Dollar General 2008 Annual Report Download - page 71

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Investments in debt and equity securities
The Company accounts for its investment in debt and marketable equity securities in
accordance with SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,”
and accordingly, classifies them as held-to-maturity, available-for-sale, or trading. Debt
securities categorized as held-to-maturity are stated at amortized cost. Debt and equity securities
categorized as available-for-sale are stated at fair value, with any unrealized gains and losses, net
of deferred income taxes, reported as a component of Accumulated other comprehensive loss.
Trading securities (primarily mutual funds held pursuant to deferred compensation and
supplemental retirement plans, as further discussed in Note 9) are stated at fair value, with
changes in fair value recorded in income as a component of Selling, general and administrative
(“SG&A”) expense.
In general, the Company invests excess cash in shorter-dated, highly liquid investments
such as money market funds, certificates of deposit, and commercial paper. Such securities have
been classified either as held-to-maturity or available-for-sale, depending on the type of
securities purchased (debt versus equity) as well as the Company’s intentions with respect to the
potential sale of such securities before their stated maturity dates. Given the short maturities of
such investments (except for those securities described in further detail below), the carrying
amounts approximate the fair values of such securities.
In years prior to 2007, the Company invested in tax-exempt auction rate securities, which
are debt instruments having longer-dated (in some cases, many years) legal maturities, but with
interest rates that are generally reset every 28-35 days under an auction system. There were no
such investments outstanding as of January 30, 2009 or February 1, 2008.
In 2008 and 2007, the Company’ s South Carolina-based wholly owned captive insurance
subsidiary, Ashley River Insurance Company (“ARIC”), had investments in U.S. Government
securities, obligations of Government Sponsored Enterprises, short- and long-term corporate
obligations, and asset-backed obligations. These investments were held pursuant to South
Carolina regulatory requirements to maintain certain asset balances in relation to ARIC’ s liability
and equity balances which could limit the Company’ s ability to use these assets for general
corporate purposes. In May 2008, the state of South Carolina made certain changes to these
regulatory requirements, which had the effect of reducing the amounts and types of investments
required to be held. As a result of these changes, the Company reclassified certain investments
held by ARIC from held-to-maturity to available-for-sale, and ARIC subsequently liquidated
investments (primarily U.S. Government and corporate debt securities) totaling $48.6 million
during 2008. At January 30, 2009, the asset balances held pursuant to these regulatory
requirements equaled $20.0 million and were reflected in the Company’ s consolidated balance
sheet as cash and cash equivalents.
Historical cost information pertaining to investments in mutual funds by participants in
the Company’ s supplemental retirement and compensation deferral plans classified as trading
securities is not readily available to the Company.