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.
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 30, 2016 (fiscal 2016).
These interim results are not necessarily indicative of results for the full fiscal year, because 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 30, 2016 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 January 28, 2017 (fiscal 2017) and is a 52-week fiscal year. Fiscal 2016 was also 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 restricted stock awards. Total share-based compensation expense was $27.5 million for the quarter ended
October 29, 2016 and $27.3 million for the quarter ended October 31, 2015. Total share-based compensation expense was $77.4 million for the nine months ended October 29, 2016 and $71.1 million for the nine months ended
October 31, 2015. These amounts include stock option expense as well as restricted and deferred stock amortization. There were options to purchase 0.7 million shares of common stock exercised during the quarter ended October 29, 2016
and options to purchase 4.0 million shares of common stock exercised during the nine months ended October 29, 2016. There were options outstanding to purchase 28.7 million shares of common stock as of October 29, 2016. As of
October 29, 2016, there was $100.7 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 October 29, 2016, TJXs cash and cash equivalents held by its foreign subsidiaries were $1,138.2 million, of which $253.3 million was held in countries where TJX has the intention to reinvest any undistributed earnings
indefinitely.
Investments:
Investments with maturities greater than 90 days but less than one year at the date of purchase are included in
short-term investments. These investments are classified as trading securities and are stated at fair value. Investments are classified as either short- or long-term based on their original maturities. TJXs investments are primarily high-grade
commercial paper, institutional money market funds and time deposits with major banks.
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 Trade Secret. 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 $785.0 million at October 29, 2016, $690.3 million at January 30, 2016 and $816.6 million at October 31, 2015.
Comparable amounts were reflected in accounts payable at those dates.
8
Leases:
TJX begins to record rent expense when it takes possession of a store, which is typically 30 to 60
days prior to the opening of the store and generally occurs before the commencement of the lease term, as specified in the lease. Lease agreements involving property built to our specifications are reviewed to determine if our involvement in the
construction project requires that we account for the project costs as if we were the owner for accounting purposes. We have entered into several lease agreements where we are deemed the owner of a construction project for accounting purposes. Thus,
during construction of the facility the construction costs incurred by the lessor are included as a construction in progress asset along with a related liability of the same amount on our balance sheet. Upon completion of the project, a
sale-leaseback analysis is performed to determine if the Company should record a sale to remove the related asset and related obligation and record the lease as either an operating or capital lease obligation. If the Company is precluded from
derecognizing the asset when construction is complete, due to continuing involvement beyond a normal leaseback, the lease is accounted for as a financing transaction and the recorded asset and related financing obligation remain on the Consolidated
Balance Sheets. Accordingly, the asset is depreciated over its estimated useful life in accordance with the Companys policy and a portion of the lease payments is allocated to ground rent and treated as an operating lease. The portion of the
lease payment allocated to ground rental expense is based on the fair value of the land at the commencement of construction. Lease payments allocated to the non-land asset are recognized as reductions to the financing obligation and interest
expense.
New Accounting Standards:
In March 2016, a pronouncement was issued that aims to simplify several aspects of accounting and reporting for
share-based payment transactions. One provision 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 balance sheet. The Company is currently evaluating the potential impact that this provision, which is to be applied prospectively, will have on its financial statements. The Company does not expect the other provisions within the
pronouncement will have a material impact on its financial statements. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods, with early adoption permitted.
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 is in the process of evaluating this guidance to determine the impact it will have on our financial
statements.
In October 2016, a pronouncement was issued that aims to reduce the diversity in practice and complexity associated with accounting for the
income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The
new pronouncement stipulates that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance will be effective for annual reporting periods beginning
after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted in the first interim period only. The amendments are to be applied on a modified retrospective basis through a
cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. TJX is in the process of evaluating this guidance to determine the impact it will have on our financial statements.
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 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 proposed update stipulates the new standard would be effective for annual reporting periods beginning after
December 15, 2017, and interim periods therein, with an option to adopt the standard on the originally scheduled effective date. The standard shall be
9
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. TJX is currently evaluating the impact of the new pronouncement on its consolidated financial statements.
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. TJX is in
the process of evaluating this guidance to determine the impact it will have on our financial statements.
In April 2015, a pronouncement was issued that
requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance was effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2015. For TJX, the standard was effective in the first quarter of fiscal 2017. As a result, we have recast the January 30, 2016 consolidated balance sheet to
conform to the current period presentation. The adoption of this standard reduced previously-presented other assets by $9.1 million and reduced long-term debt by $9.1 million as of January 30, 2016. In addition, we have also recast the
October 31, 2015 consolidated balance sheet to conform to the current period presentation. The adoption of this standard reduced previously-presented other assets by $9.5 million and reduced long-term debt by $9.5 million as of
October 31, 2015.
In November 2015, a pronouncement was issued that requires entities to present deferred tax assets (DTAs) and deferred tax
liabilities (DTLs) as noncurrent in a classified balance sheet. It simplified then existing guidance, which required entities to separately present DTAs and DTLs as current or noncurrent in a classified balance sheet. TJX adopted this guidance as of
January 30, 2016, and applied it retrospectively. The impact on the October 31, 2015 consolidated balance sheet was to reduce previously-presented current DTAs by $120.9 million, decreased long-term DTAs by $2.6 million and reduced
long-term DTLs by $123.5 million as of October 31, 2015.
Note B. Acquisition of Trade Secret
On October 24, 2015, TJX purchased Trade Secret, an off-price retailer that operates 35 stores in Australia, for AUD$83.3 million (US$59.4 million).
The following table presents the final allocation of the purchase price to the assets and liabilities acquired based on their estimated fair values as of
October 24, 2015 (in thousands):
|
|
|
|
|
Current assets
|
|
$
|
25,899
|
|
Property and equipment
|
|
|
10,184
|
|
Goodwill and intangible assets
|
|
|
37,416
|
|
Less liabilities assumed
|
|
|
(14,071
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
59,428
|
|
|
|
|
|
|
Goodwill and intangible assets include goodwill of $25 million and identified intangible assets of $12 million for the value
of the tradename Trade Secret which is being amortized over 10 years.
The operating results of Trade Secret have been included in TJXs
consolidated financial statements from the date of acquisition and Trade Secret is now part of the TJX International segment along with our European operations. Pro forma results of operation assuming the acquisition of Trade Secret occurred as of
the beginning of fiscal 2015 have not been presented as the inclusion of the results of operations for the acquired business would not have produced a material impact on TJXs sales, net income or earnings per share as reported.
10
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 30, 2016
|
|
$
|
(439,192
|
)
|
|
$
|
(224,654
|
)
|
|
$
|
(3,626
|
)
|
|
$
|
(667,472
|
)
|
Additions to other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments (net of taxes of $17,241)
|
|
|
(93,304
|
)
|
|
|
|
|
|
|
|
|
|
|
(93,304
|
)
|
Recognition of net gains/losses on benefit obligations,(net of taxes of $47,051)
|
|
|
|
|
|
|
(71,525
|
)
|
|
|
|
|
|
|
(71,525
|
)
|
Pension settlement charge (net of taxes of $12,369)
|
|
|
|
|
|
|
18,804
|
|
|
|
|
|
|
|
18,804
|
|
Reclassifications from other comprehensive income to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost and deferred gains/losses (net of taxes of $7,517)
|
|
|
|
|
|
|
11,427
|
|
|
|
|
|
|
|
11,427
|
|
Amortization of loss on cash flow hedge (net of taxes of $337)
|
|
|
|
|
|
|
|
|
|
|
513
|
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 29, 2016
|
|
$
|
(532,496
|
)
|
|
$
|
(265,948
|
)
|
|
$
|
(3,113
|
)
|
|
$
|
(801,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note D. Capital Stock and Earnings per Share
Capital Stock:
TJX repurchased and retired 5.2 million shares of its common stock at a cost of $400.0 million during the quarter ended
October 29, 2016, on a trade date basis. During the nine months ended October 29, 2016, TJX repurchased and retired 15.4 million shares of its common stock at a cost of $1.2 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 $1.2 billion for the nine months ended October 29, 2016 and $1.3 billion for the
nine months ended October 31, 2015.
In February 2015, 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 October 29, 2016, TJX repurchased 22.7 million shares of common stock at a
cost of $1.7 billion. At October 29, 2016, $315.8 million remained available for purchase under this program.
In February 2016, TJX announced
that its Board of Directors had approved another stock repurchase program that authorized the repurchase of up to an additional $2.0 billion of TJX common stock from time to time, all of which remained available at October 29, 2016.
All shares repurchased under the stock repurchase programs have been retired.
11
Earnings per share:
The following schedule presents the calculation of basic and diluted earnings per
share (EPS) for net income:
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
In thousands, except per share data
|
|
October 29,
2016
|
|
|
October 31,
2015
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
549,786
|
|
|
$
|
587,256
|
|
Weighted average common shares outstanding for basic EPS
|
|
|
653,559
|
|
|
|
671,154
|
|
Basic earnings per share
|
|
$
|
0.84
|
|
|
$
|
0.88
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
549,786
|
|
|
$
|
587,256
|
|
Shares for basic and diluted earnings per share calculations:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic EPS
|
|
|
653,559
|
|
|
|
671,154
|
|
Assumed exercise/vesting of:
|
|
|
|
|
|
|
|
|
Stock options and awards
|
|
|
8,162
|
|
|
|
9,690
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for diluted EPS
|
|
|
661,721
|
|
|
|
680,844
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.83
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
In thousands, except per share data
|
|
October 29,
2016
|
|
|
October 31,
2015
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,620,306
|
|
|
$
|
1,611,192
|
|
Weighted average common shares outstanding for basic EPS
|
|
|
657,746
|
|
|
|
676,220
|
|
Basic earnings per share
|
|
$
|
2.46
|
|
|
$
|
2.38
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,620,306
|
|
|
$
|
1,611,192
|
|
Shares for basic and diluted earnings per share calculations:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic EPS
|
|
|
657,746
|
|
|
|
676,220
|
|
Assumed exercise/vesting of:
|
|
|
|
|
|
|
|
|
Stock options and awards
|
|
|
8,886
|
|
|
|
9,852
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for diluted EPS
|
|
|
666,632
|
|
|
|
686,072
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.43
|
|
|
$
|
2.35
|
|
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 4.3 million
such options excluded for the thirteen weeks and thirty-nine weeks ended October 29, 2016. There were 4.2 million options excluded for the thirteen weeks and thirty-nine weeks ended October 31, 2015.
12
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 2016 and fiscal 2017, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2017. In addition, during fiscal 2017, TJX entered into
agreements to hedge a portion of its estimated notional diesel requirements for the first nine months of fiscal 2018. The hedge agreements outstanding at October 29, 2016 relate to approximately 51% of TJXs estimated notional diesel
requirements for the remainder of fiscal 2017 and approximately 50% of TJXs estimated notional diesel requirements for the first nine months of fiscal year 2018. These diesel fuel hedge agreements will settle throughout the remainder of fiscal
2017 and the first ten months of fiscal 2018. 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 in Europe (United
Kingdom, Ireland, Germany, Poland, Austria and The Netherlands), 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 October 29, 2016 cover a portion of such actual and anticipated merchandise purchases throughout the remainder of fiscal 2017 and the first two quarters of the fiscal year ending February 3, 2018,
(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.
13
The following is a summary of TJXs derivative financial instruments, related fair value and balance sheet
classification at October 29, 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
October 29,
2016
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
|
|
|
|
|
|
|
|
|
zł
|
57,073
|
|
|
C$
|
19,606
|
|
|
|
0.3435
|
|
|
|
Prepaid Exp
|
|
|
$
|
199
|
|
|
$
|
|
|
|
$
|
199
|
|
|
|
zł
|
45,000
|
|
|
£
|
7,403
|
|
|
|
0.1645
|
|
|
|
(Accrued Exp
|
)
|
|
|
|
|
|
|
(2,357
|
)
|
|
|
(2,357
|
)
|
|
|
|
61,000
|
|
|
£
|
47,211
|
|
|
|
0.7740
|
|
|
|
(Accrued Exp
|
)
|
|
|
|
|
|
|
(9,681
|
)
|
|
|
(9,681
|
)
|
|
|
U.S.$
|
77,957
|
|
|
£
|
55,000
|
|
|
|
0.7055
|
|
|
|
(Accrued Exp
|
)
|
|
|
|
|
|
|
(10,999
|
)
|
|
|
(10,999
|
)
|
|
|
£
|
25,000
|
|
|
C$
|
41,123
|
|
|
|
1.6449
|
|
|
|
Prepaid Exp
|
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
|
|
|
|
|
Diesel contracts
|
|
|
Fixed on 2.1M
2.3M gal per
month
|
|
|
|
Float on 2.1M
2.3M gal per
month
|
|
|
|
N/A
|
|
|
|
Prepaid Exp
|
|
|
|
1,485
|
|
|
|
|
|
|
|
1,485
|
|
Intercompany billings in Europe, primarily merchandise related
|
|
|
88,000
|
|
|
£
|
79,577
|
|
|
|
0.9043
|
|
|
|
Prepaid Exp
|
|
|
|
186
|
|
|
|
|
|
|
|
186
|
|
Merchandise purchase commitments
|
|
|
|
|
|
|
|
|
|
|
|
C$
|
461,631
|
|
|
U.S.$
|
355,350
|
|
|
|
0.7698
|
|
|
|
Prepaid Exp
|
|
|
|
10,434
|
|
|
|
|
|
|
|
10,434
|
|
|
|
C$
|
21,643
|
|
|
|
14,900
|
|
|
|
0.6885
|
|
|
|
Prepaid Exp
|
|
|
|
217
|
|
|
|
|
|
|
|
217
|
|
|
|
£
|
191,518
|
|
|
U.S.$
|
252,600
|
|
|
|
1.3189
|
|
|
|
Prepaid Exp /
(Accrued Exp
|
)
|
|
|
18,824
|
|
|
|
(626
|
)
|
|
|
18,198
|
|
|
|
U.S.$
|
675
|
|
|
£
|
468
|
|
|
|
0.6934
|
|
|
|
(Accrued Exp
|
)
|
|
|
|
|
|
|
(106
|
)
|
|
|
(106
|
)
|
|
|
zł
|
258,005
|
|
|
£
|
50,292
|
|
|
|
0.1949
|
|
|
|
Prepaid Exp /
(Accrued Exp
|
)
|
|
|
1
|
|
|
|
(3,875
|
)
|
|
|
(3,874
|
)
|
|
|
U.S.$
|
49,288
|
|
|
|
43,819
|
|
|
|
0.8891
|
|
|
|
Prepaid Exp /
(Accrued Exp
|
)
|
|
|
19
|
|
|
|
(1,122
|
)
|
|
|
(1,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of financial instruments
|
|
|
$
|
31,410
|
|
|
$
|
(28,766
|
)
|
|
$
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The following is a summary of TJXs derivative financial instruments, related fair value and balance sheet
classification at October 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
October 31,
2015
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
zł
|
87,073
|
|
|
C$
|
29,560
|
|
|
|
0.3395
|
|
|
|
Prepaid Exp /
(Accrued Exp
|
)
|
|
$
|
270
|
|
|
$
|
(198
|
)
|
|
$
|
72
|
|
|
|
zł
|
35,000
|
|
|
£
|
6,279
|
|
|
|
0.1794
|
|
|
|
Prepaid Exp
|
|
|
|
635
|
|
|
|
|
|
|
|
635
|
|
|
|
|
45,000
|
|
|
£
|
33,294
|
|
|
|
0.7399
|
|
|
|
Prepaid Exp
|
|
|
|
1,726
|
|
|
|
|
|
|
|
1,726
|
|
|
|
|
19,850
|
|
|
U.S.$
|
22,647
|
|
|
|
1.1409
|
|
|
|
Prepaid Exp
|
|
|
|
762
|
|
|
|
|
|
|
|
762
|
|
|
|
U.S.$
|
83,400
|
|
|
£
|
55,000
|
|
|
|
0.6595
|
|
|
|
Prepaid Exp
|
|
|
|
1,424
|
|
|
|
|
|
|
|
1,424
|
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel contracts
|
|
|
Fixed on 975K
3.0M gal per
month
|
|
|
|
Float on 975K
3.0M gal
per month
|
|
|
|
N/A
|
|
|
|
(Accrued Exp
|
)
|
|
|
|
|
|
|
(10,437
|
)
|
|
|
(10,437
|
)
|
Merchandise purchase commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C$
|
530,307
|
|
|
U.S.$
|
410,904
|
|
|
|
0.7748
|
|
|
|
Prepaid Exp /
(Accrued Exp
|
)
|
|
|
6,470
|
|
|
|
(906
|
)
|
|
|
5,564
|
|
|
|
C$
|
18,574
|
|
|
|
12,700
|
|
|
|
0.6838
|
|
|
|
Prepaid Exp /
(Accrued Exp
|
)
|
|
|
2
|
|
|
|
(224
|
)
|
|
|
(222
|
)
|
|
|
£
|
160,365
|
|
|
U.S.$
|
247,900
|
|
|
|
1.5458
|
|
|
|
Prepaid Exp /
(Accrued Exp
|
)
|
|
|
1,218
|
|
|
|
(689
|
)
|
|
|
529
|
|
|
|
zł
|
213,967
|
|
|
£
|
36,670
|
|
|
|
0.1714
|
|
|
|
Prepaid Exp
|
|
|
|
1,275
|
|
|
|
|
|
|
|
1,275
|
|
|
|
U.S.$
|
29,338
|
|
|
|
26,318
|
|
|
|
0.8971
|
|
|
|
Prepaid Exp /
(Accrued Exp
|
)
|
|
|
19
|
|
|
|
(379
|
)
|
|
|
(360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of financial instruments
|
|
|
|
|
|
|
|
|
|
|
$
|
13,801
|
|
|
$
|
(12,833
|
)
|
|
$
|
968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
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
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
In thousands
|
|
Location of Gain (Loss)
Recognized in Income by
Derivative
|
|
|
October 29,
2016
|
|
|
October 31,
2015
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
Selling, general and
administrative expenses
|
|
|
$
|
(10,549
|
)
|
|
$
|
(730
|
)
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel fuel contracts
|
|
|
Cost of sales, including buying
and occupancy costs
|
|
|
|
4,241
|
|
|
|
(2,405
|
)
|
Intercompany billings in Europe, primarily merchandise related
|
|
|
Cost of sales, including buying
and occupancy costs
|
|
|
|
(5,911
|
)
|
|
|
|
|
Merchandise purchase commitments
|
|
|
Cost of sales, including buying
and occupancy costs
|
|
|
|
23,105
|
|
|
|
5,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain / (loss) recognized in income
|
|
|
|
|
|
$
|
10,886
|
|
|
$
|
2,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized
in Income by Derivative
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
In thousands
|
|
Location of Gain (Loss)
Recognized in Income by
Derivative
|
|
|
October 29,
2016
|
|
|
October 31,
2015
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
Selling, general and
administrative expenses
|
|
|
$
|
(23,835
|
)
|
|
$
|
6,978
|
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel fuel contracts
|
|
|
Cost of sales, including buying
and occupancy costs
|
|
|
|
3,012
|
|
|
|
(11,696
|
)
|
Intercompany billings in Europe, primarily merchandise related
|
|
|
Cost of sales, including buying
and occupancy costs
|
|
|
|
(14,987
|
)
|
|
|
|
|
Merchandise purchase commitments
|
|
|
Cost of sales, including buying
and occupancy costs
|
|
|
|
15,826
|
|
|
|
12,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain / (loss) recognized in income
|
|
|
|
|
|
$
|
(19,984
|
)
|
|
$
|
8,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
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
|
|
October 29,
2016
|
|
|
January 30,
2016
|
|
|
October 31,
2015
|
|
Level 1
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Savings Plan investments
|
|
$
|
185,042
|
|
|
$
|
155,847
|
|
|
$
|
164,970
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
450,804
|
|
|
$
|
352,313
|
|
|
$
|
399,714
|
|
Foreign currency exchange contracts
|
|
|
29,925
|
|
|
|
28,643
|
|
|
|
13,801
|
|
Diesel fuel contracts
|
|
$
|
1,485
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
28,766
|
|
|
$
|
3,455
|
|
|
$
|
2,396
|
|
Diesel fuel contracts
|
|
|
|
|
|
|
13,952
|
|
|
|
10,437
|
|
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
October 29, 2016 was $2.2 billion compared to a carrying value of $2.2 billion. The fair value of long-term debt as of January 30, 2016 was $1.7 billion compared to a carrying value of $1.6 billion. The fair value of long-term debt as of
October 31, 2015 was $1.7 billion compared to a carrying value of $1.6 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.
17
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 Trade Secret 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. The former TJX Europe segment was renamed TJX International in the fourth quarter of
fiscal 2016 to reflect the acquisition of Trade Secret in Australia.
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
|
|
October 29,
2016
|
|
|
October 31,
2015
|
|
Net sales:
|
|
|
|
|
|
|
|
|
In the United States:
|
|
|
|
|
|
|
|
|
Marmaxx
|
|
$
|
5,252,815
|
|
|
$
|
4,926,507
|
|
HomeGoods
|
|
|
1,078,373
|
|
|
|
959,844
|
|
TJX Canada
|
|
|
855,473
|
|
|
|
753,630
|
|
TJX International
|
|
|
1,105,027
|
|
|
|
1,113,514
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,291,688
|
|
|
$
|
7,753,495
|
|
|
|
|
|
|
|
|
|
|
Segment profit:
|
|
|
|
|
|
|
|
|
In the United States:
|
|
|
|
|
|
|
|
|
Marmaxx
|
|
$
|
703,092
|
|
|
$
|
678,343
|
|
HomeGoods
|
|
|
149,739
|
|
|
|
134,550
|
|
TJX Canada
|
|
|
142,491
|
|
|
|
113,152
|
|
TJX International
|
|
|
87,821
|
|
|
|
115,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,083,143
|
|
|
|
1,041,335
|
|
General corporate expense
|
|
|
97,902
|
|
|
|
87,140
|
|
Loss on early extinguishment of debt
|
|
|
51,773
|
|
|
|
|
|
Pension settlement charge
|
|
|
31,173
|
|
|
|
|
|
Interest expense, net
|
|
|
12,462
|
|
|
|
13,005
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
889,833
|
|
|
$
|
941,190
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
In thousands
|
|
October 29,
2016
|
|
|
October 31,
2015
|
|
Net sales:
|
|
|
|
|
|
|
|
|
In the United States:
|
|
|
|
|
|
|
|
|
Marmaxx
|
|
$
|
15,217,188
|
|
|
$
|
14,227,800
|
|
HomeGoods
|
|
|
3,075,472
|
|
|
|
2,735,415
|
|
TJX Canada
|
|
|
2,297,831
|
|
|
|
2,073,189
|
|
TJX International
|
|
|
3,125,606
|
|
|
|
2,946,459
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,716,097
|
|
|
$
|
21,982,863
|
|
|
|
|
|
|
|
|
|
|
Segment profit:
|
|
|
|
|
|
|
|
|
In the United States:
|
|
|
|
|
|
|
|
|
Marmaxx
|
|
$
|
2,154,238
|
|
|
$
|
2,046,192
|
|
HomeGoods
|
|
|
415,996
|
|
|
|
367,984
|
|
TJX Canada
|
|
|
321,942
|
|
|
|
278,005
|
|
TJX International
|
|
|
145,047
|
|
|
|
192,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,037,223
|
|
|
|
2,884,700
|
|
General corporate expense
|
|
|
290,975
|
|
|
|
256,764
|
|
Loss on early extinguishment of debt
|
|
|
51,773
|
|
|
|
|
|
Pension settlement charge
|
|
|
31,173
|
|
|
|
|
|
Interest expense, net
|
|
|
33,918
|
|
|
|
35,437
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
2,629,384
|
|
|
$
|
2,592,499
|
|
|
|
|
|
|
|
|
|
|
19
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
|
|
October 29,
2016
|
|
|
October 31,
2015
|
|
|
October 29,
2016
|
|
|
October 31,
2015
|
|
Service cost
|
|
$
|
11,360
|
|
|
$
|
11,453
|
|
|
$
|
293
|
|
|
$
|
(215
|
)
|
Interest cost
|
|
|
14,023
|
|
|
|
12,885
|
|
|
|
793
|
|
|
|
533
|
|
Expected return on plan assets
|
|
|
(17,633
|
)
|
|
|
(19,546
|
)
|
|
|
|
|
|
|
|
|
Recognized actuarial losses
|
|
|
7,943
|
|
|
|
8,048
|
|
|
|
783
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense related to current period
|
|
|
15,693
|
|
|
|
12,840
|
|
|
|
1,869
|
|
|
|
529
|
|
Pension settlement charge
|
|
|
31,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
46,866
|
|
|
$
|
12,840
|
|
|
$
|
1,869
|
|
|
$
|
529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Plan
|
|
|
Unfunded Plan
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
In thousands
|
|
October 29,
2016
|
|
|
October 31,
2015
|
|
|
October 29,
2016
|
|
|
October 31,
2015
|
|
Service cost
|
|
$
|
33,778
|
|
|
$
|
37,561
|
|
|
$
|
1,376
|
|
|
$
|
1,172
|
|
Interest cost
|
|
|
42,747
|
|
|
|
38,783
|
|
|
|
2,543
|
|
|
|
2,275
|
|
Expected return on plan assets
|
|
|
(53,503
|
)
|
|
|
(58,532
|
)
|
|
|
|
|
|
|
|
|
Recognized actuarial losses
|
|
|
22,362
|
|
|
|
25,142
|
|
|
|
2,512
|
|
|
|
2,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
|
45,384
|
|
|
|
42,954
|
|
|
|
6,431
|
|
|
|
6,416
|
|
Pension settlement charge
|
|
|
31,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
76,557
|
|
|
$
|
42,954
|
|
|
$
|
6,431
|
|
|
$
|
6,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2017 for the funded plan. TJX anticipates making payments of $3.3 million to provide current benefits coming due under the unfunded plan in fiscal 2017.
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.
20
During the third quarter, TJX offered eligible, former TJX Associates, who had not yet commenced receiving their
pension benefit, an opportunity to receive a lump sum payout of their vested pension benefit. On October 21, 2016 the Companys pension plan paid $103.2 million from pension plan assets to those who accepted this offer, thereby reducing
its pension benefit obligations. The transaction had no cash impact on TJX but did result in a non-cash pre-tax pension settlement charge of $31.2 million, which is reported separately on the consolidated statements of income. As a result of the
lump sum payout the Company re-measured the funded status of its pension plan as of September 30, 2016. The assumptions for pension expense presented above includes a discount rate of 4.80% through the measurement date and 3.80% thereafter. The
expected rate of return on plan assets is 6.50% through the measurement date and 6.00% thereafter. The discount rate for determining the obligation at the measurement date is 3.80%. Presented below is the funded status of the plan as a result of
this measurement and lump sum payment:
|
|
|
|
|
In thousands
|
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
1,213,000
|
|
Service cost
|
|
|
28,337
|
|
Interest cost
|
|
|
38,754
|
|
Actuarial (gains) losses
|
|
|
231,636
|
|
Benefits paid including lump sum payment
|
|
|
(122,029
|
)
|
Expenses paid
|
|
|
(2,980
|
)
|
|
|
|
|
|
Projected benefit obligation at measurement date
|
|
$
|
1,386,718
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
1,119,842
|
|
Actual return on plan assets
|
|
|
159,787
|
|
Employer contribution
|
|
|
|
|
Benefits paid including lump sum payment
|
|
|
(122,029
|
)
|
Expenses paid
|
|
|
(2,980
|
)
|
|
|
|
|
|
Fair value of plan assets at measurement date
|
|
$
|
1,154,620
|
|
|
|
|
|
|
Funded status:
|
|
|
|
|
Projected benefit obligation at measurement date
|
|
$
|
1,386,718
|
|
Fair value of plan assets at measurement date
|
|
|
1,154,620
|
|
|
|
|
|
|
Funded status excess obligation at measurement date
|
|
$
|
232,098
|
|
|
|
|
|
|
Amounts not yet reflected in net periodic benefit cost and included in accumulated other
comprehensive income (loss):
|
|
|
|
|
Prior service cost
|
|
$
|
2,438
|
|
Accumulated actuarial losses
|
|
|
416,873
|
|
|
|
|
|
|
Amounts included in accumulated other comprehensive income (loss)
|
|
$
|
419,311
|
|
|
|
|
|
|
TJX also has an unfunded postretirement medical plan which was closed to new benefits in fiscal 2006. The amendment to the
plan benefits in fiscal 2006 resulted in a negative plan amendment which was being amortized to income over the estimated average remaining life of the eligible plan participants.
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. Amortization from other comprehensive income to net income was $864,000
for the quarter ended October 31, 2015 and $2.6 million for the thirty-nine weeks ended October 31, 2015.
21
Note I. Long-Term Debt and Credit Lines
The table below presents long-term debt, exclusive of current installments, as of October 29, 2016, January 30, 2016 and October 31, 2015.
All amounts are net of unamortized debt discounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
October 29,
2016
|
|
|
January 30,
2016
|
|
|
October 31,
2015
|
|
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 $223 at January 30, 2016 and $240 at October 31, 2015)
|
|
$
|
|
|
|
$
|
374,777
|
|
|
$
|
374,760
|
|
2.50% senior unsecured notes, maturing May 15, 2023 (effective interest rate of 2.51% after
reduction of unamortized debt discount of $289 at October 29, 2016, $323 at January 30, 2016 and $335 at October 31, 2015)
|
|
|
499,711
|
|
|
|
499,677
|
|
|
|
499,665
|
|
2.75% senior unsecured notes, maturing June 15, 2021 (effective interest rate of 2.76% after
reduction of unamortized debt discount of $344 at October 29, 2016, $400 at January 30, 2016 and $418 at October 31, 2015)
|
|
|
749,656
|
|
|
|
749,600
|
|
|
|
749,582
|
|
2.25% senior unsecured notes, maturing September 15, 2026 (effective interest rate of 2.32%
after reduction of unamortized debt discount of $7,336 at October 29, 2016)
|
|
|
992,664
|
|
|
|
|
|
|
|
|
|
Debt issuance cost
|
|
|
(15,118
|
)
|
|
|
(9,051
|
)
|
|
|
(9,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
2,226,913
|
|
|
$
|
1,615,003
|
|
|
$
|
1,614,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 October 29, 2016. 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%. On October 12, 2016, TJX used a portion of the proceeds for the 2.25% ten-year notes to redeem all outstanding 6.95% ten-year notes and recorded a pre-tax loss on the early extinguishment of debt of $51.8 million,
which includes $50.6 million of redemption premium and $1.2 million to write off unamortized debt expenses and discount.
At October 29, 2016, 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 October 29, 2016, TJX had two $500 million revolving credit facilities, one which matures in March 2020 and one which matures in March 2021. At
January 30, 2016 and October 31, 2015, TJX had two $500 million revolving credit facilities, one which was scheduled to mature in May 2016 and one which was scheduled to mature in June 2017. In March 2016, the $500 million revolving credit
facility scheduled to mature in May 2016 was replaced with a new five-year $500 million revolving credit facility maturing in March 2021 and the $500 million revolving credit facility scheduled to mature in June 2017 was replaced with a new
four-year $500 million revolving credit facility maturing in March 2020. The terms and covenants under the new revolving credit facilities are similar to those in the terminated facilities and 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
22
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 October 29, 2016, January 30,
2016 and October 31, 2015. As of October 29, 2016, January 30, 2016 and October 31, 2015, and during the quarters and year then ended, there were no amounts outstanding under any of these facilities.
As of October 29, 2016, January 30, 2016 and October 31, 2015, 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 October 29, 2016, January 30, 2016 and October 31, 2015, there were no amounts outstanding on the Canadian credit line for operating expenses. As of
October 29, 2016, January 30, 2016, and October 31, 2015, our European business at TJX International had an uncommitted credit line of £5 million. As of October 29, 2016, January 30, 2016, and
October 31, 2015, and during the quarters and year then ended, there were no amounts outstanding on the European credit line.
Note J. Property at
Cost
Presented below are the components of property at cost as of October 29, 2016, January 30, 2016 and October 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
October 29,
2016
|
|
|
January 30,
2016
|
|
|
October 31,
2015
|
|
Land and buildings
|
|
$
|
1,118,739
|
|
|
$
|
1,013,247
|
|
|
$
|
917,651
|
|
Leasehold costs and improvements
|
|
|
2,936,777
|
|
|
|
2,943,191
|
|
|
|
2,950,635
|
|
Furniture, fixtures and equipment
|
|
|
5,469,647
|
|
|
|
5,112,229
|
|
|
|
5,056,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property at cost
|
|
$
|
9,525,163
|
|
|
$
|
9,068,667
|
|
|
$
|
8,925,232
|
|
Less accumulated depreciation and amortization
|
|
|
5,206,334
|
|
|
|
4,931,092
|
|
|
|
4,858,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property at cost
|
|
$
|
4,318,829
|
|
|
$
|
4,137,575
|
|
|
$
|
4,066,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $484.5 million for the nine months ended October 29, 2016 and $453.0 for the nine months ended
October 31, 2015. Depreciation expense was $612.8 million for the twelve months ended January 30, 2016.
Note K. Income Taxes
The effective income tax rate was 38.2% for the fiscal 2017 third quarter and 37.6% for the fiscal 2016 third quarter. The effective income tax rate for the
nine months ended October 29, 2016 was 38.4% as compared to 37.9% for last years comparable period. The increase in the effective income tax rate was primarily due to the jurisdictional mix of income and the increase in valuation
allowance on foreign net operating losses. In addition, the fiscal 2016 effective income tax rates benefitted from a reduction in our reserve for uncertain tax positions related to our adoption of the new Tangible Property Regulations during the
third quarter of that year.
TJX had net unrecognized tax benefits of $37.4 million as of October 29, 2016, $34.1 million as of January 30, 2016
and $31.4 million as of October 31, 2015.
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.
23
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 $7.8 million as of October 29, 2016, $7.0 million as of January 30, 2016 and $6.8 million as of October 31, 2015.
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 $12 million.
Note L. 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.
TJX also 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 $43 million as of
October 29, 2016. 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 breach of warranty or losses related to such
matters as title to assets sold, specified environmental matters or certain income taxes. These obligations are typically 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, 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.
24