Ross 2006 Annual Report Download - page 51

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Revenue recognition. The Company recognizes revenue at the point of sale, net of actual returns, and maintains an allowance
for estimated future returns. Sales of gift certificates and gift cards are deferred until they are redeemed for the purchase of
Company merchandise. Sales tax collected is not recognized as revenue and is included in accrued expenses and other.
Allowance for sales returns. An allowance for the gross margin loss on estimated sales returns is included in accrued expenses
and other in the consolidated balance sheets. The allowance for sales returns consists of the following:
Beginning Ending
($000) balance Additions Reductions balance
Year ended:
February 3, 2007 $ 6,101 $ 376,173 $ 377,954 $ 4,320
January 28, 2006 $ 4,832 $ 350,081 $ 348,812 $ 6,101
January 29, 2005 $ 3,755 $ 301,004 $ 299,927 $ 4,832
Store pre-opening. Store pre-opening costs are expensed in the period incurred.
Advertising. Advertising costs are expensed in the period incurred. Advertising expenses for fiscal 2006, 2005 and 2004 were
$45.5 million, $44.2 million and $41.5 million, respectively.
Stock-based compensation. Effective in fiscal year 2006, the Company adopted SFAS No. 123(R) and elected to adopt the
standard using the modified prospective transition method. SFAS No. 123(R) replaces SFAS No. 123, “Accounting for Stock-
Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees.” This new accounting standard requires recognition of compensation expense based upon the grant date fair value
of all stock-based awards, typically over the vesting period. See Note C for more information on the Company’s stock-based
compensation plans and implementation of SFAS No. 123(R).
Taxes on earnings. SFAS No. 109, “Accounting for Income Taxes,” requires income taxes to be accounted for under an asset
and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other than changes in the tax law or tax rates.
Treasury stock. The Company records treasury stock at cost. Treasury stock includes shares purchased from employees for
tax withholding purposes related to vesting of restricted stock grants.
Earnings per share (“EPS”). SFAS No. 128, “Earnings Per Share,” requires earnings per share to be computed and reported as
both basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number
of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the potential dilu-
tion that could occur if stock options were exercised for shares of common stock.
In fiscal 2006, 2005 and 2004 there were 3,114,000, 2,778,000, and 999,000 weighted average shares, respectively, that could
potentially dilute basic EPS in the future that were excluded from the calculation of diluted EPS because their effect would have
been anti-dilutive (option exercise price exceeds average stock price) in the periods presented.