XML 25 R13.htm IDEA: XBRL DOCUMENT v3.7.0.1
Financial Instruments
 3 Months Ended
Apr. 29, 2017
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 2017 and the first three months of fiscal 2018, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2018. In addition, during fiscal 2018, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the first three months of fiscal 2019. The hedge agreements outstanding at April 29, 2017 relate to approximately 53% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2018 and approximately 50% of TJX’s estimated notional diesel requirements for the first three months of fiscal 2019. These diesel fuel hedge agreements will settle throughout the remainder of fiscal 2018 and the first three months of fiscal 2019. 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 at TJX International (United Kingdom, Ireland, Germany, Poland, Austria, The Netherlands and Australia), 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 29, 2017 cover a portion of such actual and anticipated merchandise purchases throughout the remainder of 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 into forward contracts of approximately 30 days duration 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 29, 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
April 29,
2017		  

Fair value hedges:

                 

Intercompany balances, primarily debt and related interest

 

          
  zł            67,000      £ 13,000       0.1940       (Accrued Exp)       —         (292 )      (292 ) 
  €             66,000      £ 57,048       0.8644       Prepaid Exp       1,565       —         1,565  
  U.S.$      68,445      £ 55,000       0.8036       Prepaid Exp       3,319       —         3,319  
  A$          10,000      $ 5,799       0.5799       Prepaid Exp       60       —         60  

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       (Accrued Exp)       —         (1,585 )      (1,585 ) 

Intercompany billings in Europe, primarily merchandise related

   €             85,000      £ 72,765       0.8561       Prepaid Exp       1,546       —         1,546  

Merchandise purchase commitments

               
  C$        521,997      U.S.$ 394,800       0.7563       Prepaid Exp       11,755       —         11,755  
  C$          24,743      € 17,500       0.7073       Prepaid Exp       953       —         953  
  £           209,383      U.S.$ 263,000       1.2561       (Accrued Exp)       —         (8,919 )      (8,919 ) 
  A$          17,940      U.S.$ 13,573       0.7566      
 Prepaid Exp /
(Accrued Exp)		  
 		     162       (19 )      143  
  zł          269,048      £ 52,774       0.1962      
 Prepaid Exp /
(Accrued Exp)		  
 		     411       (1,243 )      (832 ) 
  U.S.$      36,314      € 33,862       0.9325       Prepaid Exp       683       —         683  
            

 

 

    

 

 

    

 

 

  

Total fair value of financial instruments

            $ 20,454     $ (12,058 )    $ 8,396  
          

 

 

    

 

 

    

 

 

  

 

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 ) 
          

 

 

    

 

 

    

 

 

  

 

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

     April 29, 2017     April 30, 2016  

Fair value hedges:

      

Intercompany balances, primarily debt and related interest

   Selling, general and administrative expenses   $ 3,225     $ 877  

Economic hedges for which hedge accounting was not elected:

    

Diesel fuel contracts

   Cost of sales, including buying and occupancy costs     (3,323 )      2,287  

Intercompany billings in Europe, primarily merchandise related

   Cost of sales, including buying and occupancy costs     1,601       (2,108 ) 

Merchandise purchase commitments

   Cost of sales, including buying and occupancy costs     9,933       (44,988 ) 
   

 

 

    

 

 

  

Gain / (loss) recognized in income

     $ 11,436     $ (43,932 )