TJ Maxx 2004 Annual Report Download - page 62

judgments to be those relating to inventory valuation, retirement obligations, casualty insurance, and accounting for taxes. Actual
amounts could differ from those estimates.
Revenue Recognition: TJX records revenue at the time of sale and receipt of merchandise by the customer, net of a reserve for
estimated returns. We estimate returns based upon our historical experience. We defer recognition of a layaway sale and its related
profit to the accounting period when the customer receives layaway merchandise.
Consolidated Statements of Income Classifications: Cost of sales, including buying and occupancy costs include the cost of
merchandise sold and gains and losses on inventory-related derivative contracts; store occupancy costs (including real estate taxes,
utility and maintenance costs, and fixed asset depreciation); the costs of operating our distribution centers; payroll, benefits and travel
costs directly associated with buying inventory; and systems costs related to the buying and tracking of inventory.
Selling, general and administrative expenses include store payroll and benefit costs; communication costs; credit and check
expenses; advertising; administrative and field management payroll, benefits and travel costs; corporate administrative costs and
depreciation; gains and losses on non-inventory related foreign currency exchange contracts and other gains or losses.
Cash and Cash Equivalents: TJX generally considers highly liquid investments with an initial maturity of three months or less
to be cash equivalents. Our investments are primarily high-grade commercial paper, institutional money market funds and time
deposits with major banks. The fair value of cash equivalents approximates carrying value.
Merchandise Inventories: Inventories are stated at the lower of cost or market. TJX uses the retail method for valuing
inventories on the first-in first-out basis. We almost exclusively utilize a permanent markdown strategy and lower the cost value of
the inventory that is subject to markdown at the time the retail prices are lowered in our stores. Effective with the third quarter
ended October 30, 2004, we have begun to accrue for inventory obligations at the time inventory is shipped rather than when
received and accepted by TJX. At January 29, 2005, the amount of in-transit inventory included in merchandise inventories and
accounts payable on the balance sheet was $236.9 million.
Common Stock and Equity: TJX’s equity transactions consist primarily of the repurchase of our common stock under our
stock repurchase program and the issuance of common stock under our stock incentive plan. Under the stock repurchase program
we repurchase our common stock on the open market. The par value of the shares repurchased is charged to common stock with the
excess of the purchase price over par first charged against any available additional paid-in capital (‘‘APIC’’) and the balance charged
to retained earnings. Due to the high volume of repurchases over the past several years we have no remaining balance in APIC.
Virtually all shares are retired when purchased. We have 250,276 shares held in treasury which are reflected as a reduction to
common stock outstanding.
Shares issued under our stock incentive plan are generally issued from authorized but previously unissued shares, and proceeds
received are recorded by increasing common stock for the par value of the shares with the excess over par added to APIC. Income
tax benefits due to the exercise of stock options are also added to APIC and included with the proceeds received from the option
exercise. The income tax benefits are included in cash flows from operating activities in the statements of cash flows. The par value
and excess of the fair value over par value of restricted stock awards are also added to common stock and APIC with an offsetting
amount recorded in unearned stock compensation. The amount included in unearned stock compensation is amortized into
earnings over the vesting period of the related award.
TJX has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (‘‘SFAS’’) No. 123, ‘‘Ac-
counting for Stock-Based Compensation,’’ and continues to apply the provisions of Accounting Principles Board Opinion No. 25,
‘‘Accounting for Stock Issued to Employees,’’ in accounting for compensation expense under our stock option plan. TJX grants
options at fair market value on the date of the grant, accordingly no compensation expense has been recognized for the stock options
issued during fiscal 2005, 2004 or 2003. Compensation expense determined in accordance with SFAS No. 123, net of related
income tax effect, amounted to $60.1 million, $55.2 million and $41.7 million for fiscal 2005, 2004 and 2003, respectively.
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