United States

Securities and Exchange Commission

Washington, DC 20549

 

Form 10-K

 

[ x ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  

For the fiscal year ended January 31, 2009

or

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

For the transition period from            to		Commission file number 1-4908

 

THE TJX COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Delaware		04-2207613
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
770 Cochituate Road Framingham, Massachusetts		01701
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code (508) 390-1000

 

Securities registered pursuant to Section 12(g) of the Act: NONE

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ x ] NO [  ]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES [  ] NO [ x ]

 

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 [ x ] NO [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 
YES [  ] NO [ x ]

 

The aggregate market value of the voting common stock held by non-affiliates of the registrant on July 26, 2008 was $13,553,030,893, based on the closing sale price as reported on the New York Stock Exchange.

There were 412,821,592 shares of the registrant’s common stock, $1.00 par value, outstanding as of January 31, 2009.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held on June 2, 2009 (Part III).

 

Cautionary Note Regarding Forward-Looking Statements

 

Our disclosure and analysis in this Form 10-K and in our 2008 Annual Report to Shareholders contain “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, including some of the statements in this Form 10-K under Item 1, “Business,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Data,” and in our 2008 Annual Report to Shareholders under “Letter to Shareholders” and “Financial Graphs.” Forward-looking statements are inherently subject to risks, uncertainties and potentially inaccurate assumptions. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. We have generally identified such statements by using words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “looking forward,” “may,” “plan,” “potential,” “project,” “should,” “target,” “will” and “would” or any variations of these words or other words with similar meanings. All statements that address activities, events or developments that we intend, expect or believe may occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. These “forward looking statements” may relate to such matters as our future actions, future performance or results of current and anticipated sales, expenses, interest rates, foreign exchange rates and the outcome of contingencies such as legal proceedings, and financial results.

 

We cannot guarantee that the results and other expectations expressed, anticipated or implied in any forward-looking statement will be realized. The risks set forth under Item 1A of this Form 10-K describe major risks to our business. A variety of factors including these risks could cause our actual results and other expectations to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements. Should known or unknown risks materialize, or should our underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected in the forward – looking statements. You should bear this in mind as you consider forward-looking statements.

 

Our forward-looking statements speak only as of the dates on which they are made, and we do not undertake any obligation to update any forward-looking statement, whether to reflect new information, future events or otherwise. You are advised, however, to consult any further disclosures we may make in our future reports to the SEC or otherwise.

 

 

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Part I.

 

 

 

 

BUSINESS OVERVIEW

 

The TJX Companies, Inc. (TJX) is the leading off-price apparel and home fashions retailer in the United States and worldwide. Our over 2,600 stores offer a rapidly changing assortment of quality, brand-name and designer merchandise at prices generally 20% to 60% below department and specialty store regular prices every day.

 

Retail Concepts. We operate seven off-price retail concepts in the U.S., Canada and Europe and are known for our treasure hunt shopping experience and excellent values. The operating platforms and strategies of all of our retail concepts are synergistic. Therefore, we capitalize on our off-price expertise and systems throughout our business, leverage best practices, initiatives and new ideas across our concepts, utilize the substantial buying power of our businesses to leverage our global relationships with vendors, and develop talent by providing opportunities across our concepts.

 

In the United States:

 

 

In Canada:

 

 

In Europe:

 

 

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Flexible Business Model: Our off-price business model is flexible, particularly for a company of our size, allowing us to react to market trends. Our opportunistic buying and inventory management strategies give us flexibility to adjust the merchandise in our stores more frequently than traditional retailers, and our stores and distribution centers are built to support this flexibility. By maintaining a liquid inventory position, our merchants can buy close to need, enabling them to buy into current market trends and take advantage of opportunities in the marketplace. Buying close to need gives us the ability to turn our inventory more rapidly and adjust our pricing to the current market more frequently than conventional retailers. Our selling floor space is flexible, without walls between departments and largely free of permanent fixtures, so we can easily expand and contract departments in response to customer demand, available merchandise and fashion trends. Our distribution facilities are designed to accommodate our methods of receiving and shipping both small and large quantities of product to our large store base quickly and efficiently.

 

Opportunistic Buying: We are distinguished from traditional retailers by our opportunistic buying of brand name, fashionable merchandise. We purchase the majority of the inventory for our apparel chains and a significant portion of the inventory for our home fashion chains opportunistically. Our merchant organization numbers over 600. In contrast to traditional retailers, which typically order goods far in advance of the time the product appears on the selling floor, our merchants are in the marketplace virtually every week, buying primarily for the current selling season, and to a limited extent, for a future selling season.

 

Due to the unpredictable nature of supply and consumer demand in the highly fragmented apparel and home fashions marketplace, we are able to buy the vast majority of our opportunistic inventory directly from manufacturers, with some coming from other retailers and sources. We source from a vendor universe of over 10,000 vendors a year and purchase virtually all of our inventory at discounts from initial wholesale prices. A small percentage of the merchandise we sell is private label merchandise produced specifically for us by third party manufacturers.

 

We believe a number of factors make us an attractive outlet for the vendor community and provide us excellent access on an ongoing basis to leading branded merchandise. We are willing to purchase less-than-full assortments of items, styles and sizes, pay promptly and do not ask for typical retail concessions (such as advertising, promotional and markdown allowances), delivery concessions (such as drop shipments to stores or delayed deliveries) or return privileges. We are able to purchase quantities of inventory that range from small to very large and we have the ability to sell product through a geographically diverse network of stores. Importantly, in TJX, we offer vendors an outlet with financial strength and an excellent credit rating.

 

Inventory Management: We offer our customers a rapidly changing selection of merchandise to create a “treasure hunt” experience in our stores. To achieve this, we seek to rapidly turn the inventory in our stores, regularly offering fresh selections of apparel and home fashions at excellent values. Our specialized inventory planning, purchasing, monitoring and markdown systems, coupled with distribution center storage, processing, handling and shipping systems, enable us to tailor the merchandise in our stores to local preferences, achieve rapid in-store inventory turnover on a vast array of products and sell substantially all merchandise within targeted selling periods. Pricing and markdown decisions and store inventory replenishment are determined centrally, using information provided by specialized computer systems, and are designed to move inventory through our stores in a timely and disciplined manner. We do not generally engage in promotional pricing activity.

 

Low Cost Operations: We operate with a low cost structure compared to many other traditional retailers. We focus aggressively on expenses throughout our business, including merchandise and non-merchandise procurement. Our advertising budget as a percentage of sales is low compared to traditional retailers. We design our stores, generally located in community shopping centers, to provide a pleasant, convenient shopping environment but do not spend heavily on store fixtures. Additionally, our distribution network is designed to run cost effectively.

 

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Customer Service: While we offer a self-service format, we train our store associates to provide friendly and helpful customer service. We also have customer-friendly return policies. We accept a variety of payment methods including cash, credit cards and debit cards. In the U.S., we offer a co-branded TJX credit card and a private label credit card, both through a major bank, but do not maintain customer credit receivables related to either program.

 

Distribution: We operate 13 distribution centers in the U.S., 2 in Canada and 4 in the U.K. Our distribution centers encompass approximately 11 million square feet. We ship substantially all of our merchandise to our stores through these distribution centers, which are large, highly automated and built to suit our specific, off-price business model, as well as warehouses operated by third parties. We shipped approximately 1.5 billion units to our stores during fiscal 2009.

 

Store Growth: Expansion of our business through the addition of new stores is an important part of our strategy for TJX as a global, off-price, value company. The following table provides information on the growth and potential growth of each of our chains:

 

 

In addition, Marshalls opened 2 free-standing ShoeMegaShop by Marshalls stores in the U.S. in fiscal 2009, which sell family footwear, and Winners opened 2 StyleSense stores in Canada in fiscal 2009, which sell family footwear and accessories. Some of our HomeGoods and HomeSense stores are co-located with one of our apparel stores in a superstore format. We count each of the stores in the superstore format as a separate store.

 

Revenue Information: The percentages of our consolidated revenues by geography for the last three fiscal years were as follows:

 

 

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The percentages of our consolidated revenues by major product category for the last three fiscal years were as follows:

 

 

Segment Overview: We operate five business segments: three in the U.S. and one in each of Canada and Europe. Each of our segments has its own administrative, buying and merchandising organization and distribution network. Of our U.S.-based stores, 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., our chains in Canada are managed together and our chains in Europe are managed together. Thus, Canada is reported as a segment and Europe is reported as a segment. More detailed information about our segments, including financial information for each of the last three fiscal years, can be found in Note P to the consolidated financial statements.

 

 

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STORE LOCATIONS

 

We operated stores in the following locations as of January 31, 2009:

 

Stores Located In The United States:

 

 

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Stores Located In Canada:

 

 

Stores Located In Europe:

 

 

Competition

 

The retail apparel and home fashion business is highly competitive. We compete on the basis of fashion, quality, price, value, merchandise selection and freshness, brand name recognition, service, reputation and store location. We compete with local, regional, national and international department, specialty, off-price, discount, warehouse and outlet stores as well as other retailers that sell apparel, home fashions and other merchandise that we sell, whether in stores, through catalogues or media or over the internet.

 

Employees

 

At January 31, 2009, we had approximately 133,000 employees, many of whom work less than 40 hours per week. In addition, we hire temporary employees during the peak back-to-school and holiday seasons.

 

Trademarks

 

We have the right to use our principal trademarks and service marks, which are T.J. Maxx, Marshalls, HomeGoods, Winners, HomeSense, T.K. Maxx and A.J. Wright, in relevant countries. Our rights in these trademarks and service marks endure for as long as they are used.

 

Seasonality

 

Our business is subject to seasonal influences. In the second half of the year, which includes the back-to-school and holiday seasons, we generally realize higher levels of sales and income.

 

Sale of Bob’s Stores

 

In fiscal 2009, we sold Bob’s Stores, a value-oriented, branded apparel chain we acquired in fiscal 2004. The loss on the sale and historical results of operations have been accounted for as discontinued operations.

 

SEC Filings And Certifications

 

Copies of our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the Securities and Exchange Commission, or SEC, and any

 

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amendments to those documents, are available free of charge on our website, www.tjx.com, under “SEC Filings,” as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. They are also available free of charge from TJX Investor Relations, 770 Cochituate Road, Framingham, Massachusetts, 01701. The public can read and copy materials at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, 1-800-SEC-0330. The SEC maintains a website containing all reports, proxies, information statements, and all other information regarding issuers that file electronically (http://www.sec.gov). The Annual CEO Certification for the fiscal year ended January 26, 2008, as required by the New York Stock Exchange, regarding our compliance with the corporate governance listing standards of the NYSE, was submitted to the NYSE on June 23, 2008.

 

Unless otherwise indicated, all store information in this Item 1 is as of January 31, 2009, and references to store square footage are to gross square feet. Fiscal 2007 means the fiscal year ended January 27, 2007, fiscal 2008 means the fiscal year ended January 26, 2008, fiscal 2009 means the fiscal year ended January 31, 2009 and fiscal 2010 means the fiscal year ending January 30, 2010.

 

Unless otherwise stated or the context otherwise requires, references in this Form 10-K to “TJX,” “we,” “us” and “our” refer to The TJX Companies, Inc. and its subsidiaries.

 

 

The statements in this Section describe the major risks to our business and should be considered carefully, in connection with all of the other information set forth in this annual report on Form 10-K. The risks that follow, individually or in the aggregate, are those that we think could cause our actual results to differ materially from those stated or implied in forward-looking statements.

 

The adverse changes in global economic conditions and in financial and credit markets have adversely affected and could continue to adversely affect our financial performance.

 

As widely reported, economies worldwide are in crisis, and global financial markets have been experiencing extreme volatility, disruption and credit contraction. The current volatility and disruption to the capital markets have reached unprecedented levels and have significantly adversely impacted global economic conditions and may continue to do so, resulting in additional significant recessionary pressures and declines in employment levels, disposable income and actual and perceived wealth. Adverse economic conditions continue to affect consumer confidence and discretionary consumer spending and have adversely affected and may continue to adversely affect our sales, cash flows and results of operations. Additionally, adverse conditions in the financial and credit markets could adversely affect our costs of capital and the sources of liquidity available to us and have increased and could in the future increase our pension funding requirements. Finally, the effects and consequences of the current global economic crisis may not yet be known, which could potentially have a material adverse effect on our liquidity and capital resources, or otherwise negatively affect our business and financial results.

 

Fluctuations in foreign currency exchange rates may lead to lower revenues and earnings.

 

In addition to our U.S. businesses, we operate stores in Canada, the U.K., Ireland and Germany. Sales made by our stores outside the United States are denominated in the currency of the country in which the store is located, and changes in foreign exchange rates affect the translation of the sales and earnings of these businesses into U.S. dollars for financial reporting purposes. Because of this, movements in exchange rates have had and are expected to continue to have a significant impact on our net sales and earnings.

 

Additionally, we routinely enter into inventory-related hedging instruments to mitigate the impact of foreign exchange on merchandise margins of merchandise purchased by our international segments that is denominated in currencies other than their local currencies. In accordance with generally accepted accounting principles, we evaluate the fair value of these hedging instruments and make mark-to-market adjustments at the end of an accounting period. These adjustments are of a much greater magnitude when there is significant volatility in currency exchange rates and may have a significant impact on our earnings.

 

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In addition, changes in foreign exchange rates can increase the cost of inventory purchases by one of our businesses that are denominated in a currency other than the local currency of that business. When these changes occur suddenly, it can be difficult for us to adjust retail prices accordingly, and gross margin can be adversely affected. We expect that such changes may materially affect the gross margins of our Canada segment.

 

Although we implement foreign currency hedging and risk management strategies to reduce our exposure to fluctuations in earnings and cash flows associated with changes in foreign exchange rates, we expect that foreign currency fluctuations could have a material adverse effect on our net sales and results of operations.

 

Failure to execute our opportunistic buying and inventory management could adversely affect our business.

 

We purchase the majority of our inventory opportunistically with our buyers purchasing close to need. To drive traffic to the stores and to increase same store sales, the treasure hunt nature of the off-price buying experience requires continued replenishment of fresh, high quality, attractively priced merchandise in our stores. While opportunistic buying enables our buyers to buy at opportune times and prices, in the quantities we need and into market trends, it places considerable discretion in our buyers, subjecting us to risks on the timing, pricing, quantity and nature of inventory flowing to the stores. In addition, we base our purchases of inventory, in part, on sales forecasts. If our sales forecasts do not match customer demand, we may experience higher inventory levels and decreased profit margins if we have excess or slow-moving inventory, or we may have insufficient inventory to meet customer demand, either of which could adversely affect our financial performance. In addition to acquiring inventory, we must properly execute our inventory management strategies through effectively allocating merchandise among our stores, timely and efficiently distributing inventory to stores, maintaining an appropriate mix and level of inventory in stores, appropriately changing the allocation of floor space of stores among product categories to respond to customer demand and effectively managing pricing and markdowns. Failure to execute our opportunistic inventory buying and inventory management well could adversely affect our performance and our relationship with our customers.

 

Failure to continue to expand our operations successfully could adversely affect our financial results.

 

We have steadily expanded the number of concepts and stores we operate. Our revenue growth is dependent, among other things, upon our ability to continue to expand successfully through new store openings as well as our ability to increase same store sales. Successful store growth requires acquisition and development of appropriate real estate including selection of store locations in appropriate geographies, availability of attractive stores or store sites in such locations and negotiation of acceptable terms. Competition for desirable sites, increases in real estate, construction and development costs and availability and costs of capital could limit our ability to open new stores in desirable locations in the future or adversely affect the economics of new stores. When we open stores in new markets, we may encounter difficulties in attracting customers due to a lack of customer familiarity with our brand, our lack of familiarity with local customer preferences, and seasonal differences in the market. New stores may not achieve the same sales or profit levels as our existing stores and may be adversely affected by the sales and profitability of existing stores in their market areas. Further, expansion places significant demands on the administrative, merchandising, store operations, distribution and other organizations in our businesses to manage rapid growth, and we may not do so successfully.

 

Failure to successfully identify customer trends and preferences to meet customer demand could negatively impact our performance.

 

Because our success depends on our ability to meet customer demand, we take various steps to keep up with consumer trends and preferences including contacts with vendors, monitoring product category and fashion trends and comparison shopping and actively monitoring fashion trends. Our opportunistic buying model allows us to buy close to need and in response to consumer preferences and trends. However, identifying consumer trends and preferences and successfully meeting customer demand is challenging, and these steps and our off-price buying may be insufficient to do so, which could adversely affect our results.

 

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Our quarterly operating results can be subject to significant fluctuations and may fall short of either a prior quarter or investors’ expectations.

 

Our operating results have fluctuated from quarter to quarter at points in the past, and they may continue to do so in the future. Our earnings may not continue to grow at rates similar to the growth rates achieved in recent years and may fall short of either a prior quarter or investors’ expectations. If we fail to meet the expectations of securities analysts or investors, our share price may decline. Factors that could cause us not to meet analysts’ earnings expectations include some factors that are within our control, such as the execution of our off-price buying; selection, pricing and mix of merchandise; and inventory management including flow, markon and markdowns; and some factors that are not within our control, including actions of competitors, weather conditions, economic conditions and consumer confidence, and seasonality. In addition, if we do not repurchase the number of shares we contemplate pursuant to our stock repurchase program, our earnings per share may be adversely affected. Most of our operating expenses, such as rent expense and associate salaries, do not vary directly with the amount of sales and are difficult to adjust in the short term. As a result, if sales in a particular quarter are below expectations for that quarter, we may not proportionately reduce operating expenses for that quarter, and therefore such a sales shortfall would have a disproportionate effect on our net income for the quarter. We maintain a forecasting process that seeks to project sales and align expenses. If we do not correctly forecast sales or appropriately adjust to actual results, our financial performance could be adversely affected.

 

Our future performance is dependent upon our ability to continue to expand within our existing markets and to extend our off-price model in new product lines, chains and geographic regions.

 

Our strategy is to continue to expand within existing markets and to expand to new markets and geographies. This growth strategy includes developing new ways to sell more or different merchandise within our existing stores, continued expansion of our existing chains in our existing markets and countries, expansion of these chains to new markets and countries, and development and opening of new chains, all of which entail significant risk. Our growth is dependent upon our ability to successfully extend our off-price retail apparel and home fashions concepts in these ways. Unsuccessful extension of our model could adversely affect future growth or financial performance.

 

Failure to implement our marketing, advertising and promotional programs successfully, or if our competitors are more effective with their programs than we are, may adversely affect our revenue.

 

We use marketing, advertising and promotional programs to attract customers to our stores. We use various media for these programs, including print, television, database marketing and direct marketing. Some of our competitors may have substantially larger expenditures for their programs, which may provide them with a competitive advantage. There can be no assurance that we will be able to continue to effectively execute our marketing, advertising and promotional programs, and any failure to do so could have a material adverse effect on our revenue and results of operations.

 

Our actual losses arising from the Computer Intrusion could exceed our reserve for our estimated probable losses, and our reputation and business could be materially harmed as a result of any future data breach.

 

We suffered an unauthorized intrusion or intrusions (such intrusion or intrusions, collectively, the “Computer Intrusion”) into portions of our computer system that process and store information related to customer transactions, which was discovered late in fiscal 2007 and in which we believe that customer data were stolen. As a result we faced and continue to face litigation, claims and investigations. We have recorded a reserve that reflects our estimation of probable losses arising from the Computer Intrusion in accordance with generally accepted accounting principles. While this reserve represents our best estimation of total, potential cash liabilities from litigation, proceedings, investigations and other claims, as well as legal and other costs and expenses, arising from the Computer Intrusion, there is no assurance that our actual losses will not be greater.

 

Since discovering the Computer Intrusion, we have taken steps designed to further strengthen the security of our computer system and protocols and have instituted an ongoing program with respect to data security. Nevertheless, there can be no assurance that we will not suffer a future data compromise. We rely on commercially available systems,

 

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software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as payment card and personal information. Further, the systems currently used for transmission and approval of payment card transactions, and the technology utilized in payment cards themselves, all of which can put payment card data at risk, are determined and controlled by the payment card industry, not by us. Improper activities by third parties, advances in computer and software capabilities and encryption technology, new tools and discoveries and other events or developments may facilitate or result in a further compromise or breach of our computer system. Any such further compromises or breaches could cause interruptions in our operations, damage to our reputation and customers’ willingness to shop in our stores, violation of applicable laws, regulations, orders and agreements, and subject us to additional costs and liabilities which could be material.

 

Our business is subject to seasonal influences and a decrease in sales or margins during the second half of the year could adversely affect our operating results.

 

Our business is subject to seasonal influences; we generally realize higher levels of sales and income in the second half of the year, which includes the back-to-school and year-end holiday seasons. Any decrease in sales or margins during this period could have a disproportionately adverse effect on our financial condition and results of operations.

 

We experience risks associated with our substantial size and scale.

 

We operate seven retail concepts in several countries. Some aspects of the businesses and operations of the concepts are conducted with relative autonomy. The large size of our operations, our multiple businesses and the autonomy afforded to the concepts increase the risk that systems and practices will not be implemented uniformly throughout our company and that information will not be appropriately shared across different concepts and countries.

 

Unseasonable weather in the markets in which our stores operate or our distribution centers are located could adversely affect our operating results.

 

Adverse and unseasonable weather affects customers’ willingness to shop and their demand for the merchandise in our stores. Frequent or unusually heavy snow, ice or rain storms, severe cold or heat or extended periods of unseasonable temperatures in our markets could adversely affect our sales and increase markdowns. In addition, natural disasters such as hurricanes, tornadoes, floods and earthquakes could severely damage or destroy one or more of our stores or distribution facilities located in the affected areas or result in the suspension of business in the affected areas or in areas served by the affected distribution center, thereby disrupting our business operations.

 

We operate in highly competitive markets, and we may not be able to compete effectively.

 

The retail business is highly competitive. We compete with many other local, regional, national and international retailers that sell apparel, home fashions and other merchandise that we sell, whether in stores, through catalogs or media or over the internet. We compete on the basis of quality, price, value, merchandise selection and freshness, brand name recognition, service, reputation and store location. Other competitive factors that influence the demand for the merchandise we sell include our advertising, marketing and promotional activities and the name recognition and reputation of our chains. If we fail to compete effectively, our sales and results of operations could be adversely affected.

 

Failure to attract and retain quality sales, distribution center and other associates in appropriate numbers as well as experienced buying and management personnel could adversely affect our performance.

 

Our performance depends on recruiting, developing, training and retaining quality sales, distribution center and other associates in large numbers as well as experienced buying and management personnel. Many of our associates are in entry level or part-time positions with historically high rates of turnover. The nature of the workforce in the retail industry subjects us to the risk of immigration law violations, which risk has increased in recent years. Our ability to meet our labor needs while controlling labor costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation, changing demographics, health and other insurance costs and governmental labor and employment requirements. In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, causing our customer service to suffer, while increasing our wages could cause our earnings to decrease. In addition, certain associates in our distribution centers are members of unions and therefore subject us to the risk of labor actions. Because of the distinctive nature of our off-price model,

 

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we must do significant internal training and development for a substantial number of our associates. The market for retail management is highly competitive and, in common with other retailers, we face challenges in securing sufficient management talent. Changes that adversely impact our ability to attract and retain quality associates and management personnel could adversely affect our performance.

 

If we engage in mergers or acquisitions of new businesses, or divest any of our current businesses, our business will be subject to additional risks.

 

We have grown our business in part through mergers and acquisitions. We may consider opportunities to acquire new businesses or to divest current businesses. Acquisition or divestiture activities may divert attention of management from operating the existing businesses. We may do a less-than-optimal job of evaluating target companies and their risks and benefits, and integration of acquisitions can be difficult and time-consuming. Acquisitions may not meet our expectations or may expose us to unexpected or greater-than-expected liabilities. Divestiture also involves risks, such as the risks of exposure on lease obligations, obligations undertaken in the disposition and potential liabilities that may arise under law as a result of the disposition or the subsequent failure of the acquirer. Failure to execute on mergers or divestitures in a satisfactory manner could adversely affect our future results of operations and financial condition.

 

Failure to operate information systems and implement new technologies effectively could disrupt our business or reduce our sales or profitability.

 

The efficient operation of our business depends on our information systems, including our ability to operate them effectively and to successfully select and implement new technologies, systems, controls and adequate disaster recovery systems. We must operate and implement these systems and technologies such that we protect the confidentiality of data of our Company, our associates, our customers and other third parties. The failure of our information systems to perform as designed or our failure to implement and operate them effectively could disrupt our business or subject us to liability and thereby harm our profitability.

 

We depend upon strong cash flows from our operations to support new capital expansion, operations, debt repayment, stock repurchase program and dividends.

 

Our business depends upon our operations to generate strong cash flows and upon the availability of financing sources to support our capital expansion requirements, general operating activities, stock repurchase program and dividends and to fund debt repayment. Our inability to continue to generate sufficient cash flows to support these activities or the lack of availability of financing in adequate amounts and on appropriate terms could adversely affect our financial performance or our earnings per share growth.

 

General economic and other factors adversely affect consumer spending, which could adversely affect our sales and operating results.

 

Interest rates; recession; inflation; deflation; consumer credit availability; consumer debt levels; energy costs; tax rates and policy; unemployment trends; threats or possibilities of war, terrorism or other global or national unrest; actual or threatened epidemics; political or financial instability; and general economic, political and other factors beyond our control have significant effects on consumer confidence and spending. Consumer spending, in turn, affects sales at retailers, which could include TJX. These factors could adversely affect our sales and performance if we do not successfully implement strategies to mitigate them.

 

Issues with merchandise quality or safety could damage our reputation, sales or financial results.

 

Various governmental authorities regulate the quality and safety of the merchandise we sell in our stores. Regulations and standards in this area, including those related to the recently enacted Consumer Product Safety Improvement Act of 2008 in the United States, may change from time to time. Our inability to comply on a timely basis with regulatory requirements could result in significant fines or penalties, which could have a material adverse effect on our financial results. Issues with the quality and safety of merchandise we sell in our stores, regardless of our fault, or customer concerns about such issues, could cause damage to our reputation, lost sales, uninsured product liability claims or losses, merchandise recalls and increased costs, and regulatory, civil or criminal fines or penalties, which could have a material adverse effect on our financial results.

 

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We are subject to import risks associated with importing merchandise from abroad.

 

Many of the products sold in our stores are sourced by our vendors and to a limited extent by us in many foreign countries. As a result, we are subject to the various risks of doing business in foreign markets and importing merchandise from abroad, such as:

 

 

Political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to international trade and imported merchandise could affect the availability and the price of our inventory.

 

Our expanding international operations expose us to risks inherent in foreign operations.

 

We have a significant retail presence in Canada, the United Kingdom and Ireland, and have recently expanded into Germany. Our goal is to continue to expand into other international markets in the future. Our foreign operations encounter risks similar to those faced by our U.S. operations, as well as risks inherent in foreign operations, such as understanding the retail climate and trends, local customs and competitive conditions in foreign markets, complying with foreign laws, rules and regulations, and foreign currency fluctuations, which could have an adverse impact on our profitability.

 

Our results may be adversely affected by fluctuations in the price of oil.

 

Prices of oil have fluctuated dramatically in the past. These fluctuations may result in an increase in our transportation costs for distribution, utility costs for our retail stores and costs to purchase our products from suppliers. A continued rise in oil prices could adversely affect consumer spending and demand for our products and increase our operating costs, both of which could have an adverse effect on our performance.

 

Changes in laws and regulations and outcomes of litigation and proceedings could negatively affect our business operations and financial performance.

 

We are subject to federal, state, provincial or local laws, rules and regulations in the United States and abroad, any of which may change from time to time in ways which could materially adversely affect our operations and our financial results and condition. We are from time to time involved in litigation and proceedings, the outcomes of which if determined adversely to us could materially adversely affect our operations and our financial results and condition. In addition, U.S. generally accepted accounting principles in accordance with which we prepare our financial statements may change from time to time, and these changes could have material effects on our reported financial results and condition.

 

We own and lease for long periods significant amounts of real estate, which subjects us to various financial risks.

 

We lease virtually all of our store locations generally for long terms and either own or lease for long periods our primary distribution centers and administrative offices. Accordingly, we are subject to the risks associated with owning and leasing real estate. While we have the right to terminate some of our leases under specified conditions by making specified payments, we may not be able to terminate a particular lease if or when we would like to do so. If an existing or future store is not profitable, and we decide to close it, we may be committed to perform obligations under the applicable lease, including, among other things, paying rent and operating expenses for the balance of the lease term, or exercising rights to terminate, and the performance of any of these obligations may be expensive. When we assign or sublease leased property, we can remain liable on the lease obligations if the assignee or sublessee does not perform. In

 

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addition, when leases expire, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close stores.

 

Our stock price may fluctuate based on market expectations.

 

The public trading of our stock is based in large part on market expectations that our business will continue to grow and that we will achieve certain levels of net income. If the securities analysts that regularly follow our stock lower their rating or lower their projections for future growth and financial performance, the market price of our stock is likely to drop. In addition, if our quarterly financial performance does not meet the expectations of securities analysts, our stock price would likely decline. The decrease in the stock price may be disproportionate to the shortfall in our financial performance.

 

 

None.

 

 

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ITEM 2. PROPERTIES

 

We lease virtually all of our over 2,600 store locations, generally for 10 years with options to extend the lease term for one or more 5-year periods. We have the right to terminate some of these leases before the expiration date under specified circumstances and some with specified payments.

 

The following is a summary of our primary distribution centers and primary administrative office locations by segment as of January 31, 2009. Square footage information for the distribution centers represents total “ground cover” of the facility. Square footage information for office space represents total space occupied:

 

 

DISTRIBUTION CENTERS

 

 

 

OFFICE SPACE

 

 

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ITEM 3. LEGAL PROCEEDINGS

 

Putative class actions consolidated in the United States District Court for the District of Massachusetts, In re TJX Companies Retail Security Breach Litigation, 07-cv-10162, were filed against TJX (i) putatively on behalf of customers in the United States, Puerto Rico and Canada whose transaction data were allegedly compromised by the Computer Intrusion (“Customer Track”)and (ii) putatively on behalf of financial institutions that received alerts from MasterCard or Visa related to the Computer Intrusion identifying payment cards issued by such financial institutions and that thereafter suffered damages from actual reissuance costs, monitoring expenses or fraud loss (“Financial Institutions Track”). These putative class actions asserted claims for negligence and related common-law and/or statutory causes of action stemming from the Computer Intrusion, and sought various forms of relief including damages, related injunctive or equitable remedies, multiple or punitive damages, and attorneys’ fees.

 

 

Those financial institutions that (for themselves and, in the case of MasterCard issuers, on behalf of their affiliated and their sponsored issuers) accepted the settlement offer under the Settlement Agreement among TJX, Visa U.S.A. Inc. and Visa Inc. and TJX’s acquiring bank dated as of November 29, 2007 or the Settlement Agreement between TJX and MasterCard International Incorporated dated as of April 2, 2008, released and indemnified TJX and its acquiring banks with respect to any claims of such issuers as Visa issuers or MasterCard issuers, respectively, with respect to any claims by reason of any matter, occurrence, or event pertaining to the Computer Intrusion, including but not limited to claims in the Financial Institution Track and state court case described below. In addition, the named plaintiffs in the Financial Institutions Track other than AmeriFirst Bank previously settled with TJX.

 

On January 16, 2008, AmeriFirstBank and an additional plaintiff filed an action in Massachusetts state court, AmeriFirstBank et al. v. The TJX Companies, Inc. et al, Massachusetts Superior Court 08-0229, raising allegations and claims nearly identical to those asserted in the Financial Institutions Track of the purported federal class action. The complaint stated plaintiffs’ intention to bring class allegations depending on pre-trial rulings by the state court. The state court stayed the state action pending adjudication by the federal court of the appeals in the Financial Institutions Track. On March 30, 2009, the First Circuit issued the opinion described above on those appeals.

 

 

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A multi-state group of 41 state Attorneys General is investigating whether TJX may have violated their respective state consumer protection laws with respect to the Computer Intrusion. TJX has responded to Civil Investigative Demands with respect to this investigation.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

There was no matter submitted to a vote of TJX’s security holders during the fourth quarter of fiscal 2009.

 

 

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Part II.

 

 

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SECURITY HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Price Range Of Common Stock

 

Our common stock is listed on the New York Stock Exchange (Symbol: TJX). The quarterly high and low sale prices for the equity for fiscal 2009 and fiscal 2008 are as follows:

 

 

The approximate number of common shareholders at January 31, 2009 was 54,000.

 

We declared four quarterly dividends of $0.11 per share for fiscal 2009 and $0.09 per share for fiscal 2008. While our dividend policy is subject to periodic review by our Board of Directors, we currently intend to continue to pay comparable dividends in the future.

 

Information On Share Repurchases

 

The number of shares of common stock repurchased by TJX during the fourth quarter of fiscal 2009 and the average price paid per share are as follows:

 

 

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The following table provides certain information as of January 31, 2009 with respect to our equity compensation plans:

 

 

EQUITY COMPENSATION PLAN INFORMATION

 

 

For additional information concerning our equity compensation plans, see Note H to our consolidated financial statements.

 

 

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ITEM 6. SELECTED FINANCIAL DATA

 

 

SELECTED FINANCIAL DATA

 

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The discussion that follows relates to our 53-week fiscal year ended January 31, 2009 (fiscal 2009), and the fiscal years ended January 26, 2008 (fiscal 2008) and January 27, 2007 (fiscal 2007), each of which included 52 weeks.

 

Our results reflect two discontinued operations: Bob’s Stores, sold in fiscal 2009 and 34 A.J. Wright stores closed in fiscal 2007 as part of a repositioning of the chain. See Note C to the consolidated financial statements. All references in the following discussion are to continuing operations unless otherwise indicated.

 

Our results reflect the costs of the unauthorized intrusion or intrusions (collectively, the “Computer Intrusion”) into portions of our computer system, which was discovered in late fiscal 2007 and in which we believe customer data were stolen. See “Provision for Computer Intrusion related costs” below.

 

 

RESULTS OF OPERATIONS

 

Our fiscal 2009 performance was adversely affected in the second half of the year by two macroeconomic factors: the worldwide recession which adversely affected consumer spending and retail sales at TJX and generally and the significant strengthening of the U.S. dollar against the Canadian dollar and the British pound, which adversely affected the translation of the operating results of our Canadian and European businesses. With the flexibility of our off-price business model, in fiscal 2009 we increased our inventory turns and maintained the value proposition of our merchandise by buying closer to need and operating with leaner-than-usual inventories. We also continued a focus on tight expense control during fiscal 2009. Despite the challenging environment, customer traffic in fiscal 2009 was up across virtually all of our divisions, and merchandise margins remained strong. Highlights of our financial performance for fiscal 2009 include the following:

 

 

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We have implemented steps to position ourselves for the fiscal year ending January 30, 2010 (fiscal 2010) in light of the ongoing worldwide recession including:

 

 

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 fiscal 2009 totaled $19.0 billion, a 4% increase over net sales of $18.3 billion in fiscal 2008. The increase reflected a 4% increase from new stores, a 1% increase from the 53rd week and a 1% increase in same store sales, offset by a 2% decline from the negative impact of foreign currency exchange rates. Consolidated net sales for fiscal 2008 increased 7% over net sales of $17.1 billion for fiscal 2007. The increase reflected increases of 3% from new stores, 2% from same store sales and a 2% favorable impact due to foreign currency exchange rates.

 

New stores have been a significant source of sales growth. Both our consolidated store count and our selling square footage increased by 5% in fiscal 2009 and by 4% in fiscal 2008 over the respective prior year periods. As a result of economic conditions, we have planned store openings more conservatively and expect to add 64 stores (net of store closings) in fiscal 2010, a 2% increase in our consolidated store base and an increase of 2% in our selling square footage.

 

The 1% same store sales increase in fiscal 2009 reflected a strong first half performance, especially at our international segments, partially offset by same store sales decreases in the second half of the year largely due to the economic recession. Customer traffic increased at virtually all of our businesses in fiscal 2009, even in the third and fourth quarters, which was partially offset by a reduction in the value of the average transaction. As for merchandise categories, shoes, accessories and dresses were the strongest performers, while home fashions were adversely affected by the weak housing market and economic conditions. Geographically, same store sales in Canada and the United Kingdom were above the consolidated average for fiscal 2009, while in the U.S., same store sales in the West Coast and Florida trailed the consolidated average.

 

The 2% increase in same store sales for fiscal 2008 was driven by a strong performance at our international segments. In the U.S., sales of dresses, footwear and accessories were strong, partially offset by softer sales in the balance of the women’s apparel category. At Marmaxx, our largest business, home categories were also weak. Same store sales increases benefited from the continued expansion of footwear departments in Marshalls. During fiscal 2008, we opened expanded footwear departments in approximately 240 additional Marshalls stores. Same store sales for fiscal 2008 at our international segments were above the consolidated average. Within the U. S., the strongest regions were the West Coast and the Northeast, while Florida and the Southeast trailed the U.S. average. Overall transaction volume was slightly down in fiscal 2008, more than offset by an increase in the value of the average transaction.

 

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

 

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closed. We calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that are increased in size are generally classified in the same way as the original store, and we believe that the impact of these stores on the consolidated same store percentage is immaterial. Same store sales of our foreign divisions are calculated on a constant currency basis, which removes the effect of changes in currency exchange rates, and we believe it is a more accurate measure of the divisional operating performance.

 

The following table sets forth our consolidated operating results as a percentage of net sales:

 

 

Impact of foreign currency exchange rates: Our operating results can be adversely affected by foreign currency exchange rates as a result of significant changes in the value of the U.S. dollar in relation to other currencies. Two of the more significant ways in which foreign currency impacts us are as follows:

 

Translation of foreign operating results into U.S. dollars: In our financial statements, we translate the operations of our stores in Canada and Europe from local currencies into U.S. dollars using currency rates in effect at different points in time. Significant changes in foreign exchange rates from comparable prior periods can result in meaningful variations in consolidated net sales, income from continuing operations and earnings per share growth as well as the net sales and operating results of our Canadian and European segments. Currency translation generally does not affect operating margins, as sales and expenses of the foreign operations are translated at essentially the same rates each period.

 

Inventory hedges: Additionally, we routinely enter into inventory-related hedging instruments to mitigate the impact of foreign currency exchange rates on merchandise margins when our international divisions purchase goods in currencies that are not their local currencies, primarily U.S. dollar purchases. As we have not elected “hedge accounting” as defined by SFAS No. 133 (“Accounting for Derivative Instruments and Hedging Activities”), under generally accepted accounting principles we record a mark-to-market adjustment on the hedging instruments in our results of operations at the end of each reporting period, prior to the currency gain or loss being recorded on the items being hedged. In subsequent periods, the income statement impact of the hedges are effectively offset when the related inventory 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, as there were in the third and fourth quarters of fiscal 2009. Historically, the impact on a full-year basis has not been material. Since the mark-to-market adjustment on these hedges has no impact on net sales, it affects both our operating margins and earnings growth.

 

Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales was 75.8% in fiscal 2009, 75.5% in fiscal 2008 and 75.8% in fiscal 2007. This ratio for fiscal 2009, as compared to fiscal 2008, increased 0.3 percentage points primarily due to deleverage of buying and occupancy costs on the 1% same store sales increase. This deleverage more than offset a benefit to this expense ratio due to the 53rd week (estimated at approximately 0.2 percentage points) as well as an improvement in our consolidated merchandise margin of 0.2 percentage points. Throughout fiscal 2009, we solidly executed our off-price fundamentals, buying close to need, operating with leaner inventories and taking advantage of opportunities in the market place.

 

Cost of sales, including buying and occupancy costs, as a percentage of net sales for fiscal 2008, as compared to fiscal 2007, reflected an improvement in our consolidated merchandise margin (0.4 percentage points), due to improved markon and lower markdowns. Throughout fiscal 2008, we solidly executed our off-price fundamentals, buying close to need and taking advantage of opportunities in the market place. This merchandise margin improvement was

 

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partially offset by a slight increase in occupancy costs as a percentage of net sales. All other buying and occupancy costs remained relatively flat as compared to the same period in the prior year.

 

Selling, general and administrative expenses: Selling, general and administrative expenses as a percentage of net sales were 16.7% in fiscal 2009, 16.6% in fiscal 2008 and 16.7% in fiscal 2007. The increase in fiscal 2009 compared to fiscal 2008 reflects deleverage from the low same store sales increase, primarily in store payroll and field costs, partially offset by savings from cost containment initiatives. Advertising costs as a percentage of net sales in fiscal 2009 were essentially flat to the prior year.

 

The fiscal 2008 expense ratio was slightly down compared to the prior year with a planned increase in advertising costs (0.1 percentage point) being offset by cost containment initiatives.

 

Provision for Computer Intrusion related costs: From the time of the discovery of the Computer Intrusion late in fiscal 2007, through the end of fiscal 2009, we cumulatively expensed $171.5 million (pre-tax) with respect to the Computer Intrusion, including a net charge of $159.2 million in fiscal 2008 to reserve for probable losses, costs of $42.8 million incurred prior to establishment of the reserve ($5 million of which was recorded in fiscal 2007) and a $30.5 million reduction in the reserve in fiscal 2009 as a result of negotiations, settlements, insurance proceeds and adjustments in our estimated losses. Costs relating to the Computer Intrusion incurred and paid after establishment of the reserve were charged against the reserve, which is included in accrued expenses and other liabilities on our balance sheet.

 

As of January 31, 2009, our reserve balance was $42.2 million, which reflects our current estimation of remaining probable losses (in accordance with U.S. generally accepted accounting principles) with respect to the Computer Intrusion, including litigation, proceedings, investigations and other claims, as well as legal, monitoring, reporting and other costs. As an estimate, our reserve is subject to uncertainty, our actual costs may vary from our current estimate and such variations may be material. We may decrease or increase the amount of our reserve to adjust for developments in the course and resolution of litigation, claims and investigations and related expenses and receipt of insurance proceeds and for other changes.

 

Interest (income) expense, net: Interest (income) expense, net amounted to expense of $14.3 million for fiscal 2009, income of $1.6 million for fiscal 2008 and expense of $15.6 million for fiscal 2007. The changes from year to year relate primarily to interest income which totaled $22.2 million in fiscal 2009, $40.7 million in fiscal 2008 and $23.6 million in fiscal 2007. In fiscal 2008, we generated more interest income due to higher cash balances available for investment as well as higher interest rates earned on our investments.

 

Income taxes: Our effective annual income tax rate was 36.9% in fiscal 2009, 37.9% in fiscal 2008 and 37.7% in fiscal 2007. The decrease in the tax rate for fiscal 2009 as compared to fiscal 2008 reflects the favorable impact of a $19 million reduction in the FIN 48 tax liability, which reduced the annual effective income tax rate for fiscal 2009 by 1.3 percentage points. This improvement in the annual income tax rate in fiscal 2009 was offset by the absence of a fiscal 2008 favorable tax benefit of 0.4 percentage points relating to the tax treatment of our Puerto Rico subsidiary. See Note J to the consolidated financial statements.

 

The increase in the tax rate for fiscal 2008 as compared to fiscal 2007 reflects the absence of some fiscal 2007 one-time benefits as well as an increase due to certain FIN 48 tax positions, partially offset by the favorable impact of increased income at our foreign operations and increased foreign tax credits relating to the tax treatment of our Puerto Rico subsidiary.

 

Income from continuing operations: Income from continuing operations was $914.9 million in fiscal 2009, $782.4 million in fiscal 2008 and $787.2 million in fiscal 2007. Income from continuing operations per share was $2.08 in fiscal 2009, $1.68 in fiscal 2008 and $1.65 in fiscal 2007. Unlike many companies in the retail industry, we did not have a 53^rd week in fiscal 2007, but did have a 53^rd week in fiscal 2009. We estimate the 53^rd week in fiscal 2009 favorably affected earnings per share by $0.09 per share.

 

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The reduction in the Provision for Computer Intrusion related costs in fiscal 2009 benefited income from continuing operations by approximately $18 million, after-tax, or $0.04 per share. The charge relating to the Computer Intrusion related costs in fiscal 2008, adversely affected income from continuing operations by approximately $119 million, after tax, or $0.25 per share.

 

Changes in foreign currency exchange rates also affected the comparability of our results. Changes in currency rates reduced earnings per share by $0.05 per share in fiscal 2009 as compared to an increase of $0.01 per share in fiscal 2008. Changes in foreign currency exchange rates increased fiscal 2008 earnings per share by $0.05 per share in comparison to fiscal 2007.

 

In addition, our share repurchase program affects the comparability of earnings per share. We repurchased 24.0 million shares of our stock at a cost of $741 million in fiscal 2009; we repurchased 33.3 million shares at a cost of $950 million in fiscal 2008; and we repurchased 22.0 million shares at a cost of $557 million in fiscal 2007.

 

Discontinued operations and net income: All historical income statements have been adjusted to reflect the sale of Bob’s Stores in fiscal 2009 and the closure of 34 A.J. Wright stores in fiscal 2007 as discontinued operations. Including the impact of discontinued operations, net income was $880.6 million, or $2.00 per share, for fiscal 2009, $771.8 million, or $1.66 per share, for fiscal 2008 and $738.0 million, or $1.55 per share, for fiscal 2007.

 

Segment information: The following is a discussion of the operating results of our business segments. In the United States, our T.J. Maxx and Marshalls stores are aggregated as the Marmaxx segment, and HomeGoods and A.J. Wright each is reported as a separate segment. TJX’s stores operated in Canada (Winners and HomeSense) are reported as the Canadian segment, and TJX’s stores operated in Europe (T.K. Maxx and HomeSense) are reported as the European segment. We evaluate the performance of our segments based on “segment profit or loss,” which we define as pre-tax income before general corporate expense, Provision for Computer Intrusion related costs and interest. “Segment profit or loss,” as we define the term, may not be comparable to similarly titled measures used by other entities. In addition, this measure of performance should not be considered an alternative to net income or cash flows from operating activities as an indicator of our performance or as a measure of liquidity. Presented below is selected financial information related to our business segments:

 

Marmaxx:

 

 

Net sales at Marmaxx increased 3% in fiscal 2009 as compared to fiscal 2008. Same store sales for Marmaxx were flat in fiscal 2009 compared to a 1% same store sales increase in fiscal 2008.

 

Sales at Marmaxx for fiscal 2009 reflected increased customer traffic offset by a decrease in the value of the average transaction. Categories that posted same store sales increases included footwear and accessories, children’s clothing and dresses. During fiscal 2009, we added expanded footwear departments to approximately 220 Marshalls stores, which nearly completes the expansion of footwear departments at Marshalls. Home categories at Marmaxx reported same

 

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store sales decreases in fiscal 2009. Geographically in fiscal 2009, same store sales in the Northeast, Midwest and Mid-Atlantic regions were above the chain average, while same store sales in the West Coast, Florida and the Southeast were below the chain average.

 

Segment profit as a percentage of net sales (“segment margin” or “segment profit margin”) decreased to 9.3% in fiscal 2009 from 9.7% in fiscal 2008. Segment margin was negatively impacted by an increase in occupancy costs as a percentage of net sales (0.5 percentage points) due to deleverage on the flat same store sales. This decrease was partially offset by an increase in merchandise margin (0.1 percentage point) due to increased markon. As of January 31, 2009, average per store inventories, including inventory on hand at distribution centers, were down 4% compared to a 2% decrease at the prior year end. The decreases in average inventories were primarily due to continued focus on maintaining a liquid inventory position.

 

Segment margin for fiscal 2008 increased to 9.7% compared to 9.4% in fiscal 2007. Segment margin was favorably impacted by merchandise margins, which increased 0.4 percentage points (as a percentage of net sales) due to lower markdowns and a higher markon, as well as some expense leverage due to our cost containment measures. These improvements in segment margin were partly offset by an increase in occupancy costs and a planned increase in advertising expense.

 

We expect to open approximately 17 new stores (net of closings) in fiscal 2010, increasing the Marmaxx store base by 1% and increasing its selling square footage by 1%.

 

Canada:

 

 

Net sales for the Canadian segment for fiscal 2009 increased by 5% over fiscal 2008. Currency exchange translation reduced fiscal 2009 sales by approximately $68 million. Same store sales increased 3% in fiscal 2009 compared to a strong increase of 5% in fiscal 2008. Same store sales of outerwear, footwear, jewelry and accessories were above the segment average, while HomeSense same store sales were below the segment average for fiscal 2009.

 

Segment profit for fiscal 2009 increased slightly to $236 million compared to $235 million in fiscal 2008, while segment margin decreased 0.5 percentage points to 11.0%. Currency exchange translation reduced segment profit by $11 million for fiscal 2009, as compared to fiscal 2008. However, because currency translation impacts both sales and expenses, it has little or no impact on segment margin. In addition, the mark-to-market adjustment of inventory related hedges reduced segment profit in fiscal 2009 by $1 million, in contrast to a $5 million benefit of the mark-to-market adjustment of inventory related hedges in fiscal 2008 which adversely impacted segment margin comparisons by 0.3 percentage points. Segment margin for fiscal 2009, reflected increases in distribution center costs and store payroll costs as a percentage of net sales, partially offset by an increase in merchandise margins. In the third quarter of fiscal 2009, Winners opened 2 StyleSense stores, a new concept that offers family footwear and accessories. We anticipate that merchandise margins in the Canadian segment will also decline in fiscal 2010 as a result of foreign

 

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currency exchange, due to the high volume of merchandise purchases by the Canadian segment denominated in U.S. dollars.

 

Segment profit margin for fiscal 2008 increased 1.1 percentage points to 11.5% compared to 10.4% for fiscal 2007. This improvement in segment margin was primarily due to improved expense ratios (leverage from the 5% same store sales increase as well as cost containment initiatives). Currency exchange rates increased segment profit by approximately $24 million for fiscal 2008, as compared to fiscal 2007. Most of this increase was due to currency translation, and as a result, it had no impact on segment margin. The increase in segment profit in fiscal 2008 also included the favorable impact of a mark-to-market adjustment of inventory hedge contracts, which increased segment margin by 0.3 percentage points. The fiscal 2008 segment margin also reflected an increase in merchandise margin, primarily due to increased markon as well as the favorable impact of cost containment initiatives and strong same store sales results on expense ratios.

 

We expect to add a net of 13 stores in Canada in fiscal 2010, which is an increase of 5% and will increase selling square footage by 5%.

 

Europe:

 

 

European net sales for fiscal 2009 increased 1% to $2.2 billion compared to fiscal 2008. Currency exchange rate translation negatively affected fiscal 2009 sales by approximately $282 million. Same store sales increased 4% for fiscal 2009 compared to a 6% increase last year. Same store sales for footwear and accessories and most other women’s apparel categories performed above the chain average, while home fashions were below the chain average.

 

Segment profit for fiscal 2009 increased 8% to $137.6 million, and segment margin increased 0.4 percentage points to 6.1% compared to last year. Currency exchange rate translation negatively affected segment profit by approximately $26 million in fiscal 2009. The increase in segment margin reflects improved merchandise margins, partially offset by an increase in occupancy costs as a percentage of sales and the cost of operations in Germany. We are encouraged by the performance of our German stores but as they are new stores, they reduce the segment margin generated by the more established stores in the U.K. and Ireland. During fiscal 2009, T.K. Maxx added 4 more stores in Germany, following the opening of its first 5 stores in Germany in fiscal 2008. T.K. Maxx also introduced the HomeSense concept into the U.K. with 7 new stores.

 

Segment profit for fiscal 2008 increased 16% to $127.2 million, while segment margin decreased slightly to 5.7% compared to fiscal 2007. Currency exchange rate translation favorably impacted segment profit by approximately $10 million in fiscal 2008, but did not impact the segment profit margin. The opening of 5 stores in Germany reduced segment profit for fiscal 2008 by $11 million and reduced the fiscal 2008 segment margin by 0.6 percentage points, offsetting the slightly improved merchandise margin in the remainder of the segment, as well as the favorable impact of same store sales growth on expense ratios and the segment’s cost containment initiatives.

 

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In fiscal 2010, we plan to open a net of 17 T.K. Maxx stores, including 10 in Germany and 3 HomeSense stores in the U.K. and to expand selling square footage by 8%.

 

HomeGoods:

 

 

HomeGoods’ net sales for fiscal 2009 increased 7% compared to fiscal 2008, and same store sales decreased 3% in fiscal 2009. Sales of home fashions have been particularly impacted by the weak housing market and recession. Segment margin of 2.7% was down from 5.1% for fiscal 2008. Merchandise margins declined in fiscal 2009, primarily due to increased markdowns. In addition, HomeGoods experienced deleverage on operating costs as a result of the decline in same store sales. We are seeking to address the difficult home environment by operating with very lean inventories and focusing on merchandise categories that we believe will resonate with consumers in these difficult times.

 

HomeGoods’ net sales for fiscal 2008 increased 8% compared to fiscal 2007, and same store sales increased 3% in fiscal 2008. Segment margin of 5.1% for fiscal 2008 improved over fiscal 2007, primarily due to improved merchandise margins and the leveraging of expenses, particularly occupancy costs. These segment margin improvements were offset in part by an increase in advertising expenses as a percentage of net sales.

 

In fiscal 2010, we plan to add a net of 4 HomeGoods stores and increase selling square footage by 1%.

 

A.J. Wright:

 

 

A.J. Wright’s net sales increased 7% for fiscal 2009 compared to fiscal 2008, and segment profit increased to $2.9 million compared to a loss of $1.8 million in fiscal 2008. Same store sales increased 4% for fiscal 2009 and A.J. Wright recorded its first segment profit in fiscal 2009 compared to losses in the prior years. We believe A.J. Wright has improved its results through better merchandising and advertising effectiveness, as a result of our improved understanding of A.J. Wright’s customer tastes and spending habits.

 

A.J. Wright’s net sales increased 5% for fiscal 2008 compared to fiscal 2007. A.J. Wright’s same store sales increased 2% for fiscal 2008, and segment loss for fiscal 2008 was $1.8 million compared to $10.3 million for fiscal 2007. This improvement was primarily due to stronger merchandise margin, a reduction in occupancy costs as a percentage of net sales and the impact of cost containment initiatives.

 

As a result of A.J. Wright’s improved results, we plan to increase the rate of store openings for this chain for fiscal 2010, currently planning to add a net of 13 A.J. Wright stores and increase selling square footage by 10%.

 

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General Corporate Expense:

 

 

General corporate expense for segment reporting purposes is those costs not specifically related to the operations of our business segments and is included in selling, general and administrative expenses.

 

General corporate expense in fiscal 2009 versus fiscal 2008 was virtually flat.

 

The comparison of general corporate expense in fiscal 2008 versus fiscal 2007 reflected an increase in corporate support costs in fiscal 2008 and a $5 million charge in fiscal 2007 relating to the cost of a workforce reduction and other termination benefits at the corporate level.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Operating Activities:

 

Net cash provided by operating activities was $1,155 million in fiscal 2009, $1,375 million in fiscal 2008, and $1,213 million in fiscal 2007. The cash generated from operating activities in each of these fiscal years was largely due to operating earnings.

 

Operating cash flows for fiscal 2009 decreased by $220 million as compared to the prior year. Net income, after adjusting for the non-cash impact of depreciation and the sale of Bob’s Stores assets of $31 million in fiscal 2009 (including the benefit of the 53rd week), provided cash of $1,314 million, an increase of $173 million from the adjusted $1,141 million in fiscal 2008. The change in deferred income taxes favorably impacted cash flows in fiscal 2009 by $132 million, while last year’s deferred income taxes reduced cash flows by $102 million. Deferred taxes in fiscal 2008 reflected the non-cash tax benefit of $47 million relating to the establishment of the Computer Intrusion reserve. The favorable impact on deferred income taxes in fiscal 2009 reflected the tax treatment of payments against the Computer Intrusion reserve and favorable impact of tax depreciation. The change in merchandise inventory, net of the related change in accounts payable offset the favorable changes in cash flows in fiscal 2009, as it resulted in a use of cash of $210 million in fiscal 2009, compared to a source of cash of $5 million last year. The change in merchandise inventories and accounts payable in fiscal 2009 was primarily driven by a timing difference in the payment of our accounts payable due to change in our buying pattern. The change in accrued expenses and other liabilities resulted in a use of cash of $35 million in fiscal 2009 versus a source of cash of $203 million in fiscal 2008. Last year, the increase in accrued expenses and other liabilities reflected $117 million for the pre-tax reserve established for the Computer Intrusion, which favorably impacted cash flows, while fiscal 2009’s cash flows were reduced by $75 million for payments against and adjustments to the reserve. Changes in current income taxes payable/recoverable reduced cash in fiscal 2009 by $49 million compared to an increase of $56 million in fiscal 2008 and the change in prepaid expenses reduced fiscal 2009 operating cash flows by an additional $65 million, primarily due to the timing of February rental payments.

 

Operating cash flows for fiscal 2008 increased by $162 million over the prior year. Net income, after adjusting for the non-cash impact of depreciation, for fiscal 2008 increased $50 million. The change in inventory, net of accounts payable, from prior year-end levels was a significant component of operating cash flows. In fiscal 2008, the change in merchandise inventory, net of the related change in accounts payable, favorably impacted operating cash flows by $5 million compared to a use of cash of $151 million in fiscal 2007. Additionally, fiscal 2008 operating cash flows were favorably impacted by the change in income taxes payable. These increases in fiscal 2008 operating cash flows as compared to fiscal 2007 were offset by the unfavorable cash flow impact of the deferred income tax provision, changes in accrued expenses and other liabilities and changes in accounts receivable.

 

Discontinued operations reserve: We have a reserve for future obligations of discontinued operations that relates primarily to real estate leases associated with the closure of 34 A.J. Wright stores as well as leases of former TJX businesses. In fiscal 2009, we reserved an additional $3 million for 2 Bob’s Stores locations, which the buyer of Bob’s

 

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Stores has the right to put back to us and which we consider probable. This was offset by a comparable amount due to favorable settlements on several A.J. Wright locations. The balance in the reserve and the activity for the last three fiscal years is presented below:

 

 

We added $62 million in fiscal 2007 for the exit costs related to the closing of 34 A.J. Wright stores (see Note C to our consolidated financial statements). The additions to the reserve for other lease related obligations in fiscal 2007 were the result of periodic adjustments to the estimated lease obligations of our former businesses and were offset by income from creditor recoveries of a similar amount. The lease related charges against the reserve during fiscal 2007 related primarily to our former businesses. The fixed asset write-offs and other charges against the reserve for fiscal 2007 and all of the charges against the reserve in fiscal 2008 and fiscal 2009, related primarily to the 34 A.J. Wright closed stores.

 

Approximately $25 million of the fiscal 2009 reserve balance relates to the A.J. Wright store closings, primarily our estimation of lease costs, net of estimated subtenant income. Approximately $3 million of the reserve at fiscal 2009 relates to 2 Bob’s Stores locations which are considered probable for being put back to TJX by the buyer. The remainder of the reserve reflects our estimation of the cost of claims, updated quarterly, that have been, or we believe are likely to be, made against us for liability as an original lessee or guarantor of the leases of former businesses, after mitigation of the number and cost of these lease obligations. At January 31, 2009, substantially all the leases of former businesses that were rejected in bankruptcy and for which the landlords asserted liability against us had been resolved. The actual net cost of these lease obligations may differ from our original estimate. Although our actual costs with respect to the lease obligations of former businesses may exceed amounts estimated in our reserve, and we may incur costs for leases from these former businesses that were not terminated or had not expired, we do not expect to incur any material costs related to these discontinued operations in excess of the amounts estimated. We estimate that the majority of the discontinued 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.

 

We may also be contingently liable on up to 15 leases of BJ’s Wholesale Club, a former TJX business, and 8 additional Bob’s Stores leases. Our reserve for discontinued operations does not reflect these leases because we do not believe that the likelihood of any future liability to us is probable.

 

Off-balance sheet liabilities: We have contingent obligations on leases, for which we were a lessee or guarantor, which were assigned to third parties without TJX being released by the landlords. Over many years, we have assigned numerous leases that we originally leased or guaranteed to a significant number of third parties. With the exception of leases of our former businesses discussed above, we have rarely had a claim with respect to assigned leases, and accordingly, we do not expect that such leases will have a material adverse effect on our financial condition, results of operations or cash flows. We do not generally have sufficient information about these leases to estimate our potential contingent obligations under them, which could be triggered in the event that one or more of the current tenants does not fulfill their obligations related to one or more of these leases.

 

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We also have contingent obligations in connection with some assigned or sublet properties that we are able to estimate. We estimate the undiscounted obligations, not reflected in our reserves, of leases of closed stores of continuing operations, BJ’s Wholesale Club and Bob’s Stores leases discussed above, and properties of our discontinued operations that we have sublet, if the subtenants did not fulfill their obligations, to be approximately $100 million as of January 31, 2009. We believe that most or all of these contingent obligations will not revert to us and, to the extent they do, will be resolved for substantially less due to mitigating factors.

 

We are a party to various agreements under which we may be obligated to indemnify other parties with respect to breach of warranty or losses related to such matters as title to assets sold, specified environmental matters or certain income taxes. These obligations are typically limited in time and amount. There are no amounts reflected in our balance sheets with respect to these contingent obligations.

 

Investing Activities:

 

Our cash flows for investing activities include capital expenditures for the last three years as set forth in the table below:

 

 

We expect that capital expenditures will approximate $450 million for fiscal 2010, which we expect to fund through internally generated funds. This includes $153 million for new stores, $182 million for store renovations, expansions and improvements and $115 million for our office and distribution centers. The planned decrease in capital expenditures is attributable to fewer planned store openings and reduced spending on renovations and improvements to existing stores.

 

Investing activities also include cash flows associated with our net investment hedges. During fiscal 2009, we suspended our policy of hedging the net investment in our foreign subsidiaries and settled such hedges during the fourth quarter. The net cash received on net investment hedges during fiscal 2009 amounted to $14.4 million versus net cash payments of $13.7 million in fiscal 2008 and $17.7 million in fiscal 2007.

 

Financing Activities:

 

Cash flows from financing activities resulted in net cash outflows of $769 million in fiscal 2009, $953 million in fiscal 2008 and $418 million in fiscal 2007. The majority of this outflow relates to our share repurchase program.

 

We spent $741 million in fiscal 2009, $950 million in fiscal 2008 and $557 million in fiscal 2007 under our stock repurchase programs. We repurchased 24.0 million shares in fiscal 2009, 33.3 million shares in fiscal 2008 and 22.0 million shares in fiscal 2007. All shares repurchased were retired. We record the repurchase of our stock on a cash basis, and the amounts reflected in the financial statements may vary from the above due to the timing of the settlement of our repurchases. Our fiscal 2009 repurchases completed the $1 billion stock repurchase program approved by the Board of Directors in January 2007 and included the repurchase of 8.9 million shares at a cost of $255 million under the $1 billion stock repurchase program approved by the Board of Directors in February 2008. As of January 31, 2009, $745 million remained available for purchase under the current program. The timing of purchases under this program is determined by TJX from time to time based on its assessment of various factors including excess cash flow, liquidity and market conditions. We are taking a more conservative approach to our stock repurchase program and currently plan to repurchase up to approximately $250 million of our stock in fiscal 2010. This timing and amount of these purchases are subject to change depending upon the economic environment and other factors.

 

The $464.9 million aggregate principal amount outstanding of our zero coupon convertible subordinated notes (which are due in February 2021) are convertible into 15.2 million shares of common stock under certain conditions,

 

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including if the closing sale price of our common stock reaches specified trigger prices. The trigger price was met during a portion of fiscal 2009 and 52,552 notes were converted during fiscal 2009, resulting in the issuance of 1.7 million shares of common stock. The notes were not convertible during the fourth quarter of fiscal 2009 because our stock price did not meet the trigger prices during relevant periods. The trigger prices will have to be met during applicable future periods for the notes to be convertible in future quarters.

 

We declared quarterly dividends on our common stock which totaled $0.44 per share in fiscal 2009, $0.36 per share in fiscal 2008 and $0.28 per share in fiscal 2007. Cash payments for dividends on our common stock totaled $177 million in fiscal 2009, $151 million in fiscal 2008 and $123 million in fiscal 2007. Financing activities also included proceeds of $142 million in fiscal 2009, $134 million in fiscal 2008 and $260 million in fiscal 2007 from the exercise of employee stock options.

 

We traditionally have funded our seasonal merchandise requirements through cash generated from operations, short-term bank borrowings and the issuance of short-term commercial paper. We have a $500 million revolving credit facility maturing in May 2010 and a $500 million revolving credit facility maturing in May 2011. These agreements have no compensating balance requirements and have various covenants including a requirement of a specified ratio of debt to earnings. These agreements serve as backup to our commercial paper program. As of January 31, 2009 there were no outstanding amounts under our credit facilities. The maximum amount of our U.S. short-term borrowings outstanding was $222 million during fiscal 2009. The weighted average interest rate on our U.S. short-term borrowings was 3.92% in fiscal 2009. There were no borrowings on our credit facilities during fiscal 2008.

 

As of January 31, 2009 and January 26, 2008, Winners had two credit lines, one for C$10 million for operating expenses and one C$10 million letter of credit facility. Winners did not borrow under the credit line for operating expenses in fiscal 2009. The maximum amount outstanding under our Canadian credit line for operating expenses was C$5.7 million in fiscal 2008 and C$3.8 million in fiscal 2007. There were no amounts outstanding on this line at the end of fiscal 2009 or fiscal 2008. As of January 31, 2009, T.K. Maxx had a credit line of £20 million. The maximum amount outstanding was £6.1 million in fiscal 2009 and £16.4 million in fiscal 2008. There were no outstanding borrowings on this credit line at the end of fiscal 2009 or fiscal 2008.

 

We believe that internally generated funds and our current credit facilities are more than adequate to meet our operating, debt and capital needs for at least the next twelve months. See Note D to the consolidated financial statements for further information regarding our long-term debt and other financing sources.

 

Contractual obligations: As of January 31, 2009, we had payment obligations (including current installments) under long-term debt arrangements, leases for property and equipment and purchase obligations that will require cash outflows as follows (in thousands):

 

 

The long-term debt obligations above include estimated interest costs and assume that all holders of the zero coupon convertible subordinated notes exercise their put options in fiscal 2014. If none of the put options are exercised and the notes are not redeemed or converted, the notes will mature in fiscal 2022. The effect of the interest rate swap agreements was estimated based on their values as of January 31, 2009.

 

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The lease commitments in the above table are for minimum rent and do not include costs for insurance, real estate taxes, other operating expenses and, in some cases, rentals based on a percentage of sales, which together were approximately one-third of the total minimum rent for the fiscal year ended January 31, 2009.

 

Our purchase obligations primarily consist of purchase orders for merchandise; purchase orders for capital expenditures, supplies and other operating needs; commitments under contracts for maintenance needs and other services; and commitments under executive employment and other agreements. We excluded long-term agreements for services and operating needs that can be cancelled without penalty.

 

We also have long-term liabilities which include $272.9 million for employee compensation and benefits, the majority of which will come due beyond five years, $137.9 million for accrued rent, the cash flow requirements of which are included in the lease commitments in the above table and $240.6 million for uncertain tax positions for which it is not reasonably possible to predict when it may be paid.

 

 

CRITICAL ACCOUNTING POLICIES

 

We must evaluate and select applicable accounting policies. We consider our most critical accounting policies, involving management estimates and judgments, to be those relating to the areas described below. We believe that we have selected the most appropriate assumptions in each of the following areas and that the results we would have obtained, had alternative assumptions been selected, would not be materially different from the results we have reported.

 

Inventory valuation: We use the retail method for valuing inventory on a first-in first-out basis. Under the retail method, the cost value of inventory and gross margins are determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory. This method is widely used in the retail industry and involves management estimates with regard to such things as markdowns and inventory shrinkage. A significant factor involves the recording and timing of permanent markdowns. Under the retail method, permanent markdowns are reflected in the inventory valuation when the price of an item is changed. We believe the retail method results in a more conservative inventory valuation than other accounting methods. In addition, as a normal business practice, we have a specific policy as to when markdowns are to be taken, greatly reducing the need for management estimates. Inventory shortage involves estimating a shrinkage rate for interim periods, but is based on a full physical inventory near the fiscal year end. Thus, the difference between actual and estimated amounts may cause fluctuations in quarterly results, but is not a significant factor in full year results. Overall, we believe that the retail method, coupled with our disciplined permanent markdown policy and a full physical inventory taken at each fiscal year end, results in an inventory valuation that is fairly stated. Lastly, many retailers have arrangements with vendors that provide for rebates and allowances under certain conditions, which ultimately affect the value of the inventory. Our off-price businesses have historically not entered into such arrangements with our vendors.

 

Impairment of long-lived assets: We review the recoverability of the carrying value of our long-lived assets at least annually and whenever events or circumstances occur that would indicate that their carrying amounts are not recoverable. Significant judgments are involved in projecting the cash flows of individual stores and our business units and involve a number of factors including historical trends, recent performance and general economic assumptions. If it is determined that an impairment of long-lived assets has occurred, we record an impairment charge equal to the excess of the carrying value of the assets over the estimated fair value of the assets.

 

Retirement obligations: Retirement costs are accrued over the service life of an employee and represent, in the aggregate, obligations that will ultimately be settled far in the future and are therefore subject to estimates. We are required to make assumptions regarding variables, such as the discount rate for valuing pension obligations and the long-term rate of return assumed to be earned on pension assets, both of which impact the net periodic pension cost for the period. The discount rate, which we determine annually based on market interest rates, and our estimated long-term rate of return, which can differ considerably from actual returns, are two factors that can have a considerable impact on the annual cost of retirement benefits and the funded status of our qualified pension plan. The market performance on plan assets during fiscal 2009 was considerably worse than our expected return and as a result the

 

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unfunded status of our qualified plan increased significantly. Despite this we were not required to fund our plan during fiscal 2009, primarily due to voluntary funding in prior years. As of the date of this report we have funded $50 million into the qualified pension plan and may make additional voluntary contributions during fiscal 2010.

 

Share based compensation: In accordance with SFAS No. 123 (revised 2004) “Share-Based Payment” (“SFAS No. 123R”) TJX estimates the fair value of stock awards issued to employees and directors under its stock incentive plan. The fair value of the awards is amortized as “stock compensation cost” over the vesting periods during which the recipients are required to provide service. We use the Black Scholes method for determining the fair value of stock options granted which requires management to make significant judgments and estimates. The use of different assumptions and estimates could have a material impact on the estimated fair value of stock option grants and the related expense.

 

Casualty insurance: In July 2007, we entered into a fixed premium program for our casualty insurance. Our casualty insurance program prior to 2007 required us to estimate the total claims we will incur as a component of our annual insurance cost. The estimated claims are developed, with the assistance of an actuary, based on historical experience and other factors. These estimates involve significant judgments and assumptions and actual results could differ from these estimates. If our estimate for the claims component of our casualty insurance expense for fiscal 2009 were to change by 10%, the fiscal 2009 pre-tax cost would increase or decrease by approximately $2 million. A large portion of these claims are funded with a non-refundable payment during the policy year, offsetting our estimated claims accrual. We had a net accrual of $20.8 million for the unfunded portion of our casualty insurance program as of January 31, 2009.

 

Income taxes:  Like many large corporations, our income tax returns are regularly audited by federal, state and local tax authorities in the United States and in foreign countries where we operate. Such authorities may challenge positions we take, and we are engaged in various proceedings with such authorities with respect to assessments, claims, deficiencies and refunds. In accordance with generally accepted accounting principles, we evaluate uncertain tax positions based on our evaluation of the facts, circumstances and information available at the reporting date and we accrue for exposures when we believe that it is more likely than not, based on the technical merits, that the positions will not be sustained upon examination. However, it is possible that the actual results of proceedings with tax authorities and in courts, changes in facts, expiration of statutes of limitations or other resolutions of tax positions will differ from the amounts we have accrued in either a positive or a negative manner, which could materially affect our effective income tax rate in a given financial period, the amount of taxes we are required to pay and our results of operations.

 

Reserves for Computer Intrusion related costs and for discontinued operations: As discussed in Note B and Note M to the consolidated financial statements and elsewhere in the Management’s Discussion and Analysis, we have reserves established for probable losses arising out of the Computer Intrusion and for leases relating to operations discontinued by us where we were the original lessee or a guarantor and which have been assigned or sublet to third parties. The Computer Intrusion reserve requires us to make estimates and assumptions about the outcome and costs of claims, litigation and investigations and costs and expenses we will incur. We make these estimates based on our best judgments of the outcome of such claims, litigation and investigation and the amount of such costs and expenses. The leases relating to discontinued operations are long-term obligations and the estimated cost to us involves numerous estimates and assumptions including whether and for how long we remain obligated with respect to a particular lease the extent to which an assignee or subtenant will assume our obligations under the leases, amounts of subtenant income, how a particular obligation may ultimately be settled and what mitigating factors, including indemnification, may exist to any liability. We develop these assumptions based on past experience and by evaluating various probable outcomes and the circumstances surrounding each situation and location. We believe that our current reserves are a reasonable estimate of the most likely outcomes and that the reserves should be adequate to cover the ultimate cash costs we will incur. However, actual results may differ from our current estimates, and such differences could be material. We may decrease or increase the amount of our reserves to adjust for developments relating to the underlying assumptions.

 

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Loss contingencies: Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to us but which will not be resolved until one or more future events occur or fail to occur. Our management, where relevant, with the assistance of our legal counsel, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or claims that may result in such proceedings, our legal counsel assists us in evaluating the perceived merits of any legal proceedings or claims as well as the perceived merits of the relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then we will disclose the nature of the contingent liability, together with an estimate of the range of the possible loss or a statement that such loss is not estimable.

 

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

See Note A to our consolidated financial statements included in this annual report for recently issued accounting standards, including the expected dates of adoption and estimated effects on our consolidated financial statements.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

We do not enter into derivatives for speculative or trading purposes.

 

 

FOREIGN CURRENCY EXCHANGE RISK

 

We are exposed to foreign currency exchange rate risk on our investment in our Canadian (Winners and HomeSense) and European (T.K. Maxx and HomeSense) operations and on the translation of these foreign operations into the U. S. dollar. As more fully described in Notes A and E to the consolidated financial statements to the Annual Report on Form 10-K for the fiscal year ended January 31, 2009, we hedge a significant portion of our intercompany transactions with foreign operations and certain merchandise purchase commitments incurred by these operations, with derivative financial instruments. During fiscal 2009 we ceased hedging our net investment position in our foreign operations. We enter into derivative contracts only when there is an underlying economic exposure. We utilize currency forward and swap contracts, designed to offset the gains or losses in the underlying exposures. The contracts are executed with banks we believe are creditworthy and are denominated in currencies of major industrial countries. We have performed a sensitivity analysis assuming a hypothetical 10% adverse movement in foreign currency exchange rates applied to the hedging contracts and the underlying exposures described above as well as the translation of our foreign operations into our reporting currency. As of January 31, 2009, the analysis indicated that such an adverse movement would not have a material effect on our consolidated financial position but could have reduced our pre-tax income from continuing operations for fiscal 2009 by approximately $37 million.

 

 

INTEREST RATE RISK

 

Our cash equivalents and short-term investments and certain lines of credit bear variable interest rates. Changes in interest rates affect interest earned and paid by us. In addition, changes in the gross amount of our borrowings and future changes in interest rates will affect our future interest expense. We occasionally enter into financial instruments to manage our cost of borrowing; however, we believe that the use of primarily fixed rate debt minimizes our exposure to market conditions. We have performed a sensitivity analysis assuming a hypothetical 10% adverse movement in interest rates applied to the maximum variable rate debt outstanding. As of January 31, 2009, the analysis indicated that such an adverse movement would not have a material effect on our consolidated financial position, results of operations or cash flows.

 

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EQUITY PRICE RISK

 

The assets of our qualified pension plan, a large portion of which is invested in equity securities, are subject to the risks and uncertainties of the public stock market. We allocate the pension assets in a manner that attempts to minimize and control our exposure to these market uncertainties. Investments, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. As a result of the significant decline in the capital markets in 2009 the value of our pension plan assets decreased substantially increasing the unfunded status of our plan and reducing shareholder’s equity on our balance sheet.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The information required by this item may be found on pages F-1 through F-34 of this Annual Report on Form 10-K.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Not applicable.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of implementing possible controls and procedures.

 

(b) Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of fiscal 2009 identified in connection with our Chief Executive Officer’s and Chief Financial Officer’s evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

(c) Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

 

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Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 31, 2009 based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, management concluded that its internal control over financial reporting was effective as of January 31, 2009.

 

(d) Attestation Report of the Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited and reported on our consolidated financial statements contained herein, has audited the effectiveness of our internal control over financial reporting as of January 31, 2009, and has issued an attestation report on the effectiveness of our internal control over financial reporting included herein.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

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Part III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following are the Executive Officers of TJX as of March 31, 2009:

 

 

All officers hold office until the next annual meeting of the Board in June 2009 and until their successors are elected, or appointed, and qualified.

 

TJX will file with the Securities and Exchange Commission a definitive proxy statement no later than 120 days after the close of its fiscal year ended January 31, 2009 (the Proxy Statement). The information required by this Item and not given in this Item will appear under the headings “Election of Directors,” “Corporate Governance,” “Audit Committee Report” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement, which sections are incorporated in this item by reference.

 

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TJX has a Code of Ethics for TJX Executives governing its Chairman, Vice Chairman, Chief Executive Officer, President, Chief Administrative Officer, Chief Financial Officer, Principal Accounting Officer and other senior operating, financial and legal executives. The Code of Ethics for TJX Executives is designed to ensure integrity in its financial reports and public disclosures. TJX also has a Code of Conduct and Business Ethics for Directors which promotes honest and ethical conduct, compliance with applicable laws, rules and regulations and the avoidance of conflicts of interest. Both of these codes of conduct are published at www.tjx.com. We intend to disclose any future amendments to, or waivers from, the Code of Ethics for TJX Executives or the Code of Business Conduct and Ethics for Directors within four business days of the waiver or amendment through a website posting or by filing a Current Report on Form 8-K with the Securities and Exchange Commission.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The information required by this Item will appear under the heading “Executive Compensation” in our Proxy Statement, which section is incorporated in this item by reference.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required by this Item will appear under the heading “Beneficial Ownership” in our Proxy Statement, which section is incorporated in this item by reference.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by this Item will appear under the headings “Transactions with Related Persons” and “Corporate Governance” in our Proxy Statement, which sections are incorporated in this item by reference.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The information required by this Item will appear under the heading “Audit Committee Report” in our Proxy Statement, which section is incorporated in this item by reference.

 

 

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Part IV

 

 

 

(a) Financial Statement Schedules

 

For a list of the consolidated financial information included herein, see Index to the Consolidated Financial Statements on page F-1.