===================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
============
FORM 10-Q
============
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 1999
============
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
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
244,772,683 shares of the registrant's Common Stock were outstanding on
August 28, 1999.
===================================================================
<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.......................7
PART II - OTHER INFORMATION...................................................13
SIGNATURES....................................................................15
1
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
==========================================
(In millions)
<CAPTION>
<S>
ASSETS July 31, August 1, January 30,
1999 1998 1999
---------- ---------- ----------
<C> <C> <C>
Current Assets:
Cash and cash equivalents $ 259 $ 273 $ 410
Accounts and other receivables 172 157 204
Merchandise inventories 2,304 2,745 1,902
Prepaid expenses and other current assets 108 76 81
--------- --------- ----------
Total current assets 2,843 3,251 2,597
Property and equipment, net and other assets 5,026 4,765 4,955
Goodwill, net 342 351 347
========== ========= =========
$ 8,211 8,367 $ 7,899
========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 802 $ 1,255 $ 156
Accounts payable 1,413 1,312 1,415
Accrued expenses and
other current liabilities 523 404 696
Income taxes payable 137 145 224
---------- ---------- ----------
Total current liabilities 2,875 3,116 2,491
Long-term debt 1,221 787 1,222
Deferred income taxes 333 227 333
Other liabilities 222 161 229
Stockholders' equity 3,560 4,076 3,624
========== ========== ==========
$ 8,211 $ 8,367 $ 7,899
========== ========== ==========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
===================================================
(In millions except per share data)
13 Weeks Ended 26 Weeks Ended
--------------------- -------------------
<CAPTION>
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 2,204 $ 2,020 $ 4,370 $ 4,063
------- ------- ------ ------
Costs and expenses:
Cost of sales 1,522 1,390 3,027 2,807
Selling, advertising,
general & administrative 574 520 1,126 1,038
Depreciation and amortization 66 61 132 122
Interest expense - net 23 27 39 44
-------- -------- ------- ------
2,185 1,998 4,324 4,011
-------- -------- ------- -------
Earnings before taxes on income 19 22 46 52
Taxes on income 7 8 17 19
======= ======= ====== =====
Net earnings $ 12 $ 14 $ 29 $ 33
======= ======= ====== =====
Basic earnings per share $ .05 $ .05 $ .12 $ .12
======= ======== ======== =======
Weighted average
basic shares outstanding 246.9 273.0 248.1 276.6
======= ======= ======= =======
Diluted earnings per share $ .05 $ .05 $ .12 $ .12
======= ======= ======= =======
Weighted average
diluted shares outstanding 248.8 273.6 249.1 278.0
======= ======= ======= =======
<FN>
</FN>
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
====================================================
(In millions)
<CAPTION>
26 Weeks Ended
----------------
July 31, August 1,
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 29 $ 33
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 132 122
Deferred income taxes 1 8
Changes in operating assets and liabilities:
Merchandise inventories (411) (281)
Accounts payable and other operating liabilities (269) (310)
Other operating assets (19) (6)
--------- ---------
Net cash used in operating activities (537) (434)
--------- ---------
Cash flows used in investing activities:
Capital expenditures, net (198) (180)
--------- ---------
Cash flows from financing activities:
Short-term borrowings, net 647 1,121
Long-term borrowings 0 31
Long-term debt repayment (5) (79)
Exercise of stock options 17 15
Share repurchase program (104) (420)
-------- --------
Net cash provided by financing activities 555 668
Effect of exchange rate changes
on cash and cash equivalents 29 5
Cash and cash equivalents:
(Decrease)/increase during period (151) 59
Beginning of period 410 214
========= =========
End of period $ 259 $ 273
========= =========
Supplemental disclosures of cash flow information:
Income tax payments $ 104 $ 95
========= =========
Interest paid $ 41 $ 49
========= =========
<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.
The financial statements and notes are presented in accordance with the
rules and regulations of the Securities and Exchange Commission and do
not contain certain information included in the Company's annual
report. Therefore, the interim statements should be read in conjunction
with the Company's annual report for the fiscal year ended January 30,
1999.
2. Commercial paper
Commercial paper of $368 million is classified as long-term debt at
July 31, 1999 and January 30, 1999 as the Company maintains long-term
committed credit agreements to support these borrowings and intends to
refinance them on a long-term basis through commercial paper
borrowings. Additionally, commercial paper of $487 million and $752
million are included in short-term borrowings at July 31, 1999 and
August 1, 1998, respectively.
3. Comprehensive income
Comprehensive income/(loss) amounted to $5 million and ($2) million for
the second quarter ended July 31, 1999 and August 1, 1998,
respectively, as a result of the change in foreign currency
translation. For the 26 weeks ended July 31, 1999 and August 1, 1998,
comprehensive income amounted to $23 million and $46 million,
respectively, as a result of the change in foreign currency
translation.
4. Segments
The Company's reportable segments are Toys "R" Us - United States and
Toys `R" Us - International. Divisions that do not meet quantitative
reportable thresholds are included in the category classified as Other,
which is comprised of the Kids "R" Us and Babies "R" Us divisions and
the toysrus.com subsidiary. Information related to segments is as
follows:
5
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
==========================================================
(In millions)
(continued)
-------------------------------------------------------------------------------
<CAPTION>
13 Weeks Ended 26 Weeks Ended
----------------------------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ------------------------------ --------- --------- --------- ---------
Net sales
Toys "R" Us - USA $ 1,236 $ 1,188 $ 2,420 $ 2,353
Toys "R" Us - International 578 500 1,101 982
Other 390 332 849 728
- ------------------------------- --------- --------- --------- ---------
Total $ 2,204 $ 2,020 $ 4,370 $ 4,063
- ------------------------------- --------- --------- --------- ---------
Operating earnings/(loss)
Toys "R" Us - USA $ 45 $ 62 $ 86 $ 110
Toys "R" Us - International (1) (9) (21) (28)
Other 2 (1) 29 19
General corporate expenses (4) (3) (9) (5)
Interest expense, net (23) (27) (39) (44)
- -------------------------------- --------- --------- --------- ---------
Earnings before taxes on income $ 19 $ 22 $ 46 $ 52
- -------------------------------- --------- --------- ---------- ---------
<FN>
5. Subsequent Event
On August 20, 1999, the Company acquired all of the capital stock
of Imaginarium Toy Centers, Inc., a leading educational specialty
retailer with 41 stores in 13 states, for approximately $45
million of cash and the assumption of certain liabilities. The
acquisition will be accounted for using the purchase method of
accounting and the results of Imaginarium operations will be
combined with those of the Company from the date of acquisition.
6. Other Matters
See Part II - Item I - Legal Proceedings.
</FN>
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
Results of Operations
Net sales were $2.2 billion and $4.4 billion, respectively, for the second
quarter and six months ended July 31, 1999, an increase of $184 million, or 9%
from the quarter ended August 1, 1998, and $307 million, or 8% from the six
months ended August 1, 1998. The sales increases were primarily driven by the
Company's growth in the Babies "R" Us division as well as increases in
comparable store sales. In addition, the net sales growth was partially offset
by the closing of 29 under-performing stores (see Restructuring and Other
Charges).
On a consolidated basis, comparable store sales, in local currencies, increased
by 5% for the second quarter of 1999, and 3% for the six months ended July 31,
1999, as compared with the same periods in 1998. Comparable store sales for the
Toys "R" Us - USA division increased by 4% for the second quarter of 1999 and 3%
for the first six months of 1999, as compared with the same periods in 1998.
These sales gains were driven by stronger merchandising trends offset by the
impact of toy stores undergoing C-3 renovations. Internationally, the Company's
overall comparable toy store sales, on a local currency basis, increased 6% for
the second quarter of 1999, and 3% for the six months ended July 31, 1999, as
compared with the same periods in 1998. International sales were strong in most
categories, in particular, in the juvenile category, which reflects growing
customer acceptance of expanded juvenile shops. The Company's Babies "R" Us
division had a comparable store sales increase in the high single digits for the
second quarter of 1999, and in the low-teens for the six months ended July
31,1999, driven by an increase in customer counts as well as an increase in
average sale per customer. The Company's Kids "R" Us division experienced an
increase in comparable store sales in the low single digits for the second
quarter of 1999, which were flat for the six months ended July 31, 1999, as
compared with the same periods in 1998.
Cost of sales, as a percentage of sales, increased by approximately 0.3% for the
second quarter of 1999, and 0.2% for the six months ended July 31, 1999,
respectively, as compared with the same periods in 1998. This increase is
partially due to additional promotional activity as part of the Company's
initiative to improve its price value image. Cost of sales for Toys "R" Us -
USA, as a percentage of sales, increased by 0.3% for the second quarter of 1999,
and 0.4% for the six months ended July 31, 1999, respectively, as compared with
the same periods in 1998. Cost of sales for the Toys "R" Us - International
division, as a percentage of sales, increased by 1.1% for the second quarter of
1999, and 0.8% for the six months ended July 31, 1999, respectively, as compared
with the same periods in 1998, due to an increase in markdowns. The Company's
other divisions experienced a combined decrease in cost of sales, as a
percentage of sales, 1.07% for the second quarter of 1999, and 0.6% for the six
months ended July, 1999, as compared with the same periods in 1998, due to a
favorable change in the sales mix this year.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
Selling, advertising, general and administrative expenses (SG&A) as a percentage
of sales increased by 0.2% for both the second quarter of 1999 and for the six
months ended July 31, 1999, respectively, as compared with the same periods in
1998. This increase is primarily due to planned spending on strategic
investments, as well as the implementation of a new customer focused initiative.
SG&A for Toys "R" Us - USA, as a percentage of sales, increased by 0.8% and
0.4%, respectively, for the second quarter of 1999 and six months ended July 31,
1999, as compared with the same periods in 1998. SG&A for the International
division, as a percentage of sales, decreased 2.3% and 1.4%, respectively, for
the second quarter of 1999 and the six months ended July 31, 1999, as compared
with the same periods in 1998. During the same period, the Company's other
divisions reported a combined 0.7% and 0.5% decrease in SG&A, respectively, for
the second quarter of 1999 and the six months ended July 31, 1999, as a
percentage of sales.
Depreciation and amortization increased by $5 million and $10 million,
respectively, for the second quarter of 1999 and the six months ended July 31,
1999, as compared with the same periods in 1998 as a result of the Company's
continued store expansion and strategic investments to improve management
information systems.
Net interest expense in 1998 included a charge of $4 million related to the
early extinguishment of long-term debt. Excluding this charge, net interest
expense was $23 million for both the second quarter of 1999 and 1998. For the
first six months of 1999, interest expense was $1 million less than 1998,
excluding the charge, due primarily to the mix of currencies in which the
Company borrowed.
Foreign currency exchange did not have a material effect on sales or net
earnings for the second quarter and the six months ended July 31, 1999.
Restructuring and Other Charges
During 1998 the Company announced strategic initiatives to reposition its
worldwide business and other charges, including the customer-focused
reformatting of its toy stores into the new C-3 format, as well as the
restructuring of its International operations, which resulted in a charge of
$353 million ($279 million net of tax benefits, or $1.05 per share). Details on
the components of the Company's strategic initiatives and other charges are
described in the Company's Annual Report for the year ended January 30, 1999;
the reserve balances as at that date and subsequent utilization are as follows:
<TABLE>
<CAPTION>
Reserve Balance Reserve Balance
Description @ 1/30/99 Utilized @ 7/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Closings/Downsizings:
Lease commitments $81 $ 7 $74
Severance and other closing costs 25 7 18
Other 24 - 24
- --------------------------------------------------------------------------------
Total Restructuring $130 $14 $116
- --------------------------------------------------------------------------------
Changes in accounting estimates and
provisions for legal settlements $39 4 $35
- --------------------------------------------------------------------------------
<FN>
</FN>
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
The Company has closed two Toys "R" Us toy stores and five Kids "R" Us stores in
the United States, as well as 22 Toys "R" Us toy stores internationally since
the recording of the charges. In addition, the Company has closed three
distribution centers and seven area offices in the United States. Unused
reserves are expected to be utilized in 1999, with the exception of those
related to long-term lease commitments.
In 1998 the Company also announced markdowns and other charges of $345 million
($229 million net of tax benefits, or $.86 per share). Details on the components
of these charges are described in the Company's Annual Report for the year ended
January 30, 1999; the reserve balances as at that date and subsequent
utilization are as follows:
<TABLE>
<CAPTION>
Reserve Balance Reserve Balance
Description @ 1/30/99 Utilized @ 7/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Markdowns:
Clear excess inventory $74 $ 53 $ 21
Store closings 27 3 24
Other 6 - 6
- --------------------------------------------------------------------------------
Total Cost of Sales $107 $ 56 $ 51
- --------------------------------------------------------------------------------
<FN>
Unused reserves are expected to be utilized in 1999.
Impact of Year 2000
Year 2000 issues are those related to the inability of certain computer systems
to properly recognize and process date-sensitive information relative to the
year 2000 and beyond. The Company's Year 2000 project, which began in 1997,
includes four major elements, which are outlined in the Company's Annual Report
for the year ended January 30, 1999.
The total estimated cost to achieve year 2000 compliance is approximately $25
million, which is being expensed as incurred. These estimates exclude internal
labor and related costs. Approximately $20 million of these costs have been
incurred as of July 31, 1999 and all costs are being funded through cash flows
from operations. The Company has established contingency plans for possible year
2000 issues and will continue monitoring these plans.
The total cost of the Year 2000 project is not expected to have a material
effect on the Company's financial position or results of operations. The costs
of conversion and the completion dates for the project are management's best
estimates.
</FN>
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
Financial Condition
In 1999, the Company plans to open approximately 10 new toy stores in the United
States and is currently in the process of remodeling many of its existing toy
stores in the United States to the new C-3 format. The Company is also planning
to add approximately 25 new international toy stores, including 10 franchise
stores, and approximately 20 new Babies "R" Us stores in the United States in
1999.
The Company continues to implement its C-3 Total Solutions Strategy aimed at
developing greater everyday customer value in terms of price, service and the
total shopping experience. The C-3 store format, which stands for Customer
friendly, Cost-effective and Concept for the future, includes wider aisles, more
feature opportunities and end-caps, shops and logical category adjacencies - all
designed to improve customer shopping patterns and experience. The sales floor
has been expanded by 20% with a one-third reduction in the size of the back
room. The Company has substantially completed, with the exception of certain
graphics/signage packages expected in the third quarter, the remodeling of
approximately 80 toy stores to the new C-3 format during the second quarter. The
Company is planning to have about 170 stores operating in the C-3 format by the
upcoming holiday season. In addition, the Company intends to complete the
conversion of approximately 240 "front-end" retrofits in 1999. These retrofits
include high potential C-3 merchandising modules such as R-Zone (expanded
electronics), Celebration Station (party headquarters), an enlarged seasonal
shop plus improved customer checkout and traffic flow. In year 2000, the Company
plans to complete approximately 325 additional C-3 remodels.
On August 26, 1999, Robert C. Nakasone resigned as the Company's Chief Executive
Officer and as a director. Also on that date Michael Goldstein, Chairman of the
Board of Directors, was named Chief Executive Officer on an interim basis. Mr.
Goldstein was Chief Executive Officer of the Company from 1994 to 1998. The
Company has begun the process of seeking a permanent Chief Executive Officer. In
connection with the resignation of Mr. Nakasone as Chief Executive Officer and
director, the Company entered into a Separation and Release Agreement with Mr.
Nakasone providing for cash payments in the aggregate of approximately $5
million. In addition, the Agreement provides for the immediate vesting of all
unvested options held by Mr. Nakasone as well as the prorated vesting of
unvested equity based awards on the second anniversary of the termination date.
The Company is continuing the development of its internet strategy and has
appointed John Barbour as President and Chief Executive Officer of its
toysrus.com subsidiary. The Company has also decided not to pursue its
internet-related partnership with Benchmark Capital.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
On August 20, 1999, the Company acquired all of the capital stock of Imaginarium
Toy Centers, Inc. for approximately $45 million in cash and the assumption of
certain liabilities. The Company believes this acquisition will accelerate its
strategy to establish a leadership position in the learning and educational
category. In addition, the Company also believes Imaginarium will provide
opportunities for new growth. The Company plans to operate the existing
Imaginarium stores under the Imaginarium name.
For 1999, capital requirements for the Company's expansion plans mentioned
above, as well as capital requirements for its recently announced toysrus.com
subsidiary, are estimated to be approximately $550 to $600 million.
The Company's cash outflows from operations increased to $537 million for the
six months ended July 31, 1999 from $434 million for the six months ended August
1, 1998 primarily due to increases in merchandise inventories as well as lower
accrued expenses and other liabilities.
During the first six months of 1999, the Company repurchased approximately 5.5
million shares of its common stock through its share repurchase program for
approximately $104 million. The Company has $226 million remaining in its $1
billion share repurchase program announced in January 1998.
Cash requirements for operations, capital expenditures, lease commitments and
the share repurchase program will be met primarily through operating activities,
borrowings under the $1 billion revolving credit facility, issuance of
commercial paper and bank borrowings by foreign subsidiaries.
Weighted-average diluted shares outstanding decreased to 249.1 million during
the first six months ended July 31, 1999 from 278.0 million during the first six
months ended August 1, 1998, due primarily to the shares repurchased by the
Company under its share repurchase program.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board approved the deferral of
Statement No. 133 ("SFAS No. 133") - Accounting for Derivatives Instruments and
Hedging Activities, which the Company is required to adopt in fiscal year
beginning February 2001. SFAS No. 133 requires that all derivative instruments
be recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and the type of hedge transaction. The ineffective portion of all
hedges will be recognized in earnings. While not expected to be material, the
Company is in the process of determining the impact that the adoption of SFAS
No. 133 will have on the consolidated financial position, results of operations
and cash flows of the Company.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
Forward Looking Statements
This Form 10-Q contains "forward-looking" statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. The Company may also make forward-looking
statements in other documents filed with the Securities and Exchange Commission,
its annual report to shareholders, its proxy statement and in press releases.
All statements that are not historical facts, including statements about the
Company's beliefs or expectations, are forward-looking statements. Such
statements involve risks and uncertainties that exist in the Company's
operations and business environment that could render actual outcomes and
results materially different than predicted. The Company's forward-looking
statements are based on assumptions about many factors, including, but not
limited to, ongoing competitive pressures in the retail industry, changes in
consumer spending, general economic conditions in the United States and other
jurisdictions in which the Company conducts business (such as interest rates and
consumer confidence) and normal business uncertainty. While the Company believes
that its assumptions are reasonable at the time forward-looking statements were
made, it cautions that it is impossible to predict the actual outcome of
numerous factors and, therefore, readers should not place undue reliance on such
statements. Forward-looking statements speak only as of the date they are made,
and the Company undertakes no obligation to update such statements in light of
new information or future events.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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. On October
13, 1998, the FTC issued a final order and opinion upholding
the FTC's complaint against the Company.
The Company has appealed the FTC's decision to the United
States Court of Appeals for the Seventh Circuit. The appeal
was argued on May 18, 1999.
After the filing of the FTC complaint, several class action
suits were filed against the Company in State courts in
Alabama and California, alleging that the Company has violated
certain state competition laws as a consequence of the
behavior alleged in the FTC complaint. After the Initial
Decision was handed down, more than thirty purported class
actions were filed in federal and state courts in various
jurisdictions alleging that the Company has violated the
federal antitrust 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 Company believes that it has always acted fairly and in
the best interests of its customers and that both its policy
and its conduct in connection with the foregoing have been and
are within the law. However, to avoid the cost and uncertainty
of protracted litigation the Company has reached an agreement
to settle, subject to court approval, all of the class action
and attorney general lawsuits in a manner which will not have
a material adverse effect on its financial condition, results
of operations or cash flow. The Company accrued all
anticipated costs relating to this matter as of January 30,
1999.
13
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting on June 9, 1999 all of
management's nominees for director were elected.
Management's nominees for director received the following
votes:
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Shares Withheld Votes
Robert A. Bernard 207,887,124 2,137,065
RoAnn Costin 207,897,080 2,127,109
Michael Goldstein 207,905,353 2,118,836
Calvin Hill 207,904,714 2,119,475
Shirley Strum Kenny 207,903,277 2,120,912
Charles Lazarus 207,897,526 2,126,663
Norman S. Matthews 207,881,052 2,143,137
Howard W. Moore 207,903,280 2,120,904
Robert C. Nakasone 207,905,243 2,118,946
Arthur B. Newman 207,892,935 2,131,254
Also approved by the following vote was a proposal to approve
the new Non-Employee Directors' Compensation Program:
143,453,596 shares were voted in favor of, 65,704,735 shares
were voted against, and 865,856 shares abstained from, such
proposal; and
also defeated by the following votes were:
(i) a proposal to approve the Stockholder Proposal No. 1
- Maximize Value Resolution, 156,552,522 shares were
voted against, 13,585,812 shares were voted in favor
of, and 987,072 shares abstained from, such
proposal; and
(ii) a proposal to approve the Stockholder Proposal No. 2
- Request for Monitoring Report Resolution,
151,115,695 shares were voted against, 9,269,796
shares were voted in favor of, and 10,739,915 shares
abstained from, such proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 - Separation and Release Agreement, dated
August 26, 1999 between the Company and Robert C.Nakasone.
27.1 - Financial Data Schedule for the quarter ended
July 31, 1999.
<FN>
</FN>
</TABLE>
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: September 13, 1999 Toys "R" Us, Inc.
---------------------------
(Registrant)
s/ Louis Lipschitz
-----------------------------
(Signature)
Louis Lipschitz
Executive Vice President and
Chief Financial Officer
15
EXHIBIT 10.1
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is entered
into as of this 26th day of August, 1999 between TOYS "R" US, INC., a Delaware
corporation and any successor thereto (collectively, the "Company") and Robert
C. Nakasone (the "Executive").
The Executive and the Company agree as follows:
1. The employment relationship between the Executive and
the Company will terminate effective as of September
5, 1999 (the "Termination Date").
2. In accordance with the Executive's Retention
Agreement (the "Retention Agreement"), the Company
has agreed to pay the Executive the following
payments and to make the following benefits available
after the Termination Date:
Salary.
(i) The Company will pay Employee a lump sum cash amount
of $803,793 within 30 days of the Termination Date.
(ii) From the Termination Date through the Second
Anniversary of the Termination Date the Company will
pay Executive an aggregate of $4,293,360 in equal
installments,made at least monthly over the 24 months
following Termination Date,such amount to be payable
in accordance with the Company's regular payroll
policies as in effect from time to time.
In addition, if the Company's Strategic Bonus
Plan is extended or replaced by a new plan after
2000, the Company shall pay Executive $262,500 upon
the extension or replacement of such plan.
(iii) All payments to Executive under this Section 2(a)
will be less applicable withholdings for federal,
state and local taxes.
Stock Options.
(iv) All unvested options and all unvested profit shares
held by the Executive, or for the benefit of the
Executive, shall vest on the Termination Date.
(v) Any other unvested equity based award (including,
without limitation, restricted stock and stock units)
held by the Executive shall vest on the Second
Anniversary of the Termination Date on a pro rata
basis determined by a specific fraction, where the
numerator of the fraction is the number of months
elapsed from the grant of such equity award through
the Termination Date plus 24 months after the
Termination Date, and the denominator of the fraction
is the total number of months in the vesting period
for such award, and shall be delivered to the
Executive entirely in the form of the Company's
common stock on the second anniversary of the
Termination Date, subject to compliance with the
terms of this Agreement through such date.
(vi) Options held by the Executive that are
vested on the Termination Date or vest
thereafter pursuant to this Section 2(b) may
be exercised until the expiration date of
such options.
(vii) Executive shall not be entitled to any
additional grants of any stock options,
restricted stock, or other equity based or
long term awards.
(viii) Any and all options to acquire stock in the
Company's subsidiary, Toysrus.com, Inc.,
shall vest with such options remaining
exercisable for the original exercise period
thereof.
Benefit Plans (Other than Health). The Company shall continue to provide, in the
manner and timing provided for in the benefit and welfare plans, policies and
programs of the Company in which Executive participates on the Termination Date
(other than as provided in Sections 2(a) and 2(b) above and 2(d) below), the
benefits provided under such plans that the Executive would receive if the
Executive's employment continued for two years after the Termination Date,
assuming for this purpose that the Executive's compensation is the amount paid
pursuant to Section 2(a)(ii) above, and the Executive shall be fully vested in
any account balance and all other benefits under such plans; provided, however,
that the benefits provided under this Section 2(c) shall be limited to the
amounts permitted by law or as would otherwise not potentially adversely impact
on the tax qualification of any such plans; provided, further, that if such
benefits may not be continued under such plans, the Company shall pay to the
Executive an amount equal to the Company's cost had such benefits been
continued. Health Benefits. The Executive (and his spouse and dependent
children) will be entitled to continuation of health benefits under the Plans
(as such term is defined in the Retention Agreement) until Executive is 65 years
old at a level commensurate with the Executive's current position and if the
Executive (or his spouse and dependent children upon his death) elects to
receive such health benefits, the Executive shall pay the premium charged to
former employees of the Company pursuant to Section 4980B of the Code; provided,
that the Company can amend or otherwise alter the Plans to provide benefits to
the Executive that are no less than those commensurate with the Executive's
current position; provided, that to the extent such benefits cannot be provided
to the Executive under the terms of the Plans or the Plans cannot be so amended
in any manner not adverse to the Company, the Company shall pay the Executive,
on an after-tax basis, an amount necessary for the Executive to acquire such
benefits from an independent insurance carrier; and provided further, that the
obligations of the Company under this clause 2(d) shall be terminated if, at any
time after the Termination Date, the Executive is employed or is otherwise
affiliated with a party that offers comparable health benefits to the Executive.
Automobile. Executive shall return any leased or Company automobile on the
Second Anniversary of the Termination Date. No Other Benefits. Executive
acknowledges that he is not entitled to receive benefits from the Company other
than as set forth in this Section 2, except for any benefits afforded Executive
by applicable law. Effectiveness of Payments. No payments shall be made under
this Section 2 until this Agreement becomes effective pursuant to Section 12
hereof.
3. In consideration of the above, the sufficiency of which the Executive
hereby acknowledges, the Executive,on behalf of the Executive and the
Executive's heirs, executors and assigns, hereby releases and forever
discharges the Company and its members, parents, affiliates,
subsidiaries, divisions, any and all current and former directors,
officers, employees, agents, and contractors and their heirs and
assigns, and any and all employee pension benefit or welfare benefit plans
of the Company, including current and former trustees and administrators
of such employee pension benefit and welfare benefit plans, from all
claims, charges, or demands, in law or in equity, whether known or
unknown, which may have existed or which may now exist from the beginning
of time to the date of this letter agreement, including, without
limitation, any claims the Executive may have arising from or relating to
the Executive's employment or termination from employment with the
Company, including a release of any rights or claims the Executive may
have under Title VII of the Civil Rights Act of 1964, as amended, and the
Civil Rights Act of 1991 (which prohibit discrimination in employment
based upon race, color, sex, religion, and national origin); the Americans
with Disabilities Act of 1990, as amended, and the Rehabilitation Act of
1973(which prohibit discrimination based upon disability); the Family and
Medical Leave Act of 1993 (which prohibits discrimination based on
requesting or taking a family or medical leave); Section 1981 of the Civil
Rights Act of 1866 (which prohibits discrimination based upon race);
Section 1985(3) of the Civil Rights Act of 1871 (which prohibits
conspiracies to discriminate); the Employee Retirement Income Security Act
of 1974, as amended (which prohibits discrimination with regard to
benefits); any other federal, state or local laws against
discrimination; or any other federal, state, or local statute, or common
law relating to employment, wages, hours, or any other terms and
conditions of employment. This includes a release by the Executive of any
claims for wrongful discharge, breach of contract, torts or any other
claims in any way related to the Executive's employment with or
resignation or termination from the Company. This release also includes a
release of any claims for age discrimination under the Age Discrimination
in Employment Act, as amended ("ADEA"). The ADEA requires that the
Executive be advised to consult with an attorney before the Executive
waives any claim under ADEA. In addition, the ADEA provides the Executive
with at least 21 days to decide whether to waive claims under ADEA and
seven days after the Executive signs the Agreement to revoke that waiver.
Additionally, the Company agrees to discharge and release the
Executive and the Executive's heirs from any claims, demands, and/or causes of
action whatsoever, presently known or unknown, that are based upon facts
occurring prior to the date of this Agreement, including, but not limited to,
any claim, matter or action related to the Executive's employment and/or
affiliation with, or termination and separation from the Company; provided that
such release shall not release the Executive from any loan or advance by the
Company or any of its subsidiaries, any act that would constitute "Cause" under
the Executive's Retention Agreement or a breach under Sections 8(b), 10 or 12(e)
of the Executive's Retention Agreement.
4. This Agreement is not an admission by either the Executive
or the Company of any wrongdoing or liability.
5. The Executive waives any right to reinstatement or
future employment with the Company following the
Executive's separation from the Company on the
Termination Date.
6. The Executive agrees not to engage in any act after
execution of the Separation and Release Agreement
that is intended, or may reasonably be expected to
harm the reputation, business, prospects or
operations of the Company, its officers, directors,
stockholders or employees. The Company further agrees
that it will engage in no act which is intended, or
may reasonably be expected to harm the reputation,
business or prospects of the Executive.
7. The Executive shall continue to be bound by Sections
10 and 12(e) of the Executive's Retention Agreement;
provided, Section 10(h) of the Retention is amended
by deleting clause (i) thereof and replacing it with
the following:
"(i) "Restricted Business" means any retail store or mail
order business or any business, deriving at least 10% or more
of its revenues from the manufacture or marketing of toys,
juvenile or baby products, juvenile furnture or children's
clothing."
8. The Executive shall promptly return all the Company
property in the Executive's possession, including,
but not limited to, the Company keys, credit cards,
cellular phones, computer equipment, software and
peripherals and originals or copies of books,
records, or other information pertaining to the
Company business. The Executive shall return any
leased or Company automobile at the expiration of the
restrictions under Section 10(d) of the Executive's
Retention Agreement.
9. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey,
without reference to the principles of conflict of
laws. Exclusive jurisdiction with respect to any
legal proceeding brought concerning any subject
matter contained in this Agreement shall be settled
by arbitration as provided in the Executive's
Retention Agreement.
10. This Agreement represents the complete agreement
between the Executive and the Company concerning the
subject matter in this Agreement and supersedes all
prior agreements or understandings, written or oral,
including without limitation, any employment
agreement, arrangement or understanding and any other
agreement (including agreements, arrangements or
understandings with respect to stock options and
other benefits and compensation) between the Company
(or its subsidiaries), except that the Stock Unit
Agreement between the Company and Executive
(as modified by Section 2(b) above) and the
Partnership Option Agreements between the Company and
Executive dated February 1, 1993, December 7, 1993,
May 17, 1995, March 14, 1996, June 20 1997, November
3, 1997, March 13, 1998, September 8, 1998, June 6,
1999 and April 7, 1999 (each as modified by Section 2
(b) above) shall continue in full force and effect.
This Agreement may not be amended or modified
otherwise than by a written agreement executed by the
parties hereto or their respective successors and
legal representatives.
11. Each of the sections contained in this Agreement
shall be enforceable independently of every other
section in this Agreement, and the invalidity or
nonenforceability of any section shall not invalidate
or render unenforceable any other section contained
in this Agreement.
12. It is further understood that for a period of 7 days
following the execution of this Agreement in
duplicate originals, the Executive may revoke this
Agreement, and this Agreement shall not become
effective or enforceable until the revocation period
has expired. No revocation of this Agreement by the
Executive shall be effective unless the Company has
received within the 7-day revocation period, written
notice of any revocation, all monies received by the
Executive under this Agreement and all originals and
copies of this Agreement.
13. This Agreement has been entered into voluntarily and
not as a result of coercion, duress, or undue
influence. The Executive acknowledges that the
Executive has read and fully understands the terms of
this Agreement and has been advised to consult with
an attorney before executing this Agreement.
Additionally, the Executive acknowledges that the
Executive has been afforded the opportunity of at
least 21 days to consider this Agreement.
The parties to this Agreement have executed this Agreement as
of the day and year first written above.
TOYS "R" US, INC.
By: /s/ Michael Goldstein
Name:
Title:
ROBERT C. NAKASONE
/s/ Robert C. Nakasone
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<LEGEND>
This schedule contains summary information extracted from the Condensed
Consolidated Balance Sheets and Condensed Consolidated Statements of
Earnings as reported on the second quarter Form 10-Q and is qualified in
its entirety by reference to such financial statements
</LEGEND>
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<PERIOD-START> JAN-31-1999
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0
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<COMMON> 30,000
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