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Financial Instruments
 12 Months Ended
Jan. 28, 2017
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 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 2016 and fiscal 2017, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2017. Similarly, during fiscal 2017, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the fiscal year ending February 3, 2018 (fiscal 2018). The hedge agreements outstanding at January 28, 2017 relate to approximately 50% of TJX’s estimated notional diesel requirements for fiscal 2018. These diesel fuel hedge agreements will settle throughout fiscal 2018. 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 28, 2017 cover a portion of such actual and anticipated merchandise purchases throughout fiscal 2018. 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 28, 2017:

 

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 28,
2017		  

Fair value hedges:

               

Intercompany balances, primarily debt and related interest

 

             
        zł     67,000       £   13,000       0.1940       (Accrued Exp)      $ —     $ (6 )    $ (6 ) 
         €      63,000       £   54,452       0.8643       Prepaid Exp        263       —       263  
    U.S.$     68,445       £   55,000       0.8036       Prepaid Exp        1,196       —       1,196  

Economic hedges for which hedge accounting was not elected:

 

             

Diesel contracts

    

 Fixed on 2.1M
— 2.5M gal
per month		  
 
 		    


 Float on 2.1M

— 2.5M gal
per month

  

 
 

     N/A       Prepaid Exp        2,183       —       2,183  

Intercompany billings in Europe, primarily merchandise related

     €     68,000       £   58,306       0.8574       Prepaid Exp        262       —       262  

Merchandise purchase commitments

 

             
    C$   462,025       U.S.$ 349,750       0.7570      
 Prepaid Exp /
(Accrued Exp)		  
 		      1,089       (3,081 )      (1,992 ) 
    C$     19,571       €   13,650       0.6975      
 Prepaid Exp /
(Accrued Exp)		  
 		      22       (290 )      (268 ) 
    £   180,963       U.S.$ 227,500       1.2572      
 Prepaid Exp /
(Accrued Exp)		  
 		      2,327       (2,695)       (368 ) 
    zł   249,079       £   48,593       0.1951      
 Prepaid Exp /
(Accrued Exp)		  
 		      681       (927 )      (246 ) 
      U.S.$     22,226       €    20,686       0.9307      
 Prepaid Exp /
(Accrued Exp)		  
 		      178       (257 )      (79 ) 

Total fair value of financial instruments

 

                    $ 8,201     $ (7,256 )    $ 945  

 

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 impact of derivative financial instruments on the statements of income during fiscal 2017, fiscal 2016 and fiscal 2015 are as follows:

 

            Amount of Gain (Loss) Recognized in
Income by Derivative		  
In thousands    Location of Gain (Loss) Recognized in
Income by Derivative		    January 28,
2017		     January 30,
2016		     January 31,
2015		  

Fair value hedges:

          

Intercompany balances, primarily debt and related interest

    Selling, general
and administrative
expenses		    $ (17,250 )    $ (3,927 )    $ 7,413  

Economic hedges for which hedge accounting was not elected:

          

Diesel contracts

    Cost of sales, including buying and occupancy costs      3,906       (21,797 )      (16,050 ) 

Intercompany billings in Europe, primarily merchandise related

    Cost of sales, including buying and occupancy costs      (8,684 )      (5,768 )      —  

Merchandise purchase commitments

    Cost of sales, including buying and occupancy costs      5,626       49,107       41,554  

(Loss) Gain recognized in income

    $ (16,402 )    $ 17,615     $ 32,917  

Included in the table above are realized losses of $6.1 million in fiscal 2017, and gains of $28.5 million in fiscal 2016 and $24.3 million in fiscal 2015, all of which were largely offset by gains and losses on the underlying hedged item.