Summary of Significant Accounting Policies

Basis of presentation. The accompanying unaudited interim condensed consolidated financial statements have been prepared from the records of Ross Stores, Inc. and subsidiaries (the “Company”) without audit and, in the opinion of management, include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the Company’s financial position as of August 3, 2013 and July 28, 2012, the results of operations and comprehensive income for the three and six month periods ended August 3, 2013 and July 28, 2012, and cash flows for the six month periods ended August 3, 2013 and July 28, 2012. The Condensed Consolidated Balance Sheet as of February 2, 2013, presented herein, has been derived from the Company’s audited consolidated financial statements for the fiscal year then ended.

Accounting policies followed by the Company are described in Note A to the audited consolidated financial statements for the fiscal year ended February 2, 2013. Certain information and disclosures normally included in the notes to annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of these interim condensed consolidated financial statements. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, contained in the Company’s Annual Report on Form 10-K for the year ended February 2, 2013.

The results of operations and comprehensive income for the three and six month periods ended August 3, 2013 and July 28, 2012 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

Restricted cash, cash equivalents, and investments. The Company has restricted cash, cash equivalents, and investments that serve as collateral for certain insurance obligations of the Company. These restricted funds are invested in bank deposits, money market mutual funds, U.S. Government and agency securities, and corporate securities and cannot be withdrawn from the Company’s account without the prior written consent of the secured parties. The following table summarizes total restricted cash, cash equivalents, and investments which were included in prepaid expenses and other and other long-term assets in the Condensed Consolidated Balance Sheet as of August 3, 2013, February 2, 2013, and July 28, 2012:



Restricted Assets ($000)	August 3, 2013		February 2, 2013		July 28, 2012
Prepaid expenses and other	$	23,483	$	19,941	$	20,084
Other long-term assets	57,492		48,821		51,645
Total	$	80,975	$	68,762	$	71,729

The classification between current and long-term is based on the timing of expected payments of the secured insurance obligations.

Estimated fair value of financial instruments. The carrying value of cash and cash equivalents, short- and long-term investments, restricted cash and cash equivalents, restricted investments, accounts receivable, other long-term assets, and other long-term liabilities approximates their estimated fair value.

Cash and cash equivalents were $550.6 million, $646.8 million, and $721.0 million at August 3, 2013, February 2, 2013, and July 28, 2012, respectively, and include bank deposits and money market funds for which the fair value was determined using quoted prices for identical assets in active markets, which are considered to be Level 1 inputs under the fair value measurements and disclosures guidance.

Sales mix. The Company’s sales mix is shown below for the three and six month periods ended August 3, 2013 and July 28, 2012:



	Three Months Ended				Six Months Ended
	August 3, 2013		July 28, 2012		August 3, 2013		July 28, 2012
Ladies	31	%	31	%	31	%	31	%
Home accents and bed and bath	22	%	22	%	22	%	23	%
Shoes	13	%	13	%	13	%	14	%
Accessories, lingerie, fine jewelry, and fragrances	13	%	13	%	13	%	12	%
Men's	13	%	13	%	13	%	12	%
Children's	8	%	8	%	8	%	8	%
Total	100	%	100	%	100	%	100	%

Dividends. Dividends included in the Condensed Consolidated Statements of Cash Flows reflect dividends paid during the periods shown. Dividends per share reported on the Condensed Consolidated Statements of Earnings reflect dividends declared during the periods shown.

The Company's Board of Directors declared quarterly cash dividends of $0.17 per common share, in January and May 2013. The Company’s Board of Directors declared cash dividends of $0.14 per common share in January, May, August, and November 2012, respectively.

In August 2013, the Company's Board of Directors declared a cash dividend of $0.17 per common share, payable on September 30, 2013.

Revenue recognition. The Company recognizes revenue at the point of sale and maintains an allowance for estimated future returns. Sales of stored value cards are deferred until they are redeemed for the purchase of Company merchandise. The Company’s stored value cards do not have expiration dates. Based upon historical redemption rates, a small percentage of stored value cards will never be redeemed, which represents breakage. The Company recognizes income from stored value card breakage as a reduction of operating expenses when redemption by a customer is considered to be remote. Income recognized from breakage was not significant for the three and six month periods ended August 3, 2013 and July 28, 2012.

Sales tax collected is not recognized as revenue and is included in accrued expenses and other.

Provision for litigation costs and other legal proceedings. Like many California retailers, the Company has been named in class action lawsuits alleging violation of wage and hour and other employment laws. Class action litigation remains pending as of August 3, 2013.

The Company is also party to various other legal and regulatory proceedings arising in the normal course of business. Actions filed against the Company include commercial, product and product safety, customer, intellectual property, and labor and employment-related claims, including lawsuits in which private plaintiffs or governmental agencies allege that the Company violated state or federal laws. Actions against the Company are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties.

In the opinion of management, the resolution of pending class action litigation and other currently pending legal and regulatory proceedings is not expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.