SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 2, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-11609
TOYS "R" US, INC.
Incorporated pursuant to the Laws of Delaware
Internal Revenue Service - Employer Identification No. 22-3260693
461 From Road, Paramus, New Jersey 07652
(201) 262-7800
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
275,793,811 shares of the registrant's Common Stock were outstanding on May 26,
1998.
<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets............................2
Condensed Consolidated Statements of Earnings....................3
Condensed Consolidated Statements of Cash Flows..................4
Notes to Condensed Consolidated Financial
Statements.......................................................5
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.....................................................6
PART II - OTHER INFORMATION....................................................8
SIGNATURES....................................................................10
1
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<TABLE>
TOYS "R" US, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
<CAPTION>
May 2, May 3, January 31,
1998 1997 1998
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 438 $ 277 $ 214
Accounts and other receivables 178 169 175
Merchandise inventories 2,656 2,552 2,464
Prepaid expenses and other current assets 60 60 51
Total current assets 3,338 3,058 2,904
Property and equipment, net and other assets 4,741 4,478 4,703
Goodwill, net 354 363 356
$8,433 $7,899 $7,963
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 824 $ 606 $ 134
Accounts payable 1,446 1,377 1,280
Accrued expenses and other current liabilities 443 398 680
Income taxes payable 161 118 231
Total current liabilities 2,874 2,499 2,325
Long-term debt 867 906 851
Deferred income taxes 223 227 219
Other liabilities 122 175 140
Stockholders' equity 4,347 4,092 4,428
$ 8,433 $ 7,899 $ 7,963
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
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<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share data)
<CAPTION>
13 Weeks Ended
May 2, May 3,
1998 1997
<S> <C> <C>
Net sales $ 2,043 $ 1,924
Costs and expenses:
Cost of sales 1,417 1,326
Selling, advertising, general & 518 480
administrative
Depreciation and amortization 61 56
Interest expense - net 17 16
2,013 1,878
Earnings before taxes on income 30 46
Taxes on income 11 17
Net earnings $ 19 $ 29
Basic earnings per share $ .07 $ .10
Weighted average basic shares outstanding 280.2 286.9
Diluted earnings per share $ .07 $ .10
Weighted average diluted shares outstanding 282.3 288.8
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
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<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
<CAPTION>
13 Weeks Ended
May 2, May 3,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 19 $ 29
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 62 56
Deferred income taxes 4 4
Changes in operating assets and liabilities:
Merchandise inventories (192) (337)
Accounts payable and other operating
liabilities (161) (216)
Other operating assets (11) (52)
Net cash used in operating activities (279) (516)
Cash flows used in investing activities:
Capital expenditures, net (80) (64)
Cash flow from financing activities:
Short-term borrowing, net 691 303
Long-term borrowings 31 9
Long-term debt repayment (10) (120)
Exercise of stock options 14 5
Share repurchase program (150) (88)
Net cash provided by financing activities 576 109
Effect of exchange rate changes on cash and
cash equivalents 7 (13)
Cash and cash equivalents:
Increase/(decrease) during period 224 (484)
Beginning of period 214 761
End of period $ 438 $ 277
Supplemental disclosures of cash flow information:
Income taxes paid $ 73 $ 68
Interest paid $ 23 $ 25
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
TOYS "R" US, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions)
1. Interim Reporting
The interim financial statements are unaudited and are subject to
year-end adjustments. However, in the opinion of management, all known
adjustments (which consist primarily of normal recurring accruals) have
been made and the interim financial statements present fairly the
consolidated financial condition and operating results for the
unaudited periods. Because of the seasonal nature of the Company's
business, results for interim periods are not indicative of results to
be expected for the fiscal year.
2. Comprehensive Income
As of February 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's
net income or stockholders' equity. SFAS No. 130 requires unrealized
gains or losses on the Company's foreign currency translation
adjustments, which prior to adoption were only reported as a separate
component of stockholders' equity, to also be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
Comprehensive income (loss) amounted to $48 million and ($16) for the
first quarter ended May 2, 1998 and May 3, 1997, respectively, as a
result of the change in foreign currency translation adjustments.
3. Other Matters
See Part II - Item I - Legal Proceedings.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Total sales increased 6% to $2.0 billion for the first quarter ended May 2,
1998, as compared with $1.9 billion for the first quarter ended May 3, 1997.
Excluding the impact of foreign currency, total sales increased 7% in the first
quarter of 1998, as compared with the first quarter of 1997. The increase in
total sales is attributable to the Company's continued store expansion and the
increase in comparable store sales during this period.
Comparable USA toy store sales increased by 2% for the first quarter of 1998, as
compared with the first quarter of 1997. The increase was primarily driven by
strong sales of video software merchandise and diecast cars. Internationally,
the Company experienced a low single digit comparable toy store sales decrease
in local currency for the first quarter of 1998, as compared with the first
quarter of 1997. The comparable sales decreases were due primarily to the impact
of price deflation relating to video game systems as well as the cycling against
the release of Nintendo 64 in most of Europe a year ago. The Company's Babies
"R" Us division had a comparable store sales increase in the mid-teens for the
quarter, driven by an increase in customer counts as well as an increase in our
average sale per customer. The Company's Kids "R" Us division experienced a mid
single digit comparable store sales increase due in part to very strong Easter
sales this year.
Cost of sales, as a percentage of sales, increased by approximately 0.4% for the
first quarter of 1998, as compared with the first quarter of 1997. The increase
was in part due to higher sales of lower margin video software merchandise
throughout the world as well as a decrease in the sales of higher margin action
figures.
Selling, advertising, general and administrative expenses as a percentage of
sales increased by approximately .4% for the first quarter of 1998, as compared
with the first quarter of 1997, primarily as a result of our strategic
investments for the future, including consulting fees, as well as the impact of
our sales performance versus the prior year.
Depreciation and amortization increased by $5 million for the first quarter of
1998, as compared with the first quarter of 1997 as a result of the Company's
continued store expansion and growth.
Net interest expense increased by approximately $1 million for the first quarter
of 1998, as compared with the first quarter of 1997 due to the increase in
short-term borrowings discussed below.
Foreign currency exchange did not have a material effect on net earnings for the
first quarter ended May 2, 1998.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(continued)
Financial Condition
In 1998, the Company plans to open approximately 5 toy stores in the United
States. The Company's expansion plans also include opening approximately 15 to
20 new Babies "R" Us stores in the United States. Internationally, the Company
will open approximately 35 new toy stores including 15 franchise stores.
Short-term borrowings, net of investments increased by approximately $57 million
at May 2, 1998 as compared with May 3, 1997 due primarily to cash used for the
Company's share repurchase program and increased capital expenditures.
Accordingly, the current ratio has declined to 1.16 to 1 at May 2, 1998, as
compared with 1.22 to 1 at May 3, 1997.
The Company repurchased 5.3 million shares of its common stock through its share
repurchase programs for $150 million during the first quarter of 1998. The
Company completed its original $1 billion share repurchase program, that was
announced in January 1994, by repurchasing a total of 31.5 million shares since
its inception. The Company began its new $1 billion share repurchase program
announced in January 1998, by repurchasing 3.4 million shares of its common
stock for $97 million during the first quarter.
On June 1, 1998, the Company called and retired $63 million of its 8.25% sinking
fund debentures. These borrowings will be replaced with short-term borrowings
carrying lower interest rates. The charge related to this early extinguishment
is approximately $4 million on a pre-tax basis, which will be recorded in the
second quarter.
Annual capital expenditures for new and existing facilities are estimated to be
approximately $450 million. Cash requirements for operations, capital
expenditures, lease commitments, the early debt extinguishment and the share
repurchase program will be met primarily through operating activities,
borrowings under the $1 billion revolving credit facility, issuance of
short-term commercial paper and bank borrowings by foreign subsidiaries.
Weighted average diluted common equivalent shares decreased to 282.3 million for
the period ended May 2, 1998 from 288.8 million at May 3, 1997, due primarily to
the Company repurchasing shares under the Company's $1 billion share repurchase
programs.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
1) On May 22, 1996, the Staff of the Federal Trade Commission
(the "FTC") filed an administrative complaint against the
Company alleging that the Company is in violation of Section 5
of the Federal Trade Commission Act for its practices relating
to warehouse clubs. The complaint alleges that the Company
reached understandings with various suppliers that such
suppliers not sell to the clubs the same items that they sell
to the Company. The complaint also alleges that the Company
"facilitated understandings" among the manufacturers that such
manufacturers not sell to clubs. The complaint seeks an order
that the Company cease and desist from this practice. The
matter was tried before an administrative law judge in the
period from March through May of 1997. On September 30, 1997,
the administrative law judge filed an Initial Decision
upholding the FTC's complaint against the Company.
The Company has appealed the Initial Decision to the
Commissioners of the FTC. That appeal was argued on February
19, 1998. The Company will be entitled to have the United
States Court of Appeals review any adverse decision by the
FTC.
Since the commencement of the FTC proceeding, several class
action suits have been filed against the Company in various
federal courts and in State courts in Alabama, California and
New Jersey alleging that the Company has violated certain
federal and state competition laws as a consequence of the
behavior alleged in the FTC complaint. In addition, the
attorneys general of forty-four states, the District of
Columbia and Puerto Rico have filed a suit against the Company
in their capacity as representatives of the consumers of their
states, alleging that the Company has violated federal and
state antitrust laws as a consequence of the behavior alleged
in the FTC complaint. These suits seek damages in unspecified
amounts and other relief under state and/or federal law. The
federal class action and attorneys general suits have been
consolidated for pre-trial purposes in the United States
District Court for the Eastern District of New York.
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, results of operations or cash flows.
8
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 - Financial Data Schedule for the quarter
ended May 2, 1998.
(b) Exhibit 27.2 - Financial Data Schedule for the quarter
ended May 3, 1997 Restated.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: June 16, 1998 Toys "R" Us, Inc.
-----------------
(Registrant)
s/ Louis Lipschitz
(Signature)
Louis Lipschitz
Executive Vice President and
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of
Earnings as reported on first quarter form 10Q and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jan-30-1999
<PERIOD-START> Feb-1-1998
<PERIOD-END> May-02-1998
<CASH> 438,000
<SECURITIES> 0
<RECEIVABLES> 178,000
<ALLOWANCES> 0
<INVENTORY> 2,656,000
<CURRENT-ASSETS> 3,338,000
<PP&E> 5,699,000
<DEPRECIATION> 1,460,000
<TOTAL-ASSETS> 8,433,000
<CURRENT-LIABILITIES> 2,874,000
<BONDS> 867,000
0
0
<COMMON> 30,000
<OTHER-SE> 4,317,000
<TOTAL-LIABILITY-AND-EQUITY> 8,433,000
<SALES> 2,043,000
<TOTAL-REVENUES> 2,043,000
<CGS> 1,417,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 61,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,000
<INCOME-PRETAX> 30,000
<INCOME-TAX> 11,000
<INCOME-CONTINUING> 19,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,000
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of
Earnings as reported on the first quarter form 10Q and is qualified in its
entirety by reference to such financial statements.
RESTATED
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jan-31-1998
<PERIOD-START> Feb-02-1997
<PERIOD-END> May-03-1997
<CASH> 277,000
<SECURITIES> 0
<RECEIVABLES> 169,000
<ALLOWANCES> 0
<INVENTORY> 2,552,000
<CURRENT-ASSETS> 3,058,000
<PP&E> 5,328,000
<DEPRECIATION> 1,312,000
<TOTAL-ASSETS> 7,899,000
<CURRENT-LIABILITIES> 2,499,000
<BONDS> 906,000
0
0
<COMMON> 30,000
<OTHER-SE> 4,062,000
<TOTAL-LIABILITY-AND-EQUITY> 7,899,000
<SALES> 1,924,000
<TOTAL-REVENUES> 1,924,000
<CGS> 1,326,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 56,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,000
<INCOME-PRETAX> 46,000
<INCOME-TAX> 17,000
<INCOME-CONTINUING> 29,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
