PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) On November 17, 1995, The TJX Companies, Inc., (the Company) acquired the stock of Marshalls of Roseville, Minn., Inc. (Marshalls) from Melville Corporation. Marshalls and its wholly owned subsidiaries, operate the chain of Marshalls off-price apparel retail stores. On November 17, 1995, the Company paid $550 million ($375 million in cash and $175 million in junior convertible preferred stock), and assumed certain liabilities, based on an estimated October 31, 1995 balance sheet of the Marshalls division. The final purchase price, before acquisition costs, is subject to change based on the actual balance sheet of Marshalls as of November 17, 1995, but cannot exceed $600 million. The Company expects the actual purchase price, before acquisition costs, based on Marshalls actual balance sheet as of November 17 will approximate $600 million. The pro forma condensed consolidated financial statements assume the pro forma purchase price is based on Marshalls historical balance sheet as of September 30, 1995. Marshalls net assets as of September 30, 1995 are less than those of November 17, 1995 due to seasonal working capital requirements and accordingly the pro forma condensed consolidated financial statements reflect a lower purchase price for pro forma purposes of $536 million, including acquisition costs. The pro forma condensed consolidated balance sheet as of October 28, 1995, assumes the acquisition took place on that date, and is based on the unaudited historical balance sheet of the Company as of October 28, 1995 and the unaudited historical balance sheet of Marshalls as of September 30, 1995, a copy of which is included with this filing (the Company's fiscal year ends one month later than that of Marshalls). The pro forma adjustments eliminate the Marshalls assets and liabilities not acquired, record the pro forma purchase price of $536 million and allocate the pro forma purchase price to the assets acquired and the liabilities assumed based on their fair market value on date of acquisition. The Company believes the final allocation of purchase price will not differ significantly from the estimates included in the pro forma condensed consolidated financial statements. The acquisition has been accounted for under the purchase method of accounting. The pro forma condensed consolidated statement of income for the nine months ended October 28, 1995 includes the unaudited historical statement of income of the Company as reported on Form 10Q for the quarter ended October 28, 1995 and the unaudited historical statement of operations for Marshalls for the nine months ended September 30, 1995 (copy included with this filing) adjusted for one month to present seasonal operating results comparable with that of the Company (see Note 2(a)). The pro forma condensed consolidated statement of income for the year ended January 26, 1995 includes the audited historical results of the Company as reported on Form 10-K for the year ended January 26, 1995, restated to reflect the Company's September 1995 sale of its Hit or Miss division as a discontinued operation, and includes Marshalls historical audited statement of operations for the year ended December 31, 1994 (copy included with this filing) adjusted for one month to present a comparable period with that of the Company (see Note 2(a)). The pro forma adjustments to both income statements reflect the impact of the transaction as if it occurred on January 30, 1994. These pro forma condensed consolidated financial statements have been prepared for information purposes only and do not purport to indicate what necessarily would have occurred had the entities been combined since the applicable date or what results may be in the future. The accompanying pro forma condensed consolidated financial statements should be read in conjunction with the historical financial statements of the Company and the historical financial statements of Marshalls included with this filing. THE TJX COMPANIES, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF OCTOBER 28, 1995 (UNAUDITED) (In Thousands) Historical The TJX Pro Forma Pro Forma Companies, Inc. Marshalls Adjustments Consolidated ASSETS Current assets: Cash and cash equivalents $ 26,902 $ 15,077 $ (13,077) (1) $ 28,902 Accounts receivable 135,901 45,058 (24,578) (1) 156,381 Merchandise inventories 1,111,651 607,429 24,381 (1) 1,743,461 Prepaid expenses 31,367 9,004 (5,052) (1) 35,319 Income tax receivable - 18,714 (18,714) (1) - Total current assets 1,305,821 695,282 (37,040) 1,964,063 Property, net 481,885 444,359 (114,485) (1) 811,759 Other assets 27,580 21,354 (21,354) (1) 27,580 Goodwill and trademarks, net of amortization 87,993 28,652 107,608 (1) 224,253 TOTAL ASSETS $1,903,279 $1,189,647 $ (65,271) $3,027,655 LIABILITIES Current liabilities: Short-term debt $ 97,699 $ - $ (14,388) (1) $ 83,311 Current installments of long-term debt 56,048 - - 56,048 Accounts payable 407,778 243,688 - 651,466 Accrued expenses and other current liabilities 308,308 137,981 207,095 (1) 653,384 Due to Parent - 154,582 (154,582) (1) - Total current liabilities 869,833 536,251 38,125 1,444,209 Long-term debt exclusive of current installments 410,566 - 375,000 (1) 785,566 Deferred income taxes 34,780 19,259 (19,259) (1) 34,780Other long-term liabilities SHAREHOLDERS' EQUITY Convertible preferred stock at face value 107,500 - 175,000 (1) 282,500 Common stock 72,419 352 (352) (1) 72,419 Additional paid-in capital 267,743 152,839 (152,839) (1) 267,743 Retained earnings 140,438 467,358 (467,358) (1) 140,438 Total shareholders' equity 588,100 620,549 (445,549) 763,100 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,903,279 $1,189,647 $ (65,271) $3,027,655 See notes to the unaudited pro forma condensed consolidated financial statements. THE TJX COMPANIES, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED OCTOBER 28, 1995 (UNAUDITED) ($'s In Thousands Except Per Share Amounts) Historical The TJX Pro Forma Pro Forma Companies, Inc. Marshalls Adjustments Consolidated Net sales $2,692,047 $1,852,245 $ 74,164 (2a) $4,618,456 Cost of sales, including 34,641 (2a) buying and occupancy costs 2,040,124 1,561,382 (7,575) (2c) 3,628,572 Selling, general and 8,448 (2a) administrative expenses 534,079 355,867 2,018 (2d) 900,412 18 (2a) Interest expense, net 29,562 6,030 22,088 (2b) 57,698 Income (loss) from continuing operations before income taxes 88,282 (71,034) 14,526 31,774 Provision (benefit) for income taxes 37,182 (28,369) 5,810 (2e) 14,623 Income (loss) from continuing operations 51,100 (42,665) 8,716 17,151 Preferred stock dividends (5,367) - (7,875) (2f) (13,242) Income (loss) from continuing operations available to common shareholders $ 45,733 $ (42,665) $ 841 $ 3,909 Income from continuing operations per share $ .63 $ .05 Number of common shares for per share computations 72,484,535 2,024,292 (2g) 74,508,827 See notes to the unaudited pro forma condensed consolidated financial statements. THE TJX COMPANIES, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE FISCAL YEAR ENDING JANUARY 28, 1995 (UNAUDITED) ($'s In Thousands Except Per Share Amounts) Historical The TJX Pro Forma Pro Forma Companies, Inc. Marshalls Adjustments Consolidated Net sales $3,489,146 $2,774,851 $ 5,080 (2a) $6,269,077 Cost of sales, including 19,459 (2a) buying and occupancy costs 2,643,323 2,139,817 (10,100) (2c) 4,792,499 Selling, general and 2,648 (2a) administrative expenses 673,187 495,254 2,690 (2d) 1,173,779 Realignment charge (credit) - (7,200) - (7,200) 584 (2a) Interest expense, net 24,484 1,778 29,450 (2b) 56,296 Income (loss) from continuing operations before income taxes 148,152 145,202 (39,651) 253,703 Provision (benefit) for income taxes 61,573 55,351 (15,860) (2e) 101,064 Income (loss) from continuing operations 82,579 89,851 (23,791) 152,639 Preferred stock dividends (7,156) - (10,953) (2f) (18,109) Income from continuing operations available to common shareholders $ 79,423 $ 89,851 $ (34,744) $ 134,530 Income from continuing operations per share $1.08 $1.70 Number of common shares for per share computations 73,467,003 16,112,090 (2g) 89,579,093 See notes to the unaudited pro forma condensed consolidated financial statements. THE TJX COMPANIES, INC. NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (In Thousands) NOTE 1 The pro forma adjustments to the condensed consolidated balance sheet reflect the purchase of Marshalls, the elimination of assets and liabilities not acquired and the allocation of the pro forma purchase price to the assets acquired and liabilities assumed based on the fair market value at date of acquisition. The pro forma adjustments include the impact of conforming Marshalls accounting policies to those of the Company. Pro Forma Balances Not Purchase Price Acquired Allocation Total ASSETS Cash & cash equivalents $ (13,077) $ - $ (13,077) Accounts receivable (23,813) (765)(b) (24,578) Merchandise inventories 3,599 20,782 (b) 24,381 Prepaid expenses (1,610) (3,442)(b) (5,052) Income tax receivable (18,714) - (18,714) Property, net - (114,485)(b) (114,485) Other assets (4,285) (17,069)(b) (21,354) Goodwill & trademarks - 107,608 (b) 107,608 (57,900) (7,371) (65,271) LIABILITIES & EQUITY Short-term debt - (14,388)(a) (14,388) Accrued expenses (43,548) 250,643 (b) 207,095 Due to Parent (154,582) - (154,582) Long-term debt - 375,000 (a) 375,000 Deferred income taxes (19,259) - (19,259) Other long-term liabilities (4,167) (9,421)(b) (13,588) Preferred stock - 175,000 (a) 175,000 Common stock (352) - (352) Additional paid in capital (152,839) - (152,839) Retained earnings (467,358) - (467,358) (842,105) 776,834 (65,271) TOTAL $(784,205) $ 784,205 $ 0 (a) The pro forma purchase price of $536 million is assumed to be paid from the proceeds of the $375 million five year bank term loan, obtained to finance the cash portion of the purchase price, and the issuance of $175 million junior convertible preferred stock. The pro forma condensed consolidated financial statements assumes the amount borrowed in excess of the cash portion of the pro forma purchase price would have been used to reduce short- term debt. (b) Adjustment to reflect the fair value of assets acquired and liabilities assumed including negative goodwill of approximately $57 million which was allocated pro rata to long-term assets. The following summarizes major balance sheet classifications. - Merchandise inventories - Valued based on an estimate of net realizable value of inventory purchased using the retail method. - Property, net - The net adjustment includes a write down of fixtures and leasehold improvements to fair value, partially offset by value assigned to leases purchased. The adjustment reflects the anticipated closing of approximately 170 Marshalls stores and includes a reduction for a portion of negative goodwill. - Goodwill and trademarks - Adjustment reflects the value assigned to the "Marshalls" tradename, offset by the elimination of goodwill recorded by Marshalls in a prior acquisition. The net adjustment includes a reduction for a portion of negative goodwill. - Other assets - Adjustment is to eliminate deferred charges associated with leases acquired. - Accrued expenses - Reflects a reserve for the anticipated closing of approximately 170 Marshalls stores, the closing of certain facilities, a reserve for inventory markdowns and the accrual of other liabilities associated with the purchase. The difference between the values assigned to assets and liabilities for book purposes versus tax purposes result in offsetting deferred tax assets and liabilities at the date of acquisition. NOTE 2 The pro forma condensed consolidated statement of income reflects the following adjustments: (a) To adjust Marshalls fiscal reporting periods to be comparable with the reporting periods of the Company. Nine Months Ended October 28, 1995 Marshalls Marshalls Nine Months Ended Pro Forma Nine Months Ended 9/30/95* Adjustment 10/28/95 Net Sales $1,852,245 $74,164 $1,926,409 Cost of sales, including buying and occupancy costs 1,561,382 34,641 1,596,023 Selling, general and administrative expenses 355,867 8,448 364,315 Interest expense, net 6,030 18 6,048 Income (loss) from continuing operations before income taxes $ (71,034) $31,057 $ (39,977) Fiscal Year Ended January 28, 1995 Marshalls Marshalls Fiscal Year Ended Pro Forma Fiscal Year Ended 12/31/94* Adjustment 1/28/95 Net sales $2,774,851 $5,080 $2,779,931 Cost of sales, including buying and occupancy costs 2,139,817 19,459 2,159,276 Selling, general and administrative expenses 495,254 2,648 497,902 Realignment credit (7,200) - (7,200) Interest expense, net 1,778 584 2,362 Income (loss) from continuing operations before income taxes $ 145,202 $(17,611) $ 127,591 * Includes reclassification of certain amounts to conform with the historical presentation of the Company. (b) To record additional interest costs related to the new bank agreement entered into as a result of the purchase of Marshalls. The interest on the $375 million term loan is adjusted periodically in relation to Eurodollar market and currently approximates 7%. Deferred financing charges of $13 million associated with the term loan and the $500 million revolving credit facility are amortized into interest expense at $3.2 million annually. Nine Months Fiscal Year Ended 10/28/95 Ended 1/28/95 Interest expense $22,088 $ 29,450 (c) To reflect reduced depreciation expense due to the net write down of property to fair value. Nine Months Fiscal Year Ended 10/28/95 Ended 1/28/95 - Cost of sales including buying and occupancy (7,575) (10,100) (d) To record amortization of "Marshalls" trade name over estimated life of 40 years, net of reduction in amortization due to elimination of goodwill from prior acquisitions. Nine Months Fiscal Year Ended 10/28/95 Ended 1/28/95 - Selling, general and administrative expenses 2,018 2,690 (e) To record the income tax provision (benefit) associated with the pro forma adjustments at the marginal tax rate of 40%. Nine Months Fiscal Year Ended 10/28/95 Ended 1/28/95 - Provision (benefit) for income taxes 5,810 (15,860) (f) To reflect preferred dividends payable on the convertible preferred stock issued in the transaction. Nine Months Fiscal Year Ended 10/28/95 Ended 1/28/95 Series D, 250,000 shares with face value of $25 million; annual dividend $1.8138/share $ - $ 453 Series E, 1,500,000 shares with face value of $150 million; annual dividend of $7.00/share 7,875 10,500 $7,875 $10,953 The Series D is automatically convertible into common stock one year after it is issued and thus the pro forma condensed consolidated financial statements assume conversion into common stock at the maximum number of shares (see 2(g)) at the end of the fiscal year 1/28/95. (g) To adjust shares outstanding for dilutive impact of assumed conversion of the Company's Series A and Series C preferred stock and for the pro forma impact of the preferred stock issued for the purchase of Marshalls (Series D and E). Nine Months Fiscal Year Ended 10/28/95 Ended 1/28/95 Series A - 1,190,476 Series C - 3,180,723 Series D 2,024,292 2,024,292 Series E - 9,716,599 Total 2,024,292 16,112,090 The Series D and Series E preferred stock are convertible into an aggregate of 9.4 million to 11.7 million shares of common stock, depending on the market value of the common stock at time of conversion. The pro forma adjustments with regard to Series D and Series E above assume the maximum number of common shares are issued. NOTE 3 The following should be noted in reviewing the pro forma condensed consolidated income statements. - - The Company anticipates closing approximately 170 Marshalls stores, certain costs of which have been reserved for in the pro forma condensed consolidated balance sheet. The pro forma condensed consolidated income statement has not been adjusted to reflect the impact the closing of these stores will have on ongoing operations. - - The Company anticipates closing approximately 30 T.J. Maxx stores and expects to record a pre-tax charge of $35 million in the fourth quarter of its fiscal year ending January 27, 1996. This charge will reduce income from continuing operations by approximately $.29 per share. Neither the T.J. Maxx closing reserve, nor the impact the closings will have on ongoing operations, have been reflected in the pro forma condensed consolidated financial statements. - - Savings the Company may generate by consolidating responsibilities and reducing overhead have not been factored into the pro forma condensed consolidated financial statements.