Notes
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| Note A: Summary of Significant Accounting Policies Business. 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 February 3, 2001, the company operated 409 stores. The company's headquarters, one distribution center, three warehouses and 41% of its stores are located in California. Principles of Consolidation. The consolidated financial statements include the accounts of all subsidiaries. Inter-company transactions and accounts have been eliminated. Certain reclassifications have been made in the 1999 and 1998 financial statements to conform to the 2000 presentation. Use of Accounting Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents. Cash equivalents are highly liquid, fixed income instruments purchased with a maturity of three months or less. Revenue Recognition. The company recognizes revenue at the point of sale, net of actual returns, and maintains a provision for estimated future returns. Merchandise Inventory. Merchandise inventory is stated at the lower of weighted average cost or market. Store Pre-Opening. Store pre-opening costs are expensed in the period incurred. Advertising. Advertising costs are expensed in the period incurred. Deferred Rent. Many of the company's leases signed since 1988 contain fixed escalations of the minimum annual lease payments during the original term of the lease. For these leases, the company recognizes rental expense on a straight-line basis and records the difference between the average rental amount charged to expense and the amount payable under the lease as deferred rent. At the end of 2000 and 1999, the balance of deferred rent was $13.3 million and $12.2 million, respectively, and is included in long-term liabilities. Property and Equipment. Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful life of the asset, typically ranging from five to 12 years for equipment and 20 to 40 years for real property. 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 are included in fixtures and equipment and are amortized over their estimated useful life of five years. Intangible Assets. Included in other long-term assets are lease rights and interests, consisting of payments made to acquire store leases, which are amortized over the remaining applicable life of the lease. Also included in other long-term assets is the excess of cost over the acquired net assets, which is amortized on a straight-line basis over a period of 40 years. Long-Lived Assets. Long-lived assets and certain identifiable intangibles, including goodwill, held and used by the company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Based on the company's review as of February 3, 2001 and January 29, 2000, no adjustments were recognized to the carrying value of such assets. Accounts Payable. Included in accounts payable are checks outstanding of approximately $77.7 million and $40.2 million at year-end 2000 and 1999, respectively. Estimated Fair Value of Financial Instruments. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and long-term debt approximates their estimated fair value. Effects of Inflation and Other Changes in Prices. The effects of inflation and other changes in prices are not material to the company's financial position and results of operations. Stock-Based Compensation. The company accounts for stock-based awards to employees using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Taxes on Earnings. Income taxes are 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 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 rates. Stock Dividend. All share and per share information has been adjusted to reflect the effect of the company's two-for-one stock split effected in the form of a 100% stock dividend paid on September 22, 1999. Earnings Per Share (EPS). Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if options to issue common stock were exercised into common stock. There were no other securities that could potentially dilute basic EPS in the future that were excluded from the calculation of diluted EPS because their effect would have been antidilutive in the periods presented. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations (shares in thousands):
Segment Reporting. The company accounts for its operations as one operating segment. The company's operations include only activities related to off-price retailing in similar stores throughout the United States and therefore comprise only one segment. Derivative Instruments and Hedging Activities. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities". SFAS 133, as amended by SFAS 138 issued in June 2000, requires the company to record all derivatives as either assets or liabilities on the balance sheet, and to measure those instruments at fair value, and is effective for all fiscal years beginning after June 15, 2000. The company plans to implement SFAS 133, as amended, on February 4, 2001 and does not believe it will have a material impact on its financial position and results of operations. |
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