Bed, Bath and Beyond 2007 Annual Report Download - page 19

BED BATH& BEYOND ANNUAL REPORT 2007
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G. Inventory Valuation
Merchandise inventories are stated at the lower of cost or market. Inventory costs for BBB and Harmon are calculated using the
weighted average retail inventory method and inventory costs for CTS and buybuy BABY are calculated using the first in first out
cost method.
Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying
a cost to retail ratio to the retail values of inventories. The cost associated with determining the cost to retail ratio includes: mer-
chandise purchases, net of returns to vendors, discounts and volume and incentive rebates; inbound freight expenses; duty, insur-
ance and commissions.
At any one time, inventories include items that have been written down to the Company’s best estimate of their realizable value.
Judgment is required in estimating realizable value and factors considered are the age of merchandise and anticipated demand.
Actual realizable value could differ materially from this estimate based upon future customer demand or economic conditions.
The Company estimates its reserve for shrinkage throughout the year, based on historical shrinkage and any current trends, if
applicable. Actual shrinkage is recorded at year end based upon the results of the Company’s physical inventory count. Historically,
the Company’s shrinkage has not been volatile.
The Company accrues for merchandise in transit once it takes legal ownership and title to the merchandise; as such, an estimate
for merchandise in transit is included in the Company’s merchandise inventories.
H. Property and Equipment
Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the estimated
useful lives of the assets (forty years for buildings; five to twenty years for furniture, fixtures and equipment; and three to seven
years for computer equipment and software). Leasehold improvements are amortized using the straight-line method over the
lesser of their estimated useful life or the life of the lease. Depreciation expense is included within Selling, general and adminis-
trative expenses.
The cost of maintenance and repairs is charged to earnings as incurred; significant renewals and betterments are capitalized.
Maintenance and repairs amounted to $72.9 million, $67.0 million and $54.2 million for fiscal 2007, 2006 and 2005, respectively.
I. Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment annually or when events or changes in circumstances indicate the carrying
value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which
the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of would be separately presented in
the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and
liability sections of the balance sheet.
J. Goodwill and Other Indefinitely Lived Intangible Assets
The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually or when events or
changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is
based upon the best information available including estimates of fair value which incorporate assumptions marketplace partici-
pants would use in making their estimates of fair value. The Company has not historically recorded an impairment to its goodwill
and other indefinitely lived intangible assets. In the future, if events or market conditions affect the estimated fair value to the
extent that an asset is impaired, the Company will adjust the carrying value of these assets in the period in which the impairment
occurs.
Included within other assets in the accompanying consolidated balance sheets as of March 1, 2008 and March 3, 2007 is $198.4
million and $147.6 million, respectively, for goodwill, and $30.9 million and $19.9 million, respectively, for tradenames, which are
not subject to amortization. The increase in goodwill was attributable to a $61.3 million increase as a result of the acquisition of
buybuy BABY, partially offset by a $10.5 million decrease due to the favorable resolution of a tax contingency related to a prior
acquisition. Tradenames increased as a result of the acquisition of buybuy BABY.
K. Self Insurance
The Company utilizes a combination of insurance and self insurance for a number of risks including workers’ compensation,
general liability, automobile liability and employee related health care benefits (a portion of which is paid by its employees).