Ross 2015 Annual Report Download - page 41

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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.
Merchandise inventory. Our merchandise inventory is stated at the lower of cost (determined using a weighted average
basis) or net realizable value. We purchase inventory that can either be shipped to stores or processed as packaway
merchandise with the intent that it will be warehoused and released to stores at a later date. The timing of the release of
packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise, and its relation
to the Company’s store merchandise assortment plans. As such, the aging of packaway varies by merchandise category and
seasonality of purchase, but typically packaway remains in storage less than six months. Packaway inventory accounted for
approximately 47%, 45%, and 49% of total inventories as of January 30, 2016, January 31, 2015, and February 1, 2014,
respectively. Merchandise inventory includes acquisition, processing, and storage costs related to packaway inventory.
Included in the carrying value of our merchandise inventory is a provision for shortage. The shortage reserve is based on
historical shortage rates as evaluated through our annual physical merchandise inventory counts and cycle counts. If actual
market conditions, markdowns, or shortage are less favorable than those projected by us, or if sales of the merchandise
inventory are more difficult than anticipated, additional merchandise inventory write-downs may be required.
Long-lived assets. We review for a long-lived asset impairment charge when events or changes in circumstances indicate
that the carrying amount of a long-lived asset may not be recoverable based on estimated future cash flows. If analysis of
the undiscounted cash flow of an asset group was less than the carrying value of the asset group, an impairment loss would
be recognized to write the asset group down to its fair value. If our actual results differ materially from projected results, an
impairment charge may be required in the future. In the course of performing our annual analysis, we determined that no
long-lived asset impairment charge was required for fiscal 2015, 2014, or 2013.
Depreciation and amortization expense. 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 three to 12 years for equipment and information systems and 20 to 40 years for land improvements and
buildings. The cost of leasehold improvements is amortized over the lesser of the useful life of the asset or the applicable
lease term.
Lease accounting. When a lease contains “rent holidays” or requires fixed escalations of the minimum lease payments, we
record rental expense on a straight-line basis over the term of the lease and the difference between the average rental
amount charged to expense and the amount payable under the lease is recorded as deferred rent. We begin recording rent
expense on the lease possession date. Tenant improvement allowances are included in Other long-term liabilities and are
amortized over the lease term. Changes in tenant improvement allowances are included as a component of operating
activities in the Consolidated Statements of Cash Flows. See Recently issued accounting standards below.
Insurance obligations. We use a combination of insurance and self-insurance for a number of risk management activities,
including workers’ compensation, general liability, and employee-related health care benefits. Our self-insurance and
deductible 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 recognize compensation expense based upon the grant date fair value of all stock-based
awards. We use historical data to estimate pre-vesting forfeitures and to recognize stock-based compensation expense. All
stock-based compensation awards are expensed over the service and performance periods of the awards.
Income taxes. We account for our uncertain tax positions in accordance with Accounting Standards Codification (“ASC”)
740. We are required to make assumptions and judgments regarding our income tax exposures. Our policy is to recognize
interest and/or penalties related to all tax positions in income tax expense. To the extent that accrued interest and penalties
do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax
provision in the period that such determination is made.