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Financial Instruments
 9 Months Ended
Oct. 31, 2015
Financial Instruments

Note F. 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: 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 2015 and the first nine 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 nine months of the fiscal year ending January 28, 2017 (fiscal 2017). The hedge agreements outstanding at October 31, 2015 relate to approximately 58% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2016 and approximately 39% of TJX’s estimated notional diesel requirements for the first nine months of the fiscal 2017. These diesel fuel hedge agreements will settle throughout the remainder of fiscal 2016 and the first ten 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, Austria and the Netherlands), 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 October 31, 2015 cover a portion of such actual and anticipated merchandise purchases throughout the remainder of fiscal 2016 and the first two quarters 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 October 31, 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
October 31,
2015		  

Fair value hedges:

               

Intercompany balances, primarily debt and related interest

  

           
  zł     87,073      C$ 29,560        0.3395       Prepaid Exp / (Accrued Exp)   $ 270      $ (198 )    $ 72   
  zł     35,000      £ 6,279        0.1794       Prepaid Exp     635        —          635   
  €     45,000      £ 33,294        0.7399       Prepaid Exp     1,726        —          1,726   
  €     19,850      U.S.$ 22,647        1.1409       Prepaid Exp     762        —          762   
  U.S.$     83,400      £ 55,000        0.6595       Prepaid Exp     1,424        —          1,424   

Economic hedges for which hedge accounting was not elected:

  

           

Diesel contracts

      
 
 		 Fixed on 975K
– 3.0M gal per
month		   
  
  		    
 
 		 Float on 975K
– 3.0M gal
per month		   
  
  		     N/A       (Accrued Exp)     —          (10,437 )      (10,437 ) 

Merchandise purchase commitments

  

           
  C$     530,307      U.S.$ 410,904        0.7748       Prepaid Exp / (Accrued Exp)     6,470        (906 )      5,564   
  C$     18,574      € 12,700        0.6838       Prepaid Exp / (Accrued Exp)     2        (224 )      (222 ) 
  £     160,365      U.S.$ 247,900        1.5458       Prepaid Exp / (Accrued Exp)     1,218        (689 )      529   
  zł     213,967      £ 36,670        0.1714       Prepaid Exp     1,275        —          1,275   
  U.S.$     29,338      € 26,318        0.8971       Prepaid Exp / (Accrued Exp)     19        (379 )      (360 ) 
            

 

 

    

 

 

    

 

 

  

Total fair value of financial instruments

  

        $ 13,801      $ (12,833 )    $ 968   
            

 

 

    

 

 

    

 

 

  

 

The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at November 1, 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
November 1,
2014		  

Fair value hedges:

               

Intercompany balances, primarily debt and related interest

  

           
  zł     87,073      C$ 30,519        0.3505       Prepaid Exp   $ 1,313      $ —        $ 1,313   
  €     39,000      £ 31,968        0.8197       Prepaid Exp     2,151        —          2,151   
  €     44,850      U.S.$ 61,842        1.3789       Prepaid Exp     5,635        —          5,635   
  U.S.$     90,309      £ 55,000        0.6090       (Accrued Exp)     —          (2,393 )      (2,393 ) 

Economic hedges for which hedge accounting was not elected:

  

           

Diesel contracts

      

 
 

 Fixed on 390K

- 1.8M gal per
month

   

  
  

    

 
 

 Float on 390K

- 1.8M gal per
month

   

  
  

     N/A       (Accrued Exp)     —          (5,360 )      (5,360 ) 

Merchandise purchase commitments

  

           
  C$     293,187      U.S.$ 267,020        0.9107       Prepaid Exp     7,060        —          7,060   
  C$     7,206      € 5,000        0.6939       Prepaid Exp /
(Accrued Exp)		     4        (135 )      (131 ) 
  £     103,088      U.S.$ 168,500        1.6345       Prepaid Exp /
(Accrued Exp)		     3,690        (5 )      3,685   
  zł     151,572      £ 28,638        0.1889       Prepaid Exp     992        —          992   
  U.S.$     21,525      € 16,401        0.7620       (Accrued Exp)     —          (981 )      (981 ) 
            

 

 

    

 

 

    

 

 

  

Total fair value of financial instruments

  

        $ 20,845      $ (8,874 )    $ 11,971   
            

 

 

    

 

 

    

 

 

  

 

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		  
    

Location of Gain (Loss)

Recognized in Income by

Derivative

    Thirteen Weeks Ended  

In thousands

       October 31, 2015      November 1, 2014  

Fair value hedges:

         

Intercompany balances, primarily debt and related interest

    Selling, general and administrative expenses    $ (730 )     $ 1,842   

Economic hedges for which hedge accounting was not elected:

  

   

Diesel fuel contracts

    Cost of sales, including buying and occupancy costs      (2,405 )       (5,614 ) 

Merchandise purchase commitments

    Cost of sales, including buying and occupancy costs      5,311         16,476   
     

 

 

     

 

 

  

Gain / (loss) recognized in income

       $ 2,176       $ 12,704   
     

 

 

     

 

 

  
          Amount of Gain (Loss) Recognized
in Income by Derivative		  
    

Location of Gain (Loss)

Recognized in Income by

Derivative

    Thirty-Nine Weeks Ended  

In thousands

       October 31, 2015      November 1, 2014  

Fair value hedges:

         

Intercompany balances, primarily debt and related interest

    Selling, general and administrative expenses    $ 6,978       $ 5,720   

Economic hedges for which hedge accounting was not elected:

  

   

Diesel fuel contracts

    Cost of sales, including buying and occupancy costs      (11,696 )       (4,709 ) 

Merchandise purchase commitments

    Cost of sales, including buying and occupancy costs      12,854         780   
     

 

 

     

 

 

  

Gain / (loss) recognized in income

       $ 8,136       $ 1,791