SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-11609
TOYS "R" US, INC.
Incorporated pursuant to the Laws of Delaware
Internal Revenue Service - Employer Identification No. 22-3260693
461 From Road, Paramus, New Jersey 07652
(201) 262-7800
Indicate by check mark whether the registrant (1) has filed all reports 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 [ ]
274,235,794 shares of the registrant's Common Stock were outstanding on
August 26, 1996.
<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets ................................ 2
Condensed Consolidated Statements of Operations ...................... 3
Condensed Consolidated Statements of Cash Flows ...................... 4
Notes to Condensed Consolidated Financial Statements ................. 5
Item 2. Management's Discussion and Analysis - Results of Operations and
Financial Condition .......................................... 6
PART II - OTHER INFORMATION ............................................... 8
SIGNATURES ................................................................ 10
1
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
<CAPTION>
August 3, July 29, February 3,
1996 1995 1996
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 319.5 $ 222.6 $ 202.7
Accounts and other receivables............................ 135.7 113.3 128.9
Merchandise inventories................................... 2,710.9 2,808.1 1,999.5
Prepaid expenses and other current assets................. 104.5 67.7 87.8
Total current assets.................................. 3,270.6 3,211.7 2,418.9
Property and equipment, net and other assets................... 4,312.5 4,318.3 4,318.6
$ 7,583.1 $ 7,530.0 $ 6,737.5
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings..................................... $ 1,151.5 $ 1,221.7 $ 332.8
Accounts payable.......................................... 1,534.5 1,495.2 1,182.0
Accrued expenses and other current liabilities............ 345.1 302.3 438.1
Income taxes payable...................................... 6.4 44.0 139.9
Total current liabilities............................. 3,037.5 3,063.2 2,092.8
Long-term debt................................................. 713.5 815.1 826.8
Deferred income taxes.......................................... 238.7 230.3 228.7
Other liabilities.............................................. 143.8 72.1 156.9
Stockholders' equity........................................... 3,449.6 3,349.3 3,432.3
$ 7,583.1 $ 7,530.0 $ 6,737.5
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions except per share data)
<CAPTION>
13 Weeks Ended 26 Weeks Ended
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales...................................... $ 1,736.4 $ 1,614.2 $ 3,381.9 $ 3,107.2
Costs and expenses:
Cost of sales............................. 1,177.3 1,104.5 2,301.7 2,121.8
Selling, advertising, general &
administrative................................. 444.7 415.1 867.3 801.1
Other charges.................................. 55.0 - 55.0 -
Depreciation and amortization.................. 48.9 45.2 97.9 89.7
Interest expense - net......................... 22.4 24.3 42.2 40.2
1,748.3 1,589.1 3,364.1 3,052.8
Earnings (loss) before income taxes............ (11.9) 25.1 17.8 54.4
Income tax (expense) benefit................... 4.4 (9.3) (6.6) (20.1)
Net earnings (loss)............................ $ (7.5) $ 15.8 $ 11.2 $ 34.3
Earnings (loss) per share...................... $ (.03) $ .06 $ .04 $ .12
Common and common equivalent shares............ 273.7 277.4 276.1 279.1
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
<CAPTION>
26 Weeks Ended
August 3, July 29,
1996 1995
<S> <C> <C>
Net earnings $ 11.2 $ 34.3
Adjustments to reconcile net earnings to net cash used in operating
activities:
Depreciation and amortization 97.9 89.7
Deferred income taxes 5.5 (4.4)
Changes in operating assets and liabilities:
Accounts and other receivables (6.2) 4.8
Merchandise inventories (706.0) (800.6)
Prepaid expenses and other operating assets (17.6) (26.6)
Accounts payable and other operating liabilities 110.7 (111.0)
Net cash used in operating activities (504.5) (813.8)
Cash flows from investing activities:
Capital expenditures, net (179.9) (239.4)
Cash flow from financing activities:
Short-term borrowing, net 815.8 1,099.0
Other (1.8) 3.5
Share repurchase program - (189.5)
Net cash provided by financing activities 814.0 913.0
Effect of exchange rate changes on cash and cash equivalents (12.8) (7.0)
Cash and cash equivalents:
Increase/(decrease) during period 116.8 (147.2)
Beginning of year 202.7 369.8
End of period $ 319.5 $ 222.6
Supplemental disclosures of cash flow information:
Income taxes paid $ 129.2 $ 181.5
Interest paid (net of amounts capitalized) $ 55.8 $ 54.2
<FN>
See notes to condensed consolidated financial
statements.
</FN>
</TABLE>
4
<PAGE>
TOYS "R" US, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Reporting
The interim financial statements are unaudited and are subject to
year-end adjustments. However, in the opinion of management, all known
adjustments (which consist primarily of normal recurring accruals) have
been made to present fairly the consolidated operating results for the
unaudited periods. Because of the seasonal nature of the Company's
business, results for interim periods are not indicative of results to
be expected for the fiscal year.
2. Earnings (Loss) Per Share
Earnings (loss) per share for all periods presented herein are
computed by dividing net earnings by the weighted average number of
common shares outstanding, after reduction for treasury shares and
assuming exercise of dilutive stock options for periods with net
earnings, computed by the treasury stock method using the average
market price during the period.
3. Reclassification
Certain amounts in the July 29, 1995 Condensed Consolidated Balance
Sheet have been reclassified to conform with the current presentation.
4. Other Charges
On July 12, 1996, an arbitrator rendered an award in favor of Yusuf
Ahmed Alghanim & Sons, W.L.L. ("Alghanim") and against the Company and
awarded Alghanim $46.4 million plus interest from December 1994. This
award was rendered in connection with a dispute between Alghanim and
the Company involving rights under a 1982 license agreement for toy
store operations in the Middle East. Accordingly, the Company has
recorded a provision of $55.0 million representing all costs in
connection with this matter. The Company believes that the findings of
the arbitrator are not supported by the evidence presented in the case
and is contesting this award in the courts. The Company believes that
this award will not have a material adverse effect on its business or
financial condition.
5. Contingencies
See Part II - Item 1. - Legal Proceedings, Paragraph 1
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Comparable USA toy store sales increased by approximately 6% for both the
twenty-six and thirteen week periods ended August 3, 1996, as compared with the
same periods in 1995, primarily driven by strong sales of basic toy products
such as games and dolls. International toy stores and Kids "R" Us children's
clothing stores also experienced an increase in comparable store sales during
the same periods. Total sales increased by approximately $275 million or 9% and
$122 million or 8% for the twenty-six and thirteen week periods ended August 3,
1996, respectively, as compared with the same periods in 1995, primarily due to
sales from new toy and children's clothing stores and an overall increase in
comparable store sales. Excluding the impact of foreign currency, total sales
increased 10% in the second quarter of 1996, as compared with the second quarter
of 1995.
Cost of sales, as a percentage of sales, decreased by approximately .2% and .6%
for the twenty-six and thirteen week periods ended August 3, 1996, respectively,
as compared with the same periods in 1995, primarily due to a shift in the sales
mix toward higher margin basic toy merchandise in the second quarter of 1996.
Selling, advertising, general and administrative expenses as a percentage of
sales decreased by approximately .2% and .1% for the twenty-six and thirteen
week periods ended August 3, 1996, respectively, as compared with the same
periods in 1995, primarily as a result of leveraging and effective expense
management.
The arbitration award of $55 million (See Part II - Item 1. - Legal Proceedings
Paragraph 2) had a material effect on the results of operations for both the
twenty-six and thirteen week periods ended August 3, 1996, respectively. The
award reduced earnings per share by $.13 for both the twenty-six and thirteen
week periods ended August 3, 1996. Excluding the impact of the award (which as
indicated below, is being appealed), earnings per share for the twenty-six and
thirteen week periods ended August 3, 1996 would have been $.17 and $.10,
respectively.
Net interest expense increased slightly for the twenty-six week period ended
August 3, 1996, as compared with the same period in 1995, due to higher average
short-term borrowing in the first quarter of 1996 to fund working capital needs.
Net interest expense decreased by approximately $2 million for the thirteen week
period ended August 3, 1996, as compared with the same period in 1995, due to
lower average short-term borrowings.
The effective tax rate remained constant at 37% for all periods presented.
Since February 3, 1996, foreign currency exchange rates have experienced
fluctuations; however, the impact on net earnings was not significant.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (Continued)
Financial Condition
In July, the Company introduced the first of 12 of its completely redesigned
"Concept 2000" toy stores to be opened in the United States in 1996. Including
the "Concept 2000" format, the Company will open approximately 30 new toy stores
in the United States this year. Internationally, the Company will add
approximately 60 toy stores (including approximately 25 franchise stores), 22 of
which were added during the first half of 1996. The Company opened its first
three Babies "R" Us stores and plans to open approximately 5 additional stores
this year. The Company's new KidsWorld superstore design, combining all of the
"R" Us concepts under one roof will be showcased in 2 locations in 1996, one of
which will be a retrofit of a side by side Toys "R" Us and Kids "R" Us location.
Finally, the Company will open approximately 8 new Kids "R" Us stores in the
United States this year.
Annual capital expenditures for new and existing facilities are estimated
to be approximately $550 million. Cash requirements for operations, capital
expenditures, lease commitments and the share repurchase program will be met
primarily through operating activities, borrowings under the $1 billion
revolving credit facility, issuance of short-term commercial paper and bank
borrowings by foreign subsidiaries.
The Company expects the Strategic Inventory Repositioning Initiative portion of
its Worldwide Restructuring Program to be substantially complete by mid-October,
1996. This portion of the program will streamline the number of different
product items carried in the Company's toy stores to present a more in-depth
merchandise presentation and allow the Company to better compete in the future.
All other portions of the program are expected to be completed as planned.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
1) On May 22, 1996, the Staff of the Federal Trade Commission
(the "FTC") filed an administrative complaint against the
Company alleging that the Company is in violation of Section 5
of the Federal Trade Commission Act for its practices relating
to warehouse clubs. The complaint alleges that the Company
reached understandings with various suppliers that such
suppliers not sell to the clubs the same items that they sell
to the Company. The complaint also alleges that the Company
"facilitated understandings" among manufacturers that such
manufacturers not sell to clubs. The complaint seeks an order
that the Company cease and desist from this practice. Since
the filing of the FTC complaint, several class action suits
have been filed against the Company, alleging that the Company
has violated certain state competition laws as a consequence
of the behavior alleged in the FTC complaint. These class
action suits seek damages in unspecified amounts and other
relief under state laws. The Company believes that both its
policy and its conduct in connection with the foregoing are
within the law and plans to contest the actions vigorously.
2) On July 12, 1996, an arbitrator rendered an award in favor of
Yusuf Ahmed Alghanim & Sons, W.L.L.("Alghanim") and against
the Company and awarded Alghanim $46.4 million plus interest
from December 1994. This award was rendered in connection with
a dispute between Alghanim and the Company involving rights
under a 1982 license agreement for toy store operations in the
Middle East. Accordingly, the Company has recorded a provision
of $55.0 million representing all costs in connection with
this matter. The Company believes that the findings of the
arbitrator are not supported by the evidence presented in the
case and is contesting this award in the courts. The Company
believes that this award will not have a material adverse
effect on its business or financial condition.
8
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the Company's stockholders on June 5,
1996, all of management's nominees for director were elected.
Management's nominees for director received the following votes:
Number of Shares Withheld Votes
Robert A. Bernhard 235,303,316 2,571,663
RoAnn Costin 235,299,769 2,575,210
Michael Goldstein 235,284,244 2,590,735
Milton S. Gould 235,259,810 2,615,169
Shirley Strum Kenny 235,318,378 2,556,601
Charles Lazarus 233,208,855 4,666,124
Norman S. Matthews 235,256,950 2,618,029
Howard W. Moore 235,314,830 2,560,149
Robert C. Nakasone 235,244,539 2,630,440
Harold M. Wit 235,362,925 2,512,054
Also approved by the following votes were:
(i) a proposal to approve the 1995 grant of stock options to
Michael Goldstein and Robert C. Nakasone. 177,953,032 shares
were voted in favor of, 57,694,806 shares were voted against,
and 2,223,391 shares abstained from, such proposal; and
(ii) a proposal to amend the Company's Non-Employee Directors'
Stock Option Plan. 196,052,647 shares were voted in favor
of, 40,023,870 shares were voted against, and 1,797,712
shares abstained from, such proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) On July 15, 1996, the Company filed a form 8-K in
connection with the Alghanim arbitration award which was
announced in a press release the same date.
9
<PAGE>
SIGNATURES
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.
Date: September 13, 1996 Toys "R" Us, Inc.
-----------------
(Registrant)
s/Louis Lipschitz
(Signature)
Louis Lipschitz
Executive Vice President and
Chief Financial Officer
10
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibit files as part of this document:
<TABLE>
<CAPTION>
Exhibit No. Page No. Document
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Earnings as reported
in the Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> AUG-03-1996
<CASH> 319,500
<SECURITIES> 0
<RECEIVABLES> 135,700
<ALLOWANCES> 0
<INVENTORY> 2,710,900
<CURRENT-ASSETS> 3,270,600
<PP&E> 5,099,600
<DEPRECIATION> 1,168,800
<TOTAL-ASSETS> 7,583,100
<CURRENT-LIABILITIES> 3,037,500
<BONDS> 713,500
<COMMON> 30,045
0
0
<OTHER-SE> 3,419,600
<TOTAL-LIABILITY-AND-EQUITY> 7,583,100
<SALES> 3,381,900
<TOTAL-REVENUES> 3,381,900
<CGS> 2,301,700
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 97,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,200
<INCOME-PRETAX> 17,800
<INCOME-TAX> 6,600
<INCOME-CONTINUING> 11,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,200
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
