Financial Instruments

9 Months Ended

Nov. 01, 2014

Financial Instruments

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. When and to the extent deemed appropriate, TJX seeks to minimize risk from changes in interest rates and foreign currency exchange rates and fuel costs through the use of derivative financial instruments. TJX does not use derivative financial instruments for trading or other speculative purposes and does not use any leveraged derivative financial instruments. TJX recognizes all derivative instruments as either assets or liabilities in the statements of financial position and measures those instruments at fair value. The fair values of the derivatives are classified as assets or liabilities, current or non-current, based upon valuation results and settlement dates of the individual contracts. Changes to the fair value of derivative contracts that do not qualify for hedge accounting are reported in earnings in the period of the change. For derivatives that qualify for hedge accounting, changes in the fair value of the derivatives are either recorded in shareholders’ equity as a component of other comprehensive income or are recognized currently in earnings, along with an offsetting adjustment against the basis of the item being hedged. TJX does not hedge its net investments in foreign subsidiaries.

Diesel Fuel Contracts: 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 for diesel fuel price increases as incurred by the carrier. 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 2014 and the first nine months of fiscal 2015, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2015 and for the fiscal year ending January 30, 2016 (“fiscal 2016”). The hedge agreements outstanding at November 1, 2014 relate to approximately 50% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2015 and approximately 37% of TJX’s estimated notional diesel requirements for the first nine months of fiscal 2016. These diesel fuel hedge agreements will settle throughout the remainder of fiscal 2015 and the first nine months of fiscal 2016. 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 TJX Europe (United Kingdom, Ireland, Germany and Poland), 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 November 1, 2014 cover a portion of such actual and anticipated merchandise purchases throughout the remainder of fiscal 2015 and a portion of fiscal 2016. 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.

The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at November 1, 2014:

In thousands	Pay		Receive		Blended Contract Rate		Balance Sheet Location	Current Asset U.S.$		Current (Liability) U.S.$			Net Fair Value in U.S.$ at November 1, 2014
Fair value hedges:
Intercompany balances, primarily debt and related interest
	zł	87,073	C$	30,519		0.3505	Prepaid Exp	$	1,313	$	—		$	1,313
	€	39,000	£	31,968		0.8197	Prepaid Exp		2,151		—			2,151
	€	44,850	U.S.$	61,842		1.3789	Prepaid Exp		5,635		—			5,635
	U.S.$	90,309	£	55,000		0.6090	(Accrued Exp)		—		(2,393	)		(2,393	)
Economic hedges for which hedge accounting was not elected:
Diesel contracts		Fixed on 390K - 1.8M gal per month		Float on 390K - 1.8M gal per month		N/A	(Accrued Exp)		—		(5,360	)		(5,360	)
Merchandise purchase commitments
	C$	293,187	U.S.$	267,020		0.9107	Prepaid Exp		7,060		—			7,060
	C$	7,206	€	5,000		0.6939	Prepaid Exp / (Accrued Exp)		4		(135	)		(131	)
	£	103,088	U.S.$	168,500		1.6345	Prepaid Exp / (Accrued Exp)		3,690		(5	)		3,685
	zł	151,572	£	28,638		0.1889	Prepaid Exp		992		—			992
	U.S.$	21,525	€	16,401		0.7620	(Accrued Exp)		—		(981	)		(981	)
Total fair value of financial instruments								$	20,845	$	(8,874	)	$	11,971

The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at November 2, 2013:

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 2, 2013
Fair value hedges:
Intercompany balances, primarily debt and related interest
	£	25,000	C$	38,946		1.5578	(Accrued Exp)	$	—	$	(2,486	)	$	(2,486	)
	zł	84,073	C$	26,440		0.3145	(Accrued Exp)		—		(1,628	)		(1,628	)
	€	44,281	£	35,781		0.8080	(Accrued Exp)		—		(2,778	)		(2,778	)
	€	44,850	U.S.$	59,273		1.3216	Prepaid Exp / (Accrued Exp)		2,048		(3,274	)		(1,226	)
	U.S.$	87,117	£	55,000		0.6313	Prepaid Exp		413		—			413
Economic hedges for which hedge accounting was not elected:
Diesel contracts		Fixed on 175K - 1.9M gal per month		Float on 175K - 1.9M gal per month		N/A	(Accrued Exp)		—		(733	)		(733	)
Merchandise purchase commitments
	C$	342,060	U.S.$	328,680		0.9609	Prepaid Exp / (Accrued Exp)		2,277		(1,382	)		895
	C$	12,867	€	9,250		0.7189	Prepaid Exp / (Accrued Exp)		171		(35	)		136
	£	185,934	U.S.$	295,200		1.5877	Prepaid Exp / (Accrued Exp)		2,032		(2,675	)		(643	)
	zł	126,753	£	25,321		0.1998	Prepaid Exp / (Accrued Exp)		54		(363	)		(309	)
	U.S.$	16,843	€	12,647		0.7509	Prepaid Exp / (Accrued Exp)		276		(63	)		213
Total fair value of financial instruments								$	7,271	$	(15,417	)	$	(8,146	)

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	November 1, 2014			November 2, 2013
Fair value hedges:
Intercompany balances, primarily debt and related interest	Selling, general and administrative expenses	$	1,842		$	1,504
Economic hedges for which hedge accounting was not elected:
Diesel fuel contracts	Cost of sales, including buying and occupancy costs		(5,614	)		(2,012	)
Merchandise purchase commitments	Cost of sales, including buying and occupancy costs		16,476			(2,687	)
Gain / (loss) recognized in income		$	12,704		$	(3,195	)

		Amount of Gain (Loss) Recognized in Income by Derivative
		Thirty-Nine Weeks Ended
In thousands	Location of Gain (Loss) Recognized in Income by Derivative	November 1, 2014			November 2, 2013
Fair value hedges:
Intercompany balances, primarily debt and related interest	Selling, general and administrative expenses	$	5,720		$	3,367
Economic hedges for which hedge accounting was not elected:
Diesel fuel contracts	Cost of sales, including buying and occupancy costs		(4,709	)		(2,767	)
Merchandise purchase commitments	Cost of sales, including buying and occupancy costs		780			10,116
Gain/ (loss) recognized in income		$	1,791		$	10,716