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Financial Instruments
 6 Months Ended
Aug. 01, 2015
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 2015 and the first six months of fiscal 2016, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2016. In addition, during fiscal 2016, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the first half of fiscal 2017. The hedge agreements outstanding at August 1, 2015 relate to approximately 56% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2016 and approximately 40% of TJX’s estimated notional diesel requirements for the first six months of the fiscal year ending January 28, 2017 (fiscal 2017). These diesel fuel hedge agreements will settle throughout the remainder of fiscal 2016 and the first seven months of fiscal 2017. 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, Poland and Austria), 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 1, 2015 cover a portion of such actual and anticipated merchandise purchases throughout the remainder of fiscal 2016 and the first quarter of fiscal 2017. 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 1, 2015:

 

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 1,
2015		  

Fair value hedges:

                

Intercompany balances, primarily debt and related interest

  

          
  zł     87,073      C$ 29,560        0.3395      (Accrued Exp)   $ —        $ (440 )    $ (440 ) 
  zł     25,000      £ 4,547        0.1819      Prepaid Exp     496        —          496   
  €     39,000      £ 28,873        0.7403      Prepaid Exp     2,075        —          2,075   
  €     19,850      U.S.$ 22,647        1.1409      Prepaid Exp     777        —          777   
  U.S.$     83,400      £ 55,000        0.6595      Prepaid Exp     2,423        —          2,423   

Economic hedges for which hedge accounting was not elected:

  

          

Diesel contracts

      
 
 		 Fixed on 1.2M
– 3.0M gal per
month		   
  
  		    

 
 

 Float on 1.2M

– 3.0M gal per
month

   

  
  

     N/A      (Accrued Exp)     —          (12,414 )      (12,414 ) 

Merchandise purchase commitments

  

          
  C$     454,974      U.S.$ 364,410        0.8009      Prepaid Exp     16,976        —          16,976   
  C$     18,935      € 13,700        0.7235      Prepaid Exp     592        —          592   
  £     192,482      U.S.$ 297,000        1.5430      Prepaid Exp /
(Accrued Exp)		     493        (4,087 )      (3,594 ) 
  U.S.$     929      £ 605        0.6512      Prepaid Exp     16        —          16   
  zł     230,328      £ 40,405        0.1754      Prepaid Exp     2,170        —          2,170   
  U.S.$     30,473      € 27,486        0.9020      Prepaid Exp /
(Accrued Exp)		     185        (448 )      (263 ) 
           

 

 

    

 

 

    

 

 

  

Total fair value of financial instruments

  

         $ 26,203      $ (17,389 )    $ 8,814   
           

 

 

    

 

 

    

 

 

  

 

The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at August 2, 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
August 2,
2014		  

Fair value hedges:

                 

Intercompany balances, primarily debt and related interest

  

          
  zł      87,073      C$ 30,585        0.3513      Prepaid Exp /
(Accrued Exp)		   $ 375      $ (192 )    $ 183   
  €      39,000      £ 31,968        0.8197      Prepaid Exp     1,191        —          1,191   
  €      44,850      U.S.$ 61,842        1.3789      Prepaid Exp     1,576        —          1,576   
  U.S.$      90,309      £ 55,000        0.6090      Prepaid Exp     2,041        —          2,041   

Economic hedges for which hedge accounting was not elected:

  

          

Diesel contracts

       

 
 

 Fixed on 525K

-1.8M gal per
month

   

  
  

    

 
 

 Float on 525K

-1.8M gal per
month

   

  
  

     N/A      Prepaid Exp     273        —          273   

Merchandise purchase commitments

  

          
  C$      360,131      U.S.$ 327,800        0.9102      Prepaid Exp /
(Accrued Exp)		     1,171        (2,870 )      (1,699 ) 
  C$      16,255      € 10,800        0.6644      Prepaid Exp /
(Accrued Exp)		     18        (398 )      (380 ) 
  £      105,657      U.S.$ 174,000        1.6468      Prepaid Exp /
(Accrued Exp)		     554        (4,207 )      (3,653 ) 
  zł      168,860      £ 32,535        0.1927      Prepaid Exp /
(Accrued Exp)		     724        (20 )      704   
  U.S.$      28,980      € 21,243        0.7330      (Accrued Exp)     —          (453 )      (453 ) 
  U.S.$      113      ¥ 691        6.1216      (Accrued Exp)     —          (1 )      (1 ) 
            

 

 

    

 

 

    

 

 

  

Total fair value of financial instruments

  

       $ 7,923      $ (8,141 )    $ (218 ) 
            

 

 

    

 

 

    

 

 

  

 

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		    August 1, 2015     August 2, 2014  

Fair value hedges:

        

Intercompany balances, primarily debt and related interest

    Selling, general and
administrative expenses		    $ 5,664      $ 3,936   

Economic hedges for which hedge accounting was not elected:

        

Diesel fuel contracts

    Cost of sales, including buying
and occupancy costs		      (11,491 )      (321 ) 

Merchandise purchase commitments

    Cost of sales, including buying
and occupancy costs		      21,195        (3,378 ) 
     

 

 

    

 

 

  

Gain / (loss) recognized in income

       $ 15,368      $ 237   
     

 

 

    

 

 

  

 

          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 1, 2015     August 2, 2014  

Fair value hedges:

        

Intercompany balances, primarily debt and related interest

    Selling, general and
administrative expenses		    $ 7,708      $ 3,878   

Economic hedges for which hedge accounting was not elected:

        

Diesel fuel contracts

    Cost of sales, including buying
and occupancy costs		      (9,291 )      905   

Merchandise purchase commitments

    Cost of sales, including buying
and occupancy costs		      7,543        (15,696 ) 
     

 

 

    

 

 

  

Gain / (loss) recognized in income

       $ 5,960      $ (10,913 )