TJ Maxx 2015 Annual Report Download - page 77

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Foreign Currency Contracts: TJX enters into forward foreign currency exchange contracts to obtain economic
hedges on portions of merchandise purchases made and anticipated to be made by the Company’s operations in
Europe (United Kingdom, Ireland, Germany, Poland, Austria, and the Netherlands), TJX Canada (Canada), Marmaxx
(U.S.) and HomeGoods (U.S.) in currencies other than their respective functional currencies. These contracts typically
have a term of twelve months or less. The contracts outstanding at January 30, 2016 cover a portion of such actual
and anticipated merchandise purchases throughout fiscal 2017. Additionally, TJX’s operations in Europe are subject
to foreign currency exposure as a result of their buying function being centralized in the United Kingdom. All
merchandise is purchased centrally in the U.K. and then shipped and billed to the retail entities in other countries. This
intercompany billing to TJX’s European businesses’ Euro denominated operations creates exposure to the buying
entity for changes in the exchange rate between the Euro and British Pound. The inflow of Euros to the central buying
entity provides a natural hedge for merchandise purchased from third-party vendors that is denominated in Euros.
However, with the growth of TJX’s Euro denominated retail operations, the intercompany billings committed to the
Euro denominated operations is generating Euros in excess of those needed to meet merchandise commitments to
outside vendors. TJX calculates this excess Euro exposure each month and enters a 30 day hedge to mitigate the
exposure. TJX elected not to apply hedge accounting rules to these contracts.
TJX also enters into derivative contracts, generally designated as fair value hedges, to hedge intercompany debt
and intercompany interest payable. The changes in fair value of these contracts are recorded in selling, general and
administrative expenses and are offset by marking the underlying item to fair value in the same period. Upon
settlement, the realized gains and losses on these contracts are offset by the realized gains and losses of the
underlying item in selling, general and administrative expenses.
The following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet
classification at January 30, 2016:
In thousands Pay Receive
Blended
Contract
Rate
Balance Sheet
Location
Current
Asset
U.S.$
Current
(Liability)
U.S.$
Net Fair
Value in
U.S.$ at
January 30,
2016
Fair value hedges:
Intercompany balances, primarily debt and related
interest
zł 87,073 C$ 29,950 0.3440 Prepaid Exp $ 144 $ — $ 144
zł 45,000 £7,403 0.1645 (Accrued Exp) — (448) (448)
€45,000 £34,496 0.7666 (Accrued Exp) — (200) (200)
U.S.$ 77,957 £55,000 0.7055 Prepaid Exp 535 — 535
Economic hedges for which hedge accounting
was not elected:
Diesel contracts Fixed on 900K
—3.0M gal per
month
Float on 900K
—3.0M gal
per month N/A (Accrued Exp) — (13,952) (13,952)
Intercompany billings in Europe,
primarily merchandise
related €60,000 £46,113 0.7686 Prepaid Exp 566 — 566
Merchandise purchase commitments
C$ 434,271 U.S.$ 322,050 0.7416
Prepaid Exp /
(Accrued Exp) 12,891 (1,601) 11,290
C$ 16,719 €11,250 0.6729
Prepaid Exp /
(Accrued Exp) 316 (90) 226
£174,235 U.S.$ 262,250 1.5052 Prepaid Exp 13,996 — 13,996
zł 195,892 £33,088 0.1689
Prepaid Exp /
(Accrued Exp) 123 (926) (803)
U.S.$ 18,243 €16,724 0.9167
Prepaid Exp /
(Accrued Exp) 72 (190) (118)
Total fair value of financial instruments $28,643 $(17,407) $ 11,236
F-16