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N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
S u m m a r y o f A c c o u n t i n g P o l i c i e s
F i s c a l Y e a r : The Company’s fiscal year ends on the last Saturday in January. The fiscal year ended January 31, 1998 (fiscal 1998) included 53 weeks. The fiscal years ended January 30, 1999 and January 25, 1997 each included 52 weeks.
B a s i s o f P r e s e n t a t i o n: The consolidated financial statements of The TJX Companies, Inc. include the financial statements of all the Company’s wholly-owned subsidiaries, including its foreign subsidiaries. The financial statements for the applicable periods present the Company’s former Chadwick’s and Hit or Miss divisions as discontinued operations. The notes pertain to continuing operations except where otherwise noted.
The preparation of the financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities, at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
C a s h E q u i v a l e n t s : The Company generally considers highly liquid investments with an initial maturity of three months or less to be cash equivalents. The Company’s investments are primarily high grade commercial paper, institutional money market funds and time deposits with major banks. The fair value of cash equivalents approximates carrying value.
M e r c h a n d i s e I n v e n t o r i e s: Inventories are stated at the lower of cost or market. The Company uses the retail method for valuing inventories on the first-in first-out basis.
D e p r e c i a t i o n a n d A m o r t i z a t i o n : For financial reporting purposes, the Company provides for depreciation and amortization of property principally 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 the lease term or their estimated useful life, whichever is shorter, and furniture, fixtures and equipment are depreciated over 3 to 10 years. Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost of disposed assets and the related depreciation are eliminated and any gain or loss is included in net income. Debt discount and related issue expenses are amortized over the lives of the related debt issues. Pre-opening costs are expensed as incurred.
G o o d w i l l a n d T r a d e n a m e: Goodwill is primarily the excess of the purchase price incurred over the carrying value of the minority interest in the Company’s former 83%-owned subsidiary. The minority interest was acquired pursuant to the Company’s fiscal 1990 restructuring. In addition, goodwill includes the excess of cost over the estimated fair market value of the net assets of Winners Apparel Ltd., acquired by the Company effective May 31, 1990. Goodwill totaled $79.3 million, net of amortization, as of January 30, 1999 and is being amortized over 40 years. Annual amortization of goodwill was $2.6 million in fiscal years 1999, 1998 and 1997. Cumulative amortization as of January 30, 1999 and January 31, 1998 was $25.1 million and $22.5 million, respectively.
Tradename is the value assigned to the name “Marshalls” as a result of the Company’s acquisition of the Marshalls chain on November 17, 1995. The final allocation of the purchase price of Marshalls, pursuant to the purchase accounting method, resulted in $130.0 million being allocated to the tradename. The value of the tradename was determined by the discounted present value of assumed after-tax royalty payments, offset by a reduction for its pro-rata share of the total negative goodwill acquired (see Note A). The tradename is deemed to have an indefinite life and accordingly is being amortized over 40 years. Amortization expense was $3.2 million, $3.4 million and $3.7 million for fiscal years 1999, 1998 and 1997, respectively. Cumulative amortization as of January 30, 1999 and January 31, 1998 was $11.0 million and $7.8 million, respectively.
I m p a i r m e n t o f L o n g - L i v e d A s s e t s : The Company 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.
During the fiscal year ended January 25, 1997, the Company recorded a $12.2 million impairment charge, relating to the T.J. Maxx distribution facilities, which has been included in selling, general and administrative expenses.
A d v e r t i s i n g C o s t s : The Company expenses advertising costs during the fiscal year incurred.
E a r n i n g s P e r S h a r e : Statement of Financial Accounting Standards (SFAS) No. 128 “Earnings per Share” requires the presentation of “basic” and “diluted” earnings per share. Basic earnings per share is based on a simple weighted average of common stock outstanding. Diluted earnings per share includes the dilutive effect of convertible securities and other common stock equivalents. See Note F for a computation of basic and diluted earnings per share. All earnings per share amounts discussed refer to diluted earnings per share unless otherwise indicated. Prior period earnings per share amounts have been restated for the June 1998 and June 1997 two-for-one stock splits.
F o r e i g n C u r r e n c y T r a n s l a t i o n : The Company’s foreign assets and liabilities are translated at the year-end exchange rate and income statement items are translated at the average exchange rates prevailing during the year. A large portion of the Company’s net investment in foreign operations is hedged with foreign currency swap agreements and forward contracts. The translation adjustment associated with the foreign operations and the related hedging instruments are included in shareholders’ equity as a component of comprehensive income (loss). Cumulative foreign currency translation adjustments included in shareholders’ equity amounted to losses of $1.5 million as of January 30, 1999 and $1.7 million as of January 31, 1998.
N e w A c c o u n t i n g S t a n d a r d s : During 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income.” This Statement specifies the computation, presentation and disclosures for components of comprehensive income. The Company adopted SFAS No. 130 in the first quarter ended May 2, 1998 and presents comprehensive income as a component of shareholders’ equity.
Also during 1997, the FASB issued SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information.” This new standard did not result in any changes to the Company’s reportable segments or in the information disclosed about its segments (see Note L).
During 1998, the FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statements of financial position and measure those instruments at fair value. The Company believes that the impact of implementation of this new standard will be immaterial. The Company will adopt SFAS No. 133 in its fiscal year ending January 27, 2001 or earlier.
O t h e r : Certain amounts in prior years’ financial statements have been reclassified for comparative purposes.