Ross 2006 Annual Report Download - page 48

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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 the end of fiscal 2006,
there were 771 Ross Dress for Less® (“Ross”) locations in 27 states and Guam and 26 dd’s DISCOUNTS® stores in California,
which are supported by four distribution centers. The Company’s headquarters, two distribution centers and 28% 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
follows the National Retail Federation fiscal calendar and utilizes a 52-53 week fiscal year whereby the fiscal year ends on the
Saturday nearest to January 31. The fiscal years ended February 3, 2007, January 28, 2006 and January 29, 2005 are referred to
as fiscal 2006, fiscal 2005 and fiscal 2004, respectively. Fiscal 2006 was 53 weeks. Fiscal 2005 and 2004 were 52 weeks.
Reclassifications. In periods prior to fiscal 2006, stock-based compensation expense and incentive compensation expense
were included in selling, general and administrative expenses. In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 107,
which provides guidance on implementation of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based
Payment,” all compensation-related expenses are recorded in a manner similar to other employee payroll costs. Therefore, for
periods prior to fiscal 2006, the Company has reclassified the portion of stock-based compensation and incentive compensation
that relates to personnel in the merchandising and distribution organizations from selling, general and administrative expense to
cost of goods sold. Beginning in fiscal 2006, the portion of stock option and employee stock purchase plan (“ESPP”) expenses
included in stock-based compensation expense for personnel in the merchandising and distribution organizations is included
in cost of goods sold.
Under the provisions of SFAS No. 123(R), “Share-Based Payment,” deferred compensation previously reported as a contra-
equity amount and representing the amount of unamortized value of restricted stock issued is no longer reported separately.
Accordingly, deferred compensation of $29.4 million as of January 28, 2006 was reclassified to additional paid-in capital. In
addition, amortization of deferred compensation related to restricted stock was reclassified as stock-based compensation in
the accompanying statements of cash flows, rather than as depreciation and amortization.
See Note C for more information on the Company’s stock-based compensation and implementation of SFAS No. 123(R) during
fiscal 2006.
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 the Company 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 consoli-
dated 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 February 3, 2007, the Company had purchase obligations of $841.8 million. These purchase obli-
gations primarily consist of merchandise inventory purchase orders, commitments related to store fixtures and supplies, and
information technology service and maintenance contracts. Merchandise inventory purchase orders of $788.1 million represent
purchase obligations of less than one year as of February 3, 2007.
Cash and cash equivalents. Cash and cash equivalents are highly liquid, fixed income instruments purchased with an original
maturity of three months or less.