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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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 29, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
Commission file number 0-14678
ROSS STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1390387
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8333 CENTRAL AVENUE, NEWARK, CALIFORNIA 94560-3433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 505-4400
Securities registered pursuant to Section 12(b) of the Act: NONE
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 N/A
Indicate by check mark whether the registrant has (1) 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 filers 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. ____
The aggregate market value of the voting common stock held by non-affiliates
of the Registrant as of March 31, 2000 was $1,987,006,175. 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
March 31, 2000 was 84,290,457.
Documents incorporated by reference:
Portions of the Proxy Statement for Registrant's 2000 Annual Meeting of
Stockholders, which will be filed on or before May 10, 2000, are
incorporated herein by reference into Part III.
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1
PART I
ITEM 1. BUSINESS
Ross Stores, Inc. ("Ross" or "company") operates a chain of
off-price retail apparel and home accessories stores, which target value
conscious men and women between the ages of 25 and 54 in middle-to-upper
middle income households. 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 brand name and designer 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 customer
by focusing on the following key strategic objectives:
- - Achieve an appropriate level of recognizable 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 leadership 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 then 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 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. New merchandise typically is
received five times each week at the company's 378 stores. The company's
buyers review their merchandise assortments on a weekly basis, enabling them
to respond to merchandise trends and purchasing opportunities in the market.
The company's merchandising strategy is reflected in its advertising, which
emphasizes a strong value message --Ross' customers will find great savings
everyday on a broad assortment of name-brand merchandise.
MERCHANDISING. The Ross merchandising strategy incorporates a
combination of off-price buying techniques to purchase both in-season and
past-season merchandise. The company's emphasis on nationally advertised name
brands reflects management's conviction that brand-name merchandise sold at
compelling discounts will continue to be an important determinant of its
success. Ross generally 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 or item. Over the past several years, the company has diversified
its merchandise offerings by adding new product categories such as maternity,
small sporting goods and exercise equipment, small electronics, tabletop
lamps, small furnishings, educational toys and games, luggage, gourmet food
and cookware, and fine jewelry in select stores. For fiscal 1999, the overall
merchandise sales mix was approximately 94% first quality merchandise and 6%
irregulars. The respective departments accounted for total sales in fiscal
1999 approximately as follows: Ladies 34%, Men's 21%, Home Accents and Bed
and Bath 16%, Fine Jewelry, Accessories, Hosiery, Lingerie and Fragrances
12%, Shoes 8% and Children's 9%.
2
PURCHASING. The company continues to expand its network of vendors
and manufacturers 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 in
manufacturer-projected supplies of merchandise.
Unlike most department and specialty stores, Ross does not require
that manufacturers provide promotional and markdown allowances, return
privileges, split shipments, drop shipments to stores or delayed deliveries
of merchandise. For most orders, the manufacturer only makes one delivery 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 shifts in fashion trends.
Throughout the 1990s, Ross gradually increased the amount of
packaway inventories. In 1999, the company continued its emphasis on these
important resources in response to compelling opportunities available in the
marketplace. Packaway accounted for approximately 44% of total inventories as
of January 29, 2000, compared to 44% at the end of the prior year. 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. In-store
inventories at the end of fiscal 1999 were even with the prior year, and
total consolidated inventories were up 7% mainly due to a greater number of
stores in operation compared to the prior year.
The company is developing enhanced systems and processes for
regionalized merchandise buying and allocation. The goal is to fine tune the
merchandise mix and raise sales productivity in markets that are performing
below the company average. Full implementation is scheduled for completion in
2001.
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, Foot Locker, Lechters, Lord & Taylor, Macy's,
Marshalls, Nordstrom's, Robinson's/May, Sterns, T.J. 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.
This combination of off-price buying strategies enables the company
to purchase merchandise at net prices that are lower than prices paid by
department and specialty stores.
PRICING. The company's policy is to sell brand-name merchandise that
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
for that item in department and/or specialty stores.
3
The Ross pricing strategy differs from that of a department or
specialty store. Ross purchases its merchandise at lower prices and marks it
up less than a department or specialty store. This strategy enables Ross to
offer customers consistently low prices. Specified departments in the store
are reviewed weekly for possible markdowns based on the rate of sale 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 29, 2000, the company operated 378 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.
The company believes a key element of its success is its organized,
attractive, easy-to-shop in-store environment, 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 and/or baskets are available at the entrance
for customer convenience. All cash registers are centrally located at store
entrances for customer ease and efficient staffing.
The company minimizes 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 40% 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:
- - Labor costs that generally are lower than full-price department and
specialty stores due to (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 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.
The company believes that its two distribution centers, combined
with utilization of third party processors, can provide adequate processing
capacity to support store growth through fiscal 2001. The company is
currently planning for a new distribution center facility, which is expected
to be operational sometime during 2002.
4
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, store allocation and pricing decisions. The
system enables Ross to respond to changes in the retail market and to
increase speed and accuracy in its merchandise distribution.
Data from the current and last fiscal year can be monitored on
levels ranging from merchandise classification units to overall totals for
the company. Merchandise is tracked by the system from the creation of its
purchase order, through its receipt at the distribution center, through the
distribution planning process, and ultimately to the point of sale.
ADVERTISING
The company relies primarily on television advertising to
communicate its merchandise offerings of quality, brand name product at low
everyday prices. This strategy reflects the company's belief that television
is the most efficient and cost effective medium for communicating everyday
savings on a wide selection of brand-name bargains for both the family and
home.
TRADEMARKS
The trademark for Ross Dress For Less(R) has been registered with
the United States Patent and Trademark Office.
EMPLOYEES
On January 29, 2000, the company had approximately 20,700 employees
which includes an estimated 13,000 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 good.
COMPETITION
The company believes the principal competitive factors in the
off-price retail apparel and home accessories industry are offering large
discounts on name-brand merchandise appealing to its target customer and
consistently providing a store environment that is convenient and easy to
shop. To execute this concept, the company has strengthened its buying
organization and 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 29, 2000, the company expanded from six
stores in California to 378 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 location.
5
During fiscal 1999, the company opened 34 new Ross `Dress For Less'
stores and closed five existing locations. The average new Ross store in 1999
was approximately 31,200 square feet, yielding about 24,400 square feet of
selling space. As of January 29, 2000, the company's 378 stores generally
ranged in size from about 24,000 to 35,000 gross square feet and had an
average of 22,600 square feet of selling space.
During the fiscal year ended January 29, 2000, no one store
accounted for more than 1% of the company's sales. The company carries
earthquake insurance on its corporate headquarters, both distribution centers
and on its stores in California.
The company's real estate strategy is to open additional stores
mainly in existing market areas, to increase its market penetration and
reduce overhead and advertising expenses as a percentage of sales in each
market. Important considerations in evaluating a new market are the
availability of potential sites, demographic characteristics, competition and
population density of the market. In fiscal 2000, the company plans to focus
its new store growth primarily in existing markets. In addition, management
continues to consider 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 29, 2000, the majority of the company's
stores had unexpired original lease terms ranging from three to ten years
with three to four renewal options of five years each. The average unexpired
original lease term of its leased stores is five years, or 20 years if
renewal options are included. (See Note C of Notes to 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 June 1998, the company purchased its Newark, California
distribution center (approximately 494,000 square feet) for $24.6 million.
The Newark facility is also the company's corporate headquarters. The company
also owns its distribution center in Carlisle, Pennsylvania (approximately
424,000 square feet). Having a processing 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.
The company believes that its two processing distribution centers,
combined with utilization of third party processors, can provide adequate
processing capacity to support store growth through fiscal 2001. The company
is currently planning for a new distribution center facility, which is
expected to be operational sometime during 2002.
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. In
August 1998, the company leased an additional 246,000 square foot warehouse
in Carlisle, Pennsylvania, for a 42-month term. In November 1998, the company
entered into a five-year lease for an additional 97,000 square foot warehouse
in Newark, California. All of these properties store the company's packaway
inventory. In August 1999, Ross leased for a 50-month term a 32,000 square
foot warehouse on ten acres in Newark, California. This location is primarily
used for the storage of certain supplies and equipment.
6
ITEM 3. LEGAL PROCEEDINGS
The company has been named in a class action lawsuit filed on July
8, 1999 in California Superior Court in San Bernardino County. The complaint
alleges that the company's California store managers and assistant store
managers were incorrectly classified as exempt employees from overtime laws
of the State of California. After responsive pleadings were filed by the
company, a preliminary understanding to resolve the class action lawsuit was
announced by the company on February 3, 2000. As a result, the company
recorded a non-recurring pre-tax charge of $9.0 million in the fourth quarter
of fiscal 1999 relating to this matter. When terms are completed, the company
expects to execute a settlement agreement, without any admission of
wrongdoing, which will be subject to judicial approval. (See Note G of Notes
to Consolidated Financial Statements).
The company is a party to routine litigation incident to its
business. Management believes that none of these routine legal proceedings
will have a material adverse effect on the company's financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 at least the past five years. The term of office is at the
pleasure of the Board of Directors.
NAME AGE POSITION
Michael A. Balmuth 49 Vice Chairman and Chief Executive Officer
John G. Call 41 Senior Vice President, Chief Financial Officer and Corporate
Secretary
Ivy D. Council 43 Senior Vice President, Human Resources
James S. Fassio 45 Senior Vice President, Property Development, Construction and
Store Design
Barry S. Gluck 47 Senior Vice President and General Merchandising Manager
Michael Hamilton 54 Senior Vice President, Store Operations
Irene Jamieson 49 Senior Vice President and General Merchandising Manager
Megan Jamieson 38 Senior Vice President, Strategic Planning
Barbara Levy 45 Senior Vice President and General Merchandising Manager
Michael L. Wilson 46 Senior Vice President, Distribution and Transportation
- -----------------------------
7
Mr. Balmuth joined the Board of Directors as Vice Chairman and
became Chief Executive Officer in September 1996. Prior to that, he served as
the company's Executive Vice President, Merchandising since July 1993 and
Senior Vice President and General Merchandising Manager since November 1989.
Before joining Ross, he was Senior Vice President and General Merchandising
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 Merchandising Manager for Karen Austin Petites.
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 that, 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, Construction and Store Design since March 1991. He joined the
company in June 1988 as Vice President of Real Estate. Prior to joining Ross,
Mr. Fassio was Vice President, Real Estate and Construction at Craftmart and
Property Director of Safeway Stores, Inc.
Mr. Gluck has served as Senior Vice President and General
Merchandising Manager since August 1993. He joined the company in February
1989 as Vice President and Divisional Merchandising Manager. Prior to joining
Ross, Mr. Gluck served as General Merchandising Manager, Vice President for
Today's Man from May 1987 to February 1989. From March 1982 to April 1987, he
was Vice President, Divisional Merchandising Manager, Men's, Children and
Luggage of Macy's Atlanta.
Mr. Hamilton has served as Senior Vice President, Store Operations
since March 1999. From October 1996 to March 1999, he was Executive Vice
President, Operations for Hill's Department Stores. From April 1993 to
October 1996, he served as Executive Vice President, Stores for Venture
Stores. Prior to that, he held various executive and managerial positions at
Venture Stores.
Ms. Irene Jamieson has served as Senior Vice President and General
Merchandising Manager since January 1995. From December 1992 to January 1995,
she served as Vice President and Divisional Merchandising Manager. Prior to
joining Ross, Ms. Jamieson served as Vice President and Divisional
Merchandising Manager of the Home Store for Lord & Taylor from September 1983
to December 1992.
Ms. Megan Jamieson has served as Senior Vice President, Strategic
Planning since February 1999. From January 1997 to February 1999, she served
as Director of Strategy for Sears, Roebuck and Co.'s full-line store
division. Prior to Sears, she was a case team leader with the consulting firm
Bain & Co.
Ms. Levy has served as Senior Vice President and General
Merchandising 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 Merchandising 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 Merchandising Manager - Better
Sportswear.
Mr. Wilson has served as Senior Vice President, Distribution and
Transportation since May 1999. From July 1996 to May 1999, he was President
of Distribution Fulfillment Services, Inc., a division of the Spiegel Group,
and from October 1991 to July 1996, he served in various distribution
management positions with the Spiegel Group. Prior to joining the Spiegel
Group, he held the position of Division Vice President/Merchandise Processing
for Rich's Department Stores. Prior to 1991, he held various operating
positions within the transportation, third party distribution and retail
distribution environment, with companies that included McLean Trucking,
Ivey's Department Stores and Distribution Marking Services Inc.
8
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 of Notes to 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 830
stockholders of record as of March 31, 2000 and the closing stock price on
that date was $24.0625 per share.
CASH DIVIDENDS. During fiscal 1999 and 1998, the company paid a
quarterly cash dividend of $0.0325 and $0.0275, respectively, per common
share. On January 27, 2000, the Board of Directors increased the quarterly
dividend to $0.0375 per common share.
9
ITEM 6. SELECTED FINANCIAL DATA
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($000, except per share data) 1999 1998 1997 1996 1995(2)
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OPERATIONS
Sales $2,468,638 $2,182,361 $1,988,692 $1,689,810 $1,426,397
Cost of goods sold and occupancy 1,702,342 1,513,889 1,388,098 1,194,136 1,031,455
PERCENT OF SALES 69.0% 69.4% 69.8% 70.7% 72.3%
General, selling and administrative 472,822 415,284 374,119 332,439 293,051
PERCENT OF SALES 19.2% 19.0% 18.8% 19.7% 20.5%
Depreciation and amortization 38,317 33,514 30,951 28,754 27,033
Interest (income) expense (322) 259 (265) (360) 2,737
Provision for litigation expense(1) 9,000
Earnings before taxes(1) 246,479 219,415 195,789 134,841 72,121
PERCENT OF SALES(1) 10.0% 10.1% 9.8% 8.0% 5.1%
Provision for taxes on earnings 96,373 85,572 78,315 53,936 28,849
Net earnings(1) 150,106 133,843 117,474 80,905 43,272
PERCENT OF SALES1 6.1% 6.1% 5.9% 4.8% 3.0%
Diluted earnings per share(1,3) $1.64 $1.40 $1.17 $.79 $.44
Cash dividends declared per
common share(3) $.135 $.115 $.095 $.075 $.063
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1 Fiscal 1999 includes a non-recurring pre-tax charge of $9.0 million, or
$.06 per share, related to litigation. See Note G of Notes to
Consolidated Financial Statements.
2 Fiscal 1995 is a 53-week year; all other fiscal years have 52 weeks.
3 All per share information is adjusted to reflect the effect of the
two-for-one stock splits effected in the form of 100% stock dividends
paid on September 22, 1999 and March 5, 1997.
- ----------------------------------------------------------------------------------------------------------------------------
10
SELECTED FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------
($000, except per share data) 1999 1998 1997 1996 1995(2)
-----------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Merchandise inventory $500,494 $466,460 $418,825 $373,689 $295,965
Property and equipment, net 273,164 248,712 204,721 192,647 181,376
Total assets 947,678 870,306 737,953 659,478 541,152
Return on average assets(1) 17% 17% 17% 13% 8%
Working capital 190,724 170,795 174,678 134,802 121,692
Current ratio 1.5:1 1.4:1 1.5:1 1.4:1 1.6:1
Total debt 0 0 0 0 9,806
Total debt as a percent of
total capitalization 0% 0% 0% 0% 3%
Stockholders' equity 473,431 424,703 380,681 328,843 291,516
Return on average
stockholders' equity(1) 33% 33% 33% 26% 16%
Book value per common share
outstanding at year-end(3) $5.33 $4.59 $3.97 $3.33 $2.96
OPERATING STATISTICS
Number of stores opened 34 26 17 21 21
Number of stores closed 5 2 1 4 4
Number of stores at year-end 378 349 325 309 292
Comparable store sales increase
(52-week basis) 6% 3% 10% 13% 2%
Sales per square foot of selling
space (52-week basis)(4) $300 $290 $285 $259 $230
Square feet of selling space
at year-end (000) 8,544 7,817 7,172 6,677 6,276
Number of employees at
year-end 20,718 20,081 17,039 14,853 11,935
Number of common stockholders
of record at year-end 827 818 813 826 1,022
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-----------------------------------------------------------------------------------------------------------------
1 Fiscal 1999 includes a non-recurring pre-tax charge of $9.0 million, or
$.06 per share, related to litigation. See Note G of Notes to
Consolidated Financial Statements.
2 Fiscal 1995 is a 53-week year; all other fiscal years have 52 weeks.
3 All per share information is adjusted to reflect the effect of the
two-for-one stock splits effected in the form of 100% stock dividends
paid on September 22, 1999 and March 5, 1997.
4 Based on average annual selling square footage.
- ----------------------------------------------------------------------------------------------------------------------
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The fiscal years ended January 29, 2000, January 30, 1999 and January 31,
1998 are referred to as 1999, 1998 and 1997, respectively.
RESULTS OF OPERATIONS
----------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
January 29, 2000 January 30, 1999 January 31, 1998
----------------------------------------------------------------------------------------------------------------------------------
SALES
Sales ($000) $2,468,638 $2,182,361 $1,988,692
Sales growth 13% 10% 18%
Comparable store sales growth 6% 3% 10%
COST AND EXPENSES (AS A PERCENT OF SALES)
Cost of goods sold and occupancy 69.0% 69.4% 69.8%
General, selling and administrative 19.2% 19.0% 18.8%
Depreciation and amortization 1.6% 1.5% 1.6%
Interest (income) expense (0%) 0% (0%)
Provision for litigation expense 0.4%
----------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS 6.1% 6.1% 5.9%
----------------------------------------------------------------------------------------------------------------------------------
STORES. Total stores open at the end of 1999, 1998 and 1997 were 378, 349 and
325, respectively. During 1999, the company opened 34 new stores and closed
five stores. During 1998, the company opened 26 new stores and closed two
stores. During 1997, the company opened 17 new stores and closed one store.
SALES. The increases in sales for 1999, 1998 and 1997 were due to a greater
number of stores in operation and an increase in comparable store sales. The
company anticipates that the competitive climate for apparel and off-price
retailers will continue in 2000. Management expects to address that challenge
by continuing to strengthen the merchandise organization, diversifying the
merchandise mix, and more fully developing the organization and systems to
strengthen regional merchandise offerings. Although the company's existing
strategies and store expansion program contributed to sales and earnings
gains in 1999, 1998 and 1997, 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 1999 resulted primarily from an increase in the initial
mark-up from purchasing more opportunistically, leverage on occupancy costs
and lower markdowns as a percentage of sales. The reduction in the cost of
goods sold and occupancy ratio in 1998 resulted primarily from an increase in
the initial mark-up from purchasing more opportunistically and leverage on
occupancy costs. There can be no assurance that the improvements experienced
in 1999 and 1998 will continue in future years.
GENERAL, SELLING AND ADMINISTRATIVE EXPENSES. During 1999, general, selling
and administrative expenses as a percentage of sales increased primarily due
to higher benefit costs, credit card fees and management incentive plan
expenses. During 1998, general, selling and administrative expenses as a
percentage of sales increased primarily due to costs associated with the
company's year 2000 remediation efforts.
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 1999, 1998 and 1997, was approximately 20,700, 20,100 and 17,000,
respectively.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization as a percentage
of sales have remained relatively constant over the last three years, due
primarily to the consistent level of fixed assets in each store.
12
PROVISION FOR LITIGATION EXPENSE. The company has reached a preliminary
understanding to resolve a class action complaint alleging store managers and
assistant managers in California are incorrectly classified as exempt from
state overtime laws. As a result, in 1999 the company recorded a
non-recurring pre-tax charge of $9.0 million relating to this matter. When
terms are completed, the company expects to execute a settlement agreement,
without any admission of wrongdoing, which will be subject to subsequent
judicial approval. See Note G of Notes to Consolidated Financial Statements.
TAXES ON EARNINGS. The company's effective rate for 1999, 1998 and 1997 was
39%, 39% and 40%, respectively, which represents the applicable federal and
state statutory rates reduced by the federal benefit received for state
taxes. During 2000, the company expects its effective tax rate to remain at
approximately 39%. Additionally, the increase in income taxes paid in 1999
and the decrease in income taxes paid in 1998 from 1997 resulted primarily
from an increase in pre-tax earnings and timing differences in the payment of
taxes between the years.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES. During 1999, 1998 and 1997, liquidity and
capital requirements were provided by cash flows from operations, bank credit
facilities and trade credit. The company's store sites, certain warehouses
and 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 of Notes to Consolidated
Financial Statements. The company owns its distribution center and corporate
headquarters in Newark, California, and its distribution center in Carlisle,
Pennsylvania. Short-term trade credit represents a significant source of
financing for investments in merchandise inventory. Trade credit arises from
customary trade practices with the company's vendors. Management regularly
reviews the adequacy of credit available to the company from all sources and
has been able to maintain adequate lines to meet the capital and liquidity
requirements of the company.
During 1999, the primary uses of cash, other than for operating expenditures,
were for merchandise inventory, property and equipment to open 34 new stores,
the relocation, remodeling or expansion of 14 stores, the repurchase in the
open market of $120.0 million of the company's common stock, and quarterly
cash dividend payments. During 1998, the primary uses of cash, other than for
operating expenditures, were for merchandise inventory, property and
equipment to open 26 new stores, the relocation, remodeling or expansion of
20 stores, the repurchase in the open market of $110.0 million of the
company's common stock, the purchase of the company's Newark, California,
distribution center and corporate headquarters for $24.6 million, and
quarterly cash dividend payments. During 1997, the primary uses of cash,
other than for operating expenditures, were for merchandise 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. In 1999, 1998
and 1997, the company spent approximately $74.0 million, $78.5 million and
$33.3 million, respectively, for capital expenditures, net of leased
equipment, that included fixtures and leasehold improvements to open new
stores; relocate, remodel or expand existing stores; purchase previously
leased equipment; and various other expenditures for existing stores and the
central office.
The company currently anticipates opening approximately 30 stores, net of
closures, in 2000 and an additional 35 to 40 stores, net of closures, in
2001. The company anticipates that this growth will be financed primarily
from cash flows from operating activities and available credit facilities.
In January 2000, a 15% increase in the quarterly cash dividend payment from
$.0325 to $.0375 per common share was declared by the company's Board of
Directors, payable on or about April 3, 2000. The Board of Directors declared
quarterly cash dividends of $.0325 per common share in January, May, August
and November 1999 and $.0275 per common share in January, May, August and
November 1998. The company uses cash flows from operating activities and
available credit facilities to fund dividend payments.
In January 2000, the company announced that the Board of Directors authorized
a new stock repurchase program of up to $300.0 million over the next two
years. The company anticipates funding this new program through cash flows
from operating activities and available credit facilities. The company
repurchased a total of $120.0 million and $110.0 million of common stock in
1999 and 1998, respectively.
The company has available under its principal bank credit agreement a $160.0
million revolving credit facility and a $30.0 million credit facility, the
latter solely for the issuance of letters of credit, both of which expire in
September 2002.
13
Additionally, the company has uncommitted short-term bank lines of credit
that at January 29, 2000 totaled $45.0 million. At year-end 1999, 1998 and
1997, there were no outstanding balances under any credit facility. For
additional information relating to these obligations, refer to Note B of
Notes to Consolidated Financial Statements.
Working capital was $190.7 million at the end of 1999, compared to $170.8
million at the end of 1998 and $174.7 million at the end of 1997. At year-end
1999, 1998 and 1997, the company's current ratios were 1.5:1, 1.4:1 and
1.5:1, 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.
In 1999, cash flows decreased primarily due to a lower accounts payable
balance as a percentage of inventory. In 1998, cash flows increased mainly
due to a higher accounts payable balance as a percentage of inventory at
year-end. The company had no amounts outstanding on its line of credit at
year-end 1999 or 1998.
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 two year stock repurchase program of up to $300.0 million during 2000
and 2001, dividend payments and planned capital additions during the upcoming
year.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998 and June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards. No. 133 (SFAS 133), "Accounting
for Derivative Instruments and Hedging Activities" and Statement of Financial
Accounting Standards No. 137 (SFAS 137), "Deferral of the Effective Date of
SFAS 133," respectively. SFAS 133 and SFAS 137 require the recognition of all
derivatives as either assets or liabilities in the statement of financial
position, and to measure those instruments at fair value, and are effective
for all fiscal years beginning after June 15, 2000 with earlier adoption
encouraged. The company does not believe that implementation of SFAS 133 and
137 will have a material impact on its financial position and results of
operations.
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", "looking
ahead," "forecast," "plan" 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, successful implementation of the company's
merchandise diversification strategy, the company's ability to successfully
extend its geographic reach, unseasonable weather trends, changes in the
level of consumer spending on or preferences in apparel or home-related
merchandise, the company's ability to complete the two-year $300 million
repurchase program in 2000 and 2001 at purchase prices that result in
accretion to earnings per share in line with planned expectations, and
greater than planned costs, including higher settlement costs than
anticipated in the company's preliminary understanding to resolve a class
action complaint alleging store managers and assistant managers in California
are incorrectly classified as exempt from state overtime laws. In addition,
the company's corporate headquarters, one of its distribution centers and 42%
of its stores are located in California. Therefore, a downturn in the
California economy or a major natural disaster there could significantly
affect the company's operating results and financial condition.
14
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 historically 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. If intensified price
competition, lower than anticipated consumer demand or other factors were to
occur during the third and fourth quarters, and in particular during the
fourth quarter, the company's fiscal year results could be adversely affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes that the market risk associated with the company's
ownership of market-risk sensitive financial instruments (including interest
rate risk and equity price risk) as of January 29, 2000 is not material.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CONSOLIDATED BALANCE SHEETS
JANUARY 29, January 30,
($000, except share and per share data) 2000 1999
-------------------------------------------------------------- ---------------- ----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $79,329 $80,083
Accounts receivable 15,689 11,566
Merchandise inventory 500,494 466,460
Prepaid expenses and other 17,682 15,825
---------------- ----------------
Total Current Assets 613,194 573,934
PROPERTY AND EQUIPMENT
Land and buildings 49,919 48,789
Fixtures and equipment 262,022 217,629
Leasehold improvements 161,571 142,716
Construction-in-progress 26,040 32,023
---------------- ----------------
499,552 441,157
Less accumulated depreciation and amortization 226,388 192,445
---------------- ----------------
273,164 248,712
Deferred income taxes and other long-term assets 61,320 47,660
---------------- ----------------
Total Assets $947,678 $870,306
-------------------------------------------------------------- ---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $254,293 $248,103
Accrued expenses and other 102,178 95,059
Accrued payroll and benefits 48,283 40,885
Income taxes payable 17,716 19,092
---------------- ----------------
Total Current Liabilities 422,470 403,139
Long-term liabilities 51,777 42,464
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share
Authorized 170,000,000 shares
Issued and outstanding 88,774,000 and
92,499,000 shares 888 925
Additional paid-in capital 234,635 215,368
Retained earnings 237,908 208,410
---------------- ----------------
473,431 424,703
---------------- ----------------
Total Liabilities and Stockholders' Equity $947,678 $870,306
============================================================== ================ ================
The accompanying notes are an integral part of these
consolidated financial statements.
16
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED Year Ended Year Ended
JANUARY 29, January 30, January 31,
($000, except per share data) 2000 1999 1998
------------------------------------------------------------------- ------------------ ----------------- ---------------
SALES $2,468,638 $2,182,361 $1,988,692
COSTS AND EXPENSES
Cost of goods sold and occupancy 1,702,342 1,513,889 1,388,098
General, selling and administrative 472,822 415,284 374,119
Depreciation and amortization 38,317 33,514 30,951
Interest (income) expense (322) 259 (265)
Provision for litigation expense 9,000
------------------ ----------------- ---------------
2,222,159 1,962,946 1,792,903
------------------ ----------------- ---------------
Earnings before taxes 246,479 219,415 195,789
Provision for taxes on earnings 96,373 85,572 78,315
------------------ ----------------- ---------------
Net earnings $150,106 $133,843 $117,474
------------------ ----------------- ---------------
------------------------------------------------------------------- ------------------ ----------------- ---------------
EARNINGS PER SHARE
Basic $1.66 $1.42 $1.20
Diluted $1.64 $1.40 $1.17
------------------------------------------------------------------- ------------------ ----------------- ---------------
WEIGHTED AVERAGE SHARES OUTSTANDING (000)
Basic 90,416 94,071 97,856
Diluted 91,671 95,700 100,003
=================================================================== ================== ================= ===============
The accompanying notes are an integral part of these consolidated
financial statements.
17
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional
-------------------------- Paid-In Retained
(000, except share data) Shares Amount Capital Earnings Total
------------------------------------------ ----------- ----------- ------------- ------------- ------------
BALANCE AT FEBRUARY 1, 1997 98,666 $987 $163,672 $164,184 $328,843
Common stock issued under stock
plans, including tax benefit 3,167 31 41,703 41,734
Common stock repurchased (6,000) (60) (10,292) (87,794) (98,146)
Net earnings 117,474 117,474
Dividends declared (9,224) (9,224)
----------- ----------- ------------- ------------- ------------
BALANCE AT JANUARY 31, 1998 95,833 958 195,083 184,640 380,681
Common stock issued under stock
plans, including tax benefit 2,301 23 30,874 30,897
Common stock repurchased (5,635) (56) (10,589) (99,353) (109,998)
Net earnings 133,843 133,843
Dividends declared (10,720) (10,720)
----------- ----------- ------------- ------------- ------------
BALANCE AT JANUARY 30, 1999 92,499 925 215,368 208,410 424,703
Common stock issued under stock
plans, including tax benefit 1,711 17 30,690 30,707
Common stock repurchased (5,436) (54) (11,423) (108,523) (120,000)
Net earnings 150,106 150,106
Dividends declared (12,085) (12,085)
----------- ----------- ------------- ------------- ------------
BALANCE AT JANUARY 29, 2000 88,774 $888 $234,635 $237,908 $473,431
====================================================== =========== ============= ============= ============
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 29, January 30, January 31,
($000) 2000 1999 1998
----------------------------------------------------------------- ---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $150,106 $133,843 $117,474
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of property and
equipment 38,317 33,514 30,951
Other amortization 9,870 9,734 8,527
Deferred income taxes (5,296) (4,411) (1,732)
Change in assets and liabilities:
Merchandise inventory (34,034) (47,635) (45,135)
Other current assets - net (5,979) (4,161) (2,110)
Accounts payable 5,867 45,735 17,481
Other current liabilities - net 21,609 31,101 (10,379)
Other 2,906 2,780 2,685
---------------- ---------------- ----------------
Net cash provided by operating activities 183,366 200,500 117,762
---------------- ---------------- ----------------
----------------------------------------------------------------- ---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (74,012) (78,452) (33,322)
---------------- ---------------- ----------------
Net cash used in investing activities (74,012) (78,452) (33,322)
---------------- ---------------- ----------------
----------------------------------------------------------------- ---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt 0 0 0
Issuance of common stock related to stock plans 21,654 22,014 34,106
Repurchase of common stock (120,000) (109,998) (98,146)
Dividends paid (11,762) (10,350) (8,808)
---------------- ---------------- ----------------
Net cash used in financing activities (110,108) (98,334) (72,848)
---------------- ---------------- ----------------
Net (decrease) increase in cash and cash equivalents (754) 23,714 11,592
Cash and cash equivalents:
Beginning of year 80,083 56,369 44,777
---------------- ---------------- ----------------
End of year $79,329 $80,083 $56,369
---------------- ---------------- ----------------
----------------------------------------------------------------- ---------------- ---------------- ----------------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $610 $1,082 $537
Income taxes paid $94,101 $62,779 $85,529
================================================================= ================ ================ ================
The accompanying notes are an integral part of these consolidated
financial statements.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fiscal years ended January 29, 2000, January 30, 1999 and January 31,
1998 are referred to as 1999, 1998 and 1997, respectively.
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 29, 2000, the company
operated 378 stores. The company's headquarters, one distribution center,
three warehouses and 42% 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 1998 and
1997 financial statements to conform to the 1999 presentation.
USE OF 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.
REVENUE RECOGNITION. The company recognizes revenue at the point of sale, net
of actual returns, and maintains a provision for estimated future returns.
MERCHANDISE INVENTORY. Merchandise inventory is stated at the lower of
weighted average cost or market.
STORE PRE-OPENING. Store pre-opening costs are expensed in the period
incurred.
ADVERTISING. Advertising costs are expensed in the period incurred.
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 1999 and 1998, the balance of deferred rent was $12.2
million and $11.1 million, respectively, and is included in long-term
liabilities.
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 12 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.
INTANGIBLE ASSETS. Included in other long-term 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 long-term 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.
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 29, 2000 and January 30, 1999, no adjustments were
recognized to the carrying value of such assets.
20
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.
EFFECTS OF INFLATION AND OTHER CHANGES IN PRICES. The effects of inflation
and other changes in prices are not material to the company's financial
position and results of operations.
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 splits effected in the
form of 100% stock dividends paid on September 22, 1999 and March 5, 1997.
EARNINGS PER SHARE (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. There were no other securities that could potentially dilute basic EPS
in the future that were excluded from the calculation of diluted EPS because
their effect would have been antidilutive in the periods presented.
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 Dilutive Stock Diluted
EPS Options EPS
------------------------------ ------------- ----------------- --------------
1999
Shares 90,416 1,255 91,671
Amount $1.66 $(.02) $1.64
1998
Shares 94,071 1,629 95,700
Amount $1.42 $(.02) $1.40
1997
Shares 97,856 2,147 100,003
Amount $1.20 $(.03) $1.17
------------------------------ ------------- ----------------- --------------
SEGMENT REPORTING. The company accounts for its operations as one operating
segment. The company's operations include only activities related to the sale
of apparel and home accessories through similar stores throughout the United
States and therefore comprise only one segment.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June 1998 and June 1999,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities" and Statement of Financial Accounting
Standards No. 137 (SFAS 137), "Deferral of the Effective Date of SFAS 133,"
respectively. SFAS 133 and SFAS 137 require the recognition of all
derivatives as either assets or liabilities in the statement of financial
position, and to measure those instruments at fair value, and are effective
for all fiscal years beginning after June 15, 2000 with earlier adoption
encouraged. The company does not believe that implementation of SFAS 133 and
SFAS 137 will have a material impact on its financial position and results of
operations.
21
NOTE B: LONG-TERM DEBT
The company had no outstanding debt at year-end 1999 and 1998. The weighted
average interest rates on borrowings during 1999, 1998 and 1997 were 5.5%,
5.8% and 5.8%, respectively.
BANK CREDIT FACILITIES. The company has available under its principal credit
agreement a $160.0 million revolving credit facility and a $30.0 million
credit facility, the latter solely for the issuance of letters of credit,
both of which expire in September 2002. Interest is payable upon borrowing
maturity but no less than quarterly. At year-end 1999 and 1998, the company
had $20.3 million and $15.6 million, respectively, in outstanding letters of
credit. Borrowing under the credit facilities is subject to the company's
maintaining certain interest rate coverage and leverage ratios. As of January
29, 2000, the company was in compliance with these bank covenants.
In addition, the company has $45.0 million in uncommitted short-term bank
lines of credit. When utilized, interest is payable monthly.
Included in accounts payable are checks outstanding of approximately $40.2
million and $44.1 million at year-end 1999 and 1998, respectively. The
company can utilize its revolving line of credit to cover payment of these
checks as they clear the bank; however, no balances were outstanding under
the revolving credit line at year-end 1999 and 1998. The company's cash
balances, net of the checks outstanding at year-end 1999 and 1998, were $39.1
million and $36.0 million, respectively.
NOTE C: LEASES
In June 1998, the company purchased its Newark, California, distribution
center and corporate headquarters for $24.6 million with funding provided by
cash generated by operations and bank borrowings under the company's existing
credit agreement. The company also leases five separate warehouse facilities
in both Newark, California and Carlisle, Pennsylvania, with operating leases
expiring in various years through 2003. These five leased facilities are
being used primarily to store packaway merchandise. In addition, the company
leases its store sites, selected computer and related equipment, and certain
distribution center equipment under operating leases with original,
noncancelable terms that in general range from three to fifteen years,
expiring through 2015. 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 1999 are as follows:
---------------------------------------------
($000) AMOUNTS
---------------------------------------------
2000 $128,073
2001 122,523
2002 108,503
2003 96,201
2004 83,124
Later years 303,190
---------------------------------------------
TOTAL $841,614
---------------------------------------------
Total rent expense for all operating leases is as follows:
------------------------------------------------------------------------------
($000) 1999 1998 1997
------------------------------------------------------------------------------
Minimum rentals $118,089 $106,696 $100,109
------------------------------------------------------------------------------
------------------------------------ ------------- ------------- -------------
22
NOTE D: TAXES ON EARNINGS
The provision for taxes consists of the following:
------------------------------------------------------------------------------
($000) 1999 1998 1997
------------------------------------------------------------------------------
CURRENT
Federal $85,952 $75,847 $65,754
State 15,717 14,136 14,294
-----------------------------------------
101,669 89,983 80,048
DEFERRED
Federal (5,081) (4,107) (1,693)
State (215) (304) (40)
-----------------------------------------
(5,296) (4,411) (1,733)
-----------------------------------------
TOTAL $96,373 $85,572 $78,315
------------------------------------ ------------- ------------- -------------
In 1999, 1998 and 1997, the company realized tax benefits of $9.2 million,
$10.9 million and $14.1 million, respectively, related to stock options
exercised and the vesting of restricted stock that were credited to
additional paid-in capital.
The provision for taxes for financial reporting purposes is different from
the tax provision computed by applying the statutory federal income tax rate.
The differences are reconciled as follows:
----------------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------------------------
Federal income taxes at the statutory rate 35% 35% 35%
Increased income taxes resulting from
state income taxes (net of federal benefit)
and other, net
4% 4% 5%
---------------------------------------------------
39% 39% 40%
----------------------------------------------------------------------------------------------------------
23
The components of the net deferred tax assets at year-end are as follows:
-------------------------------------------------------------------------
($000) 1999 1998
-------------------------------------------------------------------------
DEFERRED TAX ASSETS
Deferred compensation $20,362 $15,765
Non-deductible reserves 6,840 3,895
Straight-line rent 4,989 4,519
Employee benefits 4,782 6,610
California franchise taxes 3,367 2,657
Reserve for uninsured losses 553 2,049
All other 1,145 135
---------------------------
42,038 35,630
DEFERRED TAX LIABILITIES
Depreciation (18,938) (18,210)
Inventory (4,304) (4,297)
Supplies (2,006) (1,849)
Prepaid expenses (614) (1,377)
All other (1,174) (191)
---------------------------
(27,036) (25,924)
---------------------------
NET DEFERRED TAX ASSETS $15,002 $9,706
-------------------------------------------------------------------------
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. This plan permits employees to make contributions up
to the maximum limits allowable under the Internal Revenue Code. The company
matches up to 3% of the employee's salary up to plan limits. Company
contributions to the retirement plan were $2.4 million, $2.1 million and $1.8
million in 1999, 1998 and 1997, respectively. The company has in place an
Incentive Compensation Plan, which provides cash awards to key management
employees based on the company's and the individual's performance. The
company offers a Supplemental Retirement Plan, which allows eligible
employees to purchase annuity contracts. The company makes 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. Other long-term assets and other long-term liabilities include $37.0
million and $26.3 million in 1999 and 1998, respectively, related to the
Nonqualified Deferred Compensation Plan.
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 5.4
million shares at an average price of $22.07 in 1999, 5.6 million shares at
an average price of $19.52 in 1998 and 6.0 million shares at an average price
of $16.36 in 1997. In January 2000, the company's Board of Directors approved
a new stock repurchase program authorizing the buyback of up to $300.0
million of the company's common stock over the next two years.
24
DIVIDENDS. The company's Board of Directors declared dividends of $.0375 per
common share in January 2000; $.0325 per common share in January, May, August
and November 1999; and $.0275 per common share in January, May, August and
November 1998.
STOCK-BASED COMPENSATION PLANS. At January 29, 2000, 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) 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------
NET INCOME As reported $150,106 $133,843 $117,474
Pro forma $142,800 $128,820 $114,109
BASIC EARNINGS PER SHARE As reported $1.66 $1.42 $1.20
Pro forma $1.58 $1.37 $1.17
DILUTED EARNINGS PER SHARE As reported $1.64 $1.40 $1.17
Pro forma $1.57 $1.36 $1.15
-------------------------------------------------------------------------------------------------------------------------
The impact of outstanding non-vested stock options granted prior to 1995 has
been excluded from the pro forma calculation; accordingly, the 1999, 1998 and
1997 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 1999, 1998
and 1997 is presented below:
--------------------------------------------------------------------------------
Weighted
Number of Average
Shares Exercise
(000) Price
--------------------------------------------------------------------------------
Outstanding and exercisable at
February 1, 1997 6,466 $ 4.95
Granted 2,050 $13.32
Exercised (2,310) $ 4.50
Forfeited (497) $ 5.52
--------------------------------------------------------------------------------
Outstanding and exercisable at
January 31, 1998 5,709 $ 8.09
Granted 2,254 $19.68
Exercised (1,400) $ 6.26
Forfeited (307) $12.35
--------------------------------------------------------------------------------
Outstanding and exercisable at
January 30, 1999 6,256 $12.46
Granted 1,574 $21.80
Exercised (1,162) $ 8.43
Forfeited (253) $16.59
--------------------------------------------------------------------------------
Outstanding and exercisable at
January 29, 2000 6,415 $15.32
--------------------------------------------------------------------------------
At year-end 1999, 1998 and 1997, there were 4.4 million, 5.7 million and 3.1
million shares, respectively, available for future issuance under these plans.
The weighted average fair values per share of options granted during 1999,
1998 and 1997 were $7.85, $6.21 and $3.99, 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 1999, 1998 and 1997, respectively: (i)
dividend yield of 0.7%, 0.6% and 0.6%; (ii) expected volatility of 46.1%,
45.8% and 43.0%; (iii) risk-free interest rate of 5.9%, 5.2% and 6.2%; and
(iv) expected life of 3.2 years, 3.3 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 29, 2000:
---------------------------------------------------------------------------------------------------------------------
Weighted Average
-------------------------------------------
Remaining
Number of Shares Contractual Life
Range of Exercise Prices (000) (Years) Exercise Price
---------------------------------------------------------------------------------------------------------------------
$2.13 to $6.78 1,418 4.42 $ 4.64
$6.81 to $12.94 1,266 7.05 $12.43
$13.09 to $20.97 1,031 8.65 $17.12
$21.00 to $21.00 1,160 8.14 $21.00
$21.06 to $21.66 1,105 9.12 $21.60
$21.66 to $25.56 435 9.07 $23.13
---------------------------------------------------------------------------------------------------------------------
TOTALS 6,415 7.42 $15.32
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
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 1999, 1998 and
1997, employees purchased approximately 171,000, 149,000 and 171,000 shares,
respectively, of the company's common stock under the plan at weighted
average per-share prices of $15.25, $15.44 and $10.90, respectively. Through
January 29, 2000, approximately 3,367,000 shares had been issued under this
plan and 633,000 shares remained available for future issuance.
The weighted average fair values of the 1999, 1998 and 1997 awards were
$6.49, $6.27 and $4.10 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 1999, 1998 and 1997, respectively: (i) dividend yield of
0.6%, 0.6% and 0.6%; (ii) expected volatility of 44.7%, 49.3% and 43.1%;
(iii) risk-free interest rate of 5.6%, 5.0% and 5.6%; 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. The market value of these shares at date of grant is amortized
to expense ratably over the vesting period of generally two to five years. At
year-end 1999, 1998 and 1997, the unamortized compensation expense was $14.4
million, $15.3 million and $9.4 million, respectively. A summary of
restricted stock award activity follows:
--------------------------------------------------------------------------------------------------------------------------
RESTRICTED STOCK PLAN (000) 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------------
Shares available for grant beginning of year 4,297 5,059 5,744
Restricted shares granted (403) (814) (781)
Restricted shares forfeited 27 52 96
------------------------------------------------------------------
Shares available for grant end of year 3,921 4,297 5,059
------------------------------------------------------------------
------------------------------------------------------------------
Weighted average market value per share on
grant date $21.34 $19.28 $13.28
------------------------------------------------------------------
------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
NOTE G: PROVISION FOR LITIGATION EXPENSE AND OTHER LEGAL PROCEEDINGS
The company has reached a preliminary understanding to resolve a class action
complaint alleging store managers and assistant managers in California are
incorrectly classified as exempt from state overtime laws. As a result, the
company recorded a non-recurring pre-tax charge of $9.0 million in 1999
relating to this matter. When terms are completed, the company expects to
execute a settlement agreement, without any admission of wrongdoing, which
will be subject to judicial approval.
The company is party to various other 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 financial
condition or results of operations.
27
NOTE H: QUARTERLY FINANCIAL DATA (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 52 Weeks Ended
May 1, July 31, October 30, January 29, January 29,
($000, except per share data) 1999 1999 1999 2000 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Sales $580,825 $614,576 $608,720 $694,517 $2,468,638
Net earnings(1) 34,163 38,636 34,615 42,692 150,106
Net earnings per
diluted share(1,2) .36 .42 .38 .48 1.64
Dividends declared per
share on common stock(2) .0325 .0325 .07(3) .135
Closing stock price(2,4)
High $23.91 $26.00 $24.00 $21.00 $26.00
Low $20.16 $22.09 $18.59 $12.25 $12.25
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 13 Weeks Ended 52 Weeks Ended
May 2, August 1, October 31, January 30, January 30,
($000, except per share data) 1998 1998 1998 1999 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Sales $484,276 $536,975 $531,139 $629,971 $2,182,361
Net earnings 27,850 32,409 28,005 45,579 133,843
Net earnings per
diluted share(2) .29 .33 .29 .49 1.40
Dividends declared per
share on common stock(2) .0275 .0275 .06(5) .115
Closing stock price(2,4)
High $24.16 $24.84 $22.00 $20.34 $24.84
Low $16.78 $20.19 $12.22 $15.94 $12.22
- ---------------------------------------------------------------------------------------------------------------------------------
1 Fiscal 1999 includes a non-recurring pre-tax charge of $9.0 million, or
$.06 per share, related to litigation. See Note G of Notes to
Consolidated Financial Statements.
2 All per share information is adjusted to reflect the effect of the
two-for-one stock split effected in the form of a stock dividend paid on
September 22, 1999.
3 Includes $.0325 per share dividend declared November 1999 and $.0375 per
share dividend declared January 2000.
4 Ross Stores, Inc. common stock trades on the Nasdaq National Market tier
of The Nasdaq Stock MarketSM under the symbol ROST.
5 Includes $.0275 per share dividend declared November 1998 and $.0325 per
share dividend declared January 1999.
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 29, 2000 and January 30,
1999, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for each of the three years in the period ended
January 29, 2000. 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 auditing standards generally
accepted in the United States of America. 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 29,
2000 and January 30, 1999, and the results of its operations and its cash
flows for each of the three years in the period ended January 29, 2000 in
conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
SAN FRANCISCO, CALIFORNIA
MARCH 10, 2000
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 Wednesday, June 7, 2000 (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 STATEMENT 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 29, 2000 and January
30, 1999.
Consolidated Statements of Earnings for the years ended
January 29, 2000, January 30, 1999 and January 31,
1998.
Consolidated Statements of Stockholders' Equity for the
years ended January 29, 2000, January 30, 1999 and
January 31, 1998.
Consolidated Statements of Cash Flows for the years ended
January 29, 2000 January 30, 1999 and January 31,
1998.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. List of Financial Statement Schedules.
Schedules are omitted because they are not required, not
applicable, or shown in the financial statements or notes
thereto which are contained in this Report.
3. List of Exhibits (in accordance with Item 601 of Regulation S-K).
Incorporated herein by reference to the list of Exhibits
contained in the Exhibit Index which begins on page 33 of
this Report.
(b) Reports on Form 8-K.
None.
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 26, 2000 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 26, 2000
Michael Balmuth Chief Executive Officer
/s/J. Call Senior Vice President, April 26, 2000
John G. Call Chief Financial Officer,
Principal Accounting Officer and
Corporate Secretary
/s/Norman A. Ferber Chairman of the Board April 26, 2000
Norman A. Ferber
/s/Lawrence M. Higby Director April 26, 2000
Lawrence M. Higby
/s/Stuart G. Moldaw Chairman Emeritus April 26, 2000
Stuart G. Moldaw and Director
/s/G. Orban Director April 26, 2000
George P. Orban
/s/Philip Schlein Director April 26, 2000
Philip Schlein
/s/Donald H. Seiler Director April 26, 2000
Donald H. Seiler
/s/D. L. Weaver Director April 26, 2000
Donna L. Weaver
32
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
3.1 Corrected First Restated Certificate of Incorporation of Ross
Stores, Inc. ("Ross Stores"), dated and filed with the Delaware
Secretary of State on March 17, 1999, incorporated by reference to
Exhibit 3.1 to the Form 10-K filed by Ross Stores for the year ended
January 30, 1999.
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 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.
10.2 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.
10.3 Amendment to Credit Agreement, dated 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.
10.4 Second Amendment to Credit Agreement, dated January 30, 1998,
between Ross Stores and Bank of America, incorporated by reference
to Exhibit 10.5 to the Form 10-K filed by Ross Stores for its fiscal
year ended January 31, 1998.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS 10.5 - 10.36)
10.5 Third Amended and Restated Ross Stores, Inc. 1992 Stock Option Plan
10.6 Amended and Restated 1992 Stock Option Plan, incorporated by
reference to Exhibit 10.1 to the Form 10-Q filed by Ross Stores for
its quarter ended August 1, 1998.
10.7 Ross Stores, Inc. 2000 Equity Incentive Plan
10.8 Third Amended and Restated Ross Stores Employee Stock Purchase Plan,
incorporated by reference to Exhibit 10.6 to the Form 10-K filed by
Ross Stores for its year ended January 30, 1999.
10.9 Fourth Amended and Restated Ross Stores, Inc. 1988 Restricted Stock Plan
10.10 Third Amended and Restated Ross Stores 1988 Restricted Stock Plan,
incorporated by reference to Exhibit 10.7 to the Form 10-K filed by
Ross Stores for its year ended January 30, 1999.
10.11 Amended and Restated 1991 Outside Directors Stock Option Plan
effective March 16, 2000
10.12 Amended and Restated 1991 Outside Directors Stock Option Plan,
incorporated by reference to Exhibit 10.8 to the Form 10-K filed by
Ross Stores for its year ended January 30, 1999.
10.13 1991 Outside Directors Stock Option Plan, as amended May 27, 1999,
incorporated by reference to Exhibit 10.40 of the Form 10-Q filed by
Ross Stores for its quarter ended July 31, 1999.
10.14 Ross Stores Executive Medical Plan, incorporated by reference to
Exhibit 10.9 to the Form 10-K filed by Ross Stores for its year
ended January 30, 1999.
33
EXHIBIT
NUMBER EXHIBIT
10.15 Ross Stores Executive Dental Plan, incorporated by reference to
Exhibit 10.10 to the Form 10-K filed by Ross Stores for its year
ended January 30, 1999.
10.16 Third Amended and Restated Ross Stores Executive Supplemental
Retirement Plan, incorporated by reference to Exhibit 10.14 to the
Form 10-K filed by Ross Stores for the fiscal year ended January 29,
1994.
10.17 Ross Stores Second Amended and Restated Non-Qualified Deferred
Compensation Plan, incorporated by reference to Exhibit 10.12 to the
Form 10-K filed by Ross Stores for its year ended January 30, 1999.
10.18 Amended and Restated Ross Stores, Inc. Incentive Compensation Plan
10.19 Ross Stores Incentive Compensation Plan, incorporated by reference
to Exhibit 10.6 to the Form 10-K filed by Ross Stores for its year
ended January 30, 1999
10.20 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.
10.21 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.
10.22 Amendment to Amended and 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.
10.23 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.
10.24 Fourth Amendment to Amended and Restated Employment Agreement
between Ross Stores and Norman A. Ferber, effective as of November
20, 1997, incorporated by reference to Exhibit 10.18 to the Form
10-K filed by Ross Stores for its fiscal year ended January 31, 1998.
10.25 Fifth Amendment to Amended and Restated Employment Agreement between
Ross Stores and Norman A. Ferber, effective as of December 16, 1998,
incorporated by reference to Exhibit 10.19 to the Form 10-K filed by
Ross Stores for its fiscal year ended January 30, 1999.
10.26 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.
10.27 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.
10.28 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.
34
EXHIBIT
NUMBER EXHIBIT
10.29 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.
10.30 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.
10.31 Fifth Amendment to Employment Agreement by and between Ross Stores
and Melvin A. Wilmore, entered into June 29, 1998, incorporated by
reference to Exhibit 10.2 to the Form 10-Q filed by Ross Stores for
its quarter ended August 1, 1998.
10.32 Letter of Agreement between Ross Stores and Melvin A. Wilmore,
signed by both parties on January 27, 2000, amending the Employment
Agreement as amended between Ross Stores and Melvin A. Wilmore.
10.33 Employment Agreement between Ross Stores and Michael Balmuth,
effective as of February 3, 1999, incorporated by reference to
Exhibit 10.26 to the Form 10-K filed by Ross Stores for its fiscal
year ended January 30, 1999.
10.34 Amendment dated March 20, 2000 to Employment Agreement between Ross
Stores and Michael Balmuth effective as of February 3, 1999.
10.35 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.
10.36 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 November 2, 1996.
10.37 Second Amendment to Employment Agreement between Ross Stores and
Barry S. Gluck, dated March 1, 1998, incorporated by reference to
Exhibit 10.30 to the Form 10-Q filed by Ross Stores for its quarter
ended May 2, 1998.
10.38 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.
10.39 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 November 2, 1996.
10.40 Second Amendment to Employment Agreement between Ross Stores and
Irene A. Jamieson dated March 1, 1998, incorporated by reference to
Exhibit 10.33 to the Form 10-Q filed by Ross Stores for its quarter
ended May 2, 1998.
35
EXHIBIT
NUMBER EXHIBIT
10.41 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.
10.42 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 November 2, 1996.
10.43 Second Amendment to Employment Agreement between Ross Stores and
Barbara Levy, dated March 1, 1998, incorporated by reference to
Exhibit 10.36 to the Form 10-Q filed by Ross Stores for its quarter
ended May 2, 1998.
10.44 Consulting Agreement between Ross Stores and Stuart G. 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.
10.45 Consulting Agreement between Ross Stores and Stuart G. Moldaw,
effective as of April 1, 1999 through March 31, 2002, incorporated
by reference to Exhibit 10.36 to the Form 10-Q filed by Ross Stores
for its quarter ended May 1, 1999.
10.46 Employment Agreement between Ross Stores and Michael Hamilton,
effective as of March 1, 1999 through March 1, 2002, incorporated by
reference to Exhibit 10.37 to the Form 10-Q filed by Ross Stores for
its quarter ended May 1, 1999.
10.47 Employment Agreement between Ross Stores and James Fassio, effective
as of April 1, 1999, incorporated by reference to Exhibit 10.38 to
the Form 10-Q filed by Ross Stores for its quarter ended May 1, 1999.
10.48 Employment Agreement between Ross Stores and Michael Wilson,
effective as of May 1, 1999, incorporated by reference to Exhibit
10.39 to the Form 10-Q filed by Ross Stores for its quarter ended
July 31, 1999.
23 Independent Auditors' Consent.
27 Financial Data Schedules (submitted for SEC use only).
36