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Financial Instruments
 6 Months Ended
Aug. 03, 2013
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, 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 2013 and the first half of fiscal 2014, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for 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 August 3, 2013 relate to approximately 50% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2014 and approximately 10% of TJX’s estimated notional diesel requirements for the first quarter of fiscal 2015. These diesel fuel hedge agreements will settle throughout the second half of fiscal 2014 and the first quarter of fiscal 2015. 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 August 3, 2013 cover a portion of such actual and anticipated merchandise purchases throughout the remainder 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 August 3, 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
August 3,
2013		  

Fair value hedges:

                   

Intercompany balances, primarily short-term debt and related interest

  

          
   zł 94,073       C$ 29,598         0.3146         (Accrued Exp )    $ —         $ (930 )    $ (930 ) 
   £ 25,000       C$ 38,946         1.5578         (Accrued Exp )      —           (859 )      (859 ) 
   € 44,281       £ 35,781         0.8080         (Accrued Exp )      —           (4,191 )      (4,191 ) 
   € 44,850       U.S.$ 59,273         1.3216        
 		 Prepaid Exp /
(Accrued Exp)		   
  		     1,112         (1,424 )      (312 ) 
   U.S.$ 87,117       £ 55,000         0.6313         (Accrued Exp )      —           (3,095 )      (3,095 ) 

Economic hedges for which hedge accounting was not elected:

  

          

Diesel contracts

     

 

 

 

 Fixed on

350K - 1.9M

gal per

month

   

  

  

  

     

 

 

 

 Float on

350K - 1.9M

gal per

month

   

  

  

  

      N/A         Prepaid Exp        1,443         —          1,443   

Merchandise purchase commitments

  

                
   C$ 351,970       U.S.$  340,731         0.9681        

 

 Prepaid Exp /

(Accrued Exp)

   

  

     3,459         (921 )      2,538   
   C$ 7,234       € 5,350         0.7396         Prepaid Exp        141         —          141   
   £ 99,797       U.S.$ 152,500         1.5281        

 

 Prepaid Exp /

(Accrued Exp)

   

  

     838         (920 )      (82 ) 
   £ 27,346       zł 135,214         4.9446         (Accrued Exp)        —           (432 )      (432 ) 
   U.S.$ 19,497       € 14,917         0.7651        

 

 Prepaid Exp /

(Accrued Exp)

   

  

     314         (6 )      308   
             

 

 

     

 

 

    

 

 

  

Total fair value of financial instruments

  

         $ 7,307       $ (12,778 )    $ (5,471 ) 
             

 

 

     

 

 

    

 

 

  

 

The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at July 28, 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
July 28,
2012		  

Fair value hedges:

                    

Intercompany balances, primarily short-term debt and related interest

  

           
   £ 40,000       C$ 63,330         1.5833         (Accrued Exp)       $ —         $ (167 )    $ (167 ) 
   zł 91,500       C$ 27,247         0.2978        

 

 Prepaid Exp /

(Accrued Exp)

   

  

      344         (178 )      166   
   € 25,000       £ 21,335         0.8534         Prepaid Exp         2,722         —          2,722   
   € 102,002       U.S.$ 136,656         1.3397         Prepaid Exp         10,746         —          10,746   
   U.S.$ 85,389       £ 55,000         0.6441         Prepaid Exp         1,191         —          1,191   

Economic hedges for which hedge accounting was not elected:

  

              

Diesel contracts

     

 

 

 

 Fixed on

430K - 1.7M

gal per

month

   

  

  

  

     

 
 

 

 Float on

430K - 1.7M
gal per

month

   

  
  

  

      N/A         (Accrued Exp)         —           (4 )      (4 ) 

Merchandise purchase commitments

  

                 
   C$ 277,963       U.S.$  277,245         0.9974        

 

 Prepaid Exp /

(Accrued Exp)

   

  

      2,053         (1,559 )      494   
   C$ 6,425       € 5,050         0.7860        

 

 Prepaid Exp /

(Accrued Exp)

   

  

      3         (179 )      (176 ) 
   £ 81,860       U.S.$ 129,500         1.5820        

 

 Prepaid Exp /

(Accrued Exp)

   

  

      1,129         (553 )      576   
   £ 31,094       € 38,000         1.2221        

 

 Prepaid Exp /

(Accrued Exp)

   

  

      220         (2,367 )      (2,147 ) 
   U.S.$ 15,197       € 12,166         0.8006        

 

 Prepaid Exp /

(Accrued Exp)

   

  

      67         (264 )      (197 ) 
              

 

 

     

 

 

    

 

 

  

Total fair value of financial instruments

                $ 18,475       $ (5,271 )    $ 13,204   
              

 

 

     

 

 

    

 

 

  

 

The impact of derivative financial instruments on the statements of income during the second quarter of fiscal 2014 and the second quarter of fiscal 2013 is 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		    August 3, 2013     July 28, 2012  

Fair value hedges:

        

Intercompany balances, primarily short-term debt and related interest

    Selling, general and
administrative expenses		    $ (4,423 )    $ 9,613   

Economic hedges for which hedge accounting was not elected:

        

Diesel fuel contracts

    Cost of sales, including buying
and occupancy costs		      2,206        (3,218 ) 

Merchandise purchase commitments

    Cost of sales, including buying

and occupancy costs

      11,796        8,917   
     

 

 

    

 

 

  

Gain recognized in income

       $ 9,579      $ 15,312   
     

 

 

    

 

 

  
          Amount of Gain (Loss)  Recognized
in Income by Derivative		  
          Twenty-Six Weeks Ended  

In thousands

    Location of Gain (Loss)
Recognized in Income by
Derivative		    August 3, 2013     July 28, 2012  

Fair value hedges:

        

Intercompany balances, primarily short-term debt and related interest

    Selling, general and
administrative expenses		    $ 1,863      $ 13,265   

Economic hedges for which hedge accounting was not elected:

        

Diesel fuel contracts

    Cost of sales, including buying
and occupancy costs		      (755 )      (668 ) 

Merchandise purchase commitments

    Cost of sales, including buying
and occupancy costs		      12,803        (1,486 ) 
     

 

 

    

 

 

  

Gain recognized in income

       $ 13,911      $ 11,111