The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Inventories, which consist primarily of finished goods, are stated at the lower of average cost or market, calculated using the retail inventory method. The Company recognizes revenue when its customers take possession of the merchandise. An appropriate reserve for estimated sales returns is recorded and is reflected in accrued expenses in the accompanying consolidated balance sheets. The Company’s policy with respect to gift cards is to record revenue as the gift cards are redeemed for merchandise. Prior to their redemption, gift cards are recorded as a liability. During the fourth quarter of fiscal 2000, the Company applied the provisions of the Emerging Issues Task Force 00-10, “Shipping and Handling Fees and Costs,” (“EITF 00-10”), which requires that all amounts billed to customers for shipping and handling, be classified as revenue and the costs incurred for such shipping and handling, be classified as costs of goods sold. Prior to the application of EITF 00-10, the Company recorded the amounts billed to its website customers for shipping and handling as a reduction of its cost of goods sold. The impact of this reclassification increased net sales by approximately $212,000 in fiscal 2001, $428,000 in fiscal 2000 and $0 in fiscal 1999. In addition to the cost of inventory sold, the Company includes its buying, distribution and occupancy expenses in its cost of sales. Property and equipment are stated at cost, except for store fixtures and equipment under capital leases which are recorded at the present value of the Certain prior year balances have been reclassified to conform to current year presentation. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and amounts of revenues and expenses reported during the period. Actual results could differ from the estimates made by and assumptions used by management. The Company’s fiscal year is a 52-week or 53-week period ending on the Saturday nearest to January 31. The results for fiscal 2001, fiscal 2000 and fiscal 1999 represent the 52-week period ended February 2, 2002, the 53-week period ended February 3, 2001 and the 52-week period ended January 29, 2000, respectively. The Children’s Place Retail Stores, Inc., (“the Company,”) is a specialty retailer of apparel and accessories for children from newborn to twelve years of age. The Company designs, sources and markets its products under “The Children’s Place” brand name for sale exclusively in its stores and on its website. As of February 2, 2002, the Company operated 520 stores in 46 states, located primarily in regional shopping malls. The Company also has offices in Asia which enables the Company to capitalize on new sourcing opportunities, respond to changing merchandise trends and ensure product quality assurance. Cash and Cash Equivalents Inventories Revenue Recognition Fiscal Year Use of Estimates Consolidation Cost of Sales Property and Equipment Reclassifications 1. BASIS OF PRESENTATION AND SUMMAR OF SIGNIFICANT ACCOUNTING POLICIES THE CHILDREN’S PLACE RETAIL STORES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25