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Basis of Presentation and Summary of Accounting Policies (Policies)

12 Months Ended

Feb. 01, 2020

The Consolidated Financial Statements and Notes thereto of The TJX Companies, Inc. (referred to as “TJX,” “we” or “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the financial statements of all of TJX’s subsidiaries, all of which are wholly owned. All of the Company's activities are conducted by TJX or its subsidiaries and are consolidated in these financial statements. All intercompany transactions have been eliminated in consolidation. Investments for which the Company exercises significant influence but does not have control are accounted for under the equity method. Our investments accounted for under the equity method of accounting are immaterial to the Company's Consolidated Financial Statements.

Fiscal Year

TJX’s fiscal year ends on the Saturday nearest to the last day of January of each year. The fiscal years ended February 1, 2020 (“fiscal 2020”) and ended February 2, 2019 (“fiscal 2019”) were 52-week fiscal years and the fiscal year ended February 3, 2018 ("fiscal 2018") was a 53-week fiscal year.

Use of Estimates

The preparation of TJX’s financial statements, in conformity with GAAP, 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. TJX considers its accounting policies relating to leases, inventory valuation, impairment of long-lived assets, goodwill and tradenames, reserves for uncertain tax positions and loss contingencies to be the most significant accounting policies that involve management estimates and judgments. Actual amounts could differ from those estimates, and such differences could be material.

Revenue Recognition

Net Sales

Net sales consist primarily of merchandise sales, which are recorded net of a reserve for estimated returns, any discounts and sales taxes, for the sales of merchandise both within our stores and online. Net sales also include an immaterial amount of other revenues that represent less than 1.0% of total revenues, primarily generated from TJX’s co-branded loyalty rewards credit card program offered in the United States only. In addition, certain customers may receive discounts that are accounted for as consideration reducing the transaction price. Merchandise sales from our stores are recognized at the point of sale when TJX provides the merchandise to the customer. The performance obligation is fulfilled at this point when the customer has obtained control by paying for and leaving with the merchandise. Merchandise sales made online are recognized when the product has been shipped, which is when legal title has passed and when TJX is entitled to payment, and the customer has obtained the ability to direct the use of and obtain substantially all of the remaining benefits from the goods. Shipping and handling activities related to online sales occur after the customer obtains control of the goods. TJX’s policy is to treat shipping costs as part of our fulfillment center costs within our operating expenditures. As a result, shipping fee revenues received is recognized when control of the goods transfer to the customer and is recorded as net sales. Shipping and handling costs incurred by TJX are included in cost of sales, including buying and occupancy costs. TJX disaggregates revenue by operating segment, see Note G—Segment Information of Notes to Consolidated Financial Statements.

Deferred Gift Card Revenue

Proceeds from the sale of gift cards as well as the value of store cards issued to customers as a result of a return or exchange are deferred until the customers use the cards to acquire merchandise, as TJX does not fulfill its performance obligation until the gift card has been redeemed. While gift cards have an indefinite life, substantially all are redeemed in the first year of issuance.


In thousands	February 1, 2020		February 2, 2019
Balance, beginning of year	$	450,302	$	406,506
Deferred revenue	1,690,073		1,677,251
Effect of exchange rates changes on deferred revenue	258		(6,279)
Revenue recognized	(1,639,789)		(1,627,176)
Balance, end of year	$	500,844	$	450,302

TJX recognized $1.6 billion in gift card revenue in each of fiscal 2020 and fiscal 2019. Gift cards are combined in one homogeneous pool and are not separately identifiable. As such, the revenue recognized consists of gift cards that were part of the deferred revenue balance at the beginning of the period as well as gift cards that were issued during the period. Based on historical experience, we estimate the amount of gift cards and store cards that will not be redeemed (referred to as breakage) and, to the extent allowed by local law, these amounts are amortized into income over the redemption period. Revenue recognized from breakage was $20.3 million in fiscal 2020, $20.6 million in fiscal 2019 and $21.1 million in fiscal 2018.

Sales Return Reserve

Our products are generally sold with a right of return and we may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. We have elected to apply the portfolio practical expedient. We estimate the variable consideration using the expected value method when calculating the returns reserve because the difference in applying it to the individual contract would not differ materially. Returns are estimated based on historical experience and are required to be established and presented at the gross sales value with an asset established for the estimated value of the merchandise returned separate from the refund liability. Liabilities for return allowances are included in “Accrued expenses and other current liabilities” and the estimated value of the merchandise to be returned is included in “Prepaid expenses and other current assets” on our Consolidated Balance Sheets.

Consolidated Statements of Income Classifications

Cost of sales, including buying and occupancy costs, includes the cost of merchandise sold including foreign currency gains and losses on merchandise purchases denominated in other currencies; gains and losses on inventory and fuel-related derivative contracts; asset retirement obligation costs; divisional occupancy costs (including real estate taxes, utility and maintenance costs and fixed asset depreciation); the costs of operating distribution centers; payroll, benefits and travel costs directly associated with buying inventory; and systems costs related to the buying and tracking of inventory.

Selling, general and administrative expenses include store payroll and benefit costs; communication costs; credit and check expenses; advertising; administrative and field management payroll, benefits and travel costs; corporate administrative costs and depreciation; gains and losses on non-inventory related foreign currency exchange contracts; and other miscellaneous income and expense items.

Cash and Cash Equivalents

TJX generally considers highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. If applicable, investments with maturities greater than 90 days but less than one year at the date of purchase are included in short-term investments. These investments are classified as trading securities and are stated at fair value. Investments are classified as either short- or long-term based on their original maturities. TJX’s investments are primarily high-grade commercial paper, institutional money market funds and time deposits with major banks.

As of February 1, 2020, TJX’s cash and cash equivalents held outside the U.S. were $953.6 million, of which $584.7 million was held in countries where TJX has the intention to reinvest any undistributed earnings indefinitely.

Merchandise Inventories

Inventories are stated at the lower of cost or market. TJX uses the retail method for valuing inventories at all of its 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 that inventory has not been fully processed for sale (e.g. inventory in transit and unprocessed inventory in our distribution centers). Under the retail method, TJX utilizes a permanent markdown strategy and lowers the cost value of the inventory that is subject to markdown at the time the retail prices are lowered in the stores. TJX records inventory at the time title transfers, which is typically at the time when inventory is shipped. As a result, merchandise inventories on TJX’s Consolidated Balance Sheets include in-transit inventory of $807.0 million at February 1, 2020 and $832.1 million at February 2, 2019. Comparable amounts were reflected in Accounts payable at those dates.

Common Stock and Equity

Equity transactions consist primarily of the repurchase by TJX of its common stock under its stock repurchase programs and the recognition of compensation expense and issuance of common stock under TJX’s Stock Incentive Plan. Under TJX’s stock repurchase programs, the Company repurchases its common stock on the open market. The par value of the shares repurchased is charged to common stock with the excess of the purchase price over par first charged against any available additional paid-in capital (“APIC”) and the balance charged to retained earnings. Due to the high volume of repurchases over the past several years, TJX has no remaining balance in APIC at the end of any of the years presented. All shares repurchased have been retired.

Shares issued under TJX’s Stock Incentive Plan are issued from authorized but unissued shares, and proceeds received are recorded by increasing common stock for the par value of the shares with the excess over par added to APIC. Income tax benefits upon the expensing of options result in the creation of a deferred tax asset, while income tax benefits due to the exercise of stock options reduce deferred tax assets up to the amount that an asset for the related grant has been created. Any excess tax benefits or deficiencies are included in the provision for income taxes. The par value of performance-based deferred stock awards, performance share units and restricted stock units is added to common stock when shares are delivered following vesting. The par value of performance-based restricted stock awards is added to common stock when the stock is issued, generally at grant date. The fair value of stock awards and units are added to APIC as the awards are amortized into earnings over the related requisite service periods.

Share-Based Compensation

TJX accounts for share-based compensation by estimating the fair value of each award on the date of grant. TJX uses the Black-Scholes option pricing model for options awarded and the market price on the grant date for stock awards. See Note H—Stock Incentive Plan of Notes to Consolidated Financial Statements for a detailed discussion of share-based compensation.

Interest

TJX’s interest expense is presented net of capitalized interest and interest income. The following is a summary of interest expense, net:


	Fiscal Year Ended
In thousands	February 1, 2020		February 2, 2019		February 3, 2018
					(53 weeks)
Interest expense	$	61,400	$	69,102	$	69,237
Capitalized interest	(2,314)		(4,263)		(4,942)
Interest (income)	(49,060)		(55,979)		(32,707)
Interest expense, net	$	10,026	$	8,860	$	31,588

TJX capitalizes interest during the active construction period of major capital projects and adds the interest to the related assets.

Depreciation and Amortization

For financial reporting purposes, TJX provides for depreciation and amortization of property using 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 their useful life or the committed lease term (typically 10 years to 15 years), whichever is shorter. Furniture, fixtures and equipment are depreciated over 3 to 10 years. Depreciation and amortization expense for property was $858.2 million in fiscal 2020, $818.9 million in fiscal 2019 and $727.2 million in fiscal 2018. TJX had no property held under finance leases during fiscal 2020 or under capital leases during fiscal 2019 or 2018. Maintenance and repairs are charged to expense as incurred. Significant costs incurred for internally developed software are capitalized and amortized, generally over 5 years. Upon retirement or sale, the cost of disposed assets and the related accumulated depreciation are eliminated and any gain or loss is included in income. Pre-opening costs, including rent, are expensed as incurred.

Lease Accounting

We adopted ASU No. 2016-02, Leases (Topic 842), as of February 3, 2019, using the modified retrospective method under ASU 2018-11. The transition method allows entities to apply the transition requirements at the effective date rather than at the beginning of the earliest comparative period presented. Our reporting for comparative periods is presented in accordance with ASC 840, Leases. Adoption of the new standard resulted in the recording of right of use (“ROU”) assets and lease liabilities of $9 billion, as of February 3, 2019. The Company elected the transition package of three practical expedients, which among other things, allowed us to carry forward the historical lease classification. We have elected the practical expedient to not separate non-lease components from the lease components to which they relate and instead to combine them and account for them as a single lease component. The Company also elected the accounting policy election to keep leases with a term of twelve months or less off the Consolidated Balance Sheets and recognizes these lease payments on a straight-line basis over the lease term. With the adoption of the new lease accounting standard TJX has de-recognized build-to-suit lease assets and liabilities that were included in the fiscal 2019 Consolidated Balance Sheets. Operating leases that TJX enters into no longer meet the definition of control of the building during the construction period under the new standard.

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. 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, the Company determines 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 Canada leases. The operating lease ROU assets also include 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”.

Impact of New Lease Standard on Consolidated Balance Sheet Line Items

As a result of applying the new lease standard using the optional transition method, the following adjustments were made to accounts as of February 3, 2019, as reflected on the Condensed Consolidated Balance Sheet shown below:


In thousands	As Reported February 2, 2019		Adjustments			Adjusted February 3, 2019

Prepaid expenses and other current assets	$	513,662	$	(149,029)	^(a)	$	364,633
Net property at cost	5,255,208		(281,361)		^(b),(f)	4,973,847
Operating lease right of use asset	—		8,704,584		^(c)	8,704,584
Other assets	497,580		(30,086)		^(b)	467,494
Total Assets	$	14,326,029	$	8,244,108		$	22,570,137

Accrued expenses and other current liabilities	2,733,076		(3,819)			2,729,257
Current portion of operating lease liabilities	—		1,481,555		^(d)	1,481,555
Other long-term liabilities	1,354,242		(593,137)		^(e),(f)	761,105
Long-term operating lease liabilities	—		7,359,106		^(d)	7,359,106
Retained earnings	4,461,744		403		^(f),(g)	4,462,147
Total Liabilities and Shareholders' Equity	$	14,326,029	$	8,244,108		$	22,570,137

(a)Represents prepaid rent reclassified to operating lease right of use assets and current portion of operating lease liabilities.

(b)Represents impact of reclassifying initial direct costs to operating lease right of use assets.

(c)Represents capitalization of operating lease right of use assets and reclassification of lease acquisition costs, straight-line rent, prepaid rent and tenant incentives.

(d)Represents recognition of current and long-term operating lease liabilities.

(e)Represents reclassification of straight-line rent to operating lease right of use assets.

(f)Represents de-recognition of assets and liabilities related to non-TJX owned properties under previously existing build-to-suit accounting rules.

(g)Represents impairment at transition on operating lease right of use assets.

See Note L—Leases of Notes to Consolidated Financial Statements for additional information.

Asset Retirement Obligations

The Company establishes an asset retirement obligation, and related asset, for leases of property that require us to return the property to its original condition (commonly referred to as a reinstatement provision) if and when we exit the facility. These reinstatement provisions are primarily applicable to our TJX International locations. The income statement impact of our asset retirement obligation is recorded in general corporate expenses and our operating divisions are charged the actual costs incurred when a retirement takes place.

Goodwill and Tradenames

Goodwill includes the excess of the purchase price paid over the carrying value of the minority interest acquired in fiscal 1990 in TJX’s former 83%-owned subsidiary and represents goodwill associated with the T.J. Maxx chain, as well as the excess of cost over the estimated fair market value of the net assets acquired by TJX in the purchase of Winners in fiscal 1991, the purchase of Sierra Trading Post in fiscal 2013, which was rebranded as Sierra in fiscal 2019, and the purchase of Trade Secret in fiscal 2016, which was re-branded under the T.K. Maxx name during fiscal 2018. In fiscal 2018, the Company fully impaired the Sierra goodwill, recording a goodwill impairment charge of $97.3 million. The following is a roll forward of goodwill by component:


In thousands	Marmaxx		Winners		T.K. Maxx in Australia		Total
Balance, February 3, 2018	$	70,027	$	1,784	$	28,258	$	100,069

Effect of exchange rate changes on goodwill	—		(92)		(2,425)		(2,517)
Balance, February 2, 2019	$	70,027	$	1,692	$	25,833	$	97,552
Effect of exchange rate changes on goodwill	—		(17)		(1,989)		(2,006)
Balance, February 1, 2020	$	70,027	$	1,675	$	23,844	$	95,546

Goodwill is considered to have an indefinite life and accordingly is not amortized.

Tradenames, which are included in other assets, are the value assigned to the name “Marshalls,” acquired by TJX in fiscal 1996 as part of the acquisition of the Marshalls chain, the value assigned to the name “Sierra Trading Post,” acquired by TJX in fiscal 2013 and the value assigned to the name “Trade Secret,” acquired by TJX in fiscal 2016. The tradenames were valued by calculating the discounted present value of assumed after-tax royalty payments. The Marshalls tradename is considered to have an indefinite life and accordingly is not amortized. The Sierra Trading Post tradename is being amortized over 15 years. The Trade Secret tradename is being amortized over 7 years. The following is a roll forward of tradenames.


	Fiscal Year Ended
	February 1, 2020														February 2, 2019
In thousands	Gross Carrying Amount		Accumulated Amortization		Impact of FX		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Impact of FX		Net Carrying Value
Definite-lived intangible assets:
Sierra Trading Post	$	38,500	$	(18,181)	$	—	$	20,319	$	38,500	$	(15,614)	$	—	$	22,886
Trade Secret	$	12,541	$	(5,242)	$	(1,948)	$	5,351	$	12,541	$	(4,117)	$	(1,048)	$	7,376
Indefinite-lived intangible asset:
Marshalls	$	107,695	$	—	$	—	$	107,695	$	107,695	$	—	$	—	$	107,695

TJX occasionally acquires or licenses other trademarks to be used in connection with private label merchandise. Such trademarks are included in other assets and are amortized to cost of sales, including buying and occupancy costs, over their useful life, generally from 7 to 10 years.

Goodwill, tradenames and trademarks, and the related accumulated amortization or impairment if any, are included in the respective operating segment to which they relate.

Impairment of Long-Lived Assets, Goodwill and Tradenames

TJX evaluates its long-lived assets, operating lease right of use assets, goodwill and tradenames for indicators of impairment at least annually in the fourth quarter of each fiscal year or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

The evaluation for long-lived assets, including tradenames that are amortized and operating lease right of use assets, is performed at the lowest level of identifiable cash flows which are largely independent of other groups of assets, generally at the individual store level for fixed assets and operating lease right of use assets, and at the reporting unit for tradenames that are amortized. If indicators of impairment are identified, an undiscounted cash flow analysis is performed to determine if the carrying value of the asset or asset group is recoverable. If the cash flow is less than the carrying value then an impairment charge will be recorded to the extent the fair value of an asset or asset group is less than the carrying value of that asset or asset group. This analysis resulted in immaterial impairment charges of store fixed assets and operating lease right of use assets in fiscal 2020 and store fixed assets in fiscal 2019 and fiscal 2018.

Goodwill and tradenames with an indefinite life are tested for impairment whenever events or changes in circumstances indicate that an impairment may have occurred and at least annually in the fourth quarter of each fiscal year. The carrying value of tradenames with an indefinite life is compared to its fair value determined by calculating the discounted present value of assumed after-tax royalty payments to the carrying value of the tradename. There was no impairment related to tradenames in fiscal 2020, 2019 or 2018. Goodwill is tested for impairment by using a quantitative assessment by comparing the carrying value of the related reporting unit to its fair value. An impairment exists when this analysis, using typical valuation models such as the discounted cash flow method, shows that the fair value of the reporting unit is less than the carrying cost of the reporting unit. We may assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. The assessment of qualitative factors is optional and at the Company’s discretion. In fiscal 2020, fiscal 2019 and fiscal 2018, we bypassed the qualitative assessment and performed the quantitative goodwill impairment test. In fiscal 2018 the Company recorded an impairment charge of $97.3 million for Sierra goodwill as the estimated fair value of this business fell below the carrying value due to a decrease in projected revenue growth rates. There were no impairments related to our goodwill in fiscal 2020 or 2019.

Advertising Costs

TJX expenses advertising costs as incurred. Advertising expense was $452.0 million for fiscal 2020, $446.3 million for fiscal 2019 and $412.4 million for fiscal 2018.

Foreign Currency Translation

TJX’s foreign assets and liabilities are translated into U.S. dollars at fiscal year-end exchange rates with resulting translation gains and losses included in shareholders’ equity as a component of Accumulated other comprehensive (loss) income. Activity of the foreign operations that affect the Consolidated Statements of Income and Cash Flows is translated at average exchange rates prevailing during the fiscal year.

Loss Contingencies

TJX records a reserve for loss contingencies when it is both probable that a loss will be incurred and the amount of the loss is reasonably estimable. TJX evaluates pending litigation and other contingencies at least quarterly and adjusts the reserve for such contingencies for changes in probable and reasonably estimable losses. TJX includes an estimate for related legal costs at the time such costs are both probable and reasonably estimable.

Equity Investment

On November 18, 2019, the Company, through a wholly owned subsidiary, completed an investment of $225 million, excluding acquisition costs, for a 25% ownership stake in privately held Familia, an established, off-price apparel and home fashions retailer with more than 275 stores throughout Russia. The Company's investment represents a non-controlling, minority position. As part of this investment, TJX has appointed one member to the Board of Directors of Familia.

This investment is included in Other assets on our Consolidated Balance Sheets and is accounted for under the equity method of accounting from the date of investment forward. TJX will report its share of Familia’s results on a one-quarter lag as their results are not expected to be available in time to be recorded in the concurrent period. As a result, there were no reported earnings from TJX's investment in Familia for the fiscal year ended February 1, 2020.

Future Adoption of New Accounting Standards and Recently Adopted Accounting Standards

Future Adoption of New Accounting Standards

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we have reviewed the guidance and have determined that they will not apply or are not expected to be material to our Consolidated Financial Statements upon adoption and therefore, are not disclosed.

Simplified Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board issued guidance related to simplified accounting for income taxes. The standard simplifies accounting for income taxes by removing certain exceptions to the general principals in Topic 740 and improves the consistency in the application of the standard by clarifying and amending existing guidance. This standard will be effective for annual reporting periods, including interim reporting within those periods, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its Consolidated Financial Statements.

Recently Adopted Accounting Standards

Leases

See Leases in Note A—Basis of Presentation and Summary of Accounting Policies of Notes to Consolidated Financial Statements for the impact upon adoption.

Intangibles-Goodwill and Other-Internal-Use Software

In August 2018, the Financial Accounting Standards Board issued guidance related to accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The standard allows entities who are customers in hosting arrangements that are service contracts to apply the existing internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The guidance specifies classification for capitalizing implementation costs and related amortization expense within the Consolidated Financial Statements and requires additional disclosures. The Company early adopted the standard prospectively in the third quarter of fiscal 2020. The standard did not have a material impact on our Consolidated Financial Statements.

Income Statement - Reporting Comprehensive Income

In February 2018, the FASB issued updated guidance related to reporting comprehensive income. The amendments in the update allow for a one-time reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effect as a result from the enactment of the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). The Company adopted the standard and made the policy election not to reclassify the stranded tax effects as of result of the 2017 Tax Act to retained earnings.