Ross 2007 Annual Report Download - page 49

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Allowance for sales returns. An allowance for the gross margin loss on estimated sales returns is included in accrued expenses
and other in the consolidated balance sheets. The allowance for sales returns consists of the following:
($000) Beginning balance Additions Reductions Ending balance
Year ended:
February 2, 2008 $ 4,320 $ 408,434 $ 408,195 $ 4,559
February 3, 2007 $ 6,101 $ 376,173 $ 377,954 $ 4,320
January 28, 2006 $ 4,832 $ 350,081 $ 348,812 $ 6,101
Store pre-opening. Store pre-opening costs are expensed in the period incurred.
Advertising. Advertising costs are expensed in the period incurred. Advertising costs for fiscal 2007, 2006 and 2005 were
$50.2 million, $45.5 million and $44.2 million, respectively.
Stock-based compensation. Effective in fiscal 2006, the Company adopted SFAS No. 123(R) and elected to adopt the
standard using the modified prospective transition method. SFAS No. 123(R) replaces SFAS No. 123, “Accounting for Stock-
Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees.” This accounting standard requires recognition of compensation expense based upon the grant date fair value
of all stock-based awards, typically over the vesting period. See Note C for more information on the Company’s stock-based
compensation plans.
Taxes on earnings. SFAS No. 109, “Accounting for Income Taxes,” requires income taxes to be accounted for under an asset and
liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other than changes in the tax law or tax rates.
The Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which supplements
SFAS No. 109 “Accounting for Income Taxes” (SFAS No. 109) effective February 4, 2007. FIN 48 clarifies the criteria that an
individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s consolidated
financial statements. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement standard for all tax
positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the consolidated
financial statements.
Treasury stock. The Company records treasury stock at cost. Treasury stock includes shares purchased from employees for tax
withholding purposes related to vesting of restricted stock grants.
Earnings per share (“EPS”). SFAS No. 128, “Earnings Per Share,” requires earnings per share to be computed and reported as
both basic EPS and diluted EPS. Basic 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.DilutedEPSreects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.
In fiscal 2007, 2006 and 2005 there were 1,277,000, 3,114,000, and 2,778,000 weighted average shares, respectively, that could
potentially dilute basic EPS in the future that were excluded from the calculation of diluted EPS because their effect would have
been anti-dilutive (option exercise price exceeds average stock price) in the periods presented.