Banana Republic 2015 Annual Report Download - page 49

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For derivative financial instruments that are designated and qualify as cash flow hedges, the effective portion of
the gain or loss on the derivative financial instruments is reported as a component of other comprehensive
income (“OCI”) and is recognized in income in the period in which the underlying transaction impacts the income
statement. For derivative financial instruments that are designated and qualify as net investment hedges, the
effective portion of the gain or loss on the derivative financial instruments is reported as a component of OCI and
is reclassified into income in the period or periods during which the hedged subsidiary is either sold or liquidated
(or substantially liquidated). Gains and losses on the derivative financial instruments representing either hedge
ineffectiveness or hedge components excluded from the assessment of effectiveness, if any, are recognized in
current income. For derivative financial instruments not designated as hedging instruments, the gain or loss on
the derivative financial instruments is recorded in operating expenses in the Consolidated Statements of Income.
Cash flows from derivative financial instruments are classified as cash flows from operating activities in the
Consolidated Statements of Cash Flows.
Property and Equipment
Depreciation is computed using the straight-line method over the estimated useful lives of the related assets.
Estimated useful lives are as follows:
Category Term
Leasehold improvements Shorter of remaining lease term or economic life, up to 15 years
Furniture and equipment Up to 15 years
Buildings and building improvements Up to 39 years
Software 3 to 7 years
When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts,
with any resulting gain or loss recorded in operating expenses in the Consolidated Statements of Income. Costs
of maintenance and repairs are expensed as incurred.
Insurance and Self-Insurance
We retain a portion of the risk for certain losses related to employee health and welfare, workers’ compensation,
general, and other liability claims. Undiscounted liabilities associated with these programs are estimated based
primarily on actuarially-determined amounts and are accrued in part by considering historical claims experience,
demographic factors, severity factors, and other actuarial assumptions. These insurance liabilities are recorded in
accrued expenses and other current liabilities and lease incentives and other long-term liabilities in the
Consolidated Balance Sheets.
Asset Retirement Obligations
An asset retirement obligation represents a legal obligation associated with the retirement of a tangible long-lived
asset that is incurred upon the acquisition, construction, development, or normal operation of that long-lived
asset. The Company’s asset retirement obligations are primarily associated with leasehold improvements that we
are contractually obligated to remove at the end of a lease to comply with the lease agreement. We recognize
asset retirement obligations at the inception of a lease with such conditions if a reasonable estimate of fair value
can be made. The asset retirement obligation is recorded in accrued expenses and other current liabilities and
lease incentives and other long-term liabilities in the Consolidated Balance Sheets and is subsequently adjusted
for changes in estimated asset retirement obligations. The associated estimated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset and depreciated over its useful life.