TJ Maxx 2009 Annual Report Download - page 41

improvements were partially offset by the increase in performance-based incentive compensation mentioned above,
which had an even greater impact on selling, general and administrative expense ratio increasing it by 0.5 percentage
points.
The fiscal 2009 expense ratio increased slightly compared to fiscal 2008 due to deleverage from the low same store
sales increase, primarily in store payroll and field costs, partially offset by savings from cost containment initiatives.
Advertising costs as a percentage of net sales in fiscal 2009 were essentially flat compared to fiscal 2008.
Provision for Computer Intrusion related costs: In the second quarter of fiscal 2008, we established a reserve to
reflect our estimate of our probable losses in accordance with U.S. GAAP with respect to the Computer Intrusion.
From the time of the discovery of the Computer Intrusion late in fiscal 2007, through the end of fiscal 2010, we
cumulatively expensed $171.5 million (pre-tax) with respect to the Computer Intrusion, including a net charge of
$159.2 million in fiscal 2008 to reserve for probable losses, costs of $42.8 million incurred prior to the establishment of
the reserve ($5 million of which was recorded in fiscal 2007) and a $30.5 million reduction in the reserve in fiscal 2009 as
a result of negotiations, settlements, insurance proceeds and adjustments in our estimated losses. Costs relating to the
Computer Intrusion incurred and paid after establishment of the reserve were charged against the reserve, which is
included in accrued expenses and other liabilities on our balance sheet.
As of January 30, 2010, our reserve balance was $23.5 million, which reflects our current estimate of remaining
probable losses with respect to the Computer Intrusion, including litigation, proceedings and other claims, as well as
legal, monitoring, reporting and other costs. As an estimate, our reserve is subject to uncertainty, our actual costs may
vary from our current estimate and such variations may be material. We may decrease or increase the amount of our
reserve as a result of developments in litigation and claims, related expenses, receipt of insurance proceeds and for other
changes.
Interest expense (income), net: Interest expense (income), net amounted to expense of $39.5 million for fiscal 2010,
expense of $14.3 million for fiscal 2009 and income of $1.6 million for fiscal 2008. The components of net interest
expense (income) for the last three fiscal years are summarized below:
Dollars in thousands 2010 2009 2008
Fiscal Year Ended January
Interest expense $49,278 $ 38,123 $ 39,926
Capitalized interest (758) (1,647) (799)
Interest (income) (9,011) (22,185) (40,725)
Net interest expense (income) $39,509 $ 14,291 $ (1,598)
Gross interest expense for fiscal 2010 increased over fiscal 2009 as a result of the incremental interest cost of the
$375 million aggregate principal amount of 6.95% notes issued in April 2009 and the $400 million aggregate principal
amount of 4.20% notes issued in July 2009. The 6.95% notes were issued in conjunction with the call for redemption of
our zero coupon convertible securities, and we refinanced our C$235 million credit facility prior to its scheduled
maturity with a portion of the proceeds of the 4.20% notes. The impact on earnings per share of the incremental interest
cost of these two debt issuances was partially offset by a benefit in our earnings per share, as the majority of the
15.1 million shares issued upon conversion of the convertible notes were repurchased with the net proceeds of the
6.95% notes. On a full year basis, we expect the benefit of the share repurchase to more than offset the impact on fully
diluted earnings per share from the interest on the 6.95% notes. For more information on these note offerings, see the
discussion under Liquidity and Capital Resources. In addition, interest income for fiscal 2010 was less than fiscal 2009 due
to considerably lower rates of return on investments more than offsetting higher cash balances available for investment
during fiscal 2010.
The change in net interest expense in fiscal 2009 compared to fiscal 2008 was driven by the change in interest
income. In fiscal 2008, we generated more interest income due to higher cash balances available for investment as well as
higher interest rates earned on our investments.
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