FORM 10-Q
Ross Stores, Inc.(Exact name of registrant as specified in its charter)
The number of shares of Common Stock, with $.01 par value, outstanding on November 19, 2009 was 123,873,076.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings
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Condensed Consolidated Balance Sheets
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Condensed Consolidated Statements of Cash Flows
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Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended October 31, 2009 and November 1, 2008 (Unaudited)
Note A: Summary of Significant Accounting Policies
Basis of Presentation.The accompanying unaudited interim condensed consolidated financial statements have been prepared from the records of Ross Stores, Inc. and subsidiaries (the “Company”) without audit and, in the opinion of management, include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the Company’s financial position as of October 31, 2009 and November 1, 2008, the results of operations for the three and nine month periods ended October 31, 2009 and November 1, 2008, and cash flows for the nine month periods ended October 31, 2009 and November 1, 2008. The Condensed Consolidated Balance Sheet as of January 31, 2009, presented herein, has been derived from the Company’s audited consolidated financial statements for the fiscal year then ended.
Accounting policies followed by the Company are described in Note A to the audited consolidated financial statements for the fiscal year ended January 31, 2009. Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of these interim condensed consolidated financial statements. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, contained in the Company’s Annual Report on Form 10-K for the year ended January 31, 2009.
The results of operations for the three and nine month periods ended October 31, 2009 and November 1, 2008 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.
In preparing these interim condensed consolidated financial statements, the Company evaluated, for potential recognition and disclosure, events and transactions that occurred up through December 8, 2009.
Total comprehensive income. The components of total comprehensive income for the three and nine month periods ended October 31, 2009 and November 1, 2008 are as follows (in $000):
Estimated fair value of financial instruments. The carrying value of cash and cash equivalents, short-term and long-term investments, accounts receivable, and accounts payable approximates their estimated fair value.
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Sales Mix. The Company’s sales mix is shown below for the three and nine month periods ended October 31, 2009 and November 1, 2008:
Dividends. Dividends included in the Condensed Consolidated Statements of Cash Flows reflect dividends paid during the periods shown. Dividends per share reported in the Condensed Consolidated Statements of Earnings reflect dividends declared during the periods shown. In January, May, and August 2009, the Company’s Board of Directors declared a quarterly cash dividend of $.11 per common share that was paid in March, June, and September 2009, respectively. In January, May, August, and November 2008 the Company’s Board of Directors declared a quarterly cash dividend of $.095 per common share that was paid in March, July, and October 2008, and January 2009, respectively.
In November 2009, the Company’s Board of Directors declared a cash dividend of $.11 per common share, payable on December 31, 2009.
Provision for litigation costs and other legal proceedings. Like many California retailers, the Company has been named in class action lawsuits regarding wage and hour claims. Class action litigation involving allegations that hourly associates have missed meal and/or rest break periods, as well as allegations of unpaid overtime wages to assistant store managers at Company stores under state law remains pending as of October 31, 2009.
The Company is also party to various other legal proceedings arising in the normal course of business. Actions filed against the Company include commercial, product, customer, intellectual property, and labor and employment-related claims, including lawsuits in which plaintiffs allege that the Company violated state or federal laws. Actions against the Company are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties.
In the opinion of management, resolution of pending class action litigation and other currently pending legal proceedings is not expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
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Note B: Investments
The amortized cost and fair value of the Company’s available-for-sale securities as of October 31, 2009 were:
The amortized cost and fair value of the Company’s available-for-sale securities as of November 1, 2008 were:
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Assets measured at fair value are summarized below:
Stock-based compensation. For the three and nine month periods ended October 31, 2009 and November 1, 2008, the Company recognized stock-based compensation expense as follows:
No stock options were granted during the three and nine month periods ended October 31, 2009 and November 1, 2008.
Total stock-based compensation recognized in the Company’s Condensed Consolidated Statements of Earnings for the three and nine month periods ended October 31, 2009 and November 1, 2008 is classified as follows:
Stock option activity. The following table summarizes stock option activity for the nine month period ended October 31, 2009:
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The following table summarizes information about the weighted average remaining contractual life (in years) and the weighted average exercise prices for stock options both outstanding and exercisable as of October 31, 2009 (number of shares in thousands):
Note D: Earnings Per Share
Basic Earnings Per Share (“EPS”) is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Dilutive EPS reflects the total potential dilution that could occur from outstanding equity plan awards, including unexercised stock options and unvested shares of both performance and non-performance based awards of restricted stock.
For the three month period ended October 31, 2009, no weighted average shares were excluded from the calculation of diluted EPS as there were no potentially anti-dilutive shares for the period. For the nine month period ended October 31, 2009, approximately 4,800 weighted average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive. For the three and nine month periods ended November 1, 2008, approximately 544,700 and 594,300 weighted average shares were excluded from the calculation of diluted EPS because their effect would have been anti-dilutive in the periods presented.
The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations:
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Note E: Debt
The Company has a $600 million revolving credit facility with an expiration date of July 2011 and interest pricing at LIBOR plus 45 basis points. The Company had no borrowings outstanding under this facility as of October 31, 2009, January 31, 2009, and November 1, 2008.
The Company has a Note Purchase Agreement with various institutional investors for $150 million of unsecured, senior notes. The notes were issued in two series. The series A notes totaling $85 million are due in December 2018 and bear interest at a rate of 6.38%. The series B notes totaling $65 million are due in December 2021 and bear interest at a rate of 6.53%. The fair value of these notes as of October 31, 2009 of approximately $163 million is estimated by obtaining comparable market quotes.
Borrowings under the credit facilities and these notes are subject to certain covenants, including interest coverage and other financial ratios. As of October 31, 2009, the Company was in compliance with these covenants.
Note F: Taxes on Earnings
As of October 31, 2009 and November 1, 2008, the reserves for unrecognized tax benefits (net of federal tax benefits) were $29.6 million and $26.5 million inclusive of $7.6 million and $8.1 million of related interest, respectively. The Company accounts for interest and penalties related to unrecognized tax benefits as a part of its provision for taxes on earnings. If recognized, $22.8 million would impact the Company’s effective tax rate. The difference between the total amount of unrecognized tax benefits and the amounts that would impact the effective tax rate relates to amounts attributable to deferred income tax assets and liabilities. These amounts are net of federal and state income taxes.
During the next twelve months, it is reasonably possible that the statute of limitations may lapse pertaining to positions taken by the Company in prior year tax returns. If this occurs, the total amount of unrecognized tax benefits may decrease, reducing the provision for taxes on earnings by up to $1.7 million.
The Company is generally open to audit by the Internal Revenue Service under the statute of limitations for fiscal years 2006 through 2008. The Company’s state income tax returns are generally open to audit under the various statutes of limitations for fiscal years 2004 through 2008. Certain state tax returns are currently under audit by state tax authorities. The Company does not expect the results of these audits to have a material impact on the consolidated financial statements.
Note G: Recently Issued Accounting Standards
In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (VIE), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. SFAS No. 167 is effective for fiscal years beginning after November 15, 2009. The Company does not believe the adoption of SFAS 167 will have a material impact on its consolidated financial statements.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Ross Stores, Inc. Pleasanton, California
We have reviewed the accompanying condensed consolidated balance sheets of Ross Stores, Inc. and subsidiaries (the “Company”) as of October 31, 2009 and November 1, 2008, and the related condensed consolidated statements of earnings for the three-month and nine-month periods ended October 31, 2009 and November 1, 2008, and of cash flows for the nine-month periods ended October 31, 2009 and November 1, 2008. These condensed consolidated financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Ross Stores, Inc. and subsidiaries as of January 31, 2009, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for the year then ended (not presented herein), and in our report (which includes an explanatory paragraph regarding the adoption of a new accounting standard) dated March 26, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/Deloitte & Touche LLP
San Francisco, CaliforniaDecember 8, 2009
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A (Risk Factors) below. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for 2008. All information is based on our fiscal calendar.
Overview
We are the second largest off-price apparel and home goods retailer in the United States. As of October 31, 2009, we operated 955 Ross Dress for Less (“Ross”) stores in 27 states and Guam, and 53 dd’s DISCOUNTS stores in four states. Ross offers first-quality, in-season, name brand and designer apparel, accessories, footwear and home fashions at everyday savings of 20% to 60% off department and specialty store regular prices. dd’s DISCOUNTS features a more moderately-priced assortment of first-quality, in-season, name brand apparel, accessories, footwear and home fashions at everyday savings of 20% to 70% off moderate department and discount store regular prices.
Results of Operations
The following table summarizes the financial results for the three and nine month periods ended October 31, 2009 and November 1, 2008:
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Stores. Our expansion strategy is to open additional stores based on market penetration, local demographic characteristics, competition, expected store profitability, and the ability to leverage overhead expenses. We continually evaluate opportunistic real estate acquisitions and opportunities for potential new store locations. We also evaluate our current store locations and determine store closures based on similar criteria.
Sales. Sales for the three month period ended October 31, 2009 increased $188.9 million, or 12.1%, compared to the three month period ended November 1, 2008, due to the addition of 45 net new stores opened between November 1, 2008 and October 31, 2009 and an 8% increase in “comparable” store sales (defined as stores that have been open for more than 14 complete months). Sales for the nine month period ended October 31, 2009 increased $452.3 million, or 9.5%, compared to the nine month period ended November 1, 2008, with comparable store sales up 5% on top of a 3% gain in the prior year.
Our sales mix is shown below for the three and nine month periods ended October 31, 2009 and November 1, 2008:
We expect to address the competitive climate for off-price apparel and home goods by pursuing and refining our existing strategies and by continuing to invest in our merchant organization, to diversify our merchandise mix, and to more fully develop our processes and systems to improve regional and local merchandise offerings. Although our strategies and store expansion program contributed to sales gains for the three and nine month periods ended October 31, 2009, we cannot be sure that they will result in a continuation of sales growth or in an increase in net earnings.
Cost of goods sold.Cost of goods sold for the three month period ended October 31, 2009 increased $86.4 million compared to the same period in the prior year mainly due to increased sales from the opening of 45 net new stores between November 1, 2008 and October 31, 2009 and an 8% increase in comparable store sales.
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Financial Condition
Liquidity and Capital Resources
Our primary sources of funds for our business activities are cash flows from operations and short-term trade credit. Our primary ongoing cash requirements are for merchandise inventory purchases, capital expenditures in connection with opening new stores, and investments in distribution centers and information systems. We also use cash to repurchase stock under our stock repurchase program and to pay dividends.
Operating Activities
Net cash provided by operating activities was $583.9 million for the nine month period ended October 31, 2009 compared to $368.8 million for the nine month period ended November 1, 2008. The primary source of cash provided by operating activities for the nine month periods ended October 31, 2009 and November 1, 2008 was net earnings and accounts payable plus non-cash expenses for depreciation and amortization. The increase in cash flow from operating activities for the nine month period ended October 31, 2009 primarily resulted from an increase in accounts payable leverage as a result of faster inventory turns. Accounts payable leverage (defined as accounts payable divided by merchandise inventory) was 61% as of January 31, 2009 and increased to 76% as of October 31, 2009. Accounts payable leverage was 63% as of November 1, 2008.
Our primary source of liquidity is the sale of our merchandise inventory. We regularly review the age and condition of our merchandise and are able to maintain current merchandise inventory in our stores through replenishment processes and liquidation of slower-moving merchandise through clearance markdowns.
Investing Activities
During the nine month periods ended October 31, 2009 and November 1, 2008, our capital expenditures were approximately $124.2 million and $175.5 million, respectively. Our capital expenditures included fixtures and leasehold improvements to open new stores, implement information technology systems, build or expand distribution centers, install material handling equipment and related distribution center systems, and various other expenditures related to our stores, buying, and corporate offices. We opened 56 and 77 new stores on a gross basis during the nine month periods ended October 31, 2009 and November 1, 2008, respectively.
We are forecasting approximately $165 million in capital expenditures in fiscal year 2009 for fixtures and leasehold improvements to open new Ross and dd’s DISCOUNTS stores, for the relocation or upgrade of existing stores, for investments in store and merchandising systems, buildings, equipment and systems, and for various buying and corporate office expenditures. We expect to fund these expenditures with cash flows from operations.
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Financing Activities
During the nine month periods ended October 31, 2009 and November 1, 2008, our liquidity and capital requirements were provided by available cash, cash flows from operations, and trade credit. Our buying offices, our corporate headquarters, one distribution center, one trailer parking lot, three warehouse facilities, and all but two of our store locations are leased and, except for certain leasehold improvements and equipment, do not represent capital investments. We own one distribution center in each of the following cities: Carlisle, Pennsylvania; Moreno Valley, California; and Fort Mill, South Carolina, and one warehouse facility in Fort Mill, South Carolina.
In January 2008, our Board of Directors approved a two-year $600 million stock repurchase program for fiscal 2008 and 2009. We repurchased 5.8 million shares of common stock for an aggregate purchase price of approximately $229.8 million during the nine month period ended October 31, 2009. We repurchased 7.0 million shares of common stock for approximately $231.4 million during the nine month period ended November 1, 2008.
For the nine month periods ended October 31, 2009 and November 1, 2008, dividends paid were $41.6 million and $37.2 million, respectively.
Short-term trade credit represents a significant source of financing for merchandise inventory. Trade credit arises from customary payment terms and trade practices with our vendors. We regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade, bank, and other credit lines to meet our capital and liquidity requirements, including lease payment obligations in 2009.
Our $600 million credit facility remains in place with $534.8 million available as of October 31, 2009 and expires in July 2011.
We estimate that cash flows from operations, bank credit lines, and trade credit are adequate to meet operating cash needs, fund our planned capital investments, repurchase common stock, and make quarterly dividend payments for at least the next twelve months.
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Contractual Obligations
The table below presents our significant contractual obligations as of October 31, 2009:
1We have a $29.6 million liability for unrecognized tax benefits that is included in other long-term liabilities on our interim condensed consolidated balance sheet. This liability is excluded from the schedule above as the timing of payments cannot be reasonably estimated.
Senior notes. We have a Note Purchase Agreement with various institutional investors for $150 million of unsecured, senior notes. The notes were issued in two series. The Series A notes totaling $85 million are due in December 2018 and bear interest at a rate of 6.38%. The Series B notes totaling $65 million are due in December 2021 and bear interest at a rate of 6.53%. Interest on these notes is included in Interest payment obligations in the table above.
Borrowings under these notes are subject to certain operating and financial covenants, including maintaining certain interest coverage and other financial ratios. As of October 31, 2009, we were in compliance with these covenants.
Capital leases.The obligations under capital leases relate to distribution center equipment and have terms of two to three years.
Off-Balance Sheet Arrangements
Operating leases.We lease our two buying offices, our corporate headquarters, one distribution center, one trailer parking lot, three warehouse facilities, and all but two of our store locations. Except for certain leasehold improvements and equipment, these leased locations do not represent long-term capital investments.
We have lease arrangements for certain equipment in our stores for our point-of-sale (“POS”) hardware and software systems. These leases are accounted for as operating leases for financial reporting purposes. The initial terms of these leases are either two or three years, and we typically have options to renew the leases for two to three one-year periods. Alternatively, we may purchase or return the equipment at the end of the initial or each renewal term. We have guaranteed the value of the equipment of $2.9 million at the end of the respective initial lease terms, which is included in Other synthetic lease obligations in the table above.
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We lease approximately 181,000 square feet of office space for our corporate headquarters in Pleasanton, California, under several facility leases. The terms for these leases expire between 2010 and 2014 and contain renewal provisions.
We lease approximately 197,000 and 23,000 square feet of office space for our New York City and Los Angeles buying offices, respectively. The lease terms for these facilities expire in 2021 and 2014, respectively. The lease term for the New York office contains a renewal provision.
We lease a 1.3 million square foot distribution center in Perris, California. The land and building for this distribution center are financed under a $70 million ten-year synthetic lease that expires in July 2013. Rent expense on this center is payable monthly at a fixed annual rate of 5.8% on the lease balance of $70 million. At the end of the lease term, we have the option to either refinance the $70 million synthetic lease facility, purchase the distribution center at the amount of the then-outstanding lease obligation, or arrange a sale of the distribution center to a third party. If the distribution center is sold to a third party for less than $70 million, we have agreed under a residual value guarantee to pay the lessor any shortfall amount up to $56 million. Our contractual obligation of $56 million is included in Other synthetic lease obligations in the above table.
We have recognized a liability and corresponding asset for the fair value of the residual value guarantee in the amount of $8.3 million for our Perris, California distribution center and $1.3 million for our POS leases. These residual value guarantees are amortized on a straight-line basis over the original terms of the leases. The current portion of the related asset and liability is recorded in prepaid expenses and accrued expenses, respectively, and the long-term portion of the related assets and liabilities is recorded in other long-term assets and other long-term liabilities, respectively, in the accompanying condensed consolidated balance sheets.
In November 2001, we entered into a nine year lease for a 239,000 square foot warehouse and in September 2009 extended the lease through October 2013. We also leased, for ten years, a 246,000 square foot warehouse, and in September 2009 extended the lease through October 2014. Both of these leases are in Carlisle, Pennsylvania. In January 2009, we exercised a three-year lease option for a 253,000 square foot warehouse in Fort Mill, South Carolina, extending the lease term to February 2013. In June 2008, we purchased a 423,000 square foot warehouse also in Fort Mill, South Carolina. All four of these properties are used to store our packaway inventory. We also lease a 10-acre parcel of land that has been developed for trailer parking adjacent to our Perris distribution center.
The synthetic lease facilities described above, as well as our revolving credit facility and senior notes, have covenant restrictions requiring us to maintain certain interest coverage and other financial ratios. In addition, the interest rates under these agreements may vary depending on actual interest coverage ratios achieved. As of October 31, 2009 we were in compliance with these covenants.
Purchase obligations.As of October 31, 2009 we had purchase obligations of $1,089.0 million. These purchase obligations primarily consist of merchandise inventory purchase orders, commitments related to store fixtures and supplies, and information technology service and maintenance contracts. Merchandise inventory purchase orders of $1,041.6 million are purchase obligations of less than one year as of October 31, 2009.
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Commercial Credit Facilities
The table below presents our significant available commercial credit facilities at October 31, 2009:
Revolving credit facility.We have available a $600 million revolving credit facility with our banks, which contains a $300 million sublimit for issuance of standby letters of credit, of which $234.8 million was available at October 31, 2009. This credit facility which expires in July 2011 has a LIBOR-based interest rate plus an applicable margin (currently 45 basis points) and is payable upon maturity but not less than quarterly. Our borrowing ability under this credit facility is subject to our maintaining certain financial ratios. As of October 31, 2009 we had no borrowings outstanding under this facility and were in compliance with the covenants.
Standby letters of credit.We use standby letters of credit to collateralize certain obligations related to our self-insured workers’ compensation and general liability claims. We had $65.2 million and $60.4 million in standby letters of credit outstanding at October 31, 2009 and November 1, 2008, respectively.
Trade letters of credit.We had $27.9 million and $21.3 million in trade letters of credit outstanding at October 31, 2009 and November 1, 2008, respectively.
Dividends. In November 2009, our Board of Directors declared a cash dividend of $.11 per common share, payable on December 31, 2009. Our Board of Directors declared quarterly cash dividends of $.11 per common share in January, May, and August 2009, and $.095 per common share in January, May, August, and November 2008.
Critical Accounting Policies
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable. Actual results may differ significantly from these estimates. During the third quarter of fiscal 2009, there have been no significant changes to the policies discussed in our Annual Report on Form 10-K for the year ended January 31, 2009.
Effects of inflation or deflation. We do not consider the effects of inflation or deflation to be material to our financial position and results of operations.
New Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (VIE), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. SFAS No. 167 is effective for fiscal years beginning after November 15, 2009. We do not believe the adoption of SFAS 167 will have a material impact on our consolidated financial statements.
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Forward-Looking Statements
This report may contain a number of forward-looking statements regarding, without limitation, planned store growth, new markets, expected sales, projected earnings levels, capital expenditures, and other matters. These forward-looking statements reflect our then current beliefs, projections and estimates with respect to future events and our projected financial performance, operations, and competitive position. The words “plan,” “expect,” “target,” “anticipate,” “estimate,” “believe,” “forecast,” “projected,” “guidance,” “looking ahead” and similar expressions identify forward-looking statements.
Future economic and industry trends that could potentially impact revenue, profitability, and growth remain difficult to predict. As a result, our forward-looking statements are subject to risks and uncertainties which could cause our actual results to differ materially from these forward-looking statements and our expectations and projections. Refer to Part II, Item 1A in this Quarterly Report on Form 10-Q for a more complete discussion of risk factors. The factors underlying our forecasts are dynamic and subject to change. As a result, any forecasts or forward-looking statements speak only as of the date they are given and do not necessarily reflect our outlook at any other point in time. We disclaim any obligation to update or revise these forward-looking statements.
Other risk factors are detailed in our filings with the Securities and Exchange Commission including, without limitation, our Annual Report on Form 10-K for 2008.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks, which primarily include changes in interest rates. We do not engage in financial transactions for trading or speculative purposes.
We occasionally use forward contracts to hedge against fluctuations in foreign currency prices. We had no material outstanding forward contracts as of October 31, 2009.
Interest that is payable on our revolving credit facility is based on variable interest rates and is, therefore, affected by changes in market interest rates. As of October 31, 2009, we had no borrowings outstanding under our revolving credit facility. In addition, lease payments under certain of our synthetic lease agreements are determined based on variable interest rates and are, therefore affected by changes in market interest rates.
In addition, we issued notes to institutional investors in two series: Series A for $85 million accrues interest at 6.38% and Series B for $65 million accrues interest at 6.53%. The amount outstanding under these notes as of October 31, 2009 is $150 million.
Interest is receivable on our short- and long-term investments. Changes in interest rates may impact interest income recognized in the future, or the fair value of our investment portfolio.
A hypothetical 100 basis point increase or decrease in prevailing market interest rates would not have materially impacted our consolidated financial position, results of operations, cash flows, or the fair values of our short- and long-term investments as of and for the three and nine month periods ended October 31, 2009. We do not consider the potential losses in future earnings and cash flows from reasonably possible, near term changes in interest rates to be material.
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Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.
Quarterly Evaluation of Changes in Internal Control Over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during the third fiscal quarter of 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our management concluded that there was no such change during the third fiscal quarter.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The matters under the caption “Provision for litigation costs and other legal proceedings” in Note A of Notes to Condensed Consolidated Financial Statements are incorporated herein by reference.
Item 1A. Risk Factors
Our Quarterly Report on Form 10-Q for our third fiscal quarter of 2009, and information we provide in our press releases, telephonic reports and other investor communications, including those on our corporate website, may contain forward-looking statements with respect to anticipated future events and our projected financial performance, operations and competitive position that are subject to risks and uncertainties that could cause our actual results to differ materially from those forward-looking statements and our prior expectations and projections. Refer to Management’s Discussion and Analysis for a more complete identification and discussion of “Forward-Looking Statements.”
Our financial condition, results of operations, cash flows and the performance of our common stock may be adversely affected by a number of risk factors. Risks and uncertainties that apply to both Ross and dd’s DISCOUNTS include, without limitation, the following:
We are subject to the economic and industry risks that affect large retailers operating in the United States.
We are subject to operating risks as we attempt to execute our merchandising and growth strategies.
The continued success of our business depends, in part, upon our ability to increase sales at our existing store locations, to open new stores, and to operate stores on a profitable basis. Our existing strategies and store expansion programs may not result in a continuation of our anticipated revenue or profit growth. In executing our off-price retail strategies and working to improve efficiencies, expand our store network, and reduce our costs, we face a number of operational risks, including:
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Information regarding shares of common stock we repurchased during the third quarter of 2009 is as follows:
1We acquired 19,505 shares during the quarter ended October 31, 2009 related to income tax withholdings for restricted stock. All remaining shares were repurchased under our publicly announced stock repurchase program.
2 In January 2008 our Board of Directors approved a two-year $600 million stock repurchase program for fiscal 2008 and 2009.
Item 6. Exhibits
Incorporated herein by reference to the list of exhibits contained in the Index to Exhibits within this Report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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INDEX TO EXHIBITS
Amendment of Certificate of Incorporation dated May 21, 2004 and Amendment of Certificate of Incorporation dated June 5, 2002 and Corrected First Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Form 10-Q filed by Ross Stores for its quarter ended July 31, 2004.
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.
Letter re: Unaudited Interim Financial Information from Deloitte & Touche LLP dated December 8, 2009
Certification of Chief Executive Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
Certification of Chief Financial Officer Pursuant to Sarbanes-Oxley Act Section 302(a).
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
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