FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
/X/ Quarterly Report under Section 13 and 15(d)
Of the Securities Exchange Act of 1934
Or
/ / Transition Report Pursuant to Section 13 and 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended October 27, 2001
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 (I.R.S. Employer
incorporation or organization) 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)
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 [X]. No [ ].
The number of shares of Registrant's common stock outstanding as of November 24,
2001: 272,738,553
1
PART I FINANCIAL INFORMATION
THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
Thirteen Weeks Ended
---------------------------
October 27, October 28,
2001 2000
----------- -----------
Net sales $ 2,741,769 $ 2,461,411
----------- -----------
Cost of sales, including buying and occupancy costs 2,059,996 1,807,748
Selling, general and administrative expenses 431,721 385,666
Interest expense, net 8,537 9,379
----------- -----------
Income from continuing operations before
provision for income taxes 241,515 258,618
Provision for income taxes 92,017 100,344
----------- -----------
Income from continuing operations 149,498 158,274
Loss related to discontinued operations, net of income taxes (40,000) --
----------- -----------
Net Income $ 109,498 $ 158,274
=========== ===========
Earnings per share:
Income from continuing operations:
Basic $ .55 $ .56
Diluted $ .54 $ .56
Net income:
Basic $ .40 $ .56
Diluted $ .40 $ .56
Cash dividends declared per share $ .045 $ .04
The accompanying notes are an integral part of the financial statements.
2
PART I FINANCIAL INFORMATION
THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
Thirty-Nine Weeks Ended
---------------------------
October 27, October 28,
2001 2000
----------- -----------
Net sales $ 7,500,286 $ 6,827,701
----------- -----------
Cost of sales, including buying and occupancy costs 5,641,316 5,064,086
Selling, general and administrative expenses 1,218,434 1,088,097
Interest expense, net 18,441 17,206
----------- -----------
Income from continuing operations before
provision for income taxes 622,095 658,312
Provision for income taxes 237,018 255,425
----------- -----------
Income from continuing operations 385,077 402,887
Loss related to discontinued operations, net of income taxes (40,000) --
----------- -----------
Net Income $ 345,077 $ 402,887
=========== ===========
Earnings per share:
Income from continuing operations:
Basic $ 1.39 $ 1.39
Diluted $ 1.38 $ 1.38
Net income:
Basic $ 1.25 $ 1.39
Diluted $ 1.24 $ 1.38
Cash dividends declared per share $ .135 $ .12
The accompanying notes are an integral part of the financial statements.
3
THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
IN THOUSANDS
October 27, January 27, October 28,
2001 2001 2000
----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 76,088 $ 132,535 $ 55,481
Accounts receivable 94,130 61,845 70,719
Merchandise inventories 1,990,920 1,452,877 1,949,730
Prepaid expenses and other current assets 64,474 74,690 47,923
----------- ----------- -----------
Total current assets 2,225,612 1,721,947 2,123,853
----------- ----------- -----------
Property at cost:
Land and buildings 140,112 133,714 133,575
Leasehold costs and improvements, including
capitalized leases 840,657 704,011 684,499
Furniture, fixtures and equipment 1,157,646 984,848 935,536
----------- ----------- -----------
2,138,415 1,822,573 1,753,610
Less accumulated depreciation and amortization 1,044,901 914,590 875,348
----------- ----------- -----------
1,093,514 907,983 878,262
Other assets 73,528 69,976 93,802
Deferred income taxes, net 65,096 47,391 40,955
Goodwill and tradename, net of amortization 180,576 184,986 186,411
----------- ----------- -----------
TOTAL ASSETS $ 3,638,326 $ 2,932,283 $ 3,323,283
=========== =========== ===========
LIABILITIES
Current liabilities:
Current installments of long-term debt $ 351,285 $ 73 $ 155
Short-term debt -- 39,000 311,000
Accounts payable 882,631 645,672 881,224
Accrued expenses and other current liabilities 493,973 501,822 437,805
Federal and state income taxes payable 71,321 42,192 88,633
----------- ----------- -----------
Total current liabilities 1,799,210 1,228,759 1,718,817
----------- ----------- -----------
Other long-term liabilities 234,381 165,440 188,029
Capital lease obligations 30,656 -- --
Long-term debt, exclusive of current installments 319,430 319,372 319,357
Commitments and contingencies -- -- --
SHAREHOLDERS' EQUITY
Common stock, authorized 1,200,000,000 shares,
par value $1, issued and outstanding 272,524,929;
280,378,675 and 279,772,945 shares, respectively 272,525 280,379 279,773
Additional paid-in capital -- -- --
Accumulated other comprehensive income (loss) (3,253) (3,288) (1,929)
Retained earnings 985,377 941,621 819,236
----------- ----------- -----------
Total shareholders' equity 1,254,649 1,218,712 1,097,080
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,638,326 $ 2,932,283 $ 3,323,283
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
4
THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
IN THOUSANDS
Thirty-Nine Weeks Ended
-----------------------
October 27, October 28,
2001 2000
--------- ---------
Cash flows from operating activities:
Net income $ 345,077 $ 402,887
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss from discontinued operations 40,000 --
Depreciation and amortization 152,386 130,985
(Gain) on sale of other assets -- (722)
Property disposals 2,441 861
Tax benefit of employee stock options 21,125 1,052
Changes in assets and liabilities:
(Increase) in accounts receivable (32,474) (15,454)
(Increase) in merchandise inventories (544,165) (731,587)
Decrease (increase) in deferred income taxes 8,823 (17,901)
Decrease (increase) in prepaid expenses and other current assets 9,976 (13,080)
Increase in accounts payable 239,961 270,835
(Decrease) increase in accrued expenses and other liabilities (12,859) 26,346
Increase in income taxes payable 29,132 45,907
Other, net (375) (5,190)
--------- ---------
Net cash provided by operating activities 259,048 94,939
--------- ---------
Cash flows from investing activities:
Property additions (297,112) (181,319)
Issuance of note receivable (5,537) (18,524)
Proceeds from sale of other assets -- 9,183
--------- ---------
Net cash (used in) investing activities (302,649) (190,660)
--------- ---------
Cash flows from financing activities:
Proceeds from current year borrowings of short-term debt, net -- 311,000
Payments on short-term debt outstanding from prior year (39,000) --
Proceeds from borrowing of long-term debt 347,579 --
Payments on capital lease obligation (697) --
Principal payments on long-term debt (67) (100,273)
Cash payments for repurchase of common stock (326,876) (400,355)
Proceeds from sale and issuance of common stock, net 40,544 4,051
Cash dividends paid (36,022) (33,496)
--------- ---------
Net cash (used in) financing activities (14,539) (219,073)
--------- ---------
Effect of exchange rate changes on cash 1,693 (1,484)
--------- ---------
Net (decrease) in cash and cash equivalents (56,447) (316,278)
Cash and cash equivalents at beginning of year 132,535 371,759
--------- ---------
Cash and cash equivalents at end of period $ 76,088 $ 55,481
========= =========
The accompanying notes are an integral part of the financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results for the first nine months are not necessarily indicative of
results for the full fiscal year, because 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.
2. The preceding data are unaudited and reflect all normal recurring
adjustments, the use of retail statistics, and accruals and deferrals among
periods required to match costs properly with the related revenue or
activity, considered necessary by TJX for a fair presentation of its
financial statements for the periods reported, all in accordance with
generally accepted accounting principles and practices consistently
applied.
3. TJX's cash payments for interest and income taxes are as follows:
Thirty-Nine Weeks Ended
--------------------------
October 27, October 28,
2001 2000
-------- --------
(In Thousands)
Cash paid for:
Interest on debt $ 14,342 $ 20,669
Income taxes $175,391 $225,558
Effective June 1, 2001, TJX recorded a capital lease asset and a related
capital lease obligation (non-cash transaction) of $32.6 million in
connection with the lease of 283,000 square feet of additional office space
in Framingham, Massachusetts.
4. On August 20, 2001, Ames Department Stores, Inc filed a voluntary petition
for relief under Chapter 11 of the Federal Bankruptcy Code. In 1988, TJX
completed the sale of its former Zayre Stores division to Ames. Ames
emerged from a prior bankruptcy under a plan of reorganization in 1992. TJX
remains contingently liable on certain leases of the former Zayre stores
still leased by Ames following the prior reorganization. TJX believes
that its current reserve for discontinued operations is adequate to meet
the costs it may incur with respect to the Ames bankruptcy and that its
contingent liability for these leases will not have a material adverse
effect on its financial condition, operating results or cash flows. TJX is
not contingently liable with respect to substantially all of the leases for
stores closed and leases rejected by Ames to date in its current
reorganization.
On November 7, 2001, House2Home, Inc. filed for a voluntary petition for
relief under Chapter 11 of the Federal Bankruptcy Code and subsequently
announced its intention to liquidate the business. House2Home (formerly
known as Waban, Inc. and HomeBase, Inc.) was spun off by TJX, along with
BJ's Wholesale Club in 1989. In 1997, House2Home spun-off BJ's Wholesale
Club Inc. and BJ's Wholesale Club, Inc. agreed to indemnify TJX for all
liabilities relating to the House2Home leases with respect to the period
through January 31, 2003, and 50% of such liabilities thereafter. As a
result of House2Home's filing, TJX recorded an estimated after-tax charge
of $40 million (net of income taxes of $27 million), or $.14 per share, for
the present value of the potential contingent lease obligations associated
with up to 41 House2Home locations. The charge was recorded in the third
quarter ending October 27, 2001 as a loss relating to discontinued
operations. If TJX were liable on all 41 of the leases, the discounted
present value after-tax cost, without reflecting any mitigating factors,
would be $64.6 million, net of the indemnification by BJ's Wholesale Club,
Inc. The number and cost of the lease obligations for which TJX may have
liability may be reduced by lease terminations, expirations, subletting,
assignments, buyouts, lease modifications and other actions. TJX believes
that its reserve appropriately reflects these possible outcomes and that
any contingent liability for these leases will not have a material adverse
effect on its financial condition, operating results or cash flows.
TJX is also contingently liable on certain leases of BJ's Wholesale Club,
Inc. for which BJ's Wholesale Club, Inc. is primarily liable.
The contingent lease obligations with respect to TJX's former Hit or Miss
division, which filed for bankruptcy and liquidated, have been
substantially resolved and TJX believes that its current reserve for
discontinued operations is adequate to meet the costs it may incur in
connection with Hit or Miss.
6
5. Effective January 28, 2001, TJX implemented Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires that all derivatives be
recorded on the balance sheet at fair value. TJX enters derivative
contracts to hedge its net investment in foreign operations, and to hedge
certain foreign denominated merchandise commitments and intercompany
payables. The fair value of all its derivative contracts as of January 28,
2001, most of which were net investment hedge contracts, amounted to a net
asset of $10.0 million, as compared to a carrying value of $11.6 million.
This resulted in a reduction to accumulated other comprehensive income for
the cumulative effect of an accounting change of $1.6 million.
TJX records all of its hedge contracts at fair value. The change in fair
value of the contracts designated as a hedge of the net investment in
foreign operations resulted in a net gain, which was credited to other
comprehensive income to offset losses of the translation adjustment of its
foreign operations. The remainder of TJX's hedge contracts were either
designated as fair value hedges or hedge accounting was not elected. The
change in fair value of these contracts, which is immaterial, is reflected
in current period earnings.
6. TJX's comprehensive income for the periods ended October 27, 2001 and
October 28, 2000 is presented below:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------------- -----------------------------
October 27, October 28, October 27, October 28,
2001 2000 2001 2000
--------- --------- --------- ---------
(Dollars in thousands) (Dollars in thousands)
Net income $ 109,498 $ 158,274 $ 345,077 $ 402,887
Other comprehensive income (loss):
Cumulative effect of accounting
change (SFAS 133) -- -- (1,572) --
Loss due to foreign currency
translation adjustments (1,435) (5,566) (3,786) (14,433)
Gain on net investment hedge contracts 1,143 5,580 5,142 13,804
Amounts reclassified from other
comprehensive income to net income -- -- 251 133
--------- --------- --------- ---------
Comprehensive income $ 109,206 $ 158,288 $ 345,112 $ 402,391
========= ========= ========= =========
7
7. The computation of basic and diluted earnings per share is as follows:
Thirteen Weeks Ended
-------------------------------
October 27, October 28,
2001 2000
------------ ------------
(Dollars in thousands)
(except per share amounts)
Income from continuing operations $ 149,498 $ 158,274
Net income $ 109,498 $ 158,274
Shares for basic and diluted earnings per share calculations:
Average common shares outstanding for basic EPS 273,384,485 280,987,221
Dilutive effect of stock options and awards 2,695,347 1,946,497
------------ ------------
Average common shares outstanding for diluted EPS 276,079,832 282,933,718
============ ============
Income from continuing operations:
Basic earnings per share $ .55 $ .56
Diluted earnings per share $ .54 $ .56
Net income:
Basic earnings per share $ .40 $ .56
Diluted earnings per share $ .40 $ .56
Thirty-Nine Weeks Ended
-------------------------------
October 27, October 28,
2001 2000
------------ ------------
(Dollars in thousands)
(except per share amounts)
Income from continuing operations $ 385,077 $ 402,887
Net income $ 345,077 $ 402,887
Shares for basic and diluted earnings per share calculations:
Average common shares outstanding for basic EPS 276,310,351 290,051,195
Dilutive effect of stock options and awards 2,828,658 1,860,134
------------ ------------
Average common shares outstanding for diluted EPS 279,139,009 291,911,329
============ ============
Income from continuing operations:
Basic earnings per share $ 1.39 $ 1.39
Diluted earnings per share $ 1.38 $ 1.38
Net income:
Basic earnings per share $ 1.25 $ 1.39
Diluted earnings per share $ 1.24 $ 1.38
8. During the third quarter ended October 27, 2001, TJX repurchased 2.4
million shares of its common stock under its $1 billion stock repurchase
program at a cost of $75.5 million. For the nine months ended October 27,
2001, TJX repurchased 10.9 million shares at a cost of $335.3 million.
Since the inception of the $1 billion stock repurchase program through
October 27, 2001, TJX repurchased 30.4 million shares at a cost of $716.9
million.
8
9. On February 13, 2001, TJX issued $517.5 million zero coupon convertible
subordinated notes due February 2021 and raised gross proceeds of $347.6
million. The issue price of the notes represented a yield to maturity of 2%
per year. The notes are convertible into 8.5 million shares of common stock
if specified conditions are met. These conditions have not been met as of
October 27, 2001 and thus the shares are excluded from the diluted earnings
per share calculations. The holders of the notes have the right to require
TJX to purchase the notes at the end of the first, third, sixth and twelfth
year following the issuance date. As of October 27, 2001, TJX has
classified the notes as current liabilities due to the February 2002 put
option. If the holders exercise this option, TJX expects to fund the
payment with cash, its short-term credit facility, new long-term borrowings
or a combination thereof. Due to the February 2002 put option, the debt
expense of approximately $8 million is being amortized over twelve months.
10. TJX evaluates the performance of its segments based on "operating income"
which is defined as pre-tax income before general corporate expense,
goodwill amortization and interest. Presented below is financial
information on TJX's business segments.
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------------ ------------------------------
October 27, October 28, October 27, October 28,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales:
Marmaxx $ 2,271,893 $ 2,107,248 $ 6,269,190 $ 5,909,129
Winners * 179,797 161,019 463,881 409,417
T.K. Maxx 126,307 96,239 333,818 254,225
HomeGoods 125,181 77,038 335,836 203,325
A.J. Wright 38,591 19,867 97,561 51,605
----------- ----------- ----------- -----------
$ 2,741,769 $ 2,461,411 $ 7,500,286 $ 6,827,701
=========== =========== =========== ===========
Operating income (loss):
Marmaxx $ 244,266 $ 248,992 $ 646,586 $ 658,250
Winners * 18,850 26,018 40,430 54,569
T.K. Maxx 2,149 5,646 6,408 4,683
HomeGoods 1,496 1,211 (2,392) 1,854
A.J. Wright (3,108) (4,002) (10,183) (11,549)
----------- ----------- ----------- -----------
263,653 277,865 680,849 707,807
General corporate expense 12,950 9,216 38,358 30,332
Goodwill amortization 651 652 1,955 1,957
Interest expense, net 8,537 9,379 18,441 17,206
----------- ----------- ----------- -----------
Income from continuing operations
before provision for income taxes $ 241,515 $ 258,618 $ 622,095 $ 658,312
=========== =========== =========== ===========
* Includes the operating results of the new HomeSense stores which commenced
operations in April 2001.
11. In June 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets." This statement addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. We will implement SFAS No. 142 for
our fiscal year beginning January 27, 2002. As a result of the new standard
TJX will no longer amortize its goodwill or the Marshalls
9
tradename which has an indefinite life. This will increase annual net
income by approximately $5 million, or $.02 per share.
In August 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses how
impairments and disposals of long-lived assets should be accounted for and
expands the scope of discontinued operations. TJX expects to implement SFAS
No. 144 for the fiscal year beginning January 27, 2002 and believes the
impact of the new standard is immaterial.
12. Certain amounts in the financial statements of the prior period have been
reclassified for comparative purposes.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Thirty-Nine Weeks Ended
October 27, 2001
Versus Thirty-Nine Weeks Ended October 28, 2000
All reference to earnings per share amounts are diluted earnings per share
unless otherwise indicated.
Net sales for the third quarter of fiscal 2002 were $2,741.8 million, up 11%
from $2,461.4 million last year. For the thirty-nine week period this year, net
sales were $7,500.3 million, up 10% from $6,827.7 million for the same period
last year. The increase in sales for both periods is attributable to the
addition of new stores and an increase in same store sales. Consolidated same
store sales increased 3% for the third quarter ended October 27, 2001 and
increased 2% for the nine-month period.
Income from continuing operations for the third quarter was $149.5 million, or
$.54 per share, versus $158.3 million, or $.56 per share last year. For the
thirty-nine week period, income from continuing operations was $385.1 million,
or $1.38 per share, versus $402.9 million, or $1.38 per share in the prior year.
The thirteen weeks and thirty-nine weeks ended October 27, 2001, include an
after-tax charge of $40 million, or $.14 per share, to discontinued operations
for contingent lease obligations associated with House2Home, Inc. which was
spun-off by TJX in 1989.
The following table sets forth operating results expressed as a percentage of
net sales:
Percentage of Net Sales
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------- -------------------------
October 27, October 28, October 27, October 28,
2001 2000 2001 2000
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Cost of sales, including buying and occupancy
costs 75.1 73.4 75.2 74.2
Selling, general and administrative expenses 15.7 15.7 16.2 15.9
Interest expense, net .4 .4 .3 .3
------ ------ ------ ------
Income from continuing operations
before provision for income taxes 8.8% 10.5% 8.3% 9.6%
====== ====== ====== ======
Cost of sales including buying and occupancy costs, as a percentage of net
sales, increased for both periods. The increase in this ratio for the periods
ended October 27, 2001, is largely due to aggressive pricing on some merchandise
categories in response to the fall-off in consumer confidence caused by the
September 11 attacks, our normal rapid markdown policy and, to a lesser extent,
higher distribution costs. This pricing strategy helped to drive sales for the
quarter, but had an adverse impact on merchandise margins. On a year-to-date
basis, the increase in this ratio also reflects the effect of less than planned
growth in sales. We expect distribution costs to continue to increase in the
short term due to increased investment in our distribution center network.
Selling, general and administrative expenses, as a percentage of net sales,
increased for the nine month period from the prior year due to higher store
payroll costs in the first half of this fiscal year, primarily at Marmaxx, as
well as the effect of
11
less than planned growth in sales. The increase in store payroll costs is due to
higher labor costs.
Interest expense, net includes interest income of $2.0 million in the third
quarter of the current year versus $.9 million of interest income in the third
quarter last year. The thirty-nine weeks ended this year includes interest
income of $11.7 million versus $9.1 million of interest income last year. The
increase in gross interest expense, over the comparable periods last year, is
due to the amortization of the debt discount and debt expenses relating to zero
coupon convertible notes issued in February 2001 (see Note 9 of the Notes to
Consolidated Financial Statements for more information).
Our effective income tax rate was 38.1% for both the three months and the nine
months ended October 27, 2001 versus 38.8% for both the three months and nine
months ended October 28, 2000. The reduction in the income tax rate is
attributable to tax benefits associated with our United Kingdom operations.
The following is a summary of key operating statistics of our business segments:
(US dollars in millions)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------- ---------------------------
October 27, October 28, October 27, October 28,
2001 2000 2001 2000
-------- -------- -------- --------
MARMAXX
Net sales $2,271.9 $2,107.2 $6,269.2 $5,909.1
Operating income $ 244.3 $ 249.0 $ 646.6 $ 658.3
Operating margin 10.8% 11.8% 10.3% 11.1%
Percent increase in same store sales 3% 3% 2% 2%
Stores in operation at end of period 1,254 1,187
WINNERS
Net sales $ 179.8 $ 161.0 $ 463.9 $ 409.4
Operating income $ 18.9 $ 26.0 $ 40.4 $ 54.6
Operating margin 10.5% 16.2% 8.7% 13.3%
Percent increase in same store sales
(local currency) 3% 9% 3% 10%
Stores in operation at end of period
Winners 129 116
HomeSense 7 --
T.K. MAXX
Net sales $ 126.3 $ 96.2 $ 333.8 $ 254.2
Operating income $ 2.1 $ 5.6 $ 6.4 $ 4.7
Operating margin 1.7% 5.9% 1.9% 1.8%
Percent increase in same store sales
(local currency) 0% 10% 5% 9%
Stores in operation at end of period 99 72
12
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------------- ---------------------------
October 27, October 28, October 27, October 28,
2001 2000 2001 2000
------- ------- ------- -------
HOMEGOODS
Net sales $ 125.2 $ 77.0 $ 335.8 $ 203.3
Operating income (loss) $ 1.5 $ 1.2 $ (2.4) $ 1.8
Operating margin 1.2% 1.6% (.7)% .9%
Percent increase in same store sales 7% 0% 5% 5%
Stores in operation at end of period 109 69
A.J. WRIGHT
Net sales $ 38.6 $ 19.9 $ 97.6 $ 51.6
Operating (loss) $ (3.1) $ (4.0) $ (10.2) $ (11.5)
Operating margin (8.1)% (20.1)% (10.4)% (22.4)%
Percent increase in same store sales 18% 16% 19% 20%
Stores in operation at end of period 40 22
Marmaxx same store sales met our expectations for the quarter, but operating
income for the thirteen weeks ended October 27, 2001, was slightly below last
year. Operating income was negatively impacted by the aggressive pricing we
initiated after September 11 to spur customer traffic. The results for the
thirty-nine weeks ended October 2001, also reflect the impact of lower than
planned sales and higher store payroll costs in the first half of this year.
Winners same store sales increases were below plan and operating income was less
than the comparable periods last year. This operating performance is primarily
due to Winners inventory position being above desired levels and the related
costs incurred in the second and third quarter to move to a more liquid
inventory position. The sales results of the new HomeSense stores are above
expectations. The HomeSense operating results are included with Winners, but are
not material.
In the third quarter, T.K. Maxx same store sales were flat and operating income
was below the prior year. Results at this division were negatively impacted in
the third quarter due to inventory above desired levels. In addition, unusually
warm weather in the U.K. and Ireland throughout much of October negatively
affected results. Operating income for the thirty-nine weeks ended October 27,
2001 was ahead of last year reflecting this division's strong sales performance
in the first six months of this year.
HomeGoods same store sales have been aided by progress we have made in dealing
with the distribution issues that adversely affected HomeGoods in the second
half of last year. At the same time however, operating profits for the periods
ending October 27, 2001 were impacted by the increase in distribution costs.
Operating income for the thirteen weeks ended October 2001 was slightly ahead of
last year. The operating income for the thirty-nine week period reflects the
cost HomeGoods incurred in the second quarter to move to a more liquid inventory
position.
The strong sales performance at A.J. Wright led to an improvement in their
operating income and margins as compared to the prior year.
13
Financial Condition
Cash flows from operating activities for the nine months ended October 27, 2001
and October 28, 2000 reflect increases in inventories and accounts payable that
are primarily due to normal seasonal requirements and new stores. The increase
in net cash provided by operating activities for the nine months ended October
27, 2001, as compared to the prior year, is primarily the result of a fresher
and more liquid inventory position.
Investing activities relate primarily to our property additions which are higher
than the comparable period last year due to our accelerated store roll-out
program and investment in our distribution center network. Investing activities
for the period ended October 28, 2000 included proceeds of $9.2 million from the
sale of all of our shares of Manulife Financial received as part of its
demutualization in 1999, and $18.5 million of advances we made under a
construction loan agreement in connection with the expansion of our leased home
office facility.
During the first nine months of fiscal 2002 we repurchased 10.9 million shares
at a total cost of $335.3 million as compared to the repurchase of 20.7 million
shares at a cost of $396.1 million in the same period last year. Since the
inception of the $1 billion stock repurchase program, through October 27, 2001,
we have repurchased 30.4 million shares at a total cost of $716.9 million.
Financing activities for the period ending October 27, 2001 include the payment
of $39 million of short-term debt outstanding at the end of the fiscal year
ended January 27, 2001. Financing activities for the period ended October 27,
2001 also include proceeds of $347.6 million from the February 2001 issuance of
$517.5 million zero coupon convertible subordinated notes due 2021. The holders
of the notes have the right to require us to purchase the notes at the end of
the first, third, sixth and twelfth year following the issuance date. As of
October 27, 2001, we have classified the notes as current liabilities due to the
February 2002 put option. If the holders exercise this option, TJX expects to
fund the payment with cash, our short-term credit facility, new long-term
borrowings, or a combination thereof.
In July 2001, we renewed our $250 million, 364-day revolving credit agreement
through July 5, 2002. Our $500 million, five-year revolving credit facility
extends through September 2002.
On August 20, 2001, Ames Department Stores, Inc filed a voluntary petition for
relief under Chapter 11 of the Federal Bankruptcy Code. In 1988, we completed
the sale of our former Zayre Stores division to Ames. Ames emerged from a prior
bankruptcy under a plan of reorganization in 1992. TJX remains contingently
liable on certain leases of the former Zayre stores still leased by Ames
following the prior reorganization. We believe that our current reserve for
discontinued operations is adequate to meet the costs we may incur with respect
to the Ames bankruptcy and that any contingent liability for these leases will
not have a material adverse effect on our financial condition, operating results
or cash flows. TJX is not contingently liable with respect to substantially all
of the leases for stores closed and leases rejected by Ames to date in its
current reorganization.
On November 7, 2001, House2Home, Inc. filed for a voluntary petition for relief
under Chapter 11 of the Federal Bankruptcy Code and subsequently announced its
intention to liquidate the business. House2Home (formerly known as Waban, Inc.
and HomeBase, Inc.) was spun off by TJX, along with BJ's Wholesale Club in 1989.
In 1997, House2Home spun-off BJ's Wholesale Club Inc. and BJ's Wholesale Club,
Inc. agreed to indemnify TJX for all liabilities relating to the House2Home
leases with respect to the period through January 31, 2003, and 50% of such
liabilities thereafter. As a result of House2Home's filing, TJX recorded an
estimated after-tax charge of $40 million (net of income taxes of $27 million),
or $.14 per share, for the present value of the potential contingent lease
obligations associated with up to 41 House2Home locations. The charge was
recorded in the third quarter ending October 27, 2001 as a loss relating to
discontinued operations. If TJX were liable on all 41 of the leases, the
discounted present value after-tax cost, without reflecting any mitigating
factors, would be $64.6 million, net of the indemnification by BJ's Wholesale
Club, Inc. The number and cost of the lease obligations for which TJX may have
liability may be reduced by lease terminations, expirations, subletting,
assignments, buyouts, lease modifications and other actions. We believe that our
reserve appropriately reflects these possible outcomes and that any contingent
liability for these leases will not have a material adverse effect on our
financial condition, operating results or cash flows.
TJX is also contingently liable on certain leases of BJ's Wholesale Club, Inc.
for which BJ's Wholesale Club, Inc. is primarily liable.
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New Accounting Pronouncements
In June 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." This statement addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in the
financial statements. We will implement SFAS No. 142 for our fiscal year
beginning January 27, 2002. As a result of the new standard TJX will no longer
amortize its goodwill or the Marshalls tradename which has an indefinite life.
This will increase annual net income by approximately $5 million, or $.02 per
share.
In August 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement addresses how impairments and
disposals of long-lived assets should be accounted for and expands the scope of
discontinued operations. We expect to implement SFAS No. 144 for our fiscal year
beginning January 27, 2002 and believe the impact of the new standard is
immaterial.
Forward Looking Information
Certain statements contained in this report are forward-looking and involve a
number of risks and uncertainties. Among the factors that could cause actual
results to differ materially are the following: general economic conditions
including affects of terrorist incidents and military actions and consumer
demand and preferences; weather patterns in areas where we have concentrations
of stores; competitive factors, including pressure from pricing and promotional
activities of competitors; the impact of excess retail capacity and the
availability of desirable store and distribution center locations on suitable
terms; recruiting quality sales associates; the availability, selection and
purchasing of attractive merchandise on favorable terms; potential disruptions
in supply and duties, tariffs and quotas on imported merchandise, as well as
economic and political problems in countries from which merchandise is imported;
currency and exchange rate factors in our foreign operations; expansion of our
store base, development of new businesses and application of our off-price
strategies in foreign countries; our acquisition and divestiture activities; our
ultimate liability with respect to leases relating to discontinued operations
including indemnification and other factors affecting or mitigating our
liability; and other factors that are or may be described in the Company's
filings with the Securities and Exchange Commission. We do not undertake to
publicly update or revise our forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.
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PART II. Other Information
Item 6(a) Exhibits
Item 6(b) Reports on Form 8-K
The Company did not file a current report on Form 8-K during the
quarter ended October 27, 2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE TJX COMPANIES, INC.
-------------------------------------------------
(Registrant)
Date: December 11, 2001
/s/ Donald G. Campbell
-------------------------------------------------
Donald G. Campbell, Executive Vice President -
Finance, on behalf of The TJX Companies, Inc. and
as Principal Financial and Accounting Officer of
The TJX Companies, Inc.
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