by Ross Stores for its quarter ended October 28, 1995.
10.23 Third Amendment to Employment Agreement by and between Ross
Stores and Melvin A. Wilmore, entered into July 29, 1996,
incorporated by reference to Exhibit 10.22 to the Form 10-Q
filed by Ross Stores for its quarter ended August 3, 1996.
10.24 Agreement between Ross Stores and Melvin A. Wilmore, dated
August 22, 1995, incorporated by reference to Exhibit 10.22 to
the Form 10-Q filed by Ross Stores for its quarter ended
October 28, 1995.
35
Exhibit
Number Exhibit
10.25 Employment Agreement between Ross Stores and Michael Balmuth,
effective as of February 1, 1995, incorporated by reference
to Exhibit 10.15 to the Form 10-Q filed by Ross Stores for
its quarter ended April 29, 1995.
10.26 Amendment to Employment Agreement between Ross Stores and
Michael Balmuth, effective as of June 1, 1995, incorporated
by reference to Exhibit 10.24 to the Form 10-Q filed by Ross
Stores for its quarter ended October 28, 1995.
10.27 Second Amendment to Employment Agreement between Ross Stores
and Michael Balmuth, entered July 29, 1996, incorporated by
reference to Exhibit 10.26 to the Form 10-Q filed by Ross
Stores for its quarter ended August 3, 1996.
10.28 Employment Agreement between Ross Stores and Barry S. Gluck,
effective as of March 1, 1996, incorporated by reference to
Exhibit 10.23 to the Form 10-Q filed by Ross Stores for its
quarter ended May 4, 1996.
10.29 First Amendment to Employment Agreement between Ross Stores
and Barry S. Gluck, dated September 1, 1996, incorporated by
reference to Exhibit 10.28 to the Form 10-Q filed by Ross
Stores for its quarter ended October 2, 1996.
10.30 Employment Agreement between Ross Stores and Irene S.
Jamieson, effective as of March 1, 1996, incorporated by
reference to Exhibit 10.24 to the Form 10-Q filed by Ross
Stores for its quarter ended May 4, 1996.
10.31 First Amendment to Employment Agreement between Ross Stores
and Irene A. Jamieson, dated September 1, 1996, incorporated
by reference to Exhibit 10.30 to the Form 10-Q filed by Ross
Stores for its quarter ended October 2, 1996.
10.32 Employment Agreement between Ross Stores and Barbara Levy,
effective as of March 1, 1996, incorporated by reference to
Exhibit 10.25 to the Form 10-Q filed by Ross Stores for its
quarter ended May 4, 1996.
10.33 First Amendment to Employment Agreement between Ross Stores
and Barbara Levy, dated September 1, 1996, incorporated by
reference to Exhibit 10.32 to the Form 10-Q filed by Ross
Stores for its quarter ended October 2, 1996.
10.34 Consulting Agreement between Ross Stores and Stuart G.
Moldaw, effective as of March 16, 1995, incorporated by
reference to Exhibit 10.16 to the Form 10-Q filed by Ross
Stores for its quarter ended April 29, 1995.
11 Statement re: Computation of Per Share Earnings.
23 Independent Auditors' Consent.
27 Financial Data Schedules (submitted for SEC use only).
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
This THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Third
Amendment") is entered into on, and will be effecitve on, December 2,
1996, and is the third amendment to the Revolving Credit Agreement
dated as of July 31, 1993, as amended by a First Amendment To Revolving
Credit Agreement effective as of July 31, 1994 and by a Second
Amendment To Revolving Credit Agreement effective as of June 15, 1995
(the "Agreement") by and among ROSS STORES, INC. ("Borrower"), each of
the financial institutions listed in Schedule I to the Agreement, as
amended from time to time, (such financial institutions being referred
to in the Agreement and in this Third Amendment collectively as the
"Banks" and individually as a "Bank"), and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Wells Fargo"), as agent for the Banks (in such capacity,
"Agent").
RECITALS
WHEREAS, the Borrower has requested that the limitation on the
Borrower's and any Subsidiary's entering into any sale and leaseback
agreement covering any fixed assets and on expenditures for the
acquisition or leasing of fixed assets under Section 6.4 of the
Agreement be eliminated starting on the first day of the Borrower's
fiscal year beginning in 1996; and
WHEREAS, the Banks agree to this request if the Borrower signs this
Third Amendment;
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Third
Amendment hereby agree as follows:
1. DEFINITIONS. Terms defined in the Agreement and used, but not
defined, in this Third Amendment are used in this Third Amendment with
their meanings as defined in the Agreement as amended by this Third
Amendment.
2. EFFECTIVE DATE. The Borrower and the Banks agree that this
Third Amendment will be effective on and after December 2, 1996.
3. CAPITAL EXPENDITURES LIMITATION. The Borrower and the Banks
agree that the prohibition in Section 6.4 of the Agreement to the
Borrower entering into, or permitting any Subsidiary to enter into, any
sale and leaseback agreement or agreements covering any of its fixed
assets or to expending or incurring, or permitting any subsidiary to
expend or incur, obligations for the acquisition of fixed assets or the
leasing of fixed assets will be eliminated from the Agreement. To that
end, Section 6.4 of the Agreement is hereby deleted in its entirety
from the Agreement as of the first day of the start of the fiscal year
of the Borrower beginning in 1996, and Sections 6.5 and 6.6 of the
Agreement are hereby renumbered Sections 6.4 and 6.5.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Banks to
enter into this Third Amendment and to amend the Agreement in the
manner provided in this Third Amendment, the Borrower hereby represents
and warrants that (a) the representations and warranties contained in
Article IV of the Agreement are true and correct on the date of this
Third Amendment, with the same effect as though such representations
and warranties had been made on and as of such date, and (b) no Event
of Default, as specified in Section 7.1 of the Agreement, and no
condition, event or act which with the giving of notice or the passage
of time or both would constitute such an Event of Default, has
occurred, is continuing or is existing on the date of this Third
Amendment.
5. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by
this Third Amendment, the Agreement shall continue to be and shall
remain in full force and effect.
6. GOVERNING LAW. The validity, construction and effect of this
Third Amendment shall be governed by, and be construed under, the laws
of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the day and year
first above written.
ROSS STORES, INC. WELLS FARGO BANK, NATIONAL
ASSOCIATION, individually and
as Agent
By: /s/ John Vuko By: /s/ Mathew Harvey
Title: Senior Vice President Title: Vice President
and Controller
NATIONSBANK OF TEXAS, N.A. BANQUE NATIONALE DE PARIS
BY: /s/ Chas McDonell By: /s/ Katherine Wolfe & Charles H. Day
Title: Vice President Title:Vice President Asst. Vice President
BANK OF AMERICA, N.T. & S.A.
By: /s/ Jean A. Brinkmann
Title: Vice President
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended
________________________________________
February 1, February 3, January 28,
1997 1996 1995
(000, except per share amounts)
Primary
Net Earnings $80,905 $43,272 $36,821
======= ======= =======
Weighted average shares outstanding:
Common shares 50,031 49,036 48,990
Common equivalent shares:
Stock Options 1,280 468 424
_____ _____ ______
Weighted average common and common
equivalent shares outstanding, as adjusted 51,311 49,504 49,414
====== ====== ======
Earnings per common and common
equivalent share $1.58 $.87 $.75
===== ==== ====
Fully Diluted
Net Earnings $80,905 $43,272 $36,821
======= ======= =======
Weighted average shares outstanding:
Common shares 50,031 49,036 48,990
Common equivalent shares:
Stock Options 1,366 1,076 456
===== ===== ===
Weighted average common and common
equivalent shares outstanding, as adjusted 51,397 50,112 49,446
====== ====== ======
Earnings per common and common
equivalent share $1.57 $.86 $.74
===== ==== ====
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 333-06119, 33-61373, 33-51916, 33-51896, 33-51898, 33-41415, 33-
41413 and 33-29600 of Ross Stores, Inc. on Form S-8 of our report dated
March 7, 1997, appearing in this Annual Report on Form 10-K of Ross
Stores, Inc. for the year ended February 1, 1997.
Deloitte & Touche LLP
San Francisco, California
April 29, 1997
5
0000745732
ROSS STORES, INC.
1,000
12-MOS
FEB-01-1997
FEB-04-1996
FEB-01-1997
44,777
0
7,832
0
373,689
439,587
348,703
156,056
659,478
304,785
0
0
0
493
328,843
659,478
1,689,810
1,689,810
1,194,136
1,554,969
0
0
(360)
134,841
53,936
80,905
0
0
0
80,905
1.58
1.57
