TJ Maxx 2015 Annual Report Download - page 52

fiscal year end to determine shrinkage at year end. Historically, the variance between estimated shrinkage and
actual shrinkage has not been material to our annual financial results. We do not generally enter into
arrangements with vendors that provide for rebates and allowances that could ultimately affect the value of
inventory.
Impairment of long-lived assets, goodwill and tradenames: We evaluate the recoverability of the carrying
value of our long-lived assets, goodwill and tradenames 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 of 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 over the estimated fair value of the assets.
Retirement obligations: Retirement costs are accrued over the service life of an employee and represent, in
the aggregate, obligations that will ultimately be settled far in the future and are therefore subject to estimates.
We are required to make economic, demographic and other assumptions regarding variables, such as the
discount rate for valuing pension obligations, the long-term rate of return assumed to be earned on pension
assets and assumptions about mortality, all of which impact the net periodic pension cost for the period. These
assumptions, including 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, can have a significant
impact on the annual cost of retirement benefits and the funded status of our qualified pension plan. If our
discount rate decreased 0.25 percentage points, our fiscal 2016 pension cost for our funded plan would have
increased by approximately $8 million. Similarly, an increase in the discount of rate of 0.25 percentage points
would result in a comparable reduction of pension cost. A change of 0.25 percentage points in our long-term
rate of return would increase or decrease our fiscal 2016 pension cost by approximately $3 million. During fiscal
2015, we adjusted our assumptions relating to mortality (the expected lives of our pension participants) in light of
new mortality tables issued by the Society of Actuaries which project longer life expectancies. The change in our
mortality assumptions added $59 million to the projected benefit obligation for the funded plan as of January 31,
2015 and added approximately $7 million to our fiscal 2016 pension cost. When the discount rate, market
performance of our plan assets, changes in laws, regulations, actuarial standards or other factors have a
negative impact on the funded status of our plan, our required contributions may increase. We also consider
these factors in determining the amount of voluntary contributions we may make to the plan in excess of
mandatory funding requirements. In fiscal 2016, we funded our qualified pension plan with a voluntary
contribution of $50 million.
Share-based compensation: In accordance with GAAP, we estimate the fair value of stock awards issued
to employees and directors under our Stock Incentive Plan. The fair value of the awards is amortized as “share-
based compensation” 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 to make significant judgments and estimates such as participant activity and market
results. The use of different assumptions and estimates could have a material impact on the estimated fair value
of stock option grants and the related compensation cost. A 5% increase in expected volatility would increase
the per-option value of our most recent option award by 4% while a decrease of the same amount would
decrease the per-option value of our most recent option award by 5%.
Casualty insurance: Our casualty insurance program is a self-insured program which requires us to
estimate the total claims we would incur as a component of our annual insurance cost. The estimated claims are
developed, with the assistance of an actuary, based on historical experience and other factors. These estimates
involve significant judgments and assumptions, and actual results could differ from these estimates. If our
estimate for the claims component of our casualty insurance for fiscal 2016 were to change by 5%, the fiscal
2016 pre-tax cost would increase or decrease by approximately $4 million. A large portion of these claims is
funded with a non-refundable payment during the policy year, offsetting our estimated claims accrual. We had a
net accrual of $19.7 million for the unfunded portion of our casualty insurance program as of January 30, 2016.
36