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 January 31, 1998
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
8333 Central Avenue, Newark, California 94560-3433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (510) 505-4400
including area code
Securities registered pursuant to None
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 3, 1998 was $1,889,560,486.13. 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 3, 1998 was 47,950,192.
Documents incorporated by reference:
Portions of the Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders, which will be filed on or before April 24, 1998, are
incorporated herein by reference into Part III.
================================================================================
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' 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
directors and stockholders. The six stores acquired were completely
refurbished in the company's 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, 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, 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. This diversification will continue in fiscal 1998, with a
test of fine jewelry in approximately 50 stores during the first half of
the year and a potential roll-out to other stores in 1999. For fiscal
1997, the overall merchandise sales mix was approximately 95% first
quality merchandise and 5% irregulars. The respective departments
accounted for total sales in fiscal 1997 approximately as follows:
Ladies 35%, Men's 22%, Accessories, Hosiery and Lingerie 10%, Shoes 10%,
Children's 9%, and Fragrances, Home Accents and Bed and Bath 14%.
3
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 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. In 1996 and 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 1997 were down 1% on a comparable store
basis to the prior year, total consolidated inventories were up 12% due
to the investment at year-end in additional packaway goods and inventory
for the new stores.
The company is developing a new management information system in an
effort to provide more detailed information on how SKUs perform by
region or market. While in the market, the buyers will utilize laptop
computers to access real-time information on their business. The goal
is to fine tune the merchandise mix and raise sales productivity in
markets that are performing below the company average. The new system
is scheduled to begin roll-out in late 1998 and early 1999.
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 10 years of experience,
including experience with other retailers such as Bloomingdale's,
Burlington Coat Factory, Dayton Hudson, Lord & Taylor, Macy's,
Marshalls, Montgomery Wards, TJ Maxx and Value City. In keeping with
its strategy, over the past several years, the company has more than
tripled the size of its merchandising staff. 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
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
4
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 January 31, 1998, the company operated 325 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
1997, the average Ross store employed 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
36% of payments are made with credit cards. Ross provides cash or
credit card refunds on all merchandise returned with a receipt within 30
days. Merchandise returns having a receipt older than 30 days are
exchanged or credited with a Ross Credit Voucher at the price on the
receipt.
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
The company has two distribution centers -- one located in Newark,
California (approximately 494,000 square feet) and the second located in
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.
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.
5
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.
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 (R) has been registered with the
United States Patent and Trademark Office.
Employees
On January 31, 1998, the company had approximately 17,000 employees
which includes an estimated 10,400 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,
developed a merchandise allocation system to distribute product based on
regional factors as well as other systems and procedures to maximize cost
efficiencies and leverage expenses in an effort 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.
ITEM 2. PROPERTIES
Stores
From August 1982 to January 31, 1998, the company expanded from six
stores in California to 325 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 1997, the company opened 17 new Ross 'Dress For Less'
stores, closed 1 existing location and relocated 4 locations. The
typical new Ross store is approximately 30,187 square feet, yielding
approximately 25,334 square feet of selling space. As of January 31,
1998, the company's 325 stores generally ranged in size from about
24,000 to 35,000 gross square feet and had an average of 22,000 square
feet of selling space.
During the fiscal year ended January 31, 1998, 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
6
population density of the market. In fiscal 1998 and 1999, the company
plans to focus its new store growth primarily in existing markets and
adjacent regions in existing states. In addition, management continues
to seek opportunistic real estate acquisitions.
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 January
31, 1998, 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 18 years if renewal options are
included. (See Note C 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
In April 1998, the company purchased its Newark, California
distribution center for $24.6 million. 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 fiscal 1999. This reflects the
company's recent investment in distribution systems along with the
potential to expand work shifts. In September 1997, the company entered
into a five year lease for an approximately 214,500 square foot
warehouse in Newark, California. In February 1998, the company entered
into a three year lease for an approximately 239,000 square foot
warehouse in Carlisle, Pennsylvania. Both of these buildings will store
the company's packaway inventory and replace third party warehousing
services.
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.
7
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 47 Vice Chairman and Chief Executive Officer
Melvin A. Wilmore 52 Director, President and Chief Operating Officer
John G. Call 39 Senior Vice President,
Chief Financial Officer and
Corporate Secretary
Ivy D. Council 41 Senior Vice President, Human Resources
James S. Fassio 43 Senior Vice President, Property Development
Barry S. Gluck 45 Senior Vice President and
General Merchandising Manager
James S. Jacobs 53 Senior Vice President, Store Operations
Irene Jamieson 47 Senior Vice President and
General Merchandising Manager
Barbara Levy 43 Senior Vice President and
General Merchandising Manager
_____________________________
Mr. Balmuth joined the Board of Directors as Vice Chairman and became
Chief Executive Officer in September 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. Call has served as Senior Vice President, Chief Financial Officer
and Corporate Secretary since June 1997. From June 1993 until joining Ross
in 1997, Mr. Call was Senior Vice President, Chief Financial Officer,
Secretary and Treasurer of Friedman's Inc. For five years prior to joining
Friedman's in June 1993, Mr. Call held various positions with Ernst & Young,
LLP, most recently as a Senior Manager in the San Francisco office.
Ms. Council has served as Senior Vice President, Human Resources since
March 1998. Prior to this, she served as the company's Vice President of
Human Resources, Compensation, Payroll, Distribution and Risk
Management/Benefits since August 1997 and as the company's Vice President,
Human Resources of Stores since March 1992. She joined the company in
January 1989 as Director of Management and Organizational Development.
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.
8
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. From March 1982 to April 1987, he was Vice
President, Divisional Merchandise Manager, Men's, Children and Luggage of
Macy's Atlanta.
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.
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.
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.
9
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 H 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 836 stockholders of record as of April 3, 1998.
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.
Cash Dividends. During fiscal 1996 and 1997, the company paid a
quarterly cash dividend of $0.035 and $0.045, respectively, per common
share. On January 31, 1998, the Board of Directors increased the
quarterly dividend to $0.055 per common share.
ITEM 6. SELECTED FINANCIAL DATA
($000, except per share data) 1997 1996 1995 1994 1993
Operations
Sales $1,988,692 $1,689,810 $1,426,397 $1,262,544 $1,122,033
Cost of goods sold and
occupancy 1,388,098 1,194,136 1,031,455 920,265 814,745
Percent of sales 69.8% 70.7% 72.3% 72.9% 72.6%
General, selling and
administrative 374,119 332,439 293,051 263,777 235,558
Percent of sales 18.8% 19.7% 20.5% 20.9% 21.0%
Depreciation and
amortization 30,951 28,754 27,033 24,017 20,539
Interest (income) expense (265) (360) 2,737 3,528 2,318
Insurance proceeds (10,412)
Earnings before taxes 195,789 134,841 72,121 61,369 48,873
Percent of sales 9.8% 8.0% 5.1% 4.9% 4.4%
Provision for taxes
on earnings 78,315 53,936 28,849 24,548 19,549
Net earnings 117,474 80,905 43,272 36,821 29,324
Percent of sales 5.9% 4.8% 3.0% 2.9% 2.6%
Diluted earnings per share2 $2.35 $1.58 $.87 $.75 $.57
Cash dividends declared per
common share2 $.190 $.150 $.125 $.105 $.025
Fiscal 1995 is a 53-week year; all other fiscal years have 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 100% stock dividend on March 5, 1997.
10
SELECTED FINANCIAL DATA
($000, except per share data) 1997 1996 19951 1994 1993
Financial Position
Merchandise inventory $418,825 $373,689 $295,965 $275,183 $228,929
Property and equipment, net 204,721 192,647 181,376 171,251 144,152
Total assets 737,953 659,478 541,152 506,241 437,371
Working capital 174,678 134,802 121,692 131,846 125,047
Current ratio 1.5:1 1.4:1 1.6:1 1.7:1 1.8:1
Total debt 9,806 46,069 33,308
Stockholders' equity 380,681 328,843 291,516 254,551 228,222
Book value per common share
outstanding at year-end $7.94 $6.67 $5.92 $5.21 $4.62
Total debt as a percent of
total capitalization 0% 0% 3% 15% 13%
Return on average
stockholders' equity 33% 26% 16% 15% 13%
Operating Statistics
Number of stores opened 17 21 21 35 22
Number of stores closed 1 4 4 3 2
Number of stores at year-end 325 309 292 275 243
Comparable store sales increase
(decline) (52-week basis) 10% 13% 2% 2% (1%)
Sales per square foot of selling
space (52-week basis) $285 $259 $230 $227 $222
Square feet of selling space
at year-end (000) 7,172 6,677 6,276 5,901 5,210
Number of employees at
year-end 17,039 14,853 11,935 10,516 8,949
Number of common stockholders
of record at year-end 813 826 1,022 1,168 1,275
Fiscal 1995 is a 53-week year; all other fiscal years have 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 100% stock dividend on March 5, 1997.
Based on average annual selling square footage.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the fiscal years ended January 31, 1998, February 1, 1997 and
February 3, 1996 (referred to as 1997, 1996 and 1995). 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
Year Ended Year Ended Year Ended
January 31, February 1, February 3,
1998 1997 1996
SALES
Sales ($000) $1,988,692 $1,689,810 $1,426,397
Sales growth 18% 18% 13%
Comparable store sales growth 10% 13% 2%
COSTS AND EXPENSES (as a percent of sales)
Cost of goods sold and occupancy 69.8% 70.7% 72.3%
General, selling and administrative 18.8% 19.7% 20.5%
Depreciation and amortization 1.6% 1.7% 1.9%
Interest (income) expense (0)% (0)% .2%
NET EARNINGS 5.9% 4.8% 3.0%
Fiscal 1995 is a 53-week year; all other years have 52 weeks.
Stores. Total stores open at the end of 1997, 1996 and 1995 were
325, 309 and 292, respectively. During 1997, the company opened 17 new
stores and closed one store. During 1996, the company opened 21 new
stores and closed four stores. During 1995, the company opened 21 new
stores and closed four stores.
Sales. The increases in sales for 1997, 1996 and 1995 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
1998. 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 1997, 1996 and 1995, there can be no assurance that
these strategies will result in a continuation of revenue and profit
growth.
Cost of Goods Sold and Occupancy. The reduction in the cost of
goods sold and occupancy ratio in 1997 resulted primarily from the
higher sales, leverage on occupancy costs and lower markdowns as a
percentage of sales. 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.
There can be no assurance that the improvement experienced in 1997 will
continue in future years.
General, Selling and Administrative Expenses. During 1997,
general, selling and administrative expenses 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 1997, 1996 and 1995 was approximately 17,000,
14,900 and 11,900, respectively.
12
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 fixed assets in each
store.
Interest. Due to higher average borrowings during 1997, interest
expense increased from 1996. The increase in average borrowings in 1997
was due to expenditures of $98.1 million to repurchase three million
shares of common stock, offset partially by the higher earnings levels
and cash flows from issuances of common stock. Lower average borrowings
in 1996 resulted in a decrease in interest expense 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.
Taxes on Earnings. The company's effective rate for 1997, 1996 and
1995 was 40%, which represents the applicable federal and state
statutory rates reduced by the federal benefit received for state taxes.
During 1998, the company expects its effective tax rate to decline to
39%.
Information Systems and the Year 2000
The year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Certain of the company's computer programs may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, or to engage in similar normal business activities.
As is the case with most other companies using computers in their
operations, the company is in the process of addressing the year 2000
issue. The company is currently engaged in a comprehensive project to
identify all significant applications that will require modification to
become year 2000 compliant and is utilizing both internal and external
resources to identify, correct, upgrade or replace and test the systems
for year 2000 compliance. The company is currently evaluating the
financial impact of the systems and programming changes necessary to
address the year 2000 issue and will disclose the expected costs for
these modifications when the evaluation is complete. Year 2000 related
costs will be expensed as incurred.
The company expects to implement the changes necessary to address
the year 2000 issue. The company presently believes that, with
modifications to existing software and conversions to new software, the
year 2000 issue will not pose significant operational problems for the
company's computer systems as so modified and converted. However, if
unforeseen difficulties arise or such modifications and conversions are
not completed timely, or if the company's vendors' or suppliers' systems
are not modified to become year 2000 compliant, the year 2000 issue may
have a material impact on the operations of the company.
Financial Condition
Liquidity and Capital Resources. During 1997, 1996 and 1995,
liquidity and capital requirements were provided by cash flows from
operations, the revolving credit facility and trade credit. The
company's store sites, central office, West Coast distribution center,
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 C to the Consolidated Financial Statements. The company's
Carlisle, Pennsylvania, distribution center is owned outright by the
company as the mortgage was paid off on August 30, 1996. The company
exercised its right to purchase its Newark, California, distribution
center and corporate headquarters for $24.6 million and anticipates
completing this transaction on April 1, 1998. 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.
13
During 1997, the primary uses of cash, other than for operating
expenditures, were for merchandise inventory including a planned
increase in packaway inventory, property and equipment to open 17 new
stores, the relocation or remodeling of six stores, the repurchase in
the open market of $98.1 million of the company's common stock and
quarterly cash dividend payments. During 1996, the primary uses of
cash, other than for operating expenditures, were for merchandise
inventory, including a planned increase in packaway inventory, property
and equipment to open 21 new stores, the remodeling of seven stores, the
repurchase in the open market of $80.4 million of the company's common
stock and quarterly cash dividend payments. During 1995, the primary
uses of cash, other than for operating expenditures, were for
merchandise inventory, property and equipment to open 21 new stores, the
remodeling of eight stores, the repurchase in the open market of $12.1
million of the company's common stock and quarterly cash dividend
payments. In 1997, 1996 and 1995, the company spent approximately $33
million, $37 million and $42 million, respectively, for capital
expenditures, net of leased equipment, that included fixtures and
leasehold improvements to open 17, 21 and 21 stores, respectively,
remodeling or relocation costs for six, seven and eight stores,
respectively, modifications in the buying office, purchase of previously
leased equipment and various expenditures for existing stores and the
central office.
The company currently anticipates opening 20 to 25 stores annually
in 1998 and 1999. The company anticipates that this growth will be
financed primarily from cash flows from operating activities and
available credit facilities.
In January 1998, a 22% increase in the quarterly cash dividend
payment to $.055 per common share was declared by the Board of
Directors, payable on or about April 6, 1998. The company's Board of
Directors declared quarterly cash dividends of $.045 per common share in
January, May, August and November 1997 and $.035 per common share in
January, May, August and November 1996. The company uses cash flows
from operating activities and available cash resources to provide for
cash dividends.
The company repurchased a total of $98.1 million of common stock in
1997. In January 1998, the company announced that its Board of
Directors authorized a $110 million stock repurchase program. The
company anticipates funding this new program through cash flows from
operating activities and available credit facilities.
The company has available under its principal bank credit agreement
a $160 million revolving credit facility and a $30 million credit
facility, the latter solely for the issuance of letters of credit, both
of which expire September 2002, and short-term lines of credit at
January 31, 1998 totaling $45 million. These facilities are available
until canceled by either party. At fiscal year-end 1997, 1996 and 1995,
there were no outstanding balances under any revolving credit facility.
For additional information relating to these obligations, refer to Note
B to the Consolidated Financial Statements.
Working capital was $175 million at the end of 1997, compared to
$135 million at the end of 1996 and $122 million at the end of 1995. At
year-end 1997, 1996 and 1995, the company's current ratios were 1.5:1,
1.4:1 and 1.6:1, respectively. The percentage of long-term debt to total
capitalization at fiscal year-end 1997, 1996 and 1995 was 0%, 0% and 3%,
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 1997 and 1996 due to
increased earnings, tighter inventory controls with improved in-store
inventory turnover, a strong emphasis on controlling expenses 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 $110 million repurchase of shares, dividend
payments and planned capital additions during the upcoming year.
14
Forward Looking Statements and Factors Affecting Future Performance
This report includes a number of forward looking statements, which
reflect the company's current beliefs and estimates with respect to
future events and the company's future financial performance, operations
and competitive strengths. 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, the company's ability to continue
to purchase attractive name brand merchandise at desirable discounts,
unseasonable weather trends, especially in California, changes in the
level of consumer spending on or preferences in apparel or home related
merchandise or currently unknown costs and uncertainties related to the
ability to make the necessary modifications to the company's, or its
major vendors', computer hardware and software systems to enable them to
process information with dates or date ranges spanning the year 2000 and
beyond. In addition, the company's corporate headquarters, one
distribution center and 45% 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CONSOLIDATED BALANCE SHEETS
January 31, February 1,
($000, except per share data) 1998 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $56,369 $44,777
Accounts receivable 8,122 7,832
Merchandise inventory 418,825 373,689
Prepaid expenses and other 15,108 13,289
_______ _______
Total Current Assets 498,424 439,587
PROPERTY AND EQUIPMENT
Land and buildings 24,115 24,115
Fixtures and equipment 190,186 164,980
Leasehold improvements 144,247 135,810
Construction-in-progress 25,763 23,798
_______ _______
384,311 348,703
Less accumulated depreciation and amortization 179,590 156,056
_______ _______
204,721 192,647
Deferred income taxes and other assets 34,808 27,244
________ ________
Total Assets $737,953 $659,478
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $201,998 $184,101
Accrued expenses and other 82,290 84,328
Accrued payroll and benefits 39,458 36,356
_______ _______
Total Current Liabilities 323,746 304,785
Long-term liabilities 33,526 25,850
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share
Authorized 100,000,000 shares
Issued and outstanding 47,917,000
and 49,332,000 shares 479 493
Additional paid-in capital 195,562 164,166
Retained earnings 184,640 164,184
_______ _______
380,681 328,843
________ ________
Total Liabilities and Stockholders' Equity $737,953 $659,478
The accompanying notes are an integral part of these consolidated financial
statements.
16
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended Year Ended Year Ended
January 31, February 1, February 3,
($000, except share data) 1998 1997 1996
SALES $1,988,692 $1,689,810 $1,426,397
COSTS AND EXPENSES
Cost of goods sold and occupancy 1,388,098 1,194,136 1,031,455
General, selling and administrative 374,119 332,439 293,051
Depreciation and amortization 30,951 28,754 27,033
Interest (income) expense (265) (360) 2,737
_________ _________ _________
1,792,903 1,554,969 1,354,276
_________ _________ _________
Earnings before taxes 195,789 134,841 72,121
Provision for taxes on earnings 78,315 53,936 28,849
________ _______
Net earnings $117,474 $80,905 $43,272
EARNINGS PER SHARE
Basic $2.40 $1.62 $.88
Diluted $2.35 $1.58 $.87
-------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING (000)
Basic 48,928 50,031 49,036
Diluted 50,002 51,311 49,504
Fiscal 1995 is a 53-week year; all other years have 52 weeks.
The accompanying notes are an integral part of these consolidated financial
statements.
17
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-In Retained
(000) Shares Amount Capital Earnings Total
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
Common stock issued under stock
plans, including tax benefit 1,585 16 41,718 41,734
Stock repurchased (3,000) (30) (10,322) (87,794) (98,146)
Net earnings 117,474 117,474
Dividends declared (9,224) (9,224)
______ ____ ________ ________
BALANCE AT JANUARY 31, 1998 47,917 $479 $195,562 $184,640 $380,681
The accompanying notes are an integral part of these consolidated financial
statements.
18
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
January 31, February 1, February 3,
($000) 1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $117,474 $80,905 $43,272
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of property and
equipment 30,951 28,754 27,033
Other amortization 8,527 6,613 4,982
Deferred income taxes (1,732) (7,366) (2,898)
Change in assets and liabilities:
Merchandise inventory (45,135) (77,724) (20,782)
Other current assets - net (2,110) (49) (4,380)
Accounts payable 17,481 45,964 27,813
Other current liabilities - net (10,379) 39,566 7,976
Other 2,807 437 4,968
_______ _______ ______
Net cash provided by operating activities 117,884 117,100 87,984
_______ _______ ______
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (33,322) (37,105) (41,706)
___________________________________________
Net cash used in investing activities (33,322) (37,105) (41,706)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt (122) (9,905) (36,349)
Issuance of common stock related to stock plans 34,106 38,703 7,946
Repurchase of common stock (98,146) (80,430) (12,140)
Dividends paid (8,808) (7,012) (5,890)
________ ________ ________
Net cash used in financing activities (72,970) (58,644) (46,433)
________ ________ ________
Net increase (decrease) in cash and cash equivalents 11,592 21,351 (155)
Cash and cash equivalents:
Beginning of year 44,777 23,426 23,581
_______ _______ _______
End of year $56,369 $44,777 $23,426
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $537 $831 $3,421
Income taxes paid $85,529 $42,590 $24,239
Fiscal 1995 is a 53-week year; all other years have 52 weeks.
The accompanying notes are an integral part of these consolidated financial
statements.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fiscal years ended January 31, 1998, February 1, 1997
and February 3, 1996 (referred to as 1997, 1996 and 1995).
Note A: Summary of Significant Accounting Policies
Business. The company is an off-price retailer of first
quality, branded apparel, shoes and accessories for the entire
family, as well as gift items, linens and other home related
merchandise. At January 31, 1998, the company operated 325
stores. The company's headquarters, one distribution center, one
warehouse 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 1995 and 1996 financial
statements to conform to the 1997 presentation. These changes had
no impact on previously reported results of operations or
stockholders' equity. The 1995 year consisted of 53 weeks while
1997 and 1996 each had 52 weeks.
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 1997, 1996 and 1995, advertising expenses were $35 million, $39
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 1997 and 1996, the balance of deferred rent
was $10.6 million and $9.7 million, respectively, and is included
in 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
estimated useful life of five years.
20
Impairment of Long-Lived Assets. Long-lived assets and
certain identifiable intangibles, including goodwill, held and
used by the company, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Based on the company's review as
of January 31, 1998 and February 1, 1997, no adjustments were
recognized to the carrying value of such assets.
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
prescribed by "Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees."
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.
Stock Dividend. 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.
Earnings Per Share. In 1997, the company adopted the
provisions of Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings per Share." SFAS 128 requires dual
presentation of two earnings per share (EPS) amounts, basic EPS
and diluted EPS, on the face of all income statements instead of
primary and fully diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if options to issue common
stock were exercised into common stock. EPS for all periods
presented have been restated to reflect the adoption of SFAS 128.
The following is a reconciliation of the number of shares
(denominator) used in the basic and diluted EPS computations
(shares in thousands):
Effect of
Basic Diluted Stock Diluted
EPS Options EPS
1997
Shares 48,928 1,074 50,002
Amount $2.40 $(.05) $2.35
1996
Shares 50,031 1,280 51,311
Amount $1.62 $(.04) $1.58
1995
Shares 49,036 468 49,504
Amount $.88 $(.01) $.87
21
Note B: Long-Term Debt
The company had no outstanding debt at year-end 1997 and 1996. The
weighted average interest rates on borrowings during 1997, 1996 and 1995
were 5.8%, 8.3% and 7.1%, respectively. The decrease in 1997 over 1996
reflects the mortgage debt in 1996 on the East Coast distribution center
at an interest rate of 9.5%, contributing to the higher weighted average
interest on borrowings in 1996.
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.
Bank Credit Facilities. The company has available under its
principal credit agreement a $160 million revolving credit facility, and
a $30 million credit facility, the latter solely for the issuance of
letters of credit, both of which expire September 2002. Interest is
payable upon borrowing maturity but no less than quarterly. At year-end
1997 and 1996, the company had $16.6 million and $12.2 million,
respectively, in outstanding letters of credit. Borrowing under the
credit facilities is subject to the company maintaining certain interest
rate coverage and leverage ratios. As of January 31, 1998, the company
was in compliance with these bank covenants.
In addition, the company has $45 million in short-term bank lines
of credit, which are available until canceled by either party. When
utilized, interest is payable monthly under several pricing options.
Included in accounts payable are checks outstanding in excess of
cash balances of approximately $50.6 million and $35.4 million at year-
end 1997 and 1996, respectively. The company can utilize its revolving
line of credit to cover payment of these checks as they clear the bank.
Note C: Leases
During fiscal 1997, the company leased its distribution center and
corporate office located in Newark, California, under a 15-year lease
agreement expiring 2002. The lease contains six renewal options of five
years each. The company exercised its right to purchase its Newark,
California, distribution center and corporate headquarters for $24.6
million and anticipates completing this transaction on April 1, 1998.
In September 1997, the company entered into a five-year lease for a
warehouse in Newark, California, which will store the company's packaway
merchandise. In February 1998, the company entered into a three-year
lease for a warehouse in Carlisle, Pennsylvania. Both of these
buildings replace third party warehousing services. 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
three to four 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.
The aggregate future minimum annual lease payments under leases in
effect at year-end 1997 are as follows:
($000) Amounts
1998 $105,670
1999 104,679
2000 90,268
2001 79,619
2002 68,940
Later years 233,881
Total $683,057
22
Total rent expense for all operating leases is as follows:
($000) 1997 1996 1995
Minimum rentals $100,109 $91,746 $84,340
Note D: Taxes on Earnings
The provision for taxes consists of the following:
($000) 1997 1996 1995
CURRENT
Federal $65,754 $49,628 $25,746
State 14,294 11,674 6,001
_______ _______ _______
80,048 61,302 31,747
DEFERRED
Federal (1,693) (6,385) (2,715)
State (40) (981) (183)
_______ _______ _______
(1,733) (7,366) (2,898)
_______ _______ _______
Total $78,315 $53,936 $28,849
In 1997, 1996 and 1995, the company realized tax benefits of $14.1
million, $14.0 million and $1.7 million, respectively, related to stock
options exercised and the vesting of restricted stock that were credited
to additional paid-in capital.
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:
1997 1996 1995
Federal income taxes at the statutory rate 35% 35% 35%
Increased income taxes resulting from
state income taxes, net of federal benefit 5% 5% 5%
___ ___ ___
40% 40% 40%
23
The components of the net deferred tax assets at year-end are as
follows:
($000) 1997 1996
DEFERRED TAX ASSETS
California franchise taxes $2,324 $2,031
Straight-line rent 4,457 4,135
Deferred compensation 9,724 5,986
Reserve for uninsured losses 1,525 1,323
Employee benefits 5,794 6,011
Other 553 3,234
______ ______
24,377 22,720
DEFERRED TAX LIABILITIES
Depreciation (15,347) (14,789)
Prepaid expenses (1,974) (2,794)
Supplies (1,617) (1,535)
Other (144) (39)
________ ________
(19,082) (19,157)
________ ________
NET DEFERRED TAX
ASSETS $5,295 $3,563
Note E: 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
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 make payroll
contributions 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 F: 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 3.0 million shares at an average price of $32.72 in 1997, 4.5
million shares at an average price of $17.93 in 1996 and 1.5 million
shares at an average price of $8.03 in 1995. In January 1998, the
company's Board of Directors authorized an expansion and continuation of
these repurchase programs for additional shares of the company's common
stock totaling $110 million.
Dividends. The company's Board of Directors declared cash
dividends of $.055 per common share in January 1998; $.045 per common
share in January, May, August and November 1997; and $.035 per common
share in January, May, August and November 1996.
24
Stock-Based Compensation Plans. At January 31, 1998, the company
had four stock-based compensation plans which are described below.
Statement of Financial Accounting Standards No. 123 (SFAS
123),"Accounting for Stock-Based Compensation," 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) 1997 1996 1995
Net Income As reported $117,474 $80,905 $43,272
Pro forma $114,109 $79,011 $42,480
Basic earnings per share As reported $2.40 $1.62 $.88
Pro forma $2.33 $1.58 $.87
Diluted earnings per share As reported $2.35 $1.58 $.87
Pro forma $2.29 $1.54 $.86
The impact of outstanding non-vested stock options granted prior to 1995
has been excluded from the pro forma calculation; accordingly, the 1997,
1996 and 1995 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.
25
A summary of the activity under the company's two option plans for
1997, 1996 and 1995 is presented below:
Weighted
Average
Number of Exercise
(000) Shares Price
______________________________________________________________________
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
Granted 1,025 $26.65
Exercised (1,155) $ 9.00
Forfeited (249) $11.03
______________________________________________________________________
Outstanding and exercisable at
January 31, 1998 2,854 $16.17
At year-end 1997, 1996 and 1995, there were 1.5 million, 2.3 million and
3.3 million shares, respectively, available for future issuance under
these plans.
The weighted average fair values per share of options granted during
1997, 1996 and 1995 were $7.98, $4.72 and $1.89, 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 1997,
1996 and 1995, respectively: (i) dividend yield of 0.6%, 0.8% and 1.1%,
(ii) expected volatility of 43.0%, 43.8% and 43.2%, (iii) risk-free
interest rate of 6.2%, 5.9% and 6.7% and (iv) expected life of 3.3
years, 3.4 years and 3.3 years. The company's calculations are based on
a multiple option approach, and forfeitures are recognized as they
occur.
The following table summarizes information about stock options
outstanding and exercisable at January 31, 1998:
Weighted Average
_______________________
Number of Remaining
Shares Contractual
Range of Exercise Prices (000) Life Exercise
(Years) Price
__________________________________________________________________
$2.88 to $5.88 572 5.93 $ 5.39
$5.94 to $13.00 481 6.39 $ 8.95
$13.44 to $13.56 598 8.13 $13.56
$13.63 to $25.69 304 8.74 $21.14
$25.88 to $25.88 742 9.13 $25.88
$26.19 to $40.31 157 9.46 $32.02
_____ ____ ______
Totals 2,854 7.78 $16.17
==================================================================
26
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
1997, 1996 and 1995, employees purchased approximately 86,000, 155,000
and 261,000 shares, respectively, of the company's common stock under
the plan at weighted average per-share prices of $21.79, $8.89 and
$8.96, respectively. Through January 31, 1998, approximately 1,523,000
shares had been issued under this plan and 477,000 shares remained
available for future issuance.
The weighted average fair values of the 1997, 1996 and 1995 awards
were $8.20, $6.72 and $3.02 per share, respectively. 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 1997, 1996 and 1995, respectively: (i)
dividend yield of 0.6%, 0.8% and 1.7%, (ii) expected volatility of
43.1%, 48.1% and 34.8%, (iii) risk-free interest rate of 5.6%, 5.5% and
5.9%, and (iv) expected life of 1.0 year, 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 1997, 1996 and 1995, the unamortized compensation expense
was $9.4 million, $7.1 million and $4.1 million, respectively. A
summary of restricted stock award activity follows:
Restricted Stock Plan (000) 1997 1996 1995
- ----------------------------------------------------------------------------
Shares available for grant beginning of year 2,872 1,431 451
New shares authorized 2,000 1,600
Restricted shares granted (390) (559) (666)
Restricted shares forfeited 48 46
_____ _____ ______
Awards available for grant at end of year 2,530 2,872 1,431
====== ===== ======
Weighted average market value per share
on grant date $26.55 $15.46 $6.31
====== ====== =====
Note G: 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.
27
Note H: Quarterly Financial Data (Unaudited)
13 Weeks 13 Weeks 13 Weeks 13 Weeks 52 Weeks
Ended Ended Ended Ended Ended
($000, except per share data) May 3, August 2, November 1, January 31, January 31,
1997 1997 1997 1998 1998
Sales $442,841 $490,679 $482,875 $572,297 $1,988,692
Gross margin, after
occupancy 133,328 149,570 147,910 169,786 600,594
Net earnings 23,753 27,998 25,055 40,668 117,474
Net earnings per
diluted share .47 .55 .50 .83 2.35
Dividends declared per
share on common stock .045 .045 .10 .19
Closing stock price(3)
High $29.25 $34.06 $38.00 $41.81 $41.81
Low $20.19 $26.50 $29.00 $32.50 $20.19
13 Weeks 13 Weeks 13 Weeks Ended 13 Weeks 52 Weeks
Ended Ended November 2, Ended Ended
($000, except per share data) May 4, August 3, 1996 February 1, February 1,
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
diluted share .27 .36 .32 .63 1.58
Dividends declared per
share on common stock .035 .035 .08 .15
Closing stock price
High $17.44 $20.81 $21.31 $26.19 $26.19
Low $9.94 $14.50 $16.87 $20.44 $9.94
Includes $.045 per share dividend declared November 1997 and $.055 per share
dividend declared January 1998.
Includes $.035 per share dividend declared November 1996 and $.045 per share
dividend declared in January 1997.
Ross Stores, Inc. common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market(SM) under the symbol ROST.
28
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 January 31,
1998 and February 1, 1997, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the three
years in the period ended January 31, 1998. 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 January 31, 1998 and February 1, 1997, and the results
of its operations and its cash flows for each of the three years in
the period ended January 31, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
San Francisco, California
March 17, 1998
29
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
Thursday, May 28, 1998 (the "Proxy Statement"); and (iii) "Section
16(a) Beneficial Ownership Reporting Compliance" 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 Values.
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".
30
PART IV
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 January 31, 1998 and February 1,
1997.
Consolidated Statements of Earnings for the years ended
January 31, 1998, February 1, 1997 and February 3,
1996.
Consolidated Statements of Stockholders' Equity for the
years ended January 31, 1998, February 1, 1997 and
February 3, 1996.
Consolidated Statements of Cash Flows for the years
ended January 31, 1998, February 1, 1997 and February 3,
1996.
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 35 of this Report.
(b) Reports on Form 8-K.
None.
31
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 22, 1998 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 22, 1998
Michael Balmuth Chief Executive Officer
/s/M. Wilmore President, Chief Operating April 22, 1998
Melvin A. Wilmore Officer and Director
/s/J. Call Senior Vice President, April 22, 1998
John G. Call Chief Financial Officer,
Principal Accounting Officer and
Corporate Secretary
/s/Norman A. Ferber Chairman of the Board April 22, 1998
Norman A. Ferber
/s/Stuart G. Moldaw Chairman Emeritus April 22, 1998
Stuart G. Moldaw
/s/G. Orban Director April 22, 1998
George P. Orban
/s/Philip Schlein Director April 22, 1998
Philip Schlein
/s/Donald H. Seiler Director April 22, 1998
Donald H. Seiler
/s/D. L. Weaver Director April 22, 1998
Donna L. Weaver
32
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 Credit Agreement, dated September 15, 1997, among Ross
Stores, Bank of America, National Trust and Savings
Association ("Bank of America") as Agent and the other
financial institutions party thereto, incorporated by
reference to Exhibit 10.2 to the Form 10-Q filed by Ross
Stores for its quarter ended November 1, 1997.
10.3 Letter of Credit Agreement, dated September 15, 1997,
between Ross Stores and Bank of America, incorporated by
reference to Exhibit 10.3 to the Form 10-Q filed by Ross
Stores for its quarter ended November 1, 1997.
10.4 Amendment to Credit Agreement, dated as of October 7,
1997 between Ross Stores and Bank of America,
incorporated by reference to Exhibit 10.4 to the Form 10-
Q filed by Ross Stores for its quarter ended November 1,
1997.
10.5 Second Amendment to Credit Agreement, dated as of
January 30, 1998 between Ross Stores and Bank of
America.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS 10.6 - 10.34)
10.6 Amended and Restated 1992 Stock Option Plan,
incorporated by reference to the appendix to the Proxy
Statement filed by Ross Stores on April 24, 1998 for its
Annual Stockholders Meeting to be held May 28, 1998.
10.7 Third Amended and Restated Ross Stores Employee Stock
Purchase 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.
10.8 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").
10.9 1991 Outside Directors Stock Option Plan, incorporated
by reference to the appendix to the 1996 Proxy
Statement.
10.10 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").
10.11 Third Amended and Restated Ross Stores Executive
Supplemental Retirement Plan, incorporated by reference
to Exhibit 10.14 to the 1993 Form 10-K.
10.12 Ross Stores Non-Qualified Deferred Compensation Plan,
incorporated by reference to Exhibit 10.15 to the 1993
Form 10-K.
33
Exhibit
Number Exhibit
10.13 Ross Stores Incentive Compensation Plan,
incorporated by reference to the appendix to the
1996 Proxy Statement.
10.14 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.
10.15 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.
10.16 Amendment to Amended Restated Employment Agreement
between Ross Stores and Norman A. Ferber effective
as of March 20, 1997, incorporated by reference to
Exhibit 10.19 to the Form 10-Q filed by Ross Stores
for its quarter ended May 3, 1997.
10.17 Third Amendment to Amended and Restated Employment
Agreement between Ross Stores and Norman A. Ferber,
effective as of April 15, 1997, incorporated by
reference to Exhibit 10.20 to the Form 10-Q filed by
Ross Stores for its quarter ended May 3, 1997.
10.18 Fourth Amendment to Amended and Restated Employment
Agreement between Ross Stores and Norman A. Ferber,
effective as of November 20, 1997.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 Fourth Amendment to Employment Agreement by and
between Ross Stores and Melvin A. Wilmore, entered
into May 19, 1997, incorporated by reference to
Exhibit 10.25 to the Form 10-Q filed by Ross Stores
for its quarter ended August 2, 1997.
10.24 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.
10.25 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.
10.26 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.
10.27 Third Amendment to Employment Agreement between Ross
Stores and Michael Balmuth, entered into May 19,
1997, incorporated by reference to Exhibit 10.29 to
the Form 10-Q filed by Ross Stores for its quarter
ended August 2, 1997.
28
Exhibit
Number Exhibit
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 A.
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
Moldaw, effective as of April 1, 1997, incorporated by
reference to Exhibit 10.34 to the Form 10-Q filed by
Ross Stores for its quarter ended May 3, 1997.
23 Independent Auditors' Consent.
27 Financial Data Schedules (submitted for SEC use only).
WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT
This Waiver and Amendment, dated as of January 31, 1998, is
entered into by and among ROSS STORES, INC. (the "Company"), BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for itself
and the Banks (the "Agent"), and the several financial institutions
party to the Credit Agreement (collectively, the "Banks").
RECITALS
A. The Company, Banks, and Agent are parties to a Credit
Agreement dated as of September 15, 1997 (the "Credit Agreement")
pursuant to which the Agent and the Banks have extended certain credit
facilities to the Company.
B. The Company has requested the waiver of certain terms of the
Credit Agreement to permit the formation and capitalization of the new
Subsidiaries listed on Exhibit A (the "Subsidiaries").
C. The Banks are willing to provide such waiver, subject to the
terms and conditions of this Waiver and Amendment.
AGREEMENT
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings, if any, assigned to them in
the Credit Agreement.
2. Waiver. The Banks hereby consent to the formation and
capitalization of the Subsidiaries, substantially in accordance with
the plan previously provided to the Banks, and agree that the
formation and capitalization of the Subsidiaries and the execution by
such Subsidiaries of the guaranties required by this Waiver and
Amendment, shall not be considered in calculating compliance with
section 7.04 of the Credit Agreement.
3. Amendment to Credit Agreement. Section 8.01 of the Credit
Agreement, "Event of Default," is hereby amended by adding the
following subparagraph:
(n) Guarantor Defaults. Any Person executing a guaranty of
the Company's obligations under this Agreement (each a
"Guarantor") fails in any material respect to perform or observe
any term, covenant or agreement in the Guaranties; or any such
guaranty is for any reason partially (including with respect to
future advances) or wholly revoked or invalidated, or otherwise
ceases to be in full force and effect, or any Guarantor or any
other Person contests in any manner the validity or
enforceability thereof or denies that it has any further
liability or obligation thereunder.
4. Effective Date. This Waiver and Amendment will become
effective (the "Effective Date") on the later of the date of this
Waiver and Amendment and the date that each of the following
conditions is satisfied, or waived by the Agents and the Banks
2
(a) The Agent has received from the Company and each of the
Banks a duly executed original (or, if elected by the Agent, an
executed facsimile copy) of this Waiver and Amendment.
(b) The Agent has received a Guaranty, in form and substance
acceptable to the Agent and the Banks, executed by each Subsidiary.
The Guaranty shall constitute a "Loan Document," as defined in the
Credit Agreement.
(c) The Agent has received evidence, in form and substance
acceptable to the Agent, of the due formation of each Subsidiary and
of the due authorization of the execution of the Guaranty.
(d) All representations and warranties contained herein are
true and correct as of the Effective Date.
5. Balance Sheets. The Company shall, no later than 90 days
after the date of this Waiver and Amendment, provide to the Banks
through the Agent balance sheets for each of the Subsidiaries, dated
as of the Effective Date.
6. Representations and Warranties. The Company hereby represents
and warrants to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is
continuing.
(b) The execution, delivery and performance by the Company
of this Waiver and Amendment have been duly authorized by all
necessary corporate and other action and do not and will not require
any registration with, consent or approval of, notice to or action by,
any Person (including any Governmental Authority) in order to be
effective and enforceable. The Credit Agreement as amended by this
Waiver and Amendment constitutes the legal, valid and binding
obligations of the Company, enforceable against it in accordance with
its respective terms, without defense, counterclaim or offset.
(c) All representations and warranties of the Company
contained in the Credit Agreement are true and correct.
(d) The Company is entering into this Waiver and Amendment
on the basis of its own investigation and for its own reasons, without
reliance upon the Agent and the Banks or any other Person.
7. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants
and provisions of the Credit Agreement are and shall remain in full
force and effect and all references therein to such Credit Agreement
shall henceforth refer to the Credit Agreement as amended by this
Waiver and Amendment. This Waiver and Amendment shall be deemed
incorporated into, and a part of, the Credit Agreement.
3
(b) This Waiver and Amendment shall be binding upon and
inure to the benefit of the parties hereto and thereto and their
respective successors and assigns. No third party beneficiaries are
intended in connection with this Waiver and Amendment.
(c) This Waiver and Amendment shall be governed by and
construed in accordance with the law of the State of California.
(d) This Waiver and Amendment may be executed in any number
of counterparts, each of which shall be deemed an original, but all
such counterparts together shall constitute but one and the same
instrument. Each of the parties hereto understands and agrees that
this document (and any other document required herein) may be
delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be
followed promptly by mailing of a hard copy original, and that receipt
by the Agent of a facsimile transmitted document purportedly bearing
the signature of a Bank or the Company shall bind such Bank or the
Company, respectively, with the same force and effect as the delivery
of a hard copy original. Any failure by the Agent to receive the hard
copy executed original of such document shall not diminish the binding
effect of receipt of the facsimile transmitted executed original of
such document of the party whose hard copy page was not received by
the Agent.
(e) This Waiver and Amendment, together with the Credit
Agreement, contains the entire and exclusive agreement of the parties
hereto with reference to the matters discussed herein and therein.
This Waiver and Amendment supersedes all prior drafts and
communications with respect thereto. This Waiver and Amendment may
not be amended except in accordance with the provisions of the Credit
Agreement.
(f) If any term or provision of this Waiver and Amendment
shall be deemed prohibited by or invalid under any applicable law,
such provision shall be invalidated without affecting the remaining
provisions of this Waiver and Amendment or the Credit Agreement,
respectively.
(g) The Company covenants to pay to or reimburse the Agent,
upon demand, for all costs and expenses (including allocated costs of
in-house counsel) incurred in connection with the development,
preparation, negotiation, execution and delivery of this Waiver and
Amendment, including without limitation appraisal, audit, search and
filing fees incurred in connection therewith.
3
8. Correction of Error. On the signature page of the original
Credit Agreement, one of the Banks was incorrectly described as
NationsBank, N.A. The correct name of the Bank is NationsBank of
Texas, N.A.
ROSS STORES, INC. BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By:/s/John Call
By: /s/Christine E. Cordi
Title: Senior Vice President Christine E. Cordi
Vice President
BANK OF AMERICA NATIONAL TRUST WELLS FARGO BANK, N.A.
AND SAVINGS ASSOCIATION, as a Bank
as a Bank
By: /s/ Frieda Youlios
By:/s/Hagop V. Bouldoukian
Hagop V. Bouldoukian Printed Name Frieda Youlios
Vice President Title Vice President
By: /s/ Mark Haberecht
Printed Name Mark Haberecht
Title Assistant Vice President
BANQUE NATIONALE DE PARIS, NATIONSBANK OF TEXAS, N. A.,
as a Bank as a Bank
By: /s/Katherine Wolfe By: /s/ Brad DeSpain
Brad DeSpain
Printed Name Katherine Wolfe Senior Vice President
Title Vice President
By: /s/ Debra Wright
Debra Wright
Vice President
THE BANK OF NEW YORK,
as a Bank
By: /s/William A. Kerr
William A. Kerr
Senior Vice President
3
EXHIBIT A
SUBSIDIARIES
Texflo, Inc., a California corporation
Ross Stores Texas, L.P., a Texas limited partnership
Ross Florida Dress For Less, L.C., a Florida limited liability company
Ross Stores Resources, Inc., a California corporation
Ross Stores Administration Company, a California corporation
Ross Stores Asset Management Company, a California corporation
Ross Stores Asset I Company, a California corporation
Ross Stores Asset II Company, a California corporation
EXHIBIT 10.18
FOURTH AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT
AGREEMENT (the "Amendment") is made and entered into this 20th day of
November 1997, by and between ROSS STORES, INC. (The "Company") and
NORMAN A. FERBER (the "Executive").
A. The Company and the Executive have previously entered into
an Amended and Restated Employment Agreement as of June 1, 1995, which
has subsequently been amended on July 29, 1996, March 20, 1997 and
April 15, 1997 (as amended, the "Agreement").
B. It is now the intention of the Company and the Executive to
further amend the Agreement.
Accordingly, the Company and the Executive hereby agree as
follows:
A. Paragraph 2 of the Agreement is hereby amended to
provide that the Executive shall continue to serve as Chairman of the
Board of the Company at the will of the Board through January 31,
1999.
B. Paragraph 3 of the Agreement is hereby amended to
provide that the Executive shall continue to be retained as a
consultant by the Company through January 31, 1999, which date shall
be the "Consultancy Termination Date".
C. Paragraph 5(a) of the Agreement is hereby amended to
provide that the Executive shall be paid a consulting fee of
$83,333.33 per month for his services as a consultant from February 1,
1998 through January 31, 1999. Notwithstanding the provisions of
Paragraph 5(b) of the Agreement, the Executive shall not be entitled
to any bonus for performance during the period from February 1, 1998
through January 31, 1999, but shall continue to be entitled to all
other benefits and payments provided in the Agreement.
D. Paragraph 5(e) of the Agreement is hereby amended to
change "the summer of 1997" in the last sentence thereof to "the
summer of 1998."
E. Except as amended by this Amendment, the Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Fourth
Amendment to the Amended and Restated Employment Agreement as of the
date and year first above written.
ROSS STORES, INC. EXECUTIVE
By:/s/Michael Balmuth By:/s/Norman A. Ferber
Vice-Chairman & CEO
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 17, 1998, appearing in this Annual Report on Form 10-K of
Ross Stores, Inc. for the year ended January 31, 1998.
Deloitte & Touche LLP
San Francisco, California
April 22, 1998
5
0000745732
ROSS STORES, INC.
1,000
12-MOS
JAN-31-1998
FEB-02-1997
JAN-31-1998
56,369
0
8,122
0
418,825
498,424
384,311
179,590
737,953
323,746
0
0
0
479
380,202
737,953
1,988,692
1,988,692
1,388,098
1,792,903
0
0
(265)
195,789
78,315
117,474
0
0
0
117,474
2.40
2.35
For purposes of this exhibit, primary means basic
5
1,000
3-MOS 3-MOS 3-MOS
JAN-31-1998 JAN-31-1998 JAN-31-1998
FEB-02-1997 MAY-04-1997 AUG-03-1997
MAY-03-1997 AUG-02-1997 NOV-01-1997
26,879 31,770 21,737
0 0 0
9,583 9,250 9,720
0 0 0
409,014 427,114 467,947
458,881 482,387 513,922
351,239 356,067 362,098
157,806 164,458 171,779
683,156 704,187 737,043
305,149 308,614 351,033
0 0 0
0 0 0
0 0 0
496 496 479
348,155 365,485 328,442
683,156 704,187 737,043
442,841 490,679 482,875
442,841 490,679 482,875
309,513 341,109 334,965
403,252 444,017 441,117
0 0 0
0 0 0
(200) (283) 206
39,589 46,662 41,758
15,836 18,664 16,703
23,753 27,998 25,055
0 0 0
0 0 0
0 0 0
23,753 27,998 25,055
.48 .56 .51
.47 .55 .50
For purposes of this exhibit, primary means basic
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
328,350
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
1.62
1.58
FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC
5
1,000
3-MOS 3-MOS 3-MOS
FEB-01-1997 FEB-01-1997 FEB-01-1997
FEB-04-1996 MAY-05-1996 AUG-04-1996
MAY-04-1996 AUG-03-1996 NOV-02-1996
35,036 35,080 25,305
0 0 0
11,555 9,153 11,618
0 0 0
332,623 357,778 401,813
392,215 414,500 452,005
317,049 322,906 338,359
137,674 144,685 152,468
593,897 615,194 660,378
243,611 265,530 308,347
0 0 0
0 0 0
0 0 0
504 504 498
306,013 314,590 312,168
593,897 615,194 660,378
370,948 405,656 403,383
370,948 405,656 403,383
264,058 285,618 283,797
347,722 374,575 376,126
0 0 0
0 0 0
184 31 (77)
23,226 31,081 27,257
9,2906 12,432 10,903
13,936 18,649 16,354
0 0 0
0 0 0
0 0 0
13,936 18,649 16,354
.28 .36 .32
.27 .36 .32
For purposes of this exhibit, primary means basic
5
0000745732
ROSS STORES, INC.
1,000
12-MOS
FEB-03-1996
JAN-29-1995
FEB-03-1996
23,426
0
7,598
0
295,965
340,463
321,550
140,174
541,152
218,771
0
0
0
492
291,024
541,152
1,426,397
1,426,397
1,031,455
1,354,276
0
0
2,737
72,121
28,849
43,272
0
0
0
43,272
.88
.87
For purposes of this exhibit, primary means basic
