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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

/X/   Quarterly Report under Section 13 and 15(d)
Of the Securities Exchange Act of 1934

For Quarter Ended July 26, 2003 Commission file number 1-4908

The TJX Companies, Inc.

(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 [  ] .

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).

     YES [X] NO [  ]

The number of shares of Registrant’s common stock outstanding as of August 23, 2003: 506,801,503

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

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PART I FINANCIAL INFORMATION
THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS

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

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THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(UNAUDITED)
IN THOUSANDS

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

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

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

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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 in which it was distributed.
4.		TJX’s cash payments for interest and income taxes are as follows:

5.		We have a reserve for potential future obligations of discontinued operations that relates primarily to real estate leases for stores for which TJX is an original lessee or guarantor. When such leases were assigned to third parties, TJX generally remained secondarily liable with respect to the lease obligations if the assignee fails to perform, unless there are circumstances that terminate or reduce TJX’s potential liability. Such circumstances include noncompliance with the terms of the guarantee or material changes to the lease terms or leased property. The reserve reflects our estimation of the cost to TJX of claims that have been, or are likely to be, made against TJX based on our potential secondary liability after mitigation of the number and cost of lease obligations as a result of various factors. These factors include assignments to third parties, lease terminations, expirations, subleases, buyouts, modifications and other actions, legal defenses, use by TJX for our own store opening program, and indemnification by BJ’s Wholesale Club, Inc. in the case of the House2Home leases discussed below.
		TJX’s reserve primarily relates to real estate leases of House2Home and Zayre Stores, two discontinued operations that are in liquidation under the Federal Bankruptcy Code. The reserve in prior years also reflected leases of Hit or Miss, another discontinued operation that was liquidated in bankruptcy. Our contingent obligations with respect to Hit or Miss have been substantially resolved. The reserve was established at various times subsequent to TJX’s disposition of these businesses, when the companies then owning them suffered significant financial distress.
		House2Home, Inc. (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. In November 2001, House2Home filed a voluntary petition for relief under Chapter 11 of

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		the Federal Bankruptcy Code and is liquidating its business. At the time of House2Home’s bankruptcy announcement, we believed there were up to 41 leases for which we could be liable. As of July 26, 2003, as a result of negotiated buyouts, assignments to third parties and lease expirations, up to six leases remain for which we may be liable. As of July 26, 2003, the total present value of the after-tax cost to TJX of the amounts that have or will come due under these remaining leases during the period from the House2Home bankruptcy filing through the remainder of the term of the leases is approximately $14 million, without reflecting any mitigating factors other than indemnification by BJ’s Wholesale Club.
		In 1988, TJX completed the sale of its Zayre Stores division to Ames Department Stores, Inc. Following the sale, Ames twice filed voluntary petitions for relief under Chapter 11 of the Federal Bankruptcy Code, most recently in August 2001, and is currently liquidating its business. Based on information received from Ames, we believe that at the time of the more recent bankruptcy filing, there were 60 to 70 leases of former Zayre stores operated by Ames for which we may have contingent obligations. As of July 26, 2003, Ames had rejected 40 store leases for which we may be liable. Through July 26, 2003, as a result of transactions such as buyouts, third-party assignments and leasing for our own use, nine of these store leases have been resolved. We are actively negotiating with landlords of many of the other rejected leases. The properties that reverted back to TJX from Ames’ first bankruptcy were largely settled through buyouts and other lease terminations. The ongoing net cost of 9 properties from this first bankruptcy is charged to the reserve.
		The reserve for discontinued operations as of July 26, 2003 and July 27, 2002 is summarized below:

		We believe our reserve for discontinued operations is adequate to meet the costs we may incur with respect to House2Home and former Zayre Stores leases and that the future liability to TJX with respect to these leases will not have a material effect on our financial condition, operating results or cash flows. Changes in the underlying assumptions, such as additional expenses for lease settlements or future Zayre Stores lease rejections, could require us to increase this reserve, although we do not expect that any increase would be material to our financial condition, results of operations or cash flows. In addition, we may receive a creditor recovery in the House2Home bankruptcy.
		We have contingent obligations on any property leases originally leased or guaranteed by TJX and assigned to third parties without releases by the landlords of our obligations. We believe that most of these obligations will not revert back to TJX and to the extent they do, our obligations can be reduced by mitigating factors. See Notes K and L to our consolidated financial statements in our Form 10-K for the fiscal year ended January 25, 2003.

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6.

TJX’s comprehensive income for the periods ended July 26, 2003 and July 27, 2002 is presented below:

     7.     The computation of basic and diluted earnings per share is as follows:

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		The weighted average common shares for the diluted earnings per share calculation excludes the incremental effect related to outstanding stock options when the exercise price of the option is in excess of the related period’s average price of TJX’s common stock. There were 11.0 million such options excluded as of July 26, 2003 and no such options excluded as of July 27, 2002. The 16.9 million shares attributable to the zero coupon convertible debt were excluded from the diluted earnings per share calculation in all periods presented because criteria for conversion had not been met.
8.		During the second quarter ended July 26, 2003, TJX repurchased and retired 6.8 million shares of its common stock at a cost of $125.3 million. For the six months ended July 26, 2003, TJX repurchased and retired 15.0 million shares at a cost of $264.6 million. Since the inception of the current $1 billion stock repurchase program in July 2002, through July 26, 2003, TJX has repurchased and retired 31.1 million shares at a cost of $567.9 million.
9.		In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure.” This Statement amends SFAS No. 123, “Accounting for Stock-Based Compensation,” and provides alternative methods of transition for entities that voluntarily convert to the fair value based method of accounting for stock-based employee compensation and requires amended disclosure presentation for the fiscal year ended January 25, 2003 and all subsequent interim periods (See Note 11). The FASB has undertaken a comprehensive rulemaking in this area. Until the FASB adopts new rules, we are continuing to account for stock-based compensation in accordance with Accounting Principles Board (“APB”) Opinion No. 25.
		In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts. This Statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company believes that the adoption of this standard will not have a material effect on the Company’s financial position or results of operations.
		In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity in its balance sheet. This Statement is effective for financial instruments entered into or modified after May 31, 2003, or the first interim period beginning after June 15, 2003, except for

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		mandatorily redeemable financial instruments of nonpublic entities. The Company believes that the adoption of this standard will not have a material effect on the Company’s financial position or results of operations.
10.		TJX evaluates the performance of its segments based on “segment profit or loss” which is defined as pre-tax income before general corporate expense and interest. “Segment profit or loss,” as defined by TJX, may not be comparable to similarly titled measures used by other entities. In addition, this measure of performance should not be considered an alternative to net income or cash flows from operating activities as an indicator of our performance or as a measure of liquidity. Presented below is financial information on TJX’s business segments (In thousands):

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11.		TJX has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” and continues to apply the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” in accounting for compensation expense under its stock option plans. We grant options at fair market value on the date of the grant; accordingly, no compensation expense is recognized for the stock options issued during fiscal 2004 or 2003. Compensation expense determined in accordance with SFAS No. 123, net of related income tax effect, would have amounted to $13.1 million and $9.1 million for the thirteen weeks ended July 26, 2003 and July 27, 2002, respectively, and $26.4 million and $18.2 million for the twenty-six weeks ended July 26, 2003 and July 27, 2002, respectively.
		Presented below are the unaudited pro forma net income and related earnings per share showing the effect that stock compensation expenses, determined in accordance with SFAS No. 123, would have on reported results (dollars in thousands except per share amounts):

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12.		At July 26, 2003, TJX had interest rate swap agreements outstanding with a notional amount of $100 million. The agreements entitle the Company to receive biannual payments of interest at a fixed rate of 7.45% and pay a floating rate of interest indexed to the six-month LIBOR rate with no exchange of the underlying notional amounts.
		The interest rate swap agreements converted a portion of the Company’s long-term debt from a fixed rate obligation to a floating rate obligation. The fair value of the swap agreements outstanding at July 26, 2003 was a liability of $3.8 million. The Company has designated the interest rate swaps as a fair value hedge of the related long-term debt. The fair value of the derivative results in an equal and offsetting fair value adjustment to the debt hedged and accordingly long-term debt has been reduced by $3.8 million.
13.		Certain amounts in the financial statements of the prior period have been reclassified for comparative purposes.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION

The Thirteen Weeks (Second Quarter) and Twenty-Six Weeks (Six Months) Ended
July 26, 2003
Versus the Thirteen Weeks and Twenty-Six Weeks Ended July 27, 2002

Results of Operations

Net sales: Net sales for the second quarter ended July 26, 2003 were $3,046.2 million, up 10% from $2,765.1 million in last year’s second quarter. Net sales for the six months ended July 26, 2003 were $5,834.9 million, a 7% increase over the prior year. Consolidated same store sales increased 2% for both the second quarter ended July 26, 2003 and the second quarter ended July 27, 2002. Consolidated same store sales were flat for the six-month period ended July 26, 2003 and increased 4% for the six-month period ended July 27, 2002. For the thirteen weeks ended July 26, 2003, 77% of the increase in net sales was due to new stores, with the balance due to increased same store sales. For the twenty-six weeks ended July 26, 2003, all of the increase in sales was attributable to new stores. Same store sales in the second quarter ended July 26, 2003 were favorably impacted by strong growth in our younger businesses and changes in foreign currency exchange rates, but were negatively impacted by the unseasonably cool and rainy weather that persisted throughout much of the eastern United States and Canada in May and early June. Sales for the six months ended July 26, 2003 were also negatively impacted by unseasonable weather in much of the United States and Canada throughout most of the first quarter. For the thirteen weeks ended July 27, 2002, the increase in sales attributable to new stores amounted to 85% of the total increase, with the balance attributable to same store sales growth. For the twenty-six weeks ended July 27, 2002, the increase in sales attributable to new stores amounted to 69% of the total increase, with the balance due to same store sales growth. The increase in same store sales for the second quarter and six months ended July 27, 2002 was aided by favorable spring weather in most regions of the United States and Canada.

We define same store sales as 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 determine which stores are included in the same store calculation at the beginning of a fiscal year and the classification remains constant throughout that year, unless a store is closed. We calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and expanded stores are classified in the same way as the original store. The impact of relocated or expanded stores on the same store percentage is immaterial. Consolidated and divisional same store sales are calculated in U.S. dollars. We also show divisional same store sales in local currency for our foreign divisions, because this removes the effect of changes in currency exchange rates, and we believe it is a more appropriate measure of their operating performance.

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

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Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales, increased for both periods ended July 26, 2003. Contributing to the increase in this ratio for both periods was a decrease in merchandise margin of 1.0% in the second quarter and 0.4% for the six months ended July 26, 2003. The decrease in merchandise margin for this year’s second quarter reflects additional markdowns incurred as we continued to aggressively manage our inventories in response to the unseasonably cool and rainy weather in May and early June. This change in merchandise margin also reflects a second quarter last year in which merchandise margins were very strong. Both periods ended July 26, 2003 were also adversely affected, to a much lesser extent, by higher distribution costs due to the opening of our new T.J. Maxx facility in Pittston, Pennsylvania. Additional items impacting the increase for the six months ended July 26, 2003 were an increase in employee benefits and insurance costs and the impact of more modest sales growth. Overall, including the effect of the modest sales growth for the six month period, store occupancy and depreciation costs as a percentage of net sales increased by .5% for the six months ended July 26, 2003 over the same period last year and distribution costs for the first six months as a percentage of net sales increased by .2% over last year.

Selling, general and administrative expenses: Selling, general and administrative expenses, as a percentage of net sales, decreased for the quarter ended July 26, 2003 from the prior year’s second quarter and increased for the six-month period over the first six months last year. The decrease in this expense ratio for the quarter ended July 26, 2003 was the result of savings in a number of expense categories, including administrative expenses and bank credit card expense. Increases in store payroll and benefit costs, which had been causing this ratio to increase in prior periods, moderated in the second quarter ended July 26, 2003. Selling, general and administrative expenses for both periods ended July 26, 2003 were reduced by a $1.7 million gain from an A.J. Wright store closing. The increase in this expense ratio for the six-month period ended July 26, 2003 is primarily due to the modest sales increase of 7% this year compared to a 14% increase for the prior year. Also contributing to the increase in this expense ratio for the six month period were increases in retirement and medical benefits and insurance costs. Overall, including the effect of the modest sales growth, store payroll and benefit costs, as a percentage of net sales for the six months ended July 26, 2003, increased approximately .3% over last year.

Interest expense, net: Interest expense, net includes interest income of $1.4 million in the second quarter of the current fiscal year versus $3.1 million of interest income last year. The twenty-six weeks ended this year includes interest income of $3.2 million versus $6.1 million of interest income last year. The reduction in interest income is due to lower cash balances and lower interest rates during each of the periods ended July 26, 2003. Gross interest expense for the periods ended July 26, 2003 was comparable to that of the respective prior year periods.

Income taxes: Our effective income tax rate was 38.7% for the three and six months ended July 26, 2003 and 38.5% and 38.3% for the three and six months ended July 27, 2002. The increase in the income tax rate reflects increases in state income taxes.

Net income: Net income for the second quarter of fiscal 2004 was $123.3 million, or $.24 per diluted share, versus $129.6 million, or $.24 per diluted share last year. Net income for the first half of fiscal 2004 was $236.8 million, or $.46 per diluted share, versus $276.7 million or $.51 per diluted share last year.

Segment information: We evaluate the performance of our segments based on “segment profit or loss” which is defined as pre-tax income before general corporate expense and interest. “Segment profit or loss,” as defined by TJX, may not be comparable to similarly titled measures used by other entities. In addition, this measure of performance should not be considered an alternative to net income or cash

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flows from operating activities as an indicator of our performance or as a measure of liquidity. Presented below is selected financial information related to our business segments (U.S. dollars in millions):