TJ Maxx 1997 Annual Report Download - page 24

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1997. Working capital was $465.0 million in fiscal 1998, $425.6 million in fiscal 1997 and $332.9 million
in fiscal 1996. The increase in both years reflects the acquisition of Marshalls and the benefits of stro n g
operating cash flows.
The cash flows from operating activities for fiscal 1998 and 1997 have been reduced by $23.2 million
and $63.0 million, respectively for cash expenditures associated with the Company’s store closing and
re s t ructuring re s e rves, which relate primarily to the Marshalls acquisition, and for obligations re l a t i n g
to the Company’s discontinued operations.
The initial re s e rve established in the acquisition of Marshalls for the fiscal year ended January 26,
1996 was estimated at $244.1 million and was accounted for in the allocation of purchase price under the
p u rchase accounting method. The initial re s e rve included $44.1 million for inventory markdowns and
$200 million for a store closing and re s t ructuring program. The plan included the closing of 170
Marshalls stores during fiscal 1997 and fiscal 1998. The Company reduced the total re s e rve by $85.9 mil-
lion in fiscal 1997 and by an additional $15.8 million in fiscal 1998, primarily due to fewer store closings
and a reduction in the estimated cost of settling the related lease obligations. These re s e rve re d u c t i o n s
w e re accounted for as adjustments to the purchase price allocation of Marshalls and resulted in a corre-
sponding reduction in the value assigned to the long-term assets acquired. The adjusted final re s e rve bal-
ance includes $70.8 million for lease related obligations for 70 store and other facility closings, $9.6
million for pro p e rty write-offs, $44.1 million for inventory markdowns and $17.9 million for severance,
p rofessional fees and all other costs associated with the re s t ructuring plan. Pro p e rty write-offs were the
only non-cash charge to the re s e r ve.
In connection with the Marshalls acquisition, the Company also established a re s e rve for the closing of
c e rtain T.J. Maxx stores. The Company re c o rded an initial pre-tax charge to income from continuing oper-
ations of $35 million in fiscal 1996 and a pre-tax credit to income from continuing operations of $8 million
in fiscal 1997 to reflect a lower than anticipated cost of the T.J. Maxx closings. An additional charge to con-
tinuing operations of $700,000 was re c o rded in fiscal 1998. The adjusted re s e rve balance includes $15.6
million for lease related obligations of 32 store closings, non-cash charges of $9.8 million for pro p e rt y
w r i t e - o ffs and $2.3 million for severance, professional fees and all other costs associated with the closings.
As of January 31, 1998, all of the Marshalls and T.J. Maxx pro p e rties re s e rved for have been closed.
The re s e rve also includes some activity relating to several HomeGoods store closings, the impact of which
is immaterial. Actual spending and charges against the re s e rve are summarized below:
Fiscal Year Ended
J a n u a ry J a n u a r y J a n u a r y
1 9 9 8 1 9 9 7 1 9 9 6
Cash charg e s :
Lease related obligations $ 1 3 , 5 9 3 $ 2 1 , 2 7 7 $ 3 0 7
I n v e n t o ry markdowns – 1 5 , 8 8 6 2 8 , 2 0 9
Severance and other costs 3 , 7 6 3 1 3 , 5 7 2 6 5 0
Subtotal cash charg e s 1 7 , 3 5 6 5 0 , 7 3 5 2 9 , 1 6 6
Non-cash charg e s :
P ro p e rty write-off s 5 , 4 0 2 1 1 , 0 6 4 –
Total re s e rve spending $ 2 2 , 7 5 8 $ 6 1 , 7 9 9 $ 2 9 , 1 6 6
The remaining re s e rve balance as of January 31, 1998 of $58 million is virtually all for the estimated cost
of future lease obligations of the closed stores and other facilities. It includes estimates and assumptions as
to how the leases will be disposed of, which could change, but the Company believes it has adequate re s e rv e s
to deal with these obligations. The spending of the re s e rve will reduce operating cash flows in vary i n g
amounts over the next ten to fifteen years as the leases expire or are settled. The remaining re s e rve balance
will not have a material impact on future cash flows or the Company’s financial condition.
The Company also has a reserve for future obligations relating to its discontinued operations. Reductions
to the reserve in fiscal 1998 of $5.8 million are primarily for settlement costs associated with Chadwick’s and
for lease related costs associated with the former Zayre stores and Hit or Miss properties. During fiscal 1997,
the Company added $10.7 million to the reserve relating to anticipated costs associated with the sale of
Chadwick’s. Reductions to the reserve in fiscal 1997 of $12.3 million primarily relate to lease obligations. The
remaining reserve balance of $17.8 million as of January 31, 1998 is for lease related obligations, primarily
for the former Zayre stores, which is expected to reduce operating cash flows in varying amounts over the