TJ Maxx 2006 Annual Report Download - page 71

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 upon the expensing of options result in the creation of a deferred tax asset,
while income tax benefits due to the exercise of stock options reduce deferred tax assets to the extent that an asset for the
related grant has been created. Any tax benefit greater than the deferred tax asset created at the time of expensing the
option is credited to APIC; any deficiency in the tax benefit is debited to APIC to the extent a ‘pool’ for such deficiency
exists. In the absence of a pool any deficiency is realized in the related periods’ statements of income through the
provision for income taxes. The excess income tax benefits, if any, are included in cash flows from financing activities in
the statements of cash flows. The par value of restricted stock awards is also added to common stock when the stock is
issued, generally at grant date. The fair value of the restricted stock awards in excess of par value is added to APIC as the
award is amortized into earnings over the related vesting period.
Stock-Based Compensation: TJX adopted the provisions of Statement of Financial Accounting Standards No. 123
(revised 2004) “Share-Based Payment” (SFAS No. 123(R)) in its fourth quarter reporting period of fiscal 2006. TJX elected
the modified retrospective transition method and accordingly all periods presented reflect the impact of adopting
SFAS No. 123(R). For purposes of applying the provisions of SFAS No. 123(R), the fair value of each option granted is
estimated on the date of grant using the Black-Scholes option pricing model. See Note G for a detailed discussion of
stock-based compensation.
Interest: TJX’s interest expense, net was $15.6 million, $29.6 million and $25.8 million in fiscal 2007, 2006 and
2005, respectively. Interest expense is presented net of interest income of $23.6 million, $9.4 million and $7.7 million in
fiscal 2007, 2006 and 2005, 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 2007, 2006 or
2005. 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 amortiza-
tion 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 $347.0 million for fiscal 2007, $307.7 million for
fiscal 2006 and $268.0 million for fiscal 2005. Amortization expense for property held under a capital lease was
$2.2 million in fiscal 2007, 2006 and 2005. Maintenance and repairs are charged to expense as incurred. Significant costs
incurred for internally developed software are capitalized and amortized over 3 to 10 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.
Lease Accounting: During fiscal 2005, we recorded a one-time non-cash charge to conform our accounting
policies to generally accepted accounting principles related to the timing of rent expense for certain leased locations.
Previously, we began recording rent expense at the time a store opened and the lease term commenced as specified in
the lease. Beginning in the fourth quarter of fiscal 2005, we record rent expense when we take possession of a store,
which occurs before the commencement of the lease term, as specified in the lease, and generally 30 to 60 days prior to
the opening of the store. This will result in an acceleration of the commencement of rent expense for each lease, as we
record rent expense during the pre-opening period, but a reduction in monthly rent expense, as the total rent due under
the lease is amortized over a greater number of months.
This correction resulted in a one-time, cumulative, non-cash charge of $30.7 million on a pre tax basis
($19.3 million net of tax), or $0.04 per share, which we recorded in the fourth quarter of fiscal 2005. The pre-tax
cumulative effect of the correction reduced segment profit as follows; Marmaxx $16.8 million, Winners and HomeSense
$3.5 million, T.K. Maxx $6.5 million, HomeGoods $2.2 million and A.J. Wright $1.7 million.
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 an other than temporary 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.
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