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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
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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
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.10 par value New York Stock Exchange
Registrant has filed all reports to be filed by Section 13 or 15(d) of the
Securities Exhange Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment
of this Form 10-K.
At April 14, 1997, the aggregate market value of voting stock held by
non-affiliates was $7,965,141,513 based on the 285,744,987 shares of
Common Stock which were outstanding at that date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended February 1,1997 are incorporated by reference into Parts I and
II of this Form 10-K.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held June 4, 1997, are incorporated by reference into
Part III of this Form 10-K.
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INDEX
PAGE
PART I.
Item 1. Business.................................................. 2
Item 2. Properties................................................ 5
Item 3. Legal Proceedings......................................... 6
Item 4. Submission of Matters to a Vote of Security Holders....... 7
PART II.
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters...................... 9
Item 6. Selected Financial Data................................... 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 9
Item 8. Financial Statements and Supplementary Data............... 9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............... 10
PART III.
Item 10. Directors and Executive Officers of the Registrant........ 10
Item 11. Executive Compensation.................................... 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................ 11
Item 13. Certain Relationships and Related Transactions............ 11
PART IV.
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K.......................................... 11
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PART I
ITEM 1. BUSINESS
Toys "R" Us, Inc. and its subsidiaries (the "Company") is the world's premier
retailer of children's products, bringing toys, apparel and baby needs to
children and their parents. As of April 14, 1997, the Company was engaged in the
operation of 1,373 children's specialty retail stores consisting of 976 United
States locations comprised of 680 toy stores under the name "Toys "R" Us", 212
children's clothing stores under the name "Kids "R" Us," 82 infant-toddler
stores under the name "Babies "R" Us", and two superstores combining all of the
"R" Us" formats mentioned above under the name "Toys "R" Us KidsWorld".
Internationally, the Company operates 397 toy stores, including franchise
stores, under the name "Toys "R" Us." The Company is incorporated in the state
of Delaware.
(a) General Development of the Business
Merger with Baby Superstore
On February 3, 1997 the Company acquired Baby Superstore, Inc. ("Baby
Superstore") in a tax-free exchange of common stock valued at approximately $376
million. The Baby Superstore acquisition has been accounted for as a purchase
for financial reporting purposes as of February 1, 1997. For a further
discussion of Baby Superstore, see "Item 1. Business-Narrative Description of
the Business - Babies "R" Us."
Worldwide Restructuring
The Company has substantially completed its 1995 restructuring program,
including the strategic inventory repositioning portion, which streamlined the
Company's merchandise assortment by eliminating the number of items carried in
its toy stores by more than 20%. By eliminating certain product, the Company is
able to display a more-in-depth merchandise presentation, further enhancing the
Company's selection advantage. The Company also closed 3 toy stores and 7 Kids
"R" Us stores in the United States and franchised all 9 Toys "R" Us stores in
the Netherlands, pending certain regulatory approvals. In addition, the Company
consolidated 3 distribution centers and various administrative facilities in the
United States and Europe. Remaining portions of the restructuring program are
expected to be completed in 1997, except for long-term lease commitments, which
will be completed throughout 1997 and thereafter.
(b) Financial Information About Geographic Segments
Information about geographic segments, as set forth in the notes to the
Consolidated Financial Statements on page 22 of the Company's 1996 Annual
Report, is incorporated herein by reference.
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(c) Narrative Description of the Business
See the section "Store Locations" on page 2 of the Company's 1996 Annual
Report, which section is incorporated herein by reference.
Toys "R" Us - United States
Toys "R" Us-United States ("Toys "R" Us") operates in 49 states and Puerto
Rico and sells both children's and adult's toys, games, bicycles, sporting
goods, electronic and video games, small pools, books, infant and juvenile
furniture and similar items as well as educational and entertainment computer
software for children. The overall merchandising philosophy of Toys "R" Us is
the development of strong consumer recognition and acceptance of its name by the
use of mass media advertising that promotes its broad selection and everyday low
prices.
Toys "R" Us believes the flexibility afforded by its warehouse/distribution
system and by ownership of its own fleet of trucks provides maximum efficiency
and capacity, particularly in light of the seasonality of its business. Toys "R"
Us utilizes a computerized inventory system which allows management to
constantly monitor the current activity and inventory in each region and in each
store. This system permits management to allocate the proper amount of
merchandise to each store and keep the stores adequately stocked at all times.
Furthermore, in 1996, an improved replenishment system was installed in
approximately one-third of the United States toy stores. This system pinpoints
the exact location of merchandise throughout the store. Additional United States
toy stores will install this system in 1997.
Most Toys "R" Us stores conform to a 46,000 square feet prototype design,
with 30,000 and 20,000 square feet stores opened in smaller markets, and are
generally freestanding units or located in strip malls. Toys "R" Us introduced
13 of its new "Concept 2000" design stores in 1996, 10 of which were new stores.
These stores feature a spacious 14 foot center aisle and a 10 foot wide
racetrack oval aisle. The center of these stores feature low merchandise
displays and life-size icons that identify product categories. All new Toys "R"
Us stores will feature the "Concept 2000" design.
Including the Concept 2000 stores mentioned above, Toys "R" Us opened 30
new toy stores in 1996. The Company will continue its long range growth plan by
opening approximately 25 new toy stores in the United States in 1997. The
Company utilizes demographic data to determine which markets to enter. In
addition, Toys "R" Us will accelerate the roll-out of the "Concept 2000" format
by remodeling approximately 57 existing toy stores in 1997.
Toys "R" Us launched its new superstore concept with the opening of 2
KidsWorld stores in 1996. These superstores include "Toys "R" Us", "Babies "R"
Us" and "Kids "R" Us" store concepts under one roof. KidsWorld stores encompass
approximately 90,000 square feet with 30 foot ceiling heights and each has a
huge skylight over the center of the store. These stores also include licensed
operations for a national quick service food chain, candy store, haircutting
center, photo studio and shoe department. KidsWorld offers customers a very
broad selection of toys, clothing and infant needs at our traditional everyday
low prices.
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Toys "R" Us - International
Toys "R" Us-International ("International") operates or franchises toy
stores in 26 countries outside the United States. These stores generally conform
to prototypical designs similar to those used by Toys "R" Us. International owns
and maintains its own fleet of tractors and trailors in most of the countries in
which International operates stores. International also employs computerized
inventory systems similar to those utilized by Toys "R" Us. As part of the
Company's long range growth plans, International added 59 toy stores, including
27 franchise stores in 1996. The Company plans to continue its International
expansion with approximately 40 new toy stores in 1997, including approximately
15 franchise stores.
Kids "R" Us
Kids "R" Us children's clothing stores feature brand name and private label
first quality children's clothing. The stores conform to prototypical designs
consisting of approximately 15,500 to 21,500 square feet and are typically
freestanding units or located in strip centers. Using demographic data to
determine which markets to enter, Kids "R" Us opened 7 children's clothing
stores in 1996 and plans on opening approximately 5 stores in 1997.
Babies "R" Us
The Company opened its first 6 Babies "R" Us stores in 1996. These stores
target the newborn to preschool market in a 38,000 square foot prototype that
offers over 40 room settings of juvenile furniture such as cribs and dressers as
well as playards, bumper seats, high chairs, strollers, car seats and infant
toddler and preschool toys. These stores carry over 5,000 square feet of
specialty name brand and private label clothing and a wide range of feeding
supplies, health and beauty aides and infant care products. In addition, a
computerized baby registry service is offered. Babies "R" Us is designed with
low profile merchandise displays in the centers of the stores providing a
sweeping view of the entire merchandise selection.
The Company accelerated the growth of the Babies "R" Us division with the
acquisition of Baby Superstore on February 3, 1997. Baby Superstore was a
leading large format retailer of baby and young children's products in the
United States with 76 stores in 23 states, primarily in the southeast and
midwest. Products sold by Baby Superstore were directed towards newborns and
children up to three years old. The Company plans to convert and operate
substantially all of the existing Baby Superstore stores as Babies "R" Us format
stores. The Company plans on opening approximately 20 new Babies "R" Us stores
in 1997.
(d) Trademarks
The "TOYS "R" US", "KIDS "R" US" and "BABIES "R" US", as well as various of
the Company's family of "R" Us" marks either have been registered, or have
trademark applications pending, with the United States Patent and Trademark
Office and with the trademark registries of many foreign countries. The Company
believes that its rights to these properties are adequately protected.
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(e) Seasonality
Retail sales of toy and toy related products are highly seasonal, with a
majority of retail sales occurring during the period from September through
December. Consequently, a large portion of the Company's sales and earnings
occur during the fourth quarter.
See the quarterly financial data contained on page 26 of the Company's 1996
Annual Report, which section is incorporated herein by reference.
(f) Working Capital
For a discussion of the Company's working capital requirements, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 12 and 13 of the Company's 1996 Annual Report, which
section is incorporated herein by reference.
(g) Competition
All aspects of the retailing industry are highly competitive. All of the
merchandise sold by the Company, in markets in which the Company operates, is
available from various retailers at competitive prices. The Company's
competitors consist of other specialty retailers of toy and children's related
products, department stores and discount and supercenter type retail stores.
(h) Employees
At February 1, 1997, the total number of persons employed by the Company
was 63,000. The number of persons employed by the Company increased to 107,000
during the 1996 Holiday Season.
ITEM 2. PROPERTIES - All information related to properties is as of April 14,
1997.
Toys "R" Us - United States
A significant portion of the properties operated by Toys "R" Us are owned.
Toys "R" us either purchases or leases properties depending on the economic
terms available. Toys "R" Us generally has long-term leases with multiple
renewal options where properties are leased.
Toys "R" Us operates 680 toy stores, 426 of which are owned and 254 are
leased. Toys "R" Us also operates 2 KidsWorld stores, 1 of which is owned and 1
is leased. Toys "R" Us operates 17 distribution centers, 13 of which are owned
and 4 are leased. These distribution centers average approximately 443,000
square feet each in size and are strategically located throughout the United
States to efficiently service these stores.
The Company also leases corporate offices in Paramus and Rochelle Park, New
Jersey and owns a data center in Parsippany, New Jersey.
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Kids "R" Us
Kids "R" Us operates 212 children's clothing stores, 98 of which are owned
and 114 are leased. Kids "R" Us owns and operates three distribution centers,
which average approximately 307,000 square feet each in size.
Toys "R" Us - International
International operates 340 stores, excluding 13 joint ventures and 44
franchised stores, 104 of which are owned and 236 are leased. International also
operates 10 distribution centers, 5 of which are owned and 5 are leased.
Babies "R" Us
Babies "R" Us operates 82 juvenile retail stores (76 stores were acquired
in the merger with Baby Superstores on February 3, 1997), 1 of which is owned
and 81 are leased. Babies "R" Us stores are serviced by 1 owned distribution
center, as well as existing Toys "R" Us and Kids "R" Us distribution centers
discussed above.
See the Note, "Leases," in the Company's Notes to Consolidated Financial
Statements included on page 20 of the Company's 1996 Annual Report, which note
is incorporated herein by reference. Also see the section "Store Locations" on
page 2 of the Company's 1996 Annual Report, which section is incorporated herein
by reference.
ITEM 3. LEGAL PROCEEDINGS
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 $59.5 million representing
all expected 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. In September 1996, The Company
filed a motion to vacate the arbitration award in the United States District
Court. That motion was denied on December 13, 1996 and the arbitration award was
confirmed. The Company has filed an appeal with the United States Court of
Appeals for the Second Circuit.
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 the manufacturers
that such manufacturers not sell to clubs. The complaint seeks an order that the
Company cease and desist from this practice. Hearings on this complaint
commenced on March 5, 1997.
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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 law. The Company believes that both its policy and its conduct in
connection with the foregoing are within the law and plans to contest the action
vigorously.
The Company also is named as a defendant in legal proceedings in the
ordinary course of its business. The Company believes that none of these other
legal proceedings are material to its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Company
(a) The following persons are the executive officers of the Company as of
April 14, 1997, having been elected to their respective offices by the Board of
Directors of the Company to serve until the election and qualification of their
respective successors:
Name Age Position with the Company
---- --- -------------------------
Michael Goldstein 55 Vice Chairman of the Board and Chief
Executive Officer
Robert C. Nakasone 49 President and Chief Operating Officer
Louis Lipschitz 52 Executive Vice President and Chief
Financial Officer
Michael J. Madden 48 Executive Vice President - President
of U.S. Toy Store Operations Division
Richard L. Markee 44 Executive Vice President - President
of Kids "R" Us and Babies "R" Us
Divisions
Gregory R. Staley 49 Executive Vice President - President
of Toys "R" Us International Division
Roger C. Gaston 41 Senior Vice President - Human Resources
Robert J. Weinberg 48 Senior Vice President - General
Merchandise Manager of U.S. Toy
Store Division
Joseph J. Lombardi 35 Vice President - Controller
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(b) The following is a brief account of the business experience during the
past five years for each of the executive officers of the Company:
Mr. Goldstein has been employed by the Company for more than five years.
Effective February 1994, he became Vice Chairman of the Board and Chief
Executive Officer. From February 1993 to January 1994, he was Vice Chairman of
the Board and Chief Administrative Officer. From prior to 1992 to January 1993,
he was Vice Chairman of the Board and Chief Financial and Administrative
Officer.
Mr. Nakasone has been employed by the Company for more than five years.
Effective February 1994, he became President and Chief Operating Officer. From
prior to 1992 to January 1994, he was Vice Chairman of the Board and President
of Worldwide Toy Stores.
Mr. Lipschitz has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President and Chief Financial
Officer. From February 1993 to January 1996, he was Senior Vice President -
Finance and Chief Financial Officer. From prior to 1992 to January 1993, he was
Vice President - Finance and Treasurer.
Mr. Madden has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President of the Company and
President of U.S. Toy Store Operations Division. From March 1995 to January
1996, he was Group Vice President of Store Operations - U.S. Toy Store Division.
From February 1993 to February 1995, he was Senior Vice President, Regional
Operations and Distribution - U.S. Toy Store Division. From prior to 1992 to
January 1993, he was Vice President, Physical Distribution - U.S. Toy Store
Division.
Mr. Markee has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President of the Company and
has served as President of Kids "R" Us Division since March 1993 and Babies "R"
Us Division since its inception in September 1995. From prior to 1992 to
February 1993, he was Vice President - General Merchandise Manager for Kids "R"
Us Division.
Mr. Staley has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President of the Company and
has served as President of Toys "R" Us International Division since August 1995.
From prior to 1992 to July 1995, he was Senior Vice President General
Merchandise Manager for Toys "R" Us International Division.
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Mr. Gaston has been employed by the Company since December, 1996 as Senior
Vice President - Human Resources. From September 1993 to November 1996, he was
Executive Vice President - Human Resources of Carson, Pirie, Scott and Company.
From prior to 1992 to August 1993, he was Group Vice President - Human Resources
and Administration of Finest Supermarkets-AHOLD, USA.
Mr. Weinberg has been employed by the Company for more than five years.
Effective January 1997, he became Senior Vice President, General Merchandise
Manager - U.S. Toy Store Division. From prior to 1992 to December 1996, he was
Senior Vice President, Divisional Merchandise Manager - U.S. Toy Store Divison.
Mr. Lombardi has been employed by the Company since August 1995 as Vice
President - Controller. From October 1994 to July 1995, he was a Partner with
Ernst & Young LLP, a public accounting firm, and was a Senior Manager with Ernst
& Young LLP, since prior to 1992 to September 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market prices and other information with respect to the Company's common
stock are hereby incorporated by reference to page 26 of the Company's 1996
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data are hereby incorporated by reference to page 3 of
the Company's 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations is hereby incorporated by reference to pages 12 and 13 of the
Company's 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are hereby
incorporated by reference to pages 14 to 23 of the Company's 1996 Annual Report.
(a) Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996
(b) Consolidated Statements of Earnings for each of the three years in the
period ended February 1, 1997
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(c) Consolidated Statements of Cash Flows for each of the three years in the
period ended February 1, 1997
(d) Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended February 1, 1997
(e) Notes to Consolidated Financial Statements; and
(f) Report of Ernst & Young LLP.
Individual financial statements of the registrant's subsidiaries are not
furnished because consolidated financial statements are furnished. The
registrant is primarily a holding company, the expenses and obligations of which
are paid by its consolidated subsidiaries through a fee based on expenses
incurred for its consideration for management services provided to such
subsidiaries by the registrant. All subsidiaries of the registrant are at least
80% owned.
Financial statements of 50%-owned joint ventures are not submitted because
such companies, considered in the aggregate, are not considered a significant
subsidiary as defined in Regulation S-X.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors of the Company is hereby
incorporated herein by reference to the section, "Election of Directors", in the
Company's 1996 Proxy Statement.
Information with respect to the executive officers of the Company is set
forth in Item 4 of Part I of this report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is hereby incorporated
herein by reference to the sections, "Election of Directors Compensation of
Directors", "- Executive Compensation", "- Summary Compensation Table", "-
Option Grants in Last Fiscal Year" and "- Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values", in the Company's 1996 Proxy
Statement. The sections, "- Report of the Management Compensation and Stock
Option Committee on Executive Compensation" and "- Five-Year Stockholder Return
Comparison", in the Company's 1996 Proxy Statement are not incorporated by
reference herein. Such sections are furnished solely for information and shall
not be deemed to be soliciting material or to be "filed" as a part of this
report.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners
and management is hereby incorporated by reference to the sections, "Principal
Stockholders" and `Election of Directors", in the Company's 1996 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
is hereby incorporated herein by reference to the section, "Election of
Directors - Certain Transactions", in the Company's 1996 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) The response to this portion of Item 14 is set forth in Item 8 of Part
II of this report on Form 10-K.
(2) Financial Statement Schedules have been omitted because they are
inapplicable, not required, or the information is included elsewhere in
the financial statements or notes thereto.
(3) See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the accompanying
Index to Exhibits upon payment by such stockholder of the Company's
reasonable expenses in furnishing any such exhibit.
(b) Reports on Form 8-K
On January 7, 1997, the Company filed a Form 8-K in connection with the
Company's announcement reporting sales for its 1996 Holiday Selling
Season.
On February 3, 1997, the Company filed a Form 8-K in connection with the
announced completion of the Company's acquisition of Baby Superstore, Inc.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TOYS "R" US, INC.
(Registrant)
By Louis Lipschitz, Executive Vice President
and Chief Financial Officer
Date: April 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 25th day of April, 1997.
Signature Title
--------- -----
Charles Lazarus Chairman of the Board
Michael Goldstein Director, Vice Chairman of the Board and Chief
Executive
Officer (Principal Executive Officer)
Louis Lipschitz Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)
Joseph J. Lombardi Vice President - Controller (Principal Accounting
Officer)
Robert A. Bernhard Director
RoAnn Costin Director
Milton S. Gould Director
Shirley Strum Kenney Director
Norman S. Matthews Director
Howard W. Moore Director
Robert C. Nakasone Director
Harold M. Wit Director
The foregoing constitute all of the Board of Directors and the Principal
Executive, Financial and Accounting Officers of the Registrant.
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INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this Report:
Exhibit No. Document
- ----------- --------
2A Agreement and Plan of Merger, dated as of December 8, 1995, by
and among registrant, Toys "R" Us - Delaware, Inc. (f/k/a Toys
"R" Us, Inc.) and TRU Interim, Inc. Incorporated herein by
reference to Exhibit 2.1 to registrant's Registration of
Securities of Certain Successor Issuers on Form 8-B dated
January 3, 1996 (the "Form 8-B").
2B Agreement and Plan of Merger, dated as of October 1, 1996,
and as amended and restated as of December 26, 1996, among
registrant, BSST Acquisition Corp., Baby Superstore, Inc. and
Jack P. Tate. Incorporated by reference to Annex A to the
Proxy Statement/Prospectus Statement No. 333-18863.
3A Restated Certificate of Incorporation of registrant (filed on
January 2, 1996). Incorporated herein by reference to Exhibit
3.1 to the Form 8-B.
3B Amended and Restated By-Laws of registrant (as of January 1,
1996). Incorporated herein by reference to Exhibit 3.2 to the
Form 8-B. An amendment dated March 11, 1997 to Amended and
Restated By-Laws is filed herewith.
4 i) Form of Indenture dated as of January 1, 1987 between
registrant and United Jersey Bank, as Trustee, pursuant to
which securities in one or more series in an unlimited amount
may beissued by registrant. Incorporated herein by reference
to Exhibit 4(a) to Registration Statement No. 33-11461.
ii) Form of the registrant's 8 1/4% Sinking Fund Debentures due
2017. Incorporated herein by reference to Exhibit 4(a) to
Registration Statement No. 33-11461.
iii) Form of Indenture between registrant and United Jersey Bank, as
Trustee, pursuant to which one or more series of debt
securities up to $300,000,000 in principal amount may be issued
to registrant. Incorporated herein by reference to Exhibit 4 to
registrant's Registration Statement No. 33-42237.
iv) Form of registrant's 8 3/4% Debentures due 2021. Incorporated
herein by reference to Exhibit 4 to registrant's Report on Form
8-K dated August 29, 1991.
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Exhibit No. Document
- ----------- --------
4 v) Substantially all other long-term debt of registrant (which
other debt does not exceed on an aggregate basis 10% of the
total assets of the registrant and its subsidiaries on a
consolidated basis) is evidenced by, among other things, (i)
industrial revenue bonds issued by industrial development
authorities and guaranteed by registrant, (ii) mortgages
held by third parties on real estate owned by registrant,
(iii) stepped coupon guaranteed bonds held by a third party
and guaranteed by registrant and (iv) an agreement under
which registrant guaranteed certain yen-denominated loans
made by a third party subsidiary of registrant. Registrant
will file with the Securities and Exchange Commission (the
"Commission") copies of constituent documents relating to
such upon request of the Commission.
10A* Stock Option Plan of the registrant, as amended as of April
22, 1993. Incorporated herein by reference to Exhibit 10A to
registrant's Annual Report on Form 10-K for the year ended
January 30, 1993.
10B* Employment Agreement dated March 14, 1978 between registrant
and Charles Lazarus and an amendment thereto dated November
20, 1979 (incorporated herein by reference to Exhibit 2 in
Schedule 13D dated February 1, 1980 filed by Charles
Lazarus, et al). An amendment dated March 23, 1982 to such
employment agreement (incorporated herein by reference to
Exhibit 10B to registrant's Annual Report on Form 10-K for
the year ended January 31, 1982, Commission File Number
1-1117). An amendment dated December 7, 1982 to such
employment agreement (incorporated herein by reference to
Exhibit 10B to registrant's Annual Report on Form 10-K for
the year ended January 30, 1983, Commission File Number
1-1117). An amendment dated April 10, 1984 to such
employment agreement (incorporated herein by reference to
Exhibit 10B to registrant's Annual Report on Form 10-K for the
year ended January 29, 1989, Commission File Number 1-1117).
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
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Exhibit No. Document
- ----------- --------
10C* Form of Indemnification Agreement between registrant and
each director. Incorporated herein by reference to Exhibit
10F to registrant's Annual Report on Form 10-K for the year
ended February 1, 1987, Commission File Number 1-1117.
10D* Stock Option Agreement dated as of February 1, 1988
between registrant and Robert Nakasone. Incorporated
herein by reference to Exhibit 10G to registrant's Annual
Report on Form 10-K for the year ended January 31, 1988,
Commission File Number 1-117. The first amendment dated
as of April 1, 1989 to such agreement (incorporated herein
by reference to Exhibit 10G to registrant's Annual Report
on Form 10-K for the year ended January 29, 1989,
Commission File Number 1-1117). The second amendment dated
as of September 19, 1989 to such agreement (incorporated
herein by reference to Exhibit 10G to registrant's Annual
Report on Form 10-K for the year ended January 28, 1990,
Commission File Number 1-1117).
10E* Stock Option Agreement dated as of February 1, 1988 between
registrant and Michael Goldstein (incorporated herein by
reference to Exhibit 10H to registrant's Annual Report on
Form 10-K for the year ended January 31, 1988, Commission
File Number 1-1117). The first amendment dated as of
April 1, 1989 to such agreement (incorporated herein by
reference to Exhibit 10H to registrant's Annual Report on
Form 10-K for the year ended January 29, 1989, Commission
File Number 1-1117). The second amendment dated as of
September 19, 1989 to such agreement (incorporated herein by
reference to Exhibit 10H to registrant's Annual Report on
Form 10-K for the year ended January 28, 1990, Commission
File Number 1-1117).
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
15
<PAGE>
<PAGE>
Exhibit No. Document
- ----------- --------
10F* Stock Option Plan and Agreement dated as of March 14, 1989
between registrant and Charles Lazarus, and a First
Amendment thereto dated as of September 19, 1989. Incorporated
by reference to Exhibit 10I to registrant's Annual Report on
Form 10-K for the year ended January 28, 1990, Commission File
Number 1-1117.
10G* Non-Employee Directors' Stock Option Plan as adopted by the
Board of Directors on September 19, 1990 and approved by the
registrant's stockholders on June 3, 1991, and amended and
restated as of December 6, 1995. Incorporated herein by
reference to Exhibit 10A to registrant's Proxy Statement for
the year ended February 3, 1996.
10H* Stock Option Plan and Agreement dated as of December 2, 1992
between the registrant and Robert C. Nakasone. Incorporated
herein by reference to Exhibit 10I to registrant's Annual
Report on Form 10-K for the year ended January 30, 1993.
10I* Stock Option Plan and Agreement dated as of December 2, 1992
between the registrant and Michael Goldstein. Incorporated
herein by reference to Exhibit 10J to registrant's Annual
Report on Form 10-K for the year ended January 30, 1993.
10J* Toys "R" Us, Inc. 1994 Stock Option and Performance Incentive
Plan effective November 1, 1993, as amended. Incorporated
herein by reference to Exhibit 4.1 to registrant's Registration
Statement No. 33-64315.
10K* Toys "R" Us, Inc. Management Incentive Compensation Plan
adopted March 28, 1994 (incorporated herein by reference
to Exhibit 10L to registrant's Annual Report on Form 10-K
for the year ended January 29, 1994). The first amendment
to such plan adopted on April 20, 1995 (incorporated herein by
reference to Exhibit 10.11 to the Form 8-B).
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
16
<PAGE>
<PAGE>
Exhibit No. Document
- ----------- --------
10L* Toys "R" Us, Inc. Partnership Group Deferred Compensation Plan
effective as of May 17, 1995. Incorporated herein by reference
to Exhibit 10.13 to the Form 8-B.
10M* Toys "R" Us, Inc. Grantor Trust Agreement dated as of October
1, 1995 between registrant and American Express Trust Company.
Incorporated herein by reference to Exhibit 10.14 to the
Form 8-B.
10N* Toys "R" Us, Inc. Supplemental Executive Retirement Plan,
effective as of December 6, 1995. Incorporated by reference to
Exhibit 10N to registrant's Annual Report on Form 10-K for the
year ended February 3, 1996.
10O Shareholders Agreement, dated October 1, 1996, by and among
registrant, Jack P. Tate and Linda M. Robertson. Incorporated
by reference to Exhibit A to Exhibit 2 to registrant's
Quarterly Report on Form 10-Q for the quarter ended November 2,
1996, File No. 1-11609 (the "Form 10-Q").
13 Registrant's Annual Report to Stockholders for the year ended
February 1, 1997. Except for the portions thereof that are
expressly incorporated by reference into this report, such
Annual Report is furnished solely for the information of the
Commission and is not to be deemed "filed" as part of this
report.
21 Subsidiaries of registrant. Consent of Independent Auditors,
Ernst & Young LLP
27 Financial Data Schedule
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14 (c) hereof.
17
<PAGE>
<PAGE>
EXHIBIT 3B
AMENDMENT TO BY-LAWS
TOYS "R" US, INC.
(effective March 11, 1997)
Section 2.1 of the Restated Bylaws of Toys "R" Us, Inc. is hereby amended and
restated in its entirety to read as follows:
Section 2.1 (a) Number, Term of Office, Nominations and Qualification. The
business, property and affairs of the Corporation shall be managed and
controlled by a board of directors consisting of such number of Directors either
as may be designated by the Board of Directors by resolution or as may be
nominated for election to the Board of Directors by the Corporation's
stockholders. The Directors shall be elected at the annual meeting of
stockholders, and serve (subject to Article IV) until the next succeeding annual
meeting of stockholders and until the election and qualification of their
respective successors.
(b) Nominations. Only persons who are nominated in accordance with the
procedures set forth in this Section 2.1(a) shall be eligible for election as
Directors by the Stockholders. Nominations of persons for election to the Board
of Directors of the Corporation may be made at a meeting of Stockholders by or
at the direction of the Board of Directors or the Nominating Committee of the
Board of Directors or by any beneficial owner of at least $1000 in current value
of shares of the Corporation entitled to be voted for the election of the
Directors at the meeting who complies with the notice procedures set forth in
this Section 2.1. Such nominations, other than those made by or at the direction
of the Board of Directors or the Nominating Committee of the Board of Directors,
shall be made pursuant to timely notice in writing to the Secretary. To be
timely, a Stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 90 days nor
more than 120 days prior to the meeting; provided, however, that if less than
100 days notice or prior public disclosure of the date of the meeting is given
or made to the Stockholders, notice by the Stockholder to be timely must be
received not later than the close of business on the tenth day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such Stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a Director: (i) the name, age, business address and residence address of such
person as they appear in the Corporation's records, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares of
the Corporation that are beneficially owned by such person and (iv) any other
information that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); and (b) as to
the Stockholder giving the notice: (i) the name and address, as they appear on
the Corporation's books, of such Stockholder; (ii) the class and number of
shares of the Corporation that are beneficially owned by such Stockholder as of
the record date; (iii) a representation that the Stockholder intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; and (iv) a description of all arrangements or understandings
between the Stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the Stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a Director shall furnish to
the Secretary that information required to be set forth in a Stockholder's
notice of nomination that pertains to the nominee. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 2.1(a).
(c) Power of Chairman Regarding Nominations. The Chairman of the meeting may, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the By-Laws, and if he
or she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
<PAGE>
<PAGE>
Toys "R" Us Annual Report
Year Ended February 1, 1997
A New Generation
[Photograph of a store in 1978]
[Photograph of a store in 1996]
<PAGE>
<PAGE>
TABLE OF CONTENTS
Store Locations and
Financial Highlights .............. page 2
Letter to Our Stockholders ........ page 4
Managements Discussion and
Analysis-Results of Operations
and Financial Condition ........... page 12
Financial Statements .............. page 14
Report of Management
and Report of Independent
Auditors .......................... page 23
Directors and Officers ............ page 24
Quarterly Financial Data
and Market Information ............ page 26
Corporate Data .................... page 27
STORE LOCATIONS
TOYS"R"US UNITED STATES - 682 LOCATIONS
Alabama - 7
Alaska - 1
Arizona - 11
Arkansas - 4
California - 84
Colorado - 11
Connecticut - 11
Delaware - 2
Florida - 44
Georgia - 18
Hawaii - 1
Idaho - 2
Illinois - 34
Indiana - 12
Iowa - 8
Kansas - 4
Kentucky - 8
Louisiana - 11
Maine - 2
Maryland - 19
Massachusetts - 19
Michigan - 25
Minnesota - 12
Mississippi - 5
Missouri - 12
Montana - 1
Nebraska - 3
Nevada - 4
New Hampshire - 5
New Jersey - 24*
New Mexico - 4
New York - 45
North Carolina - 16
North Dakota - 1
Ohio - 31
Oklahoma - 5
Oregon - 8
Pennsylvania - 31
Rhode Island - 1
South Carolina - 8
South Dakota - 2
Tennessee - 14
Texas - 51
Utah - 5
Virginia - 22*
Vermont - 1
Washington - 14
West Virginia - 4
Wisconsin - 11
Puerto Rico - 4
*Includes a KidsWorld location.
TOYS"R"US INTERNATIONAL - 396 LOCATIONS
Australia - 22
Austria - 8
Belgium - 3
Canada - 61
<PAGE>
Denmark - 9(a)
France - 41
Germany - 58
Hong Kong - 4(a)
Indonesia - 2(a)
Israel - 3(a)
Italy - 5(a)
Japan - 51(b)
Luxembourg - 1
Malaysia - 4(a)
Netherlands - 9(a)
Portugal - 3
Saudi Arabia - 1(a)
Singapore - 4
South Africa - 6(a)
Spain - 28
Sweden - 3(a)
Switzerland - 4
Taiwan - 6(a)
Turkey - 1(a)
United Arab Emirates - 3(a)
United Kingdom - 56
(a) Franchise or joint venture.
(b) 80% owned.
KIDS"R"US UNITED STATES - 212 LOCATIONS
Alabama - 1
California - 24
Connecticut - 6
Delaware - 1
Florida - 10
Georgia - 4
Illinois - 20
Indiana - 7
Iowa - 1
Kansas - 1
Maine - 1
Maryland - 9
Massachusetts - 6
Michigan - 13
Minnesota - 2
Missouri - 5
Nebraska - 1
New Hampshire - 2
New Jersey - 18
New York - 22
North Carolina - 1
Ohio - 18
Pennsylvania - 14
Rhode Island - 1
Tennessee - 2
Texas - 9
Utah - 3
Virginia - 7
Wisconsin - 3
BABIES"R"US UNITED STATES - 82 LOCATIONS
Alabama - 2
Arizona - 1
California - 2
Colorado - 2
Florida - 10
Georgia - 7
Illinois - 4
Indiana - 2
Kansas - 1
Kentucky - 1
Louisiana - 1
Maryland - 3
Michigan - 1
Minnesota - 1
Missouri - 2
New Jersey - 3
New York - 1
North Carolina - 5
Ohio - 5
Oklahoma - 1
Pennsylvania - 2
South Carolina - 3
Tennessee - 4
Texas - 12
Virginia - 6
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars in millions except per share data) Fiscal Year Ended
____________________________________________________________________________________________________________________________________
Feb.1, Feb.3, Jan.28, Jan.29, Jan.30, Feb.1, Feb.2, Jan.28, Jan.29, Jan.31,
1997* 1996* 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net Sales ........................................ $9,932 $9,427 $8,746 $7,946 $7,169 $6,124 $5,510 $4,788 $4,000 $3,137
Net Earnings ..................................... 427 148 532 483 438 340 326 321 268 204
Earnings Per Share ............................... 1.54 .53 1.85 1.63 1.47 1.15 1.11 1.09 .91 .69
FINANCIAL POSITION AT YEAR END:
Working Capital .................................. 619 326 484 633 797 328 177 238 255 225
Real Estate-Net .................................. 2,411 2,336 2,271 2,036 1,877 1,751 1,433 1,142 952 762
Total Assets .................................... 8,023 6,738 6,571 6,150 5,323 4,583 3,582 3,075 2,555 2,027
Long-Term Obligations ............................ 909 827 785 724 671 391 195 173 174 177
Stockholders' Equity ............................. 4,191 3,432 3,429 3,148 2,889 2,426 2,046 1,705 1,424 1,135
NUMBER OF STORES AT YEAR END:
Toys"R"Us - United States ........................ 680 653 618 581 540 497 451 404 358 313
Toys"R"Us - International ........................ 396 337 293 234 167 126 97 74 52 37
Kids"R"Us - United States ........................ 212 213 204 217 211 189 164 137 112 74
Babies"R"Us - United States ...................... 82 -- -- -- -- -- -- -- -- --
KidsWorld - United States ........................ 2 -- -- -- -- -- -- -- -- --
</TABLE>
* After other charges as described in the Notes to the Consolidated Financial
Statements.
CONSOLIDATED NET SALES (billions)
(GRAPHIC MATERIAL OMITTED)
Fiscal Year 1987 3.1
1988 4.0
1989 4.8
1990 5.5
1991 6.1
1992 7.2
1993 7.9
1994 8.7
1995 9.4
1996 9.9
3
<PAGE>
<PAGE>
TO OUR STOCKHOLDERS
INTRODUCTION
In our annual report for the year ended February 3, 1980, our 85 toy stores
in the United States reported net sales approaching $500 million. In our letter
to our stockholders that year, we stated, "Much of this annual report is devoted
to financial information. The true heart of our business, however, is our
customer". During the next seventeen years, we grew our business to 1,372 stores
in 27 countries, with sales approaching $10 billion. Delivering the best
selection at great prices, we became the biggest toy store in town.
In 1997, just as in 1980, the heart of our business is the customer. In
last year's annual report, we said that one of the major reasons we undertook
our restructuring program was in response to our customers' feedback. In this
letter, we will describe the many initiatives we have completed and are
undertaking to improve our customers' shopping experience. By continuing to
service the customer first and foremost, we will continue to grow profitably for
you, our stockholders. We are confident that our ever-increasing emphasis on
customer service will enhance our reputation as the finest retailer of
children's products in the world.
(Photo of Michael Goldstein, Vice Chairman and Chief Executive Officer and
Robert C. Nakasone, President and Chief Operating Officer)
1996 FINANCIAL HIGHLIGHTS
Our 1996 sales grew to $9.9 billion, a 5% percent increase over the $9.4 billion
reported in the prior year. This is our 18th consecutive year of record sales
since Toys"R"Us became a public company. In 1996, operating earnings more than
doubled from the prior year and net earnings increased to $427.4 million versus
$148.1 million in 1995. Earnings per share increased to $1.54 as compared to
$.53 a year ago. Our results for both the 1996 and 1995 years were impacted by
special charges. In 1996, a $37.8 million after tax charge was recorded for a
judgement rendered against the Company related to a dispute involving a 1982
franchise agreement for toy store operations in the Middle East. In 1995, the
Company underwent a strategic restructuring program and, as a result, incurred a
$269.1 million after tax charge. Excluding the impact of these non-recurring
charges, our 1996 net earnings increased 12% to $465.2 million from $417.2
million and earnings per share increased to $1.68 from $1.51 in the prior year.
1996 saw the successful implementation of our worldwide restructuring program.
The most important initiative, our strategic inventory repositioning, has been
completed. We have significantly streamlined our assortment and reduced the
number of items we carry in our stores by more than 20%. This inventory
repositioning program was initiated because the breadth of our assortment
sometimes made our stores difficult to shop. Listening to our customers enabled
us to enhance our selection advantage with larger facings and more dramatic
presentations of desired items.
The other significant elements of our restructuring program, including store
closings and the consolidation of certain distribution centers and
administrative facilities, are substantially complete. Reducing our cost
structure allows us to bring the right product to our stores more efficiently.
Finally, the restructuring has had a positive financial impact. Our balance
sheet is in excellent condition, as demonstrated by the significant decrease in
debt, net of investments, and by our improved working capital and strong cash
flow.
We are pleased to report that all of our divisions: Toys"R"Us - USA,
International and Kids"R"Us, experienced comparable store sales increases and
improved operating earnings for 1996. While the 1996 holiday selling season fell
short of our expectations - due primarily to a shortage of hot selling products
like Tickle Me Elmo and Nintendo 64, as well as a limited selection of new video
game software titles - we are pleased to report that even at this early stage in
1997, the demand for new products is very strong, and toy and video game
manufacturers are geared up to meet that need. We fully expect that as a result
of our traditional strength as the place to go for the best selection, in stock
position and price, we will be able to meet the customers' expectations and
generate increased sales and earnings for you, our stockholders.
NET SALES - INTERNATIONAL DIVISION (billions)
(GRAPHIC MATERIAL OMITTED)
Fiscal Year 1987 0.2
1988 0.4
1989 0.5
1990 0.8
1991 1.0
1992 1.4
1993 1.7
1994 2.1
1995 2.6
1996 2.8
CONSOLIDATED TOTAL ASSETS (billions)
(GRAPHIC MATERIAL OMITTED)
Fiscal Year 1987 2.0
1988 2.6
1989 3.1
1990 3.6
1991 4.6
1992 5.3
1993 6.1
1994 6.6
1995 6.7
1996 8.0
4
<PAGE>
<PAGE>
OUR CUSTOMER FOCUS
Last year, we told you that we would unveil a revolutionary new toy store design
in 1996 with the goal of creating a shopping experience like no other. We
completed 13 of our Concept 2000 stores in 1996 with outstanding results, both
in terms of sales and customer satisfaction. The shopping environment we have
created is completely different from the Toys"R"Us of yesterday. At the grand
opening of our first Concept 2000 store in Raritan, New Jersey, we overheard one
of our customers say people are going to shop for hours in this store. As a
retailer, this is mighty praise indeed! In 1997, the Concept 2000 format will be
expanded as we will remodel 57 stores and all new toy stores in the United
States will be built using this format.
In 1996, Toys"R"Us entered the superstore arena with the launch of Toys"R"Us
KidsWorld, our 90,000 square foot prototype encompassing all of our formats
Toys"R"Us, Kids"R"Us and Babies"R"Us - under one roof. We know our customers are
excited by this concept. Our two day grand opening in Elizabeth, New Jersey drew
such enormous crowds that car traffic backed up the New Jersey Turnpike for
miles. In our proud history, we have had many outstanding grand opening events,
but the customer reaction to KidsWorld has been extraordinary. We are especially
pleased with our licensed shops which provide our customers with food, fun,
footwear and photographs. Our market research indicates the average customer
stays in our KidsWorld store for well over an hour. Our goal of creating a new
type of destination store for kids has been achieved.
Our customer focus has been extended to the existing base of our toy stores as
well. In 1996, we rolled out 200 customer information centers, with more to
follow. These provide a fixed single location in the center of the store where
help can be received and questions can be answered. Due to the wide selection of
merchandise we carry, as well as the shortage of hot product we have
experienced, our customer information center is essential in improving our
overall customer service. Through the use of our automated store inventory
system, our customer information center enables us to communicate with our
customer as never before.
And what better way to communicate with our customers than have them
communicate with each other! While our Baby Registry has been available all
year, we made registering even easier in 1996. We successfully tested in-store
radio frequency technology and hand-held scanners and we'll use them to a
greater extent in 1997. With this technology, our customers can now simply scan
their desired selections for automatic registration into our computers. We
complemented our Baby Registry this year by testing a Gift Registry where
children can create a wish list for their families and friends, no matter where
they live in the United States. This Gift Registry was tested in three of our
markets this year and will be rolled out to the entire country beginning in
1997. Not only do our Registry programs make shopping easier, but they eliminate
the time consuming process of returning or exchanging duplicate items and
unwanted gifts.
5
<PAGE>
<PAGE>
Our revolving feature shop area continues to be a strong customer draw. While we
are proud of our 1996 Toy Story, Barbie, Nerf and Hunchback of Notre Dame shops,
we were thrilled by our customers response to our Video Test Drive Shop last
summer. We were able to provide first-hand playing experience on the new
hardware platforms so that our customers could make educated decisions before
making this significant purchase. We believe there is no retailer in the world
as committed to the video game business as Toys"R"Us. In order to provide our
customers with better in stock levels of high demand video game products, as
well as computer software and VHS tapes, we will open our state-of the-art
centralized piece pick operation in 1997. Centralized piece pick will allow us
to distribute new titles across our chain faster than ever before. In addition,
we can provide quicker inventory replenishment for these important categories.
Improving our in-stock levels at Toys"R"Us is an important element in our desire
to improve our customer service. In 1996, one third of our chain installed a new
sales floor replenishment tool which we call the Sales Improvement System. With
the use of hand-held radio frequency technology, our associates can pinpoint the
exact location of merchandise, not only on the sales floor, but also in our
stockrooms. This will enable us to quickly identify out of stock or low stock
positions and allow us to bring hot product to the sales floor quicker than
ever.
NUMBER OF COUNTRIES - INTERNATIONAL DIVISION
(GRAPHIC MATERIAL OMITTED)
Fiscal Year 1987 5.0
1988 6.0
1989 8.0
1990 8.0
1991 10.0
1992 11.0
1993 16.0
1994 20.0
1995 21.0
1996 26.0
NUMBER OF STORES WORLDWIDE
(GRAPHIC MATERIAL OMITTED)
Fiscal Year 1987 424.0
1988 522.0
1989 615.0
1990 712.0
1991 812.0
1992 918.0
1993 1,032.0
1994 1,115.0
1995 1,203.0
1996 1,372.0
BABIES"R"US
In 1996, our newest division, Babies"R"Us, was born. We opened 6 Babies"R"Us
stores, utilizing many elements from our Concept 2000 store design and
capitalizing on our Toys"R"Us and Kids"R"Us systems and infrastructure. Our
merger with Baby Superstore on February 3, 1997 immediately makes Toys"R"Us a
stronger player in the juvenile marketplace by adding 76 existing stores to the
Babies"R"Us family. We have long admired the competitive spirit of the Baby
Superstore associates and we recognize the value that they bring to Toys"R"Us in
terms of their ability to provide outstanding customer service. Combining the
successful Baby Superstore company with the financial resources, sophisticated
distribution network and operational know-how of Toys"R"Us makes us the premier
retailer of juvenile products in the United States.
6
<PAGE>
<PAGE>
OUTLOOK
In 1996, we added 104 stores: 30 toy stores in the United States, 59
international toy stores, of which 27 were franchise stores, including our first
franchise stores in Indonesia, Italy, Saudi Arabia, South Africa and Turkey, as
well as 7 Kids"R"Us stores, 6 Babies"R"Us stores and 2 KidsWorld stores. In
1997, we intend to add approximately 105 stores: 25 USA toy stores in addition
to the 57 Concept 2000 remodels, 40 international toy stores including 15
franchise stores, 5 Kids"R"Us stores and 20 Babies"R"Us stores in addition to
converting the 76 Baby Superstore locations.
In terms of product, 1997 promises to be an exciting year for Toys"R"Us. The
video game business remains strong and the introduction of Nintendo 64 into
Europe should continue the excitement in another part of the world. In addition,
the recent price reductions for Nintendo 64 and Sony Playstation should fuel the
video game momentum not only in video hardware but software as well.
Licensed toy product related to movie releases has historically been successful
for Toys"R"Us. Typically, a great movie license generates sales for us in many
categories such as action figures, dolls, plush, party goods, and board and
video games to name a few. This year there will be more children-oriented movies
with related toy product than at any other point in our history. These movies
include the Star Wars Trilogy and Little Mermaid re-releases, The Lost World:
Jurassic Park, Batman and Robin, Hercules and Anastasia. We will be ready to
supply our customers with exciting products related to all of these movies.
CORPORATE CITIZENSHIP
Toys"R"Us maintains a company-wide giving program focused on improving the
health care needs of children by supporting many national and regional childrens
health care organizations.
The Counsel on Economic Priority recently awarded Toys"R"Us the Pioneer
Award in Global Ethics. This award was the direct result of the implementation
of our Code of Conduct for suppliers which outlines the Company's position
against child labor and unsafe working conditions. In order for a vendor's
product to be sold in any of our stores, they must comply with our Code of
Conduct.
If you would like to receive more information on Toys"R"Us' corporate
citizenship please write to Roger Gaston at the address noted on the back inside
cover.
HUMAN RESOURCES
All of these initiatives are made possible by the excellent management team we
have assembled here at Toys"R"Us. To prepare ourselves for 1997 and beyond, we
have made the following important executive announcements:
ADDITIONS:
Roger C. Gaston
Senior Vice President - Human Resources
Mitchell Loukota
Vice President - Divisional Merchandise Manager
Toys"R"Us
Gregg Treadway
General Manager
Toys"R"Us
Antonio Urcelay
Managing Director - Toys"R"Us Iberia
David S. Walker
Vice President - Advertising
Kids"R"Us
PROMOTIONS:
Corporate & Toys"R"Us, USA
Robert J. Weinberg
Senior Vice President -
General Merchandise Manager
<PAGE>
David Brewi
Vice President - Divisional Merchandise Manager
Thomas DeLuca
Vice President - Imports, Product Development and
Safety Assurance
Truvillus Hall
General Manager
Charlene Mady
Vice President - Area Merchandise Planning
Gerald S. Parker
Vice President - Regional Operations
Timothy J. Slade
Vice President - Transportation and Traffic
William A. Stephenson
Vice President -
Merchandise Planning and Allocation
Kevin VanderGriend
General Manager
Robert S. Zarra
Vice President -
Internal Audit
Toys"R"Us, International
Larry D. Gardner
Vice President - Toys"R"Us Asia
Larry S. Johnson
Vice President - Franchise Markets
Michael C. Taylor
Vice President - Logistics
Kids"R"Us & Babies"R"Us
William Farrell
Vice President - Physical Distribution,
Kids"R"Us
Christopher M. Scherm
Vice President -
Divisional Merchandise Manager, Kids"R"Us
David E. Schoenbeck
Vice President - Operations, Babies"R"Us
We would like to thank Milton Gould and Harold Wit, who have served on our
Board of Directors since we became a public company in 1978, for their guidance,
counsel and contributions, in helping make Toys"R"Us the world's premier
retailer of children's products. We extend to them our heartfelt thanks and best
wishes for continued success, health and prosperity as they retire from our
Board of Directors.
SUMMARY
We hope you are excited about all of the customer initiatives we will implement
in 1997. We recognize our need for change and we are well on our way to
implementing our strategic plan. We thank our associates throughout the world
who are advancing our mission to grow our business and service our customer.
Yesterday, today and, most importantly, tomorrow our customers will remain the
true heart of our business. Listening to our customers over the last two decades
has made us strong. Listening harder to each and every one of our customers will
make us even stronger.
We look forward to impressing our customers with outstanding service and
impressing you, our stockholders, with outstanding results - And along the way,
making children all over the world want to visit our stores again and again.
Sincerely,
/s/ Michael Goldstein
Vice Chairman and Chief Executive Officer
/s/ Robert C. Nakasone
President and Chief Operating Officer
March 24, 1997
7
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<PAGE>
A NEW GENERATION
Toys"R"Us is the worlds premier retailer of children's products bringing toys,
apparel, baby needs and much more to children (and their parents, too!)
BUILDING OUR BUSINESS WITH CUSTOMER SERVICE
Today's highly competitive retail environment constantly challenges us to
find more ways to distinguish the Toys"R"Us shopping experience. For the savvy,
value-conscious consumer of the 90s, well-stocked shelves, great prices and
sales promotions are expected from every retail store. There has to be
"something more..." In response to this, we have been placing more and more
emphasis on customer service. Throughout 1996, a number of opportunities enabled
us to show our customers that we understand their needs, and that we are working
towards providing the best service possible everyday... at every Toys"R"Us
store.
(Photographs of Toys "R" Us' growth from 1978 through 1996)
8
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<PAGE>
CONCEPT 2000:
AND THE ADVENT OF CUSTOMER-FRIENDLY STORE DESIGN
In 1996, we unveiled thirteen stores with the innovative store format we
call Concept 2000 - combining the ultimate in shopping convenience and
aesthetics. Wider aisles, color-coded merchandise displays, attractive signage,
specialty areas for video games and popular toys, animated icons and other
visually stimulating features were introduced to entertain and motivate children
and parents as they shop. Within our Concept 2000 and regular Toys"R"Us stores,
we also enhanced service at our Customer Information Centers. Customers can now
count on the assistance of trained employees who are able to access computer
screens and identify product availability within our stores. In our Islands of
Service program, we have sales assistants who are subject experts in various
categories to help customers answer product-specific questions and explain key
product features.
We have successfully made our definition of Customer Service more
expansive. Whether it is by giving our shoppers personalized attention and
assistance, promoting key services that enhance the shopping experience, or
simply by providing them with a pleasant environment in which to shop, we work
to ensure customer satisfaction.
WHAT CUSTOMERS ARE SAYING ABOUT CONCEPT 2000:
"Walking into the new store, I was blown away by how much it has changed..."
"It was so much easier to find what I was looking for..."
"I was impressed by the merchandise displays and selection..."
"It was a pleasure to shop here because the store is so bright and colorful..."
"Wow!"
9
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TOYS"R"US:
SPECIAL PROGRAMS AND NEW INITIATIVES
A welcome convenience for parents-to-be, the Toys"R"Us Baby Registry lets
friends and family members find the right gifts for new parents with ease and
confidence. After a simple registration process, parents-to-be can make their
selection from any of the products in the store. With its focus on gift-giving
for baby, this service shows our customers that we have thought of every
shopping benefit!
Another new service coming soon is the Gift Registry. Kids simply sign up
and create their own wish list with the toys they really want for birthdays,
holidays and special occasions. Gift-givers will be able to choose the perfect
gift every time! The Gift Registry will be rolled out to all stores beginning in
1997. We're exploring customer service opportunities on the Internet, too! Our
new website (www.toysrus.com) provides fun for the kids , and gives parents
direct access to store and product information instantly!
(Photograph of the new KidsWorld)
KIDSWORLD: TOTAL ONE-STOP SHOPPING
The two KidsWorld stores that opened in 1996 showcased the very best of
one-stop shopping and customer service. Shoppers came for the full range of
advantages from Toys"R"Us, Kids"R"Us and Babies"R"Us, plus other family-friendly
attractions such as Kids Footlocker, Focus Pocus (a photo studio), Cartoon Cuts
(a hair salon), Jeepers Junior (a restaurant), Fuzziwigs Candy Factory, plus
arcade games and rides. Coming to KidsWorld means more than just a shopping
trip. It's a real family event!
10
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<PAGE>
BABIES"R"US: DELIVERING NEW OPPORTUNITIES FOR SUCCESS
There are great expectations for the newest arrival in the "R"Us family. In
1996, Babies"R"Us successfully opened six bright, spacious new stores (designed
after the Concept 2000 model) that showcase total one-stop shopping and expert
customer service. The recent merger with the Baby Superstore chain in February
1997 has quickly catapulted Babies"R"Us into the premier retailer of juvenile
products in the country! Customers can expect advantages like an amazing product
selection, everyday low prices, and the popular no-hassle returns policy. Other
customer-friendly services include The Baby Registry that makes it easy for new
parents to choose the gifts they want from friends and family, and the Special
Orders desk where customers can order merchandise in specific styles or colors
not currently available in the store. Our sales associates are expertly trained
for customer interaction through classes, product seminars, videos and a regular
product information newsletter. Expectant parents and gift-givers now have the
ideal place to shop for everything for baby!
INTERNATIONAL: HIGHLIGHTS FROM AROUND THE WORLD
Fifty-nine international Toys"R"Us stores opened in 1996, demonstrating our
continuing growth as a global retailer. Franchise operations in Indonesia,
Italy, Saudi Arabia, South Africa, and Turkey bring our current international
presence to nearly 400 stores in 26 countries. Milestones for the year included
the opening of our 50th store in Japan, and the celebration of our 10th year in
Hong Kong. As the Toys"R"Us world gets bigger and better, new and exciting
opportunities abound for strengthening relationships with all our customers!
11
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MANAGEMENTS DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS*
The Company posted its 18th consecutive record sales year in 1996,
reporting sales of $9.9 billion. Sales increased by 5.4% in 1996, 7.8% in 1995
and 10.1% in 1994. The sales growth is primarily attributable to the Company's
continued store expansion and the increase in comparable U.S.A. toy store sales
of 2% in 1996. The Company opened 102 new U.S.A. toy stores, 163 international
toy stores, including franchise and joint venture stores, 22 children's clothing
stores, 6 baby specialty stores and 2 superstores during the three year period.
Comparable U.S.A. toy store sales decreased 2% in 1995 and increased 2% in 1994.
Cost of sales as a percentage of sales decreased to 69.4% in 1996 from
69.9% in 1995 primarily due to an improved markup on basic toy products,
partially offset by the strengthening of the lower margin video hardware
business. Cost of sales as a percentage of sales increased in 1995 from 68.7% in
1994 primarily due to an intensively competitive retail environment, the
Company's aggressive pricing strategy and an unfavorable shift in the
merchandise mix.
Selling, advertising, general and administrative expenses as a percentage
of sales were 20.3% in 1996, 20.1% in 1995 and 19.0% in 1994. The increases in
1996 and 1995 were primarily due to heavier advertising and promotional efforts,
as well as the Company's increased emphasis on customer service.
The Company's 1996 results were impacted by a charge of $59.5 million ($37.8
million, net of tax benefits or $.14 cents per share) relating to an arbitration
award rendered against the Company involving a dispute over a 1982 franchise
agreement to operate stores in the Middle East. Although the arbitration award
was recently confirmed in the District Courts, the Company has filed an appeal
with the United States Court of Appeals for the Second Circuit.
The Company's 1995 results were impacted by charges of $396.6 million ($269.1
million, net of tax benefits or $.98 cents per share) to restructure its
worldwide operations and to early adopt FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
Elements of the restructuring plan are described below and in the notes to the
consolidated financial statements and consisted of certain asset write offs and
contractual obligations, primarily in the United States and Europe.
In 1996, the Company substantially completed its restructuring program
action plan, including the closing of 3 Toys"R"Us and 7 Kids"R"Us stores in the
United States, the consolidation of 3 distribution centers and various
administrative facilities in the United States and Europe and, pending certain
regulatory approvals, the franchising of 9 toy stores in the Netherlands. The
Company also successfully completed the most important component of the
restructuring program, its strategic inventory repositioning initiative designed
to streamline the merchandise assortment in its toy stores and enhance its
selection advantage. The Company has reduced the number of items carried in its
toy stores by more than 20%.
At February 1, 1997, the Company had approximately $90 million of
liabilities remaining for its restructuring program primarily relating to
long-term lease obligations and other commitments. The Company believes these
reserves are adequate to complete the restructuring program.
Interest expense decreased by 4.5% in 1996 as compared to 1995 primarily
due to the Company's improved cash flow as a result of increased earnings, the
benefits from its worldwide restructuring program and a $325.4 million medium
term financing which replaced borrowings carrying higher interest rates.
Interest expense increased in 1995 as compared to 1994 due to increased average
borrowings and a change in the mix of borrowings and interest rates among
countries.
The Company's effective tax rate was 36.5%, 44.2% and 37.0% in 1996, 1995
and 1994, respectively. The higher effective tax rate in 1995 was primarily due
to the restructuring of its worldwide operations.
The Company believes that its risks attendant to foreign operations are
minimal, as the countries in which it owns assets and operates stores are
politically stable. The Company's foreign exchange risk management objectives
are to stabilize cash flow from the effect of foreign currency fluctuations. The
Company will, whenever practical, offset local investments in foreign currencies
with borrowings denominated in the same currency. The Company also enters into
forward foreign exchange contracts or purchases options to eliminate specific
transaction currency risk.
*References to 1996, 1995, and 1994 are for the 52 weeks ended February 1,
1997, 53 weeks ended February 3, 1996 and the 52 weeks ended January 28, 1995.
12
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<PAGE>
International sales were unfavorably impacted by the translation of local
currency results into U.S. dollars by approximately $150 million in 1996 and was
favorably impacted by approximately $140 million and $90 million in 1995 and
1994, respectively. Neither the translation of local currency results into U.S.
dollars nor inflation had a material effect on the Company's operating results
for the last three years.
LIQUIDITY AND CAPITAL RESOURCES**
The Company's impressive financial position is evidenced by the liquidity of its
assets and its strong cash flow.
The Company's newest division, Babies"R"Us opened its first 6 stores in
1996. The Company accelerated the growth of this division with the acquisition
of Baby Superstore, Inc. on February 3, 1997 for 13 million treasury shares of
the Company's common stock valued at approximately $376.0 million. This
acquisition has been accounted for as a purchase at February 1, 1997, and the
excess of purchase price over net assets acquired in the amount of $365.0
million has been recorded as goodwill and will be amortized over 40 years.
Baby Superstore, with 76 stores primarily in the southeast and midwest
United States, was a leading retailer of baby and young childrens products. The
Company plans to operate these stores under its Babies"R"Us format, utilizing
its Toys"R"Us and Kids"R"Us infrastructure to leverage its combined financial
and operational strengths.
The Company's cash and cash equivalents have increased to $760.9 million at
February 1, 1997 from $202.7 million at February 3, 1996. This increase is
primarily attributable to the following factors: increased net earnings, due in
part to the benefits of the Company's worldwide restructuring program, $67.5
million of cash received with the acquisition of Baby Superstore and an increase
in net cash provided by financing activities of $112.1 million.
The Company's working capital improved to $618.9 million at February 1, 1997,
from $326.1 million at February 3, 1996 due in part to the closing of a medium
term $325.4 million financing in 1996, the proceeds of which reduced short term
debt.
The long-term debt, net of current maturities, to equity percentage was
21.7% at February 1, 1997 as compared to 24.1% at February 3, 1996.
In 1997, the Company plans to open approximately 25 toy stores in the
United States utilizing the new Concept 2000 store design and also plans to
remodel 57 toy stores in the United States to this format. The Company plans to
open approximately 40 new international toy stores, including 15 franchise
stores. Our newest division, Babies"R"Us, will open approximately 20 stores in
the United States. Finally, there are plans to open approximately 5 Kids"R"Us
children's clothing stores. The Company opened 89 toy stores in 1996, 80 in 1995
and 96 in 1994, and 7 Kids"R"Us children's clothing stores in 1996, 9 in 1995
and 6 in 1994. The Company also added its first 2 KidsWorld stores, one of which
is a retrofit of an existing Toys"R"Us and Kids"R"Us location, and the first 6
Babies"R"Us stores in 1996. In addition to the stores closed in 1996 that were
part of the Company's worldwide restructuring program, the Company closed 1
store in the United Kingdom in 1995 and 19 Kids"R"Us clothing stores in 1994
which did not meet its expectations. These closures did not have a significant
impact on the Company's financial position.
For 1997, capital requirements for real estate, store and warehouse
fixtures and equipment, leasehold improvements and other additions to property
and equipment are estimated at $630 million (including real estate and related
costs of $375 million). The Company's policy is to purchase its real estate
where appropriate and it plans to continue this policy.
The Company has an existing $1 billion share repurchase program. As of
February 1, 1997, the Company has repurchased 21.3 million shares of its common
stock for $693.9 million under this program since it was announced in January of
1994.
The seasonal nature of the business (approximately 47% of sales take place
in the fourth quarter) typically causes cash to decline from the beginning of
the year through October as inventory increases for the holiday selling season
and funds are used for land purchases and construction of new stores, which
usually open in the first ten months of the year. The Company has a $1 billion
multi-currency unsecured committed revolving credit facility expiring in
February 2000, from a syndicate of financial institutions. Cash requirements for
operations, capital expenditures, lease commitments and the share repurchase
program will be met primarily through operating activities, borrowings under the
revolving credit facility, issuance of short-term commercial paper and other
bank borrowings for foreign subsidiaries.
**The Company's consolidated balance sheet at February 1, 1997 includes the
effects of the acquisition of Baby Superstore, Inc.
13
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<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
- -----------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
___________________________________________________
February 1, February 3, January 28,
(In millions except per share data) 1997 1996 1995
_______________________________________________________________________________________________________________
<S> <C> <C> <C>
Net sales $ 9,932.4 $ 9,426.9 $ 8,745.6
_______________________________________________________________________________________________________________
Costs and expenses:
Cost of sales 6,892.5 6,592.3 6,008.0
Selling, advertising, general and administrative 2,019.7 1,894.8 1,664.2
Depreciation and amortization 206.4 191.7 161.4
Other charges 59.5 396.6 -
Interest expense 98.6 103.3 83.9
Interest and other income (17.4) (17.4) (16.0)
_______________________________________________________________________________________________________________
9,259.3 9,161.3 7,901.5
_______________________________________________________________________________________________________________
Earnings before taxes on income 673.1 265.6 844.1
Taxes on income 245.7 117.5 312.3
_______________________________________________________________________________________________________________
Net earnings $ 427.4 $ 148.1 $ 531.8
Earnings per share $ 1.54 $ .53 $ 1.85
_______________________________________________________________________________________________________________
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
- ---------------------------
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
February 1, February 3,
(In millions) 1997 1996
______________________________________________________________________________________________________
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 760.9 $ 202.7
Accounts and other receivables 142.1 128.9
Merchandise inventories 2,214.6 1,999.5
Prepaid expenses and other current assets 42.0 87.8
______________________________________________________________________________________________________
Total Current Assets 3,159.6 2,418.9
Property and Equipment:
Real estate, net 2,410.6 2,336.0
Other, net 1,636.8 1,522.2
______________________________________________________________________________________________________
Total Property and Equipment 4,047.4 3,858.2
Goodwill 365.0 -
Other Assets 451.2 460.4
______________________________________________________________________________________________________
$ 8,023.2 $ 6,737.5
______________________________________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 303.5 $ 332.8
Accounts payable 1,346.5 1,182.0
Accrued expenses and other current liabilities 720.0 438.1
Income taxes payable 170.7 139.9
______________________________________________________________________________________________________
Total Current Liabilities 2,540.7 2,092.8
Long-Term Debt 908.5 826.8
Deferred Income Taxes 222.5 228.7
Other Liabilities 160.9 156.9
Stockholders' Equity:
Common stock 30.0 30.0
Additional paid-in capital 488.8 542.8
Retained earnings 4,120.1 3,692.7
Foreign currency translation adjustments (60.6) 12.9
Treasury shares, at cost (387.7) (846.1)
______________________________________________________________________________________________________
Total Stockholders' Equity 4,190.6 3,432.3
______________________________________________________________________________________________________
$ 8,023.2 $ 6,737.5
______________________________________________________________________________________________________
</TABLE>
See notes to consolidated financial statements.
15
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
____________________________________________
February 1, February 3, January 28,
(In millions) 1997 1996 1995
________________________________________________________________________________________________________________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 427.4 $ 148.1 $ 531.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Other charges - 396.6 -
Depreciation and amortization 206.4 191.7 161.4
Deferred income taxes 23.4 (66.7) (14.5)
Changes in operating assets and liabilities:
Accounts and other receivables (14.3) (10.8) (17.4)
Merchandise inventories (194.6) (193.1) (221.6)
Prepaid expenses and other operating assets (10.1) (15.7) (31.7)
Accounts payable, accrued expenses and other liabilities 261.4 (150.5) 183.5
Income taxes payable 43.8 (49.3) (2.0)
________________________________________________________________________________________________________________
Net cash provided by operating activities 743.4 250.3 589.5
________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received with the acquisition of Baby Superstore 67.5 - -
Capital expenditures, net (415.4) (467.5) (585.7)
Other assets (35.8) (67.4) (44.6)
________________________________________________________________________________________________________________
Net cash used in investing activities (383.7) (534.9) (630.3)
________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net (9.7) 210.1 (117.2)
Long-term borrowings 325.4 82.2 34.6
Long-term debt repayments (133.1) (9.3) (1.1)
Exercise of stock options 28.5 16.2 26.0
Share repurchase program - (200.2) (469.7)
Sale of stock to Petrie Stores Corporation - - 161.6
________________________________________________________________________________________________________________
Net cash provided by/(used in) financing activities 211.1 99.0 (365.8)
________________________________________________________________________________________________________________
Effect of exchange rate changes on cash and cash equivalents (12.6) 18.5 (15.5)
CASH AND CASH EQUIVALENTS
Increase/(decrease) during year 558.2 (167.1) (422.1)
Beginning of year 202.7 369.8 791.9
________________________________________________________________________________________________________________
End of year $ 760.9 $ 202.7 $ 369.8
________________________________________________________________________________________________________________
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company considers its highly liquid investments purchased as part of
its daily cash management activities to be cash equivalents. During 1996, 1995
and 1994, the Company made income tax payments of $177.2, $234.5 and $318.9 and
interest payments (net of amounts capitalized) of $108.6, $118.4 and $123.6,
respectively.
See notes to consolidated financial statements.
16
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<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock
_____________________________
Foreign
Issued In Treasury Additional currency
__________________ _________________ paid-in Retained translation
(In millions) Shares Amount Shares Amount capital earnings adjustments
___________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1994 297.9 $ 29.8 (8.4) $ (292.4) $ 454.0 $ 3,012.8 $ (56.0)
Net earnings for the year - - - - - 531.8 -
Share repurchase program - - (13.1) (469.7) - - -
Exercise of stock options, net of tax benefit 0.1 - 1.1 41.9 (15.8) - -
Exchange with and sale of stock to
Petrie Stores Corporation - - 2.2 78.5 83.1 - -
Foreign currency translation adjustments - - - - - - 30.9
___________________________________________________________________________________________________________________________________
Balance, January 28, 1995 298.0 29.8 (18.2) (641.7) 521.3 3,544.6 (25.1)
___________________________________________________________________________________________________________________________________
Net earnings for the year - - - - - 148.1 -
Share repurchase program - - (7.6) (200.2) - - -
Exercise of stock options, net of tax benefit - - .9 34.2 (16.7) - -
Corporate inversion 2.4 0.2 (2.4) (38.4) 38.2 - -
Foreign currency translation adjustments - - - - - - 38.0
___________________________________________________________________________________________________________________________________
Balance, February 3, 1996 300.4 30.0 (27.3) (846.1) 542.8 3,692.7 12.9
___________________________________________________________________________________________________________________________________
Net earnings for the year - - - - - 427.4 -
Acquisition of Baby Superstore, Inc. - - 13.0 400.2 (24.2) - -
Exercise of stock options, net of tax benefit - - 1.7 58.2 (29.8) - -
Foreign currency translation adjustments - - - - - - (73.5)
___________________________________________________________________________________________________________________________________
Balance, February 1, 1997 300.4 $ 30.0 (12.6) $ (387.7) $ 488.8 $ 4,120.1 $ (60.6)
___________________________________________________________________________________________________________________________________
</TABLE>
See notes to consolidated financial statements.
17
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions except per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31. Reference
to 1996, 1995 and 1994 are for the 52 weeks ended February 1, 1997, 53 weeks
ended February 3, 1996 and the 52 weeks ended January 28, 1995, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The consolidated balance sheet and statement of cash flows
also reflect the acquisition of Baby Superstore, Inc. at February 1, 1997. All
material intercompany balances and transactions have been eliminated. Assets and
liabilities of foreign operations are translated at current rates of exchange at
the balance sheet date while results of operations are translated at average
rates in effect for the period. Translation gains or losses are shown as a
separate component of stockholders' equity.
Merchandise Inventories
Merchandise inventories for the U.S.A. toy store operations, which represent
over 60% of total inventories, are stated at the lower of LIFO (last-in,
first-out) cost or market, as determined by the retail inventory method. If
inventories had been valued at the lower of FIFO (first-in, first-out) cost or
market, inventories would show no change at February 1, 1997 or February 3,
1996. All other merchandise inventories are stated at the lower of FIFO cost or
market as determined by the retail inventory method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets or, where applicable, the terms of the respective leases, whichever is
shorter.
The Company's policy to recognize impairment losses relating to long-lived
assets is based on several factors including, but not limited to, management's
plans for future operations, recent operating results and projected cash flows.
Preopening Costs
Preopening costs, which consist primarily of advertising, occupancy and payroll
expenses, are amortized over expected sales to the end of the fiscal year in
which the store opens.
Capitalized Interest
Interest on borrowed funds is capitalized during construction of property and is
amortized by charges to earnings over the depreciable lives of the related
assets. Interest of $3.3, $6.1 and $6.9 was capitalized during 1996, 1995 and
1994, respectively.
Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents and short-term borrowings approximate their fair market values.
Forward Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts to eliminate the risk
associated with currency movement relating to its short-term intercompany loan
program with foreign subsidiaries and inventory purchases denominated in foreign
currency. Gains and losses, which offset the movement in the underlying
transactions, are recognized as part of such transactions. Gross deferred
unrealized gains and losses on the forward contracts were not material at either
February 1, 1997 or February 3, 1996. The related receivable, payable and
deferred gain or loss are included on a net basis in the balance sheet. The
Company had approximately $205.0 of short term outstanding forward contracts at
both February 1, 1997 and February 3, 1996 maturing in 1997 and 1996,
respectively, which are entered into with counterparties that have high credit
ratings and with which the Company has the contractual right to net forward
currency settlements. In addition, the Company had a $325.4 currency swap
obligation outstanding at February 1, 1997 related to its (pound)200 note
payable due 2001.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
ACQUISITION
On February 3, 1997, the Company acquired all of the outstanding common shares
of Baby Superstore, Inc. ("Baby Superstore") for 13 million shares of its
treasury stock valued at approximately $376.0. Each Baby Superstore shareholder
received .8121 of a share of Company stock for each Baby Superstore share,
except for the Chairman and Chief Executive Officer of Baby Superstore who
received .5150 of a share.
Baby Superstore, a leading retailer of baby and young children's products,
opened its first store in 1971 and has operated as a public company since
November, 1994. Baby Superstore operated 76 stores in 23 states, primarily in
the southeast and midwest. Products sold by Baby Superstore were directed toward
newborns and children up to three years old. The Company plans to operate
substantially all the acquired stores.
This acquisition has been accounted for as a purchase at February 1, 1997. The
excess of purchase price over net assets acquired of $365.0 has been recorded as
goodwill and will be amortized on a straight-line basis over 40 years.
Consolidated pro forma income and earnings per share, as if the acquisition had
taken place as of the beginning of 1995, would not have been materially
different from the reported amounts for 1996 and 1995.
18
<PAGE>
<PAGE>
OTHER CHARGES
On July 12, 1996, an arbitrator rendered an award against the Company in
connection with a dispute involving rights under a 1982 license agreement for
toy store operations in the Middle East. Accordingly, the Company has recorded a
provision of $59.5, ($37.8 after tax or $.14 cents per share) representing all
costs in connection with this matter. The Company has filed an appeal with the
United States Court of Appeals for the second circuit.
On February 1, 1996, the Company recorded charges of $396.6 ($269.1 after tax or
$.98 cents per share) to restructure its worldwide operations (the
"restructuring") and to early adopt Financial Accounting Standards Board ("FAS
No. 121"), "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." The restructuring charge included $184.0 related to
strategic inventory repositioning, $84.4 related to the closing or franchising
of 25 stores, $71.6 for the consolidation of three distribution centers and
seven administrative facilities and $32.4 of other costs. Total restructuring
and other charges were comprised of $208.8 relating to operations in the United
States and $187.8 for international operations. The charge to early adopt FAS
No.121 was $24.2, primarily related to a write down of certain store assets to
fair value, based on discounted cash flows. At February 1, 1997, the Company had
approximately $90 million of liabilities remaining for its restructuring program
primarily relating to long-term lease obligations and other commitments. The
Company believes these reserves are adequate to complete the restructuring
program.
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Useful Life February 1, February 3,
(in years) 1997 1996
_______________________________________________________________________
<S> <C> <C> <C>
Land $ 821.2 $ 802.4
Buildings 45-50 1,834.3 1,745.3
Furniture and equipment 5-20 1,521.9 1,351.9
Leaseholds and
leasehold improvements 121\2-50 1,060.1 959.0
Construction in progress 37.1 45.6
Leased property
under capital leases 30.6 25.1
_______________________________________________________________________
5,305.2 4,929.3
Less accumulated depreciation
and amortization 1,257.8 1,071.1
_______________________________________________________________________
$ 4,047.4 $ 3,858.2
_______________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
SEASONAL FINANCING AND LONG-TERM DEBT
February 1, February 3,
1997 1996
________________________________________________________________________________
<S> <C> <C>
5.61% (pound)200 note payable,
due 2001(a) $ 325.4 $ -
8 3/4% debentures, due 2021,
net of expenses 198.2 198.1
Japanese yen loans payable at annual
interest rates from 3.45% to 6.47%,
due in varying amounts through 2012 150.2 178.3
4 7/8 % convertible subordinated notes payable,
due October 2000(b) 115.0 -
8 1/4% sinking fund debentures,
due 2017, net of discounts 88.4 88.3
Industrial revenue bonds,
net of expenses (c) 70.0 74.2
7% British pound sterling loan payable,
due quarterly through 2001(d) 67.1 77.3
Mortgage notes payable at annual
interest rates from 6% to 11% (e) 12.2 19.2
Obligations under capital leases 17.1 12.8
11% British pound sterling Stepped
Coupon Guaranteed Bonds - 198.4
________________________________________________________________________________
1,043.6 846.6
Less current portion (f) 135.1 19.8
________________________________________________________________________________
$ 908.5 $ 826.8
________________________________________________________________________________
</TABLE>
<PAGE>
(a) Supported by a (pound)200 bank letter of credit. This note has been
converted by an interest rate and currency swap to a floating rate, US dollar
obligation at 3 month LIBOR less approximately 110 basis points.
(b) Obligation of Baby Superstore. Convertible into shares of the Company's
common stock at the conversion price of $66.34. These notes are subject to an
offer to purchase at par, plus accrued interest, which will close on April 16,
1997. Accordingly, these notes have been classified as current obligations.
(c) Bank letters of credit of $52.7, expiring in 1998, support certain of these
industrial revenue bonds. The Company expects that the bank letters of credit
will be renewed. The bonds have fixed or variable interest rates with an average
rate of 3.4% at February 1, 1997.
(d) Collateralized by property with a carrying value of $159.5 at February 1,
1997.
(e) Collateralized by property and equipment with an aggregate carrying value of
$18.2 at February 1, 1997.
(f) Included in accrued expenses and other current liabilities on the
consolidated balance sheets.
The fair market value of the Company's long-term debt at February 1, 1997 was
approximately $1,007.0. The fair market value was estimated using quoted market
rates for publicly traded debt and estimated interest rates for non-public debt.
The Company has a $1 billion unsecured committed revolving credit facility
expiring in February 2000. This multi-currency facility permits the Company to
borrow at the lower of LIBOR plus a fixed spread or a rate set by competitive
auction. The facility is available to support domestic commercial paper
borrowings and to meet worldwide cash requirements.
Additionally, the Company also has lines of credit with various banks to meet
the short-term financing needs of its foreign subsidiaries. The weighted average
interest rate on short-term borrowings outstanding at February 1, 1997 and
February 3, 1996 was 3.1% and 4.0%, respectively.
19
<PAGE>
<PAGE>
The annual maturities of long-term debt at February 1, 1997 are as follows:
____________________________________________
1997 $ 135.1
1998 25.7
1999 26.4
2000 26.0
2001 334.0
2002 and subsequent 496.4
____________________________________________
$ 1,043.6
____________________________________________
LEASES
The Company leases a portion of the real estate used in its operations. Most
leases require the Company to pay real estate taxes and other expenses; some
require additional amounts based on percentages of sales.
Minimum rental commitments under noncancelable operating leases having a term of
more than one year as of February 1, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Net
minimum Sublease minimum
rentals income rentals
____________________________________________________________________
<S> <C> <C> <C>
1997 $ 331.8 $ 17.4 $ 314.4
1998 328.3 16.9 311.4
1999 326.3 15.6 310.7
2000 322.1 12.9 309.2
2001 317.5 11.8 305.7
2002 and subsequent 3,303.3 65.2 3,238.1
____________________________________________________________________
$ 4,929.3 $ 139.8 $ 4,789.5
____________________________________________________________________
Total rental expense was as follows:
Year ended
____________________________________________________________________
February 1, February 3, January 28,
1997 1996 1995
____________________________________________________________________
Minimum rentals $ 295.3 $ 284.3 $ 226.4
Additional amounts computed
as percentages of sales 5.5 5.6 6.3
____________________________________________________________________
300.8 289.9 232.7
Less sublease income 18.8 17.0 10.3
____________________________________________________________________
$ 282.0 $ 272.9 $ 222.4
____________________________________________________________________
</TABLE>
STOCKHOLDERS' EQUITY
The common shares of the Company, par value $.10 per share, were as follows:
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
_______________________________________________________________
<S> <C> <C>
Authorized shares 650.0 650.0
_______________________________________________________________
Issued shares 300.4 300.4
Treasury shares 12.6 27.3
_______________________________________________________________
Issued and outstanding shares 287.8 273.1
_______________________________________________________________
</TABLE>
<PAGE>
Earnings per share is 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 computed by the treasury stock
method using the average market price during the year. Weighted average number
of common and common equivalent shares used in computing earnings per share were
277.5, 276.9 and 287.4 at February 1, 1997, February 3, 1996 and January 28,
1995, respectively.
Effective January 1, 1996, the Company formed a new parent company (the
"Surviving Company") thus making the former parent company (the "Predecessor
Company") a wholly-owned subsidiary of the Surviving Company. As a result of
this corporate inversion, each share of common stock of the Predecessor Company
was converted into one share of common stock of the Surviving Company.
In April 1994, the Company entered into an agreement with Petrie Stores
Corporation ("Petrie"), the then holder of 14% of the Company's outstanding
Common Stock. The Company consummated its transaction with Petrie on January 24,
1995, wherein 42.1 shares of the Company's common stock were issued from its
treasury in exchange for 39.9 shares of the Company's common stock and $165.0 in
cash.
TAXES ON INCOME
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
Year ended
________________________________________________________________
February 1, February 3, January 28,
1997 1996 1995
________________________________________________________________
<S> <C> <C> <C>
Current:
Federal $ 135.9 $ 137.1 $ 251.6
Foreign 56.8 26.7 29.2
State 29.6 20.4 46.0
________________________________________________________________
222.3 184.2 326.8
________________________________________________________________
Deferred:
Federal 58.6 (21.8) 8.9
Foreign (39.2) (41.6) (24.7)
State 4.0 (3.3) 1.3
________________________________________________________________
23.4 (66.7) (14.5)
________________________________________________________________
Total tax provision $ 245.7 $ 117.5 $ 312.3
________________________________________________________________
</TABLE>
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
Year ended
________________________________________________________________________________
February 1, February 3, January 28,
1997 1996 1995
________________________________________________________________________________
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $154.8 $108.9 $ 94.0
Restructuring 53.1 122.1 0.0
Other 31.5 21.4 35.9
________________________________________________________________________________
Gross deferred tax assets 239.4 252.4 129.9
Valuation allowance (36.8) (29.5) (17.9)
________________________________________________________________________________
$202.6 $222.9 $112.0
Deferred tax liabilities:
Property, plant and equipment 249.3 245.0 217.0
LIFO inventory 63.7 64.3 49.9
Other tax 3.8 4.4 4.0
________________________________________________________________________________
Gross deferred liability $316.8 $313.7 $270.9
________________________________________________________________________________
Net deferred tax liability $114.2 $ 90.8 $158.9
________________________________________________________________________________
</TABLE>
20
<PAGE>
<PAGE>
A reconciliation of the federal statutory tax rate with the effective tax rate
follows:
<TABLE>
<CAPTION>
Year ended
________________________________________________________________________________
February 1, February 3, January 28,
1997 1996 1995
________________________________________________________________________________
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 3.7 3.4 3.7
Foreign (2.3) (1.3) (0.4)
Restructuring and other charges - 7.2 -
Other, net 0.1 (0.1) (1.3)
________________________________________________________________________________
Effective tax rate 36.5% 44.2% 37.0%
________________________________________________________________________________
</TABLE>
Deferred income taxes are not provided on unremitted earnings of foreign
subsidiaries that are intended to be indefinitely invested. Unremitted earnings
were approximately $361.0 at February 1, 1997, exclusive of amounts that if
remitted would result in little or no tax under current U.S. tax laws. Net
income taxes of approximately $114.0 would be due if these earnings were to be
remitted.
PROFIT SHARING PLAN
The Company has a profit sharing plan with a 401(k) salary deferral feature for
eligible domestic employees. The terms of the plan call for annual contributions
by the Company as determined by the Board of Directors, subject to certain
limitations. The profit sharing plan may be terminated at the Company's
discretion. Provisions of $30.8, $32.3 and $31.4 have been charged to earnings
in 1996, 1995, and 1994, respectively.
STOCK OPTIONS
The Company has Stock Option Plans (the "Plans") which provide for the granting
of options to purchase the Company's common stock to substantially all employees
and non-employee directors of the Company. The Plans provide for the issuance of
non-qualified options, incentive stock options, performance share options,
performance units, stock appreciation rights, restricted shares and unrestricted
shares. The Plans provide for a variety of vesting dates with the majority of
the options vesting approximately five years from the date of grant. The options
granted to non-employee directors are exercisable 20% each year on a cumulative
basis commencing one year from the date of grant.
In addition to the aforementioned plans, 3.4 stock options were granted to
certain senior executives during the period from 1988 to 1996 pursuant to
stockholder approved individual plans. Of this total, 2.9 options vest 20% each
year on a cumulative basis commencing one year from the date of grant with the
balance of the options vesting five years from the date of grant. The exercise
price per share of all options granted has been the average of the high and low
market price of the Company's common stock on the date of grant. Most options
must be exercised within ten years from the date of grant.
At February 1, 1997, an aggregate of 36.2 shares of authorized common stock were
reserved for all of the Plans noted above, of which 13.0 were available for
future grants. All outstanding options expire at dates ranging from May 1997 to
January 2007.
21
<PAGE>
<PAGE>
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
Shares Under Option
___________________________________________________________________________
Non- Weighted-Average
Incentive Qualified Exercise Price
___________________________________________________________________________
<S> <C> <C> <C>
Outstanding February 3, 1996 .2 20.2 $ 24.08
Granted * .4 6.3 34.59
Exercised (.2) (2.1) 17.67
Canceled - (1.6) 25.20
___________________________________________________________________________
Outstanding February 1, 1997 .4 22.8 $ 25.82
___________________________________________________________________________
Options exercisable
at February 1, 1997 - 9.2 $ 24.15
___________________________________________________________________________
</TABLE>
*Includes options assumed with the acquisition of Baby Superstore.
The Company utilizes a restoration feature to encourage the early exercise of
options and retention of shares, thereby promoting increased employee share
ownership. This feature provides for the grant of new options when previously
owned shares of Company stock are used to exercise existing options. Restoration
option grants are non-dilutive as they do not increase the combined number of
shares of Company stock and options held by an employee prior to exercise. The
new options are granted at a price equal to the fair market value on the date of
the new grant, become exercisable six months from the date of grant and
generally expire on the same date as the original options that were exercised.
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards (FAS) No. 123, "Accounting for Stock-Based Compensation",
issued in October 1995. In accordance with the provisions of FAS No. 123, the
Company applies APB Opinion 25 and related interpretations in accounting for its
stock option plans and, accordingly, does not recognize compensation cost. If
the Company had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by FAS No. 123, net income
and earnings per share would have been reduced to the pro forma amounts
indicated in the table below:
<TABLE>
<CAPTION>
1996 1995
______________________________________________________________
<S> <C> <C>
Net income-as reported $ 427.4 $ 148.1
Net income-pro forma 411.3 139.5
Earning per share-as reported 1.54 .53
Earnings per share-pro forma 1.48 .50
______________________________________________________________
</TABLE>
The weighted-average fair value at date of grant for options granted in 1996 and
1995 were $24.58 and $31.49, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model.
As there were a number of options granted throughout the 1995 and 1996 years, a
range of assumptions are provided below:
____________________________________________________________________
Expected stock price volatility .241 - .328
Risk-free interest rate 5.0% - 7.1%
Weighted average expected life of options 6 years
____________________________________________________________________
<PAGE>
The effects of applying FAS 123 and the results obtained through the use of the
Black-Scholes option pricing model are not necessarily indicative of future
values.
FOREIGN OPERATIONS
Certain information relating to the Company's foreign operations is set forth
below. Corporate assets include all cash and cash equivalents and other related
assets.
<TABLE>
<CAPTION>
Year ended
____________________________________________________________________
February 1, February 3, January 28,
1997 1996 1995
____________________________________________________________________
<S> <C> <C> <C>
Sales
Domestic $ 7,151.2 $ 6,791.5 $ 6,644.8
Foreign 2,781.2 2,635.4 2,100.8
____________________________________________________________________
Total $ 9,932.4 $ 9,426.9 $ 8,745.6
____________________________________________________________________
Operating Profit
Domestic $ 692.2 $ 432.8 (b) $ 778.7
Foreign 131.3 (74.2)(c) 140.8
General corporate
expenses (69.2)(a) (7.1) (7.5)
Interest expense, net (81.2) (85.9) (67.9)
____________________________________________________________________
Earnings before taxes
on income $ 673.1 $ 265.6 $ 844.1
____________________________________________________________________
Identifiable Assets
Domestic $ 4,877.9 $ 4,013.2 $ 3,950.5
Foreign 2,345.6 2,483.0 2,216.1
Corporate 799.7 241.3 404.6
____________________________________________________________________
Total $ 8,023.2 $ 6,737.5 $ 6,571.2
____________________________________________________________________
</TABLE>
(a) After an arbitration award charge of $59.5.
(b) After restructuring and other charges of $208.8.
(c) After restructuring and other charges of $187.8.
OTHER MATTERS
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 the manufacturers that such
manufacturers not sell to clubs. The complaint seeks an order that the Company
cease and desist from this practice. Hearings on this complaint commenced on
March 5, 1997.
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 law.
The Company believes that both its policy and its conduct in connection with the
foregoing are within the law and plans to contest these actions vigorously. The
Company also believes that these actions will not have a material adverse effect
on its financial condition or results of operations.
22
<PAGE>
<PAGE>
REPORT OF MANAGEMENT
Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report rests with the management of Toys"R"Us. The
accompanying financial statements have been prepared from accounting records
which management believes fairly and accurately reflect the operations and
financial position of the Company. Management has established a system of
internal controls to provide reasonable assurance that assets are maintained and
accounted for, in accordance with its policies and that transactions are
recorded accurately on the Company's books and records.
The Company's comprehensive internal audit program provides for constant
evaluation of the adequacy of the adherence to management's established policies
and procedures. The Company has distributed to key employees its policies for
conducting business affairs in a lawful and ethical manner.
The Audit Committee of the Board of Directors, which is comprised solely of
outside directors, provides oversight to the financial reporting process through
periodic meetings with our independent auditors, internal auditors and
management.
The financial statements of the Company have been audited by Ernst & Young LLP,
independent auditors, in accordance with generally accepted auditing standards,
including a review of financial reporting matters and internal controls to the
extent necessary to express an opinion on the consolidated financial statements.
/s/ Michael Goldstein /s/ Louis Lipschitz
Vice Chairman and Executive Vice President
Chief Executive Officer and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Toys"R"Us, Inc.
We have audited the accompanying consolidated balance sheets of Toys"R"Us, Inc.
and subsidiaries as of February 1, 1997 and February 3, 1996, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended February 1, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Toys"R"Us, Inc.
and subsidiaries at February 1, 1997 and February 3, 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended February 1, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 12, 1997
23
<PAGE>
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS
Charles Lazarus
Chairman of the Board of the Company
Robert A. Bernhard
Real Estate Developer
RoAnn Costin
President, Reservoir Capital
Management, Inc.
Michael Goldstein
Vice Chairman and
Chief Executive Officer of the Company
Milton S. Gould
Attorney-at-law; Of Counsel to
LeBoeuf, Lamb, Greene & MacRae
Shirley Strum Kenny
President, State University of
New York at Stony Brook
Norman S. Matthews
Former President, Federated Department
Stores, Inc; Consultant
Howard W. Moore
Former Executive Vice President -
General Merchandise Manager
of the Company; Consultant
Robert C. Nakasone
President and Chief Operating
Officer of the Company
Harold M. Wit
Managing Director, Allen & Company
Incorporated
OFFICERS - CORPORATE AND ADMINISTRATIVE
Michael Goldstein
Vice Chairman and
Chief Executive Officer
Robert C. Nakasone
President and
Chief Operating Officer
Louis Lipschitz
Executive Vice President
and Chief Financial Officer
Roger C. Gaston
Senior Vice President -
Human Resources
Michael P. Miller
Senior Vice President -
Real Estate
Thomas J. Reinebach
Senior Vice President and
Chief Information Officer
Gayle C. Aertker
Vice President -
Real Estate
Michael J. Corrigan
Vice President -
Compensation and Benefits
Eileen C. Gabriel
Vice President -
Information Systems
Jon W. Kimmins
Vice President -
Treasurer
Joseph J. Lombardi
Vice President -
Controller
Matthew J. Lombardi
Vice President -
Information Technology
Michael L. Tumolo
Vice President -
Counsel
Peter W. Weiss
Vice President -
Taxes
Robert S. Zarra
Vice President -
Internal Audit
Andre Weiss
Secretary -
Partner-Schulte Roth & Zabel, LLP
<PAGE>
TOYS"R"US UNITED STATES - OFFICERS AND GENERAL MANAGERS
Michael J. Madden
President -
Store Operations
Robert J. Weinberg
Senior Vice President -
General Merchandise Manager
Van H. Butler
Senior Vice President -
Divisional Merchandise Manager
Ernest V. Speranza
Senior Vice President -
Advertising/Marketing
David Brewi
Vice President -
Divisional Merchandise Manager
Kristopher M. Brown
Vice President -
Distribution and Traffic
Richard N. Cudrin
Vice President -
Human Resources
and Corporate Employee Relations
John F. Cummo
Vice President -
Creative Services
Thomas DeLuca
Vice President - Imports, Product
Development and Safety Assurance
Harvey J. Finkel
Vice President -
Regional Operations
Martin E. Fogelman
Vice President -
Divisional Merchandise Manager
Michael A. Gerety
Vice President -
Store Planning
Debra M. Kachurak
Vice President -
Operations Development
Mitchell Loukota
Vice President -
Divisional Merchandise Manager
Charlene Mady
Vice President -
Area Merchandise Planning
Gerald S. Parker
Vice President -
Regional Operations
Lee Richardson
Vice President -
Advertising
Timothy J. Slade
Vice President -
Transportation and Traffic
John P. Sullivan
Vice President -
Divisional Merchandise Manager
William A. Stephenson
Vice President -
Merchandise Planning and Allocation
Dennis J. Williams
Vice President-
Regional Operations and
General Manager
New York/Northern New Jersey
24
<PAGE>
<PAGE>
GENERAL MANAGERS
Robert F. Price
Vice President-
Southern California/
Arizona/Nevada/Hawaii
Thomas A. Drugan
Illinois/Wisconsin/Minnesota
Cathy Filion
Michigan/N.W. Ohio
Mark H. Haag
Pacific Northwest/Alaska
Truvillus Hall
Northern California/Utah
Michael K. Heffner
Alabama/Georgia/South
Carolina/Tennessee
Daniel D. Hlavaty
Central Ohio/Indiana/Kentucky
Richard A. Moyer
S.Texas/Louisiana/Mississippi
John J. Prawlocki
Florida/Puerto Rico
Edward F. Siegler
Maryland/Virginia/North Carolina
Carl P. Spaulding
New England
Gregg Treadway
Colorado/Kansas/Missouri/
Iowa/Nebraska
Kevin VanderGriend
N.E. Ohio/W. Pennsylvania/
N. New York
TOYS"R"US INTERNATIONAL - OFFICERS AND COUNTRY MANAGEMENT
Gregory R. Staley
President
Lawrence H. Meyer
Vice President -
Chief Financial Officer
Joan W. Donovan
Vice President -
General Merchandise Manager
Joseph Giamelli
Vice President -
Information Systems
Jeff Handler
Vice President -
International Advertising
Larry S. Johnson
Vice President -
Franchise Markets
Adam F. Szopinski
Vice President -
Operations
<PAGE>
Michael C. Taylor
Vice President -
Logistics
Pierre Buuron
President -
Toys"R"Us Central Europe
Jacques LeFoll
President -
Toys"R"Us France/Belgium
David Rurka
Managing Director -
Toys"R"Us United Kingdom
John Schryver
Managing Director -
Toys"R"Us Australia
Manabu Tazaki
President -
Toys"R"Us Japan
Antonio Urcelay
Managing Director -
Toys"R"Us Iberia
Keith Van Beek
President-
Toys"R"Us Canada
Larry D. Gardner
Vice President -
Toys"R"Us Asia
Scott Chen
General Manager -
Toys"R"Us Taiwan
Joe Tang
General Manager -
Toys"R"Us Hong Kong
Michael Yeo
General Manager -
Toys"R"Us Singapore
KIDS"R"US/BABIES"R"US - OFFICERS*
Richard L. Markee
President -
Kids"R"Us and Babies"R"Us
Gwen Manto
Senior Vice President -
General Merchandise Manager
James G. Parros
Senior Vice President -
Stores and
Distribution Center Operations
Jonathan M. Friedman
Vice President -
Chief Financial Officer -
Kids"R"Us and Babies"R"Us
James L. Easton
Vice President -
Divisional Merchandise Manager
William Farrell
Vice President -
Physical Distribution
Jerel G. Hollens
Vice President -
Merchandise Planning and
Management Information Systems
<PAGE>
Debra G. Hyman
Vice President -
Divisional Merchandise Manager
Elizabeth S. Jordan
Vice President -
Human Resources
John C. Morrow
Vice President -
Management Information Systems
Christopher M. Scherm
Vice President -
Divisional Merchandise Manager
David E. Schoenbeck
Vice President -
Operations - Babies"R"Us
David S. Walker
Vice President-
Advertising
*Kids"R"Us Officer, unless otherwise indicated.
25
<PAGE>
<PAGE>
QUARTERLY FINANCIAL DATA AND MARKET INFORMATION
QUARTERLY FINANCIAL DATA
(In millions except per share data)
The following table sets forth certain unaudited quarterly financial
information.
<TABLE>
<CAPTION>
First Second Third Fourth
Year Ended Quarter Quarter Quarter Quarter*
________________________________________________________________________________
February 1, 1997
________________________________________________________________________________
<S> <C> <C> <C> <C>
Net Sales $ 1,645.5 $ 1,736.4 $ 1,883.0 $ 4,667.5
Cost of Sales 1,124.4 1,177.3 1,280.4 3,310.4
Other Charges - 55.0 - 4.5
Net Earnings (Loss) 18.7 (7.5) 33.3 382.9
Earnings (Loss) per Share $ .07 $ (.03) $ .12 $ 1.37
February 3, 1996
________________________________________________________________________________
Net Sales $ 1,493.0 $ 1,614.2 $ 1,714.5 $ 4,605.2
Cost of Sales 1,017.3 1,104.5 1,168.5 3,302.0
Other Charges - - - 396.6
Net Earnings 18.4 15.8 20.9 93.0
Earnings per Share $ .07 $ .06 $ .08 $ .34
</TABLE>
*For the 13 weeks ended February 1, 1997 and the 14 weeks ended February 3, 1996
MARKET INFORMATION
The Company's common stock is listed on the New York Stock Exchange. The
following table reflects the high and low prices (rounded to the nearest
one-eighth) based on New York Stock Exchange trading since January 28, 1995.
The Company has not paid any cash dividends, however, the Board of Directors of
the Company reviews this policy annually.
The Company had approximately 32,300 Stockholders of Record on March 11,1997.
<TABLE>
<CAPTION>
High Low
________________________________________________________________
<S> <C> <C> <C>
1995 1st Quarter 30 7/8 23 3/4
2nd Quarter 29 1/2 24 1/4
3rd Quarter 28 3/4 21 5/8
4th Quarter 24 3/8 20 1/2
________________________________________________________________
1996 1st Quarter 29 7/8 21 7/8
2nd Quarter 30 7/8 23 3/4
3rd Quarter 34 1/16 25 7/8
4th Quarter 37 5/8 24 3/8
</TABLE>
26
<PAGE>
<PAGE>
CORPORATE DATA
Annual Meeting
The Annual Meeting of the Stockholders of Toys"R"Us will be held at the
Somerset Hills Hotel, 200 Liberty Corner Road, at exit 33 off I-78, Warren, NJ
07059 on Wednesday, June 4, 1997 10:00 A.M.
The office of the
Company is located at
461 From Road
Paramus, New Jersey 07652
Telephone: 201-262-7800
General Counsel
Schulte Roth & Zabel,LLP
900 Third Avenue
New York, New York 10022
Independent Auditors
Ernst & Young, LLP
787 Seventh Avenue
New York, New York 10019
Stockholder Information
The Company will supply to any owner of Common Stock, upon written request to
Mr. Louis Lipschitz of the Company at the above address and without charge, a
copy of the Annual Report on Form 10-K for the year ended February 1, 1997,
which has been filed with the Securities and Exchange Commission.
Stockholder information including quarterly earnings and other corporate news
releases, can be obtained by calling 800-785-TOYS. Significant news releases are
anticipated to be available as follows:
Call After... For the following...
May 19, 1997 1st Quarter Results
Aug. 18, 1997 2nd Quarter Results
Nov. 17, 1997 3rd Quarter Results
Jan. 8, 1998 Christmas Sales Results
Mar. 11, 1998 1997 Results
Common Stock Listed
New York Stock Exchange,
Symbol: TOY
Registrar and Transfer Agent
American Stock Transfer and Trust Company
40 Wall Street, New York, New York 10005
Telephone: 718-921-8200
Visit us on the Internet at www.toysrus.com
27
<PAGE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AS OF FEBRUARY 1, 1997
Name Jurisdiction of Incorporation
- ---- -----------------------------
ABG Corp. Nevada
**Baby Superstore, Inc. South Carolina
Geoffrey, Inc. Delaware
*Kids "R" Us, Inc. New Jersey
*KRU - Delaware, Inc. Delaware
KRU, Inc. Delaware
*KRU - Mass, Inc. Delaware
*KRU - Penn, Inc. Delaware
MLK, Inc. Missouri
MMT, Inc. Utah
*MPM Development, Inc. Missouri
Toys "R" Us - Belgium, Inc. Delaware
Toys "R" Us - Delaware, Inc.
(formerly Toys "R" Us, Inc.) Delaware
Toys "R" Us - Del. Operations, Inc. Delaware
Toys "R" Us Group, Inc. Delaware
Toys "R" Us, Inc.
(formerly Toys "R" Us - Delaware
Headquarters, Inc.)
Toys "R" Us - Mass, Inc. Massachusetts
Toys "R" Us - NY Holdings, Inc. Delaware
Toys "R" Us - NY Limited Partnership New York (Partnership)
Toys "R" Us - NYTEX, Inc. New York
Toys "R" Us - Ohio, Inc. Delaware
Toys "R" Us - Penn, Inc. Pennsylvania
Toys "R" Us - Texas, Inc. Texas
TRU (ANTS) Inc. Delaware
TRU Belgium Holdings II, Inc. Delaware
TRU - Cal II, Inc. California
TRU Distribution, Inc. Delaware
TRU Foreign Sales Corporation California
TRU Gulf Services, Inc. Delaware
TRU, Inc. Delaware
TRU - LSM Redevelopment Corporation Missouri
TRU Mass Properties Holdings, Inc. Delaware
TRU Mass Properties, Inc. Delaware
TRU Netherlands Holdings I, Inc. Delaware
TRU Netherlands Holdings II, Inc. Delaware
TRU Ohio Properties Holdings, Inc. Delaware
TRU Ohio Properties, Inc. Delaware
TRU Penn Properties Holdings, Inc. Delaware
TRU Penn Properties, Inc. Delaware
TRU Properties Holdings, Inc. Delaware
TRU Properties, Inc. Delaware
TRU Urban Renewal Corp. New Jersey
TRU (Vermont), Inc. Vermont
Toys "R" Us (Australia) Pty, Ltd. Australia
*TRU Spielwarenhandelsgesellscaft Austria
m.b.H.
** As of February 3, 1997
<PAGE>
Toys "R" Us Handelsgesellschaft Austria
m.b.H.
TRU (Barbados), Ltd. Barbados
Toys "R" Us - Belgium SCA Belgium
TRU (NRO III) Investments Ltd. Alberta, Canada
Toys "R" Us (Canada) Ltd. (Quebec Ontario, Canada
"Lte")
*G.G. Realty Corp., Ltd. Ontario, Canada
TRU (Cayman Islands) Limited Cayman Islands
TRU (Cayman Islands) Investments LLC Cayman Islands
Toys "R" Us A/S Denmark
Toys "R" Us S.A.R.L. France
Toys "R" Us GmbH Germany
Toys "R" Us Logistik GmbH Germany
Toys "R" Us Operations GmbH Germany
Toys "R" Us Service GmbH Germany
Toys "R" Us - Lifung Limited Hong Kong
Toys "R" Us Asia Limited Hong Kong
TRU (HK) Limited Hong Kong
*Toys "R" Us S.r.l. Italy
Toys "R" Us - Japan, Ltd. Japan
Toys "R" Us (Luxembourg) S.A. Luxembourg
Toys "R" Us (Malaysia) SDN. BHN. Malaysia
*Toys "R" Us (Mexico), S.A. de C.V. Mexico
Toys "R" Us (Netherlands), B.V. Netherlands
TRU (Netherlands) B.V. Netherlands
TRU (Netherlands) Investments B.V. Netherlands
Toys "R" Us Portugal, Limitada Portugal
*Toys "R" Us Puerto Rico, Inc. Puerto Rico
TRU of Puerto Rico, Inc. Puerto Rico
Toys "R" Us - Singapore (Pte) Limited Singapore
Toys "R" Us, Iberia, S.A. Spain
Toys "R" Us Aktiebolag Sweden
Toys "R" Us AG Switzerland
TRU AG Switzerland
Toys "R" Us - Lifung Taiwan Limited Taiwan
Toys "R" Us Holdings PLC United Kingdom
Toys "R" Us Limited United Kingdom
Toys "R" Us Properties Limited United Kingdom
TRU Toys (UK) Limited United Kingdom
*Kids "R" Us Limited United Kingdom
*Lash Tamaron Distributors Limited United Kingdom
*inactive
<PAGE>
<PAGE>
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Toys "R" Us, Inc. and subsidiaries of our report dated March 12, 1997,
included in the 1996 Annual Report to Stockholders of Toys "R" Us, Inc. and
subsidiaries.
We also consent to the incorporation by reference in Registration
Statements (Form S-4 Number 33-56303 and 33-8863 Form S-3 Numbers 2-87794,
33-23264, 33-34273, 33-42237, 33-51359 and 33-64315; Form S-8 Numbers 2-64887,
2-91834, 33-42627, 333-11861, 333-15511, 333-23441 and 333-20385) of Toys "R"
Us, Inc. and subsidiaries of our report dated March 12, 1997, with respect to
the consolidated financial statements incorporated herein by reference.
/s/ Ernst & Young LLP
New York, New York,
April 25, 1997
<PAGE>
<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 exhibit 13 of the Form 10-K and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 760,900
<SECURITIES> 0
<RECEIVABLES> 142,100
<ALLOWANCES> 0
<INVENTORY> 2,214,600
<CURRENT-ASSETS> 3,159,600
<PP&E> 5,305,200
<DEPRECIATION> 1,257,800
<TOTAL-ASSETS> 8,023,200
<CURRENT-LIABILITIES> 2,540,700
<BONDS> 908,500
<COMMON> 30,000
0
0
<OTHER-SE> 4,160,600
<TOTAL-LIABILITY-AND-EQUITY> 8,023,200
<SALES> 9,932,400
<TOTAL-REVENUES> 9,932,400
<CGS> 6,892,500
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 265,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,200
<INCOME-PRETAX> 673,100
<INCOME-TAX> 245,700
<INCOME-CONTINUING> 427,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 427,400
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
</TABLE>