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 26, 2008

 

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 definition of “accelerated filer and large accelerated filer” 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 28, 2007 was $12,085,221,009, based on the closing sale price as reported on the New York Stock Exchange.

 

There were 427,949,533 shares of the registrant’s common stock, $1.00 par value, outstanding as of January 26, 2008.

 

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 3, 2008 (Part III).

 

PART I

 

 

Business Overview

 

We are the leading off-price retailer of apparel and home fashions in the United States and worldwide. Our T.J. Maxx, Marshalls and A.J. Wright chains in the United States, our Winners chain in Canada, and our T.K. Maxx chain in Europe sell off-price family apparel and home fashions. Our HomeGoods chain in the United States and our HomeSense chain, operated by Winners in Canada, sell off-price home fashions. The target customer for all of our off-price chains, except A.J. Wright, is the middle-to upper-middle income shopper, with the same profile as a department or specialty store customer. A.J. Wright targets the moderate-income customer. Our seven off-price chains are synergistic in their philosophies and operating platforms. Our eighth chain, Bob’s Stores, was acquired in December 2003 and is a value-oriented, branded apparel chain based in the Northeastern United States that offers casual, family apparel. Bob’s Stores’ target customer demographic spans the moderate-to upper-middle income bracket.

 

Our off-price mission is to deliver an exciting, fresh and rapidly changing assortment of brand-name merchandise at excellent values to our customers. We define value as the combination of quality, brand, fashion and price. With over 500 buyers, 10,000 vendors worldwide and over 2,500 stores, we believe we are well positioned to continue accomplishing this goal. Our key strengths include:

 

 

As an off-price retailer, we offer quality, name brand and designer family apparel and home fashions every day at substantial savings to comparable department and specialty store regular prices. We can offer these everyday savings as a result of our opportunistic buying strategies, disciplined inventory management, including rapid inventory turns, and low expense structure.

 

In our off-price apparel chains, we purchase the majority of our inventory opportunistically. Opportunistic purchases are also a significant factor in our home fashion businesses but to a lesser extent. In contrast to traditional retailers that order goods far in advance of the time they appear on the selling floor, TJX buyers are in the marketplace virtually every week, buying primarily for the current selling season. By maintaining a liquid inventory position, our buyers can buy close to need, enabling them to buy into current market trends and take advantage of the opportunities in the marketplace. Due to the unpredictable nature of consumer demand in the highly fragmented apparel and home fashions marketplace and the mismatch of supply and demand, we are regularly able to buy the vast majority of our inventory directly from manufacturers, with some merchandise coming from other retailers and other sources. We purchase virtually all of our inventory for our off-price stores at discounts from initial wholesale prices. Although we generally purchase merchandise for our off-price chains to sell in the current season, we purchase a limited quantity of pack away merchandise that we buy specifically to warehouse and sell in a future selling season. We are willing to purchase less than a full assortment of styles and sizes. We pay promptly and do not ask for typical retail concessions in our off-price chains such as advertising, promotional and markdown allowances, or delivery concessions such as drop shipments to stores or delayed deliveries or return privileges. Our financial strength, strong reputation and ability to purchase large quantities of merchandise and sell it through our geographically diverse network of stores provide us excellent access to leading branded merchandise. Our opportunistic buying permits us to consistently offer our customers in our off-price chains a rapidly changing merchandise assortment at everyday values that are below department and specialty store regular prices.

 

We are extremely disciplined in our inventory management, and we rapidly turn the inventory in our off-price chains. We rely heavily on sophisticated, internally developed inventory systems and controls that permit a virtually continuous flow of merchandise into our stores and an expansive distribution infrastructure that supports our close-to-need buying by delivering goods to our stores quickly and efficiently. For example, highly automated storage and distribution systems

track, allocate and deliver an average of approximately 11,000 items per week to each T.J. Maxx and Marshalls store. In addition, specialized computer inventory planning, purchasing and monitoring systems, coupled with warehouse storage, processing, handling and shipping systems, permit a continuous evaluation and rapid replenishment of store inventory. Pricing, markdown decisions and store inventory replenishment requirements are determined centrally, using information provided by point-of-sale computer terminals and are designed to move inventory through our stores in a timely and disciplined manner. These inventory management and distribution systems allow us to achieve rapid in-store inventory turnover on a vast array of product and sell substantially all merchandise within targeted selling periods.

 

We operate with a low cost structure relative to many other retailers. Our stores are generally located in community shopping centers. While we seek to provide a pleasant, easy shopping environment with an emphasis on customer convenience, we do not spend heavily on store fixtures. 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. Also, our large retail presence, strong financial position and expertise in the real estate market allow us generally to obtain favorable lease terms. In our off-price chains, our advertising budget as a percentage of sales remains low compared to traditional department and specialty stores. Our high sales-per-square-foot productivity and rapid inventory turnover also provide expense efficiencies.

 

With all of our off-price chains operating with the same off-price strategies and systems, we are able to capitalize upon expertise, best practices, initiatives and new ideas across our chains, develop associates by transferring them from one chain to another, and grow our various businesses more efficiently and effectively.

 

During the fiscal year ended January 26, 2008, we derived 77% of our sales from the United States, including Puerto Rico (27% from the Northeast, 13% from the Midwest, 22% from the South, 1% from the Central Plains, 13% from the West and 1% from Puerto Rico) and 23% from foreign countries (11% from Canada, 12% from Europe (the United Kingdom, Ireland, and Germany)). By merchandise category, we derived approximately 63% of our sales from apparel (including footwear), 25% from home fashions and 12% from jewelry and accessories.

 

We consider each of our operating divisions to be a segment. The T.J. Maxx and Marshalls store chains are managed as one division, referred to as Marmaxx, and are reported as a single segment. The Winners and HomeSense chains, which operate exclusively in Canada, are also managed as one division and are reported as a single segment. Each of our other store chains, T.K. Maxx, HomeGoods, A.J. Wright, and Bob’s Stores is operated as a division and reported as a separate segment. More detailed information about our segments, including financial information for each of the last three fiscal years, can be found in Note O to the consolidated financial statements.

 

Unless otherwise indicated, all store information is as of January 26, 2008, and references to store square footage are to gross square feet. Fiscal 2006 means the fiscal year ended January 28, 2006, fiscal 2007 means the fiscal year ended January 27, 2007, fiscal 2008 means the fiscal year ended January 26, 2008 and fiscal 2009 means the fiscal year ending January 31, 2009.

 

Segment Overview

 

MARMAXX (T.J. MAXX AND MARSHALLS)

 

Marmaxx operates the largest off-price retailers in the United States, T.J. Maxx and Marshalls, with 847 T.J. Maxx stores in 48 states and 762 Marshalls stores in 42 states and 14 in Puerto Rico, at fiscal 2008 year-end. We maintain the separate identities of the T.J. Maxx and Marshalls stores through product assortment, in-store initiatives, marketing and store appearance. This encourages our customers to shop at both chains.

 

T.J. Maxx and Marshalls primarily target female shoppers who have families with middle to upper-middle incomes and who generally fit the profile of a department or specialty store customer. These chains operate with a common buying and merchandising organization and have a consolidated administrative function, including finance and human resources. The combined organization, known internally as The Marmaxx Group, offers us increased leverage to purchase merchandise at favorable prices and allows us to operate with a lower cost structure. These advantages are key to our ability to sell quality, brand name merchandise at substantial discounts from department and specialty store regular prices.

 

T.J. Maxx and Marshalls sell quality, brand name and designer merchandise at prices generally 20%-60% below department and specialty store regular prices. Both chains offer family apparel, accessories, giftware, and home fashions. Within these broad categories, T.J. Maxx offers a shoe assortment for women and fine jewelry, while Marshalls offers a full-line footwear department and a larger men’s department. We believe these expanded offerings further differentiate the shopping experience at T.J. Maxx and Marshalls, driving traffic to both chains.

T.J. Maxx and Marshalls stores are generally located in suburban community shopping centers. T.J. Maxx stores average approximately 30,000 square feet. Marshalls stores average approximately 32,000 square feet. We currently expect to add a net of approximately 45 stores in fiscal 2009. Ultimately, we believe that T.J. Maxx and Marshalls together can operate approximately 2,000 stores in the United States and Puerto Rico, an increase of approximately 200 stores over our previous estimate.

 

HOMEGOODS

 

HomeGoods is our off-price retail chain that sells exclusively home fashions with a broad array of giftware, home basics, accent furniture, lamps, rugs, accessories, children’s furniture, and seasonal merchandise for the home. Many of the HomeGoods stores are stand-alone stores; however, we also combine HomeGoods stores with a T.J. Maxx or Marshalls store in a superstore format, the majority of which are dual-branded, with both the T.J. Maxx or Marshalls logo and the HomeGoods logo. In fiscal 2008, we continued to open a different superstore format, called a “combo store,” in which a HomeGoods store is located beside a T.J. Maxx or Marshalls store, with interior passageways providing access between the stores. This configuration is also dual-branded with both the T.J. Maxx or Marshalls logo and the HomeGoods logo.

 

Stand-alone HomeGoods stores average approximately 27,000 square feet. In superstores, which average approximately 53,000 square feet, we dedicate an average of 22,000 square feet to HomeGoods. The 289 stores open at the end of fiscal 2008 include 156 stand-alone stores, 105 superstores and 28 combo stores. In fiscal 2009, we plan to net 25 additional stores. We believe that the U.S. market could potentially support approximately 550 to 600 HomeGoods stores in the long term.

 

WINNERS AND HOMESENSE

 

Winners is the leading off-price retailer in Canada, offering off-price brand name and designer family apparel, accessories, including fine jewelry, home fashions and giftware. Winners operates HomeSense, our Canadian off-price home fashions chain, launched in fiscal 2001. Like our HomeGoods chain, HomeSense offers a wide and rapidly changing assortment of off-price home fashions including giftware, home basics, accent furniture, lamps, rugs, accessories and seasonal merchandise. We operate HomeSense in a stand-alone format, as well as a superstore format where a HomeSense store and a Winners store are combined or operate side-by-side.

 

At fiscal 2008 year end, we operated 191 Winners stores, which averaged approximately 29,000 square feet and 71 HomeSense stores, which averaged approximately 24,000 square feet. We expect to add a net of 16 stores in Canada in fiscal 2009, in the stand-alone and superstore format as well as the introduction of a new off-price concept. Ultimately, we believe the Canadian market can support approximately 230 Winners stores and approximately 80 HomeSense stores.

 

T.K. MAXX

 

T.K. Maxx, operating in the United Kingdom, Ireland and Germany, is the only major off-price retailer in any European country. T.K. Maxx utilizes the same off-price strategies employed by T.J. Maxx, Marshalls and Winners and offers the same types of merchandise. At the end of fiscal 2008, we operated 221 T.K. Maxx stores in the U.K. and Ireland and 5 in Germany, which averaged approximately 31,000 square feet. We expect to add a total of 10 T.K. Maxx stores in the U.K. and Ireland in fiscal 2009 and believe that the U.K. and Ireland can support approximately 275 stores in the long term. In the fall of fiscal 2008, we opened our first 5 T.K. Maxx stores in Germany, and we expect to open an additional 5 stores in Germany in fiscal 2009 for a total of 10 stores in that country by the end of the year. Additionally, T.K. Maxx expects to open its first 5 HomeSense stores in the U.K. in fiscal 2009, which will mark the launch of our Canadian HomeSense concept in Europe.

 

A.J. WRIGHT

 

A.J. Wright offers our off-price concept to the moderate income customer demographic, which differentiates this chain from our other off-price divisions. A.J. Wright stores offer brand-name family apparel, including accessories and footwear, as well as home fashions and giftware, including toys and games, and special, opportunistic purchases. A.J. Wright stores average approximately 26,000 square feet. We operated 129 A.J. Wright stores in the United States at fiscal 2008 year end. In fiscal 2009, we anticipate opening a net of 5 stores in existing markets. Although we are continuing to temper the rate at which we grow this chain, we believe that the customer demographics of the A.J. Wright concept could ultimately support approximately 1,000 A.J. Wright stores in the U.S.

 

BOB’S STORES

 

Bob’s Stores, acquired in late 2003, offers casual, family apparel and footwear, including workwear, activewear, and licensed team apparel. Bob’s Stores’ customer demographics span the moderate to upper-middle income bracket. Bob’s Stores operated 34 stores at the end of fiscal 2008, with an average size of 46,000 square feet. We do not plan to open any new stores for this division in fiscal 2009 as we continue to evaluate this business.

 

Store Locations

 

We operated stores in the following locations as of January 26, 2008:

 

STORES LOCATED IN THE UNITED STATES:

 

 

STORES LOCATED IN CANADA:

 

 

STORES LOCATED IN EUROPE:

 

 

Other Information

 

EMPLOYEES

 

At January 26, 2008, we had approximately 129,000 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.

 

CREDIT

 

Our stores operate primarily on a cash-and-carry basis. Each chain accepts credit sales through programs offered by banks and others. Our co-branded TJX card program for our domestic divisions offered by a major bank expired January 31, 2007, as scheduled. We now offer a new co-branded TJX credit card program, as well as a private label customer credit card with a different major bank. We do not maintain customer credit receivables related to either program. The rewards program associated with these credit cards is partially funded by TJX.

 

BUYING AND DISTRIBUTION

 

We operate a centralized buying organization that services both the T.J. Maxx and Marshalls chains, while each of our other chains has its own centralized buying organization. All of our chains are serviced through their own distribution networks, including the use of third party providers at our HomeGoods and Winners divisions.

 

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, A.J. Wright and Bob’s Stores, 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, which causes us generally to realize higher levels of sales and income in the second half of the year. This is common in the apparel retail business.

 

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 and, to a lesser degree, store location. We compete with local, regional, national and international department, specialty, off-price, discount and outlet stores as well as other retailers

that sell apparel, accessories, home fashions, giftware and other merchandise that we sell, whether in stores, through catalogues or media or over the internet. We purchase most of our inventory opportunistically and compete for that merchandise with other off-price apparel and outlet retailers. We also compete with other retailers for associates and for store locations.

 

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, and any amendments to those filings pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge on our website, www.tjx.com, under “SEC Filings,” as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission (the “SEC”). They are also available free of charge from TJX Investor Relations, 770 Cochituate Road, Framingham, Massachusetts, 01701.

 

The Annual CEO Certification for the fiscal year ended January 27, 2007, as required by Section 303A.12(a) of the Listed Company Manual of the New York Stock Exchange (“NYSE”), regarding our compliance with the corporate governance listing standards of the NYSE, was submitted to the NYSE on July 3, 2007.

 

We have filed the Sarbanes-Oxley Act Section 302 Certifications as an exhibit to this Form 10-K.

 

ITEM 1A. RISK FACTORS

 

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. In addition, these statements constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995.

 

Our disclosure and analysis in this 2007 Form 10-K and in our 2007 Annual Report to Shareholders contain some forward-looking statements, including some of the statements made 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 2007 Annual Report to Stockholders under “Letter to Shareholders” and “Financial Graphs.” From time to time, we also provide forward-looking statements in other materials we release to the public as well as oral forward-looking statements. 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,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” “target,” “forecast” and similar expressions in connection with any discussion of future operating or financial performance. 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 and Section 21E of the Securities Exchange Act of 1934. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales, expenses, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, and financial results.

 

We cannot guarantee that any forward-looking statement will be realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements.

 

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q and 8-K reports to the SEC. 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. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

 

Our revenue growth could be adversely affected if we do not continue to expand our operations successfully.

 

We have steadily expanded the number of chains and stores we operate and our selling square footage. Our revenue growth is dependent 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 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 and increases in real estate, construction and development costs could limit our growth opportunities.

Even if we succeed in opening new stores, these new stores may not achieve the same sales or profit levels as our existing stores. Further, expansion places demands upon us to manage rapid growth, and we may not do so successfully.

 

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 in the past, and we expect that they will 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 programs, 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 plans for the future require us to continue to expand rapidly within existing and new markets and geographies. Our growth strategy includes developing new ways to sell more 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 concepts, 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. If we are unable to successfully do so, our future growth or financial performance could be adversely affected.

 

If we fail to execute our opportunistic buying and inventory management well, our business could be adversely affected.

 

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 the right time and price, in the quantities we need and into market trends, it places considerable discretion in our buyers, subjecting us to risks on the timing, quantity and nature of inventory flowing to the stores. We rely on our expansive distribution infrastructure to support delivering goods to our stores on time. We must effectively and timely distribute inventory to stores, maintain an appropriate mix and level of inventory and effectively manage pricing and markdowns. We regularly change the allocation of floor space within our stores among product categories in response to demand. Failure to execute our opportunistic inventory buying and inventory management well could adversely affect our performance and our relationship with our customers.

 

If we do not implement our marketing, advertising and promotional programs successfully, or if our competitors are more effective than we are, our revenue may be adversely affected.

 

We use marketing and promotional programs as one of the ways we attract customers to our stores. We use various media for our promotional efforts, including print, television, database marketing and direct marketing. Some of our competitors may have substantially larger marketing budgets, which may provide them with a competitive advantage. There can be no assurance as to our continued ability to effectively execute our marketing and promotional programs, and any failure to do so could have a material 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 during the fourth quarter of fiscal 2007 and in which we believe that customer data were stolen. Various litigation has been or may be filed, and various claims have been or may be otherwise asserted, against us and/or our acquiring banks for which we may be responsible relating to the Computer Intrusion. We have settled some litigation and claims and while we intend to defend the remaining litigation and claims vigorously, we cannot predict the outcome of such litigation and claims. Various governmental entities are investigating the actions of the Company with respect to the Computer Intrusion. Although a number of governmental investigations have been completed, we cannot predict what actions the governmental entities in the remaining investigations will take and what the consequences will be for us. 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 pending 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 strengthen the security of our computer systems 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, 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 systems. Any such further compromises or breaches could cause interruptions in our operations, damage to our reputation and customers’ willingness to shop in our stores and subject us to additional costs and liabilities.

 

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 realize higher levels of sales and income in the second half of the year, which includes the back-to-school and year-end holiday season. Any decrease in sales or margins during this period could have a disproportionately adverse effect on our financial condition and results of operations.

 

If we fail to anticipate consumer trends and preferences, our performance could suffer.

 

Because our success depends on our ability to keep up with consumer trends, we take steps to address the risk that we will fail to anticipate consumer preferences. These include, for example, maintaining extensive contacts with vendors, with other retailers, as appropriate, and with the National Retail Federation, comparison shopping and monitoring fashion trends. Our buying departments and individual buyers monitor consumer trends and preferences in their respective product categories and areas. We focus on the demographics associated with the customer bases of our divisions and we monitor such demographics in locating new and remodeled stores. Opportunistic buying close to need helps us respond to consumer preferences and trends. Nonetheless, we still face the risk that we will fail to effectively anticipate consumer trends and preferences, which could adversely affect our results.

 

We experience risks associated with our substantial size and scale.

 

We operate eight store chains in several countries. Some aspects of the businesses and operations of the chains are conducted with relative autonomy. The large size of our operations, our multiple businesses and the autonomy afforded to the chains 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 chains and countries.

 

Unseasonable weather in the markets in which our stores operate could adversely affect our operating results.

 

Customers’ willingness to shop and their demand for the merchandise in our stores are affected by adverse and unseasonable weather. 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 and earthquakes, or a combination of these or other factors, could severely damage or destroy one or more of our stores or facilities located in the affected areas, 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 for customers, associates, locations, merchandise, services and other important aspects of our business with many other local, regional and national retailers. In addition to other retail stores, we also face competition from other retail distribution channels such as catalogues, media and internet sites. Competition is characterized by many factors, including price, value, quality, brand names, merchandise assortment, advertising, marketing and promotional activities, service, location, reputation and credit availability. If we are not able to compete effectively with regard to these factors, our results of operations could be adversely affected.

 

If we do not attract and retain quality sales, distribution center and other associates in large numbers as well as experienced buying and management personnel, our performance could be adversely affected.

 

Our performance is dependent 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 state labor and employment requirements. In the event of increasing wage rates, if we do not increase our wages competitively, our customer service could suffer because of a declining quality of our workforce, or our earnings could decrease if we increase our wage rates. 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, we must do significant internal training and development. 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. Integrating new stores and concepts can be a difficult task. We may consider opportunities to acquire new businesses or to divest any of our current business segments. Acquisition or divestiture activities may divert attention of our executive management team away from the existing businesses. We may do a less than optimal job of due diligence or evaluation of target companies. Divestiture also involves risks, such as the risk of future exposure on lease obligations. Failure to execute on mergers or divestitures in a satisfactory manner could have an adverse effect on our future business prospects or our financial performance in the future.

 

If we are unable to operate information systems and implement new technologies effectively, our business could be disrupted or our sales or profitability could be reduced.

 

The efficient operation of our business is dependent on our information systems, including our ability to operate them effectively and to successfully implement new technologies, systems, controls and adequate disaster recovery systems. In addition, we must 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 and stock repurchase program.

 

Our business is dependent upon our operations generating strong cash flows to support our capital expansion requirements, our general operating activities and our stock repurchase programs and to fund debt repayment and the availability of financing sources. 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.

Consumer spending is adversely affected by general economic and other factors, which are beyond our control, and 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 can, in turn, affect sales at retailers, including TJX. These factors beyond our control could adversely affect our sales and performance.

 

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

 

Merchandise we sell in our stores is subject to regulation of and regulatory standards set by various governmental authorities with respect to quality and safety. Regulations and standards in this area may change from time to time, and substantial additional regulations and standards have been proposed. 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 result in damage to our reputation, lost sales, uninsured product liability claims or losses, merchandise recalls and increased costs, which could have a material adverse effect on our financial results.

 

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. Imported merchandise is subject to various risks, including potential disruptions in supply, changes in duties, tariffs, quotas and voluntary export restrictions on imported merchandise, strikes and other events affecting delivery; consumer perceptions of the safety of imported merchandise, particularly merchandise imported from the People’s Republic of China; and economic, political or other problems in countries from or through which merchandise is imported. Political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to international trade and imported merchandise are beyond our control and 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 presence in Canada, the United Kingdom and Ireland, and have recently expanded into Germany. We may also seek 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.

 

Litigation and changes in laws and regulations and accounting rules and principles could negatively affect our business operations and financial performance.

 

Various aspects of our operations are subject to federal, state or local laws, rules and regulations, any of which may change from time to time. Generally accepted accounting principles may change from time to time, as well. In addition, we are regularly involved in various litigation matters that arise in the ordinary course of business. Litigation, regulatory developments and changes in accounting rules and principles could adversely affect our business operations and financial performance.

 

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 other real estate on which our primary distribution centers and administrative offices are located. Accordingly, we are subject to all of 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 cancel a particular lease. If an existing or future store is not profitable, and we decide to close it, we may be committed to perform certain obligations under the applicable lease including, among other things, paying the rent for the balance of the lease term. When we assign or sublease leased property, we can remain liable if the sublessee does not perform. In addition, as each of the leases expires, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close stores in desirable locations.

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.

 

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.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None

 

ITEM 2. PROPERTIES

 

We lease virtually all of our 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 for specified payments.

 

The following is a summary of our primary distribution centers and primary administrative office locations as of January 26, 2008. 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

 

The table below indicates the approximate average store size as well as the gross square footage of stores and distribution centers, by division, as of January 26, 2008:

 

 

ITEM 3. LEGAL PROCEEDINGS

 

Computer Intrusion Related Litigation. Putative class actions were filed against TJX and were consolidated in the District of Massachusetts, In re TJX Companies Retail Security Breach Litigation, 07-cv-10162, putatively on behalf of customers in the United States, Puerto Rico and Canada whose transaction data were allegedly compromised by the Computer Intrusion and putatively on behalf of all financial institutions that received alerts from MasterCard or Visa related to the Computer Intrusion identifying payment cards issued by such financial institutions, and which thereafter suffered damages from actual reissuance costs, monitoring expenses or fraud loss. 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.

 

On September 21, 2007, TJX entered into a settlement agreement with respect to the consolidated consumer class actions, amended November 14, 2007, which remains subject to various conditions and to final Court approval. A hearing on final approval has been scheduled for July 2008.

 

On October 12, 2007, the Court dismissed the plaintiffs’ claims in the consolidated financial institution class action other than claims of negligent misrepresentation and a state statutory claim based on the same claims of negligent misrepresentation. On November 29, 2007, the Court denied the plaintiffs’ motions for class certification in the consolidated financial institution class action. Subsequently, the Court dismissed the action for lack of subject matter jurisdiction and ordered it transferred to Massachusetts state court. TJX obtained a stay of the transfer order from the United States Court of Appeals for the First Circuit and filed a notice of appeal of both the transfer order and certain other rulings. Plaintiffs filed a notice of appeal of the Court’s denial of their motions for class certification and other adverse rulings. The two appeals have been consolidated. TJX and the named plaintiffs other than AmeriFirstBank entered into a settlement of their claims in this litigation.

 

On November 29, 2007, TJX and its acquiring bank entered into a settlement agreement with Visa U.S.A. Inc. and Visa Inc. relating to the Computer Intrusion. Financial institutions representing more than 95% of eligible U.S. Visa accounts potentially affected by the Computer Intrusion accepted the settlement provided under this agreement. As part of the settlement, such issuers released TJX and its U.S. acquiring bank with regard to all claims, including the putative financial institutions class action, in connection with any injury or harm such issuers may have incurred as Visa issuers with respect to any of identified Visa accounts relating to the Computer Intrusion.

 

On January 16, 2008, AmeriFirstBank, one of the plaintiffs in the consolidated purported financial institution class action, and an additional plaintiff filed a new action in Massachusetts state court, AmeriFirstBank et al. v. The TJX Companies, Inc. et al, Massachusetts Superior Court 08-0229. The new action raises allegations and claims nearly identical to those asserted in the purported federal financial institutions class action (and now on appeal). Plaintiffs indicated in their complaint that they intend to bring class allegations depending on pre-trial rulings by the state court. TJX removed the case

to federal court, the federal court remanded it back to state court, and TJX has sought leave to appeal the remand and a stay of the state court action.

 

The Arkansas Carpenters Pension Fund, the purported beneficial holder of 4,500 shares of TJX common stock, commenced an action in the Delaware Chancery Court under Section 220 of the Delaware General Corporation Law demanding to inspect certain of TJX’s books and records relating to the Computer Intrusion and TJX’s response to the Computer Intrusion. As relief, the plaintiff seeks the right to inspect records dating back to 2003, as well as its attorneys’ fees and costs.

 

Other Litigation. Putative class actions have been filed against TJX and have been consolidated in the United States District Court for the District of Kansas, In re: The TJX Companies, Inc. Fair and Accurate Credit Transactions Act (FACTA) Litigation, MDL Docket No. 1853, putatively on behalf of persons in the United States to whom TJX provided credit card or debit card receipts in alleged violation of the Fair and Accurate Credit Transactions Act, 15 U.S.C. § 1681 et seq. The plaintiffs in these actions seek statutory damages, punitive damages, injunctive relief, and costs and attorneys’ fees. Discovery as to class certification issues has commenced, and TJX has filed a motion to dismiss these actions.

 

A putative class action, Mason Lee v. Marshalls of California, Inc. (Case No. RG07337021), was filed in Alameda County, California, Superior Court on July 23, 2007 for alleged violations of certain sections of the California Labor Code, principally Section 212 (prohibiting issuance of out-of-state paychecks), Section 226.7 (requiring paid rest periods) and Section 226 (requiring certain information on paychecks). The Complaint seeks unspecified actual damages, penalties of $100 for each aggrieved employee for the initial violation and $200 for each aggrieved employee for each subsequent violation, together with attorneys’ fees and costs.

 

TJX intends to defend all pending litigation vigorously.

 

Government Investigations. A multi-state group of 39 state Attorneys General is investigating whether the Company 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.

 

The Federal Trade Commission is investigating whether the Company may have violated federal law regarding consumer protection and related matters with respect to the Computer Intrusion.

 

 

There was no matter submitted to a vote of TJX’s security holders during the fourth quarter of fiscal 2008.

 

PART II

 

 

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 2008 and fiscal 2007 are as follows:

 

 

The approximate number of common shareholders at January 26, 2008 was 52,000.

 

We declared four quarterly dividends of $0.09 per share for fiscal 2008 and $0.07 per share for fiscal 2007. 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 2008 and the average price paid per share are as follows:

 

 

The following table provides certain information as of January 26, 2008 with respect to our equity compensation plans:

 

Equity Compensation Plan Information

 

 

For additional information concerning our equity compensation plans, see Note G to our consolidated financial statements, on page F-16.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Selected Financial Data

 

 

 

The following discussion contains forward-looking information and should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including those discussed in Item 1A of this report under the section entitled “Risk Factors.”

 

The discussion that follows relates to our fiscal years ended January 26, 2008 (fiscal 2008), January 27, 2007 (fiscal 2007) and January 28, 2006 (fiscal 2006).

 

In November 2006, we announced our decision to close 34 A.J. Wright stores as part of a repositioning of the chain. The following discussion reviews our results from continuing operations, which excludes the results of the closed A.J. Wright stores. The cost to close these stores was recorded as a discontinued operation in the fourth quarter of fiscal 2007 and the operating income or loss from these stores is also presented as a discontinued operation for all periods presented. All references in the following discussion are to continuing operations unless otherwise indicated.

 

We suffered an unauthorized intrusion or intrusions (such intrusion or intrusions collectively, the “Computer Intrusion”) into portions of our computer system, which was discovered during the fourth quarter of fiscal 2007 and in which we believe customer data were stolen. See “Provision for Computer Intrusion related costs” below and Note B to the consolidated financial statements.

 

Results of Operations

 

FISCAL 2008 OVERVIEW:

 

 

The following is a summary of our operating results at the consolidated level. This discussion is followed by an overview of operating results by segment. All references to earnings per share are diluted earnings per share from continuing operations unless otherwise indicated. All prior periods have been adjusted to reclassify the operating results of the A.J. Wright store closings to discontinued operations. See also Note C to our consolidated financial statements.

 

Net sales: Net sales for fiscal 2008 totaled $18.6 billion, a 7% increase over net sales of $17.4 billion in fiscal 2007. Net sales for fiscal 2007 increased 9% over net sales of $16.0 billion for fiscal 2006. The 7% increase in net sales for fiscal 2008 reflects a 3% increase from new stores and a 4% increase in same store sales. The 9% increase in net sales for fiscal 2007 reflects increases of 5% from new stores and 4% from same store sales.

New stores are a major source of sales growth. Our consolidated store count increased by 4% in both fiscal 2008 and fiscal 2007 over the respective prior year periods, and our selling square footage increased by 4% in fiscal 2008 and 5% in fiscal 2007. We expect to add 109 stores (net of store closings) in the fiscal year ending January 31, 2009 (fiscal 2009), a 4% increase in our consolidated store base. We also expect to increase our selling square footage base by 4%.

 

The 4% increase in same store sales for fiscal 2008 was driven by a strong performance at our international businesses as well as the favorable impact of foreign currency exchange rates, which contributed approximately two percentage points of growth. At our domestic divisions, sales of dresses, footwear and accessories were strong, partially offset by softer sales in the balance of the women’s apparel category. Home categories at Marmaxx, our largest division, were also weak. Same store sales also benefited from the continued expansion of footwear departments in Marshalls. During fiscal 2008, we rolled out expanded footwear departments in approximately 240 Marshalls stores and plan to continue this expansion in approximately 200 Marshalls stores in fiscal 2009, bringing the total to approximately 720. Same store sales for fiscal 2008 at our international businesses 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, more than offset by an increase in the average ticket.

 

The 4% increase in same store sales for fiscal 2007 was driven by growth in unit sales and increased transactions as well as the strong performance at our international businesses (Winners’ same store sales increased 5% and T.K. Maxx same store sales increased 6%, both in local currency). Net sales for fiscal 2007 reflected growth in both apparel and home fashions. Within apparel, jewelry, accessories and footwear (combined), as well as misses sportswear and dresses performed well. As for home fashions, giftware and home decorative products performed well while our “soft” home categories (bedding, linens, etc.) did not perform to our expectations. Same store sales also benefited from the continued expansion of footwear departments in Marshalls. During fiscal 2007, we added 134 expanded footwear departments, bringing the total number of stores with the expanded footwear departments to 280. These stores had same store sales growth that exceeded the chain average. The expansion of jewelry and accessory departments at T.J. Maxx was substantially completed during fiscal 2007, with 686 out of the total 821 stores having expanded departments at year end. In the U. S., same store sales increased across almost all regions, with the Northeast, Southwest and Mid-Atlantic areas experiencing the strongest growth. Same store sales growth was favorably impacted by foreign currency exchange rates, which contributed approximately one percentage point of growth.

 

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 criteria. We determine which stores are included in the same store sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year, unless a store is closed. We calculate same store sales results by comparing the current and prior year weekly periods that are most closely aligned. Relocated stores and stores that 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. 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 the divisional operating performance.

 

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

 

 

Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales was 75.5% in fiscal 2008, 75.9% in fiscal 2007 and 76.6% in fiscal 2006. This ratio for fiscal 2008, as compared to fiscal 2007, reflected an improvement in our consolidated merchandise margin (0.5 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 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 last year.

 

Cost of sales, including buying and occupancy costs, as a percentage of net sales for fiscal 2007 as compared with fiscal 2006 reflected an improvement in our consolidated merchandise margin (0.4 percentage points) as well as expense leverage due to our cost containment initiatives and the impact of strong same store sales growth. These improvements in the fiscal 2007 expense ratio were partially offset by increases in some operating costs as a percentage of net sales, primarily occupancy costs (0.2 percentage points).

 

Selling, general and administrative expenses: Selling, general and administrative expenses as a percentage of net sales were 16.8% in fiscal 2008 and fiscal 2007 and was 16.9% in fiscal 2006. The fiscal 2008 expense ratio remained consistent with the prior year with a planned increase in advertising costs (0.1 percentage point) and a fourth quarter impairment charge at our Bob’s Stores division (0.1 percentage point) being offset by our continuing cost containment initiatives. The decrease in fiscal 2007 compared to fiscal 2006 reflects expense leverage across most categories, partially offset by a planned increase in marketing expense (0.1 percentage point).

 

Provision for Computer Intrusion related costs: We face potential liabilities and costs as a result of claims, litigation and investigations with respect to the Computer Intrusion. During the first six months of fiscal 2008, we expensed pre-tax costs of $37.8 million for costs we incurred related to the Computer Intrusion. In the second quarter of fiscal 2008, we were able to reasonably estimate our potential losses related to the Computer Intrusion and, accordingly, established a pre-tax reserve of $178.1 million and recorded a pre-tax charge in that amount. Subsequently, as previously disclosed, we settled the purported customer class actions (subject to final court approval), settled claims of Visa USA, Visa Inc. and substantially all U.S. Visa issuers and settled with most of the named plaintiffs in the purported financial institution class action. During the fourth quarter of fiscal 2008, we reduced our reserve and the Provision for Computer Intrusion related costs by $18.9 million as a result of insurance proceeds with respect to the Computer Intrusion, which had not previously been reflected in the reserve, as well as a reduction in our estimated legal and other fees as we have continued to resolve outstanding disputes, litigation and investigations. As of January 26, 2008, our reserve balance was $117.3 million reflecting amounts paid for settlements (primarily the Visa settlement), legal and other fees. Our reserve reflects our current estimation of probable losses in accordance with generally accepted accounting principles with respect to the Computer Intrusion and includes our current estimation of total potential cash liabilities, from pending litigation, proceedings, investigations and other claims, as well as legal and other costs and expenses, arising from the Computer Intrusion. In addition, we expect to record non-cash costs with respect to the customer class actions settlement, if finally approved, when incurred, which we do not expect to be material to our financial statements. As an estimate, our reserve is subject to uncertainty, and 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 for other changes in our estimates.

 

Interest (income) expense, net: Interest (income) expense, net amounted to income of $1.6 million for fiscal 2008, expense of $15.6 million for fiscal 2007 and expense of $29.6 million in fiscal 2006. These changes were the result of interest income totaling $40.7 million in the fiscal 2008 versus $23.6 million for fiscal 2007 and $9.4 million in fiscal 2006. The additional interest income in fiscal 2008 versus fiscal 2007, as well as fiscal 2007 versus fiscal 2006, was 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 37.9% in fiscal 2008, 37.7% in fiscal 2007 and 31.6% in fiscal 2006. 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. During fiscal 2008, we changed our assertion regarding the undistributed earnings of one of our Puerto Rican subsidiaries. Beginning in fiscal 2008’s third quarter, we concluded that the undistributed earnings of our Puerto Rican subsidiary that operates Marshalls stores would not be permanently reinvested. As a result, we recorded a deferred tax liability for the effect of the undistributed income and, in addition, we were able to fully recognize the benefit of accumulated foreign tax credits that had been earned at the subsidiary level. The net impact of this change in assertion was a reduction in our effective income tax rate of 0.4 percentage points. Prior to this period, the earnings of this Puerto Rican subsidiary were deemed to be indefinitely reinvested.

 

The increase in the fiscal 2007 effective income tax rate reflected the absence of one-time tax benefits recorded in the fourth quarter of fiscal 2006 (benefit for repatriation of earnings from our Canadian subsidiary and the correction of accounting for the tax impact of foreign currency gains on certain intercompany loans) which favorably impacted the fiscal 2006 effective income tax rate by 6.8 percentage points. The fiscal 2007 effective income tax rate benefited through July 20,

2006 from the tax treatment of foreign currency gains and losses on certain intercompany loans between Winners and TJX. This tax treatment reduced the fiscal 2007 effective income tax rate by 0.2 percentage points. Effective July 20, 2006, we re-designated one of these intercompany loans and the related hedge as a net investment in our foreign operations, and gains and losses on these items after July 20, 2006 are recorded in other comprehensive income, net of tax effects. In addition, the fiscal 2007 effective income tax rate was favorably impacted by increased income at our foreign operations (a portion of which is taxed at a lower rate than our domestic operations) as well as settlement of a state tax assessment for less than the related reserves. Combined, these two items reduced the effective income tax rate by 0.6 percentage points as compared to fiscal 2006.

 

Income from continuing operations: Income from continuing operations was $771.8 million in fiscal 2008, $776.8 million in fiscal 2007 and $689.8 million in fiscal 2006. Income from continuing operations per share was $1.66 in fiscal 2008, $1.63 in fiscal 2007 and $1.41 in fiscal 2006. Unlike many companies in the retail industry, we did not have a 53^rd week in fiscal 2007, but will have a 53^rd week in fiscal 2009.

 

Income from continuing operations for fiscal 2008 was adversely impacted by the charge relating to the Computer Intrusion of approximately $119 million, after tax, which reduced earnings per share by $0.25 per share. Income from continuing operations for fiscal 2007 was adversely impacted by the charge relating to the Computer Intrusion of approximately $3 million, after tax, which reduced fourth quarter earnings per share by $0.01 per share but did not change full year earnings per share.

 

Income from continuing operations for fiscal 2006 was favorably impacted by a tax benefit of $47 million, or $0.10 per share, due to the repatriation of foreign earnings as well as a tax benefit of $22 million, or $0.04 per share, relating to the correction of a previously established deferred tax liability. In addition, income from continuing operations for fiscal 2006 was adversely impacted by approximately $12 million, or $0.02 per share, due to certain third quarter events. These third quarter events included the after-tax cost of executive resignation agreements, primarily with respect to our former CEO ($5 million), e-commerce exit costs and third quarter operating losses ($6 million), and uninsured losses due to third quarter hurricanes, including the estimated impact of lost sales ($6 million), all of which were partially offset by a gain from a VISA/MasterCard antitrust litigation settlement ($5 million).

 

Favorable changes in currency exchange rates added approximately $0.05 to our earnings per share in fiscal 2008 and approximately $0.03 to our earnings per share in fiscal 2007. In addition, the change in earnings per share in each fiscal year was favorably impacted by our share repurchase program. During fiscal 2008, we repurchased 33.3 million shares of our stock at a cost of $950 million. In fiscal 2007, we repurchased 22.0 million shares of our stock at a cost of $557 million, which was less than planned, as we temporarily suspended our buyback activity in December 2006 as a result of the discovery and investigation of the Computer Intrusion. We plan to continue our share repurchase program in fiscal 2009 with planned purchases of approximately $900 million.

 

Discontinued operations and net income: Our results from continuing operations exclude the results of operations and the cost of closing 34 A.J. Wright stores. See “Segment Information — A.J. Wright” below and Note C to the consolidated financial statements for more information. Net income, which includes the impact of discontinued operations, was $771.8 million, or $1.66 per share for fiscal 2008, $738.0 million, or $1.55 per share for fiscal 2007 and $690.4 million, or $1.41 per share for fiscal 2006.

 

Segment information: The following is a discussion of the operating results of our business segments. We consider each of our operating divisions to be a 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 (U.S. dollars in millions):

 

MARMAXX:

 

 

Marmaxx, which operates the T.J. Maxx and Marshalls store chains, posted a 1% same store sales increase in fiscal 2008 compared to a 2% same store sales increase in fiscal 2007. Sales at Marmaxx for fiscal 2008 reflected strong same store sales increases in less weather-sensitive categories such as dresses, footwear and accessories. During fiscal 2008, we added expanded footwear departments to approximately 240 Marshalls stores and plan to add expanded departments to an additional 200 stores in fiscal 2009, taking the total to approximately 720. Home categories at Marmaxx underperformed in fiscal 2008 and we have taken measures to improve in this area of our execution. Geographically in fiscal 2008, same store sales for the Northeast, Southwest and West Coast were above the chain average, while same store sales in Florida and the Midwest were below the chain average.

 

Segment profit as a percentage of net sales (“segment margin” or “segment profit margin”) increased to 9.7% in fiscal 2008 from 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 (0.2 percentage points) and a planned increase in advertising expense (0.1 percentage point). As of January 26, 2008, average inventories per store were down 2% compared to an 8% increase at the prior year end. The increase at the prior year end was primarily due to our in-stock position on spring transitional goods and an increase in average ticket.

 

Segment margin increased to 9.4% in fiscal 2007 from 9.0% in fiscal 2006. The increase was largely driven by a 0.2 percentage point improvement in merchandise margin, primarily due to lower markdowns, and expense leverage across most categories due to our cost containment initiatives. Additionally, fiscal 2007 included the favorable impact on current year casualty insurance and employee medical costs of favorable claims experience. These improvements in segment margin were partially offset by an increase in occupancy costs (0.2 percentage points) and a planned increase in marketing costs (0.1 percentage point).

 

We added a net of 54 new stores (T.J. Maxx or Marshalls) in fiscal 2008, and increased total selling square footage of the division by 3%. We expect to open approximately 45 new stores (net of closings) in fiscal 2009, increasing the Marmaxx store base by 3% and increasing its selling square footage by 2%.

WINNERS AND HOMESENSE:

 

 

Net sales for Winners and HomeSense, our Canadian businesses, for fiscal 2008 increased by 17% over fiscal 2007, with approximately one-half of this growth due to currency exchange rates. Same store sales (in local currency) increased by 5% in both fiscal 2008 and fiscal 2007. Same store sales for fiscal 2008 were positively impacted by sales of home fashions, footwear, jewelry and accessories. HomeSense continued to perform well, favorably impacting same store sales in fiscal 2008 and fiscal 2007.

 

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. Most of this increase is due to currency translation, which also impacts sales growth and, therefore, has no impact on segment margin. The increase in segment profit due to currency exchange rates also included the favorable impact of the mark-to-market adjustment of inventory hedge contracts which increased segment margin by 0.3 percentage points. The inventory hedge contracts are designed to lock in the cost of merchandise purchases that are denominated in U.S. dollars. The fiscal 2008 segment margin also reflected an increase in merchandise margin, primarily due to increased markon as well the favorable impact of cost containment initiatives and strong same store sales results on expense ratios.

 

Segment profit margin for fiscal 2007 increased 2.1 percentage points to 10.4% compared to 8.3% for fiscal 2006. This improvement in segment margin was primarily due to a 1.4 percentage point increase in merchandise margins (improved markon and lower markdowns) combined with improved expense ratios (leverage from the 5% same store sales increase as well as cost containment initiatives). These increases were partially offset by a planned increase in advertising costs which increased 0.2 percentage points as a percentage of net sales.

 

We added a net of 7 Winners stores and 3 HomeSense stores in fiscal 2008, and expanded selling square footage in Canada by 5%. We expect to add a net of 9 Winners and 4 HomeSense stores in fiscal 2009. Additionally, we plan to test a new off-price concept with 3 new stores in Canada in fiscal 2009, which will bring our total Canadian store base up by 5%, and increase selling square footage by 6%. The store counts include the Winners and HomeSense portions of this division’s superstores, which either combine a Winners store with a HomeSense store or operates them side-by-side. As of January 26, 2008 we operated 30 of these superstores.

 

T.K. MAXX:

 

Net sales for fiscal 2008 for T.K. Maxx, operating in the United Kingdom, Ireland and Germany, increased by 19% over fiscal 2007, with approximately 40% of this growth due to currency exchange rates. T.K. Maxx had a strong same store sales increase of 6% (in local currency) for fiscal 2008. Same store sales for home fashions, footwear, accessories and dresses performed above the chain average, while other apparel categories were generally below the chain average.

 

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 rates favorably impacted segment profit by approximately $10 million in fiscal 2008, but did not impact the segment profit margin. During fiscal 2008, T.K. Maxx opened its first 5 stores in Germany which reduced segment profit for fiscal 2008 by $11 million and reduced the fiscal 2008 segment margin by 0.6 percentage points. The T.K. Maxx stores in the U.K. and Ireland increased segment margin for fiscal 2008 by 0.4 percentage points, which reflected a slightly improved merchandise margin, as well as the favorable impact of same store sales growth on expense ratios and the division’s cost containment efforts.

 

Segment profit margin improved to 5.9% of sales for fiscal 2007 compared to 4.6% for fiscal 2006. The 1.3 percentage point improvement was due to merchandise margin, which was up 0.9 percentage points (primarily due to lower markdowns), as well as expense leverage from the 9% same store sales increase. These improvements were partially offset by an increase in occupancy expense due to higher costs for rent, utilities and property taxes and costs associated with store relocations.

 

We added a net of 16 T.K. Maxx stores, including 5 in Germany, in fiscal 2008 and increased the division’s selling square footage by 10%. In fiscal 2009, we plan to open a net of 15 T.K. Maxx stores, including another 5 in Germany and expect to introduce the HomeSense concept in Europe with a planned opening of 5 such stores. Overall we expect to expand selling square footage by 9%.

 

HOMEGOODS:

 

 

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. We attribute this division’s strong performance to solid execution of off-price buying and flow of product.

 

HomeGoods’ same store sales grew 4% in fiscal 2007 due to strong growth in giftware and home decorative products. Segment profit increased to $60.9 million from $28.4 million, and segment profit margin almost doubled to 4.5% of sales. The increase in segment profit margin resulted primarily from leveraging expenses across most categories, most notably in distribution center and occupancy expenses.

 

We opened a net of 19 HomeGoods stores in fiscal 2008, a 7% increase, and increased selling square footage of the division by 7%. In fiscal 2009, we plan to add a net of 25 HomeGoods stores and increase selling square footage by 9%.

 

A.J. WRIGHT*:

 

 

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.

 

A.J. Wright’s same store sales increased 3% for fiscal 2007, and segment loss for fiscal 2007 increased to $10.3 million. This decline, compared to fiscal 2006, was primarily the result of a decrease in merchandise margin (1.2 percentage points) due to markdowns on below-plan sales. During the fourth quarter of fiscal 2007, as part of a plan to reposition this business, we identified 34 underperforming A.J. Wright stores for closing, virtually all of which were closed by fiscal 2007 year end. The cost to close these stores and their historical operating results are presented as discontinued operations. By closing these marginally profitable stores, we reduced the number of advertising markets in which A.J. Wright operates enabling better marketing leverage as well as enabling greater efficiencies in store operations and logistics. The store closings also allowed management to focus their attention and resources on the remaining, better performing stores.

 

We currently plan to add a net of 5 A.J. Wright stores in fiscal 2009. We continue to believe that A.J. Wright can be a growth vehicle for TJX, with its very sizable target customer demographic.

 

BOB’S STORES:

 

 

Bob’s Stores’ net sales increased 3% for fiscal 2008, and same store sales increased 5%, with footwear performing well. Bob’s Stores segment loss for fiscal 2008 was flat compared to the prior year. Merchandise margin increases were driven by improved markon, the result of better buying, which more than offset increases in promotional markdowns as we significantly increased the level of promotions in this division. Additionally, in the fourth quarter of fiscal 2008, we recorded an impairment charge of approximately $8 million. The impairment charge related to certain long lived assets and intangible assets at Bob’s Stores and represented the excess of recorded carrying values over the estimated fair value of these assets.

 

For fiscal 2009, we do not plan to open any new stores for this division as we continue to evaluate this business.

 

GENERAL CORPORATE EXPENSE:

 

 

General corporate expense for segment reporting purposes are those costs not specifically related to the operations of our business segments. This item includes the costs of the corporate office, including the compensation and benefits (including stock based compensation) for senior corporate management; payroll and operating costs of the corporate departments of accounting and budgeting, internal audit, compliance, treasury, investor relations, tax, risk management, legal, human resources and systems; and the occupancy and office maintenance costs associated with the corporate staff. In addition, general corporate expense includes the cost of benefits for existing retirees and non-operating costs and other gains and losses not attributable to individual divisions. General corporate expense is included in selling, general and administrative expenses in the consolidated statements of income.

 

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.

 

In comparing general corporate expense for fiscal 2007 to fiscal 2006, fiscal 2007 included the $5 million charge referred to above, while fiscal 2006 included costs of $9 million associated with executive resignation agreements and $6 million of

costs to exit the e-commerce business. The increase in other general corporate expenses in fiscal 2007 over fiscal 2006 also reflected increases in corporate payroll, corporate marketing and consulting costs, charitable contributions, and European expansion costs.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Operating activities:

 

Net cash provided by operating activities was $1,361.1 million in fiscal 2008, $1,195.0 million in fiscal 2007 and $1,158.0 million in fiscal 2006. The cash generated from operating activities in each of these fiscal years was largely due to operating earnings.

 

Operating cash flows for fiscal 2008 increased by $166.1 million. Net income (adjusted for depreciation and amortization) for fiscal 2008 increased $50.0 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 $4.9 million compared to a use of cash of $151.2 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.

 

Operating cash flows for fiscal 2007 increased by $37.0 million compared to fiscal 2006, driven by an increase in net income (adjusted for depreciation and amortization) of $86.4 million. In fiscal 2007, the change in merchandise inventory, net of the related change in accounts payable, resulted in a use of cash of $151.2 million compared to a source of cash of $26.2 million in fiscal 2006. Fiscal 2007 operating cash flows were also reduced by higher income tax payments. These reductions in fiscal 2007 operating cash flows as compared to fiscal 2006 were offset by the favorable cash flow impact of changes in deferred income taxes, accounts receivable and prepaid expenses.

 

The variance in operating cash flows attributable to the change in the net inventory position over the last three fiscal years is largely explained by our average per store inventory levels at each year end period. Average per store inventories at January 26, 2008, including inventory on hand at our distribution centers, increased 2% compared to an increase of 7% at January 27, 2007. This compares to inventories per store at January 28, 2006 that were down 11% compared to the prior year.

 

Discontinued operations reserve: We have a reserve for future obligations of discontinued operations that relates primarily to real estate leases associated with 34 of our A.J. Wright stores (see Note C to the consolidated financial statements) as well as leases of former TJX businesses. The balance in the reserve and the activity for the last three fiscal years is presented below:

 

 

The exit costs related to 34 of our A.J. Wright stores resulted in an addition to the reserve of $62 million in fiscal 2007. The other additions to the reserve for lease related obligations in fiscal 2007 and fiscal 2006 are the result of periodic adjustments to our estimated lease obligations of our former businesses and are offset by income from creditor recoveries of a similar amount. The lease related charges against the reserve during fiscal 2007 and fiscal 2006 relate primarily to our former businesses. The fixed asset write-offs and other charges against the reserve for fiscal 2007 and all the charges against the reserve in fiscal 2008 relate primarily to the 34 A.J. Wright closed stores, virtually all of which were closed at the end of fiscal 2007.

Approximately $32 million of the fiscal 2008 reserve balance and $43 million of the fiscal 2007 reserve balance relates to the A.J. Wright store closings, primarily our estimation of lease costs, net of estimated subtenant income. 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 lease obligations. At January 26, 2008, 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 A.J. Wright 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, for which BJ’s Wholesale Club is primarily liable. Our reserve for discontinued operations does not reflect these leases, because we believe that the likelihood of any future liability to us with respect to these leases is remote due to the current financial condition of BJ’s Wholesale Club.

 

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.

 

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 leases discussed above, and properties of our discontinued operations that we have sublet, if the subtenants did not fulfill their obligations, to be approximately $105 million as of January 26, 2008. 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 the other party 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 $575 million for fiscal 2009, which we expect to pay through internally generated funds. This includes $140 million for new stores, $288 million for store renovations, expansions and improvements and $147 million for our office and distribution centers. The planned increase in capital expenditures is attributable to increased spending on renovations and improvements to existing stores, particularly T.J. Maxx, Marshalls and T.K. Maxx.

 

Financing activities:

 

Cash flows from financing activities resulted in net cash outflows of $952.7 million in fiscal 2008, $418.0 million in fiscal 2007 and $503.7 million in fiscal 2006. The majority of this outflow relates to our share repurchase program.

We spent $950.2 million in fiscal 2008, $557.2 million in fiscal 2007 and $600.0 million in fiscal 2006 under our stock repurchase programs. We repurchased 33.3 million shares in fiscal 2008, 22.0 million shares in fiscal 2007 and 25.9 million shares in fiscal 2006. All shares repurchased were retired. Repurchases were suspended late in the fourth quarter of fiscal 2007 and for most of the first quarter of fiscal 2008 as a result of the discovery of the Computer Intrusion. 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. Of the $950.2 million of repurchases made during fiscal 2008, $436.2 million completed a $1 billion stock repurchase program initially authorized in October 2005 and $514.0 million were made under the $1 billion stock repurchase program authorized in January 2007. In February 2008, our Board of Directors authorized an additional multi-year stock repurchase plan of $1 billion.

 

In January 2006, we entered into a C$235 million term credit facility (through our Canadian division, Winners) due in January 2010. This debt is guaranteed by TJX. Interest is payable on borrowings under this facility at rates equal to or less than Canadian prime rate. Winners entered into an interest rate swap agreement which effectively established a fixed interest rate of approximately 4.5% on this debt. The proceeds were used to fund the repatriation of earnings from our Canadian division as well as other general corporate purposes of this division. Financing activities also included scheduled principal payments on long-term debt of $100 million in fiscal 2006. For fiscal 2008 and fiscal 2007, there were no scheduled principal payments on long-term debt.

 

We declared quarterly dividends on our common stock which totaled $0.36 per share in fiscal 2008, $0.28 per share in fiscal 2007 and $0.24 per share in fiscal 2006. Cash payments for dividends on our common stock totaled $151.5 million in fiscal 2008, $122.9 million in fiscal 2007 and $105.3 million in fiscal 2006. Financing activities also included proceeds of $134.1 million in fiscal 2008, $260.2 million in fiscal 2007 and $102.4 million in fiscal 2006 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. In fiscal 2007, we amended our $500 million, four-year revolving credit facility and our $500 million, five-year revolving credit facility (initially entered into in fiscal 2006), to extend the maturity dates of these agreements until May 2010 and May 2011, respectively. These agreements have no compensating balance requirements and have various covenants including a requirement of a specified ratio of debt to earnings. We also have a commercial paper program pursuant to which we issue commercial paper from time to time. The revolving credit facilities are used as back up to our commercial paper program. As of January 26, 2008, there were no outstanding amounts under our credit facilities. There were no borrowings on our credit facilities during fiscal 2008. The maximum amount of our U.S. short-term borrowings outstanding was $205 million during fiscal 2007 and $567 million during fiscal 2006. The weighted average interest rate on our U.S. short-term borrowings was 5.35% in fiscal 2007 and 3.69% in fiscal 2006.

 

As of January 26, 2008 and January 27, 2007, Winners had two credit lines, one for C$10 million for operating expenses and one C$10 million letter of credit facility. The maximum amount outstanding under our Canadian credit line for operating expenses was C$5.7 million in fiscal 2008, C$3.8 million in fiscal 2007 and C$4.6 million in fiscal 2006, and there were no amounts outstanding on either of these lines at the end of fiscal 2008 or fiscal 2007. As of January 26, 2008, T.K. Maxx had credit lines totaling £20 million. The maximum amount outstanding in fiscal 2008 was £16.4 million, and there were no outstanding borrowings at January 26, 2008 or January 27, 2007.

 

We believe that internally generated funds and our current credit facilities are more than adequate to meet our operating 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 available financing sources.

 

Contractual obligations: As of January 26, 2008, 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 26, 2008.

 

The lease commitments in the above table are for minimum rent and do not include costs for insurance, real estate taxes and common area maintenance costs that we are obligated to pay. These costs were approximately one-third of the total minimum rent for the fiscal year ended January 26, 2008.

 

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 $125.4 million for employee compensation and benefits, most of which will come due beyond five years, derivative contracts of approximately $143.1 million, the majority of which come due in fiscal 2010, $150.5 million for accrued rent, the cash flow requirements of which are included in the lease commitments in the above table and $269.2 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 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. Bob’s Stores, the value-oriented retailer we acquired in December 2003, does have vendor relationships that provide for recovery of advertising dollars if certain conditions are met. These arrangements may have some impact on Bob’s Stores’ inventory valuation but such amounts are immaterial to our consolidated results.

 

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. We have made contributions of $65 million, which exceeded the minimum required, over the last three years to largely restore the funded status of our plan.

 

Casualty insurance: In July 2007 we entered into a fixed premium program for our casualty insurance. Our casualty insurance program prior to 2007 requires 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 judgements and assumptions and actual results could differ from these estimates. If our estimate for the claims component of our casualty insurance expense for fiscal 2008 were to change by 10%, the fiscal 2008 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 $26.4 million for the unfunded portion of our casualty insurance program as of January 26, 2008.

 

Accounting for taxes: Like many large corporations, we are regularly under audit by United States federal, state, local or foreign tax authorities in the areas of income taxes and the remittance of sales and use taxes. In evaluating the potential exposure associated with the various tax filing positions, we accrue charges for possible exposures. Based on the annual evaluations of tax positions, we believe we have appropriately filed our tax returns and accrued for possible exposures. To the extent we were to prevail in matters for which accruals have been established or be required to pay amounts in excess of reserves, our effective income tax rate in a given financial period might be materially impacted. The Internal Revenue Service has examined the fiscal years ended January 2000 through January 2003 and several refund claims have been approved by IRS Appeals Office and are awaiting confirmation by the Congressional Joint Tax Committee. We also have various state and foreign tax examinations in process.

 

Reserves for Computer Intrusion related costs and for discontinued operations: As discussed in Note B and Note L 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 numerous estimates and assumptions about the outcome and costs of claims, litigation and investigations and the related 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 related 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 obligation under the leases, amounts of subtenant income, how a particular obligation may ultimately be settled and what mitigating factors, including indemnification, may exist with regard 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.

 

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

 

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157 requires companies to disclose fair value measurements according to a fair value hierarchy as defined in the standard. Additionally, companies are required to provide enhanced disclosure regarding fair value measurements in one of the categories (level 3), including a reconciliation of the beginning and ending balances separately for each major category

of assets and liabilities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, and will be applied prospectively. SFAS No. 157 is effective for the Company in the first quarter of fiscal 2009. In February 2008, the FASB issued a Staff Position that will (1) partially defer the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities and (2) remove certain leasing transactions from the scope of SFAS No. 157. We believe the adoption of SFAS No. 157 will not have a material impact on our results of operations or financial condition.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115,” (SFAS No. 159). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different fair value measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and interim periods within those years and will be effective for the Company in the first quarter of fiscal 2009. We do not believe that SFAS No. 159 will have a material impact on our financial statements.

 

 

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

 

Foreign Currency Exchange Rate Risk

 

We are exposed to foreign currency exchange rate risk on our investment in our Canadian (Winners and HomeSense) and European (T.K. Maxx) operations. As more fully described in Notes A and E to the consolidated financial statements, we hedge a significant portion of our net investment in foreign operations; intercompany transactions with these operations; and certain merchandise purchase commitments incurred by these operations; with derivative financial instruments. 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; most of these gains and losses are recorded directly in shareholders’ equity. 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 of January 26, 2008, 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.

 

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 TJX. 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 during fiscal 2008. As of January 26, 2008, 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.

 

Market 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 such it is reasonably possible that changes in the values of investments will occur in the near term and such changes could affect the amounts reported.

 

 

The information required by this item may be found on pages F-1 through F-32 of this Annual Report on Form 10-K.

 

 

Not applicable.

 

 

(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 2008 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

 

The management of TJX 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 Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, TJX’s principal executive and principal financial officers, or persons performing similar functions, and effected by TJX’s 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:

 

 

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 TJX’s management, including its Chief Executive Officer and Chief Financial Officer, TJX conducted an evaluation of the effectiveness of its internal control over financial reporting as of January 26, 2008 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 26, 2008.

 

(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 26, 2008, and has issued an attestation report on the effectiveness of our internal control over financial reporting included herein.

 

 

None.

 

PART III

 

 

All officers hold office until the next annual meeting of the Board in June 2008 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 26, 2008 (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.

 

TJX has a Code of Ethics for TJX Executives governing our 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 our 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 on our website 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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

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.

 

Schedule II — Valuation and Qualifying Accounts

 

(b) Exhibits

 

Listed below are all exhibits filed as part of this report. Some exhibits are filed by the Registrant with the Securities and Exchange Commission pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended.

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

Nirmal K. Tripathy, Chief Financial Officer, on behalf of
The TJX Companies, Inc. and as Principal Financial and Accounting Officer of The TJX Companies, Inc.

 

Dated: March 25, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.