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Financial Instruments
 12 Months Ended
Jan. 30, 2016
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 as well as fuel costs. These market risks may adversely affect TJX’s operating results and financial position. TJX seeks to minimize risk from changes in interest rates and foreign currency exchange rates and fuel costs, to the extent we deem appropriate, 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 fiscal 2016, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2016. Similarly, during fiscal 2016, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the fiscal year ending January 28, 2017 (fiscal 2017). The hedge agreements outstanding at January 30, 2016 relate to approximately 40% of TJX’s estimated notional diesel requirements for fiscal 2017. These diesel fuel hedge agreements will settle throughout 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 the Company’s operations in 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 January 30, 2016 cover a portion of such actual and anticipated merchandise purchases throughout fiscal 2017. Additionally, TJX’s operations in Europe are subject to foreign currency exposure as a result of their buying function being centralized in the United Kingdom. All merchandise is purchased centrally in the U.K. and then shipped and billed to the retail entities in other countries. This intercompany billing to TJX’s European businesses’ Euro denominated operations creates exposure to the buying entity for changes in the exchange rate between the Euro and British Pound. The inflow of Euros to the central buying entity provides a natural hedge for merchandise purchased from third-party vendors that is denominated in Euros. However, with the growth of TJX’s Euro denominated retail operations, the intercompany billings committed to the Euro denominated operations is generating Euros in excess of those needed to meet merchandise commitments to outside vendors. TJX calculates this excess Euro exposure each month and enters a 30 day hedge to mitigate the exposure. 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 January 30, 2016:

 

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
January 30,
2016		  

Fair value hedges:

                   

Intercompany balances, primarily debt and related interest

   

                
         zł     87,073         C$   29,950         0.3440         Prepaid Exp      $ 144       $ —      $ 144   
         zł     45,000         £     7,403         0.1645         (Accrued Exp)        —         (448 )      (448 ) 
          €      45,000         £   34,496         0.7666         (Accrued Exp)        —         (200 )      (200 ) 
     U.S.$     77,957         £   55,000         0.7055         Prepaid Exp        535         —        535   

Economic hedges for which hedge accounting was not elected:

   

                

Diesel contracts

     
 
 		 Fixed on 900K
—3.0M gal per
month		   
  
  		     
 
 		 Float on 900K
—3.0M gal
per month		   
  
  		      N/A         (Accrued Exp )      —         (13,952 )      (13,952 ) 

Intercompany billings in Europe, primarily merchandise related

      €     60,000         £   46,113         0.7686         Prepaid Exp        566         —        566   

Merchandise purchase commitments

  

                
     C$   434,271         U.S.$ 322,050         0.7416        
 		 Prepaid Exp /
(Accrued Exp)		   
  		     12,891         (1,601 )      11,290   
     C$     16,719         €   11,250         0.6729        
 		 Prepaid Exp /
(Accrued Exp)		   
  		     316         (90 )      226   
     £   174,235         U.S.$ 262,250         1.5052         Prepaid Exp        13,996         —        13,996   
     zł   195,892         £   33,088         0.1689        
 		 Prepaid Exp /
(Accrued Exp)		   
  		     123         (926 )      (803 ) 
       U.S.$     18,243         €    16,724         0.9167        
 		 Prepaid Exp /
(Accrued Exp)		   
  		     72         (190 )      (118 ) 

Total fair value of financial instruments

  

                     $ 28,643       $ (17,407 )    $ 11,236   

 

The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at January 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
January 31,
2015		  

Fair value hedges:

                    

Intercompany balances, primarily debt and related interest

   

                 
     zł     94,073         C$     32,318         0.3435        
 		 Prepaid Exp /
(Accrued Exp)		   
  		    $ 153       $ (81 )    $ 72   
     €     39,000         £     30,988         0.7946        
 		 Prepaid Exp /
(Accrued Exp)		  
  		      2,536         (72 )      2,464   
     €     19,850         U.S.$     22,647         1.1409         Prepaid Exp         108         —        108   
     U.S.$     83,401         £     55,000         0.6595         (Accrued Exp)         —         (725 )      (725 ) 

Economic hedges for which hedge accounting was not elected:

   

                 

Diesel contracts

     
 
 		 Fixed on 1.2M
—1.9M gal per
month		   
  
  		     
 
 		 Float on 1.2M
—1.9M gal per
month		   
  
  		      N/A         (Accrued Exp)         —         (15,324 )      (15,324 ) 

Merchandise purchase commitments

  

                 
     C$    322,492         U.S.$   281,890         0.8741         Prepaid Exp         28,789         —        28,789   
     C$      13,426         €       9,500         0.7076         Prepaid Exp         183         —        183   
     £      77,722         U.S.$   123,500         1.5890         Prepaid Exp         6,477         —        6,477   
     zł     139,215         £     25,547         0.1835        
 		 Prepaid Exp /
(Accrued Exp)		   
  		      1,172         (166 )      1,006   
       U.S.$       12,590         €      10,353         0.8223        
 		 Prepaid Exp /
(Accrued Exp)		   
  		      1         (898 )      (897 ) 

Total fair value of financial instruments

  

                      $ 39,419       $ (17,266 )    $ 22,153   

The impact of derivative financial instruments on the statements of income during fiscal 2016, fiscal 2015 and fiscal 2014 are as follows:

 

            Amount of Gain (Loss) Recognized in
Income by Derivative		  
In thousands    Location of Gain (Loss) Recognized in
Income by Derivative		    January 30,
2016		     January 31,
2015		     February 1,
2014		  

Fair value hedges:

          

Intercompany balances, primarily debt and related interest

    Selling, general
and administrative
expenses		    $ (3,927 )    $ 7,413      $ 6,099   

Economic hedges for which hedge accounting was not elected:

          

Diesel contracts

    Cost of sales, including buying and occupancy costs      (21,797 )      (16,050 )      (1,831 ) 

Intercompany billings in Europe, primarily merchandise related

    Cost of sales, including buying and occupancy costs      (5,768 )      —        —   

Merchandise purchase commitments

    Cost of sales, including buying and occupancy costs      49,107        41,554        22,338   

Gain recognized in income

    $ 17,615      $ 32,917      $ 26,606   

Included in the table above are realized gains of $28.5 million in fiscal 2016, $24.3 million in fiscal 2015 and $10.7 million in fiscal 2014, all of which were largely offset by gains and losses on the underlying hedged item.