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 2, 2014 and August 3, 2013, the results of operations and comprehensive income for the three and six month periods ended August 2, 2014 and August 3, 2013, and cash flows for the six month periods ended August 2, 2014 and August 3, 2013. The Condensed Consolidated Balance Sheet as of February 1, 2014, 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 1, 2014. 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 1, 2014.

The results of operations and comprehensive income for the three and six month periods ended August 2, 2014 and August 3, 2013 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bank deposits, money market mutual funds, U.S. Government and agency securities, and corporate securities and cannot be withdrawn from the Company’s account without the prior written consent of the secured parties.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 2, 2014, February 1, 2014, and August 3, 2013:



Restricted Assets ($000)	August 2, 2014		February 1, 2014		August 3, 2013
Prepaid expenses and other	$	22,766	$	20,734	$	23,483
Other long-term assets	55,737		50,763		57,492
Total	$	78,503	$	71,497	$	80,975

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

Property and equipment. As of August 2, 2014 and August 3, 2013, the Company had $22.6 million and $15.0 million, respectively, of property and equipment purchased but not yet paid. These purchases are included in Property and Equipment, Accounts payable, and Accrued expenses and other in the accompanying Condensed Consolidated Balance Sheets.

In October 2013, the Company entered into a Sale-Purchase Agreement under which it has the right to purchase the office building where its New York buying office is located for $222 million. The building is subject to a 99 year ground lease. The Sale-Purchase Agreement contemplates completion of the purchase of the building on or before September 22, 2014, subject to satisfaction of various closing conditions. Under the Sale-Purchase Agreement, the Company provided a deposit of 10% of the purchase price. In the event the Company does not complete the purchase of the building, the Company would forfeit the deposit but have no further liability to the seller or obligation to complete the purchase. The Company deposit of $22.2 million is currently in escrow pending completion of the purchase. The Company plans to finance the purchase of the building in 2014.

Sales mix. The Company’s sales mix is shown below for the three and six month periods ended August 2, 2014 and August 3, 2013:



	Three Months Ended				Six Months Ended
	August 2, 2014		August 3, 2013		August 2, 2014		August 3, 2013
Ladies	31	%	31	%	31	%	31	%
Home Accents and Bed and Bath	22	%	22	%	22	%	22	%
Men's	14	%	13	%	13	%	13	%
Shoes	13	%	13	%	13	%	13	%
Accessories, Lingerie, Fine Jewelry, and Fragrances	12	%	13	%	13	%	13	%
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 cash dividends of $0.20 per common share in February and May 2014, respectively, and $0.17 per common share in January, May, August, and November 2013, respectively.

In August 2014, the Company's Board of Directors declared a cash dividend of $0.20 per common share, payable on September 30, 2014.

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 2, 2014.

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 federal, state, or local 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.

Recently issued accounting standards. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue when the customer obtains control of promised goods or services in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. ASU 2014-09 is effective for the Company’s annual and interim reporting periods beginning in fiscal 2017. The Company is currently evaluating the effect that adoption of this new guidance will have on its consolidated financial statements.