ITEM 1. BUSINESS
Ross Stores, Inc. operates a chain of off-price retail apparel stores which target value conscious men and women between the ages of 25 and 54 and their families. The company offers its merchandise at low everyday prices, generally 20% to 60% below those of most department and specialty stores. The company believes it derives a competitive advantage by offering a wide assortment of quality brand-name apparel within each of its merchandise categories (e.g., shirts, dresses, shoes) in an attractive easy-to-shop environment.
Ross Stores' mission is to offer competitive values to its target customers by focusing on the following key strategic objectives: achieve an appropriate level of brands and labels at strong discounts throughout the store; meet customer needs on a more regional basis; deliver an in-store shopping experience that reflects the expectations of the off-price customer; and manage real estate growth to maintain dominance or achieve parity with the competition in key markets. Ross targets its sales to value- conscious 25-54 year old men and women in white collar, middle-to- upper middle income households, which the company believes to be the largest customer segment in the retailing industry. The decisions of the company, from merchandising, purchasing and pricing, to the location of its stores, are aimed at this customer base.
The original Ross Stores, Inc. was incorporated in California in 1957. In August 1982, the company was purchased by some of its current stockholders and restaffed with a new management team. The six stores acquired at the time were completely refurbished in the company's current off-price format and stocked with new merchandise.
At the stockholders' meeting in May 1989, the company's stockholders approved the reincorporation of Ross Stores, Inc., in the state of Delaware. The reincorporation was completed in June 1989.
Merchandising, Purchasing and Pricing
Ross seeks to provide its target customers with a wide assortment of first quality, in-season, name brand apparel, accessories and footwear for the entire family at everyday savings of 20% to 60% from department and specialty store prices, as well as similar savings on fragrances and gift items for the home. In addition, in 1994 Ross will introduce in certain stores a new department featuring tabletop, bed and bath linens and bath accessories. The company reviews its merchandise mix each week, enabling it to respond to merchandise trends and purchasing opportunities in the market. The company's merchandising strategy is reflected in its television and newspaper advertising, which emphasizes a strong value message: Ross' customers get great prices everyday of the year. Although not a fashion leader, the company sells recognizable branded merchandise that is current and fashionable in each category.
Merchandising. The Ross merchandising strategy incorporates in-season apparel, shoes and accessories for the entire family, as well as fragrances and giftware for the home. The company's emphasis on brand names reflects management's conviction that brand-name apparel sold at affordable prices will continue to be an important determinant of its success. Ross leaves the brand- name label on the merchandise it sells.
The company has established a merchandise assortment which it believes is attractive to its target customer group. Although Ross Stores 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. During the year ended January 29, 1994, the overall merchandise sales mix was approximately 96% first quality merchandise and 4% irregulars. Ross clears out all in-store seasonal inventory on a semi-annual basis. During the past year, the respective departments accounted for total sales approximately as follows: Ladies 38%, Men's 26%, Accessories, Hosiery and Lingerie 11%, Shoes 10%, Children's 8%, and Fragrances and Home Accents 7%.
Purchasing. During the past three years, no single vendor has accounted for more than 1% of the company's purchases. The company continues to add new vendors and believes it has adequate sources of first quality merchandise to meet its requirements. The company purchases the vast majority of its merchandise directly from manufacturers and has not experienced any difficulty in obtaining sufficient inventory.
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The company believes that its ability to effectively execute certain off-price buying strategies is a key factor in its business. Ross buyers use a number of methods that enable the company to offer customers name brand merchandise at strong everyday discounts relative to department and specialty stores. By purchasing later in the merchandise buying cycle than department and specialty stores, Ross is able to take advantage of imbalances of manufacturer-projected supply of merchandise. This purchasing strategy enables Ross to interpret and react quickly to market conditions and customer demand during the selling season. As a result, Ross is less dependent than department and specialty stores on anticipating such developments.
The company has increased its emphasis in recent years on opportunistic purchases created by manufacturer overruns and canceled orders 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 or stored in the company's warehouses until the beginning of the next selling season (i.e., packaway). Purchases of packaway merchandise are goods that are not usually affected by seasonal shifts in fashion trends.
Ross, unlike most department and specialty stores, does not require that manufacturers provide it with promotional and markdown allowances, return privileges and delayed deliveries. In addition, Ross requires only one invoice for each delivery, and deliveries are made to one of the company's two distribution centers. These characteristics enable the company's buyers to obtain significant discounts on in-season purchases.
Ross Stores' 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 up to 22 years of experience, including experience with other retailers such as Bloomingdale's, Burlington Coat Factory, Dayton Hudson, Lord & Taylor, Macy's, Marshalls and TJ Maxx. The company has recently increased the size of its merchandising staff, which is comprised of divisional merchandise managers, buyers and assistant buyers. Management believes that these increased resources will enable its merchants to spend even more time in the market, which should strengthen the company's ability to procure the most desirable brands at competitive discounts.
The combination of the above off-price buying strategies enables the company to purchase merchandise at net prices which are lower than prices paid by department and specialty stores.
As a summary, important factors in the company's ability to execute its purchasing strategy are the following:
A recently enlarged merchandising staff strategically located in the New York and Los Angeles garment districts;
Experienced buyers who select and price the merchandise for the company's stores and make markdown decisions within pre- arranged budgets;
Off-price buying techniques that enable the company to offer strong discounts everyday on name brand merchandise;
A fully-integrated, on-line management information system which provides buyers with accurate and timely information on a weekly basis; and
The company's ability to pay its vendors quickly.
Pricing. The company's policy is to sell merchandise which can generally be priced at 20% to 60% less than most department and specialty store prices. The Ross pricing policy is to affix to all brand name merchandise a ticket displaying the company's selling price as well as the estimated comparable selling price of that item at department and specialty stores.
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The Ross pricing strategy differs from that of a department or specialty store. Ross purchases its merchandise at lower prices and marks it up less than a department or specialty store. This strategy enables Ross to offer customers consistently low prices. Ticketed prices are not increased and are reviewed weekly for possible markdowns based on the rate of sales to promote faster turnover of inventory and accelerate the flow of fresh merchandise.
Operating Costs
Consistent with the other aspects of its strategy, Ross strives to keep operating costs as low as possible. Among the factors which have enabled the company to operate at low costs to date are:
Reduced in-store labor costs resulting from a store design which directs customers to merchandise, a self-selection retail format and 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; and
A fully-integrated, on-line management information system which enables the company to respond quickly when making purchasing, merchandising and pricing decisions.
The Ross Store
As of January 29, 1994, the company operated 243 stores. The typical new Ross store is approximately 27,200 square feet plus a mezzanine, yielding approximately 21,000 square feet of selling space. All stores are leased, with the exception of one. They are conveniently located predominantly in community and neighborhood strip shopping centers in heavily populated urban and suburban areas. Where the size of the market permits, the company clusters stores to maximize economies of scale in advertising, distribution and management. During the year, the average Ross store employs approximately 33 full and part-time people.
The company believes a key element of its success is the attractive, easy-to-shop environment in its stores which allows each customer to shop at his or her own pace. 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. Shopping carts are available at the entrance for customer convenience. Checkout stations are located only at store entrances for customer ease and efficient employee assignment.
The Ross store is designed for customer convenience in its merchandise presentation, dressing rooms, and checkout and merchandise return areas. Racks, displays and dressing rooms are kept neat and orderly. It is the company's policy to minimize transaction time for the customer at the checkout counter by opening a new register whenever a line has three or more customers and 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 one-third of payments are made with credit cards. Ross provides full cash or credit card refunds on all merchandise returned with a receipt and believes this policy appeals to its customers.
Distribution
Each Ross store is serviced by the company's two distribution centers, an approximately 494,000 square foot distribution center located in Newark, California, and an approximately 424,000 square foot center located in Carlisle, Pennsylvania. Having two distribution centers, one on each coast, has resulted in faster deliveries, lower freight costs, and decreased turn-around time in getting the merchandise from the vendors to the stores.
Turn-around time between receipt of goods at the distribution centers and when they are staged and ready for shipment to the stores is approximately five days. Shipments are made by contract carriers to each store at least once a week, thereby limiting the requirement for substantial storage space at the stores.
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Advertising
During the fiscal years 1993, 1992, and 1991 advertising costs were approximately $33.8 million, $34.1 million and $30.0 million. The company utilizes extensive advertising which emphasizes quality, brand-name merchandise at low everyday prices. For the current year, approximately 83% of its advertising budget was devoted to television, 12% to print, and 5% for production and sales promotion expenses. In 1992, the company allocated approximately 82% of its advertising budget to television. The high percentage of television usage over the past couple of years reflects the company's belief that this is the best medium for presenting Ross' everyday low price message.
Control Systems
The company's management information system fully integrates data from significant phases of its operations, and is a key element in the company's planning, purchasing, distribution and pricing decisions. The system enables Ross to respond to changes in the retail market and to increase speed and accuracy in its merchandise distribution.
Data from the current and last fiscal year can be monitored on levels ranging from merchandise classification units to overall totals for the company. Data important to the decision- making process is on-line, real time data to all authorized users. 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.
Stores
From August 1982 to January 29, 1994, the company expanded from six stores in California to 243 stores in 18 states: Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Maryland, Nevada, New Jersey, New Mexico, Oklahoma, Oregon, Pennsylvania, Texas, Utah, Virginia and Washington.
The company's real estate strategy is to open additional stores 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. The company plans to open new stores primarily in existing markets through the end of 1995.
Competition
The national apparel retail market is highly fragmented. Ross faces intense competition for business from its target customer segment 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 the company. The retail apparel business may become even more competitive in the future. The company believes that the principal competitive factors in the off-price retail apparel industry are offering everyday low prices on name brand merchandise appealing to its target customer, making buying decisions based on regional and/or local factors, and consistently providing a store environment that is convenient, easy to shop, and time efficient for the customer. The company believes that it is well positioned to compete on the basis of each of these factors.
Employees
At January 29, 1994, the company had 8,949 employees which includes an estimated 5,025 part-time employees. Of the full- time employees, approximately 410 are administrative employees, 340 are distribution center employees and 3,174 are store employees. The company's employees are non-union. Management of the company considers the relationship between the company and its employees to be excellent.
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Seasonality
The combined sales of the company for the third and fourth (holiday) quarters are higher than the combined sales for the first two quarters. The company has realized a significant portion of its profits in each fiscal year during the fourth quarter. Intensified price competition, lower-than-anticipated consumer demand or other seasonal factors, if they were to occur during the last six months, and in particular during the fourth quarter, could adversely affect the company's fiscal year results.
ITEM 2.
ITEM 2. PROPERTIES
The company currently leases its Newark, California distribution center, corporate and buying offices, store facilities, and some of its fixtures and equipment. The company owns its distribution center in Carlisle, Pennsylvania, which has an outstanding mortgage value of $10.3 million at the end of the 1993 fiscal year. As of January 29, 1994, the company's 243 stores generally range in size from 18,000 to 40,000 gross square feet, and have an average of 21,442 square feet of selling space. During the fiscal year ended January 29, 1994, no one store accounted for more than 2% of the company's sales.
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.
At January 29, 1994, the majority of the company's stores had unexpired original lease terms ranging from one to ten years with two to three renewal options of five years each. The average unexpired original lease term of its leased stores is six years, or 19 years if renewal options are included. See Note D of notes to consolidated financial statements. Most of the company's store leases contain provisions for percentage rental payments after a specified sales level has been achieved. To date, the company has been able to secure leases in suitable locations for its stores.
The company's two distribution centers provide the company with the potential warehouse/distribution capacity to support its growth for several years.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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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 employmlent during the past five years. The term of office is at the pleasure of the Board of Directors.
Name Age Position
Norman A. Ferber 45 Director, Chairman of the Board and Chief Executive Officer
Melvin A. Wilmore 48 Director, President and Chief Operating Officer
Michael A. Balmuth 43 Executive Vice President, Merchandising
Earl T. Benson 46 Senior Vice President, Chief Financial Officer and Corporate Secretary
Michael J. Bush 33 Senior Vice President, Marketing and Strategic Planning
James S. Fassio 39 Senior Vice President, Property Development
Barry S. Gluck 41 Senior Vice President and General Merchandise Manager
Peter C.M. Hart 43 Senior Vice President, Management Information Systems and Distribution
James S. Jacobs 49 Senior Vice President, Store Operations
Stephen F. Joyce 52 Senior Vice President, Human Resources
Barbara Levy 39 Senior Vice President and General Merchandise Manager
John M. Vuko 43 Senior Vice President and Controller
_____________________________
Mr. Ferber has served as Chairman of the Board of Directors and Chief Executive Officer since March 1993. Prior to March 1993, he served as President and Chief Executive Officer since January 1988. From February 1987 to January 1988, he served as President and Chief Operating Officer. Prior to February 1987, Mr. Ferber was Executive Vice President, Merchandising, Marketing and Distribution of the company. Mr. Ferber joined the company in October 1982.
Mr. Wilmore has served as President, Chief Operating Officer and a member of the Board of Directors since March 1993. Prior to this, he served as Executive Vice President and Chief Operating Officer since December 1991. From October 1989 to December 1991, he was Chief Executive Officer of Live Specialty Retail, a division of LIVE Entertainment, Inc. From March 1988 to June 1989, he was President/General Partner of Albert's Acquisition Corporation. From March 1987 to March 1988, Mr. Wilmore was engaged in the acquisition of Albert's Hosiery and Bodywear by Albert's Acquisition Corporation. From April 1984 to March 1987, he was the President and Chief Operating Officer of Zale Jewelry Stores, a division of Zale Corporation.
Mr. Balmuth became Executive Vice President, Merchandising in July 1993. Prior to this he served as Senior Vice President and General Merchandise Manager since November 1989. Before joining Ross, he was Senior Vice President and General Merchandise Manager at Bon Marche in Seattle from September 1988 through November 1989. From April 1986 to September 1988, he served as Executive Vice President and General Merchandise Manager for Karen Austin Petites. begin page 8
Mr. Benson has served as Senior Vice President, Chief Financial Officer, and Corporate Secretary since May 1988. He joined the company in June 1984 as Controller, Treasurer and Assistant Secretary and became a Vice President in October 1987.
Mr. Bush has served as Senior Vice President, Marketing and Strategic Planning since March 1993. He joined the company in April 1991 as Vice President, Strategic Planning. Prior to joining Ross, Mr. Bush was affiliated with the consulting firm, Bain & Company, Inc.
Mr. Fassio has served as Senior Vice President, Property Development since March 1991. He joined the company in June 1988 as Vice President of Real Estate. Prior to joining Ross, Mr. Fassio was Vice President, Real Estate and Construction at Craftmart and Property Director of Safeway Stores, Inc.
Mr. Gluck became Senior Vice President and General Merchandise Manager in August 1993. From February 1989 to August 1993, he served as Vice President and Divisional Merchandise Manager. Prior to joining Ross, Mr. Gluck served as General Merchandise Manager, Vice President and Member of Executive Committee for Today's Man from May 1987 to February 1989.
Mr. Hart has served as Senior Vice President, Management Information Systems (MIS) and Distribution since November 1988. From January 1987 to November 1988, he served as Senior Vice President of MIS.
Mr. Jacobs has served as Senior Vice President, Store Operations since November 1988. From November 1986 to October 1988, he served as Regional Vice President, Director of Stores for the J.W. Robinson's division of May Department Stores.
Mr. Joyce has served as Senior Vice President, Human Resources since July 1988. Before joining Ross, he was Vice President, Human Resources at Denny's, Inc. since February 1983.
Ms. Levy became Senior Vice President and General Merchandise Manager in May 1993. Prior to joining Ross, Ms. Levy was with R. H. Macy & Co., Inc. most recently as Senior Vice President and General Merchandise Manager from January 1992 to April 1993 and before that as their Regional Director - Stores from May 1989 to January 1992 and from August 1985 to May 1989 she was their Divisional Merchandise Manager - Better Sportswear.
Mr. Vuko has served as Senior Vice President and Controller since June 1992. He joined the company in October 1989 as Vice President, Treasurer and Controller. Before joining Ross, he was an executive with The Cooper Companies from May 1988 to January 1989. He was Vice President, Treasurer and Controller of Cooper Lasersonics, Inc., from December 1986 to May 1988. In 1989, prior to his employment with Ross, the SEC alleged that Mr. Vuko traded on inside information involving a company that then employed Mr. Vuko's wife and that he realized profits of $9,990. Mr. Vuko informed the company of these allegations prior to joining the company. In order to avoid costly and prolonged legal action by the SEC, without admitting or denying the allegations, Mr. Vuko consented to the entry on March 27, 1990 of an order against him in the U.S. District Court for the Northern District of California permanently enjoining him from violations of federal securities laws.
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PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
See information set forth under the caption "Quarterly Financial Data (Unaudited)" under Note I 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 system under the symbol ROST. The number of stockholders of record as of April 18, 1994 was 1,252. On January 27, 1994, the company's Board of Directors declared an initial quarterly cash dividend of $0.05 per share of common stock. The first record date was set at March 11, 1994.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
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ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the fiscal years ended January 29, 1994, January 30, 1993 and February 1, 1992 (referred to as 1993, 1992 and 1991).
Results of Operations
Stores. Total stores open at the end of 1993, 1992 and 1991 were 243, 223 and 203. During 1993, the company opened 22 stores and closed 2 stores. During 1992, the company opened 23 stores and closed 3 stores. In 1991, the company opened 20 stores and closed 2 stores.
Sales. Sales were $1.122 billion, $1.043 billion and $.926 billion in 1993, 1992 and 1991, with each year consisting of 52 weeks. Comparable store sales decreased 1% for 1993, increased 3% for 1992 and increased 2% for 1991. Thus, in 1993 the increase in sales was due to a greater number of stores in operation. The increases in sales for 1992 and 1991 were due to an increase in comparable store sales and a greater number of stores in operation. The company believes that both the 1992 and 1991 comparable store sales increases resulted from the emphasis on quality brand name merchandise at low everyday prices. During 1993, the company continued to increase the percentage of quality brand name merchandise in its stores. The company believes the decline in comparable store sales from 1992 was due to an increasingly competitive environment for apparel retailers in 1993, which narrowed the value differential the company normally offers compared to department and specialty stores. In 1994, the company plans to offer larger discounts on key name brand items throughout the store to improve productivity as defined by sales per square foot. Therefore, the company is not relying on increasing gross margins in 1994; rather, the company intends to generate earnings growth primarily through sales increases and leveraging down expenses as a percentage of sales.
Cost of Goods Sold and Occupancy. Cost of goods sold and occupancy as a percentage of sales increased to 73% in 1993 from 71% for 1992 and 1991. This change was primarily due to increased pressures on price points and markdown levels, resulting from the more competitive retail climate in 1993.
General, Selling and Administrative Expenses. General, selling and administrative expenses for 1993, 1992 and 1991 were 21%, 21% and 22% of sales. In 1993, management focused store growth primarily in existing markets and also maintained strong expense controls. These actions offset the unfavorable percentage increase normally associated with a same store sales decline. The percentage decrease in general, selling and administrative expenses between 1992 and 1991 was due to increased efficiencies at the store and corporate levels.
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 1993, 1992 and 1991 was approximately 8,900, 8,200 and 7,400.
Depreciation and Amortization. Depreciation and amortization as a percentage of sales has remained relatively constant over the last three years, due primarily to the consistent level of assets in each store.
Interest. The decrease in interest expense in 1993 from 1992 was due to lower interest rates from the prior year partially offset by increased borrowings due primarily to the company's repurchases of its common stock. The decrease in interest expense in 1992 from 1991 was due to lower average borrowings and a decline in interest rates from the prior year.
Taxes on Earnings. The company's effective rate for 1993, 1992 and 1991 was 40%, 40% and 39%, which represents the applicable statutory rates reduced by the federal benefit received for state taxes and targeted jobs tax credits. In 1992, the company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. The adoption of this standard did not have an effect on the company's earnings or financial position. See Notes A and E of Notes to Consolidated Financial Statements.
In August 1993, the federal government enacted a new income tax law which raised the 34% corporate income tax rate to 35%. The change in both the mix of state income taxes and available tax credits allowed the company to maintain its 40% effective tax rate.
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Financial Condition
Liquidity and Capital Resources. During 1993, 1992 and 1991, liquidity and capital requirements were provided by cash flows from operations, bank borrowings and trade credit. The company's store sites, central office, and California distribution center, as well as the buying offices, are leased and, except for certain leasehold improvements and equipment, do not represent fixed capital investments. Commitments related to operating leases are described in Note D of Notes to Consolidated Financial Statements. The company's east coast distribution center is owned by the company and was financed by a ten-year mortgage (see Note C of Notes to Consolidated Financial Statements). Short-term trade credit represents a significant source of financing for investments in merchandise inventories. 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 1993, the primary uses of cash, other than current operating expenditures, were for merchandise inventory and property and equipment to open 22 stores, timing of accounts payable payments, and repurchases in the open market of 1.2 million shares of the company's common stock. The primary uses of cash in 1992, other than operating expenditures, were for merchandise inventory and property and equipment to open 23 stores, prepaying $7 million of senior debt, and making opportunistic inventory purchases, thereby increasing the level of packaway inventory. In 1991, the primary uses of cash, other than operating expenditures, were for merchandise inventory and property and equipment to open 20 stores, constructing the east coast distribution center, repaying borrowings under the company's long-term debt agreements, and higher levels of opportunistic inventory purchases, thereby increasing the level of packaway inventory. In 1993, 1992 and 1991, the company spent approximately $35 million, $22 million and $32 million for capital expenditures, net of leased equipment, that included fixtures and leasehold improvements to open 22, 23 and 20 stores, construction costs for the east coast distribution center and modifications to our New York buying office, purchase of previously leased equipment and various expenditures for existing stores and the central office.
The company currently intends to open about 20 to 25 stores annually through 1995. The company anticipates that this growth will be financed primarily from cash flows from operating activities and available credit facilities.
On January 27, 1994, the company's Board of Directors declared an initial quarterly cash dividend of $0.05 per common share payable on or about April 1, 1994 to stockholders of record as of the close of business on March 11, 1994. The company intends to use cash flows from operations and available cash resources to provide for the dividends.
The company has available under its principal bank credit agreement a $110 million revolving credit facility, which expires in July 1996. At the company's option, the bank credit agreement can be extended in two one-year increments, or until July 1998. In March 1992, the company obtained two short-term revolving credit facilities of $10 million and $15 million each. A third short-term credit facility of $15 million was added in November 1992. These facilities are available until canceled by either party. At year-end 1993, 1992 and 1991, there were no outstanding balances under any revolving credit facility. In addition, at year-end 1993, 1992 and 1991, the company had outstanding a term loan of $23 million, which will mature in November 1994. The company has the ability and intention to refinance this facility with a long-term financing arrangement. During 1991, the company issued a ten-year mortgage note in the amount of $10.8 million on the east coast distribution center. For additional information relating to these obligations, refer to Note C of Notes to Consolidated Financial Statements.
Working capital was approximately $125 million at the end of 1993 compared to $121 million at the end of 1992 and $77 million at the end of 1991. At year-end 1993, 1992 and 1991, the company's current ratios were 1.8:1, 1.8:1 and l.6:1. The percentage of long-term debt to total capitalization at year-end 1993, 1992 and 1991 was 13%, 14% and 20%.
The company's primary source of liquidity is the sale of its merchandise inventories. 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 March 1994, a section of the roof at the company's distribution center in Carlisle, Pennsylvania collapsed due to unusually heavy snow accumulation. The distribution center in Newark, California has been utilized to support
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the flow of goods to the stores. The company expects the east coast distribution center to be operating at normal capacity by June 1994. The company believes that it is fully insured for costs related to this situation.
The company believes that cash flows from operations, bank credit lines and trade credit are adequate to meet operating cash needs as well as to complete the two million share repurchase plan authorized by the Board of Directors and to provide for dividend payments and planned capital additions during the upcoming year.
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ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
($000, except per share data) January 29, January 30, 1994 1993
ASSETS
CURRENT ASSETS Cash and cash equivalents $ 32,307 $ 40,457 Accounts receivable 4,016 5,848 Merchandise inventory 228,929 221,048 Prepaid expenses and other 15,224 10,323 Total Current Assets 280,476 277,676
PROPERTY AND EQUIPMENT Land and buildings 22,502 20,004 Fixtures and equipment 120,493 101,751 Leasehold improvements 89,588 82,506 Construction-in-progress 10,739 4,319 243,322 208,580 Less accumulated depreciation and amortization 99,170 80,510 144,152 128,070 Lease rights 1,804 2,185 Other assets 7,039 7,890 Excess of cost over net assets of acquired 3,900 4,049 subsidiary $ 437,371 $ 419,870
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES Accounts payable $ 89,561 $ 95,731 Accrued expenses 43,262 30,339 Accrued payroll and benefits 16,202 19,350 Income taxes payable 6,404 11,244 Total Current Liabilities 155,429 156,664 Long-term debt 33,308 33,525 Deferred income taxes and other 20,412 20,086 liabilities STOCKHOLDERS' EQUITY Common stock, par value $.01 per share Authorized 100,000,000 shares Issued and outstanding 24,695,000 and 247 255 25,461,000 shares Additional paid-in capital 122,073 119,743 Retained earnings 105,902 89,597 228,222 209,595 $ 437,371 $ 419,870
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF EARNINGS
- --------
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
_____ See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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INDEPENDENT AUDITOR'S 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 as of January 29, 1994 and January 30, 1993, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended January 29, 1994. These financial statements are the responsibility of the companies' management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the companies as of January 29, 1994 and January 30, 1993, and the results of their operations and their cash flows for each of the three years in the period ended January 29, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE San Francisco, California
March 11, 1994
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ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the executive officers of the Registrant, see "Executive Officers of the Registrant" at the end of Part I of this report. Information with respect to the Directors of the Registrant is incorporated herein by reference to the section entitled "Information Regarding Nominees and Incumbent Directors" of the Ross Stores, Inc., Proxy Statement for the Annual Meeting of Stockholders to be held on Tuesday, June 7, 1994 (the "Proxy Statement").
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
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 Aggregrated Option Exercises and Year-End Value.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the section of the Proxy Statement entitled "Stock Ownership of Certain Beneficial Owners and Management".
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the sections of the Proxy Statement entitled (i) "Compensation of Directors" and (ii) "Certain Transactions". begin page 26
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements, schedules and exhibits are filed as part of this report or are incorporated herein as indicated:
1. List of Financial Statements.
(i) The following consolidated financial statements included herein as Item 8:
Consolidated Balance Sheets at January 29, 1994 and January 30, 1993. Consolidated Statements of Earnings for the years ended January 29, 1994, January 30, 1993 and February 1, 1992. Consolidated Statements of Stockholders' Equity for the years ended January 29, 1994, January 30, 1993 and February 1, 1992. Consolidated Statements of Cash Flows for the years ended January 29, 1994, January 30, 1993 and February 1, 1992. Notes to Consolidated Financial Statements. Independent Auditors' Report.
2. List of Financial Statement Schedules.
Independent Auditors' Report on Financial Statement Schedules.
Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties, page 30.
Schedule V - Property, Plant and Equipment, page 31.
Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment, page 32.
Schedule VIII - Valuation and Qualifying Accounts and Reserves, page 33.
Schedule X - Supplementary Income Statement Information, page 33.
Schedules other than those listed are omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto, contained in, or incorporated by reference into, this Report.
3. List of Exhibits (in accordance with Item 601 of Regulation S-K)
3.1 Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 8-B (the "Form 8-B") filed September 1, 1989 by Ross Stores, Inc, a Delaware corporation ("Ross Stores").
3.2 Amended By-laws, dated August 29, 1991, incorporated by reference to Exhibit 3.2 to the 1991 Form 10-K filed by Ross Stores for its year ended February 1, 1992 ("1991 Form 10-K").
10.1 Agreement of Lease, dated November 24, 1986, for Ross Stores' corporate headquarters and distribution center in Newark, CA, incorporated by reference to Exhibit 10.5 on Form 8-B.
begin page 27
10.2 Credit Agreement, dated March 2, 1992, among Ross Stores, Wells Fargo Bank, National Association, Bank of America, National Trust and Savings Association, and Security Pacific National Bank; and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.8 to the 1991 Form 10-K.
10.3 Amended and Restated Credit Agreement, dated November 23, 1992, among Ross Stores, Wells Fargo Bank, National Association, Bank of America, N.T. & S.A., Nationsbank of Texas, N.A., and Banque Nationale de Paris; and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.9 to the 1992 Form 10-K filed by Ross Stores for its year ended January 30, 1993 ("1992 Form 10-K").
10.4 First Amendment to Amended and Restated Credit Agreement, entered into as of February 5, 1993, by and among Ross Stores, Wells Fargo Bank, National Association, Bank of America, N.T. & S.A., Nationsbank of Texas, N.A., and Banque Nationale de Paris ("Banks"); and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.10 to the 1992 Form 10-K.
10.5 Revolving Credit Agreement, dated July 31, 1993, among Ross Stores, Wells Fargo Bank, National Association, Bank of America, N.T. & S.A., Nationsbank of Texas, N.A., and Banque Nationale de Paris ("Banks"), and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.17 on the Form 10-Q filed by Ross Stores for its quarter ended July 31, 1993.
10.6 Term Credit Agreement, dated September 16, 1991, between Ross Stores and the Industrial Bank of Japan, Limited, incorporated by reference to Exhibit 10 to the Form 10-Q filed by Ross Stores for its quarter ended August 3, 1991.
10.7 Amendment to Term Credit Agreement, dated February 19, 1993, between Ross Stores and the Industrial Bank of Japan, Limited, incorporated by reference to Exhibit 10.12 to the 1992 Form 10-K.
10.8 Second Amendment to Term Credit Agreement, dated as of October 29, 1993, between Ross Stores and the Industrial Bank of Japan, Limited, incorporated by reference to Exhibit 10.13 to the Form 10-Q filed by Ross Stores for its quarter ended October 30, 1993.
Management Contracts and Compensatory Plans
10.9 Ross Stores, 1992 Stock Option Plan, incorporated by reference to Exhibit 19.1 on Form 10-Q filed by Ross Stores for its quarter ended August 1, 1992.
10.10 Third Amended and Restated Ross Stores Employee Stock Purchase Plan, incorporated by reference to Exhibit 19.2 on Form 10-Q filed by Ross Stores for its quarter ended August 1, 1992.
10.11 Third Amended and Restated Ross Stores 1988 Restricted Stock Plan, incorporated by reference to Exhibit 19.3 on Form 10-Q filed by Ross Stores, for its quarter ended August 1, 1992.
10.12 1991 Outside Directors Stock Option Plan, incorporated by reference to Exhibit 10.13 to the 1991 Form 10-K.
10.13 Ross Stores Executive Medical Plan.
10.14 Third Amended and Restated Ross Stores Executive Supplemental Retirement Plan.
10.15 Ross Stores Non-Qualified Deferred Compensation Plan.
10.16 Ross Stores Incentive Compensation Plan.
begin page 28
10.17 Employment Agreement between Ross Stores, Inc. and Norman A. Ferber, dated March 17, 1989, incorporated by reference to Exhibit 10.4 to the 1988 Annual Report on Form 10-K filed by Ross Stores, Inc., a California corporation, for its year ended January 28, 1989.
10.18 Amendment to Employment Agreement between Ross Stores and Norman A. Ferber, dated March 11, 1991, incorporated by reference to Exhibit 10.51 to the 1990 Annual Report on Form 10-K filed by Ross Stores, for its year ended February 2, 1991.
10.19 Second Amendment to Employment Agreement between Ross Stores and Norman A. Ferber, dated April 23, 1992, incorporated by reference to Exhibit 10.7 to the 1991 Form 10-K.
10.20 Employment Agreement between Ross Stores and Melvin A. Wilmore, dated November 25, 1991, incorporated by reference to Exhibit 10.11 to the 1991 Form 10-K.
10.21 Agreement and General Release between Ross Stores and Greggory L. Baldwin, dated November 6, 1991, incorporated by reference to Exhibit 10.12 to the 1991 Form 10-K.
10.22 Consulting Agreement between Ross Stores and Stuart G. Moldaw, effective as of March 12, 1993, incorporated by reference to Exhibit 10.16 on the Form 10-Q filed by Ross Stores for its quarter ended May 1, 1993.
11 Statement re: Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
23.2 Independent Auditors' Report on Financial Statement Schedules.
(b) Reports on Form 8-K.
None.
begin page 29
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 27, 1994 By /s/Norman A. Ferber (Norman A. Ferber, Chairman of the Board 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/Norman A. Ferber Chairman, Chief Executive April 27, 1994 Norman A. Ferber Officer and Director
/s/M. Wilmore President, Chief Operating April 27, 1994 Melvin A. Wilmore Officer and Director
/s/Earl Benson Senior Vice President, April 27, 1994 Earl T. Benson Chief Financial Officer and Secretary
/s/John M. Vuko Senior Vice President, April 27, 1994 John M. Vuko Controller and Principal Accounting Officer
/s/Stuart G. Moldaw Chairman Emeritus, April 27, 1994 Stuart G. Moldaw Director
/s/Donald G. Fisher Director April 27, 1994 Donald G. Fisher
/s/Franklin P. Johnson Director April 27, 1994 Franklin P. Johnson, Jr.
/s/G. Orban Director April 27, 1994 George P. Orban
/s/Donald H. Seiler Director April 27, 1994 Donald H. Seiler
/s/Phil Schlein Director April 27, 1994 Philip Schlein
/s/D. L. Weaver Director April 27, 1994 Donna L. Weaver begin page 30
ROSS STORES, INC.
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(Amounts in thousands)
begin page 31
ROSS STORES, INC.
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
($000)
begin page 32
ROSS STORES, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
($000)
begin page 33
ROSS STORES, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($000)
Column Column Column Column Column A B C D E Additions Balance at charged to beginning costs and Balance at Description of period expenses Deductions* end of period
Accrued expenses for 1987 store closings
Year ended January 29, 1994 $0 $0
Year ended January 30, 1993 $0 $0
Year ended February 1, 1992 $20 ($20) $0
* Payments for store closures.
ROSS STORES, INC.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
($000)
Column A Column B
1993 1992 1991
Advertising Costs $33,849 $34,079 $29,970
begin page 34
INDEX TO EXHIBITS
Exhibit Number Exhibit
3.1 Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 8-B (the "Form 8-B") filed September 1, 1989 by Ross Stores, Inc., a Delaware corporation ("Ross Stores").
3.2 Amended By-laws, dated August 29, 1991, incorporated by reference to Exhibit 3.2 to the 1991 Form 10-K filed by Ross Stores for its year ended February 1, 1992 ("1991 Form 10-K").
10.1 Agreement of Lease, dated November 24, 1986, for Ross Stores' corporate headquarters and distribution center in Newark, CA, incorporated by reference to Exhibit 10.5 on Form 8-B.
10.2 Credit Agreement, dated March 2, 1992, among Ross Stores, Wells Fargo Bank, National Association, Bank of America, National Trust and Savings Association, and Security Pacific National Bank; and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.8 to the 1991 Form 10-K.
10.3 Amended and Restated Credit Agreement, dated November 23, 1992, among Ross Stores, Wells Fargo Bank, National Association, Bank of America, N.T. & S.A., Nationsbank of Texas, N.A., and Banque Nationale de Paris; and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.9 to the 1992 Form 10-K filed by Ross Stores for its year ended January 30, 1993 ("1992 Form 10-K").
10.4 First Amendment to Amended and Restated Credit Agreement, entered into as of February 5, 1993, by and among Ross Stores, Wells Fargo Bank, National Association, Bank of America, N.T. & S.A., Nationsbank of Texas, N.A., and Banque Nationale de Paris ("Banks"); and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.10 to the 1992 Form 10-K.
10.5 Revolving Credit Agreement, dated July 31, 1993, among Ross Stores, Wells Fargo Bank, National Association, Bank of America, N.T. & S.A., Nationsbank of Texas, N.A., and Banque Nationale de Paris ("Banks"), and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.17 on the Form 10-Q filed by Ross Stores for its quarter ended July 31, 1993.
10.6 Term Credit Agreement, dated September 16, 1991, between Ross Stores and the Industrial Bank of Japan, Limited, incorporated by reference to Exhibit 10 to the Form 10-Q filed by Ross Stores for its quarter ended August 3, 1991.
10.7 Amendment to Term Credit Agreement, dated February 19, 1993, between Ross Stores and the Industrial Bank of Japan, Limited, incorporated by reference to Exhibit 10.12 to the 1992 Form 10-K.
10.8 Second Amendment to Term Credit Agreement, dated as of October 29, 1993, between Ross Stores and the Industrial Bank of Japan, Limited, incorporated by reference to Exhibit 10.13 to the Form 10-Q filed by Ross Stores for its quarter ended October 30, 1993.
Management Contracts and Compensatory Plans
10.9 Ross Stores 1992 Stock Option Plan, incorporated by reference to Exhibit 19.1 on Form 10-Q filed by Ross Stores for its quarter ended August 1, 1992.
10.10 Third Amended and Restated Ross Stores Employee Stock Purchase Plan, incorporated by reference to Exhibit 19.2 on Form 10-Q filed by Ross Stores for its quarter ended August 1, 1992.
begin page 35
Exhibit Number Exhibit
10.11 Third Amended and Restated Ross Stores, 1988 Restricted Stock Plan, incorporated by reference to Exhibit 19.3 on Form 10-Q filed by Ross Stores, for its quarter ended August 1, 1992.
10.12 1991 Outside Directors Stock Option Plan, incorporated by reference to Exhibit 10.13 to the 1991 Form 10-K.
10.13 Ross Stores Executive Medical Plan.
10.14 Third Amended and Restated Ross Stores Executive Supplemental Retirement Plan.
10.15 Ross Stores Non-Qualified Deferred Compensation Plan.
10.16 Ross Stores Incentive Compensation Plan.
10.17 Employment Agreement between Ross Stores, Inc. and Norman A. Ferber, dated March 17, 1989, incorporated by reference to Exhibit 10.4 to the 1988 Annual Report on Form 10-K filed by Ross Stores, Inc., a California corporation, for its year ended January 28, 1989.
10.18 Amendment to Employment Agreement between Ross Stores and Norman A. Ferber, dated March 11, 1991, incorporated by reference to Exhibit 10.51 to the 1990 Annual Report on Form 10-K filed by Ross Stores, for its year ended February 2, 1991.
10.19 Second Amendment to Employment Agreement between Ross Stores and Norman A. Ferber, dated April 23, 1992, incorporated by reference to Exhibit 10.7 to the 1991 Form 10-K.
10.20 Employment Agreement between Ross Stores and Melvin A. Wilmore, dated November 25, 1991, incorporated by reference to Exhibit 10.11 to the 1991 Form 10-K.
10.21 Agreement and General Release between Ross Stores and Greggory L. Baldwin, dated November 6, 1991, incorporated by reference to Exhibit 10.12 to the 1991 Form 10-K.
10.22 Consulting Agreement between Ross Stores and Stuart G. Moldaw, effective as of March 12, 1993, incorporated by reference to Exhibit 10.16 on the Form 10-Q filed by Ross Stores for its quarter ended May 1, 1993.
11 Statement re: Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
23.2 Independent Auditors' Report on Financial Statement Schedules.