TJ Maxx 2009 Annual Report Download - page 51

are included in the lease commitments in the above table, and $181.7 million for uncertain tax positions for which it is
not reasonably possible for us to predict when they may be paid.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the
United States (U.S. GAAP) which require us to make certain estimates and judgments that impact our reported results.
These judgments and estimates are continually reviewed and based on historical experience and other factors which we
believe are reasonable. We consider our most critical accounting policies, involving management estimates and
judgments, to be those relating to the areas described below.
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 inventory valuation when the
price of an item is reduced. We believe the retail method results in a more conservative inventory valuation than other
inventory accounting methods. In addition, as a normal business practice, we have a 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 near the fiscal year end. Thus, the difference
between actual and estimated amounts of shrinkage may cause fluctuations in quarterly results, but is not a significant
factor in full year results. Overall, we believe that the retail method, coupled with our disciplined permanent markdown
policy and the 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 inventory. We have historically not entered into such arrangements with our vendors
in our continuing operations.
Impairment of long-lived assets: We review the recoverability of the carrying value of our long-lived assets at least
annually and whenever events or circumstances occur that would indicate that the carrying amounts of those assets are
not recoverable. Significant judgment is involved in projecting the cash flows of individual stores, as well as our business
units, which involve a number of factors including historical trends, recent performance and general economic
assumptions. If we determine that an impairment of long-lived assets has occurred, we record an impairment charge
equal to the excess of the carrying value of those assets overtheestimatedfairvalueoftheassets.Webelieveasof
January 30, 2010 that the carrying value of our long-lived assets is appropriate.
Retirement obligations: Retirementcostsareaccruedovertheservicelifeofanemployeeandrepresent,inthe
aggregate, obligations that will ultimately be settled far in the future and are therefore subject to estimates. We are
required to make assumptions regarding variables, such as the discount rate for valuing pension obligations and the long-
term rate of return assumed to be earned on pension assets, both of which impact the net periodic pension cost for the
period. The discount rate, which we determine annually based on market interest rates, and our estimated long-term rate
of return, which can differ considerably from actual returns, are two factors that can have a considerable impact on the
annual cost of retirement benefits and the funded status of our qualified pension plan. The market performance on plan
assets during fiscal 2009 was considerably worse than our expected return, and as a result the unfunded status of our
qualified plan increased significantly at the end of fiscal 2009. Despite this, we were not required to fund our plan during
fiscal 2009, primarily due to voluntary funding in prior years. In fiscal 2010 we funded our qualified pension plan with
$132.7 million and may make additional voluntary contributions during fiscal 2011.
Share-based compensation: In accordance with U.S. GAAP, TJX estimates the fair value of stock awards issued to
employeesanddirectorsunderitsstockincentiveplan.Thefairvalueoftheawardsisamortizedas“share-based
compensation expense” over the vesting periods during which the recipients are required to provide service. We use the
Black-Scholes option pricing model for determining the fair value of stock options granted, which requires management
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