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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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

Or

/  /  Transition Report Pursuant to Section 13 and 15(d)
Of the Securities Exchange Act of 1934

For Quarter Ended October 26, 2002
Commission file number 1-4908

The TJX Companies, Inc.
(Exact name of registrant as specified in its charter)

(508) 390-1000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   X  .    No      .

The number of shares of Registrant’s common stock outstanding as of November 23, 2002: 525,366,880

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

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

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

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

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

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.		The results for the first nine months are not necessarily indicative of results for the full fiscal year, because TJX’s business, in common with the businesses of retailers generally, is subject to seasonal influences, with higher levels of sales and income generally realized in the second half of the year.
2.		The preceding data are unaudited and in the opinion of management reflect all normal recurring adjustments, the use of retail statistics, and accruals and deferrals among periods required to match costs properly with the related revenue or activity, considered necessary by TJX for a fair presentation of its financial statements for the periods reported, all in accordance with generally accepted accounting principles and practices consistently applied.
3.		On April 10, 2002, the Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend. The split shares were distributed on May 8, 2002 to shareholders of record on April 25, 2002 and resulted in the issuance of 269.4 million shares of common stock. The stock split was recorded in the second quarter of fiscal 2003, the period it was distributed; however all historical per share amounts and basic and diluted share amounts utilized in the calculation of earnings per share have been restated to reflect the two-for-one stock split.
4.		TJX’s cash payments for interest and income taxes are as follows:

5.		TJX has a reserve for future obligations relating primarily to real estate leases of House2Home, Inc. and Zayre Stores, both of which were previously owned by TJX, for which TJX or a subsidiary is a lessee or guarantor. The companies that own these operations have filed for relief under Chapter 11 of the Federal Bankruptcy Code and are in liquidation. The reserves were established at various times subsequent to TJX’s disposition of these businesses, when the companies suffered significant financial distress. These reserves reflect the estimated cost to TJX of these potential lease obligations. The reserves reflect mitigation of the number and cost of the lease obligations for which TJX may have liability as a result of various factors including assignments to third parties, lease terminations, expirations, subleases, buyouts, modifications and other actions, legal defenses, use by TJX for its own store opening program, and indemnification by BJ’s Wholesale Club, Inc. in the case of House2Home leases.
		House2Home (formerly known as Waban, Inc., HomeClub, Inc. and HomeBase, Inc.) was spun-off by TJX in 1989, along with BJ’s Wholesale Club. In 1997, House2Home spun-off BJ’s Wholesale Club, Inc., and BJ’s Wholesale Club agreed to indemnify TJX for all liabilities relating to the House2Home leases with respect to the period through January 31, 2003, and 50% of such liabilities thereafter. On November 7, 2001, House2Home, Inc. filed for a voluntary petition for relief under Chapter 11 of the Federal Bankruptcy Code and is liquidating its business. At the time of House2Home’s announcement TJX believed there were up to 41 leases for which it could be liable. As of October 26, 2002, up to 16 leases remain for which TJX may be liable as a result of assignments to third parties, negotiated buyouts and lease expirations. As of October 26, 2002, the total present value of the after-tax cost of these remaining 16 leases was approximately $30 million without reflecting any mitigating factors other than indemnification by BJ’s Wholesale Club.

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		TJX completed the sale of its former Zayre Stores division to Ames Department Stores, Inc. in 1988. In a 1992 bankruptcy reorganization of Ames, many former Zayre leases were disposed of by Ames or TJX through assignments and buyouts. The net cost of the small number of remaining leases assumed by TJX in that reorganization, that have been only partially mitigated through subletting, is charged to the reserve. On August 20, 2001, Ames again filed a voluntary petition for relief under Chapter 11 of the Federal Bankruptcy Code and is liquidating its business. At the time of the 2001 Ames bankruptcy announcement, TJX believed that there were up to approximately 60 to 90 leases of former Zayre stores for which TJX may have contingent obligations and subsequently reduced this estimate to approximately 60 to 70 leases based on information received from Ames. As of October 26, 2002, Ames had rejected or sought authority to reject 14 leases for which TJX may be liable. In mid-November 2002, Ames sought authority to reject an additional 13 leases for which TJX may be liable.
		The reserve for discontinued operations as of October 26, 2002 and October 27, 2001 is summarized below:

		TJX has made significant progress on settling its obligations with respect to House2Home leases, but the recent number of lease rejections sought by Ames has exceeded estimations. Overall, TJX believes its reserve for discontinued operations is adequate to meet the costs it may incur with respect to House2Home and Ames leases and that the future liability to TJX with respect to these leases will not have a material adverse effect on its financial condition, operating results or cash flows. Changes in the underlying assumptions, such as additional expenses for lease settlements or future Ames lease rejections, could require TJX to increase this reserve, although TJX does not expect that any increase would be material to its financial condition, results of operations or cash flows.
		TJX is also contingently liable on up to 25 leases of BJ’s Wholesale Club, Inc. for which BJ’s Wholesale Club, Inc. is primarily liable. TJX believes that the likelihood of any future liability to TJX with respect to these leases is remote due to the current financial condition of BJ’s Wholesale Club.

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6.

TJX’s comprehensive income for the periods ended October 26, 2002 and October 27, 2001 is presented below:

7.

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

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		The weighted average common shares for the diluted earnings per share calculation excludes the incremental effect related to outstanding stock options when the exercise price of the option is in excess of the related period’s average price of TJX’s common stock. There were 11.3 million such options excluded for the quarter and nine months ended October 26, 2002 and 10.8 million options excluded for the quarter and nine months ended October 27, 2001. The 16.9 million shares (on a post-split basis) attributable to the zero coupon convertible debt were excluded from the diluted earnings per share calculation in all periods presented because criteria for conversion had not been met.
8.		During the third quarter ended October 26, 2002, TJX repurchased 5.9 million shares of its common stock for a cost of $110.1 million. For the nine months ended October 26, 2002, TJX repurchased 20.5 million shares (adjusted for the two-for-one stock split) at a cost of $392.4 million. Since the inception of the second $1 billion stock repurchase program in July 2002, TJX has repurchased 10.8 million shares at a cost of $198.1 million through October 26, 2002.
9.		In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” This statement addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. TJX implemented SFAS No. 142 during our fiscal year beginning January 27, 2002. As a result of the new standard, TJX no longer amortizes goodwill or the Marshalls tradename which has an indefinite life.
		The book values, as of October 26, 2002, amounted to $71.4 million for goodwill and $107.7 million for the Marshalls tradename. Goodwill of $70 million relates to the Marmaxx segment with the balance relating to Winners. Historically the goodwill asset amounts and the related amortization were not included in the segment results of these divisions but effective January 27, 2002, the assets are now included in the related segments. The value of the Marshalls tradename and the related amortization has always been included in the Marmaxx segment. No impairments have been recorded on these assets to date.

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		The first nine months of last year included goodwill amortization of $1.9 million and Marmaxx operating income for the nine months ended October 27, 2001, was reduced by $2.4 million for tradename amortization. Thus the impact of applying SFAS No. 142 in the nine months ended October 26, 2002, increased pre-tax income by $4.3 million, net income by $3.4 million and increased earnings per share less than a penny per share. On an annual basis the new standard is expected to increase net income by approximately $5 million, or $.01 per share.
		In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities including store closing activities. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. The Company is evaluating the effect of the adoption of SFAS No. 146 and does not expect the adoption of SFAS No. 146 to have a material impact on its financial position or results of operations.
10.		TJX evaluates the performance of its segments based on “operating income” which is defined as pre-tax income before general corporate expense, goodwill amortization and interest. Presented below is financial information on TJX’s business segments (In thousands):

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*

Includes the operating results of HomeSense stores which commenced operations in April 2001.

11.		The periods ended October 26, 2002, reflect an after-tax charge of approximately $10 million, or $.02 per diluted share, for the cost of a tentative settlement for claims relating to four California lawsuits. The lawsuits allege that the Company improperly classified store managers as exempt from California overtime laws. The suits are similar to numerous suits filed against retailers and others with operations in California. The settlement is subject to final negotiation and submission to the court for approval. The pre-tax cost of $16.0 million is reflected in selling, general and administrative expenses, with virtually the entire amount charged to the Marmaxx operating segment.
12.		Certain amounts in the financial statements of the prior period have been reclassified for comparative purposes.

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

The Thirteen and Thirty-Nine Weeks Ended
October 26, 2002
Versus the Thirteen and Thirty-Nine Weeks Ended October 27, 2001

Historical earnings per share amounts have been restated to reflect a two-for-one stock split, distributed on May 8, 2002. All reference to earnings per share amounts are diluted earnings per share unless otherwise indicated.

Net sales for the third quarter of fiscal 2003 were $3,044.9 million, up 11% from $2,741.8 million in last year’s third quarter. Net sales for the thirty-nine week period this year were $8,475.7 million, a 13% increase over the prior year. Consolidated same store sales increased 2% for the third quarter ended October 26, 2002 and increased 4% for the nine-month period. Consolidated same store sales increased 3% for the third quarter ended October 2001, and increased 2% for the nine-month period ended October 2001. For the thirteen weeks ended October 2002, approximately 80% of the increase in net sales was due to new stores, with the balance due to increased same store sales. For the thirty-nine weeks ended October 2002, the increase in sales attributable to new stores amounted to approximately 70%, with the balance due to same store sales growth.

Income from continuing operations for the third quarter of fiscal 2003 was $147.4 million, or $.28 per share, versus $149.5 million, or $.27 per share last year. For the thirty-nine week period, income from continuing operations was $424.1 million, or $.78 per share, versus $385.1 million, or $.69 per share.

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

Cost of sales including buying and occupancy costs, as a percentage of net sales, increased from the prior year for the quarter ended October 2002, and decreased for the nine-month period. The increase in this expense ratio in the quarter reflects an increase of .5% attributable to the Marmaxx division, primarily due to increased markdowns and an increase in the inventory shortage reserve versus the prior year. These markdowns were the result of unseasonably warm weather in September. The increase in this expense ratio attributable to Marmaxx was largely offset by the improvement in this ratio at Winners, T.K. Maxx and HomeGoods, largely due to the strong improvement in merchandise margins at these divisions. The improvement in this ratio for the nine months ended October 2002 is largely due to the improvement in Marmaxx’s merchandise margin, which was driven by a reduction in markdowns on a year-to-date basis, along with an improvement in this ratio at Winners, HomeGoods and A.J. Wright.

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Selling, general and administrative expenses, as a percentage of net sales, increased from the prior year in both periods. Contributing to the increase in both periods is the pre-tax charge of $16 million for the estimated cost of settling claims relating to four California lawsuits. The lawsuits allege that TJX improperly classified store managers as exempt from California overtime laws. The impact of the tentative agreement increased selling, general and administrative expenses as a percentage of sales by .5% in the quarter and by .2% for the nine-month period. Also contributing to the increase in both periods were higher store payroll costs and an increase in retirement and medical costs as compared to the same periods last year. The increase in this expense ratio for the third quarter also reflects the effect of less than planned growth in sales.

Interest expense, net includes interest income of $1.7 million in the third quarter of the current fiscal year versus $2.0 million of interest income in the third quarter last year. The thirty-nine weeks ended this year includes interest income of $7.8 million versus $11.7 million of interest income last year. The reduction in interest income is due to lower interest rates. The decrease in gross interest expense, over the comparable periods last year is due to the inclusion in last year’s reporting periods of amortization of debt expenses relating to the zero coupon convertible notes.

Our effective income tax rate was 38.4% and 38.3% for the three and nine months ended October 26, 2002, respectively, versus 38.1% for the comparable periods last year. The increase in the effective income tax rate as compared to last year is due to the impact of foreign operations.

We evaluate the performance of our segments based on “operating income” which is defined as pre-tax income before general corporate expense, goodwill amortization and interest. The following is a summary of key operating statistics of our business segments (US dollars in millions):