NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Cash and Cash Equivalents Property, Plant and Equipment Short-Term Investments Impairment of Long-Lived Assets and  Long-Lived Assets to Be Disposed Of Merchandise Inventories Cash and cash equivalents at January 29, 2005 and January 31, 2004 includes $75,885 and $54,081, respectively, of investments in money market securities and bank participation agreements which are valued at cost, which approximates market. The underlying assets of these short-term participation agreements are primarily commercial notes. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities  of three months or less to be cash equivalents. The Company’s short-term investments consist primarily of government-sponsored municipal bonds and auction rate securities. These investments are classified as available for sale and are recorded at fair value. The government-sponsored municipal bonds can be converted into cash with one or seven day notice. The auction rate securities have stated interest rates, which typically reset to market prevailing rates every 35 days or less. The securities underlying both the government-sponsored municipal bonds and the auction rate securities have longer legal maturity dates. Prior to the end of fiscal 2004, the Company classified a portion of these investments in cash and cash equivalents due to their liquidity. Prior period information was reclassified, including the impact on cash flow from investing activities, to conform to the current year presentation. There was no impact on net income or cash flow from operating activities as a result of the reclassification. Merchandise inventories at the distribution centers are stated at the lower of cost or market, determined on a weighted average cost basis. Cost is assigned to store inventories using the retail inventory method, determined on a weighted average cost basis. Costs directly associated with warehousing and distribution are capitalized as merchandise inventories. Total warehousing and distribution costs capitalized into inventory amounted to $27,968 and $24,510 at January 29, 2005 and January 31, 2004, respectively. 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: 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. Amortization is included in “selling, general and administrative expenses” on the accompanying consolidated statements 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 will increase net income by approximately $3,700 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 . 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 to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by 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 2004 and 2003, the Company recorded charges of $531 and $234, respectively, Buildings 39 years Furniture, fixtures and equipment 3 to 15 years Transportation vehicles 4 to 6 years 32 DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT