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Financial Instruments
 3 Months Ended
May 03, 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 quarter of fiscal 2015, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2015. The hedge agreements outstanding at May 3, 2014 relate to approximately 49% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2015. These diesel fuel hedge agreements will settle throughout 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 May 3, 2014 cover a portion of such actual and anticipated merchandise purchases throughout fiscal 2015. 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 May 3, 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
May 3, 2014		  

Fair value hedges:

              

Intercompany balances, primarily short-term debt and related interest

              
    zł                    87,073      C$ 30,585        0.3513      Prepaid Exp /

(Accrued Exp)

   $ 26      $ (651 )    $ (625 ) 
    €                     39,000      £ 32,369        0.8300      Prepaid Exp /
(Accrued Exp)		     513        (49 )      464   
    €                     44,850      U.S.$ 61,842        1.3789      (Accrued Exp)     —          (350 )      (350 ) 
    U.S.$              90,309      £ 55,000        0.6090      Prepaid Exp     2,248        —          2,248   

Economic hedges for which hedge accounting was not elected:

              

Diesel contracts

    

 
 

 Fixed on 1.6M

- 1.8M gal per
month

   

  
  

    
 
 		 Float on 1.6M
- 1.8M gal per
month		   
  
  		     N/A      Prepaid Exp     1,001        —          1,001   

Merchandise purchase commitments

              
    C$                411,075      U.S.$  374,675        0.9115      Prepaid Exp /
(Accrued Exp)		     3,346        (2,621 )      725   
    C$                  15,483      € 10,200        0.6588      Prepaid Exp /
(Accrued Exp)		     56        (8 )      48   
    £                  145,258      U.S.$ 236,200        1.6261      (Accrued Exp)     —          (8,698 )      (8,698 ) 
    zł                  128,099      £ 25,079        0.1958      Prepaid Exp /
(Accrued Exp)		     265        (54 )      211   
    U.S.$              23,376      € 17,001        0.7273      Prepaid Exp /
(Accrued Exp)		     207        (8 )      199   
    U.S.$                   844      ¥ 5,138        6.0877      (Accrued Exp)     —          (24 )      (24 ) 
         

 

 

    

 

 

    

 

 

  

Total fair value of financial instruments

  

       $ 7,662      $ (12,463 )    $ (4,801 ) 
         

 

 

    

 

 

    

 

 

  

 

The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at May 4, 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 May 4,
2013		  

Fair value hedges:

              

Intercompany balances, primarily short-term debt and related interest

              
    zł          141,500        C$             44,551        0.3148        (Accrued Exp )    $ —        $ (604 )    $ (604 ) 
    £             25,000        C$             38,946        1.5578        (Accrued Exp )      —          (475 )      (475 ) 
    €             44,281        £               35,781        0.8080        (Accrued Exp )      —          (2,537 )      (2,537 ) 
    €             90,292        U.S.$       118,511        1.3125        (Accrued Exp )      —          (111 )      (111 ) 
    U.S.$       87,117        £                55,000        0.6313        (Accrued Exp )      —          (1,572 )      (1,572 ) 

Economic hedges for which hedge accounting was not elected:

              

Diesel contracts

    

 
 

 Fixed on 1.5M

- 1.7M gal per
month

   

  
  

    

 
 

 Float on 1.5M

- 1.7M gal per
month

   

  
  

     N/A        (Accrued Exp )      —          (427 )      (427 ) 

Merchandise purchase commitments

              
    C$         323,489        U.S.$      319,678        0.9882       

 

 Prepaid Exp /

(Accrued Exp

   

) 

     1,954        (2,757 )      (803 ) 
    C$             8,149        €                  6,100        0.7486        (Accrued Exp )      —          (79 )      (79 ) 
    £           111,217        U.S.$        171,000        1.5375       

 

 Prepaid Exp /

(Accrued Exp

   

) 

     717        (2,875 )      (2,158 ) 
    £               4,289        €                   5,000        1.1658        (Accrued Exp )      —          (123 )      (123 ) 
    £             12,823        zł                62,813        4.8985        Prepaid Exp        168        —          168   
    U.S.$         9,907        €                   7,580        0.7651       

 

 Prepaid Exp /

(Accrued Exp

   

) 

     71        (35 )      36   
         

 

 

    

 

 

    

 

 

  

Total fair value of financial instruments

  

       $ 2,910      $ (11,595 )    $ (8,685 ) 
         

 

 

    

 

 

    

 

 

  

 

Presented below is the impact of derivative financial instruments on the statements of income for the periods shown:

 

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

In thousands

       May 3, 2014     May 4, 2013  

Fair value hedges:

        

Intercompany balances, primarily short-term debt and related interest

    Selling, general and
administrative expenses		    $ (58 )    $ 6,286   

Economic hedges for which hedge accounting was not elected:

        

Diesel contracts

    Cost of sales, including buying
and occupancy costs		      1,226        (2,961 ) 

Merchandise purchase commitments

    Cost of sales, including buying
and occupancy costs		      (12,318 )      1,007   
     

 

 

    

 

 

  

(Loss) gain recognized in income

       $ (11,150 )    $ 4,332   
     

 

 

    

 

 

  

Included in the table above are realized gains of $7.2 million in the first quarter of fiscal 2015 and gains of $10.6 million in the first quarter of fiscal 2014 all of which were largely offset by gains and losses on the underlying hedged item.