TJ Maxx 1997 Annual Report Download - page 23

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with the acquisition of Marshalls, as well as a reduction in occupancy and depreciation costs as a
p e rcentage of net sales due to the strong sales perf o rmance. Fiscal 1998 depreciation costs were also
reduced as a result of the revised purchase price allocation for the acquisition of Marshalls. See Note A to
the Consolidated Financial Statements.
Selling, general and administrative expenses as a percentage of net sales were 16.0% in fiscal 1998, 16.3%
in fiscal 1997 and 16.9% in fiscal 1996. The improvement in this ratio in both fiscal 1998 and 1997 reflects
the stronger sales performance as well as expense savings provided by the consolidation of the Marshalls and
T.J. Maxx operations. During fiscal 1998, selling, general and administrative expenses included a pre-tax
gain of $6 million from the sale of Brylane common stock and included a charge of $15.2 million for costs
associated with a deferred compensation arrangement with the Company’s Chief Executive Officer.
The Company re c o rded an estimated pre-tax charge of $35 million in fiscal 1996 for the closing of cer-
tain T.J. Maxx stores in connection with the acquisition of Marshalls, which consists primarily of esti-
mated costs associated with subletting stores or otherwise disposing of store leases and non-cash costs
associated with asset write-offs of the closed stores. During fiscal 1997, the re s e r ve re q u i rement was
reduced by $8 million as the actual cost of closing stores was less than anticipated. This savings, however,
was more than offset by a $12.2 million impairment charge on certain T.J. Maxx distribution center assets
relating to a re s t ructuring and realignment plan of the T.J. Maxx and Marshalls distribution facilities.
The net impact of these items is reflected in selling, general and administrative expenses.
I n t e rest expense, net of interest income, was $4.5 million, $37.4 million and $38.2 million in fiscal
1998, 1997 and 1996, re s p e c t i v e l y. The Company has maintained a strong cash position throughout fiscal
1998 and 1997 as a result of cash generated from operations and funds obtained from the sale of
C h a d w i c k ’s. During fiscal 1997, this allowed the Company to prepay approximately $450 million of long-
t e rm debt including the outstanding balance of the loan incurred to acquire Marshalls. The impact of this
positive cash flow position throughout fiscal 1998 resulted in virtually no short - t e rm borrowings during
fiscal 1998 despite the Company’s purchase of $245.2 million of its common stock. Interest income for fis-
cal 1998 was $21.6 million versus $14.7 million and $2.8 million in fiscal 1997 and 1996, re s p e c t i v e l y.
The Company’s effective income tax rate was 41% in fiscal 1998 and 42% in both fiscal 1997 and 1996.
The reduction in the fiscal 1998 effective income tax rate is primarily due to the impact of foreign opera-
tions. The diff e rence in the U.S. federal statutory tax rate and the Company’s worldwide effective income
tax rate in each fiscal year is primarily attributable to the effective state income tax rate.
D i s c o n t i n u e d O p e r a t i o n s a n d N e t I n c o m e : Net income for fiscal 1997 includes a gain on the sale of the
C h a d w i c k ’s discontinued operation, net of income taxes, of $125.6 million. Net income for fiscal 1996 includes
a loss on the disposal of the Hit or Miss discontinued operation, net of income taxes, of $31.7 million. The oper-
ating results of both of these divisions prior to their respective sale measurement dates have been re c l a s s i f i e d
as net income from discontinued operations, net of income taxes, which amounted to income of $29.4 million
in fiscal 1997 and $9.7 million in fiscal 1996. In addition, in each of the fiscal years 1998, 1997 and 1996, the
Company re t i r ed certain long-term debt instruments prior to scheduled maturities, resulting in extraord i n a ry
losses, net of income taxes, of $1.8 million, $5.6 million and $3.3 million, re s p e c t i v e l y.
Net income, after reflecting the above items, was $304.8 million, or $1.74 per share, in fiscal 1998,
$363.1 million, or $2.07 per share, in fiscal 1997 and $26.3 million, or $.12 per share, in fiscal 1996.
C a p i t a l S o u r c e s a n d L i q u i d i t y
O p e r a t i n g A c t i v i t i e s : Net cash provided by operating activities was $385.5 million, $664.5 million
and $254.6 million in fiscal 1998, 1997 and 1996, re s p e c t i v e l y. The decrease in cash provided by operating
activities in fiscal 1998 is primarily the result of an increase in merchandise inventories versus a decre a s e
in fiscal 1997. The increase in cash provided by operating activities in fiscal 1997 versus that of fiscal 1996
reflects the increased earnings attributable to the Marshalls acquisition, as well as the Company’s move-
ment to a leaner inventory position as compared to fiscal 1996 year-end levels. Inventories as a perc e n t a g e
of net sales were 16.1% in fiscal 1998, 15.8% in fiscal 1997 and 31.6% in fiscal 1996. The fiscal 1996 per-
centage is not comparable since Marshalls’ net sales are included only from November 18, 1995. Using
unaudited pro forma net sales for fiscal 1996 (see Note A to the consolidated financial statements), which
assumes Marshalls was acquired at the beginning of the fiscal year, inventories as a percentage of net sales
in fiscal 1996 would be 20.7%. The strong sales volume, coupled with tight inventory control, resulted in
faster inventory turns, all of which were favorable to cash flows and the inventory ratios for fiscal 1998 and