Dollar General 2006 Annual Report Download - page 55

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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. 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, such securities
have been classified as held-to-maturity or available-for-sale. 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.
The Company may invest 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. Because auction rate
securities are frequently re-priced, they trade in the market like short-term investments. As
available-for-sale securities, these investments are carried at fair value, which approximates cost
given that the average duration of such securities held by the Company is less than 40 days.
Despite the liquid nature of these investments, the Company categorizes them as short-term
investments instead of cash and cash equivalents due to the underlying legal maturities of such
securities. However, they have been classified as current assets as they are generally available to
support the Company’ s current operations. There were no such investments outstanding as of
February 2, 2007 or February 3, 2006.
In 2006 and 2005, 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 are held pursuant to South Carolina
regulatory requirements to maintain certain asset balances in relation to ARIC’ s liability and
equity balances and as such, these investments are not available for general corporate purposes.
The composition of these required asset balances changes periodically. At February 2, 2007, the
total of these balances was $52.9 million and is reflected in the Company’ s consolidated balance
sheet as follows: cash and cash equivalents of $3.2 million, short-term investments of $30.0
million and long-term investments included in other assets of $19.7 million.
The Company’ s investment in the secured promissory notes issued by the third-party
entity from which the Company formerly leased its DC in South Boston, Virginia, was classified
as a held-to-maturity security at February 3, 2006. The Company acquired the entity which held
legal title to this DC in June 2006 as discussed in Note 8, thereby effectively eliminating these
secured promissory notes and related financing obligations.
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.
53