Ross 2008 Annual Report Download - page 31

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29
Revolving credit facility. We have available a $600.0 million revolving credit facility with our banks, which contains a $300.0
million sublimit for issuance of standby letters of credit, of which $239.6 million was available at January 31, 2009. This credit
facility 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
interest coverage and other financial ratios. As of January 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 $60.4 million and $61.1 million in standby letters of credit
outstanding at January 31, 2009 and February 2, 2008, respectively.
Trade letters of credit. We had $16.7 million and $20.8 million in trade letters of credit outstanding at January 31, 2009 and
February 2, 2008, respectively.
Other
2008 Equity Incentive Plan. In May 2008, our stockholders approved the adoption of the Ross Stores, Inc. 2008 Equity
Incentive Plan (the “2008 Plan”) with an initial share reserve of 8.3 million shares of our common stock, of which 6.0 million
shares can be issued as full value awards. The 2008 Plan replaced the 2004 Equity Incentive Plan. The 2008 Plan provides for
various types of incentive awards, which may potentially include the grant of stock options, stock appreciation rights, restricted
stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units, and deferred
compensation awards.
Critical Accounting Policies
The preparation of our 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. We believe the following critical accounting
policies describe the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Merchandise inventory. Our merchandise inventory is stated at the lower of cost or market, with cost determined on a
weighted average cost basis. We purchase manufacturer overruns and canceled orders both during and at the end of a season
which are referred to as “packaway” inventory. Packaway inventory is purchased with the intent that it will be stored in our
warehouses until a later date, which may even be the beginning of the same selling season in the following year.
Included in the carrying value of our merchandise inventory is a provision for shortage. The shortage reserve is based on
historical shortage rates as evaluated through our periodic physical merchandise inventory counts and cycle counts. If actual
market conditions, markdowns, or shortage are less favorable than those projected by us, or if sales of the merchandise
inventory are more difficult than anticipated, additional merchandise inventory write-downs may be required.
Long-lived assets. We record a long-lived asset impairment charge when events or changes in circumstances indicate that
the carrying amount of a long-lived asset may not be recoverable based on estimated future cash flows. An impairment loss
would be recognized if analysis of the undiscounted cash flow of an asset group was less than the carrying value of the asset
group. If our actual results differ materially from projected results, an impairment charge may be required in the future. In the
course of performing our annual analysis, we determined that no long-lived asset impairment charge was required for fiscal
2008, 2007, or 2006.
Depreciation and amortization expense. Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over the estimated useful life of the asset, typically ranging
from five to twelve years for equipment and 20 to 40 years for real property. The cost of leasehold improvements is amortized
over the lesser of the useful life of the asset or the applicable lease term.