THE TJX COMPANIES TJX provides projections and other forward-looking statements in the following discussions particularly relating to our future financial performance. These forward-looking statements are estimates based on information currently available to us, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and subject to the cautionary statements set forth on page 2 of this Form 10-K. Our results are subject to risks and uncertainties including, but not limited to, those described in Part I, Item 1A, Risk Factors, and those identified from time to time in our other filings with theSecurities and Exchange Commission . TJX undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. The discussion that follows relates to our 52-week fiscal years endedJanuary 30, 2021 (fiscal 2021) andFebruary 1, 2020 (fiscal 2020). Our 52-week fiscal year endedFebruary 2, 2019 is referred to as fiscal 2019 and our 52-week fiscal year endedJanuary 29, 2022 is referred to as fiscal 2022. The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results. Discussions of fiscal 2019 items and year-to-year comparisons between fiscal 2020 and fiscal 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our annual report on Form 10-K for the fiscal year endedFebruary 1, 2020 .
OVERVIEW
We are the leading off-price apparel and home fashions retailer in theU.S. and worldwide. Our mission is to deliver great value to our customers every day. We do this by selling a rapidly changing assortment of apparel, home fashions and other merchandise at prices generally 20% to 60% below full-price retailers' (including department, specialty, and major online retailers) regular prices on comparable merchandise, every day. We operate over 4,500 stores through our four main segments: in theU.S. , Marmaxx (which operates T.J. Maxx, Marshalls, tjmaxx.com and marshalls.com) andHomeGoods (which operatesHomeGoods and Homesense); TJX Canada (which operates Winners, HomeSense and Marshalls inCanada ); andTJX International (which operatesT.K. Maxx , Homesense and tkmaxx.com inEurope , andT.K. Maxx inAustralia ). In addition to our four main segments, Sierra operates sierra.com and retail stores in theU.S. The results of Sierra are included in the Marmaxx segment. Impact of the COVID-19 Pandemic After a novel coronavirus disease ("COVID-19") emerged and spread worldwide, theWorld Health Organization declared COVID-19 a pandemic inMarch 2020 , and national, state and local governments and private entities began issuing various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantine or isolation protocols. We temporarily closed all of our stores, online businesses, distribution centers and offices inMarch 2020 , with Associates working remotely where possible. DuringApril 2020 , we temporarily furloughed the majority of hourly store and distribution center Associates in theU.S. andCanada , with employee benefits coverage for eligible Associates continuing during the temporary furlough at no cost to impacted Associates. We also took comparable actions with respect to portions of our European and Australian workforces. When we began to reopen stores and distribution centers inMay 2020 , we implemented new health and safety practices, including practices related to personal protective equipment, enhanced cleaning and social distancing protocols. Early in the fourth quarter of fiscal 2021, in response to increasing cases of COVID-19, hundreds of our stores had additional temporary closures, the vast majority being inEurope andCanada , and additional stores may close temporarily in the future. We continue to monitor developments, including government requirements and recommendations at the national, state, and local level that could result in possible additional impacts to our operations. Our results for fiscal 2021 were negatively impacted by the temporary closure of our stores for approximately 24% of fiscal 2021 in the aggregate. This represents total store days closed due to the COVID-19 pandemic as a percentage of potential total store days open. See additional details below by segment. Fiscal 2021 Marmaxx 20 %HomeGoods 20 TJX Canada 29TJX International 36 Total 24 % 25
-------------------------------------------------------------------------------- As ofMarch 30, 2021 , we had approximately 580 stores, primarily inEurope , that were temporarily closed due to government mandates in response to the COVID-19 global pandemic. We expect closures inEurope andCanada to impact our first quarter fiscal 2022 results as stores are expected to be closed for approximately 71% and 12% of the quarter, respectively. Although the majority of ourGermany andNetherlands stores were reopened by the end of March, additional operating restrictions have been imposed, including appointment requirements, limited business hours and capacity constraints. In total, based on current restrictions, we expect stores to be closed for approximately 12% of the first quarter of fiscal 2022. All of our e-commerce businesses remain open, including tkmaxx.com in theU.K. In addition to the temporary closures and reopenings of our stores and other facilities, the ongoing COVID-19 pandemic has led to modifications to our operations, including the implementation of health and safety protocols, and has impacted consumer behavior. The continued scope and impact of the pandemic is unpredictable and has in the past caused, currently causes, and may continue to cause additional intermittent or prolonged periods of temporary store closures, and may result in additional changes in consumer demand and behavior or require further modifications to our operations. These potential impacts may lead to increased asset recovery and valuation risks, such as impairment of our stores and other assets and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. The uncertainties in the global economy may also impact the financial viability or business operations of some of our suppliers and service providers (including transportation and logistics providers), which may interrupt our supply chain, and require other changes to our operations. These and other factors have had and may continue to have a material impact on our business, results of operations, financial position and cash flows. Store and Associate Actions We have taken numerous steps designed to protect the health and well-being of our Associates and customers to operate more safely in light of the COVID-19 pandemic. We established several global task force teams focused on a broad range of strategies to navigate the Company through this global health crisis. Globally, we have put in place practices including social distancing protocols (which include occupancy limits and reducing in-store inventory levels), access to personal protective equipment and enhanced cleaning efforts. For example, upon reopening our stores, we installed protective shields at registers, encouraged social distancing through regular in-store announcements, signage, and markers in our queue lines, implemented new processes for handling merchandise returns, and instituted new cleaning regimens, including enhanced cleaning of high-touch surfaces, such as shopping carts, throughout the day. Further, in many locations, including where mandated, we have required that shoppers wear a face covering in stores. Financial Actions Balance Sheet, Cash Flow and Liquidity The temporary closure of our stores had a material impact on our results of operations, financial position and liquidity. As further detailed below in Results of Operations, this impact included a 23% decrease in net sales for fiscal 2021 compared to the same period last year, resulting in a significant decline in net profit for the full fiscal year. During fiscal 2021, we generated$4.6 billion of operating cash flows and ended the year with$10.5 billion of cash. In addition, we increased our borrowing capacity by entering into a$500 million 364 Day Revolving Credit Facility, making a total of$1.5 billion available to us under revolving credit facilities. In the first quarter of fiscal 2021, TJX issued$4 billion aggregate principal amount of notes. During the fourth quarter of fiscal 2021, we issued$1 billion in aggregate principal amount of notes and accepted$1.1 billion in combined aggregate principal amount of certain of its notes issued in the first quarter of fiscal 2021 pursuant to cash tender offers. We paid$1.4 billion aggregate consideration (including transaction costs) and recorded a$0.3 billion pre-tax loss on the early extinguishment for the accepted notes. For additional information on the new credit facility and debt transactions, see Note K-Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements. We intend to continue to be prudent with our expenses for fiscal 2022. Capital spending for fiscal 2022 is expected to be back in line with normal spending, and is expected to be in the range of$1.2 billion to$1.4 billion with incremental investments in our infrastructure and our distribution centers, both existing and new facilities. We are planning approximately 120 net store openings for fiscal 2022. We have currently suspended our share repurchase program. While our Board of Directors did not declare a dividend in the first nine months of fiscal 2021, we declared a dividend of$0.26 per share in the fourth quarter of fiscal 2021, paid inMarch 2021 . We also declared a similar dividend of$0.26 per share in the first quarter of fiscal 2022. During fiscal 2021, we negotiated rent deferrals (primarily for second quarter lease payments) for a significant number of our stores, with repayment at later dates, primarily in fiscal 2022. We elected to treat the COVID-19 pandemic-related rent deferrals as a resolution of a contingency by remeasuring the lease liability, with a corresponding offset to the right-of-use asset, using the remeasured consideration. In addition to negotiating deferral of lease payments, we had temporarily extended payment terms on merchandise orders, which increased our accounts payable as of the end of the fiscal year, benefiting our operating cash flows. As payment terms are reduced and we make deferred payments, we expect our operating cash flows to be negatively impacted. 26 -------------------------------------------------------------------------------- We evaluated the value of our inventory in light of the temporary store closures in the first and fourth quarters of fiscal 2021 due to the COVID-19 pandemic. Permanent markdowns, which had been or will be taken upon reopening of the stores, on transitional or out of season merchandise and merchandise that was already in markdown status, combined with the write-off of perishable goods, resulted in a reduction of approximately$0.4 billion in inventory for fiscal 2021. Additional markdowns recorded throughout the year were taken in the ordinary course of business operations. Given the substantial reduction in our sales and the reduced cash flow projections as a result of the temporary store closures during fiscal 2021 due to the COVID-19 pandemic, we determined that triggering events had occurred and that impairment assessments were warranted for certain stores. This resulted in impairment charges of$72 million for fiscal 2021, related to operating lease right of use assets and store fixed assets. Operating Expenses We incurred additional payroll costs associated with monitoring occupancy limits to comply with social distancing protocols and implementing enhanced cleaning regimens in our stores, distribution centers, and offices. In addition, we provided discretionary appreciation bonuses during fiscal 2021 to store and distribution center Associates and incurred incremental costs for personal protective equipment and additional cleaning supplies. We expect that many of these costs will continue in fiscal 2022. We have implemented, and plan to continue to implement, cost saving initiatives to reduce some ongoing variable and discretionary spending. In response to the COVID-19 pandemic, governments in theU.S. ,U.K. ,Canada and various other jurisdictions have implemented programs to encourage companies to retain and pay employees who are unable to work or are limited in the work that they can perform in light of closures or a significant decline in sales. Throughout fiscal 2021 we continued to qualify for certain of these provisions, which partially offset related expenses. During fiscal 2021, these programs reduced our expenses by approximately$0.5 billion on our Consolidated Statements of Income. RESULTS OF OPERATIONS Matters Affecting Comparability As a result of the COVID-19 pandemic, our stores were closed in the aggregate for approximately 24% of fiscal 2021. In addition to lost revenues, we continued to pay wages and provide benefits to many of our Associates during the closures, and incurred incremental operating expenses upon reopening for new health and safety practices. This significantly impacted the operating results of all of our divisions and our expense ratios as compared to the prior year. Highlights of our financial performance for fiscal 2021 include the following: -Net sales decreased 23% to$32.1 billion for fiscal 2021, versus fiscal 2020 sales of$41.7 billion . As ofJanuary 30, 2021 , the number of stores in operation (including stores that had been temporarily closed due to COVID-19) increased 1% and selling square footage increased 1% compared to the end of fiscal 2020. -Diluted earnings per share for fiscal 2021 were$0.07 versus$2.67 per share in fiscal 2020. -Pre-tax margin (the ratio of pre-tax income to net sales) for fiscal 2021 was 0.3%, a 10.3 percentage point decrease compared with 10.6% in fiscal 2020. -The debt extinguishment charge of$0.3 billion reduced fiscal 2021 pre-tax margin by 1.0 percentage point and reduced earnings per share by$0.19 per share. -Our cost of sales, including buying and occupancy costs, ratio for fiscal 2021 was 76.3%, a 4.8 percentage point increase compared with 71.5% in fiscal 2020. -Our selling, general and administrative ("SG&A") expense ratio for fiscal 2021 was 21.8%, a 3.9 percentage point increase compared with 17.9% in fiscal 2020. -Our consolidated average per store inventories, including inventory on hand at our distribution centers (which excludes inventory in transit) and excluding our e-commerce sites and Sierra stores, were down 21% on a reported basis and down 22% on a constant currency basis at the end of fiscal 2021 as compared to a 4% increase in average per store inventories on both a reported and constant currency basis at the end of fiscal 2020. -There were no dividends declared during the first nine months of fiscal 2021 and share repurchases were suspended in the first quarter of fiscal 2021. A dividend of$0.26 per share was declared in the fourth quarter of fiscal 2021 and paid in March of 2021. See the Impact of the COVID-19 Pandemic section above for the actions taken regarding our share repurchase programs. 27 -------------------------------------------------------------------------------- Recent Events and Trends COVID-19 See discussion above in the Impact of the COVID-19 Pandemic section. Impact of Brexit OnDecember 24, 2020 theU.K. and EU agreed upon the terms of their future trading relationship. As expected the movement of goods between theU.K. and EU is subject to additional regulatory and compliance requirements, which is expected to have a negative impact on our ability to efficiently move merchandise in the region. We have realigned our European division's supply chain to reduce the volume of merchandise flowing between theU.K. and the EU and have established resources and systems to support this plan. The new trade deal provides for zero customs duties and zero quotas on trade between theU.K. and the EU in goods that are produced in each of theU.K. and the EU. However, a proportion of the merchandise we source in theU.K. and the EU is produced somewhere else in the world, and therefore will be subject to additional customs duty costs under the new trade deal. These additional customs duties and the related operational costs are likely to impact the profitability of our European division, at least in the short term. New immigration requirements between theU.K. and EU countries may also have a negative impact on our ability to recruit and retain current and future talent in the region. We continue to communicate with our Associates about the new immigration requirements. In addition to these operational impacts, factors including changes in legislation, consumer confidence and behavior, economic conditions, interest rates and foreign currency exchange rates could result in a significant financial impact to our European operations, particularly in the short term.Net Sales Net sales for fiscal 2021 totaled$32.1 billion , a 23% decrease over fiscal 2020. The decrease in net sales was driven by temporary store closures as a result of the COVID-19 pandemic and lower customer traffic, with stores closed in the aggregate for approximately 24% of fiscal 2021. Net sales from our e-commerce businesses combined amounted to approximately 3% of total sales. As a result of the extended store closures due to the COVID-19 pandemic and our policy relating to the treatment of extended store closures when calculating comp store sales under our historical definition, we had no stores classified as comp stores at the end of fiscal 2021. In order to provide a performance indicator for our stores as they reopened, since the second quarter of fiscal 2021, we have been temporarily reporting a new sales measure, open-only comp store sales. Open-only comp store sales includes stores initially classified as comp stores at the beginning of fiscal 2021 that have had to temporarily close due to the COVID-19 pandemic. This measure reports the sales increase or decrease of these stores for the days the stores were open in the current period against sales for the same days in the prior year. Open-only comp sales of our foreign segments are calculated by translating the current year using the prior year's exchange rates. Our historical definition of comp store sales is presented below for reference. Open-only comp store sales were down 4% for fiscal 2021 as compared to last year. These results reflect a decrease in customer traffic, partially offset by an increased average basket across all divisions. Our stores were closed in the aggregate for approximately 24% of fiscal 2021. Home fashion across all major segments outperformed apparel for fiscal 2021. We define customer traffic to be the number of transactions in stores and average ticket to be the average retail price of the units sold. We define average transaction or average basket to be the average dollar value of transactions. Historical Definition of Comp Store Sales We are temporarily reporting a new sales measure, open-only comp store sales, as described above. The following reflects the way that we have historically classified and reported comp sales results. Historically, we defined comparable store sales, or comp sales, to be sales of stores that have been in operation for all or a portion of two consecutive fiscal years, or in other words, stores that are starting their third fiscal year of operation. We calculated comp sales on a 52-week basis by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that have changed in size are generally classified in the same way as the original store, and we believe that the impact of these stores on the consolidated comp percentage is immaterial. 28 -------------------------------------------------------------------------------- Sales excluded from comp sales ("non-comp sales") consist of sales from: -New stores - stores that have not yet met the comp sales criteria, which represents a substantial majority of non-comp sales -Stores that are closed permanently or for an extended period of time -Sales from our e-commerce sites, meaning sierra.com, tjmaxx.com, marshalls.com and tkmaxx.com We determine which stores are included in the comp sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year unless a store is closed permanently or for an extended period during that fiscal year. Beginning in fiscal 2020, Sierra stores that otherwise fit the comp store definition are included in comp stores in our Marmaxx segment. Comp sales of our foreign segments are calculated by translating the current year's comp sales using the prior year's exchange rates. This removes the effect of changes in currency exchange rates, which we believe is a more accurate measure of segment operating performance. Comp sales may be referred to as "same store" sales by other retail companies. The method for calculating comp sales varies across the retail industry, therefore our measure of comp sales may not be comparable to that of other retail companies. Operating Results as a Percentage ofNet Sales The following table sets forth our consolidated operating results as a percentage of net sales.
Percentage of
Fiscal 2021 Fiscal 2020
Net sales 100.0 % 100.0 %
Cost of sales, including buying and occupancy costs 76.3 71.5
Selling, general and administrative expenses 21.8 17.9
Loss on early extinguishment of debt 1.0 -
Interest expense, net 0.6 -
Income before income taxes* 0.3 % 10.6 %
*Figures may not foot due to rounding.
Revenues by Geography
The percentages of our consolidated revenues by geography for the last two
fiscal years are as follows:
Fiscal 2021 Fiscal 2020
United States:
Northeast 23 % 23 %
Midwest 13 13
South (including Puerto Rico) 27 25
West 16 15
Total United States 79 % 76 %
Canada 9 10
Europe 11 13
Australia 1 1
Total 100 % 100 %
Impact of foreign currency exchange rates
Our operating results are affected by foreign currency exchange rates as a
result of changes in the value of the U.S. dollar or a division's local currency
in relation to other currencies. We specifically refer to "foreign currency" as
the impact of translational foreign currency exchange and mark-to-market of
inventory derivatives, as described in detail below. This does not include the
impact foreign currency exchange rates can have on various transactions that are
denominated in a currency other than an operating division's local currency
referred to as "transactional foreign exchange", also described below.
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Translation Foreign Exchange
In our consolidated financial statements, we translate the operations of TJX
Canada and TJX International from local currencies into U.S. dollars using
currency rates in effect at different points in time. Significant changes in
foreign exchange rates between comparable prior periods can result in meaningful
variations in net sales, net income and earnings per share growth as well as the
net sales and operating results of these segments. Currency translation
generally does not affect operating margins, or affects them only slightly, as
sales and expenses of the foreign operations are translated at approximately the
same rates within a given period.
Mark-to-Market Inventory Derivatives
We routinely enter into inventory-related hedging instruments to mitigate the
impact on earnings of changes in foreign currency exchange rates on merchandise
purchases denominated in currencies other than the local currencies of our
divisions, principally TJX Canada and TJX International . As we have not elected
"hedge accounting" for these instruments as defined by U.S. generally accepted
accounting principles ("GAAP"), we record a mark-to-market gain or loss on the
derivative instruments in our results of operations at the end of each reporting
period. In subsequent periods, the mark-to-market gain or loss is effectively
offset when the inventory being hedged is received and paid for. While these
effects occur every reporting period, they are of much greater magnitude when
there are sudden and significant changes in currency exchange rates during a
short period of time. The mark-to-market gain or loss on these derivatives does
not affect net sales, but it does affect the cost of sales, operating margins
and net income.
Transactional Foreign Exchange
When discussing the impact on our results of the effect of foreign currency
exchange rates on certain transactions, we refer to it as "transactional foreign
exchange". This primarily includes the impact that foreign currency exchange
rates may have on the year-over-year comparison of merchandise margin as well as
"foreign currency gains and losses" on transactions that are denominated in a
currency other than the operating division's local currency. These two items can
impact segment margin comparison of our foreign divisions and we have
highlighted them when they are meaningful to understanding operating trends.
Cost of Sales, Including Buying and Occupancy Costs
Cost of sales, including buying and occupancy costs, was $24.5 billion , or 76.3%
of net sales for fiscal 2021 compared to $29.8 billion , or 71.5% of net sales
for fiscal 2020.
The main reason for the decrease in the total cost of sales, including buying
and occupancy costs, was the reduction in cost of merchandise sold due to a
reduction in net sales as compared to the prior year, primarily due to our
stores being temporarily closed in the aggregate for approximately 24% of fiscal
2021.
The increase in the expense ratio of 4.8% for fiscal 2021 was primarily driven
by the impact of lower sales primarily as a result of temporary store closures.
A significant portion of our occupancy costs are fixed and although we
negotiated rent deferrals to help with our liquidity, our occupancy costs were
comparable to last year but increased the expense ratio by approximately 2.1
percentage points due to the lower sales volume. Our distribution costs
increased the expense ratio by approximately 1.6 percentage points due to
processing more units while our merchandise mix had a lower average ticket. In
addition, distribution costs reflect wage increases, discretionary appreciation
bonuses, and incremental costs to implement and maintain health and safety
protocols, despite a reduction in payroll costs due to Associate furloughs in
the first half of fiscal 2021 and $78 million in benefits received from
government programs available in the U.S. , Canada , the U.K. and various other
jurisdictions. Merchandise margin was negatively impacted by increased markdowns
as a percentage of net sales, as well as increased freight costs partially
offset by strong mark-on. The increased markdowns include those taken to revalue
inventories due to our temporary store closures.
Selling, General and Administrative Expenses
SG&A expenses were $7 billion , or 21.8% of net sales for fiscal 2021, compared
to $7.5 billion , or 17.9% of net sales for fiscal 2020.
The increase in SG&A expenses as a percentage of net sales for fiscal 2021 was
primarily driven by store payroll and store supply costs which negatively
impacted the expense ratio by 2.7 percentage points. These costs were primarily
COVID-related, including incremental store payroll investments to allow for
enhanced cleaning and monitoring capacity, discretionary appreciation bonuses,
and personal protective equipment for our Associates. These incremental costs
were partially offset by expense savings, including lower advertising and travel
spend, as well as other variable store costs such as credit processing fees,
which were lower as a result of the temporary store closures due to the COVID-19
pandemic. We also paid certain Associates during the temporary store closures,
which was partially offset by $434 million from government programs available in
the U.S. , Canada , the U.K. and various other jurisdictions.
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Loss On Early Extinguishment of Debt
On November 30, 2020 we issued $500 million aggregate principal amount of 1.150%
notes due 2028 and $500 million aggregate principal amount of 1.600% notes due
2031. We used the proceeds to partially fund the purchase, on December 4, 2020 ,
of $365 million of our 4.500% notes due 2050 and $754 million of our 3.875%
notes due 2030 that were tendered and accepted in our cash tender offer. We
recorded a pre-tax loss on the early extinguishment of debt of $312 million . For
additional information on the debt transactions, see Note K-Long-Term Debt and
Credit Lines of Notes to Consolidated Financial Statements.
Interest Expense, net
The components of interest expense, net for the last two fiscal years are
summarized below:
Fiscal Year Ended
January 30, February 1,
In millions 2021 2020
Interest expense $ 199 $ 61
Capitalized interest (5) (2)
Interest (income) (13) (49)
Interest expense, net $ 181 $ 10
Net interest expense increased for fiscal 2021 compared to fiscal 2020,
primarily driven by the issuance of additional debt in fiscal 2021 due to the
COVID-19 pandemic and lower interest income. In addition, fiscal 2021 included
interest expense on the $1 billion of borrowings on the revolving credit
facilities, which were paid off in the second quarter of fiscal 2021.
Provision for Income Taxes
The effective income tax rate was (1.4)% for fiscal 2021 compared to 25.7% for
fiscal 2020. The decrease in the fiscal 2021 effective income tax rate is
primarily driven by the negative impact of the COVID-19 pandemic to our results
and the change in the jurisdictional mix of income and losses.
Net Income and Diluted Earnings Per Share
Net income was $0.1 billion in fiscal 2021 compared to $3.3 billion in fiscal
2020. Diluted earnings per share were $0.07 in fiscal 2021 and $2.67 in fiscal
2020. The loss on early extinguishment of debt reduced net income by
$229 million , or $0.19 per share, for the twelve months ended January 30, 2021 .
Our stock repurchase programs, which reduce our weighted average diluted shares
outstanding, had no impact on our earnings per share in fiscal 2021 as we
suspended the program in March 2020 as a result of the COVID-19 pandemic. Our
stock repurchase programs benefited our earnings per share growth by
approximately 3% in fiscal 2020.
Segment Information
We operate four main business segments. Our Marmaxx segment (T.J. Maxx,
Marshalls, tjmaxx.com and marshalls.com) and the HomeGoods segment (HomeGoods
and Homesense) both operate in the United States . Our TJX Canada segment
operates Winners, HomeSense and Marshalls in Canada , and our TJX International
segment operates T.K. Maxx , Homesense and tkmaxx.com in Europe and T.K. Maxx in
Australia . In addition to our four main segments, Sierra operates sierra.com and
retail stores in the U.S. The results of Sierra are included in the Marmaxx
segment.
We evaluate the performance of our segments based on "segment profit or loss,"
which we define as pre-tax income or loss before general corporate expense and
interest expense, net, and certain separately disclosed unusual or infrequent
items. "Segment profit or loss," as we define the term, may not be comparable to
similarly titled measures used by other entities. The terms "segment margin" or
"segment profit margin" are used to describe segment profit or loss as a
percentage of net sales. These measures of performance should not be considered
an alternative to net income or cash flows from operating activities as an
indicator of our performance or as a measure of liquidity.
Due to the temporary closing of all of our stores as a result of the COVID-19
pandemic, our historical definition of comp store sales is not applicable for
the reported periods. In order to provide a performance indicator for our stores
as they reopen, since the second quarter of fiscal 2021 we have been temporarily
reporting a new sales measure, open-only comp store sales. Open-only comp store
sales includes stores initially classified as comp stores at the beginning of
fiscal 2021 that have had to temporarily close due to the COVID-19 pandemic.
This measure reports the sales increase or decrease of these stores for the days
the stores were open in the current period against sales for the same days in
the prior year.
Presented below is selected financial information related to our business
segments.
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--------------------------------------------------------------------------------U.S. SEGMENTS Marmaxx Fiscal Year Ended January 30, February 1, U.S. dollars in millions 2021 2020 Net sales$ 19,363 $ 25,665 Segment profit$ 891 $ 3,470 Segment margin 4.6 % 13.5 % Stores in operation at end of period: T.J. Maxx 1,271 1,273 Marshalls 1,131 1,130 Sierra 48 46 Total 2,450 2,449 Selling square footage at end of period (in thousands): T.J. Maxx 27,707 27,781 Marshalls 25,915 25,909 Sierra 796 766 Total 54,418 54,456 Net Sales Net sales for Marmaxx decreased 25% for fiscal 2021 as compared to last year. The decrease in net sales was primarily due to the temporary closures of all stores as a result of the COVID-19 pandemic. The stores were closed for approximately 20% of fiscal 2021. In addition, the decrease in net sales was due to lower customer traffic, partially offset by an increase in the average basket. Open-only comp store sales were down 7% for fiscal 2021. Home fashions outperformed apparel for fiscal 2021. Segment Profit Segment profit was$0.9 billion for fiscal 2021, a decrease of$2.6 billion , compared to a segment profit of$3.5 billion for fiscal 2020. The decrease was primarily driven by a reduction in sales from the temporary store closures. This decrease reflects increased markdowns on merchandise primarily taken in the first half of fiscal 2021 due to the COVID-19 pandemic as well as increased freight costs, partially offset by stronger mark-on. In addition, segment profit declined as a result of our reduced buying activity and lower inventory levels resulting in higher buying and distribution costs in fiscal 2021 as compared to last year, and as a result of incremental COVID-19 costs. The decline in segment profit was partially offset by lower advertising and travel spend, a reduction in store payroll while the stores were closed and other variable store expense savings. The reduction in payroll reflects approximately$171 million for fiscal 2021 from government programs as described in the Impacts of the COVID-19 Pandemic section above. In addition, a significant portion of our occupancy costs are fixed. As a result, while our occupancy costs were comparable to last year, they negatively impacted segment margin by approximately 2.2 percentage points, primarily due to the lower sales volume. During the third quarter of fiscal 2020, Marmaxx made online shopping available at www.marshalls.com, along with www.tjmaxx.com, which was launched previously. OurU.S. e-commerce businesses, which represented approximately 3% of Marmaxx's net sales for both fiscal 2021 and fiscal 2020, did not have a significant impact on year-over-year segment margin comparisons. Along with our stores, we temporarily closed our online businesses for a portion of fiscal 2021 as a result of the COVID-19 pandemic. 32 --------------------------------------------------------------------------------
HomeGoods Fiscal Year Ended January 30, February 1, U.S. dollars in millions 2021 2020 Net sales$ 6,096 $ 6,356 Segment profit$ 510 $ 681 Segment margin 8.4 % 10.7 % Stores in operation at end of period: HomeGoods 821 809 Homesense 34 32 Total 855 841 Selling square footage at end of period (in thousands): HomeGoods 15,034 14,831 Homesense 733 685 Total 15,767 15,516 Net Sales Net sales forHomeGoods decreased 4% for fiscal 2021 as compared to last year. The decrease in net sales was primarily due to the temporary closures of all stores as a result of the COVID-19 pandemic. The stores were closed for approximately 20% of fiscal 2021. In addition, the decrease in net sales was due to lower customer traffic, partially offset by an increase in the average basket. Open-only comp store sales were up 13% for fiscal 2021. Segment Profit Segment profit was$510 million for fiscal 2021, a decrease of$171 million , compared to a segment profit of$681 million for fiscal 2020. The decrease was primarily driven by a reduction in sales due to temporary store closures and increased store and distribution payroll costs, including incremental COVID-19 costs. The decline in segment profit was partially offset by improved merchandise margin, lower advertising and travel spend and other variable store expense savings. Merchandise margin reflects strong mark-on and favorable markdowns net of increased freight costs. The increase in payroll includes a reduction of approximately$46 million for fiscal 2021 from government programs as described in the Impacts of the COVID-19 Pandemic section above. During the fourth quarter of fiscal 2021, we announced our plan to make online shopping available on www.homegoods.com in late fiscal 2022. 33 --------------------------------------------------------------------------------
FOREIGN SEGMENTS
TJX Canada
Fiscal Year Ended
January 30, February 1,
U.S. dollars in millions 2021 2020
Net sales $ 2,836 $ 4,031
Segment profit $ 124 $ 516
Segment margin 4.4 % 12.8 %
Stores in operation at end of period:
Winners 280 279
HomeSense 143 137
Marshalls 102 97
Total 525 513
Selling square footage at end of period (in thousands):
Winners 6,015 5,986
HomeSense 2,644 2,511
Marshalls 2,141 2,043
Total 10,800 10,540
Net Sales
Net sales for TJX Canada decreased 30% for fiscal 2021 compared to last year.
The decrease in net sales was primarily due to temporary store closures, closed
for approximately 29% of fiscal 2021, as a result of the COVID-19 pandemic. In
addition, net sales decreased due to lower customer traffic, partially offset by
an increase in the average basket. Open-only comp store sales were down 8% for
fiscal 2021.
Segment Profit
Segment profit was $124 million for fiscal 2021, a decrease of $392 million ,
compared to a segment profit of $516 million for fiscal 2020.
The decrease was primarily driven by a reduction in sales due to the temporary
store closures, including incremental COVID-19 costs. The decline in segment
profit was partially offset by improved merchandise margin, a reduction in store
payroll while the stores were closed, lower advertising and travel spend and
other variable store expense savings. Merchandise margin reflects strong mark-on
net of increased markdowns and freight. The reduction in payroll reflects
approximately $148 million for fiscal 2021 from government programs as described
in the Impacts of the COVID-19 Pandemic section above. In addition, a
significant portion of our occupancy costs are fixed. As a result, while our
occupancy costs were comparable to last year, they negatively impacted segment
margin by approximately 3.8 percentage points, primarily due to the lower sales
volume.
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--------------------------------------------------------------------------------TJX International Fiscal Year Ended January 30, February 1, U.S. dollars in millions 2021 2020 Net sales$ 3,842 $ 5,665 Segment (loss) profit$ (504) $ 307 Segment margin (13.1) % 5.4 % Stores in operation at end of period: T.K. Maxx 602 594 Homesense 78 78 T.K. Maxx Australia 62 54 Total 742 726 Selling square footage at end of period (in thousands): T.K. Maxx 12,131 11,997 Homesense 1,142 1,149 T.K. Maxx Australia 1,109 990 Total 14,382 14,136 Net Sales Net sales forTJX International decreased 32% for fiscal 2021 compared to last year. The decrease in net sales was primarily due to the temporary store closures, closed for approximately 36% of fiscal 2021, as a result of the COVID-19 pandemic. In addition, net sales decreased due to lower customer traffic, partially offset by an increase in the average basket. Open-only comp store sales were down 2% for fiscal 2021. E-commerce sales were approximately 5% ofTJX International's net sales for fiscal 2021 and 3% for fiscal 2020. Along with our stores, we temporarily closed our online business for a portion of fiscal 2021, due to the COVID-19 pandemic. Once reopened during the second quarter of fiscal 2021, the online business remained open through fiscal 2021. Segment (Loss) / Profit Segment loss was$(504) million for fiscal 2021, a decrease of$811 million , compared to a segment profit of$307 million for fiscal 2020. The decrease was primarily driven by a reduction in sales due to the temporary store closures. In addition, the decrease reflects increased markdowns on merchandise due to the COVID-19 pandemic and incremental COVID-19 costs. The decline in segment profit was partially offset by reduced store payroll, a reduction in occupancy costs and lower advertising and travel spend. The reduction in payroll reflects approximately$140 million for fiscal 2021 from government programs as described in the Impacts of the COVID-19 Pandemic section above. In addition, a significant portion of our occupancy costs are fixed. As a result, while our occupancy costs were comparable to last year, they negatively impacted segment margin by approximately 3.1 percentage points, primarily due to the lower sales volume. GENERAL CORPORATE EXPENSE Fiscal Year Ended January 30, February 1, In millions 2021 2020
General corporate expense
General corporate expense for segment reporting purposes represents those costs
not specifically related to the operations of our business segments. General
corporate expenses are primarily included in SG&A expenses. The mark-to-market
adjustment of our fuel hedges is included in cost of sales, including buying and
occupancy costs.
The decrease in general corporate expense for fiscal 2021 was primarily driven
by lower share-based and incentive compensation costs.
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ANALYSIS OF FINANCIAL CONDITION
Liquidity and Capital Resources
Our liquidity requirements have traditionally been funded through cash generated
from operations, supplemented, as needed, by short-term bank borrowings and the
issuance of commercial paper. As of January 30, 2021 , there were no short-term
bank borrowings or commercial paper outstanding.
As part of the actions we have taken, and are continuing to take, relating to
the COVID-19 pandemic, as described in Impact of the COVID-19 Pandemic above and
in Note B-Impact of the COVID-19 Pandemic of Notes to Consolidated Financial
Statements, in the first quarter of fiscal 2021, TJX issued $4 billion aggregate
principal amount of notes. In the fourth quarter of fiscal 2021, we refinanced
$1.1 billion in aggregate principal amount of our higher interest notes with the
issuance and sale of $1 billion in aggregate principal amount of lower interest
rate senior notes. For additional information on these transactions, see Note
K-Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements.
In March 2020 , we drew down $1 billion on our revolving credit facilities,
subsequently repaying these borrowings in July 2020 . On August 10, 2020 , we
increased our borrowing capacity by entering into a $500 million 364-day
facility, making a total of $1.5 billion available to us under revolving credit
facilities. See Note K-Long-Term Debt and Credit Lines of Notes to Consolidated
Financial Statements for additional details of these transactions.
No dividend was declared in the first nine months of fiscal 2021. In the fourth
quarter of fiscal 2021, our Board of Directors declared a quarterly dividend of
$0.26 per share, paid in March 2021 . We declared a similar dividend of $0.26 per
share in the first quarter of Fiscal 2022. We have currently suspended our share
repurchase program.
We qualified for certain government programs in the U.S. , the U.K. , Canada and
other jurisdictions to support payroll and other operating costs. We also
reduced spending more broadly across the Company, reducing capital spending,
evaluating operating expenses and taking actions to reduce ongoing variable and
discretionary spending. We negotiated rent deferrals for fiscal 2021 for a
significant amount of our stores, primarily for second quarter lease payments,
with repayment at later dates, primarily in fiscal 2022. In addition to
negotiating deferral of lease payments, we also temporarily extended payment
terms on merchandise orders which increased our accounts payable as of the end
of the fiscal year, benefiting our operating cash flows. As payment terms are
reduced and we make deferred payments, we expect our operating cash flows to be
negatively impacted. The challenges posed by the COVID-19 pandemic on our
business continue to evolve. Consequently, we will continue to evaluate our
financial position in light of future developments, particularly those relating
to the COVID-19 pandemic.
We believe our existing cash and cash equivalents, internally generated funds
and our credit facilities, described in Note K-Long-Term Debt and Credit Lines
of Notes to Consolidated Financial Statements, are adequate to meet our
operating needs over the next fiscal year.
We may use operating cash flow and cash on hand to repay portions of our
indebtedness, depending on prevailing market conditions, liquidity requirements,
existing economic conditions, contractual restrictions and other factors. As
such, we may, from time to time, seek to retire, redeem, prepay or purchase our
outstanding debt through redemptions, cash purchases, prepayments, refinancings
and/or exchanges, in open market purchases, privately negotiated transactions,
by tender offer or otherwise. If we use our operating cash flow and/or cash on
hand to repay our debt, it will reduce the amount of cash available for
additional capital expenditures.
As of January 30, 2021 , TJX held $10.5 billion in cash. Approximately $1.2
billion of our cash was held by our foreign subsidiaries with $0.8 billion held
in countries where we intend to indefinitely reinvest any undistributed
earnings. TJX has provided for all applicable state and foreign withholding
taxes on all undistributed earnings of its foreign subsidiaries in Canada ,
Puerto Rico , Italy , India , Hong Kong and Vietnam through January 30, 2021 . If we
repatriate cash from such subsidiaries, we should not incur additional tax
expense and our cash would be reduced by the amount of withholding taxes paid.
Operating Activities
Net cash provided by operating activities was $4.6 billion in fiscal 2021 and
$4.1 billion in fiscal 2020. Our operating cash flows increased by $0.5 billion
compared to fiscal 2020. The COVID-19 pandemic had a material impact on our
operating cash flows. The loss of sales as a result of temporarily closing our
stores and e-commerce businesses resulted in net income of $0.1 billion for the
twelve month period ended January 30, 2021 compared with net income of $3.3
billion in the twelve month period ended February 1, 2020 . This decrease in cash
flows was more than offset by the combination of a $2.1 billion favorable impact
from the increase in accounts payable, a $0.9 billion favorable impact due to
the decrease in merchandise inventories, as well as a $0.6 billion favorable
impact due to the increases in accrued expenses, income taxes payable and lease
liabilities. The favorable impact of the change in merchandise inventories, net
of accounts payable was driven by the timing of payments for merchandise sold
and lower inventories.
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Investing Activities
Net cash used in investing activities resulted in net cash outflows of $0.6
billion in fiscal 2021 and $1.5 billion in fiscal 2020. The cash outflows for
both periods were primarily driven by capital expenditures and, in fiscal 2020,
we invested $0.2 billion in Familia, an established off-price apparel and home
fashion retail chain in Russia .
Net cash used in investing activities include capital expenditures for the last
two fiscal years as set forth in the table below.
Fiscal Year Ended
January 30, February 1,
In millions 2021 2020
New stores $ 61 $ 189
Store renovations and improvements 124 363
Office and distribution centers 383 671
Total capital expenditures $ 568 $ 1,223
We expect our capital expenditures in fiscal 2022 will be in the range of
approximately $1.2 billion to $1.4 billion , including approximately $0.7 billion
to $0.8 billion for our offices and distribution centers (including buying and
merchandising systems and other information systems) to support growth,
approximately $0.4 billion to $0.5 billion for store renovations and
approximately $0.1 billion for new stores. We plan to fund these expenditures
with our existing cash balances and through internally generated funds.
Financing Activities
Net cash used in financing activities resulted in net cash inflows of $3.2
billion in fiscal 2021 and net cash outflows of $2.4 billion in fiscal 2020. In
fiscal 2021, these cash inflows were primarily driven by debt transactions. In
fiscal 2020, the cash outflows were primarily driven by equity repurchases and
dividend payments, partially offset by issuances of common stock.
Debt
The cash inflows in fiscal 2021 were a result of completing the issuance and
sale in the first quarter of fiscal 2021 of (a) $1.25 billion aggregate
principal amount of 3.500% notes due 2025, (b) $0.75 billion aggregate principal
amount of 3.750% notes due 2027, (c) $1.25 billion aggregate principal amount of
3.875% notes due 2030 and (d) $0.75 billion aggregate principal amount of 4.500%
notes due 2050. In addition, in the first quarter of fiscal 2021, we drew down
$1 billion on our previously undrawn revolving credit facilities, which were
paid off in full during the second quarter of fiscal 2021. During the fourth
quarter, we issued $1 billion in aggregate principal amount of notes and
accepted $1.1 billion in combined aggregate principal amount of certain of our
notes issued in the first quarter of fiscal 2021 pursuant to cash tender offers.
We paid $1.4 billion aggregate consideration in connection with the tender
offers, including transaction costs and recorded a $312 million pre-tax loss on
the early extinguishment for the accepted notes. See Note K-Long-Term Debt and
Credit Lines of Notes to Consolidated Financial Statements for additional
information.
Equity
Under our stock repurchase programs, during the first quarter of fiscal 2021,
TJX paid $0.2 billion to repurchase and subsequently retired 3.4 million shares
of our stock on a settlement basis. These outflows were offset by proceeds from
the exercise of employee stock options, net of shares withheld for taxes in
fiscal 2021. Under our stock repurchase programs, TJX spent $1.6 billion to
repurchase 28.2 million shares of our stock in fiscal 2020. For further
information regarding equity repurchases, see Note E-Capital Stock and Earnings
Per Share of Notes to Consolidated Financial Statements.
In February 2020 , TJX announced that its Board of Directors had approved a new
stock repurchase program that authorizes the repurchase of up to an additional
$1.5 billion of TJX common stock from time to time. In March 2020 , in connection
with the actions taken related to the COVID-19 pandemic as described in Impact
of the COVID-19 Pandemic above and in Note B-Impact of the COVID-19 Pandemic of
Notes to Consolidated Financial Statements, we suspended our share repurchase
program.
Dividends
In March 2020 , we paid our quarterly dividend declared in the fourth quarter of
fiscal 2020, which totaled $0.3 billion . As a result of the uncertainty
surrounding the COVID-19 pandemic, no dividends were declared in the first nine
months of fiscal 2021. The Board of Directors declared a quarterly dividend of
$0.26 per share in the fourth quarter of fiscal 2021, paid in March 2021 . We
also declared a similar dividend of $0.26 per share in the first quarter of
fiscal 2022. TJX declared quarterly dividends on our common stock which totaled
$0.92 per share in fiscal 2020. Cash payments for dividends on our common stock
totaled $0.3 billion in fiscal 2021 and $1.1 billion in fiscal 2020. We also
received proceeds from the exercise of employee stock options of $0.2 billion in
both fiscal 2021 and fiscal 2020.
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Contractual Obligations
As of January 30, 2021 , we had known contractual obligations under long-term
debt arrangements (including current installments), other long-term obligations,
operating leases for property and equipment and purchase obligations as follows:
Payments Due by Period
Less Than 1 More Than 5
In millions Total Year 1-3 Years 3-5 Years Years
Long-term debt and other long-term
obligations(a) $ 7,510 $ 918 $ 808 $ 1,518 $ 4,266
Operating lease liabilities, including
imputed interest(b) 10,277 2,050 3,300 2,419 2,508
Purchase obligations(c) 5,019 4,785 232 2 -
Total obligations $ 22,806 $ 7,753 $ 4,340 $ 3,939 $ 6,774
(a)Includes estimated interest costs.
(b)Operating lease liabilities exclude legally binding minimum lease payments
for leases signed but not yet commenced and include options to extend lease
terms that are now deemed reasonably certain of being exercised according to our
Lease Accounting Policy. The balances do not include variable costs for
insurance, real estate taxes, other operating expenses and, in some cases,
rentals based on a percentage of sales; these items totaled approximately
one-third of the total minimum rent for fiscal 2021.
(c)Includes estimated obligations under purchase orders for merchandise and
under agreements for capital items, products and services used in our business,
including executive employment and other agreements. Excludes agreements that
can be canceled without penalty.
We also have long-term liabilities for which it is not reasonably possible for
us to predict when they may be paid which include $680 million for employee
compensation and benefits and $264 million for uncertain tax positions.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in accordance with GAAP which
requires us to make certain estimates and judgments that impact our reported
results. These judgments and estimates are based on historical experience and
other factors which we continually review and 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 for all our businesses except
T.K. Maxx in Australia . The businesses that utilize the retail method have some
inventory that is initially valued at cost before the retail method is applied
as it has not been fully processed for sale (i.e. inventory in transit and
unprocessed inventory in our distribution centers). 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. It
involves management estimates with regard to markdowns and inventory shrinkage.
Under the retail method, permanent markdowns are reflected in inventory
valuation when the price of an item is reduced. Typically, a significant area of
judgment in the retail method is the amount and timing of permanent markdowns.
However, as a normal business practice, we have a specific policy as to when and
how markdowns are to be taken, greatly reducing management's discretion and the
need for management estimates as to markdowns. Inventory shrinkage requires
estimating a shrinkage rate for interim periods, however we take a full physical
inventory near the fiscal year end to determine shrinkage at year end. 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
We evaluate our long-lived assets, inclusive of operating lease right of use
assets, for impairment whenever events or changes in circumstances indicate that
their carrying amounts may not be recoverable. Significant judgment is involved
in projecting the cash flows of individual stores, which involve a number of
factors including historical trends, recent performance and general economic
assumptions. If we determine that an impairment 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. We estimate fair value by obtaining
market appraisals or using other valuation techniques.
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Lease Accounting
Operating leases are included in "Operating lease right of use assets", "Current
portion of operating lease liabilities", and "Long-term operating lease
liabilities" on our Consolidated Balance Sheets. Right of use ("ROU") assets
represent our right to use an underlying asset for the lease term and lease
liabilities represent our obligation to make lease payments arising from the
lease. At the inception of the arrangement, we determine if an arrangement is a
lease based on assessment of the terms and conditions of the contract. Operating
lease ROU assets and lease liabilities are recognized at possession date based
on the present value of lease payments over the lease term. The majority of our
leases are retail store locations and the possession date is typically 30 to 60
days prior to the opening of the store and generally occurs before the
commencement of the lease term, as specified in the lease. Our lessors do not
provide an implicit rate, nor is one readily available, therefore we use our
incremental borrowing rate based on the information available at possession date
in determining the present value of future lease payments. The incremental
borrowing rate is calculated based on the US Consumer Discretionary yield curve
and adjusted for collateralization and foreign currency impact for TJX
International and TJX Canada leases. The operating lease ROU asset also includes
any acquisition costs offset by lease incentives. Our lease terms include
options to extend the lease when it is reasonably certain that we will exercise
that option. Lease expense for lease payments is recognized on a straight-line
basis over the lease term within "Cost of sales, including buying and occupancy
costs".
Reserves for Uncertain Tax Positions
Similar to many large corporations, our income and other tax returns and reports
are regularly audited by federal, state and local tax authorities in the United
States and in foreign jurisdictions where we operate and such authorities may
challenge positions we take. We are engaged in various administrative and
judicial proceedings in multiple jurisdictions with respect to assessments,
claims, deficiencies and refunds and other tax matters, which proceedings are in
various stages of negotiation, assessment, examination, litigation and
settlement. The outcomes of these proceedings are uncertain. In accordance with
GAAP, we evaluate our uncertain tax positions based on our understanding of the
facts, circumstances and information available at the reporting date, and we
accrue for exposure when we believe that it is more likely than not, based on
the technical merits, that the positions we have taken will not be sustained.
However, in the next twelve months and in future periods, the amounts we accrue
for uncertain tax positions from time to time or ultimately pay, as the result
of the final resolutions of examinations, judicial or administrative
proceedings, changes in facts, law, or legal interpretations, expiration of
applicable statute of limitations or other resolutions of, or changes in, tax
positions may differ either positively or negatively from the amounts we have
accrued, and may result in reductions to or additions to accruals, refund claims
or payments for periods not currently under examination or for which no claims
have been made. Final resolutions of our tax positions or changes in accruals
for uncertain tax positions could result in additional tax expense or benefit
and could have a material impact on our results of operations of the period in
which an examination or proceeding is resolved or in the period in which a
changed outcome becomes probable and reasonably estimable.
Loss Contingencies
Certain conditions may exist as of the date the financial statements are issued
that may result in a loss to us but will not be resolved until one or more
future events occur or fail to occur. Our management, with the assistance of our
legal counsel, assesses such contingent liabilities. Such assessments inherently
involve the exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against us or claims that may result in such
proceedings, our legal counsel assists us in evaluating the perceived merits of
any legal proceedings or claims as well as the perceived merits of the relief
sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material
loss has been incurred and the amount of the liability can be reasonably
estimated, we will accrue for the estimated liability in the financial
statements. If the assessment indicates that a potentially material loss
contingency is not probable, but is reasonably possible, or is probable but
cannot be reasonably estimated, we will disclose the nature of the contingent
liability, together with an estimate of the range of the possible loss or a
statement that such loss is not reasonably estimable.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of new accounting pronouncements related to income taxes, see
Note A-Basis of Presentation and Summary of Accounting Policies of Notes to
Consolidated Financial Statements included in this annual report on Form 10-K,
including the dates of adoption and estimated effects on our results of
operations, financial position or cash flows. We do not expect any other
recently issued accounting pronouncements will have a material effect on our
financial statements.
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