Ross 2006 Annual Report Download - page 42

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deferred rent on a straight-line basis over the lease term commencing on the possession date. Tenant improvement allowances
are included in other long-term liabilities and are amortized over the lease term. Tenant improvement allowances are included as
a component of operating cash flows in the consolidated Statements of Cash Flows.
Self-insurance. We self insure certain of our workers’ compensation and general liability risks as well as certain coverages
under our health plans. Our self-insurance liability is determined actuarially, based on claims filed and an estimate of claims
incurred but not reported. Should a greater amount of claims occur compared to what is estimated or the costs of medical care
increase beyond what was anticipated, our recorded reserves may not be sufficient and additional charges could be required.
Stock-based compensation. We account for stock-based compensation under the provisions of SFAS No. 123(R). Under this
provision compensation expense is recognized for the grant date fair value of new awards granted in fiscal 2006 and later, and
for the unvested portion of prior year awards that were outstanding as of January 28, 2006. Stock-based awards are valued using
the Black-Scholes option pricing model, consistent with our prior pro forma disclosures under SFAS No. 123. Compensation
expense for awards outstanding at the effective date is recognized over the remaining vesting period using the compensa-
tion cost calculated for purposes of the prior pro forma disclosures. For awards granted after the adoption date, we recognize
expense equal to the fair value of the award on a straight-line basis over the applicable vesting term.
The determination of the fair value of stock options and Employee Stock Purchase Plan (“ESPP”) shares, using the Black-Scholes
model, is affected by our stock price as well as assumptions as to our expected stock price volatility over the term of the awards,
actual and projected employee stock option exercise behavior, the risk-free interest rate and expected dividends.
SFAS No. 123(R) requires companies to estimate future expected forfeitures at the date of grant and revise those estimates in
subsequent periods if actual forfeitures differ from those estimates. In previous fiscal years, we had recognized the impact of
forfeitures as they occurred. Starting in fiscal 2006, we use historical data to estimate pre-vesting forfeitures and to recognize
stock-based compensation expense. All stock-based compensation awards are amortized on a straight-line basis over the
requisite service periods of the awards.
These critical accounting policies noted above are not intended to be a comprehensive list of all of our accounting policies. In
many cases, the accounting treatment of a particular transaction is specifically dictated by Generally Accepted Accounting
Principles (“GAAP”), with no need for management’s judgment in their application. There are also areas in which management’s
judgment in selecting one alternative accounting principle over another would not produce a materially different result. See our
audited consolidated financial statements and notes thereto under Item 8 in this Annual Report on Form 10-K, which contain
accounting policies and other disclosures required by GAAP.
Effects of inflation or deflation. We do not consider the effects of inflation or deflation to be material to our financial position
and results of operations.
New Accounting Pronouncements
In June 2006, the FASB ratified Emerging Issues Task Force (“EITF”) Issue 06-2, “Accounting for Sabbatical Leave and Other
Similar Benefits Pursuant to FASB No. 43, Accounting for Compensated Absences” (“EITF No. 06-2”), effective for fiscal years
beginning after December 15, 2006. Under EITF No. 06-2 compensation cost associated with a sabbatical or other similar benefit
programs should be accrued over the requisite service period. We do not believe the adoption of EITF No. 06-2 will have a mate-
rial impact on our operating results or financial position.
In June 2006, the FASB issued Interpretation Number 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”), effective
for fiscal years beginning after December 15, 2006. FIN No. 48 establishes a new basis for how companies should recognize,
measure, present and disclose uncertain income tax positions that have been or expect to be taken in tax returns. The Company
is required to apply the provisions of FIN No. 48 to all tax positions upon initial adoption with the cumulative effect to be recog-
nized as an adjustment to beginning retained earnings. Upon adoption, the Company estimates that a cumulative effect of $6.0
to $8.0 million will be charged to retained earnings to increase reserves for uncertain tax positions.