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.

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 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 2018, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2019, and during the first nine months of fiscal 2019, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the first nine months of fiscal 2020. The hedge agreements outstanding at November 3, 2018 relate to approximately 46% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2019 and approximately 28% of TJX’s estimated notional diesel requirements for the first nine months of fiscal 2020. These diesel fuel hedge agreements will settle throughout the remainder of fiscal 2019 and throughout the first ten months of fiscal 2020. TJX elected not to apply hedge accounting 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 in 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 November 3, 2018 cover a portion of such actual and anticipated merchandise purchases throughout the remainder of fiscal 2019 and throughout the first half of fiscal 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 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.

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 financial instruments							$	17,110	$	(11,280	)	$	5,830

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					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	)