Ross 2005 Annual Report Download - page 43

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Notes to Consolidated Financial Statements
Note A: Summary of Significant Accounting Policies
Business. Ross Stores, Inc. and its subsidiaries (the “Company”) is an off-price retailer of first-quality, branded apparel, shoes and
accessories for the entire family, as well as gift items, linens and other home-related merchandise. At January 28, 2006, the Company
operated 714 Ross Dress for Less®(“Ross”) locations and 20 dd’s DISCOUNTS®stores in 26 states and Guam, which are supported
by four distribution centers. The Company’s headquarters, two distribution centers and 29% of its stores are located in California.
Basis of presentation and fiscal year. The consolidated financial statements include the accounts of the Company and its subsidiaries,
all of which are wholly-owned. Intercompany transactions and accounts have been eliminated. The Company utilizes a 52-53 week
fiscal year whereby the fiscal year ends on the Saturday nearest to January 31. The fiscal years ended January 28, 2006, January 29,
2005 and January 31, 2004 are referred to as 2005, 2004 and 2003, respectively, and are 52 weeks.
Stock dividend. All share and per share information has been adjusted to reflect the effect of the Company’s two-for-one stock split
effected in the form of a 100% stock dividend paid on December 18, 2003.
Reclassifications. Certain deferred tax asset and liability reclassifications of approximately $5.2 million have been made in the 2004
consolidated financial statements to conform to the 2005 presentation.
Use of accounting estimates. The preparation of consolidated financial statements in conformity with Generally Accepted Accounting
Principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company’s
significant accounting estimates include valuation of merchandise inventory and long-lived assets, and accruals for self-insurance.
Purchase obligations. As of January 28, 2006, the Company had purchase obligations of $659.9 million. These purchase obligations
primarily consist of merchandise inventory purchase orders, commitments related to store fixtures and supplies, and information tech-
nology service and maintenance contracts. Merchandise inventory purchase orders of $614.5 million represent purchase obligations
of less than one year as of January 28, 2006.
Cash and cash equivalents. Cash and cash equivalents are highly liquid, fixed income instruments purchased with an original maturity
of three months or less.
Short-term investments. The Company’s short-term investments, totaling $12.8 million and $67.4 million at January 28, 2006 and
January 29, 2005, respectively, are comprised of state and other government obligations and are highly liquid. At January 28, 2006
and January 29, 2005, these investments were classified as available-for-sale and are stated at cost, which approximates fair value.
Merchandise inventory. Merchandise inventory is stated at the lower of cost (determined using a weighted average basis) or net real-
izable value. The Company purchases 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 the Company’s ware-
houses until a later date, which may even be the beginning of the same selling season in the following year. Packaway inventory
accounted for approximately 41% of total inventories as of January 28, 2006 and 43% at January 29, 2005. The cost of the
Company’s merchandise inventory is reduced by valuation reserves for shrinkage based on historical shrinkage rates determined by
the Company’s physical merchandise inventory counts and cycle counts.
Cost of goods sold. In addition to product costs, the Company includes in cost of goods sold its buying and distribution expenses as
well as occupancy costs, and depreciation and amortization related to the Company’s retail stores, buying and distribution facilities.
Buying expenses include costs to procure merchandise inventories. Distribution expenses include the cost of operating the Company’s
distribution centers and freight expense related to transporting merchandise.