TJX COMPANIES INC /DE/ - Quarter Report: 2011 October (Form 10-Q)

 

 

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

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 1-4908

The TJX Companies, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)		04-2207613 (I.R.S. Employer Identification No.)
770 Cochituate Road Framingham, Massachusetts (Address of principal executive offices)		01701 (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:

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 Exchange Act). YES o NO þ

The number of shares of registrant’s common stock outstanding as of October 29, 2011: 377,140,120

 

 

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 29,				October 30,
		2011				2010
Net sales		$	5,793,128			$	5,525,847
Cost of sales, including buying and occupancy costs			4,166,587				4,006,404
Selling, general and administrative expenses			954,238				912,808
Interest expense, net			8,551				9,518
Income before provision for income taxes			663,752				597,117
Provision for income taxes			257,265				224,808
Net income		$	406,487			$	372,309
Basic earnings per share:
Net income		$	1.08			$	0.94
Weighted average common shares — basic			377,137				397,217
Diluted earnings per share:
Net income		$	1.06			$	0.92
Weighted average common shares — diluted			383,026				403,040
Cash dividends declared per share		$	0.19			$	0.15

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 29,				October 30,
		2011				2010
Net sales		$	16,481,697			$	15,610,467
Cost of sales, including buying and occupancy costs			11,969,880				11,374,288
Selling, general and administrative expenses			2,832,405				2,587,972
Provision (credit) for Computer Intrusion related costs			—				(11,550	)
Interest expense, net			26,577				29,992
Income before provision for income taxes			1,652,835				1,629,765
Provision for income taxes			632,059				621,038
Net income		$	1,020,776			$	1,008,727
Basic earnings per share:
Net income		$	2.67			$	2.50
Weighted average common shares — basic			382,324				402,969
Diluted earnings per share:
Net income		$	2.63			$	2.46
Weighted average common shares — diluted			388,489				409,284
Cash dividends declared per share		$	0.57			$	0.45

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

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

		October 29,				January 29,				October 30,
		2011				2011				2010
		(unaudited)								(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	956,932			$	1,741,751			$	1,339,065
Short-term investments			71,737				76,261				129,967
Accounts receivable, net			235,975				200,147				229,318
Merchandise inventories			3,706,022				2,765,464				3,272,960
Prepaid expenses and other current assets			366,183				249,832				290,465
Current deferred income taxes, net			81,202				66,072				34,867
Total current assets			5,418,051				5,099,527				5,296,642
Property at cost:
Land and buildings			344,880				320,633				289,158
Leasehold costs and improvements			2,300,188				2,112,151				2,121,958
Furniture, fixtures and equipment			3,406,787				3,256,446				3,345,501
Total property at cost			6,051,855				5,689,230				5,756,617
Less accumulated depreciation and amortization			3,352,877				3,239,429				3,286,189
Net property at cost			2,698,978				2,449,801				2,470,428
Property under capital lease, net of accumulated amortization of $23,266; $21,591 and $21,032, respectively			9,306				10,981				11,540
Other assets			224,687				231,518				223,641
Goodwill and tradename, net of amortization			179,958				179,936				179,897
TOTAL ASSETS		$	8,530,980			$	7,971,763			$	8,182,148
LIABILITIES
Current liabilities:
Obligation under capital lease due within one year		$	2,912			$	2,727			$	2,627
Accounts payable			2,048,362				1,683,929				1,974,272
Accrued expenses and other liabilities			1,328,226				1,347,951				1,253,053
Federal, foreign and state income taxes payable			—				98,514				—
Total current liabilities			3,379,500				3,133,121				3,229,952
Other long-term liabilities			720,399				709,321				746,860
Non-current deferred income taxes, net			462,384				241,905				307,810
Obligation under capital lease, less portion due within one year			10,912				13,117				13,823
Long-term debt, exclusive of current installments			774,457				774,400				774,381
Commitments and contingencies			—				—				—
SHAREHOLDERS’ EQUITY
Common stock, authorized 1,200,000,000 shares, par value $1, issued and outstanding 377,140,120; 389,657,340 and 395,802,044, respectively			377,140				389,657				395,802
Additional paid-in capital			—				—				—
Accumulated other comprehensive (loss)			(82,685	)			(91,755	)			(101,494	)
Retained earnings			2,888,873				2,801,997				2,815,014
Total shareholders’ equity			3,183,328				3,099,899				3,109,322
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	8,530,980			$	7,971,763			$	8,182,148

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 29,				October 30,
		2011			2010
Cash flows from operating activities:
Net income		$	1,020,776			$	1,008,727
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			356,943				341,069
Loss on property disposals			4,498				6,991
Deferred income tax provision			197,286				142,607
Share-based compensation			49,799				44,913
Excess tax benefits from share-based compensation			(34,063	)			(23,410	)
Changes in assets and liabilities:
(Increase) in accounts receivable			(35,518	)			(43,943	)
(Increase) in merchandise inventories			(931,492	)			(719,710	)
(Increase) in prepaid expenses and other current assets			(106,999	)			(41,536	)
Increase in accounts payable			358,899				454,738
(Decrease) in accrued expenses and other liabilities			(46,695	)			(81,030	)
Other			(2,604	)			9,776
Net cash provided by operating activities			830,830				1,099,192
Cash flows from investing activities:
Property additions			(661,419	)			(540,351	)
Purchase of short-term investments			(112,826	)			(102,879	)
Sales and maturities of short-term investments			117,696				108,844
Proceeds from sale of fixed assets			10,647				—
Proceeds from repayments on note receivable			747				695
Net cash (used in) investing activities			(645,155	)			(533,691	)
Cash flows from financing activities:
Cash payments for debt issuance expenses			(2,299	)			(3,089	)
Payments on capital lease obligation			(2,021	)			(1,749	)
Cash payments for repurchase of common stock			(974,756	)			(845,522	)
Proceeds from issuance of common stock			168,004				141,880
Excess tax benefits from share-based compensation			34,063				23,410
Cash dividends paid			(203,518	)			(170,042	)
Net cash (used in) financing activities			(980,527	)			(855,112	)
Effect of exchange rate changes on cash			10,033				14,069
Net (decrease) in cash and cash equivalents			(784,819	)			(275,542	)
Cash and cash equivalents at beginning of year			1,741,751				1,614,607
Cash and cash equivalents at end of period		$	956,932			$	1,339,065

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 29, 2011			389,657			$	389,657			$	—			$	(91,755	)		$	2,801,997			$	3,099,899
Comprehensive income:
Net income			—				—				—				—				1,020,776				1,020,776
Foreign currency translation adjustments			—				—				—				5,446				—				5,446
Recognition of prior service cost and deferred gains			—				—				—				3,624				—				3,624
Total comprehensive income																							1,029,846
Cash dividends declared on common stock			—				—				—				—				(217,179	)			(217,179	)
Recognition of share-based compensation			—				—				49,799				—				—				49,799
Issuance of common stock under stock incentive plan and related tax effect			6,233				6,233				189,486				—				—				195,719
Common stock repurchased			(18,750	)			(18,750	)			(239,285	)			—				(716,721	)			(974,756	)
Balance, October 29, 2011			377,140			$	377,140			$	—			$	(82,685	)		$	2,888,873			$	3,183,328

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 (“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 29, 2011 (“fiscal 2011”).

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.

The January 29, 2011 balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Fiscal Year: During fiscal 2010, TJX amended its bylaws to change its fiscal year end to the Saturday nearest to the last day of January of each year. Previously, TJX’s fiscal year ended on the last Saturday of January. This change shifted the timing of TJX’s next 53-week fiscal year to the year ending February 2, 2013. Fiscal 2011 and the fiscal year ending January 28, 2012 (“fiscal 2012”) are each 52-week fiscal years.

Share-Based Compensation: Total share-based compensation expense was $18.1 million for the quarter ended October 29, 2011 and $16.9 million for the quarter ended October 30, 2010. Total share-based compensation expense was $49.8 million for the nine months ended October 29, 2011 and $44.9 million for the nine months ended October 30, 2010. These amounts include stock option expense as well as restricted and deferred stock amortization. There were options to purchase 1.8 million shares of common stock exercised during the quarter ended October 29, 2011 and options to purchase 6.1 million shares of common stock exercised during the nine months ended October 29, 2011, leaving options to purchase 22.3 million shares of common stock outstanding as of October 29, 2011.

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 one year at the date of purchase are included in short-term investments. TJX’s investments are primarily high-grade commercial paper, 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 $504.3 million at October 29, 2011, $445.7 million at January 29, 2011 and $493.8 million at October 30, 2010. Comparable amounts were reflected in accounts payable at those dates.

New Accounting Standards: There were no new accounting standards issued during the third quarter ended October 29, 2011 that are expected to have a material impact on TJX’s financial condition, results of operations or cash flows.

Note B. Provision (credit) for Computer Intrusion Related Costs

TJX has a reserve for its estimate of the remaining 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 $16.4 million at October 29, 2011 and $18.8 million at October 30, 2010. As an estimate, the reserve is subject

to uncertainty, and actual costs may vary from the current estimate, although such variations are not expected to be material.

Note C. Dispositions and Reserves related to Former Operations

Consolidation of A.J. Wright: On December 8, 2010, TJX’s Board of Directors approved the consolidation of TJX’s A.J. Wright division, converting 90 A.J. Wright stores into T.J. Maxx, Marshalls or HomeGoods stores and closing A.J. Wright’s remaining 72 stores, two distribution centers and home office. The liquidation process commenced in the fourth quarter of fiscal 2011 and 20 stores had been closed as of January 29, 2011. The first quarter and the first nine months of fiscal 2012 include a $49 million A.J. Wright segment loss which includes operating losses and the cost to close the remaining stores. The first nine months of fiscal 2012 also includes $20 million of costs to convert the 90 A.J. Wright stores to other banners, with $17 million incurred by the Marmaxx segment and $3 million incurred by the HomeGoods segment. The consolidation of A.J. Wright was completed during the first quarter of fiscal 2012. The A.J. Wright consolidation was not classified as a discontinued operation due to TJX’s expectation that a significant portion of the sales of the A.J. Wright stores would migrate to other TJX stores.

Reserves Related to Former Operations: TJX has a reserve for its estimate of future obligations of business operations it has closed, sold or otherwise disposed of. The reserve activity is presented below:

		Thirty-Nine Weeks Ended
		October 29,				October 30,
In thousands		2011				2010
Balance at beginning of year		$	54,695			$	35,897
Additions to the reserve charged to net income:
A.J. Wright closing costs			32,686				—
Interest accretion			646				1,106
Charges against the reserve:
Lease-related obligations			(18,952	)			(5,661	)
Termination benefits and all other			(16,761	)			(116	)
Balance at end of period		$	52,314			$	31,226

In the first quarter of fiscal 2012, TJX increased this reserve by $33 million for the estimated costs of closing the A.J. Wright stores that were not converted to other banners or closed in fiscal 2011 including lease-related obligations and severance and termination benefits. The lease-related obligations included in the reserve reflect TJX’s estimation of lease costs, net of estimated subtenant income, and the cost of probable claims against TJX for liability, as an original lessee or guarantor of the leases of A.J. Wright and other former TJX businesses, after mitigation of the number and cost of these lease obligations. The actual net cost of these lease-related obligations may differ from TJX’s estimate. TJX estimates that the majority of the former operations reserve will be paid in the next three to five years. The actual timing of cash outflows will vary depending on how the remaining lease obligations are actually settled.

In addition to the lease-related obligations included in the reserve, TJX may also be contingently liable on up to 13 leases of BJ’s Wholesale Club, and up to seven leases of Bob’s Stores, both former TJX businesses. The reserve for discontinued operations does not reflect these leases because TJX believes that the likelihood of future liability to TJX is remote.

Note D. Other Comprehensive Income

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

		Thirteen Weeks Ended
		October 29,				October 30,
In thousands		2011				2010
Net income		$	406,487			$	372,309
Other comprehensive income (loss):
Foreign currency translation adjustments			(37,851	)			30,399
Recognition of prior service cost and deferred gains			1,640				840
Total comprehensive income		$	370,276			$	403,548

		Thirty-Nine Weeks Ended
		October 29,				October 30,
In thousands		2011				2010
Net income		$	1,020,776			$	1,008,727
Other comprehensive income (loss):
Foreign currency translation adjustments			5,446				28,716
Recognition of prior service cost and deferred gains			3,624				3,914
Total comprehensive income		$	1,029,846			$	1,041,357

Note E. Capital Stock and Earnings Per Share

Capital Stock: During the quarter ended October 29, 2011, TJX repurchased and retired 5.5 million shares of its common stock at a cost of $295.1 million. For the nine months ended October 29, 2011, TJX repurchased and retired 18.6 million shares of its common stock at a cost of $967.7 million. TJX reflects stock repurchases in its financial statements on a “settlement” basis. TJX had cash expenditures under its repurchase programs of $974.8 million for the nine months ended October 29, 2011 and $845.5 million for the nine months ended October 30, 2010. These expenditures were funded primarily by cash generated from operations. In June 2011, TJX completed the $1 billion stock repurchase program authorized in February 2010 under which TJX repurchased 20.6 million shares of common stock.

In February 2011, TJX’s Board of Directors approved another stock repurchase program that authorizes the repurchase of up to $1 billion of TJX common stock from time to time. Under this program, on a “trade date” basis at October 29, 2011, TJX repurchased 6.9 million shares of common stock at a cost of $373.4 million and $626.6 million remained available under this plan. All shares repurchased under the stock repurchase programs have been retired.

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

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

		Thirteen Weeks Ended
		October 29,				October 30,
In thousands, except per share data		2011				2010
Basic earnings per share
Net income		$	406,487			$	372,309
Weighted average common shares outstanding for basic EPS			377,137				397,217
Basic earnings per share		$	1.08			$	0.94
Diluted earnings per share
Net income		$	406,487			$	372,309
Shares for basic and diluted earnings per share calculations:
Weighted average common shares outstanding for basic EPS			377,137				397,217
Assumed exercise/vesting of:
Stock options and awards			5,889				5,823
Weighted average common shares outstanding for diluted EPS			383,026				403,040
Diluted earnings per share		$	1.06			$	0.92

		Thirty-Nine Weeks Ended
		October 29,				October 30,
In thousands, except per share data		2011				2010
Basic earnings per share
Net income		$	1,020,776			$	1,008,727
Weighted average common shares outstanding for basic EPS			382,324				402,969
Basic earnings per share		$	2.67			$	2.50
Diluted earnings per share
Net income		$	1,020,776			$	1,008,727
Shares for basic and diluted earnings per share calculations:
Weighted average common shares outstanding for basic EPS			382,324				402,969
Assumed exercise/vesting of:
Stock options and awards			6,165				6,315
Weighted average common shares outstanding for diluted EPS			388,489				409,284
Diluted earnings per share		$	2.63			$	2.46

The weighted average common shares for the diluted earnings per share calculation would exclude the impact of any outstanding stock options for which the assumed proceeds per share are in excess of the related fiscal period’s average price of TJX’s common stock because they would have an antidilutive effect. There were no such options for the thirteen weeks ended October 29, 2011. There were 3.9 million options excluded for the thirty-nine weeks ended October 29, 2011. There were no such options for the thirteen weeks or the thirty-nine weeks ended October 30, 2010.

Note F. Financial Instruments

As a result of its operating and financing activities, TJX is exposed to market risks from changes in diesel fuel costs, foreign currency exchange rates and interest rates, which may adversely affect TJX’s operating results and financial position. When deemed appropriate, TJX seeks to minimize such risks through the use of derivative financial instruments. TJX does not use derivative financial instruments for trading or other speculative purposes, and does not use leveraged derivative financial instruments. 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 derivatives that do not qualify for hedge accounting are reported in earnings in the period of the change. Changes in the fair value of derivatives for which TJX has elected hedge accounting 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.

Diesel Fuel Contracts: Independent freight carriers transporting the Company’s inventory charge TJX a mileage surcharge for diesel fuel price increases as incurred by the carrier. During the first nine months of fiscal 2012, TJX entered into agreements to hedge a portion of the notional diesel fuel requirements expected to be consumed by such independent freight carriers transporting the Company’s inventory throughout fiscal 2012 and the first three quarters of fiscal 2013. TJX hedged approximately 36% of these expected notional diesel fuel requirements for fiscal 2012 with agreements that settle throughout the remainder of fiscal 2012 and approximately 25% of the expected notional diesel fuel requirement for the first three quarters of fiscal 2013. The hedge agreements are designed to mitigate the surcharges payable by TJX arising from volatility of diesel fuel pricing by setting a fixed price per gallon for the year for a portion of the requirements. TJX elected not to apply hedge accounting rules to these agreements.

Foreign Currency Contracts: TJX enters into forward foreign currency exchange contracts to obtain economic hedges on portions of merchandise purchases made and anticipated to be made by TJX Europe (operating in the United Kingdom, Ireland, Germany and Poland), TJX Canada (Canada) and Marmaxx (U.S.) in currencies other than their functional currencies. The contracts outstanding at October 29, 2011 cover certain commitments and anticipated needs throughout fiscal 2012 and into fiscal 2013. 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 29, 2011:

																										Net Fair Value
										Blended								Current				Current				in US$ at
										Contract				Balance Sheet				Asset				(Liability)				October 29,
In thousands		Pay				Receive				Rate				Location				US$				US$				$2011
Fair value hedges:
Intercompany balances, primarily short-term debt
		£	85,000			C$	134,892				1.5870			Prepaid Exp / (Accrued Exp)				$	395			$	(1,628	)		$	(1,233	)
		€	25,000			£	21,265				0.8506			(Accrued Exp)					—				(1,094	)			(1,094	)
		€	75,292			US $	101,227				1.3445			Prepaid Exp / (Accrued Exp)					103				(5,375	)			(5,272	)
		US $	85,894			£	55,000				0.6403			Prepaid Exp					2,744				—				2,744
Hedge accounting not elected:
Diesel fuel contracts		Fixed on 400K – 1.5M gal per month				Float on 400K – 1.5M gal per month					N/A			Prepaid Exp					775				—				775
Merchandise purchase commitments
		C$	303,058			US$	309,945				1.0227			Prepaid Exp / (Accrued Exp)					6,128				(1,246	)			4,882
		C$	6,173			€	4,500				0.7290			Prepaid Exp					142				—				142
		£	41,615			US $	67,000				1.6100			Prepaid Exp / (Accrued Exp)					780				(899	)			(119	)
		£	42,422			€	49,000				1.1551			Prepaid Exp					878				—				878
		US $	3,838			€	2,693				0.7017			Prepaid Exp / (Accrued Exp)					5				(34	)			(29	)
Total fair value of all financial instruments																		$	11,950			$	(10,276	)		$	1,674

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

																										Net Fair Value
										Blended												Current				in US$ at
										Contract				Balance Sheet				Current				(Liability)				October 30,
In thousands		Pay				Receive				Rate				Location				Asset US$				US$				$2010
Fair value hedges:
Intercompany balances, primarily short-term debt
		C$	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	)
Hedge accounting not elected:
Diesel fuel contracts		Fixed on 1.3M gal per month				Float on 1.3M gal per month					N/A			Prepaid Exp				$	221			$	—			$	221
Merchandise purchase commitments
		C$	309,142			US$	302,239				0.9777			Prepaid Exp or Other Assets / (Accrued Exp)					1,283				(1,538	)			(255	)
		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 Exp / (Accrued Exp)					902				(715	)			187
		€	35,623			£	30,152				0.8464			Prepaid Exp / (Accrued Exp)					102				(1,424	)			(1,322	)
		€	6,236			US$	8,301				1.3311			(Accrued Exp)					—				(393	)			(393	)
		US$	1,160			€	873				0.7526			Prepaid Exp					57				—				57
Total fair value of all financial instruments																		$	2,855			$	(8,488	)		$	(5,633	)

The impact of derivative financial instruments on the statements of income during the third quarter of fiscal 2012 and fiscal 2011 are as follows:

		Location of Gain (Loss)
		Recognized in Income by		Amount of Gain (Loss) Recognized
		Derivative		in Income by Derivative
In thousands				October 29, 2011				October 30, 2010
Fair value hedges:
Intercompany balances, primarily short-term debt and related interest		Selling, general and administrative expenses		$	(2,162	)		$	2,005
Hedge accounting not elected:
Diesel fuel contracts		Cost of sales, including buying and occupancy costs			(975	)			57
Merchandise purchase commitments		Cost of sales, including buying and occupancy costs			15,819				1,373
Gain (loss) recognized in income				$	12,682			$	3,435

The impact of derivative financial instruments on the statements of income during the first nine months of fiscal 2012 and fiscal 2011 are as follows:

		Location of Gain (Loss)
		Recognized in Income by		Amount of Gain (Loss) Recognized
		Derivative		in Income by Derivative
In thousands				October 29, 2011				October 30, 2010
Fair value hedges:
Intercompany balances, primarily short-term debt and related interest		Selling, general and administrative expenses		$	(3,140	)		$	2,005
Hedge accounting not elected:
Diesel fuel contracts		Cost of sales, including buying and occupancy costs			28				663
Merchandise purchase commitments		Cost of sales, including buying and occupancy costs			7,927				(8,524	)
Gain (loss) recognized in income				$	4,815			$	(5,856	)

Note G. Disclosures about Fair Value of Financial Instruments

The following table sets forth TJX’s financial assets and liabilities that are accounted for at fair value on a recurring basis:

		October 29,				January 29,				October 30,
In thousands		2011				2011				2010
Level 1
Assets:
Executive savings plan		$	79,139			$	73,925			$	68,579
Level 2
Assets:
Short-term investments		$	71,737			$	76,261			$	129,967
Foreign currency exchange contracts			11,175				2,768				2,634
Diesel fuel contracts			775				746				221
Liabilities:
Foreign currency exchange contracts		$	10,276			$	6,233			$	8,488

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 long-term debt as of October 29, 2011 was $916.1 million versus a carrying value of $774.5 million and as of October 30, 2010 was $920.9 million versus a carrying value of $774.4 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.

The foreign currency exchange contracts 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 H. Segment Information

At October 29, 2011, TJX operated 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 store chains, T.J. Maxx and Marshalls, referred to as Marmaxx, are managed together and reported as a single segment, and each of HomeGoods and A.J. Wright is reported as a separate segment. As a result of its consolidation, A.J. Wright will cease to be a business segment after fiscal 2012. Outside the U.S., store chains in Canada (Winners, HomeSense and Marshalls) are managed together and reported as the TJX Canada segment, and store chains in Europe (T.K. Maxx and HomeSense) are also managed together and reported as the TJX Europe segment.

TJX evaluates the performance of its segments based on their respective “segment profit or loss,” which TJX defines as pre-tax income or loss before general corporate expense 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, these measures of performance should not be considered an alternative to TJX’s net income or cash flows from operating activities as an indicator of its performance or as a measure of its liquidity.

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

		Thirteen Weeks Ended
		October 29,				October 30,
In thousands		2011				2010
Net sales:
U.S. segments:
Marmaxx		$	3,790,340			$	3,502,670
HomeGoods			551,066				479,859
A.J. Wright			—				204,824
International segments:
TJX Canada			705,061				666,799
TJX Europe			746,661				671,695
		$	5,793,128			$	5,525,847
Segment profit (loss):
U.S. segments:
Marmaxx		$	501,559			$	453,720
HomeGoods			63,128				44,545
A.J. Wright			—				(1,183	)
International segments:
TJX Canada			125,936				113,844
TJX Europe			42,391				41,214
			733,014				652,140
General corporate expenses			60,711				45,505
Interest expense, net			8,551				9,518
Income before provision for income taxes		$	663,752			$	597,117

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

		Thirty-Nine Weeks Ended
		October 29,				October 30,
In thousands		2011				2010
Net sales:
U.S. segments:
Marmaxx		$	10,969,135			$	10,090,083
HomeGoods			1,569,658				1,392,603
A.J. Wright			9,229				609,422
International segments:
TJX Canada			1,934,821				1,803,244
TJX Europe			1,998,854				1,715,115
		$	16,481,697			$	15,610,467
Segment profit (loss):
U.S. segments:
Marmaxx		$	1,471,462			$	1,338,455
HomeGoods			146,059				120,314
A.J. Wright			(49,291	)			10,615
International segments:
TJX Canada			254,328				249,925
TJX Europe			18,398				49,178
			1,840,956				1,768,487
General corporate expenses			161,544				120,280
Provision (credit) for Computer Intrusion related costs			—				(11,550	)
Interest expense, net			26,577				29,992
Income before provision for income taxes		$	1,652,835			$	1,629,765

Note I. Pension Plans and Other Retirement Benefits

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 29,				October 30,				October 29,				October 30,
In thousands		2011				2010				2011				2010
Service cost		$	8,893			$	8,607			$	359			$	491
Interest cost			10,019				7,784				558				554
Expected return on plan assets			(12,275	)			(10,051	)			—				—
Amortization of prior service cost			—				—				1				20
Recognized actuarial losses			3,515				2,935				86				(682	)
Total expense		$	10,152			$	9,275			$	1,004			$	383

		Pension								Pension
		(Funded Plan)								(Unfunded Plan)
		Thirty-Nine Weeks Ended								Thirty-Nine Weeks Ended
		October 29,				October 30,				October 29,				October 30,
In thousands		2011				2010				2011				2010
Service cost		$	25,393			$	24,106			$	892			$	902
Interest cost			28,925				25,822				1,807				2,011
Expected return on plan assets			(36,794	)			(30,032	)			—				—
Amortization of prior service cost			—				—				3				61
Recognized actuarial losses			8,141				8,379				500				706
Total expense		$	25,665			$	28,275			$	3,202			$	3,680

TJX’s policy with respect to the funded plan is to fund, at a minimum, the amount required to maintain a funded status of 80% of the applicable pension liability or such other amount sufficient to avoid restrictions with respect to the funding of nonqualified plans under the Internal Revenue Code. TJX does not anticipate any required funding in fiscal 2012 for the funded plan, although TJX may make contributions to the funded plan, and anticipates making contributions of $3.9 million to fund current benefit and expense payments under the unfunded plan in fiscal 2012.

Note J. Long-Term Debt and Credit Lines

In April 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.

In July 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 in August 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.

TJX traditionally has funded seasonal merchandise requirements through cash generated from operations, short-term bank borrowings and the issuance of short-term commercial paper. TJX had two $500 million revolving credit facilities at October 29, 2011 one which matures in May 2016 and one which matures in May 2013. TJX also had two $500 million revolving credit facilities at October 30, 2010. 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 the commercial paper program. The availability under these revolving credit facilities was $1 billion at October 29, 2011 and October 30, 2010. One of the $500 million facilities at October 30, 2010 matured in May 2011 and was replaced at that time with a new $500 million, five-year revolving credit facility with similar terms and provisions but updated for market pricing.

As of October 29, 2011 and October 30, 2010, 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 29, 2011 and October 30, 2010, there were no amounts outstanding on the Canadian credit line for operating expenses. As of October 29, 2011 and October 30, 2010, TJX Europe had a credit line of £20 million and there were no outstanding borrowings on this U.K. credit line at those dates.

Note K. Income Taxes

TJX is subject to income tax in the U.S. and foreign jurisdictions. TJX’s effective income tax rate was 38.8% for the fiscal 2012 third quarter and 37.6% for last year’s third quarter. The effective income tax rate for the nine months ended October 29, 2011 was 38.2% as compared to 38.1% for last year’s comparable period. The increase in the income tax rate for both the third quarter and year-to-date periods of fiscal 2012 was primarily due to the recognition of previously disclosed one-time favorable discrete items in the third quarter of fiscal 2011.

TJX is engaged in ongoing discussions and proceedings with taxing authorities in the U.S. and foreign countries. In nearly all jurisdictions, TJX’s income taxes for the tax years through fiscal 2003 are no longer subject to examination. In evaluating the tax benefits associated with various tax filing positions, TJX records a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized and records a liability for unrecognized tax benefits, including accrued penalties and interest, on its consolidated balance sheets. TJX had net unrecognized tax benefits of $125.1 million as of October 29, 2011 and $119.4 million as of October 30, 2010.

TJX adjusts its liability for unrecognized tax benefits based on the outcome of tax examinations or judicial or administrative proceedings, as a result of the expiration of statute of limitations or when more information becomes available, and such adjustments may be material. During the next twelve months, it is reasonably possible that as a result of tax examinations of prior years’ tax returns and related proceedings, the total net amount of unrecognized tax benefits may decrease by a range of $1.0 million to $42.0 million, which would reduce the provision for taxes on earnings correspondingly.

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 29, 2011 Compared to

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

Business Overview

We are the leading off-price apparel and home fashions retailer in the United States and worldwide. Our over 2,900 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 multiple off-price retail chains within four major divisions, in the U.S., Canada and Europe, which are known for their treasure hunt shopping experience and excellent values on fashionable, brand-name merchandise. Our stores turn their inventories rapidly relative to traditional retailers to create a sense of urgency and excitement for our customers and encourage frequent customer visits. With our flexible “no walls” business model, we can quickly expand and contract merchandise categories in response to consumers’ changing tastes. Although our stores primarily target the middle to upper middle income customer, we reach a broad range of customers across many 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 expertise and systems throughout our business, leveraging information, best practices, initiatives and new ideas and developing talent across our concepts. We also leverage the substantial buying power of our businesses in our global relationships with vendors.

In December 2010, we decided to consolidate our A.J. Wright division in order to focus managerial and financial resources on our larger, more profitable businesses, all of which have major growth potential, to serve the A.J. Wright customer demographic more efficiently, and to improve our overall profit potential. In the first half of fiscal 2012, we completed the consolidation, in which we converted 90 A.J. Wright stores into T.J. Maxx, Marshalls or HomeGoods stores and closed A.J. Wright’s remaining 72 stores, two distribution centers and home office.

In addition to presenting our financial results for the fiscal 2011 and fiscal 2012 nine months in conformity with GAAP, we are also presenting them on an “adjusted” basis to exclude the $69 million of costs related to the A.J. Wright consolidation from the fiscal 2012 nine-month period and the benefit of a $12 million reduction to the provision for the Computer Intrusion (that occurred over four years ago) from the fiscal 2011 nine-month period. These adjusted financial results are non-GAAP financial measures. We believe that the presentation of adjusted financial results provides additional information on comparisons between periods including underlying trends of our business by excluding these items that affect overall comparability. Non- GAAP financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Reconciliations of each of the adjusted financial measures to the financial measures in accordance with GAAP are provided below under “Adjusted Financial Measures.”

Results of Operations

The following is a summary of our financial performance for the third quarter and nine months ended October 29, 2011:

	•		In the third quarter and first nine months of fiscal 2012, we posted strong consolidated net sales and same store sales growth.
	•		Net sales increased 5% to $5.8 billion for the fiscal 2012 third quarter and increased 6% for the nine-month period over last year’s comparable periods. At October 29, 2011, both stores in operation and selling square footage were up 1% compared to the same period in fiscal 2011.
	•		Same store sales increased 3% for the fiscal 2012 third quarter over a 1% increase in the same period last year. Same store sales increased 3% for the nine-month period ending October 29, 2011 over last year’s 4% increase in the nine months ended October 30, 2010. Same store sales growth was driven by an increase in the average transaction while customer traffic was essentially flat compared to strong increases in customer traffic in the

			prior year. We believe unseasonably warm weather in several key markets affected customer traffic during the fiscal 2012 third quarter.
	•		Our fiscal 2012 third quarter pre-tax margin (the ratio of pre-tax income to net sales) increased to 11.5% compared to 10.8% for the same period last year, up 0.7 percentage points, primarily reflecting improvement in gross profit margin as well as the benefit of the mark-to-market adjustment on inventory-related hedges. For the nine months ended October 29, 2011, our pre-tax margin was 10.0%, a 0.4 percentage point decrease from 10.4% for the same period last year, while our adjusted pre-tax margin was 10.5%, up 0.1 percentage point compared to last year.
	•		Our cost of sales ratio for the third quarter of fiscal 2012 compared to the same period last year decreased by 0.6 percentage points to 71.9%. For the nine-months ended October 29, 2011, the cost of sales ratio compared to the same period last year decreased by 0.3 percentage points to 72.6%. The improvements in both the third quarter and nine-month periods over last year were primarily due to buying and occupancy expense leverage as well as the year-over-year impact of the mark-to-market adjustments on our inventory-related hedges.
	•		The selling, general and administrative expense ratio for the third quarter of fiscal 2012 was flat at 16.5% compared to last year. For the nine months ended October 29, 2011, the selling, general and administrative expense ratio increased 0.6 percentage points to 17.2% and 0.2 percentage points to 16.8% on an adjusted basis. The year-to-date expense ratio increased due to the A.J. Wright consolidation costs and an increase in general corporate expenses.
	•		Net income for the third quarter of fiscal 2012 was $406.5 million, or $1.06 per diluted share, compared to $372.3 million, or $0.92 per diluted share, in last year’s third quarter. Foreign currency exchange rates benefited the third quarter fiscal 2012 earnings per share by $0.03 per share compared to an immaterial impact in the same period last year. Net income for both the nine months ended October 29, 2011 and October 30, 2010 was $1.0 billion, which was $2.63 per diluted share in the fiscal 2012 period, and $2.46 per diluted share in the fiscal 2011 period. Adjusted diluted earnings per share for the nine-month period were $2.74 in fiscal 2012 compared to $2.45 in fiscal 2011. Foreign currency exchange rates benefited earnings per share for the nine months ended October 29, 2011 by $0.03 compared to a $0.01 per share negative impact in the same period last year.
	•		During the third quarter of fiscal 2012, we repurchased 5.5 million shares of our common stock at a cost of $295 million. For the first nine months of fiscal 2012, we repurchased 18.6 million shares of our common stock at a cost of $968 million. Earnings per share reflect the benefit of our stock repurchase programs.
	•		Consolidated per store inventories, including the distribution centers, were up 14% at the end of the third quarter of fiscal 2012, compared to a decrease of 6% at the end of the third quarter of fiscal 2011 over the prior year’s third quarter end. The fiscal 2012 increase was entirely in our distribution centers, as in-store inventories at the end of the quarter were lower than last year. The increase at our distribution centers was primarily due to merchandise purchased as pack-away to hold for future seasons as a result of our selectively taking advantage of the continued availability of large quantities of branded product. Our forward inventory purchase commitments for the remainder of fiscal 2012 as of October 29, 2011 were significantly lower than at the same time last year.

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 quarter ended October 29, 2011 totaled $5.8 billion, a 5% increase over net sales of $5.5 billion in the fiscal 2011 third quarter. The increase reflected a 3% increase in same store sales, a 3% increase in new stores, and a 1% increase from the benefit of foreign currency exchange rates, offset in part by a 2% decrease due to the elimination of sales from the A.J. Wright stores that were closed and not converted to other banners. This compares to sales growth of 5% in last year’s third quarter, which 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.

Consolidated net sales for the nine months ended October 29, 2011 totaled $16.5 billion, a 6% increase over net sales of $15.6 billion in last year’s comparable period. The increase reflected a 4% increase from new stores, a 3% increase in same store sales and a 1% increase from the benefit of foreign currency exchange rates, offset in part by a 2% decrease due to the elimination of sales from the A.J. Wright stores that were closed and not converted to other banners. This compares to sales growth of 9% in the nine-month period of fiscal 2011, which consisted of 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.

Our consolidated store count and selling square footage as of October 29, 2011 each increased 1% as compared to October 30, 2010. This level of increase, lower than our historical levels, was due to the 72 A.J. Wright stores that were closed and not converted to other banners.

In the U.S., the same store sales increases for the third quarter ended October 29, 2011 reflected an increase in the value of the average transaction. Categories that performed particularly well during the third quarter were home, men’s, activewear and shoes. For the third quarter of fiscal 2012, geographically, all regions in the U.S. recorded same store sales increases, with the Southeast and the Southwest regions above the consolidated average and New England and the Midwest below the consolidated average. TJX Europe same store sales were flat and TJX Canada same store sales decreased in the fiscal 2012 third quarter.

Same store sales increases in the U.S. for the nine months ended October 29, 2011 also reflected an increase in the value of the average transaction. For the nine-month period, same store sales of home, men’s, dresses, activewear, shoes and accessories categories were particularly strong. Geographically, during the nine-month period, same store sales increases in the U.S. were strongest in Florida and the Southwest while same store sales increases in the Northeast and Midwest trailed the consolidated average. Same store sales decreased at both TJX Europe and TJX Canada for the fiscal 2012 nine-month period.

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 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. Of the 90 A.J. Wright stores that were converted to other banners, 82 are classified as new stores and 8 as relocations. 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.

Presented below are our reported consolidated operating results expressed as a percentage of net sales for the thirteen weeks and thirty-nine weeks ended October 29, 2011 and October 30, 2010.

		Percentage of Net Sales								Percentage of Net Sales
		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		As reported								As reported
		October 29,				October 30,				October 29,				October 30,
		2011				2010				2011				2010
Net sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales, including buying and occupancy costs			71.9				72.5				72.6				72.9
Selling, general and administrative expenses			16.5				16.5				17.2				16.6
Provision (credit) for Computer Intrusion related expenses			—				—				—				(0.1	)
Interest expense, net			0.1				0.2				0.2				0.2
Income before provision for income taxes*			11.5	%			10.8	%			10.0	%			10.4	%
Diluted Earnings per share — Net Income		$	1.06			$	0.92			$	2.63			$	2.46

Presented below are our adjusted consolidated operating results expressed as a percentage of net sales for the thirty-nine weeks ended October 29, 2011 and October 30, 2010. There were no adjustments to the thirteen weeks ended October 29, 2011 or October 30, 2010. (see “Adjusted Financial Measures” below for more information).

		Percentage of Net Sales
		Thirty-Nine Weeks Ended
		As adjusted
		October 29,				October 30,
		2011				2010
Net sales			100.0	%			100.0	%
Cost of sales, including buying and occupancy costs			72.6				72.9
Selling, general and administrative expenses			16.8				16.6
Provision (credit) for Computer Intrusion related expenses			—				—
Interest expense, net			0.2				0.2
Income before provision for income taxes*			10.5	%			10.4	%
Diluted Earnings per share — Net Income		$	2.74			$	2.45

Impact of foreign currency exchange rates: Our operating results are affected by foreign currency exchange rates as a result of changes in the value of the U.S. dollar in relation to other currencies. Two ways in which foreign currency affects our reported results are as follows:

	•		Translation of foreign operating results into U.S. dollars: In our financial statements we translate the operations of our segments 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, net income 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, or affects them only slightly, as sales and expenses of the foreign operations are translated at essentially the same rates within a given period.
	•		Inventory hedges: We routinely enter into inventory-related hedging instruments to mitigate the impact of foreign currency exchange rates on merchandise margins when our divisions, principally in Europe and Canada, purchase goods in currencies other than their local currencies. As we have not elected “hedge accounting” as defined by GAAP, 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 the mark-to-market adjustment 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 the cost of sales, operating margins and earnings we report.

Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales, decreased 0.6 percentage points to 71.9% for the quarter ended October 29, 2011 as compared to the same period last year. The decrease in this expense ratio includes 0.2 percentage points due to the year-over-year change in the mark-to-market adjustment of inventory hedges as well as leverage on buying and occupancy costs. Cost of sales, including buying and occupancy costs, as a percentage of net sales, decreased 0.3 percentage point to 72.6% for the nine months ended October 29, 2011 as compared to the same period last year. The decrease in the expense ratio is due to expense leverage on buying and occupancy costs (particularly at Marmaxx and HomeGoods) partially offset by lower merchandise margins at TJX Europe and TJX Canada.

Selling, general and administrative expenses: Selling, general and administrative expenses, as a percentage of net sales, was flat at 16.5% for the quarter ended October 29, 2011 as compared to the same period last year, despite an increase in general corporate expenses due to our investment in new systems, talent and e-commerce.

Selling, general and administrative expenses, as a percentage of net sales, increased 0.6 percentage points to 17.2% (up 0.2 percentage points to 16.8% on an adjusted basis) for the nine months ended October 29, 2011 as compared to the same period last year. The increase in the expense ratio reflects the costs of the A.J. Wright consolidation (0.4 percentage points) and the increase in general corporate expenses.

Interest expense, net: Interest expense, net amounted to expense of $8.6 million for the third quarter of fiscal 2012 compared to expense of $9.5 million for the same period last year, and expense of $26.6 million for the nine-month period ended October 29, 2011 compared to expense of $30.0 million for the same period last year. The components of interest expense, net are summarized below:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 29,				October 30,				October 29,				October 30,
Dollars in thousands		2011				2010				2011				2010
Interest expense		$	12,278			$	12,505			$	36,713			$	36,643
Capitalized interest			(373	)			—				(2,028	)			—
Interest (income)			(3,354	)			(2,987	)			(8,108	)			(6,651	)
Interest expense, net		$	8,551			$	9,518			$	26,577			$	29,992

Income taxes: The effective income tax rate was 38.8% for the third quarter this year, compared to the 37.6% effective income tax rate for last year’s third quarter. The effective income tax rate for the nine months ended October 29, 2011 was 38.2% as compared to 38.1% for last year’s comparable period. The increase in the income tax rate for both the third quarter and year-to-date periods of fiscal 2012 was primarily due to the recognition of one-time favorable discrete items in the third quarter of fiscal 2011. We expect the fiscal 2012 effective income tax rate to be higher than anticipated due to a higher ratio of earnings in the U.S (which has a higher income tax rate) to earnings from our international operations.

Net income and net income per share: Net income for the third quarter of fiscal 2012 was $406.5 million, or $1.06 per diluted share, compared to $372.3 million, or $0.92 per diluted share, in last year’s third quarter. Foreign currency exchange rates benefited the third quarter fiscal 2012 earnings per share by $0.03 per share compared to an immaterial impact in the same period last year. Net income for the nine months ended October 29, 2011 was $1.0 billion, or $2.63 per diluted share, compared to $1.0 billion, or $2.46 per diluted share in the same period last year. The fiscal 2012 nine months include the $0.08 negative impact of closing the remainder of the A.J. Wright stores as well as the $0.03 negative impact of the costs associated with converting A.J. Wright stores to other banners and grand re-opening costs, while the fiscal 2011 nine months reflect the $0.01 benefit of a reduction in the reserve for

the Computer Intrusion which occurred over four years ago. Adjusted diluted earnings per share for the nine-month period were $2.74 in fiscal 2012 compared to $2.45 in the nine months ended October 30, 2010. Foreign currency exchange rates benefited the nine months ended October 29, 2011 by $0.03, compared to a $0.01 per share negative impact in the same period last year.

In addition, our weighted average diluted shares outstanding affect the comparability of earnings per share. Our stock repurchases benefit our earnings per share. During the third quarter of fiscal 2012, we repurchased 5.5 million shares of our common stock at a cost of $295 million. For the first nine months of fiscal 2012, we repurchased 18.6 million shares of our common stock at a cost of $968 million.

Adjusted Financial Measures: In addition to presenting our nine-month financial results in conformity with GAAP, we are also presenting them on an “adjusted” basis. We adjusted them to exclude:

	•		from the fiscal 2012 nine-month period, the costs related to the A.J. Wright consolidation, including closing costs and additional operating losses related to the A.J. Wright stores closed in fiscal 2012 and the costs incurred by the Marmaxx and HomeGoods segments to convert former A.J. Wright stores to their banners and hold grand re-opening events for these stores, and
	•		from the fiscal 2011 nine-month period, the benefit of a reduction to the provision for the Computer Intrusion which occurred over four years ago.

These adjusted financial results are non-GAAP financial measures. We believe that the presentation of adjusted financial results provides additional information on comparisons between periods including underlying trends of our business by excluding these items that affect overall comparability. We use these adjusted measures in making financial, operating and planning decisions and in evaluating our performance, and our Board uses them in making compensation decisions. Non-GAAP financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Reconciliations of each of the adjusted financial measures to the financial measures in accordance with GAAP are provided below.

(Dollars in millions, except per share data).

		Thirty-Nine Weeks Ended												Thirty-Nine Weeks Ended
		October 29, 2011												October 29, 2011
		As reported												As adjusted
		U.S.$				% of Net Sales				Adjustments				U.S.$*				% of Net Sales
Net Sales		$	16,482							$	(9	)(1)		$	16,472
Cost of sales, including buying and occupancy costs			11,970				72.6	%			(16	)(2)			11,954				72.6	%
Gross profit margin			—				27.4	%							—				27.4	%
Selling, general and administrative expenses			2,832				17.2	%			(63	)(3)			2,770				16.8	%
Income before provision for income taxes		$	1,653				10.0	%		$	69			$	1,722				10.5	%
Diluted earnings per share		$	2.63							$	0.11	(4)		$	2.74