UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 2, 1996 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 0-14678 ROSS STORES, INC. (Exact name of registrant as specified in its charter) Delaware 94-1390387 (State or other juristiction of (I.R.S. Employer Identification No.) incorporation or organization) 8333 Central Avenue, 94560-3433 Newark, California(Address of principal (Zip Code) executive offices) Registrant's telephone number, (510) 505-4400 including area code Former name, former address N/A and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ The number of shares of Common Stock, with $.01 par value, outstanding on November 30, 1996 was 24,752,157.
2 <TABLE> <CAPTION> PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. ROSS STORES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ($000) November 2, February 3, October 28, ASSETS 1996 1996 1995 (Unaudited) (Note A) (Unaudited) Current Assets <S> <C> <C> <C> Cash and cash equivalents $25,305 $23,426 $23,599 Accounts receivable 18,207 9,901 9,197 Merchandise inventory 401,813 295,965 344,004 Prepaid expenses and other 13,269 13,474 11,750 _______ _______ _______ Total Current Assets 458,594 342,766 388,550 Property And Equipment Land and buildings 24,115 24,102 24,102 Fixtures and equipment 160,539 156,811 149,923 Leasehold improvements 124,783 123,829 116,956 Construction-in-progress 28,922 16,808 13,654 ________________________________________ 338,359 321,550 304,635 Less accumulated depreciation 152,468 140,174 133,581 and amortization ________________________________________ 185,891 181,376 171,054 Other assets 15,893 17,010 17,558 ________________________________________ $660,378 $541,152 $577,162 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $196,929 $137,653 $172,809 Accrued expenses and other 61,936 42,944 47,097 Accrued payroll and benefits 41,891 30,064 25,364 Income taxes payable 14,018 10,555 2,007 ________________________________________ Total Current Liabilities 314,774 221,216 247,277 Long-term debt 10,000 9,806 37,874 Deferred income taxes and other 22,938 18,614 21,465 liabilities Stockholders' Equity Capital stock 249 246 244 Additional paid-in capital 156,542 133,409 127,567 Retained earnings 155,875 157,861 142,735 ________________________________________ 312,666 291,516 270,546 ________________________________________ $660,378 $541,152 $577,162 <FN> <F1> See notes to condensed consolidated financial statements. </FN> </TABLE>
3 <TABLE> <CAPTION> ROSS STORES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended Nine Months Ended November 2, October 28, November 2, October 28, ($000 except per share data, unaudited) 1996 1995 1996 1995 <S> <C> <C> <C> <C> Sales $403,383 $330,682 $1,179,987 $979,319 Costs and Expenses Cost of goods sold and occupancy 283,797 237,555 833,472 710,403 General, selling and administrative 85,043 72,634 243,025 209,329 Depreciation and amortization 7,363 6,834 21,788 20,277 Interest (77) 473 138 2,452 _____________________________________________________ 376,126 317,496 1,098,423 942,461 Earnings before taxes 27,257 13,186 81,564 36,858 Provision for taxes on earnings 10,903 5,277 32,626 14,745 Net earnings $16,354 $7,909 $48,938 $22,113 ============================================================================================================= Net earnings per share: Primary $.64 $.32 $1.90 $.89 Fully diluted $.64 $.32 $1.89 $.89 ============================================================================================================= Weighted average shares outstanding: Primary 25,625 24,863 25,757 24,734 Fully diluted 25,677 24,870 25,872 24,851 ============================================================================================================= Stores open at end of period 313 293 ============================================================================================================= <FN> <F1> See notes to condensed consolidated financial statements. </FN> </TABLE>
4 <TABLE> <CAPTION> ROSS STORES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended November 2, October 28 ($000, unaudited) 1996 1995 <S> <C> <C> Cash Flows From Operating Activities Net earnings $48,938 $22,113 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization of property 21,788 20,277 and equipment Other amortization 4,923 3,799 Change in current assets and current liabilities: Merchandise inventory (105,848) (68,821) Other current assets - net (8,102) (3,431) Accounts payable 61,012 64,691 Other current liabilities - net 37,227 6,548 Other 5,988 3,624 _____________________ Net cash provided by operating activities 65,926 48,800 ================================================================================= Cash Flows From Investing Activities Additions to property and equipment (33,188) (29,871) ______________________ Net cash used in investing activities (33,188) (29,871) ================================================================================== Cash Flows From Financing Activities Borrowing under line of credit agreement 12,700 5,000 (Repayment) of long-term debt (9,835) (13,241) Issuance of common stock related to stock plans 29,352 1,812 Repurchase of common stock (57,797) (8,054) Dividends paid (5,279) (4,428) ______________________ Net cash (used in) financing activities (30,859) (18,911) ______________________ Net Increase In Cash 1,879 18 Cash Beginning of year 23,426 23,581 ____________________ End of quarter $25,305 $23,599 ================================================================================= Interest Paid $660 $2,822 Income Taxes Paid $29,163 $17,476 ================================================================================= <FN> <F1> See notes to condensed consolidated financial statements. </FN> </TABLE>
5 ROSS STORES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three and Nine Months Ended November 2, 1996 and October 28, 1995 (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared from the records of the company without audit and, in the opinion of management, include all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at November 2, 1996 and October 28, 1995; the interim results of operations for the three and nine months ended November 2, 1996 and October 28, 1995; and cash flows for the nine months ended November 2, 1996 and October 28, 1995. The balance sheet at February 3, 1996, presented herein, has been derived from the audited financial statements of the company 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 February 3, 1996. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted for purposes of the 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, for the year ended February 3, 1996. The results of operations for the three and nine month periods herein presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated financial statements at November 2, 1996 and October 28, 1995, and for the three and nine months then ended have been reviewed, prior to filing, by the registrant's independent accountants whose report covering their review of the financial statements is included in this report on page 6.
6 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholders of Ross Stores, Inc. Newark, California We reviewed the accompanying condensed consolidated balance sheets of Ross Stores, Inc. (the "Company") as of November 2, 1996 and October 28, 1995, and the related condensed consolidated statements of earnings for the three-month and nine-month periods then ended and the related condensed consolidated statements of cash flows for the nine-month periods then ended. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objectives 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 generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Ross Stores, Inc. as of February 3, 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 15, 1996, 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 February 3, 1996 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Deloitte & Touche LLP San Francisco, CA November 22, 1996
7 <TABLE> <CAPTION> ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS PERCENTAGE OF SALES Three Months Ended Nine Months Ended November 2, October 28, November 2, October 28, 1996 1995 1996 1995 <S> <C> <C> <C> <C> SALES Sales ($000) $403,383 $330,682 $1,179,987 $979,319 Sales growth 22% 12% 20% 12% Comparable store sales growth 14% 4% 12% 2% COSTS AND EXPENSES Cost of goods sold and occupancy 70.4% 71.8% 70.6% 72.5% General, selling and administrative 21.1% 22.0% 20.6% 21.4% Depreciation and amortization 1.8% 2.1% 1.8% 2.1% Interest 0% 0.1% 0% 0.3% NET EARNINGS 4.1% 2.4% 4.1% 2.3% ======================================================================================================= </TABLE> Sales The results of operations for the three and nine months ended November 2, 1996, over the same periods last year, reflect an increase in the level of sales which was due to the increase in comparable store sales as well as a greater number of open stores during the current period. Costs and Expenses The declines from the prior year in cost of goods sold and occupancy expense as a percentage of sales for the three and nine month periods ended November 2, 1996 were primarily due to stronger than planned comparable store increases which contributed to (i) lower markdowns as a percentage of sales and (ii) increased leverage on occupancy expenses. General, selling and administrative expenses as a percentage of sales also declined from the comparable periods in the prior year. This improvement was due to the company's continued focus on strict expense controls combined with the leverage realized on the strong increase in comparable store sales, which more than offset higher accruals for the company's incentive plan. Net earnings for the three months ended November 2, 1996, totaled $16.4 million, or $.64 per share, compared to net earnings of $7.9 million, or $.32 per share, for the three months ended October 28, 1995.
8 Taxes on Earnings The company's effective tax rate for the third quarter of 1996 and 1995 was 40%. The rate for both periods reflects the applicable statutory tax rates. LIQUIDITY AND CAPITAL RESOURCES The primary uses of cash during the first nine months of fiscal 1996 were for (i) an increase in inventory somewhat offset by a related increase in accounts payable; (ii) repurchase of the company's common stock; (iii) capital expenditures for new stores, improvements to existing locations and improvements in operating systems; and (iv) reduction in long-term debt. Total consolidated inventories were up 17% at the end of the third quarter from last year due mainly to an increase in the number of new stores and higher levels of seasonal packaway merchandise. The increase in accounts receivable reflects an increase in deferred compensation and credit card sales driven by the higher volume of business. The increase in accrued payroll reflects the accruals for the company's deferred compensation plan and incentive plan. The increase in accrued expenses primarily results from the timing of payments for expenses related to the volume of business. The decline in interest expense reflects lower borrowings which resulted primarily from (i) higher earnings levels; (ii) increases in accounts payable, accrued expenses and other liabilities; and (iii) receipts from stock option exercises. The company believes it can fund its capital needs for the remainder of the fiscal year and the next twelve months and complete the current stock repurchase program through internally generated cash, trade credit, established bank lines and lease financing. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Incorporated herein by reference to the list of Exhibits contained in the Exhibit Index which begins on page 10 of this Report. (b) Reports on Form 8-K None.
9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. ROSS STORES, INC. Registrant Date: December 13, 1996 /s/John M. Vuko John M. Vuko, Senior Vice President, Controller and Principal Accounting Officer
10 INDEX TO EXHIBITS Exhibit Number Exhibit 3.1 Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 8-B (the "Form 8-B") filed September 1, 1989 by Ross Stores, Inc., a Delaware corporation ("Ross Stores"). 3.2 Amended By-laws, dated August 25, 1994, incorporated by reference to Exhibit 3.2 to the Form 10-Q filed by Ross Stores for its quarter ended July 30, 1994. 10.1 Agreement of Lease, dated November 24, 1986, for Ross Stores' corporate headquarters and distribution center in Newark, CA, incorporated by reference to Exhibit 10.5 to the Form 8-B. 10.2 Revolving Credit Agreement, dated July 31, 1993, among Ross Stores, Wells Fargo Bank, National Association, Bank of America, National Trust and Savings Association, and Security Pacific National Bank ("Banks"); and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.17 on the Form 10-Q filed by Ross Stores for its quarter ended July 31, 1993. 10.3 First Amendment to Revolving Credit Agreement, effective on July 31, 1994, by and among Ross Stores, Banks and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.5 to the Form 10-Q filed by Ross Stores for its quarter ended July 30, 1994. 10.4 Second Amendment to Revolving Credit Agreement, effective on June 15, 1995, by and among Ross Stores, Banks and Wells Fargo Bank, National Association, as agent for Banks, incorporated by reference to Exhibit 10.4 to the Form 10-Q filed by Ross Stores for its quarter ended July 29, 1995. 10.5 Credit Agreement, dated as of June 22, 1994, among Ross Stores, Bank of America National Trust and Savings Association as Agent, the Industrial Bank of Japan as Co- Agent and the other financial institutions party thereto, incorporated by reference to Exhibit 10.6 to the Form 10-Q filed by Ross Stores for its quarter ended July 30, 1994. 10.6 First Amendment to Credit Agreement, dated as of June 20, 1995, among Ross Stores, Bank of America National Trust and Savings Association as Agent, the Industrial Bank of Japan as Co-Agent, incorporated by reference to Exhibit 10.6 to the Form 10-Q filed by Ross Stores for its quarter ended July 29, 1995. 10.7 Second Amendment to Credit Agreement, dated as of June 12, 1996, Ross Stores, Bank of America National Trust and Savings Association as Agent, the Industrial Bank of Japan as Co-Agent, incorporated by reference to Exhibit 10.7 to the Form 10-Q filed by Ross Stores for its quarter ended August 3, 1996.
11 Exhibit Number Exhibit MANAGEMENT CONTRACTS AND COMPENSATORY PLANS (EXHIBITS 10.8 - 10.33) 10.8 Amended and Restated 1992 Stock Option Plan, incorporated by reference to the appendix to the Proxy Statement filed by Ross Stores on April 24, 1995 for its Annual Stockholders Meeting held May 25, 1995 ("1995 Proxy Statement"). 10.9 Third Amended and Restated Ross Stores Employee Stock Purchase Plan, incorporated by reference to the appendix to the 1995 Proxy Statement. 10.10 Third Amended and Restated Ross Stores 1988 Restricted Stock Plan, incorporated by reference to the appendix to the Proxy Statement filed by Ross Stores on April 24, 1996 for its Annual Stockholders Meeting held May 30, 1996 ("1996 Proxy Statement"). 10.11 1991 Outside Directors Stock Option Plan, incorporated by reference to the appendix to the 1996 Proxy Statement. 10.12 Ross Stores Executive Medical Plan, incorporated by reference to Exhibit 10.13 to the 1993 Form 10-K filed by Ross Stores for its year ended January 29, 1994 ("1993 Form 10-K"). 10.13 Third Amended and Restated Ross Stores Executive Supplemental Retirement Plan, incorporated by reference to Exhibit 10.14 to the 1993 Form 10-K. 10.14 Ross Stores Non-Qualified Deferred Compensation Plan, incorporated by reference to Exhibit 10.15 to the 1993 Form 10-K. 10.15 Ross Stores Incentive Compensation Plan, incorporated by reference to the appendix to the 1996 Proxy Statement. 10.16 Amended and Restated Employment Agreement between Ross Stores and Norman A. Ferber, effective as of June 1, 1995, incorporated by reference to Exhibit 10.17 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.17 Amendment to Amended and Restated Employment Agreement between Ross Stores and Norman A. Ferber, entered into July 29, 1996, incorporated by reference to Exhibit 10.17 to the Form 10-Q filed by Ross Stores for its quarter ended August 3, 1996. 10.18 Agreement between Ross Stores and Norman A. Ferber, dated August 22, 1995, incorporated by reference to Exhibit 10.18 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.19 Employment Agreement between Ross Stores and Melvin A. Wilmore, effective as of March 15, 1994, incorporated by reference to Exhibit 10.20 to the Form 10-Q filed by Ross Stores for its quarter ended April 30, 1994.
12 Exhibit Number Exhibit 10.20 Amendment to Employment and Stock Grant Agreement by and between Ross Stores and Melvin A. Wilmore, effective as of March 16, 1995, incorporated by reference to Exhibit 10.20 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.21 Second Amendment to Employment Agreement by and between Ross Stores and Melvin A. Wilmore, effective as of June 1, 1995, incorporated by reference to Exhibit 10.21 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.22 Third Amendment to Employment Agreement by and between Ross Stores and Melvin A. Wilmore, entered into July 29, 1996, incorporated by reference to Exhibit 10.22 to the Form 10-Q filed by Ross Stores for its quarter ended August 3, 1996. 10.23 Agreement between Ross Stores and Melvin A. Wilmore, dated August 22, 1995, incorporated by reference to Exhibit 10.22 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.24 Employment Agreement between Ross Stores and Michael Balmuth, effective as of February 1, 1995, incorporated by reference to Exhibit 10.15 to the Form 10-Q filed by Ross Stores for its quarter ended April 29, 1995. 10.25 Amendment to Employment Agreement between Ross Stores and Michael Balmuth, effective as of June 1, 1995, incorporated by reference to Exhibit 10.24 to the Form 10-Q filed by Ross Stores for its quarter ended October 28, 1995. 10.26 Second Amendment to Employment Agreement between Ross Stores and Michael Balmuth, entered July 29, 1996, incorporated by reference to Exhibit 10.26 to the Form 10-Q filed by Ross Stores for its quarter ended August 3, 1996. 10.27 Employment Agreement between Ross Stores and Barry S. Gluck, effective as of March 1, 1996, incorporated by reference to Exhibit 10.23 to the Form 10-Q filed by Ross Stores for its quarter ended May 4, 1996. 10.28 First Amendment to Employment Agreement between Ross Stores and Barry S. Gluck, dated September 1, 1996. 10.29 Employment Agreement between Ross Stores and Irene S. Jamieson, effective as of March 1, 1996, incorporated by reference to Exhibit 10.24 to the Form 10-Q filed by Ross Stores for its quarter ended May 4, 1996. 10.30 First Amendment to Employment Agreement between Ross Stores and Irene A. Jamieson, dated September 1, 1996. 10.31 Employment Agreement between Ross Stores and Barbara Levy, effective as of March 1, 1996, incorporated by reference to Exhibit 10.25 to the Form 10-Q filed by Ross Stores for its quarter ended May 4, 1996.
13 Exhibit Number Exhibit 10.32 First Amendment to Employment Agreement between Ross Stores and Barbara Levy, dated September 1, 1996. 10.33 Consulting Agreement between Ross Stores and Stuart G. Moldaw, effective as of March 16, 1995, incorporated by reference to Exhibit 10.16 to the Form 10-Q filed by Ross Stores for its quarter ended April 29, 1995. 11 Statement re: Computation of Per Share Earnings. 15 Letter re: Unaudited Interim Financial Information. 27 Financial Data Schedules (submitted for SEC use only).