SECURITIES AND EXCHANGE COMMISSION
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☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended October 28, 2017November 3, 2018
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☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period fromto
Commission file number1-4908 (Exact name of registrant as specified in its charter)
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Delaware | | 04-2207613 |
(State or other jurisdiction of incorporation or organization) | | Identification No.) |
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770 Cochituate Road Framingham, Massachusetts | | 01701 |
(Address of principal executive offices) | | (Zip Code) |
(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.
YesYES ☒
NoNO ☐
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).
YesYES ☒
NoNO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer,
a smaller reporting company or an
“emergingemerging growth
company”.company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
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Non-accelerated filer | | ☐ (Do not check if a smaller reporting company) | | Smaller reporting company | | ☐ |
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Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ☐ NO ☒
The number of shares of registrant’s common stock outstanding as of October 28, 2017: 632,302,505November 3, 2018: 1,233,145,248
PART I—I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
| | | | | | | | |
| | Thirteen Weeks Ended | |
| | October 28, 2017 | | | October 29, 2016 | |
Net sales | | $ | 8,762,220 | | | $ | 8,291,688 | |
| | | | | | | | |
Cost of sales, including buying and occupancy costs | | | 6,150,020 | | | | 5,843,873 | |
Selling, general and administrative expenses | | | 1,584,219 | | | | 1,462,574 | |
Loss on early extinguishment of debt | | | — | | | | 51,773 | |
Pension settlement charge | | | — | | | | 31,173 | |
Interest expense, net | | | 7,981 | | | | 12,462 | |
| | | | | | | | |
Income before provision for income taxes | | | 1,020,000 | | | | 889,833 | |
Provision for income taxes | | | 378,564 | | | | 340,047 | |
| | | | | | | | |
Net income | | $ | 641,436 | | | $ | 549,786 | |
| | | | | | | | |
Basic earnings per share: | | | | | | | | |
Net income | | $ | 1.01 | | | $ | 0.84 | |
Weighted average common shares – basic | | | 634,022 | | | | 653,559 | |
Diluted earnings per share: | | | | | | | | |
Net income | | $ | 1.00 | | | $ | 0.83 | |
Weighted average common shares – diluted | | | 642,881 | | | | 661,721 | |
Cash dividends declared per share | | $ | 0.3125 | | | $ | 0.2600 | |
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| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Net sales | | $ | 9,825,759 |
| | $ | 8,762,220 |
| | $ | 27,845,594 |
| | $ | 24,903,944 |
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Cost of sales, including buying and occupancy costs | | 6,983,483 |
| | 6,150,020 |
| | 19,797,537 |
| | 17,652,767 |
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Selling, general and administrative expenses | | 1,756,448 |
| | 1,584,219 |
| | 5,006,937 |
| | 4,479,470 |
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Pension settlement charge | | 36,122 |
| | — |
| | 36,122 |
| | — |
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Interest expense, net | | 3,188 |
| | 7,981 |
| | 10,365 |
| | 27,499 |
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Income before provision for income taxes | | 1,046,518 |
| | 1,020,000 |
| | 2,994,633 |
| | 2,744,208 |
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Provision for income taxes | | 284,265 |
| | 378,564 |
| | 776,373 |
| | 1,013,536 |
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Net income | | $ | 762,253 |
| | $ | 641,436 |
| | $ | 2,218,260 |
| | $ | 1,730,672 |
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Basic earnings per share: | | | | | | | | |
Net income | | $ | 0.62 |
| | $ | 0.51 |
| | $ | 1.78 |
| | $ | 1.35 |
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Weighted average common shares – basic | | 1,236,842 |
| | 1,268,044 |
| | 1,245,639 |
| | 1,278,383 |
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Diluted earnings per share: | | | | | | | | |
Net income | | $ | 0.61 |
| | $ | 0.50 |
| | $ | 1.75 |
| | $ | 1.33 |
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Weighted average common shares – diluted | | 1,257,562 |
| | 1,285,762 |
| | 1,264,100 |
| | 1,297,344 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
IN THOUSANDS
EXCEPT PER SHARE AMOUNTS | | | | | | | | |
| | Thirty-Nine Weeks Ended | |
| | October 28, 2017 | | | October 29, 2016 | |
Net sales | | $ | 24,903,944 | | | $ | 23,716,097 | |
| | | | | | | | |
Cost of sales, including buying and occupancy costs | | | 17,652,767 | | | | 16,778,977 | |
Selling, general and administrative expenses | | | 4,479,470 | | | | 4,190,872 | |
Loss on early extinguishment of debt | | | — | | | | 51,773 | |
Pension settlement charge | | | — | | | | 31,173 | |
Interest expense, net | | | 27,499 | | | | 33,918 | |
| | | | | | | | |
Income before provision for income taxes | | | 2,744,208 | | | | 2,629,384 | |
Provision for income taxes | | | 1,013,536 | | | | 1,009,078 | |
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Net income | | $ | 1,730,672 | | | $ | 1,620,306 | |
| | | | | | | | |
Basic earnings per share: | | | | | | | | |
Net income | | $ | 2.71 | | | $ | 2.46 | |
Weighted average common shares – basic | | | 639,191 | | | | 657,746 | |
Diluted earnings per share: | | | | | | | | |
Net income | | $ | 2.67 | | | $ | 2.43 | |
Weighted average common shares – diluted | | | 648,672 | | | | 666,632 | |
Cash dividends declared per share | | $ | 0.9375 | | | $ | 0.7800 | |
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| | | | | | | | |
| | Thirteen Weeks Ended |
| | November 3, 2018 | | October 28, 2017 |
Net income | | $ | 762,253 |
| | $ | 641,436 |
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Additions to other comprehensive income: | | | | |
Foreign currency translation adjustments, net of related tax provision of $143 in fiscal 2019 and benefit of $18,110 in fiscal 2018 | | (18,055 | ) | | (46,029 | ) |
Recognition of net gains/losses on benefit obligations, net of related tax benefit of $1,867 in fiscal year 2019 (See Note H) | | (5,128 | ) | | — |
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Reclassifications from other comprehensive income to net income: | | | | |
Pension settlement charge, net of related tax provision of $9,641 in fiscal 2019 | | 26,481 |
| | — |
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Amortization of prior service cost and deferred gains, net of related tax provisions of $1,109 in fiscal 2019 and $2,414 in fiscal 2018 | | 3,047 |
| | 3,669 |
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Amortization of loss on cash flow hedge, net of related tax provisions of $76 in fiscal 2019 and $112 in fiscal 2018 | | 208 |
| | 171 |
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Other comprehensive income (loss), net of tax | | 6,553 |
| | (42,189 | ) |
Total comprehensive income | | $ | 768,806 |
| | $ | 599,247 |
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| | Thirty-Nine Weeks Ended |
| | November 3, 2018 | | October 28, 2017 |
Net income | | $ | 2,218,260 |
| | $ | 1,730,672 |
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Additions to other comprehensive income: | | | | |
Foreign currency translation adjustments, net of related tax benefits of $13,582 in fiscal 2019 and tax provision of $16,212 in fiscal 2018 | | (200,319 | ) | | 79,393 |
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Gain on net investment hedges, net of related tax provision of $7,113 in fiscal 2019 | | 19,539 |
| | — |
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Recognition of net gains/losses on benefit obligations, net of related tax benefit of $1,867 in fiscal year 2019 (See Note H) | | (5,128 | ) | | — |
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Reclassifications from other comprehensive income to net income: | | | | |
Pension settlement charge, net of related tax provision of $9,641 in fiscal 2019 | | 26,481 |
| | — |
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Amortization of prior service cost and deferred gains, net of related tax provisions of $3,210 in fiscal 2019 and $7,500 in fiscal 2018 | | 8,817 |
| | 11,401 |
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Amortization of loss on cash flow hedge, net of related tax provisions of $228 in fiscal 2019 and $337 in fiscal 2018 | | 622 |
| | 513 |
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Other comprehensive (loss) income, net of tax | | (149,988 | ) | | 91,307 |
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Total comprehensive income | | $ | 2,068,272 |
| | $ | 1,821,979 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
3
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOMEBALANCE SHEETS
IN THOUSANDS,
| | | | | | | | |
| | Thirteen Weeks Ended | |
| | October 28, 2017 | | | October 29, 2016 | |
Net income | | $ | 641,436 | | | $ | 549,786 | |
| | | | | | | | |
Additions to other comprehensive income: | | | | | | | | |
Foreign currency translation adjustments, net of related tax benefits of $18,110 in fiscal 2018 and $14,123 in fiscal 2017 | | | (46,029 | ) | | | (94,590 | ) |
Recognition of net (losses) on benefit obligations, net of related tax benefit of $47,051 in fiscal year 2017 | | | — | | | | (71,525 | ) |
Reclassifications from other comprehensive income to net income: | | | | | | | | |
Pension settlement charge, net of related tax provision of $12,369 in fiscal 2017 | | | — | | | | 18,804 | |
Amortization of prior service cost and deferred gains, net of related tax provisions of $2,414 in fiscal 2018 and $3,462 in fiscal 2017 | | | 3,669 | | | | 5,263 | |
Amortization of loss on cash flow hedge, net of related tax provisions of $112 in fiscal 2018 and $112 in fiscal 2017 | | | 171 | | | | 171 | |
| | | | | | | | |
Other comprehensive (loss), net of tax | | | (42,189 | ) | | | (141,877 | ) |
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Total comprehensive income | | $ | 599,247 | | | $ | 407,909 | |
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| | Thirty-Nine Weeks Ended | |
| | October 28, 2017 | | | October 29, 2016 | |
Net income | | $ | 1,730,672 | | | $ | 1,620,306 | |
| | | | | | | | |
Additions to other comprehensive income: | | | | | | | | |
Foreign currency translation adjustments, net of related tax provision of $16,212 in fiscal 2018 and benefit of $17,241 in fiscal 2017 | | | 79,393 | | | | (93,304 | ) |
Recognition of net (losses) on benefit obligations, net of related tax benefit of $47,051 in fiscal year 2017 | | | — | | | | (71,525 | ) |
Reclassifications from other comprehensive income to net income: | | | | | | | | |
Pension settlement charge, net of related tax provision of $12,369 in fiscal 2017 | | | — | | | | 18,804 | |
Amortization of prior service cost and deferred gains, net of related tax provisions of $7,500 in fiscal 2018 and $7,517 in fiscal 2017 | | | 11,401 | | | | 11,427 | |
Amortization of loss on cash flow hedge, net of related tax provisions of $337 in fiscal 2018 and $337 in fiscal 2017 | | | 513 | | | | 513 | |
| | | | | | | | |
Other comprehensive income (loss), net of tax | | | 91,307 | | | | (134,085 | ) |
| | | | | | | | |
Total comprehensive income | | $ | 1,821,979 | | | $ | 1,486,221 | |
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EXCEPT SHARE DATA
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| | November 3, 2018 | | February 3, 2018 | | October 28, 2017 |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 2,711,767 |
| | $ | 2,758,477 |
| | $ | 2,364,244 |
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Short-term investments | | — |
| | 506,165 |
| | 511,618 |
|
Accounts receivable, net | | 419,790 |
| | 327,166 |
| | 345,866 |
|
Merchandise inventories | | 5,543,413 |
| | 4,187,243 |
| | 4,725,850 |
|
Prepaid expenses and other current assets | | 544,427 |
| | 706,676 |
| | 422,719 |
|
Federal, state, and foreign income taxes recoverable | | 97,616 |
| | — |
| | 19,737 |
|
Total current assets | | 9,317,013 |
| | 8,485,727 |
| | 8,390,034 |
|
Net property at cost | | 5,165,875 |
| | 5,006,053 |
| | 4,858,284 |
|
Goodwill | | 97,348 |
| | 100,069 |
| | 196,365 |
|
Other assets | | 445,006 |
| | 466,166 |
| | 433,012 |
|
TOTAL ASSETS | | $ | 15,025,242 |
| | $ | 14,058,015 |
| | $ | 13,877,695 |
|
LIABILITIES | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 3,340,596 |
| | $ | 2,488,373 |
| | $ | 2,986,374 |
|
Accrued expenses and other current liabilities | | 2,594,561 |
| | 2,522,961 |
| | 2,361,422 |
|
Federal, state and foreign income taxes payable | | 78,668 |
| | 114,203 |
| | 120,185 |
|
Total current liabilities | | 6,013,825 |
| | 5,125,537 |
| | 5,467,981 |
|
Other long-term liabilities | | 1,284,911 |
| | 1,320,505 |
| | 1,159,975 |
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Non-current deferred income taxes, net | | 236,769 |
| | 233,057 |
| | 374,276 |
|
Long-term debt | | 2,232,864 |
| | 2,230,607 |
| | 2,229,855 |
|
Commitments and contingencies (See Note K) | |
| |
| |
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SHAREHOLDERS’ EQUITY | | | | | | |
Preferred stock, authorized 5,000,000 shares, par value $1, no shares issued | | — |
| | — |
| | — |
|
Common stock, authorized 1,800,000,000 shares, par value $1, issued and outstanding 1,233,145,248; 1,256,018,044 and 1,264,605,010 respectively | | 1,233,145 |
| | 1,256,018 |
| | 1,264,605 |
|
Additional paid-in capital | | — |
| | — |
| | — |
|
Accumulated other comprehensive (loss) | | (591,847 | ) | | (441,859 | ) | | (602,919 | ) |
Retained earnings | | 4,615,575 |
| | 4,334,150 |
| | 3,983,922 |
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Total shareholders’ equity | | 5,256,873 |
| | 5,148,309 |
| | 4,645,608 |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 15,025,242 |
| | $ | 14,058,015 |
| | $ | 13,877,695 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
4
CONSOLIDATED
BALANCE SHEETSSTATEMENTS OF CASH FLOWS
IN THOUSANDS
EXCEPT SHARE DATA | | | | | | | | | | | | |
| | October 28, 2017 | | | January 28, 2017 | | | October 29, 2016 | |
ASSETS | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 2,364,244 | | | $ | 2,929,849 | | | $ | 2,375,532 | |
Short-term investments | | | 511,618 | | | | 543,242 | | | | 450,804 | |
Accounts receivable, net | | | 345,866 | | | | 258,831 | | | | 306,426 | |
Merchandise inventories | | | 4,725,850 | | | | 3,644,959 | | | | 4,384,171 | |
Prepaid expenses and other current assets | | | 422,719 | | | | 358,058 | | | | 409,986 | |
Federal, state, and foreign income taxes recoverable | | | 19,737 | | | | 15,835 | | | | 15,415 | |
| | | | | | | | | | | | |
Total current assets | | | 8,390,034 | | | | 7,750,774 | | | | 7,942,334 | |
| | | | | | | | | | | | |
Net property at cost | | | 4,858,284 | | | | 4,532,894 | | | | 4,318,829 | |
Non-current deferred income taxes, net | | | 6,655 | | | | 6,193 | | | | 3,624 | |
Goodwill | | | 196,365 | | | | 195,871 | | | | 196,011 | |
Other assets | | | 426,357 | | | | 398,076 | | | | 406,038 | |
| | | | | | | | | | | | |
TOTAL ASSETS | | $ | 13,877,695 | | | $ | 12,883,808 | | | $ | 12,866,836 | |
| | | | | | | | | | | | |
LIABILITIES | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Accounts payable | | $ | 2,986,374 | | | $ | 2,230,904 | | | $ | 2,686,845 | |
Accrued expenses and other current liabilities | | | 2,361,422 | | | | 2,320,464 | | | | 2,155,587 | |
Federal, state and foreign income taxes payable | | | 120,185 | | | | 206,288 | | | | 52,082 | |
| | | | | | | | | | | | |
Total current liabilities | | | 5,467,981 | | | | 4,757,656 | | | | 4,894,514 | |
| | | | | | | | | | | | |
Other long-term liabilities | | | 1,159,975 | | | | 1,073,954 | | | | 1,098,491 | |
Non-current deferred income taxes, net | | | 374,276 | | | | 314,000 | | | | 317,107 | |
Long-term debt | | | 2,229,855 | | | | 2,227,599 | | | | 2,226,913 | |
Commitments and contingencies (See Note K) | | | | | | | | | | | | |
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 632,302,505; 646,319,046 and 651,900,739 respectively | | | 632,303 | | | | 646,319 | | | | 651,901 | |
Additionalpaid-in capital | | | — | | | | — | | | | — | |
Accumulated other comprehensive (loss) | | | (602,919 | ) | | | (694,226 | ) | | | (801,557 | ) |
Retained earnings | | | 4,616,224 | | | | 4,558,506 | | | | 4,479,467 | |
| | | | | | | | | | | | |
Total shareholders’ equity | | | 4,645,608 | | | | 4,510,599 | | | | 4,329,811 | |
| | | | | | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 13,877,695 | | | $ | 12,883,808 | | | $ | 12,866,836 | |
| | | | | | | | | | | | |
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| | | | | | | | |
| | Thirty-Nine Weeks Ended |
| | November 3, 2018 | | October 28, 2017 |
Operating Activities | | | | |
Net income | | $ | 2,218,260 |
| | $ | 1,730,672 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 601,227 |
| | 532,424 |
|
Loss on property disposals and impairment charges | | 14,574 |
| | 2,209 |
|
Pension settlement charge | | 36,122 |
| | — |
|
Deferred income tax (benefit) provision | | (15,630 | ) | | 35,802 |
|
Share-based compensation | | 77,353 |
| | 77,152 |
|
Changes in assets and liabilities: | | | | |
(Increase) in accounts receivable | | (97,891 | ) | | (84,403 | ) |
(Increase) in merchandise inventories | | (1,442,577 | ) | | (1,042,664 | ) |
(Increase) in income taxes recoverable | | (69,372 | ) | | (3,902 | ) |
Decrease (increase) in prepaid expenses and other current assets | | 194,160 |
| | (50,357 | ) |
Increase in accounts payable | | 902,502 |
| | 733,340 |
|
Increase in accrued expenses and other liabilities | | 97,696 |
| | 83,082 |
|
(Decrease) in income taxes payable | | (33,292 | ) | | (86,842 | ) |
Other | | (5,375 | ) | | 2,910 |
|
Net cash provided by operating activities | | 2,477,757 |
| | 1,929,423 |
|
Investing Activities | | | | |
Property additions | | (872,963 | ) | | (827,529 | ) |
Purchase of investments | | (157,198 | ) | | (630,079 | ) |
Sales and maturities of investments | | 634,288 |
| | 658,225 |
|
Other | | 26,653 |
| | — |
|
Net cash (used in) investing activities | | (369,220 | ) | | (799,383 | ) |
Financing Activities | | | | |
Cash payments for repurchase of common stock | | (1,591,392 | ) | | (1,238,982 | ) |
Proceeds from issuance of common stock | | 239,608 |
| | 89,198 |
|
Cash dividends paid | | (682,322 | ) | | (566,949 | ) |
Cash payments of employee tax withholdings for performance based stock awards | | (16,014 | ) | | (16,823 | ) |
Other | | (5,409 | ) | | (2,312 | ) |
Net cash (used in) financing activities | | (2,055,529 | ) | | (1,735,868 | ) |
Effect of exchange rate changes on cash | | (99,718 | ) | | 40,223 |
|
Net decrease in cash and cash equivalents | | (46,710 | ) | | (565,605 | ) |
Cash and cash equivalents at beginning of year | | 2,758,477 |
| | 2,929,849 |
|
Cash and cash equivalents at end of period | | $ | 2,711,767 |
| | $ | 2,364,244 |
|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
5
CONSOLIDATED
STATEMENTSSTATEMENT OF
CASH FLOWSSHAREHOLDERS’ EQUITY
IN THOUSANDS
| | | | | | | | |
| | Thirty-Nine Weeks Ended | |
| | October 28, 2017 | | | October 29, 2016 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 1,730,672 | | | $ | 1,620,306 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 532,424 | | | | 492,395 | |
Loss on property disposals and impairment charges | | | 2,209 | | | | 1,648 | |
Deferred income tax provision | | | 35,802 | | | | 52,629 | |
Share-based compensation | | | 77,152 | | | | 77,380 | |
Excess tax benefits from share-based compensation | | | — | | | | (60,332 | ) |
Loss on early extinguishment of debt | | | — | | | | 51,773 | |
Pension settlement charge | | | — | | | | 31,173 | |
Changes in assets and liabilities: | | | | | | | | |
(Increase) in accounts receivable | | | (84,403 | ) | | | (72,487 | ) |
(Increase) in merchandise inventories | | | (1,042,664 | ) | | | (758,601 | ) |
(Increase) in taxes recoverable | | | (3,902 | ) | | | (4,356 | ) |
(Increase) in prepaid expenses and other current assets | | | (50,357 | ) | | | (38,174 | ) |
Increase in accounts payable | | | 733,340 | | | | 524,981 | |
Increase in accrued expenses and other liabilities | | | 83,082 | | | | 232,910 | |
(Decrease) in income taxes payable | | | (86,842 | ) | | | (19,000 | ) |
Other | | | 2,910 | | | | (19,986 | ) |
| | | | | | | | |
Net cash provided by operating activities | | | 1,929,423 | | | | 2,112,259 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Property additions | | | (827,529 | ) | | | (767,197 | ) |
Purchase of investments | | | (630,079 | ) | | | (533,807 | ) |
Sales and maturities of investments | | | 658,225 | | | | 432,046 | |
Other | | | — | | | | (2,324 | ) |
| | | | | | | | |
Net cash (used in) investing activities | | | (799,383 | ) | | | (871,282 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from issuance of long-term debt | | | | | | | 992,540 | |
Cash payments for extinguishment of debt | | | — | | | | (425,584 | ) |
Cash payments for repurchase of common stock | | | (1,238,982 | ) | | | (1,175,000 | ) |
Cash payments for debt issuance expenses | | | | | | | (9,921 | ) |
Cash payment for rate lock agreement | | | — | | | | (3,150 | ) |
Proceeds from issuance of common stock | | | 89,198 | | | | 110,902 | |
Excess tax benefits from share-based compensation | | | — | | | | 60,332 | |
Cash dividends paid | | | (566,949 | ) | | | (481,859 | ) |
Cash payments of employee tax withholdings for performance based stock awards | | | (16,823 | ) | | | (24,965 | ) |
Other | | | (2,312 | ) | | | — | |
| | | | | | | | |
Net cash (used in) financing activities | | | (1,735,868 | ) | | | (956,705 | ) |
| | | | | | �� | | |
Effect of exchange rate changes on cash | | | 40,223 | | | | (4,213 | ) |
| | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (565,605 | ) | | | 280,059 | |
Cash and cash equivalents at beginning of year | | | 2,929,849 | | | | 2,095,473 | |
| | | | | | | | |
Cash and cash equivalents at end of period | | $ | 2,364,244 | | | $ | 2,375,532 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | |
| | Shares | | Par Value $1 | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total |
Balance, February 3, 2018 | | 1,256,018 |
| | $ | 1,256,018 |
| | $ | — |
| | $ | (441,859 | ) | | $ | 4,334,150 |
| | $ | 5,148,309 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 2,218,260 |
| | 2,218,260 |
|
Cumulative effect of accounting change (See Note A) | | — |
| | — |
| | — |
| | — |
| | 58,712 |
| | 58,712 |
|
Other comprehensive income (loss), net of tax | | — |
| | — |
| | — |
| | (149,988 | ) | | — |
| | (149,988 | ) |
Cash dividends declared on common stock | | — |
| | — |
| | — |
| | — |
| | (727,975 | ) | | (727,975 | ) |
Recognition of share-based compensation | | — |
| | — |
| | 77,353 |
| | — |
| | — |
| | 77,353 |
|
Issuance of common stock under Stock Incentive Plan, net of shares used to pay tax withholdings | | 11,030 |
| | 11,030 |
| | 218,079 |
| | — |
| | (5,515 | ) | | 223,594 |
|
Common stock repurchased and retired | | (33,903 | ) | | (33,903 | ) | | (295,432 | ) | | — |
| | (1,262,057 | ) | | (1,591,392 | ) |
Balance, November 3, 2018 | | 1,233,145 |
| | $ | 1,233,145 |
| | $ | — |
| | $ | (591,847 | ) | | $ | 4,615,575 |
| | $ | 5,256,873 |
|
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
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | | | | |
| | Common Stock | | | Additional Paid-In Capital | | | Other Comprehensive Income (Loss) | | | Retained Earnings | | | Total | |
| | Shares | | | Par Value $1 | | | | | |
Balance, January 28, 2017 | | | 646,319 | | | $ | 646,319 | | | $ | — | | | $ | (694,226 | ) | | $ | 4,558,506 | | | $ | 4,510,599 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | 1,730,672 | | | | 1,730,672 | |
Other comprehensive income (loss), net of tax | | | — | | | | — | | | | — | | | | 91,307 | | | | — | | | | 91,307 | |
Cash dividends declared on common stock | | | — | | | | — | | | | — | | | | — | | | | (597,595 | ) | | | (597,595 | ) |
Recognition of share-based compensation | | | — | | | | — | | | | 77,152 | | | | — | | | | — | | | | 77,152 | |
Issuance of common stock under Stock Incentive Plan, net of shares used to pay tax withholdings | | | 2,726 | | | | 2,726 | | | | 69,729 | | | | — | | | | — | | | | 72,455 | |
Common stock repurchased and retired | | | (16,742 | ) | | | (16,742 | ) | | | (146,881 | ) | | | — | | | | (1,075,359 | ) | | | (1,238,982 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, October 28, 2017 | | | 632,303 | | | $ | 632,303 | | | $ | — | | | $ | (602,919 | ) | | $ | 4,616,224 | | | $ | 4,645,608 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
7
THE TJX COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Basis of Presentation and Summary of Significant Accounting Policies
The Consolidated Financial Statements and Notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. These Consolidated Financial Statements and Notes
thereto are unaudited and, in the opinion of management, reflect all normal recurring adjustments, accruals and deferrals among periods required to match costs properly with the related revenue or activity, considered necessary by The TJX Companies, Inc. (together with its subsidiaries, “TJX”) for a fair statement of its financial statements for the periods reported, all in conformity with GAAP consistently applied. The Consolidated Financial Statements and Notes thereto should be read in conjunction with the audited consolidated financial statements, including the related notes, contained in TJX’s Annual Report on Form
10-K for the fiscal year ended
January 28, 2017February 3, 2018 (“fiscal
2017”2018”).
These interim results are not necessarily indicative of results for the full fiscal year. TJX’s business, in common with the businesses of retailers generally, is subject to seasonal influences, with higher levels of sales and income generally realized in the second half of the year.
The
January 28, 2017February 3, 2018 balance sheet data was derived from audited financial statements
butand does not include all disclosures required by GAAP.
TJX’s fiscal year ends on the Saturday nearest to the last day of January of each year. The current fiscal year ends February
3, 20182, 2019 (“fiscal
2018”2019”) and is a
53-week 52-week fiscal year. Fiscal
20172018 was a
52-week 53-week fiscal year.
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. TJX considers its accounting policies relating to inventory valuation, impairment of long-lived assets, goodwill and tradenames, retirement obligations, share-based compensation, casualty insurance, reserves for uncertain tax positions and loss contingencies to be the most significant accounting policies that involve management estimates and judgments. Actual amounts could differ from those estimates, and such differences could be material.
Future Adoption
Reclassifications
As a result of Newa two-for-one stock split in the form of a dividend to shareholders of record as of October 30, 2018, certain amounts in prior years’ Consolidated Financial Statements have been retroactively adjusted to conform to the current year presentation. As such, all share activity, earnings per share and dividends per share amounts have been adjusted to reflect the two-for-one stock split. See Note D—Capital Stock and Earnings per Share for additional information.
Summary of Accounting
StandardsPolicies
Revenue Recognition
In May 2014,
TJX adopted Revenue from Contracts with Customers (referred to as “ASC 606”), on February 4, 2018 (“the Financial Accounting Standards Board (the “FASB”adoption date”) issued updated guidance on revenue recognition. 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. TJX adopted the new guidance under the modified retrospective approach which resulted in a $59 million cumulative adjustment to increase retained earnings. The new standard will be effective for annual reporting periods beginning after December 15, 2017, and interim periods therein, with an optioncumulative adjustment primarily related to adopt the standard early. The standard shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We believe that there will be no change in the timing or amount of revenue recognized underon the new standardvalue of unredeemed rewards certificates issued to customers as it relates to revenue from point of sale at the registers in our stores, which constitutes more than 95%part of the Company’s revenue. Sales frome-commerce will beU.S. co-branded credit card loyalty program. We now recognize the estimated unredeemed awards when they are earned, rather than when merchandise credits expire or when the likelihood of redemption becomes remote. In addition, on-line sales are now recognized at the shipping point rather than receipt by the customer. We believe there will be a slight change in
Other changes relate to the presentation and timing of revenue related to loyalty benefit programs.as certain expenses previously presented as a reduction of revenue are now classified as selling, general and administrative expenses (“SG&A”). The new standard will requirerequired a change in the presentation of our sales return reserve on the balance sheet, which we currently record net. The new standard will requirepreviously recorded net of the reserve to be establishedvalue of returned merchandise and now is presented at the gross sales value with an asset established for the value of the merchandise returned. There is no change in the timing or amount of revenue recognized from point of sale at the registers in our stores, which constitutes the majority of the Company’s revenue.
Financial results for fiscal periods after the adoption date are presented under ASC 606 while results from prior periods are not adjusted and continue to be reported under the accounting standards in effect for the prior period. We
doapplied ASC 606 only to contracts that were not
expect these changescompleted prior to
fiscal 2019. Adoption of the new guidance resulted in additional disclosure requirements and did not have a material
8
impact on our financial condition or results of operations for the fiscal period ended November 3, 2018.
Net Sales
Net sales consist primarily of merchandise sales, which are recorded net of a reserve for estimated returns, any discounts and sales taxes, related to the sales of merchandise both within our stores and online. Net sales also include an immaterial amount of other revenues that represent less than additional disclosure requirements. We plan1.0% of total revenues, primarily generated from TJX’s co-branded loyalty rewards credit card program offered in the United States only. In addition, certain customers may receive discounts that are accounted for as consideration reducing the transaction price. Merchandise sales from our stores are recognized at the point of sale when TJX provides the merchandise to adoptthe customer. The performance obligation is fulfilled at this standardpoint when the customer has obtained control by paying for and leaving with the merchandise. Merchandise sales made online are recognized when the product has been shipped, which is when legal title has passed and when TJX is entitled to payment, and the customer has obtained the ability to direct the use of and obtain substantially all of the remaining benefits from the goods. Shipping and handling activities related to online sales occur after the customer obtains control of the goods. TJX’s policy is to treat shipping costs as part of our fulfillment center costs within our operating expenditures. As a result, shipping fee revenues received is recognized when control of the goods transfer to the customer and is recorded as net sales. Shipping and handling costs incurred by TJX are included in cost of sales, including buying and occupancy costs. TJX disaggregates revenue by operating segment, see Note G—Segment Information.
Deferred Gift Card Revenue
Proceeds from the sale of gift cards as well as the value of store cards issued to customers as a result of a return or exchange are deferred until the customers use the cards to acquire merchandise, as TJX does not fulfill its performance obligation until the gift card has been redeemed. While gift cards have an indefinite life, substantially all are redeemed in the first year of issuance. Based on historical experience, we estimate the amount of gift cards and store cards that will not be redeemed and, to the extent allowed by local law, these amounts are amortized into income over the redemption period.
|
| | | | |
In thousands | | November 3, 2018 |
Balance, February 3, 2018 | | $ | 406,506 |
|
Deferred revenue | | 1,096,333 |
|
Effect of exchange rates changes on deferred revenue | | (6,561 | ) |
Revenue recognized | | (1,138,507 | ) |
Balance, November 3, 2018 | | $ | 357,771 |
|
TJX recognized $1.1 billion in gift card revenue for the nine months ended November 3, 2018. Gift cards are combined in one homogeneous pool and are not separately identifiable. As such, the revenue recognized consists of gift cards that were part of the deferred revenue balance at the beginning of the period as well as gift cards that were issued during the period.
Sales Return Reserve
Our products are generally sold with a right of return and we may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. We have elected to apply the portfolio practical expedient and are estimating the variable consideration using the expected value method when calculating the returns reserve, as the difference to applying it to the individual contract would not differ materially. Returns are estimated based on historical experience and are required to be established and presented at the gross sales value with an asset established for the estimated value of the merchandise returned separate from the refund liability. Liabilities for return allowances are included in “Accrued expenses and other current liabilities” and the offsetting receivable is included in “Prepaid expenses and other current assets” on our consolidated balance sheets.
Goodwill
Goodwill includes the excess of the purchase price paid over the carrying value of the minority interest acquired in fiscal 1990 in TJX’s former 83%-owned subsidiary and represents goodwill associated with the T.J. Maxx chain, as well as the excess of cost over the estimated fair market value of the net assets acquired by TJX in the purchase of Winners in fiscal 1991, the purchase of Sierra Trading Post (“STP”) in fiscal 2013, and the purchase of Trade Secret in fiscal 2016, which was re-branded under the T.K. Maxx name during fiscal 2018. The following is a roll forward of goodwill by component:
|
| | | | | | | | | | | | | | | | | | | | |
In thousands | | Marmaxx | | Winners | | Sierra Trading Post | | T.K. Maxx in Australia | | Total |
Balance, January 28, 2017 | | $ | 70,027 |
| | $ | 1,686 |
| | $ | 97,254 |
| | $ | 26,904 |
| | $ | 195,871 |
|
Impairment | | — |
| | — |
| | (97,254 | ) | | — |
| | (97,254 | ) |
Effect of exchange rate changes on goodwill | | — |
| | 98 |
| | — |
| | 1,354 |
| | 1,452 |
|
Balance, February 3, 2018 | | 70,027 |
| | 1,784 |
| | — |
| | 28,258 |
| | 100,069 |
|
Effect of exchange rate changes on goodwill | | — |
| | (93 | ) | | — |
| | (2,628 | ) | | (2,721 | ) |
Balance, November 3, 2018 | | $ | 70,027 |
| | $ | 1,691 |
| | $ | — |
| | $ | 25,630 |
| | $ | 97,348 |
|
Goodwill is considered to have an indefinite life and accordingly is not amortized. In the fourth quarter of
fiscal 2018, the
fiscal year ending February 2, 2019 underCompany recorded an impairment charge of $99.3 million, which included $97.3 million of STP goodwill and $2.0 million for certain long-lived assets of STP, as the
modified retrospective approach,estimated fair value of the STP business fell below its carrying value due to a decrease in projected revenue growth rates. The impairment charge is included within the Marmaxx segment results. Goodwill, and the related impairments, if any, are included in the respective operating segment to which
will result in a cumulative adjustment to retained earnings. We continue to evaluate the impact this standard will have on our Consolidated Financial Statements and Notes thereto.they relate.
Future Adoption of New Accounting Standards
In February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued updated guidance on leases that aims to increase transparency and comparability among organizations by requiring lessees to recognize leaseright of use assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. The new standard is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods; early adoption is permittedpermitted. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows entities to apply the transition requirements at the effective date rather than at the beginning of the earliest comparative period presented as previously required. The effect of initially applying the standard can be recognized as a cumulative-effect adjustment to retained earnings in the period of adoption and an entity’s reporting for the comparative periods presented in the year of adoption would continue to be in accordance with ASC 840, Leases (Topic 840) (“ASC 840”), including the disclosure requirements of ASC 840. If the new transition method in ASU 2018-11 is not elected, the new standard must be adopted using a modified retrospective transition and requires application is required.of the new guidance for leases that exist or are entered into after the beginning of the earliest comparative period presented. The Company plans to adopt this standard in the first quarter of the fiscal year ending February 1, 2020 ("fiscal 2020") using the optional transition method under ASU 2018-11.
The Company is in the process of implementing a new lease accounting system and has established a cross-functional team to implement the updated lease guidance andguidance. This team is in the process of evaluating itsour lease portfolio andto assess the impact this standard will have on our Consolidated Financial Statements and Notes thereto. The Company expects this standard to have a material impact on its statement of financial condition as it will record a significant asset and liability associated with its more than 4,000 leased locations. The Company continues to assess ifhas determined that the initial lease term will not differ under the new standard versus current accounting practice. If the lease term remains unchanged,practice, and therefore the income statement impact of the new standard is not expected to be material. WeAny impact to the income statement would be the result of the timing of expense recognition and would not be incremental over the term of the lease. For example, under ASC 842 certain initial direct costs will no longer be capitalized and amortized over the lease term and will be expensed as incurred. In addition, in certain instances, the cost of our renewal options may be recognized earlier in the life of the lease than under the existing lease accounting rules. The Company expects this standard will have a material impact on its Consolidated Balance Sheet as it will record a significant asset and liability associated with its nearly 4,300 leased locations. The Company plans to implement the transition package of three practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease classifications. The Company expects to make an accounting policy election that will keep leases with a term of 12 months or less off the balance sheet and result in recognizing those lease payments on a straight-line basis over the lease term. As our leases do not provide an implicit rate, nor is it readily available, we plan to adoptuse our incremental borrowing rate based on information available at commencement date to determine the present value of future payments.
Hedging Activities
In August 2017, the FASB issued updated guidance on hedge accounting. The updates allow hedge accounting for new types of interest rate hedges of financial instruments and simplify the documentation requirements to qualify for hedge accounting. In addition, any gain or loss from hedge ineffectiveness will be reported in the same income statement line with the effective hedge results and the hedged transaction. The updated guidance is effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company does not anticipate this pronouncement will have a material impact on its consolidated financial statements.
Income Statement – Reporting Comprehensive Income
In February 2018, the FASB issued updated guidance related to reporting comprehensive income. The updated guidance allows for a one-time reclassification from accumulated other comprehensive income to retained earnings for stranded tax effect resulting from the enactment of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). The updated guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for reporting periods for which financial statements have not yet been issued. The updated guidance should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the 2017 Tax Act is recognized. The Company has not yet determined the timing of adoption or estimated the effect on its consolidated financial statements.
Non-Employee Share-Based Payments
In June 2018, the FASB issued updated guidance related to compensation - stock compensation: Improvements to Non-Employee Share-Based Payment Accounting. The updated guidance aligns the measurement and classification guidance for share-based payments to non-employees with the guidance for share-based payments to employees, with certain exceptions. The amendments in this ASU will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company does not anticipate this pronouncement will have an impact on its consolidated financial statements.
Intangibles-Goodwill and Other-Internal-Use Software
In August 2018, the FASB issued guidance related to accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The standard allows entities who are customers in hosting arrangements that are service contracts to apply the existing internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The guidance specifies classification for capitalizing implementation costs and related amortization expense within the financial statements and requires additional disclosures. The guidance will be effective for annual reporting periods, including interim reporting within those periods, beginning after December 15, 2019. Early adoption is permitted and can be applied either retrospectively or prospectively. The Company is currently evaluating the transition methods and the impact of the adoption of this standard on its consolidated financial statements.
Fair Value Measurement Disclosure Framework
In August 2018, the FASB issued guidance related to changes to the disclosure requirements for fair value measurements. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The primary focus of the guidance is to improve the effectiveness of the disclosure requirements for fair value measurements. In general, the amendments are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2021 permitted for the new disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company is currently evaluating the potential effects of the pronouncement on its disclosure requirements.
Compensation Retirement Defined Benefit Plans Disclosure Framework
In August 2018, the FASB issued guidance related to changes to the disclosure requirements for defined benefit plans. This ASU removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and requires certain additional disclosures. The standard is effective on a retrospective basis for fiscal years ending after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of the pronouncement on its disclosure requirements.
Recently Adopted Accounting Standards
Revenue Recognition
See Revenue Recognition in this Note A for the impact upon adoption.
Cash Flows
In the first quarter of
the fiscal
year ending February 1, 2020.Cash Flows
In August 2016,2019, TJX adopted a pronouncement was issued that addresses diversitydifferences in howthe way certain cash receipts and cash payments are presented in the statement of cash flows. The new guidance provides clarity around the cash flow classification for eight specific issues in an effort to reduce the current and potential future diversitydifferences in practice. The standard which is to be applied retrospectively, will be effective for the first interim period within annual reporting periods beginning after December 15, 2017, and early adoption is permitted. TJX doesdid not expect this standard to have a material impact on our consolidated financial statements.
Goodwill
In January 2017, the FASB issued updated guidance on goodwill that aims to simplify the subsequent measurementstatements of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, goodwill impairment will be measured as the amount by which the carrying value exceeds the fair value. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The new guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods. Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017. TJX does not expect the adoption of this standard to have a material impact on our consolidated financial statements.
cash flows.
In March 2017, the FASB issued updated guidancefirst quarter of fiscal 2019, TJX adopted a pronouncement related to retirement benefits, which requires that an employer report the service cost component of net periodic pension and net periodic post retirement cost in the same line item as other compensation costs arising from services rendered by the employees during the period. It also requires the other components of net periodic pension and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost componentoperations, if such a subtotal is eligible for capitalization. This pronouncement is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance.presented. The amendments in this update should bewere applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and afterstatement. The impact to prior periods was immaterial. As a result of the effective date,adoption, for the capitalization of thethree and nine months ended November 3, 2018, service cost component of net periodic pension cost and net periodic postretirement benefit in assets. Wecosts are currently evaluating the presentation of the other components of net benefit cost. The Company has not yet determined the timing for adoption or estimated the effect on the Company’s financial statements.9
Hedging Activities
In August 2017, the FASB issued updated guidance on hedge accounting. The updates allow hedge accounting for new types of interest rate hedges of financial instruments and simplify documentation requirements to qualify for hedge accounting. In addition, any gain or loss from hedge ineffectiveness will be reportedrecorded in the same line items as other compensation costs and non-service costs are recorded in SG&A in our income statement line with the effective hedge results and the hedged transaction. The updated guidance is effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company has not yet determined the timing for adoption or estimated the effect on the Company’s financial statements.
Recently Adopted Accounting Standards
Share Based Compensation
statement.
Income Taxes
In the first quarter of 2017,fiscal 2019, TJX adopted Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (referred to as "ASU 2018-05"), which provides guidance on accounting for the tax effects of the 2017 Tax Act. This guidance allows a pronouncement that aimscompany to simplify several aspects ofrecord a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting and reporting for share-based payment transactions. One provision within this pronouncement requires that excess income tax benefits and tax deficiencies related to share-based payments be recognized within income tax expensethe change in the statement of income, rather than within additionalpaid-in capital ontax law during the balance sheet.measurement period. The adoption of this provision ismeasurement period ends when the company has obtained, prepared, and analyzed the information necessary to be applied prospectively. The impactfinalize its accounting, but cannot extend beyond one year. We will continue to TJX’s results of operations related to this provision for the three and nine months ended October 28, 2017 was a decrease in theassess our provision for income taxes of $12.6 million and $40.5 million, respectively. The impact of this benefit on TJX’sas future results of operations will depend in part on the market prices for TJX’s shares on the dates there are taxable events related to share awards, and therefore the impactguidance is difficult to predict. The remaining provisions within the pronouncement did not have a material impact on our consolidated financial statements.issued.
The following table presents the components of property at cost:
| | | | | | | | | | | | |
In thousands | | October 28, 2017 | | | January 28, 2017 | | | October 29, 2016 | |
Land and buildings | | $ | 1,294,992 | | | $ | 1,247,585 | | | $ | 1,118,739 | |
Leasehold costs and improvements | | | 3,145,922 | | | | 2,884,054 | | | | 2,811,515 | |
Furniture, fixtures and equipment | | | 5,172,488 | | | | 4,871,764 | | | | 4,725,863 | |
| | | | | | | | | | | | |
Total property at cost | | $ | 9,613,402 | | | $ | 9,003,403 | | | $ | 8,656,117 | |
Less accumulated depreciation and amortization | | | 4,755,118 | | | | 4,470,509 | | | | 4,337,288 | |
| | | | | | | | | | | | |
Net property at cost | | $ | 4,858,284 | | | $ | 4,532,894 | | | $ | 4,318,829 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | |
In thousands | | November 3, 2018 | | February 3, 2018 | | October 28, 2017 |
Land and buildings | | $ | 1,423,528 |
| | $ | 1,355,777 |
| | $ | 1,294,992 |
|
Leasehold costs and improvements | | 3,318,857 |
| | 3,254,830 |
| | 3,145,922 |
|
Furniture, fixtures and equipment | | 5,728,827 |
| | 5,357,701 |
| | 5,172,488 |
|
Total property at cost | | $ | 10,471,212 |
| | $ | 9,968,308 |
| | $ | 9,613,402 |
|
Less accumulated depreciation and amortization | | 5,305,337 |
| | 4,962,255 |
| | 4,755,118 |
|
Net property at cost | | $ | 5,165,875 |
| | $ | 5,006,053 |
| | $ | 4,858,284 |
|
Depreciation expense was $203.6 million for the three months ended November 3, 2018 and $186.9 million for the three months ended October 28, 2017. Depreciation expense was $601.5 million for the nine months ended November 3, 2018 and $534.0 million for the nine months ended October 28, 2017 and $484.5 for the nine months ended October 29, 2016.2017. Depreciation expense was $658.8$726.0 million for the twelve months ended January 28, 2017.As previously disclosed, during fiscal 2017, the Company identified fully depreciated assets that were no longer in use and should have been written off during fiscal 2017 or prior periods. The October 29, 2016 property at cost and accumulated depreciation were each reduced by $869 million, and, therefore there was no impact to net property at cost. This error was not material to our consolidated financial statements; however, we have revised the October 29, 2016 amounts to reflect theFebruary 3, 2018.
write-off that should have been recorded at that time.10
Note C. Accumulated Other Comprehensive Income (Loss)
Amounts included in accumulated other comprehensive income (loss) are recorded net of taxes. The following table details the changes in accumulated other comprehensive income (loss) for the nine months ended
October 28, 2017: | | | | | | | | | | | | | | | | |
In thousands | | Foreign Currency Translation | | | Deferred Benefit Costs | | | Cash Flow Hedge on Debt | | | Accumulated Other Comprehensive Income (Loss) | |
Balance, January 28, 2017 | | $ | (491,803 | ) | | $ | (199,481 | ) | | $ | (2,942 | ) | | $ | (694,226 | ) |
Additions to other comprehensive income: | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments (net of taxes of $16,212) | | | 79,393 | | | | — | | | | — | | | | 79,393 | |
Reclassifications from other comprehensive income to net income: | | | | | | | | | | | | | | | | |
Amortization of prior service cost and deferred gains (net of taxes of $7,500) | | | — | | | | 11,401 | | | | — | | | | 11,401 | |
Amortization of loss on cash flow hedge (net of taxes of $337) | | | — | | | | — | | | | 513 | | | | 513 | |
| | | | | | | | | | | | | | | | |
Balance, October 28, 2017 | | $ | (412,410 | ) | | $ | (188,080 | ) | | $ | (2,429 | ) | | $ | (602,919 | ) |
| | | | | | | | | | | | | | | | |
November 3, 2018:
|
| | | | | | | | | | | | | | | | |
In thousands | | Foreign Currency Translation | | Deferred Benefit Costs | | Cash Flow Hedge on Debt | | Accumulated Other Comprehensive Income (Loss) |
Balance, January 28, 2017 | | $ | (491,803 | ) | | $ | (199,481 | ) | | $ | (2,942 | ) | | $ | (694,226 | ) |
Additions to other comprehensive income: | | | | | | | | |
Foreign currency translation adjustments (net of taxes of $16,212) | | 79,393 |
| | — |
| | — |
| | 79,393 |
|
Reclassifications from other comprehensive income to net income: | | | | | | | | |
Amortization of loss on cash flow hedge (net of taxes of $337) | | — |
| | — |
| | 513 |
| | 513 |
|
Amortization of prior service cost and deferred gains/losses (net of taxes of $7,500) | | — |
| | 11,401 |
| | — |
| | 11,401 |
|
Balance, October 28, 2017 | | $ | (412,410 | ) | | $ | (188,080 | ) | | $ | (2,429 | ) | | $ | (602,919 | ) |
| | | | | | | | |
Balance, February 3, 2018 | | $ | (280,051 | ) | | $ | (159,562 | ) | | $ | (2,246 | ) | | $ | (441,859 | ) |
Additions to other comprehensive income: | | | | | | | | |
Foreign currency translation adjustments (net of taxes of $13,582) | | (200,319 | ) | | — |
| | — |
| | (200,319 | ) |
Net investment hedges (net of taxes of $7,113) | | 19,539 |
| | — |
| | — |
| | 19,539 |
|
Recognition of net gains/losses on benefit obligations,(net of taxes of $1,867) | | — |
| | (5,128 | ) | | — |
| | (5,128 | ) |
Reclassifications from other comprehensive income to net income: | | | | | | | | |
Pension settlement charge (net of taxes of $9,641) | | — |
| | 26,481 |
| | — |
| | 26,481 |
|
Amortization of prior service cost and deferred gains (net of taxes of $3,210) | | — |
| | 8,817 |
| | — |
| | 8,817 |
|
Amortization of loss on cash flow hedge (net of taxes of $228) | | — |
| | — |
| | 622 |
| | 622 |
|
Balance, November 3, 2018 | | $ | (460,831 | ) | | $ | (129,392 | ) | | $ | (1,624 | ) | | $ | (591,847 | ) |
Note D. Capital Stock and Earnings Per Share
On September 17, 2018, TJX announced that its Board of Directors approved a two-for-one stock split of its common stock in the form of a stock dividend. The split was subject to shareholder approval of an increase in the number of authorized shares of common stock. On October 22, 2018 the shareholders approved an increase in the number of authorized shares of common stock by 0.6 billion to 1.8 billion. One additional share was paid for each share held by the holders of record as of the close of business on October 30, 2018. The shares were distributed on November 6, 2018 and resulted in an issuance of 617 million shares of common stock. The balance sheet as of November 3, 2018 and all periods presented have been adjusted to retroactively present the two-for-one stock split. As of November 3, 2018, all historical per share amounts and references to the common stock activity, as well as basic and diluted share amounts utilized in the calculation of earnings per share and dividends per share, have been adjusted to reflect the stock split.
TJX repurchased and retired
4.911.4 million shares of its common stock at a cost of
$350.0 million$0.6 billion during the quarter ended
October 28, 2017,November 3, 2018, on a “trade date” basis. During the nine months ended
October 28, 2017,November 3, 2018, TJX repurchased and retired
16.934.0 million shares of its common stock at a cost of
$1.25$1.6 billion, on a
“trade date”"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
$1.6 billion for the nine months ended November 3, 2018, and $1.2 billion for
both the nine months ended October 28,
2017 and October 29, 2016.In February 2016, TJX announced that its Board of Directors had approved a stock repurchase program that authorized the repurchase of up to an additional $2.0 billion of TJX common stock2017. These expenditures were funded by cash generated from time to time. Under this program, on a “trade date” basis through October 28, 2017, TJX repurchased 19.7 million shares of common stock at a cost of $1.5 billion. At October 28, 2017, $0.5 billion remained available for purchase under this program.
operations.
In February 2017, TJX announced that its Board of Directors had approved an additional stock repurchase program that authorized the repurchase of up to $1.0 billion of TJX common stock from time to time. Under this program, which was completed during the third quarter of fiscal 2019, TJX repurchased 21.9 million shares of common stock at a cost of $1.0 billion, on a “trade date” basis.
In February 2018, TJX announced that its Board of Directors had approved an additional stock repurchase program that authorized the repurchase of up to $3.0 billion of TJX common stock from time
allto time. Under this program, on a “trade date” basis through November 3, 2018, TJX repurchased 8.6 million shares of
which remainedcommon stock at a cost of $464 million. As of November 3, 2018, TJX had $2.5 billion available
at October 28, 2017.under the stock repurchase program announced in February, 2018.
All shares repurchased under the stock repurchase programs have been retired.
11
The following
tables presenttable presents the calculation of basic and diluted earnings per share (“EPS”) for net income:
| | | | | | | | |
| | Thirteen Weeks Ended | |
In thousands, except per share data | | October 28, 2017 | | | October 29, 2016 | |
Basic earnings per share | | | | | | | | |
Net income | | $ | 641,436 | | | $ | 549,786 | |
Weighted average common shares outstanding for basic EPS | | | 634,022 | | | | 653,559 | |
Basic earnings per share | | $ | 1.01 | | | $ | 0.84 | |
Diluted earnings per share | | | | | | | | |
Net income | | $ | 641,436 | | | $ | 549,786 | |
Shares for basic and diluted earnings per share calculations: | | | | | | | | |
Weighted average common shares outstanding for basic EPS | | | 634,022 | | | | 653,559 | |
Assumed exercise/vesting of: | | | | | | | | |
Stock options and awards | | | 8,859 | | | | 8,162 | |
| | | | | | | | |
Weighted average common shares outstanding for diluted EPS | | | 642,881 | | | | 661,721 | |
| | | | | | | | |
Diluted earnings per share | | $ | 1.00 | | | $ | 0.83 | |
| | | | | | | | |
| | Thirty-Nine Weeks Ended | |
In thousands, except per share data | | October 28, 2017 | | | October 29, 2016 | |
Basic earnings per share | | | | | | | | |
Net income | | $ | 1,730,672 | | | $ | 1,620,306 | |
Weighted average common shares outstanding for basic EPS | | | 639,191 | | | | 657,746 | |
Basic earnings per share | | $ | 2.71 | | | $ | 2.46 | |
Diluted earnings per share | | | | | | | | |
Net income | | $ | 1,730,672 | | | $ | 1,620,306 | |
Shares for basic and diluted earnings per share calculations: | | | | | | | | |
Weighted average common shares outstanding for basic EPS | | | 639,191 | | | | 657,746 | |
Assumed exercise/vesting of: | | | | | | | | |
Stock options and awards | | | 9,481 | | | | 8,886 | |
| | | | | | | | |
Weighted average common shares outstanding for diluted EPS | | | 648,672 | | | | 666,632 | |
| | | | | | | | |
Diluted earnings per share | | $ | 2.67 | | | $ | 2.43 | |
|
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
In thousands, except per share data | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Basic earnings per share | | | | | | | |
Net income | $ | 762,253 |
| | $ | 641,436 |
| | $ | 2,218,260 |
| | $ | 1,730,672 |
|
Weighted average common shares outstanding for basic EPS | 1,236,842 |
| | 1,268,044 |
| | 1,245,639 |
| | 1,278,383 |
|
Basic earnings per share | $ | 0.62 |
| | $ | 0.51 |
| | $ | 1.78 |
| | $ | 1.35 |
|
Diluted earnings per share | | | | | | | |
Net income | $ | 762,253 |
| | $ | 641,436 |
| | $ | 2,218,260 |
| | $ | 1,730,672 |
|
Shares for basic and diluted earnings per share calculations: | | | | | | | |
Weighted average common shares outstanding for basic EPS | 1,236,842 |
| | 1,268,044 |
| | 1,245,639 |
| | 1,278,383 |
|
Assumed exercise/vesting of: | | | | | | | |
Stock options and awards | 20,720 |
| | 17,718 |
| | 18,461 |
| | 18,961 |
|
Weighted average common shares outstanding for diluted EPS | 1,257,562 |
| | 1,285,762 |
| | 1,264,100 |
| | 1,297,344 |
|
Diluted earnings per share | $ | 0.61 |
| | $ | 0.50 |
| | $ | 1.75 |
| | $ | 1.33 |
|
Cash dividends declared per share | $ | 0.195 |
| | $ | 0.156 |
| | $ | 0.585 |
| | $ | 0.469 |
|
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.stock for the related fiscal periods. Such options are excluded because they would have an antidilutive effect. There were
12.66.1 million such options excluded for each of the thirteen weeks and thirty-nine weeks ended
October 28, 2017.November 3, 2018. There were
4.325.2 million such options excluded for
each of the thirteen weeks and thirty-nine weeks ended October
29, 2016.12
28, 2017.
Note E. Financial Instruments As a result of its operating and financing activities, TJX is exposed to market risks from changes in interest and foreign currency exchange rates and fuel costs. These market risks may adversely affect TJX’s operating results and financial position. TJX seeks to minimize risk from changes in interest and foreign currency exchange rates and fuel costs through the use of derivative financial instruments when and to the extent deemed appropriate. TJX does not use derivative financial instruments for trading or other speculative purposes and does not use any leveraged derivative financial instruments. TJX recognizes all derivative instruments as either assets or liabilities in the statements of financial position and measures those instruments at fair value. The fair values of the derivatives are classified as assets or liabilities, current or
non-current, based upon valuation results and settlement dates of the individual contracts. Changes to the fair value of derivative contracts that do not qualify for hedge accounting are reported in earnings in the period of the change. For derivatives that qualify for hedge accounting, changes in the fair value of the derivatives are either recorded in shareholders’ equity as a component of other comprehensive income or are recognized currently in earnings, along with an offsetting adjustment against the basis of the item being hedged.
TJX does not hedge its net investments in foreign subsidiaries.
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
2017,2018, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal
2018. During2019, and during the first nine months of fiscal
2018,2019, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the first nine months of fiscal
2019.2020. The hedge agreements outstanding at
October 28, 2017November 3, 2018 relate to approximately
51%46% of TJX’s estimated notional diesel requirements for the remainder of fiscal
20182019 and approximately
34%28% of TJX’s estimated notional diesel requirements for the first nine months of fiscal
2019.2020. These diesel fuel hedge agreements will settle throughout the remainder of fiscal
20182019 and throughout the first ten months of fiscal
2019.TJX2020. TJX elected not to apply hedge accounting
rules to these contracts.
Foreign Currency Contracts
TJX enters into forward foreign currency exchange contracts to obtain economic hedges on portions of merchandise purchases made and anticipated to be made by the Company’s operations
atin TJX International (United Kingdom, Ireland, Germany, Poland, Austria, The Netherlands and Australia), TJX Canada (Canada), Marmaxx (U.S.) and HomeGoods (U.S.) in currencies other than their respective functional currencies. These contracts typically have a term of twelve months or less. The contracts outstanding at
October 28, 2017November 3, 2018 cover a portion of such actual and anticipated merchandise purchases throughout the remainder of fiscal
20182019 and throughout the
second quarterfirst half of fiscal
2019.2020. Additionally, TJX’s operations in Europe are subject to foreign currency exposure as a result of their buying function being centralized in the United Kingdom. All merchandise is purchased centrally in the U.K. and then shipped and billed to the retail entities in other countries. This intercompany billing to TJX’s European businesses’ Euro denominated operations creates exposure to the central buying entity for changes in the exchange rate between the Euro and British Pound. The inflow of Euros to the central buying entity provides a natural hedge for merchandise purchased from third-party vendors that is denominated in Euros. However, with the growth of TJX’s Euro denominated retail operations, the intercompany billings committed to the Euro denominated operations is generating Euros in excess of those needed to meet merchandise commitments to outside vendors. TJX calculates this excess Euro exposure each month and enters into forward contracts of approximately 30 days duration to mitigate the exposure. TJX elected not to apply hedge accounting
rules to these contracts.
TJX also enters into derivative contracts, generally designated as fair value hedges, to hedge intercompany debt and intercompany interest payable. The changes in fair value of these contracts are recorded in selling, general and administrative expenses and are offset by marking the underlying item to fair value in the same period. Upon settlement, the realized gains and losses on these contracts are offset by the realized gains and losses of the underlying item in selling, general and administrative expenses.
13
TJX periodically reviews its net investments in foreign subsidiaries. During the fiscal quarter ended May 5, 2018, TJX entered into net investment hedge contracts related to a portion of its investment in TJX Canada. During the fiscal quarter ended August 4, 2018, TJX de-designated the net investment hedge contracts. The remaining life of the foreign currency contracts provided a natural hedge to the declared cash dividend from TJX Canada. The contracts settled during the second quarter of fiscal 2019 resulting in a pre-tax gain of $27 million while designated as a net investment hedge and subsequent to de-designation, a pre-tax gain of $19 million. The $27 million gain is reflected in shareholders equity as a component of other comprehensive income. The $19 million gain subsequent to de-designation is reflected in the income statement offsetting a foreign currency loss of $18 million on the declared dividends.
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at November 3, 2018:
|
| | | | | | | | | | | | | | | | | | |
In thousands | | Pay | Receive | Blended Contract Rate | Balance Sheet Location | Current Asset U.S.$ | Current (Liability) U.S.$ | Net Fair Value in U.S.$ at November 3, 2018 |
Fair value hedges: | | | | | | | | |
Intercompany balances, primarily debt and related interest | | | | | |
| zł | 62,000 |
| £ | 12,983 |
| 0.2094 |
| Prepaid Exp | $ | 475 |
| $ | — |
| $ | 475 |
|
| € | 48,950 |
| £ | 43,612 |
| 0.8909 |
| Prepaid Exp | 626 |
| — |
| 626 |
|
| A$ | 30,000 |
| U.S.$ | 21,207 |
| 0.7069 |
| (Accrued Exp) | — |
| (429 | ) | (429 | ) |
| U.S.$ | 77,079 |
| £ | 55,000 |
| 0.7136 |
| (Accrued Exp) | — |
| (5,545 | ) | (5,545 | ) |
Economic hedges for which hedge accounting was not elected: | | | | |
Diesel contracts | | Fixed on 1.3M – 3.0M gal per month |
| | Float on 1.3M – 3.0M gal per month |
| N/A |
| Prepaid Exp | 4,965 |
| — |
| 4,965 |
|
Intercompany billings in Europe, primarily merchandise related | | | | | |
| € | 82,000 |
| £ | 71,853 |
| 0.8763 |
| (Accrued Exp) | — |
| (231 | ) | (231 | ) |
Merchandise purchase commitments | | | | | |
| C$ | 582,670 |
| U.S.$ | 447,800 |
| 0.7685 |
| Prepaid Exp / (Accrued Exp) | 3,216 |
| (543 | ) | 2,673 |
|
| C$ | 29,614 |
| € | 19,500 |
| 0.6585 |
| Prepaid Exp / (Accrued Exp) | 4 |
| (342 | ) | (338 | ) |
| £ | 271,690 |
| U.S.$ | 369,500 |
| 1.3600 |
| Prepaid Exp / (Accrued Exp) | 15,585 |
| (132 | ) | 15,453 |
|
| U.S.$ | 2,692 |
| £ | 2,067 |
| 0.7678 |
| Prepaid Exp / (Accrued Exp) | 15 |
| (28 | ) | (13 | ) |
| A$ | 45,132 |
| U.S.$ | 32,962 |
| 0.7303 |
| Prepaid Exp / (Accrued Exp) | 441 |
| (21 | ) | 420 |
|
| zł | 289,208 |
| £ | 59,158 |
| 0.2046 |
| Prepaid Exp / (Accrued Exp) | 744 |
| (373 | ) | 371 |
|
| U.S.$ | 67,459 |
| € | 57,065 |
| 0.8459 |
| (Accrued Exp) | — |
| (2,235 | ) | (2,235 | ) |
Total fair value of derivative financial instruments | | | $ | 26,071 |
| $ | (9,879 | ) | $ | 16,192 |
|
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at February 3, 2018:
|
| | | | | | | | | | | | | | | | | | |
In thousands | | Pay | Receive | Blended Contract Rate | Balance Sheet Location | Current Asset U.S.$ | Current (Liability) U.S.$ | Net Fair Value in U.S.$ at February 3, 2018 |
Fair value hedges: | | | | | | | | |
Intercompany balances, primarily debt and related interest | | | | |
| zł | 67,000 |
| £ | 14,035 |
| 0.2095 |
| (Accrued Exp) | $ | — |
| $ | (45 | ) | $ | (45 | ) |
| € | 51,950 |
| £ | 46,095 |
| 0.8873 |
| (Accrued Exp) | — |
| (318 | ) | (318 | ) |
| U.S.$ | 77,079 |
| £ | 55,000 |
| 0.7136 |
| Prepaid Exp | 1,636 |
| — |
| 1,636 |
|
Economic hedges for which hedge accounting was not elected: | | | |
Diesel contracts | | | | | | | | |
| | Fixed on 2.2M – 3.0M gal per month | | Float on 2.2M– 3.0M gal per month | N/A |
| Prepaid Exp | 7,854 |
| — |
| 7,854 |
|
Intercompany billings in TJX Europe, primarily merchandise related | | | |
| € | 26,000 |
| £ | 22,948 |
| 0.8826 |
| (Accrued Exp) | — |
| (2 | ) | (2 | ) |
Merchandise purchase commitments | | | | |
| C$ | 462,464 |
| U.S.$ | 367,200 |
| 0.7940 |
| Prepaid Exp / (Accrued Exp) | 49 |
| (5,478 | ) | (5,429 | ) |
| C$ | 22,562 |
| € | 15,000 |
| 0.6648 |
| Prepaid Exp | 557 |
| — |
| 557 |
|
| £ | 176,911 |
| U.S.$ | 238,000 |
| 1.3453 |
| Prepaid Exp / (Accrued Exp) | 173 |
| (12,838 | ) | (12,665 | ) |
| zł | 288,646 |
| £ | 60,023 |
| 0.2079 |
| (Accrued Exp) | — |
| (1,303 | ) | (1,303 | ) |
| A$ | 28,635 |
| U.S.$ | 22,230 |
| 0.7763 |
| Prepaid Exp / (Accrued Exp) | 43 |
| (573 | ) | (530 | ) |
| U.S.$ | 44,223 |
| € | 36,950 |
| 0.8355 |
| Prepaid Exp | 1,905 |
| — |
| 1,905 |
|
Total fair value of financial instruments | | $ | 12,217 |
| $ | (20,557 | ) | $ | (8,340 | ) |
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at October 28, 2017:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | Pay | | | Receive | | | Blended Contract Rate | | | Balance Sheet Location | | Current Asset U.S.$ | | | Current (Liability) U.S.$ | | | Net Fair Value in U.S.$ at October 28, 2017 | |
Fair value hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intercompany balances, primarily debt and related interest | | | | | | | | | | | | | | | | | | | |
| | zł | | | 67,000 | | | £ | 13,000 | | | | 0.1940 | | | (Accrued Exp) | | $ | — | | | $ | (1,211 | ) | | $ | (1,211 | ) |
| | € | | | 49,950 | | | £ | 43,317 | | | | 0.8672 | | | Prepaid Exp / (Accrued Exp) | | | 277 | | | | (1,600 | ) | | | (1,323 | ) |
| | U.S.$ | | | 68,445 | | | £ | 55,000 | | | | 0.8036 | | | Prepaid Exp | | | 3,849 | | | | — | | | | 3,849 | |
Economic hedges for which hedge accounting was not elected: | | | | | | | | | | | | | | | | | | | |
Diesel contracts | | | |
| Fixed on 250k – 2.5M gal per month | | |
| Float on 250k – 2.5M gal per month | | | | N/A | | | Prepaid Exp | | | 5,226 | | | | — | | | | 5,226 | |
Intercompany billings in Europe, primarily merchandise related | | € | | | 27,000 | | | £ | 24,062 | | | | 0.8912 | | | Prepaid Exp | | | 202 | | | | — | | | | 202 | |
Merchandise purchase commitments | | | | | | | | | | | | | | | | | | | | | | | |
| | C$ | | | 511,004 | | | U.S.$ | 399,650 | | | | 0.7821 | | | Prepaid Exp / (Accrued Exp) | | | 5,023 | | | | (4,770 | ) | | | 253 | |
| | C$ | | | 25,305 | | | € | 17,000 | | | | 0.6718 | | | Prepaid Exp / (Accrued Exp) | | | 63 | | | | (62 | ) | | | 1 | |
| | £ | | | 163,682 | | | U.S.$ | 214,000 | | | | 1.3074 | | | Prepaid Exp / (Accrued Exp) | | | 678 | | | | (2,298 | ) | | | (1,620 | ) |
| | A$ | | | 27,187 | | | U.S.$ | 21,351 | | | | 0.7853 | | | Prepaid Exp | | | 467 | | | | — | | | | 467 | |
| | zł | | | 313,150 | | | £ | 65,249 | | | | 0.2084 | | | Prepaid Exp / (Accrued Exp) | | | 580 | | | | (350 | ) | | | 230 | |
| | U.S.$ | | | 2,928 | | | £ | 2,245 | | | | 0.7667 | | | Prepaid Exp | | | 16 | | | | — | | | | 16 | |
| | U.S.$ | | | 68,723 | | | € | 58,859 | | | | 0.8565 | | | Prepaid Exp / (Accrued Exp) | | | 729 | | | | (989 | ) | | | (260 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total fair value of derivative financial instruments | | | | | | | | | $ | 17,110 | | | $ | (11,280 | ) | | $ | 5,830 | |
| | | | | | | | | | | | | | | | | | | | | | | |
14
|
| | | | | | | | | | | | | | | | | | | |
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 28, 2017 |
Fair value hedges: | | | | | | | | |
Intercompany balances, primarily debt and related interest | | | |
| | zł | 67,000 |
| £ | 13,000 |
| 0.1940 |
| (Accrued Exp) | $ | — |
| $ | (1,211 | ) | $ | (1,211 | ) |
| | € | 49,950 |
| £ | 43,317 |
| 0.8672 |
| Prepaid Exp /(Accrued Exp) | 277 |
| (1,600 | ) | (1,323 | ) |
| | U.S.$ | 68,445 |
| £ | 55,000 |
| 0.8036 |
| Prepaid Exp | 3,849 |
| — |
| 3,849 |
|
Economic hedges for which hedge accounting was not elected: | | | |
Diesel contracts | | | | | | | |
| | | Fixed on 250K – 2.5M gal per month | | Float on 250K – 2.5M gal per month |
| N/A |
| Prepaid Exp | 5,226 |
| — |
| 5,226 |
|
Intercompany billings in Europe, primarily merchandise related | | | |
| | € | 27,000 |
| £ | 24,062 |
| 0.8912 |
| Prepaid Exp | 202 |
|
|
| 202 |
|
Merchandise purchase commitments | | | |
| | C$ | 511,004 |
| U.S.$ | 399,650 |
| 0.7821 |
| Prepaid Exp / (Accrued Exp) | 5,023 |
| (4,770 | ) | 253 |
|
| | C$ | 25,305 |
| € | 17,000 |
| 0.6718 |
| Prepaid Exp / (Accrued Exp) | 63 |
| (62 | ) | 1 |
|
| | £ | 163,682 |
| U.S.$ | 214,000 |
| 1.3074 |
| Prepaid Exp / (Accrued Exp) | 678 |
| (2,298 | ) | (1,620 | ) |
| | A$ | 27,187 |
| U.S.$ | 21,351 |
| 0.7853 |
| Prepaid Exp | 467 |
| — |
| 467 |
|
| | zł | 313,150 |
| £ | 65,249 |
| 0.2084 |
| Prepaid Exp / (Accrued Exp) | 580 |
| (350 | ) | 230 |
|
| | U.S.$ | 2,928 |
| £ | 2,245 |
| 0.7667 | Prepaid Exp | 16 |
| — |
| 16 |
|
| | U.S.$ | 68,723 |
| € | 58,859 |
| 0.8565 |
| Prepaid Exp / (Accrued Exp) | 729 |
| (989 | ) | (260 | ) |
Total fair value of financial instruments | | | $ | 17,110 |
| $ | (11,280 | ) | $ | 5,830 |
|
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at January 28, 2017:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | Pay | | | Receive | | | Blended Contract Rate | | | Balance Sheet Location | | Current Asset U.S.$ | | | Current (Liability) U.S.$ | | | Net Fair Value in U.S.$ at January 28, 2017 | |
Fair value hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intercompany balances, primarily debt and related interest | | | | | | | | | | | | | | | | | | | |
| | zł | | | 67,000 | | | £ | 13,000 | | | | 0.1940 | | | (Accrued Exp) | | $ | — | | | $ | (6 | ) | | $ | (6 | ) |
| | € | | | 63,000 | | | £ | 54,452 | | | | 0.8643 | | | Prepaid Exp | | | 263 | | | | — | | | | 263 | |
| | U.S.$ | | | 68,445 | | | £ | 55,000 | | | | 0.8036 | | | Prepaid Exp | | | 1,196 | | | | — | | | | 1,196 | |
Economic hedges for which hedge accounting was not elected: | | | | | | | | | | | | | | | | | | | |
Diesel contracts | | | |
| Fixed on 2.1M – 2.5M gal per month | | |
| Float on 2.1M– 2.5M gal per month | | | | N/A | | | Prepaid Exp | | | 2,183 | | | | — | | | | 2,183 | |
Intercompany billings in Europe, primarily merchandise related | | | | | | | | | | | | | | | |
| | € | | | 68,000 | | | £ | 58,306 | | | | 0.8574 | | | Prepaid Exp | | | 262 | | | | — | | | | 262 | |
Merchandise purchase commitments | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | C$ | | | 462,025 | | | U.S.$ | 349,750 | | | | 0.7570 | | | Prepaid Exp / (Accrued Exp) | | | 1,089 | | | | (3,081 | ) | | | (1,992 | ) |
| | C$ | | | 19,571 | | | € | 13,650 | | | | 0.6975 | | | Prepaid Exp / (Accrued Exp) | | | 22 | | | | (290 | ) | | | (268 | ) |
| | £ | | | 180,963 | | | U.S.$ | 227,500 | | | | 1.2572 | | | Prepaid Exp / (Accrued Exp) | | | 2,327 | | | | (2,695 | ) | | | (368 | ) |
| | zł | | | 249,079 | | | £ | 48,593 | | | | 0.1951 | | | Prepaid Exp / (Accrued Exp) | | | 681 | | | | (927 | ) | | | (246 | ) |
| | U.S.$ | | | 22,226 | | | € | 20,686 | | | | 0.9307 | | | Prepaid Exp / (Accrued Exp) | | | 178 | | | | (257 | ) | | | (79 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total fair value of financial instruments | | | | | | | | | $ | 8,201 | | | $ | (7,256 | ) | | $ | 945 | |
| | | | | | | | | | | | | | | | | | | | | | | |
15
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at October 29, 2016:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | Pay | | | Receive | | | Blended Contract Rate | | | Balance Sheet Location | | Current Asset U.S.$ | | | Current (Liability) U.S.$ | | | Net Fair Value in U.S.$ at October 29, 2016 | |
Fair value hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intercompany balances, primarily debt and related interest | | | | | | | | | | | | | | | | | | | |
| | zł | | | 57,073 | | | C$ | 19,606 | | | | 0.3435 | | | Prepaid Exp | | $ | 199 | | | $ | — | | | $ | 199 | |
| | zł | | | 45,000 | | | £ | 7,403 | | | | 0.1645 | | | (Accrued Exp) | | | — | | | | (2,357 | ) | | | (2,357 | ) |
| | € | | | 61,000 | | | £ | 47,211 | | | | 0.7740 | | | (Accrued Exp) | | | — | | | | (9,681 | ) | | | (9,681 | ) |
| | U.S.$ | | | 77,957 | | | £ | 55,000 | | | | 0.7055 | | | (Accrued Exp) | | | — | | | | (10,999 | ) | | | (10,999 | ) |
| | £ | | | 25,000 | | | C$ | 41,123 | | | | 1.6449 | | | Prepaid Exp | | | 45 | | | | — | | | | 45 | |
Economic hedges for which hedge accounting was not elected: | | | | | | | | | | | | | | | | | | | |
Diesel contracts | | | |
| Fixed on 2.1M – 2.3M gal per month | | |
| Float on 2.1M – 2.3M gal per month | | | | N/A | | | Prepaid Exp | | | 1,485 | | | | — | | | | 1,485 | |
Intercompany billings in Europe, primarily merchandise related | | € | | | 88,000 | | | £ | 79,577 | | | | 0.9043 | | | Prepaid Exp | | | 186 | | | | — | | | | 186 | |
Merchandise purchase commitments | | | | | | | | | | | | | | | | | | | | | | | |
| | C$ | | | 461,631 | | | U.S.$ | 355,350 | | | | 0.7698 | | | Prepaid Exp | | | 10,434 | | | | — | | | | 10,434 | |
| | C$ | | | 21,643 | | | € | 14,900 | | | | 0.6885 | | | Prepaid Exp | | | 217 | | | | — | | | | 217 | |
| | £ | | | 191,518 | | | U.S.$ | 252,600 | | | | 1.3189 | | | Prepaid Exp / (Accrued Exp) | | | 18,824 | | | | (626 | ) | | | 18,198 | |
| | zł | | | 258,005 | | | £ | 50,292 | | | | 0.1949 | | | Prepaid Exp / (Accrued Exp) | | | 1 | | | | (3,875 | ) | | | (3,874 | ) |
| | U.S.$ | | | 675 | | | £ | 468 | | | | 0.6934 | | | (Accrued Exp) | | | — | | | | (106 | ) | | | (106 | ) |
| | U.S.$ | | | 49,288 | | | € | 43,819 | | | | 0.8891 | | | Prepaid Exp / (Accrued Exp) | | | 19 | | | | (1,122 | ) | | | (1,103 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total fair value of derivative financial instruments | | | | | | | | | $ | 31,410 | | | $ | (28,766 | ) | | $ | 2,644 | |
| | | | | | | | | | | | | | | | | | | | | | | |
16
Presented below is the impact of derivative financial instruments on the statements of income for the periods shown:
| | | | | | | | | | |
| | | | Amount of Gain (Loss) Recognized in Income by Derivative | |
| | | | Thirteen Weeks Ended | |
In thousands | | Location of Gain (Loss) Recognized in Income by Derivative | | October 28, 2017 | | | October 29, 2016 | |
Fair value hedges: | | | | | | | | | | |
Intercompany balances, primarily debt and related interest | | Selling, general and administrative expenses | | $ | (1,454 | ) | | $ | (10,549 | ) |
Economic hedges for which hedge accounting was not elected: | | | | | | | | |
Diesel fuel contracts | | Cost of sales, including buying and occupancy costs | | | 4,947 | | | | 4,241 | |
Intercompany billings in Europe, primarily merchandise related | | Cost of sales, including buying and occupancy costs | | | 328 | | | | (5,911 | ) |
Merchandise purchase commitments | | Cost of sales, including buying and occupancy costs | | | 13,336 | | | | 23,105 | |
| | | | | | | | | | |
Gain recognized in income | | | | $ | 17,157 | | | $ | 10,886 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | Amount of Gain (Loss) Recognized in Income by Derivative | |
| | | | Thirty-Nine Weeks Ended | |
In thousands | | Location of Gain (Loss) Recognized in Income by Derivative | | October 28, 2017 | | | October 29, 2016 | |
Fair value hedges: | | | | | | | | | | |
Intercompany balances, primarily debt and related interest | | Selling, general and administrative expenses | | $ | (3,820 | ) | | $ | (23,835 | ) |
Economic hedges for which hedge accounting was not elected: | | | | | | | | |
Diesel fuel contracts | | Cost of sales, including buying and occupancy costs | | | 3,630 | | | | 3,012 | |
Intercompany billings in Europe, primarily merchandise related | | Cost of sales, including buying and occupancy costs | | | (3,116 | ) | | | (14,987 | ) |
Merchandise purchase commitments | | Cost of sales, including buying and occupancy costs | | | (20,829 | ) | | | 15,826 | |
| | | | | | | | | | |
Loss recognized in income | | | | $ | (24,135 | ) | | $ | (19,984 | ) |
| | | | | | | | | | |
17
|
| | | | | | | | | | | | | | | | | | |
| | | | Amount of Gain (Loss) Recognized in Income by Derivative | | Amount of Gain (Loss) Recognized in Income by Derivative |
| | | | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
In thousands | | Location of Gain (Loss) Recognized in Income by Derivative | | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Fair value hedges: | | | | | | | | | | |
Intercompany balances, primarily debt and related interest | | Selling, general and administrative expenses | | $ | 672 |
| | $ | (1,454 | ) | | $ | (3,538 | ) | | $ | (3,820 | ) |
Economic hedges for which hedge accounting was not elected: | | | | | | | | |
Intercompany receivable | | Selling, general and administrative expenses | | — |
| | — |
| | 18,823 |
| | — |
|
Diesel fuel contracts | | Cost of sales, including buying and occupancy costs | | 1,572 |
| | 4,947 |
| | 7,530 |
| | 3,630 |
|
Intercompany billings in Europe, primarily merchandise related | | Cost of sales, including buying and occupancy costs | | 1,718 |
| | 328 |
| | 1,024 |
| | (3,116 | ) |
Merchandise purchase commitments | | Cost of sales, including buying and occupancy costs | | 8,463 |
| | 13,336 |
| | 61,091 |
| | (20,829 | ) |
Gain / (loss) recognized in income | | | | $ | 12,425 |
| | $ | 17,157 |
| | $ | 84,930 |
| | $ | (24,135 | ) |
Note F. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date or “exit price.” The inputs used to measure fair value are generally classified into the following hierarchy:
|
| | |
Level 1: | | Unadjusted quoted prices in active markets for identical assets or liabilities |
| | |
Level 2: | | Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability |
| | |
Level 3: | | Unobservable inputs for the asset or liability |
The following table sets forth TJX’s financial assets and liabilities that are accounted for at fair value on a recurring basis:
| | | | | | | | | | | | |
In thousands | | October 28, 2017 | | | January 28, 2017 | | | October 29, 2016 | |
Level 1 | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | |
Executive Savings Plan investments | | $ | 231,618 | | | $ | 195,733 | | | $ | 185,042 | |
Level 2 | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | |
Short-term investments | | $ | 511,618 | | | $ | 543,242 | | | $ | 450,804 | |
Foreign currency exchange contracts | | | 11,884 | | | | 6,018 | | | | 29,925 | |
Diesel fuel contracts | | | 5,226 | | | | 2,183 | | | | 1,485 | |
Liabilities: | | | | | | | | | | | | |
Foreign currency exchange contracts | | $ | 11,280 | | | $ | 7,256 | | | $ | 28,766 | |
|
| | | | | | | | | | | | |
In thousands | | November 3, 2018 | | February 3, 2018 | | October 28, 2017 |
Level 1 | | | | | | |
Assets: | | | | | | |
Executive Savings Plan investments | | $ | 245,856 |
| | $ | 249,045 |
| | $ | 231,618 |
|
Level 2 | | | | | | |
Assets: | | | | | | |
Short-term investments | | $ | — |
| | $ | 506,165 |
| | $ | 511,618 |
|
Foreign currency exchange contracts | | 21,106 |
| | 4,363 |
| | 11,884 |
|
Diesel fuel contracts | | 4,965 |
| | 7,854 |
| | 5,226 |
|
Liabilities: | | | | | | |
Foreign currency exchange contracts | | $ | 9,879 |
| | $ | 20,557 |
| | $ | 11,280 |
|
Investments designed to meet obligations under the Executive Savings Plan are invested in registered investment companies traded in active markets and are recorded at unadjusted quoted prices.
Short-term investments, foreign currency exchange contracts and diesel fuel contracts are valued using broker quotations, which include observable market information. TJX’s investments are primarily high-grade commercial paper, institutional money market funds and time deposits with major banks. TJX does not make adjustments to quotes or prices obtained from brokers or pricing services but does assess the credit risk of counterparties and will adjust final valuations when appropriate. Where independent pricing services provide fair values, TJX obtains an understanding of the methods used in pricing. As such, these instruments are classified within Level 2.
The fair value of TJX’s general corporate debt was estimated by obtaining market quotes given the trading levels of other bonds of the same general issuer type and market perceived credit quality. These inputs are considered to be Level 2. The fair value of long-term debt as of
October 28, 2017November 3, 2018 was
$2.20$2.1 billion compared to a carrying value of
$2.23$2.2 billion. The fair value of long-term debt as of
January 28, 2017February 3, 2018 was
$2.17$2.2 billion compared to a carrying value of
$2.23$2.2 billion. The fair value of long-term debt as of October
29, 201628, 2017 was
$2.25$2.2 billion compared to a carrying value of
$2.23$2.2 billion. These estimates do not necessarily reflect provisions or restrictions in the various debt agreements that might affect TJX’s ability to settle these obligations.
TJX’s cash equivalents are stated at cost, which approximates fair value due to the short maturities of these instruments.
18
Note G. Segment Information TJX operates four main business segments. The Marmaxx segment (T.J. Maxx, Marshalls and tjmaxx.com) and the HomeGoods segment (HomeGoods and Homesense) both operate in the United States, the TJX Canada segment operates Winners, HomeSense and Marshalls in Canada, and the TJX International segment operates T.K. Maxx, Homesense and tkmaxx.com in Europe and T.K. Maxx in Australia.
TJXWe also
operatesoperate Sierra Trading Post (“STP”), an
off-price Internet retailer that
operatesincludes sierratradingpost.com
andalong with a number of retail stores in the U.S.
We currently consider all of STP as part of our e-commerce operations. The results of STP are included in the Marmaxx segment.
All of TJX’s stores, with the exception of HomeGoods and
HomeSense,Homesense, sell family apparel and home fashions. HomeGoods and
HomeSenseHomesense offer home fashions.
TJX evaluates the performance of its segments based on “segment profit or loss,” which it defines as
pre-tax income or loss before general corporate expense,
pension settlement charge and interest expense, net. “Segment profit or loss,” as defined by TJX, may not be comparable to similarly titled measures used by other entities. The terms “segment margin” or “segment profit margin” are used to describe segment profit or loss as a percentage of net sales. These measures of performance should not be considered alternatives to net income or cash flows from operating activities as an indicator of TJX’s performance or as a measure of liquidity.
Presented below is financial information with respect to TJX’s business segments:
| | | | | | | | |
| | Thirteen Weeks Ended | |
In thousands | | October 28, 2017 | | | October 29, 2016 | |
Net sales: | | | | | | | | |
In the United States: | | | | | | | | |
Marmaxx | | $ | 5,298,479 | | | $ | 5,252,815 | |
HomeGoods | | | 1,228,768 | | | | 1,078,373 | |
TJX Canada | | | 983,236 | | | | 855,473 | |
TJX International | | | 1,251,737 | | | | 1,105,027 | |
| | | | | | | | |
| | $ | 8,762,220 | | | $ | 8,291,688 | |
| | | | | | | | |
Segment profit: | | | | | | | | |
In the United States: | | | | | | | | |
Marmaxx | | $ | 666,092 | | | $ | 703,092 | |
HomeGoods | | | 163,835 | | | | 149,739 | |
TJX Canada | | | 206,472 | | | | 142,491 | |
TJX International | | | 87,066 | | | | 87,821 | |
| | | | | | | | |
| | | 1,123,465 | | | | 1,083,143 | |
General corporate expense | | | 95,484 | | | | 97,902 | |
Loss on early extinguishment of debt | | | — | | | | 51,773 | |
Pension settlement charge | | | — | | | | 31,173 | |
Interest expense, net | | | 7,981 | | | | 12,462 | |
| | | | | | | | |
Income before provision for income taxes | | $ | 1,020,000 | | | $ | 889,833 | |
| | | | | | | | |
19
| | | | | | | | |
| | Thirty-Nine Weeks Ended | |
In thousands | | October 28, 2017 | | | October 29, 2016 | |
Net sales: | | | | | | | | |
In the United States: | | | | | | | | |
Marmaxx | | $ | 15,550,253 | | | $ | 15,217,188 | |
HomeGoods | | | 3,506,435 | | | | 3,075,472 | |
TJX Canada | | | 2,554,033 | | | | 2,297,831 | |
TJX International | | | 3,293,223 | | | | 3,125,606 | |
| | | | | | | | |
| | $ | 24,903,944 | | | $ | 23,716,097 | |
| | | | | | | | |
Segment profit: | | | | | | | | |
In the United States: | | | | | | | | |
Marmaxx | | $ | 2,100,138 | | | $ | 2,154,238 | |
HomeGoods | | | 457,272 | | | | 415,996 | |
TJX Canada | | | 392,581 | | | | 321,942 | |
TJX International | | | 132,893 | | | | 145,047 | |
| | | | | | | | |
| | | 3,082,884 | | | | 3,037,223 | |
General corporate expense | | | 311,177 | | | | 290,975 | |
Loss on early extinguishment of debt | | | — | | | | 51,773 | |
Pension settlement charge | | | — | | | | 31,173 | |
Interest expense, net | | | 27,499 | | | | 33,918 | |
| | | | | | | | |
Income before provision for income taxes | | $ | 2,744,208 | | | $ | 2,629,384 | |
| | | | | | | | |
20
|
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
In thousands | | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Net sales: | | | | | | | | |
In the United States: | | | | | | | | |
Marmaxx | | $ | 5,973,476 |
| | $ | 5,298,479 |
| | $ | 17,202,115 |
| | $ | 15,550,253 |
|
HomeGoods | | 1,463,892 |
| | 1,228,768 |
| | 4,060,569 |
| | 3,506,435 |
|
TJX Canada | | 1,036,884 |
| | 983,236 |
| | 2,828,456 |
| | 2,554,033 |
|
TJX International | | 1,351,507 |
| | 1,251,737 |
| | 3,754,454 |
| | 3,293,223 |
|
| | $ | 9,825,759 |
| | $ | 8,762,220 |
| | $ | 27,845,594 |
| | $ | 24,903,944 |
|
Segment profit: | | | | | | | | |
In the United States: | | | | | | | | |
Marmaxx | | $ | 762,911 |
| | $ | 666,092 |
| | $ | 2,343,682 |
| | $ | 2,100,138 |
|
HomeGoods | | 166,090 |
| | 163,835 |
| | 455,540 |
| | 457,272 |
|
TJX Canada | | 182,170 |
| | 206,472 |
| | 446,089 |
| | 392,581 |
|
TJX International | | 102,432 |
| | 87,066 |
| | 191,949 |
| | 132,893 |
|
| | 1,213,603 |
| | 1,123,465 |
| | 3,437,260 |
| | 3,082,884 |
|
General corporate expense | | 127,775 |
| | 95,484 |
| | 396,140 |
| | 311,177 |
|
Pension settlement charge | | 36,122 |
| | — |
| | 36,122 |
| | — |
|
Interest expense, net | | 3,188 |
| | 7,981 |
| | 10,365 |
| | 27,499 |
|
Income before provision for income taxes | | $ | 1,046,518 |
| | $ | 1,020,000 |
| | $ | 2,994,633 |
| | $ | 2,744,208 |
|
Note H. Pension Plans and Other Retirement Benefits Presented below is financial information relating to TJX’s funded defined benefit pension plan (“qualified pension plan” or “funded plan”) and its unfunded supplemental pension plan (“unfunded plan”) for the periods shown:
| | | | | | | | | | | | | | | | |
| | Funded Plan | | | Unfunded Plan | |
| | Thirteen Weeks Ended | | | Thirteen Weeks Ended | |
In thousands | | October 28, 2017 | | | October 29, 2016 | | | October 28, 2017 | | | October 29, 2016 | |
Service cost | | $ | 11,655 | | | $ | 11,360 | | | $ | 403 | | | $ | 293 | |
Interest cost | | | 13,866 | | | | 14,023 | | | | 820 | | | | 793 | |
Expected return on plan assets | | | (17,309 | ) | | | (17,633 | ) | | | — | | | | — | |
Recognized actuarial losses | | | 5,428 | | | | 7,943 | | | | 641 | | | | 783 | |
| | | | | | | | | | | | | | | | |
Expense related to current period | | | 13,640 | | | | 15,693 | | | | 1,864 | | | | 1,869 | |
Pension settlement charge | | | — | | | | 31,173 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total expense | | $ | 13,640 | | | $ | 46,866 | | | $ | 1,864 | | | $ | 1,869 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Funded Plan | | | Unfunded Plan | |
| | Thirty-Nine Weeks Ended | | | Thirty-Nine Weeks Ended | |
In thousands | | October 28, 2017 | | | October 29, 2016 | | | October 28, 2017 | | | October 29, 2016 | |
Service cost | | $ | 35,264 | | | $ | 33,778 | | | $ | 1,578 | | | $ | 1,376 | |
Interest cost | | | 41,384 | | | | 42,747 | | | | 2,506 | | | | 2,543 | |
Expected return on plan assets | | | (52,073 | ) | | | (53,503 | ) | | | — | | | | — | |
Recognized actuarial losses | | | 16,582 | | | | 22,362 | | | | 2,305 | | | | 2,512 | |
| | | | | | | | | | | | | | | | |
Net periodic pension cost | | | 41,157 | | | | 45,384 | | | | 6,389 | | | | 6,431 | |
Pension settlement charge | | | — | | | | 31,173 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total expense | | $ | 41,157 | | | $ | 76,557 | | | $ | 6,389 | | | $ | 6,431 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Funded Plan | | Unfunded Plan |
| | Thirteen Weeks Ended | | Thirteen Weeks Ended |
In thousands | | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Service cost | | $ | 10,781 |
| | $ | 11,655 |
| | $ | 572 |
| | $ | 403 |
|
Interest cost | | 12,837 |
| | 13,866 |
| | 994 |
| | 820 |
|
Expected return on plan assets | | (17,468 | ) | | (17,309 | ) | | — |
| | — |
|
Recognized actuarial losses | | 3,241 |
| | 5,428 |
| | 914 |
| | 641 |
|
Expense related to current period | | $ | 9,391 |
| | $ | 13,640 |
| | $ | 2,480 |
| | $ | 1,864 |
|
Pension settlement charge | | 36,122 |
| | — |
| | — |
| | — |
|
Total expense | | $ | 45,513 |
| | $ | 13,640 |
| | $ | 2,480 |
| | $ | 1,864 |
|
|
| | | | | | | | | | | | | | | | |
| | Funded Plan | | Unfunded Plan |
| | Thirty-Nine Weeks Ended | | Thirty-Nine Weeks Ended |
In thousands | | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Service cost | | $ | 34,007 |
| | $ | 35,264 |
| | $ | 1,794 |
| | $ | 1,578 |
|
Interest cost | | 40,767 |
| | 41,384 |
| | 2,700 |
| | 2,506 |
|
Expected return on plan assets | | (59,392 | ) | | (52,073 | ) | | — |
| | — |
|
Recognized actuarial losses | | 9,469 |
| | 16,582 |
| | 2,556 |
| | 2,305 |
|
Expense related to current period | | $ | 24,851 |
| | $ | 41,157 |
| | $ | 7,050 |
| | $ | 6,389 |
|
Pension settlement charge | | 36,122 |
| | — |
| | — |
| | — |
|
Total expense | | $ | 60,973 |
| | $ | 41,157 |
| | $ | 7,050 |
| | $ | 6,389 |
|
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 targetFunding Target pursuant to the Internal Revenue Code section 430) or such other amount
as is sufficient to avoid restrictions with respect to the funding of
TJX’s nonqualified plans under the Internal Revenue Code.
TJX doesWe do not anticipate any required funding in fiscal
20182019 for the funded plan.
TJX anticipatesWe anticipate making
paymentscontributions of
$4.1$2.5 million to provide current benefits coming due under the unfunded plan in fiscal
2018.2019.
The amounts included in recognized actuarial losses in the table above have been reclassified in their entirety from other comprehensive income to the statements of income, net of related tax effects, for the periods presented.
During the third quarter of fiscal
2017,2019, TJX
offered eligible, formerannuitized and transferred current pension obligations for certain U.S. retirees and beneficiaries under the funded plan through the purchase of a group annuity contract with an insurance company. TJX
Associates, who had not yet commenced receiving their pension benefit, an opportunity to receive a lump sum payouttransferred $207.4 million of
their vested pension benefit. As a result, the Company’s pension plan paid $103.2 million from pension plan assets to
those who accepted the
offer,insurance company, thereby reducing its pension benefit obligations. The transaction had no cash impact on TJX but did result in a
non-cashpre-tax non-cash pre-tax pension settlement charge of
$31.2$36.1 million,
in last year’s third quarter, which is reported separately on the consolidated statements of income.
TJX also had maintained an unfunded postretirement medical plan, which was closed to new benefits in fiscal 2006. During the first quarter of fiscal 2017, TJX terminated the unfunded postretirement medical plan and made As a discretionary lump sum payment to participants. The settlementresult of the liabilityannuity purchase the Company re-measured the funded status of its pension plan as of September 30, 2018. The assumptions for pension expense presented above includes a discount rate of 4.00% through the measurement date and 4.40% thereafter. The expected rate of return on plan assets is 6.00% through the recognition ofmeasurement date and 6.00% thereafter. The discount rate for determining the remaining negative plan amendment resulted in apre-tax benefit of $5.5 million inobligation at the first quarter of fiscal 2017.
21
measurement date is 4.40%.
Note I. Long-Term Debt and Credit Lines The table below presents long-term debt, exclusive of current installments, as of
November 3, 2018, February 3, 2018 and October 28,
2017, January 28, 2017 and October 29, 2016.2017. All amounts are net of unamortized debt discounts.
| | | | | | | | | | | | |
In thousands | | October 28, 2017 | | | January 28, 2017 | | | October 29, 2016 | |
General corporate debt: | | | | | | | | | | | | |
2.50% senior unsecured notes, maturing May 15, 2023 (effective interest rate of 2.51% after reduction of unamortized debt discount of $245 at October 28, 2017, $278 at January 28, 2017 and $289 at October 29, 2016) | | $ | 499,755 | | | $ | 499,722 | | | $ | 499,711 | |
2.75% senior unsecured notes, maturing June 15, 2021 (effective interest rate of 2.76% after reduction of unamortized debt discount of $269 at October 28, 2017, $325 at January 28, 2017 and $344 at October 29, 2016) | | | 749,732 | | | | 749,675 | | | | 749,656 | |
2.25% senior unsecured notes, maturing September 15, 2026 (effective interest rate of 2.32% after reduction of unamortized debt discount of $6,590 at October 28, 2017, $7,149 at January 28, 2017 and $7,336 at October 29, 2016) | | | 993,410 | | | | 992,851 | | | | 992,664 | |
Debt issuance cost | | | (13,042 | ) | | | (14,649 | ) | | | (15,118 | ) |
| | | | | | | | | | | | |
Long-term debt | | $ | 2,229,855 | | | $ | 2,227,599 | | | $ | 2,226,913 | |
| | | | | | | | | | | | |
On September 12, 2016, TJX issued $1.0 billion aggregate principal amount
|
| | | | | | | | | | | | |
In thousands | | November 3, 2018 | | February 3, 2018 | | October 28, 2017 |
General corporate debt: | | | | | | |
2.50% senior unsecured notes, maturing May 15, 2023 (effective interest rate of 2.51% after reduction of unamortized debt discount of $200 at November 3, 2018, $234 at February 3, 2018 and $245 at October 28, 2017) | | $ | 499,800 |
| | $ | 499,766 |
| | $ | 499,755 |
|
2.75% senior unsecured notes, maturing June 15, 2021 (effective interest rate of 2.76% after reduction of unamortized debt discount of $194 at November 3, 2018, $250 at February 3, 2018 and $269 at October 28, 2017) | | 749,806 |
| | 749,750 |
| | 749,732 |
|
2.25% senior unsecured notes, maturing September 15, 2026 (effective interest rate of 2.32% after reduction of unamortized debt discount of $5,844 at November 3, 2018, $6,403 at February 3, 2018 and $6,590 at October 28, 2017) | | 994,156 |
| | 993,597 |
| | 993,410 |
|
Debt issuance cost | | (10,898 | ) | | (12,506 | ) | | (13,042 | ) |
Long-term debt | | $ | 2,232,864 |
| | $ | 2,230,607 |
| | $ | 2,229,855 |
|
As of
2.25%ten-year notes due September 2026 all of which was outstanding at October 28, 2017. TJX entered into a rate-lock agreement to hedge $700 million of the 2.25% notes. The cost of these agreements are being amortized to interest expense over the term of the notes resulting in an effective fixed rate of 2.36%. On October 12, 2016, TJX used a portion of the proceeds from the 2.25%ten-year notes to redeem all outstanding 6.95%ten-year notesNovember 3, 2018, February 3, 2018 and
recorded apre-tax loss on the early extinguishment of debt of $51.8 million, which includes $50.6 million of redemption premium and $1.2 million to write off unamortized debt expenses and discount.At October 28, 2017, TJX also had outstanding $500 million aggregate principal amount of 2.50%ten-year notes due May 2023 and $750 million aggregate principal amount of 2.75% seven-year notes, due June 2021. TJX entered into rate-lock agreements to hedge the underlying treasury rate of $250 million of the 2.50% notes. The costs of these agreements are being amortized to interest expense over the term of the respective notes, resulting in an effective fixed interest rate of 2.57% for the 2.50% notes. TJX also entered into rate-lock agreements to hedge the underlying treasury rate of all of the 2.75% notes prior to their issuance. The agreements were accounted for as cash flow hedges and thepre-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 28, 2017, TJX had two $500 million revolving credit facilities, one which matures in March 2020 and one which matures in March 2022. At October 28, 2017,
The terms and covenants under the agreementsrevolving credit facilities require quarterly payments of 6.0 basis points per annum on the committed amounts for both agreements. This rate is based on the credit ratings of TJX’s long-term debt and wouldwill vary with specified changes in the credit ratings. These agreements hadhave no compensating balance requirements and hadhave various covenants. Each of these facilities require TJX to maintain a ratio of funded debt and four-times consolidated rentals to consolidated earnings before interest, taxes, depreciation and amortization and consolidated rentals (“EBITDAR”)(EBITDAR) of not more than 2.75 to 1.00 on a rolling four-quarter basis. TJX was in compliance with all covenants related to its credit facilities at the end of all periods presented. As of November 3, 2018, February 3, 2018 and October 28, 2017, January 28, 2017 and October 29, 2016. As of October 28, 2017, January 28, 2017 and October 29, 2016, and during the quarters and year then ended, there were no amounts outstanding under anythese facilities.
As of
these facilities.22
As ofNovember 3, 2018, February 3, 2018 and October 28, 2017, January 28, 2017 and October 29, 2016, TJX Canada had two uncommitted credit lines, a C$10 million facility for operating expenses and a C$10 million letter of credit facility. As of November 3, 2018, February 3, 2018 and October 28, 2017, January 28, 2017 and October 29, 2016, there were no amounts outstanding on the Canadian credit line for operating expenses. As of November 3, 2018, February 3, 2018 and October 28, 2017, January 28, 2017, and October 29, 2016, our European business at TJX International had an uncommitted credit line of £5 million. As of November 3, 2018, February 3, 2018 and October 28, 2017, January 28, 2017, and October 29, 2016, and during the quarters and year then ended, there were no amounts outstanding on the European credit line.
The effective income tax rate was 27.2% for the third quarter of fiscal 2019 and 37.1% for the fiscal 2018 third quarter and 38.2% for theof fiscal 2017 third quarter.2018. The effective income tax rate was 25.9% for the first nine months of fiscal 2019 and 36.9% for the first nine months ended October 28, 2017 as compared to 38.4% for last year’s comparable period.of fiscal 2018. The decrease in the effective income tax rate was primarily due to excess income tax benefits related to share-based payments, which reduced the effective incomereduction of the U.S. federal corporate tax rate by 1.2 percentage points forto 21% as a result of the third quarter2017 Tax Act and 1.5 percentage points for the nine months ended October 28, 2017. The jurisdictional mix of income also contributedincome.
Under ASU 2018-05, we have accounted for the impacts of the 2017 Tax Act to the
changeextent a reasonable estimate could be made and we recognized provisional amounts related to the deemed repatriation tax, offset by the re-measurement of our deferred tax assets and liabilities to record the effects of the
effective income tax
rate.law change in the period of enactment. This guidance allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law during the measurement period. The measurement period ends when the company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. We will continue to monitor for new guidance related to provisional amounts recorded.
TJX had net unrecognized tax benefits of
$65.3 million as of November 3, 2018, $57.3 million as of February 3, 2018 and $41.2 million as of October 28,
2017, $38.5 million as of January 28, 2017 and $37.4 million as of October 29, 2016.2017.
TJX is subject to U.S. federal income tax as well as income tax in multiple state, local and foreign jurisdictions. In the U.S., fiscal years through 2010 are no longer subject to examination. In Canada, fiscal years through 2008 are no longer subject to examination. In all other jurisdictions, fiscal years through 2009 are no longer subject to examination.
TJX’s accounting policy classifies interest and penalties related to income tax matters as part of income tax expense. The total accrued amount on the balance sheets for interest and penalties was
$13.8 million as of November 3, 2018, $11.9 million as of February 3, 2018 and $8.5 million as of October 28,
2017, $8.0 million as of January 28, 2017 and $7.8 million as of October 29, 2016.2017.
Based on the outcome of tax examinations or judicial or administrative proceedings, or as a result of the expiration of
statutestatutes 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
$15$23 million.
Note K. Contingent Obligations and Contingencies
TJX has contingent obligations on leases, for which it was a lessee or guarantor, which were assigned to third parties without TJX being released by the landlords. Over many years, TJX has assigned numerous leases that it had originally leased or guaranteed to a significant number of third parties. With the exception of leases of former businesses for which TJX has reserved, the Company has rarely had a claim with respect to assigned leases, and accordingly, the Company does not expect that such leases will have a material adverse impact on its financial condition, results of operations or cash flows. TJX does not generally have sufficient information about these leases to estimate our potential contingent obligations under them, which could be triggered in the event that one or more of the current tenants does not fulfill their obligations related to one or more of these leases.
TJX may also be contingently liable on up to
nineeight leases of former TJX businesses, for which we believe the likelihood of future liability to TJX is remote, and has contingent obligations in connection with certain assigned or sublet properties that TJX is able to estimate. We estimate that the undiscounted obligations of (i) leases of former operations not included in our reserve for former operations and (ii) properties of our former operations if the subtenants do not fulfill their obligations, are approximately
$46.8$40.1 million as of
October 28, 2017.November 3, 2018. We believe that most or all of these contingent obligations will not revert to us and, to the extent they do, will be resolved for substantially less due to mitigating factors including our expectation to further sublet.
23
TJX is a party to various agreements under which it may be obligated to indemnify the other party with respect to certain losses related to matters such as title to assets sold, specified environmental matters or certain income taxes. These obligations are often limited in time and amount. There are no amounts reflected in our balance sheets with respect to these contingent obligations.
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 allegedoff-the-clock work by hourly employees and alleged failure to pay all wages due upon termination.statutes. TJX is also a defendant in
lawsuits filed in federal courts brought asa putative class
actionsaction 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.
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Thirteen Weeks (third quarter) and Thirty-Nine Weeks (nine months) Ended November 3, 2018
Compared to
The Thirteen Weeks (third quarter) and Thirty-Nine Weeks (nine months) Ended October 28, 2017Compared to
The Thirteen Weeks (third quarter) and Thirty-Nine Weeks (nine months) Ended October 29, 2016
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
full-price retailers’ (including department,
specialty and
specialty storemajor online retailers) regular prices on comparable merchandise, every day. We operate
over 4,000nearly 4,300 stores through our four main segments: in the U.S., Marmaxx (which operates T.J. Maxx, Marshalls and tjmaxx.com) and HomeGoods (which operates HomeGoods and Homesense); TJX Canada (which operates Winners, HomeSense and Marshalls in Canada)
; and TJX International (which operates T.K. Maxx, Homesense and tkmaxx.com in Europe, and T.K. Maxx in Australia). We also operate Sierra Trading Post (“STP”), an
off-price Internet retailer that
operatesincludes sierratradingpost.com
andalong with a number of retail stores in the U.S.
We currently consider all of STP as part of our e-commerce operations. The results of STP are reported in our Marmaxx segment.
Results of Operations
Highlights
Overview of our financial performance for the
third quarter ended
October 28, 2017 include the following:November 3, 2018: Net sales increased 6%12% to $8.8$9.8 billion for the fiscal 2018 third quarter of fiscal 2019 over last year’s third quarter sales of $8.3$8.8 billion. At October 28, 2017,November 3, 2018, stores in operation increased 7%6% and selling square footage increased 5%4% compared to the end of the fiscal 20172018 third quarter.
Same storeConsolidated comp sales were flat in(defined below) increased 7% for the third quarter of fiscal 2018 compared to an increase of 5% in2019 over the third quarter of fiscalcomparable period last year ending November 4, 2017. Same store sales reflect an increase in customerCustomer traffic offset by a decrease inwas the valueprimary driver of the average transaction. We believe the hurricanes and unseasonably warm weather in parts of the U.S. had a negative impact on third quarter sales.comp sales increase.
Diluted earnings per share for the third quarter of fiscal 20182019 were $1.00$0.61 versus $0.83$0.50 per share in the third quarter of fiscal 2017. Foreign currency had a $0.04 positive impact on earnings per share for the third quarter of fiscal 2018 compared with a neutral impact on earnings per share for the third quarter of fiscal 2017. The fiscal 2017 third quarter includes the impact of an early extinguishment of debt charge and a pension settlement charge, which collectively reduced earnings per share by $.08 per share.2018.
Ourpre-tax margin (the ratio ofpre-tax income to net sales) for the third quarter of fiscal 20182019 was 11.6%10.7%, a 0.9 percentage point decrease compared with 10.7%11.6% in the third quarter of fiscal 2017. The debt extinguishment charge and pension settlement charge collectively reduced fiscal 2017 third quarterpre-tax margin by 1 percentage point.2018.
Our cost of sales, including buying and occupancy costs, ratio for the third quarter of fiscal 20182019 was 70.2%71.1%, a 0.30.9 percentage point decreaseincrease compared towith 70.2% in the third quarter last year. This decrease was driven by the favorable impact ofmark-to-marketof inventory derivatives as well as an increase in merchandise margin, partially offset by higher supply chain costs and expense deleverage on the flat consolidated comparable store sales.fiscal 2018.
Our selling, general and administrative (“SG&A”) expense ratio for the third quarter of fiscal 20182019 was 18.1%17.9%, up 0.5a 0.2 percentage pointspoint decrease compared towith 18.1% in the prior year’s third quarter ratio. The increase in the ratio was primarily due to expenses from hurricanes and wage increases.of fiscal 2018.
Our consolidated average per store inventories, including inventory on hand at our distribution centers (which excludes inventory in transit) and excluding oure-commerce businesses, decreased 2%increased 9% on a reported basis and 4%10% on a constant currency basis at the end of the third quarter of fiscal 20182019 as compared to a 2% decline in average per store inventories on a reported basis and a 4% decline on a constant currency basis in the prior year’s third quarter.quarter of fiscal 2018.
25
During the third quarter, we returned $547$841 million to our shareholders through share repurchases and dividends.
The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results.
Net sales:Consolidated net sales for the quarter ended November 3, 2018 totaled $9.8 billion, a 12% increase over last year’s consolidated third quarter ended October 28, 2017 totalednet sales of $8.8 billion,billion. The increase reflects a 7% increase from comp sales, a 6% increase over consolidated netfrom non-comp sales, of $8.3 billion for the third quarter ended October 29, 2016. The increase reflected a 5% increase from new store sales andoffset by a 1% positivenegative impact from foreign currency exchange rates. This increase compares to sales growth of 7%6% in last year’sthe third quarter of fiscal 2018, which reflectedreflects a 5% increase from same storenon-comp sales and a 4% increase in new store sales, offset by a 2% negative1% positive impact from foreign currency exchange rates. .
Consolidated net sales for the nine months ended
October 28, 2017November 3, 2018 totaled
$24.9$27.8 billion, a
5%12% increase over
$23.7$24.9 billion in last year’s comparable period. The increase
reflectedreflects a
4%6% increase from
new storecomp sales, a
1%5% increase
in same storefrom non-comp sales and a
neutral1% positive impact from foreign currency exchange rates. This compares to sales growth of
8% in5% for the
nine-month period of fiscalnine months ended October 28, 2017, which
reflected a 5% increase in same store sales andreflects a 4% increase from
new storenon-comp sales,
offset by a 1%
negativeincrease from comp sales, and a neutral impact from foreign currency exchange rates.
As of
October 28, 2017,November 3, 2018, our consolidated store count increased
7%6% and selling square footage increased
5%4% compared to the end of the third quarter last year.
Consolidated same storecomp sales for both the third quarter and nine months ended October 28, 2017November 3, 2018 reflect a decrease in the value of the average transaction, which fully offset an increase in the customer traffic for the third quarter and partially offset an increase in traffic for the nine-month period. The decline in the value of the average transaction reflects a decrease in the average ticket that more than offset an increase in units sold.across all divisions. On a consolidated basis, home fashionsapparel categories outperformed apparelhome categories for both the third quarter and nine-month periodnine months ended October 28, 2017. The major hurricanes inNovember 3, 2018.
For both the
third quarter and
we believe, unseasonably warm weather in parts of the U.S. had a negative impact on sales, especially apparel. In addition, we believe unfavorable weather in this year’s first quarter in parts of the U.S. and Canada had a negative impact on apparel sales for the first nine months
of fiscal 2018.In the U.S., same storeended November 3, 2018, comp sales in the NortheastU.S. were strong throughout the country. Comp sales for both TJX Canada and Florida, areas most affected by the hurricanes and we believe, warm weather,TJX International, while solid, were below the consolidated average for the quarter and nine-month period. Sales in the Southeast (excluding Florida) and the Southwest were above the consolidated average. In Canada, same
We define comparable store sales
growth was above the consolidated average for the third quarter and nine-month period ended October 28, 2017. Same store sales growth for our International segment was above the consolidated average for the third quarter and was in line with the consolidated average for the nine-month period ended October 28, 2017.We define same store sales(“comp sales”), to be sales of those stores that we have operatedbeen in operation for all or a portion of two consecutive fiscal years, or in other words, stores that are starting their third fiscal year of operation. TheWe calculate comp sales on a 52-week basis by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that have changed in size are generally classified in the same way as the original store, and we believe that the impact of Sierra Trading Postthese stores on the consolidated comp percentage is immaterial.
We define customer traffic to be the number of transactions in stores included in the comp sales calculation and average ticket to be the average retail price of the units sold. We define average transaction or average basket to be the average dollar value of transactions included in the comp sales calculation.
Sales excluded from comp sales (“non-comp sales”) consist of sales from:
New stores, meaning stores that have not yet met the comp sales criteria, which represents the vast majority of non-comp sales
Stores that are closed permanently or for an extended period of time
Our e-commerce businesses, meaning STP (including stores), tjmaxx.com and tkmaxx.com (oure-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.
We determine which stores are included in the same storecomp sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year unless a store is closed permanently or for an extended period. Inperiod during that fiscal year. For the third quarter and nine months of fiscal 2019, comp sales are based on a shifted fiscal 2018 37 stores, mostly in Puerto Rico,calendar so that were significantly impacted by the hurricanes were excluded from same store sales. These stores will be treated similarly to new stores and excluded from the same store sales measures until they again meet the same store sales criteria. 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 storescalculated on the consolidated same store percentage is immaterial. Same storea comparable week basis.
Comp sales of our foreign segments are calculated by translating the current year’s same storecomp 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
Comp sales may be referred to
as “same store” sales by other retail companies. The method for calculating comp sales varies across the retail industry, therefore our measure of comp sales may not be
the numbercomparable to that of
transactions in stores included in the same store sales calculation and define average ticket to be the averageother retail
price of the units sold at these stores. We define average transaction to be the average dollar value of transactions included in the same store sales calculation.26
companies.
The following table sets forth certain information about our consolidated operating results as a percentage of net sales for the following periods:
| | | | | | | | |
| | Percentage of Net Sales Thirteen Weeks Ended October 28, 2017 | | | Percentage of Net Sales Thirteen Weeks Ended October 29, 2016 | |
Net sales | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | |
Cost of sales, including buying and occupancy costs | | | 70.2 | | | | 70.5 | |
Selling, general and administrative expenses | | | 18.1 | | | | 17.6 | |
Loss on early extinguishment of debt | | | — | | | | 0.6 | |
Pension settlement charge | | | — | | | | 0.4 | |
Interest expense, net | | | 0.1 | | | | 0.2 | |
| | | | | | | | |
Income before provision for income taxes* | | | 11.6 | % | | | 10.7 | % |
| | | | | | | | |
|
| | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Net sales | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of sales, including buying and occupancy costs | | 71.1 |
| | 70.2 |
| | 71.1 |
| | 70.9 |
|
Selling, general and administrative expenses | | 17.9 |
| | 18.1 |
| | 18.0 |
| | 18.0 |
|
Pension settlement charge | | 0.4 |
| | — |
| | 0.1 |
| | — |
|
Interest expense, net | | — |
| | 0.1 |
| | — |
| | 0.1 |
|
Income before provision for income taxes* | | 10.7 | % | | 11.6 | % | | 10.8 | % | | 11.0 | % |
|
| |
* | Figures may not foot due to rounding |
| | | | | | | | |
| | Percentage of Net Sales Thirty-Nine Weeks Ended October 28, 2017 | | | Percentage of Net Sales Thirty-Nine Weeks Ended October 29, 2016 | |
Net sales | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | |
Cost of sales, including buying and occupancy costs | | | 70.9 | | | | 70.7 | |
Selling, general and administrative expenses | | | 18.0 | | | | 17.7 | |
Loss on early extinguishment of debt | | | — | | | | 0.2 | |
Pension settlement charge | | | — | | | | 0.1 | |
Interest expense, net | | | 0.1 | | | | 0.1 | |
| | | | | | | | |
Income before provision for income taxes* | | | 11.0 | % | | | 11.1 | % |
| | | | | | | | |
* | 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 International from local currencies into U.S. dollars using currency rates in effect at different points in time. Significant changes in foreign exchange rates between comparable prior periods can result in meaningful variations in consolidated net sales, net income and 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 Canada and TJX International. As we have not elected “hedge accounting” for these instruments, as defined by U.S. generally accepted accounting principles (“GAAP”), we record amark-to-market gain or loss on the derivative instruments in our results of operations at the end of each reporting period. In subsequent periods, the income statement impact of themark-to-market adjustment is effectively offset when the inventory being hedged is received and paid for. While these effects occur every reporting period, they are of much greater magnitude when there are sudden and significant changes in currency exchange rates during a short period of time. Themark-to-market adjustment on these derivatives does not affect net sales, but it does affect the cost of sales, operating margins and earnings we report. |
27
Translation of foreign operating results into U.S. dollars: In our financial statements, we translate the operations of TJX Canada and TJX International from local currencies into U.S. dollars using currency rates in effect at different points in time. Significant changes in foreign exchange rates between comparable prior periods can result in meaningful variations in consolidated net sales, net income and 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 Canada and TJX International. As we have not elected “hedge accounting” for these instruments, as defined by U.S. generally accepted accounting principles (“GAAP”), we record a mark-to-market gain or loss on the derivative instruments in our results of operations at the end of each reporting period. In subsequent periods, the income statement impact of the mark-to-market adjustment is effectively offset when the inventory being hedged is received and paid for. While these effects occur every reporting period, they are of much greater magnitude when there are sudden and significant changes in currency exchange rates during a short period of time. The mark-to-market adjustment on these derivatives does not affect net sales, but it does affect the cost of sales, operating margins and earnings we report.
We refer to the impact of the above two items throughout our discussion as “foreign
currency”.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.”
Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales decreased by 0.3was 71.1% for the third quarter of fiscal 2019, an increase of 0.9 percentage points tofrom 70.2% for the third quarter of fiscal 2018 as compared to last year’s ratio. The decreaseand was 71.1% for the thirdnine months ended November 3, 2018, an increase of 0.2 percentage points from 70.9% for the nine months ended October 28, 2017. The increase for the quarter was driven by the favorable impact ofunfavorable year-over-year comparison related to themark-to-market of our Company’s inventory derivatives of 0.3 percentage points along with an improvement in consolidatedhedges, lower merchandise margin. These improvements were partially offset by expense deleverage on the flat same store sales andmargin (due to higher freight costs), as well as an increase in consolidated distribution centersupply chain costs. The 0.2 percentage point increase to 70.9% forThese items more than offset expense leverage on the firststrong comp sales growth. For the nine months of fiscalended November 3, 2018, was driven by an increase in consolidated distribution center costs. Our increase in distribution center costs for the quarterlower merchandise margin and nine-month period reflects the impact of processing more units as well as additional investments in theincreased supply chain network.costs more than offset expense leverage from comp sales growth.
Selling, general and administrative expenses: Selling, general and administrative SG&A expenses, as a percentage of net sales, were 18.1%17.9% in the third quarter of fiscal 2018, up 0.52019, a decrease of 0.2 percentage pointpoints over last year’s third quarter ratio and increased by 0.3of 18.1%. The improvement in this expense ratio for the third quarter was primarily due to administrative expense leverage on the strong comp sales.
SG&A expenses, as a percentage points toof net sales, were 18.0% for the nine months ended October 28, 2017 as comparedNovember 3, 2018, flat to last year's third quarter ratio. Increases due to wage increases and the same period last year. The increase for bothglobal IT function restructuring costs were offset by expense savings and a gain related to a lease buyout in Canada.
Pension settlement charge: During the third quarter of fiscal 2019, TJX annuitized and nine-month period was primarily due to hurricane related expenses, higher store payroll costs resulting from wage increases as well astransferred current pension obligations for certain U.S. retirees and beneficiaries under the impactfunded plan through the purchase of handling the increase in units.Loss on early extinguishmenta group annuity contract with an insurance company. TJX transferred $207.4 million of debt:On September 12, 2016 we issued $1.0 billion of 2.25% ten-year notes. We used a portion of the proceeds to redeem our $375 million 6.95% notes on October 12, 2016, prior to their scheduled maturity of April 15, 2019 and we recorded apre-tax loss on the early extinguishment of debt of $51.8 million.
Pension settlement charge: During the fiscal 2017 third quarter, we offered eligible former TJX Associates, who had not yet commenced receiving their qualified pension plan benefit, an opportunity to receive a lump sum payout of their vested pension benefit. On October 21, 2016, TJX’s qualified pension plan paid $103.2 million from pension plan assets to those who accepted this offer. Thisthe insurance company, thereby reducing its pension benefit obligations. The transaction had no cash impact on TJX but did result in anon-cashpre-tax non-cash pre-tax pension settlement charge of $31.2 million in the third quarter of last year.
$36.1 million.
Interest expense, net: Interest expense, net decreased $4.5 million for the third quarter ended October 28, 2017 and decreased $6.4 million for the nine months ended October 28, 2017 as compared to the same periods last year. The components of interest expense, net are summarized below: | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | Thirty-Nine Weeks Ended | |
Dollars in thousands | | October 28, 2017 | | | October 29, 2016 | | | October 28, 2017 | | | October 29, 2016 | |
Interest expense | | $ | 17,349 | | | $ | 18,906 | | | $ | 51,881 | | | $ | 52,851 | |
Capitalized interest | | | (1,066 | ) | | | (1,948 | ) | | | (3,528 | ) | | | (6,351 | ) |
Interest (income) | | | (8,302 | ) | | | (4,496 | ) | | | (20,854 | ) | | | (12,582 | ) |
| | | | | | | | | | | | | | | | |
Interest expense, net | | $ | 7,981 | | | $ | 12,462 | | | $ | 27,499 | | | $ | 33,918 | |
| | | | | | | | | | | | | | | | |
For
|
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
In thousands | | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Interest expense | | $ | 17,248 |
| | $ | 17,349 |
| | $ | 51,896 |
| | $ | 51,881 |
|
Capitalized interest | | (752 | ) | | (1,066 | ) | | (3,728 | ) | | (3,528 | ) |
Interest (income) | | (13,308 | ) | | (8,302 | ) | | (37,803 | ) | | (20,854 | ) |
Interest expense, net | | $ | 3,188 |
| | $ | 7,981 |
| | $ | 10,365 |
| | $ | 27,499 |
|
The decrease in net interest expense for the third quarter and
firstthe nine months
ofended November 3, 2018, compared to the same periods in fiscal 2018,
the reduction in net interest expense was driven by additional interest income, primarily due to
an increase in invested balances and higher
rates of return.return rates.
Income taxes: The effective income tax rate was 27.2% for the third quarter of fiscal 2019 compared to 37.1% for the fiscal 2018 third quarter andof fiscal 2018. The effective income tax rate was 25.9% for the nine months ended November 3, 2018 compared to 36.9% for the nine months ended October 28, 2017 compared to 38.2% for the fiscal 2017 third quarter and 38.4% for the nine months ended October 29, 2016.. The decrease in the effective income tax rate was primarily due to excess income tax benefits related to share-based payments, which reduced the effective incomedecrease of the U.S. federal corporate tax rate by 1.2 percentage points forfrom 35% to 21% as a result of the third quarter2017 Tax Act and 1.5 percentage points for the nine months ended October 28, 2017. The jurisdictional mix of income also contributedincome.
Under ASU 2018-05, we have accounted for the impacts of the 2017 Tax Act to the
changeextent a reasonable estimate could be made and we recognized provisional amounts related to the deemed repatriation tax, offset by the re-measurement of our deferred tax assets and liabilities to record the effects of the
effective income tax
rate.28
law change in the period of enactment. This guidance allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law during the measurement period. The measurement period ends when the company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. We will continue to monitor for new guidance related to provisional amounts recorded.
Net income and net incomediluted earnings per share: Net income for the third quarter of fiscal 20182019 was $641.4$762 million, or $1.00$0.61 per diluted share versus $549.8compared with $641 million, or $0.83$0.50 per diluted share for the third quarter of fiscal 2018. The lower effective tax rate realized due to the 2017 Tax Act resulted in last year’san estimated net benefit to diluted earnings per share of approximately $0.09 per share. The pension settlement charge had a $0.02 negative impact on earnings per share for the third quarter.quarter of fiscal 2019. Foreign currency had a $0.04$0.01 negative impact on earnings per share for the third quarter of fiscal 2019 compared to a $0.02 positive impact on earnings per share for the third quarter of fiscal 2018 compared to a neutral impact on earnings per share for the third quarter of fiscal 2017. We believe the hurricanes had an estimated $0.03 negative impact on earnings per share for the third quarter of fiscal 2018. Net income for the nine months ended October 28, 2017November 3, 2018 was $1.7$2.2 billion, or $2.67$1.75 per diluted share, compared to $1.6$1.7 billion, or $2.43$1.33 per diluted share for the nine months ended October 28, 2017. The lower effective tax rate realized due to the 2017 Tax Act resulted in last year’s comparable period.an estimated net benefit to diluted earnings per share of approximately $0.26 per share. The third quarter pension settlement charge had a $0.02 negative impact on earnings per share in the first nine months of fiscal 2019. Foreign currency had a $0.01 positive impact on earnings per share in the first nine months of fiscal 20182019 compared to a $0.01 negativeneutral impact on earnings per share in the prior year. The loss on early extinguishment of debt and the pension settlement charge collectively reduced net income by approximately $50.0 million, or $0.08 per share, for both the third quarter and nine months ended October 29, 2016. The benefit in the tax provision due to the change in accounting for share-based compensation increased earnings per share by $0.02 per share for the fiscal 2018 third quarter and $0.06 per share in the first nine months of fiscal 2018. Our stock repurchase programs, which reduce our weighted average diluted shares outstanding, benefited our earnings per share growth by approximately
threetwo percent in
both the third quarter
of fiscal 2019 and
three percent for the first nine months of fiscal
2018.2019.
Segment information: We operate four main business segments. TheOur Marmaxx segment (T.J. Maxx, Marshalls and tjmaxx.com) and the HomeGoods segment (HomeGoods and Homesense) both operate in the United States. Our TJX Canada segment operates Winners, HomeSense and Marshalls in Canada, and our TJX International segment operates T.K. Maxx, Homesense and tkmaxx.com in Europe and T.K. Maxx in Australia. We also operate STP,Sierra Trading Post (“STP”), anoff-price Internet retailer that operatesincludes sierratradingpost.com andalong with a number of retail stores in the U.S. We currently consider all of STP as part of our e-commerce operations. The results of STP have beenare included in our Marmaxx segment.
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,
pension settlement charge and interest expense, net. “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.
Marmaxx
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | Thirty-Nine Weeks Ended | |
Dollars in millions | | October 28, 2017 | | | October 29, 2016 | | | October 28, 2017 | | | October 29, 2016 | |
Net sales | | $ | 5,298.5 | | | $ | 5,252.8 | | | $ | 15,550.3 | | | $ | 15,217.2 | |
Segment profit | | $ | 666.1 | | | $ | 703.1 | | | $ | 2,100.1 | | | $ | 2,154.2 | |
Segment profit as a percentage of net sales | | | 12.6 | % | | | 13.4 | % | | | 13.5 | % | | | 14.2 | % |
(Decrease) increase in same store sales | | | (1 | )% | | | 5 | % | | | 0 | % | | | 5 | % |
Stores in operation at end of period | | | | | | | | | | | | | | | | |
T.J. Maxx | | | | | | | | | | | 1,219 | | | | 1,179 | |
Marshalls | | | | | | | | | | | 1,057 | | | | 1,027 | |
Sierra Trading Post | | | | | | | | | | | 26 | | | | 11 | |
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | 2,302 | | | | 2,217 | |
| | | | | | | | | | | | | | | | |
Selling square footage at end of period (in thousands) | | | | | | | | | | | | | | | | |
T.J. Maxx | | | | | | | | | | | 27,034 | | | | 26,501 | |
Marshalls | | | | | | | | | | | 24,827 | | | | 24,614 | |
Sierra Trading Post | | | | | | | | | | | 451 | | | | 209 | |
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | 52,312 | | | | 51,324 | |
| | | | | | | | | | | | | | | | |
29
|
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
In millions | | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Net sales | | $ | 5,973 |
| | $ | 5,298 |
| | $ | 17,202 |
| | $ | 15,550 |
|
Segment profit | | $ | 763 |
| | $ | 666 |
| | $ | 2,344 |
| | $ | 2,100 |
|
Segment profit as a percentage of net sales | | 12.8 | % | | 12.6 | % | | 13.6 | % | | 13.5 | % |
Increase in comp sales | | 9 | % | | (1 | )% | | 7 | % | | — | % |
Stores in operation at end of period | | | | | | | | |
T.J. Maxx | | | | | | 1,247 |
| | 1,219 |
|
Marshalls | | | | | | 1,091 |
| | 1,057 |
|
Sierra Trading Post | | | | | | 35 |
| | 26 |
|
Total | | | | | | 2,373 |
| | 2,302 |
|
Selling square footage at end of period (in thousands) | | | | | | | | |
T.J. Maxx | | | | | | 27,396 |
| | 27,034 |
|
Marshalls | | | | | | 25,291 |
| | 24,827 |
|
Sierra Trading Post | | | | | | 598 |
| | 451 |
|
Total | | | | | | 53,285 |
| | 52,312 |
|
Net sales for Marmaxx increased
1%13% for the third quarter and
2%11% for the first nine months of fiscal
20182019 as compared to the same periods last year. The
quarterly increase
reflectsin the third quarter represents a
2%9% increase from
new storecomp sales
partially offset byand a
1% decrease4% increase from
same storenon-comp sales. The
nine-monthnine month increase in net sales included
2%a 7% increase from
new storecomp sales
while same storeand a 4% increase from non-comp sales. The increase in comp sales
were flat. Same store sales for
Marmaxx were negatively impacted by the hurricanes and, we believe, unseasonably warm weather, which particularly impacted apparel. To a lesser degree, we believe execution issues in certain categories had an additional negative impact on apparel sales. Despite the third quarter
declineand nine months ended November 3, 2018 was mainly driven by an increase in
same storecustomer traffic. Marmaxx sales
customer traffic continued tofor both periods also reflect an increase
(2% growth), which was more than offset by a declinein units sold and in the average ticket.
Home fashions outperformed apparelGeographically, comp sales growth in both
the quarter and the nine-month period were strong throughout the country. Apparel outperformed home fashions in both periods.
Segment profit margin decreasedincreased to 12.6%12.8% for the third quarter of fiscal 20182019 compared to 13.4%12.6% for the same period last year, and for the nine months ended October 28, 2017November 3, 2018 segment profit margin decreasedincreased to 13.5%13.6% compared to 14.2%13.5% in the same period last year. Marmaxx’s decreaseThe increase in segment profit margin for both the third quarter and nine-month period was primarily due todriven by expense deleverageleverage on the lower same storestrong comp sales as well as wage increases, additional supply chainwhich more than offset increased freight costs, as a result of processing more units andincreased costs related to the hurricanes. These factors more than offsetour supply chain and an increase in incentive compensation expense due to the above-plan operating performance. The increase in freight costs resulted in a decrease in merchandise margin for both periods. periods
Our U.S.
e-commerce businesses, which represent
approximately 2%less than 3% of Marmaxx’s net sales, did not have a significant impact on year-over-year segment margin comparisons for the third
quarter.quarter and nine-month period.
HomeGoods
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | Thirty-Nine Weeks Ended | |
Dollars in millions | | October 28, 2017 | | | October 29, 2016 | | | October 28, 2017 | | | October 29, 2016 | |
Net sales | | $ | 1,228.8 | | | $ | 1,078.4 | | | $ | 3,506.4 | | | $ | 3,075.5 | |
Segment profit | | $ | 163.8 | | | $ | 149.7 | | | $ | 457.3 | | | $ | 416.0 | |
Segment profit as a percentage of net sales | | | 13.3 | % | | | 13.9 | % | | | 13.0 | % | | | 13.5 | % |
Increase in same store sales | | | 3 | % | | | 6 | % | | | 4 | % | | | 7 | % |
Stores in operation at end of period | | | | | | | | | | | | | | | | |
HomeGoods | | | | | | | | | | | 660 | | | | 568 | |
Homesense | | | | | | | | | | | 3 | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | 663 | | | | 568 | |
| | | | | | | | | | | | | | | | |
Selling square footage at end of period (in thousands) | | | | | | | | | | | | | | | | |
HomeGoods | | | | | | | | | | | 12,332 | | | | 10,931 | |
Homesense | | | | | | | | | | | 62 | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | 12,394 | | | | 10,931 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
In millions | | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Net sales | | $ | 1,464 |
| | $ | 1,229 |
| | $ | 4,061 |
| | $ | 3,506 |
|
Segment profit | | $ | 166 |
| | $ | 164 |
| | $ | 456 |
| | $ | 457 |
|
Segment profit as a percentage of net sales | | 11.3 | % | | 13.3 | % | | 11.2 | % | | 13.0 | % |
Increase in comp sales | | 7 | % | | 3 | % | | 4 | % | | 4 | % |
Stores in operation at end of period | | | | | | | | |
HomeGoods | | | | | | 745 |
| | 660 |
|
Homesense | | | | | | 16 |
| — |
| 3 |
|
Total | | | | | | 761 |
| | 663 |
|
Selling square footage at end of period (in thousands) | | | | | | | | |
HomeGoods | | | | | | 13,702 |
| | 12,332 |
|
Homesense | | | | | | 343 |
| | 62 |
|
Total | | | | | | 14,045 |
| | 12,394 |
|
Net sales for HomeGoods increased
14% for both19% in the third quarter and
16% in the first nine months of fiscal
2018 as2019 compared to the same periods last year. The
quarterly increase
reflects an 11%in the third quarter represents a 12% increase from
new storenon-comp sales and a
3%7% increase
in same storefrom comp sales. The
nine-monthnine month increase in net sales
includedincludes an increase of
10%12% from
new storenon-comp sales and
same store sales ofa 4%
. increase from comp sales. The increase in
same storecomp sales for
both periodsthe third quarter and nine months was
largely driven by an increase in customer traffic.
Segment profit margin
decreased to 13.3%was 11.3% for the third quarter of fiscal
20182019 compared to
13.9%13.3% for the same period last year. Segment profit margin decreased to
11.2% for the nine months ended November 3, 2018 compared to 13.0% for the nine months ended October 28,
2017 compared to 13.5% for the same period last year.2017. The decline in segment margin
was primarily due to a reduction in merchandise margin of 1.6 percentage points for the third quarter and
nine-month period0.9 percentage points for the nine months ended November 3, 2018. Merchandise margin was
primarily due tonegatively impacted by significantly higher freight costs. Both periods were also impacted by an increase in supply chain costs
and freight costs. Segment margin for the third quarter and the first nine months of fiscal 2018 was also unfavorably impacted by higher store payroll costs due to wage increases, as well as higher preopening costs due to an increase in new store openings, includingstart-up costs associated with our new Homesense chain in the U.S. For the nine-month period, these costswhich were partially offset by expense leverage on
the 4% samecomp store sales
increase.Three U.S. Homesense stores opened during the quarter, with one more scheduled to open before the end of fiscal 2018.
30
growth.
TJX Canada
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | Thirty-Nine Weeks Ended | |
U.S. Dollars in millions | | October 28, 2017 | | | October 29, 2016 | | | October 28, 2017 | | | October 29, 2016 | |
Net sales | | $ | 983.2 | | | $ | 855.5 | | | $ | 2,554.0 | | | $ | 2,297.8 | |
Segment profit | | $ | 206.5 | | | $ | 142.5 | | | $ | 392.6 | | | $ | 321.9 | |
Segment profit as a percentage of net sales | | | 21.0 | % | | | 16.7 | % | | | 15.4 | % | | | 14.0 | % |
Increase in same store sales | | | 4 | % | | | 8 | % | | | 4 | % | | | 10 | % |
Stores in operation at end of period | | | | | | | | | | | | | | | | |
Winners | | | | | | | | | | | 265 | | | | 255 | |
HomeSense | | | | | | | | | | | 117 | | | | 106 | |
Marshalls | | | | | | | | | | | 72 | | | | 57 | |
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | 454 | | | | 418 | |
| | | | | | | | | | | | | | | | |
Selling square footage at end of period (in thousands) | | | | | | | | | | | | | | | | |
Winners | | | | | | | | | | | 5,795 | | | | 5,629 | |
HomeSense | | | | | | | | | | | 2,179 | | | | 1,984 | |
Marshalls | | | | | | | | | | | 1,599 | | | | 1,307 | |
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | 9,573 | | | | 8,920 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
In millions | | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Net sales | | $ | 1,037 |
| | $ | 983 |
| | $ | 2,828 |
| | $ | 2,554 |
|
Segment profit | | $ | 182 |
| | $ | 206 |
| | $ | 446 |
| | $ | 393 |
|
Segment profit as a percentage of net sales | | 17.6 | % | | 21.0 | % | | 15.8 | % | | 15.4 | % |
Increase in comp sales | | 5 | % | | 4 | % | | 5 | % | | 4 | % |
Stores in operation at end of period | | | | | | | | |
Winners | | | | | | 271 |
| | 265 |
|
HomeSense | | | | | | 125 |
| | 117 |
|
Marshalls | | | | | | 88 |
| | 72 |
|
Total | | | | | | 484 |
| | 454 |
|
Selling square footage at end of period (in thousands) | | | | | | | | |
Winners | | | | | | 5,863 |
| | 5,795 |
|
HomeSense | | | | | | 2,325 |
| | 2,179 |
|
Marshalls | | | | | | 1,885 |
| | 1,599 |
|
Total | | | | | | 10,073 |
| | 9,573 |
|
Net sales for TJX Canada increased
15% for5% during the third quarter
ended November 3, 2018 and 11% for the nine months ended
October 28, 2017 asNovember 3, 2018 compared to the same periods last year. The
quarterly increase reflects a 6% increase in
new storethe third quarter represents a 5% increase in comp sales
growth, and a
4%5% increase from
same storenon-comp sales
as well asoffset by a 5% negative impact from foreign currency
translation, which positively impacted sales growth by 5%.exchange rates. The nine-month increase in net sales
included new storeincludes comp sales growth of
5%, non-comp sales of 6% and
4%neutral impact from
same store sales, as well as a positive 1% impact due to currency translation.foreign currency. The increase in
same storecomp sales for both periods was
mainly driven by an increase in customer traffic.
Net sales for both periods also reflected an increase in units sold that was mostly offset by a decrease in the average ticket.Segment profit margin increaseddecreased to 21.0%17.6% for the third quarter of fiscal 20182019 compared to 16.7%21.0% for the same period last year. Segment profit margin increased to 15.8% for the nine months ended November 3, 2018 compared to 15.4% for the nine months ended October 28, 2017 compared to 14.0%. The decrease in the segment margin for the nine months ended October 29, 2016.third quarter was primarily due to an unfavorable impact of 2.8 percentage points due to the mark-to-market impact of the inventory derivatives. Segment margin was also negatively impacted by an increase in store payroll costs due to legislated minimum wage increases. These negative factors were offset by expense leverage on the strong comp sales during the third quarter. The increase in the segment margin for the quarter and nine-month period included a favorable impact of 1.9 percentage points and 0.3 percentage points, respectively,nine-months ended November 3, 2018 was primarily due to foreign currency, primarilyleverage on strong comp sales and themark-to-market impact benefit of the inventory derivatives. The fiscal third quarter segment margin was favorably impacteda lease buyout gain, which were partially offset by transactional foreign exchange, improved merchandise margin and reduced supply chain cost. The transactional foreign exchange benefit in the third quarter was due to the revaluing of U.S. dollar denominated monetary assets and liabilities resulting in gains this year as compared to losses in last year’s third quarter. The increase in segment margin for the nine-month period was primarily driven by an improved merchandise margin of 0.9 percentage points, which benefitted from the year-over-year increase in the Canadian dollar.31
wage increases.
TJX International
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | Thirty-Nine Weeks Ended | |
U.S. Dollars in millions | | October 28, 2017 | | | October 29, 2016 | | | October 28, 2017 | | | October 29, 2016 | |
Net sales | | $ | 1,251.7 | | | $ | 1,105.0 | | | $ | 3,293.2 | | | $ | 3,125.6 | |
Segment profit | | $ | 87.1 | | | $ | 87.8 | | | $ | 132.9 | | | $ | 145.0 | |
Segment profit as a percentage of net sales | | | 7.0 | % | | | 7.9 | % | | | 4.0 | % | | | 4.6 | % |
Increase in same store sales | | | 1 | % | | | 0 | % | | | 1 | % | | | 2 | % |
Stores in operation at end of period | | | | | | | | | | | | | | | | |
T.K. Maxx | | | | | | | | | | | 540 | | | | 503 | |
Homesense | | | | | | | | | | | 55 | | | | 44 | |
T.K. Maxx Australia | | | | | | | | | | | 38 | | | | 35 | |
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | 633 | | | | 582 | |
| | | | | | | | | | | | | | | | |
Selling square footage at end of period (in thousands) | | | | | | | | | | | | | | | | |
T.K. Maxx | | | | | | | | | | | 11,379 | | | | 10,804 | |
Homesense | | | | | | | | | | | 883 | | | | 713 | |
T.K. Maxx Australia | | | | | | | | | | | 714 | | | | 667 | |
| | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | 12,976 | | | | 12,184 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
In millions | | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
Net sales | | $ | 1,352 |
| | $ | 1,252 |
| | $ | 3,754 |
| | $ | 3,293 |
|
Segment profit | | $ | 102 |
| | $ | 87 |
| | $ | 192 |
| | $ | 133 |
|
Segment profit as a percentage of net sales | | 7.6 | % | | 7.0 | % | | 5.1 | % | | 4.0 | % |
Increase in comp sales | | 3 | % | | 1 | % | | 3 | % | | 1 | % |
Stores in operation at end of period | | | | | | | | |
T.K. Maxx | | | | | | 566 |
| | 540 |
|
Homesense | | | | | | 68 |
| | 55 |
|
T.K. Maxx Australia | | | | | | 44 |
| | 38 |
|
Total | | | | | | 678 |
| | 633 |
|
Selling square footage at end of period (in thousands) | | | | | | | | |
T.K. Maxx | | | | | | 11,675 |
| | 11,379 |
|
Homesense | | | | | | 1,037 |
| | 883 |
|
T.K. Maxx Australia | | | | | | 914 |
| | 714 |
|
Total | | | | | | 13,626 |
| | 12,976 |
|
Net sales for TJX International increased
13%8% for the third quarter and
5%14% for the nine months ended
October 28, 2017 asNovember 3, 2018 compared to the same periods last year. The
quarterly increase
reflects an 8%in the third quarter represents a 7% increase from
new storenon-comp sales
and a
1%3% increase in
same store sales, as well as currency translation that positively impactedcomp sales growth,
offset by
4%.a 2% negative impact from foreign currency exchange rates. The nine-month increase in net sales
included an 8%includes a 7% increase from
new storenon-comp sales,
a 4% positive impact from foreign currency exchange rates, and a
1%3% increase in
same store sales, which was offset by a negative 4% impact due to currency translation.comp sales. The increase in
same storecomp sales for both periods was driven by an increase in customer
traffic, which was partially offset by a decline in the value of the average transaction.traffic.
Segment profit margin decreasedincreased to 7.0%7.6% for the third quarter of fiscal 20182019 compared to 7.9%7.0% for the same period last year. Segment profit margin decreasedincreased to 5.1% for the nine months ended November 3, 2018 compared to 4.0% for the nine months ended October 28, 2017 compared to 4.6% for the nine months ended October 29, 2016. Segment. The increase in segment margin for the third quarter of fiscal 2019 was driven by cost efficiencies, especially in favorable negotiated lease terms, an increase in merchandise margin and nine-month period was favorably impacteda reserve adjustment due to the favorable outcome of a wage audit. These margin improvements were partially offset by the unfavorable impact of 1.3 percentage points and 0.5 percentage points, respectively,for the third quarter due to foreign currency, primarily the year-over year mark-to-market impact of the inventory derivatives. This improvementThe increase in the segment margin however,for the nine-months ended November 3, 2018 was more than offset by higher supply chain costs associated withprimarily due to the openingfavorable year over year impact of the mark-to-market impact of the inventory derivatives, cost efficiencies and the favorable outcome of a new distribution center, a decline in merchandise margin, and expense deleverage on the same store sales for the fiscal 2018 third quarter.wage audit.
General corporate expense
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | | Thirty-Nine Weeks Ended | |
Dollars in millions | | October 28, 2017 | | | October 29, 2016 | | | October 28, 2017 | | | October 29, 2016 | |
General corporate expense | | $ | 95.5 | | | $ | 97.9 | | | $ | 311.2 | | | $ | 291.0 | |
|
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
In millions | | November 3, 2018 | | October 28, 2017 | | November 3, 2018 | | October 28, 2017 |
General corporate expense | | $ | 128 |
| | $ | 95 |
| | $ | 396 |
| | $ | 311 |
|
General corporate expense for segment reporting purposes represents those costs not specifically related to the operations of our business segments.
Virtually all generalGeneral corporate expenses are
primarily included in
selling, general and administrative expenses. TheSG&A expenses, except for the mark-to-market adjustment of our fuel hedges,
which is included in cost of sales, including buying and occupancy costs.
General corporate expense for the
third quarter
decreased slightly from the same period last year, driven by a reduction inincreased primarily due to higher systems and technology costs, increased incentive compensation
costs. The increase incosts due to the above plan performance and the mark-to-market impact of our diesel fuel hedges. Additionally, general corporate expense for the
nine-month period was primarily driven by incremental systemsnine months ended November 3, 2018 includes $39 million for the global IT function restructuring costs and
technology costs as well as lower unrealized gains on our fuel hedges in fiscal 2018 as comparedcontributions to
the same period last year. These increases were partially offset by reduced incentive compensation costs in fiscal 2018.32
TJX’s charitable foundations.
Analysis of Financial Condition
Liquidity and Capital Resources
Our liquidity requirements have traditionally been funded through cash generated from operations, supplemented, as needed, by short-term bank borrowings and the issuance of commercial paper. As of November 3, 2018, there were no short-term bank borrowings or commercial paper outstanding.
We believe our existing cash and cash equivalents, internally generated funds and our credit facilities, described in Note I –Long-Term Debt and Credit Lines of Notes to Consolidated Financial Statements, are more than adequate to meet our operating needs over the next fiscal year.
As of November 3, 2018, we held $2.7 billion in cash and no short-term investments. Approximately $0.9 billion of our cash was held by our foreign subsidiaries with $0.3 billion held in countries where we provisionally intend to indefinitely reinvest any undistributed earnings. We have provided for all applicable state and foreign withholding taxes on all undistributed earnings of our foreign subsidiaries in Canada, Puerto Rico, Italy, India, Hong Kong and Vietnam through November 3, 2018. If we repatriate cash from such subsidiaries, we should not incur additional tax expense and our cash would be reduced by the amount of withholding taxes paid. We repatriated approximately $1.4 billion in cash from our subsidiary in Canada during the second quarter of fiscal2019.
Operating activities:Net cash provided by operating activities was $2.5 billion for the nine months ended November 3, 2018 and $1.9 billion for the nine months ended October 28, 2017, a decrease2017. The cash generated from operating activities in each of $0.2 billion fromthese fiscal quarters was primarily due to operating earnings.
Operating cash flows for the $2.1 billion provided in thefirst nine months ended October 29, 2016. Net income adjusted fornon-cash items and the early extinguishment of debt for the fiscal 2018 nine-month period, as2019 increased by $0.6 billion compared to the first nine months of fiscal 2017,2018, driven by increased operating earnings. Net income, adjusted for non-cash items increased operating cash flows by $60 million. The change in merchandise inventory, net of the related change in accounts payable, resulted in a use of cash of $309 million in the first nine months of fiscal 2018 2019 as compared to a use of cash of $234 million in the first nine months of fiscal 2017, which unfavorably impacted year over year cash flows 2018 by $75 million. This unfavorable impact on$0.8 billion and was partially offset by a $0.2 billion increase in merchandise inventories, net of accounts payable.
Operating cash flows for the first nine months of fiscal 2018 is attributable in partdecreased by $0.2 billion compared to additional cash outflows to bring in fresh merchandisethe first nine months of fiscal 2017. Net income, adjusted for non-cash items for the upcoming holiday season as reflected infirst nine months of fiscal 2018, increased operating cash flows by $0.1 billion compared to the increased inventoryin-transit.first nine months of The change infiscal 2017. This increase was more than offset by a $0.1 billion decrease related to merchandise inventories, net of accounts payable and a $0.2 billion decrease related to accrued expenses and other current liabilities, including income taxes payable, had an unfavorable impact on year over year operatingliabilities. The decrease in cash flows of $218 million, whichrelated to accrued expenses and other liabilities was driven by increased payments for incentive compensation, payroll withholdings and the timing of payments related to sales taxes and income taxes during the first nine months of fiscal 2018.
Investing activities: Net cash used in investing activities resulted in net cash outflows of $0.4 billion for the nine months ended November 3, 2018 as compared toand $0.8 billion for the prior year. Innine months ended October 28, 2017. The cash outflows for both periods were driven by capital expenditures and, in addition, the year over year comparisonactivity in fiscal 2019 reflects the liquidation of operating cash flows is favorably impactedshort-term investments by $60 million due to the change in accounting for excess tax benefits related to stock compensation. This year these benefits are included in net income, increasing operating cash flows, whereas last year these benefits were classifiedTJX Canada as a financing activity.result of the repatriation completed during the second quarter.
Investing activities in the first nine months of fiscal 2018 reflect2019 primarily reflected property additions for new stores, store improvements and renovations and investment in our home offices and our distribution network (including buying and merchandising systems and information systems). Cash outflows for property additions amounted to $828 millionwere $0.9 billion in the quarter ended October 28, 2017 compared to $767 millionfirst nine months of fiscal 2019 and $0.8 billion in the comparable period lastprior year. We anticipate that capital spending for fiscal 20182019 will be approximately $1.1$1.3 billion. We alsoplan to fund these expenditures through internally generated funds.
We purchased
$630 million$0.2 billion of investments in the first nine months of fiscal
20182019 versus
$534 million$0.6 billion in the comparable prior year
period and $658 millionperiod. These cash outflows were more than offset by $0.6 billion of
inflows related to investments
that were sold or matured in the first nine months of fiscal
2018 versus $432 million2019 and $0.7 billion in the prior year.
ThisThe investing activity primarily
relatedrelates 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.
Cash flows from
Financing activities: Net cash used in financing activities resulted in a net cash outflowoutflows of $1.7$2.1 billion in the third quarterfirst nine months of fiscal 2018 compared to a net cash outflow of $.92019 and $1.7 billion infor the same period last year. During the fiscal 2017 third quarter we received net proceeds of $992.5 million from the issuance of $1 billion of 2.25%ten-year notes. A portion of the proceeds were used to redeem our $375 million 6.95% notes prior to their scheduled maturity. The redemption of the notes, including the prepayment penalty, resulted innine months ended October 28, 2017. These cash outflows of $426 million. Financing activities include the cash flows relating to ourwere primarily driven by equity repurchases and dividend payments.
Equity
We repurchased and retired 34.0 million shares of our common stock at a cost of $1.6 billion during the exercisefirst nine months of options underfiscal2019, on a “trade date basis.” We reflect stock repurchases in our financial statements on a “settlement date” or cash basis. Under our stock incentive plan and the payment of dividends to holders of our common stock. We spent $1.2repurchase programs, we paid $1.6 billion to repurchase 16.933.9 million shares of our stock in the first nine months of fiscal 2018 compared to2019. These outflows were partially offset by $0.2 billion in proceeds from the exercise of employee stock options, net of shares withheld for taxes in the first nine months of fiscal 2019. We paid $1.2 billion to repurchase 15.433.5 million shares in the same period last year. Seefirst nine months of fiscal 2018. For further information regarding equity repurchases, see Note D – Capital Stock and Earnings Per Share of Notes to Consolidated Financial Statements for more information. Statements.
In February 2017,2018, we announced that our Board of Directors approved an additional repurchase program authorizing the repurchase of up to an additional $1.0$3.0 billion of TJX stock from time to time.stock. We currently plan to repurchase approximately $1.5 billion to $1.8$2.5 billion of stock under our stock repurchase programs in fiscal 2018.2019. 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 $72 million of proceeds, net of shares repurchased for withholding taxes, related to the exercise of
Dividends
We declared quarterly dividends on our common stock
options in the third quarter of fiscal 2018 versus $86 million in proceeds, net of shares repurchased for withholding taxes in the same period last year. Dividends paid on common stockwhich totaled $0.585 per share in the first nine months of fiscal
2018 were $567 million versus $482 million2019 and $0.469 per share in the
same period last year.We traditionally have fundedfirst nine months of fiscal 2018. Cash payments for dividends on our working capital requirements, includingcommon stock totaled $0.7 billion for seasonal merchandise, primarily through cash generated from operations, supplemented, as needed, by short-term bank borrowingsthe first nine months of fiscal 2019 and $0.6 billion for the issuancefirst nine months of commercial paper. As of October 28, 2017, approximately 60% of our cash was held by our foreign subsidiaries with $249 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 Australia. If we repatriate cash from these subsidiaries, we should not incur additional
33
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 I of Notes to Consolidated Financial Statements, are more than adequate to meet our operating needs over the next fiscal year.
2018.
Recently Issued Accounting Pronouncements
For a discussion of accounting
pronouncements,standards, see Note A
- Basis of Presentation and Summary of
Significant Accounting Policies
in our 2016 Form10-K Annual Report and Note A of Notes to Consolidated Financial Statements included in
TJX’s Annual Report on Form 10-K for the fiscal year ended February 3, 2018 and Note A - Basis of Presentation and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements in this Quarterly Report on Form
10-Q.
Forward-looking Statements
Various statements made in this Quarterly Report on Form10-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; consumercustomer trends and preferences; various marketing efforts; competition; quality and availability of personnel recruitment, training and retention; labor costs and workforce challenges; data security; information systems and implementation of new technology;technologies; economic conditions and consumer spending; adverse or unseasonable weather; disruptions in the second half of the fiscal year; serious disruptions or catastrophic events; corporate and retail banner reputation; quality, safety and other issues with our merchandise; compliance with laws, regulations and orders and changes in laws, regulations and applicable accounting standards; expanding international operations; merchandise sourcing and moving merchandise internationally;transport; commodity availability and pricing or increases in utility, transportation or logistics costs;pricing; fluctuations in currency exchange rates; fluctuations in quarterly operating results and market expectations; mergers, acquisitions, or business investments and divestitures, closings or business consolidations; outcomes of litigation, legal proceedings and other legal or regulatory matters; tax matters; disproportionate impact of disruptions in the second half of the fiscal year; real estate activities; inventory or asset loss; 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 Form10-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.
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 Annual Report on Form 10-K for the fiscal year ended January 28, 2017.February 3, 2018.
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 28, 2017November 3, 2018 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.
34
There
Effective November 3, 2018, we implemented a new financial application to simplify and standardize our global consolidated financial reporting process while enhancing and improving the control environment surrounding the Company's financial data and information. Except as described above, there were no changes in our internal control over financial reporting (as defined in
RulesRule 13a-15(f) and
15d-15(f) under the Act) during the fiscal quarter ended
October 28, 2017November 3, 2018 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.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicableapplicable.
There have been no material changes to the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form10-K for the year ended January 28, 2017,February 3, 2018, as filed with the Securities Exchange Commission on March 28, 2017.April 4, 2018.
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 third quarter of fiscal 20182019 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(1) | | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(3) | |
July 30, 2017 through August 26, 2017 | | | 1,271,053 | | | $ | 70.82 | | | | 1,271,053 | | | $ | 1,800,767,834 | |
August 27, 2017 through September 30, 2017 | | | 1,990,306 | | | $ | 72.85 | | | | 1,990,306 | | | $ | 1,655,779,813 | |
October 1, 2017 through October 28, 2017 | | | 1,598,429 | | | $ | 71.95 | | | | 1,598,429 | | | $ | 1,540,779,792 | |
| | | | | | | | | | | | | | | | |
Total: | | | 4,859,788 | | | | | | | | 4,859,788 | | | | | |
|
| | | | | | | | | | | | | | |
| | 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(1) | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(3) |
August 5, 2018 through September 1, 2018 | | 5,911,984 |
| | $ | 50.74 |
| | 5,911,984 |
| | $ | 2,835,784,975 |
|
September 2, 2018 through October 6, 2018 | | 1,982,868 |
| | $ | 55.48 |
| | 1,982,868 |
| | $ | 2,725,785,078 |
|
October 7, 2018 through November 3, 2018 | | 3,476,242 |
| | $ | 54.66 |
| | 3,476,242 |
| | $ | 2,535,789,638 |
|
Total: | | 11,371,094 |
| | | | 11,371,094 |
| | |
| |
(1) | Consists of shares repurchased under publicly announced stock repurchase programs. |
| |
(2) | Includes commissions for the shares repurchased under stock repurchase programs. |
| |
(3) | In February 2016, TJX2018, the Company announced that its Board of Directors had approved a $2.0 billionnew stock repurchase program that authorizes the repurchase of up to an additional $3.0 billion of TJX common stock from time to time, under which $541 million$2.5 billion remained available as of October 28, 2017. Additionally, in February 2017, TJX announced its 18th stock repurchase program authorizing an additional $1.0 billion in repurchases from time to time.November 3, 2018. |
35
|
| | |
3.1 | | |
| | |
10.1 | | |
| | |
10.2 | | |
| | |
10.3 | | |
| | |
10.4 | | |
| | |
10.5 | | |
| | |
10.6 | | |
| | |
10.7 | | |
| | |
10.8 | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
32.2 | | |
| | |
101 | | The following materials from The TJX Companies, Inc.’s Quarterly Report on Form10-Q for the quarter ended October 28, 2017,November 3, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statement of Shareholders’ Equity, and (vi) Notes to Consolidated Financial Statements. |
36
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: November 28, 2017
| | |
| | | | (Registrant) |
| | | | |
Date: December 4, 2018 | | | | |
| | | | /s/ Scott Goldenberg |
| | | | Scott Goldenberg, Chief Financial Officer |
| | | | (Principal Financial and Accounting Officer) |
37
Exhibit Index
| | |
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 Form10-Q for the quarter ended October 28, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statement of Shareholders’ Equity, and (vi) Notes to Consolidated Financial Statements. |
38