Ross 2006 Annual Report Download - page 49

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Investments. The Company’s investments are comprised of various debt and equity investment securities. At February 3, 2007
and January 28, 2006, these investments were classified as available-for-sale and are stated at fair value, which approximates
cost. Investments are classified as either short-term or long-term based on their original maturities. Investments with an original
maturity of less than one year are classified as short-term. See Note B for additional information.
Merchandise inventory. Merchandise inventory is stated at the lower of cost (determined using a weighted average basis)
or net realizable 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 warehouses until a later date, which may even be the beginning of the same selling season in the following year.
Packaway inventory accounted for approximately 38% of total inventories as of February 3, 2007 and 41% at January 28, 2006.
The cost of the Company’s merchandise inventory is reduced by valuation reserves for shortage based on historical shortage
experience from 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, distribution and freight
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.
Property and equipment. 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. Depreciation and amortization expense on property and
equipment was $107.8 million, $93.7 million and $80.0 million for fiscal 2006, 2005 and 2004, respectively. The cost of leasehold
improvements is amortized over the useful life of the asset or the applicable lease term, whichever is less. Computer hardware
and software costs, net of amortization, of $147.9 million and $134.4 million at February 3, 2007 and January 28, 2006, respec-
tively, are included in fixtures and equipment and are amortized over their estimated useful life generally ranging from five to
seven years.
In May 2006, the Company exercised its option to purchase its Fort Mill, South Carolina distribution center and paid cash in
the amount of $87.3 million to acquire the facility from the lessor. The Company estimated the fair value of the components of
the facility and the related equipment using various valuation techniques, including appraisals, market prices, and cost data.
Amounts recorded for each component were based on these fair value estimates.
Other long-term assets. Other long-term assets as of February 3, 2007 and January 28, 2006 consist of the following:
($000) 2006 2005
Deferred compensation $ 47,000 $ 43,401
Goodwill 2,889 2,889
Deposits 3,350 3,350
Intangibles and other 11,027 9,197
Total $ 64,266 $ 58,837
Intangible assets are principally comprised of lease rights, which are payments made to acquire store leases. An impairment loss
would be recognized if the undiscounted cash flow of an asset group was less than the carrying value of the asset group. Lease
rights are amortized over the remaining life of the lease. Amortization expense related to these intangible assets was $0.3 million,
$0.5 million and $0.6 million for fiscal 2006, 2005 and 2004, respectively.
Other long-term assets and certain identifiable intangibles that are subject to amortization are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible assets that
are not subject to amortization, including goodwill, are tested for impairment annually or more frequently if events or changes in
circumstances indicate that the asset may be impaired. Based on the Company’s review as of February 3, 2007 and January 28,
2006, no adjustments were recognized to the carrying value of intangible assets.