TJX COMPANIES INC /DE/ - Quarter Report: 2010 October (Form 10-Q)

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
		October 30,				October 31,
		2010				2009
Net sales			$  5,525,847				$  5,244,946
Cost of sales, including buying and occupancy costs			4,006,404				3,802,179
Selling, general and administrative expenses			912,808				864,097
Provision (credit) for Computer Intrusion related costs			-				-
Interest expense, net			9,518				12,665
Income before provision for income taxes			597,117				566,005
Provision for income taxes			224,808				218,206
Net income			$     372,309				$     347,799
Basic earnings per share:
Net income			$           0.94				$           0.82
Weighted average common shares – basic			397,217				421,654
Diluted earnings per share:
Net income			$           0.92				$           0.81
Weighted average common shares – diluted			403,040				428,092
Cash dividends declared per share			$           0.15				$           0.12

The accompanying notes are an integral part of the financial statements.

THE TJX COMPANIES, INC.
STATEMENTS OF INCOME
(UNAUDITED)
AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS

		Thirty-Nine Weeks Ended
		October 30,				October 31,
		2010				2009
Net sales			$15,610,467				$14,346,698
Cost of sales, including buying and occupancy costs			11,374,288				10,609,827
Selling, general and administrative expenses			2,587,972				2,390,030
Provision (credit) for Computer Intrusion related costs			(11,550	)			-
Interest expense, net			29,992				28,515
Income before provision for income taxes			1,629,765				1,318,326
Provision for income taxes			621,038				499,752
Net income			$  1,008,727				$     818,574
Basic earnings per share:
Net income			$           2.50				$           1.95
Weighted average common shares – basic			402,969				419,398
Diluted earnings per share:
Net income			$           2.46				$           1.91
Weighted average common shares – diluted			409,284				430,136
Cash dividends declared per share			$           0.45				$           0.36

The accompanying notes are an integral part of the financial statements.

THE TJX COMPANIES, INC.
BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE DATA

		October 30,				January 30,				October 31,
		2010				2010				2009
		(unaudited)								(unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$  1,339,065				$  1,614,607				$  1,445,648
Short-term investments			129,967				130,636				76,643
Accounts receivable, net			229,318				148,126				163,555
Merchandise inventories			3,272,960				2,532,318				3,267,667
Prepaid expenses and other current assets			290,465				255,707				259,357
Current deferred income taxes, net			34,867				122,462				117,787
Total current assets			5,296,642				4,803,856				5,330,657
Property at cost:
Land and buildings			289,158				281,527				277,586
Leasehold costs and improvements			2,121,958				1,930,977				1,910,909
Furniture, fixtures and equipment			3,345,501				3,087,419				3,019,725
Total property at cost			5,756,617				5,299,923				5,208,220
Less accumulated depreciation and amortization			3,286,189				3,026,041				2,947,688
Net property at cost			2,470,428				2,273,882				2,260,532
Property under capital lease, net of accumulated amortization of $21,032; $19,357 and $18,799, respectively			11,540				13,215				13,773
Other assets			223,641				193,230				198,335
Goodwill and tradename, net of amortization			179,897				179,794				179,767
TOTAL ASSETS			$  8,182,148				$  7,463,977				$  7,983,064
LIABILITIES
Current liabilities:
Current installments of long-term debt			$                 -				$                 -				$     200,358
Obligation under capital lease due within one year			2,627				2,355				2,309
Accounts payable			1,974,272				1,507,892				1,838,558
Accrued expenses and other liabilities			1,253,053				1,248,002				1,187,294
Federal, foreign and state income taxes payable			-				136,737				17,621
Total current liabilities			3,229,952				2,894,986				3,246,140
Other long-term liabilities			746,860				697,099				742,594
Non-current deferred income taxes, net			307,810				192,447				263,066
Obligation under capital lease, less portion due within one year			13,823				15,844				16,451
Long-term debt, exclusive of current installments			774,381				774,325				774,306
Commitments and contingencies			-				-				-
SHAREHOLDERS’ EQUITY
Common stock, authorized 1,200,000,000 shares, par value $1, issued and outstanding 395,802,044; 409,386,126 and 419,708,634, respectively			395,802				409,386				419,709
Additional paid-in capital			-				-				34,719
Accumulated other comprehensive income (loss)			(101,494	)			(134,124	)			(119,636	)
Retained earnings			2,815,014				2,614,014				2,605,715
Total shareholders’ equity			3,109,322				2,889,276				2,940,507
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			$  8,182,148				$  7,463,977				$  7,983,064

The accompanying notes are an integral part of the financial statements.

THE TJX COMPANIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
IN THOUSANDS

		Thirty-Nine Weeks Ended
		October 30,				October 31,
		2010				2009
Cash flows from operating activities:
Net income			$1,008,727				$ 818,574
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			341,069				318,940
Loss on property disposals			6,991				6,764
Deferred income tax provision			142,607				130,539
Amortization of share-based compensation expense			44,913				40,831
Excess tax benefits from share-based compensation expense			(23,410	)			(15,755	)
Changes in assets and liabilities:
(Increase) in accounts receivable			(43,943	)			(16,466	)
(Increase) in merchandise inventories			(719,710	)			(577,469	)
(Increase) decrease in prepaid expenses and other current assets			(41,536	)			15,876
Increase in accounts payable			454,738				522,079
(Decrease) increase in accrued expenses and other liabilities			(81,030	)			82,156
Other			9,776				(36,848	)
Net cash provided by operating activities			1,099,192				1,289,221
Cash flows from investing activities:
Property additions			(540,351	)			(318,948	)
Purchase of short-term investments			(102,879	)			(199,839	)
Sales and maturities of short-term investments			108,844				126,741
Other			695				(5,802	)
Net cash (used in) investing activities			(533,691	)			(397,848	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			-				774,263
Principal payments on current portion of long-term debt			-				(193,573	)
Cash payments for debt issuance expenses			(3,089	)			(7,202	)
Payments on capital lease obligation			(1,749	)			(1,614	)
Cash payments for repurchase of common stock			(845,522	)			(530,501	)
Proceeds from issuance of common stock			141,880				154,095
Excess tax benefits from share-based compensation expense			23,410				15,755
Cash dividends paid			(170,042	)			(147,403	)
Net cash (used in) provided by financing activities			(855,112	)			63,820
Effect of exchange rate changes on cash and cash equivalents			14,069				36,928
Net (decrease) increase in cash and cash equivalents			(275,542	)			992,121
Cash and cash equivalents at beginning of year			1,614,607				453,527
Cash and cash equivalents at end of period			$1,339,065				$1,445,648

The accompanying notes are an integral part of the financial statements.

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 30, 2010			409,386				$    409,386			$	-				$      (134,124	)			$2,614,014				$2,889,276
Comprehensive income:
Net income			-				-				-				-				1,008,727				1,008,727
Foreign currency translation adjustments			-				-				-				28,716				-				28,716
Recognition of prior service cost and deferred gains			-				-				-				3,914				-				3,914
Total comprehensive income																							1,041,357
Cash dividends declared on common stock			-				-				-				-				(180,558	)			(180,558	)
Amortization of share-based compensation expense			-				-				44,913				-				-				44,913
Issuance of common stock under stock incentive plan and related tax effect			6,141				6,141				153,715				-				-				159,856
Common stock repurchased			(19,725	)			(19,725	)			(198,628	)			-				(627,169	)			(845,522	)
Balance, October 30, 2010			395,802				$    395,802				$             -				$      (101,494	)			$2,815,014				$3,109,322

The accompanying notes are an integral part of the financial statements.

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 The TJX Companies, Inc. (together with its subsidiaries, “TJX”) for a fair presentation of its financial statements for the periods reported, all in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 30, 2010 (“fiscal 2010”).

These interim results 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 $16.9 million for the quarter ended October 30, 2010 and $15.0 million for the quarter ended October 31, 2009. Total share-based compensation expense was $44.9 million for the nine months ended October 30, 2010 and $40.8 million for the nine months ended October 31, 2009. These amounts include stock option expense as well as restricted and deferred stock amortization. There were options to purchase 1.6 million shares of common stock exercised during the third quarter ended October 30, 2010 and options to purchase 6.0 million shares of common stock exercised during the nine months ended October 30, 2010. There were options to purchase 26.5 million shares of common stock outstanding as of October 30, 2010.

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 sheet include an accrual for in-transit inventory of $493.8 million at October 30, 2010, $396.8 million at January 30, 2010 and $451.6 million at October 31, 2009. A liability for a comparable amount is included in accounts payable for the respective periods.

New Accounting Standards - There were no new accounting standards issued during the third quarter ended October 30, 2010 that are expected to have a material impact on TJX’s financial condition, results of operations or cash flows.

Note B. Commitments and Contingencies

Provision (credit) 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. TJX reduced the Provision for Computer Intrusion related costs by $11.6 million during the second quarter ended July 31, 2010 primarily as a result of insurance proceeds and adjustments to our remaining reserve. The reserve balance was $18.8 million at October 30, 2010. As an estimate, the reserve is subject to uncertainty, actual costs may vary from the current estimate and such variations may be material. TJX may, in the future, decrease or increase the amount of the reserve to adjust for matters such as developments in litigation, claims and related expenses, insurance proceeds and changes in the estimate.

Reserve for Discontinued Operations - TJX has a reserve for the remaining future obligations of discontinued operations that relates primarily to real estate leases associated with former TJX businesses. The reserve balance was $31.2 million at October 30, 2010 and $38.2 million at October 31, 2009.

TJX may also be contingently liable on up to 14 leases of BJ’s Wholesale Club, a former TJX business, and up to seven leases of Bob’s Stores, also a former TJX business, in addition to those included in the reserve. 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.

Note C. Other Comprehensive Income

TJX’s comprehensive income information, net of related tax effects, is presented below:

		Thirteen Weeks Ended
		October 30,				October 31,
In thousands		2010				2009
Net income			$ 372,309				$ 347,799
Other comprehensive income (loss):
Foreign currency translation adjustments			30,399				(6,113	)
Recognition of unfunded post retirement obligations			-				-
Recognition of prior service cost and deferred gains			840				2,267
Total comprehensive income			$ 403,548				$ 343,953
		Thirty-Nine Weeks Ended
		October 30,				October 31,
In thousands		2010				2009
Net income			$ 1,008,727				$ 818,574
Other comprehensive income (loss):
Foreign currency translation adjustments			28,716				94,187
Recognition of unfunded post retirement obligations			-				(1,212	)
Recognition of prior service cost and deferred gains			3,914				5,170
Total comprehensive income			$ 1,041,357				$ 916,719

Note D. Capital Stock and Earnings Per Share

Capital Stock - During the quarter ended October 30, 2010, TJX repurchased and retired 6.0 million shares of its common stock at a cost of $255.8 million. For the nine months ended October 30, 2010, TJX repurchased and retired 19.7 million shares of its common stock at a cost of $845.3 million. TJX reflects stock repurchases in its financial statements on a “settlement” basis. TJX’s cash expenditures for its repurchase programs were $845.5 million for the nine months ended October 30, 2010 and $530.5 million for the nine months ended October 31, 2009. These expenditures were funded primarily by cash generated from operations together, in 2009, with the proceeds of a debt issuance. In October 2010, TJX completed the $1 billion stock repurchase program authorized in September 2009 under which TJX repurchased 24.1 million shares of common stock. In February 2010, TJX’s Board of Directors approved another stock repurchase program that authorizes the repurchase of up to an additional $1 billion of TJX common stock from time to time. Under this plan, TJX repurchased 1.1 million shares of common stock at a cost of $50.4 million through the third quarter of fiscal 2011 and $949.6 million remained available at October 30, 2010. All shares repurchased under the stock repurchase programs have been retired.

TJX has five million shares of authorized but unissued preferred stock, par value $1 per share.

Earnings per share - The following schedule presents the calculation of basic and diluted earnings per share (“EPS”) for net income:

		Thirteen Weeks Ended
		October 30,				October 31,
In thousands, except per share data		2010				2009
Basic earnings per share
Net income			$   372,309				$   347,799
Weighted average common shares outstanding for basic EPS			397,217				421,654
Basic earnings per share – continuing operations			$         0.94				$         0.82
Diluted earnings per share
Net income			$   372,309				$   347,799
Add back: Interest expense on zero coupon convertible subordinated notes, net of income taxes			-				-
Net income used for diluted EPS calculation			$   372,309				$   347,799
Shares for basic and diluted earnings per share calculations:
Weighted average common shares outstanding for basic EPS			397,217				421,654
Assumed conversion/exercise/vesting of:
Stock options and awards			5,823				6,438
Zero coupon convertible subordinated notes			-				-
Weighted average common shares outstanding for diluted EPS			403,040				428,092
Diluted earnings per share			$         0.92				$         0.81

		Thirty-Nine Weeks Ended
		October 30,				October 31,
In thousands, except per share data		2010				2009
Basic earnings per share
Net income			$ 1,008,727				$    818,574
Weighted average common shares outstanding for basic EPS			402,969				419,398
Basic earnings per share – continuing operations			$          2.50				$          1.95
Diluted earnings per share
Net income			$ 1,008,727				$    818,574
Add back: Interest expense on zero coupon convertible subordinated notes, net of income taxes			-				1,073
Net income used for diluted EPS calculation			$ 1,008,727				$    819,647
Shares for basic and diluted earnings per share calculations:
Weighted average common shares outstanding for basic EPS			402,969				419,398
Assumed conversion/exercise/vesting of:
Stock options and awards			6,315				5,537
Zero coupon convertible subordinated notes			-				5,201
Weighted average common shares outstanding for diluted EPS			409,284				430,136
Diluted earnings per share			$          2.46				$          1.91

In April 2009, TJX called for the redemption of its zero coupon convertible subordinated notes. There were 462,057 notes with a carrying value of $365.1 million that were converted into 15.1 million shares of TJX common stock at a conversion rate of 32.667 shares per note. TJX paid $2.3 million to redeem the remaining 2,886 notes outstanding that were not converted.

The weighted average common shares for the diluted earnings per share calculation excludes the impact of outstanding stock options if the assumed proceeds per share of the option 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. No such options were excluded for the thirteen weeks or for the thirty-nine weeks ended October 30, 2010. There were 4.8 million options excluded for the thirteen weeks ended October 31, 2009 and 9.6 million options excluded for the thirty-nine weeks ended October 31, 2009.

Note E. 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. TJX recognizes all derivative instruments as either assets or liabilities in the statements of financial position and measures those instruments at fair value. 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. Changes to the fair value of derivative contracts that do not qualify for hedge accounting are reported in earnings in the period of the change. For derivatives that qualify for hedge accounting, changes in the fair value of the derivatives are either recorded in shareholders’ equity as a component of other comprehensive income or are recognized currently in earnings, along with an offsetting adjustment against the basis of the item being hedged.

Interest Rate Contracts - During fiscal 2004, TJX entered into interest rate swaps with respect to $100 million of the $200 million ten-year notes outstanding at that time. Under those interest rate swaps, which settled in December 2009, TJX paid a specific variable interest rate indexed to the six-month LIBOR rate and received a fixed rate applicable to the underlying debt, effectively converting the interest on a portion of the notes from fixed to a floating rate of interest. The interest income/expense on those swaps was accrued as earned and recorded as an adjustment to the interest expense accrued on the fixed-rate debt. The interest rate swaps were designated as fair value hedges on the underlying debt.

Diesel Fuel Contracts - During the fourth quarter of fiscal 2010 and the second quarter of fiscal 2011, TJX entered into agreements to hedge a portion of its notional diesel requirements for fiscal 2011 based on the diesel fuel consumed by independent freight carriers transporting the Company’s inventory. These economic hedges at October 30, 2010 relate to 50% of TJX’s notional diesel requirements in the fourth quarter of fiscal 2011. These diesel fuel hedge agreements will settle during the last quarter of fiscal 2011 and expire in February 2011. During fiscal 2009, TJX entered into agreements to hedge approximately 30% of its notional diesel fuel requirements for fiscal 2010, which settled throughout the year and terminated in February 2010. Independent freight carriers transporting the Company’s inventory charge TJX a mileage surcharge for diesel fuel price increases as incurred by the carrier. The hedge agreements are 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.

Foreign Currency Contracts - TJX enters into forward foreign currency exchange contracts to obtain economic hedges on portions of merchandise purchases made and anticipated to be made in currencies other than the functional currency of TJX Europe (operating in the United Kingdom, Ireland, Germany and Poland), TJX Canada (Canada) and Marmaxx (U.S.). These contracts are typically twelve months or less in duration. The contracts outstanding at October 30, 2010 covered a portion of the anticipated merchandise purchases for the remainder of fiscal 2011 and into fiscal 2012. TJX elected not to apply hedge accounting rules to these contracts.

TJX also enters into derivative contracts, generally designated as fair value hedges, to hedge intercompany debt and intercompany interest payable. The changes in fair value of these contracts are recorded in selling, general and administrative expenses and are offset by marking the underlying item to fair value in the same period. Upon settlement, the realized gains and losses on these contracts are offset by the realized gains and losses of the underlying item in selling, general and administrative expenses.

Following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at October 30, 2010:

																										Net Fair
																										Value in
										Blended								Current				Current				US$ at
										Contract				Balance Sheet				Asset				(Liability)				October
In thousands		Pay				Receive				Rate				Location				US$				US$				30, 2010
Fair value hedges:
Intercompany balances, primarily short-term debt and related interest		C$	21,208			US$	20,004				0.9432			(Accrued Exp)				$	1			$	(766	)		$	(765	)
		€	65,175			US$	89,682				1.3760			(Accrued Exp)					-				(1,177	)			(1,177	)
Economic hedges for which hedge accounting not elected:
Diesel contracts		Fixed on 1.3M gal per month				Float on 1.3M gal per month					N/A			Prepaid Exp					221				-				221
Merchandise purchase commitments
														Prepaid Exp
														or Other
		C$	309,142			US$	302,239				0.9777			Assets /					1,283				(1,538	)			(255	)
														(Accrued Exp)
		C$	3,828			€	2,900				0.7576			Prepaid Exp					289				-				289
		£	45,009			US$	69,697				1.5485			(Accrued Exp)					-				(2,475	)			(2,475	)
		£	41,192			€	47,542				1.1542			Prepaid					902				(715	)			187
														Exp/(Accrued Exp)
		€	35,623			£	30,152				0.8464			Prepaid Exp/(Accrued					102				(1,424	)			(1,322	)
														Exp)
		€	6,236			US$	8,301				1.3311			(Accrued Exp)					-				(393	)			(393	)
		US$	1,160			€	873				1.3288			Prepaid Exp					57				-				57
Total fair value of all financial instruments																			$  2,855			$	(8,488	)		$	(5,633	)

Following is a summary of TJX’s derivative financial instruments, related fair value and balance sheet classification at October 31, 2009:

																										Net Fair
																										Value in
										Blended								Current				Current				US$ at
										Contract				Balance Sheet				Asset				(Liability)				October
In thousands		Pay				Receive				Rate				Location				US$				US$				31, 2009
Fair value hedges:
Interest rate swap fixed to floating on notional of $50,000
		LIBOR + 4.17%					7.45	%			N/A			Prepaid Exp				$	650			$	-			$	650
Interest rate swap fixed to floating on notional of $50,000
		LIBOR + 3.42%					7.45	%			N/A			Prepaid Exp					840				-				840
Intercompany balance hedges primarily short-term debt and related interest
		C$	96,450			US$	89,161				0.9244			Prepaid Exp / (Accrued Exp)					499				(283	)			216
Economic hedges for which hedge accounting not elected:
Diesel contracts		Fixed on 750K gal per month				Float on 750K gal per month					N/A			(Accrued Exp)					-				(582	)			(582	)
Merchandise purchase commitments
		C$	211,650			US$	198,601				0.9383			Prepaid Exp or Other Assets / (Accrued Exp)					4,605				(1,143	)			3,462
		C$	1,896			€	1,200				0.6329			Prepaid Exp					18				-				18
		£	39,217			US$	63,393				1.6165			Prepaid Exp / (Accrued Exp)					276				(1,411	)			(1,135	)
		£	40,521			€	44,461				1.0972			Prepaid Exp / (Accrued Exp)					449				(1,748	)			(1,299	)
		US$	863			€	586				0.6790			Prepaid Exp / (Accrued Exp)					8				(9	)			(1	)
Total fair value of all financial instruments																		$	7,345			$	(5,176	)		$	2,169

The impact of derivative financial instruments on the statements of income during the third quarter of fiscal 2011 and fiscal 2010 are as follows:

		Location of Gain (Loss)
		Recognized in Income by				Amount of Gain (Loss) Recognized
		Derivative				in Income by Derivative
In thousands						October 30,				October 31,
						2010				2009
Fair value hedges:
Interest rate swap fixed to floating on notional of $50,000		Interest expense, net				$	-			$	351
Interest rate swap fixed to floating on notional of $50,000		Interest expense, net					-				446
Intercompany balances, primarily short-term debt and related interest		Selling, general & administrative expenses					2,005				532
Economic hedges for which hedge accounting not elected:
Diesel contracts		Cost of sales, including buying and occupancy costs					57				635
Merchandise purchase commitments		Cost of sales, including buying and occupancy costs					1,373				18,102
Gain (loss) recognized in income						$	3,435			$	20,066
The impact of derivative financial instruments on the statements of income during the first nine months of fiscal 2011 and fiscal 2010 are as follows:
		Location of Gain (Loss)
		Recognized in Income by				Amount of Gain (Loss) Recognized
		Derivative				in Income by Derivative
In thousands						October 30,				October 31,
						2010				2009
Fair value hedges:
Interest rate swap fixed to floating on notional of $50,000		Interest expense, net				$	-			$	892
Interest rate swap fixed to floating on notional of $50,000		Interest expense, net					-				1,176
Intercompany balances, primarily short-term debt and related interest		Selling, general & administrative expenses					2,005				(6,491	)
Economic hedges for which hedge accounting not elected:
Diesel contracts		Cost of sales, including buying and occupancy costs					663				4,349
Merchandise purchase commitments		Cost of sales, including buying and occupancy costs					(8,524	)			(3,073	)
Gain (loss) recognized in income						$	(5,856	)		$	(3,147	)

The counterparties to the forward exchange contracts and swap agreements are major international financial institutions and the contracts contain rights of offset which are designed to minimize TJX’s exposure to credit loss in the event of nonperformance by one of the counterparties. TJX is not required by counterparties to maintain, and

TJX does not require that counterparties maintain collateral for these contracts. TJX monitors its position and the credit ratings of the counterparties on an ongoing basis and does not anticipate losses resulting from potential nonperformance of these institutions.

Note F. Disclosures about Fair Value of Financial Instruments

Fair value is defined 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). U.S. GAAP 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 and classifies financial assets and liabilities 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 classified within level 1 or level 2 in the fair value hierarchy. The following table sets forth TJX’s financial assets and liabilities that are accounted for at fair value on a recurring basis:

		October 30,				January 30,				October 31,
In thousands		2010				2010				2009
Level 1
Assets:
Executive savings plan		$	68,579			$	55,404			$	52,981
Level 2
Assets:
Short-term investments		$	129,967			$	130,636			$	76,643
Foreign currency exchange contracts			2,634				5,642				5,855
Diesel fuel contracts			221				-				-
Interest rate swaps			-				-				1,490
Liabilities:
Foreign currency exchange contracts		$	8,488			$	1,029			$	4,594
Diesel fuel contracts			-				442				582

The fair value of TJX’s general corporate debt, including current installments, was estimated by obtaining market quotes given the trading levels of other bonds of the same general issuer type and market perceived credit quality. The fair value of the zero coupon convertible subordinated notes was estimated by obtaining market quotes. The fair value of long-term debt at October 30, 2010 was $920.9 million compared to a carrying value of $774.4 million. The fair value of the current installments of long-term debt at October 31, 2009 was $201.9 million compared to a carrying value of $200.4 million. The fair value of long-term debt as of October 31, 2009 was $853.5 million compared to 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.

TJX’s cash equivalents are stated at cost, which approximates fair value, due to the short maturities of these instruments.

Investments designed to meet obligations under the executive savings plan are invested in securities traded in active markets and are recorded 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 deemed appropriate, TJX seeks to minimize risk from interest and foreign currency exchange rate fluctuations through the use of derivative financial instruments. Derivative financial instruments are not used for trading or other speculative purposes. 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. TJX does not make 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.

Note G. Segment Information

TJX operates five business segments, three in the United States and one each in Canada and Europe. Each of TJX’s segments has its own administrative, buying and merchandising organization and distribution network. Of the U.S. based chains, T.J. Maxx and Marshalls, referred to as Marmaxx, are managed together and reported as a single segment and A.J. Wright and HomeGoods each is reported as a separate segment. Outside the U.S., chains in Canada (Winners, HomeSense and StyleSense) are under common management and reported as the TJX Canada segment, and chains in Europe (T.K. Maxx and HomeSense) are also under common management and reported as the TJX Europe segment.

TJX evaluates the performance of its segments based on “segment profit or loss,” which it defines as pre-tax income before general corporate expense, provision (credit) for Computer Intrusion related costs, and interest expense. “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 our performance or as a measure of liquidity.

Presented below is financial information on TJX’s business segments:

	Thirteen Weeks Ended
		October 30,				October 31,
In thousands		2010				2009
Net sales:
U.S. segments:
Marmaxx		$	3,502,670			$	3,380,543
HomeGoods			479,859				452,004
A.J. Wright			204,824				197,841
International segments:
TJX Canada			666,799				611,485
TJX Europe			671,695				603,073
		$	5,525,847			$	5,244,946
Segment profit (loss):
U.S. segments:
Marmaxx		$	453,720			$	422,754
HomeGoods			44,545				39,454
A.J. Wright			(1,183	)			1,273
International segments:
TJX Canada			113,844				113,011
TJX Europe			41,214				48,790
			652,140				625,282
General corporate expenses			45,505				46,612
Interest expense, net			9,518				12,665
Income before provision for income taxes		$	597,117			$	566,005

     Financial information on TJX’s business segments (continued):

	Thirty-Nine Weeks Ended
		October 30,				October 31,
In thousands		2010				2009
Net sales:
U.S. segments:
Marmaxx		$	10,090,083			$	9,464,356
HomeGoods			1,392,603				1,256,736
A.J. Wright			609,422				559,162
International segments:
TJX Canada			1,803,244				1,531,248
TJX Europe			1,715,115				1,535,196
		$	15,610,467			$	14,346,698
Segment profit:
U.S. segments:
Marmaxx		$	1,338,455			$	1,111,775
HomeGoods			120,314				79,559
A.J. Wright			10,615				7,057
International segments:
TJX Canada			249,925				180,709
TJX Europe			49,178				82,803
			1,768,487				1,461,903
General corporate expenses			120,280				115,062
Provision (credit) for Computer Intrusion related costs			(11,550	)			-
Interest expense, net			29,992				28,515
Income before provision for income taxes		$	1,629,765			$	1,318,326

Note H. Pension Plans and Other Retirement Obligations

Presented below is financial information related to TJX’s funded defined benefit retirement plan (funded plan) and its unfunded supplemental pension plan (unfunded plan) for the periods shown.

		Pension									Pension
		(Funded Plan)									(Unfunded Plan)
	Thirteen Weeks Ended									Thirteen Weeks Ended
		October 30,				October 31,					October 30,				October 31,
In thousands		2010				2009					2010				2009
Service cost		$	8,607			$	6,406				$	491			$	274
Interest cost			7,784				7,708					554				730
Expected return on plan assets			(10,051	)			(7,157	)				-				-
Amortization of prior service cost			-				4					20				31
Recognized actuarial losses (gains)			2,935				3,439					(682	)			285
Settlement cost			-				-					-				579
Total expense		$	9,275			$	10,400				$	383			$	1,899
		Pension									Pension
		(Funded Plan)									(Unfunded Plan)
	Thirty-Nine Weeks Ended									Thirty-Nine Weeks Ended
		October 30,				October 31,					October 30,				October 31,
In thousands		2010				2009					2010				2009
Service cost		$	24,106			$	22,537				$	902			$	821
Interest cost			25,822				23,490					2,011				2,189
Expected return on plan assets			(30,032	)			(21,167	)				-				-
Amortization of prior service cost			-				12					61				94
Recognized actuarial losses			8,379				10,242					706				854
Settlement cost			-				-					-				1,737
Total expense		$	28,275			$	35,114				$	3,680			$	5,695

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. As a result of funding in fiscal 2010, TJX does not anticipate any required funding in fiscal 2011 for the defined benefit retirement plan. TJX anticipates $3.8 million in cash expenditures to pay benefits under the unfunded plan in fiscal 2011.

Note I. Long-Term Debt and Credit Lines

On April 7, 2009, TJX issued $375 million aggregate principal amount of 6.95% ten-year notes and used the proceeds from the 6.95% notes offering to repurchase additional common stock under its stock repurchase program in fiscal 2010. Also in April 2009, prior to the issuance of the 6.95% notes, TJX entered into a rate-lock agreement to hedge the underlying treasury rate of those notes. The cost of this agreement is being amortized to interest expense over the term of the 6.95% notes and results in an effective fixed rate of 7.00% on those notes.

On July 23, 2009, TJX issued $400 million aggregate principal amount 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 used the remainder, together with funds from operations, to repay its $200 million 7.45% notes due December 15, 2009, at maturity. Also in July 2009, prior to the issuance of the 4.20% notes, TJX entered into a rate-lock agreement to hedge the underlying treasury rate on $250 million of those notes.

The cost of this agreement is being amortized to interest expense over the term of the 4.20% notes and results in an effective fixed rate of 4.19% on the notes.

In February 2001, TJX issued $517.5 million zero coupon convertible subordinated notes due in February 2021 and raised gross proceeds of $347.6 million. The issue price of the notes represented a yield to maturity of 2% per year. During fiscal 2010, TJX called for the redemption of these notes at the original issue price plus accrued original issue discount, and 462,057 notes with a carrying value of $365.1 million were converted into 15.1 million shares of TJX common stock at a rate of 32.667 shares per note. TJX paid $2.3 million to redeem the remaining 2,886 notes outstanding that were not converted. Prior to fiscal 2010, a total of 52,557 notes were either converted into common shares of TJX or put back to TJX.

In May 2010, TJX entered into a $500 million three-year revolving credit facility with similar terms and provisions as the $500 million facility it replaced, updated for market pricing. As of October 30, 2010, TJX also had a $500 million revolving credit facility maturing May 2011. The three-year agreement requires the payment of 17.5 basis points annually on the committed amounts. The agreement maturing in May 2011 requires the payment of six basis points annually on the committed amount. Both of these agreements have no compensating balance requirements, have various covenants including a requirement of a specified ratio of debt to earnings, and serve as back up to TJX’s commercial paper program. There were no outstanding amounts under these credit facilities as of October 30, 2010 or October 31, 2009.

As of October 30, 2010 and October 31, 2009, TJX’s foreign subsidiaries had uncommitted credit facilities. TJX Canada had two credit lines, a C$10 million facility for operating expenses and a C$10 million letter of credit facility. As of October 30, 2010 and October 31, 2009, there were no amounts outstanding on the Canadian credit line for operating expenses. As of October 30, 2010, TJX Europe had a credit line of £20 million. There were no outstanding borrowings on this U.K. credit line as of October 30, 2010 or October 31, 2009.

Note J. Income Taxes

The effective income tax rate was 37.6% for the fiscal 2011 third quarter, compared to 38.6% for last year’s third quarter. The decrease in the rate for the third quarter was largely driven by the finalization of an Advance Pricing Agreement between Canada and the United States, a favorable Canadian Court ruling regarding withholding taxes on cross-border inter-company payments, approval of a change in tax accounting request by the IRS partly offset by the anticipated repatriation of cash from Europe and strengthening of a state tax reserve. The net reduction for these items in the quarter is $4 million or 0.7% rate reduction.

The effective income tax rate for the nine months ended October 30, 2010 was 38.1% as compared to 37.9% for last year’s comparable period. The increase in the effective income tax rate is due to the decrease this year of the favorable impact of the tax treatment of foreign currency gains on certain intercompany loans in fiscal 2011 and a higher percentage of U.S. profits compared to worldwide profits in fiscal 2011 than fiscal 2010, partially offset by the favorable impact of the fiscal 2011 third quarter adjustments mentioned above.

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 had unrecognized tax benefits of $119.4 million as of October 30, 2010 and $119.9 million as of October 31, 2009.

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 $34.1 million as of October 30, 2010 and $50.0 million as of October 31, 2009.

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 recorded in 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 up to $44 million.

Note K. Supplemental Cash Flows Information

TJX’s non-cash investing and financing activities are as follows:

	Thirty-Nine Weeks Ended
		October 30,				October 31,
In thousands		2010				2009
Conversion of zero coupon convertible notes		$	-			$	365,088

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Thirteen Weeks (third quarter) and Thirty-Nine Weeks (nine months) Ended October 30, 2010

Compared to

The Thirteen Weeks (third quarter) and Thirty-Nine Weeks (nine months) Ended October 31, 2009

Business Overview

We are the leading off-price apparel and home fashions retailer in the United States and worldwide. Our over 2,800 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 operate eight off-price retail chains in the U.S., Canada and Europe and are known for our treasure hunt shopping experience and excellent values on brand-name merchandise. We turn our inventories rapidly compared to traditional retailers to create a sense of urgency and excitement for our customers, to encourage frequent customer visits and to drive merchandise margins. Our flexible “no walls” business model allows us to expand and contract merchandise categories quickly in response to consumers’ changing tastes. The values we offer appeal to a broad range of customers across demographic groups and income levels. The operating platforms and strategies of all of our retail concepts are synergistic. As a result, we capitalize on our off-price expertise and systems throughout our business, leveraging best practices, initiatives and new ideas and developing talent across our concepts. We also leverage the substantial buying power of our businesses and the geographic scope and depth of our merchant organization to develop our global relationships with vendors.

Results of Operations

Highlights of our financial performance for the third quarter and nine months ended October 30, 2010 include the following:

	•		Same store sales increased 1% for the fiscal 2011 third quarter over a 7% increase in the same period last year. Same store sales increased 4% for the nine-month period ending October 30, 2010 over last year’s 5% increase in the nine months ended October 31, 2009. Same store sales growth was driven by increases in customer traffic over significant increases in customer traffic last year, as we continued to attract new customers and retain existing customers across a broad span of income levels.
	•		Net sales increased 5% to $5.5 billion for the fiscal 2011 third quarter and 9% to $15.6 billion for the nine-month period over last year’s comparable periods. At October 30, 2010, stores in operation increased 5% and total selling square footage was up 4% when compared to the end of last year’s third quarter. The movement in foreign currency exchange rates had an immaterial impact on net sales in the third quarter of fiscal 2011 and had a 1 percentage point favorable impact on net sales in the nine months ended October 30, 2010.
	•		Our fiscal 2011 third quarter pre-tax margin (the ratio of pre-tax income to net sales) was flat to the prior year at 10.8%. For the nine months ended October 30, 2010, our pre-tax margin was 10.4% compared to 9.2% for the same period last year. The improvement in the nine-month period of fiscal 2011 was primarily driven by the growth in merchandise margins, on top of significant increases last year, which was achieved as a result of managing the business with substantially lower levels of inventory (resulting in faster inventory turns), expense leverage from the strong same store sales growth and our continued cost reduction programs.
	•		Our cost of sales ratio for the fiscal 2011 third quarter was flat to last year and improved by 1.1 percentage points for the nine-month period. The flat cost of sales ratio for the third quarter reflects slight improvements in merchandise margins and buying and occupancy costs, offset by the impact of the mark-to-market adjustments on our inventory-related hedges. The improvement in the nine-month period of fiscal 2011 was primarily due to improved merchandise margins and the leverage of buying and occupancy costs on strong same store sales. Selling, general and administrative expense as a percentage of net sales for the third quarter of fiscal 2011 was also flat to last year. For the nine months ended October 30, 2010, selling, general and administrative expense as a percentage of net sales decreased 0.1 percentage points compared to the same period last year due to

			leverage on the 4% increase in same store sales and our cost reduction programs, partially offset by increased costs associated with opening more stores this year than last year and European investment.
	•		Net income for the third quarter of fiscal 2011 was $372.3 million, or $0.92 per diluted share, compared to $347.8 million, or $0.81 per diluted share, in last year’s third quarter. Foreign currency negatively impacted third quarter earnings per share comparisons by $0.02 per share, which was offset by reduced interest costs and a lower effective income tax rate. Net income for the nine months ended October 30, 2010 was $1.0 billion, or $2.46 per diluted share, compared to $818.6 million, or $1.91 per diluted share in the same period last year. The credit to the Provision for Computer Intrusion related costs increased earnings per share by $0.01 per share in the current fiscal year’s nine-month period.
	•		During the third quarter of fiscal 2011, we repurchased 6.0 million shares of our common stock at a cost of $255.8 million. For the first nine months of fiscal 2011, we repurchased 19.7 million shares of our common stock at a cost of $845.3 million. Diluted earnings per share reflect the benefit of the stock repurchase programs.
	•		Consolidated per store inventories, including inventory on hand at our distribution centers, were down 6% at the end of the third quarter of fiscal 2011 from the prior year as compared to a decrease of 5% at the end of the third quarter of fiscal 2010 from the prior year’s third quarter end. We continue to operate with lower inventories which are turning faster, which enables us to take advantage of opportunities in the marketplace and make buying decisions with more visibility into market trends. This leads to higher markon and reduced markdowns and, therefore, stronger merchandise margins.

The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results.

Net sales: Consolidated net sales for the third quarter ended October 30, 2010 totaled $5.5 billion, a 5% increase over net sales of $5.2 billion in the fiscal 2010 third quarter. The increase reflected a 4% increase from new stores and a 1% increase in same store sales. Foreign currency exchange rates had an immaterial impact on fiscal 2011 third quarter sales. This compares to sales growth of 10% in last year’s third quarter, which consisted of a 7% increase in same store sales and a 4% increase from new stores, partially offset by a 1% decline from the negative impact of foreign currency exchange rates.

Consolidated net sales for the nine months ended October 30, 2010 totaled $15.6 billion, a 9% increase over net sales of $14.3 billion in last year’s comparable period. The increase reflected a 4% increase in same store sales, a 4% increase from new stores and a 1% increase from the impact of foreign currency exchange rates. This compares to sales growth of 5% in last year’s nine-month period, which consisted of a 5% increase in same store sales and a 3% increase from new stores, offset by a 3% decline from the negative impact of foreign currency exchange rates.

New stores are a major source of sales growth. At October 30, 2010, our consolidated store count increased by 5% and our selling square footage increased by 4% as compared to October 31, 2009.

The same store sales increases for both the third quarter and nine months ended October 30, 2010 were driven by significant increases in customer traffic at virtually all of our businesses. Home fashions and other less weather-sensitive categories performed particularly well in the third quarter of fiscal 2011. For the third quarter of fiscal 2011, geographically, same store sales increases in Canada were above the consolidated average while European same store sales declined. In the U.S., same store sales increases in the Southwest and Pacific regions were above the consolidated average, while New England was below the consolidated average.

For the nine-month period of fiscal 2011, both apparel categories (particularly juniors) and home fashions drove year-to-date sales increases. Geographically, same store sales increases in Canada were above the consolidated average of 4%, while same store sales in Europe declined. In the U.S., same store sales increases were strong across most regions, particularly the Southwest.

In the fourth quarter of fiscal 2011, we face challenging comparisons, as we recorded a 12% same store sales increase in the fiscal 2010 fourth quarter. As a result, we have allocated a larger than normal portion of our advertising budget for the remainder of fiscal 2011.

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 in at least their third fiscal year of operation. We classify a store as a new store until it meets the same store sales criteria. We determine which stores are included in the same store sales calculation at the beginning of a 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 have 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. Same store sales of our foreign divisions are calculated on a constant currency basis, meaning we translate the current year’s same store sales of our foreign divisions at the same exchange rates used in the prior year. This removes the effect of changes in currency exchange rates, which we believe is a more accurate measure of divisional operating performance.

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								Thirty-Nine Weeks Ended
		October 30,				October 31,				October 30,				October 31,
		2010				2009				2010				2009
Net sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales, including buying and occupancy costs			72.5				72.5				72.9				74.0
Selling, general and administrative expenses			16.5				16.5				16.6				16.7
Provision (credit) for Computer Intrusion related costs			-				-				(0.1	)			-
Interest expense, net			0.2				0.2				0.2				0.2
Income before provision for income taxes*			10.8	%			10.8	%			10.4	%			9.2	%