Family Dollar 2006 Annual Report Download - page 35

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended August 26, 2006, August 27, 2005, and August 28, 2004
1. Description of Business and Summary of Significant Accounting Policies:
Description of business:
The Company operates a chain of neighborhood retail discount stores in 44 contiguous states. The Company manages its business on
the basis of one reportable segment. The Company’s products include apparel, food, cleaning and paper products, home décor, beauty
and health aids, toys, pet products, automotive products, domestics, seasonal goods and electronics.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All
significant intercompany balances and transactions have been eliminated.
Fiscal year:
The Company’s fiscal year generally ends on the Saturday closest to August 31.
Use of estimates:
The preparation of the Company’s consolidated financial statements, in conformity with accounting principles generally accepted in
the United States of America, requires management to make estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Cash equivalents:
The Company considers all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” The
carrying amount of the Company’s cash equivalents approximates fair value due to the short maturities of these investments and
consists primarily of money market funds and other overnight investments. The Company maintains cash deposits with major banks,
which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the
institutions and believes that the risk of any loss is minimal.
Investment securities:
The items classified as investment securities are principally auction rate securities and variable rate demand notes. The Company
classifies all investment securities as available−for−sale. Securities accounted for as available−for−sale are required to be reported at
fair value with unrealized gains and losses, net of taxes, excluded from net income and shown separately as a component of
accumulated other comprehensive income within shareholders’ equity. The securities that the Company has classified as
available−for−sale generally trade at par and as a result typically do not have any realized or unrealized gains or losses.
Merchandise inventories:
Inventories are valued using the retail method, based on retail prices less markon percentages, which approximates the lower of
first−in, first−out (FIFO) cost or market.
Property and equipment:
Property and equipment is stated at cost. Depreciation for financial reporting purposes is calculated using the straight−line method
over the estimated useful lives of the related assets. For leasehold improvements, this depreciation is over the shorter of the term of
the related lease (generally five years) or the asset’s useful economic life.
Estimated useful lives are as follows:
Buildings and building improvements 10−40 years
Furniture, fixtures and equipment 3−10 years
Transportation equipment 3−10 years
Leasehold improvements 5−10 years
Source: FAMILY DOLLAR STORES, 10−K, March 28, 2007