TJ Maxx 2004 Annual Report Download - page 44

Contractual obligations: As of January 29, 2005, we had payment obligations (including current installments) under long-term
debt arrangements, leases for property and equipment and purchase obligations that will require cash outflows as follows (in
thousands):
Payments Due by Year
Less More
Than 1 1-3 3-5 Than 5
Long-Term Contractual Obligations Total Year Years Years Years
Long-term debt obligations $ 675,439 $ 99,995 $ 375,755 $ 199,689 $ -
Operating lease commitments 4,840,640 707,676 1,310,903 1,112,675 1,709,386
Capital lease obligations 41,575 3,726 7,452 7,452 22,945
Purchase obligations 1,617,142 1,589,953 26,741 448 -
$7,174,796 $2,401,350 $1,720,851 $1,320,264 $1,732,331
The above maturity table assumes that all holders of the zero coupon convertible subordinated notes exercise their put options
in fiscal 2008. The note holders also have put options available to them in fiscal 2014. If none of the put options are exercised and
the notes are not redeemed or converted, the notes will mature in fiscal 2022.
The lease commitments in the above table are for minimum rent and do not include costs for insurance, real estate taxes and
common area maintenance costs that we are obligated to pay. These costs were approximately one-third of the total minimum rent
for the fiscal year ended January 29, 2005.
Our purchase obligations consist of purchase orders for merchandise; purchase orders for capital expenditures, supplies and
other operating needs; commitments under contracts for maintenance needs and other services; and commitments under a limited
number of executive employment agreements. We excluded long-term agreements for services and operating needs that can be
cancelled without penalty.
We also have long-term liabilities that do not have specified maturity dates. Included in other long-term liabilities is
$125.7 million for employee compensation and benefits, most of which will come due beyond five years and $115.3 million for
accrued rent, the cash flow requirements of which are included in the lease commitments in the above table.
CRITICAL ACCOUNTING POLICIES
TJX must evaluate and select applicable accounting policies. We consider our most critical accounting policies, involving
management estimates and judgments, to be those relating to inventory valuation, retirement obligations, casualty insurance, and
accounting for taxes. We believe that we have selected the most appropriate assumptions in each of the following areas and that the results
we would have obtained, had alternative assumptions been selected, would not be materially different from the results we have reported.
Inventory valuation: We use the retail method for valuing inventory on a first-in first-out basis. Under the retail method, the
cost value of inventory and gross margins are determined by calculating a cost-to-retail ratio and applying it to the retail value of
inventory. This method is widely used in the retail industry and involves management estimates with regard to such things as
markdowns and inventory shrinkage. A significant factor involves the recording and timing of permanent markdowns. Under the
retail method, permanent markdowns are reflected in the inventory valuation when the price of an item is changed. We believe the
retail method results in a more conservative inventory valuation than other accounting methods. In addition, as a normal business
practice, we have a very specific policy as to when markdowns are to be taken, greatly reducing the need for management estimates.
Inventory shortage involves estimating a shrinkage rate for interim periods, but is based on a full physical inventory at fiscal year end.
Thus, the difference between actual and estimated amounts may cause fluctuations in quarterly results, but is not a factor in full year
results. Overall, we believe that the retail method, coupled with our disciplined permanent markdown policy and a full physical
inventory taken at each fiscal year end, results in an inventory valuation that is fairly stated. Lastly, many retailers have arrangements
with vendors that provide for rebates and allowances under certain conditions, which ultimately affect the value of the inventory.
Our off-price businesses have historically not entered into such arrangements with our vendors. Bob’s Stores, the value-oriented
retailer we acquired in December 2003, does have vendor relationships that provide for recovery of advertising dollars if certain
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