UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(mark one)
x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended October 31, 2015April 30, 2016
OR
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number 1-4908
The TJX Companies, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 04-2207613 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
770 Cochituate Road Framingham, Massachusetts | 01701 | |
(Address of principal executive offices) | (Zip Code) |
(508) 390-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” inRule 12b-2 of the Exchange Act.
Large Accelerated Filer | x | Accelerated Filer | ¨ | |||
Non-Accelerated Filer | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
The number of shares of registrant’s common stock outstanding as of October 31, 2015: 669,529,129April 30, 2016: 661,083,496
PART I - FINANCIAL INFORMATION
Item 1. | Financial Statements. |
THE TJX COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
Thirteen Weeks Ended | ||||||||||||||||
Thirteen Weeks Ended | April 30, 2016 | May 2, 2015 | ||||||||||||||
October 31, 2015 | November 1, 2014 | |||||||||||||||
Net sales | $ | 7,753,495 | $ | 7,366,066 | $ | 7,542,356 | $ | 6,865,637 | ||||||||
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Cost of sales, including buying and occupancy costs | 5,506,899 | 5,203,629 | 5,372,143 | 4,920,241 | ||||||||||||
Selling, general and administrative expenses | 1,292,401 | 1,193,297 | 1,335,050 | 1,168,657 | ||||||||||||
Interest expense, net | 13,005 | 10,040 | 10,194 | 11,624 | ||||||||||||
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Income before provision for income taxes | 941,190 | 959,100 | 824,969 | 765,115 | ||||||||||||
Provision for income taxes | 353,934 | 364,143 | 316,623 | 290,514 | ||||||||||||
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Net income | $ | 587,256 | $ | 594,957 | $ | 508,346 | $ | 474,601 | ||||||||
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Basic earnings per share: | ||||||||||||||||
Net income | $ | 0.88 | $ | 0.86 | $ | 0.77 | $ | 0.70 | ||||||||
Weighted average common shares – basic | 671,154 | 690,183 | 661,515 | 681,369 | ||||||||||||
Diluted earnings per share: | ||||||||||||||||
Net income | $ | 0.86 | $ | 0.85 | $ | 0.76 | $ | 0.69 | ||||||||
Weighted average common shares – diluted | 680,844 | 701,005 | 670,388 | 691,206 | ||||||||||||
Cash dividends declared per share | $ | 0.210 | $ | 0.175 | $ | 0.26 | $ | 0.21 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
2
THE TJX COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
Thirty-Nine Weeks Ended | ||||||||
October 31, 2015 | November 1, 2014 | |||||||
Net sales | $ | 21,982,863 | $ | 20,774,454 | ||||
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Cost of sales, including buying and occupancy costs | 15,646,331 | 14,817,485 | ||||||
Selling, general and administrative expenses | 3,708,596 | 3,389,105 | ||||||
Loss on early extinguishment of debt | — | 16,830 | ||||||
Interest expense, net | 35,437 | 30,785 | ||||||
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Income before provision for income taxes | 2,592,499 | 2,520,249 | ||||||
Provision for income taxes | 981,307 | 953,351 | ||||||
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Net income | $ | 1,611,192 | $ | 1,566,898 | ||||
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Basic earnings per share: | ||||||||
Net income | $ | 2.38 | $ | 2.25 | ||||
Weighted average common shares – basic | 676,220 | 695,142 | ||||||
Diluted earnings per share: | ||||||||
Net income | $ | 2.35 | $ | 2.22 | ||||
Weighted average common shares – diluted | 686,072 | 706,122 | ||||||
Cash dividends declared per share | $ | 0.630 | $ | 0.525 |
Thirteen Weeks Ended | ||||||||
April 30, 2016 | May 2, 2015 | |||||||
Net income | $ | 508,346 | $ | 474,601 | ||||
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Additions to other comprehensive income: | ||||||||
Foreign currency translation adjustments, net of related tax provisions of $51,247 in fiscal 2017 and $19,155 in fiscal 2016 | 129,596 | 41,453 | ||||||
Reclassifications from other comprehensive income to net income: | ||||||||
Amortization of prior service cost and deferred gains/losses, net of related tax provisions of $850 in fiscal 2017 and $3,531 in fiscal 2016 | 1,293 | 5,367 | ||||||
Amortization of loss on cash flow hedge, net of related tax provision of $112 in fiscal 2017 and $112 in fiscal 2016 | 171 | 171 | ||||||
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Other comprehensive income (loss), net of tax | 131,060 | 46,991 | ||||||
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Total comprehensive income | $ | 639,406 | $ | 521,592 | ||||
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
3
THE TJX COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEBALANCE SHEETS
(UNAUDITED)
IN THOUSANDS, EXCEPT SHARE DATA
Thirteen Weeks Ended | ||||||||
October 31, 2015 | November 1, 2014 | |||||||
Net income | $ | 587,256 | $ | 594,957 | ||||
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Additions to other comprehensive income: | ||||||||
Foreign currency translation adjustments, net of related tax provision of $727 in fiscal 2016 and benefit of $14,275 in fiscal 2015 | (12,859 | ) | (79,552 | ) | ||||
Reclassifications from other comprehensive income to net income: | ||||||||
Amortization of prior service cost and deferred gains/losses, net of related tax provision of $2,935 in fiscal 2016 and $1,604 in fiscal 2015 | 4,460 | 2,406 | ||||||
Amortization of loss on cash flow hedge, net of related tax provision of $112 in fiscal 2016 and $113 in fiscal 2015 | 171 | 170 | ||||||
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Other comprehensive income (loss), net of tax | (8,228 | ) | (76,976 | ) | ||||
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Total comprehensive income | $ | 579,028 | $ | 517,981 | ||||
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Thirty-Nine Weeks Ended | ||||||||
October 31, 2015 | November 1, 2014 | |||||||
Net income | $ | 1,611,192 | $ | 1,566,898 | ||||
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Additions to other comprehensive income: | ||||||||
Foreign currency translation adjustments, net of related tax benefit of $12,306 in fiscal 2016 and $6,056 in fiscal 2015 | (6,695 | ) | (46,102 | ) | ||||
Loss on cash flow hedge, net of related tax benefit of $3,175 in fiscal 2015 | — | (4,762 | ) | |||||
Reclassifications from other comprehensive income to net income: | ||||||||
Amortization of prior service cost and deferred gains/losses, net of related tax provision of $10,126 in fiscal 2016 and $3,761 in fiscal 2015 | 15,392 | 5,642 | ||||||
Amortization of loss on cash flow hedge, net of related tax provision of $337 in fiscal 2016 and $189 in fiscal 2015 | 513 | 283 | ||||||
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Other comprehensive income (loss), net of tax | 9,210 | (44,939 | ) | |||||
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Total comprehensive income | $ | 1,620,402 | $ | 1,521,959 | ||||
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April 30, 2016 | January 30, 2016 | May 2, 2015 | ||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 1,944,155 | $ | 2,095,473 | $ | 2,259,965 | ||||||
Short-term investments | 403,702 | 352,313 | 328,826 | |||||||||
Accounts receivable, net | 281,631 | 238,072 | 263,466 | |||||||||
Merchandise inventories | 3,904,989 | 3,695,113 | 3,531,600 | |||||||||
Prepaid expenses and other current assets | 330,713 | 380,530 | 327,055 | |||||||||
Federal, state, and foreign income taxes recoverable | 12,511 | 11,059 | 13,609 | |||||||||
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Total current assets | 6,877,701 | 6,772,560 | 6,724,521 | |||||||||
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Property at cost: | ||||||||||||
Land and buildings | 1,048,931 | 1,013,247 | 902,488 | |||||||||
Leasehold costs and improvements | 2,971,101 | 2,943,191 | 2,837,020 | |||||||||
Furniture, fixtures and equipment | 5,278,633 | 5,112,229 | 4,830,218 | |||||||||
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Total property at cost | 9,298,665 | 9,068,667 | 8,569,726 | |||||||||
Less accumulated depreciation and amortization | 5,068,961 | 4,931,092 | 4,632,995 | |||||||||
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Net property at cost | 4,229,704 | 4,137,575 | 3,936,731 | |||||||||
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Non-current deferred income taxes, net | 10,106 | 13,831 | 20,794 | |||||||||
Other assets | 240,759 | 222,669 | 214,486 | |||||||||
Goodwill and tradename, net of amortization | 346,452 | 343,796 | 309,311 | |||||||||
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TOTAL ASSETS | $ | 11,704,722 | $ | 11,490,431 | $ | 11,205,843 | ||||||
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LIABILITIES | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 2,136,751 | $ | 2,203,050 | $ | 2,153,296 | ||||||
Accrued expenses and other current liabilities | 1,933,730 | 2,069,659 | 1,741,429 | |||||||||
Federal, state and foreign income taxes payable | 226,254 | 129,521 | 241,811 | |||||||||
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Total current liabilities | 4,296,735 | 4,402,230 | 4,136,536 | |||||||||
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Other long-term liabilities | 908,537 | 881,021 | 878,389 | |||||||||
Non-current deferred income taxes, net | 349,004 | 285,102 | 287,047 | |||||||||
Long-term debt | 1,615,477 | 1,615,003 | 1,613,581 | |||||||||
Commitments and contingencies | ||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||
Preferred stock, authorized 5,000,000 shares, par value $1, no shares issued | — | — | — | |||||||||
Common stock, authorized 1,200,000,000 shares, par value $1, issued and outstanding 661,083,496; 663,495,715 and 680,385,015, respectively | 661,083 | 663,496 | 680,385 | |||||||||
Additional paid-in capital | — | — | — | |||||||||
Accumulated other comprehensive income (loss) | (536,412 | ) | (667,472 | ) | (507,394 | ) | ||||||
Retained earnings | 4,410,298 | 4,311,051 | 4,117,299 | |||||||||
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Total shareholders’ equity | 4,534,969 | 4,307,075 | 4,290,290 | |||||||||
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 11,704,722 | $ | 11,490,431 | $ | 11,205,843 | ||||||
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
4
THE TJX COMPANIES, INC.
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF CASH FLOWS
(UNAUDITED)
IN THOUSANDS EXCEPT SHARE DATA
October 31, 2015 | January 31, 2015 | November 1, 2014 | ||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 1,723,336 | $ | 2,493,775 | $ | 2,153,625 | ||||||
Short-term investments | 399,714 | 282,623 | 277,225 | |||||||||
Accounts receivable, net | 273,856 | 213,824 | 260,940 | |||||||||
Merchandise inventories | 4,441,989 | 3,217,923 | 3,958,648 | |||||||||
Prepaid expenses and other current assets | 372,509 | 356,824 | 381,241 | |||||||||
Federal, state, and foreign income taxes recoverable | 15,878 | 12,475 | — | |||||||||
Current deferred income taxes, net | 120,875 | 137,617 | 122,943 | |||||||||
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Total current assets | 7,348,157 | 6,715,061 | 7,154,622 | |||||||||
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Property at cost: | ||||||||||||
Land and buildings | 917,651 | 888,580 | 808,356 | |||||||||
Leasehold costs and improvements | 2,950,635 | 2,780,932 | 2,836,059 | |||||||||
Furniture, fixtures and equipment | 5,056,946 | 4,671,029 | 4,652,208 | |||||||||
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Total property at cost | 8,925,232 | 8,340,541 | 8,296,623 | |||||||||
Less accumulated depreciation and amortization | 4,858,245 | 4,472,176 | 4,446,819 | |||||||||
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Net property at cost | 4,066,987 | 3,868,365 | 3,849,804 | |||||||||
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Non-current deferred income taxes, net | 19,901 | 24,546 | 25,800 | |||||||||
Other assets | 215,330 | 210,539 | 251,084 | |||||||||
Goodwill and tradename, net of amortization | 342,058 | 309,870 | 310,738 | |||||||||
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TOTAL ASSETS | $ | 11,992,433 | $ | 11,128,381 | $ | 11,592,048 | ||||||
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LIABILITIES | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 2,696,601 | $ | 2,007,511 | $ | 2,554,416 | ||||||
Accrued expenses and other current liabilities | 1,957,389 | 1,796,122 | 1,787,225 | |||||||||
Federal, state and foreign income taxes payable | 76,088 | 126,001 | 47,941 | |||||||||
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Total current liabilities | 4,730,078 | 3,929,634 | 4,389,582 | |||||||||
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Other long-term liabilities | 907,093 | 888,137 | 741,097 | |||||||||
Non-current deferred income taxes, net | 380,794 | 422,516 | 463,744 | |||||||||
Long-term debt | 1,624,007 | 1,623,864 | 1,623,817 | |||||||||
Commitments and contingencies | ||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||
Common stock, authorized 1,200,000,000 shares, par value $1, issued and outstanding 669,529,129; 684,733,200 and 688,900,341, respectively | 669,529 | 684,733 | 688,900 | |||||||||
Additional paid-in capital | — | — | — | |||||||||
Accumulated other comprehensive income (loss) | (545,175 | ) | (554,385 | ) | (244,471 | ) | ||||||
Retained earnings | 4,226,107 | 4,133,882 | 3,929,379 | |||||||||
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Total shareholders’ equity | 4,350,461 | 4,264,230 | 4,373,808 | |||||||||
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 11,992,433 | $ | 11,128,381 | $ | 11,592,048 | ||||||
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Thirteen Weeks Ended | ||||||||
April 30, 2016 | May 2, 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 508,346 | $ | 474,601 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 157,014 | 148,540 | ||||||
Loss on property disposals and impairment charges | 5,255 | 1,379 | ||||||
Deferred income tax provision (benefit) | 16,112 | (17,707 | ) | |||||
Share-based compensation | 24,959 | 21,150 | ||||||
Excess tax benefits from share-based compensation | (37,893 | ) | (28,430 | ) | ||||
Changes in assets and liabilities: | ||||||||
(Increase) in accounts receivable | (40,776 | ) | (48,734 | ) | ||||
(Increase) in merchandise inventories | (161,565 | ) | (298,651 | ) | ||||
(Increase) in taxes recoverable | (1,452 | ) | (1,134 | ) | ||||
Decrease in prepaid expenses and other current assets | 32,927 | 3,876 | ||||||
(Decrease) increase in accounts payable | (96,434 | ) | 135,614 | |||||
(Decrease) in accrued expenses and other liabilities | (142,269 | ) | (94,926 | ) | ||||
Increase in income taxes payable | 134,276 | 144,510 | ||||||
Other | 21,768 | 7,451 | ||||||
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Net cash provided by operating activities | 420,268 | 447,539 | ||||||
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Cash flows from investing activities: | ||||||||
Property additions | (266,236 | ) | (201,234 | ) | ||||
Purchase of investments | (165,384 | ) | (95,039 | ) | ||||
Sales and maturities of investments | 144,803 | 53,802 | ||||||
Acquisition of Trade Secret | (2,324 | ) | — | |||||
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Net cash (used in) investing activities | (289,141 | ) | (242,471 | ) | ||||
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Cash flows from financing activities: | ||||||||
Cash payments for repurchase of common stock | (341,251 | ) | (419,905 | ) | ||||
Proceeds from issuance of common stock | 63,933 | 37,314 | ||||||
Excess tax benefits from share-based compensation | 37,893 | 28,430 | ||||||
Cash dividends paid | (140,067 | ) | (120,438 | ) | ||||
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Net cash (used in) financing activities | (379,492 | ) | (474,599 | ) | ||||
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Effect of exchange rate changes on cash | 97,047 | 35,721 | ||||||
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Net (decrease) in cash and cash equivalents | (151,318 | ) | (233,810 | ) | ||||
Cash and cash equivalents at beginning of year | 2,095,473 | 2,493,775 | ||||||
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Cash and cash equivalents at end of period | $ | 1,944,155 | $ | 2,259,965 | ||||
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
5
THE TJX COMPANIES, INC.
CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSSHAREHOLDERS’ EQUITY
(UNAUDITED)
IN THOUSANDS
Thirty-Nine Weeks Ended | ||||||||
October 31, 2015 | November 1, 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 1,611,192 | $ | 1,566,898 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 453,706 | 438,162 | ||||||
Loss on property disposals and impairment charges | 2,096 | 2,690 | ||||||
Deferred income tax (benefit) provision | (39,875 | ) | 7,527 | |||||
Share-based compensation | 71,063 | 67,671 | ||||||
Excess tax benefits from share-based compensation | (54,294 | ) | (59,998 | ) | ||||
Loss on early extinguishment of debt | — | 16,830 | ||||||
Changes in assets and liabilities: | ||||||||
(Increase) in accounts receivable | (60,172 | ) | (52,695 | ) | ||||
(Increase) in merchandise inventories | (1,197,845 | ) | (1,019,406 | ) | ||||
(Increase) in taxes recoverable | (3,403 | ) | — | |||||
(Increase) in prepaid expenses and other current assets | (41,293 | ) | (34,665 | ) | ||||
Increase in accounts payable | 677,227 | 799,785 | ||||||
Increase in accrued expenses and other liabilities | 201,630 | 52,515 | ||||||
Increase in income taxes payable | 5,022 | 42,976 | ||||||
Other | 31,510 | (2,749 | ) | |||||
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Net cash provided by operating activities | 1,656,564 | 1,825,541 | ||||||
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Cash flows from investing activities: | ||||||||
Property additions | (650,667 | ) | (705,899 | ) | ||||
Purchase of investments | (642,685 | ) | (315,775 | ) | ||||
Sales and maturities of investments | 501,618 | 314,649 | ||||||
Acquisition of Trade Secret | (57,104 | ) | — | |||||
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Net cash (used in) investing activities | (848,838 | ) | (707,025 | ) | ||||
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Cash flows from financing activities: | ||||||||
Proceeds from issuance of long-term debt | — | 749,475 | ||||||
Cash payments for extinguishment of debt | — | (416,357 | ) | |||||
Cash payments for repurchase of common stock | (1,296,104 | ) | (1,214,209 | ) | ||||
Cash payments for debt issuance expenses | — | (6,185 | ) | |||||
Cash payments for rate lock agreement | — | (7,937 | ) | |||||
Proceeds from issuance of common stock | 81,377 | 90,329 | ||||||
Excess tax benefits from share-based compensation | 54,294 | 59,998 | ||||||
Cash dividends paid | (404,094 | ) | (345,698 | ) | ||||
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Net cash (used in) financing activities | (1,564,527 | ) | (1,090,584 | ) | ||||
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Effect of exchange rate changes on cash | (13,638 | ) | (24,053 | ) | ||||
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Net (decrease) increase in cash and cash equivalents | (770,439 | ) | 3,879 | |||||
Cash and cash equivalents at beginning of year | 2,493,775 | 2,149,746 | ||||||
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Cash and cash equivalents at end of period | $ | 1,723,336 | $ | 2,153,625 | ||||
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Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total | ||||||||||||||||||||
Shares | Par Value $1 | |||||||||||||||||||||||
Balance, January 30, 2016 | 663,496 | $ | 663,496 | $ | — | $ | (667,472 | ) | $ | 4,311,051 | $ | 4,307,075 | ||||||||||||
Net income | — | — | — | — | 508,346 | 508,346 | ||||||||||||||||||
Other comprehensive income (loss), net of tax | — | — | — | 131,060 | — | 131,060 | ||||||||||||||||||
Cash dividends declared on common stock | — | — | — | — | (172,081 | ) | (172,081 | ) | ||||||||||||||||
Recognition of share-based compensation | — | — | 24,959 | — | — | 24,959 | ||||||||||||||||||
Issuance of common stock under Stock Incentive Plan and related tax effect | 2,109 | 2,109 | 74,752 | — | — | 76,861 | ||||||||||||||||||
Common stock repurchased and retired | (4,522 | ) | (4,522 | ) | (99,711 | ) | — | (237,018 | ) | (341,251 | ) | |||||||||||||
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Balance, April 30, 2016 | 661,083 | $ | 661,083 | $ | — | $ | (536,412 | ) | $ | 4,410,298 | $ | 4,534,969 | ||||||||||||
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
6
THE TJX COMPANIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
IN THOUSANDS
Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total | ||||||||||||||||||||
Shares | Par Value $1 | |||||||||||||||||||||||
Balance, January 31, 2015 | 684,733 | $ | 684,733 | $ | — | $ | (554,385 | ) | $ | 4,133,882 | $ | 4,264,230 | ||||||||||||
Net income | — | — | — | — | 1,611,192 | 1,611,192 | ||||||||||||||||||
Other comprehensive income (loss), net of tax | — | — | — | 9,210 | — | 9,210 | ||||||||||||||||||
Cash dividends declared on common stock | — | — | — | — | (425,141 | ) | (425,141 | ) | ||||||||||||||||
Recognition of share-based compensation | — | — | 71,063 | — | — | 71,063 | ||||||||||||||||||
Issuance of common stock under Stock Incentive Plan and related tax effect | 3,700 | 3,700 | 112,311 | — | — | 116,011 | ||||||||||||||||||
Common stock repurchased | (18,904 | ) | (18,904 | ) | (183,374 | ) | — | (1,093,826 | ) | (1,296,104 | ) | |||||||||||||
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Balance, October 31, 2015 | 669,529 | $ | 669,529 | $ | — | $ | (545,175 | ) | $ | 4,226,107 | $ | 4,350,461 | ||||||||||||
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
7
THE TJX COMPANIES, INC.
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 TJX’s Annual Report on Form 10-K for the fiscal year ended January 31, 201530, 2016 (“fiscal 2015”2016”).
These interim results are not necessarily indicative of results for the full fiscal year, because 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 January 31, 201530, 2016 balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.
Fiscal Year: TJX’s fiscal year ends on the Saturday nearest to the last day of January of each year. The current fiscal year ends January 30, 201628, 2017 (“fiscal 2016”2017”) and is a 52-week fiscal year. Fiscal 20152016 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 $27.3$25.0 million for the quarter ended October 31, 2015April 30, 2016 and $25.7$21.2 million for the quarter ended November 1, 2014. Total share-based compensation expense was $71.1 million for the nine months ended October 31, 2015 and $67.7 million for the nine months ended November 1, 2014.May 2, 2015. These amounts include stock option expense as well as restricted and deferred stock amortization. There were options to purchase 1.52.3 million shares of common stock exercised during the quarter ended October 31, 2015 and options to purchase 3.6 million shares of common stock exercised during the nine months ended October 31, 2015.April 30, 2016. There were options outstanding to purchase 30.326.3 million shares of common stock as of October 31, 2015.April 30, 2016. As of October 31, 2015,April 30, 2016, there was $141.1$147.5 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under TJX’s 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 31, 2015,April 30, 2016, TJX’s cash and cash equivalents held by its foreign subsidiaries were $1,072.5$1,217.6 million, of which $297.9$296.0 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. TJX’s 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 divisions,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 TJX’s balance sheet include an accrual for in-transit inventory of $816.6$544.0 million at October 31, 2015, $495.2April 30, 2016, $690.3 million at January 31, 201530, 2016 and $661.1$534.6 million at November 1, 2014.May 2, 2015. Comparable amounts were reflected in accounts payable at those dates.
87
Leases:ConstructionTJX begins to record rent expense when it takes possession of TJX Canada’s new home officea 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 Canada has been completedthe 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 TJXrelated 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. Therefore,leaseback, the lease is accounted for as a financing transaction and the recorded asset and related financing obligation recorded at January 31, 2015 remain on the consolidated balance sheetConsolidated Balance Sheets. Accordingly, the asset is depreciated over its estimated useful life in accordance with the Company’s 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 October 31, 2015.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 May 2014, a pronouncement was issued that creates common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. 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 would defer 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 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 April 2015,February 2016, a pronouncement was issued that allows employers with fiscal year ends that do not coincide with a calendar month endaims to make an accounting policy electionincrease transparency and comparability among organizations by requiring lessees to measure defined benefit planrecognize lease assets and obligations aslease liabilities on the balance sheet and requiring disclosure of the end of the month closest to their fiscal year end. This updatekey information about leasing arrangements. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2015.2018, and interim periods within those annual periods; early adoption is permitted and modified retrospective application is required. TJX does not expectis in the process of evaluating this new guidance to determine the impact it will have a material impact on our consolidatedfinancial statements.
In March 2016, a pronouncement was issued that aims to address the diversity in practice related to the derecognition of prepaid store-value product liabilities. ASU 2016-04 is effective for annual periods beginning after December 15, 2017 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 iswas effective for fiscal years, and interim periods within those fiscal years, beginning
8
after December 15, 2015. For TJX, the standard will bewas effective in the first quarter of fiscal 2017. TJX does not expectAs a result, we have recast the January 30, 2016 consolidated balance sheet to conform to the current period presentation. The adoption of this new guidancestandard 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 May 2, 2015 consolidated balance sheet to have a material impact on our consolidated financial statements.conform to the current period presentation. The adoption of this standard reduced previously-presented other assets by $10.3 million and reduced long-term debt by $10.3 million as of May 2, 2015.
In SeptemberNovember 2015, a pronouncement was issued that eliminatesrequires entities to present deferred tax assets (DTAs) and deferred tax liabilities (DTLs) as noncurrent in a classified balance sheet. It simplifies the requirementcurrent guidance, which requires entities to restate prior period financial statements for measurement period adjustments followingseparately present DTAs and DTLs as current or noncurrent in a business combination.classified balance sheet. TJX adopted this guidance as of January 30, 2016, and applied it retrospectively. The guidance requires that the cumulative impacteffect on May 2, 2015 consolidated balance sheet was to reduce previously-presented current DTAs by $147.6 million, decreased long-term DTAs by $2.2 million and reduced long-term DTLs by $149.8 million as of a measurement period adjustment be recognized in the reporting period in which the adjustment is identified. The portion of the adjustment which relates to a prior period should either be presented separately on the face of the income statement or disclosed in the notes. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The guidance is to be applied prospectively to adjustments to provisional amounts that occur after the effective date. TJX does not expect this new guidance to have a material impact on our consolidated financial statements.May 2, 2015.
Revisions: The cash flow impact of purchases and sales of investments designed to meet obligations under TJX’s Executive Savings Plan of approximately $13.2 million in the November 1, 2014 statement of cash flows has been adjusted to correct the presentation from ‘Other’, in operating activity, to ‘Purchase of investments’ or ‘Sales and maturities of investments’ in cash flows from investing activity. These revisions to the statement of cash flows represent errors that are not deemed to be material, individually or in the aggregate, to the prior period financial statements.
9
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 approximately AUD$8083.3 million (US$5759.4 million), which is subject to customary post-closing adjustments. As of October 31, 2015, the Company had not completed its valuation of fair value of the business acquired and no amounts were allocated to identifiable intangible assets or favorable or unfavorable contracts for purposes of the preliminary allocation. .
The purchase price was allocated to tangible assets and liabilities and goodwill. The Company currently anticipates finalizing its valuation andfollowing table presents the allocation of the purchase price along with required retrospective adjustments, if any, within a year.
The following table presents the(after preliminary allocation of the purchase priceadjustment for customary post-closing adjustments) to the assets and liabilities acquired:acquired based on their estimated fair values as of October 24, 2015:
Current assets | $ | 27,346 | $ | 25,899 | ||||
Property and equipment | 9,636 | 10,184 | ||||||
Goodwill | 34,158 | |||||||
Less Liabilities assumed | (14,036 | ) | ||||||
Goodwill and intangible assets | 37,416 | |||||||
Less liabilities assumed | (14,071 | ) | ||||||
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Net assets acquired | $ | 57,104 | $ | 59,428 | ||||
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In addition, dueAs is customary, the amounts above may be further adjusted up to immateriality, we have not reflected any operating resultsone year after the date of Trade Secret in our third quarter report. acquisition.
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 followinghave been included in TJX’s consolidated financial statements from the date of acquisition date will be reflected in our fourth quarter results and forTrade Secret is now part of the TJX International segment reporting will be combinedalong with our operations in Europe.
Note C. Reserves Related to Former Operations
Reserves Related to Former Operations:TJX has a reserve for its estimate of future obligations related to former business operations that TJX has either closed or sold. The reserve activity is presented below:
Thirty-Nine Weeks Ended | ||||||||
In thousands | October 31, 2015 | November 1, 2014 | ||||||
Balance at beginning of year | $ | 14,574 | $ | 31,363 | ||||
Additions (reductions) to the reserve charged to net income: | ||||||||
Adjustments to lease-related obligations | — | (10,313 | ) | |||||
Interest accretion | — | 470 | ||||||
Charges against the reserve: | ||||||||
Lease-related obligations | (1,595 | ) | (4,267 | ) | ||||
Other | (428 | ) | (77 | ) | ||||
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Balance at end of period | $ | 12,551 | $ | 17,176 | ||||
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The lease-related obligations included in the reserve reflect TJX’s estimation of lease costs, net of estimated assignee/subtenant income, and the cost of probable claims against TJX for liability, as an original lessee and/or guarantor of the leases of former TJX businesses, after mitigation of the number and cost of these lease obligations. During the first nine months of fiscal 2015, TJX decreased this reserve by $10.3 million to reflect a change in the Company’s estimate of the subtenant income. The actual net cost of these lease-related obligations may differ from TJX’s estimate. TJX estimates that the majority of the former operations reserve will be paid in the next two years. The actual timing of cash outflows will vary depending on how the remaining lease obligations are actually settled.
TJX may also be contingently liable on up to 10 leases of former TJX businesses, in addition to leases included in the reserve. The reserve for former operations does not reflect these leases because TJX believes that the likelihood of future liability to TJX is remote.European operations.
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Note D.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 31, 2015 | $ | (295,269 | ) | $ | (254,806 | ) | $ | (4,310 | ) | $ | (554,385 | ) | ||||
Foreign currency translation adjustments (net of taxes of $12,306) | (6,695 | ) | — | — | (6,695 | ) | ||||||||||
Amortization of prior service cost and deferred gains/losses (net of taxes of $10,126) | — | 15,392 | — | 15,392 | ||||||||||||
Amortization of loss on cash flow hedge (net of taxes of $337) | — | — | 513 | 513 | ||||||||||||
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Balance, October 31, 2015 | $ | (301,964 | ) | $ | (239,414 | ) | $ | (3,797 | ) | $ | (545,175 | ) | ||||
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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 | ) | ||||
Foreign currency translation adjustments (net of taxes of $51,247) | 129,596 | — | — | 129,596 | ||||||||||||
Amortization of prior service cost and deferred gains/losses (net of taxes of $850) | — | 1,293 | — | 1,293 | ||||||||||||
Amortization of loss on cash flow hedge (net of taxes of $112) | — | — | 171 | 171 | ||||||||||||
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Balance, April 30, 2016 | $ | (309,596 | ) | $ | (223,361 | ) | $ | (3,455 | ) | $ | (536,412 | ) | ||||
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10
Note E.D. Capital Stock and Earnings per Share
Capital Stock: TJX repurchased and retired 6.45.0 million shares of its common stock at a cost of $458.8$375.0 million during the quarter ended October 31, 2015, on a “trade date” basis. During the nine months ended October 31, 2015, TJX repurchased and retired 19.1 million shares of its common stock at a cost of $1.3 billion,April 30, 2016, 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 $1.3 billion$341.3 million for the ninethree months ended October 31, 2015April 30, 2016 and $1.2 billion$419.9 million for the ninethree months ended November 1, 2014.May 2, 2015.
In February 2014,2015, 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 31, 2015,April 30, 2016, TJX repurchased 29.912.3 million shares of common stock at a cost of $2.0 billion.$884.2 million. At October 31, 2015, $0.4 millionApril 30, 2016, $1.1 billion remained available for purchase under this program.
In February 2015,2016, 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 31, 2015.April 30, 2016.
All shares repurchased under the stock repurchase programs have been retired.
TJX has five million shares of authorized but unissued preferred stock, $1 par value.
11
Earnings per share:The following schedule presents the calculation of basic and diluted earnings per share (“EPS”) for net income:
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||
In thousands, except per share data | October 31, 2015 | November 1, 2014 | April 30, 2016 | May 2, 2015 | ||||||||||||
Basic earnings per share | ||||||||||||||||
Net income | $ | 587,256 | $ | 594,957 | $ | 508,346 | $ | 474,601 | ||||||||
Weighted average common shares outstanding for basic EPS | 671,154 | 690,183 | 661,515 | 681,369 | ||||||||||||
Basic earnings per share | $ | 0.88 | $ | 0.86 | $ | 0.77 | $ | 0.70 | ||||||||
Diluted earnings per share | ||||||||||||||||
Net income | $ | 587,256 | $ | 594,957 | $ | 508,346 | $ | 474,601 | ||||||||
Shares for basic and diluted earnings per share calculations: | ||||||||||||||||
Weighted average common shares outstanding for basic EPS | 671,154 | 690,183 | 661,515 | 681,369 | ||||||||||||
Assumed exercise/vesting of: | ||||||||||||||||
Stock options and awards | 9,690 | 10,822 | 8,873 | 9,837 | ||||||||||||
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Weighted average common shares outstanding for diluted EPS | 680,844 | 701,005 | 670,388 | 691,206 | ||||||||||||
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Diluted earnings per share | $ | 0.86 | $ | 0.85 | ||||||||||||
Thirty-Nine Weeks Ended | ||||||||||||||||
In thousands, except per share data | October 31, 2015 | November 1, 2014 | ||||||||||||||
Basic earnings per share | ||||||||||||||||
Net income | $ | 1,611,192 | $ | 1,566,898 | ||||||||||||
Weighted average common shares outstanding for basic EPS | 676,220 | 695,142 | ||||||||||||||
Basic earnings per share | $ | 2.38 | $ | 2.25 | ||||||||||||
Diluted earnings per share | $ | 0.76 | $ | 0.69 | ||||||||||||
Net income | $ | 1,611,192 | $ | 1,566,898 | ||||||||||||
Shares for basic and diluted earnings per share calculations: | ||||||||||||||||
Weighted average common shares outstanding for basic EPS | 676,220 | 695,142 | ||||||||||||||
Assumed exercise/vesting of: | ||||||||||||||||
Stock options and awards | 9,852 | 10,980 | ||||||||||||||
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Weighted average common shares outstanding for diluted EPS | 686,072 | 706,122 | ||||||||||||||
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Diluted earnings per share | $ | 2.35 | $ | 2.22 |
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 period’s average price of TJX’s common stock. Such options are excluded because they would have an antidilutive effect. There were 4.2 million options excluded for the thirteen weeks and thirty-nine weeks ended October 31, 2015. There were 8.94.1 million such options excluded for the thirteen weeks and thirty-nineended April 30, 2016. There were 4.7 million such options excluded for the thirteen weeks ended November 1, 2014.May 2, 2015.
1211
Note F.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. 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 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 20152016 and the first ninethree months of fiscal 2016,2017, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2016. In addition, during fiscal 2016, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the first nine months of the fiscal year ending January 28, 2017 (fiscal 2017).2017. The hedge agreements outstanding at October 31, 2015April 30, 2016 relate to approximately 58%53% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2016 and approximately 39% of TJX’s estimated notional diesel requirements for the first nine months of the fiscal 2017. These diesel fuel hedge agreements will settle throughout the remainder of fiscal 2016 and the first ten months of fiscal 2017. 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 TJXthe Company’s operations in Europe (United Kingdom, Ireland, Germany, Poland, Austria and theThe 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 31, 2015April 30, 2016 cover a portion of such actual and anticipated merchandise purchases throughout the remainder of fiscal 20162017. 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 first two quartersretail entities in other countries. This intercompany billing to TJX’s 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 fiscal 2017.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 a 30 day hedge 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.
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The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at April 30, 2016:
In thousands | Pay | Receive | Blended Contract Rate | Balance Sheet Location | Current Asset U.S.$ | Current (Liability) U.S.$ | Net Fair Value in U.S.$ at April 30, 2016 | |||||||||||||||||||
Fair value hedges: | ||||||||||||||||||||||||||
Intercompany balances, primarily debt and related interest | ||||||||||||||||||||||||||
zł | 87,073 | C$ | 29,950 | 0.3440 | Prepaid Exp | $ | 1,085 | $ | — | $ | 1,085 | |||||||||||||||
zł | 45,000 | £ | 7,403 | 0.1645 | (Accrued Exp) | — | (933 | ) | (933 | ) | ||||||||||||||||
€ | 53,000 | £ | 40,820 | 0.7702 | (Accrued Exp) | — | (1,637 | ) | (1,637 | ) | ||||||||||||||||
U.S.$ | 77,957 | £ | 55,000 | 0.7055 | Prepaid Exp | 2,523 | — | 2,523 | ||||||||||||||||||
Economic hedges for which hedge accounting was not elected: | ||||||||||||||||||||||||||
Diesel contracts | | Fixed on 1.9M – 2.2M gal per month | | | Float on 1.9M – 2.2M gal per month | | N/A | (Accrued Exp) | — | (4,875 | ) | (4,875 | ) | |||||||||||||
Intercompany billings in Europe, primarily merchandise related | € | 85,000 | £ | 67,798 | 0.7976 | Prepaid Exp | 1,538 | — | 1,538 | |||||||||||||||||
Merchandise purchase commitments | ||||||||||||||||||||||||||
C$ | 492,465 | U.S.$ | 362,900 | 0.7369 | (Accrued Exp) | — | (29,356 | ) | (29,356 | ) | ||||||||||||||||
C$ | 20,941 | € | 14,000 | 0.6685 | (Accrued Exp) | — | (639 | ) | (639 | ) | ||||||||||||||||
£ | 146,518 | U.S.$ | 212,550 | 1.4507 | Prepaid Exp / (Accrued Exp) | 2,027 | (3,635 | ) | (1,608 | ) | ||||||||||||||||
zł | 216,245 | £ | 38,136 | 0.1764 | Prepaid Exp / (Accrued Exp) | 293 | (1,133 | ) | (840 | ) | ||||||||||||||||
U.S.$ | 38,434 | € | 34,051 | 0.8860 | Prepaid Exp | 634 | — | 634 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
Total fair value of financial instruments | $ | 8,100 | $ | (42,208 | ) | $ | (34,108 | ) | ||||||||||||||||||
|
|
|
|
|
|
13
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at October 31,May 2, 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 | Pay | Receive | Blended Contract Rate | Balance Sheet Location | Current Asset U.S.$ | Current (Liability) U.S.$ | Net Fair Value in U.S.$ at May 2, 2015 | ||||||||||||||||||||||||||||||||||||||||
Fair value hedges: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intercompany balances, primarily debt and related interest | 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 | zł | 94,073 | C$ | 32,344 | 0.3438 | Prepaid Exp / (Accrued Exp) | $ | 801 | $ | (13 | ) | $ | 788 | |||||||||||||||||||||||||||||||||
€ | 45,000 | £ | 33,294 | 0.7399 | Prepaid Exp | 1,726 | — | 1,726 | ||||||||||||||||||||||||||||||||||||||||||||||
€ | 19,850 | U.S.$ | 22,647 | 1.1409 | Prepaid Exp | 762 | — | 762 | € | 39,000 | £ | 30,988 | 0.7946 | Prepaid Exp | 3,165 | — | 3,165 | |||||||||||||||||||||||||||||||||||||
U.S.$ | 83,400 | £ | 55,000 | 0.6595 | Prepaid Exp | 1,424 | — | 1,424 | ||||||||||||||||||||||||||||||||||||||||||||||
€ | 19,850 | U.S.$ | 22,647 | 1.1409 | Prepaid Exp | 314 | — | 314 | ||||||||||||||||||||||||||||||||||||||||||||||
U.S.$ | 83,400 | £ | 55,000 | 0.6595 | (Accrued Exp) | — | (223 | ) | (223 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Economic hedges for which hedge accounting was not elected: | 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 | ) | | Fixed on 2.6M – 3.0M gal per month | | | Float on 2.6M – 3.0M gal per month | | N/A | (Accrued Exp) | — | (7,311 | ) | (7,311 | ) | ||||||||||||||||||||||||||||
Merchandise purchase commitments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
C$ | 461,464 | U.S.$ | 375,455 | 0.8136 | Prepaid Exp / (Accrued Exp) | 3,200 | (6,926 | ) | (3,726 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Merchandise purchase commitments |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
C$ | 14,596 | € | 10,500 | 0.7194 | Prepaid Exp / (Accrued Exp) | 54 | (297 | ) | (243 | ) | ||||||||||||||||||||||||||||||||||||||||||||
£ | 167,715 | U.S.$ | 256,000 | 1.5264 | Prepaid Exp / (Accrued Exp) | 3,637 | (1,603 | ) | 2,034 | |||||||||||||||||||||||||||||||||||||||||||||
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 | ) | zł | 169,058 | £ | 30,156 | 0.1784 | Prepaid Exp / (Accrued Exp) | 57 | (773 | ) | (716 | ) | |||||||||||||||||||||||||||||||||
£ | 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.$ | 22,198 | € | 20,228 | 0.9113 | Prepaid Exp / (Accrued Exp) | 637 | (163 | ) | 474 | ||||||||||||||||||||||||||||||||||||
U.S.$ | 29,338 | € | 26,318 | 0.8971 | Prepaid Exp / (Accrued Exp) | 19 | (379 | ) | (360 | ) |
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| ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total fair value of financial instruments | Total fair value of financial instruments |
| $ | 13,801 | $ | (12,833 | ) | $ | 968 | $ | 11,865 | $ | (17,309 | ) | $ | (5,444 | ) | |||||||||||||||||||||||||||||||||||||
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|
|
|
14
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at November 1, 2014:
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 November 1, 2014 | |||||||||||||||||||||
Fair value hedges: | ||||||||||||||||||||||||||||
Intercompany balances, primarily debt and related interest |
| |||||||||||||||||||||||||||
zł | 87,073 | C$ | 30,519 | 0.3505 | Prepaid Exp | $ | 1,313 | $ | — | $ | 1,313 | |||||||||||||||||
€ | 39,000 | £ | 31,968 | 0.8197 | Prepaid Exp | 2,151 | — | 2,151 | ||||||||||||||||||||
€ | 44,850 | U.S.$ | 61,842 | 1.3789 | Prepaid Exp | 5,635 | — | 5,635 | ||||||||||||||||||||
U.S.$ | 90,309 | £ | 55,000 | 0.6090 | (Accrued Exp) | — | (2,393 | ) | (2,393 | ) | ||||||||||||||||||
Economic hedges for which hedge accounting was not elected: |
| |||||||||||||||||||||||||||
Diesel contracts | | Fixed on 390K - 1.8M gal per | | | Float on 390K - 1.8M gal per | | N/A | (Accrued Exp) | — | (5,360 | ) | (5,360 | ) | |||||||||||||||
Merchandise purchase commitments |
| |||||||||||||||||||||||||||
C$ | 293,187 | U.S.$ | 267,020 | 0.9107 | Prepaid Exp | 7,060 | — | 7,060 | ||||||||||||||||||||
C$ | 7,206 | € | 5,000 | 0.6939 | Prepaid Exp / (Accrued Exp) | 4 | (135 | ) | (131 | ) | ||||||||||||||||||
£ | 103,088 | U.S.$ | 168,500 | 1.6345 | Prepaid Exp / (Accrued Exp) | 3,690 | (5 | ) | 3,685 | |||||||||||||||||||
zł | 151,572 | £ | 28,638 | 0.1889 | Prepaid Exp | 992 | — | 992 | ||||||||||||||||||||
U.S.$ | 21,525 | € | 16,401 | 0.7620 | (Accrued Exp) | — | (981 | ) | (981 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
Total fair value of financial instruments |
| $ | 20,845 | $ | (8,874 | ) | $ | 11,971 | ||||||||||||||||||||
|
|
|
|
|
|
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 | ||||||||||
Location of Gain (Loss) Recognized in Income by Derivative | Thirteen Weeks Ended | |||||||||
In thousands | October 31, 2015 | November 1, 2014 | ||||||||
Fair value hedges: | ||||||||||
Intercompany balances, primarily debt and related interest | Selling, general and administrative expenses | $ | (730 | ) | $ | 1,842 | ||||
Economic hedges for which hedge accounting was not elected: |
| |||||||||
Diesel fuel contracts | Cost of sales, including buying and occupancy costs | (2,405 | ) | (5,614 | ) | |||||
Merchandise purchase commitments | Cost of sales, including buying and occupancy costs | 5,311 | 16,476 | |||||||
|
|
|
| |||||||
Gain / (loss) recognized in income | $ | 2,176 | $ | 12,704 | ||||||
|
|
|
| |||||||
Amount of Gain (Loss) Recognized in Income by Derivative | ||||||||||
Location of Gain (Loss) Recognized in Income by Derivative | Thirty-Nine Weeks Ended | |||||||||
In thousands | October 31, 2015 | November 1, 2014 | ||||||||
Fair value hedges: | ||||||||||
Intercompany balances, primarily debt and related interest | Selling, general and administrative expenses | $ | 6,978 | $ | 5,720 | |||||
Economic hedges for which hedge accounting was not elected: |
| |||||||||
Diesel fuel contracts | Cost of sales, including buying and occupancy costs | (11,696 | ) | (4,709 | ) | |||||
Merchandise purchase commitments | Cost of sales, including buying and occupancy costs | 12,854 | 780 | |||||||
|
|
|
| |||||||
Gain / (loss) recognized in income | $ | 8,136 | $ | 1,791 | ||||||
|
|
|
|
16
Amount of Gain (Loss) Recognized in Income by Derivative | ||||||||||
Thirteen Weeks Ended | ||||||||||
In thousands | Location of Gain (Loss) Recognized in Income by Derivative | April 30, 2016 | May 2, 2015 | |||||||
Fair value hedges: | ||||||||||
Intercompany balances, primarily debt and related interest | Selling, general and administrative expenses | $ | 877 | $ | 2,044 | |||||
Economic hedges for which hedge accounting was not elected: | ||||||||||
Diesel fuel contracts | Cost of sales, including buying and occupancy costs | 2,287 | 2,200 | |||||||
Intercompany billings in Europe, primarily merchandise related | Cost of sales, including buying and occupancy costs | (2,108 | ) | — | ||||||
Merchandise purchase commitments | Cost of sales, including buying and occupancy costs | (44,988 | ) | (13,652 | ) | |||||
|
|
|
| |||||||
Gain / (loss) recognized in income | $ | (43,932 | ) | $ | (9,408 | ) | ||||
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|
|
Note G.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 TJX’s financial assets and liabilities that are accounted for at fair value on a recurring basis:
In thousands | October 31, 2015 | January 31, 2015 | November 1, 2014 | April 30, 2016 | January 30, 2016 | May 2, 2015 | ||||||||||||||||||
Level 1 | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Executive Savings Plan investments | $ | 164,970 | $ | 151,936 | $ | 153,917 | $ | 173,523 | $ | 155,847 | $ | 166,911 | ||||||||||||
Level 2 | ||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Short-term investments | $ | 399,714 | $ | 282,623 | $ | 277,225 | $ | 403,702 | $ | 352,313 | $ | 328,826 | ||||||||||||
Foreign currency exchange contracts | 13,801 | 39,419 | 20,845 | 8,100 | 28,643 | 11,865 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Foreign currency exchange contracts | $ | 2,396 | $ | 1,942 | $ | 3,514 | $ | 37,333 | $ | 3,455 | $ | 9,998 | ||||||||||||
Diesel fuel contracts | 10,437 | 15,324 | 5,360 | 4,875 | 13,952 | 7,311 |
Investments designed to meet obligations under the Executive Savings Plan are invested in securitiesregistered investment companies traded in active markets and are recorded at unadjusted quoted prices.
15
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 October 31, 2015April 30, 2016 was $1.69$1.7 billion compared to a carrying value of $1.62$1.6 billion. The fair value of long-term debt as of January 31, 201530, 2016 was $1.73$1.7 billion compared to a carrying value of $1.62$1.6 billion. The fair value of long-term debt as of November 1, 2014May 2, 2015 was $1.69$1.7 billion compared to a carrying value of $1.62$1.6 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.
17
Note H.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 EuropeInternational segment operates T.K. Maxx, HomeSense and tkmaxx.com in Europe.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 within 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 TJX’s stores, with the exception of HomeGoods and HomeSense, sell family apparel and home fashions. HomeGoods and HomeSense offer home fashions.
In October 2015, we acquired Trade Secret, an off-price retailer that operates 35 stores in Australia. Due to immateriality, we have not reflected any operating results in this third Quarterly Report on Form 10-Q. The operating results of Trade Secret following the acquisition date will be reflected in our fourth quarter results and combined with our operations in Europe. Beginning in the fourth quarter our TJX Europe segment will be renamed to reflect the inclusion of Trade Secret.
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.
16
Presented below is financial information with respect to TJX’s business segments:
Thirteen Weeks Ended | ||||||||
In thousands | October 31, 2015 | November 1, 2014 | ||||||
Net sales: | ||||||||
In the United States: | ||||||||
Marmaxx | $ | 4,926,507 | $ | 4,673,718 | ||||
HomeGoods | 959,844 | 851,045 | ||||||
TJX Canada | 753,630 | 791,725 | ||||||
TJX Europe | 1,113,514 | 1,049,578 | ||||||
|
|
|
| |||||
$ | 7,753,495 | $ | 7,366,066 | |||||
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|
| |||||
Segment profit: | ||||||||
In the United States: | ||||||||
Marmaxx | $ | 678,343 | $ | 679,929 | ||||
HomeGoods | 134,550 | 117,922 | ||||||
TJX Canada | 113,152 | 136,480 | ||||||
TJX Europe | 115,290 | 115,313 | ||||||
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|
|
| |||||
1,041,335 | 1,049,644 | |||||||
General corporate expense | 87,140 | 80,504 | ||||||
Interest expense, net | 13,005 | 10,040 | ||||||
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| |||||
Income before provision for income taxes | $ | 941,190 | $ | 959,100 | ||||
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|
18
Thirteen Weeks Ended | ||||||||||||||||
Thirty-Nine Weeks Ended | April 30, | May 2, | ||||||||||||||
In thousands | October 31, 2015 | November 1, 2014 | 2016 | 2015 | ||||||||||||
Net sales: | ||||||||||||||||
In the United States: | ||||||||||||||||
Marmaxx | $ | 14,227,800 | $ | 13,402,351 | $ | 4,865,375 | $ | 4,495,410 | ||||||||
HomeGoods | 2,735,415 | 2,381,268 | 1,010,436 | 880,193 | ||||||||||||
TJX Canada | 2,073,189 | 2,096,069 | 685,577 | 620,212 | ||||||||||||
TJX Europe | 2,946,459 | 2,894,766 | ||||||||||||||
TJX International | 980,968 | 869,822 | ||||||||||||||
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| |||||||||||||||
|
| $ | 7,542,356 | $ | 6,865,637 | |||||||||||
$ | 21,982,863 | $ | 20,774,454 |
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| |||||||||||
|
| |||||||||||||||
Segment profit: | ||||||||||||||||
In the United States: | ||||||||||||||||
Marmaxx | $ | 2,046,192 | $ | 1,988,617 | $ | 708,857 | $ | 652,303 | ||||||||
HomeGoods | 367,984 | 310,762 | 138,210 | 121,299 | ||||||||||||
TJX Canada | 278,005 | 275,527 | 57,472 | 45,172 | ||||||||||||
TJX Europe | 192,519 | 209,188 | ||||||||||||||
TJX International | 14,347 | 26,355 | ||||||||||||||
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|
| |||||||||||||
2,884,700 | 2,784,094 | 918,886 | 845,129 | |||||||||||||
General corporate expense | 256,764 | 216,230 | 83,723 | 68,390 | ||||||||||||
Loss on early extinguishment of debt | — | 16,830 | ||||||||||||||
Interest expense, net | 35,437 | 30,785 | 10,194 | 11,624 | ||||||||||||
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|
|
| |||||||||||||
Income before provision for income taxes | $ | 2,592,499 | $ | 2,520,249 | $ | 824,969 | $ | 765,115 | ||||||||
|
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|
|
Note I.H. Pension Plans and Other Retirement Benefits
Presented below is financial information relatedrelating to TJX’s funded defined benefit pension plan (qualified pension plan or funded plan) and its unfunded supplemental retirementpension plan (unfunded plan) for the periods shown:
Funded Plan | Unfunded Plan | |||||||||||||||
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||
In thousands | October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | ||||||||||||
Service cost | $ | 11,453 | $ | 10,115 | $ | (215 | ) | $ | 149 | |||||||
Interest cost | 12,885 | 12,547 | 533 | 863 | ||||||||||||
Expected return on plan assets | (19,546 | ) | (16,285 | ) | — | — | ||||||||||
Amortization of prior service cost | — | — | — | 1 | ||||||||||||
Recognized actuarial losses | 8,048 | 3,873 | 211 | 1,000 | ||||||||||||
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|
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| |||||||||
Total expense | $ | 12,840 | $ | 10,250 | $ | 529 | $ | 2,013 | ||||||||
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19
Funded Plan | Unfunded Plan | |||||||||||||||||||||||||||||||
Funded Plan | Unfunded Plan | Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||||||||||||||||||||||||
Thirty-Nine Weeks Ended | Thirty-Nine Weeks Ended | April 30, | May 2, | April 30, | May 2, | |||||||||||||||||||||||||||
In thousands | October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
Service cost | $ | 37,561 | $ | 30,361 | $ | 1,172 | $ | 1,048 | $ | 11,209 | $ | 13,055 | $ | 541 | $ | 693 | ||||||||||||||||
Interest cost | 38,783 | 37,141 | 2,275 | 2,251 | 14,362 | 12,949 | 875 | 871 | ||||||||||||||||||||||||
Expected return on plan assets | (58,532 | ) | (48,890 | ) | — | — | (17,935 | ) | (19,493 | ) | — | — | ||||||||||||||||||||
Amortization of prior service cost | — | — | — | 2 | ||||||||||||||||||||||||||||
Recognized actuarial losses | 25,142 | 10,386 | 2,969 | 1,609 | 7,209 | 8,547 | 865 | 1,379 | ||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||
Total expense | $ | 42,954 | $ | 28,998 | $ | 6,416 | $ | 4,910 | $ | 14,845 | $ | 15,058 | $ | 2,281 | $ | 2,943 | ||||||||||||||||
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|
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 sufficient to avoid restrictions with respect to the funding of TJX’s nonqualified plans under the Internal Revenue Code. TJX does not anticipate any required funding in fiscal 20162017 for the funded plan. TJX anticipates making payments of $3.3 million to provide current benefits coming due under the unfunded plan in fiscal 2016.2017.
The amounts included in amortization of prior service cost and 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.
17
TJX also has an unfunded postretirement medical plan which was closed to new benefits in fiscal 2006. The liability as of October 31, 2015 is estimated at $1.1 million, of which $1.0 million is included in non-current liabilities on the balance sheet.
The amendment to the plan benefits in fiscal 2006 resulted in a negative plan amendment which iswas 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 both the quartersquarter ended October 31, 2015 and November 1, 2014. Amortization from other comprehensive income to net income was $2.6 million for both the thirty-nine weeks ended October 31, 2015 and the thirty-nine weeks ended November 1, 2014.May 2, 2015.
20
Note J.I. Long-Term Debt and Credit Lines
The table below presents long-term debt, exclusive of current installments, as of October 31, 2015,April 30, 2016, January 31, 201530, 2016 and November 1, 2014.May 2, 2015. All amounts are net of unamortized debt discounts.
In thousands | October 31, 2015 | January 31, 2015 | November 1, 2014 | April 30, 2016 | January 30, 2016 | May 2, 2015 | ||||||||||||||||||
General corporate debt: | ||||||||||||||||||||||||
6.95% senior unsecured notes, maturing April 15, 2019 (effective interest rate of 6.98% after reduction of unamortized debt discount of $240 at October 31, 2015, $294 at January 31, 2015 and $311 at November 1, 2014) | $ | 374,760 | $ | 374,706 | $ | 374,689 | ||||||||||||||||||
2.50% senior unsecured notes, maturing May 15, 2023 (effective interest rate of 2.51% after reduction of unamortized debt discount of $335 at October 31, 2015, $367 at January 31, 2015 and $378 at November 1, 2014) | 499,665 | 499,633 | 499,622 | |||||||||||||||||||||
2.75% senior unsecured notes, maturing June 15, 2021 (effective interest rate of 2.76% after reduction of unamortized debt discount of $418 at October 31, 2015, $475 at January 31, 2015 and $494 at November 1, 2014) | 749,582 | 749,525 | 749,506 | |||||||||||||||||||||
6.95% senior unsecured notes, maturing April 15, 2019 (effective interest rate of 6.98% after reduction of unamortized debt discount of $205 at April 30, 2016, $223 at January 30, 2016 and $276 at May 2, 2015) | $ | 374,795 | $ | 374,777 | $ | 374,724 | ||||||||||||||||||
2.50% senior unsecured notes, maturing May 15, 2023 (effective interest rate of 2.51% after reduction of unamortized debt discount of $312 at April 30, 2016, $323 at January 30, 2016 and $356 at May 2, 2015) | 499,688 | 499,677 | 499,644 | |||||||||||||||||||||
2.75% senior unsecured notes, maturing June 15, 2021 (effective interest rate of 2.76% after reduction of unamortized debt discount of $381 at April 30, 2016, $400 at January 30, 2016 and $456 at May 2, 2015) | 749,619 | 749,600 | 749,544 | |||||||||||||||||||||
Debt issuance cost | (8,625 | ) | (9,051 | ) | (10,331 | ) | ||||||||||||||||||
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Long-term debt | $ | 1,624,007 | $ | 1,623,864 | $ | 1,623,817 | $ | 1,615,477 | $ | 1,615,003 | $ | 1,613,581 | ||||||||||||
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At October 31, 2015,April 30, 2016, TJX had outstanding $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 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 31, 2015, TJX also had outstanding $500 million aggregate principal amount of 2.50% ten-year notes due May 2023 and $375 million aggregate principal amount of 6.95% ten-year notes due April 2019. TJX entered into rate-lock agreements to hedge the underlying treasury rate of $250 million of the 2.50% notes and all of the 6.95% 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 and 7.00% for the 6.95% notes.
At October 31, 2015, January 31, 2015April 30, 2016, TJX also had outstanding $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 all of the 2.75% notes prior to their issuance. The agreements were accounted for as cash flow hedges and November 1, 2014,the pre-tax realized loss of $7.9 million was recorded as a component of other comprehensive income and is being amortized to interest expense over the term of the notes, resulting in an effective fixed interest rate of 2.91%.
At April 30, 2016, TJX had two $500 million revolving credit facilities, one which matures in June 2017March 2020 and one which matures in March 2021. At January 30, 2016 and May 2016. As of October 31,2, 2015, January 31, 2015TJX had two $500 million revolving credit facilities, one which was scheduled to mature in May 2016 and November 1, 2014,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 during the quarters$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 year then ended, there were no amounts outstandingcovenants under these facilities. At October 31, 2015, the agreementsnew revolving credit facilities are similar to those in the terminated facilities and require quarterly payments on the unused committed amounts of 6.0 basis points per annum on the committed amounts for the agreement maturing in 2017 and 10.0 basis points for the agreement maturing in 2016. These rates areboth agreements. This rate is based on the credit ratings of TJX’s long-term debt and would vary with specified changes in the credit ratings. These agreements havehad no compensating balance requirements and havehad various
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covenants. Each of these facilities requiresrequired 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 31, 2015,April 30, 2016, January 31,30, 2016 and May 2, 2015. As of April 30, 2016, January 30, 2016 and May 2, 2015, and November 1, 2014.during the quarters and year then ended, there were no amounts outstanding under any of these facilities.
As of October 31,April 30, 2016, January 30, 2016 and May 2, 2015, January 31, 2015 and November 1, 2014, TJX’s foreign subsidiaries had uncommitted credit facilities. 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 31,April 30, 2016, January 30, 2016 and May 2, 2015, January 31, 2015 and November 1, 2014, and during the quarters and year then ended, there were no amounts outstanding on the Canadian credit line for operating expenses. During the third quarter of fiscal 2016, we amended TJX Europe’s credit line for operating expenses, reducing the total available balance. As of October 31, 2015,April 30, 2016 and January 30, 2016, our European business at TJX EuropeInternational had aan uncommitted credit line of £5 million. As of January 31,May 2, 2015, and November 1, 2014,our European business at TJX EuropeInternational had aan uncommitted credit line of £20 million. As of October 31,April 30, 2016, January 30, 2016, and May 2, 2015, January 31, 2015, and November 1, 2014, and during the quarters and year then ended, there were no amounts outstanding on the European credit line.
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Note K.J. Income Taxes
The effective income tax rate was 37.6%38.4% for the fiscal 2016 third2017 first quarter and 38.0% for the fiscal 2015 third2016 first quarter. The effective income tax rate for the nine months ended October 31, 2015 was 37.9% as compared to 37.8% for the prior year’s comparable period. The decreaseincrease in the effective income tax rate for the third quarter of fiscal 2016 was primarily due to a tax benefit from a reduction in our reserve for uncertain tax positions related to our adoption of the new Tangible Property Regulations, partially offset by the jurisdictional mix of income and the increase in valuation allowance on foreign net operating losses.
TJX had net unrecognized tax benefits of $31.4$35.3 million as of October 31, 2015, $32.7April 30, 2016, $34.1 million as of January 31, 201530, 2016 and $29.3$33.7 million as of November 1, 2014.May 2, 2015.
TJX is subject to U.S. federal income tax as well as income tax in multiple states,state, local and foreign jurisdictions. In the U.S., fiscal years through 2010 are no longer subject to examination. In Canada, fiscal years through 2007 are no longer subject to examination. In all other jurisdictions, including Canada, the taxfiscal years through fiscal 20062009 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 $6.8$7.4 million as of October 31, 2015, $10.1April 30, 2016, $7.0 million as of January 31, 201530, 2016 and $9.3$10.5 million as of November 1, 2014.May 2, 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 $11.4$11 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 we originally leased or guaranteed to a significant number of third parties. With the exception of leases of former businesses for which TJX has reserved, we have rarely had a claim with respect to assigned leases, and accordingly, we do not expect that such leases will have a material adverse impact on our 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 which we believe the likelihood of future liability to TJX is remote.
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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 April 30, 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 TJX’s compare at pricing. The lawsuits are in various procedural stages and seek unspecified monetary damages, injunctive relief and attorneys’ fees. In connection with ongoing litigation, an immaterial amount has been accrued in the accompanying financial statements.
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The Thirteen Weeks (third(first quarter) and Thirty-Nine Weeks (nine months) Ended October 31, 2015April 30, 2016
Compared to
The Thirteen Weeks (third(first quarter) and Thirty-Nine Weeks (nine months) Ended November 1, 2014May 2, 2015
Overview
We are the leading off-price apparel and home fashions retailer in the U.S. and worldwide. We sell a rapidly changing assortment of apparel, home fashions and other merchandise at prices generally 20% to 60% below department and specialty store regular prices on comparable merchandise, every day. We operate over 3,5003,600 stores through our four main segments: in the U.S., Marmaxx (which operates T.J. Maxx, Marshalls and tjmaxx.com) and HomeGoods; TJX Canada (which operates Winners, HomeSense and Marshalls in Canada); and TJX EuropeInternational (which operates T.K. Maxx, HomeSense and tkmaxx.com in Europe)Europe, and Trade Secret in Australia). WeIn the U.S., we also operate Sierra Trading Post (STP), ana leading off-price Internet retailer which operateswith a small number of stores in the U.S. and sierratradingpost.com.stores. The results of STP have been included with theare reported in our Marmaxx segment.
In addition, late in October we acquired Trade Secret, an off-price retailer that operates 35 stores in Australia. Due to immateriality, we have not reflected any operating results in this third Quarterly Report on Form 10-Q. The operating results of Trade Secret following the acquisition date will be reflected in our fourth quarter results and combined with our operations in Europe. Beginning in the fourth quarter of fiscal 2016, our TJX Europe segment will be renamed to reflect the inclusion of Trade Secret.
Results of Operations
Highlights of our financial performance for the thirdfirst quarter ended October 31, 2015April 30, 2016 include the following:
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The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results.
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Net sales:Consolidated net sales for the thirdfirst quarter ended October 31, 2015April 30, 2016 totaled $7.8$7.5 billion, a 5%10% increase over consolidated net sales of $7.4$6.9 billion infor the fiscal 2015 third quarter.first quarter ended May 2, 2015. The increase reflected a 5% increase in same store sales and a 3% increase from new store sales, offset by 3% negative impact of foreign currency exchange rates. This increase compares to sales growth of 6% in last year’s third quarter, which reflected a 4% increase from new store sales and a 2% increase in same store sales. Foreign currency exchange rates had a neutral impact on the fiscal 2015 sales growth.
Consolidated net sales for the nine months ended October 31, 2015 totaled $22.0 billion, a 6% increase over $20.8 billion in last year’s comparable period. The increase reflected a 5%7% increase in same store sales and a 4% increase from new store sales, offset by a 3%1% negative impact offrom foreign currency exchange rates. This increase compares to sales growth of 6% in the nine-month period of fiscal 2015,last year’s first quarter, which reflected a 4%5% increase from newsame store sales and a 2%4% increase in samenew store sales. Foreignsales, offset by a 3% negative impact from foreign currency exchange had a neutral impact on the fiscal 2015 sales.rates.
As of October 31, 2015, excluding the impact of the Trade Secret acquisition,April 30, 2016, our consolidated store count increased 5%6% and selling square footage increased 4%5% compared to the end of the thirdfirst quarter last year.
The consolidated same store sales increase for both the thirdfirst quarter and nine month periods ended October 31, 2015 wereApril 30, 2016 was driven entirely by an increase in customer traffic. We also had a strong increase in units sold which was largely offset by a decrease in the average ticket. On a consolidated basis, home fashions outperformed apparel categories and both categories posted strong same store sales growth. Within apparel, our accessories category was particularly strong. In the U.S., virtually all regions posted strong same store sales increases. TheParts of the Southeast regionand Midwest posted the strongest same store sales gains for the third quarter and nine-month period.first quarter. In Canada, same store sales were well above the consolidated average for the third quarter and nine-month period. In Europe, same store sales were above the consolidated average for the quarter and equal to the consolidated average for the nine-month period.first quarter.
We define same store sales to be sales of those stores that we have operated for all or a portion of two consecutive fiscal years, or in other words, stores that are starting their third fiscal year of operation. The sales of Sierra Trading Post (including stores), tjmaxx.com and tkmaxx.com (our e-commerce businesses) are not included in same store sales. We classify a store as a new store until it meets the same store sales criteria. The newly acquired Trade Secret stores will be included in same store sales when they meet the above definition. We determine which stores are included in the same store sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year unless a store is closed. We calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that have increased in size are generally classified in the same way as the original store, and we believe that the impact of these stores on the consolidated same store percentage is immaterial. Same store sales of our foreign segments are calculated on a constant currency basis, meaning we translate the current year’s same store sales of our foreign segments at the same exchange rates used in the prior year. This removes the effect of changes in currency exchange rates, which we believe is a more accurate measure of segment operating performance. We define customer traffic to be the number of transactions in stores included in the same store sales calculation and define average ticket to be the average retail price of the units sold. We define average transaction to be the average dollar value of transactions included in the same store sales calculation.
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The following table sets forth certain information about our consolidated operating results from continued operations as a percentage of net sales:
Percentage of Net Sales Thirteen Weeks Ended October 31, 2015 | Percentage of Net Sales Thirteen Weeks Ended November 1, 2014 | |||||||
Net sales | 100.0 | % | 100.0 | % | ||||
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Cost of sales, including buying and occupancy costs | 71.0 | 70.6 | ||||||
Selling, general and administrative expenses | 16.7 | 16.2 | ||||||
Interest expense, net | 0.2 | 0.1 | ||||||
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Income before provision for income taxes* | 12.1 | % | 13.0 | % | ||||
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Percentage of Net Sales Thirteen Weeks Ended April 30, 2016 | Percentage of Net Sales Thirteen Weeks Ended May 2, 2015 | |||||||||||||||
Percentage of Net Sales Thirty-Nine Weeks Ended October 31, 2015 | Percentage of Net Sales Thirty-Nine Weeks Ended November 1, 2014 | |||||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
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Cost of sales, including buying and occupancy costs | 71.2 | 71.3 | 71.2 | 71.7 | ||||||||||||
Selling, general and administrative expenses | 16.9 | 16.3 | 17.7 | 17.0 | ||||||||||||
Loss on early extinguishment of debt | — | 0.1 | ||||||||||||||
Interest expense, net | 0.2 | 0.1 | 0.1 | 0.2 | ||||||||||||
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Income before provision for income taxes* | 11.8 | % | 12.1 | % | 10.9 | % | 11.1 | % | ||||||||
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* | Figures may not foot due to rounding |
Impact of foreign currency exchange rates: Our operating results are affected by foreign currency exchange rates as a result of changes in the value of the U.S. dollar or a division’s local currency in relation to other currencies. Two ways in which foreign currency exchange rates affect our reported results are as follows:
• | Translation of foreign operating results into U.S. dollars:In our financial statements, we translate the operations of TJX Canada and TJX |
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earnings per share growth as well as the net sales and operating results of these segments. Currency translation generally does not affect operating margins, or affects them only slightly, as sales and expenses of the foreign operations are translated at approximately the same rates within a given period. |
• | Inventory-related derivatives: We routinely enter into inventory-related hedging instruments to mitigate the impact on earnings of changes in foreign currency exchange rates on merchandise purchases denominated in currencies other than the local currencies of our divisions, principally TJX |
We refer to the impact of the above two items throughout our discussion as “foreign currency.” This does not include the impact currency exchange rates can have on various transactions that are denominated in a currency other than an operating division’s local currency. When discussing the impact on our results of the effect of currency exchange rates on such transactions we refer to it as “transactional foreign exchange.”
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Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales increaseddecreased by 0.4 percentage points to 71.0% for the third quarter of fiscal 2016 and improved by 0.10.5 percentage points to 71.2% for the nine months ended October 31, 2015, asfirst quarter of fiscal 2017 compared to the same periodsperiod last year. Both the third quarter and nine month periods benefitted fromThis improvement was driven by buying and occupancy expense leverage of approximately 0.7 percentage points on strong same store sales growth. In the third quarter, this benefitgrowth which was more thanpartially offset by transactional foreign currency at our international divisions, increased costs associated with moving more units through the supply chain and the impact of the mark-to-market on inventory derivatives. These items also negatively impacted the nine month expense ratio to a lesser extent and only partially offset the benefit from buying and occupancy leverage. Our consolidated merchandise margin was down slightly in the thirdremained strong, consistent with last year’s first quarter, and increased slightly for the nine month period, despite the negative impact of these items. Intransactional foreign exchange on the third quarter, the resultscost of our e-commerce businesses more than offset an increase in the merchandise margin at our brick and mortar operations, primarily at Marmaxx and HomeGoods.foreign divisions.
Selling, general and administrative expenses: Selling, general and administrative expenses, as a percentage of net sales, were 16.7%17.7% in the thirdfirst quarter of fiscal 2016,2017, up 0.50.7 percentage points over last year’s ratio and increased by 0.6 percentage points to 16.9% for the nine months ended October 31, 2015 as compared to the same period last year.ratio. The increase for both the thirdfirst quarter and nine-month periods was due to a combination of higher employee payroll costs due toresulting from our wage initiative, investments to support our growth as well as incremental legal and an increase in units handled at the stores, along with our incremental investments. In addition, the nine month expense ratio reflects the impact of increased contributions to TJX’s charitable foundations and higher pensioncredit card chargeback costs.
Interest expense, net: The components of interest expense, net are summarized below:
Thirteen Weeks Ended | ||||||||||||||||||||||||
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | April 30, | May 2, | |||||||||||||||||||||
Dollars in thousands | October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | 2016 | 2015 | ||||||||||||||||||
Interest expense | $ | 17,084 | $ | 16,169 | $ | 51,211 | $ | 48,624 | $ | 16,998 | $ | 16,899 | ||||||||||||
Capitalized interest | (1,168 | ) | (2,497 | ) | (6,062 | ) | (6,903 | ) | (2,012 | ) | (1,931 | ) | ||||||||||||
Interest (income) | (2,911 | ) | (3,632 | ) | (9,712 | ) | (10,936 | ) | (4,792 | ) | (3,344 | ) | ||||||||||||
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Interest expense, net | $ | 13,005 | $ | 10,040 | $ | 35,437 | $ | 30,785 | $ | 10,194 | $ | 11,624 | ||||||||||||
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Interest expense, net increased $3.0decreased $1.4 million for the thirdfirst quarter ended October 31, 2015April 30, 2016 as compared to the same period last year, and increased $4.7 million for the fiscal 2016 year-to-date period as comparedprimarily due to last year. Thean increase in net interest expense reflects interest expense, in the fiscal 2016 periods, on the financing lease obligation related to TJX Canada’s new home office of $1.0 million in the third quarter and $2.8 million in the nine month period. The increase in net interest expense also reflects a reduction in capitalized interest costs and interest income in the fiscal 2016 periods as compared to the same periods last year.
Income taxes: The effective income tax rate was 37.6%38.4% for the fiscal 2016 third2017 first quarter and 38.0% for the fiscal 2015 third2016 first quarter. The effective income tax rate for the nine months ended October 31, 2015 was 37.9% as compared to 37.8% for last year’s comparable period. The decreaseincrease in the effective income tax rate for the third quarter of fiscal 2016 was primarily due to a tax benefit from a reduction in our reserve for uncertain tax positions related to our adoption of the new Tangible Property Regulations, partially offset by the jurisdictional mix of income and the increase in valuation allowance on foreign net operating losses.
Net income and net income per share: Net income for the thirdfirst quarter of fiscal 20162017 was $587.3$508.3 million, or $0.86$0.76 per diluted share, versus $595.0$474.6 million, or $0.85$0.69 per diluted share, in last year’s thirdfirst quarter. Foreign currency had a $0.04$0.05 negative impact on earnings per share in the thirdfirst quarter of fiscal 20162017 compared to a $0.01 benefit$0.03 negative impact on earnings per share in the thirdfirst quarter of fiscal 2015. Net income for the nine months ended October 31, 2015 was $1,611.2 million, or $2.35 per diluted share, versus $1,566.9 million, or $2.22 per diluted share, for the same period last year. The impact of foreign currency exchange rates reduced diluted earnings per share by $0.08 per diluted share in fiscal 2016, compared to a neutral impact on diluted earnings per share in the same period last year. The after-tax cost for the loss on early extinguishment of debt reduced earnings for the first nine months of fiscal 2015 by $0.01 per share.2016.
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Our stock repurchase programs, which reduce our weighted average diluted shares outstanding, benefited our earnings per share growth by approximately fourthree percent in both the third quarter and nine-month periods of fiscal 2016. During the thirdfirst quarter of fiscal 2016, on a “trade date” basis,2017. During the first quarter of fiscal 2017, we repurchased 6.45.0 million shares of our common stock at a cost of $458.8$375.0 million. For the first nine months of fiscal 2016, on a “trade date” basis, we repurchased 19.1 million shares of our common stock at a cost of $1.3 billion.
Segment information: We operate four main business segments. The Marmaxx segment (T.J. Maxx, Marshalls and tjmaxx.com) and the HomeGoods segment both operate in the United States. Our TJX Canada segment operates Winners, HomeSense and Marshalls in Canada, and our TJX EuropeInternational segment operates T.K. Maxx, HomeSense and tkmaxx.com in Europe.Europe and Trade Secret in Australia. We also operate Sierra Trading Post (STP),STP, an off-price Internet retailer whichthat operates sierratradingpost.com and a small number of stores in the U.S. The results of STP have been included within our Marmaxx segment. In addition, late in October we acquired Trade Secret, an off-price retailer that operates 35 stores in Australia. Due to immateriality, we have not reflected any operating results in this Quarterly Report on Form 10-Q. The operating results of Trade Secret following the acquisition date will be reflected in our fourth quarter results and combined with our operations in Europe. Beginningformer TJX Europe segment was renamed TJX International in the fourth quarter of fiscal 2016 our TJX Europe segment will be renamed to reflect the inclusionacquisition of Trade Secret.Secret in Australia.
We evaluate the performance of our segments based on “segment profit or loss,” which we define as pre-tax income or loss before general corporate expense and interest expense. “Segment profit or loss,” as we define the term, 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 an alternative to net income or cash flows from operating activities as an indicator of our performance or as a measure of liquidity.
Presented below is selected financial information related to our business segments:
U.S. Segments:
Marmaxx
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||
Dollars in millions | October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | April 30, 2016 | May 2, 2015 | ||||||||||||||||||
Net sales | $ | 4,926.5 | $ | 4,673.7 | $ | 14,227.8 | $ | 13,402.4 | $ | 4,865.4 | $ | 4,495.4 | ||||||||||||
Segment profit | $ | 678.3 | $ | 679.9 | $ | 2,046.2 | $ | 1,988.6 | $ | 708.9 | $ | 652.3 | ||||||||||||
Segment profit as a percentage of net sales | 13.8 | % | 14.5 | % | 14.4 | % | 14.8 | % | 14.6 | % | 14.5 | % | ||||||||||||
Increase in same store sales | 3 | % | 1 | % | 3 | % | 1 | % | 6 | % | 3 | % | ||||||||||||
Stores in operation at end of period | ||||||||||||||||||||||||
T.J. Maxx | 1,149 | 1,113 | 1,163 | 1,126 | ||||||||||||||||||||
Marshalls | 1,001 | 973 | 1,010 | 987 | ||||||||||||||||||||
Sierra Trading Post | 7 | 6 | 8 | 6 | ||||||||||||||||||||
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Total | 2,157 | 2,092 | 2,181 | 2,119 | ||||||||||||||||||||
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Selling square footage at end of period (in thousands) | ||||||||||||||||||||||||
T.J. Maxx | 26,008 | 25,354 | 26,249 | 25,671 | ||||||||||||||||||||
Marshalls | 24,197 | 23,684 | 24,345 | 23,942 | ||||||||||||||||||||
Sierra Trading Post | 142 | 122 | 159 | 122 | ||||||||||||||||||||
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Total | 50,347 | 49,160 | 50,753 | 49,735 | ||||||||||||||||||||
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Net sales for Marmaxx increased 5%8% for the thirdfirst quarter and 6% for the nine-month period of fiscal 20162017 as compared to the same periodsperiod last year. SameThe increase reflected a 6% increase from same store sales for Marmaxx were up 3% in the third quarter of fiscal 2016 compared to 1% in the third quarter of fiscal 2015. Same stores sales were up 3% for the first nine months of fiscal 2016, on top ofand a 1%2% increase for the comparable period last year.
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from new store sales. Same store sales growth at Marmaxx for both the thirdfirst quarter and nine months ended October 31, 2015April 30, 2016 was entirely driven by an increase in customer traffic. Marmaxx sales in both periodsthe first quarter also reflect an increase in units sold which was more than offset by a decrease in the average ticket. In the third quarter, we continued our strategy of adjusting our pricing and merchandise mix resulting in a lower average ticket which we believe led to strong growth in customer traffic and in units sold. Geographically, same store sales growth in both periods was widespread as most regions were near the divisional average, with parts of the Southeast and Midwest particularly strong. Home fashions outperformed apparel in the thirdfirst quarter and nine-month period with both categories posting strong same store sales growth. Within apparel, our accessories category was particularly strong.
Segment profit margin decreasedincreased to 13.8%14.6% for the thirdfirst quarter of fiscal 20162017 compared to 14.5% for the same period last year. Segment margin decreased to 14.4% for the nine months ended October 31, 2015 compared to 14.8% for the same period last year. Marmaxx results for both periods reflect an increase in merchandise margin and occupancy expense leverage on same store sales growth. However, these gains were more than offset by higher distribution costs, reflecting the increase in units processed as well as higher payroll, primarily due to our wage initiative, and higher pension costs. In addition, tjmaxx.com and Sierra Trading Post (oure-commerce businesses) had a negative impact on year-over-year segment margin comparisons of 0.3 percentage points for the third quarter and 0.2 percentage points for the first nine months. Our e-commerce businesses operate at lower profit margins and at Sierra Trading Post we incurred additional costs as we work to make this business less promotional and to adjust its merchandise mix. Overall e-commerce sales represents less than 2% of Marmaxx’s net sales.
HomeGoods
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | |||||||||||||||
Dollars in millions | October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | ||||||||||||
Net sales | $ | 959.8 | $ | 851.0 | $ | 2,735.4 | $ | 2,381.3 | ||||||||
Segment profit | $ | 134.6 | $ | 117.9 | $ | 368.0 | $ | 310.8 | ||||||||
Segment profit as a percentage of net sales | 14.0 | % | 13.9 | % | 13.5 | % | 13.1 | % | ||||||||
Increase in same store sales | 6 | % | 7 | % | 8 | % | 5 | % | ||||||||
Stores in operation at end of period | 522 | 485 | ||||||||||||||
Selling square footage at end of period (in thousands) | 10,169 | 9,501 |
HomeGoods net sales increased 13% in the third quarter and 15% for the first nine months of fiscal 2016 over the same periods last year. Same store sales increased 6% for the third quarter and 8% for the nine months ended October 31, 2015 over increases of 7% and 5%, respectively, in the comparable periods ended November 1, 2014. The increases in both the third quarter and nine-month period of fiscal 2016 were largely driven by increases in customer traffic. An increase in units sold was largely offset by a reduction in the average ticket.
Segment profit margin increased to 14.0% for the third quarter of fiscal 2016 compared to 13.9% for the same period last year. Segment profit margin for the nine months ended October 31, 2015 increased 0.4 percentage points to 13.5%, compared to 13.1% for the same period last year. The growth in segment margin for the fiscal 2016 third quarter and nine-month period was driven by an increase in merchandise margin and buying and occupancy expense leverage on strong same store sales growth partiallyof approximately 0.8 percentage points along with an increase in merchandise margins. These gains were largely offset by numerous factors which include higher store payroll due to wage increases, higher distribution costs primarily due to processing the increased units as well as incremental legal and credit card chargeback costs. Collectively, these items reduced segment margin by approximately 0.7 percentage points. Our e-commerce businesses, which represent less than 2% of Marmaxx’s net sales, had no impact on year-over-year segment margin comparisons for the first quarter.
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HomeGoods
Thirteen Weeks Ended | ||||||||
Dollars in millions | April 30, 2016 | May 2, 2015 | ||||||
Net sales | $ | 1,010.4 | $ | 880.2 | ||||
Segment profit | $ | 138.2 | $ | 121.3 | ||||
Segment profit as a percentage of net sales | 13.7 | % | 13.8 | % | ||||
Increase in same store sales | 9 | % | 9 | % | ||||
Stores in operation at end of period | 534 | 498 | ||||||
Selling square footage at end of period (in thousands) | 10,377 | 9,745 |
HomeGoods net sales increased 15% in the first quarter over the same period last year. The increase reflected a 9% increase from same store sales and a 6% increase from new store sales. The increase in the first quarter was largely driven by an increase in distribution costscustomer traffic along with an increase in the value of the average transaction
Segment profit margin decreased to 13.7% for the first quarter of fiscal 2017 compared to 13.8% for the same period last year. Segment margin for the fiscal 2017 first quarter was favorably impacted by approximately 0.9 percentage points due to occupancy expense leverage on strong same store sales growth and an increase in merchandise margin. These gains, however, were more than offset by higher store payroll costs relateddue to our wage initiative.increased wages, incremental distribution center costs as HomeGoods invests in its supply chain, as well as an increase in legal and credit card chargeback costs.
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International Segments:
TJX Canada
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||
U.S. Dollars in millions | October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | April 30, 2016 | May 2, 2015 | ||||||||||||||||||
Net sales | $ | 753.6 | $ | 791.7 | $ | 2,073.2 | $ | 2,096.1 | $ | 685.6 | $ | 620.2 | ||||||||||||
Segment profit | $ | 113.2 | $ | 136.5 | $ | 278.0 | $ | 275.5 | $ | 57.5 | $ | 45.2 | ||||||||||||
Segment profit as a percentage of net sales | 15.0 | % | 17.2 | % | 13.4 | % | 13.1 | % | 8.4 | % | 7.3 | % | ||||||||||||
Increase in same store sales | 10 | % | 3 | % | 11 | % | 2 | % | 14 | % | 11 | % | ||||||||||||
Stores in operation at end of period | ||||||||||||||||||||||||
Winners | 245 | 234 | 250 | 239 | ||||||||||||||||||||
HomeSense | 101 | 96 | 104 | 97 | ||||||||||||||||||||
Marshalls | 41 | 38 | 45 | 39 | ||||||||||||||||||||
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| |||||||||||||||||||||
Total | 387 | 368 | 399 | 375 | ||||||||||||||||||||
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| |||||||||||||||||||||
Selling square footage at end of period (in thousands) | ||||||||||||||||||||||||
Winners | 5,470 | 5,310 | 5,538 | 5,384 | ||||||||||||||||||||
HomeSense | 1,900 | 1,824 | 1,953 | 1,844 | ||||||||||||||||||||
Marshalls | 975 | 914 | 1,054 | 936 | ||||||||||||||||||||
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| |||||||||||||||||||||
Total | 8,345 | 8,048 | 8,545 | 8,164 | ||||||||||||||||||||
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Net sales for TJX Canada decreased 5%increased 11% during the thirdfirst quarter and 1% for the nine-month period ended October 31, 2015April 30, 2016 compared to the same periodsperiod last year. These decreases were entirely due to foreignThis increase reflects same store sales increase on constant currency basis of 14%, new store sales growth of 4% offset by currency translation which negatively impacted sales growth by 18 percentage points for the fiscal 2016 third quarter and by 16 percentage points for the nine-month period ended October 31, 2015. Same7%. The increase in same store sales which are presented on a constant currency basis, increased 10% for the third quarter of fiscal 2016 and increased 11% for the nine months ended October 31, 2015. These increases werewas driven primarily by increasesan increase in customer traffic.traffic as well as in increase in the value of the average transaction.
Segment profit margin decreasedincreased to 15.0%8.4% for the thirdfirst quarter ended October 31, 2015April 30, 2016 compared to 17.2%7.3% last year. For the nine months ended October 31, 2015, segment profitSegment margin increased to 13.4% compared to 13.1%improvement for the same period last year. Foreign currency had a significant impact on segment margin in the thirdfirst quarter which unfavorably impacted year over year comparisons by 2.2 percentage points. Foreign currency also negatively impacted segment margins for the nine month period but to a much lesser extent, as year over year comparisons were unfavorably impacted by 0.3 percentage points. Segment margins for both periods were favorably impactedwas driven by expense leverage onacross many expense categories as a result of strong same store sales particularly on occupancy costs, whichgrowth. These gains were partially offset by a reduction in merchandise margins.margins and the negative impact of the mark to market adjustment of inventory hedges. The decrease in merchandise marginsmargin was largely due to transactional foreign exchange as the change in currency exchange rates increased TJX Canada’s cost of merchandise purchased in U.S. dollars as compared to the same periods last year.
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TJX EuropeInternational
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||
U.S. Dollars in millions | October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | April 30, 2016 | May 2, 2015 | ||||||||||||||||||
Net sales | $ | 1,113.5 | $ | 1,049.6 | $ | 2,946.5 | $ | 2,894.8 | $ | 981.0 | $ | 869.8 | ||||||||||||
Segment profit | $ | 115.3 | $ | 115.3 | $ | 192.5 | $ | 209.2 | $ | 14.3 | $ | 26.4 | ||||||||||||
Segment profit as a percentage of net sales | 10.4 | % | 11.0 | % | 6.5 | % | 7.2 | % | 1.5 | % | 3.0 | % | ||||||||||||
Increase in same store sales | 7 | % | (1 | )% | 5 | % | 4 | % | 4 | % | 3 | % | ||||||||||||
Stores in operation at end of period | ||||||||||||||||||||||||
T.K. Maxx | 454 | 407 | 471 | 416 | ||||||||||||||||||||
HomeSense | 39 | 33 | 41 | 33 | ||||||||||||||||||||
Trade Secret | 35 | — | ||||||||||||||||||||||
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| |||||||||||||||||||||
Total | 493 | 440 | 547 | 449 | ||||||||||||||||||||
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| |||||||||||||||||||||
Selling square footage at end of period (in thousands) | ||||||||||||||||||||||||
T.K. Maxx | 9,944 | 9,109 | 10,219 | 9,266 | ||||||||||||||||||||
HomeSense | 639 | 545 | 669 | 545 | ||||||||||||||||||||
Trade Secret | 667 | — | ||||||||||||||||||||||
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| |||||||||||||||||||||
Total | 10,583 | 9,654 | 11,555 | 9,811 | ||||||||||||||||||||
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Net sales for TJX EuropeInternational increased 6%13% for the thirdfirst quarter and increased 2% for the nine-month period ended October 31, 2015April 30, 2016 compared to the same periodsperiod last year. ForeignThe growth in sales includes 13% from new stores, including Trade Secret in Australia, a 4% increase in same store sales, partially offset by foreign currency translation which negatively impacted thirdfirst quarter sales growth by 9 percentage points and negatively impacted nine-month sales growth by 114 percentage points. Same store sales increased 7%The increase in the third quarter and 5% in the nine months ended October 31, 2015 over a decrease of 1% in the third quarter of fiscal 2015 and an increase of 4% in the nine months ended November 1, 2014. The fiscal 2016 same store sales increases were primarilywas driven by increasedan increase in customer traffic.
Segment profit margin for the thirdfirst quarter of fiscal 20162017 decreased 0.61.5 percentage points to 10.4%. For the nine months ended October 31, 2015, segment profit margin decreased 0.7 percentage points to 6.5%1.5%. Foreign currency negatively impacted year-over-year comparisons by 0.31.0 percentage points for the fiscal 2016 third quarter and by 0.4 percentage points for the nine-month period. Third quarter segment2017 first quarter. Segment margin was favorably impacted by strong buying and occupancy expense leverage on the strong same stores sales increase, which was more than offset by a decrease in merchandise margin due to transactional foreign exchange and the impact of several of our investment initiatives. These initiatives, which had a greater impact on segment margin for the nine month period, include costs associated with centralizing support areas of our business, as well as building out our infrastructure in order to leverage the organization and support our European growth plans, including our new store openings in Austria and the Netherlands. For the nine-month period, an increase in merchandise margins and expense leverage on strong same store sales, particularly buying and occupancy costs, was more than offset by our investment initiatives mentioned above as well as increased transactional foreign currency losses related to Euro denominated transactions.integrating Trade Secret’s operating results into this segment.
General corporate expense
Thirteen Weeks Ended | Thirty-Nine Weeks Ended | Thirteen Weeks Ended | ||||||||||||||||||||||
Dollars in millions | October 31, 2015 | November 1, 2014 | October 31, 2015 | November 1, 2014 | April 30, 2016 | May 2, 2015 | ||||||||||||||||||
General corporate expense | $ | 87.1 | $ | 80.5 | $ | 256.8 | $ | 216.2 | $ | 83.7 | $ | 68.4 |
General corporate expense for segment reporting purposes represents those costs not specifically related to the operations of our business segments. Virtually all general corporate expenses are included in selling, general and administrative expenses.
The increase in general corporate expense for the thirdfirst quarter and first nine months of fiscal 2016,2017, as compared to the prior year, is driven by a combination of increased incentive compensation accruals,reflects higher systems and technology costs and stock based compensation costs.
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technology costs, as well as Trade Secret acquisition costs, all partially offset by the favorable impact of the mark to market adjustment of our diesel fuel hedges. In addition, for the nine month period, the increase in general corporate expense reflects $15 million in contributions to TJX’s charitable foundations in fiscal 2016.
Analysis of Financial Condition
Liquidity and Capital Resources
Net cash provided by operating activities was $1,657$420 million for the nine monthsquarter ended October 31, 2015,April 30, 2016, a decrease of $169$28 million from the $1,826$448 million provided in the nine monthsquarter ended November 1, 2014.May 2, 2015. Net income, plusadjusted for the non-cash impact of depreciation and the deferred income tax provision, provided cash of $2,065$681 million in the first ninethree months of fiscal 2016,2017, an increase of $43$76 million compared to $2,022$605 million in the same period last year, which also included the charge for early extinguishment of debt.year. This increase was offset by the cash flow impact of changes in current assets and liabilities. Most notably,liabilities primarily, the change in merchandise inventory, net of the related change in accounts payable, which resulted in a use of cash of $521$258 million in the first ninethree months of fiscal 20162017 compared to a use of cash of $220$163 million in the first quarter of fiscal 2015.2016. This additional use of cash of $301$95 million in fiscal 20162017 primarily reflects an increase in inventory levels to meet increased demand as well as the earlier receipt of fourth quarter merchandise as compared to the same period last year. In addition, thean increase in packaway inventory. The change in accounts receivable and other current assets negativelypositively impacted year over yearyear-over-year cash flows by $17$37 million, primarily due to an increasethe favorable change in prepaid rent and service contracts. These reductions in cash flows from operations were partially offset by the favorable impact of theThe change in accrued expenses and other current liabilities which resulted in cash provided of $207 million in the first nine months of fiscal 2016 compared to cash provided of $96 million for the same period lasthad an unfavorable impact on year resulting in an increase inover year operating cash flows of $111 million. This favorable change in cash flows$47 million which was driven by a generalan increase in operating expense accruals atpayments for incentive compensation during the endfirst quarter of the current year’s third quarterfiscal 2017 as compared to the prior year as well as a lower incentive plan payment in the fiscal 2016 first quarter as compared to the comparable period last year. Lastly, the negative cash flow impact of the change in the deferred income tax provision was largely offset by charges reflected in the ‘other’ caption, primarily the mark-to-market adjustment of our inventory related derivatives.quarter.
Investing activities in the first ninethree months of fiscal 20162017 primarily reflected property additions for new stores, store improvements and renovations and investment in our home offices and our distribution network. Cash outflows for property additions amounted to $651$266 million in the nine monthsquarter ended October 31, 2015,April 30, 2016 compared to $706$201 million in the comparable period last year. We anticipate that capital spending for fiscal 20162017 will be approximately $975 million.$1.1 billion. We also purchased $643$165 million of investments in the first ninethree months of fiscal 20162017 versus $316$95 million in the comparable prior year period and $502period. $145 million of investments were sold or matured in the fiscal 2016 nine-month period2017 first quarter versus $315$54 million in the prior year. This activity primarily related to short-term investments which had initial maturities in excess of 90 days and, per our policy, are not classified as cash on the consolidated balance sheets presented. The purchase and sale of investments for fiscal 2016 also includes the impact of a change in the trustee of our Executive Savings Plan. This change resulted in approximately $150 million of assets being sold under the former trustee’s portfolio and a comparable amount of investments being purchased under the new trustee’s portfolio. Cash flows from investing activities also include the acquisition cost of $57 million for Trade Secret, an off-price retailer that operates 35 stores in Australia, which was completed on October 24, 2015.
Cash flows from financing activities resulted in a net cash outflow of $1,565$379 million in the first nine monthsquarter of fiscal 2016,2017 compared to a net cash outflow of $1,091$475 million in the same period last year. Financing activities include the cash flows relating to our repurchase of sharesrepurchases of our common stock, the exercise of options under our stock incentive plan and the payment of dividends to holders of our common stock. We spent $1,296$341 million to repurchase 18.94.5 million shares of our stock in the first ninethree months of fiscal 20162017 compared to $1,214$420 million to repurchase 20.96.2 million shares in the same period last year. See Note ED to our unaudited consolidated financial statements for more information. In February 2015,2016, we announced an additional repurchase program authorizing the repurchase of up to an additional $2.0 billion of TJX stock from time to time. We currently plan to repurchase approximately $1.8$1.5 billion to $1.9$2.0 billion of stock under our stock repurchase programs in fiscal 2016.2017. We determine the timing and amount of repurchases based on our assessment of various factors including excess cash flow, liquidity, economic and market conditions, our assessment of prospects for our business, legal requirements and other factors. The timing and amount of these purchases may change. Financing activities also included $136$102 million of proceeds, including excess tax benefits, related to the exercise of stock options in the first nine monthsquarter of fiscal 2016,2017 versus $150$66 million in proceeds in the same period last year. Dividends paid on common stock in the
31
first ninethree months of fiscal 20162017 were $404$140 million versus $346$120 million in the same period last year. In addition, in June of fiscal 2015, we issued $750 million aggregate principal amount of 2.75% seven-year notes generating proceeds, net of debt issuance expenses and fees, of $743 million. On July 8, 2014, we used a portion of the proceeds of the 2.75% seven-year notes to redeem the 4.20% notes paying $416.4 million to the note holders for the present value of principal and future remaining interest payments due on the notes.
We traditionally have funded our working capital requirements, including for seasonal merchandise, primarily through cash generated from operations, supplemented, as needed, by short-term bank borrowings and the issuance of commercial paper. As of October 31, 2015,April 30, 2016, approximately 62%63% of our cash was held by our foreign subsidiaries with $298$296 million held in countries where we have the intention to reinvest any undistributed earnings indefinitely. We have provided for deferred U.S. taxes on all undistributed earnings of our subsidiaries in Canada, Puerto Rico, Italy, India, Hong Kong, and our foreign buying offices.Australia. If we repatriate cash from these subsidiaries, we should not incur additional tax expense, but our cash would be reduced by the amount of taxes paid. For all other foreign subsidiaries, no income taxes have been provided on the undistributed earnings because such earnings are considered to be indefinitely reinvested in the business. We have no current plans to repatriate cash balances held by such foreign subsidiaries. We believe our existing cash and cash equivalents, internally generated funds and our credit facilities, described in Note JI to the unaudited consolidated financial statements, are more than adequate to meet our operating needs over the next fiscal year.
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Recently Issued Accounting Pronouncements
See Note A to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, for recently issued accounting standards, including the dates of adoption and estimated effects on our results of operations, financial position or cash flows.
Forward-looking Statements
Various statements made in this Quarterly Report on Form 10-Q are forward-looking and involve a number of risks and uncertainties. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements. The following are some of the factors that could cause actual results to differ materially from the forward-looking statements: execution of buying strategy and inventory management; operational and business expansion and management of large size and scale; customer trends and preferences; various marketing advertising and promotional programs;efforts; competition; personnel recruitment and retention; labor costs and workforce challenges; economic conditions and consumer spending; data security; information systems and new technology; economic conditions and consumer spending; adverse or unseasonable weather; serious disruptions or catastrophic events; seasonal influences;disruptions in the second half of the fiscal year; corporate and retail banner reputation; merchandise quality, safety and safety;other issues with merchandise; expanding international operations; merchandise importing; commodity availability and pricing; fluctuations in foreign currency exchange rates; fluctuations in quarterly operating results and market expectations; mergers, acquisitions, or business investments, and divestitures, closings or business consolidations; compliance with laws, regulations and orders;orders and changes in laws, regulations and regulations;applicable accounting standards; outcomes of litigation, legal matters and proceedings;other legal or regulatory matters; tax matters; real estate activities; cash flow and other factors that may be described in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. We do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in such statements will not be realized.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk. |
There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Form 10-K for the fiscal year ended January 31, 2015.30, 2016.
Item 4. | Controls and Procedures. |
We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2015April 30, 2016 pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of implementing controls and procedures.
There were no changes in our internal control over financial reporting, (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended October 31, 2015April 30, 2016 identified in connection with the evaluation by our management, including our Chief Executive Officer and Chief Financial Officer, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. | Legal Proceedings. |
Not applicable
Item 1A. | Risk Factors. |
There have been no material changes to the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended January 31, 2015,30, 2016, as filed with the Securities Exchange Commission on March 31, 2015.29, 2016.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Information on Share Repurchases
The number of shares of common stock repurchased by TJX during the thirdfirst quarter of fiscal 20162017 and the average price paid per share are as follows:
Total Number of Shares Repurchased(1) | Average Price Paid Per Share(2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | |||||||||||||
August 2, 2015 through August 29, 2015 | 1,607,943 | $ | 70.75 | 1,607,943 | $ | 2,345,397,112 | ||||||||||
August 30, 2015 through October 3, 2015 | 2,678,010 | $ | 70.95 | 2,678,010 | $ | 2,155,397,205 | ||||||||||
October 4, 2015 through October 31, 2015 | 2,141,802 | $ | 72.37 | 2,141,802 | $ | 2,000,397,152 | ||||||||||
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|
|
| |||||||||||||
Total: | 6,427,755 | 6,427,755 |
Total Number of Shares Repurchased(1) | Average Price Paid Per Share (2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | |||||||||||||
January 31, 2016 through February 27, 2016 | 1,273,714 | $ | 70.66 | 1,273,714 | $ | 3,400,760,126 | ||||||||||
February 28, 2016 through April 2, 2016 | 2,139,014 | $ | 77.46 | 2,001,159 | $ | 3,245,760,165 | ||||||||||
April 3, 2016 through April 30, 2016 | 1,826,210 | $ | 77.14 | 1,685,327 | $ | 3,115,760,260 | ||||||||||
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|
|
| |||||||||||||
Total: | 5,238,938 | 4,960,200 |
(1) | Consists of shares repurchased under publicly announced stock repurchase |
(2) | Includes commissions for the shares repurchased under stock repurchase programs. |
(3) | In February |
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Item 6. | Exhibits. |
10.1 | The Form of | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following materials from The TJX Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended |
* | Management contract or compensatory plan or arrangement. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE TJX COMPANIES, INC. | ||||||||
(Registrant) | ||||||||
Date: | ||||||||
By | /s/ | |||||||
Scott Goldenberg, Chief Financial Officer | ||||||||
(Principal Financial and Accounting Officer) |
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Exhibit Index
10.1 | The Form of | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following materials from The TJX Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended |
* | Management contract or compensatory plan or arrangement. |
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