Note F. Financial Instruments

As a result of its operating and financing activities, TJX is exposed to market risks from changes in diesel fuel costs, foreign currency exchange rates and interest rates. These market risks may adversely affect TJX's operating results and financial position. When deemed appropriate, TJX seeks to minimize such risks through the use of derivative financial instruments. TJX does not use derivative financial instruments for trading or other speculative purposes, and does not use 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 derivatives that do not qualify for hedge accounting are reported in earnings in the period of the change. Changes in the fair value of derivatives for which TJX has elected hedge accounting are either recorded in shareholders' equity as a component of other comprehensive income or are recognized currently in earnings, along with an offsetting adjustment against the basis of the item being hedged.

Diesel Fuel Contracts: During the first half of fiscal 2012, TJX entered into agreements to hedge a portion of the notional diesel fuel requirements expected to be consumed by independent freight carriers transporting the Company's inventory for the second half of fiscal 2012 and first quarter of fiscal 2013. TJX has hedged approximately 50% of these expected notional diesel fuel requirements for fiscal 2012 with agreements that settle throughout the remainder of fiscal 2012 and 20% of expected notional diesel fuel requirement for the first quarter of fiscal 2013. Independent freight carriers transporting the Company's inventory charge TJX a mileage surcharge for diesel fuel price increases as incurred by the carrier. The hedge agreements are designed to mitigate the surcharges payable by TJX arising from volatility of diesel fuel pricing by setting a fixed price per gallon for the year for a portion of the requirements. TJX elected not to apply hedge accounting rules to these agreements.

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 TJX Europe (operating in the United Kingdom, Ireland, Germany and Poland), TJX Canada (Canada) and Marmaxx (U.S.) in currencies other than their functional currencies. The contracts outstanding at July 30, 2011 cover certain commitments and anticipated needs throughout fiscal 2012. 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.

Following is a summary of TJX's derivative financial instruments, related fair value and balance sheet classification at July 30, 2011:


					Blended			Current		Current			Net Fair Value
					Contract		Balance Sheet	Asset		(Liability)			in US$ at
In thousands	Pay		Receive		Rate		Location	US$		US$			July 30, 2011
Fair value hedges:

Intercompany balances, primarily short-term debt
	£	70,000	C$	110,336		1.5762	Prepaid Exp	$	324	$	—		$	324
	€	25,000	£	21,265		0.8506	(Accrued Exp)		—		(1,006	)		(1,006	)
	€	75,292	US$	101,227		1.3445	Prepaid Exp / (Accrued Exp)		8		(6,856	)		(6,848	)
	US$	85,894	£	55,000		0.6403	Prepaid Exp		4,290		—			4,290

Hedge accounting not elected:

Diesel fuel contracts	Fixed on 11.4M gal		Float on 11.4M gal
	per month		per month			N/A	Prepaid Exp		1,750		—			1,750
Merchandise purchase commitments
	C$	441,733	US$	452,345		1.0240	Prepaid Exp / (Accrued Exp)		610		(9,637	)		(9,027	)
	C$	9,163	€	6,700		0.7312	Prepaid Exp/		64		(14	)		50
							(Accrued Exp)
							Prepaid Exp /
	£	45,905	US$	75,000		1.6338	(Accrued Exp)		126		(515	)		(389	)
	£	39,582	€	44,700		1.1293	(Accrued Exp)		—		(709	)		(709	)
							Prepaid Exp /
	US$	4,185	€	2,916		0.6968	(Accrued Exp)		32		(24	)		8

Total fair value of all financial instruments								$	7,204	$	(18,761	)	$	(11,557	)

Following is a summary of TJX's derivative financial instruments, related fair value and balance sheet classification at July 31, 2010:


					Blended						Current			Net Fair Value
					Contract		Balance Sheet		Current		(Liability)			in US$ at
In thousands	Pay		Receive		Rate		Location		Asset US$		US$			July 31, 2010

Hedge accounting not elected:
Diesel fuel contracts	Fixed on 260K- 1.3M gal per month		Float on 260K- 1.3M gal per month			N/A	Prepaid Exp		$	164	$	—		$	164

Merchandise purchase commitments
	C$	225,158	US$	220,416		0.9789	Prepaid Exp / (Accrued Exp)			2,765		(822	)		1,943
	C$	3,228	€	2,400		0.7435	Prepaid Exp / (Accrued Exp)			41		(44	)		(3	)
	£	67,332	US$	102,872		1.5278	(Accrued Exp)			—		(2,742	)		(2,742	)
	£	56,492	€	64,539		1.1424	Prepaid Exp / (Accrued Exp)			48		(4,514	)		(4,466	)
	€	24,456	£	20,326		0.8311	(Accrued Exp)			—		(30	)		(30	)
	€	3,782	US$	4,935		1.3049	Prepaid Exp / (Accrued Exp)			1		(2	)		(1	)
	US$	1,006	€	783		0.7783	Prepaid Exp / (Accrued Exp)			43		(28	)		15

Total fair value of all financial instruments								$		3,062	$	(8,182	)	$	(5,120	)

The impact of derivative financial instruments on the statements of income during the second quarter of fiscal 2012 and fiscal 2011 are as follows:


	Location of Gain (Loss)	Amount of Gain (Loss) Recognized
	Recognized in Income by	in Income by Derivative
In thousands	Derivative	July 30, 2011			July 31, 2010
Fair value hedges:
Intercompany balances, primarily short-term debt and related interest	Selling, general and administrative expenses	$	2,194		$	—
Hedge accounting not elected:
Diesel fuel contracts	Cost of sales, including buying and occupancy costs		(259	)		(776	)
Merchandise purchase commitments	Cost of sales, including buying and occupancy costs		12,351			(3,070	)

Gain (loss) recognized in income		$	14,286		$	(3,846	)

The impact of derivative financial instruments on the statements of income during the first six months of fiscal 2012 and fiscal 2011 are as follows:


	Location of Gain (Loss)	Amount of Gain (Loss) Recognized
	Recognized in Income by	in Income by Derivative
In thousands	Derivative	July 30, 2011			July 31, 2010
Fair value hedges:
Intercompany balances, primarily short-term debt and related interest	Selling, general and administrative expenses	$	(975	)	$	—
Hedge accounting not elected:
Diesel fuel contracts	Cost of sales, including buying and occupancy costs		1,003			606
Merchandise purchase commitments	Cost of sales, including buying and occupancy costs		(7,892	)		(9,896	)

(Loss) recognized in income		$	(7,864	)	$	(9,290	)