Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

May 02, 2020

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements and Notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. These Consolidated Financial Statements and Notes thereto are unaudited and, in the opinion of management, reflect all normal recurring adjustments, accruals and deferrals among periods required to match costs properly with the related revenue or activity, considered necessary by The TJX Companies, Inc. (together with its subsidiaries, “TJX”) for a fair statement of its Consolidated Financial Statements for the periods reported, all in conformity with GAAP consistently applied. Investments for which the Company exercises significant influence but does not have control are accounted for under the equity method. The Consolidated Financial Statements and Notes thereto should be read in conjunction with the audited Consolidated Financial Statements, including the related notes, contained in TJX’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020 (“fiscal 2020”).

These interim results are not necessarily indicative of results for the full fiscal year. TJX’s business, in common with the businesses of retailers generally, is subject to seasonal influences, with higher levels of sales and income generally realized in the second half of the year, as well as the uncertainty surrounding the financial impact of the novel coronavirus (“COVID-19”) pandemic as discussed in Note B—Impact of the COVID-19 Pandemic.

The February 1, 2020 balance sheet data was derived from audited Consolidated Financial Statements and does not include all disclosures required by GAAP.

Fiscal Year

TJX’s fiscal year ends on the Saturday nearest to the last day of January of each year. The current fiscal year ends January 30, 2021 (“fiscal 2021”) and is a 52-week fiscal year. Fiscal 2020 was also a 52-week fiscal year.

Use of Estimates

The preparation of 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. The Company considered COVID-19 related impacts to its estimates, as appropriate, within its unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods. We believe that our accounting estimates are appropriate after giving consideration to the increased uncertainties surrounding the severity and duration of the COVID-19 pandemic and the associated containment and remediation efforts. Actual amounts could differ from these estimates, and such differences could be material.

Deferred Gift Card Revenue

The following table presents deferred gift card revenue activity:


In thousands	May 2, 2020		May 4, 2019
Balance, beginning of year	$	500,844	$	450,302
Deferred revenue	158,948		340,600
Effect of exchange rates changes on deferred revenue	(4,680)		(648)
Revenue recognized	(180,062)		(383,658)
Balance, end of period	$	475,050	$	406,596

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.

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 and is accounted for under the equity method of accounting.

Included in the initial carrying value of $225 million, which represents the fair value on the transaction date, was a basis difference of $212 million related to the difference between the cost of the investment and the Company's proportionate share of the net assets of Familia. Goodwill comprised $186 million of the difference, and the remainder was allocated to Familia tradename, customer relationships and basis adjustments to convert Familia from International Financial Reporting Standards to U.S. GAAP, primarily for lease accounting. The carrying value of the equity method investment is primarily adjusted for the Company's share in the earnings of Familia, as adjusted for basis differences, and the foreign currency exchange translation adjustment related to translating the investment from Russian Rubles to U.S. dollar. The Company amortizes the tradename and customer relationships over their useful lives of 10 and 7 years, respectively, using the straight-line method.

This investment is included in other assets on our Consolidated Balance Sheets. The Company reports its share of Familia’s results on a one-quarter lag, and earnings from the Company's investment in Familia for the three months ended May 2, 2020 were $0.4 million, which has been recorded in our Consolidated Statements of (Loss) Income as a reduction to Selling, general and administrative expenses. Revaluing the investment from Russian Rubles to the U.S. dollar as of May 2, 2020 resulted in a cumulative translation loss and reduced the carrying value of our investment by $32 million. The cumulative translation loss has been recorded in our Consolidated Balance Sheets as a component of Accumulated other comprehensive (loss) income. The carrying value of the equity investment on the Consolidated Balance Sheets at May 2, 2020, including acquisition costs of $6 million, was $199 million.

We assess this investment for impairment if a decline in fair value of our investment is deemed other than temporary. Familia operations have also been impacted by the COVID-19 pandemic and virtually all stores have been temporarily closed. We have not impaired our investment due to our belief that any decline in fair value of our investment is temporary as Familia anticipates reopening stores sometime in June if government guidelines so permit and that it has adequate liquidity to deal with the temporary store closures.

Leases

Supplemental cash flow information related to leases for the thirteen weeks ended May 2, 2020 and May 4, 2019 is as follows:


	Thirteen Weeks Ended
In thousands	May 2, 2020		May 4, 2019
Operating cash flows paid for operating leases	$	445,901	$	421,488
Lease liabilities arising from obtaining right of use assets	$	553,075	$	453,198

Recently Adopted Accounting Standards

Simplified Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board (“FASB”) issued guidance related to simplified accounting for income taxes. The new standard simplifies accounting for income taxes by removing certain exceptions to the general principals in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted in any interim period within that year. The Company reviewed the provisions of this standard and determined that most of them do not apply to TJX. The most significant impact to the Company is the simplification of the tax benefit calculation recognized on pre-tax losses in interim periods. The Company elected to early adopt this standard as of February 2, 2020, which did not have an impact on the Company's financial statements or disclosures for first quarter 2021.

From time to time, the 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.