TJ Maxx 2004 Annual Report Download - page 68

As of January 29, 2005, TJX had credit lines totaling C$20 million to meet certain operating needs of its Canadian subsidiary.
The maximum amount outstanding under our Canadian credit lines was C$6.8 million in fiscal 2005, C$5.6 million in fiscal 2004,
and C$19.2 million in fiscal 2003.
D. Financial Instruments
TJX enters into financial instruments to manage our cost of borrowing and to manage our exposure to changes in foreign
currency exchange rates.
Interest Rate Contracts: In December 1999, prior to the issuance of the $200 million ten-year notes, TJX entered into a rate-
lock agreement to hedge the underlying treasury rate of notes. 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 fixed rate of 7.60% on this debt. During fiscal 2004, TJX
entered interest rate swaps on $100 million of the $200 million ten-year notes effectively converting the interest on that portion of
the unsecured notes from fixed to a floating rate of interest indexed to the six-month LIBOR rate. The maturity date of the interest
rate swaps coincides with the maturity date of the underlying debt. Under these swaps, TJX pays a specified variable interest rate and
receives the fixed rate applicable to the underlying debt. The interest income/expense on the swaps is accrued as earned and
recorded as an adjustment to the interest expense accrued on the fixed-rate debt. The interest rate swaps are designated as fair value
hedges of the underlying debt. The fair value of the contracts, excluding the net interest accrual, amounted to a liability of
$2.9 million and $3.1 million as of January 29, 2005 and January 31, 2004, respectively. The valuation of the swaps results in an
offsetting fair value adjustment to the debt hedged; accordingly, long-term debt has been reduced by $2.9 million in fiscal 2005 and
was reduced by $3.1 million in fiscal 2004. The average effective interest rate, on the $100 million of the 7.45% unsecured notes to
which the swaps apply, was approximately 6.45% in fiscal 2005 and approximately 5.30% in fiscal 2004.
Foreign Currency Contracts: TJX 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, T. K. Maxx (United Kingdom) and
Winners (Canada). These commitments are typically six months or less in duration. The contracts outstanding at January 29, 2005
cover certain commitments for the first quarter of fiscal 2006. TJX elected not to apply hedge accounting rules to these contracts.
The change in the fair value of these contracts resulted in income of $1.8 million in fiscal 2005, income of $1.1 million in fiscal 2004
and expense of $2.6 million in fiscal 2003.
TJX also enters into foreign currency forward and swap contracts in both Canadian dollars and British pound sterling and
accounts for them as either a hedge of the net investment in and between our foreign subsidiaries or as a cash flow hedge of certain
long-term intercompany debt. We apply hedge accounting to these hedge contracts of our investment in foreign operations, 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 cumulative foreign translation adjustments of our foreign divisions. The change in fair value of the
contracts designated as a hedge of our investment in foreign operations resulted in a gain of $3.8 million, net of income taxes, in
fiscal 2005, a loss of $24.7 million, net of income taxes, in fiscal 2004, and a loss of $23.2 million in fiscal 2003. The change in the
cumulative foreign currency translation adjustment resulted in a loss of $10.7 million, net of income taxes, in fiscal 2005, a gain of
$14.3 million, net of income taxes, in fiscal 2004, and a gain of $23.0 million in fiscal 2003. Amounts included in other
comprehensive income relating to cash flow hedges are reclassified to earnings as the currency exposure on the underlying
intercompany debt impacts earnings. The net loss recognized in fiscal 2005 related to cash flow forward exchange contracts and
related underlying activity was $13.9 million, net of income taxes, this amount was offset by a gain of $11.9 million, net of income
taxes, related to the underlying exposure and both are included as components of selling, general and administrative expenses in the
statement of income. We estimate that $4.1 million of losses, net of income taxes, deferred in accumulated other comprehensive
income will be recognized in earnings over the next twelve months.
TJX also enters into derivative contracts, generally designated as fair value hedges, to hedge intercompany debt, intercompany
interest payable and intercompany license fees. The changes in fair value of these contracts are recorded in the statements of income
and are offset by marking the underlying item to fair value in the same period. Upon settlement, the realized gains and losses on
these contracts are offset by the realized gains and losses of the underlying item in the statement of income. The net impact of
hedging activity related to these intercompany amounts resulted in losses of $317,000, $2.6 million and $2.0 million in fiscal 2005,
2004 and 2003, respectively.
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