Dollar Tree 2004 Annual Report Download - page 37

DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT 33
to write down certain assets. No charges were recorded in
the month ended February 1, 2003 or the year ended
December 31, 2002. These charges are recorded as a
component of “selling, general and administrative expenses”
in the accompanying consolidated statements of operations.
Intangible Assets
Goodwill and intangible assets with indefinite useful lives
are not amortized, but rather tested for impairment at
least annually. Intangible assets with definite useful lives
are amortized over their respective estimated useful lives
and reviewed for impairment in accordance with SFAS
No. 144. The Company performs its annual assessment
of impairment following the finalization of each
November’s financial statements.
Financial Instruments
The Company utilizes derivative financial instruments
to reduce its exposure to market risks from changes in
interest rates. By entering into receive-variable, pay-fixed
interest rate swaps, the Company limits its exposure to
changes in variable interest rates. The Company is exposed
to credit related losses in the event of non-performance
by the counterparty to the interest rate swaps; however,
the counterparties are major financial institutions, and the
risk of loss due to non-performance is considered remote.
Interest rate differentials paid or received on the swap are
recognized as adjustments to expense in the period earned
or incurred. The Company formally documents all
hedging relationships, if applicable, and assesses hedge
effectiveness both at inception and on an ongoing basis.
As of January 29, 2005, one of the Company’s
interest rate swaps does not qualify for hedge accounting
treatment pursuant to the provisions of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities. As a result, this interest rate swap is recorded
at its fair value in the consolidated balance sheets as a
component of “other liabilities”(see Note 6). During
fiscal 2004, two additional interest rate swaps that did not
qualify for hedge accounting expired. Changes in the fair
values of these three interest rate swaps are recorded as
“change in the fair value of non-hedging interest rate
swaps”in the accompanying consolidated statements of
cash flows and the consolidated statements of operations.
The Company is party to one interest rate swap that
qualifies for hedge accounting treatment pursuant to the
provisions of SFAS No. 133. Accordingly, the liability is
recorded at fair value in the accompanying consolidated
balance sheets and changes in the fair value are recorded
as a component of “accumulated other comprehensive
loss.”These amounts are subsequently reclassified into
earnings as a yield adjustment in the period in which
the related interest on the variable-rate obligations affects
earnings. If the swap is terminated prior to its expiration
date, the amount recorded in accumulated other compre-
hensive loss will be recorded as a yield adjustment over
the term of the forecasted transaction.
Revenue Recognition
The Company recognizes sales revenue at the time a sale
is made to its customer.
Cost of Sales
The Company includes the cost of merchandise,
warehousing and distribution costs, and certain
occupancy costs in cost of sales.
Pre-Opening Costs
The Company expenses pre-opening costs for new,
expanded and relocated stores, as incurred.
Advertising Costs
The Company expenses advertising costs as they are
incurred. Advertising costs approximated $11,042 and
$5,681 for the years ended January 29, 2005 and January
31, 2004, respectively, and $789 in the month ended
February 1, 2003. The Company did not incur significant
advertising costs in the year ended December 31, 2002.
Income Taxes
Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences
are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date of such change.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)