FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
/X/ Quarterly Report under Section 13 and 15(d)
Of the Securities Exchange Act of 1934
Or
/ / Transition Report Pursuant to Section 13 and 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended July 27, 2002
Commission file number 1-4908
The TJX Companies, Inc.
(Exact name of registrant as specified in its charter)
| DELAWARE | 04-2207613 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
| 770 Cochituate Road | ||
| Framingham, Massachusetts | 01701 | |
| (Address of principal executive offices) | (Zip Code) |
(508) 390-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
The number of shares of Registrant’s common stock outstanding as of August 24, 2002: 528,211,936
1
PART I FINANCIAL INFORMATION
THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
| Thirteen Weeks Ended | ||||||||||
| July 27, | July 28, | |||||||||
| 2002 | 2001 | |||||||||
Net sales |
$ | 2,765,089 | $ | 2,487,622 | ||||||
Cost of sales, including buying and occupancy costs |
2,078,736 | 1,894,704 | ||||||||
Selling, general and administrative expenses |
469,528 | 406,442 | ||||||||
Interest expense, net |
5,963 | 5,688 | ||||||||
Income before provision for income taxes |
210,862 | 180,788 | ||||||||
Provision for income taxes |
81,235 | 68,880 | ||||||||
Net income |
$ | 129,627 | $ | 111,908 | ||||||
Earnings per share: |
||||||||||
Net income: |
||||||||||
Basic |
$ | .24 | $ | .20 | ||||||
Diluted |
$ | .24 | $ | .20 | ||||||
Cash dividends declared per share |
$ | .03 | $ | .0225 | ||||||
The accompanying notes are an integral part of the financial statements.
2
PART I FINANCIAL INFORMATION
THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
| Twenty-Six Weeks Ended | ||||||||||
| July 27, | July 28, | |||||||||
| 2002 | 2001 | |||||||||
Net sales |
$ | 5,430,776 | $ | 4,758,517 | ||||||
Cost of sales, including buying and occupancy costs |
4,067,566 | 3,581,320 | ||||||||
Selling, general and administrative expenses |
902,544 | 786,713 | ||||||||
Interest expense, net |
12,157 | 9,904 | ||||||||
Income before provision for income taxes |
448,509 | 380,580 | ||||||||
Provision for income taxes |
171,779 | 145,001 | ||||||||
Net income |
$ | 276,730 | $ | 235,579 | ||||||
Earnings per share: |
||||||||||
Net income: |
||||||||||
Basic |
$ | .51 | $ | .42 | ||||||
Diluted |
$ | .51 | $ | .42 | ||||||
Cash dividends declared per share |
$ | .06 | $ | .045 | ||||||
The accompanying notes are an integral part of the financial statements.
3
THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
IN THOUSANDS
| July 27, | January 26, | July 28, | ||||||||||||
| 2002 | 2002 | 2001 | ||||||||||||
ASSETS |
||||||||||||||
Current assets: |
||||||||||||||
Cash and cash equivalents |
$ | 292,644 | $ | 492,776 | $ | 138,617 | ||||||||
Accounts receivable, net |
69,905 | 69,209 | 68,743 | |||||||||||
Merchandise inventories |
1,771,378 | 1,456,976 | 1,854,626 | |||||||||||
Prepaid expenses and other current assets |
142,173 | 84,962 | 71,333 | |||||||||||
Current deferred income taxes, net |
13,425 | 12,003 | 31,997 | |||||||||||
Total current assets |
2,289,525 | 2,115,926 | 2,165,316 | |||||||||||
Property at cost: |
||||||||||||||
Land and buildings |
162,434 | 144,958 | 134,385 | |||||||||||
Leasehold costs and improvements |
941,144 | 880,791 | 766,697 | |||||||||||
Furniture, fixtures and equipment |
1,303,915 | 1,210,366 | 1,085,137 | |||||||||||
| 2,407,493 | 2,236,115 | 1,986,219 | ||||||||||||
Less accumulated depreciation and amortization |
1,170,306 | 1,076,196 | 1,000,959 | |||||||||||
| 1,237,187 | 1,159,919 | 985,260 | ||||||||||||
Property under capital lease, net of accumulated
amortization of $2,606, $1,489 and $372, respectively |
29,966 | 31,083 | 32,200 | |||||||||||
Other assets |
78,287 | 83,139 | 71,404 | |||||||||||
Non-current deferred income taxes, net |
6,500 | 26,575 | 5,512 | |||||||||||
Goodwill and tradename, net of amortization |
179,120 | 179,101 | 182,064 | |||||||||||
TOTAL ASSETS |
$ | 3,820,585 | $ | 3,595,743 | $ | 3,441,756 | ||||||||
LIABILITIES |
||||||||||||||
Current liabilities: |
||||||||||||||
Current installments of long-term debt |
$ | — | $ | — | $ | 19 | ||||||||
Obligation under capital lease due within one year |
1,295 | 1,244 | 1,204 | |||||||||||
Short-term debt |
— | — | 2,891 | |||||||||||
Accounts payable |
962,945 | 761,546 | 898,675 | |||||||||||
Accrued expenses and other current liabilities |
507,932 | 510,270 | 421,149 | |||||||||||
Federal and state income taxes payable |
77,853 | 41,950 | 40,787 | |||||||||||
Total current liabilities |
1,550,025 | 1,315,010 | 1,364,725 | |||||||||||
Other long-term liabilities |
241,347 | 237,656 | 167,901 | |||||||||||
Obligation under capital lease, less portion due within one year |
29,675 | 30,336 | 30,962 | |||||||||||
Long-term debt, exclusive of current installments |
675,784 | 672,043 | 669,379 | |||||||||||
Commitments and contingencies |
||||||||||||||
SHAREHOLDERS’ EQUITY |
||||||||||||||
Common stock, authorized 1,200,000,000 shares,
par value $1, issued and outstanding 529,671,125;
271,537,653 and 273,965,508 shares, respectively |
529,671 | 271,538 | 273,966 | |||||||||||
Additional paid-in capital |
— | — | — | |||||||||||
Accumulated other comprehensive income (loss) |
(6,513 | ) | (6,755 | ) | (2,961 | ) | ||||||||
Retained earnings |
800,596 | 1,075,915 | 937,784 | |||||||||||
Total shareholders’ equity |
1,323,754 | 1,340,698 | 1,208,789 | |||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 3,820,585 | $ | 3,595,743 | $ | 3,441,756 | ||||||||
The accompanying notes are an integral part of the financial statements.
4
THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
IN THOUSANDS
| Twenty-Six Weeks Ended | |||||||||||
| July 27, | July 28, | ||||||||||
| 2002 | 2001 | ||||||||||
Cash flows from operating activities: |
|||||||||||
Net income |
$ | 276,730 | $ | 235,579 | |||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
|||||||||||
Depreciation and amortization |
101,506 | 99,877 | |||||||||
Loss on property disposals and impairments |
2,762 | 1,203 | |||||||||
Deferred income tax provision |
19,075 | 9,882 | |||||||||
Tax benefit of employee stock options |
6,569 | 13,906 | |||||||||
Changes in assets and liabilities: |
|||||||||||
(Increase) in accounts receivable |
(554 | ) | (6,977 | ) | |||||||
(Increase) in merchandise inventories |
(301,988 | ) | (405,314 | ) | |||||||
(Increase) decrease in prepaid expenses and other current assets |
(52,011 | ) | 10,114 | ||||||||
Increase in accounts payable |
194,790 | 254,916 | |||||||||
(Decrease) in accrued expenses and other liabilities |
(24,889 | ) | (78,049 | ) | |||||||
Increase (decrease) in income taxes payable |
35,991 | (1,250 | ) | ||||||||
Other, net |
(9,944 | ) | (2,095 | ) | |||||||
Net cash provided by operating activities |
248,037 | 131,792 | |||||||||
Cash flows from investing activities: |
|||||||||||
Property additions |
(158,922 | ) | (171,323 | ) | |||||||
Issuance of note receivable |
— | (4,784 | ) | ||||||||
Proceeds from repayments on notes receivable |
277 | — | |||||||||
Net cash (used in) investing activities |
(158,645 | ) | (176,107 | ) | |||||||
Cash flows from financing activities: |
|||||||||||
Proceeds from current borrowings of short-term debt, net |
— | 2,876 | |||||||||
Payments on short-term debt outstanding from prior year |
— | (39,000 | ) | ||||||||
Proceeds from borrowing of long-term debt |
— | 347,579 | |||||||||
Payments on capital lease obligation |
(610 | ) | (406 | ) | |||||||
Principal payments on long-term debt |
— | (54 | ) | ||||||||
Cash payments for repurchase of common stock |
(274,492 | ) | (259,776 | ) | |||||||
Proceeds from sale and issuance of common stock |
13,891 | 23,427 | |||||||||
Cash dividends paid |
(28,407 | ) | (23,692 | ) | |||||||
Net cash (used in) provided by financing activities |
(289,618 | ) | 50,954 | ||||||||
Effect of exchange rate changes on cash |
94 | (557 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents |
(200,132 | ) | 6,082 | ||||||||
Cash and cash equivalents at beginning of year |
492,776 | 132,535 | |||||||||
Cash and cash equivalents at end of period |
$ | 292,644 | $ | 138,617 | |||||||
The accompanying notes are an integral part of the financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | The results for the first six months are not necessarily indicative of results for the full fiscal year, because TJX’s business, in common with the businesses of retailers generally, is subject to seasonal influences, with higher levels of sales and income generally realized in the second half of the year. | |
| 2. | The preceding data are unaudited and in the opinion of management reflect all normal recurring adjustments, the use of retail statistics, and accruals and deferrals among periods required to match costs properly with the related revenue or activity, considered necessary by TJX for a fair presentation of its financial statements for the periods reported, all in accordance with generally accepted accounting principles and practices consistently applied. | |
| 3. | On April 10, 2002, the Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend. The split shares were distributed on May 8, 2002 to shareholders of record on April 25, 2002 and resulted in the issuance of 269.4 million shares of common stock. The stock split was recorded in the second quarter of fiscal 2003, the period it was distributed; however all historical per share amounts and basic and diluted share amounts utilized in the calculation of earnings per share have been restated to reflect the two-for-one stock split. | |
| 4. | TJX’s cash payments for interest and income taxes are as follows: |
| Twenty-Six Weeks Ended | |||||||||
| July 27, | July 28, | ||||||||
| 2002 | 2001 | ||||||||
| (In thousands) | |||||||||
Cash paid for: |
|||||||||
Interest on debt |
$ | 13,682 | $ | 12,987 | |||||
Income taxes |
$ | 106,955 | $ | 121,551 | |||||
| 5. | TJX has a reserve for future obligations relating primarily to real estate leases of House2Home, Inc. and Zayre Stores, both of which were previously owned by TJX, for which TJX or a subsidiary is a lessee or guarantor. Both of these operations have filed for relief under Chapter 11 of the Federal Bankruptcy Code and are in liquidation. The reserves were established at various times subsequent to the disposition when the operation suffered significant financial distress. These reserves reflect the estimated cost to TJX of these potential lease obligations. The reserves reflect the fact that the number and cost of the lease obligations for which TJX may have liability will be reduced by various mitigating factors including assignments to third parties, lease terminations, expirations, subletting, buyouts, modifications and other actions, legal defenses, use by TJX for its own store opening program, and indemnification by BJ’s Wholesale Club, Inc. in the case of House2Home leases. | |
| House2Home (formerly known as Waban, Inc., HomeClub, Inc. and HomeBase, Inc.) was spun-off by TJX in 1989, along with BJ’s Wholesale Club. In 1997, House2Home spun-off BJ’s Wholesale Club, Inc., and BJ’s Wholesale Club agreed to indemnify TJX for all liabilities relating to the House2Home leases with respect to the period through January 31, 2003, and 50% of such liabilities thereafter. On November 7, 2001, House2Home, Inc. filed for a voluntary petition for relief under Chapter 11 of the Federal Bankruptcy Code and is liquidating its business. At the time of House2Home’s announcement TJX believed there were up to 41 leases for which it could be liable. As of July 27, 2002, this number had been reduced to up to 31 leases as a result of assignments to third parties, negotiated buyouts and lease expirations. As of July 27, 2002, the total present value of the after-tax cost of the remaining 31 leases for which TJX may have liability, was approximately $50 million without reflecting any mitigating factors other than indemnification by BJ’s Wholesale Club. |
6
| TJX completed the sale of its former Zayre Stores division to Ames Department Stores, Inc. in 1988. In a 1992 bankruptcy reorganization of Ames, many former Zayre leases were disposed of by Ames or TJX through assignments and buyouts. There were also a small number of leases assumed by TJX, which have been mitigated through subletting, the net cost of which is charged to the reserve. On August 20, 2001, Ames again filed a voluntary petition for relief under Chapter 11 of the Federal Bankruptcy Code and on August 14, 2002, announced its intention to liquidate its business. As of July 27, 2002, Ames had rejected five leases for which TJX may be liable, of which TJX settled one by a negotiated buyout. At the time of the 2001 Ames bankruptcy announcement, TJX believed that there were up to approximately 60 to 90 leases of former Zayre stores for which TJX may have contingent obligations. Based on information received from Ames, TJX believes there remain up to approximately 60 to 70 leases for which TJX may have contingent obligations. TJX believes that most of the leases for which it may have contingent obligations have favorable terms and that any future liability to TJX with respect to these leases will be minimal. | ||
| TJX is also contingently liable on up to 25 leases of BJ’s Wholesale Club, Inc. for which BJ’s Wholesale Club, Inc. is primarily liable. TJX believes that the likelihood of any future liability to TJX with respect to these leases is remote due to the current financial condition of BJ’s Wholesale Club. | ||
| The reserve for discontinued operations as of July 27, 2002 and July 28, 2001 is summarized below: |
| Twenty-Six Weeks Ended | ||||||||
| July 27, | July 28, | |||||||
| In Thousands | 2002 | 2001 | ||||||
Balance at beginning of year |
$ | 87,284 | $ | 25,512 | ||||
Charges against the reserve: |
||||||||
Lease related obligations |
(10,005 | ) | (2,037 | ) | ||||
All
other (charges)/credits |
875 | 197 | ||||||
Balance at end of period |
$ | 78,154 | $ | 23,672 | ||||
| TJX believes that its reserve for discontinued operations is adequate to meet the costs it may incur with respect to the House2Home and Ames leases and that the future liability to TJX with respect to these leases will not have a material adverse effect on its financial condition, operating results or cash flows. |
7
| 6. | TJX’s comprehensive income for the periods ended July 27, 2002 and July 28, 2001 is presented below: |
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||
| July 27, | July 28, | July 27, | July 28, | ||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||
Net income |
$ | 129,627 | $ | 111,908 | $ | 276,730 | $ | 235,579 | |||||||||
Other comprehensive income (loss): |
|||||||||||||||||
Cumulative effect of accounting
change (SFAS 133) |
— | — | — | (1,572 | ) | ||||||||||||
Gain (loss) due to foreign currency
translation adjustments |
8,703 | ||||||||||||||||