Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(mark one)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended August 3, 2019
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number 1-4908 
The TJX Companies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
04-2207613
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
770 Cochituate Road
Framingham,
Massachusetts
 
01701
(Address of principal executive offices)
 
(Zip Code)
(508) 390-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.00 per share
TJX
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
 
 
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company
 
  
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES      NO  
The number of shares of registrant’s common stock outstanding as of August 3, 2019: 1,208,932,667




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE TJX COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
 
 
 
Thirteen Weeks Ended
Twenty-Six Weeks Ended
 
 
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
Net sales
 
$
9,781,596

 
$
9,331,115

 
$
19,059,181

 
$
18,019,835

Cost of sales, including buying and occupancy costs
 
7,026,057

 
6,635,815

 
13,663,942

 
12,814,054

Selling, general and administrative expenses
 
1,731,335

 
1,699,714

 
3,433,736

 
3,250,489

Interest expense, net
 
2,897

 
3,029

 
3,714

 
7,177

Income before provision for income taxes
 
1,021,307

 
992,557

 
1,957,789

 
1,948,115

Provision for income taxes
 
262,345

 
252,931

 
498,649

 
492,108

Net income
 
$
758,962

 
$
739,626

 
$
1,459,140

 
$
1,456,007

Basic earnings per share:
 
 
 
 
 
 
 
 
Net income
 
$
0.63

 
$
0.59

 
$
1.20

 
$
1.16

Weighted average common shares – basic
 
1,210,525

 
1,246,851

 
1,212,528

 
1,250,037

Diluted earnings per share:
 
 
 
 
 
 
 
 
Net income
 
$
0.62

 
$
0.58

 
$
1.19

 
$
1.15

Weighted average common shares – diluted
 
1,228,986

 
1,265,920

 
1,231,211

 
1,267,367

The accompanying notes are an integral part of the unaudited consolidated financial statements.

2



THE TJX COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
IN THOUSANDS
 
 
 
Thirteen Weeks Ended
 
 
August 3,
2019
 
August 4,
2018
Net income
 
$
758,962

 
$
739,626

Additions to other comprehensive loss:
 
 
 
 
Foreign currency translation adjustments, net of related tax provision of $1,681 in fiscal 2020 and benefit of $12,519 in fiscal 2019
 
(83,743
)
 
(59,733
)
Gain on net investment hedges, net of related tax provision of $4,912 in fiscal 2019
 

 
13,495

Reclassifications from other comprehensive loss to net income:
 
 
 
 
Amortization of prior service cost and deferred gains/losses, net of related tax provisions of $1,453 in fiscal 2020 and $773 in fiscal 2019
 
3,992

 
3,162

Amortization of loss on cash flow hedge, net of related tax provisions of $76 in fiscal 2020 and $76 in fiscal 2019
 
208

 
208

Other comprehensive loss, net of tax
 
(79,543
)
 
(42,868
)
Total comprehensive income
 
$
679,419

 
$
696,758

 
 
Twenty-Six Weeks Ended
 
 
August 3,
2019
 
August 4,
2018
Net income
 
$
1,459,140

 
$
1,456,007

Additions to other comprehensive income:
 
 
 
 
Foreign currency translation adjustments, net of related tax benefit of $952 in fiscal 2020 and $13,725 in fiscal 2019
 
(90,904
)
 
(182,264
)
Gain on net investment hedges, net of related tax provision of $7,113 in fiscal 2019
 

 
19,539

Reclassifications from other comprehensive income to net income:
 
 
 
 
Amortization of prior service cost and deferred gains, net of related tax provisions of $2,906 in fiscal 2020 and $2,101 in fiscal 2019
 
7,984

 
5,770

Amortization of loss on cash flow hedge, net of related tax provisions of $152 in fiscal 2020 and $153 in fiscal 2019
 
416

 
416

Other comprehensive loss, net of tax
 
(82,504
)
 
(156,539
)
Total comprehensive income
 
$
1,376,636

 
$
1,299,468

The accompanying notes are an integral part of the unaudited consolidated financial statements.

3



THE TJX COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
IN THOUSANDS, EXCEPT SHARE DATA
 
 
 
August 3,
2019
 
February 2,
2019
 
August 4,
2018
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
2,186,382

 
$
3,030,229

 
$
2,872,717

Accounts receivable, net
 
377,057

 
346,298

 
356,180

Merchandise inventories
 
5,087,046

 
4,579,033

 
4,498,523

Prepaid expenses and other current assets
 
618,119

 
513,662

 
712,552

Total current assets
 
8,268,604

 
8,469,222

 
8,439,972

Net property at cost
 
5,041,878

 
5,255,208

 
5,100,454

Non-current deferred income taxes, net
 
5,642

 
6,467

 
9

Operating lease right of use assets
 
8,944,302

 

 

Goodwill
 
95,938

 
97,552

 
98,114

Other assets
 
498,615

 
497,580

 
472,879

TOTAL ASSETS
 
$
22,854,979

 
$
14,326,029

 
$
14,111,428

LIABILITIES
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable
 
$
2,607,651

 
$
2,644,143

 
$
2,683,285

Accrued expenses and other current liabilities
 
2,601,851

 
2,733,076

 
2,414,186

Current portion of operating lease liabilities
 
1,353,721

 

 

Federal, state and foreign income taxes payable
 
37,518

 
154,155

 
40,346

Total current liabilities
 
6,600,741

 
5,531,374

 
5,137,817

Other long-term liabilities
 
776,654

 
1,354,242

 
1,289,353

Non-current deferred income taxes, net
 
196,985

 
158,191

 
225,073

Long-term operating lease liabilities
 
7,742,866

 

 

Long-term debt
 
2,235,121

 
2,233,616

 
2,232,112

Commitments and contingencies (See Note K)
 

 

 

SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
Preferred stock, authorized 5,000,000 shares, par value $1, no shares issued
 

 

 

Common stock, authorized 1,800,000,000 shares, par value $1, issued and outstanding 1,208,932,667; 1,217,182,508 and 1,241,533,412 respectively
 
1,208,933

 
1,217,183

 
1,241,533

Additional paid-in capital
 

 

 

Accumulated other comprehensive loss
 
(712,825
)
 
(630,321
)
 
(598,398
)
Retained earnings
 
4,806,504

 
4,461,744

 
4,583,938

Total shareholders’ equity
 
5,302,612

 
5,048,606

 
5,227,073

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
22,854,979

 
$
14,326,029

 
$
14,111,428

The accompanying notes are an integral part of the unaudited consolidated financial statements.

4



THE TJX COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
IN THOUSANDS
 
 
 
Twenty-Six Weeks Ended
 
 
August 3,
2019
 
August 4,
2018
Cash flows from operating activities:
 
 
 
 
Net income
 
$
1,459,140

 
$
1,456,007

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
427,834

 
396,315

Loss on property disposals and impairment charges
 
3,215

 
8,605

Deferred income tax provision (benefit)
 
37,855

 
(18,227
)
Share-based compensation
 
55,400

 
49,941

Changes in assets and liabilities:
 
 
 
 
(Increase) in accounts receivable
 
(35,848
)
 
(33,180
)
(Increase) in merchandise inventories
 
(560,386
)
 
(385,593
)
(Increase) decrease in prepaid expenses and other current assets
 
(240,103
)
 
73,769

(Decrease) increase in accounts payable
 
(6,823
)
 
237,690

(Decrease) in accrued expenses and other liabilities
 
(113,799
)
 
(107,970
)
(Decrease) in income taxes payable
 
(116,460
)
 
(72,534
)
Other
 
(10,781
)
 
(44,158
)
Net cash provided by operating activities
 
899,244

 
1,560,665

Cash flows from investing activities:
 
 
 
 
Property additions
 
(578,018
)
 
(573,900
)
Purchase of investments
 
(18,994
)
 
(152,869
)
Sales and maturities of investments
 
9,374

 
629,056

       Other
 
7,419

 
26,652

Net cash (used in) investing activities
 
(580,219
)
 
(71,061
)
Cash flows from financing activities:
 
 
 
 
Cash payments for repurchase of common stock
 
(699,751
)
 
(989,999
)
Cash dividends paid
 
(517,448
)
 
(440,874
)
Proceeds from issuance of common stock
 
102,475

 
163,485

Cash payments of employee tax withholdings for performance based stock awards
 
(23,297
)
 
(16,015
)
Other
 

 
(2,226
)
Net cash (used in) financing activities
 
(1,138,021
)
 
(1,285,629
)
Effect of exchange rate changes on cash
 
(24,851
)
 
(89,735
)
Net (decrease) increase in cash and cash equivalents
 
(843,847
)
 
114,240

Cash and cash equivalents at beginning of year
 
3,030,229

 
2,758,477

Cash and cash equivalents at end of period
 
$
2,186,382

 
$
2,872,717

The accompanying notes are an integral part of the unaudited consolidated financial statements.

5



THE TJX COMPANIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
IN THOUSANDS
 
 
Thirteen Weeks Ended
 
 
Common Stock
 
 
 
 
 
 
 
 
  
 
Shares
 
Par Value
$1
 
Additional Paid-In
Capital
 
Accumulated Other Comprehensive
Loss
 
Retained
Earnings
 
Total
Balance, May 4, 2019
 
1,212,668

 
$
1,212,668

 
$

 
$
(633,282
)
 
$
4,552,509

 
$
5,131,895

Net income
 

 

 

 

 
758,962

 
758,962

Other comprehensive loss, net of tax
 

 

 

 
(79,543
)
 

 
(79,543
)
Cash dividends declared on common stock
 

 

 

 

 
(278,624
)
 
(278,624
)
Recognition of share-based compensation
 

 

 
29,668

 

 

 
29,668

Issuance of common stock under Stock Incentive Plan, net of shares used to pay tax withholdings
 
1,952

 
1,952

 
40,759

 

 

 
42,711

Common stock repurchased and retired
 
(5,687
)
 
(5,687
)
 
(70,427
)
 

 
(226,343
)
 
(302,457
)
Balance, August 3, 2019
 
1,208,933

 
$
1,208,933

 
$

 
$
(712,825
)
 
$
4,806,504

 
$
5,302,612


 
 
Thirteen Weeks Ended
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Shares
 
Par Value
$1
 
Additional Paid-In
Capital
 
Accumulated Other Comprehensive
Loss
 
Retained
Earnings
 
Total
Balance, May 5, 2018
 
1,250,405

 
$
1,250,405

 
$

 
$
(555,530
)
 
$
4,567,533

 
$
5,262,408

Net income
 

 

 

 

 
739,626

 
739,626

Other comprehensive loss, net of tax
 

 

 

 
(42,868
)
 

 
(42,868
)
Cash dividends declared on common stock
 

 

 

 

 
(242,328
)
 
(242,328
)
Recognition of share-based compensation
 

 

 
25,912

 

 

 
25,912

Issuance of common stock under Stock Incentive Plan, net of shares used to pay tax withholdings
 
3,882

 
3,882

 
76,982

 

 
(1,941
)
 
78,923

Common stock repurchased and retired
 
(12,754
)
 
(12,754
)
 
(102,894
)
 

 
(478,952
)
 
(594,600
)
Balance, August 4, 2018
 
1,241,533

 
$
1,241,533

 
$

 
$
(598,398
)
 
$
4,583,938

 
$
5,227,073

The accompanying notes are an integral part of the unaudited consolidated financial statements.




6




 THE TJX COMPANIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
IN THOUSANDS
 
 
Twenty-Six Weeks Ended
 
 
Common Stock
 
 
 
 
 
 
 
 
  
 
Shares
 
Par Value
$1
 
Additional Paid-In
Capital
 
Accumulated Other Comprehensive
Loss
 
Retained
Earnings
 
Total
Balance, February 2, 2019
 
1,217,183

 
$
1,217,183

 
$

 
$
(630,321
)
 
$
4,461,744

 
$
5,048,606

Net income
 

 

 

 

 
1,459,140

 
1,459,140

Cumulative effect of accounting change (See Note A)
 

 

 

 

 
403

 
403

Other comprehensive loss, net of tax
 

 

 

 
(82,504
)
 

 
(82,504
)
Cash dividends declared on common stock
 

 

 

 

 
(557,860
)
 
(557,860
)
Recognition of share-based compensation
 

 

 
55,400

 

 

 
55,400

Issuance of common stock under Stock Incentive Plan, net of shares used to pay tax withholdings
 
5,094

 
5,094

 
74,084

 

 

 
79,178

Common stock repurchased and retired
 
(13,344
)
 
(13,344
)
 
(129,484
)
 

 
(556,923
)
 
(699,751
)
Balance, August 3, 2019
 
1,208,933

 
$
1,208,933

 
$

 
$
(712,825
)
 
$
4,806,504

 
$
5,302,612

 
 
Twenty-Six Weeks Ended
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Shares
 
Par Value
$1
 
Additional Paid-In
Capital
 
Accumulated Other Comprehensive
Loss
 
Retained
Earnings
 
Total
Balance, February 3, 2018
 
1,256,018

 
$
1,256,018

 
$

 
$
(441,859
)
 
$
4,334,150

 
$
5,148,309

Net income
 

 

 

 

 
1,456,007

 
1,456,007

Cumulative effect of accounting change
 

 

 

 

 
58,712

 
58,712

Other comprehensive loss, net of tax
 

 

 

 
(156,539
)
 

 
(156,539
)
Cash dividends declared on common stock
 

 

 

 

 
(486,828
)
 
(486,828
)
Recognition of share-based compensation
 

 

 
49,941

 

 

 
49,941

Issuance of common stock under Stock Incentive Plan, net of shares used to pay tax withholdings
 
7,967

 
7,967

 
143,486

 

 
(3,983
)
 
147,470

Common stock repurchased and retired
 
(22,452
)
 
(22,452
)
 
(193,427
)
 

 
(774,120
)
 
(989,999
)
Balance, August 4, 2018
 
1,241,533

 
$
1,241,533

 
$

 
$
(598,398
)
 
$
4,583,938

 
$
5,227,073

The accompanying notes are an integral part of the unaudited consolidated financial statements.


7



THE TJX COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements and Notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. These Consolidated Financial Statements and Notes thereto are unaudited and, in the opinion of management, reflect all normal recurring adjustments, accruals and deferrals among periods required to match costs properly with the related revenue or activity, considered necessary by The TJX Companies, Inc. (together with its subsidiaries, “TJX”) for a fair statement of its Consolidated Financial Statements for the periods reported, all in conformity with GAAP consistently applied. The Consolidated Financial Statements and Notes thereto should be read in conjunction with the audited Consolidated Financial Statements, including the related notes, contained in TJX’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019 (“fiscal 2019”).
These interim results are not necessarily indicative of results for the full fiscal year. TJX’s business, in common with the businesses of retailers generally, is subject to seasonal influences, with higher levels of sales and income generally realized in the second half of the year.
The February 2, 2019 balance sheet data was derived from audited Consolidated Financial Statements and does not include all disclosures required by GAAP.
Fiscal Year
TJX’s fiscal year ends on the Saturday nearest to the last day of January of each year. The current fiscal year ends February 1, 2020 (“fiscal 2020”) and is a 52-week fiscal year. Fiscal 2019 was also a 52-week fiscal year.
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. TJX considers its accounting policies relating to inventory valuation, impairment of long-lived assets, goodwill and tradenames, reserves for uncertain tax positions, leases and loss contingencies to be the most significant accounting policies that involve management estimates and judgments. Actual amounts could differ from those estimates, and such differences could be material.
Reclassifications 
As a result of a two-for-one stock split in the form of a stock dividend to shareholders of record as of October 30, 2018, certain amounts in prior years’ Consolidated Financial Statements have been retroactively adjusted to conform to the current year presentation. As such, all share activity, earnings per share and dividends per share amounts have been adjusted to reflect the two-for-one stock split. See Note DCapital Stock and Earnings Per Share of Notes to Consolidated Financial Statements for additional information.
Deferred Gift Card Revenue
The following table presents deferred gift card revenue activity:
In thousands
 
August 3,
2019
 
August 4,
2018
Balance, beginning of year
 
$
450,302

 
$
406,506

Deferred revenue
 
747,827

 
731,890

Effect of exchange rates changes on deferred revenue
 
(826
)
 
(4,871
)
Revenue recognized
 
(791,293
)
 
(774,955
)
Balance, end of period
 
$
406,010

 
$
358,570


TJX recognized $407.6 million in gift card revenue for the three months ended August 3, 2019 and $403.1 million for the three months ended August 4, 2018. Gift cards are combined in one homogeneous pool and are not separately identifiable. As such, the revenue recognized consists of gift cards that were part of the deferred revenue balance at the beginning of the period as well as gift cards that were issued during the period.


8



Summary of Accounting Policies
Leases
We adopted ASU No. 2016-02, Leases (Topic 842), as of February 3, 2019, using the modified retrospective method under ASU 2018-11. The transition method allows entities to apply the transition requirements at the effective date rather than at the beginning of the earliest comparative period presented. Our reporting for comparative periods is presented in accordance with ASC 840, Leases. Adoption of the new standard resulted in the recording of right of use (“ROU”) assets and lease liabilities of approximately $9 billion, as of February 3, 2019. The Company elected the transition package of three practical expedients, which among other things, allowed us to carry forward the historical lease classification. We have elected, under Topic 842, the practical expedient to not separate non-lease components from the lease components to which they relate and instead to combine them and account for them as a single lease component. The Company also elected the accounting policy election to keep leases with a term of twelve months or less off the Consolidated Balance Sheets and recognizes these lease payments on a straight-line basis over the lease term.
Operating leases are included in "Operating lease right of use assets", "Current portion of operating lease liabilities", and "Long-term operating lease liabilities" on our Consolidated Balance Sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. At the inception of the arrangement, the Company determines if an arrangement is a lease based on assessment of the terms and conditions of the contract. Operating lease ROU assets and lease liabilities are recognized at possession date based on the present value of lease payments over the lease term. The majority of our leases are retail store locations and the possession date is typically 30 to 60 days prior to the opening of the store and generally occurs before the commencement of the lease term, as specified in the lease. Our lessors do not provide an implicit rate, nor is one readily available, therefore we use our incremental borrowing rate based on the information available at possession date in determining the present value of future lease payments. The incremental borrowing rate is calculated based on the US Consumer Discretionary yield curve and adjusted for collateralization and foreign currency impact for TJX International and Canada leases. The operating lease ROU asset also includes any acquisition costs offset by lease incentives. Our lease terms include options to extend the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term within "Cost of sales, including buying and occupancy costs".

9



Impact of New Lease Standard on Consolidated Balance Sheet Line Items
As a result of applying the new lease standard using the optional transition method, the following adjustments were made to accounts on the Condensed Consolidated Balance Sheet as of February 3, 2019:
In thousands
 
As Reported February 2, 2019
 
Adjustments
 
Adjusted February 3, 2019
CONDENSED CONSOLIDATED BALANCE SHEETS:
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$
513,662

 
$
(149,029
)
(a) 
$
364,633

Net property at cost
 
5,255,208

 
(281,361
)
(b),(f) 
4,973,847

Operating lease right of use asset
 

 
8,704,584

(c) 
8,704,584

Other assets
 
497,580

 
(30,086
)
(b) 
467,494

Total Assets
 
$
14,326,029

 
$
8,244,108

 
$
22,570,137

 
 
 
 
 
 
 
Accrued expenses and other current liabilities
 
2,733,076

 
(3,819
)
 
2,729,257

Current portion of operating lease liabilities
 

 
1,481,555

(d) 
1,481,555

Other long-term liabilities
 
1,354,242

 
(593,137
)
(e),(f) 
761,105

Long-term operating lease liabilities
 

 
7,359,106

(d) 
7,359,106

Retained earnings
 
4,461,744

 
403

(f),(g) 
4,462,147

Total Liabilities and Shareholders' Equity
 
$
14,326,029

 
$
8,244,108

 
$
22,570,137

(a)
Represents prepaid rent reclassified to operating lease right of use assets and current portion of operating lease liabilities.
(b)
Represents impact of reclassifying initial direct costs to operating lease right of use assets.
(c)
Represents capitalization of operating lease right of use assets and reclassification of lease acquisition costs, straight-line rent, prepaid rent and tenant incentives.
(d)
Represents recognition of current and long-term operating lease liabilities.
(e)
Represents reclassification of straight-line rent to operating lease right of use assets.
(f)
Represents de-recognition of assets and liabilities related to non-TJX owned properties under previously existing build-to-suit accounting rules.
(g)
Represents impairment at transition on operating lease right of use assets.
See Note LLeases of Notes to Consolidated Financial Statements for additional information.
Future Adoption of New Accounting Standards
Intangibles-Goodwill and Other-Internal-Use Software
In August 2018, the Financial Accounting Standards Board "FASB" issued guidance related to accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The standard allows entities who are customers in hosting arrangements that are service contracts to apply the existing internal-use software guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The guidance specifies classification for capitalizing implementation costs and related amortization expense within the Consolidated Financial Statements and requires additional disclosures. The Company plans to early adopt the standard prospectively in the third quarter of fiscal 2020 and does not anticipate a material impact of the adoption on its Consolidated Financial Statements.
Recently Adopted Accounting Standards
Leases
See Leases in this Note A for the impact upon adoption.
Income Statement – Reporting Comprehensive Income
In February 2018, the FASB issued updated guidance related to reporting comprehensive income. The amendments in the update allow for a one-time reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effect as a result from the enactment of the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). The updated guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for reporting periods for which financial statements have not yet been issued. The updated guidance should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the 2017 Tax Act is recognized. The Company adopted the standard and made the policy election not to reclassify the stranded tax effects from AOCI to retained earnings.

10



Note B. Property at Cost
The following table presents the components of property at cost:
In thousands
 
August 3,
2019
 
February 2,
2019
 
August 4,
2018
Land and buildings(a)
 
$
1,235,675

 
$
1,457,835

 
$
1,395,034

Leasehold costs and improvements(a)
 
3,410,862

 
3,377,045

 
3,263,267

Furniture, fixtures and equipment
 
6,096,876

 
5,894,239

 
5,619,196

Total property at cost
 
$
10,743,413

 
$
10,729,119

 
$
10,277,497

Less accumulated depreciation and amortization(a)
 
5,701,535

 
5,473,911

 
5,177,043

Net property at cost
 
$
5,041,878

 
$
5,255,208

 
$
5,100,454


(a)
See Leases in Note ABasis of Presentation and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for impact of lease accounting changes.                                
Depreciation expense was $214.5 million for the three months ended August 3, 2019 and $204.2 million for the three months ended August 4, 2018. Depreciation expense was $424.2 million for the six months ended August 3, 2019 and $397.9 million for the six months ended August 4, 2018.
Note C. Accumulated Other Comprehensive Income (Loss)
Amounts included in accumulated other comprehensive loss are recorded net of taxes. The following table details the changes in accumulated other comprehensive loss for the twelve months ended February 2, 2019 and the six months ended August 3, 2019:
In thousands
Foreign
Currency
Translation
Deferred
Benefit
Costs
Cash
Flow
Hedge
on Debt
Accumulated
Other
Comprehensive
Income (Loss)
Balance, February 3, 2018
$
(280,051
)
$
(159,562
)
$
(2,246
)
$
(441,859
)
Additions to other comprehensive loss:
 
 
 
 
Foreign currency translation adjustments (net of taxes of $8,233)
(192,664
)


(192,664
)
Recognition of net gains/losses on investment hedges (net of taxes $7,113)
19,538



19,538

Recognition of net gains/losses on benefit obligations (net of taxes of $19,813)

(54,420
)

(54,420
)
Pension settlement charge (net of taxes of $9,641)

26,481


26,481

Reclassifications from other comprehensive loss to net income:
 
 
 
 
Amortization of loss on cash flow hedge (net of taxes of $304)


847

847

Amortization of prior service cost and deferred gains/losses (net of taxes of $4,280)

11,756


11,756

Balance, February 2, 2019
$
(453,177
)
$
(175,745
)
$
(1,399
)
$
(630,321
)
Additions to other comprehensive loss:
 
 
 
 
Foreign currency translation adjustments (net of taxes of $952)
(90,904
)


(90,904
)
Reclassifications from other comprehensive loss to net income:
 
 
 
 
Amortization of prior service cost and deferred gains/losses (net of taxes of $2,906)

7,984


7,984

Amortization of loss on cash flow hedge (net of taxes of $152)


416

416

Balance, August 3, 2019
$
(544,081
)
$
(167,761
)
$
(983
)
$
(712,825
)


11



Note D. Capital Stock and Earnings Per Share
Capital Stock
In fiscal 2019, we completed a two-for-one stock split of the Company’s common stock in the form of a stock dividend. One additional share was paid for each share held by holders of record as of the close of business on October 30, 2018. The shares were distributed on November 6, 2018 and resulted in the issuance of 617 million shares of common stock. In connection with our stock split, the shareholders approved an increase in the number of authorized shares of common stock of 0.6 billion to 1.8 billion shares. As a result, the Consolidated Balance Sheets and the Consolidated Statements of Shareholders' Equity have been adjusted retroactively to reflect the two-for-one stock split. In addition, all historical per share amounts and references to common stock activity, as well as basic and diluted share amounts utilized in the calculation of earnings per share in these notes to the Consolidated Financial Statements, have been adjusted to reflect this stock split.
TJX repurchased and retired 5.6 million shares of its common stock at a cost of $300 million during the quarter ended August 3, 2019, on a “trade date” basis. During the six months ended August 3, 2019, TJX repurchased and retired 12.3 million shares of its common stock at a cost of $650 million, on a "trade date" basis. TJX reflects stock repurchases in its Consolidated Financial Statements on a “settlement date” or cash basis. TJX had cash expenditures under repurchase programs of $700 million for the six months ended August 3, 2019, and $990 million for the six months ended August 4, 2018. These expenditures were funded by cash generated from current and prior period operations.
In February 2019, TJX announced that its Board of Directors had approved an additional stock repurchase program that authorized the repurchase of up to $1.5 billion of TJX common stock from time to time.
In February 2018, our Board of Directors approved the repurchase of an additional $3.0 billion of TJX common stock from time to time. Under this program, on a “trade date” basis through August 3, 2019, TJX repurchased 38.7 million shares of common stock at a cost of $2.0 billion.
As of August 3, 2019, TJX had approximately $2.5 billion available under these previously announced stock repurchase programs.
All shares repurchased under the stock repurchase programs have been retired.
Earnings Per Share
The following table presents the calculation of basic and diluted earnings per share (“EPS”) for net income:
 
 
Thirteen Weeks Ended
 
Twenty-Six Weeks Ended
In thousands, except per share amounts
 
August 3,
2019
 
August 4,
2018
 
August 3,
2019
 
August 4,
2018
Basic earnings per share
 
 
 
 
 
 
 
 
Net income
 
$
758,962

 
$
739,626

 
$
1,459,140

 
$
1,456,007

Weighted average common shares outstanding for basic EPS
 
1,210,525

 
1,246,851

 
1,212,528

 
1,250,037

Basic earnings per share
 
$
0.63

 
$
0.59

 
$
1.20

 
$
1.16

Diluted earnings per share
 
 
 
 
 
 
 
 
Net income
 
$
758,962

 
$
739,626

 
$
1,459,140

 
$
1,456,007

Shares for basic and diluted earnings per share calculations:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding for basic EPS
 
1,210,525

 
1,246,851

 
1,212,528

 
1,250,037

Assumed exercise/vesting of stock options and awards
 
18,461

 
19,069

 
18,683

 
17,330

Weighted average common shares outstanding for diluted EPS
 
1,228,986

 
1,265,920

 
1,231,211

 
1,267,367

Diluted earnings per share
 
$
0.62

 
$
0.58

 
$
1.19

 
$
1.15

Cash dividends declared per share
 
$
0.230

 
$
0.195

 
$
0.460

 
$
0.390


The weighted average common shares for the diluted earnings per share calculation exclude the impact of outstanding stock options if the assumed proceeds per share of the option is in excess of the average price of TJX’s common stock for the related fiscal periods. Such options are excluded because they would have an antidilutive effect. There were 5.9 million such options excluded for each of the thirteen weeks and twenty-six weeks ended August 3, 2019. There were no such options excluded for each of the thirteen weeks and twenty-six weeks ended August 4, 2018.

12



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. TJX seeks to minimize risk from changes in interest and foreign currency exchange rates and fuel costs through the use of derivative financial instruments when and to the extent deemed appropriate. 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 Consolidated Balance Sheets 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.
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 2019, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for fiscal 2020, and during the first six months of fiscal 2020, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the first six months of fiscal 2021. The hedge agreements outstanding at August 3, 2019 relate to approximately 50% of TJX’s estimated notional diesel requirements for the remainder of fiscal 2020 and approximately 49% of TJX’s estimated notional diesel requirements for the first six months of fiscal 2021. These diesel fuel hedge agreements will settle throughout the remainder of fiscal 2020 and throughout the first seven months of fiscal 2021. TJX elected not to apply hedge accounting 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 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 August 3, 2019 cover a portion of such actual and anticipated merchandise purchases throughout the remainder of fiscal 2020. 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 central 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. During the six months ended August 3, 2019, TJX entered into derivative contracts to hedge Polish leases that are denominated in Euros and paid in Zlotys in order to mitigate the foreign currency exposure as a result of implementing ASU No. 2016-02, Leases. TJX elected not to apply hedge accounting to these contracts.
TJX also enters into derivative contracts, generally designated as fair value hedges, to hedge intercompany debt, certain intercompany dividends 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.
TJX periodically reviews its net investments in foreign subsidiaries. During the fiscal quarter ended May 5, 2018, TJX entered into net investment hedge contracts related to a portion of its investment in TJX Canada. During the fiscal quarter ended August 4, 2018, TJX de-designated the net investment hedge contracts. The remaining life of the foreign currency contracts provided a natural hedge to the declared cash dividend from TJX Canada. The contracts settled during the second quarter of fiscal 2019 resulting in a pre-tax gain of $27 million while designated as a net investment hedge and subsequent to de-designation, a pre-tax gain of $19 million. The $27 million gain is reflected in shareholders' equity as a component of other comprehensive income. The $19 million gain subsequent to de-designation is reflected in the income statement offsetting a foreign currency loss of $18 million on the declared dividends.

13



The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at August 3, 2019:
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
August 3, 2019
Fair value hedges:
 
 
 
 
 
 
 
Intercompany balances, primarily debt and related interest:
 
 
 
 
64,000

£
13,055

0.2040

(Accrued Exp)
$

$
(585
)
$
(585
)
 
55,950

£
49,560

0.8858

(Accrued Exp)

(2,208
)
(2,208
)
 
A$
40,000

U.S.$
28,249

0.7062

Prepaid Exp
944


944

 
U.S.$
72,020

£
55,000

0.7637

(Accrued Exp)

(4,785
)
(4,785
)
Economic hedges for which hedge accounting was not elected:
 
 
 
 
Diesel fuel contracts
Fixed on 2.7M – 3.3M gal per month
 
Float on 2.7M – 3.3M gal per month
N/A

(Accrued Exp)

(6,575
)
(6,575
)
Intercompany billings in TJX International, primarily merchandise related:
 
 
 
89,000

£
80,029

0.8992

(Accrued Exp)

(1,687
)
(1,687
)
Lease liability in TJX International:
 
 
 
 
330,044

77,479

0.2348

Prepaid Exp
866


866

Merchandise purchase commitments:
 
 
 
 
 
 
C$
702,924

U.S.$
529,750

0.7536

Prepaid Exp / (Accrued Exp)
1,323

(4,800
)
(3,477
)
 
C$
38,119

25,400

0.6663

(Accrued Exp)

(592
)
(592
)
 
£
313,490

U.S.$
403,600

1.2874

Prepaid Exp / (Accrued Exp)
20,418

(12
)
20,406

 
A$
32,229

U.S.$
22,665

0.7032

Prepaid Exp
690


690

 
418,012

£
85,810

0.2053

(Accrued Exp)

(3,267
)
(3,267
)
 
U.S.$
3,834

£
3,052

0.7960

(Accrued Exp)

(120
)
(120
)
 
U.S.$
79,010

69,427

0.8787

(Accrued Exp)

(1,567
)
(1,567
)
Total fair value of derivative financial instruments
 
$
24,241

$
(26,198
)
$
(1,957
)


14



The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at February 2, 2019:
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
February 2,
2019
Fair value hedges:
 
 
 
 
 
 
 
Intercompany balances, primarily debt and related interest:
 
 
 
 
59,000

£
12,021

0.2037

Prepaid Exp
$
56

$

$
56

 
55,950

£
49,560

0.8858

Prepaid Exp / (Accrued Exp)
126

(140
)
(14
)
 
A$
30,000

U.S.$
21,483

0.7161

(Accrued Exp)

(314
)
(314
)
 
U.S.$
72,020

£
55,000

0.7637

Prepaid Exp
1,037


1,037

Economic hedges for which hedge accounting was not elected:
 
 
 
 
Diesel fuel contracts
Fixed on
2.7M – 3.3M
gal per month
 
Float on
2.7M– 3.3M
gal per month
N/A

(Accrued Exp)

(3,786
)
(3,786
)
Intercompany billings in TJX International, primarily merchandise related:
 
 
 
46,600

£
41,835

0.8977

Prepaid Exp
1,300


1,300

Merchandise purchase commitments:
 
 
 
 
 
C$
546,083

U.S.$
414,100

0.7583

Prepaid Exp /
(Accrued Exp)
1,239

(4,741
)
(3,502
)
 
C$
31,455

20,700

0.6581

(Accrued Exp)

(248
)
(248
)
 
£
173,624

U.S.$
230,000

1.3247

Prepaid Exp /
(Accrued Exp)
3,459

(1,466
)
1,993

 
280,167

£
57,586

0.2055

Prepaid Exp / (Accrued Exp)
707

(86
)
621

 
A$
51,043

U.S.$
36,961

0.7241

Prepaid Exp /
(Accrued Exp)
97

(213
)
(116
)
 
U.S.$
56,847

49,355

0.8682

Prepaid Exp / (Accrued Exp)
115

(207
)
(92
)
Total fair value of derivative financial instruments
 
$
8,136

$
(11,201
)
$
(3,065
)

15



The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at August 4, 2018:
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 
August 4, 2018
Fair value hedges:
 
 
 
 
 
 
 
Intercompany balances, primarily debt and related interest:
 
 
 
67,000

£
14,035

0.2095

Prepaid Exp
$
141

$

$
141

 
53,950

£
47,868

0.8873

(Accrued Exp)

(518
)
(518
)
 
£
30,000

C$
54,038

1.8013

Prepaid Exp
2,484