1 PAGE 1 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 May 1, 1999 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 (I.R.S. Employer incorporation or organization) 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 [ ] The number of shares of Registrant's common stock outstanding as of May 29, 1999; 317,683,015.
2 PAGE 2 PART I FINANCIAL INFORMATION THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF INCOME (UNAUDITED) DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS <TABLE> <CAPTION> Thirteen Weeks Ended ------------------------- May 1, May 2, 1999 1998 ---------- ---------- <S> <C> <C> Net sales $1,952,084 $1,775,847 ---------- ---------- Cost of sales, including buying and occupancy costs 1,431,479 1,330,261 Selling, general and administrative expenses 310,676 299,835 Interest expense (income), net (734) (42) ---------- ---------- Income before income taxes 210,663 145,793 Provision for income taxes 83,001 58,026 ---------- ---------- Net income 127,662 87,767 Preferred stock dividends -- 1,250 ---------- ---------- Net income available to common shareholders $ 127,662 $ 86,517 ========== ========== Earnings per share: Basic $ .40 $ .27 Diluted $ .39 $ .26 Cash dividends per common share $ .035 $ .03 </TABLE> The accompanying notes are an integral part of the financial statements.
3 PAGE 3 THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES BALANCE SHEETS (UNAUDITED) IN THOUSANDS <TABLE> <CAPTION> May 1, January 30, May 2, 1999 1999 1998 ---------- ---------- ---------- <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 309,362 $ 461,244 $ 327,391 Accounts receivable 92,810 67,345 90,691 Merchandise inventories 1,436,641 1,186,068 1,381,321 Prepaid expenses 50,415 28,448 47,707 ---------- ---------- ---------- Total current assets 1,889,228 1,743,105 1,847,110 ---------- ---------- ---------- Property, at cost: Land and buildings 115,512 115,485 113,099 Leasehold costs and improvements 565,675 547,099 494,072 Furniture, fixtures and equipment 735,428 711,320 633,526 ---------- ---------- ---------- 1,416,615 1,373,904 1,240,697 Less accumulated depreciation and amortization 652,772 617,302 545,821 ---------- ---------- ---------- 763,843 756,602 694,876 Other assets 43,995 27,436 22,845 Deferred income taxes 24,861 22,386 -- Goodwill and tradename, net of amortization 196,918 198,317 202,785 ---------- ---------- ---------- TOTAL ASSETS $2,918,845 $2,747,846 $2,767,616 ========== ========== ========== LIABILITIES Current liabilities: Short-term debt $ 10,628 $ -- $ 6,972 Current installments of long-term debt 673 694 22,779 Accounts payable 771,730 617,159 739,880 Accrued expenses and other current liabilities 594,509 624,801 547,995 Federal and state income taxes payable 103,656 64,192 85,098 ---------- ---------- ---------- Total current liabilities 1,481,196 1,306,846 1,402,724 ---------- ---------- ---------- Long-term debt exclusive of current installments Promissory notes 372 433 1,045 General corporate debt 219,915 219,911 219,901 Deferred income taxes -- -- 2,670 SHAREHOLDERS' EQUITY Preferred stock at face value, authorized 5,000,000 shares, par value $1, issued and outstanding cumulative convertible stock of 670,900 shares of 7% Series E at May 2, 1998 -- -- 67,090 Common stock, authorized 600,000,000 shares, par value $1, issued and outstanding 318,984,079; 322,140,770 and 158,728,677 shares 318,984 322,141 158,729 Accumulated other comprehensive income (loss) (933) (1,529) (490) Additional paid-in capital -- -- 109,560 Retained earnings 899,311 900,044 806,387 ---------- ---------- ---------- Total shareholders' equity 1,217,362 1,220,656 1,141,276 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,918,845 $2,747,846 $2,767,616 ========== ========== ========== </TABLE> The accompanying notes are an integral part of the financial statements.
4 PAGE 4 THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED) IN THOUSANDS <TABLE> <CAPTION> THIRTEEN WEEKS ENDED ------------------------ May 1, May 2, 1999 1998 --------- --------- <S> <C> <C> Cash flows from operating activities: Net income $ 127,662 $ 87,767 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 37,236 32,573 Property disposals 558 405 Other, net (16,037) (829) Changes in assets and liabilities: (Increase) in accounts receivable (25,465) (29,956) (Increase) in merchandise inventories (250,573) (191,151) (Increase) in prepaid expenses (21,967) (20,350) Increase in accounts payable 154,571 157,089 (Decrease) in accrued expenses and other current liabilities (30,292) (5,648) Increase in income taxes payable 39,464 27,235 (Decrease) in deferred income taxes (2,475) (1,469) --------- --------- Net cash provided by operating activities 12,682 55,666 --------- --------- Cash flows from investing activities: Property additions (43,607) (39,341) Proceeds from sale of other assets -- 8,338 --------- --------- Net cash (used in) investing activities (43,607) (31,003) --------- --------- Cash flows from financing activities: Proceeds from borrowings of short-term debt 10,628 6,972 Principal payments on long-term debt (82) (663) Common stock repurchased (135,305) (103,329) Proceeds from sale and issuance of common stock, net 14,966 6,167 Cash dividends (11,164) (10,788) --------- --------- Net cash (used in) financing activities (120,957) (101,641) --------- --------- Net (decrease) in cash and cash equivalents (151,882) (76,978) Cash and cash equivalents at beginning of year 461,244 404,369 --------- --------- Cash and cash equivalents at end of period $ 309,362 $ 327,391 ========= ========= </TABLE> The accompanying notes are an integral part of the financial statements.
5 PAGE 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The results for the first three months are not necessarily indicative of results for the full fiscal year, because the Company'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 reflect all normal recurring adjustments, the use of retail statistics, and accruals and deferrals among periods required to match costs properly with the related revenue or activity, considered necessary by the Company 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. The Company's cash payments for interest expense and income taxes are as follows: <TABLE> <CAPTION> Thirteen Weeks Ended --------------------- May 1, May 2, 1999 1998 ------- ------- (In Thousands) <S> <C> <C> Cash paid for: Interest on debt $ 1,629 $ 2,699 Income taxes $34,165 $32,908 </TABLE> 4. In October 1988, the Company completed the sale of its former Zayre Stores division to Ames Department Stores, Inc. ("Ames"). In April 1990, Ames filed for protection under Chapter 11 of the Federal Bankruptcy Code and in December 1992, Ames emerged from bankruptcy under a plan of reorganization. The Company remains contingently liable for the leases of most of the former Zayre stores still operated by Ames. The Company believes that the Company's contingent liability on these leases will not have a material effect on the Company's financial condition. The Company is also contingently liable on certain leases of its former warehouse club operations (BJ's Wholesale Club and HomeBase), which was spun off by the Company in fiscal 1990 as Waban Inc. During fiscal 1998, Waban Inc. was renamed HomeBase, Inc. and spun-off its BJ's Wholesale Club division (BJ's Wholesale Club, Inc.). HomeBase, Inc., and BJ's Wholesale Club, Inc. are primarily liable on their respective leases and have indemnified the Company for any amounts the Company may have to pay with respect to such leases. In addition, HomeBase, Inc., BJ's Wholesale Club, Inc. and the Company have entered into agreements under which BJ's Wholesale Club, Inc. has substantial indemnification responsibility with respect to such HomeBase, Inc. leases. The Company is also contingently liable on certain leases of BJ's Wholesale Club, Inc. for which both BJ's Wholesale Club, Inc. and HomeBase, Inc. remain liable. The Company believes that its contingent liability on the HomeBase, Inc. and BJ's Wholesale Club, Inc. leases will not have a material effect on the Company's financial condition. The Company is also contingently liable on approximately 50 store leases and the office and warehouse leases of its former Hit or Miss division which was sold by the Company in September 1995. During the third quarter ended October 31, 1998, the Company increased its reserve for its discontinued operations by $15 million ($9 million after tax), primarily for potential lease liabilities relating to
6 PAGE 6 guarantees on leases of its former Hit or Miss division. The after tax cost of $9 million or, $.02 per diluted share, was recorded as a loss on disposal of discontinued operations. 5. In June 1998, the Company distributed a two-for-one stock split which resulted in the issuance of 158.9 million shares of common stock and corresponding decreases of $96.5 million in additional paid-in capital and $62.4 million in retained earnings. All historical earnings per share have been restated to reflect the June 1998 stock split. 6. On November 18, 1998, all outstanding shares of Series E cumulative convertible preferred stock were mandatorily converted into common stock in accordance with its terms. 7. Other comprehensive income (loss), net of reclassification adjustments, was income of $596 for the thirteen weeks ended May 1, 1999 and a loss of $3,807 for the thirteen weeks ended May 2, 1998. The components of other comprehensive income (loss) for the Company generally include foreign currency translation adjustments of its foreign subsidiaries (including related hedging activity). In the prior year, other comprehensive income (loss) also includes activity relating to unrealized gains and losses on marketable securities. 8. The computation of basic and diluted earnings per share is as follows: <TABLE> <CAPTION> 13 Weeks Ended ----------------------------- May 1, May 2, 1999 1998 ------------ ------------ ($'s in thousands except per share amounts) <S> <C> <C> Net income (Numerator in diluted calculation) $ 127,662 $ 87,767 Less preferred dividends -- 1,250 ------------ ------------ Net income available to common shareholders (Numerator in basic calculation) $ 127,662 $ 86,517 ============ ============ Shares for basic and diluted earnings per share calculations: Average common shares outstanding for basic EPS 321,715,541 319,333,366 Dilutive effect of stock options and awards 3,580,604 5,537,318 Dilutive effect of convertible preferred stock -- 15,439,662 ------------ ------------ Average common shares outstanding for diluted EPS 325,296,145 340,310,346 ============ ============ Basic earnings per share $ .40 $ .27 Diluted earnings per share $ .39 $ .26 </TABLE> 9. During October 1998, the Company completed its second $250 million stock repurchase program and announced its intentions to repurchase an additional $750 million of common stock over several years. During the first quarter ended May 1, 1999, the Company repurchased 4.1 million shares at a cost of $135.3 million. Since the inception of the $750 million stock repurchase program, the Company has repurchased 8.2 million shares at a cost of $230.8 million.
7 PAGE 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRTEEN WEEKS ENDED MAY 1, 1999 VERSUS THIRTEEN WEEKS ENDED MAY 2, 1998 Historical earnings per share amounts have been restated to reflect the June 1998 two-for-one stock split. All reference to earnings per share amounts are diluted earnings per share unless otherwise indicated. Net sales from continuing operations for the first quarter were $1,952.1 million, up 10% from $1,775.8 million last year. The increase in sales is attributable to an increase in same store sales and new stores. Same store sales for the thirteen weeks increased 5% at T.J. Maxx, 4% at Marshalls, 10% at Winners, 20% at T.K. Maxx and 11% at HomeGoods. Net income for the first quarter was $127.7 million, or $.39 per common share, versus $87.8 million, or $.26 per common share last year. The following table sets forth operating results expressed as a percentage of net sales (continuing operations): <TABLE> <CAPTION> Percentage of Net Sales 13 Weeks Ended ----------------------- May 1, 1999 May 2, 1998 ----------- ----------- <S> <C> <C> Net sales 100.0% 100.0% ----- ----- Cost of sales, including buying and occupancy costs 73.3 74.9 Selling, general and administrative expenses 15.9 16.9 Interest expense (income), net -- -- ----- ----- Income before income taxes 10.8% 8.2% ===== ===== </TABLE> Cost of sales including buying and occupancy costs as a percent of net sales decreased from the prior year. This improvement is primarily due to improved merchandise margins, particularly at T.J. Maxx and Marshalls, resulting from strong inventory management. In addition, the improvement in this ratio reflects the strong growth in sales. Selling, general and administrative expenses, as a percentage of net sales, decreased from the prior year. This improvement is primarily due to a reduction in certain corporate expenses, as discussed on page 6, along with the benefit associated with the Company's sales growth. Interest expense (income), net, includes $5.5 million of interest income this year versus $5.9 million last year. The Company's effective income tax rate is 39.4% for the first quarter of fiscal 1999 versus 39.8% in the first quarter last year. This reduction primarily reflects the benefit associated with the Company's policy of repatriating current earnings of its Canadian subsidiary. This policy was not implemented until the fourth quarter of fiscal 1999 and therefore, last year's first quarter tax rate does not reflect a similar benefit.
8 PAGE 8 The following table sets forth the operating results of the Company's major business segments: (unaudited) <TABLE> <CAPTION> Thirteen Weeks Ended -------------------------- May 1, May 2, 1999 1998 ---------- ---------- (In Thousands) <S> <C> <C> Net sales: Off-price family apparel stores $1,913,811 $1,750,465 Off-price home fashion stores 38,273 25,382 ---------- ---------- $1,952,084 $1,775,847 ========== ========== Operating income (loss): Off-price family apparel stores $ 219,543 $ 167,361 Off-price home fashion stores (666) (2,256) ---------- ---------- 218,877 165,105 General corporate expense 8,296 18,701 Goodwill amortization 652 653 Interest expense (income), net (734) (42) ---------- ---------- Income before income taxes $ 210,663 $ 145,793 ========== ========== </TABLE> The off-price family apparel stores segment, which includes T.J. Maxx, Marshalls, Winners, T.K. Maxx and A.J. Wright, significantly increased operating income. These results reflect strong inventory management and the strong sales performance on top of strong gains in the prior year. General corporate expense decreased from the prior year as last year included a $5.5 million charge for the write off of the Hit or Miss note receivable. In addition, last year includes a charge of $4 million, versus $1 million this year, for charges associated with a deferred compensation award granted to the Company's Chief Executive Officer in the first quarter of fiscal 1998. This award, initially denominated in shares of the Company's common stock, has now been fully allocated to other investment options, at the election of the executive. Stores in operation at the end of the period are as follows: <TABLE> <CAPTION> May 1, 1999 May 2, 1998 ----------- ----------- <S> <C> <C> T.J. Maxx 613 587 Marshalls 480 462 Winners 90 79 HomeGoods 38 25 T.K. Maxx 42 31 A.J. Wright 10 -- </TABLE>
9 PAGE 9 FINANCIAL CONDITION Cash flows from operating activities for the three months reflect increases in inventories and accounts payable that are primarily due to normal seasonal requirements and are largely influenced by the change in inventory from year-end levels. Cash generated from operations has allowed the Company to maintain a strong cash position. During October 1998, the Company completed its second $250 million stock repurchase program and announced its intentions to repurchase an additional $750 million of common stock over several years. During the first quarter ended May 1, 1999, the Company repurchased 4.1 million shares at a cost of $135.3 million. Since the inception of the $750 million stock repurchase program, the Company has repurchased 8.2 million shares at a cost of $230.8 million. THE YEAR 2000 ISSUE The following paragraphs relating to the Year 2000 issue also are designated a Year 2000 Readiness Disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act. The operations of the Company rely on various computer technologies which, as is true of many companies, may be affected by what is commonly referred to as the Year 2000 ("Y2K") issue. To address this matter, in October 1995, the Company began to evaluate whether its computer resources would be able to recognize and accept date sensitive information before and after the arrival of the Year 2000. A failure of these technologies to recognize and process such information could create an adverse impact on the operations of the Company. In connection with its Y2K evaluation, the Company established a Company-wide Y2K project team to review and assess the Y2K readiness of its computer technologies in each business area, and to remediate, validate and, where necessary, develop contingency plans to enable these technologies to effect a smooth transition to the Year 2000 and beyond. These efforts have focused, and will continue to focus, on: (1) the Company's information technology systems in the form of hardware and software (so-called "IT" systems), such as mainframes, client/server systems, personal computers, proprietary software and software purchased or licensed from third parties, upon which the Company relies for its retail functions, such as merchandise procurement and distribution, point-of-sale information systems and inventory control; (2) the Company's embedded computer technologies (so-called "non-IT" systems), such as materials handling equipment, telephones, elevators, climate control devices and building security systems; and (3) the IT and non-IT systems of third parties with whom the Company has commercial relationships to support its daily operations, such as those of banks, credit card processors, payroll services, telecommunications services, utilities and merchandise vendors. THE COMPANY'S STATE OF READINESS The Company's review and assessment phase is substantially complete with respect to its IT systems and the Company has identified and inventoried those IT systems which are critical to its operations. The Company's effort to modify these IT technologies to address the Y2K issue is ongoing and is expected to be substantially completed by the end of the second quarter of fiscal 2000 with full completion scheduled by the end of the third quarter of fiscal 2000. The Company's mainframe operating system has already been remediated, tested and determined to be compliant in a simulated Y2K environment. Ongoing validation testing of this system will be performed during 1999. The Company's proprietary software systems as well as those purchased or licensed from third parties have been substantially remediated and ongoing validation testing will continue during 1999.
10 PAGE 10 With respect to the Company's non-IT systems, the review and assessment phase is substantially complete and the Company has identified and inventoried such technologies. The Company has undertaken a program to modify or replace such technologies where they are related to critical functions of the Company. The estimated completion date for this portion of the Y2K project plan is by the end of the third quarter of fiscal 2000. With respect to the IT and non-IT systems of critical third party providers, the Company has already communicated with these parties to obtain assurances regarding their respective Y2K remediation efforts. While the Company expects such third parties to address the Y2K issue based on the representations it has received to date, the Company cannot guarantee that these systems will be made Y2K compliant in a timely manner or that the Company will not experience a material adverse effect as a result of such non-compliance. COSTS ASSOCIATED WITH YEAR 2000 ISSUES As of May 1, 1999, the Company has incurred approximately $10 million in costs related to the Y2K project. The Company currently estimates that the aggregate cost of the Y2K project will be approximately $13 million, which cost is being expensed as incurred. The Company's Y2K costs are primarily for the cost of internal and third-party programming for remediation and testing. All of these costs have been or are expected to be funded through operating cash flows. The aggregate cost estimate is based on the current assessment of the Y2K project and is subject to change as the project progresses. The Company has not deferred the implementation of any significant IT projects while addressing the Y2K issue. CONTINGENCY PLANS The Company believes that the IT and non-IT technologies which support its critical functions will be ready for the transition to the Year 2000. There can be no assurance, however, that similar unresolved issues for key commercial partners (including utilities, financial services, building services and transportation services) will not cause an adverse effect on the Company. To address these risks, and to address the risk that its own IT and non-IT technologies may not perform as expected during the Y2K transition, the Company is in the process of developing and finalizing appropriate Y2K contingency plans, which plans will be established and then revised as necessary during the course of 1999. Although the Company believes that its efforts to address the Y2K issue will be sufficient to avoid a material adverse impact on the Company, there can be no assurance that these efforts will be fully effective.
11 PAGE 11 PART II. OTHER INFORMATION Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Stockholders on June 8, 1999. The following were voted upon at the Annual Meeting: Election of Directors For Withheld --------------------- --- -------- Phyllis B. Davis 283,678,872 1,169,696 Dennis F. Hightower 283,656,664 1,191,904 John F. O'Brien 283,654,976 1,193,592 Willow B. Shire 283,651,144 1,197,424 In addition to those elected, the following are directors whose term of office continued after the Annual Meeting: Bernard Cammarata Richard G. Lesser Arthur F. Loewy John M. Nelson Robert F. Shapiro Fletcher H. Wiley Proposal for the approval to amend Article Fourth of the Company's Third Restated Certificate of Incorporation to increase the number of authorized shares of the Company's common stock from 600,000,000 to 1,200,000,000. For 248,015,819 Against 36,140,958 Abstain 691,790 Broker non-votes 1 Proposal presented by certain shareholders regarding implementation of the MacBride Principles. For 25,253,138 Against 223,988,100 Abstain 15,753,188 Broker non-votes 19,854,142 Item 6(a) EXHIBITS 3.1 Third Restated Certificate of Incorporation, and related amendments, are filed herewith. Item 6(b) REPORTS ON FORM 8-K The Company was not required to file a current report on Form 8-K during the quarter ended May 1, 1999.
12 PAGE 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE TJX COMPANIES, INC. ------------------------------------- (Registrant) Date: June 14, 1999 /s/ Donald G. Campbell ------------------------------------- Donald G. Campbell, Executive Vice President - Finance, on behalf of The TJX Companies, Inc. and as Principal Financial and Accounting Officer of The TJX Companies, Inc.