Notes to Consolidated Financial Statements 39 Franklin Covey 2000 Annual Report Notes to Consolidated Financial Statements Property and Equipment 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Leasehold improvements are amortized over the lesser of the useful economic life of the asset or the contracted lease period. Expenditures for maintenance and repairs are charged to expense as incurred. Gains and losses on the sale of property and equipment are recorded in current operations. Franklin Covey Co. (the “Company”) provides integrated training and performance solutions to organizations and individuals in productivity, leadership, sales, communica- tion, and other areas. Each solution set may include components for training and consulting, assessment, and other application tools available in electronic or paper- based formats. The Company’s products and services are available through professional consulting services, public workshops, catalogs, retail stores, and the Internet at www.franklincovey.com and www.franklincoveyplanner.com. The Company’s best known products include the Franklin Planner and the best-selling book,  The 7 Habits of Highly Effective People. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Property and equipment are stated at cost less accumu- lated depreciation or amortization. Depreciation or amortization is calculated using the straight-line method over the expected useful lives of the assets as follows: Description Useful Lives Buildings 15-39 years Computer hardware and software 3 years Machinery and equipment 3-7 years Furniture, fixtures and leasehold  improvements 5-7 years Other Long-Term Assets Pervasiveness of Estimates Principles of Consolidation Restricted Investments The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that 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 those estimates. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of August 31, 2000, the Company had demand deposits at various banks in excess of the $100,000 limit for insurance by the Federal Deposit Insurance Corporation. In accordance with SFAS No. 115, the unrealized loss, which was immaterial for fiscal 2000, has been recognized in the accompanying consolidated income statement for fiscal 2000 as a component of selling, general, and administrative expense. The Company’s restricted investments are comprised of investments in mutual funds that are held in a “Rabbi Trust” and are restricted for payment to the participants of the Company’s deferred compensation plan (Note 7). The Company accounts for its restricted investments using Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The Company determines the proper classification of investments at the time of purchase and reassesses such designations at each balance sheet date. At August 31, 2000, the Company’s restricted investments were classified as trading securities and recorded in other long-term assets in the accompanying fiscal 2000 consolidated balance sheet. The Company was recently involved in a business reengineering and information systems implementation project (the “Project”). Certain costs of the Project have been capitalized (Note 16). At August 31, 2000 and 1999, the Company had $8.5 million and $10.6 million of net capitalized Project costs classified as other long-term assets. Project costs are amortized over a five-year period following completion of associated Project phases. As of August 31, 2000, all phases of the Project were completed. Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. Elements of cost in inventories include raw materials, direct labor, and manufacturing overhead. Cash Equivalents Inventories