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Financial Instruments
 9 Months Ended
Oct. 27, 2012
Financial Instruments

Note D. Financial Instruments

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

Diesel Fuel Contracts: During fiscal 2012 and the first nine months of fiscal 2013, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2013 and the first three quarters of fiscal 2014, based on the diesel fuel expected to be consumed by independent freight carriers transporting the Company’s inventory. The hedge agreements outstanding at October 27, 2012 relate to 49% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2013 and 29% of TJX’s estimated notional diesel requirements for the first three quarters of fiscal 2014. These diesel fuel hedge agreements will settle throughout the remainder of fiscal 2013 and the first three quarters of fiscal 2014.

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 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. 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 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 27, 2012 cover a portion of such actual and anticipated merchandise purchases throughout fiscal 2013 and first half of fiscal 2014. 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 October 27, 2012:

 

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 27,
2012		  

Fair value hedges:

                     

Intercompany balances, primarily short-term debt and related interest

                     
  £     40,000       C$ 63,330         1.5833       (Accrued Exp)    $ —         $ (1,082 )    $ (1,082 ) 
  zł     141,500       C$ 42,120         0.2977       Prepaid Exp /
(Accrued Exp)		      72         (1,844 )      (1,772 ) 
  €     44,281       £ 36,742         0.8297       Prepaid Exp /
(Accrued Exp)		      1,975         (163 )      1,812   
  €     90,292       U.S.$ 122,237         1.3538       Prepaid Exp      5,369         —          5,369   
  U.S.$     85,389       £ 55,000         0.6441       Prepaid Exp      3,150         —          3,150   
  zł     16,324       £ 3,131         0.1918       (Accrued Exp)      —           (61 )      (61 ) 

Economic hedges for which hedge accounting was not elected:

                     

Diesel contracts

   Fixed on 300K – 1.7M gal per

month

         

  

     
 
 
 		 Float on
300K – 1.7M
gal per
month		   
  
  
  		      N/A       Prepaid Exp      1,832         —          1,832   

Merchandise purchase commitments

                     
  C$     346,351       U.S.$ 348,853         1.0072       Prepaid Exp /
(Accrued Exp)		      2,888         (801 )      2,087   
  C$     6,130       € 4,900         0.7993       Prepaid Exp      200         —          200   
  £     93,494       U.S.$ 149,400         1.5980       Prepaid Exp /
(Accrued Exp)		      300         (1,462 )      (1,162 ) 
  £     8,126       € 10,000         1.2306       Prepaid Exp /
(Accrued Exp)		      53         (212 )      (159 ) 
  U.S.$     8,232       € 6,543         0.7948       Prepaid Exp /
(Accrued Exp)		      240         (6 )      234   
               

 

 

     

 

 

    

 

 

  

Total fair value of financial instruments

  

             $ 16,079       $ (5,631 )    $ 10,448   
               

 

 

     

 

 

    

 

 

  

 

The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at October 29, 2011:

 

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,
2011		  

Fair value hedges:

                    

Intercompany balances, primarily short-term debt and related interest

                    
   £ 85,000       C$ 134,892         1.5870       Prepaid Exp /
(Accrued Exp)		    $ 395       $ (1,628 )    $ (1,233 ) 
   € 25,000       £ 21,265         0.8506       (Accrued Exp)      —           (1,094 )      (1,094 ) 
   € 75,292       U.S.$ 101,227         1.3445       Prepaid Exp /
(Accrued Exp)		      103         (5,375 )      (5,272 ) 
   U.S.$ 85,894       £ 55,000         0.6403       Prepaid Exp      2,744         —          2,744   

Economic hedges for which hedge accounting was not elected:

                    

Diesel contracts

     
 
 
 		 Fixed on
400K – 1.5M
gal per
month		   
  
  
  		     
 
 
 		 Float on
400K – 1.5M
gal per
month		   
  
  
  		      N/A       Prepaid Exp      775         —          775   

Merchandise purchase commitments

                    
   C$ 303,058       U.S.$ 309,945         1.0227       Prepaid Exp /
(Accrued Exp)		      6,128         (1,246 )      4,882   
   C$ 6,173       € 4,500         0.7290       Prepaid Exp      142         —          142   
   £ 41,615       U.S.$ 67,000         1.6100       Prepaid Exp /
(Accrued Exp)		      780         (899 )      (119 ) 
   £ 42,422       € 49,000         1.1551       Prepaid Exp      878         —          878   
   U.S.$ 3,838       € 2,693         0.7017       Prepaid Exp /
(Accrued Exp)		      5         (34 )      (29 ) 
              

 

 

     

 

 

    

 

 

  

Total fair value of financial instruments

  

             $ 11,950       $ (10,276 )    $ 1,674   
              

 

 

     

 

 

    

 

 

  

 

The impact of derivative financial instruments on the statements of income during the third quarter of fiscal 2013 and fiscal 2012 are as follows:

 

          Amount of Gain (Loss) Recognized
in Income by Derivative		  
          Thirteen Weeks Ended  

In thousands

   

Location of Gain (Loss)
Recognized in Income by
Derivative

    October 27, 2012     October 29, 2011  

Fair value hedges:

        

Intercompany balances, primarily short-term debt and related interest

    Selling, general and administrative expenses    $ (7,227 )    $ (2,162 ) 

Economic hedges for which hedge accounting was not elected:

        

Diesel fuel contracts

    Cost of sales, including buying and occupancy costs      1,837        (975 ) 

Merchandise purchase commitments

    Cost of sales, including buying and occupancy costs      2,649        15,819   
     

 

 

    

 

 

  

Gain (loss) recognized in income

       $ (2,741 )    $ 12,682   
     

 

 

    

 

 

  

The impact of derivative financial instruments on the statements of income during the first nine months of fiscal 2013 and fiscal 2012 are as follows:

 

          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 27, 2012      October 29, 2011  

Fair value hedges:

         

Intercompany balances, primarily short-term debt and related interest

    Selling, general and administrative expenses    $ 6,038       $ (3,140 ) 

Economic hedges for which hedge accounting was not elected:

         

Diesel fuel contracts

    Cost of sales, including buying and occupancy costs      134         28   

Merchandise purchase commitments

    Cost of sales, including buying and occupancy costs      118         7,927   
     

 

 

     

 

 

  

Gain (loss) recognized in income

    $ 6,290       $ 4,815