1 PAGE 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 /X/ Quarterly Report under Section 13 and 15(d) Of the Securities Exchange Act of 1934 Or / / Transition Report Pursuant to Section 13 and 15(d) Of the Securities Exchange Act of 1934 For Quarter Ended October 30, 1999 Commission file number 1-4908 THE TJX COMPANIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 04-2207613 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 770 Cochituate Road Framingham, Massachusetts 01701 (Address of principal executive offices) (Zip Code) (508) 390-1000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ----- ----- The number of shares of Registrant's common stock outstanding as of October 30, 1999: 310,080,847
2 PAGE 2 PART I FINANCIAL INFORMATION THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF INCOME (UNAUDITED) DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS <TABLE> <CAPTION> Thirteen Weeks Ended ----------------------------- October 30, October 31, 1999 1998 ----------- ---------- <S> <C> <C> Net sales $2,257,094 $ 2,026,578 ---------- ----------- Cost of sales, including buying and occupancy costs 1,659,885 1,480,501 Selling, general and administrative expenses 338,319 322,531 Interest expense, net 4,274 1,507 ---------- ----------- Income before income taxes 254,616 222,039 Provision for income taxes 97,642 88,372 ---------- ----------- Income from continuing operations before extraordinary item 156,974 133,667 (Loss) from discontinued operations, net of income taxes -- (9,048) ---------- ----------- Net income 156,974 124,619 Preferred stock dividends -- 978 ---------- ----------- Net income available to common shareholders $ 156,974 $ 123,641 ========== =========== Earnings per share: Income from continuing operations: Basic $ .50 $ .42 Diluted $ .50 $ .40 Net income: Basic $ .50 $ .39 Diluted $ .50 $ .38 Cash dividends per common share $ .035 $ .03 </TABLE> The accompanying notes are an integral part of the financial statements.
3 PAGE 3 PART I FINANCIAL INFORMATION THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF INCOME (UNAUDITED) DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS <TABLE> <CAPTION> Thirty-Nine Weeks Ended ---------------------------- October 30, October 31, 1999 1998 ----------- ----------- <S> <C> <C> Net sales $6,307,822 $ 5,666,661 ---------- ----------- Cost of sales, including buying and occupancy costs 4,674,496 4,229,252 Selling, general and administrative expenses 979,476 925,698 Interest expense, net 5,504 2,890 ---------- ----------- Income before income taxes 648,346 508,821 Provision for income taxes 249,031 202,511 ---------- ----------- Income from continuing operations before extraordinary item 399,315 306,310 (Loss) from discontinued operations, net of income taxes -- (9,048) ---------- ----------- Net income 399,315 297,262 Preferred stock dividends -- 3,466 ---------- ----------- Net income available to common shareholders $ 399,315 $ 293,796 ========== =========== Earnings per share: Income from continuing operations: Basic $ 1.26 $ .96 Diluted $ 1.24 $ .91 Net income: Basic $ 1.26 $ .93 Diluted $ 1.24 $ .88 Cash dividends per common share $ .105 $ .09 </TABLE> The accompanying notes are an integral part of the financial statements.
4 PAGE 4 THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES BALANCE SHEETS (UNAUDITED) IN THOUSANDS <TABLE> <CAPTION> October 30, January 30, October 31, 1999 1999 1998 ----------- ----------- ----------- <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 24,561 $ 461,244 $ 155,691 Accounts receivable 114,315 67,345 104,392 Merchandise inventories 1,638,764 1,186,068 1,501,362 Prepaid expenses and other current assets 75,001 28,448 58,337 ----------- ----------- ----------- Total current assets 1,852,641 1,743,105 1,819,782 ----------- ----------- ----------- Property, at cost: Land and buildings 115,757 115,485 115,726 Leasehold costs and improvements 612,367 547,099 541,426 Furniture, fixtures and equipment 819,213 711,320 677,274 ----------- ----------- ----------- 1,547,337 1,373,904 1,334,426 Less accumulated depreciation and amortization 723,397 617,302 594,497 ----------- ----------- ----------- 823,940 756,602 739,929 Other assets 50,335 27,436 20,592 Deferred income taxes 29,850 22,386 7,072 Goodwill and tradename, net of amortization 193,981 198,317 199,742 ----------- ----------- ----------- TOTAL ASSETS $ 2,950,747 $ 2,747,846 $ 2,787,117 =========== =========== =========== LIABILITIES Current liabilities: Short-term debt $ 108,000 $ -- $ -- Current installments of long-term debt 100,510 694 22,618 Accounts payable 747,043 617,159 709,302 Accrued expenses and other current liabilities 599,507 624,801 622,731 Federal and state income taxes payable 73,592 64,192 83,134 ----------- ----------- ----------- Total current liabilities 1,628,652 1,306,846 1,437,785 ----------- ----------- ----------- Long-term debt exclusive of current installments: Promissory notes 159 433 670 General corporate debt 119,922 219,911 219,908 SHAREHOLDERS' EQUITY Preferred stock at face value, authorized 5,000,000 shares, par value $1, issued and outstanding cumulative convertible stock of 411,790 shares of 7% Series E at October 31, 1998 -- -- 41,179 Common stock, authorized 1,200,000,000 shares, par value $1, issued and outstanding 310,080,847; 322,140,770 and 314,181,999 shares 310,081 322,141 314,182 Accumulated other comprehensive income (loss) (1,480) (1,529) (3,146) Additional paid-in capital -- -- -- Retained earnings 893,413 900,044 776,539 ----------- ----------- ----------- Total shareholders' equity 1,202,014 1,220,656 1,128,754 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,950,747 $ 2,747,846 $ 2,787,117 =========== =========== =========== </TABLE> The accompanying notes are an integral part of the financial statements.
5 PAGE 5 THE TJX COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CASH FLOWS (UNAUDITED) IN THOUSANDS <TABLE> <CAPTION> Thirty-Nine Weeks Ended ----------------------------- October 30, October 31, 1999 1998 ----------- ---------- <S> <C> <C> Cash flows from operating activities: Net income $ 399,315 $ 297,262 Adjustments to reconcile net income to net cash provided by operating activities: Loss from discontinued operations -- 9,048 Depreciation and amortization 115,811 100,329 Loss on sale of other assets -- 659 Property disposals 5,776 840 Other, net (24,571) 200 Changes in assets and liabilities: (Increase) in accounts receivable (46,970) (43,657) (Increase) in merchandise inventories (452,696) (311,192) (Increase) in prepaid expenses and other current assets (46,650) (30,980) Increase in accounts payable 129,884 126,511 Increase (decrease) in accrued expenses and other current liabilities (25,294) 54,057 Increase in income taxes payable 9,400 25,271 (Decrease) in deferred income taxes (7,425) (4,410) --------- --------- Net cash provided by operating activities 56,580 223,938 --------- --------- Cash flows from investing activities: Property additions (182,470) (152,312) Proceeds from sale of other assets -- 8,338 --------- --------- Net cash (used in) investing activities (182,470) (143,974) --------- --------- Cash flows from financing activities: Proceeds from borrowings of short-term debt 108,000 -- Principal payments on long-term debt (458) (1,199) Common stock repurchased (405,584) (304,376) Proceeds from sale and issuance of common stock, net 20,326 8,869 Cash dividends (33,077) (31,936) --------- --------- Net cash (used in) financing activities (310,793) (328,642) --------- --------- Net (decrease) in cash and cash equivalents (436,683) (248,678) Cash and cash equivalents at beginning of year 461,244 404,369 --------- --------- Cash and cash equivalents at end of period $ 24,561 $ 155,691 ========= ========= </TABLE> The accompanying notes are an integral part of the financial statements.
6 PAGE 6 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 the Company's business, in common with the businesses of retailers generally, is subject to seasonal influences, with higher levels of sales and income generally realized in the second half of the year. 2. The preceding data are unaudited and reflect all normal recurring adjustments, the use of retail statistics, and accruals and deferrals among periods required to match costs properly with the related revenue or activity, considered necessary by the Company for a fair presentation of its financial statements for the periods reported, all in accordance with generally accepted accounting principles and practices consistently applied. 3. The Company's cash payments for interest expense and income taxes are as follows: <TABLE> <CAPTION> Thirty-Nine Weeks Ended -------------------------------------- October 30, October 31, 1999 1998 ----------- -------------- (In Thousands) <S> <C> <C> Cash paid for: Interest on debt $ 10,975 $ 13,506 Income taxes $235,812 $185,578 </TABLE> 4. In October 1988, the Company completed the sale of its former Zayre Stores division to Ames Department Stores, Inc. ("Ames"). In April 1990, Ames filed for protection under Chapter 11 of the Federal Bankruptcy Code and in December 1992, Ames emerged from bankruptcy under a plan of reorganization. The Company remains contingently liable for the leases of most of the former Zayre stores still operated by Ames. The Company believes that the Company's contingent liability on these leases will not have a material effect on the Company's financial condition. The Company is also contingently liable on certain leases of its former warehouse club operations (BJ's Wholesale Club and HomeBase), which was spun off by the Company in fiscal 1990 as Waban Inc. During fiscal 1998, Waban Inc. was renamed HomeBase, Inc. and spun-off its BJ's Wholesale Club division (BJ's Wholesale Club, Inc.). HomeBase, Inc., and BJ's Wholesale Club, Inc. are primarily liable on their respective leases and have indemnified the Company for any amounts the Company may have to pay with respect to such leases. In addition, HomeBase, Inc., BJ's Wholesale Club, Inc. and the Company have entered into agreements under which BJ's Wholesale Club, Inc. has substantial indemnification responsibility with respect to such HomeBase, Inc. leases. The Company is also contingently liable on certain leases of BJ's Wholesale Club, Inc. for which both BJ's Wholesale Club, Inc. and HomeBase, Inc. remain liable. The Company believes that its contingent liability on the HomeBase, Inc. and BJ's Wholesale Club, Inc. leases will not have a material effect on the Company's financial condition. The Company is also contingently liable on certain store leases of its former Hit or Miss division which was sold by the Company in September 1995. During the third quarter ended October 31, 1998, the Company increased its reserve for its discontinued operations by $15 million ($9 million after-tax), primarily for potential lease liabilities relating to guarantees on leases of its former Hit or Miss
7 PAGE 7 division. The after-tax cost of $9 million, or $.02 per diluted share, was recorded as a loss from discontinued operations. 5. On November 18, 1998, all outstanding shares of Series E cumulative convertible preferred stock were mandatorily converted into common stock in accordance with its terms. 6. The Company's comprehensive income for the periods ended October 30, 1999 and October 31, 1998 is presented below: (Dollars in thousands) <TABLE> <CAPTION> 13 Weeks Ended 39 Weeks Ended ----------------------------- ----------------------------- October 30, October 31, October 30, October 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net income $ 156,974 $ 124,619 $ 399,315 $ 297,262 Other comprehensive income (loss): Foreign currency translation adjustment, net of hedging activity (154) (436) 107 (1,134) Unrealized gains (losses) on marketable securities, including reclassification adjustments (58) (848) (58) (5,328) --------- --------- --------- --------- Comprehensive income $ 156,762 $ 123,335 $ 339,364 $ 290,800 ========= ========= ========= ========= </TABLE> 7. The computation of basic and diluted earnings per share is as follows: <TABLE> <CAPTION> Thirteen Weeks Ended ------------------------------- October 30, October 31, 1999 1998 ----------- ----------- ($'s in thousands except per share amounts) <S> <C> <C> Income from continuing operations (Numerator in diluted calculation) $ 156,974 $ 133,667 Less preferred dividends -- 978 ------------ ------------ Income from continuing operations available to common shareholders (Numerator in basic calculation) $ 156,974 $ 132,689 ============ ============ Net income (Numerator in diluted calculation) $ 156,974 $ 124,619 Less preferred dividends -- 978 ------------ ------------ Net income available to common shareholders (Numerator in basic calculation) $ 156,974 $ 123,641 ============ ============ Shares for basic and diluted earnings per share calculations: Average common shares outstanding for basic EPS 313,297,756 313,930,546 Dilutive effect of stock options and awards 3,015,253 5,098,933 Dilutive effect of convertible preferred stock -- 12,737,200 ------------ ------------ Average common shares outstanding for diluted EPS 316,313,009 331,766,679 ============ ============ Income from continuing operations: Basic earnings per share $ .50 $ .42 Diluted earnings per share $ .50 $ .40 Net income: Basic earnings per share $ .50 $ .39 Diluted earnings per share $ .50 $ .38 </TABLE>
8 PAGE 8 <TABLE> <CAPTION> Thirty-Nine Weeks Ended ------------------------------- October 30, October 31, 1999 1998 ----------- ----------- ($'s in thousands except per share amounts) <S> <C> <C> Income from continuing operations (Numerator in diluted calculation) $ 399,315 $ 306,310 Less preferred dividends -- 3,466 ------------ ------------ Income from continuing operations available to common shareholders (Numerator in basic calculation) $ 399,315 $ 302,844 ============ ============ Net income (Numerator in diluted calculation) $ 399,315 $ 297,262 Less preferred dividends -- 3,466 ------------ ------------ Net income available to common shareholders (Numerator in basic calculation) $ 399,315 $ 293,796 ============ ============ Shares for basic and diluted earnings per share calculations: Average common shares outstanding for basic EPS 317,390,461 316,877,003 Dilutive effect of stock options and awards 3,441,890 5,713,233 Dilutive effect of convertible preferred stock -- 14,074,348 ------------ ------------ Average common shares outstanding for diluted EPS 320,832,351 336,664,584 ============ ============ Income from continuing operations: Basic earnings per share $ 1.26 $ .96 Diluted earnings per share $ 1.24 $ .91 Net income: Basic earnings per share $ 1.26 $ .93 Diluted earnings per share $ 1.24 $ .88 </TABLE> 8. During October 1998, the Company completed its second $250 million stock repurchase program and announced its intentions to repurchase an additional $750 million of common stock over several years. During the nine months ended October 30, 1999, the Company repurchased 13.4 million shares at a cost of $405.6 million. Since the inception of the $750 million stock repurchase program, the Company has repurchased 17.6 million shares at a cost of $501.1 million.
9 PAGE 9 9. During the second quarter the Company entered into a new lease agreement for the expansion of its corporate offices and amended the existing leases on the same property. The new lease has an initial term, which expires on December 31, 2015, and the existing lease agreements have been extended through December 31, 2010. Rental payments on the new expansion are expected to commence in the first quarter of fiscal 2002, and will be accounted for as a capital lease. 10. During the third quarter the Company received 693,537 common shares of Manulife Financial with whom the Company has held a number of life insurance policies for many years. The shares issued reflect ownership interest in the demutualized insurer due to policies held by the Company. These securities were recorded at market value upon receipt resulting in an $8.5 million pre-tax gain in the third quarter. Subsequent to the receipt of the shares, unrealized gains and losses are recognized as a component of comprehensive income (loss), net of income taxes.
10 PAGE 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Thirty-Nine Weeks Ended October 30, 1999 VERSUS THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998 All reference to earnings per share amounts are diluted earnings per share unless otherwise indicated. Net sales from continuing operations for the third quarter were $2,257.1 million, up 11% from $2,026.6 million last year. For the nine months, net sales from continuing operations were $6,307.8 million, up 11% from $5,666.7 million for the same period last year. The increase in sales is attributable to an increase in same store sales and new stores. Same store sales for the thirteen weeks increased 5% at Marmaxx (T.J. Maxx and Marshalls), 7% at Winners, 8% at T.K. Maxx and 17% at HomeGoods. Same store sales for the nine months increased by 5% at Marmaxx, 8% at Winners, 14% at T.K. Maxx and 14% at HomeGoods. Income from continuing operations for the third quarter was $157.0 million, or $.50 per common share, versus $133.7 million, or $.40 per common share. For the nine months ended October 30, 1999, income from continuing operations was $399.3 million, or $1.24 per common share versus $306.3 million or $.91 per common share. After a $9 million after-tax charge for contingent lease obligations relating to discontinued operations, net income for the third quarter and nine months ended October 31, 1998 was $124.6 million, or $.38 per common share, and $297.3 million, or $.88 per common share respectively. The following table sets forth operating results expressed as a percentage of net sales (continuing operations): <TABLE> <CAPTION> Percentage of Net Sales ---------------------------------------------- 13 Weeks Ended 39 Weeks Ended --------------------- ------------------- 10/30/99 10/31/98 10/30/99 10/31/98 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net sales 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- Cost of sales, including buying and occupancy costs 73.5 73.1 74.1 74.6 Selling, general and administrative expenses 15.0 15.9 15.5 16.3 Interest expense, net .2 .1 .1 .1 ----- ----- ----- ----- Income before income taxes 11.3% 10.9% 10.3% 9.0% ===== ===== ===== ===== </TABLE> The cost of sales including buying and occupancy costs as a percentage of net sales, increased for the third quarter ended October 1999, but decreased for the nine months ended October 1999 as compared to the comparable periods last year. These results are largely due to Marmaxx's merchandise margin which was lower than the prior year's third quarter, but showed improvement over the prior year on a year-to-date basis.
11 PAGE 11 Selling, general and administrative expenses, as a percentage of net sales, decreased from the prior year. This improvement in both the thirteen and thirty-nine week periods, primarily reflects the benefits of the Company's sales growth and a net reduction in certain corporate expenses, as discussed on page 12. Interest expense, net, includes income of $.5 million in the third quarter and $8.5 million in the first nine months of the current year, versus $4.1 million and $15.0 million of interest income in the third quarter and nine months ended last year. During the third quarter, the Company and its Chief Executive Officer entered into an agreement whereby the executive waived his right to benefits under the Company's Supplemental Executive Retirement Plan (SERP) in exchange for the Company's funding of a split dollar life insurance policy. During the third quarter ended October 30, 1999, the Company recognized a pre-tax charge of $1.6 million (recorded in general corporate expense) as well as an increase of $2.2 million in the tax provision to reverse the deferred tax asset associated with the SERP plan. This after-tax cost of $3.8 million will be offset in future years by after-tax income associated with the split dollar policy. This benefit exchange was designed so that the ultimate after-tax cash expenditures by the Company on the split dollar policy equals the after-tax cash expenditures the Company would have incurred under the SERP. The Company's effective income tax rate is 38.3% and 38.4% for the three months and nine months ended October 30, 1999, versus 39.8% for the comparable periods last year. The additional third quarter tax cost of $2.2 million associated with the Chief Executive Officer's benefit exchange (described above) was offset by additional anticipated tax benefits attributable to the Company's Puerto Rico net operating loss carry forward. The tax benefit attributable to the Company's Puerto Rico net operating loss carry forward is the primary reason for the reduction in the effective income tax rates as compared to the periods ended October 31, 1998. The following table sets forth the operating results of the Company's major business segments: (unaudited) <TABLE> <CAPTION> Thirteen Weeks Ended Thirty-nine Weeks Ended ----------------------------- ----------------------------- October 30, October 31, October 30, October 31, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- (In Thousands) <S> <C> <C> <C> <C> Net sales: Off-price family apparel stores $2,204,140 $ 1,994,782 $6,173,668 $ 5,582,666 Off-price home fashion stores 52,954 31,796 134,154 83,995 ---------- ----------- ---------- ----------- $2,257,094 $ 2,026,578 $6,307,822 $ 5,666,661 ========== =========== ========== =========== Operating income (loss): Off-price family apparel stores $ 261,225 $ 234,040 $ 680,843 $ 558,871 Off-price home fashion stores 2,041 (589) 386 (5,091) ---------- ----------- ---------- ----------- 263,266 233,451 681,229 553,780 General corporate expense 3,724 9,253 25,422 40,112 Goodwill amortization 652 652 1,957 1,957 Interest expense, net 4,274 1,507 5,504 2,890 ---------- ----------- ---------- ----------- Income before income taxes $ 254,616 $ 222,039 $ 648,346 $ 508,821 ========== =========== ========== =========== </TABLE>
12 PAGE 12 The off-price family apparel stores segment, which includes T.J. Maxx, Marshalls, Winners, T.K. Maxx and A.J. Wright, significantly increased operating income over the comparable periods last year. These increases reflect strong inventory management and strong sales in the current periods on top of strong gains in the prior year periods. General corporate expense decreased from the prior year as the periods ended October 1999 include a pre-tax gain of $8.5 million associated with the Company's receipt of common stock resulting from the demutualization of Manulife while last year's nine month period included a $5.5 million charge for the write-off of the Hit or Miss note receivable. In addition, last year's nine month period includes a charge of $4 million, versus $1 million in the same period this year, for charges associated with a deferred compensation award granted to the Company's Chief Executive Officer in the first quarter of fiscal 1998. This award, initially denominated in shares of the Company's common stock, has now been fully allocated to other investment options, at the election of the executive. Stores in operation at the end of the period are as follows: <TABLE> <CAPTION> October 30, 1999 October 31, 1998 ---------------- ---------------- <S> <C> <C> T.J. Maxx 625 600 Marshalls 498 471 Winners 99 87 HomeGoods 46 31 T.K. Maxx 53 39 A.J. Wright 11 5 ----- ----- Total stores 1,332 1,233 ===== ===== </TABLE> FINANCIAL CONDITION Cash flows from operating activities for the nine months reflect increases in inventories and accounts payable that are primarily due to normal seasonal requirements and are largely influenced by the change in inventory from year-end levels. Operating cash flows for the period ending October 30, 1999, reflects the Company's purchase of investments intended to offset obligations associated with certain deferred compensation plans and a reduction in accrued expenses from year-end levels versus an increase in accrued expenses for the same period last year. During October 1998, the Company completed its second $250 million stock repurchase program and announced its intention to repurchase an additional $750 million of common stock over several years. During the nine months ended October 30, 1999, the Company repurchased 13.4 million shares at a cost of $405.6 million. Since the inception of the $750 million stock repurchase program, the Company has repurchased 17.6 million shares at a cost of $501.1 million. The stock repurchase activity during the first nine months of the current fiscal year resulted in the Company borrowing $108 million under its revolving credit agreement. THE YEAR 2000 ISSUE The following paragraphs relating to the Year 2000 issue also are designated a Year 2000 Readiness Disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act.
13 PAGE 13 The operations of the Company rely on various computer technologies which, as is true of many companies, may be affected by what is commonly referred to as the Year 2000 ("Y2K") issue. To address this matter, in October 1995, the Company began to evaluate whether its computer resources would be able to recognize and accept date sensitive information before and after the arrival of the Year 2000. A failure of these technologies to recognize and process such information could create an adverse impact on the operations of the Company. In connection with its Y2K evaluation, the Company established a Company-wide Y2K project team to review and assess the Y2K readiness of its computer technologies in each business area, and to remediate, validate and, where necessary, develop contingency plans to enable these technologies to effect a smooth transition to the Year 2000 and beyond. These efforts have focused on: (1) the Company's information technology systems in the form of hardware and software (so-called "IT" systems), such as mainframes, client/server systems, personal computers, proprietary software and software purchased or licensed from third parties, upon which the Company relies for its retail functions, such as merchandise procurement and distribution, point-of-sale information systems and inventory control; (2) the Company's embedded computer technologies (so-called "non-IT" systems), such as materials handling equipment, telephones, elevators, climate control devices and building security systems; and (3) the IT and non-IT systems of third parties with whom the Company has commercial relationships to support its daily operations, such as those of banks, credit card processors, payroll services, telecommunications services, utilities and merchandise vendors. THE COMPANY'S STATE OF READINESS The Company's review and assessment phase is complete with respect to its IT systems and the Company has identified and inventoried those IT systems which are critical to its operations. The Company's effort to modify these IT technologies to address the Y2K issue is essentially complete with minor final installation and testing to be completed during November and December, 1999. The Company's mainframe operating system has already been remediated, tested and determined to be compliant in a simulated Y2K environment. The Company's proprietary software systems as well as those purchased or licensed from third parties have been remediated. With respect to the Company's non-IT systems, the review and assessment phase is complete and the Company has identified and inventoried such technologies. The Company has undertaken a program to modify or replace such technologies where they are related to critical functions of the Company, this portion of the Y2K project plan is substantially complete. With respect to the IT and non-IT systems of critical third party providers, the Company has already communicated with these parties to obtain assurances regarding their respective Y2K remediation efforts. While the Company expects such third parties to address the Y2K issue based on the representations it has received to date, the Company cannot guarantee that these systems will be made Y2K compliant in a timely manner or that the Company will not experience a material adverse effect as a result of such non-compliance. COSTS ASSOCIATED WITH YEAR 2000 ISSUES As of October 30, 1999, the Company has incurred $12.2 million in costs related to the Y2K project. The Company currently estimates that the aggregate cost of the Y2K project will be approximately $12.5 million, which cost is being expensed as incurred. The Company's Y2K costs are primarily for the cost of internal and third party programming for remediation and testing. All of these costs have been or are expected to be funded through operating cash flows. The Company has not deferred the implementation of any significant IT projects while addressing the Y2K issue.
14 PAGE 14 CONTINGENCY PLANS The Company believes that the IT and non-IT technologies which support its critical functions will be ready for the transition to the Year 2000. There can be no assurance, however, that similar unresolved issues for key commercial partners (including utilities, financial services, building services and transportation services) will not cause an adverse effect on the Company. To address these risks, and to address the risk that its own IT and non-IT technologies may not perform as expected during the Y2K transition, the Company has established contingency plans to address problems that may affect store operations, distribution, banking and administration. These plans cannot cover all situations, but should allow the Company to continue operating if there are isolated power outages or computer failures due to the year 2000 issue. The plans include, where appropriate, arrangements for alternative power supplies, backup computer resources and manual intervention. Although the Company believes that its efforts to address the Y2K issue will be sufficient to avoid a material adverse impact on the Company, there can be no assurance that these efforts will be fully effective.
15 PAGE 15 PART II. OTHER INFORMATION Item 6(a) EXHIBITS 10.1 The Agreement and the form of the related Split Dollar Agreements, dated October 28, 1999, between the Company and Bernard Cammarata are filed herewith. Item 6(b) REPORTS ON FORM 8-K The Company was not required to file a current report on Form 8-K during the quarter ended October 30, 1999.
16 PAGE 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE TJX COMPANIES, INC. --------------------------------------------- (Registrant) Date: November 29, 1999 /s/ Donald G. Campbell --------------------------------------------- Donald G. Campbell, Executive Vice President - Finance, on behalf of The TJX Companies, Inc. and as Principal Financial and Accounting Officer of The TJX Companies, Inc.