NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A.
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 financial statements for the periods reported, all in conformity with GAAP consistently applied. 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 3, 2018
(“fiscal 2018”).
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.
The
February 3, 2018
balance sheet data was derived from audited 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
February 2, 2019
(“
fiscal 2019
”) and is a 52-week fiscal year. Fiscal 2018 was a 53-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 inventory valuation, impairment of long-lived assets, goodwill and tradenames, retirement obligations, share-based compensation, casualty insurance, 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.
Summary of Accounting Policies
Revenue Recognition
TJX adopted
Revenue from Contracts with Customers
(referred to as “ASC 606”), on February 4, 2018 (“the adoption date”). 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. TJX adopted the new guidance under the modified retrospective approach which resulted in a
$59 million
cumulative adjustment to increase retained earnings. The cumulative adjustment primarily related to revenue recognized on the value of unredeemed rewards certificates issued to customers as part of the Company’s U.S. co-branded credit card loyalty program. We now recognize the estimated unredeemed awards when they are earned, rather than when merchandise credits expire or when the likelihood of redemption becomes remote. In addition, on-line sales are now recognized at the shipping point rather than receipt by the customer.
Other changes relate to the presentation of revenue as certain expenses previously presented as a reduction of revenue are now classified as selling, general and administrative expenses (“SG&A”). The new standard required a change in the presentation of our sales return reserve on the balance sheet, which we previously recorded net of the value of returned merchandise and now is presented at gross sales value with an asset established for the value of the merchandise returned. There is
no
change in the timing or amount of revenue recognized from point of sale at the registers in our stores, which constitutes the majority of the Company’s revenue.
Financial results for fiscal periods after the adoption date are presented under ASC 606 while results from prior periods are not adjusted and continue to be reported under the accounting standards in effect for the prior period. We applied ASC 606 only to contracts that were not completed prior to
fiscal 2019
. Adoption of the new guidance resulted in additional disclosure requirements and did not have a material impact on our financial condition or results of operations for the fiscal period ended
August 4, 2018
.
Net Sales
Net sales consist primarily of merchandise sales, which are recorded net of a reserve for estimated returns, any discounts and sales taxes, related to 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 which 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
.
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. Based on historical experience, we estimate the amount of gift cards and store cards that will not be redeemed and, to the extent allowed by local law, these amounts are amortized into income over the redemption period.
|
|
|
|
|
|
In thousands
|
|
August 4,
2018
|
Balance, February 3, 2018
|
|
$
|
406,506
|
|
Deferred revenue
|
|
731,890
|
|
Effect of exchange rates changes on deferred revenue
|
|
(4,871
|
)
|
Revenue recognized
|
|
(774,955
|
)
|
Balance, August 4, 2018
|
|
$
|
358,570
|
|
TJX recognized
$775 million
in gift card revenue for the
six
months ended
August 4, 2018
. 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.
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 and are estimating the variable consideration using the expected value method when calculating the returns reserve, as the difference to 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 offsetting receivable is included in “Prepaid expenses and other current assets” on our consolidated balance sheets.
Goodwill
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 (“STP”) in fiscal 2013, and the purchase of Trade Secret in fiscal 2016, which was re-branded under the T.K. Maxx name during fiscal 2018. The following is a roll forward of goodwill by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Marmaxx
|
|
Winners
|
|
Sierra Trading
Post
|
|
T.K. Maxx in
Australia
|
|
Total
|
Balance, January 28, 2017
|
|
$
|
70,027
|
|
|
$
|
1,686
|
|
|
$
|
97,254
|
|
|
$
|
26,904
|
|
|
$
|
195,871
|
|
Impairment
|
|
—
|
|
|
—
|
|
|
(97,254
|
)
|
|
—
|
|
|
(97,254
|
)
|
Effect of exchange rate changes on goodwill
|
|
—
|
|
|
98
|
|
|
—
|
|
|
1,354
|
|
|
1,452
|
|
Balance, February 3, 2018
|
|
70,027
|
|
|
1,784
|
|
|
—
|
|
|
28,258
|
|
|
100,069
|
|
Effect of exchange rate changes on goodwill
|
|
—
|
|
|
(77
|
)
|
|
—
|
|
|
(1,878
|
)
|
|
(1,955
|
)
|
Balance, August 4, 2018
|
|
$
|
70,027
|
|
|
$
|
1,707
|
|
|
$
|
—
|
|
|
$
|
26,380
|
|
|
$
|
98,114
|
|
Goodwill is considered to have an indefinite life and accordingly is not amortized. In the fourth quarter of fiscal 2018, the Company recorded an impairment charge of
$99.3 million
, which included
$97.3 million
of STP goodwill and
$2.0 million
for certain long-lived assets of STP, as the estimated fair value of the STP business fell below its carrying value due to a decrease in projected revenue growth rates. The impairment charge is included within the Marmaxx segment results. Goodwill, and the related impairments, if any, are included in the respective operating segment to which they relate.
Future Adoption of New Accounting Standards
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued updated guidance on leases 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. In July 2018, the FASB issued ASU 2018-11, Leases
(Topic 842): Targeted Improvements
, which allows entities to apply the transition requirements at the effective date rather than at the beginning of the earliest comparative period presented as currently required. The effect of initially applying the standard can be recognized as a cumulative-effect adjustment to retained earnings in the period of adoption and an entity’s reporting for the comparative periods presented in the year of adoption would continue to be in accordance with ASC 840,
Leases (Topic 840)
(“ASC 840”), including the disclosure requirements of ASC 840. If the new transition method in ASU 2018-11 is not elected, the new standard must be adopted using a modified retrospective transition and requires application of the new guidance for leases that exist or are entered into after the beginning of the earliest comparative period presented. We plan to adopt this standard in the first quarter of the fiscal year ending February 1, 2020 ("fiscal 2020") using the optional transition method under ASU 2018-11.
The Company is in the process of implementing a new lease accounting system and has established a cross-functional team to implement the updated lease guidance. This team is in the process of evaluating our lease portfolio to assess the impact this standard will have on our Consolidated Financial Statements and Notes thereto. 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 nearly
4,200
leased locations. We plan to implement the transition package of three practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease classifications. We expect to make an accounting policy election that will keep leases with a term of
12 months
or less off the balance sheet and result in recognizing those lease payments on a straight-line basis over the lease term. As our leases do not provide an implicit rate, we plan to use our incremental borrowing rate based on information available at commencement date to determine the present value of future payments. The Company has determined that the initial lease term will not differ under the new standard versus current accounting practice, and therefore the income statement impact of the new standard is not expected to be material.
Hedging Activities
In August 2017, the FASB issued updated guidance on hedge accounting. The updates allow hedge accounting for new types of interest rate hedges of financial instruments and simplify the documentation requirements to qualify for hedge accounting. In addition, any gain or loss from hedge ineffectiveness will be reported in the same income statement line with the effective hedge results and the hedged transaction. The updated guidance is effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company has not yet determined the timing for adoption or estimated the effect on the Company’s consolidated financial statements.
Income Statement – Reporting Comprehensive Income
In February 2018, the FASB issued updated guidance related to reporting comprehensive income. The updated guidance allows for a one-time reclassification from accumulated other comprehensive income to retained earnings for stranded tax effect resulting from the enactment of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). The updated guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for reporting periods for which financial statements have not yet been issued. The updated guidance should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the 2017 Tax Act is recognized. The Company has not yet determined the timing of adoption or estimated the effect on the Company’s consolidated financial statements.
Non-Employee Share-Based Payments
In June 2018, the FASB issued updated guidance related to compensation - stock compensation: Improvements to Non-Employee Share-Based Payment Accounting. The updated guidance aligns the measurement and classification guidance for share-based payments to non-employees with the guidance for share-based payments to employees, with certain exceptions. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company does not anticipate this pronouncement will have an impact on its consolidated financial statements.
Recently Adopted Accounting Standards
Revenue Recognition
See Revenue Recognition in this
Note A
for the impact upon adoption.
Cash Flows
In the first quarter of
fiscal 2019
, TJX adopted a pronouncement that addresses differences in the way 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 differences in practice. The standard did not have a material impact on our consolidated statements of cash flows.
Retirement Benefits
In the first quarter of
fiscal 2019
, TJX adopted a pronouncement related to retirement benefits, which requires that 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, if such a subtotal is presented. The amendments in this update were applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement. The impact to prior periods was immaterial. As a result of the adoption, for the
three and six
months ended August 4, 2018, service costs are recorded in the same line items as other compensation costs and non-service costs are recorded in SG&A in our income statement.
Income Taxes
In the first quarter of
fiscal 2019
, TJX adopted
Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
(referred to as
"
ASU 2018-05"), which provides guidance on accounting for the tax effects of the 2017 Tax Act. This guidance allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law during the measurement period. The measurement period ends when the company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. We will continue to assess our provision for income taxes as future guidance is issued.
Note B.
Property at Cost
The following table presents the components of property at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
August 4,
2018
|
|
February 3,
2018
|
|
July 29,
2017
|
Land and buildings
|
|
$
|
1,395,034
|
|
|
$
|
1,355,777
|
|
|
$
|
1,271,189
|
|
Leasehold costs and improvements
|
|
3,263,267
|
|
|
3,254,830
|
|
|
3,088,783
|
|
Furniture, fixtures and equipment
|
|
5,619,196
|
|
|
5,357,701
|
|
|
5,234,345
|
|
Total property at cost
|
|
$
|
10,277,497
|
|
|
$
|
9,968,308
|
|
|
$
|
9,594,317
|
|
Less accumulated depreciation and amortization
|
|
5,177,043
|
|
|
4,962,255
|
|
|
4,849,627
|
|
Net property at cost
|
|
$
|
5,100,454
|
|
|
$
|
5,006,053
|
|
|
$
|
4,744,690
|
|
Depreciation expense was
$204.2 million
for the
three months ended August 4, 2018
and
$174.5 million
for the
three months ended July 29, 2017
. Depreciation expense was
$397.9 million
for the
six
months ended
August 4, 2018
and
$347.1 million
for the
six
months ended
July 29, 2017
. Depreciation expense was
$726.0 million
for the
twelve
months ended
February 3, 2018
.
Note C.
Accumulated Other Comprehensive Income (Loss)
Amounts included in accumulated other comprehensive income (loss) are recorded net of taxes. The following table details the changes in accumulated other comprehensive income (loss) for the
six
months ended
August 4, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Foreign
Currency
Translation
|
|
Deferred
Benefit
Costs
|
|
Cash
Flow
Hedge
on Debt
|
|
Net
Investment
Hedges
|
|
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 $36,929)
|
|
211,752
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
211,752
|
|
Recognition of net gains/losses on benefit obligations (net of taxes of $8,989)
|
|
—
|
|
|
24,691
|
|
|
—
|
|
|
—
|
|
|
24,691
|
|
Reclassifications from other comprehensive income to net income:
|
|
|
|
|
|
|
|
|
|
|
Amortization of loss on cash flow hedge (net of taxes of $438)
|
|
—
|
|
|
—
|
|
|
696
|
|
|
—
|
|
|
696
|
|
Amortization of prior service cost and deferred gains/losses (net of taxes of $9,592)
|
|
—
|
|
|
15,228
|
|
|
—
|
|
|
—
|
|
|
15,228
|
|
Balance, February 3, 2018
|
|
$
|
(280,051
|
)
|
|
$
|
(159,562
|
)
|
|
$
|
(2,246
|
)
|
|
$
|
—
|
|
|
$
|
(441,859
|
)
|
Additions to other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments (net of taxes of $13,725)
|
|
(182,264
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(182,264
|
)
|
Net investment hedges (net of taxes of $7,113)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,539
|
|
|
19,539
|
|
Reclassifications from other comprehensive income to net income:
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost and deferred gains (net of taxes of $2,101)
|
|
—
|
|
|
5,770
|
|
|
—
|
|
|
—
|
|
|
5,770
|
|
Amortization of loss on cash flow hedge (net of taxes of $153)
|
|
—
|
|
|
—
|
|
|
416
|
|
|
—
|
|
|
416
|
|
Balance, August 4, 2018
|
|
$
|
(462,315
|
)
|
|
$
|
(153,792
|
)
|
|
$
|
(1,830
|
)
|
|
$
|
19,539
|
|
|
$
|
(598,398
|
)
|
Note D.
Capital Stock and Earnings Per Share
Capital Stock
TJX repurchased and retired
6.4 million
shares of its common stock at a cost of
$0.6 billion
during the quarter ended
August 4, 2018
, on a “trade date” basis. During the
six
months ended
August 4, 2018
, TJX repurchased and retired
11.3 million
shares of its common stock at a cost of $
1.0 billion
, 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
$990 million
for the
six
months ended
August 4, 2018
, and
$885 million
for the
six
months ended
July 29, 2017
. These expenditures were funded by cash generated from operations.
In February 2018, TJX announced that its Board of Directors had approved an additional stock repurchase program that authorized the repurchase of up to
$3.0 billion
of TJX common stock from time to time.
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. Under this program, on a “trade date” basis through
August 4, 2018
, TJX repurchased
9.6 million
shares of common stock at a cost of
$864.2 million
.
As of
August 4, 2018
, TJX had
$3.1 billion
available under these previously announced stock repurchase programs.
All shares repurchased under the stock repurchase programs have been retired.
Earnings Per Share
The following tables present the calculation of basic and diluted earnings per share (“EPS”) for net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
In thousands, except per share data
|
|
August 4,
2018
|
|
July 29,
2017
|
|
August 4,
2018
|
|
July 29,
2017
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
739,626
|
|
|
$
|
552,957
|
|
|
$
|
1,456,007
|
|
|
$
|
1,089,236
|
|
Weighted average common shares outstanding for basic EPS
|
|
623,426
|
|
|
639,127
|
|
|
625,019
|
|
|
641,776
|
|
Basic earnings per share
|
|
$
|
1.19
|
|
|
$
|
0.87
|
|
|
$
|
2.33
|
|
|
$
|
1.70
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
739,626
|
|
|
$
|
552,957
|
|
|
$
|
1,456,007
|
|
|
$
|
1,089,236
|
|
Shares for basic and diluted earnings per share calculations:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic EPS
|
|
623,426
|
|
|
639,127
|
|
|
625,019
|
|
|
641,776
|
|
Assumed exercise/vesting of:
|
|
|
|
|
|
|
|
|
Stock options and awards
|
|
9,534
|
|
|
9,190
|
|
|
8,665
|
|
|
10,116
|
|
Weighted average common shares outstanding for diluted EPS
|
|
632,960
|
|
|
648,317
|
|
|
633,684
|
|
|
651,892
|
|
Diluted earnings per share
|
|
$
|
1.17
|
|
|
$
|
0.85
|
|
|
$
|
2.30
|
|
|
$
|
1.67
|
|
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 average price of TJX’s common stock for the related fiscal periods. Such options are excluded because they would have an antidilutive effect. There were
no
such options excluded for each of the
thirteen weeks and twenty-six weeks
ended
August 4, 2018
. There were
8.0 million
such options excluded for the
thirteen weeks and twenty-six weeks
ended
July 29, 2017
.
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 TJX’s operating results and financial position. TJX seeks to minimize risk from changes in interest and foreign currency exchange rates and fuel costs through the use of derivative financial instruments when and to the extent deemed appropriate. 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.
Diesel Fuel Contracts
TJX hedges portions of its estimated notional diesel requirements based on the diesel fuel expected to be consumed by independent freight carriers transporting TJX’s inventory. Independent freight carriers transporting TJX’s 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 2018, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for
fiscal 2019
, and during the first
six
months of
fiscal 2019
, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the first
six
months of fiscal 2020. The hedge agreements outstanding at
August 4, 2018
relate to approximately
49%
of TJX’s estimated notional diesel requirements for the remainder of fiscal 2019 and approximately
46%
of TJX’s estimated notional diesel requirements for the first six months of fiscal 2020. These diesel fuel hedge agreements will settle throughout the remainder of
fiscal 2019
and throughout the first
seven
months of fiscal 2020. TJX elected not to apply hedge accounting to these contracts.
Foreign Currency Contracts
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 Company’s operations in 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
August 4, 2018
cover a portion of such actual and anticipated merchandise purchases throughout the remainder of
fiscal 2019
and throughout the first half of fiscal 2020. Additionally, TJX’s 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 TJX’s European businesses’ Euro denominated operations creates exposure to the central 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 TJX’s 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 to these contracts.
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.
TJX periodically reviews its net investments in foreign subsidiaries. During the fiscal quarter ended May 5, 2018, TJX entered into net investment hedge contracts related to a portion of its investment in TJX Canada. During the fiscal quarter ended
August 4, 2018
, TJX de-designated the net investment hedge contracts. The remaining life of the foreign currency contracts provided a natural hedge to the declared cash dividend from TJX Canada. The contracts settled during the second quarter of
fiscal 2019
resulting in a pre-tax gain of
$27 million
while designated as a net investment hedge and subsequent to de-designation, a pre-tax gain of
$19 million
. The
$27 million
gain is reflected in shareholders equity as a component of other comprehensive income. The
$19 million
gain subsequent to de-designation is reflected in the income statement offsetting a foreign currency loss of $
18 million
on the declared dividends.
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at
August 4, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
August 4,
2018
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
|
|
|
|
zł
|
67,000
|
|
£
|
14,035
|
|
0.2095
|
|
Prepaid Exp
|
$
|
141
|
|
$
|
—
|
|
$
|
141
|
|
|
€
|
53,950
|
|
£
|
47,868
|
|
0.8873
|
|
(Accrued Exp)
|
—
|
|
(518
|
)
|
(518
|
)
|
|
£
|
30,000
|
|
C$
|
54,038
|
|
1.8013
|
|
Prepaid Exp
|
2,484
|
|
—
|
|
2,484
|
|
|
U.S.$
|
77,079
|
|
£
|
55,000
|
|
0.7136
|
|
(Accrued Exp)
|
—
|
|
(5,097
|
)
|
(5,097
|
)
|
|
A$
|
10,000
|
|
£
|
5,631
|
|
0.5631
|
|
(Accrued Exp)
|
—
|
|
(64
|
)
|
(64
|
)
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
Diesel contracts
|
|
Fixed on 2.3M – 3.0M gal per month
|
|
|
Float on 2.3M – 3.0M gal per month
|
|
N/A
|
|
Prepaid Exp
|
6,864
|
|
—
|
|
6,864
|
|
Intercompany billings in Europe, primarily merchandise related
|
|
|
|
|
|
|
€
|
76,000
|
|
£
|
67,192
|
|
0.8841
|
|
(Accrued Exp)
|
—
|
|
(672
|
)
|
(672
|
)
|
Merchandise purchase commitments
|
|
|
|
|
|
|
C$
|
621,719
|
|
U.S.$
|
481,300
|
|
0.7741
|
|
Prepaid Exp / (Accrued Exp)
|
4,913
|
|
(2,940
|
)
|
1,973
|
|
|
C$
|
35,433
|
|
€
|
23,000
|
|
0.6491
|
|
(Accrued Exp)
|
—
|
|
(610
|
)
|
(610
|
)
|
|
£
|
351,964
|
|
U.S.$
|
488,400
|
|
1.3876
|
|
Prepaid Exp
|
28,329
|
|
—
|
|
28,329
|
|
|
U.S.$
|
3,274
|
|
£
|
2,475
|
|
0.7560
|
|
(Accrued Exp)
|
|
(49
|
)
|
(49
|
)
|
|
A$
|
33,867
|
|
U.S.$
|
25,327
|
|
0.7478
|
|
Prepaid Exp / (Accrued Exp)
|
229
|
|
(16
|
)
|
213
|
|
|
zł
|
355,038
|
|
£
|
72,479
|
|
0.2041
|
|
(Accrued Exp)
|
—
|
|
(1,889
|
)
|
(1,889
|
)
|
|
U.S.$
|
74,329
|
|
€
|
61,929
|
|
0.8332
|
|
(Accrued Exp)
|
—
|
|
(2,336
|
)
|
(2,336
|
)
|
Total fair value of derivative financial instruments
|
|
|
$
|
42,960
|
|
$
|
(14,191
|
)
|
$
|
28,769
|
|
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at
February 3, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
February 3,
2018
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
|
|
|
zł
|
67,000
|
|
£
|
14,035
|
|
0.2095
|
|
(Accrued Exp)
|
$
|
—
|
|
$
|
(45
|
)
|
$
|
(45
|
)
|
|
€
|
51,950
|
|
£
|
46,095
|
|
0.8873
|
|
(Accrued Exp)
|
—
|
|
(318
|
)
|
(318
|
)
|
|
U.S.$
|
77,079
|
|
£
|
55,000
|
|
0.7136
|
|
Prepaid Exp
|
1,636
|
|
—
|
|
1,636
|
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
Diesel contracts
|
|
|
|
|
|
|
|
|
|
|
Fixed on
2.2M – 3.0M
gal per month
|
|
Float on
2.2M– 3.0M
gal per month
|
N/A
|
|
Prepaid Exp
|
7,854
|
|
—
|
|
7,854
|
|
Intercompany billings in TJX Europe, primarily merchandise related
|
|
|
|
|
€
|
26,000
|
|
£
|
22,948
|
|
0.8826
|
|
(Accrued Exp)
|
—
|
|
(2
|
)
|
(2
|
)
|
Merchandise purchase commitments
|
|
|
|
|
|
C$
|
462,464
|
|
U.S.$
|
367,200
|
|
0.7940
|
|
Prepaid Exp /
(Accrued Exp)
|
49
|
|
(5,478
|
)
|
(5,429
|
)
|
|
C$
|
22,562
|
|
€
|
15,000
|
|
0.6648
|
|
Prepaid Exp
|
557
|
|
—
|
|
557
|
|
|
£
|
176,911
|
|
U.S.$
|
238,000
|
|
1.3453
|
|
Prepaid Exp /
(Accrued Exp)
|
173
|
|
(12,838
|
)
|
(12,665
|
)
|
|
zł
|
288,646
|
|
£
|
60,023
|
|
0.2079
|
|
(Accrued Exp)
|
—
|
|
(1,303
|
)
|
(1,303
|
)
|
|
A$
|
28,635
|
|
U.S.$
|
22,230
|
|
0.7763
|
|
Prepaid Exp /
(Accrued Exp)
|
43
|
|
(573
|
)
|
(530
|
)
|
|
U.S.$
|
44,223
|
|
€
|
36,950
|
|
0.8355
|
|
Prepaid Exp
|
1,905
|
|
—
|
|
1,905
|
|
Total fair value of financial instruments
|
|
$
|
12,217
|
|
$
|
(20,557
|
)
|
$
|
(8,340
|
)
|
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at
July 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
July 29, 2017
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
|
|
|
zł
|
67,000
|
|
£
|
13,000
|
|
0.1940
|
|
(Accrued Exp)
|
$
|
—
|
|
$
|
(1,326
|
)
|
$
|
(1,326
|
)
|
|
|
€
|
69,200
|
|
£
|
59,813
|
|
0.8643
|
|
(Accrued Exp)
|
—
|
|
(3,044
|
)
|
(3,044
|
)
|
|
|
U.S.$
|
68,445
|
|
£
|
55,000
|
|
0.8036
|
|
Prepaid Exp
|
4,174
|
|
—
|
|
4,174
|
|
|
|
A$
|
40,000
|
|
$
|
23,781
|
|
0.5945
|
|
(Accrued Exp)
|
—
|
|
(676
|
)
|
(676
|
)
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
Diesel contracts
|
|
|
|
|
|
|
|
|
|
|
Fixed on 2.0M – 2.5M gal per month
|
|
Float on 2.0M – 2.5M gal per month
|
|
N/A
|
|
Prepaid Exp
|
544
|
|
—
|
|
544
|
|
Intercompany billings in Europe, primarily merchandise related
|
|
|
|
|
|
€
|
54,000
|
|
£
|
47,790
|
|
0.8850
|
|
(Accrued Exp)
|
—
|
|
(730
|
)
|
(730
|
)
|
Merchandise purchase commitments
|
|
|
|
|
|
C$
|
571,142
|
|
U.S.$
|
430,600
|
|
0.7539
|
|
(Accrued Exp)
|
—
|
|
(29,261
|
)
|
(29,261
|
)
|
|
|
C$
|
33,086
|
|
€
|
22,500
|
|
0.6800
|
|
Prepaid Exp /
(Accrued Exp)
|
218
|
|
(361
|
)
|
(143
|
)
|
|
|
£
|
252,400
|
|
U.S.$
|
324,000
|
|
1.2837
|
|
(Accrued Exp)
|
—
|
|
(8,417
|
)
|
(8,417
|
)
|
|
|
A$
|
26,492
|
|
U.S.$
|
20,266
|
|
0.7650
|
|
(Accrued Exp)
|
—
|
|
(895
|
)
|
(895
|
)
|
|
|
zł
|
326,370
|
|
£
|
66,993
|
|
0.2053
|
|
(Accrued Exp)
|
—
|
|
(1,917
|
)
|
(1,917
|
)
|
|
|
U.S.$
|
2,284
|
|
£
|
1,787
|
|
0.7824
|
Prepaid Exp
|
65
|
|
—
|
|
65
|
|
|
|
U.S.$
|
74,175
|
|
€
|
66,313
|
|
0.8940
|
|
Prepaid Exp
|
3,957
|
|
—
|
|
3,957
|
|
Total fair value of financial instruments
|
|
|
$
|
8,958
|
|
$
|
(46,627
|
)
|
$
|
(37,669
|
)
|
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
|
|
Amount of Gain (Loss) Recognized
in Income by Derivative
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
In thousands
|
|
Location of Gain (Loss)
Recognized in Income by
Derivative
|
|
August 4, 2018
|
|
July 29,
2017
|
|
August 4,
2018
|
|
July 29,
2017
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
Selling, general and administrative expenses
|
|
$
|
(2,418
|
)
|
|
$
|
(5,591
|
)
|
|
$
|
(4,210
|
)
|
|
$
|
(2,366
|
)
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
Selling, general and administrative expenses
|
|
18,823
|
|
|
—
|
|
|
18,823
|
|
|
—
|
|
Diesel fuel contracts
|
|
Cost of sales, including buying and occupancy costs
|
|
1,005
|
|
|
2,006
|
|
|
5,958
|
|
|
(1,317
|
)
|
Intercompany billings in Europe,
primarily merchandise related
|
|
Cost of sales, including buying and occupancy costs
|
|
(576
|
)
|
|
(5,045
|
)
|
|
(694
|
)
|
|
(3,444
|
)
|
Merchandise purchase commitments
|
|
Cost of sales, including buying and occupancy costs
|
|
21,171
|
|
|
(44,098
|
)
|
|
52,628
|
|
|
(34,165
|
)
|
Gain / (loss) recognized in income
|
|
|
|
$
|
38,005
|
|
|
$
|
(52,728
|
)
|
|
$
|
72,505
|
|
|
$
|
(41,292
|
)
|
Note F.
Fair Value Measurements
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 TJX’s financial assets and liabilities that are accounted for at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
August 4,
2018
|
|
February 3,
2018
|
|
July 29,
2017
|
Level 1
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Executive Savings Plan investments
|
|
$
|
258,798
|
|
|
$
|
249,045
|
|
|
$
|
221,978
|
|
Level 2
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
—
|
|
|
$
|
506,165
|
|
|
$
|
502,757
|
|
Foreign currency exchange contracts
|
|
36,096
|
|
|
4,363
|
|
|
8,414
|
|
Diesel fuel contracts
|
|
6,864
|
|
|
7,854
|
|
|
544
|
|
Liabilities:
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
14,191
|
|
|
$
|
20,557
|
|
|
$
|
46,627
|
|
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. TJX’s 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 TJX’s 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
August 4, 2018
was
$2.1 billion
compared to a carrying value of
$2.2 billion
. The fair value of long-term debt as of
February 3, 2018
was
$2.2 billion
compared to a carrying value of
$2.2 billion
. The fair value of long-term debt as of
July 29, 2017
was
$2.2 billion
compared to a carrying value of
$2.2 billion
. These estimates do not necessarily reflect provisions or restrictions in the various debt agreements that might affect TJX’s ability to settle these obligations.
TJX’s cash equivalents are stated at cost, which approximates fair value due to the short maturities of these instruments.
Note G.
Segment Information
TJX operates
four
main business segments. The Marmaxx segment (T.J. Maxx, Marshalls and tjmaxx.com) and the HomeGoods segment (HomeGoods and Homesense) 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 STP, an off-price Internet retailer that operates sierratradingpost.com and retail stores in the U.S. The results of STP are included in the Marmaxx segment.
All of TJX’s 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 TJX’s performance or as a measure of liquidity.
Presented below is financial information with respect to TJX’s business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-Six Weeks Ended
|
In thousands
|
|
August 4,
2018
|
|
July 29,
2017
|
|
August 4,
2018
|
|
July 29,
2017
|
Net sales:
|
|
|
|
|
|
|
|
|
In the United States:
|
|
|
|
|
|
|
|
|
Marmaxx
|
|
$
|
5,847,721
|
|
|
$
|
5,284,639
|
|
|
$
|
11,228,639
|
|
|
$
|
10,251,774
|
|
HomeGoods
|
|
1,327,346
|
|
|
1,156,398
|
|
|
2,596,677
|
|
|
2,277,667
|
|
TJX Canada
|
|
937,736
|
|
|
832,026
|
|
|
1,791,572
|
|
|
1,570,797
|
|
TJX International
|
|
1,218,312
|
|
|
1,084,637
|
|
|
2,402,947
|
|
|
2,041,486
|
|
|
|
$
|
9,331,115
|
|
|
$
|
8,357,700
|
|
|
$
|
18,019,835
|
|
|
$
|
16,141,724
|
|
Segment profit:
|
|
|
|
|
|
|
|
|
In the United States:
|
|
|
|
|
|
|
|
|
Marmaxx
|
|
$
|
830,315
|
|
|
$
|
746,881
|
|
|
$
|
1,580,771
|
|
|
$
|
1,434,046
|
|
HomeGoods
|
|
142,090
|
|
|
141,345
|
|
|
289,450
|
|
|
293,437
|
|
TJX Canada
|
|
138,735
|
|
|
83,229
|
|
|
263,919
|
|
|
186,109
|
|
TJX International
|
|
48,691
|
|
|
38,967
|
|
|
89,517
|
|
|
45,827
|
|
|
|
1,159,831
|
|
|
1,010,422
|
|
|
2,223,657
|
|
|
1,959,419
|
|
General corporate expense
|
|
164,245
|
|
|
109,045
|
|
|
268,365
|
|
|
215,693
|
|
Interest expense, net
|
|
3,029
|
|
|
9,677
|
|
|
7,177
|
|
|
19,518
|
|
Income before provision for income taxes
|
|
$
|
992,557
|
|
|
$
|
891,700
|
|
|
$
|
1,948,115
|
|
|
$
|
1,724,208
|
|
Note H.
Pension Plans and Other Retirement Benefits
Presented below is financial information relating to TJX’s 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
|
|
August 4,
2018
|
|
July 29,
2017
|
|
August 4,
2018
|
|
July 29,
2017
|
Service cost
|
|
$
|
11,613
|
|
|
$
|
11,804
|
|
|
$
|
611
|
|
|
$
|
587
|
|
Interest cost
|
|
13,965
|
|
|
13,759
|
|
|
853
|
|
|
843
|
|
Expected return on plan assets
|
|
(20,962
|
)
|
|
(17,382
|
)
|
|
—
|
|
|
—
|
|
Recognized actuarial losses
|
|
3,114
|
|
|
5,574
|
|
|
821
|
|
|
833
|
|
Total expense
|
|
$
|
7,730
|
|
|
$
|
13,755
|
|
|
$
|
2,285
|
|
|
$
|
2,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Plan
|
|
Unfunded Plan
|
|
|
Twenty-Six Weeks Ended
|
|
Twenty-Six Weeks Ended
|
In thousands
|
|
August 4,
2018
|
|
July 29,
2017
|
|
August 4,
2018
|
|
July 29,
2017
|
Service cost
|
|
$
|
23,226
|
|
|
$
|
23,609
|
|
|
$
|
1,222
|
|
|
$
|
1,175
|
|
Interest cost
|
|
27,930
|
|
|
27,518
|
|
|
1,706
|
|
|
1,686
|
|
Expected return on plan assets
|
|
(41,924
|
)
|
|
(34,764
|
)
|
|
—
|
|
|
—
|
|
Recognized actuarial losses
|
|
6,228
|
|
|
11,154
|
|
|
1,642
|
|
|
1,664
|
|
Total expense
|
|
$
|
15,460
|
|
|
$
|
27,517
|
|
|
$
|
4,570
|
|
|
$
|
4,525
|
|
TJX’s 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 as is sufficient to avoid restrictions with respect to the funding of nonqualified plans under the Internal Revenue Code. We do not anticipate any required funding in
fiscal 2019
for the funded plan. We anticipate making contributions of
$2.5 million
to provide current benefits coming due under the unfunded plan in
fiscal 2019
.
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.
Note I.
Long-Term Debt and Credit Lines
The table below presents long-term debt, exclusive of current installments, as of
August 4, 2018
,
February 3, 2018
and
July 29, 2017
. All amounts are net of unamortized debt discounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
August 4,
2018
|
|
February 3,
2018
|
|
July 29,
2017
|
General corporate debt:
|
|
|
|
|
|
|
2.50% senior unsecured notes, maturing May 15, 2023 (effective interest rate of 2.51% after reduction of unamortized debt discount of $211 at August 4, 2018, $234 at February 3, 2018 and $256 at July 29, 2017)
|
|
$
|
499,789
|
|
|
$
|
499,766
|
|
|
$
|
499,744
|
|
2.75% senior unsecured notes, maturing June 15, 2021 (effective interest rate of 2.76% after reduction of unamortized debt discount of $212 at August 4, 2018, $250 at February 3, 2018 and $287 at July 29, 2017)
|
|
749,788
|
|
|
749,750
|
|
|
749,713
|
|
2.25% senior unsecured notes, maturing September 15, 2026 (effective interest rate of 2.32% after reduction of unamortized debt discount of $6,030 at August 4, 2018, $6,403 at February 3, 2018 and $6,776 at July 29, 2017)
|
|
993,970
|
|
|
993,597
|
|
|
993,224
|
|
Debt issuance cost
|
|
(11,435
|
)
|
|
(12,506
|
)
|
|
(13,578
|
)
|
Long-term debt
|
|
$
|
2,232,112
|
|
|
$
|
2,230,607
|
|
|
$
|
2,229,103
|
|
As of
August 4, 2018
,
February 3, 2018
and
July 29, 2017
, TJX had
two
$500 million
revolving credit facilities, one which matures in March 2020 and one which matures in March 2022.
The terms and covenants under the revolving credit facilities 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 TJX’s long-term debt and will vary with specified changes in the credit ratings. These agreements have no compensating balance requirements and have various covenants. Each of these facilities require TJX to maintain a ratio of funded debt and four-times consolidated rentals to consolidated earnings before interest, taxes, consolidated rentals, depreciation and amortization (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 the end of all periods presented. As of
August 4, 2018
,
February 3, 2018
and
July 29, 2017
, and during the quarters and year then ended, there were
no
amounts outstanding under these facilities.
As of
August 4, 2018
,
February 3, 2018
and
July 29, 2017
, 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
August 4, 2018
,
February 3, 2018
and
July 29, 2017
, there were
no
amounts outstanding on the Canadian credit line for operating expenses. As of
August 4, 2018
,
February 3, 2018
and
July 29, 2017
, our European business at TJX International had an uncommitted credit line of
£5 million
. As of
August 4, 2018
,
February 3, 2018
and
July 29, 2017
, 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
25.5%
for the
second
quarter of
fiscal 2019
and
38.0%
for the
second
quarter of fiscal
2018
. The effective income tax rate was
25.3%
for the first
six
months of fiscal
2019
and
36.8%
for the first
six
months of fiscal
2018
. The
decrease
in the effective income tax rate was primarily due to the reduction of the U.S. federal corporate tax rate to
21%
as a result of the 2017 Tax Act and the jurisdictional mix of income.
Under ASU 2018-05, we have accounted for the impacts of the 2017 Tax Act to the extent a reasonable estimate could be made and we recognized provisional amounts related to the deemed repatriation tax, offset by the re-measurement of our deferred tax assets and liabilities to record the effects of the tax law change in the period of enactment. This guidance allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law during the measurement period. The measurement period ends when the company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. During the
second
quarter of fiscal
2019
, the Internal Revenue Service issued Proposed Regulation under Internal Revenue Code Section 965 providing additional guidance and clarification on certain aspects of the deemed repatriation tax calculation. The Proposed Regulation did not result in an adjustment to the provisional amounts recorded as of
February 3, 2018
. We will continue to monitor for new guidance related to provisional amounts recorded.
TJX had net unrecognized tax benefits of
$62.4 million
as of
August 4, 2018
,
$57.3 million
as of
February 3, 2018
and
$40.4 million
as of
July 29, 2017
.
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.
TJX’s 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
$13.5 million
as of
August 4, 2018
,
$11.9 million
as of
February 3, 2018
and
$8.3 million
as of
July 29, 2017
.
Based on the outcome of tax examinations or judicial or administrative proceedings, or as a result of the expiration of statutes 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
$22 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
eight
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
$42.5 million
as of
August 4, 2018
. 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.
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. TJX is also a defendant in a putative class action on behalf of customers relating to TJX’s compare at pricing. The lawsuits are in various procedural stages and seek monetary damages, injunctive relief and attorneys’ fees. In connection with ongoing litigation, an immaterial amount has been accrued in the accompanying financial statements.