Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion that follows relates to our 52-week fiscal year ended February 1, 2014 (fiscal 2014), our 53-week fiscal year ended February 2, 2013 (fiscal 2013) and our 52-week fiscal year ended January 28, 2012 (fiscal 2012).

OVERVIEW

We are the leading off-price apparel and home fashions retailer in the U.S. and worldwide. We sell a rapidly changing assortment of apparel, home fashions and other merchandise at prices generally 20% to 60% below department and specialty store regular prices on comparable merchandise, every day. We operate over 3,200 stores through our four main segments: in the U.S., Marmaxx (which operates T.J. Maxx, Marshalls and tjmaxx.com) and HomeGoods; TJX Canada (which operates Winners, HomeSense and Marshalls in Canada); and TJX Europe (which operates T.K. Maxx, HomeSense and tkmaxx.com in Europe). Late in fiscal 2013 TJX acquired Sierra Trading Post (STP), a leading off-price Internet retailer, which operates four stores and sierratradingpost.com in the U.S. The results of STP have been reported with the Marmaxx segment.

Fiscal 2014 was another successful year for TJX as we posted solid gains in same store sales, net sales and earnings per share on top of strong increases in both fiscal 2013 and fiscal 2012. We increased our e-commerce presence by launching our new e-commerce website tjmaxx.com during the third quarter of fiscal 2014 and successfully transitioned STP into the TJX family. We continued our focus on operating with lean inventory levels and reinvesting in our business by adding new stores, remodeling existing ones and strengthening our infrastructure to support our next level of growth. We also continued using cash to return value to our shareholders. Highlights of our financial performance for fiscal 2014 include the following:

	—		Same store sales, on a 52-week basis, increased 3% in fiscal 2014 over an increase of 7% in fiscal 2013 and an increase of 4% in fiscal 2012. The fiscal 2014 increase was driven by an increase in the value of average ticket (average unit retail) and a slight increase in customer traffic.

	—		Net sales increased to $27.4 billion for fiscal 2014, up 6% over the 53-week fiscal period last year. The 53rd week increased net sales by 2% in fiscal 2013. At February 1, 2014, the number of stores in operation increased 6% and selling square footage was up 5% over the end of fiscal 2013.

	—		Earnings per share for fiscal 2014 were $2.94 per diluted share, up 15% compared to $2.55 per diluted share in fiscal 2013. This year’s earnings were favorably impacted by $0.11 per share from tax benefits in the third quarter, while the 53rd week in fiscal 2013 added approximately $0.08 per share to that year’s earnings.

	—		Our fiscal 2014 pre-tax margin (the ratio of pre-tax income to net sales) was 12.1%, a 0.2 percentage point increase compared to our fiscal 2013 pre-tax margin, which benefitted from the 53rd week by approximately 0.2 percentage points.

	—		Our cost of sales ratio for fiscal 2014 improved 0.1 percentage point to 71.5% compared to our fiscal 2013 ratio, which benefitted from the 53rd week by approximately 0.2 percentage points. The improvement over last year was primarily due to levering of expenses on the 3% comp sales increase.

	—		Our selling, general and administrative expense ratio for fiscal 2014 decreased 0.1 percentage point from 16.4% in fiscal 2013 to 16.3%.

	—		Our consolidated average per store inventories, including inventory on hand at our distribution centers (which excludes inventory in transit) and excluding our e-commerce businesses, were down 8% at the end of fiscal 2014.

	—		During fiscal 2014, we repurchased 27.0 million shares of our common stock for $1.5 billion. Earnings per share reflect the benefit of the stock repurchase program. In January 2014, our Board of Directors authorized our 15th stock repurchase program for an additional $2 billion.

The following is a discussion of our consolidated operating results, followed by a discussion of our segment operating results. Adjusted measures exclude certain items affecting comparability. See “Adjusted Financial Measures” below.

Net sales: Consolidated net sales for fiscal 2014 totaled $27.4 billion, a 6% increase over $25.9 billion in fiscal 2013. The increase reflected a 4% increase from new stores, a 3% increase from same store sales and a 1% increase from STP, offset by a 2% decrease attributable to the 53rd week included in fiscal 2013. Foreign currency exchange rates had an immaterial impact on fiscal 2014 net sales. Consolidated net sales for fiscal 2013 totaled $25.9 billion, a 12% increase over $23.2 billion in fiscal 2012. The increase reflected a 7% increase from same store sales, a 3% increase from new stores and a 2% increase from the impact of the 53rd week in the fiscal 2013 calendar. Foreign currency exchange rates had an immaterial impact on fiscal 2013 net sales.

Same store sales increases in the U.S. for fiscal 2014 were driven by an increase in average ticket as well as a slight increase in customer traffic. We believe unfavorable weather in many regions where we operate had a negative impact on sales during the first and fourth quarters of fiscal 2014. Sales from jewelry and accessories, and home fashions performed particularly well in fiscal 2014. Geographically, in the U.S., sales were strongest in the West Coast and Florida. Same store sales at TJX Europe were above the consolidated average while same store sales at TJX Canada were below the consolidated average.

Same store sales increases in the U.S. for fiscal 2013 were driven by an increase in customer traffic, and to a lesser extent an increase in the value of the average transaction. Sales of both apparel and home fashions were equally strong. Geographically, same store sales increases in the U.S. were strong throughout most regions with Florida and the Southwest performing above the consolidated average and virtually all other regions close to the consolidated average. Our foreign segments both posted same store sales increases, with TJX Europe above the consolidated average and TJX Canada below the consolidated average.

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 sales 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 have 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. Same store sales of our foreign segments are calculated on a constant currency basis, meaning we translate the current year’s same store sales of our foreign segments at the same exchange rates used in the prior year. This removes the effect of changes in currency exchange rates, which we believe is a more accurate measure of segment operating performance. We define customer traffic to be the number of transactions in stores included in the same store sales calculation and define average ticket to be the average retail price of the units sold. We define average transaction to be the average dollar value of transactions included in the same store sales calculation.

The following table sets forth our consolidated operating results from continuing operations as a percentage of net sales on an as reported and as adjusted basis:

			Percentage of Net Sales Fiscal Year 2014				Percentage of Net Sales Fiscal Year 2013				Percentage of Net Sales Fiscal Year 2012
			As reported				As reported				As reported				As adjusted*
Net sales			100.0	%			100.0	%			100.0	%			100.0%
Cost of sales, including buying and occupancy costs			71.5				71.6				72.7				72.6
Selling, general and administrative expenses			16.3				16.4				16.8				16.5
Interest expense, net			0.1				0.1				0.2				0.2
Income before provision for income taxes**			12.1	%			11.9	%			10.4	%			10.7%
Diluted earnings per share		$	2.94			$	2.55			$	1.93			$	1.99

*	See “Adjusted Financial Measures” below.

**	Figures may not foot due to rounding.

Impact of foreign currency exchange rates****: Our operating results are affected by foreign currency exchange rates as a result of changes in the value of the U.S. dollar in relation to other currencies. Two ways in which foreign currency exchange rates affect our reported results are as follows:

	—		Translation of foreign operating results into U.S. dollars: In our financial statements, we translate the operations of TJX Canada and TJX Europe from local currencies into U.S. dollars using currency rates in effect at different points in time. Significant changes in foreign exchange rates between comparable prior periods can result in meaningful variations in consolidated net sales, net income and earnings per share growth as well as the net sales and operating results of these segments. Currency translation generally does not affect operating margins, or affects them only slightly, as sales and expenses of the foreign operations are translated at essentially the same rates within a given period.

	—		Inventory hedges: We routinely enter into inventory-related hedging instruments to mitigate the impact on earnings of changes in foreign currency exchange rates on merchandise purchases denominated in currencies other than the local currencies of our divisions, principally TJX Europe and TJX Canada. As we have not elected “hedge accounting” for these instruments as defined by U.S. generally accepted accounting principles (GAAP), we record a mark-to-market gain or loss on the derivative instruments in our results of operations at the end of each reporting period. In subsequent periods, the income statement impact of the mark-to-market adjustment is effectively offset when the inventory being hedged is paid for. While these effects occur every reporting period, they are of much greater magnitude when there are sudden and significant changes in currency exchange rates during a short period of time. The mark-to-market adjustment on these derivatives does not affect net sales, but it does affect the cost of sales, operating margins and earnings we report.

Cost of sales, including buying and occupancy costs: Cost of sales, including buying and occupancy costs, as a percentage of net sales was 71.5% in fiscal 2014, 71.6% in fiscal 2013 and 72.7% in fiscal 2012. The 53rd week in fiscal 2013, which benefitted that year’s expense ratio by approximately 0.2 percentage points, impacts year-over-year comparisons. The 0.1 percentage point improvement in this ratio for fiscal 2014 was primarily due to slight expense leverage in buying and occupancy costs, as merchandise margins were comparable to the prior year.

The 1.1 percentage point improvement in this ratio for fiscal 2013 was primarily due to improved merchandise margins, driven by lower markdowns, as well as expense leverage on the strong same store sales increase and the approximately 0.2 percentage points benefit from the 53rd week in fiscal 2013.

Selling, general and administrative expenses: Selling, general and administrative expenses as a percentage of net sales were 16.3% in fiscal 2014, 16.4% in fiscal 2013 and 16.8% in fiscal 2012. On an

adjusted basis, this ratio was 16.5% in fiscal 2012. The improvement in this ratio for fiscal 2014 was primarily due to year-over-year favorability from a combination of items that negatively impacted last year’s expense ratio as described below.

The improvement in this ratio for fiscal 2013 was primarily due to expense leverage on strong same store sales, partially offset by contributions to the TJX Foundation and by expenses related to two third quarter items: a non-cash charge for the cumulative impact of a correction to our pension accrual for prior years and a non-operating charge due to the adjustment in our reserve for former operations relating to closed stores.

Interest expense, net: The components of interest expense, net for the last three fiscal years are summarized below:

		Fiscal Year Ended
Dollars in thousands		February 1, 2014				February 2, 2013				January 28, 2012
Interest expense		$	57,084			$	48,582			$	49,276
Capitalized interest			(10,993	)			(7,750	)			(2,593	)
Interest (income)			(15,010	)			(11,657	)			(11,035	)
Interest expense, net		$	31,081			$	29,175			$	35,648

Interest expense, net increased in fiscal 2014 as a result of the interest cost of the $500 million 2.50% ten-year notes that were issued on May 2, 2013, partially offset by an increase in interest income and an increase in capitalized interest on major capital projects that have not yet been placed in service.

Income taxes: Our effective annual income tax rate was 35.6% in fiscal 2014, 38.0% in fiscal 2013 and 38.0% in fiscal 2012. The decrease in the fiscal 2014 effective income tax rate as compared to fiscal 2013 was primarily due to fiscal 2014 third quarter tax benefits of approximately $80 million, which were primarily due to a reduction in our reserve for uncertain tax positions as a result of settlements with state taxing authorities and the reversal of valuation allowances against foreign net operating loss carryfowards. See Note L to the consolidated financial statements for more information. These benefits reduced the fiscal 2014 effective income tax rate by 1.4 percentage points and 0.8 percentage points respectively. TJX’s effective rate remained constant for fiscal 2013 as compared to fiscal 2012. The fiscal 2013 effective tax rate benefitted from an increase in foreign earnings, which are taxed at lower rates, but this benefit was offset by the absence of the benefit in fiscal 2012 due to a net reduction in federal and state tax reserves.

Net income and diluted earnings per share: Net income was $2.1 billion in fiscal 2014, a 12% increase over $1.9 billion in fiscal 2013, which in turn was a 27% increase over $1.5 billion in fiscal 2012. Diluted earnings per share were $2.94 in fiscal 2014, $2.55 in fiscal 2013 and $1.93 in fiscal 2012. The tax benefits referred to above added $0.11 per share to net income for fiscal 2014, while the 53rd week benefitted fiscal 2013 earnings per share by $0.08 per share. Foreign currency exchange rates also affected the comparability of our results. Foreign currency exchange rates had a $0.01 negative impact on earnings per share in fiscal 2014 as compared to fiscal 2013 and an immaterial impact on earnings per share in fiscal 2013 as compared to fiscal 2012.

Our stock repurchase program, which reduces our weighted average diluted shares outstanding, benefits our earnings per share. We repurchased 27.0 million shares of our stock at a cost of $1.5 billion in fiscal 2014, 30.6 million shares of our stock at a cost of $1.3 billion in fiscal 2013 and 49.7 million shares of our stock at a cost of $1.4 billion in fiscal 2012.

Adjusted Financial Measures: In addition to presenting financial results in conformity with GAAP, we are also presenting certain measures on an “adjusted” basis. We have adjusted certain measures for fiscal 2012 by excluding costs related to the A.J. Wright consolidation incurred in fiscal 2012. These costs include store closing costs, additional operating losses related to the A.J. Wright stores closed in fiscal 2012 and the costs incurred by the Marmaxx and HomeGoods segments to convert former A.J. Wright stores to their banners and hold grand re-opening events for these stores.

These adjusted financial results are non-GAAP financial measures. We believe that the presentation of adjusted financial results provides additional information on comparisons between periods including underlying trends of our business by excluding these items that affect overall comparability. We use these adjusted measures in making financial, operating and planning decisions and in evaluating our performance, and our Board of Directors uses them in assessing our business and making compensation decisions. Non-GAAP financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP.

Reconciliation of the adjusted financial measures to the financial measures in accordance with GAAP for fiscal 2012 is provided below:

		Fiscal Year 2012												Fiscal Year 2012
		As reported												As adjusted
Dollars in millions, except per share data		U.S.$				% of Net Sales				Adjustments				U.S.$*				% of Net Sales
Net sales		$	23,191							$	(9	)(1)		$	23,182
Cost of sales, including buying and occupancy costs			16,854				72.7	%			(16	)(2)			16,838				72.6	%
Gross profit margin			—				27.3	%							—				27.4	%
Selling, general and administrative expenses			3,890				16.8	%			(63	)(3)			3,828				16.5	%
Income before provision for income taxes		$	2,411				10.4	%		$	69			$	2,481				10.7	%
Diluted earnings per share		$	1.93							$	0.06	(4)		$	1.99

*	Figures may not cross-foot due to rounding.

(1)	Sales of A.J. Wright stores prior to closing ($9 million).

(2)	Cost of sales, including buying and occupancy costs of A.J. Wright prior to closing ($15 million) and applicable conversion costs of A.J. Wright stores converted to Marmaxx and HomeGoods banners ($1 million).

(3)	Operating costs of A.J. Wright prior to closing and costs to close A.J. Wright stores not converted to other banners ($44 million) and applicable conversion and grand re-opening costs for A.J. Wright stores converted to Marmaxx and HomeGoods banners ($19 million).

(4)	Impact on earnings per share of operating loss and closing costs of A.J. Wright stores ($0.04 per share) and conversion and grand re-opening costs at Marmaxx and HomeGoods ($0.02 per share). 2012 effective tax rate used in computation.

The costs to convert A.J. Wright stores to other banners and to hold grand re-openings affected our Marmaxx and HomeGoods segments in fiscal 2012. A reconciliation of adjusted segment margin, a non-GAAP financial measure, to segment margin as reported in accordance with GAAP for each of these segments is as follows:

		Fiscal 2012												Fiscal 2012
		As reported												As adjusted
		U.S.$ in Millions				% of Net Sales				Adjustments				U.S.$ in Millions*				% of Net Sales
Marmaxx segment profit		$	2,073				13.5	%		$	17	(1)		$	2,090				13.6	%
HomeGoods segment profit		$	234				10.4	%		$	3	(2)		$	238				10.6	%

*	Figures may not cross-foot due to rounding.

(1)	Conversion costs and grand re-opening costs for A.J. Wright stores converted to a T.J. Maxx or Marshalls store.

(2)	Conversion costs and grand re-opening costs for A.J. Wright stores converted to a HomeGoods store.

Segment information: We operate four main business segments. Marmaxx (T.J. Maxx, Marshalls and tjmaxx.com) and HomeGoods both operate in the United States. Our TJX Canada segment operates Winners, HomeSense and Marshalls in Canada, and our TJX Europe segment operates T.K. Maxx, HomeSense and tkmaxx.com in Europe. Late in fiscal 2013 we acquired STP, an off-price Internet retailer in the U.S. The results of STP have been reported with our Marmaxx segment. We evaluate the performance of our segments based on “segment profit or loss,” which we define as pre-tax income or loss before general corporate expense and interest expense. “Segment profit or loss,” as we define the term, may not be comparable to similarly titled measures used by other entities. The terms “segment margin” or “segment profit margin” are used to describe segment profit or loss as a percentage of net sales. These measures 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. Segments:

Marmaxx

		Fiscal Year Ended
Dollars in millions		February 1, 2014				February 2, 2013				January 28, 2012
Net sales		$	17,929.6			$	17,011.4			$	15,367.5
Segment profit		$	2,612.7			$	2,486.3			$	2,073.4
Segment profit as a percentage of net sales			14.6	%			14.6	%			13.5	%
Adjusted segment profit as a percentage of net sales*			n/a				n/a				13.6	%
Increase in same store sales			3	%			6	%			5	%
Stores in operation at end of period
T.J. Maxx			1,079				1,036				983
Marshalls			942				904				884
Total Marmaxx			2,021				1,940				1,867
Selling square footage at end of period (in thousands)
T.J. Maxx			24,712				23,894				22,894
Marshalls			23,092				22,380				22,042
Total Marmaxx			47,804				46,274				44,936

*	See “Adjusted Financial Measures” above.

At February 1, 2014 and February 2, 2013 STP operated 4 stores with a selling square footage of 83,000.

Net sales at Marmaxx increased 5% in fiscal 2014 as compared to fiscal 2013. Same store sales for Marmaxx were up 3% in fiscal 2014, on top of a 6% increase in the prior year. Same store sales growth at Marmaxx for fiscal 2014 was driven by an increase in average ticket. We believe severe winter weather in many regions of the country, particularly in the fourth quarter, impacted our sales in fiscal 2014. Same store sales were above the chain average for home fashions, and while apparel overall was below the chain average, within apparel, jewelry and accessories were well above the average. Geographically, same store sales were strongest in the West Coast and Florida. In addition, in the third quarter of fiscal 2014 we launched our new e-commerce site, tjmaxx.com.

Same store sales for Marmaxx were up 6% in fiscal 2013, on top of a 5% increase in the prior year. Same store sales growth at Marmaxx for fiscal 2013 was driven by an increase in customer traffic, with both apparel and home fashions posting solid same store sales gains. Geographically, same store sales were strong throughout the country.

Segment margin in fiscal 2014 was 14.6%, flat compared to fiscal 2013. The 53rd week increased the fiscal 2013 segment margin by approximately 0.2 percentage points. Excluding the extra week last year, the improvement in segment margin was primarily due to an increase in merchandise margin for fiscal 2014, despite higher markdowns taken in the fourth quarter. Fiscal 2014 segment margin was reduced by 0.2 percentage points due to the impact of our e-commerce businesses but this decline in margin was largely offset by the benefit of some expense leverage and reduced incentive compensation costs as compared to the prior year.

Segment margin was up 1.1 percentage points to 14.6% for fiscal 2013 compared to 13.5% for fiscal 2012. This increase was primarily due to a 0.6 percentage point improvement in merchandise margin, largely due to lower markdowns. The fiscal 2013 segment margin also benefitted from expense leverage (particularly occupancy costs, which improved by 0.4 percentage points) on strong same store sales growth and the 53rd week which increased the fiscal 2013 segment margin by approximately 0.2 percentage points.

In fiscal 2015, we expect to open approximately 75 new Marmaxx stores (net of closings) and increase selling square footage by approximately 3%.

HomeGoods

		Fiscal Year Ended
Dollars in millions		February 1, 2014				February 2, 2013				January 28, 2012
Net sales		$	2,993.7			$	2,657.1			$	2,244.0
Segment profit		$	386.5			$	324.6			$	234.4
Segment profit as a percentage of net sales			12.9	%			12.2	%			10.4	%
Adjusted segment profit as a percentage of net sales*			n/a				n/a				10.6	%
Increase in same store sales			7	%			7	%			6	%
Stores in operation at end of period			450				415				374
Selling square footage at end of period (in thousands)			8,865				8,210				7,391

*	See “Adjusted Financial Measures” above.

HomeGoods’ net sales increased 13% in fiscal 2014 compared to fiscal 2013, on top of an 18% increase in fiscal 2013 when compared to fiscal 2012. Same store sales increased 7% in fiscal 2014, on top of a same store sales increase of 7% in fiscal 2013. Same store sales growth was driven by an increase in the value of the average transaction along with an increase in customer traffic for fiscal 2014, while same store sales growth in fiscal 2013 was driven by an increase in customer traffic and to a lesser extent, an increase in the value of the average transaction.

Segment profit margin for fiscal 2014 was 12.9%, up from 12.2% for fiscal 2013. The increase was driven by expense leverage on the 7% same store sales increase, primarily buying and occupancy costs. Segment profit margin for fiscal 2013 was 12.2%, up from 10.4% for fiscal 2012. The increase was also driven by expense leverage on the 7% same store sales increase, particularly occupancy and administrative costs, as well as an increase in merchandise margins. The 53rd week increased the fiscal 2013 segment margin by approximately 0.2 percentage points. Adjusted segment profit margin for fiscal 2012 (which excludes the A.J. Wright conversion costs) was 10.6%.

In fiscal 2015, we plan a net increase of approximately 35 HomeGoods stores and plan to increase selling square footage by approximately 7%.

A.J. Wright

In the first quarter of fiscal 2012, we completed the consolidation of A.J. Wright, our former off-price chain targeting lower middle income customers, converting 90 of the A.J. Wright stores to T.J. Maxx, Marshalls or HomeGoods banners and closing A.J. Wright’s remaining 72 stores, two distribution centers and home office. These closing costs (primarily lease-related obligations) and A.J. Wright operating losses totaled $49.3 million and were reported as an A.J. Wright segment loss in the first quarter of fiscal 2012. Due to the anticipated migration of A.J. Wright customers to our other U.S. segments, A.J. Wright was not treated as a discontinued operation for financial reporting purposes.

International Segments:

TJX Canada

		Fiscal Year Ended
U.S. Dollars in millions		February 1, 2014				February 2, 2013				January 28, 2012
Net sales		$	2,877.8			$	2,926.0			$	2,680.1
Segment profit		$	405.4			$	414.9			$	348.0
Segment profit as a percentage of net sales			14.1	%			14.2	%			13.0	%
Increase (decrease) in same store sales			0	%			5	%			(1	)%
Stores in operation at end of period
Winners			227				222				216
HomeSense			91				88				86
Marshalls			27				14				6
Total			345				324				308
Selling square footage at end of period (in thousands)
Winners			5,196				5,115				5,008
HomeSense			1,748				1,698				1,670
Marshalls			666				363				162
Total			7,610				7,176				6,840

Net sales for TJX Canada decreased 2% in fiscal 2014 as compared to fiscal 2013. Currency translation negatively impacted sales growth by $121 million, or 4 percentage points, in fiscal 2014, as compared to last year. On a constant currency basis, net sales for fiscal 2014 increased 2% as compared to fiscal 2013. Same store sales were flat in fiscal 2014 compared to an increase of 5% in fiscal 2013. We believe that unfavorable weather in the first and fourth quarters had a negative impact on same store sales. Net sales for TJX Canada increased 9% in fiscal 2013 as compared to fiscal 2012. Currency translation negatively impacted sales growth by 1 percentage point in fiscal 2013, as compared to the same period in the prior year. Same store sales increased 5% in fiscal 2013 compared to a decrease of 1% in fiscal 2012.

Segment profit margin decreased 0.1 percentage point to 14.1% in fiscal 2014. The decrease in segment margin was due to expense deleverage on the flat same store sales, particularly occupancy and administrative costs and the absence of the 53rd week which benefitted fiscal 2013 segment margin by 0.2 percentage points. These factors more than offset the year-over-year favorable impact of the mark-to-market adjustment on inventory-related hedges of $14 million and an increase in merchandise margin. Merchandise margin increased for the full year in fiscal 2014 despite the negative impact on fourth quarter merchandise margins caused by the decline in the value of the Canadian dollar. TJX Canada buys a significant portion of its merchandise in U.S. dollars. While our inventory hedges help mitigate the impact of currency fluctuations, during fiscal 2014, the value of the Canadian dollar depreciated more dramatically beyond the hedges we placed throughout the year and effectively increased the cost of merchandise bought in U.S. dollars during the latter half of fiscal 2014.

Segment profit for fiscal 2013 increased to $414.9 million, and segment profit margin increased 1.2 percentage points to 14.2%. The improvement in segment margin was driven by increased merchandise margin, largely due to lower markdowns. This increase in segment margin was partially offset by increased incentive compensation accruals in fiscal 2013 as compared to fiscal 2012. Foreign currency translation and the mark-to-market adjustment on inventory-related hedges did not have a significant impact on fiscal 2013 segment profit and segment margin.

We expect to add a net of approximately 20 stores in Canada in fiscal 2015, including 10 new Marshalls stores, and plan to increase selling square footage by approximately 5%.

TJX Europe

		Fiscal Year Ended
U.S. Dollars in millions		February 1, 2014				February 2, 2013				January 28, 2012
Net sales		$	3,621.6			$	3,283.9			$	2,890.7
Segment profit		$	275.5			$	215.7			$	68.7
Segment profit as a percentage of net sales			7.6	%			6.6	%			2.4	%
Increase in same store sales			6	%			10	%			2	%
Stores in operation at end of period
T.K. Maxx			371				343				332
HomeSense			28				24				24
Total			399				367				356
Selling square footage at end of period (in thousands)
T.K. Maxx			8,383				7,830				7,588
HomeSense			464				411				402
Total			8,847				8,241				7,990

Net sales for TJX Europe increased 10% in fiscal 2014 to $3.6 billion compared to $3.3 billion in fiscal 2013. Currency translation had an immaterial impact on sales growth in fiscal 2014. Fiscal 2014 same store sales increased 6% compared to an increase of 10% in fiscal 2013. The increase in same store sales for fiscal 2014 was driven by an increase in customer traffic along with an increase in the average transaction. Net sales for TJX Europe increased 14% in fiscal 2013 to $3.3 billion compared to $2.9 billion in fiscal 2012. Currency translation negatively impacted fiscal 2013 sales growth by 2 percentage points. Fiscal 2013 same store sales increased 10% compared to an increase of 2% in fiscal 2012.

Segment profit increased 28% to $275.5 million for fiscal 2014, and segment profit margin increased to 7.6%. The improvement in segment margin was due primarily to expense leverage on strong same store sales, particularly occupancy and buying costs and a lower incentive compensation accrual. The mark-to-market adjustment on inventory hedges had a negative impact of 0.3 percentage points and the 53rd week last year had a negative impact of 0.2 percentage points, on the year-over-year comparison of segment margin for fiscal 2014.

Segment profit more than tripled to $215.7 million for fiscal 2013, and segment profit margin increased to 6.6%. The improvements we saw in the fourth quarter of fiscal 2012 in this segment’s performance as we slowed growth and re-focused on off-price fundamentals continued throughout fiscal 2013. More than half of the improvement in segment margin came from improved merchandise margins, which was virtually all due to lower markdowns. Segment profit and segment margin for fiscal 2013 as compared to fiscal 2012, benefitted from the absence of the fiscal 2012 charges for closing an office facility and the write-off of certain technology systems and other adjustments. The impact of foreign currency translation and the mark-to-market adjustment on inventory-related hedges was immaterial for fiscal 2013.

We expect to add approximately 40 net stores in Europe in fiscal 2015 and plan to increase selling square footage by approximately 9%.

General Corporate Expense:

		Fiscal Year Ended
Dollars in millions		February 1, 2014				February 2, 2013				January 28, 2012
General corporate expense		$	329.5			$	335.0			$	228.3

General corporate expense for segment reporting purposes represents those costs not specifically related to the operations of our business segments and is included in selling, general and administrative expenses. Overall general corporate expense in fiscal 2014 decreased slightly from the prior year. This decrease was primarily due

to the absence in fiscal 2014 of approximately $56 million of costs incurred in fiscal 2013 (described below). This decline in general corporate expense was largely offset by increases in systems and technology costs, stock compensation and costs relating to our home office relocations.

General corporate expense for fiscal 2013 included contributions to the TJX Foundation, an adjustment to our reserve for former operations and the acquisition costs of STP. These items account for $56 million of the increase in general corporate expense as compared to fiscal 2012. In addition, general corporate expense for fiscal 2013 includes increased incentive compensation accruals under our performance-based plans, additional investments in systems and technology and additional costs related to the expansion of our home office facilities.

Liquidity and Capital Resources

Operating activities: Net cash provided by operating activities was $2,590 million in fiscal 2014, $3,046 million in fiscal 2013 and $1,916 million in fiscal 2012. The cash generated from operating activities in each of these fiscal years was largely due to operating earnings.

Operating cash flows for fiscal 2014 decreased $456 million compared to fiscal 2013. Net income plus the non-cash impact of depreciation provided cash of $2,686 million in fiscal 2014 compared to $2,416 million in fiscal 2013, an increase of $270 million. The change in merchandise inventory, net of the related change in accounts payable, resulted in a use of cash of $117 million in fiscal 2014, compared to a source of cash of $239 million in fiscal 2013. This unfavorable impact of $356 million in year-over-year cash flow from operations was primarily due to the timing of the acquisition and payment of year-end inventory. The change in accrued expenses and other liabilities unfavorably impacted cash flows by $30 million in fiscal 2014 versus a favorable impact of $269 million in fiscal 2013. This unfavorable impact of $299 million in year-over-year cash flow from operations reflects the change in accrued incentive compensation and a reduction in our reserve for uncertain tax positions as the result of a settlement with tax authorities. Additionally, operating cash flows decreased by $165 million year-over-year due to the change in income taxes payable which was partially offset by an increase in operating cash flows of $81 million from the change in accounts receivable and prepaid expenses.

Operating cash flows for fiscal 2013 increased $1,130 million compared to fiscal 2012. Net income plus the non-cash impact of depreciation and impairment charges provided cash of $2,427 million in fiscal 2013 compared to $1,995 million in fiscal 2012, an increase of $432 million. The change in merchandise inventory, net of the related change in accounts payable, resulted in a source of cash of $239 million in fiscal 2013, compared to a use of cash of $224 million in fiscal 2012. This change was attributable to faster inventory turns and a reduction in consolidated inventories on a per-store basis, including the distribution centers, which was down 6% at the end of fiscal 2013 as compared to fiscal 2012 (excluding STP). The increase in accrued expenses and other liabilities favorably impacted cash by $269 million in fiscal 2013 versus $14 million in fiscal 2012, which was primarily driven by an increase in accrued incentive compensation and accrued pension. Additionally, operating cash flows increased by $48 million year-over-year due to the change in deferred income tax provision and income taxes payable which was largely offset by a reduction in operating cash flows of $47 million due to an increase in accounts receivable and prepaid expenses. The increase in prepaid expenses was primarily due to the timing of rental payments.

We have a reserve for the remaining future obligations of operations we have closed, sold or otherwise disposed of including, among others, Bob’s Stores and A.J. Wright. The majority of these obligations relate to real estate leases associated with these operations. The reserve balance was $31.4 million at February 1, 2014 and $45.2 million at February 2, 2013. The cash flows required to satisfy obligations of former operations are classified as a reduction in cash provided by operating activities. See Note C to the consolidated financial statements for more information.

Investing activities: Our cash flows for investing activities include capital expenditures for the last three fiscal years as set forth in the table below:

		Fiscal Year Ended
In millions		February 1, 2014				February 2, 2013				January 28, 2012
New stores		$	185.4			$	170.7			$	211.6
Store renovations and improvements			308.0				282.7				319.8
Office and distribution centers			453.3				524.8				271.9
Capital expenditures		$	946.7			$	978.2			$	803.3

We expect that we will spend approximately $975 million on capital expenditures in fiscal 2015, including approximately $466 million for our offices and distribution centers (including buying and merchandising systems and information systems) to support growth, $299 million for store renovations and $210 million for new stores. We plan to fund these expenditures through internally generated funds.

We also purchased short-term investments that had initial maturities in excess of 90 days which, per our policy, are not classified as cash on the consolidated balance sheets presented. In fiscal 2014, we purchased $478 million of such short-term investments, compared to $356 million in fiscal 2013. Additionally, $387 million of such short-term investments were sold or matured during fiscal 2014 compared to $213 million last year.

Investing activities for fiscal 2013 also included the net cash paid in December 2012 for the acquisition of STP, an off-price Internet retailer. During fiscal 2014, after customary post-closing adjustments, the estimated purchase price was reduced by $3 million. The final purchase price, net of cash acquired was $188 million. See Note B to the consolidated financial statements for more information.

Financing activities: Cash flows from financing activities resulted in net cash outflows of $1,144 million in fiscal 2014, $1,476 million in fiscal 2013 and $1,336 million in fiscal 2012.

In fiscal 2014 we issued $500 million of 2.5% ten-year notes generating proceeds, net of debt issuance expenses and fees, of $495 million. See Note K to the consolidated financial statements for more information.

TJX repurchased and retired 27.0 million shares of its common stock at a cost of $1.5 billion during fiscal 2014, on a “trade date basis.” TJX reflects stock repurchases in its financial statements on a “settlement date” or cash basis. Under our stock repurchase programs, we spent $1,471 million to repurchase 27.3 million shares of our stock in fiscal 2014, $1,345 million to repurchase 32.0 million shares of our stock in fiscal 2013 and $1,321 million to repurchase 48.4 million shares of our stock in fiscal 2012. See Note E to the consolidated financial statements for more information. In January 2014, our Board of Directors authorized an additional repurchase program authorizing the repurchase of up to an additional $2.0 billion of TJX stock. We currently plan to repurchase approximately $1.6 billion to $1.7 billion of stock under our stock repurchase programs in fiscal 2015. We determine the timing and amount of repurchases based on our assessment of various factors including excess cash flow, liquidity, economic and market conditions, our assessment of prospects for our business, legal requirements and other factors. The timing and amount of these purchases may change.

We declared quarterly dividends on our common stock which totaled $0.58 per share in fiscal 2014, $0.46 per share in fiscal 2013 and $0.38 per share in fiscal 2012. Cash payments for dividends on our common stock totaled $394 million in fiscal 2014, $324 million in fiscal 2013 and $275 million in fiscal 2012. We also received proceeds from the exercise of employee stock options of $146 million in fiscal 2014, $134 million in fiscal 2013 and $219 million in fiscal 2012. We expect to pay quarterly dividends for fiscal 2015 of $0.175 per share, or an annual dividend of $0.70 per share, subject to the declaration and approval of our Board of Directors. This would represent a 21% increase over the per share dividends declared and paid for fiscal 2014.

We traditionally have funded our working capital requirements, including for seasonal merchandise, primarily through cash generated from operations, supplemented, as needed, by short-term bank borrowings and the issuance of commercial paper. As of February 1, 2014, our cash and cash equivalents held outside the U.S. were $1.1 billion, of which $395.2 million was held in countries where we have the intention to reinvest any

undistributed earnings indefinitely. We believe our existing cash and cash equivalents, internally generated funds and our credit facilities, described in Note K to the consolidated financial statements, are more than adequate to meet our operating needs over the next fiscal year.

Contractual obligations: As of February 1, 2014, we had known contractual obligations (including current installments) under long-term debt arrangements, operating leases for property and equipment and purchase obligations as follows (in thousands):

						Payments Due by Period
Tabular Disclosure of Contractual Obligations		Total				Less Than 1 Year				1-3 Years				3-5 Years				More Than 5 Years
Long-term debt obligations(1)		$	1,552,789			$	55,363			$	486,225			$	77,125			$	934,076
Operating lease commitments(2)			7,391,388				1,272,948				2,221,721				1,627,915				2,268,804
Purchase obligations(3)			3,384,821				3,244,330				134,080				6,393				18
Total Obligations		$	12,328,998			$	4,572,641			$	2,842,026			$	1,711,433			$	3,202,898

(1)	Includes estimated interest costs.

(2)	Reflects minimum rent. Does not include costs for insurance, real estate taxes, other operating expenses and, in some cases, rentals based on a percentage of sales; these items totaled approximately one-third of the total minimum rent for fiscal 2014. Does not include leases reflected in our reserve for former operations.

(3)	Includes estimated obligations under purchase orders for merchandise and under agreements for capital items, products and services used in our business, including executive employment and other agreements. Excludes agreements that can be cancelled without penalty.

We also have long-term liabilities for which it is not reasonably possible for us to predict when they may be paid which include $334.8 million for employee compensation and benefits and $50.2 million for uncertain tax positions.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (GAAP) which require us to make certain estimates and judgments that impact our reported results. These judgments and estimates are based on historical experience and other factors which we continually review and believe are reasonable. We consider our most critical accounting policies, involving management estimates and judgments, to be those relating to the areas described below.

Inventory valuation: We use the retail method for valuing inventory for all our businesses except STP. Under the retail method, which results in a weighted average cost, 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. It involves management estimates with regard to markdowns and inventory shrinkage. Under the retail method, permanent markdowns are reflected in inventory valuation when the price of an item is reduced. Typically, a significant area of judgment in the retail method is the amount and timing of permanent markdowns. However, as a normal business practice, we have a specific policy as to when and how markdowns are to be taken, greatly reducing management’s discretion and the need for management estimates as to markdowns. Inventory shrinkage requires estimating a shrinkage rate for interim periods, but we take a full physical inventory near the fiscal year end to determine shrinkage at year end. Thus, actual and estimated amounts of shrinkage may differ in quarterly results, but the difference is typically not a significant factor in full year results. We do not generally enter into arrangements with vendors that provide for rebates and allowances that could ultimately affect the value of inventory.

Impairment of long-lived assets, goodwill and tradenames: We evaluate the recoverability of the carrying value of our long-lived assets, goodwill and tradenames at least annually and whenever events or circumstances occur that would indicate that the carrying amounts of those assets are not recoverable. Significant judgment is involved in projecting the cash flows of individual stores, as well as of our business units, which involve a number of factors including historical trends, recent performance and general economic assumptions. If we determine that an impairment of long-lived assets has occurred, we record an impairment charge equal to the excess of the carrying value of those 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, can have a significant impact on the annual cost of retirement benefits and the funded status of our qualified pension plan. If our discount rate were decreased .25 percentage points our fiscal 2014 pension cost for our funded plan would have increased by approximately $6 million. A change of .25 percentage points in our long-term rate of return would increase or decrease our fiscal 2014 pension cost by approximately $2 million. When the discount rate, market performance of our plan assets, changes in tax or other benefits laws and regulations, or other factors have a negative impact on the funded status of our plan, our required contributions may increase. We also consider these factors in determining the amount of voluntary contributions we may make to the plan in excess of mandatory funding requirements. In fiscal 2014 we funded our qualified pension plan with a voluntary contribution of $30 million.

Share-based compensation: In accordance with GAAP, we estimate the fair value of stock awards issued to employees and directors under our stock incentive plan. The fair value of the awards is amortized as “share-based compensation” over the vesting periods during which the recipients are required to provide service. We use the Black-Scholes option pricing model for determining the fair value of stock options granted, which requires management to make significant judgments and estimates such as participant activity and market results. The use of different assumptions and estimates could have a material impact on the estimated fair value of stock option grants and the related compensation cost.

Casualty insurance: In fiscal 2013, our casualty insurance program was changed from a fixed premium program to a self-insured program. A self-insured casualty insurance program requires us to estimate the total claims we would 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 judgments and assumptions, and actual results could differ from these estimates. If our estimate for the claims component of our casualty insurance for fiscal 2014 were to change by 5%, the fiscal 2014 pre-tax cost would increase or decrease by approximately $3 million. A large portion of these claims is funded with a non-refundable payment during the policy year, offsetting our estimated claims accrual. We had a net accrual of $14.7 million for the unfunded portion of our casualty insurance program as of February 1, 2014.

Reserves for uncertain tax positions: Like many large corporations, our income and other tax returns and reports are regularly audited by federal, state and local tax authorities in the United States and in foreign jurisdictions where we operate and such authorities may challenge positions we take. We are engaged in various administrative and judicial proceedings in multiple jurisdictions with respect to assessments, claims, deficiencies and refunds and other tax matters, which proceedings are in various stages of negotiation, assessment, examination, litigation and settlement. The outcomes of these proceedings are uncertain. In accordance with GAAP, we evaluate our uncertain tax positions based on our understanding of the facts, circumstances and information available at the reporting date, and we accrue for exposure when we believe that it is more likely than not, based on the technical merits, that the positions we have taken will not be sustained. However, in the next twelve months and in future periods, the amounts we accrue for uncertain tax positions from time to time or ultimately pay, as the result of the final resolutions of examinations, judicial or administrative proceedings, changes in facts, law, or legal interpretations, expirations of applicable statute of limitations or other resolutions of, or changes in, tax positions may differ either positively or negatively from the amounts we have accrued, and may result in reductions to or additions to accruals, refund claims or payments for periods not currently under examination or for which no claims have been made. Final resolutions of our tax positions or changes in accruals for uncertain tax positions could result in additional tax expense or benefit and could have a material impact on our results of operations of the period in which an examination or proceeding is resolved or in the period in which a changed outcome becomes probable and reasonably estimable.

Reserves for former operations: As discussed in Note C to the consolidated financial statements and elsewhere in the Management’s Discussion and Analysis, we have reserves for probable losses arising for future

obligations of former operations, primarily real estate leases. We must make estimates and assumptions about the costs and expenses we will incur in connection with the future obligations of our former operations. The leases relating to A.J. Wright and other former operations are long-term obligations, and the estimated cost to us involves numerous estimates and assumptions including when and on what terms we will assign the leases, or sublease the leased properties, whether and for how long we remain obligated with respect to particular leases, the extent to which assignees or subtenants will fulfill our financial and other obligations under the leases, how particular obligations may ultimately be settled and what mitigating factors, including indemnification, may exist to any liability we may have. We develop these assumptions based on past experience and evaluation of various potential outcomes and the circumstances surrounding each situation and location. Actual results may differ from our current estimates, and we may decrease or increase the amount of our reserves to adjust for future developments relating to the underlying assumptions and other factors, although we do not expect any such differences to be material to our results of operations.

Loss contingencies: Certain conditions may exist as of the date the financial statements are issued that may result in a loss to us but will not be resolved until one or more future events occur or fail to occur. Our management, with the assistance of our legal counsel, assesses such contingent liabilities. Such assessments inherently involve the 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 reasonably estimated, we will accrue for the estimated liability 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 reasonably estimated, 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 reasonably estimable.

Recent Accounting Pronouncements

TJX has reviewed recently issued accounting pronouncements and does not expect their adoption to have a significant impact on the Company’s results of operations, financial position or cash flow.