The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Basis of Presentation:
The consolidated interim financial statements 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
financial statements for the periods reported, all in conformity with accounting principles generally accepted in the United States of America (GAAP) consistently applied. The consolidated interim financial statements should be read in
conjunction with the audited consolidated financial statements, including the related notes, contained in TJXs Annual Report on Form
10-K
for the fiscal year ended January 28, 2017 (fiscal
2017).
These interim results are not necessarily indicative of results for the full fiscal year. TJXs 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.
The
January 28, 2017 balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.
Fiscal
Year:
TJXs fiscal year ends on the Saturday nearest to the last day of January of each year. The current fiscal year ends February 3, 2018 (fiscal 2018) and is a
53-week
fiscal year.
Fiscal 2017 was a
52-week
fiscal year.
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 stock options awarded and uses the market price on the grant date for performance-based share awards. Total share-based compensation
expense was $24.1 million for the quarter ended April 29, 2017 and $25.0 million for the quarter ended April 30, 2016. These amounts include stock option expense as well as performance-based stock amortization. There were options
to purchase 1.6 million shares of common stock exercised during the quarter ended April 29, 2017. There were options outstanding to purchase 25.6 million shares of common stock as of April 29, 2017. As of April 29, 2017,
there was $146.7 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under TJXs stock incentive plan.
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. As of April 29, 2017, TJXs cash and cash equivalents held by its foreign subsidiaries were $1,233.4 million, of which $263.2 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 at Sierra Trading Post (STP) and 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 (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 accrues for inventory obligations at the time title transfers, which is typically at the time when inventory is shipped. As a result, merchandise inventories on
TJXs balance sheet include an accrual for
in-transit
inventory of $501.5 million at April 29, 2017, $641.9 million at January 28, 2017 and $544.0 million at April 30, 2016.
Comparable amounts were reflected in accounts payable at those dates.
Recently Issued Accounting Standards
: In May 2014, a pronouncement was
issued that creates common revenue recognition guidance for GAAP. The new guidance supersedes most preexisting revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard was originally scheduled to be effective for annual reporting
7
periods beginning after December 15, 2016, including interim periods within that reporting period. In April 2015, the Financial Accounting Standards Board proposed an update to this rule
which deferred its effective date for one year. The new standard will be effective for annual reporting periods beginning after December 15, 2017, and interim periods therein, with an option to adopt the standard early. The standard shall be
applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. For TJX, the standard will be effective in the first quarter of the fiscal year ending January 26, 2019. We believe that
there will be no change in the timing or amount of revenue recognized under the new standard as it relates to revenue from point of sale at the registers in our stores, which constitutes more than 95% of the Companys revenue. We continue to
evaluate other revenue streams such as
e-commerce
sales and shipping revenue, and there may be a slight change in the timing of when such revenue is recognized. The new standard will require a change in the
presentation of our sales return reserve on the balance sheet, which we record net. The new standard will require the reserve to be established at the gross sales value with an asset established for the value of the merchandise returned. We do not
expect this change to have material impact on our financial condition or results of operations.
In February 2016, a pronouncement was issued that aims to
increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. The new standard is
effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods; early adoption is permitted and modified retrospective application is required. The Company expects this standard to have a
material impact on its statement of financial condition as it will record a significant asset and liability associated with its more than 3,800 leased locations. We cannot assess the income statement impact at this time as we need to assess if the
initial lease term will differ under the new standard versus current accounting practice. If the lease term remains unchanged the income statement impact of the new standard is not expected to be material. The Company is in the process of evaluating
its lease portfolio and identifying what additional data will be needed to comply with the new standard. We are also evaluating available software options and system support that will be required to implement the new accounting process. We do not
currently plan to adopt early.
In August 2016, a pronouncement was issued that addresses diversity in how certain cash receipts and cash payments are
presented in the statement of cash flows. The new guidance provides clarity around the cash flow classification for eight specific issues in an effort to reduce the current and potential future diversity in practice. The standard, which is to be
applied retrospectively, will be effective for the first interim period within annual reporting periods beginning after December 15, 2017, and early adoption is permitted. TJX does not expect this standard to have a material impact on our
consolidated financial statements.
In January 2017, a pronouncement was issued that aims to simplify the subsequent measurement of goodwill by
eliminating Step 2 from the goodwill impairment test. Under the new guidance, goodwill impairment will be measured as the amount by which the carrying value exceeds the fair value. The loss recognized should not exceed the total amount of goodwill
allocated to the reporting unit. The new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods. Early adoption is permitted for annual or interim goodwill impairment tests performed
on testing dates after January 1, 2017. TJX does not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In March 2017, a pronouncement was issued that requires an employer report the service cost component of net periodic pension and net periodic post retirement
cost in the same line item as other compensation costs arising from services rendered by the employees during the period. It also requires the other components of net periodic pension and net periodic postretirement benefit cost to be presented in
the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component is eligible for capitalization. This pronouncement is effective for annual periods
beginning after December 15, 2017, and interim periods during those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. We are
evaluating the presentation of the other components of net benefit cost.
Recently Adopted Accounting Standards:
In the first quarter of 2017, TJX
adopted a pronouncement that aims to simplify several aspects of accounting and reporting for share-based payment transactions. One provision within this pronouncement requires that excess income tax benefits and tax deficiencies related to
share-based payments be recognized within income tax expense in the statement of income, rather than within additional
paid-in
capital on the
8
balance sheet. The adoption of this provision is to be applied prospectively. The impact to TJXs results of operations related to this provision in the first quarter of 2017 was a decrease
in the provision for income taxes of $24.6 million. The impact of this benefit on TJXs future results of operations will depend in part on the market prices for TJXs shares on the dates there are taxable events related to share
awards, and therefore the impact is difficult to predict. This change and the remaining provisions within the pronouncement did not have a material impact on our consolidated financial statements.
Note B. Property at Cost
Presented below are the
components of property at cost as of April 29, 2017, January 28, 2017 and April 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
April 29,
2017
|
|
|
January 28,
2017
|
|
|
April 30,
2016
|
|
Land and buildings
|
|
$
|
1,255,710
|
|
|
$
|
1,247,585
|
|
|
$
|
1,048,931
|
|
Leasehold costs and improvements
|
|
|
2,962,697
|
|
|
|
2,884,054
|
|
|
|
2,845,839
|
|
Furniture, fixtures and equipment
|
|
|
5,019,753
|
|
|
|
4,871,764
|
|
|
|
4,564,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property at cost
|
|
$
|
9,238,160
|
|
|
$
|
9,003,403
|
|
|
$
|
8,458,977
|
|
Less accumulated depreciation and amortization
|
|
|
4,637,116
|
|
|
|
4,470,509
|
|
|
|
4,229,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property at cost
|
|
$
|
4,601,044
|
|
|
$
|
4,532,894
|
|
|
$
|
4,229,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $172.6 million for the three months ended April 29, 2017 and $160.0 million for the three
months ended April 30, 2016. Depreciation expense was $658.8 million for the twelve months ended January 28, 2017.
During fiscal 2017 the
Company identified fully depreciated assets that were no longer in use and should have been written off during fiscal 2017 or prior periods. The April 30, 2016 property at cost and accumulated depreciation was reduced by $840 million.
There was no impact to net property at cost. This error was not material to our consolidated financial statements, however we have corrected amounts for the quarter ended April 30, 2016 to reflect the write-off that should have been recorded at
that time.
Note C. Accumulated Other Comprehensive Income (Loss)
Amounts included in accumulated other comprehensive income (loss) are recorded net of the related income tax effects. The following table details the changes
in accumulated other comprehensive income (loss) for the related periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Foreign
Currency
Translation
|
|
|
Deferred
Benefit Costs
|
|
|
Cash Flow
Hedge on
Debt
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance, January 28, 2017
|
|
$
|
(491,803
|
)
|
|
$
|
(199,481
|
)
|
|
$
|
(2,942
|
)
|
|
$
|
(694,226
|
)
|
Additions to other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments (net of taxes of $20,543)
|
|
|
(5,247
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,247
|
)
|
Reclassifications from other comprehensive income to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost and deferred gains/losses (net of taxes of $2,543)
|
|
|
|
|
|
|
3,868
|
|
|
|
|
|
|
|
3,868
|
|
Amortization of loss on cash flow hedge (net of taxes of $112)
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 29, 2017
|
|
$
|
(497,050
|
)
|
|
$
|
(195,613
|
)
|
|
$
|
(2,771
|
)
|
|
$
|
(695,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note D. Capital Stock and Earnings per Share
Capital Stock:
TJX repurchased and retired 4.5 million shares of its common stock at a cost of $350.0 million during the quarter ended
April 29, 2017, on a trade date basis. TJX reflects stock repurchases in its financial statements on a settlement date or cash basis. TJX had cash expenditures under repurchase programs of $350.0 million for the
three months ended April 29, 2017 and $341.3 million for the three months ended April 30, 2016.
9
In February 2016, TJX announced that its Board of Directors had approved a stock repurchase program that
authorized the repurchase of up to an additional $2.0 billion of TJX common stock from time to time. Under this program, on a trade date basis through April 29, 2017, TJX repurchased 7.3 million shares of common stock at a
cost of $559.2 million. At April 29, 2017, $1.4 billion remained available for purchase under this program.
In February 2017, TJX
announced that its Board of Directors had approved an additional stock repurchase program that authorized the repurchase of up to $1.0 billion of TJX common stock from time to time, all of which remained available at April 29, 2017.
All shares repurchased under the stock repurchase programs have been retired.
Earnings per share:
The following schedule presents the calculation of basic and diluted earnings per share (EPS) for net income:
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
April 29,
|
|
|
April 30,
|
|
In thousands, except per share data
|
|
2017
|
|
|
2016
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
536,279
|
|
|
$
|
508,346
|
|
Weighted average common shares outstanding for basic EPS
|
|
|
644,425
|
|
|
|
661,515
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.83
|
|
|
$
|
0.77
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
536,279
|
|
|
$
|
508,346
|
|
|
|
|
Shares for basic and diluted earnings per share calculations:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic EPS
|
|
|
644,425
|
|
|
|
661,515
|
|
Assumed exercise/vesting of:
|
|
|
|
|
|
|
|
|
Stock options and awards
|
|
|
10,374
|
|
|
|
8,873
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for diluted EPS
|
|
|
654,799
|
|
|
|
670,388
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.82
|
|
|
$
|
0.76
|
|
The weighted average common shares for the diluted earnings per share calculation exclude the impact of outstanding stock
options if the assumed proceeds per share of the option is in excess of the related fiscal periods average price of TJXs common stock. Such options are excluded because they would have an antidilutive effect. There were 8.0 million
such options excluded for the thirteen weeks ended April 29, 2017. There were 4.1 million such options excluded for the thirteen weeks ended April 30, 2016.
10
Note E. Financial Instruments
As a result of its operating and financing activities, TJX is exposed to market risks from changes in interest and foreign currency exchange rates and fuel
costs. These market risks may adversely affect TJXs operating results and financial position. When and to the extent deemed appropriate, TJX seeks to minimize risk from changes in interest and foreign currency exchange rates and fuel costs
through the use of derivative financial instruments. TJX does not use derivative financial instruments for trading or other speculative purposes and does not use any leveraged derivative financial instruments. TJX recognizes all derivative
instruments as either assets or liabilities in the statements of financial position and measures those instruments at fair value. The fair values of the derivatives are classified as assets or liabilities, current or
non-current,
based upon valuation results and settlement dates of the individual contracts. Changes to the fair value of derivative contracts that do not qualify for hedge accounting are reported in earnings
in the period of the change. For derivatives that qualify for hedge accounting, changes in the fair value of the derivatives are either recorded in shareholders equity as a component of other comprehensive income or are recognized currently in
earnings, along with an offsetting adjustment against the basis of the item being hedged. TJX does not hedge its net investments in foreign subsidiaries.
Diesel Fuel Contracts:
When and to the extent deemed appropriate, TJX hedges portions of its estimated notional diesel requirements based on the diesel
fuel expected to be consumed by independent freight carriers transporting TJXs inventory. Independent freight carriers transporting TJXs inventory charge TJX a mileage surcharge based on the price of diesel fuel. The hedge agreements are
designed to mitigate the volatility of diesel fuel pricing (and the resulting per mile surcharges payable by TJX) by setting a fixed price per gallon for the period being hedged. During fiscal 2017 and the first three months of fiscal 2018, TJX
entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2018. In addition, during fiscal 2018, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the first
three months of fiscal 2019. The hedge agreements outstanding at April 29, 2017 relate to approximately 53% of TJXs estimated notional diesel requirements for the remainder of fiscal 2018 and approximately 50% of TJXs estimated
notional diesel requirements for the first three months of fiscal 2019. These diesel fuel hedge agreements will settle throughout the remainder of fiscal 2018 and the first three months of fiscal 2019.
TJX elected not to apply hedge
accounting rules to these contracts.
Foreign Currency Contracts:
When and to the extent deemed appropriate, TJX enters into forward foreign
currency exchange contracts to obtain economic hedges on portions of merchandise purchases made and anticipated to be made by the Companys operations at TJX International (United Kingdom, Ireland, Germany, Poland, Austria, The Netherlands and
Australia), TJX Canada (Canada), Marmaxx (U.S.) and HomeGoods (U.S.) in currencies other than their respective functional currencies. These contracts typically have a term of twelve months or less. The contracts outstanding at April 29, 2017
cover a portion of such actual and anticipated merchandise purchases throughout the remainder of fiscal 2018. Additionally, TJXs operations in Europe are subject to foreign currency exposure as a result of their buying function being
centralized in the United Kingdom. All merchandise is purchased centrally in the U.K. and then shipped and billed to the retail entities in other countries. This intercompany billing to TJXs European businesses Euro denominated
operations creates exposure to the buying entity for changes in the exchange rate between the Euro and British Pound. The inflow of Euros to the central buying entity provides a natural hedge for merchandise purchased from third-party vendors that
is denominated in Euros. However, with the growth of TJXs Euro denominated retail operations, the intercompany billings committed to the Euro denominated operations is generating Euros in excess of those needed to meet merchandise commitments
to outside vendors. TJX calculates this excess Euro exposure each month and enters into forward contracts of approximately 30 days duration to mitigate the exposure. TJX elected not to apply hedge accounting rules to these contracts.
When and to the extent deemed appropriate, TJX also enters into derivative contracts, generally designated as fair value hedges, to hedge intercompany debt
and intercompany interest payable. The changes in fair value of these contracts are recorded in selling, general and administrative expenses and are offset by marking the underlying item to fair value in the same period. Upon settlement, the
realized gains and losses on these contracts are offset by the realized gains and losses of the underlying item in selling, general and administrative expenses.
11
The following is a summary of TJXs derivative financial instruments, related fair value and balance sheet
classification at April 29, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Pay
|
|
Receive
|
|
|
Blended
Contract
Rate
|
|
|
Balance Sheet
Location
|
|
|
Current Asset
U.S.$
|
|
|
Current
(Liability)
U.S.$
|
|
|
Net Fair
Value in
U.S.$ at
April 29,
2017
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
zł 67,000
|
|
£
|
13,000
|
|
|
|
0.1940
|
|
|
|
(Accrued Exp)
|
|
|
|
|
|
|
|
(292
|
)
|
|
|
(292
|
)
|
|
|
66,000
|
|
£
|
57,048
|
|
|
|
0.8644
|
|
|
|
Prepaid Exp
|
|
|
|
1,565
|
|
|
|
|
|
|
|
1,565
|
|
|
|
U.S.$ 68,445
|
|
£
|
55,000
|
|
|
|
0.8036
|
|
|
|
Prepaid Exp
|
|
|
|
3,319
|
|
|
|
|
|
|
|
3,319
|
|
|
|
A$ 10,000
|
|
$
|
5,799
|
|
|
|
0.5799
|
|
|
|
Prepaid Exp
|
|
|
|
60
|
|
|
|
|
|
|
|
60
|
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel contracts
|
|
Fixed on 2.1M 2.5M gal per month
|
|
|
Float on 2.1M
2.5M gal per
month
|
|
|
|
N/A
|
|
|
|
(Accrued Exp)
|
|
|
|
|
|
|
|
(1,585
|
)
|
|
|
(1,585
|
)
|
Intercompany billings in Europe, primarily merchandise related
|
|
85,000
|
|
£
|
72,765
|
|
|
|
0.8561
|
|
|
|
Prepaid Exp
|
|
|
|
1,546
|
|
|
|
|
|
|
|
1,546
|
|
Merchandise purchase commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C$ 521,997
|
|
U.S.$
|
394,800
|
|
|
|
0.7563
|
|
|
|
Prepaid Exp
|
|
|
|
11,755
|
|
|
|
|
|
|
|
11,755
|
|
|
|
C$ 24,743
|
|
|
17,500
|
|
|
|
0.7073
|
|
|
|
Prepaid Exp
|
|
|
|
953
|
|
|
|
|
|
|
|
953
|
|
|
|
£ 209,383
|
|
U.S.$
|
263,000
|
|
|
|
1.2561
|
|
|
|
(Accrued Exp)
|
|
|
|
|
|
|
|
(8,919
|
)
|
|
|
(8,919
|
)
|
|
|
A$ 17,940
|
|
U.S.$
|
13,573
|
|
|
|
0.7566
|
|
|
|
Prepaid Exp /
(Accrued Exp)
|
|
|
|
162
|
|
|
|
(19
|
)
|
|
|
143
|
|
|
|
zł 269,048
|
|
£
|
52,774
|
|
|
|
0.1962
|
|
|
|
Prepaid Exp /
(Accrued Exp)
|
|
|
|
411
|
|
|
|
(1,243
|
)
|
|
|
(832
|
)
|
|
|
U.S.$ 36,314
|
|
|
33,862
|
|
|
|
0.9325
|
|
|
|
Prepaid Exp
|
|
|
|
683
|
|
|
|
|
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,454
|
|
|
$
|
(12,058
|
)
|
|
$
|
8,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
The following is a summary of TJXs derivative financial instruments, related fair value and balance sheet
classification at April 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Pay
|
|
Receive
|
|
|
Blended
Contract
Rate
|
|
|
Balance Sheet
Location
|
|
|
Current Asset
U.S.$
|
|
|
Current
(Liability)
U.S.$
|
|
|
Net Fair
Value in
U.S.$ at
April 30,
2016
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
zł 87,073
|
|
C$
|
29,950
|
|
|
|
0.3440
|
|
|
|
Prepaid Exp
|
|
|
$
|
1,085
|
|
|
$
|
|
|
|
$
|
1,085
|
|
|
|
zł 45,000
|
|
£
|
7,403
|
|
|
|
0.1645
|
|
|
|
(Accrued Exp)
|
|
|
|
|
|
|
|
(933
|
)
|
|
|
(933
|
)
|
|
|
53,000
|
|
£
|
40,820
|
|
|
|
0.7702
|
|
|
|
(Accrued Exp)
|
|
|
|
|
|
|
|
(1,637
|
)
|
|
|
(1,637
|
)
|
|
|
U.S.$ 77,957
|
|
£
|
55,000
|
|
|
|
0.7055
|
|
|
|
Prepaid Exp
|
|
|
|
2,523
|
|
|
|
|
|
|
|
2,523
|
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel contracts
|
|
Fixed on 1.9M 2.2M gal per month
|
|
|
Float on 1.9M
2.2M gal per
month
|
|
|
|
N/A
|
|
|
|
(Accrued Exp)
|
|
|
|
|
|
|
|
(4,875
|
)
|
|
|
(4,875
|
)
|
Intercompany billings in Europe, primarily merchandise related
|
|
85,000
|
|
£
|
67,798
|
|
|
|
0.7976
|
|
|
|
Prepaid Exp
|
|
|
|
1,538
|
|
|
|
|
|
|
|
1,538
|
|
Merchandise purchase commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C$ 492,465
|
|
U.S.$
|
362,900
|
|
|
|
0.7369
|
|
|
|
(Accrued Exp)
|
|
|
|
|
|
|
|
(29,356
|
)
|
|
|
(29,356
|
)
|
|
|
C$ 20,941
|
|
|
14,000
|
|
|
|
0.6685
|
|
|
|
(Accrued Exp)
|
|
|
|
|
|
|
|
(639
|
)
|
|
|
(639
|
)
|
|
|
£ 146,518
|
|
U.S.$
|
212,550
|
|
|
|
1.4507
|
|
|
|
Prepaid Exp /
(Accrued Exp)
|
|
|
|
2,027
|
|
|
|
(3,635
|
)
|
|
|
(1,608
|
)
|
|
|
zł 216,245
|
|
£
|
38,136
|
|
|
|
0.1764
|
|
|
|
Prepaid Exp /
(Accrued Exp)
|
|
|
|
293
|
|
|
|
(1,133
|
)
|
|
|
(840
|
)
|
|
|
U.S.$ 38,434
|
|
|
34,051
|
|
|
|
0.8860
|
|
|
|
Prepaid Exp
|
|
|
|
634
|
|
|
|
|
|
|
|
634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,100
|
|
|
$
|
(42,208
|
)
|
|
$
|
(34,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Presented below is the impact of derivative financial instruments on the statements of income for the periods
shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized
in Income by Derivative
|
|
|
|
Location of Gain (Loss)
Recognized in Income by
Derivative
|
|
Thirteen Weeks Ended
|
|
In thousands
|
|
|
April 29, 2017
|
|
|
April 30, 2016
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
Selling, general and administrative expenses
|
|
$
|
3,225
|
|
|
$
|
877
|
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
|
|
|
|
Diesel fuel contracts
|
|
Cost of sales, including buying and occupancy costs
|
|
|
(3,323
|
)
|
|
|
2,287
|
|
Intercompany billings in Europe, primarily merchandise related
|
|
Cost of sales, including buying and occupancy costs
|
|
|
1,601
|
|
|
|
(2,108
|
)
|
Merchandise purchase commitments
|
|
Cost of sales, including buying and occupancy costs
|
|
|
9,933
|
|
|
|
(44,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Gain / (loss) recognized in income
|
|
|
|
$
|
11,436
|
|
|
$
|
(43,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
14
Note F. Disclosures about Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date or exit price. The inputs used to measure fair value are generally classified into the following hierarchy:
|
|
|
Level 1:
|
|
Unadjusted quoted prices in active markets for identical assets or liabilities
|
|
|
Level 2:
|
|
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are
observable for the asset or liability
|
|
|
Level 3:
|
|
Unobservable inputs for the asset or liability
|
The following table sets forth TJXs financial assets and liabilities that are accounted for at fair value on a recurring
basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
April 29,
2017
|
|
|
January 28,
2017
|
|
|
April 30,
2016
|
|
Level 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Savings Plan investments
|
|
$
|
213,260
|
|
|
$
|
195,733
|
|
|
$
|
173,523
|
|
|
|
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
457,091
|
|
|
$
|
543,242
|
|
|
$
|
403,702
|
|
Foreign currency exchange contracts
|
|
|
20,454
|
|
|
|
6,018
|
|
|
|
8,100
|
|
Diesel fuel contracts
|
|
|
|
|
|
|
2,183
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
10,473
|
|
|
$
|
7,256
|
|
|
$
|
37,333
|
|
Diesel fuel contracts
|
|
|
1,585
|
|
|
|
|
|
|
|
4,875
|
|
Investments designed to meet obligations under the Executive Savings Plan are invested in registered investment companies
traded in active markets and are recorded at unadjusted quoted prices.
Short-term investments, foreign currency exchange contracts and diesel fuel
contracts are valued using broker quotations which include observable market information. TJXs investments are primarily high-grade commercial paper, institutional money market funds and time deposits with major banks. TJX does not make
adjustments to quotes or prices obtained from brokers or pricing services but does assess the credit risk of counterparties and will adjust final valuations when appropriate. Where independent pricing services provide fair values, TJX obtains an
understanding of the methods used in pricing. As such, these instruments are classified within Level 2.
The fair value of TJXs general
corporate debt was estimated by obtaining market quotes given the trading levels of other bonds of the same general issuer type and market perceived credit quality. These inputs are considered to be Level 2. The fair value of long-term debt as
of April 29, 2017 was $2.20 billion compared to a carrying value of $2.23 billion. The fair value of long-term debt as of January 28, 2017 was $2.17 billion compared to a carrying value of $2.23 billion. The fair value
of long-term debt as of April 30, 2016 was $1.72 billion compared to a carrying value of $1.62 billion. These estimates do not necessarily reflect provisions or restrictions in the various debt agreements that might affect TJXs
ability to settle these obligations.
TJXs cash equivalents are stated at cost, which approximates fair value due to the short maturities of these
instruments.
15
Note G. Segment Information
TJX operates four main business segments. The Marmaxx segment (T.J. Maxx, Marshalls and tjmaxx.com) and the HomeGoods segment both operate in the United
States, the TJX Canada segment operates Winners, HomeSense and Marshalls in Canada, and the TJX International segment operates T.K. Maxx, HomeSense and tkmaxx.com in Europe and T.K. Maxx in Australia. TJX also operates Sierra Trading Post (STP), an
off-price
Internet retailer that operates sierratradingpost.com and a small number of stores in the U.S. The results of STP are included in the Marmaxx segment.
All of TJXs stores, with the exception of HomeGoods and HomeSense, sell family apparel and home fashions. HomeGoods and HomeSense offer home fashions.
TJX evaluates the performance of its segments based on segment profit or loss, which it defines as
pre-tax
income or loss before general corporate expense and interest expense, net. Segment profit or loss, as defined by TJX, 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 alternatives to net income or cash
flows from operating activities as an indicator of TJXs performance or as a measure of liquidity.
Presented below is financial information with
respect to TJXs business segments:
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
In thousands
|
|
April 29,
2017
|
|
|
April 30,
2016
|
|
Net sales:
|
|
|
|
|
|
|
|
|
In the United States:
|
|
|
|
|
|
|
|
|
Marmaxx
|
|
$
|
4,967,135
|
|
|
$
|
4,865,375
|
|
HomeGoods
|
|
|
1,121,269
|
|
|
|
1,010,436
|
|
TJX Canada
|
|
|
738,771
|
|
|
|
685,577
|
|
TJX International
|
|
|
956,849
|
|
|
|
980,968
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,784,024
|
|
|
$
|
7,542,356
|
|
|
|
|
|
|
|
|
|
|
Segment profit:
|
|
|
|
|
|
|
|
|
In the United States:
|
|
|
|
|
|
|
|
|
Marmaxx
|
|
$
|
687,165
|
|
|
$
|
708,857
|
|
HomeGoods
|
|
|
152,092
|
|
|
|
138,210
|
|
TJX Canada
|
|
|
102,880
|
|
|
|
57,472
|
|
TJX International
|
|
|
6,860
|
|
|
|
14,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
948,997
|
|
|
|
918,886
|
|
|
|
|
General corporate expense
|
|
|
106,648
|
|
|
|
83,723
|
|
Interest expense, net
|
|
|
9,841
|
|
|
|
10,194
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
832,508
|
|
|
$
|
824,969
|
|
|
|
|
|
|
|
|
|
|
16
Note H. Pension Plans and Other Retirement Benefits
Presented below is financial information relating to TJXs funded defined benefit pension plan (qualified pension plan or funded plan) and its unfunded
supplemental pension plan (unfunded plan) for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Plan
|
|
|
Unfunded Plan
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirteen Weeks Ended
|
|
In thousands
|
|
April 29,
2017
|
|
|
April 30,
2016
|
|
|
April 29,
2017
|
|
|
April 30,
2016
|
|
Service cost
|
|
$
|
11,805
|
|
|
$
|
11,209
|
|
|
$
|
588
|
|
|
$
|
541
|
|
Interest cost
|
|
|
13,759
|
|
|
|
14,362
|
|
|
|
843
|
|
|
|
875
|
|
Expected return on plan assets
|
|
|
(17,382
|
)
|
|
|
(17,935
|
)
|
|
|
|
|
|
|
|
|
Recognized actuarial losses
|
|
|
5,580
|
|
|
|
7,209
|
|
|
|
831
|
|
|
|
865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
13,762
|
|
|
$
|
14,845
|
|
|
$
|
2,262
|
|
|
$
|
2,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TJXs policy with respect to the funded plan is to fund, at a minimum, the amount required to maintain a funded status of
80% of the applicable pension liability (the funding target pursuant to the Internal Revenue Code section 430) or such other amount sufficient to avoid restrictions with respect to the funding of TJXs nonqualified plans under the Internal
Revenue Code. TJX does not anticipate any required funding in fiscal 2018 for the funded plan. TJX anticipates making payments of $4.1 million to provide current benefits coming due under the unfunded plan in fiscal 2018.
The amounts included in recognized actuarial losses in the table above have been reclassified in their entirety from other comprehensive income to the
statements of income, net of related tax effects, for the periods presented.
TJX also had maintained an unfunded postretirement medical plan which was
closed to new benefits in fiscal 2006. During the first quarter of fiscal 2017, TJX terminated the unfunded postretirement medical plan and made a discretionary lump sum payment to participants. The settlement of the liability and the recognition of
the remaining negative plan amendment resulted in a
pre-tax
benefit of $5.5 million in the first quarter of fiscal 2017.
17
Note I. Long-Term Debt and Credit Lines
The table below presents long-term debt, exclusive of current installments, as of April 29, 2017, January 28, 2017 and April 30, 2016. All
amounts are net of unamortized debt discounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
April 29,
2017
|
|
|
January 28,
2017
|
|
|
April 30,
2016
|
|
General corporate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
6.95% senior unsecured notes, redeemed on October 12, 2016 (effective interest rate of 6.98%
after reduction of unamortized debt discount of $205 at April 30, 2016)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
374,795
|
|
2.50% senior unsecured notes, maturing May 15, 2023 (effective interest rate of 2.51% after
reduction of unamortized debt discount of $267 at April 29, 2017, $278 at January 28, 2017 and $312 at April 30, 2016)
|
|
|
499,733
|
|
|
|
499,722
|
|
|
|
499,688
|
|
2.75% senior unsecured notes, maturing June 15, 2021 (effective interest rate of 2.76% after
reduction of unamortized debt discount of $306 at April 29, 2017, $325 at January 28, 2017 and $381 at April 30, 2016)
|
|
|
749,694
|
|
|
|
749,675
|
|
|
|
749,619
|
|
2.25% senior unsecured notes, maturing September 15, 2026 (effective interest rate of 2.32%
after reduction of unamortized debt discount of $6,963 at April 29, 2017 and $7,149 at January 28, 2017)
|
|
|
993,037
|
|
|
|
992,851
|
|
|
|
|
|
Debt issuance cost
|
|
|
(14,113
|
)
|
|
|
(14,649
|
)
|
|
|
(8,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
2,228,351
|
|
|
$
|
2,227,599
|
|
|
$
|
1,615,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On September 12, 2016, TJX issued $1.0 billion aggregate principal amount of 2.25%
ten-year
notes due September 2026 all of which was outstanding at April 29, 2017. TJX entered into a rate-lock agreement to hedge $700 million of the 2.25% notes. The cost of these agreements are
being amortized to interest expense over the term of the notes resulting in an effective fixed rate of 2.36%.
At April 29, 2017, TJX also had
outstanding $500 million aggregate principal amount of 2.50%
ten-year
notes due May 2023 and $750 million aggregate principal amount of 2.75% seven-year notes, due June 2021. TJX entered into
rate-lock agreements to hedge the underlying treasury rate of $250 million of the 2.50% notes. The costs of these agreements are being amortized to interest expense over the term of the respective notes, resulting in an effective fixed interest
rate of 2.57% for the 2.50% notes. TJX also entered into rate-lock agreements to hedge the underlying treasury rate of all of the 2.75% notes prior to their issuance. The agreements were accounted for as cash flow hedges and the
pre-tax
realized loss of $7.9 million was recorded as a component of other comprehensive income and is being amortized to interest expense over the term of the notes, resulting in an effective fixed interest
rate of 2.91%.
At April 29, 2017 TJX had two $500 million revolving credit facilities, one which matures in March 2020 and one which matures in
March 2022. At April 29, 2017, the agreements require quarterly payments of 6.0 basis points per annum on the committed amounts for both agreements. This rate is based on the credit ratings of TJXs long-term debt and would vary with
specified changes in the credit ratings. These agreements had no compensating balance requirements and had various covenants. Each of these facilities required TJX to maintain a ratio of funded debt and four-times consolidated rentals to
consolidated earnings before interest, taxes, depreciation and amortization, and consolidated rentals (EBITDAR) of not more than 2.75 to 1.00 on a rolling four-quarter basis. TJX was in compliance with all covenants related to its credit
facilities at April 29, 2017, January 28, 2017 and April 30, 2016. As of April 29, 2017, January 28, 2017 and April 30, 2016, and during the quarters and year then ended, there were no amounts outstanding under any of
these facilities.
As of April 29, 2017, January 28, 2017 and April 30, 2016, TJX Canada had two uncommitted credit lines, a
C$10 million facility for operating expenses and a C$10 million letter of credit facility. As of April 29, 2017, January 28, 2017 and April 30, 2016, there were no amounts outstanding on the Canadian credit line for
operating expenses. As
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of April 29, 2017, January 28, 2017, and April 30, 2016, our European business at TJX International had an uncommitted credit line of £5 million. As of April 29,
2017, January 28, 2017, and April 30, 2016, and during the quarters and year then ended, there were no amounts outstanding on the European credit line.
Note J. Income Taxes
The effective income tax rate was
35.6% for the fiscal 2018 first quarter and 38.4% for the fiscal 2017 first quarter. The decrease in the effective income tax rate was primarily due to excess income tax benefits related to share-based payments, partially offset by the
jurisdictional mix of income and the increase in valuation allowance on foreign net operating losses.
TJX had net unrecognized tax benefits of
$39.0 million as of April 29, 2017, $38.5 million as of January 28, 2017 and $35.3 million as of April 30, 2016.
TJX is
subject to U.S. federal income tax as well as income tax in multiple state, local and foreign jurisdictions. In the U.S., fiscal years through 2010 are no longer subject to examination. In Canada, fiscal years through 2008 are no longer subject to
examination. In all other jurisdictions, fiscal years through 2009 are no longer subject to examination.
TJXs accounting policy classifies interest
and penalties related to income tax matters as part of income tax expense. The total accrued amount on the balance sheets for interest and penalties was $8.0 million as of April 29, 2017, $8.0 million as of January 28, 2017 and
$7.4 million as of April 30, 2016.
Based on the outcome of tax examinations or judicial or administrative proceedings, or as a result of the
expiration of statute of limitations in specific jurisdictions, it is reasonably possible that unrecognized tax benefits for certain tax positions taken on previously filed tax returns may change materially from those presented in the financial
statements. During the next 12 months, it is reasonably possible that tax examinations of prior years tax returns or judicial or administrative proceedings that reflect such positions taken by TJX may be finalized. As a result, the total net
amount of unrecognized tax benefits may decrease, which would reduce the provision for taxes on earnings, by a range of zero to $13 million.
Note
K. Contingent Obligations and Contingencies
Contingent Obligations:
TJX has contingent obligations on leases, for which it was a
lessee or guarantor, which were assigned to third parties without TJX being released by the landlords. Over many years, TJX has assigned numerous leases that it had originally leased or guaranteed to a significant number of third parties. With the
exception of leases of former businesses for which TJX has reserved, the Company has rarely had a claim with respect to assigned leases, and accordingly, the Company does not expect that such leases will have a material adverse impact on its
financial condition, results of operations or cash flows. TJX does not generally have sufficient information about these leases to estimate our potential contingent obligations under them, which could be triggered in the event that one or more of
the current tenants does not fulfill their obligations related to one or more of these leases.
TJX may also be contingently liable on up to nine leases
of former TJX businesses, for which we believe the likelihood of future liability to TJX is remote, and has contingent obligations in connection with certain assigned or sublet properties that TJX is able to estimate. We estimate that the
undiscounted obligations of (i) leases of former operations not included in our reserve for former operations and (ii) properties of our former operations if the subtenants do not fulfill their obligations, are approximately
$53.6 million as of April 29, 2017. We believe that most or all of these contingent obligations will not revert to us and, to the extent they do, will be resolved for substantially less due to mitigating factors including our expectation
to further sublet.
TJX is a party to various agreements under which it may be obligated to indemnify the other party with respect to certain losses
related to matters such as title to assets sold, specified environmental matters or certain income taxes. These obligations are often limited in time and amount. There are no amounts reflected in our balance sheets with respect to these contingent
obligations.
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Contingencies:
TJX is subject to certain legal proceedings, lawsuits, disputes and claims
that arise from time to time in the ordinary course of our business. In addition, TJX is a defendant in several lawsuits filed in federal and state courts brought as putative class or collective actions on behalf of various groups of current and
former salaried and hourly associates in the U.S. The lawsuits allege violations of the Fair Labor Standards Act and of state wage and hour and other labor statutes, including alleged misclassification of positions as exempt from overtime, alleged
entitlement to additional wages for alleged
off-the-clock
work by hourly employees and alleged failure to pay all wages due upon termination. TJX is also a defendant in
lawsuits filed in federal courts brought as putative class actions on behalf of customers relating to TJXs compare at pricing. The lawsuits are in various procedural stages and seek unspecified monetary damages, injunctive relief and
attorneys fees. In connection with ongoing litigation, an immaterial amount has been accrued in the accompanying financial statements.
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