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TJX COMPANIES INC /DE/ - Quarter Report: 2009 August (Form 10-Q)

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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(mark one)
     
þ   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended August 1, 2009
Or
     
o   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                     to                    
Commission file number 1-4908
The TJX Companies, Inc.
(Exact name of registrant as specified in its charter)
     
DELAWARE   04-2207613
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
770 Cochituate Road Framingham, Massachusetts   01701
(Address of principal executive offices)   (Zip Code)
(508) 390-1000
(Registrant’s telephone number, including area code)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ.
The number of shares of registrant’s common stock outstanding as of August 1, 2009: 423,853,927
 
 

 


TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 4 Submission of Matters to a Vote of Security Holders
Item 6. Exhibits
SIGNATURE
EXHIBIT INDEX
EX-10.1 Stock Incentive Plan (2009 Restatement)
EX-10.2 Employment Agreement dated as of June 2, 2009
EX-31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
EX-31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
EX-32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


Table of Contents

PART I — FINANCIAL INFORMATION
Item 1.   Financial Statements
THE TJX COMPANIES, INC.
STATEMENTS OF INCOME
(UNAUDITED)
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
                 
    Thirteen Weeks Ended  
    August 1,     July 26,  
    2009     2008  
Net sales
  $ 4,747,528     $ 4,554,395  
 
           
 
               
Cost of sales, including buying and occupancy costs
    3,534,302       3,447,443  
Selling, general and administrative expenses
    790,876       766,936  
Interest expense, net
    9,249       2,641  
 
           
 
               
Income from continuing operations before provision for income taxes
    413,101       337,375  
Provision for income taxes
    151,540       125,302  
 
           
 
               
Income from continuing operations
    261,561       212,073  
 
               
(Loss) from discontinued operations, net of income taxes
          (11,850 )
 
           
Net income
  $ 261,561     $ 200,223  
 
           
 
               
Basic earnings per share:
               
Income from continuing operations
  $ 0.62     $ 0.50  
(Loss) from discontinued operations, net of income taxes
  $     $ (0.02 )
Net income
  $ 0.62     $ 0.48  
Weighted average common shares — basic
    423,891       421,289  
 
               
Diluted earnings per share:
               
Income from continuing operations
  $ 0.61     $ 0.48  
(Loss) from discontinued operations, net of income taxes
  $     $ (0.03 )
Net income
  $ 0.61     $ 0.45  
Weighted average common shares — diluted
    430,453       445,423  
 
               
Cash dividends declared per share
  $ 0.12     $ 0.11  
The accompanying notes are an integral part of the financial statements.

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THE TJX COMPANIES, INC.
STATEMENTS OF INCOME
(UNAUDITED)
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
                 
    Twenty-Six Weeks Ended  
    August 1,     July 26,  
    2009     2008  
Net sales
  $ 9,101,752     $ 8,857,950  
 
           
 
               
Cost of sales, including buying and occupancy costs
    6,807,648       6,724,386  
Selling, general and administrative expenses
    1,525,933       1,495,322  
Interest expense, net
    15,850       4,315  
 
           
 
               
Income from continuing operations before provision for income taxes
    752,321       633,927  
Provision for income taxes
    281,546       223,854  
 
           
 
               
Income from continuing operations
    470,775       410,073  
 
               
(Loss) from discontinued operations, net of income taxes
          (16,001 )
 
           
Net income
  $ 470,775     $ 394,072  
 
           
 
               
Basic earnings per share:
               
Income from continuing operations
  $ 1.13     $ 0.97  
(Loss) from discontinued operations, net of income taxes
  $     $ (0.04 )
Net income
  $ 1.13     $ 0.93  
Weighted average common shares — basic
    418,212       423,454  
 
               
Diluted earnings per share:
               
Income from continuing operations
  $ 1.09     $ 0.92  
(Loss) from discontinued operations, net of income taxes
  $     $ (0.04 )
Net income
  $ 1.09     $ 0.88  
Weighted average common shares — diluted
    431,091       448,135  
 
               
Cash dividends declared per share
  $ 0.24     $ 0.22  
The accompanying notes are an integral part of the financial statements.

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THE TJX COMPANIES, INC.
BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE DATA
                         
    August 1,     January 31,     July 26,  
    2009     2009     2008  
    (unaudited)             (unaudited)  
ASSETS
                       
Current assets:
                       
Cash and cash equivalents
  $ 1,426,895     $ 453,527     $ 517,493  
Short-term investments
    134,627              
Accounts receivable, net
    145,387       143,500       141,826  
Merchandise inventories
    3,100,175       2,619,336       3,104,817  
Prepaid expenses and other current assets
    295,766       274,091       308,252  
Current deferred income taxes, net
    108,852       135,675       93,851  
 
                 
Total current assets
    5,211,702       3,626,129       4,166,239  
 
                 
Property at cost:
                       
Land and buildings
    277,463       280,278       278,494  
Leasehold costs and improvements
    1,865,203       1,728,362       1,854,524  
Furniture, fixtures and equipment
    2,958,867       2,784,316       2,799,123  
 
                 
Total property at cost
    5,101,533       4,792,956       4,932,141  
Less accumulated depreciation and amortization
    2,872,297       2,607,200       2,685,525  
 
                 
Net property at cost
    2,229,236       2,185,756       2,246,616  
 
                 
Property under capital lease, net of accumulated amortization of $18,240; $17,124 and $16,007, respectively
    14,332       15,448       16,565  
Other assets
    200,951       171,381       183,155  
Goodwill and tradename, net of amortization
    179,779       179,528       179,980  
 
                 
TOTAL ASSETS
  $ 7,836,000     $ 6,178,242     $ 6,792,555  
 
                 
 
                       
LIABILITIES
                       
Current liabilities:
                       
Current installments of long-term debt
  $ 418,943     $ 392,852     $  
Obligation under capital lease due within one year
    2,263       2,175       2,090  
Accounts payable
    1,740,443       1,276,098       1,746,079  
Accrued expenses and other liabilities
    1,067,862       1,096,766       1,236,136  
 
                 
Total current liabilities
    3,229,511       2,767,891       2,984,305  
 
                 
 
                       
Other long-term liabilities
    753,254       765,004       744,032  
Non-current deferred income taxes, net
    229,991       127,008       98,548  
Obligation under capital lease, less portion due within one year
    17,045       18,199       19,308  
Long-term debt, exclusive of current installments
    774,287       365,583       832,788  
Commitments and contingencies
                 
 
                       
SHAREHOLDERS’ EQUITY
                       
Common stock, authorized 1,200,000,000 shares, par value $1, issued and outstanding 423,853,927; 412,821,592 and 419,411,063, respectively
    423,854       412,822       419,411  
Additional paid-in capital
    215,568              
Accumulated other comprehensive (loss)
    (115,791 )     (217,781 )     (33,483 )
Retained earnings
    2,308,281       1,939,516       1,727,646  
 
                 
Total shareholders’ equity
    2,831,912       2,134,557       2,113,574  
 
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 7,836,000     $ 6,178,242     $ 6,792,555  
 
                 
The accompanying notes are an integral part of the financial statements.

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THE TJX COMPANIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
IN THOUSANDS
                 
    Twenty-Six Weeks Ended  
    August 1,     July 26,  
    2009     2008  
Cash flows from operating activities:
               
Net income
  $ 470,775     $ 394,072  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    209,420       199,795  
Loss on property disposals and impairment charges
    867       21,644  
Deferred income tax provision
    108,326       59,885  
Amortization of share-based compensation expense
    25,859       24,699  
Excess tax benefits from share-based compensation expense
    (6,213 )     (14,035 )
Changes in assets and liabilities:
               
Decrease in accounts receivable
    1,573       1,279  
(Increase) in merchandise inventories
    (408,952 )     (369,839 )
(Increase) in prepaid expenses and other current assets
    (23,275 )     (102,880 )
Increase in accounts payable
    422,565       230,879  
(Decrease) increase in accrued expenses and other liabilities
    (91,869 )     13,290  
Other
    (4,342 )     9,631  
 
           
Net cash provided by operating activities
    704,734       468,420  
 
           
 
               
Cash flows from investing activities:
               
Property additions
    (163,637 )     (259,005 )
Purchase of short-term investments
    (167,184 )      
Sales and maturities of short-term investments
    42,756        
Other
    (5,438 )     398  
 
           
Net cash (used in) investing activities
    (293,503 )     (258,607 )
 
           
 
               
Cash flows from financing activities:
               
Proceeds from issuance of long-term debt
    774,263        
Principal payments on current portion of long-term debt
    (2,283 )      
Cash payments for debt issuance expenses
    (7,202 )      
Payments on capital lease obligation
    (1,065 )     (984 )
Cash payments for repurchase of common stock
    (236,713 )     (448,574 )
Proceeds from sale and issuance of common stock
    68,790       99,685  
Excess tax benefits from share-based compensation expense
    6,213       14,035  
Cash dividends paid
    (96,601 )     (85,106 )
 
           
Net cash provided by (used in) financing activities
    505,402       (420,944 )
 
           
 
               
Effect of exchange rate changes on cash
    56,735       (3,988 )
 
           
 
               
Net increase (decrease) in cash and cash equivalents
    973,368       (215,119 )
Cash and cash equivalents at beginning of fiscal year
    453,527       732,612  
 
           
 
               
Cash and cash equivalents at end of period
  $ 1,426,895     $ 517,493  
 
           
The accompanying notes are an integral part of the financial statements.

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THE TJX COMPANIES, INC.
STATEMENT OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
IN THOUSANDS
                                                 
                            Accumulated              
    Common Stock     Additional     Other              
            Par Value     Paid-In     Comprehensive     Retained        
    Shares     $1     Capital     Income (Loss)     Earnings     Total  
 
Balance, January 31, 2009
    412,822     $ 412,822     $     $ (217,781 )   $ 1,939,516     $ 2,134,557  
Comprehensive income:
                                               
Net income
                            470,775       470,775  
Gain due to foreign currency translation adjustments
                      100,300             100,300  
Recognition of unfunded post retirement liabilities
                      (1,212 )           (1,212 )
Recognition of prior service cost and deferred gains
                      2,902             2,902  
 
                                             
Total comprehensive income
                                            572,765  
Cash dividends declared on common stock
                            (102,010 )     (102,010 )
Restricted stock awards granted
    466       466       (466 )                  
Amortization of share-based compensation expense
                25,859                   25,859  
Issuance of common stock upon conversion of convertible debt
    15,094       15,094       349,994                   365,088  
Issuance of common stock under stock incentive plan and related tax effect
    3,432       3,432       68,934                   72,366  
Common stock repurchased
    (7,960 )     (7,960 )     (228,753 )                 (236,713 )
 
                                   
Balance, August 1, 2009
    423,854     $ 423,854     $ 215,568     $ (115,791 )   $ 2,308,281     $ 2,831,912  
 
                                   
The accompanying notes are an integral part of the financial statements.

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THE TJX COMPANIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Basis of Presentation — The consolidated interim financial statements are unaudited and, in the opinion of management, reflect all normal recurring adjustments, the use of retail statistics, and accruals and deferrals among periods required to match costs properly with the related revenue or activity, considered necessary by TJX for a fair presentation of its financial statements for the periods reported, all in accordance with generally accepted accounting principles consistently applied. The consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements, including the related notes, contained in TJX’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009 (“fiscal 2009”).
The results for the first six months are not necessarily indicative of results for the full fiscal year, because TJX’s business, in common with the businesses of retailers generally, is subject to seasonal influences, with higher levels of sales and income generally realized in the second half of the year.
Share-Based Compensation — Total share-based compensation expense was $13.5 million for the quarter ended August 1, 2009 and $12.5 million for the quarter ended July 26, 2008. Total share-based compensation expense was $25.9 million for the six months ended August 1, 2009 and $24.7 million for the six months ended July 26, 2008. These amounts include stock option expense as well as restricted stock amortization. There were options to purchase 3.0 million shares of common stock exercised during the second quarter and options to purchase 3.5 million shares of common stock exercised for the six months ended August 1, 2009. There were options to purchase 27.7 million shares of common stock outstanding as of August 1, 2009.
Cash and Cash Equivalents — TJX generally considers highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Investments with maturities greater than three months but less than a year at the date of purchase are included in short-term investments. TJX’s investments are primarily high-grade commercial paper, government and corporate bonds, institutional money market funds and time deposits with major banks.
Merchandise Inventories — TJX accrues for inventory purchase obligations at the time of shipment by the vendor. As a result, merchandise inventories on TJX’s balance sheets include an accrual for in-transit inventory of $423.7 million at August 1, 2009 and $367.6 million at July 26, 2008. A liability for a comparable amount is included in accounts payable for the respective period.
New Accounting Standards — In April 2009, the Financial Accounting Standards Board (“FASB”) issued three FASB Staff Positions (“FSP”) intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities, all of which are effective for interim and annual periods ending after June 15, 2009. FSP Financial Accounting Standard (“FAS”) 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” provides guidelines for making fair value measurements more consistent with the principles presented in Statement of Financial Accounting Standards (“SFAS”) 157 when the volume and level of activity of an asset or liability have significantly decreased from normal market activity. FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” require interim reporting of fair value disclosures. FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” provide additional guidance in determining whether a debt security is other-than-temporarily impaired and expand the disclosures of other-than-temporarily impaired debt and equity securities. The adoption of these FSPs did not have a material effect on TJX’s financial condition, results of operations or cash flows.
Reclassifications — Certain immaterial amounts in the prior period statements of income have been reclassified from “selling, general and administrative expenses” to “cost of sales, including buying and occupancy costs” to be consistent with the fiscal 2010 presentation.
Subsequent Events — As of August 28, 2009, the date of issuance of this Form 10-Q for the quarter ended August 1, 2009, there were no items deemed to be reportable as a subsequent event, other than the repayment of the C$235 million term credit facility which was repaid on August 10, 2009. Further details are disclosed in Note I.

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Note B. Discontinued Operations
In fiscal 2009, TJX sold Bob’s Stores and recorded as a component of discontinued operations a loss on disposal (including expenses relating to the sale) of $19.0 million, net of tax benefits of $13.0 million. TJX remains contingently liable on eight Bob’s Stores leases.
TJX also reclassified the operating results of Bob’s Stores for all periods prior to the sale as a component of discontinued operations. The following table presents the net sales, segment profit (loss) and after-tax income (loss) from operations reclassified to discontinued operations for the thirteen and twenty-six weeks ended July 26, 2008 (in thousands):
                 
    Thirteen   Twenty-Six
    Weeks   Weeks
Net sales
  $ 66,897     $ 127,467  
Segment loss
  $ (19,816 )   $ (26,758 )
Net loss
  $ (11,850 )   $ (16,001 )
Note C. Commitments and Contingencies
Provision for Computer Intrusion related costs — TJX has a reserve for its estimate of the total probable losses arising from an unauthorized intrusion or intrusions (the intrusion or intrusions, collectively, the “Computer Intrusion”) into portions of its computer system, which was discovered late in fiscal 2007 and in which TJX believes customer data were stolen. The reserve balance was $27.2 million at August 1, 2009. As an estimate, the reserve is subject to uncertainty, and actual costs may vary from the current estimate and such variations may be material. TJX may decrease or increase the amount of the reserve to adjust for developments in litigation, claims and related expenses, insurance proceeds and changes in estimates.
Reserve for Discontinued Operations — TJX has a reserve for future obligations of discontinued operations that relates primarily to real estate leases associated with 34 discontinued A.J. Wright stores that were closed in the fourth quarter of fiscal 2007, three leases related to the sale of Bob’s Stores and leases of other TJX businesses. The balance in the reserve and the activity for respective periods are presented below:
                 
    Twenty-Six Weeks Ended  
    August 1,     July 26,  
In thousands   2009     2008  
 
Balance at beginning of year
  $ 40,564     $ 46,076  
Additions to the reserve charged to net income:
               
Interest accretion
    881       910  
Cash charges against the reserve:
               
Lease-related obligations
    (2,472 )     (3,501 )
Termination benefits and all other
    (33 )      
 
           
Balance at end of period
  $ 38,940     $ 43,485  
 
           
TJX may also be contingently liable on up to 15 leases of BJ’s Wholesale Club, a former TJX business, and on eight additional Bob’s Stores leases. The reserve for discontinued operations does not reflect these leases because TJX does not believe that the likelihood of future liability to TJX is probable.

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Note D. Other Comprehensive Income
TJX’s comprehensive income information is presented below:
                 
    Thirteen Weeks Ended  
    August 1,     July 26,  
In thousands   2009     2008  
 
Net income
  $ 261,561     $ 200,223  
Other comprehensive income (loss):
               
Gain (loss) due to foreign currency translation adjustments, net of related tax effects
    71,823       (630 )
(Loss) on net investment hedge contracts, net of related tax effects
          (1,753 )
Gain on cash flow hedge contract, net of related tax effects
          582  
Recognition of prior service cost and deferred gains (losses)
    1,220       (407 )
Amount of cash flow hedge reclassified from other comprehensive income to net income
          (276 )
 
           
Total comprehensive income
  $ 334,604     $ 197,739  
 
           
                 
    Twenty-Six Weeks Ended  
    August 1,     July 26,  
In thousands   2009     2008  
 
Net income
  $ 470,775     $ 394,072  
Other comprehensive income (loss):
               
Gain (loss) due to foreign currency translation adjustments, net of related tax effects
    100,300       (972 )
(Loss) on net investment hedge contracts, net of related tax effects
          (3,129 )
Gain on cash flow hedge contract, net of related tax effects
          326  
Recognition of unfunded post retirement liabilities
    (1,212 )      
Recognition of prior service cost and deferred gains (losses)
    2,902       (813 )
Amount of cash flow hedge reclassified from other comprehensive income to net income
          (210 )
 
           
Total comprehensive income
  $ 572,765     $ 389,274  
 
           

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Note E. Earnings Per Share and Capital Stock
The computation of TJX’s basic and diluted earnings per share (EPS) is as follows:
                 
    Thirteen Weeks Ended  
    August 1,     July 26,  
In thousands, except per share data   2009     2008  
 
Basic earnings per share
               
Income from continuing operations
  $ 261,561     $ 212,073  
Weighted average common shares outstanding for basic EPS
    423,891       421,289  
 
               
Basic earnings per share — continuing operations
  $ 0.62     $ 0.50  
 
               
Diluted earnings per share
               
Income from continuing operations
  $ 261,561     $ 212,073  
Add back: Interest expense on zero coupon convertible subordinated notes, net of income taxes
    1       1,202  
 
           
Income from continuing operations used for diluted EPS calculation
  $ 261,562     $ 213,275  
 
           
 
               
Shares for basic and diluted earnings per share calculations:
               
Weighted average common shares outstanding for basic EPS
    423,891       421,289  
Assumed conversion/exercise/vesting of:
               
Stock options and awards
    6,026       7,231  
Zero coupon convertible subordinated notes
    536       16,903  
 
           
Weighted average common shares outstanding for diluted EPS
    430,453       445,423  
 
           
 
               
Diluted earnings per share — continuing operations
  $ 0.61     $ 0.48  
                 
    Twenty-Six Weeks Ended  
    August 1,     July 26,  
In thousands, except per share data   2009     2008  
 
Basic earnings per share
               
Income from continuing operations
  $ 470,775     $ 410,073  
Weighted average common shares outstanding for basic EPS
    418,212       423,454  
 
               
Basic earnings per share — continuing operations
  $ 1.13     $ 0.97  
 
               
Diluted earnings per share
               
Income from continuing operations
  $ 470,775     $ 410,073  
Add back: Interest expense on zero coupon convertible subordinated notes, net of income taxes
    1,073       2,397  
 
           
Income from continuing operations used for diluted EPS calculation
  $ 471,848     $ 412,470  
 
           
 
               
Shares for basic and diluted earnings per share calculations:
               
Weighted average common shares outstanding for basic EPS
    418,212       423,454  
Assumed conversion/exercise/vesting of:
               
Stock options and awards
    5,077       7,778  
Zero coupon convertible subordinated notes
    7,802       16,903  
 
           
Weighted average common shares outstanding for diluted EPS
    431,091       448,135  
 
           
 
               
Diluted earnings per share — continuing operations
  $ 1.09     $ 0.92  

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FSP 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” was applicable for TJX during the first quarter of fiscal 2010. The adoption of this FSP had no impact on TJX’s financial statements.
Weighted average common shares for diluted earnings per share exclude the incremental effect related to any outstanding stock options, the exercise price of which is in excess of the related fiscal period’s average price of TJX’s common stock. Such options are excluded because they would have an antidilutive effect. There were options to purchase 4.9 million shares excluded for the thirteen weeks and options to purchase 9.8 million shares excluded for the twenty-six weeks ended August 1, 2009. No options were excluded for the thirteen or twenty-six weeks ended July 26, 2008.
In April 2009, TJX called for the redemption of its zero coupon convertible subordinated notes. There were 430,887 such notes with a carrying value of $340.5 million converted during the three months ended August 1, 2009, resulting in the issuance of 14.1 million shares of common stock at a conversion rate of 32.667 shares of TJX common stock per note. During the six months ended August 1, 2009, there were 462,057 such notes with a carrying value of $365.1 million converted into 15.1 million shares of TJX common stock and TJX paid $2.3 million to redeem the remaining 2,886 notes outstanding that were not converted.
During the quarter ended August 1, 2009, TJX repurchased and retired 6.4 million shares of its common stock at a cost of $193.8 million. For the six months ended August 1, 2009, TJX repurchased and retired 8.0 million shares of its common stock at a cost of $236.7 million. TJX reflects stock repurchases in its financial statements on a “settlement” basis. TJX had cash expenditures under its repurchase programs of $236.7 million for the six months ended August 1, 2009, and $448.6 million for the same period last year. Repurchases were funded by cash generated from operations and, in fiscal 2010, the net proceeds from the issuance of $375 million 6.95% notes. Under the $1 billion stock repurchase program authorized in February 2008, TJX repurchased 16.9 million shares of common stock at a cost of $491.8 million through the second quarter of fiscal 2010, and $508.2 million remained available at August 1, 2009. All shares repurchased under the stock repurchase program have been retired.
Note F. Financial Instruments
TJX enters into financial instruments to manage its cost of borrowing and to manage its exposure to changes in fuel costs and foreign currency exchange rates.
Interest Rate Contracts — At August 1, 2009, TJX had interest rate swap agreements outstanding with a notional amount of $100 million. The agreements entitle TJX to receive biannual payments of interest at a fixed rate of 7.45% and to pay a floating rate of interest indexed to the six-month LIBOR rate with no exchange of the underlying notional amounts. The interest rate swap agreements converted a portion of TJX’s long-term debt from a fixed-rate obligation to a floating-rate obligation. TJX designated the interest rate swap agreements as a fair value hedge of the related long-term debt. The interest rate swaps expire in December 2009.
Diesel Fuel Contracts — During fiscal 2009, TJX entered into agreements to hedge approximately 30% of its notional diesel fuel requirements for fiscal 2010, based on the diesel fuel consumed by independent freight carriers transporting the Company’s inventory. These carriers charge TJX mileage surcharges for diesel fuel price increases as incurred by the freight carrier. The hedge agreements were designed to mitigate the volatility of diesel fuel pricing (and the resulting per mile surcharges payable by TJX) by setting a fixed price per gallon for the year. TJX elected not to apply hedge accounting rules to these contracts. All of the diesel fuel hedge agreements expire in February 2010.
Foreign Currency Contracts — TJX enters into forward foreign currency exchange contracts to obtain economic hedges on firm U.S. dollar and Euro-denominated merchandise purchase commitments made by its Canadian and European operations. These commitments are typically six months or less in duration. The contracts outstanding at August 1, 2009 covered certain commitments for the third and fourth quarters of fiscal 2010. 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

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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 which is reflected in selling, general and administrative expenses.
Following is a summary of TJX’s derivative financial instruments and related fair values outstanding at August 1, 2009:
                                                         
                                                    Net Fair
                                                    Value in
                    Blended                           US$ at
                    Contract   Balance Sheet   Asset   (Liability)   August
In thousands   Pay   Receive   Rate   Location   US$   US$   1, 2009
 
Derivatives designated as hedging instrument under SFAS 133
Fair value hedges
                                                       
Interest rate swap fixed to floating on notional of $50,000
  LIBOR+4.17%     7.45 %     N/A     Prepaid Expense     524               524  
 
                                                       
Interest rate swap fixed to floating on notional of $50,000
  LIBOR+3.42%     7.45 %     N/A     Prepaid Expense     712               712  
 
                                                       
Intercompany balances, primarily short-term debt and related interest
  C$ 68,410     US$ 63,224       0.9242     (Accrued Exp)             (317 )     (317 )
 
                                                       
Derivatives not designated as hedging instrument under SFAS 133                        
 
                                                       
Diesel contracts
  Fixed on 750K gal per month   Float on 750K gal per month     N/A     (Accrued Exp)             (1,217 )     (1,217 )
Merchandise purchase commitments                        
 
  C$ 227,502     US $ 196,125       0.8621     (Accrued Exp)             (15,132 )     (15,132 )
 
  C$ 2,283     1,450       0.6351     (Accrued Exp)             (53 )     (53 )
 
  £ 24,316     US $ 39,100       1.6080     (Accrued Exp)             (1,539 )     (1,539 )
 
  £ 27,485     US $ 32,000       1.1643     Prepaid Expense/ (Accrued Exp)     11       (355 )     (344 )
 
  US $ 334     242       1.3805     Prepaid Expense     11             11  
 
                                                       
 
                                                       
TOTAL FAIR VALUE OF ALL FINANCIAL INSTRUMENTS                     (17,355 )
 
                                                       

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The fair values of the derivatives are classified as assets or liabilities, current or non-current, based upon valuation results and settlement dates of the individual contracts. Following are the balance sheet classifications of the fair value of TJX’s derivatives:
         
In thousands   August 1, 2009  
   
Current assets
  $ 1,258  
Non-current assets
     
Current liabilities
    (18,613 )
Non-current liabilities
     
 
     
Net fair value asset (liability)
  $ (17,355 )
 
     
The impact of derivative financial instruments on statements of income during fiscal 2010 is as follows:
             
          Amount of Gain
          (Loss)
    Location of Gain (Loss)     Recognized in
    Recognized in Income by     Income by
In thousands   Derivative     Derivative
 
Derivatives designated as hedging instrument under SFAS 133
Fair value hedges
           
 
           
Interest rate swap fixed to floating on notional of $50,000
  Interest expense, net   US$ 541  
 
           
Interest rate swap fixed to floating on notional of $50,000
  Interest expense, net   US$ 730  
 
           
Intercompany balances, primarily short-term debt and related interest
  Selling, general & administrative expenses   US$ (7,023
 
Derivatives not designated as hedging instrument under SFAS 133
Diesel contracts
           
 
  Cost of sales, including buying and occupancy costs   US$ 3,714
Merchandise purchase commitments
           
 
  Cost of sales, including buying and occupancy costs   US$ (21,175
 
         
 
           
Gain (Loss) Recognized in Income
        (23,213
 
         
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 is not required by counterparties, and TJX does not require that counterparties, maintain collateral for these contracts. TJX periodically monitors its position and the credit ratings of the counterparties and does not anticipate losses resulting from the nonperformance of these institutions.

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Note G. Segment Information
In the United States, T.J. Maxx and Marshalls stores are aggregated as the Marmaxx segment, and HomeGoods and A.J. Wright each is reported as a separate segment. TJX’s stores operated in Canada (Winners and HomeSense) are reported in the Canadian segment and TJX’s stores operated in Europe (T.K. Maxx and HomeSense) are reported in the European segment. TJX evaluates the performance of its segments based on “segment profit or loss,” which TJX defines as pre-tax income before general corporate expense and interest. “Segment profit or loss” as defined by TJX may not be comparable to similarly titled measures used by other entities. In addition, this measure of performance should not be considered an alternative to net income or cash flows from operating activities as an indicator of TJX’s performance or as a measure of liquidity.
Presented below is financial information on TJX’s business segments:
                 
    Thirteen Weeks Ended  
    August 1,     July 26,  
In thousands   2009     2008  
 
Net sales:
               
U.S. segments:
               
Marmaxx
  $ 3,145,504     $ 2,957,190  
HomeGoods
    412,837       350,433  
A.J. Wright
    181,927       160,461  
International segments:
               
Canada
    495,671       538,694  
Europe
    511,589       547,617  
 
           
 
  $ 4,747,528     $ 4,554,395  
 
           
 
               
Segment profit (loss):
               
U.S. segments:
               
Marmaxx
  $ 358,351     $ 298,062  
HomeGoods
    24,532       2,169  
A.J. Wright
    1,371       (765 )
International segments:
               
Canada
    47,971       60,389  
Europe
    24,720       13,745  
 
           
 
    456,945       373,600  
 
               
General corporate expenses
    34,595       33,584  
Interest expense, net
    9,249       2,641  
 
           
Income from continuing operations before provision for income taxes
  $ 413,101     $ 337,375  
 
           

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    Twenty-Six Weeks Ended  
    August 1,     July 26,  
In thousands   2009     2008  
 
Net sales:
               
U.S. segments:
               
Marmaxx
  $ 6,083,813     $ 5,759,480  
HomeGoods
    804,732       713,862  
A.J. Wright
    361,321       314,719  
International segments:
               
Canada
    919,763       1,027,078  
Europe
    932,123       1,042,811  
 
           
 
  $ 9,101,752     $ 8,857,950  
 
           
 
               
Segment profit (loss):
               
U.S. segments:
               
Marmaxx
  $ 689,021     $ 576,561  
HomeGoods
    40,105       11,063  
A.J. Wright
    5,784       (1,650 )
International segments:
               
Canada
    67,698       101,286  
Europe
    34,013       15,208  
 
           
 
    836,621       702,468  
 
               
General corporate expenses
    68,450       64,226  
Interest expense, net
    15,850       4,315  
 
           
Income from continuing operations before provision for income taxes
  $ 752,321     $ 633,927  
 
           
Note H. Pension Plans & Other Retirement Obligations
The following represents TJX’s net periodic pension cost and related components:
                                 
    Pension     Pension  
    (Funded Plan)     (Unfunded Plan)  
    Thirteen Weeks Ended     Thirteen Weeks Ended  
    August 1,     July 26,     August 1,     July 26,  
In thousands   2009     2008     2009     2008  
 
Service cost
  $ 8,507     $ 7,797     $ 309     $ 263  
Interest cost
    7,734       6,888       720       730  
Expected return on plan assets
    (7,511 )     (8,592 )            
Amortization of prior service cost
    4       15       31       31  
Recognized actuarial losses
    3,730             396       141  
Settlement cost
                840        
 
                       
Total expense
  $ 12,464     $ 6,108     $ 2,296     $ 1,165  
 
                       

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    Pension     Pension  
    (Funded Plan)     (Unfunded Plan)  
    Twenty-six Weeks Ended     Twenty-six Weeks Ended  
    August 1,     July 26,     August 1,     July 26,  
In thousands   2009     2008     2009     2008  
 
Service cost
  $ 16,132     $ 15,594     $ 547     $ 525  
Interest cost
    15,783       13,777       1,460       1,460  
Expected return on plan assets
    (14,011 )     (17,183 )            
Amortization of prior service cost
    7       29       62       62  
Recognized actuarial losses
    6,803             570       282  
Settlement cost
                1,158        
 
                       
Total expense
  $ 24,714     $ 12,217     $ 3,797     $ 2,329  
 
                       
In fiscal 2009 the Pension Protection Act (PPA) became effective in the U.S., and TJX’s policy is to fund, at a minimum, the amount required to maintain a funded status of 75% to 80% of the pension liability as defined by the PPA. During the first quarter ended May 2, 2009, TJX contributed $50 million to its funded plan and may make additional voluntary contributions during fiscal 2010. TJX anticipates making contributions of $13.1 million to fund current benefit and expense payments under the unfunded plan in fiscal 2010.
Note I. Long-Term Debt & Credit Lines
TJX has a $500 million revolving credit facility maturing May 2010 and a $500 million revolving credit facility maturing May 2011. TJX pays six basis points on an annual basis in commitment fees related to both of these facilities. These agreements have no compensating balance requirements and have various covenants including a requirement of a specified ratio of debt to earnings. These agreements serve as back up to TJX’s commercial paper program. TJX had no borrowings outstanding at August 1, 2009 or July 26, 2008. The availability under revolving credit facilities was $1 billion at August 1, 2009 and July 26, 2008.
On April 7, 2009, TJX issued $375 million of 6.95% ten-year notes and shortly thereafter called for the redemption of its zero coupon convertible subordinated notes, originally due in 2021. Upon our call for redemption, holders had the right to convert the notes into TJX common stock at a conversion rate of 32.667 shares per note. Virtually all of the subordinated notes were converted into 15.1 million shares of TJX common stock, most during the second quarter of fiscal 2010. TJX has used, and expects to use, the remainder of the proceeds from the 6.95% notes offering to repurchase additional common stock under its stock repurchase program in fiscal 2010.
On July 23, 2009, TJX issued $400 million of 4.20% six-year notes. TJX used a portion of the proceeds from the sale of the notes to refinance its C$235 million term credit facility on August 10, 2009, prior to its scheduled maturity, and expects to use the remainder, together with funds from operations to pay its $200 million 7.45% notes due December 15, 2009 at maturity.
Note J. Income Taxes
TJX adopted the provisions of FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), in the first quarter of fiscal 2008. TJX had unrecognized tax benefits of $129.7 million as of August 1, 2009 and $131.6 million as of July 26, 2008.
The effective income tax rate was 36.7% for the second quarter this year compared to 37.1% for last year’s second quarter. The decrease in this rate for the second quarter was largely driven by the favorable impact this year due to the tax treatment of foreign currency gains and losses on certain intercompany loans between TJX and Winners.
The effective income tax rate for the six months ended August 1, 2009 was 37.4% as compared to 35.3% for last year’s comparable period as a result of the absence in fiscal 2010 of tax benefits included in the fiscal 2009 effective rate, partially offset by the favorable impact in the current year due to the tax treatment of foreign currency gains on certain intercompany loans. The six months ended July 26, 2008 included a $15 million reversal of several uncertain

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tax positions as a result of federal and state filings and a $4 million benefit due to revised guidance on the deductibility of performance-based pay for executive officers and on tax benefits relating to TJX’s Puerto Rican subsidiary. On a combined basis, these tax benefits reduced the fiscal 2009 six-month effective income tax rate by 3.4 percentage points.
TJX is subject to U.S. federal income tax as well as income tax in multiple state, local and foreign jurisdictions. In nearly all jurisdictions, the tax years through fiscal 2001 are no longer subject to examination.
TJX’s accounting policy classifies interest and penalties related to income tax matters as part of income tax expense. The accrued amounts for interest and penalties were $53.0 million as of August 1, 2009 and $44.3 million as of July 26, 2008.
Based on the outcome of tax examinations or judicial or administrative proceedings, or as a result of the expiration of statute of limitations in specific jurisdictions, it is reasonably possible that unrecognized tax benefits for certain tax positions taken on previously filed tax returns may change materially from those presented on the financial statements. During the next 12 months, it is reasonably possible that tax examinations of prior years’ tax returns or judicial or administrative proceedings, that reflect such positions taken by TJX, may be finalized. As a result, the total net amount of unrecognized tax benefits may decrease, which would reduce the provision for taxes on earnings by a range of $2.0 million to $70.0 million.
Note K. Disclosures about Fair Value of Financial Instruments
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS 157), which establishes a common definition for fair value to be applied to U.S. GAAP requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS 157 was effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. Issued in February 2008, FSP 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” removed leasing transactions accounted for under FASB Statement No. 13 and related guidance from the scope of SFAS 157. FSP 157-2, “Partial Deferral of the Effective Date of Statement 157,” deferred the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities except for those that are recognized at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008.
The implementation of SFAS 157 for financial assets and financial liabilities, effective January 27, 2008, did not have a material impact on TJX’s consolidated financial position and results of operations. The implementation of SFAS 157 for nonfinancial assets and nonfinancial liabilities effective February 1, 2009, did not have a material impact on TJX’s financial condition, results of operations or cash flows.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS 157 classifies the inputs used to measure fair value into the following hierarchy:
         
 
  Level 1:   Unadjusted quoted prices in active markets for identical assets or liabilities.
 
       
 
  Level 2:   Unadjusted quoted prices in active markets for similar assets or liabilities, or
 
       
 
      unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
 
       
 
      inputs other than quoted prices that are observable for the asset or liability.
 
       
 
  Level 3:   Unobservable inputs for the asset or liability.
TJX endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. TJX has determined that its financial assets and liabilities are generally classified within level 1 or level 2 in the fair

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value hierarchy. The following table sets forth TJX’s financial assets and liabilities that are accounted for at fair value on a recurring basis:
                         
    August 1,   January 31,   July 26,
In thousands   2009   2009   2008
 
Level 1
                       
Assets:
                       
Cash equivalents
  $ 751,225     161,592     $ 73,553  
Executive savings plan
    50,031       40,636       52,639  
 
                       
Level 2
                       
Assets:
                       
Foreign currency exchange contracts
  $ 22     $ 9,534     $ 44,252  
Interest rate swaps
    1,236       1,859       164  
 
                       
Liabilities:
                       
Foreign currency exchange contracts
  $ 17,396     $ 1,435     $ 147,370  
Diesel fuel contracts
    1,217       4,931        
Interest rate swaps
                1,514  
The fair value of TJX’s general corporate debt, including current installments, was estimated by obtaining market value quotes given the trading levels of other bonds of the same general issuer type and market perceived credit quality. The fair value of the current installments of long-term debt at August 1, 2009 was $422.7 million versus a carrying value of $418.9 million. The fair value of long-term debt at that date was $805.8 million versus a carrying value of $774.3 million. These estimates do not necessarily reflect provisions or restrictions in the various debt agreements that might affect TJX’s ability to settle these obligations.
Our cash equivalents are stated at cost, which approximates fair market value due to the short maturities of these instruments.
Our executive savings plan is invested in securities traded in active markets and carried at unadjusted quoted prices.
As a result of its international operating and financing activities, TJX is exposed to market risks from changes in interest and foreign currency exchange rates, which may adversely affect its operating results and financial position. When it deems appropriate, TJX minimizes risks from interest and foreign currency exchange rate fluctuations through the use of derivative financial instruments. Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes and TJX does not use leveraged derivative financial instruments. The forward foreign currency exchange contracts and interest rate swaps are valued using broker quotations which include observable market information and, in the instance of one contract, proprietary models. TJX makes no adjustments to quotes or prices obtained from brokers or pricing services but does assess the credit risk of counterparties and will adjust final valuations when appropriate. Where independent pricing services provide fair values, TJX obtains an understanding of the methods used in pricing. As such, these derivative instruments are classified within level 2.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Thirteen Weeks (second quarter) and Twenty-Six Weeks (six months) Ended August 1, 2009
Compared to
The Thirteen Weeks (second quarter) and Twenty-Six Weeks (six months) Ended July 26, 2008
Business Overview
We are the leading off-price retailer of apparel and home fashions in the United States and worldwide. Our over 2,600 stores offer a rapidly changing assortment of quality, brand-name and designer merchandise at prices generally 20% to 60% below department and specialty store regular prices every day. We are known for our treasure hunt shopping experience and excellent values. The operating platforms and strategies of all of our retail concepts are synergistic. Therefore, we capitalize on our off-price expertise and systems throughout our business, leverage best practices, initiatives and new ideas across our concepts, utilize buying synergies of our concepts to enhance our global relationships with vendors, and develop talent by providing opportunities across our concepts.
We operate seven principal off-price retail concepts in the U.S., Canada and Europe. T.J. Maxx, Marshalls and A.J. Wright in the U.S., Winners in Canada, and T.K. Maxx in Europe sell off-price family apparel and home fashions. HomeGoods in the U.S. and HomeSense in Canada and the U.K. feature off-price home fashions. The target customer for all of our concepts, except A.J. Wright, includes the middle- to upper-middle income shopper, with generally the same profile as a department or specialty store customer. A.J. Wright is oriented toward the moderate-income customer.
Results of Operations
We entered fiscal 2010 faced with the challenges of a worldwide recession and established a three-pronged strategy for managing through the challenging economic times: plan same store sales conservatively, allowing better flow-through to the bottom line if we exceed plans; run with very lean inventories and buy closer to need than in the past, designed to increase inventory turns and drive traffic to our stores; and focus on cost cutting measures and controlling expenses. We posted second quarter and year-to-date results significantly above our expectations and ahead of last year. Highlights of our financial performance for fiscal 2010 include the following:
    Consolidated same store sales increased 4% for the second quarter and increased 3% for the six-month period over last year’s comparable periods. Same store sales growth was driven by significant increases in customer traffic and strong performance by virtually all of our businesses.
 
    Net sales increased 4% to $4.7 billion for the second quarter and 3% to $9.1 billion for the six-month period over last year’s comparable periods. Stores in operation and total selling square footage were both up 4% as of August 1, 2009 when compared to the same period last year. For both the quarter and six-month periods of fiscal 2010, increases in consolidated same store sales and the increases in our number of stores in operation were largely offset by foreign currency exchange rates, which negatively impacted sales growth.
 
    Our fiscal 2010 second quarter pre-tax margin (the ratio of pre-tax income to net sales) was 8.7% compared to 7.4% for the same period last year. Year-to-date, our pre-tax margin was 8.3% compared to 7.2% for the same period last year. The improvement in both the quarter and six-month periods of fiscal 2010 was primarily driven by the growth in merchandise margins, which was achieved through well executed buying and faster turning inventories.
 
    Our cost of sales ratios improved in both the second quarter and six month periods, primarily due to improved merchandise margins, partially offset by the negative impact of the mark-to-market adjustment of our inventory-related hedges. Selling, general and administrative expense ratios decreased by 0.1 percentage points for both the quarter and six month periods, due to levering of expenses.
 
    Income from continuing operations for the second quarter of fiscal 2010 was $261.6 million, or $0.61 per diluted share compared to $212.1 million, or $0.48 per diluted share, in last year’s second quarter. Income from continuing operations for the six-months ended August 1, 2009 was $470.8 million, or $1.09 per

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      diluted share compared to $410.1 million, or $0.92 per diluted share, for the same period last year. Diluted earnings per share from continuing operations for the six months ended July 26, 2008 benefited by $0.02 from FIN 48 tax reserve adjustments.
 
    During the second quarter of fiscal 2010, we repurchased 6.4 million shares of our common stock at a cost of $194 million, and for the first six months of fiscal 2010, we repurchased 8.0 million shares of our common stock at a cost of $237 million. Diluted earnings per share reflect the benefit of the stock repurchase program. In conjunction with a $375 million notes offering in our fiscal 2010 first quarter, we called for the redemption of our zero coupon convertible subordinated notes, originally due in 2021. Virtually all of the subordinated notes were converted into 15.1 million shares of TJX common stock. We have used a portion, and plan to use all, of the $375 million proceeds from the notes offering to repurchase common stock under our stock repurchase program.
 
    Consolidated average per store inventories, including inventory on hand at our distribution centers, as of August 1, 2009 were down 4% from the prior year, and were down 2% as of July 26, 2008 from the comparable prior year’s quarter end. Excluding the impact of foreign currency exchange, average per store inventories, including inventory on hand at our distribution centers, as of August 1, 2009 were down 2% compared to the prior year’s quarter end.
The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results. All references to earnings per share are diluted earnings per share unless otherwise indicated.
Net sales: Consolidated net sales for the quarter ended August 1, 2009 were $4.7 billion, up 4% from $4.6 billion in last year’s second quarter. The increase in our fiscal 2010 second quarter sales reflected a 4% increase from new stores and a 4% increase in same store sales, partially offset by a 4% decline from the negative impact of foreign currency exchange rates. This compares to sales growth of 7% in last year’s second quarter which consisted of 3% from new stores, 3% from same store sales and a 1% positive impact from foreign currency exchange rates.
Consolidated net sales for the six months ended August 1, 2009 were $9.1 billion, up 3% from $8.9 billion in last year’s comparable period. The increase in net sales for the six months ended August 1, 2009 reflected a 4% increase from new stores, a 3% increase in same store sales and 1% increase due to the shift in the fiscal calender, partially offset by a 5% decline from the negative impact of foreign currency exchange rates. This compares to sales growth of 7% in last year’s six-month period which consisted of 3% from new stores, 3% from same store sales and a 1% positive impact from foreign currency exchange rates.
New stores are a major source of sales growth. Both our consolidated store count and selling square footage increased by 4% as of August 1, 2009 as compared to the same period last year.
The same store sales increases for both the quarter and six months ended August 1, 2009 were driven by increased customer traffic across virtually all of our businesses and especially strong performance in our HomeGoods, A.J. Wright and European segments. Juniors, dresses, children’s apparel, shoes and accessories performed particularly well. Home fashions, which had been negatively affected by the weak housing market, recorded strong same store sales increases in the second quarter. Geographically, sales in Europe were above the consolidated average, while Canadian sales trailed the consolidated average. In the U.S., sales were strong throughout the country with the stronger regions being the Midwest, Southwest and West Coast and weaker regions being New England and Florida.
We define same store sales to be sales of those stores that have been in operation for all or a portion of two consecutive fiscal years, or in other words, stores that are starting their third fiscal year of operation. We classify a store as a new store until it meets the same store criteria. We determine which stores are included in the same store sales calculation as of the beginning of each fiscal year, and the classification remains constant throughout that year, unless a store is closed. We calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that are increased in size are generally classified in the same way as the original store, and we believe that the impact of these stores on the consolidated same store percentage is immaterial. Consolidated and divisional same store sales are calculated on a constant currency basis, which eliminates the effect of changes in currency exchange rates, and we believe it is a more accurate measure of the segment performance.

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The following table sets forth our consolidated operating results expressed as a percentage of net sales:
                                 
    Percentage of Net Sales   Percentage of Net Sales
    Thirteen Weeks Ended   Twenty-Six Weeks Ended
    August 1,   July 26,   August 1,   July 26,
    2009   2008   2009   2008
Net sales
    100.0 %     100.0 %     100.0 %     100.0 %
 
                               
Cost of sales, including buying and occupancy costs
    74.4       75.7       74.8       75.9  
Selling, general and administrative expenses
    16.7       16.8       16.8       16.9  
Interest expense, net
    0.2       0.1       0.2       0.0  
 
                               
Income from continuing operations before provision for income taxes*
    8.7 %     7.4 %     8.3 %     7.2 %
 
                               
 
*   Due to rounding, the individual items may not sum to Income from continuing operations before provision for income taxes.
Impact of foreign currency exchange rates: Our operating results can be materially affected by significant changes in foreign currency exchange rates, particularly the value of the U.S. dollar in relation to other currencies. Two of the more significant ways in which foreign currency impacts us are as follows:
Translation of foreign operating results into U.S. dollars: In our financial statements, we translate the operations of our stores in Canada and Europe from local currencies into U.S. dollars using currency rates in effect at different points in time. Significant changes in foreign exchange rates between comparable prior periods can result in meaningful variations in consolidated net sales, income from continuing operations and earnings per share growth as well as the net sales and operating results of our Canadian and European segments. Currency translation generally does not affect operating margins, as sales and expenses of the foreign operations are translated at essentially the same rates each period.
Inventory-related purchase commitment hedges: We routinely enter into inventory-related hedging instruments to mitigate the impact of foreign currency exchange rates on merchandise margins when our international divisions purchase goods in currencies other than their local currencies, (primarily U.S. dollar purchases). As we have not elected “hedge accounting” as defined by SFAS No. 133, we record a mark-to-market gain or loss on the hedging instruments in our results of operations at the end of each reporting period. In subsequent periods, the income statement impact of these adjustments is effectively offset when the inventory being hedged is sold. While these effects occur every reporting period, they are of much greater magnitude when there are sudden and significant changes in currency exchange rates during a short period of time. The mark-to-market adjustment on these hedges does not affect net sales, but it does affect cost, operating margins and reported earnings.
Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales, decreased 1.3 percentage points for the quarter ended August 1, 2009 as compared to the same period last year. Cost of sales, including buying and occupancy costs, as a percentage of net sales, decreased 1.1 percentage points for the first six months of fiscal 2010. The improvement in both periods was due to improved consolidated merchandise margin, which increased 1.4 percentage points for the second quarter and increased 1.3 percentage points for the six-month period. These increases were partially offset by the negative impact of the mark-to-market adjustments on inventory hedges in fiscal 2010. Merchandise margins improved at all segments except Canada, discussed in more detail under our Canadian segment below. Additionally, for the periods ending August 1, 2009, buying and occupancy expense leverage was offset by higher incentive and benefit plan accruals that are tied to performance. These plans cover many associates across our organization and the accruals are required due to operating results that are well ahead of our objectives.
Selling, general and administrative expenses: Selling, general and administrative expenses, as a percentage of net sales, decreased 0.1 percentage points to 16.7% for the quarter ended August 1, 2009 and decreased 0.1 percentage points to 16.8% for the six-month period ended August 1, 2009 as compared to the same periods last year. This improvement in the expense ratio is due to levering of expenses and savings from our expense reduction initiatives. The improvement in the second quarter was partially offset by approximately 0.3 percentage points as a result of higher incentive and benefit plan accruals tied to performance as discussed above. We anticipate a savings of approximately $150 million for fiscal 2010 as a result of our expense reduction initiatives, some of which will benefit our cost of sales including buying and occupancy costs.

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Interest expense, net: Interest expense, net, amounted to expense of $9.2 million for the second quarter of fiscal 2010 compared to expense of $2.6 million for the same period last year. Interest expense, net, amounted to expense of $15.9 million for the six months ended August 1, 2009 compared to expense of $4.3 million for the same period last year. These increases in net interest expense were primarily due to a reduction in interest income for fiscal 2010 compared to the same periods last year. Interest income totaled $2.4 million in the second quarter this year compared to $6.5 million for the same period last year and $4.7 million for the six-month period this year versus $14.2 million for the same period last year. Additionally, interest expense increased in the second quarter due to the interest differential between the recently issued $375 million 6.95% notes and the recently retired zero coupon subordinated notes which had an effective interest rate of approximately 2%. The incremental interest cost of the 6.95% notes will be offset by a benefit in our earnings per share as the majority of the incremental shares issued upon redemption of the convertible notes will be repurchased with proceeds of the new debt offering. Interest expense for the balance of fiscal 2010 will also include the cost of the $400 million 4.20% six-year notes which were issued late in the second quarter. For more information on these notes offerings, see the discussion under Liquidity and Capital Resources.
Income taxes: The effective income tax rate was 36.7% for the second quarter this year compared to 37.1% for last year’s second quarter. The decrease in rate for the second quarter was largely driven by the favorable impact this year due to the tax treatment of foreign currency gains on certain intercompany loans between TJX and Winners.
The effective income tax rate for the six months ended August 1, 2009 was 37.4% as compared to 35.3% for last year’s comparable period, due to the absence of tax benefits included in the fiscal 2009 effective rate, partially offset by the favorable impact in the current year due to the tax treatment of foreign currency gains on certain intercompany loans. The six months ended July 26, 2008 included a $15 million reversal of several uncertain tax positions as a result of federal and state filings and a $4 million benefit due to revised guidance on the deductibility of performance-based pay for executive officers and tax benefits relating to TJX’s Puerto Rican subsidiary. On a combined basis, these tax benefits reduced the fiscal 2009 six-month effective income tax rate by 3.4 percentage points.
Income from continuing operations: Income from continuing operations for the second quarter ended August 1, 2009 was $261.6 million, or $0.61 per diluted share, versus $212.1 million, or $0.48 per diluted share, in last year’s second quarter. Changes in foreign currency rates affected the comparability of results. Foreign currency translation reduced our fiscal 2010 second quarter earnings by $0.02 per share as compared to last year’s second quarter, and the mark-to-market adjustment of our inventory hedges reduced earnings per share by $0.01 per share in the second quarter of fiscal 2010. Changes in foreign currency rates did not impact last year’s second quarter earnings per share.
Income from continuing operations for the six months ended August 1, 2009 was $470.8 million, or $1.09 per diluted share, versus $410.1 million, or $0.92 per diluted share, for the same period last year. Foreign currency translation reduced our fiscal 2010 year-to-date earnings per share by $0.04 per share as compared to the same period last year, and the mark-to-market adjustment of our inventory hedges reduced earnings per share by $0.03 for the six-months ended August 1, 2009 as compared to a reduction of $0.01 in the same period last year. Additionally, last year’s year-to-date period included a $0.02 per share benefit from first quarter FIN 48 tax reserve adjustments.
Our share repurchase program also affects the comparability of earnings per share. We repurchased 6.4 million shares of our stock at a cost of $193.8 million in the second quarter of fiscal 2010, and we repurchased 8.0 million shares at a cost of $236.7 million in the first six months of fiscal 2010. During the second quarter of fiscal 2009, we repurchased 7.0 million shares of our common stock at a cost of $225.0 million, and for the first six months of fiscal 2009, we repurchased 14.0 million shares of our common stock at a cost of $450.0 million.
Discontinued operations and net income: All historical income statements have been adjusted to reflect the sale of Bob’s Stores in fiscal 2009 as discontinued operations. Including the impact of discontinued operations, net income was $261.6 million, or $0.61 per share, for the second quarter of fiscal 2010, compared to $200.2 million, or $0.45 per share, for the same period last year. Net income was $470.8 million, or $1.09 per share, for the six months ended August 1, 2009, compared to $394.1 million, or $0.88 per share, for the same period last year.

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Segment information: The following is a discussion of the operating results of our business segments. In the U.S., we have three segments: our T.J. Maxx and Marshalls stores are aggregated as the Marmaxx segment, and HomeGoods and A.J. Wright each is reported as a separate segment. TJX’s stores operated in Canada (Winners and HomeSense) are reported as the Canadian segment, and TJX’s stores operated in Europe (T.K. Maxx and HomeSense) are reported as the European segment. We evaluate the performance of our segments based on “segment profit or loss,” which we define as pre-tax income before general corporate expense, any Provision for Computer Intrusion related costs and interest. “Segment profit or loss,” as we define the term, may not be comparable to similarly titled measures used by other entities. In addition, this measure of performance should not be considered an alternative to net income or cash flows from operating activities as an indicator of our performance or as a measure of liquidity. Presented below is selected financial information related to our business segments:
U.S. Segments:
Marmaxx
                                 
    Thirteen Weeks Ended     Twenty-Six Weeks Ended  
    August 1,     July 26,     August 1,     July 26,  
Dollars in millions   2009     2008     2009     2008  
 
Net sales
  $ 3,145.5     $ 2,957.2     $ 6,083.8     $ 5,759.5  
Segment profit
  $ 358.4     $ 298.1     $ 689.0     $ 576.6  
Segment profit as a percentage of net sales
    11.4 %     10.1 %     11.3 %     10.0 %
Percent increase in same store sales
    4 %     3 %     3 %     2 %
Stores in operation at end of period
                               
T.J. Maxx
                    882       859  
Marshalls
                    811       787  
 
                           
Total Marmaxx
                    1,693       1,646  
 
                           
Selling square footage at end of period (in thousands)
                               
T.J. Maxx
                    20,714       20,285  
Marshalls
                    20,455       20,023  
 
                           
Total Marmaxx
                    41,169       40,308  
 
                           
Net sales for Marmaxx increased 6% for the second quarter and six-month period of fiscal 2010 as compared to the same periods last year. Same store sales for Marmaxx increased 4% in the second quarter and 3% for the first six-months of fiscal 2010.
Sales at Marmaxx for both the second quarter and six-month periods reflected increased customer traffic, partially offset by a decrease in the amount of the average transaction. Categories that posted strong same store sales increases included juniors, dresses, children’s apparel, footwear and accessories. Home categories improved at Marmaxx during the second quarter reporting a same store sales increase just slightly below the chain average. Geographically, same store sales were strongest in the Midwest and Southeast, while New England and Florida were below the chain average for both the second quarter and first half of fiscal 2010.
Segment profit for the second quarter ended August 1, 2009 grew to $358.4 million, a 20% increase compared to last year’s second quarter. Segment profit as a percentage of net sales (“segment profit margin” or “segment margin”) increased to 11.4% from 10.1% last year. Segment profit for the six months ended August 1, 2009 increased to $689.0 million, up 20% compared to the same period last year. Segment profit margin was 11.3% for the six-month period in fiscal 2010 versus 10.0% last year. The increase in segment margin for both periods was driven by improved merchandise margins, which were up 1.7 percentage points for the second quarter and 1.5 percentage points for the six months ended August 1, 2009. The improvement in segment margin for this year’s second quarter and six-month periods was partially offset by an increase in administrative costs as a percentage of sales, primarily due to increased costs of incentive and benefit plans tied to performance and required due to this division’s performance in excess of our objectives.

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As of August 1, 2009, Marmaxx’s average per store inventories, including inventory on hand at its distribution centers, were flat as compared to inventory levels at the same time last year. This compares to average per store inventories at July 26, 2008 that were down 2% compared to those of the prior year period. As of August 1, 2009 Marmaxx also had fewer dollars committed as inventory on hand and merchandise on order was down on a per store basis from the end of last year’s second quarter.
Marmaxx also operates 3 ShoeMegaShop by Marshalls, a family shoe concept, in a stand-alone format, which are included in the above store totals.
HomeGoods
                                 
    Thirteen Weeks Ended   Twenty-Six Weeks Ended
    August 1,   July 26,   August 1,   July 26,
Dollars in millions   2009   2008   2009   2008
 
Net sales
  $ 412.8     $ 350.4     $ 804.7     $ 713.9  
Segment profit
  $ 24.5     $ 2.2     $ 40.1     $ 11.1  
Segment profit as a percentage of net sales
    5.9 %     0.6 %     5.0 %     1.5 %
Percent increase (decrease) in same store sales
    9 %     (1 )%     4 %     1 %
Stores in operation at end of period
                    323       297  
Selling square footage at end of period (in thousands)
                    6,340       5,691  
HomeGoods’ net sales for the second quarter of fiscal 2010 increased 18% compared to the same period last year, and for the first six months of fiscal 2010, net sales increased 13% over the same period last year. Same store sales increased 9% for the second quarter of fiscal 2010, versus a decrease of 1% for the same period last year. Segment margin for the quarter and six-month periods was significantly up from the same periods last year. The majority of the increase in segment margin was driven by increased merchandise margin along with the effective expense control associated primarily with operational efficiencies and the levering of expenses due to strong same store sales. The increase in merchandise margin was driven by improved inventory management resulting in lower markdowns as well as a higher markon.
A.J. Wright
                                 
    Thirteen Weeks Ended   Twenty-Six Weeks Ended
    August 1,   July 26,   August 1,   July 26,
Dollars in millions   2009   2008   2009   2008
 
Net sales
  $ 181.9     $ 160.5     $ 361.3     $ 314.7  
Segment profit (loss)
  $ 1.4     $ (0.8 )   $ 5.8     $ (1.7 )
Segment profit (loss) as a percentage of net sales
    0.8 %     (0.5 )%     1.6 %     (0.5 )%
Percent increase in same store sales
    5 %     6 %     9 %     6 %
Stores in operation at end of period
                    141       132  
Selling square footage at end of period (in thousands)
                    2,808       2,631  
A.J. Wright’s net sales increased 13% and 15% for the second quarter and six-month periods ending August 1, 2009 as compared to the same periods last year. Segment profit increased to $1.4 million in the second quarter and $5.8 million in the six-month period, compared to losses in the same periods last year. Segment margin increased in both the quarter and six-month periods due to improved merchandise margin and expense leverage. We believe we have been able to achieve better merchandising and improved advertising effectiveness due to an improved understanding of A.J. Wright’s customers’ tastes and spending habits.

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International Segments:
Canada
                                 
    Thirteen Weeks Ended     Twenty-Six Weeks Ended  
    August 1,     July 26,     August 1,     July 26,  
U.S. Dollars in millions   2009     2008     2009     2008  
Net sales
  $ 495.7     $ 538.7     $ 919.8     $ 1,027.1  
Segment profit
  $ 48.0     $ 60.4     $ 67.7     $ 101.3  
Segment profit as a percentage of net sales
    9.7 %     11.2 %     7.4 %     9.9 %
Percent increase in same store sales
    1 %     6 %     1 %     5 %
Stores in operation at end of period
                               
Winners
                    206       196  
HomeSense
                    75       73  
 
                           
Total
                    281       269  
 
                           
Selling square footage at end of period (in thousands)
                               
Winners
                    4,727       4,502  
HomeSense
                    1,437       1,398  
 
                           
Total
                    6,164       5,900  
 
                           
Net sales for the Canadian segment decreased 8% for the second quarter ended August 1, 2009 versus last year’s second quarter and decreased 10% for the six-month period versus the same period last year. The decrease was entirely due to foreign currency translation, which reduced second quarter sales by approximately $60 million and reduced six-month sales by approximately $160 million. Same store sales were up 1% for both the second quarter and six-month periods of fiscal 2010.
Segment profit decreased $12 million for the second quarter of fiscal 2010 and decreased by $34 million for the six-month period ended August 1, 2009. The reduction was primarily due to foreign currency translation and the mark-to-market adjustment on inventory-related hedges. Segment margin decreased 1.5 percentage points to 9.7% for this year’s second quarter and decreased 2.5 percentage points to 7.4% for the six-month period ended August 1, 2009. Currency exchange translation reduced segment profit by $7 million for the second quarter and $15 million for the six-month period of fiscal 2010 compared to the same periods in the prior year; however, because currency translation generally impacts both sales and expenses, it had little or no impact on segment margin. In addition, the mark-to-market adjustment on inventory-related hedges negatively impacted segment profit comparisons in the second quarter of fiscal 2010 by $6 million and segment margin by 1.2 percentage points. For the six months ended August 1, 2009 the mark-to-market adjustment on inventory-related hedges negatively impacted segment profit comparisons by $16 million and segment margin by 1.8 percentage points. Segment margin for the both the second quarter and six-month period of fiscal 2010 also reflected a reduction in merchandise margin due to higher cost for merchandise purchases denominated in U.S. dollars as a result of the weaker Canadian dollar.
In the third quarter of fiscal 2009, Winners opened a new concept called StyleSense, which offers family footwear and accessories. As of the end of the second quarter of fiscal 2010, we operated three StyleSense stores which are included in the Winners totals in the above table.

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Europe
                                 
    Thirteen Weeks Ended     Twenty-Six Weeks Ended  
    August 1,     July 26,     August 1,     July 26,  
U.S. Dollars in millions   2009     2008     2009     2008  
 
Net sales
  $ 511.6     $ 547.6     $ 932.1     $ 1,042.8  
Segment profit
  $ 24.7     $ 13.7     $ 34.0     $ 15.2  
Segment profit as a percentage of net sales
    4.8 %     2.5 %     3.6 %     1.5 %
Percent increase in same store sales
    6 %     5 %     6 %     5 %
Stores in operation at end of period
                               
T.K. Maxx
                    244       231  
HomeSense
                    8       6  
 
                           
Total
                    252       237  
 
                           
Selling square footage at end of period (in thousands)
                               
T.K. Maxx
                    5,671       5,268  
HomeSense
                    123       88  
 
                           
Total
                    5,794       5,356  
 
                           
European net sales for the second quarter of fiscal 2010 decreased 7% and for the six months ended August 1, 2009, European net sales decreased 11% compared to the same periods last year. Currency exchange translation negatively impacted the fiscal 2010 results. European net sales were reduced by $112 million and $263 million for the second quarter and six-month periods of fiscal 2010, respectively, due to currency exchange translation. Same store sales increased 6% for both the second quarter and six-month period this year compared to a same store sales increase of 5% for each period last year.
Segment profit for the second quarter ended August 1, 2009 increased to $24.7 million and for the first six months increased to $34.0 million. Segment margin increased to 4.8% for the second quarter of fiscal 2010 and increased to 3.6% for the first six months of fiscal 2010 as compared to the same periods last year. Currency exchange translation negatively affected segment profit by approximately $6 million in the second quarter of fiscal 2010 and $11 million for the six-month period compared to prior year. The mark-to-market adjustment for inventory-related hedges had virtually no impact on fiscal 2010 segment profit and segment margin comparisons. The increases in segment margin reflected improved merchandise margins, as well as expense leverage in occupancy costs and distribution center costs, partially offset by expansion costs for European development.
General corporate expense
                                 
    Thirteen Weeks Ended   Twenty-Six Weeks Ended
    August 1,   July 26,   August 1,   July 26,
In millions   2009   2008   2009   2008
 
General corporate expense
  $ 34.6     $ 33.6     $ 68.5     $ 64.2  
General corporate expense for segment reporting purposes refers to those costs not specifically related to the operations of our business segments and is included in selling, general and administrative expenses. General corporate expense was relatively flat for the second quarter of fiscal 2010 compared to the same period last year. General corporate expense includes restructuring costs related to our expense reduction initiatives of $1 million for the fiscal 2010 second quarter and $3 million for the current year-to-date period..

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Analysis of Financial Condition
Liquidity and Capital Resources
Net cash provided by operating activities was $705 million for the six months ended August 1, 2009, an increase of $237 million over the $468 million provided for the six months ended July 26, 2008. Net income, together with the non-cash impact of depreciation and the Bob’s Stores impairment charge of $16 million last fiscal year, provided cash of $680 million in fiscal 2010, compared to $610 million last year. The change in deferred income taxes favorably impacted cash flows this year by $108 million compared to a favorable benefit of $60 million last year. The increase in the favorable cash impact due to deferred taxes is primarily attributable to accelerated tax depreciation and the funding of our pension plan. Also favorably impacting this year’s cash flow from operations as compared to the prior year was the change in merchandise inventory, net of the related change in accounts payable, which resulted in an increase in cash of $14 million in fiscal 2010, compared to a use of cash of $139 million last year. This year’s cash flow also benefited from a favorable change of $112 million due to the timing of our payments on current federal and state income taxes. Partially offsetting the favorable changes in cash flows was an unfavorable change in accrued expenses and other liabilities of $105 million. This fiscal year, the decrease in accrued expenses reflected the unfavorable cash impact of $88 million for checks outstanding (book overdrafts on zero balance cash accounts) that was accrued as of the end of fiscal 2009 along with $50 million of voluntary funding of our pension plan.
Investing activities relate primarily to property additions for new stores, store improvements and renovations and investment in our distribution network. Cash outlays for property additions amounted to $164 million in the six months ended August 1, 2009, compared to $259 million in the same period last year. We anticipate that capital spending for fiscal 2010 will be approximately $450 to $475 million. Investing activities also reflects the net purchase of $124 million of short-term investments that had an initial maturity in excess of three months and which, per our policy, are not classified as cash on the balance sheet.
Cash flows from financing activities for the six months ended August 1, 2009 include the net proceeds of $774 million from two debt offerings. On April 7, 2009 we issued $375 million of 6.95% ten-year notes. Related to this transaction, TJX called for the redemption of its zero coupon convertible subordinated notes, which were virtually all converted into 15.1 million shares of common stock by May 8, 2009. We have used a portion of the proceeds of the 6.95% notes to repurchase additional shares of common stock under our stock repurchase program and expect to use the remainder for this purpose during fiscal 2010. On July 23, 2009 we issued $400 million of 4.2% six-year notes. We used a portion of the proceeds of this offering to refinance our C$235 million term credit facility on August 10, 2009, prior to its scheduled maturity, and plan to use the remainder, together with funds from operations, to pay our 7.45% notes due December 15, 2009 at maturity.
We continued our share repurchase program, and during the six months ended August 1, 2009, we repurchased and retired 8.0 million shares of our common stock at a cost of $237 million. We record the repurchase of our stock on a cash basis, and the amounts reflected in the financial statements may vary from the above due to the timing of the settlement of our repurchases. In the six months ended July 26, 2008, we repurchased and retired 14.0 million shares of our common stock at a cost of $450 million. As of August 1, 2009, $508 million remained available for purchase under the current $1 billion program. The timing of purchases under this program is determined by TJX from time to time based on its assessment of various factors including excess cash flow, liquidity and market conditions. Lastly, financing activities included $69 million of proceeds from the exercise of stock options in the first six months this year compared to $100 million last year, and dividends paid on common stock were $97 million for the first six months this year versus $85 million last year.
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. We have a $500 million revolving credit facility maturing May 5, 2010 and a $500 million revolving credit facility maturing May 5, 2011. These agreements have no compensating balance requirements and have various covenants including a requirement of a specified ratio of debt to earnings. These agreements serve as backup to our commercial paper program. We had no outstanding short-term borrowings at August 1, 2009 and July 26, 2008. The availability under revolving credit facilities was $1 billion at August 1, 2009 and July 26, 2008. We believe internally generated funds and our revolving credit facilities are more than adequate to meet our operating needs.
Contractual obligations: The following contractual obligations have changed significantly since the filing of our Annual Report on Form 10-K on March 31, 2009. As such, as of August 1, 2009, we had payment obligations (including current installments) under long-term debt arrangements that will require cash outflows as follows (in thousands):
                                         
            Payments Due by Period  
            Less Than     1-3     3-5     More Than  
Tabular Disclosure of Contractual Obligations   Total     1 Year     Years     Years     5 Years  
Long-term debt obligations including estimated interest and current installments
  $ 1,562,105     $ 469,255     $ 85,725     $ 85,725     $ 921,400  
The long-term debt obligations above include estimated interest costs.

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Provision for Computer Intrusion related costs: In the second quarter of fiscal 2008, we established a reserve to reflect our estimate of our probable losses in accordance with generally accepted accounting principles with respect to the Computer Intrusion. As of August 1, 2009, our reserve balance was $27.2 million, which reflects our current estimate of remaining probable losses with respect to the Computer Intrusion, including litigation, proceedings and other claims, as well as legal, monitoring, reporting and other costs. As an estimate, our reserve is subject to uncertainty, our actual costs may vary from our current estimate and such variations may be material. We may decrease or increase the amount of our reserve as a result of developments in litigation and claims, related expenses, receipt of insurance proceeds and for other changes.
Recently Issued Accounting Pronouncements
See New Accounting Standards in Note A to our unaudited consolidated financial statements included in this quarterly report for recently issued accounting standards, including the expected dates of adoption and estimated effects on our consolidated financial statements.
Forward-looking Statements
Various statements made in this Quarterly Report on Form 10-Q are forward-looking and involve a number of risks and uncertainties. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements. The following are some of the factors that could cause actual results to differ materially from the forward-looking statements: effects of current economic environment; matters relating to the computer intrusion(s) including potential losses that could differ from our reserve, potential effects on our reputation and sales, compliance with orders, and other consequences to the value of our Company and related value of our stock; our ability to successfully expand our store base and increase comparable store sales; risks of expansion and costs of contraction; risks inherent in foreign operations; our ability to successfully implement our opportunistic buying strategies and to manage our inventories effectively; successful advertising and promotion; consumer confidence, demand, spending habits and buying preferences; effects of unseasonable weather; competitive factors; availability of store and distribution center locations on suitable terms; our ability to recruit and retain associates; factors affecting expenses; success of our acquisition and divestiture activities; our ability to successfully implement technologies and systems and protect data; our ability to continue to generate adequate cash flows; our ability to execute our share repurchase program; availability and cost of financing; general economic conditions, including fluctuations in the price of oil; potential disruptions due to wars, natural disasters and other events beyond our control; changes in currency and exchange rates; issues with merchandise quality and safety; import risks; adverse outcomes for any significant litigation; compliance with and changes in laws and regulations and accounting rules and principles; adequacy of reserves; asset impairments and other charges; closing adjustments; failure to meet market expectations; 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 in such statements will not be realized.

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Item 3.   Quantitative and Qualitative Disclosures about Market Risk
We do not enter into derivatives for speculative or trading purposes.
Foreign Currency Exchange Risk
     We are exposed to foreign currency exchange rate risk on our investment in our Canadian and European operations on the translation of these foreign operations into the U.S. dollar and on purchases by our operations of goods in currencies that are not their local currencies. As more fully described in Notes A and E to the consolidated financial statements to the Annual Report on Form 10-K for the fiscal year ended January 31, 2009, we hedge certain merchandise purchase commitments incurred by these operations, with derivative financial instruments. We enter into derivative contracts only when there is an underlying economic exposure. We utilize currency forward and swap contracts, designed to offset the gains or losses in the underlying exposures. The contracts are executed with banks we believe are creditworthy and are denominated in currencies of major industrial countries. We have performed a sensitivity analysis assuming a hypothetical 10% adverse movement in foreign currency exchange rates applied to the hedging contracts and the underlying exposures described above as well as the translation of our foreign operations into our reporting currency. As of August 1, 2009, the analysis indicated that such an adverse movement would not have a material effect on our consolidated financial position but could have reduced our pre-tax income from continuing operations for the six months ended August 1, 2009 by approximately $4 million.
Interest Rate Risk
     Our cash equivalents and short-term investments and certain lines of credit bear variable interest rates. Changes in interest rates affect interest earned and paid by us. In addition, changes in the gross amount of our borrowings and future changes in interest rates will affect our future interest expense. We occasionally enter into financial instruments to manage our cost of borrowing; however, we believe that the use of primarily fixed rate debt minimizes our exposure to market conditions. We have performed a sensitivity analysis assuming a hypothetical 10% adverse movement in interest rates applied to the maximum variable rate debt outstanding. As of August 1 2009, the analysis indicated that such an adverse movement would not have a material effect on our consolidated financial position, results of operations or cash flows.
Equity Price Risk
     The assets of our qualified pension plan, a large portion of which is invested in equity securities, are subject to the risks and uncertainties of the financial markets. We allocate the pension assets in a manner that attempts to minimize and control our exposure to market uncertainties. Investments, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risks. As a result of the significant decline in the financial markets in 2009, the value of our pension plan assets decreased, which substantially increased the unfunded status of our plan and reduced shareholders’ equity on our balance sheet.
Item 4.   Controls and Procedures
          We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of August 1, 2009 pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures. There were no changes in our internal control over financial reporting, (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended August 1, 2009 identified in connection with the evaluation by our management, including our Chief Executive Officer and Chief Financial Officer that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1.   Legal Proceedings.
          On June 23, 2009, TJX settled with a multi-state group of 41 Attorneys General, resolving the States’ investigations with respect to the Computer Intrusion. Under the settlement, TJX agreed to (i) provide $2.5 million to establish a new Data Security Fund for use by the States to advance effective data security and technology, (ii) provide a settlement amount of $5.5 million and cover expenses of $1.75 million related to the States’ investigations, (iii) certify that TJX’s computer system meets detailed security requirements specified by the States, and (iv) encourage the development of new technologies to address systemic vulnerabilities in the United States payment card system.
Item 1A.   Risk Factors
          There have been no material changes to the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended January 31, 2009, as filed with the SEC on March 31, 2009.
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
Information on Share Repurchases
     The number of shares of common stock repurchased by TJX during the second quarter of fiscal 2010 and the average price paid per share are as follows:
                                 
                            Maximum Number (or
                            Approximate Dollar
                    Total Number of Shares   Value) of Shares that
    Total           Purchased as Part of a   May Yet be Purchased
    Number of Shares   Average Price Paid   Publicly Announced   Under the Plans or
    Repurchased (1)   Per Share (2)   Plan or Program (3)   Programs
 
May 3, 2009 through May 30, 2009
    1,954,138     $ 28.16       1,954,138     $ 646,975,954  
 
                               
May 31, 2009 through July 4, 2009
    3,155,311     $ 30.47       3,155,311     $ 550,820,701  
 
                               
July 5, 2009 through August 1, 2009
    1,293,076     $ 32.98       1,293,076     $ 508,179,780  
 
                               
Total:
    6,402,525               6,402,525          
 
(1)   All shares were purchased as part of publicly announced plans.
 
(2)   Average price paid per share includes commissions and is rounded to the nearest two decimal places.

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(3)   The $194 million in stock repurchases were made under the multi-year stock repurchase plan of $1 billion, authorized by our Board of Directors in February 2008, under which $508 million remained as of August 1, 2009. The stock repurchase plan has no expiration date.
Item 4   Submission of Matters to a Vote of Security Holders
We held our Annual Meeting of Stockholders on June 2, 2009. The following actions were taken at the Annual Meeting:
                 
Election of Directors   For   Withheld
Jose B. Alvarez
    359,049,520       13,742,736  
Alan M. Bennett
    370,149,313       2,642,943  
David A. Brandon
    282,905,868       89,886,388  
Bernard Cammarata
    365,991,838       6,800,418  
David T. Ching
    360,235,971       12,556,285  
Michael F. Hines
    370,061,672       2,730,584  
Amy B. Lane
    370,163,070       2,629,186  
Carol Meyrowitz
    366,185,480       6,606,776  
John F. O’Brien
    361,947,795       10,844,461  
Robert F. Shapiro
    364,585,861       8,206,395  
Willow B. Shire
    353,265,781       19,526,475  
Fletcher H. Wiley
    354,899,844       17,892,412  
Proposal 2
Approval of amendments to and performance terms of the Stock Incentive Plan:
         
For
    283,154,632  
Against
    67,142,945  
Abstain
    365,875  
Proposal 3
Ratification of appointment of independent registered public accounting firm:
         
For
    363,422,092  
Against
    9,153,238  
Abstain
    216,926  

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Item 6.   Exhibits
10.1   The TJX Companies, Inc. Stock Incentive Plan (2009 Restatement), as amended through June 2, 2009.
10.2   Employment Agreement dated as of June 2, 2009 between Bernard Cammarata and The TJX Companies, Inc.
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101   The following materials from The TJX Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2009, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statement of Shareholders Equity, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
 
  THE TJX COMPANIES, INC.    
 
 
 
(Registrant)
   
 
       
 
       
Date: August 28, 2009
  /s/ Jeffrey G. Naylor
 
Jeffrey G. Naylor, Chief Financial and Administrative Officer
   

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EXHIBIT INDEX
     
Exhibit Number   Description of Exhibit
 
   
10.1
  The TJX Companies, Inc. Stock Incentive Plan (2009 Restatement), as amended through June 2, 2009.
 
   
10.2
  Employment Agreement dated as of June 2, 2009 between Bernard Cammarata and The TJX Companies, Inc.
 
   
31.1
  Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.
 
   
32.1
  Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
32.2
  Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
 
   
101
  The following materials from The TJX Companies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2009, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statement of Shareholders Equity, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

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