Ross 2011 Annual Report Download - page 32

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Revolving credit facility. At January 28, 2012, we had available a $600 million unsecured revolving credit facility with our
banks. This credit facility expires in March 2016 and contains a $300 million sublimit for issuance of standby letters of credit.
Interest on this credit facility is based on LIBOR plus an applicable margin (currently 150 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 January 28, 2012 we had no borrowings outstanding or letters of credits issued under this facility and were in
compliance with the covenants. As of January 28, 2012, our $600 million credit facility remains in place and available.
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 the revolving credit
facility may vary depending on actual interest coverage ratios achieved. As of January 28, 2012, we were in compliance with
these covenants.
Standby letters of credit and collateral trust. In July 2011, we entered into new standby letters of credit outside of our
revolving credit facility and set up a trust to collateralize our insurance obligations. As of January 28, 2012 we had $45.3 million
in standby letters of credit which are collateralized by restricted cash and cash equivalents and $21.3 million in a collateral trust
consisting of restricted cash, cash equivalents, and investments.
At January 29, 2011, we had $69.6 million in standby letters of credit outstanding issued under our revolving credit facility.
Trade letters of credit. We had $39.9 million and $35.2 million in trade letters of credit outstanding at January 28, 2012 and
January 29, 2011, respectively.
Other
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 (determined using a weighted average basis)
or net realizable value. 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. The timing of the release of packaway inventory to our stores is principally driven by the product mix and
seasonality of the merchandise, and its relation to the Company’s store merchandise assortment plans. As such, the aging of
packaway varies by merchandise category and seasonality of purchase, but typically packaway remains in storage less than six
months. Packaway inventory accounted for approximately 49% and 47% of total inventories as of January 28, 2012 and
January 29, 2011. Merchandise inventory includes acquisition, processing, and storage costs related to packaway inventory.
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 annual 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 2011, 2010,
or 2009.