Bed, Bath and Beyond 2008 Annual Report Download - page 20

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BED BATH & BEYOND 2008 ANNUAL REPORT
18
Premiums are amortized and discounts are accreted over the life of the security as adjustments to interest income using the
effective interest method. Dividend and interest income are recognized when earned.
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 are calculated using the first in first out cost method.
Beginning on March 2, 2008 inventory costs for buybuy BABY are calculated using the weighted average retail inventory method,
whereas previously, they were calculated using the first in first out cost method. The impact of the change in the method of
accounting was not material to the Company’s consolidated financial statements.
Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying
acost to retail ratio to the retail values of inventories. The cost associated with determining the cost to retail ratio includes:
merchandise purchases, net of returns to vendors, discounts and volume and incentive rebates; inbound freight expenses; duty,
insurance 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 counts for
locations at which counts were conducted. For locations where physical inventory counts were not conducted in the fiscal year, an
estimated shrink reserve is recorded based on historical shrinkage and any current trends, if applicable. 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’smerchandise 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 $81.1 million, $72.9 million and $67.0 million for fiscal 2008, 2007 and 2006, 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 compari-
son 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 pre-
sented 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 appropri-
ate asset and liability sections of the balance sheet. The Company has not historically recorded an impairment to its long-lived
assets. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired,
the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)