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 D—Capital 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
|
May 4,
2019
|
May 5,
2018
|
Balance, beginning of period
|
$
|
450,302
|
|
$
|
406,506
|
|
Deferred revenue
|
340,600
|
|
330,516
|
|
Effect of exchange rates changes on deferred revenue
|
(648
|
)
|
(3,153
|
)
|
Revenue recognized
|
(383,658
|
)
|
(371,815
|
)
|
Balance, end of period
|
$
|
406,596
|
|
$
|
362,054
|
|
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
".
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 L—Leases 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 guidance will be effective for annual reporting periods, including interim reporting within those periods, beginning after December 15, 2019. Early adoption is permitted and can be applied either retrospectively or prospectively. The Company is currently evaluating the transition methods and the impact of the adoption of this standard 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.
Note B.
Property at Cost
The following table presents the components of property at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
May 4,
2019
|
|
February 2,
2019
|
|
May 5,
2018
|
Land and buildings
(a)
|
|
$
|
1,219,604
|
|
|
$
|
1,457,835
|
|
|
$
|
1,377,854
|
|
Leasehold costs and improvements
(a)
|
|
3,379,543
|
|
|
3,377,045
|
|
|
3,245,902
|
|
Furniture, fixtures and equipment
|
|
6,016,591
|
|
|
5,894,239
|
|
|
5,455,039
|
|
Total property at cost
|
|
$
|
10,615,738
|
|
|
$
|
10,729,119
|
|
|
$
|
10,078,795
|
|
Less accumulated depreciation and amortization
(a)
|
|
5,597,140
|
|
|
5,473,911
|
|
|
5,052,703
|
|
Net property at cost
|
|
$
|
5,018,598
|
|
|
$
|
5,255,208
|
|
|
$
|
5,026,092
|
|
|
|
(a)
|
See leases note in Note A—Basis of Presentation and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements for impact of lease accounting changes.
|
Depreciation expense was
$209.7 million
for the
three months ended May 4, 2019
and
$193.7 million
for the
three months ended May 5, 2018
. Depreciation expense was
$818.9 million
for the
twelve
months ended
February 2, 2019
.
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
three
months ended
May 4, 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 $2,633)
|
|
(7,161
|
)
|
|
—
|
|
|
—
|
|
|
(7,161
|
)
|
Reclassifications from other comprehensive loss to net income:
|
|
|
|
|
|
|
|
|
Amortization of prior service cost and deferred gains (net of taxes of $1,453)
|
|
—
|
|
|
3,992
|
|
|
—
|
|
|
3,992
|
|
Amortization of loss on cash flow hedge (net of taxes of $76)
|
|
—
|
|
|
—
|
|
|
208
|
|
|
208
|
|
Balance, May 4, 2019
|
|
$
|
(460,338
|
)
|
|
$
|
(171,753
|
)
|
|
$
|
(1,191
|
)
|
|
$
|
(633,282
|
)
|
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 to retroactively present 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
6.7 million
shares of its common stock at a cost of
$350.0 million
during the quarter ended
May 4, 2019
, 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
$397.3 million
for the
three
months ended
May 4, 2019
, and
$395.4 million
for the
three
months ended
May 5, 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
May 4, 2019
, TJX repurchased
33.1 million
shares of common stock at a cost of
$1.7 billion
.
As of
May 4, 2019
, TJX had approximately
$2.8 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
|
In thousands, except per share amounts
|
May 4,
2019
|
|
May 5,
2018
|
Basic earnings per share
|
|
|
|
Net income
|
$
|
700,178
|
|
|
$
|
716,381
|
|
Weighted average common shares outstanding for basic EPS
|
1,214,531
|
|
|
1,253,224
|
|
Basic earnings per share
|
$
|
0.58
|
|
|
$
|
0.57
|
|
Diluted earnings per share
|
|
|
|
Net income
|
$
|
700,178
|
|
|
$
|
716,381
|
|
Shares for basic and diluted earnings per share calculations:
|
|
|
|
Weighted average common shares outstanding for basic EPS
|
1,214,531
|
|
|
1,253,224
|
|
Assumed exercise/vesting of:
|
|
|
|
Stock options and awards
|
18,876
|
|
|
15,648
|
|
Weighted average common shares outstanding for diluted EPS
|
1,233,407
|
|
|
1,268,872
|
|
Diluted earnings per share
|
$
|
0.57
|
|
|
$
|
0.56
|
|
Cash dividends declared per share
|
$
|
0.230
|
|
|
$
|
0.195
|
|
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
6.0 million
such options excluded for the thirteen weeks ended
May 4, 2019
. There were
17.1 million
such options excluded for the thirteen weeks ended
May 5, 2018
.
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
three
months of
fiscal 2020
, TJX entered into agreements to hedge a portion of its estimated notional diesel requirements for the first
three
months of fiscal 2021. The hedge agreements outstanding at
May 4, 2019
relate to approximately
51%
of TJX’s estimated notional diesel requirements for the remainder of fiscal 2020 and approximately
45%
of TJX’s estimated notional diesel requirements for the first three months of fiscal 2021. These diesel fuel hedge agreements will settle throughout the remainder of
fiscal 2020
and throughout the first
four
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
May 4, 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 fiscal quarter ended
May 4, 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.
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at
May 4, 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
May 4, 2019
|
Fair value hedges:
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
|
|
|
zł
|
59,000
|
|
£
|
12,021
|
|
0.2037
|
|
Prepaid Exp
|
$
|
451
|
|
$
|
—
|
|
$
|
451
|
|
|
€
|
55,950
|
|
£
|
49,560
|
|
0.8858
|
|
Prepaid Exp
|
2,160
|
|
—
|
|
2,160
|
|
|
A$
|
30,000
|
|
U.S.$
|
21,228
|
|
0.7076
|
|
Prepaid Exp
|
47
|
|
—
|
|
47
|
|
|
U.S.$
|
72,020
|
|
£
|
55,000
|
|
0.7637
|
|
Prepaid Exp
|
1,261
|
|
—
|
|
1,261
|
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
Diesel contracts
|
Fixed on 2.4M – 3.3M gal per month
|
|
|
Float on 2.4M – 3.3M gal per month
|
|
N/A
|
|
(Accrued Exp)
|
—
|
|
(299
|
)
|
(299
|
)
|
Intercompany billings in TJX International, primarily merchandise related:
|
|
|
|
|
€
|
71,600
|
|
£
|
61,777
|
|
0.8628
|
|
Prepaid Exp
|
1,163
|
|
—
|
|
1,163
|
|
Lease liability in TJX International:
|
|
|
|
|
zł
|
690,366
|
|
€
|
160,851
|
|
0.2330
|
|
(Accrued Exp)
|
—
|
|
(473
|
)
|
(473
|
)
|
Merchandise purchase commitments:
|
|
|
|
|
|
|
C$
|
620,729
|
|
U.S.$
|
466,600
|
|
0.7517
|
|
Prepaid Exp / (Accrued Exp)
|
3,814
|
|
(633
|
)
|
3,181
|
|
|
C$
|
27,377
|
|
€
|
18,050
|
|
0.6593
|
|
(Accrued Exp)
|
—
|
|
(142
|
)
|
(142
|
)
|
|
£
|
293,928
|
|
U.S.$
|
387,400
|
|
1.3180
|
|
Prepaid Exp / (Accrued Exp)
|
883
|
|
(2,661
|
)
|
(1,778
|
)
|
|
A$
|
44,708
|
|
U.S.$
|
32,064
|
|
0.7172
|
|
Prepaid Exp
|
602
|
|
—
|
|
602
|
|
|
zł
|
359,743
|
|
£
|
72,401
|
|
0.2013
|
|
Prepaid Exp / (Accrued Exp)
|
1,430
|
|
(88
|
)
|
1,342
|
|
|
U.S.$
|
55,559
|
|
€
|
48,467
|
|
0.8724
|
|
(Accrued Exp)
|
—
|
|
(977
|
)
|
(977
|
)
|
Total fair value of derivative financial instruments
|
|
|
$
|
11,811
|
|
$
|
(5,273
|
)
|
$
|
6,538
|
|
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:
|
|
|
|
|
|
zł
|
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 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
|
|
|
zł
|
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
|
)
|
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at
May 5, 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
May 5, 2018
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
|
|
|
|
zł
|
67,000
|
|
£
|
14,035
|
|
0.2095
|
|
Prepaid Exp
|
$
|
247
|
|
$
|
—
|
|
$
|
247
|
|
|
|
€
|
53,950
|
|
£
|
47,868
|
|
0.8873
|
|
(Accrued Exp)
|
—
|
|
(252
|
)
|
(252
|
)
|
|
|
£
|
30,000
|
|
C$
|
54,038
|
|
1.8013
|
|
Prepaid Exp
|
1,256
|
|
—
|
|
1,256
|
|
|
|
U.S.$
|
77,079
|
|
£
|
55,000
|
|
0.7136
|
|
(Accrued Exp)
|
—
|
|
(1,771
|
)
|
(1,771
|
)
|
Net Investment Hedges:
|
|
|
|
|
|
C$
|
1,710,000
|
|
U.S.$
|
1,341,426
|
|
0.7845
|
|
Prepaid Exp / (Accrued Exp)
|
9,808
|
|
(1,563
|
)
|
8,245
|
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
Diesel contracts
|
Fixed on 2.2M – 3.0M gal per month
|
|
Float on 2.2M – 3.0M gal per month
|
N/A
|
|
Prepaid Exp
|
10,249
|
|
—
|
|
10,249
|
|
Intercompany billings in TJX International, primarily merchandise related:
|
|
|
|
|
|
€
|
50,000
|
|
£
|
43,340
|
|
0.8668
|
|
(Accrued Exp)
|
—
|
|
(1,205
|
)
|
(1,205
|
)
|
Merchandise purchase commitments:
|
|
|
|
|
|
C$
|
518,624
|
|
U.S.$
|
409,350
|
|
0.7893
|
|
Prepaid Exp /
(Accrued Exp)
|
5,322
|
|
(422
|
)
|
4,900
|
|
|
|
C$
|
25,760
|
|
€
|
16,500
|
|
0.6405
|
|
Prepaid Exp /
(Accrued Exp)
|
82
|
|
(360
|
)
|
(278
|
)
|
|
|
£
|
333,666
|
|
U.S.$
|
469,400
|
|
1.4068
|
|
Prepaid Exp /
(Accrued Exp)
|
15,418
|
|
(594
|
)
|
14,824
|
|
|
|
A$
|
30,728
|
|
U.S.$
|
23,772
|
|
0.7736
|
|
Prepaid Exp / (Accrued Exp)
|
602
|
|
(30
|
)
|
572
|
|
|
|
zł
|
299,988
|
|
£
|
62,531
|
|
0.2084
|
|
Prepaid Exp /
(Accrued Exp)
|
560
|
|
(235
|
)
|
325
|
|
|
|
U.S.$
|
41,644
|
|
€
|
33,611
|
|
0.8071
|
|
Prepaid Exp / (Accrued Exp)
|
23
|
|
(1,243
|
)
|
(1,220
|
)
|
Total fair value of derivative financial instruments
|
|
|
$
|
43,567
|
|
$
|
(7,675
|
)
|
$
|
35,892
|
|
Presented below is the impact of derivative financial instruments on the Consolidated 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
|
|
May 4,
2019
|
|
May 5,
2018
|
Fair value hedges:
|
|
|
|
|
|
|
Intercompany balances, primarily debt and related interest
|
|
Selling, general and administrative expenses
|
|
$
|
3,633
|
|
|
$
|
(1,792
|
)
|
Economic hedges for which hedge accounting was not elected:
|
|
|
|
|
Intercompany receivable
|
|
Selling, general and administrative expenses
|
|
3,257
|
|
|
—
|
|
Diesel fuel contracts
|
|
Cost of sales, including buying and occupancy costs
|
|
3,687
|
|
|
4,953
|
|
Intercompany billings in TJX International,
primarily merchandise related
|
|
Cost of sales, including buying and occupancy costs
|
|
2,151
|
|
|
(118
|
)
|
International lease liabilities
|
|
Cost of sales, including buying and occupancy costs
|
|
(1,522
|
)
|
|
—
|
|
Merchandise purchase commitments
|
|
Cost of sales, including buying and occupancy costs
|
|
9,789
|
|
|
31,457
|
|
Gain / (loss) recognized in income
|
|
|
|
$
|
20,995
|
|
|
$
|
34,500
|
|
Note F.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date or “exit price.” The inputs used to measure fair value are generally classified into the following hierarchy:
|
|
|
|
Level 1:
|
|
Unadjusted quoted prices in active markets for identical assets or liabilities
|
|
|
|
Level 2:
|
|
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability
|
|
|
|
Level 3:
|
|
Unobservable inputs for the asset or liability
|
The following table sets forth TJX’s financial assets and liabilities that are accounted for at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
May 4,
2019
|
|
February 2,
2019
|
|
May 5,
2018
|
Level 1
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Executive Savings Plan investments
|
|
$
|
278,540
|
|
|
$
|
253,215
|
|
|
$
|
248,640
|
|
Level 2
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
435,903
|
|
Foreign currency exchange contracts
|
|
11,811
|
|
|
8,136
|
|
|
33,318
|
|
Diesel fuel contracts
|
|
—
|
|
|
—
|
|
|
10,249
|
|
Liabilities:
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
$
|
4,974
|
|
|
$
|
7,415
|
|
|
$
|
7,675
|
|
Diesel fuel contracts
|
|
299
|
|
|
3,786
|
|
|
—
|
|
Investments designed to meet obligations under the Executive Savings Plan are invested in registered investment companies traded in active markets and are recorded at unadjusted quoted prices.
Short-term investments, foreign currency exchange contracts and diesel fuel contracts are valued using broker quotations, which include observable market information. TJX’s investments are primarily high-grade commercial paper, institutional money market funds and time deposits with major banks. TJX does not make adjustments to quotes or prices obtained from brokers or pricing services but does assess the credit risk of counterparties and will adjust final valuations when appropriate. Where independent pricing services provide fair values, TJX obtains an understanding of the methods used in pricing. As such, these instruments are classified within Level 2.
The fair value of TJX’s general corporate debt was estimated by obtaining market quotes given the trading levels of other bonds of the same general issuer type and market perceived credit quality. These inputs are considered to be Level 2. The fair value of long-term debt as of
May 4, 2019
and
February 2, 2019
approximated the carrying value of
$2.2 billion
. The fair value of long-term debt as of
May 5, 2018
was
$2.1 billion
compared to a carrying value of
$2.2 billion
. These estimates do not necessarily reflect provisions or restrictions in the various debt agreements that might affect TJX’s ability to settle these obligations.
TJX’s cash equivalents are stated at cost, which approximates fair value due to the short maturities of these instruments.
Note G.
Segment Information
TJX operates
four
main business segments. The Marmaxx segment (T.J. Maxx, Marshalls and tjmaxx.com) and the HomeGoods segment (HomeGoods and Homesense) both operate in the United States, the TJX Canada segment operates Winners, HomeSense and Marshalls in Canada, and the TJX International segment operates T.K. Maxx, Homesense and tkmaxx.com in Europe and T.K. Maxx in Australia. In addition to our
four
main business segments, Sierra operates sierra.com and retail stores in the U.S. The results of Sierra are included in the Marmaxx segment.
All of TJX’s stores, with the exception of HomeGoods and Homesense, sell family apparel and home fashions. HomeGoods and Homesense offer home fashions.
TJX evaluates the performance of its segments based on “segment profit or loss,” which it defines as pre-tax income or loss before general corporate expense, pension settlement charge and interest expense, net. “Segment profit or loss,” as defined by TJX, may not be comparable to similarly titled measures used by other entities. The terms “segment margin” or “segment profit margin” are used to describe segment profit or loss as a percentage of net sales. These measures of performance should not be considered alternatives to net income or cash flows from operating activities as an indicator of TJX’s performance or as a measure of liquidity.
Presented below is financial information with respect to TJX’s business segments:
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
In thousands
|
|
May 4,
2019
|
|
May 5,
2018
|
Net sales:
|
|
|
|
|
In the United States:
|
|
|
|
|
Marmaxx
|
|
$
|
5,801,760
|
|
|
$
|
5,380,918
|
|
HomeGoods
|
|
1,396,865
|
|
|
1,269,331
|
|
TJX Canada
|
|
847,735
|
|
|
853,836
|
|
TJX International
|
|
1,231,225
|
|
|
1,184,635
|
|
|
|
$
|
9,277,585
|
|
|
$
|
8,688,720
|
|
Segment profit:
|
|
|
|
|
In the United States:
|
|
|
|
|
Marmaxx
|
|
$
|
795,993
|
|
|
$
|
750,456
|
|
HomeGoods
|
|
136,785
|
|
|
147,360
|
|
TJX Canada
|
|
97,032
|
|
|
125,184
|
|
TJX International
|
|
28,487
|
|
|
40,826
|
|
|
|
1,058,297
|
|
|
1,063,826
|
|
General corporate expense
|
|
120,998
|
|
|
104,120
|
|
Interest expense, net
|
|
817
|
|
|
4,148
|
|
Income before provision for income taxes
|
|
$
|
936,482
|
|
|
$
|
955,558
|
|
Segment assets as of May 4, 2019 increased from February 2, 2019 due to inclusion of operating lease right of use assets in segment assets. As of May 4, 2019, the breakdown of the Company’s operating right of use assets by segment is
$4.3 billion
in Marmaxx,
$1.4 billion
in HomeGoods,
$1.0 billion
in TJX Canada and
$2.1 billion
in TJX International.
Note H.
Pension Plans and Other Retirement Benefits
Presented below is financial information relating to TJX’s funded defined benefit pension plan (“qualified pension plan” or “funded plan”) and its unfunded supplemental pension plan (“unfunded plan”) for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Plan
|
|
Unfunded Plan
|
|
|
Thirteen Weeks Ended
|
|
Thirteen Weeks Ended
|
In thousands
|
|
May 4,
2019
|
|
May 5,
2018
|
|
May 4,
2019
|
|
May 5,
2018
|
Service cost
|
|
$
|
11,049
|
|
|
$
|
11,613
|
|
|
$
|
552
|
|
|
$
|
611
|
|
Interest cost
|
|
12,990
|
|
|
13,965
|
|
|
967
|
|
|
853
|
|
Expected return on plan assets
|
|
(18,488
|
)
|
|
(20,962
|
)
|
|
—
|
|
|
—
|
|
Recognized actuarial losses
|
|
4,509
|
|
|
3,114
|
|
|
936
|
|
|
821
|
|
Total expense
|
|
$
|
10,060
|
|
|
$
|
7,730
|
|
|
$
|
2,455
|
|
|
$
|
2,285
|
|
TJX’s policy with respect to the funded plan is to fund, at a minimum, the amount required to maintain a funded status of
80%
of the applicable pension liability (the Funding Target pursuant to the Internal Revenue Code section 430) or such other amount as is sufficient to avoid restrictions with respect to the funding of nonqualified plans under the Internal Revenue Code. We do not anticipate any required funding in
fiscal 2020
for the funded plan. We anticipate making contributions of
$4.8 million
to provide current benefits coming due under the unfunded plan in
fiscal 2020
.
The amounts included in recognized actuarial losses in the table above have been reclassified in their entirety from AOCI to the Consolidated Statements of Income, net of related tax effects, for the periods presented.
Note I.
Long-Term Debt and Credit Lines
The table below presents long-term debt, exclusive of current installments, as of
May 4, 2019
,
February 2, 2019
and
May 5, 2018
. All amounts are net of unamortized debt discounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
May 4,
2019
|
|
February 2,
2019
|
|
May 5,
2018
|
General corporate debt:
|
|
|
|
|
|
|
2.50% senior unsecured notes, maturing May 15, 2023 (effective interest rate of 2.51% after reduction of unamortized debt discount of $178 at May 4, 2019, $189 at February 2, 2019 and $223 at May 5, 2018)
|
|
$
|
499,822
|
|
|
$
|
499,811
|
|
|
$
|
499,777
|
|
2.75% senior unsecured notes, maturing June 15, 2021 (effective interest rate of 2.76% after reduction of unamortized debt discount of $156 at May 4, 2019, $174 at February 2, 2019 and $231 at May 5, 2018)
|
|
749,844
|
|
|
749,826
|
|
|
749,769
|
|
2.25% senior unsecured notes, maturing September 15, 2026 (effective interest rate of 2.32% after reduction of unamortized debt discount of $5,471 at May 4, 2019, $5,657 at February 2, 2019 and $6,217 at May 5, 2018)
|
|
994,529
|
|
|
994,343
|
|
|
993,783
|
|
Debt issuance cost
|
|
(9,827
|
)
|
|
(10,364
|
)
|
|
(11,969
|
)
|
Long-term debt
|
|
$
|
2,234,368
|
|
|
$
|
2,233,616
|
|
|
$
|
2,231,360
|
|
TJX has
two
$500 million
revolving credit facilities, one which matures in March 2022 and one which matures in May 2024. Subsequent to
May 4, 2019
, the Company amended the
two
agreements to reflect the impact of implementing the new lease accounting standard under ASC 842. For additional information about the implementation of ASC 842, see Leases within Note A—
Basis of Presentation and Summary of Significant Accounting Policies
of Notes to Consolidated Financial Statements. In addition, the maturity date for one of the revolving credit facilities was extended from March 2020 to May 2024.
As of May 4, 2019, the terms and covenants under the revolving credit facilities require quarterly payments of
6.0
basis points per annum on the committed amounts for both agreements. This rate is based on the credit ratings of TJX’s long-term debt and will vary with specified changes in the credit ratings. These agreements have no compensating balance requirements and have various covenants. Each of these facilities require TJX to maintain a ratio of funded debt to consolidated earnings before interest, taxes, depreciation and amortization and consolidated rentals (EBITDAR) of not more than
3.25
to 1.00 on a rolling four-quarter basis. TJX was in compliance with all covenants related to its credit facilities at the end of all periods presented. As of
May 4, 2019
,
February 2, 2019
and
May 5, 2018
, and during the quarters and year then ended, there were
no
amounts outstanding under these facilities.
As of
May 4, 2019
,
February 2, 2019
and
May 5, 2018
, TJX Canada had
two
uncommitted credit lines, a C
$10 million
facility for operating expenses and a C
$10 million
letter of credit facility. As of
May 4, 2019
,
February 2, 2019
and
May 5, 2018
, there were
no
amounts outstanding on the Canadian credit line for operating expenses. As of
May 4, 2019
,
February 2, 2019
and
May 5, 2018
, our European business at TJX International had
one
uncommitted credit line of
£5 million
. As of
May 4, 2019
,
February 2, 2019
and
May 5, 2018
, and during the quarters and year then ended, there were
no
amounts outstanding on the European credit line.
Note J.
Income Taxes
The effective income tax rate was
25.2%
for the
first
quarter of
fiscal 2020
and
25.0%
for the
first
quarter of fiscal
2019
. The
increase
in the effective income tax rate was primarily due to the reduction of excess tax benefit from share-based compensation and the expanded limitations on executive compensation, offset by a reduction in the impact of the foreign operations.
TJX had net unrecognized tax benefits of
$237.7 million
as of
May 4, 2019
,
$233.4 million
as of
February 2, 2019
and
$58.7 million
as of
May 5, 2018
.
TJX is subject to U.S. federal income tax as well as income tax in multiple state, local and foreign jurisdictions. In the U.S. and Canada, fiscal years through 2010 are no longer subject to examination. In all other jurisdictions, fiscal years through 2009 are no longer subject to examination.
TJX’s accounting policy classifies interest and penalties related to income tax matters as part of income tax expense. The total accrued amount on the Consolidated Balance Sheets for interest and penalties was
$25.5 million
as of
May 4, 2019
,
$23.6 million
as of
February 2, 2019
and
$12.5 million
as of
May 5, 2018
.
Based on the outcome of tax examinations or judicial or administrative proceedings, or as a result of the expiration of statutes of limitations in specific jurisdictions, it is reasonably possible that unrecognized tax benefits for certain tax positions taken on previously filed tax returns may change materially from those presented in the Consolidated Financial Statements. During the next 12 months, it is reasonably possible that tax examinations of prior years’ tax returns or judicial or administrative proceedings that reflect such positions taken by TJX may be finalized. As a result, the total net amount of unrecognized tax benefits may decrease, which would reduce the provision for taxes on earnings, by a range of
zero
to
$31 million
.
Note K.
Contingent Obligations and Contingencies
Contingent Obligations
TJX has contingent obligations on leases, for which it was a lessee or guarantor, which were assigned to third parties without TJX being released by the landlords. Over many years, TJX has assigned numerous leases that it had originally leased or guaranteed to a significant number of third parties. With the exception of leases of former businesses for which TJX has reserved, the Company has rarely had a claim with respect to assigned leases, and accordingly, the Company does not expect that such leases will have a material adverse impact on its financial condition, results of operations or cash flows. TJX does not generally have sufficient information about these leases to estimate our potential contingent obligations under them, which could be triggered in the event that one or more of the current tenants does not fulfill their obligations related to one or more of these leases.
TJX may also be contingently liable on up to
eight
leases of former TJX businesses, for which we believe the likelihood of future liability to TJX is remote, and has contingent obligations in connection with certain assigned or sublet properties that TJX is able to estimate. We estimate that the undiscounted obligations of (i) leases of former operations not included in our reserve for former operations and (ii) properties of our former operations if the subtenants or assignees do not fulfill their obligations, are approximately
$34.1 million
as of
May 4, 2019
. We believe that most or all of these contingent obligations will not revert to us and, to the extent they do, will be resolved for substantially less due to mitigating factors including our expectation to further sublet.
TJX is a party to various agreements under which it may be obligated to indemnify the other party with respect to certain losses related to matters such as title to assets sold, specified environmental matters or certain income taxes. These obligations are often limited in time and amount. There are no amounts reflected in our Consolidated Balance Sheets with respect to these contingent obligations.
Contingencies
TJX is subject to certain legal proceedings, lawsuits, disputes and claims that arise from time to time in the ordinary course of our business. In addition, TJX is a defendant in several lawsuits filed in federal and state courts brought as putative class or collective actions on behalf of various groups of current and former salaried and hourly associates in the U.S. The lawsuits allege violations of the Fair Labor Standards Act and of state wage and hour and other labor statutes. TJX is also a defendant in a putative class action on behalf of customers relating to compare at pricing. The lawsuits are in various procedural stages and seek monetary damages, injunctive relief and attorneys’ fees. In connection with ongoing litigation, an immaterial amount has been accrued in the accompanying Consolidated Financial Statements.
Note L. Leases
TJX is committed under long-term leases related to its continuing operations for the rental of real estate and certain service contracts containing embedded leases, all of which are operating leases. Real estate leases represent virtually all of our store locations as well as some of our distribution centers and office space. Most of TJX’s leases in the U.S. and Canada are store operating leases with
ten
-year terms and options to extend for
one
or more
five
-year periods. Leases in Europe generally have an initial term of
ten
to
fifteen years
and leases in Australia generally have an initial lease term of primarily
seven
to
ten years
, some of which have options to extend. Many of the Company's leases have options to terminate prior to the lease expiration date. The exercise of both lease renewal and termination options is at our sole discretion and is not reasonably certain at lease commencement. The Company has deemed that major store renovations provide an economic disincentive to terminate the lease and when these renovations occur the Company reassesses the lease term to determine if the next lease option is reasonably certain of being exercised.
While the overwhelming majority of leases have fixed payment schedules, some leases have variable lease payments based on market indices adjusted periodically for inflation, or include rental payments based on a percentage of retail sales over contractual levels. In addition, for real estate leases, TJX is generally required to pay insurance, real estate taxes and other operating expenses including common area maintenance based on proportionate share of premises, and some of these costs are based on a market index, primarily in Canada. For leases with these variable payments based on a market index, the current lease payment amount is used in the calculation of the operating lease liability and corresponding operating lease assets included on the Consolidated Balance Sheets. The operating lease ROU assets also includes any lease payments made in advance of the assets use and is reduced by lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Supplemental balance sheet information related to leases as of
May 4, 2019
is as follows:
|
|
|
|
|
|
|
May 4,
2019
|
Weighted-average remaining lease term (years):
|
|
7.4
|
|
Weighted-average discount rate:
|
|
3.1
|
%
|
The following table is a summary of the Company’s components of net lease cost for the
thirteen weeks
ended
May 4, 2019
:
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
In thousands
|
Classification
|
May 4,
2019
|
Operating lease cost
|
Cost of sales, including buying and occupancy costs
|
$
|
430,331
|
|
Variable and short term lease cost
|
Cost of sales, including buying and occupancy costs
|
281,506
|
|
Total lease cost
|
|
$
|
711,837
|
|
Supplemental cash flow information related to leases for the
thirteen weeks
ended
May 4, 2019
is as follows:
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
In thousands
|
|
May 4,
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows paid for operating leases
|
|
$
|
421,488
|
|
Lease liabilities arising from obtaining right of use assets
|
|
$
|
453,198
|
|
The following table summarizes the maturity of lease liabilities under operating leases as of
May 4, 2019
:
|
|
|
|
|
|
In thousands
|
|
May 4,
2019
|
Fiscal year 2020
(remaining 9 months)
|
|
$
|
1,292,888
|
|
2021
|
|
1,650,563
|
|
2022
|
|
1,499,833
|
|
2023
|
|
1,326,566
|
|
2024
|
|
1,129,183
|
|
Later years
|
|
3,138,587
|
|
Total lease payments
(a)
|
|
10,037,620
|
|
Less: imputed interest
(b)
|
|
1,072,846
|
|
Total lease liabilities
(c)
|
|
$
|
8,964,774
|
|
|
|
(a)
|
Operating lease payments exclude legally binding minimum lease payments for leases signed but not yet commenced and include options to extend lease terms that are now deemed reasonably certain of being exercised according to our Lease Accounting Policy.
|
|
|
(b)
|
Calculated using the incremental borrowing rate for each lease.
|
|
|
(c)
|
Total lease liabilities are broken out on the Consolidated Balance Sheets between Current portion of operating lease liabilities and Long-term operating lease liabilities.
|
The following table represents the gross minimum rental commitments under noncancelable leases, as disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2019:
|
|
|
|
|
|
|
In thousands
|
|
|
February 2,
2019
|
Fiscal year 2020
|
|
|
$
|
1,676,700
|
|
2021
|
|
|
1,603,378
|
|
2022
|
|
|
1,441,444
|
|
2023
|
|
|
1,253,420
|
|
2024
|
|
|
1,042,184
|
|
Later years
|
|
|
2,774,845
|
|
Total lease payments
|
|
|
$
|
9,791,971
|
|