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Financial Instruments
 3 Months Ended
Apr. 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 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: When and to the extent deemed appropriate, 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 2016 and the first three months of fiscal 2017, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2017. The hedge agreements outstanding at April 30, 2016 relate to approximately 53% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2017. These diesel fuel hedge agreements will settle throughout the remainder of fiscal 2017. TJX elected not to apply hedge accounting rules to these contracts.

Foreign Currency Contracts: When and to the extent deemed appropriate, 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 April 30, 2016 cover a portion of such actual and anticipated merchandise purchases throughout the remainder of 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.

When and to the extent deemed appropriate, 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 April 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
April 30,
2016		  

Fair value hedges:

              

Intercompany balances, primarily debt and related interest

              
  zł 87,073      C$ 29,950        0.3440      Prepaid Exp   $ 1,085      $ —        $ 1,085   
  zł 45,000      £ 7,403        0.1645      (Accrued Exp)     —          (933 )      (933 ) 
  € 53,000      £ 40,820        0.7702      (Accrued Exp)     —          (1,637 )      (1,637 ) 
  U.S.$ 77,957      £ 55,000        0.7055      Prepaid Exp     2,523        —          2,523   

Economic hedges for which hedge accounting was not elected:

              

Diesel contracts

    
 
 		 Fixed on 1.9M –
2.2M gal per
month		   
  
  		    
 
 		 Float on 1.9M –
2.2M gal per
month		   
  
  		     N/A      (Accrued Exp)     —          (4,875 )      (4,875 ) 

Intercompany billings in Europe, primarily merchandise related

   € 85,000      £ 67,798        0.7976      Prepaid Exp     1,538        —          1,538   

Merchandise purchase commitments

              
  C$ 492,465      U.S.$ 362,900        0.7369      (Accrued Exp)     —          (29,356 )      (29,356 ) 
  C$ 20,941      € 14,000        0.6685      (Accrued Exp)     —          (639 )      (639 ) 
  £ 146,518      U.S.$ 212,550        1.4507      Prepaid Exp /
(Accrued Exp)		     2,027        (3,635 )      (1,608 ) 
  zł 216,245      £ 38,136        0.1764      Prepaid Exp /
(Accrued Exp)		     293        (1,133 )      (840 ) 
  U.S.$ 38,434      € 34,051        0.8860      Prepaid Exp     634        —          634   
         

 

 

    

 

 

    

 

 

  

Total fair value of financial instruments

           $ 8,100      $ (42,208 )    $ (34,108 ) 
         

 

 

    

 

 

    

 

 

  

 

The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at May 2, 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
May 2, 2015		  

Fair value hedges:

              

Intercompany balances, primarily debt and related interest

              
  zł 94,073      C$ 32,344        0.3438      Prepaid Exp /
(Accrued Exp)		   $ 801      $ (13 )    $ 788   
  € 39,000      £ 30,988        0.7946      Prepaid Exp     3,165        —          3,165   
  € 19,850      U.S.$ 22,647        1.1409      Prepaid Exp     314        —          314   
  U.S.$ 83,400      £ 55,000        0.6595      (Accrued Exp)     —          (223 )      (223 ) 

Economic hedges for which hedge accounting was not elected:

              

Diesel contracts

    
 
 		 Fixed on 2.6M –
3.0M gal per
month		   
  
  		    
 
 		 Float on 2.6M –
3.0M gal per
month		   
  
  		     N/A      (Accrued Exp)     —          (7,311 )      (7,311 ) 

Merchandise purchase commitments

              
  C$ 461,464      U.S.$ 375,455        0.8136      Prepaid Exp /
(Accrued Exp)		     3,200        (6,926 )      (3,726 ) 
  C$ 14,596      € 10,500        0.7194      Prepaid Exp /
(Accrued Exp)		     54        (297 )      (243 ) 
  £ 167,715      U.S.$ 256,000        1.5264      Prepaid Exp /
(Accrued Exp)		     3,637        (1,603 )      2,034   
  zł 169,058      £ 30,156        0.1784      Prepaid Exp /
(Accrued Exp)		     57        (773 )      (716 ) 
  U.S.$ 22,198      € 20,228        0.9113      Prepaid Exp /
(Accrued Exp)		     637        (163 )      474   
         

 

 

    

 

 

    

 

 

  

Total fair value of financial instruments

           $ 11,865      $ (17,309 )    $ (5,444 ) 
         

 

 

    

 

 

    

 

 

  

 

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		    April 30, 2016      May 2, 2015  

Fair value hedges:

         

Intercompany balances, primarily debt and related interest

    Selling, general and
administrative expenses		    $ 877       $ 2,044   

Economic hedges for which hedge accounting was not elected:

         

Diesel fuel contracts

    Cost of sales, including buying
and occupancy costs		      2,287         2,200   

Intercompany billings in Europe, primarily merchandise related

    Cost of sales, including buying
and occupancy costs		      (2,108 )       —     

Merchandise purchase commitments

    Cost of sales, including buying
and occupancy costs		      (44,988 )       (13,652 ) 
     

 

 

     

 

 

  

Gain / (loss) recognized in income

       $ (43,932 )     $ (9,408 )