Dollar Tree 2006 Annual Report Download - page 34

Costs directly associated with warehousing and
distribution are capitalized as merchandise invento-
ries. Total warehousing and distribution costs capital-
ized into inventory amounted to $25.6 million and
$25.3 million at February 3, 2007 and January 28,
2006, respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and
depreciated using the straight-line method over the
estimated useful lives of the respective assets as follows:
Buildings 40 years
Furniture, fixtures and equipment 3 to 15 years
Transportation vehicles 4 to 6 years
Leasehold improvements and assets held under
capital leases are amortized over the estimated useful
lives of the respective assets or the committed terms
of the related leases, whichever is shorter. Amortiza-
tion is included in “selling, general and administrative
expenses” on the accompanying consolidated state-
ments of operations.
In the fourth quarter of 2004, the Company
revised its estimate of useful lives on certain store
equipment and distribution center assets. This change
increased net income by approximately $4.0 million in
the first three quarters of 2005 as compared to 2004.
Costs incurred related to software developed for
internal use are capitalized and amortized over three
years. Costs capitalized include those incurred in the
application development stage as defined in Statement
of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for
Internal Use.
Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of
The Company reviews its long-lived assets and certain
identifiable intangible assets for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable,
in accordance with Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
Recoverability of assets to be held and used is
measured by comparing the carrying amount of an
asset to future net undiscounted cash flows expected
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
to be generated by the asset. If such assets are consid-
ered to be impaired, the impairment to be recognized
is measured as the amount by which the carrying
amount of the assets exceeds the fair value of the
assets based on discounted cash flows or other readily
available evidence of fair value, if any. Assets to be
disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. In fiscal 2006,
2005 and 2004, the Company recorded charges of
$0.5 million, $0.2 million and $0.5 million, respec-
tively, to write down certain assets. 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 impair-
ment at least annually. Intangible assets with finite use-
ful lives are amortized over their respective estimated
useful lives and reviewed for impairment in accor-
dance with SFAS No. 144. The Company performs its
annual assessment of impairment following the final-
ization 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 swaps are recog-
nized 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.
Certain of the Company’s interest rate swaps
have not qualified for hedge accounting treatment
pursuant to the provisions of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). These interest rate swaps
are recorded at fair value in the accompanying
32 DOLLAR TREE STORES, INC. • 2006 ANNUAL REPORT