TJ Maxx 2004 Annual Report Download - page 63

Presented below are the unaudited pro forma net income and related earnings per share showing the effect that stock
compensation expense, determined in accordance with SFAS No. 123, would have on reported results.
January 29, January 31, January 25,
In Thousands Except Per Share Amounts 2005 2004 2003
(53 Weeks)
Net income, as reported $664,144 $658,365 $578,388
Add: Stock-based employee compensation expense included in reported net
income, net of related tax effects 5,627 6,292 1,973
Deduct: Total stock-based employee compensation expense determined under fair
value based method for all awards, net of related tax effects (60,072) (55,245) (41,699)
Pro forma net income $609,699 $609,412 $538,662
Earnings per share:
Basic-as reported $ 1.36 $ 1.30 $ 1.09
Basic-pro forma $ 1.25 $ 1.20 $ 1.01
Diluted-as reported $ 1.30 $ 1.25 $ 1.05
Diluted-pro forma $ 1.21 $ 1.16 $ .98
For purposes of applying the provisions of SFAS No. 123 for the pro forma calculations, the fair value of each option granted
during fiscal 2005, 2004 and 2003 is estimated on the date of grant using the Black-Scholes option pricing model with the following
assumptions: dividend yield of .8% in fiscal 2005, .6% in fiscal 2004 and .5% in fiscal 2003; volatility of 35%, 43% and 44% in fiscal
2005, 2004 and 2003, respectively; a risk-free interest rate of 3.4% in fiscal 2005, 3.3% in fiscal 2004 and 3.5% in fiscal 2003; and an
expected holding period of 4.5 years in fiscal 2005 and six years in fiscal 2004 and 2003. The weighted average fair value of options
granted during fiscal 2005, 2004 and 2003 was $6.96, $8.75 and $8.93 per share, respectively.
Interest:TJX’s interest expense, net was $25.8 million, $27.3 million and $25.4 million in fiscal 2005, 2004 and 2003
respectively. Interest expense is presented net of interest income of $7.7 million, $6.5 million and $10.5 million in fiscal 2005, 2004
and 2003, respectively. We capitalize interest during the active construction period of major capital projects. Capitalized interest is
added to the cost of the related assets. No interest was capitalized in fiscal 2005. We capitalized interest of $1.0 million and $559,000
in fiscal 2004 and 2003, respectively. Debt discount and related issue expenses are amortized to interest expense over the lives of the
related debt issues or to the first date the holders of the debt may require TJX to repurchase such debt.
Depreciation and Amortization: For financial reporting purposes, TJX provides for depreciation and amortization of property
by the use of the straight-line method over the estimated useful lives of the assets. Buildings are depreciated over 33 years. Leasehold
costs and improvements are generally amortized over their useful life or the committed lease term (typically 10 years), whichever is
shorter. Furniture, fixtures and equipment are depreciated over 3 to 10 years. Depreciation and amortization expense for property
was $268.0 million for fiscal 2005, $227.3 million for fiscal 2004, and $196.4 million for fiscal 2003. Amortization expense for
property held under a capital lease was $2.2 million in fiscal 2005, 2004 and 2003. Maintenance and repairs are charged to expense as
incurred. Significant costs incurred for internally developed software are capitalized and amortized over three to ten years. Upon
retirement or sale, the cost of disposed assets and the related accumulated depreciation are eliminated and any gain or loss is included
in net income. Pre-opening costs, including rent, are expensed as incurred.
Impairment of Long-Lived Assets: TJX periodically reviews the value of its property and intangible assets in relation to the
current and expected operating results of the related business segments in order to assess whether there has been a permanent
impairment of their carrying values. An impairment exists when the undiscounted cash flow of an asset is less than the carrying cost
of that asset. Store by store impairment analysis is performed, at a minimum on an annual basis, in the fourth quarter of a fiscal year.
Goodwill and Tradenames: Goodwill is primarily the excess of the purchase price paid over the carrying value of the minority
interest acquired in fiscal 1990 in TJX’s former 83%-owned subsidiary and represents goodwill associated with the T.J. Maxx chain
and is included in the Marmaxx segment at January 29, 2005 and January 31, 2004. In addition, goodwill includes the excess of cost
over the estimated fair market value of the net assets of Winners acquired by TJX in fiscal 1991.
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