THE TJX COMPANIES, INC.
Exhibit 13
SELECTED FINANCIAL DATA (CONTINUING OPERATIONS)
DOLLARS IN THOUSANDS FISCAL YEAR ENDED JANUARY
-------------------------
EXCEPT PER SHARE AMOUNTS 2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
(53 weeks)
Income statement and per share data:
Net sales $ 10,708,998 $ 9,579,006 $ 8,795,347 $ 7,949,101 $ 7,389,069
Income from continuing operations
before extraordinary item
and cumulative effect of
accounting change $ 540,397 $ 538,066 $ 526,822 $ 433,202 $ 306,592
Weighted average common
shares for diluted earnings
per share calculation 278,133,862 289,196,228 317,790,764 334,647,950 349,612,184
Diluted earnings per share from
continuing operations before
extraordinary item and cumulative
effect of accounting change $ 1.94 $ 1.86 $ 1.66 $ 1.29 $ .88
Cash dividends declared per share $ .18 $ .16 $ .14 $ .12 $ .10
Balance sheet data:
Cash and cash equivalents $ 492,776 $ 132,535 $ 371,759 $ 461,244 $ 404,369
Working capital 800,916 537,185 532,017 663,902 648,918
Total assets 3,595,743 2,932,283 2,804,963 2,760,127 2,636,310
Capital expenditures 449,444 257,005 238,569 207,742 192,382
Long-term obligations(1) 702,379 319,372 319,367 220,344 221,024
Shareholders' equity 1,340,698 1,218,712 1,119,228 1,220,656 1,164,092
Other financial data:
After-tax return on average
shareholders' equity 42.2% 46.0% 45.0% 36.3% 26.8%
Total debt as a percentage
of total capitalization(2) 34.4% 22.7% 27.3% 15.3% 17.3%
Stores in operation at year end:
T.J. Maxx 687 661 632 604 580
Marshalls 582 535 505 475 461
Winners 131 117 100 87 76
T.K. Maxx 101 74 54 39 31
HomeGoods 112 81 51 35 23
A.J. Wright 45 25 15 6 --
HomeSense 7 -- -- -- --
------------ ------------ ------------ ------------ ------------
Total 1,665 1,493 1,357 1,246 1,171
============ ============ ============ ============ ============
(1) Includes long-term debt and obligation under capital lease.
(2) Total capitalization includes shareholders' equity, short-term debt, long-
term debt, capital lease obligation and current maturities thereon.
17
THE TJX COMPANIES, INC.
Consolidated Statements of Income
FISCAL YEAR ENDED
-----------------
DOLLARS IN THOUSANDS JANUARY 26 , JANUARY 27, JANUARY 29,
EXCEPT PER SHARE AMOUNTS 2002 2001 2000
------------- ------------- -------------
Net sales $ 10,708,998 $ 9,579,006 $ 8,795,347
------------- ------------- -------------
Cost of sales, including buying and occupancy costs 8,122,922 7,188,124 6,579,400
Selling, general and administrative expenses 1,686,389 1,503,036 1,354,665
Interest expense, net 25,643 22,904 7,345
------------- ------------- -------------
Income from continuing operations before income taxes
and cumulative effect of accounting change 874,044 864,942 853,937
Provision for income taxes 333,647 326,876 327,115
------------- ------------- -------------
Income from continuing operations before
cumulative effect of accounting change 540,397 538,066 526,822
(Loss) from discontinued operations, net of income taxes (40,000) -- --
------------- ------------- -------------
Income before cumulative effect of accounting change 500,397 538,066 526,822
Cumulative effect of accounting change, net of income taxes -- -- (5,154)
------------- ------------- -------------
Net income $ 500,397 $ 538,066 $ 521,668
============= ============= =============
Basic earnings per share:
Income from continuing operations before
cumulative effect of accounting change $ 1.96 $ 1.87 $ 1.67
Net income $ 1.82 $ 1.87 $ 1.66
Weighted average common shares -- basic 275,323,741 287,440,637 314,577,145
Diluted earnings per share:
Income from continuing operations before
cumulative effect of accounting change $ 1.94 $ 1.86 $ 1.66
Net income $ 1.80 $ 1.86 $ 1.64
Weighted average common shares -- diluted 278,133,862 289,196,228 317,790,764
Cash dividends declared per share $ .18 $ .16 $ .14
The accompanying notes are an integral part of the financial statements.
18
THE TJX COMPANIES, INC.
Consolidated Balance Sheets
JANUARY 26, JANUARY 27,
IN THOUSANDS 2002 2001
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 492,776 $ 132,535
Accounts receivable, net 69,209 61,845
Merchandise inventories 1,456,976 1,452,877
Prepaid expenses and other current assets 84,962 74,690
Current deferred income taxes, net 12,003 43,997
----------- -----------
Total current assets 2,115,926 1,765,944
----------- -----------
Property at cost:
Land and buildings 144,958 133,714
Leasehold costs and improvements 880,791 704,011
Furniture, fixtures and equipment 1,210,366 984,848
----------- -----------
2,236,115 1,822,573
Less accumulated depreciation and amortization 1,076,196 914,590
----------- -----------
1,159,919 907,983
----------- -----------
Property under capital lease, net of accumulated
amortization of $1,489 31,083 --
Other assets 83,139 69,976
Non-current deferred income taxes, net 26,575 3,394
Goodwill and tradename, net of amortization 179,101 184,986
----------- -----------
Total Assets $ 3,595,743 $ 2,932,283
----------- -----------
Liabilities
Current liabilities:
Current installments of long-term debt $ -- $ 73
Obligation under capital lease due within one year 1,244 --
Short-term debt -- 39,000
Accounts payable 761,546 645,672
Accrued expenses and other current liabilities 552,220 544,014
----------- -----------
Total current liabilities 1,315,010 1,228,759
----------- -----------
Other long-term liabilities 237,656 165,440
Obligation under capital lease, less portion due within one year 30,336 --
Long-term debt, exclusive of current installments 672,043 319,372
Commitments and contingencies -- --
Shareholders' Equity
Common stock, authorized 1,200,000,000 shares,
par value $1, issued and outstanding 271,537,653
and 280,378,675 shares, respectively 271,538 280,379
Additional paid-in capital -- --
Accumulated other comprehensive income (loss) (6,755) (3,288)
Retained earnings 1,075,915 941,621
----------- -----------
Total shareholders' equity 1,340,698 1,218,712
----------- -----------
Total Liabilities and Shareholders' Equity $ 3,595,743 $ 2,932,283
=========== ===========
The accompanying notes are an integral part of the financial statements.
19
THE TJX COMPANIES, INC.
Consolidated Statements of Cash Flows
FISCAL YEAR ENDED
---------
JANUARY 26, JANUARY 27, JANUARY 29,
IN THOUSANDS 2002 2001 2000
--------- --------- ---------
Cash flows from operating activities:
Net income $ 500,397 $ 538,066 $ 521,668
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss from discontinued operations, net of tax 40,000 -- --
Cumulative effect of accounting change -- -- 5,154
Depreciation and amortization 204,081 175,781 160,466
Property disposals and impairments 6,832 4,559 4,624
Tax benefit of employee stock options 30,644 15,941 11,736
Deferred income tax provision (benefit) 35,230 (24,235) 1,790
Changes in assets and liabilities:
(Increase) in accounts receivable (7,615) (6,501) (8,137)
(Increase) in merchandise inventories (13,292) (232,031) (26,856)
(Increase) in prepaid expenses and other current assets (1,273) (12,083) (15,519)
Increase (decrease) in accounts payable 120,770 34,158 (2,747)
Increase (decrease) in accrued expenses
and other liabilities 16,054 69,134 (35,673)
Other, net (19,382) (6,026) (21,282)
--------- --------- ---------
Net cash provided by operating activities 912,446 556,763 595,224
--------- --------- ---------
Cash flows from investing activities:
Property additions (449,444) (257,005) (238,569)
Issuance of note receivable (5,402) (23,100) (5,848)
Proceeds from sale of other assets -- 9,183 --
--------- --------- ---------
Net cash (used in) investing activities (454,846) (270,922) (244,417)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings of short-term debt, net -- 39,000 --
Proceeds from borrowings of long-term debt 347,579 -- 198,060
Principal payments on long-term debt (73) (100,203) (695)
Payments on short-term debt (39,000) -- --
Payments on capital lease obligation (992) -- --
Proceeds from sale and issuance of common stock, net 65,202 26,101 9,312
Cash payments for repurchase of common stock (424,163) (444,105) (604,560)
Cash dividends paid (48,290) (44,693) (42,739)
--------- --------- ---------
Net cash (used in) financing activities (99,737) (523,900) (440,622)
--------- --------- ---------
Effect of exchange rate changes on cash 2,378 (1,165) 330
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 360,241 (239,224) (89,485)
Cash and cash equivalents at beginning of year 132,535 371,759 461,244
--------- --------- ---------
Cash and cash equivalents at end of year $ 492,776 $ 132,535 $ 371,759
========= ========= =========
The accompanying notes are an integral part of the financial statements.
20
THE TJX COMPANIES, INC.
Consolidated Statements of Shareholders' Equity
ACCUMULATED
COMMON ADDITIONAL OTHER
STOCK, PAR PAID-IN COMPREHENSIVE RETAINED
IN THOUSANDS VALUE $1 CAPITAL INCOME (LOSS) EARNINGS TOTAL
----------- ----------- ----------- ----------- -----------
Balance, January 30, 1999 $ 322,141 $ -- $ (1,529) $ 900,044 $ 1,220,656
Comprehensive income:
Net income -- -- -- 521,668 521,668
Gain due to foreign currency
translation adjustments -- -- 1,134 -- 1,134
(Loss) on net investment hedge contracts -- -- (905) -- (905)
Unrealized (loss) on securities -- -- (133) -- (133)
-----------
Total comprehensive income 521,764
Cash dividends declared on common stock -- -- -- (43,716) (43,716)
Common stock repurchased (23,578) (20,368) -- (557,314) (601,260)
Issuance of common stock under stock
incentive plans and related tax benefits 1,416 20,368 -- -- 21,784
----------- ----------- ----------- ----------- -----------
Balance, January 29, 2000 299,979 -- (1,433) 820,682 1,119,228
Comprehensive income:
Net income -- -- -- 538,066 538,066
(Loss) due to foreign currency
translation adjustments -- -- (11,860) -- (11,860)
Gain on net investment hedge contracts -- -- 11,547 -- 11,547
Minimum pension liability adjustment -- -- (1,675) -- (1,675)
Reclassification of prior unrealized loss
on securities -- -- 133 -- 133
-----------
Total comprehensive income 536,211
Cash dividends declared on common stock -- -- -- (45,266) (45,266)
Common stock repurchased (22,233) (40,736) -- (371,861) (434,830)
Issuance of common stock under stock
incentive plans and related tax benefits 2,633 40,736 -- -- 43,369
----------- ----------- ----------- ----------- -----------
Balance, January 27, 2001 280,379 -- (3,288) 941,621 1,218,712
Comprehensive income:
Net income -- -- -- 500,397 500,397
Cumulative effect of accounting
change (SFAS No. 133) -- -- (1,572) -- (1,572)
(Loss) due to foreign currency
translation adjustments -- -- (8,185) -- (8,185)
Gain on net investment hedge contracts -- -- 8,190 -- 8,190
Minimum pension liability adjustment -- -- (2,151) -- (2,151)
Amounts reclassified from other
comprehensive income to net income -- -- 251 -- 251
-----------
Total comprehensive income 496,930
Cash dividends declared on common stock -- -- -- (49,295) (49,295)
Common stock repurchased (13,168) (94,187) -- (316,808) (424,163)
Issuance of common stock under stock
incentive plans and related tax benefits 4,327 94,187 -- -- 98,514
----------- ----------- ----------- ----------- -----------
Balance, January 26, 2002 $ 271,538 $ -- $ (6,755) $ 1,075,915 $ 1,340,698
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
21
THE TJX COMPANIES, INC.
Notes to Consolidated Financial Statements
A. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements of The TJX
Companies, Inc. (TJX) include the financial statements of all of TJX's
subsidiaries, including its foreign subsidiaries, all of which are wholly owned.
All of TJX's activities are conducted within its subsidiaries and are
consolidated in these financial statements. All intercompany transactions have
been eliminated in consolidation. The notes pertain to continuing operations
except where otherwise noted.
FISCAL YEAR: TJX's fiscal year ends on the last Saturday in January. The fiscal
years ended January 26, 2002 (fiscal 2002), January 27, 2001 and January 29,
2000 each included 52 weeks.
USE OF ESTIMATES: The preparation of the financial statements, in conformity
with accounting principles generally accepted in the United States, 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 the more significant
accounting policies that involve management estimates and judgments to be those
relating to inventory valuation, accounting for taxes and to reserves for
discontinued operations. Actual results could differ from those estimates.
REVENUE RECOGNITION: TJX records revenue at the time of sale and receipt of
merchandise by the customer, net of a reserve for estimated returns. TJX
estimates returns based upon its historical experience.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: TJX generally considers
highly liquid investments with an initial maturity of three months or less to be
cash equivalents. TJX's investments are primarily high-grade commercial paper,
institutional money market funds and time deposits with major banks. The fair
value of cash equivalents approximates carrying value. During September 1999,
TJX received 693,537 common shares of Manulife Financial Corporation (Manulife).
The shares reflected ownership interest in the demutualized insurer due to
policies held by TJX. These securities were recorded at market value upon
receipt resulting in an $8.5 million pre-tax gain. TJX classified the Manulife
common shares as available-for-sale at January 29, 2000 and included them in
other current assets on the balance sheets. During fiscal 2001, TJX sold the
Manulife shares for $9.2 million and realized a gain of $722,000.
Available-for-sale securities are stated at fair market value with unrealized
gains or losses, net of income taxes, included as a component of accumulated
other comprehensive income (loss). Gains or losses are included in net income
when the securities are sold, disposed of or permanently impaired, resulting in
a related reclassification adjustment to accumulated other comprehensive income
(loss).
MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost or market.
TJX uses the retail method for valuing inventories on the first-in first-out
basis. TJX almost exclusively utilizes a permanent markdown strategy and lowers
the cost value of the inventory at the time the retail prices are lowered in its
stores.
INTEREST: TJX's interest expense, net was $25.6 million, $22.9 million and $7.3
million in fiscal years 2002, 2001 and 2000, respectively. Interest expense is
presented net of interest income of $15.0 million, $11.8 million and $13.1
million in fiscal years 2002, 2001 and 2000, respectively. TJX capitalizes
interest on borrowings during the active construction period of major capital
projects. Capitalized interest is added to the cost of the related assets. TJX
capitalized interest of $222,000 and $311,000 in fiscal 2002 and 2001,
respectively. No interest was capitalized in fiscal 2000.
DEPRECIATION AND AMORTIZATION: For financial reporting purposes, TJX provides
for depreciation and amortization of property by the use of the straight-line
method over the estimated useful lives of the assets. Buildings are depreciated
over 33 years, leasehold costs and improvements are generally amortized over the
lease term (typically 10 years) or their estimated useful life, whichever is
shorter, and furniture, fixtures and equipment are depreciated over 3 to 10
years. Depreciation and amortization expense for property was $183.1 million for
fiscal year 2002, $169.1 million for fiscal year 2001, and $154.2 million for
fiscal year 2000. Amortization expense for property held under a capital lease
was $1.5 million in fiscal year 2002. Maintenance and repairs are charged to
expense as incurred. Significant costs incurred for internally developed
software are capitalized and amortized over three to five years. Upon retirement
or sale, the cost of disposed assets and the related accumulated depreciation
are eliminated and any gain or loss is included in net income. Debt discount and
related issue expenses are amortized to interest expense over the lives of the
related debt issues or to the first date the holders of the debt may request TJX
to repurchase such debt. Pre-opening costs are expensed as incurred.
22
THE TJX COMPANIES, INC.
GOODWILL AND TRADENAME: Goodwill is primarily the excess of the purchase price
incurred over the carrying value of the minority interest in TJX's former
83%-owned subsidiary acquired in fiscal 1990 and represents goodwill associated
with the T.J. Maxx chain. In addition, goodwill includes the excess of cost over
the estimated fair market value of the net assets of Winners acquired by TJX in
fiscal 1991. Goodwill, net of amortization, totaled $71.4 million and $74.1
million as of January 26, 2002 and January 27, 2001, respectively, and is being
amortized over 40 years on a straight-line basis. Annual amortization of
goodwill was $2.6 million in fiscal years 2002, 2001 and 2000. Cumulative
amortization as of January 26, 2002 and January 27, 2001 was $32.9 million and
$30.3 million, respectively.
Tradename is the value assigned to the name "Marshalls" as a result of
TJX's acquisition of the Marshalls chain in fiscal 1996. The value of the
tradename was determined by the discounted present value of assumed after-tax
royalty payments, offset by a reduction for its pro-rata share of the total
negative goodwill acquired. The final purchase price allocated to the tradename
amounted to $128.3 million. The tradename is being amortized over 40 years.
Amortization expense was $3.2 million for fiscal years 2002, 2001 and 2000.
Cumulative amortization as of January 26, 2002 and January 27, 2001 was $20.6
million and $17.4 million, respectively.
Effective with the fiscal year ended January 25, 2003, TJX will no longer
amortize goodwill or the Marshalls tradename due to a change in accounting for
intangible assets as discussed under "New Accounting Standards" below.
IMPAIRMENT OF LONG-LIVED ASSETS: TJX periodically reviews the value of its
property and intangible assets in relation to the current and expected operating
results of the related business segments in order to assess whether there has
been a permanent impairment of their carrying values. An impairment exists when
the undiscounted cash flow of an asset is less than the carrying cost of that
asset. Store by store impairment analysis is performed, at a minimum, on an
annual basis. TJX recorded an impairment loss of $3.1 million in fiscal 2001 as
a component of the $6.3 million estimated cost of closing its three T.K. Maxx
stores in the Netherlands.
ADVERTISING COSTS: TJX expenses advertising costs as incurred. Advertising
expense was $128.5 million, $121.8 million and $114.7 million for fiscal years
ended 2002, 2001 and 2000, respectively.
EARNINGS PER SHARE: All earnings per share amounts refer to diluted earnings per
share unless otherwise indicated. All historical earnings per share amounts
reflect the June 1998 two-for-one stock split.
FOREIGN CURRENCY TRANSLATION AND RELATED HEDGING ACTIVITY: TJX's foreign assets
and liabilities are translated at the year-end exchange rate. Activity of the
foreign operations that affect the statements of income and cash flows are
translated at the average exchange rates prevailing during the year. A large
portion of TJX's net investment in foreign operations is hedged with foreign
currency forward contracts and swap agreements. The translation adjustments
associated with the foreign operations and the related hedging instruments are
included in shareholders' equity as a component of accumulated other
comprehensive income (loss). Cumulative foreign currency translation
adjustments, net of hedging activity, included in shareholders' equity amounted
to losses of $2.9 million and $1.6 million as of January 26, 2002 and January
27, 2001, respectively.
Effective January 28, 2001, TJX implemented Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This Statement, as amended, established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
Statement requires that an entity recognize all derivatives as either assets or
liabilities in the statements of financial position and measure those
instruments at fair value. This Statement also requires that companies recognize
adjustments to the fair value of derivatives in earnings when they occur, if
they do not qualify for hedge accounting. For derivatives that qualify for hedge
accounting, changes in the fair value of the derivatives can be recognized
currently in earnings, along with an offsetting adjustment against the basis of
the underlying hedged item, or can be deferred in accumulated other
comprehensive income.
This Statement affects the accounting for TJX's hedging contracts. As
described in Note D, TJX periodically enters into forward foreign currency
exchange contracts to hedge certain merchandise purchase commitments,
intercompany balances, including intercompany debt, and to hedge its net
investment in and between foreign subsidiaries. Through January 27, 2001, TJX
applied hedge accounting to these contracts. Upon adoption of SFAS No. 133, TJX
prospectively elected not to apply the hedge accounting rules to its merchandise
purchase commitment and intercompany balance (excluding intercompany debt)
related contracts, even though these contracts effectively function as an
economic hedge of the underlying exposure. Thus, the changes in fair value of
the merchandise purchase commitment and intercompany balance (excluding
intercompany debt) related contracts affect earnings in the period of change
with no offset for marking the underlying exposure to fair value. TJX continues
to apply hedge accounting to its net investment hedge contracts, and changes in
fair value of these contracts, as well as gains and losses upon settlement, are
recorded in accumulated other comprehensive income offsetting changes in the
23
THE TJX COMPANIES, INC.
cumulative foreign translation adjustments of TJX's foreign divisions. TJX also
applies hedge accounting to its intercompany debt hedge contracts and changes
in fair value of these contracts are recorded in the statement of income and
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 the statement of income.
At implementation of SFAS No. 133, the fair value of all of TJX's hedge
contracts amounted to a net asset of $10.0 million, most of which related to net
investment hedge contracts. The carrying value of all hedging contracts before
adoption was $12.8 million. TJX also wrote off a net deferred credit of $1.2
million related to premiums on existing contracts and thus recorded a charge to
accumulated other comprehensive income for the cumulative effect of an
accounting change of $1.6 million effective January 28, 2001.
NEW ACCOUNTING STANDARDS: In July 2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires the use of the purchase method of accounting for
all business combinations initiated after June 30, 2001, thereby eliminating use
of the pooling-of-interests method. Goodwill will no longer be amortized but
will be tested for impairment. Additionally, new criteria have been established
to determine whether an acquired intangible asset should be recognized
separately from goodwill. SFAS No. 142 addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. TJX is required to implement SFAS No.
142 for the fiscal year beginning January 27, 2002 and will no longer amortize
goodwill or the Marshalls tradename, which has an indefinite life, but will
periodically test them for impairment. During fiscal 2002, amortization of
goodwill and tradename amounted to $2.6 million and $3.2 million, respectively.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets." The provisions of SFAS No.
143 apply to all entities that incur obligations associated with the retirement
of tangible long-lived assets. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002 and will
become effective for TJX beginning in the first quarter of fiscal 2004. This
accounting pronouncement is not expected to have a significant impact on TJX's
financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The objectives of SFAS No. 144 are
to address the implementation of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and to develop a
model for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired. SFAS No. 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001 and will become
effective for TJX beginning in the first quarter of fiscal 2003. This accounting
pronouncement is not expected to have a significant impact on TJX's financial
position or results of operations.
RECLASSIFICATIONS: Certain amounts in prior years' financial statements have
been reclassified for comparative purposes. The deferred income tax asset
(liability) in the prior year's balance sheet and selected financial data has
been reclassified into a current and non-current portion to be consistent with
the current year's presentation.
B. CHANGE IN ACCOUNTING PRINCIPLE
Effective January 31, 1999, TJX changed its method of accounting for layaway
sales in compliance with Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements," issued by the Securities and Exchange Commission
during the fourth quarter of fiscal 2000. Under this accounting method, TJX
defers recognition of a layaway sale and its related profit to the accounting
period when the customer receives layaway merchandise. The cumulative effect of
this change for periods prior to January 31, 1999 of $5.2 million (net of income
taxes of $3.4 million), or $.02 per share, was treated as a cumulative effect of
accounting change in the consolidated statements of income. The accounting
change has virtually no impact on annual sales and earnings in subsequent years.
However, due to the seasonal influences of the business, the accounting change
results in a shift of sales and earnings among quarterly periods.
24
THE TJX COMPANIES, INC.
C. LONG-TERM DEBT AND CREDIT LINES
The table below presents long-term debt, exclusive of current installments, as
of January 26, 2002 and January 27, 2001. Capital lease obligations are
separately presented in Note E.
IN THOUSANDS JANUARY 26, JANUARY 27,
2002 2001
-------- --------
General corporate debt:
Medium term notes, interest at 5.87% on $15,000 maturing October 21, 2003
and interest at 7.97% on $5,000 maturing September 20, 2004 $ 20,000 $ 20,000
7% unsecured notes, maturing June 15, 2005 (effective interest rate of
7.02% after reduction of the unamortized debt discount of $47
and $61 in fiscal 2002 and 2001, respectively) 99,953 99,939
7.45% unsecured notes, maturing December 15, 2009 (effective interest
rate of 7.50% after reduction of unamortized debt discount of
$503 and $567 in fiscal 2002 and 2001, respectively) 199,497 199,433
-------- --------
Total general corporate debt 319,450 319,372
-------- --------
Subordinated debt:
Zero coupon convertible subordinated notes due February 13, 2021,
after reduction of unamortized debt discount of $164,907 352,593 --
-------- --------
Total subordinated debt 352,593 --
-------- --------
Long-term debt, exclusive of current installments $672,043 $319,372
======== ========
The aggregate maturities of long-term debt, exclusive of current installments at
January 26, 2002 are as follows:
LONG
TERM
IN THOUSANDS DEBT
---------
Fiscal Year
2004 $ 15,000
2005 5,000
2006 99,953
2007 --
Later years 552,090
---------
Aggregate maturities of long-term debt, exclusive of current installments $672,043
=========
The zero coupon convertible debt securities are included in "later years" and
assumes that the note holders will not exercise the put option available to them
in fiscal year 2005.
In February 2001, TJX issued $517.5 million zero coupon convertible
subordinated notes due in February 2021 and raised gross proceeds of $347.6
million. The issue price of the notes represents a yield to maturity of 2% per
year. Due to provisions of the first put option on February 13, 2002, TJX
amortized the debt discount assuming a 1.5% yield for fiscal 2002. The notes are
subordinated to all existing and future senior indebtedness of TJX. The notes
are convertible into 8.5 million shares of common stock of TJX if the sale price
of the common stock reaches specified thresholds, if the credit rating of the
notes is below investment grade, if the notes are called for redemption or if
certain specified corporate transactions occur. The holders have the right to
require TJX to purchase the notes for $369.0 million, $391.7 million and $441.3
million on February 13, 2004, 2007 and 2013, respectively. The repurchase
amounts represent original purchase price plus accrued original issue discount.
TJX may pay the purchase price in cash, Company stock, or a combination of the
two. If the holders exercise this option, TJX expects to fund the payment with
cash, financing from its short-term credit facility, new long-term borrowings or
a combination thereof. At the first put date of February 13, 2002, no holders
exercised the purchase option. In addition, if a change in control of TJX occurs
on or before February 13, 2007, each holder may require TJX to purchase for
cash, all or a portion of such holder's notes. TJX may redeem for cash all, or a
portion of, the notes at any time on or after February 13, 2007 for the original
purchase price plus accrued original issue discount. TJX used the proceeds to
fund its accelerated store roll-out program, investment in its distribution
center network, its common stock repurchase program and for general corporate
purposes.
25
THE TJX COMPANIES, INC.
In December 1999, TJX issued $200 million of 7.45% ten-year notes. The
proceeds were used for general corporate purposes, including TJX's stock
repurchase program.
TJX periodically enters into financial instruments to manage its cost of
borrowing. In December 1999, TJX entered into a rate-lock agreement to hedge the
underlying treasury rate of the $200 million ten-year notes, prior to their
issuance. The cost of this agreement has been deferred and is being amortized to
interest expense over the term of the notes and results in an effective rate of
7.60% on the debt.
In September 1997, TJX entered into a five-year $500 million revolving
credit facility. In addition, in July 2000, TJX entered into a $250 million,
364-day revolving credit agreement which was renewed in July 2001. The
agreements have similar terms which include financial covenants requiring that
TJX maintain specified fixed charge coverage and leverage ratios. The Company's
ability to borrow under the agreements is not limited by its debt rating level.
The revolving credit facilities are used as backup to TJX's commercial paper
program. As of January 26, 2002, all $750 million of the revolving credit
facilities were available for use. Interest is payable on borrowings at rates
equal to or less than prime. The maximum amount of TJX's U.S. short-term
borrowings was $39 million, $330 million and $108 million in fiscal 2002, 2001
and 2000, respectively. The weighted average interest rate on TJX's U.S.
short-term borrowings was 5.32%, 6.82% and 6.06% in fiscal 2002, 2001 and 2000,
respectively. TJX does not have any compensating balance requirements under
these arrangements. Subsequent to the fiscal year ended January 26, 2002, TJX
entered into new revolving credit agreements, see Note P for additional
information.
TJX also has a C$20 million credit line for its Canadian subsidiary that
had been fully utilized during fiscal 2002. The maximum amount outstanding under
all of its Canadian credit lines in prior years was C$15.2 million in fiscal
2001 and C$19.2 million in fiscal 2000. Interest on its current credit line is
at the Canadian prime lending rate.
D. FINANCIAL INSTRUMENTS
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 sheets at fair value. See Note A for a description of TJX's foreign
currency translation and related hedging activity policy.
TJX periodically enters into forward foreign currency exchange contracts
to obtain an economic hedge on firm U.S. dollar and Euro merchandise purchase
commitments made by its foreign subsidiaries. The contracts outstanding at
January 26, 2002, cover certain commitments for the first and second quarters of
fiscal 2003. TJX elected not to apply hedge accounting rules to these contracts
and therefore includes the change in the market value of these derivatives in
current earnings as a component of selling, general and administrative expenses.
TJX enters forward foreign currency exchange contracts to obtain an
economic hedge on certain foreign intercompany payables, primarily license
fees, for which TJX elected not to apply hedge accounting rules. Such contracts
outstanding at January 26, 2002 cover intercompany payables for the first
quarter of fiscal 2003. The change in fair value of these contracts is reflected
in current period earnings as a component of selling, general and administrative
expenses.
TJX also has entered into several foreign currency forward and swap
contracts in both Canadian dollars and British pound sterling and accounts for
them as a hedge of the investment in and between our foreign subsidiaries.
Foreign exchange gains and losses as well as fair value adjustments on the
agreements are recognized in other comprehensive income, thereby offsetting
translation adjustments associated with TJX's investment in its foreign
subsidiaries.
The change in fair value of the contracts designated as a hedge of the net
investment in foreign operations resulted in a gain of $8.2 million that was
credited to other comprehensive income in fiscal 2002. The change in the
cumulative foreign currency translation adjustment resulted in a loss of $8.2
million that was also included as a component of other comprehensive income in
fiscal 2002.
TJX also enters derivative contracts, designated as fair value hedges, to
hedge certain foreign intercompany payables, primarily debt and related
interest. The net impact of hedging activity and these intercompany payables
resulted in a loss of $220,000 which is reflected in fiscal 2002 earnings as a
component of selling, general and administrative expenses.
The fair market value of the derivatives are classified as assets or
liabilities, current and non-current, depending on the valuation results and the
maturity of the individual contracts. At January 26, 2002, the majority of the
contracts were included in prepaid expenses and other current assets.
26
THE TJX COMPANIES, INC.
Following is a summary of TJX's derivative financial instruments and
related fair values, outstanding at January 26, 2002:
BLENDED FAIR VALUE AT
CONTRACT JANUARY 26,
IN THOUSANDS PAY RECEIVE RATE 2002
- ------------- --- ------- ---- ----
Fair value hedges:
Intercompany balances, primarily debt
and related interest C$ 128,207 U.S.$79,830 0.6227 U.S.$ 226
L 27,415 U.S.$38,639 1.4094 U.S.$ 633
Net asset hedges: C$ 78,532 U.S.$53,667 0.6834 U.S.$ 3,844
L 50,125 U.S.$75,846 1.5131 U.S.$ 6,029
L 32,048 C$ 73,084 2.2805 U.S.$ 478
Hedge accounting not elected:
Merchandise purchase commitments and
intercompany balances, primarily license fees C$ 85,793 U.S.$54,140 0.6311 U.S.$ 855
L 9,245 U.S.$13,200 1.4278 U.S.$ 208
L 5,561 EURO$ 9,000 1.6184 U.S.$ (41)
TJX's forward foreign currency exchange and swap contracts require TJX to
make payments of certain foreign currencies for receipt of U.S. dollars,
Canadian dollars or Euros. All contracts excepting the net asset hedges mature
during fiscal 2003. The British pound net asset hedges mature during fiscal
2003, the Canadian dollar net asset hedges have maturities from fiscal 2003 to
fiscal 2005.
The counterparties to the forward exchange contracts and swap agreements
are major international financial institutions, and the contracts contain rights
of offset which minimize TJX's exposure to credit loss in the event of
nonperformance by one of the counterparties. TJX does not require counterparties
to maintain collateral for these contracts; however, TJX periodically monitors
its position and the credit ratings of the counterparties and does not
anticipate losses resulting from the nonperformance of these institutions.
The fair value of TJX's general corporate debt, including current
installments, is estimated using discounted cash flow analysis based upon TJX's
current incremental borrowing rates for similar types of borrowing arrangements.
The fair value of TJX's zero coupon convertible subordinated notes is estimated
by obtaining market quotes. The fair value of general corporate debt, including
current installments, at January 26, 2002 approximates the carrying value of
$319.5 million. The fair value of the zero coupon convertible subordinated notes
is $399.4 million versus a carrying value of $352.6 million. These estimates do
not necessarily reflect certain provisions or restrictions in the various debt
agreements which might affect TJX's ability to settle these obligations.
E. COMMITMENTS
TJX is committed under long-term leases related to its continuing operations for
the rental of real estate and fixtures and equipment. Most of TJX's leases are
store operating leases with a ten-year initial term and options to extend for
one or more five-year periods. Certain Marshalls leases, acquired in fiscal
1996, had remaining terms ranging up to twenty-five years. Leases for T.K. Maxx
are generally for fifteen to twenty-five years with ten-year kick-out options.
Many of the leases contain escalation clauses and early termination penalties.
In addition, TJX is generally required to pay insurance, real estate taxes and
other operating expenses including, in some cases, rentals based on a percentage
of sales.
Following is a schedule of future minimum lease payments for continuing
operations as of January 26, 2002:
CAPITAL OPERATING
IN THOUSANDS LEASE LEASES
Fiscal Year
2003 $ 3,726 $ 477,679
2004 3,726 451,234
2005 3,726 415,572
2006 3,726 372,335
2007 3,726 332,016
Later years 34,123 1,477,248
-------- ------------
Total future minimum lease payments 52,753 $ 3,526,084
============
Less amount representing interest 21,173
--------
Net present value of minimum capital lease payments $31,580
========
27
THE TJX COMPANIES, INC.
The capital lease commitments relate to a 283,000 square foot addition to
TJX's home office facility. Rental payments commenced June 1, 2001, and TJX
recognized a capital lease asset and related obligation equal to the present
value of the lease payments of $32.6 million.
The rental expense under operating leases for continuing operations
amounted to $446.6 million, $390.6 million and $352.6 million for fiscal years
2002, 2001 and 2000, respectively. Rent expense includes contingent rent and is
net of sublease income, both of which are immaterial. The total net present
value of TJX's minimum operating lease obligations approximates $2,493.1
million as of January 26, 2002, including a current portion of $295.3 million.
TJX had outstanding letters of credit totaling $23.9 million as of January
26, 2002 and $31.6 million as of January 27, 2001. Letters of credit are issued
by TJX primarily for the purchase of inventory.
F.STOCK COMPENSATION PLANS
TJX has a stock incentive plan under which options and other stock awards may be
granted to its directors, officers and key employees. This plan has been
approved by TJX's shareholders and all stock compensation awards, except for the
awards made under a deferred stock compensation plan for its outside directors
discussed below, are made under this plan. The Stock Incentive Plan, as amended
with shareholder approval, provides for the issuance of up to 54.7 million
shares with 16.0 million shares available for future grants as of January 26,
2002. In June 2001, shareholders approved an amendment to the Stock Incentive
Plan to provide for grants to directors and suspended future grants of options
with respect to the 38,000 shares reserved under the former Directors' Stock
Option Plan at January 27, 2001.
Under these stock option plans, TJX has granted options for the purchase
of common stock, generally within ten years from the grant date at option prices
of 100% of market price on the grant date. Most options outstanding vest over a
three-year period starting one year after the grant, and are exercisable in
their entirety three years after the grant date. Options granted to directors
become fully exercisable one year after the date of grant.
A summary of the status of TJX's stock options and related Weighted
Average Exercise Prices (WAEP) is presented below (shares in thousands):
FISCAL YEAR ENDED
------------------
JANUARY 26, 2002 JANUARY 27, 2001 JANUARY 29, 2000
--------------------- -------------------- ---------------------
SHARES WAEP SHARES WAEP SHARES WAEP
------ --------- ------ --------- ------ ---------
Outstanding at beginning of year 14,037 $ 19.69 11,832 $ 17.06 10,105 $ 12.04
Granted 5,371 34.95 5,178 20.75 3,164 29.26
Exercised (4,216) 15.94 (2,724) 9.85 (1,275) 7.13
Forfeitures (380) 24.54 (249) 24.59 (162) 20.52
------ --------- ------ --------- ------ ---------
Outstanding at end of year 14,812 26.19 14,037 19.69 11,832 17.06
------ --------- ------ --------- ------ ---------
Options exercisable at end of year 5,797 $ 20.40 5,880 $ 15.98 5,980 $ 10.77
====== ========= ====== ========= ====== =========
TJX realizes an income tax benefit from the exercise of stock options which
results in a decrease in current income taxes payable and an increase in
additional paid-in capital. Such benefits amounted to $30.6 million, $15.9
million and $11.7 million for the fiscal years ended January 26, 2002, January
27, 2001 and January 29, 2000, respectively.
TJX has adopted the disclosure-only provisions of the Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," and continues to apply the provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," in
accounting for compensation expense under its stock option plans. TJX grants
options at fair market value on the date of the grant; accordingly, no
compensation expense has been recognized for the stock options issued during
fiscal years 2002, 2001 or 2000. Compensation expense determined in accordance
with SFAS No. 123, net of related income taxes, would have amounted to $27.8
million, $19.2 million and $12.9 million for fiscal 2002, 2001 and 2000,
respectively. Income from continuing operations before cumulative effect of
accounting change, net income and related earnings per share amounts, presented
on a pro forma basis, are as follows:
UNAUDITED PRO FORMA FISCAL YEAR ENDED
----------------------------------------
DOLLARS IN THOUSANDS JANUARY 26, JANUARY 27, JANUARY 29,
EXCEPT PER SHARE AMOUNTS 2002 2001 2000
----------- -------------- -----------
Income from continuing operations before
cumulative effect of accounting change $ 512,598 $ 518,837 $ 513,862
Per diluted share $ 1.84 $ 1.79 $ 1.62
Net income $ 472,598 $ 518,837 $ 508,708
Per diluted share $ 1.70 $ 1.79 $ 1.60
28
THE TJX COMPANIES, INC.
For purposes of applying the provisions of SFAS No. 123 for the pro forma
calculations, the fair value of each option grant issued during fiscal 2002,
2001 and 2000 is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions: dividend yield of .5% in fiscal
2002, 1% in fiscal 2001 and 2000, expected volatility of 46%, 48%, and 46% in
fiscal 2002, 2001 and 2000, respectively, a risk-free interest rate of 5.0% in
fiscal 2002, 5.2% in fiscal 2001 and 6.4% in fiscal 2000, and expected holding
periods of six years in all fiscal periods. The weighted average fair value of
options granted during fiscal 2002, 2001 and 2000 was $16.92, $10.07 and $14.38
per share, respectively.
The following table summarizes information about stock options outstanding
as of January 26, 2002 (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES SHARES CONTRACT LIFE PRICE SHARES PRICE
- --------------- ------ ------------- --------- -------- ----------
$ 2.5625 - $ 6.3125 363 2.7 Years $ 4.73 363 $ 4.73
6.3126 - $10.6875 813 4.9 Years 9.93 813 9.93
$10.6876 - $14.4688 489 5.6 Years 14.44 489 14.44
$14.4689 - $21.7500 5,250 8.2 Years 20.93 2,396 21.15
$21.7501 - $30.5000 2,576 7.6 Years 29.22 1,736 29.21
$30.5001 - $34.9500 5,321 9.6 Years 34.95 - N/A
------ ------
Total 14,812 8.2 Years $26.19 5,797 $ 20.40
====== ======
Due to the events of September 11, TJX modified certain option grants granted
to the associates lost in the tragedy. Unvested awards were vested, and the
families were allowed to realize the full economic benefit of the original
grants in addition to other benefits granted to the families. The Company
recorded additional compensation expense related to these option grants and
benefit modifications. The Company does not typically modify awards after the
date of grant.
TJX was subject to income statement charges for changes in the fair market
value of its common stock due to a special executive deferred compensation
award, granted in fiscal 1998 under the Stock Incentive Plan, that was initially
denominated in shares of TJX common stock. TJX recorded compensation expense of
$1.1 million in fiscal 2000 due to the increase in market value of the shares of
TJX. During fiscal 2000, all of the shares were denominated into other
investments. TJX separately transferred funds to a trust in an amount equal to
the value of the new investment elections at the time such elections were made
by the executive. Thus, deferred compensation obligation adjustments due to the
change in the executive's deferred compensation account were offset by similar
amounts due to gains or losses on the trust assets. During July 2001, the assets
in the trust were sold and the proceeds were distributed to the executive in
settlement of the deferred obligation. The trust assets were included in other
current assets on the balance sheet as of January 27, 2001.
TJX has also issued restricted stock and performance-based stock awards
under the Stock Incentive Plan. Restricted stock awards are issued at par value,
or at no cost, and have restrictions which generally lapse over three years from
date of grant. Performance-based shares have restrictions that generally lapse
over one to three years when and if specified criteria are met. The market value
in excess of cost is charged to income ratably over the period during which
these awards vest. Such pre-tax charges amounted to $2.7 million, $1.4 million
and $1.1 million in fiscal years 2002, 2001 and 2000, respectively. The market
value of the awards is determined at date of grant for restricted stock awards
and at the date shares are earned for performance-based awards.
There has been a combined total of 225,000 shares, 135,000 shares and
131,480 shares for deferred, restricted and performance-based awards issued in
the fiscal years ended January 2002, 2001 and 2000, respectively. No shares were
forfeited during the fiscal year ended January 26, 2002; there were 33,000 and
3,000 shares forfeited during the fiscal years ended January 2001 and 2000,
respectively. The weighted average market value per share of these stock awards
at grant/earned date was $30.00, $29.60 and $29.55 for fiscal 2002, 2001 and
2000, respectively.
TJX maintains a deferred stock compensation plan for its outside
directors. Deferred share awards valued at $10,000 are issued annually to each
outside director. Currently, there are 20,827 deferred shares outstanding;
actual shares will be issued at retirement. TJX has 87,638 shares held in
treasury from which such shares will be issued.
29
THE TJX COMPANIES, INC.
G.CAPITAL STOCK AND EARNINGS PER SHARE
CAPITALSTOCK: During fiscal 2001, TJX completed a $750 million stock repurchase
program and announced a new multi-year, $1 billion stock repurchase program.
These stock repurchase programs followed two separate $250 million stock
repurchase programs in fiscal 1999 and 1998. TJX had cash expenditures, under
all of its programs, of $424.2 million, $444.1 million and $604.6 million in
fiscal 2002, 2001 and 2000, respectively, funded primarily by excess cash
generated from operations. The total common shares repurchased and retired
amounted to 13.2 million shares in fiscal 2002, 22.2 million in fiscal 2001 and
23.6 million in fiscal 2000. As of January 26, 2002, TJX has repurchased and
retired 32.7 million shares of its common stock at a cost of $805.8 million
under the current $1 billion stock repurchase program.
TJX is authorized to issue up to 5 million shares of preferred stock, par
value $1. There was no preferred stock issued or outstanding at January 26,
2002.
EARNINGS PER SHARE: The following schedule presents the calculation of basic and
diluted earnings per share for income from continuing operations:
FISCAL YEAR ENDED
-----------------
DOLLARS IN THOUSANDS JANUARY 26, JANUARY 27, JANUARY 29,
EXCEPT PER SHARE AMOUNTS 2002 2001 2000
------------ ------------ ------------
Basic earnings per share:
Income from continuing operations before
cumulative effect of accounting change $ 540,397 $ 538,066 $ 526,822
------------ ------------ ------------
Weighted average common stock outstanding
for basic earnings per share calculation 275,323,741 287,440,637 314,577,145
Basic earnings per share $ 1.96 $ 1.87 $ 1.67
Diluted earnings per share:
Income from continuing operations before
cumulative effect of accounting change $ 540,397 $ 538,066 $ 526,822
------------ ------------ ------------
Weighted average common stock outstanding
for basic earnings per share calculation 275,323,741 287,440,637 314,577,145
Assumed exercise of stock options and awards 2,810,121 1,755,591 3,213,619
------------ ------------ ------------
Weighted average common shares for diluted
earnings per share calculation 278,133,862 289,196,228 317,790,764
------------ ------------ ------------
Diluted earnings per share $ 1.94 $ 1.86 $ 1.66
The weighted average common shares for the diluted earnings per share
calculation exclude the incremental effect related to outstanding stock options,
the exercise price of which is in excess of the related fiscal years' average
price of TJX's common stock. Such options are excluded because they would have
an antidilutive effect. These options amounted to 5.3 million as of January 26,
2002, 4.6 million as of January 27, 2001 and 3.1 million as of January 29, 2000.
The 8.5 million shares attributable to the zero coupon convertible debt were
also excluded from the diluted earnings per share calculation because criteria
for conversion had not been met during the fiscal year.
H. INCOME TAXES
The provision for income taxes includes the following:
FISCAL YEAR ENDED
-----------------
JANUARY 26, JANUARY 27, JANUARY 29,
IN THOUSANDS 2002 2001 2000
--------- --------- ---------
Current:
Federal $ 236,070 $ 272,075 $ 255,277
State 44,228 51,217 49,836
Foreign 18,119 27,819 20,212
Deferred:
Federal 28,133 (22,359) 3,885
State 4,071 (2,269) 1,984
Foreign 3,026 393 (4,079)
--------- --------- ---------
Provision for income taxes $ 333,647 $ 326,876 $ 327,115
========= ========= =========
30
THE TJX COMPANIES, INC.
In addition to the above provision, in fiscal 2002 TJX also recorded
deferred income tax benefits of $26.5 million as a component of the $40 million
after-tax charge relating to discontinued operations (see Note L).
TJX had a net deferred tax asset as follows:
JANUARY 26, JANUARY 27,
IN THOUSANDS 2002 2001
--------- ---------
Deferred tax assets:
Loss on investment in foreign subsidiary $ -- $ 7,013
Foreign net operating loss carryforward 14,546 17,998
Reserve for discontinued operations 35,277 10,129
Reserve for closed store and restructuring costs 5,824 6,443
Pension, postretirement and employee benefits 34,493 53,487
Leases 21,076 19,455
Other 29,591 29,111
Valuation allowance -- (3,396)
--------- ---------
Total deferred tax assets 140,807 140,240
========= =========
Deferred tax liabilities:
Property, plant and equipment 21,143 17,211
Safe harbor leases 13,395 16,274
Tradename 42,873 44,140
Other 24,818 15,224
--------- ---------
Total deferred tax liabilities 102,229 92,849
--------- ---------
Net deferred tax asset $ 38,578 $ 47,391
========= =========
The fiscal 2002 total net deferred tax asset is presented on the balance sheet
as a current asset of $12.0 million and a non-current asset of $26.6 million.
For fiscal 2001, these amounts are $44.0 million and $3.4 million, respectively.
TJX has, for tax purposes, repatriated the current year's and all prior years'
earnings of its Canadian subsidiary. All earnings of TJX's other foreign
subsidiaries are indefinitely reinvested and no deferred taxes have been
provided for on those earnings.
TJX has a United Kingdom operating loss carryforward of $47 million that
may be applied against future taxable income in the U.K., all of which has been
recognized for financial reporting purposes. During fiscal 2002, TJX recognized
$2.3 million of tax benefits relating to the current years' operating loss in
the U.K. The U.K. net operating loss does not expire under current tax law. Due
to the closing of TJX's Netherlands operation during fiscal 2001, TJX recognized
U.S. tax benefits associated with the write-off of its total investment in the
Netherlands. TJX also has a Puerto Rico net operating loss carryforward of
approximately $1 million which was acquired in the Marshalls acquisition and
expires in fiscal 2003. The valuation allowance in fiscal 2001 relates to TJX's
Puerto Rico net operating losses that had not been recognized and subsequently
expired.
TJX's worldwide effective income tax rate was 38.2% for the fiscal year
ended January 26, 2002, 37.8% for the fiscal year ended January 27, 2001, and
38.3% for the fiscal year ended January 29, 2000. The difference between the
U.S. federal statutory income tax rate and TJX's worldwide effective income tax
rate is reconciled below:
FISCAL YEAR ENDED
-----------------
JANUARY 26, JANUARY 27 JANUARY 29,
2002 2001 2000
----------- ---------- -----------
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
Effective state income tax rate 3.8 4.0 4.2
Impact of foreign operations (.4) (1.0) (1.0)
All other (.2) (.2) .1
---- ---- ----
Worldwide effective income tax rate 38.2% 37.8% 38.3%
==== ==== ====
I. PENSION PLANS AND OTHER RETIREMENT BENEFITS
TJX has a non-contributory defined benefit retirement plan covering the majority
of its full-time U.S. employees. Employees who have attained twenty-one years of
age and have completed one year of service are covered under the plan. Benefits
are based on compensation earned in each year of service. TJX also has an
unfunded supplemental retirement plan which covers key employees of TJX and
provides additional retirement benefits based on average compensation; and an
unfunded postretirement medical plan which provides limited postretirement
medical and life insurance benefits to employees who participate in TJX's
retirement plan and who retire at age fifty-five or older
31
THE TJX COMPANIES, INC.
with ten or more years of service. TJX's funded defined benefit retirement plan
assets are invested primarily in stock and bonds of U.S. corporations, excluding
TJX stock, as well as various investment funds.
Presented below is financial information relating to TJX's funded defined
benefit retirement plan and its unfunded supplemental pension plan (Pension) and
its unfunded postretirement medical plan for the fiscal years indicated:
PENSION POST RETIREMENT MEDICAL
FISCAL YEAR ENDED FISCAL YEAR ENDED
----------------- -----------------
JANUARY 26, JANUARY 27, JANUARY 26, JANUARY 27,
DOLLARS IN THOUSANDS 2002 2001 2002 2001
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $ 177,361 $ 140,010 $ 24,762 $ 18,529
Service cost 14,145 10,734 1,911 1,353
Interest cost 13,214 11,560 1,816 1,624
Participants' contributions -- -- 46 42
Amendments -- 1,080 -- --
Actuarial losses 22,465 22,564 1,639 4,376
Settlement -- (1,141) -- --
Benefits paid (7,562) (6,616) (1,285) (1,162)
Expenses paid (633) (830) -- --
--------- --------- --------- ---------
Benefit obligation at end of year $ 218,990 $ 177,361 $ 28,889 $ 24,762
========= ========= ========= =========
Change in plan assets:
Fair value of plan assets at beginning of year $ 149,942 $ 140,191 $ -- $ --
Actual return on plan assets (9,805) 1,665 -- --
Employer contribution 48,619 15,532 1,239 1,120
Participants' contributions -- -- 46 42
Benefits paid (7,562) (6,616) (1,285) (1,162)
Expenses paid (633) (830) -- --
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 180,561 $ 149,942 $ -- $ --
========= ========= ========= =========
Reconciliation of funded status:
Benefit obligation at end of year $ 218,990 $ 177,361 $ 28,889 $ 24,762
Fair value of plan assets at end of year 180,561 149,942 -- --
--------- --------- --------- ---------
Funded status - excess obligations 38,429 27,419 28,889 24,762
Unrecognized prior service cost 190 218 614 946
Unrecognized actuarial losses 53,022 11,554 2,033 394
--------- --------- --------- ---------
Net (asset) liability recognized $ (14,783) $ 15,647 $ 26,242 $ 23,422
========= ========= ========= =========
Amount recognized in the statements of financial position consists of:
Net (asset) accrued liability $ (20,093) $ 12,215 $ 26,242 $ 23,422
Intangible asset 1,484 1,757 -- --
Reduction to accumulated other comprehensive income 3,826 1,675 -- --
--------- --------- --------- ---------
Net amount recognized $ (14,783) $ 15,647 $ 26,242 $ 23,422
========= ========= ========= =========
Weighted average assumptions:
Discount rate 6.90% 7.41% 7.00% 7.50%
Expected return on plan assets 9.00% 9.00% N/A N/A
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
The projected benefit obligation and accumulated benefit obligation of TJX's
unfunded supplemental retirement plan was $32.8 million and $23.3 million,
respectively, as of January 26, 2002 and $23.8 million and $18.2 million,
respectively, as of January 27, 2001. The increase in the projected benefit
obligation as of January 26, 2002 reflects actuarial losses due to a decrease in
the discount rate for valuation purposes.
The portion of the net (asset) accrued liability attributable to TJX's
unfunded supplemental retirement plan amounted to $23.3 million at January 26,
2002 and $18.2 million at January 27, 2001 and is included in other long-term
liabilities on the balance sheets. The balance of the net amount recognized is a
net asset relating to the funded defined benefit plan of $38.1 million and $2.6
million at January 26, 2002 and January 27, 2001, respectively. These net assets
are included in prepaid and other current assets except for the long-term
portion of $21.1 million as of January 26, 2002,
32
THE TJX COMPANIES, INC.
which is included in other assets on the balance sheets. TJX contributed
aggregate cash contributions of $48.6 million and $15.5 million for fiscal 2002
and 2001, respectively, to the non-contributory defined benefit retirement plan
and to fund current benefit and expense payments under the unfunded supplemental
retirement plan.
For purposes of measuring the postretirement medical plan, a net 3.40%
annual rate of increase in the per capita cost of covered health care benefits
was assumed and is reduced by .75% over the next 4 years and to .15% after the
next 28 years. These rates assume an initial secular health care trend rate of
12% reaching an ultimate level of 5% in fiscal 2008. The Company's annual trend
rates are substantially lower than the secular trend rates due to the plans'
$3,000 per capita annual limit on medical benefits. An increase in the assumed
health care cost trend rate of one percentage point for all future years would
increase the accumulated postretirement benefit obligation at January 26, 2002
by about $4.5 million and the total of the service cost and interest cost
components of net periodic postretirement cost for fiscal 2002 by about
$663,000. Similarly, decreasing the trend rate by one percentage point for all
future years would decrease the accumulated postretirement benefit obligation at
January 26, 2002 by about $3.8 million as well as the total of the service cost
and interest cost components of net periodic postretirement cost for fiscal 2002
by about $557,000.
Following are the components of net periodic benefit cost:
PENSION POSTRETIREMENT MEDICAL
FISCAL YEAR ENDED FISCAL YEAR ENDED
--------------------------------------- ---------------------------------------
JANUARY 26, JANUARY 27, JANUARY 29, JANUARY 26, JANUARY 27, JANUARY 29,
IN THOUSANDS 2002 2001 2000 2002 2001 2000
- ------------ ----------- ----------- ----------- ----------- ----------- -----------
Service cost $ 14,145 $ 10,734 $ 11,781 $ 1,911 $ 1,353 $ 1,366
Interest cost 13,214 11,560 10,768 1,816 1,624 1,430
Expected return on plan assets (13,274) (12,783) (11,060) -- -- --
Amortization of transition obligation 75 75 75 -- -- --
Amortization of prior service cost 164 164 87 332 332 332
Recognized actuarial (gains) losses 1,989 (1,085) 415 -- (185) --
-------- -------- -------- -------- -------- --------
Net periodic benefit cost $ 16,313 $ 8,665 $ 12,066 $ 4,059 $ 3,124 $ 3,128
======== ======== ======== ======== ======== ========
Net pension expense for fiscal 2002 reflects an increase in service cost
attributable to the change in assumption regarding mortality. In addition,
expense for fiscal 2002 includes amortization of deferred actuarial losses while
expense for fiscal 2001 had amortization of deferred actuarial gains. This
change in amortization is the result of accumulated losses due to a reduction in
the discount rate, lower than expected asset performance and a change in the
mortality assumption.
During the fiscal year ended January 29, 2000, TJX and an executive
officer entered into an agreement whereby the officer waived his right to
benefits under TJX's unfunded supplemental retirement plan in exchange for TJX's
funding of a split-dollar life insurance policy. The exchange was accounted for
as a settlement and TJX incurred a $1.5 million settlement loss, which was
primarily the recognition of a portion of the deferred losses under the plan.
During fiscal 2001, TJX entered into a similar arrangement with another officer
who waived the right to a portion of his benefits under the unfunded
supplemental retirement plan in exchange for TJX's funding of a split-dollar
life insurance policy. TJX recognized a settlement loss of $224,000 in fiscal
2001 due to this exchange. The benefit exchanges were designed so that the
after-tax cash expenditures by TJX on the split-dollar policies are
substantially equivalent, on a present value basis, to the after-tax cash
expenditures TJX would have incurred under the unfunded supplemental retirement
plan.
TJX also sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code for all eligible U.S. employees. As of December 31, 2001,
assets under the plan totaled $337.0 million and are invested in a variety of
funds. Employees may contribute up to 50% of eligible pay. TJX matches employee
contributions, up to 5% of eligible pay, at rates ranging from 25% to 50% based
upon the Company's performance. TJX contributed $6.2 million in fiscal 2002,
$5.8 million in fiscal 2001 and $6.2 million in fiscal 2000 to the 401(k) plan.
Employees are restricted from investing employee contributions into the TJX
stock fund option in the 401(k) plan. Employees may elect to invest only 50% or
less of the Company's contribution in the TJX stock fund; the TJX stock fund has
no other trading restrictions. The TJX stock fund represents 4.8%, 3.4% and 2.5%
of plan investments at December 31, 2001, 2000 and 1999, respectively.
During fiscal 1999, TJX established a nonqualified savings plan for
certain U.S. employees. TJX matches employee contributions at various rates
which amounted to $193,000 in fiscal 2002, $163,000 in fiscal 2001 and $464,000
in fiscal 2000. TJX transfers employee withholdings and the related company
match to a separate trust designated to fund the future obligations. The trust
assets, which are invested in a variety of mutual funds, are included in other
assets on the balance sheets.
In addition to the plans described above, TJX also maintains
retirement/deferred savings plans for all eligible associates at its foreign
subsidiaries. TJX contributed for these plans $1.1 million, $1.2 million and
$682,000 in fiscal years 2002, 2001 and 2000, respectively.
33
THE TJX COMPANIES, INC.
J. ACCRUED EXPENSES AND OTHER LIABILITIES, CURRENT AND LONG-TERM
The major components of accrued expenses and other current liabilities are
as follows:
JANUARY 26, JANUARY 27,
IN THOUSANDS 2002 2001
------- -------
Employee compensation and benefits, current $116,178 $133,877
Rent, utilities, and occupancy, including real estate taxes 74,186 71,305
Federal and state income taxes payable 41,950 42,192
Insurance, advertising and all other 319,906 296,640
------- -------
Accrued expenses and other current liabilities $552,220 $544,014
======== ========
The major components of other long-term liabilities are as follows:
JANUARY 26, JANUARY 27,
IN THOUSANDS 2002 2001
-------- --------
Employee compensation and benefits, long-term $ 76,553 $ 68,379
Reserve for store closing and restructuring 12,131 16,792
Reserve related to discontinued operations 87,284 25,512
Rental step-up and other long-term liabilities 61,688 54,757
-------- --------
Other long-term liabilities $237,656 $165,440
======== ========
Activity related to the reserves for store closing and restructuring and
discontinued operations are detailed in Notes K and L, respectively.
K. RESERVES FOR STORE CLOSING AND RESTRUCTURING
TJX's store closing and restructuring reserve relates primarily to a
restructuring plan in connection with TJX's acquisition of Marshalls in
November 1995. This reserve, which was initially established at that time and
was subsequently adjusted, included the cost of closing 32 T.J. Maxx stores and
the cost of closing 70 Marshalls stores and other Marshalls facilities. The T.J.
Maxx closing costs were charged to operations while the costs associated with
Marshalls were a component of the allocation of the purchase price. This reserve
also includes activity relating to the closing of three T.K. Maxx stores in the
Netherlands as well as several HomeGoods stores.
Following is a summary of activity in the store closing and restructuring
reserve:
FISCAL YEAR ENDED
-----------------
JANUARY 26, JANUARY 27, JANUARY 29,
IN THOUSANDS 2002 2001 2000
-------- -------- --------
Balance at beginning of year $ 16,792 $ 15,731 $ 44,598
Additions to the reserve -- 3,109 --
Reserve adjustments:
Adjust Marshalls restructuring reserve -- -- (3,000)
Adjust T.J. Maxx store closing reserve -- -- (300)
Adjust T.K. Maxx store closing reserve (514) -- --
Charges against the reserve:
Lease related obligations (3,941) (1,922) (23,734)
All other charges (206) -- --
Net activity relating to HomeGoods closings -- (126) (1,833)
-------- -------- --------
Balance at end of year $ 12,131 $ 16,792 $ 15,731
======== ======== ========
The remaining balance in the store closing and restructuring reserve as of
January 26, 2002 of $12.1 million is primarily for the estimated cost of the
future lease obligations of the closed stores. The estimates and assumptions
used in developing the remaining reserve requirements are subject to change;
however, TJX believes the reserve is adequate for these obligations. The use of
the reserve will reduce operating cash flows in varying amounts over the next
ten to fifteen years as the related leases reach their expiration dates or are
settled. TJX believes future spending will not have a material impact on its
future annual cash flows or financial condition.
34
THE TJX COMPANIES, INC.
L. DISCONTINUED OPERATIONS RESERVE AND RELATED CONTINGENT LIABILITIES
TJX also has a reserve for future obligations relating to House2Home, Inc.,
Zayre Stores and Hit or Miss, all of which were previously owned by TJX. The
reserves were established at various times, either when the operation was
disposed of or subsequent to the disposition, when the operation suffered
significant financial distress. These reserves reflect the estimated cost to TJX
of obligations relating to guarantees on certain property leases of these
operations.
On November 7, 2001, House2Home, Inc. filed 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 bankruptcy
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 that
TJX had guaranteed. TJX assumed a 6.5% interest rate for purposes of calculating
the present value of the estimated lease obligations. 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 total discounted
present value after-tax cost, without reflecting any mitigating factors, would
be approximately $64.6 million, net of the indemnification by BJ's Wholesale
Club, Inc., versus the $40 million charge TJX recorded. The number and cost of
the lease obligations for which TJX may have liability will 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.
On August 20, 2001, Ames Department Stores, Inc. filed a voluntary
petition for relief under Chapter 11 of the Federal Bankruptcy Code and is
reorganizing. 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 is obligated on leases for eight properties that
reverted back to it in this earlier reorganization. All of these properties have
been subleased which mitigates TJX's liability under the leases. The present
value of these eight leases, discounted at 6.5% and without mitigation, is
approximately $16 million on a pre-tax basis. Under the current reorganization
to date, Ames has rejected an additional five leases for which TJX has or may
have liability. The present value of these five leases, discounted at 6.5% and
without mitigation, is approximately $12 million on a pre-tax basis. TJX's
reserve balance relating to Ames is approximately $21 million. The reserve
balance reflects the subleasing arrangements already in place and assumes
mitigating factors will also reduce costs TJX may incur with respect to the
other five leases. In addition to these 13 leases, TJX is or may be contingently
liable on approximately 60 to 90 leases of former Zayre stores, none of which
have been rejected by Ames to date. TJX believes that any additional future
liability with respect to these leases will be minimal. TJX believes that its
reserve for discontinued operations is adequate to meet the costs it may incur
with respect to the Ames leases and that its contingent liability for these
leases will not have a material adverse effect on its financial condition,
operating results or cash flows.
Contingent obligations with respect to leases of TJX's former Hit or
Miss division, which filed for bankruptcy and liquidated, have been
substantially resolved.
The balance in the reserve and the activity for the last three fiscal
years is presented below. The addition to the reserve in fiscal 2002 relates to
House2Home, Inc. The charges against the reserve during the past three years
relate to the lease related obligations of the Zayre and Hit or Miss locations.
FISCAL YEAR ENDED JANUARY
--------------------------------
IN THOUSANDS 2002 2001 2000
- ------------ -------- -------- --------
Balance at beginning of year $ 25,512 $ 27,304 $ 29,660
Additions to the reserve 66,528 -- --
Charges against the reserve:
Lease related obligations (4,090) (1,621) (2,150)
All other (666) (171) (206)
-------- -------- --------
Balance at end of year $ 87,284 $ 25,512 $ 27,304
======== ======== ========
35
THE TJX COMPANIES, INC.
TJX believes its current reserve is adequate for costs we may incur relating to
the obligations associated with these former operations. Future spending against
the discontinued operations reserve will reduce operating cash flows in varying
amounts over the next ten to fifteen years, as leases reach termination dates or
are settled. Charges against the reserve will likely be higher during the next
several years due to House2Home, Inc. related obligations. TJX believes future
spending will not have a material impact on future annual cash flows or its
financial condition.
TJX is also contingently liable on up to 25 leases of BJ's Wholesale
Club, Inc. for which BJ's Wholesale Club, Inc. is primarily liable. TJX believes
that the likelihood of any future liability to TJX, with respect to these
leases, is remote.
M. LEGAL PROCEEDINGS
TJX is a defendant in four lawsuits pending in the California Superior Court,
each seeking certification as a class action. The actions collectively allege
that all exempt managers in T.J. Maxx, Marshalls and HomeGoods stores in
California, including store managers and assistant store managers, were
improperly classified as exempt from California overtime laws and seek
recovery of overtime pay allegedly owed, penalties, punitive damages and
injunctive relief. TJX believes that its managers are and were properly
classified and does not believe that the outcome of this litigation will have
any material adverse effect on its financial condition or results of operations.
N. SUPPLEMENTAL CASH FLOWS INFORMATION
The cash flows required to satisfy contingent obligations of the discontinued
operations as discussed in Note L, are classified as a reduction in cash
provided by continuing operations. There are no remaining operating activities
relating to these operations.
TJX's cash payments for interest and income taxes and its non-cash
investing and financing activities are as follows:
FISCAL YEAR ENDED
--------------------------------------------------
JANUARY 26, JANUARY 27, JANUARY 29,
IN THOUSANDS 2002 2001 2000
- ------------ ----------- ----------- -----------
Cash paid for:
Interest on debt $ 28,973 $ 34,509 $ 19,018
Income taxes 267,078 335,265 332,622
Change in accrued expenses due to:
Stock repurchase $ -- $ (9,275) $ (3,300)
Dividends payable 1,005 573 977
Non-cash investing and financing activities:
Capital lease property addition
and related obligation $ 32,572 $ -- $ --
Investing activities include advances TJX has made under a $35 million
construction loan agreement in connection with the expansion of its leased home
office facility. Upon completion of the project in May 2001, the advances were
converted into a term loan bearing interest of 7.25% per year, maturing December
31, 2015. The long-term portion of the loan amounting to $34.3 million and $28.9
million as of January 26, 2002 and January 27, 2001, respectively, is included
in other assets on the balance sheets.
O. SEGMENT INFORMATION
The T.J. Maxx and Marshalls store chains are managed on a combined basis and are
reported as the Marmaxx segment. The Winners chain, including HomeSense,
operates exclusively in Canada, and T.K. Maxx operates in Europe, primarily the
United Kingdom. Winners and T.K. Maxx accounted for 11% of TJX's net sales for
fiscal 2002 and 11% of consolidated assets. All of TJX's other store chains
operate in the United States with the exception of 14 stores operated in Puerto
Rico by Marshalls which include two HomeGoods locations in a "Marshalls
Mega-Store" format. TJX's target customer is the middle to upper-middle income
shopper with the exception of the A.J. Wright stores which target a more
moderate income customer. All of TJX's stores, with the exception of HomeGoods
and HomeSense, sell apparel for the entire family with a limited offering of
giftware and domestics. The HomeGoods and HomeSense stores offer home fashions
and home furnishings.
36
THE TJX COMPANIES, INC.
TJX evaluates the performance of its segments based on pre-tax income
before general corporate expense, goodwill amortization and interest (operating
income). Presented below is selected financial information on TJX's business
segments:
FISCAL YEAR ENDED
-------------------------------------------------
JANUARY 26, JANUARY 27, JANUARY 29,
IN THOUSANDS 2002 2001 2000
- ------------ ------------ -------------- ------------
Net sales:
Marmaxx $ 8,863,053 $ 8,228,468 $ 7,779,826
Winners(1) 660,877 563,311 466,765
T.K. Maxx 520,529 389,062 298,659
HomeGoods 507,211 315,015 206,810
A.J. Wright 157,328 83,150 43,287
------------ ------------ ------------
$ 10,708,998 $ 9,579,006 $ 8,795,347
============ ============ ============
Operating income (loss):
Marmaxx $ 893,650 $ 858,358 $ 849,560
Winners(1) 59,140 71,055 54,914
T.K. Maxx(2) 12,972 10,867 6,462
HomeGoods 3,710 4,700 4,581
A.J. Wright (11,843) (15,012) (14,444)
------------ ------------ ------------
957,629 929,968 901,073
General corporate expense(3) 55,335 39,513 37,182
Goodwill amortization 2,607 2,609 2,609
Interest expense, net 25,643 22,904 7,345
------------ ------------ ------------
Income from continuing operations before income
taxes and cumulative effect of accounting change $ 874,044 $ 864,942 $ 853,937
============ ============ ============
Identifiable assets:
Marmaxx $ 2,174,345 $ 2,050,775 $ 1,916,230
Winners(1) 161,479 151,062 111,446
T.K. Maxx 248,695 176,916 138,914
HomeGoods 196,292 126,010 63,888
A.J. Wright 82,713 56,423 22,813
Corporate (primarily cash, goodwill and deferred taxes) 732,219 371,097 551,672
------------ ------------ ------------
$ 3,595,743 $ 2,932,283 $ 2,804,963
============ ============ ============
Capital expenditures:
Marmaxx $ 247,077 $ 152,901 $ 175,985
Winners(1) 32,052 18,775 11,412
T.K. Maxx 70,614 29,569 31,647
HomeGoods 79,380 30,245 10,819
A.J. Wright 20,321 25,515 8,706
------------ ------------ ------------
$ 449,444 $ 257,005 $ 238,569
============ ============ ============
Depreciation and amortization:
Marmaxx $ 150,506 $ 145,987 $ 136,898
Winners(1) 10,562 7,779 6,657
T.K. Maxx 13,080 10,292 8,552
HomeGoods 8,984 5,444 3,911
A.J. Wright 4,564 2,689 1,491
Corporate (including goodwill and debt discount) 16,385 3,590 2,957
------------ ------------ ------------
$ 204,081 $ 175,781 $ 160,466
============ ============ ============
(1) Includes the assets/activity of the new HomeSense stores in fiscal
2002.
(2) The period ended January 27, 2001 includes a pre-tax charge of $6.3
million for the estimated cost of closing three stores in the
Netherlands.
(3) General corporate expense for the fiscal year ended January 26, 2002,
includes incremental costs of approximately $4 million for moving and
occupancy costs related to TJX's home office, an increase in costs for
retirement and medical benefits, and $2 million related to
September 11.
37
THE TJX COMPANIES, INC.
P. SUBSEQUENT EVENTS
On March 26, 2002, TJX entered into a $350 million five-year, and a $300 million
364-day revolving credit facilities, replacing its $500 million five-year and
$250 million 364-day credit facilities. The new credit facilities have
substantially the same terms and conditions as the credit facilities they
replaced.
On April 10, 2002, TJX approved a two-for-one stock split to be
distributed on May 8, 2002 to shareholders of record on April 25, 2002. The
stock split will require retroactive restatement of all historical per share
data in the first quarter ending April 27, 2002. Presented below are unaudited
pro forma results for diluted earnings per share for income from continuing
operations for the three fiscal years ended January 26, 2002 as well as the
quarterly results for the last two fiscal years.
FISCAL YEAR ENDED
-------------------------------------------
DOLLARS IN THOUSANDS JANUARY 26, JANUARY 27, JANUARY 28,
EXCEPT PER SHARE AMOUNTS 2002 2001 2000
- ------------------------ ----------- ----------- -----------
Income from continuing operations $ 540,397 $ 538,066 $ 526,822
Diluted earnings per share:
As reported $ 1.94 $ 1.86 $ 1.66
Pro forma (unaudited) $ .97 $ .93 $ .83
Quarterly unaudited pro forma diluted earnings per share for income from
continuing operations:
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 26, 2002 JANUARY 27, 2001
------------------------------ -----------------------------
QUARTER AS REPORTED PRO FORMA AS REPORTED PRO FORMA
- ------- ----------- --------- ----------- ---------
First $.44 $.22 $.44 $.22
Second $.40 $.20 $.39 $.19
Third $.54 $.27 $.56 $.28
Fourth $.56 $.28 $.48 $.24
The unaudited pro forma impact of the stock split on TJX's balance sheet as of
January 26, 2002 would be to increase common stock by $271.5 million with an
offsetting reduction to retained earnings.
38
THE TJX COMPANIES, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
[PRICEWATERHOUSECOOPERS LOGO]
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE TJX COMPANIES, INC.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of The TJX Companies,
Inc. and its subsidiaries at January 26, 2002 and January 27, 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended January 26, 2002 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note D to the consolidated financial statements, during
the year ended January 26, 2002, The TJX Companies, Inc. changed its method of
accounting for derivative financial instruments to conform to Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended.
February 26, 2002, except as
to Note P which is as of
April 10, 2002. /s/PricewaterhouseCoopers LLP
------------------------------
REPORT OF MANAGEMENT
The financial statements and related financial information in this annual report
have been prepared by management which is responsible for their integrity,
objectivity and consistency. The financial statements were prepared in
accordance with generally accepted accounting principles and necessarily include
amounts which are based upon judgments and estimates made by management.
TJX maintains a system of internal controls designed to provide, at
appropriate cost, reasonable assurance that assets are safeguarded, transactions
are executed in accordance with management's authorization and the accounting
records may be relied upon for the preparation of financial statements. The
system of controls includes the careful selection and training of associates,
and the communication and application of formal policies and procedures that
are consistent with high standards of accounting and administrative practices.
The accounting and control systems are continually reviewed, evaluated and where
appropriate, modified to accommodate changing business conditions and the
recommendations of TJX's internal auditors and the independent public
accountants.
An Audit Committee, comprised of members of the Board of Directors who
are neither officers nor employees of TJX, meets periodically with management,
internal auditors and the independent public accountants to review matters
relating to TJX's financial reporting, the adequacy of internal accounting
controls and the scope and results of audit work. The Committee is responsible
for reporting the results of its activities and for recommending the selection
of independent auditors to the full Board of Directors. The internal auditors
and the independent public accountants have free access to the Committee and the
Board of Directors.
The financial statements have been examined by PricewaterhouseCoopers
LLP, whose report appears separately. Their report expresses an opinion as to
the fair presentation of the consolidated financial statements and is based on
an independent examination performed in accordance with generally accepted
auditing standards.
/s/Edmond J. English /s/Donald G. Campbell
- ---------------------- ----------------------
Edmond J. English Donald G. Campbell
President and Chief Executive Officer Executive Vice President - Finance and
Chief Financial Officer
February 26, 2002
39
THE TJX COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion contains forward-looking information and should be read
in conjunction with the consolidated financial statements and notes thereto
included elsewhere in this report. Our actual results could differ materially
from the results contemplated by these forward-looking statements due to various
factors, including those discussed under the "Forward-Looking Information"
section of this report.
RESULTS OF OPERATIONS
The following is a summary of the operating results of TJX at the consolidated
level. This discussion is followed by an overview of operating results by
segment. All references to earnings per share are diluted earnings per share
unless otherwise indicated.
NET SALES: Our net sales increased 11.8% in fiscal 2002, to $10.71 billion, over
net sales of $9.58 billion in fiscal 2001. Net sales in fiscal 2001 increased
8.9% over net sales of $8.80 billion in fiscal 2000. The increase in our net
sales for both years is attributable to new stores and an increase in same store
sales. We define same store sales to be sales of those stores that were in
operation for the entire year in both the current and prior year being compared.
Consolidated same store sales increased 3% in fiscal 2002 and 2% in fiscal 2001.
The increase in same store sales represented 25% of the total increase in net
sales in fiscal 2002 and 23% of the increase in fiscal 2001. Our consolidated
store count increased 11.5% in fiscal 2002 over the prior year as compared to a
10.0% increase in fiscal 2001 over fiscal 2000. The sales results for fiscal
2002 were achieved despite a difficult economy and a promotional retail
environment. Our value-oriented business has traditionally held up well in more
difficult economic and promotional environments. Additionally, the ability of
Marmaxx (the combination of T.J. Maxx and Marshalls) to maintain inventory
liquidity throughout the year was a key factor in our performance. We finished
fiscal 2002 on a strong note with consolidated same store sales increasing 6% in
the fourth quarter. In fiscal 2001, particularly at Marmaxx, sales results were
adversely affected by unseasonable or severe weather conditions in certain areas
of the country. In both years, non-apparel sales gains exceeded the increase in
apparel sales. We expect to add a net of 184 stores and have planned a 3%
increase in same store sales for fiscal 2003.
The following table sets forth our consolidated operating results as a
percentage of net sales:
FISCAL YEAR ENDED JANUARY
-----------------------------------------------
2002 2001 2000
----- ----- -----
Net sales 100.0% 100.0% 100.0%
----- ----- -----
Cost of sales, including buying and occupancy costs 75.9 75.0 74.8
Selling, general and administrative expenses 15.7 15.7 15.4
Interest expense, net .2 .3 .1
----- ----- -----
Income from continuing operations before income taxes and
cumulative effect of accounting change 8.2% 9.0% 9.7%
===== ===== =====
COST OF SALES, INCLUDING BUYING AND OCCUPANCY COSTS: Cost of sales, including
buying and occupancy costs, as a percentage of net sales were 75.9% in fiscal
2002, 75.0% in fiscal 2001 and 74.8% in fiscal 2000. Almost two-thirds of the
increase in this ratio in fiscal 2002 versus fiscal 2001, is due to a reduction
in merchandise margin. The reduction in merchandise margin was primarily due to
aggressive pricing on some merchandise categories during the third quarter in
our rapid response to the fall-off in consumer confidence following the
September 11 attacks and increased mark-downs we incurred at our smaller
divisions due to inventory liquidity issues experienced at different times
during the year. To a lesser extent, an increase in inventory shortage in fiscal
2002 contributed to the reduction in merchandise margin. This expense ratio in
fiscal 2002 also increased by twenty basis points due to an increase in
distribution costs as a result of our increased investment in our distribution
network. The increase in this ratio in fiscal 2001 is primarily due to the
slower sales growth in that year, distribution center capacity issues and an
increase in our freight costs. Due to our liquid inventory position at all
divisions at the end of fiscal 2002, we anticipate a slight improvement in this
ratio for the coming year despite our continued investment in our distribution
network.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses as a percentage of net sales were 15.7% in both fiscal
2002 and fiscal 2001, and 15.4% in fiscal 2000. Selling, general and
administrative expenses for fiscal 2002 increased approximately ten basis points
due to increased costs for medical
40
THE TJX COMPANIES, INC.
and retirement benefits. Also, fiscal 2002 includes approximately $4 million of
incremental moving and occupancy costs in connection with the expansion of our
main office and the consolidation of other office space, and we incurred $2
million of costs in connection with the September 11 attacks, primarily for
benefits to the families of our associates lost in the tragedy. Selling, general
and administrative expenses for fiscal 2001 include a pre-tax charge of $6.3
million for the estimated cost of closing T.K. Maxx stores operated in the
Netherlands. The net effect of these items in each year, along with the
beneficial impact of our increasing sales base, results in an expense ratio that
is constant from year to year. The increase in this ratio in fiscal 2001 versus
fiscal 2000 is due in part to the Netherlands closing costs in fiscal 2001 while
fiscal 2000 includes a pre-tax gain of $8.5 million, resulting from the receipt
of common stock due to the demutualization of Manulife Financial Corporation. In
addition, during fiscal 2001 Marmaxx incurred higher store payroll costs than in
the prior year. We anticipate a slight increase in this ratio in the coming year
due to further increases in medical and retirement benefit costs, offset in part
by savings realized by the elimination of goodwill and tradename amortization
(see discussion of SFAS No. 142 in Note A to the consolidated financial
statements).
INTEREST EXPENSE, NET: Interest expense, net of interest income, was $25.6
million in fiscal 2002, $22.9 million in fiscal 2001 and $7.3 million in fiscal
2000. Interest income was $15.0 million in fiscal 2002 versus $11.8 million in
fiscal 2001 and $13.1 million in fiscal 2000. The increase in net interest
expense in fiscal 2002 is primarily due to the zero coupon convertible notes
issued in February 2001 (see Note C to the consolidated financial statements)
offset in part by reduced short-term borrowing costs. Debt issuance costs of
$7.9 million relating to the zero coupon convertible notes were amortized over
twelve months due to the note holders' February 2002 put option. The increase in
interest income in fiscal 2002 is due to higher cash balances as a result of the
proceeds received from the issuance of the zero coupon convertible notes and
from strong cash flows from operations during the year. The increase in net
interest expense in fiscal 2001 is due to increased short-term borrowing levels
over fiscal 2000. We anticipate a slight increase in net interest expense in the
coming year due to lower rates of interest earned on our cash balances, offset
in part by reduced interest costs associated with the zero coupon convertible
notes.
INCOME TAXES: Our effective annual income tax rate was 38.2% in fiscal 2002,
37.8% in fiscal 2001 and 38.3% in fiscal 2000. The lower effective annual tax
rate for fiscal 2001, as compared to fiscal 2002 and fiscal 2000, is due
primarily to tax benefits recognized in connection with the use of the remaining
United Kingdom net operating loss carryforward and tax benefits associated with
the closing of the T.K. Maxx stores in the Netherlands. These tax benefits
were all recognized in the fourth quarter of fiscal 2001. Based on existing tax
laws and our operating plans for fiscal 2003, we anticipate an income tax rate
for the coming year slightly below that of fiscal 2002.
INCOME FROM CONTINUING OPERATIONS/NET INCOME: Income from continuing operations
was $540.4 million in fiscal 2002, $538.1 million in fiscal 2001, and $526.8
million in fiscal 2000. Income from continuing operations per share was $1.94 in
fiscal 2002, versus $1.86 in fiscal 2001 and $1.66 in fiscal 2000. Net income
for fiscal 2002 includes an after-tax charge of $40 million, or $.14 per share,
due to discontinued operations for contingent lease obligations associated with
House2Home, Inc. which was spun-off from TJX in 1989 together with BJ's
Wholesale Club. Net income for fiscal 2000 includes a $5.2 million charge, or
$.02 per share, for the cumulative effect of the accounting change for layaway
sales. Net income, after reflecting the above items, was $500.4 million, or
$1.80 per share, in fiscal 2002, $538.1 million, or $1.86 per share, in fiscal
2001 and $521.7 million, or $1.64 per share, in fiscal 2000. The percentage
increase in earnings per share in all periods increased more than the related
earnings as a result of the impact of our share repurchase program, which we
plan to continue in the coming year.
SEGMENT INFORMATION
The following is a discussion of the operating results of our business segments.
We consider each of our operating divisions to be a segment. More detailed
information about our segments can be found in Note O to the consolidated
financial statements.
MARMAXX:
FISCAL YEAR ENDED JANUARY
--------------------------------------------------------
DOLLARS IN MILLIONS 2002 2001 2000
- ------------------- -------- -------- --------
Net sales $8,863.1 $8,228.5 $7,779.8
Operating income $ 893.7 $ 858.4 $ 849.6
Operating margin 10.1% 10.4% 10.9%
Percent increase in same store sales 3% 2% 4%
Stores in operation at end of period 1,269 1,196 1,137
41
THE TJX COMPANIES, INC
Marmaxx had a 3% same store sales increase in fiscal 2002, which met our
expectations and was higher than last year's 2% increase. The fiscal 2002
results were aided by a strong fourth quarter in which Marmaxx had a same store
sales increase of 6% over the same quarter last year. Marmaxx maintained a
liquid inventory position throughout the year, a key factor in this division's
success in fiscal 2002. The operating margin for the full year decreased
slightly reflecting more modest sales gains in the first half of the year, an
aggressive pricing strategy in the third quarter when we rapidly responded to a
general fall-off in consumer confidence following the September 11 attacks, and
to a lesser extent, an increase in inventory shortage recorded in the fourth
quarter. Despite the higher inventory shortage, fourth quarter operating margins
increased over the prior year's fourth quarter. The new store openings in fiscal
2002 for both T.J. Maxx and Marshalls performed above expectations and ahead of
new store openings in the prior year. Results for fiscal 2001 versus fiscal 2000
include a slightly below planned same store sales increase primarily in those
areas of the country that experienced unseasonable or severe weather conditions.
These sales results along with increases in store payroll and freight costs are
the prime reason for the reduction in Marmaxx's operating margin in fiscal 2001
as compared to fiscal 2000.
At Marmaxx, we expect to open a net of 75 new stores in fiscal 2003,
increasing this chain's store base by 6%.
WINNERS AND HOMESENSE:
FISCAL YEAR ENDED JANUARY
----------------------------------------
U.S. DOLLARS IN MILLIONS 2002 2001 2000
- ------------------------ ------ ------ ------
Net sales $660.9 $563.3 $466.8
Operating income $ 59.1 $ 71.1 $ 54.9
Operating margin 8.9% 12.6% 11.8%
Percent increase in same store sales (local currency) 6% 8% 8%
Stores in operation at end of period
Winners 131 117 100
HomeSense 7 -- --
Winners' same store sales increased by 6% in local currency in fiscal 2002, on
top of an 8% increase in the prior year. Operating income decreased 17% in
fiscal 2002 from the prior year versus a 29% increase in fiscal 2001 over the
prior year. This operating performance in fiscal 2002 is primarily due to
Winners' inventory position being above desired levels and the resulting higher
markdowns incurred to move to a more liquid inventory position. The growth in
Winners' store base and its strong same store sales performance are the primary
reasons for the improvement in Winners' operating margin in fiscal 2001 versus
fiscal 2000.
We introduced HomeSense, a HomeGoods-like concept, to Canada by opening
7 stores during fiscal 2002. Sales results were above expectations, and
operations, as expected, resulted in a small loss due to start-up costs. The
operating results of HomeSense are included with Winners but are not material.
We expect to open 14 Winners and 8 HomeSense stores in fiscal 2003,
increasing our total Canadian store base by 16%.
T.K .MAXX:
FISCAL YEAR ENDED JANUARY
----------------------------------------
U.S. DOLLARS IN MILLIONS 2002 2001 2000
- ------------------------ ------ ------ ------
Net sales $520.5 $389.1 $298.7
Operating income $ 13.0 $ 10.9 $ 6.5
Operating margin 2.5% 2.8% 2.2%
Percent increase in same store sales (local currency) 5% 8% 12%
Stores in operation at end of period 101 74 54
T.K. Maxx, operating in the United Kingdom and Ireland, recorded a same store
sales increase of 5% in local currency in fiscal 2002, on top of an 8% increase
in the prior year. The operating income for fiscal 2001 includes costs of
closing the Netherlands stores and the operating loss of the stores, all of
which totaled $9.6 million. Fiscal 2002 had additional Netherlands closing costs
and operating losses totaling $1.2 million. T.K. Maxx's operating income,
excluding the effect of the Netherlands, is $14.2 million in fiscal 2002, $20.5
million in fiscal 2001 and $10.1 million in fiscal 2000. The decrease in T.K.
Maxx's operating income from the United Kingdom and Ireland stores in fiscal
2002 is primarily due to this division carrying excess inventories through much
of the year and reflects the cost of markdowns taken to bring inventory back to
desired levels. The growth in T.K. Maxx's operating income from these two
countries in fiscal 2001 over fiscal 2000 is primarily due to store base growth
and strong same store sales performance.
We plan to open an additional 25 T.K. Maxx stores in fiscal 2003.
42
THE TJX COMPANIES, INC.
HOMEGOODS:
FISCAL YEAR ENDED JANUARY
----------------------------------------
DOLLARS IN MILLIONS 2002 2001 2000
- ------------------- ------ ------ ------
Net sales $507.2 $315.0 $206.8
Operating income $ 3.7 $ 4.7 $ 4.6
Operating margin 0.7% 1.5% 2.2%
Percent increase in same store sales 7% 3% 13%
Stores in operation at end of period 112 81 51
HomeGoods' same store sales grew 7% in fiscal 2002. Operating income for the
year was less than fiscal 2001 primarily due to markdowns taken in the first
half of fiscal 2002 as HomeGoods moved to a more liquid inventory position, and
to a lesser extent, to an increase in distribution costs. The increase in
distribution costs is a result of our investment in HomeGoods' distribution
network that came under pressure in fiscal 2001 as a result of HomeGoods' store
growth. These distribution capacity issues negatively impacted results for
fiscal 2001 versus fiscal 2000.
During fiscal 2002, HomeGoods opened an 800,000 square foot
distribution facility and has plans to add an additional 800,000 square feet
when needed. We plan on adding a net of 32 new HomeGoods stores in fiscal 2003.
A.J. WRIGHT:
FISCAL YEAR ENDED JANUARY
------------------------------------------
DOLLARS IN MILLIONS 2002 2001 2000
- ------------------- ------ ------ ------
Net sales $157.3 $ 83.2 $ 43.3
Operating (loss) $(11.8) $(15.0) $(14.4)
Percent increase in same store sales 18% 19% N/A
Stores in operation at end of period 45 25 15
A.J. Wright increased its store base by 80% and achieved an 18% increase in same
store sales during fiscal 2002 over fiscal 2001, following a 67% increase in
store base and a 19% increase in same store sales in fiscal 2001 over the prior
year. This chain is still in the development stages and entered new markets in
the United States during fiscal 2002. As it is still in the development stages,
we expect this chain to incur operating losses for the next several years. We
currently plan to add 30 new stores in fiscal 2003.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Net cash provided by operating activities was $912.4 million in fiscal 2002,
$556.8 million in fiscal 2001 and $595.2 million in fiscal 2000. The increase in
cash provided by operations in fiscal 2002 over fiscal 2001 is largely due to
our liquid inventory position and our policy of buying closer to need. The
decrease in cash provided by operations in fiscal 2001 was primarily due to an
increase in inventory levels offset, in part, by an increase in accrued
expenses. Inventory levels as of January 27, 2001, as compared to the prior
year, were higher primarily due to earlier buying for the spring season.
Inventories as a percentage of sales were 13.6% in fiscal 2002, 15.2% in fiscal
2001, and 14.0% in fiscal 2000. Working capital was $800.9 million in fiscal
2002, $537.2 million in fiscal 2001 and $532.0 million in fiscal 2000. The
increase in working capital in fiscal 2002 over fiscal 2001 is due to an
increase in our cash position reflecting the strong cash flows from operations
and proceeds from borrowings. Working capital in fiscal 2001, as compared to
fiscal 2000, reflects a lower cash position offsetting increases in inventory.
The cash flows from operating activities have been reduced by $8.9 million in
fiscal 2002, $3.8 million for fiscal 2001 and $27.9 million for fiscal 2000, for
cash expenditures charged against the store closing and restructuring reserve,
and the discontinued operations reserve as discussed in more detail below.
STORE CLOSING AND RESTRUCTURING RESERVE: Our store closing and restructuring
reserve relates primarily to a restructuring plan in connection with our
acquisition of Marshalls in November 1995. This reserve, which was initially
established at that time and was subsequently adjusted, included the cost of
closing 32 T.J. Maxx stores and the cost of closing 70 Marshalls stores and
other Marshalls facilities. The T.J. Maxx closing costs were charged to
operations while the costs associated with Marshalls were a component of the
allocation of the purchase price. This reserve also includes activity relating
to the closing of the T.K. Maxx stores in the Netherlands as well as several
HomeGoods stores.
43
THE TJX COMPANIES, INC.
The following is a summary of the activity in the store closing and
restructuring reserve for the last three fiscal years:
FISCAL YEAR ENDED JANUARY
----------------------------------------------
IN THOUSANDS 2002 2001 2000
- ------------ -------- -------- --------
Balance at beginning of year $ 16,792 $ 15,731 $ 44,598
Additions to the reserve -- 3,109 --
Reserve adjustments:
Adjust Marshalls restructuring reserve -- -- (3,000)
Adjust T.J. Maxx store closing reserve -- -- (300)
Adjust T.K. Maxx store closing reserve (514) -- --
Charges against the reserve:
Lease related obligations (3,941) (1,922) (23,734)
All other charges (206) -- --
Net activity relating to HomeGoods closings -- (126) (1,833)
-------- -------- --------
Balance at end of year $ 12,131 $ 16,792 $ 15,731
======== ======== ========
The remaining balance in the store closing and restructuring reserve as of
January 26, 2002 of $12.1 million is primarily for the estimated cost of the
future lease obligations of the closed stores. The estimates and assumptions
used in developing the remaining reserve requirements are subject to change;
however, we believe we have adequate reserves for these obligations. The use of
the reserve will reduce operating cash flows in varying amounts over the next
ten to fifteen years as the related leases reach their expiration dates or are
settled. We believe future spending will not have a material impact on future
annual cash flows or our financial condition.
DISCONTINUED OPERATIONS RESERVE: We also have a reserve for future obligations
relating to House2Home, Inc., Zayre Stores and Hit or Miss, all of which were
previously owned by TJX. The reserves were established at various times, either
when the operation was disposed of or subsequent to the disposition, when the
operation suffered significant financial distress. These reserves reflect the
estimated cost to us of obligations relating to guarantees on certain property
leases of these operations.
On November 7, 2001, House2Home, Inc. filed 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 us 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 bankruptcy filing,
we 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 that
we had guaranteed. We assumed a 6.5% interest rate for purposes of calculating
the present value of the estimated lease obligations. The charge was recorded in
the third quarter ending October 27, 2001 as a loss relating to discontinued
operations. If we were liable on all 41 of the leases, the total 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. versus
the $40 million charge we recorded. We expect that the number and cost of the
lease obligations for which we may have liability will 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.
On August 20, 2001, Ames Department Stores, Inc. filed a voluntary
petition for relief under Chapter 11 of the Federal Bankruptcy Code and is
reorganizing. 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. We are obligated on leases for eight properties that reverted back to us
in this earlier reorganization. All of these properties have been subleased
which mitigates our liability under the leases. The present value of these eight
leases, discounted at 6.5% and without mitigation, is approximately $16 million
on a pre-tax basis. Under the current reorganization to date, Ames has rejected
an additional five leases for which we have or may have liability. The present
value of these five leases, discounted at 6.5% and without mitigation, is
approximately $12 million on a pre-tax basis. Our reserve balance relating to
Ames is approximately $21 million. The reserve balance reflects the subleasing
arrangements already in place and assumes mitigating factors will also reduce
costs we may incur with respect to the other five leases. In addition to these
13 leases, we believe we are or may be contingently liable on approximately 60
to 90 leases of former Zayre stores, none of which have been rejected by Ames to
date. We believe that any additional future liability with
44
THE TJX COMPANIES, INC.
respect to these leases will be minimal. We believe that our reserve for
discontinued operations is adequate to meet the costs we may incur with respect
to the Ames leases and that our contingent liability for these leases will not
have a material adverse effect on our financial condition, operating results or
cash flows.
Our contingent obligations with respect to leases of Hit or Miss, which
filed for bankruptcy and liquidated, have been substantially resolved.
The balance in the reserve and the activity for the last three fiscal
years is presented below. The addition to the reserve in fiscal 2002 relates to
House2Home, Inc. The charges against the reserve during the past three years
relate to the lease related obligations of the Zayre and Hit or Miss locations.
FISCAL YEAR ENDED JANUARY
----------------------------------------------
IN THOUSANDS 2002 2001 2000
- ------------ -------- -------- --------
Balance at beginning of year $ 25,512 $ 27,304 $ 29,660
Additions to the reserve 66,528 -- --
Charges against the reserve:
Lease related obligations (4,090) (1,621) (2,150)
All other (666) (171) (206)
-------- -------- --------
Balance at end of year $ 87,284 $ 25,512 $ 27,304
======== ======== ========
We believe our current reserve is adequate for costs we may incur relating to
the obligations associated with these former operations. Future spending against
the discontinued operations reserve will reduce operating cash flows in varying
amounts over the next ten to fifteen years, as leases reach termination dates or
are settled. Charges against the reserve will likely be higher during the next
several years due to House2Home, Inc. related obligations. We believe future
spending will not have a material impact on future annual cash flows or our
financial condition.
We are also contingently liable on up to 25 leases of BJ's Wholesale
Club, Inc. for which BJ's Wholesale Club, Inc. is primarily liable. We believe
that the likelihood of any future liability to us, with respect to these leases,
is remote.
INVESTING ACTIVITIES
Our cash flows for investing activities include capital expenditures for the
last two years as set forth in the table below:
FISCAL YEAR ENDED JANUARY
-------------------------
IN MILLIONS 2002 2001
- ----------- ------ ------
New stores $143.1 $112.1
Store renovations and improvements 108.6 94.0
Office and distribution centers 197.7 50.9
------ ------
Capital expenditures $449.4 $257.0
====== ======
We expect that capital expenditures will approximate $485 million for fiscal
year 2003. This includes $151 million for new stores, $153 million for store
renovations and improvements and $181 million for our office and distribution
centers. Our planned rate of new store growth on a consolidated basis is 11% for
fiscal 2003. Our rate of store growth, and the related investment in our
distribution center network, are the major factors in our increase in planned
capital expenditures. The plan also assumes that an increased portion of our
distribution center capital needs will be purchased rather than leased. These
capital expenditures will be funded by operating cash flows.
Investing activities include $5.4 million for fiscal 2002 and $23.1
million for fiscal 2001 due to advances we made under a construction loan
agreement, in connection with the expansion of our leased home office facility.
Investing activities also include proceeds of $9.2 million in fiscal 2001 from
the sale of common stock of Manulife Financial Corporation.
FINANCING ACTIVITIES
On February 13, 2001, we 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 represents a yield to maturity of 2% per
year. The notes are convertible into 8.5 million shares of common stock of TJX
if the sale price of our common stock reaches specified thresholds, if the
credit rating of the notes is below investment grade, if the notes are called
for redemption or if certain specified corporate transactions occur. None of
these conditions existed as of January 26, 2002 and thus the shares are excluded
from the diluted earnings per share calculations. The holders of the notes have
the right to require us to purchase the notes in February 2004, 2007 and 2013.
We may pay the purchase price in cash, our stock, or a combination of the two.
At the first put date of February 13, 2002, no holders exercised the purchase
option. If the holders exercise this option, we expect to fund the payment with
cash, financing from our short-term credit facility, new long-term borrowings or
a combination thereof. We used the proceeds for our accelerated store roll-out
program, investment in our distribution center network, general corporate
purposes and our common stock repurchase program.
45
THE TJX COMPANIES, INC.
In December 1999, we issued $200 million of 7.45% unsecured notes
resulting in net proceeds of $198.1 million. The proceeds were used for general
corporate purposes and to support our ongoing stock repurchase program.
Financing activities include scheduled principal payments on long-term debt of
$73,000 in fiscal 2002, $100.2 million in fiscal 2001 and $695,000 in fiscal
2000.
Our long-term debt and lease commitments as of January 26, 2002 will require
cash outflows as follows
CAPITAL OPERATING
LONG-TERM LEASE LEASE
IN THOUSANDS DEBT OBLIGATIONS COMMITMENTS TOTAL
- ------------ ---------- ---------- ---------- ----------
Fiscal Year
2003 $ -- $ 3,726 $ 477,679 $ 481,405
2004 15,000 3,726 451,234 469,960
2005 5,000 3,726 415,572 424,298
2006 99,953 3,726 372,335 476,014
2007 -- 3,726 332,016 335,742
Later Years 552,090 34,123 1,477,248 2,063,461
---------- ---------- ---------- ----------
Total $ 672,043 $ 52,753 $3,526,084 $4,250,880
========== ========== ========== ==========
The payment of the zero coupon convertible notes is included in "later years"
and assumes the note holders will not exercise the put option available to them
in fiscal 2005. The above cash outflows will be reduced by tax benefits we
expect to obtain from lease obligations as they are paid.
We spent $424.2 million in fiscal 2002, $444.1 million in fiscal 2001
and $604.6 million in fiscal 2000 under our stock repurchase programs. We
repurchased and retired 13.2 million shares in fiscal 2002, 22.2 million shares
in fiscal 2001 and 23.6 million shares in fiscal 2000. As of January 26, 2002 we
have repurchased and retired 32.7 million shares of our common stock at a cost
of $805.8 million under the current $1 billion stock repurchase program. We
anticipate the continuation of the stock repurchase program and will seek Board
approval to purchase additional stock upon completion of our current $1 billion
repurchase program.
We declared quarterly dividends on our common stock of $.045 per share
in fiscal 2002, $.04 per share in fiscal 2001 and $.035 per share in fiscal
2000. Cash payments for dividends on our common stock totaled $48.3 million in
fiscal 2002, $44.7 million in fiscal 2001 and $42.7 million in fiscal 2000.
Financing activities also include proceeds of $65.2 million for fiscal 2002,
$26.1 million for fiscal 2001 and $9.3 million for fiscal 2000 from the exercise
of employee stock options. These stock option exercises also provided tax
benefits of $30.6 million in fiscal 2002, $15.9 million in fiscal 2001 and $11.7
million in fiscal 2000, which are included in cash provided by operating
activities.
On April 10, 2002 our Board of Directors approved a two-for-one stock
split to be distributed on May 8, 2002. The stock split will require retroactive
restatement of all historical per share data in the first quarter of fiscal
2003. See Note P to the consolidated financial statements for unaudited pro
forma information.
We traditionally have funded our seasonal merchandise requirements
through cash generated from operations, short-term bank borrowings and the
issuance of short-term commercial paper. As of January 26, 2002 we had a $500
million five-year revolving credit agreement, scheduled to expire in September
2002, and a $250 million 364-day revolving credit agreement scheduled to expire
in July 2002. Subsequent to the year ended January 26, 2002, we entered into new
agreements for a $350 million five-year revolving credit facility, and a $300
million 364-day revolving credit facility. The new credit facilities have
substantially the same terms and conditions as the credit facilities they
replaced. The revolving credit facilities are used as backup to our commercial
paper program. As of January 26, 2002 there were no outstanding amounts under
our credit facilities. The maximum amount of U.S. short-term borrowings
outstanding was $39 million during fiscal 2002, $330 million during fiscal 2001
and $108 million during fiscal 2000. There were no short-term borrowings during
fiscal 2002 following the issuance of the zero coupon convertible notes. The
weighted average interest rate on our U.S. short-term borrowings was 5.32% in
fiscal 2002, 6.82% in fiscal 2001 and 6.06% in fiscal 2000. We also have a C$20
million credit line for our Canadian operations, that had been fully utilized
during fiscal 2002. The funding requirements for fiscal 2002 of our Canadian
operations were largely provided by TJX. The maximum amount outstanding under
all our Canadian credit lines in prior years was C$15.2 million during fiscal
2001 and C$19.2 million during fiscal 2000. Interest on this credit line is at
the Canadian prime lending rate.
We believe that our current credit facilities are more than adequate to
meet our operating needs. See Notes C and G to the consolidated financial
statements for further information regarding our long-term debt, capital stock
transactions and available financing sources.
46
THE TJX COMPANIES, INC.
CRITICAL ACCOUNTING POLICIES
We have the obligation to evaluate and select applicable accounting policies for
TJX. We consider our most critical accounting policies that involve management
estimates and judgments to be those relating to inventory valuation, accounting
for taxes and to reserves for discontinued operations.
INVENTORY VALUATION: We use the retail method for valuing inventory on a
first-in first-out basis. Under the retail method the cost value of inventory
and gross margins are determined by calculating a cost-to-retail ratio and
applying it to the retail value of inventory. This is an averaging method that
is widely used in the retail industry and involves management estimates with
regard to such things as markdowns and shrinkage. A significant factor involves
the recording and timing of permanent markdowns. Under the retail method
permanent markdowns are reflected in the inventory valuation when the price of
an item is changed. We believe the retail method results in a more conservative
inventory valuation than other accounting methods. In addition, as a normal
business practice we have a very specific policy as to when markdowns are to be
taken, greatly reducing management estimates. Inventory shortage involves
estimating a shrinkage rate for interim periods but is based on a full physical
inventory at fiscal year end. Thus, to the extent that actual results are
significantly different from the estimated amounts this can cause fluctuations
in quarterly results but is not a factor in full year results. Overall, we
believe that the retail method coupled with our disciplined permanent markdown
policy results in an inventory valuation that is fairly stated.
ACCOUNTING FOR TAXES: We are continuously under audit by United States federal,
state, local and foreign tax authorities in the areas of income taxes and the
remittance of sales and use taxes. In evaluating the potential exposure
associated with various tax filing positions, we accrue charges for possible
exposures. Based on annual evaluations of tax positions, we believe we have
appropriately filed our tax returns and accrued for possible exposures. To the
extent we were to prevail in matters for which accruals have been established or
be required to pay amounts in excess of reserves, our effective tax rate in a
given financial statement period might be materially impacted. The Company has
various state tax examinations in process.
RESERVES FOR DISCONTINUED OPERATIONS: As discussed in Note L to the consolidated
financial statements and elsewhere in the management's discussion and analysis,
we have reserves established with regard to guarantees on leases relating to
operations previously operated by TJX. These are long-term obligations and the
estimated cost to us involves numerous estimates and assumptions as to how a
particular obligation may ultimately be settled and what mitigating factors,
including indemnification, may exist. We develop these assumptions based on past
experience and by evaluating the circumstances surrounding each situation and
location. Actual results may differ from these estimates but we believe that our
current reserve is a reasonable estimate of the most likely outcome and that the
reserve is adequate to cover the ultimate cost we will incur.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the
use of the purchase method of accounting for all business combinations initiated
after June 30, 2001, thereby eliminating use of the pooling-of-interests method.
Goodwill will no longer be amortized but will be tested for impairment.
Additionally, new criteria have been established that determine whether an
acquired intangible asset should be recognized separately from goodwill. SFAS
No. 142 addresses how goodwill and other intangible assets should be accounted
for after they have been initially recognized in the financial statements. We
are required to implement SFAS No. 142 for our fiscal year beginning January 27,
2002 and will no longer amortize goodwill or the Marshalls tradename, which has
an indefinite life, but will periodically test them for impairment. This will
increase annual net income by approximately $5 million, or $.02 per share.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets." The provisions of SFAS No.
143 apply to all entities that incur obligations associated with the retirement
of tangible long-lived assets. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002 and will become
effective for TJX commencing in the first quarter of fiscal 2004. This
accounting pronouncement is not expected to have a significant impact on our
financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The objectives of SFAS No. 144 are
to address issues relating to the implementation of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and to develop a model for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. SFAS No. 144 is effective
for financial statements issued for fiscal years beginning after December 15,
2001 and will become effective for TJX commencing in the first quarter of fiscal
2003. This accounting pronouncement is not expected to have a significant impact
on our financial position or results of operations.
47
THE TJX COMPANIES, INC.
MARKET RISK
We are exposed to foreign currency exchange rate risk on our investment in our
Canadian (Winners, including HomeSense) and European (T.K. Maxx) operations. As
more fully described in Notes A and D to the consolidated financial statements,
we hedge a significant portion of our net investment, intercompany transactions
and certain merchandise purchase commitments in these operations with derivative
financial instruments. We utilize currency forward and swap contracts, designed
to offset the gains or losses in the underlying exposures. The contracts are
executed with creditworthy banks and are denominated in currencies of major
industrial countries. We do not enter into derivatives for speculative trading
purposes.
FORWARD-LOOKING INFORMATION
Some statements contained in this Annual Report are forward-looking and involve
a number of risks and uncertainties. Statements that address activities, events
and results that we intend, expect or believe may occur in the future are
forward-looking statements. Among the factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements are the following: general economic conditions including effects of
terrorist incidents and military actions and consumer demand and consumer
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; our ability to effectively manage
inventory levels; 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 may be
described in our 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.
PRICE RANGE OF COMMON STOCK
TJX's common stock is listed on the New York Stock Exchange (Symbol: TJX). The
quarterly high and low trading stock prices for fiscal 2002 and fiscal 2001 are
as follows:
FISCAL 2002 FISCAL 2001
---------------------- ----------------------
QUARTER HIGH LOW HIGH LOW
- ------- ------ ------ ------ ------
First $33.75 $27.51 $24.56 $13.94
Second $35.15 $30.41 $22.38 $16.00
Third $37.00 $29.60 $26.31 $15.81
Fourth $41.15 $32.50 $31.50 $22.50
The approximate number of common shareholders at January 26, 2002 was 46,700.
TJX declared four quarterly dividends of $.045 per share for fiscal 2002 and
$.04 per share for fiscal 2001.
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
IN THOUSANDS FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE AMOUNTS QUARTER QUARTER QUARTER QUARTER
- ------------------------ ----------- ----------- ----------- -----------
Fiscal Year Ended January 26, 2002
Net sales $ 2,270,895 $ 2,487,622 $ 2,741,769 $ 3,208,712
Gross earnings(1) 584,279 592,918 681,773 727,106
Income from continuing operations 123,671 111,908 149,498 155,320
Diluted earnings per share .44 .40 .54 .56
Net income 123,671 111,908 109,498 155,320
Diluted earnings per share .44 .40 .40 .56
Fiscal Year Ended January 27, 2001
Net sales $ 2,108,116 $ 2,258,174 $ 2,461,411 $ 2,751,305
Gross earnings(1) 554,076 555,876 653,663 627,267
Income from continuing operations 130,580 114,033 158,274 135,179
Diluted earnings per share .44 .39 .56 .48
Net income 130,580 114,033 158,274 135,179
Diluted earnings per share .44 .39 .56 .48
(1) Gross earnings equal net sales less cost of sales, including buying and
occupancy costs.
48