===================================================================
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 October 30, 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 []
239,947,544 shares of the registrant's Common Stock were outstanding on
November 26, 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..................................................14
SIGNATURES...................................................................16
1
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
==========================================
(In millions)
<CAPTION>
<S>
ASSETS October 30, October 31, January 30,
1999 1998 1999
---------- ----------- ---------
<C> <C> <C>
Current Assets:
Cash and cash equivalents $ 297 $ 250 $ 410
Accounts and other receivables 170 167 204
Merchandise inventories 3,101 3,256 1,902
Prepaid expenses and
other current assets 132 79 81
----------- ------------ ----------
Total current assets 3,700 3,752 2,597
Property and equipment, net
and other assets 5,147 4,789 4,955
Goodwill, net 377 349 347
============ ============= ===========
$ 9,224 $ 8,890 $ 7,899
============ ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 1,130 $ 1,723 $ 156
Accounts payable 2,132 2,027 1,415
Accrued expenses and
other current liabilities 586 469 696
Income taxes payable 121 98 224
------------ ------------- -----------
Total current liabilities 3,969 4,317 2,491
Commitments and contingencies - Note 7
Long-term debt 1,240 817 1,222
Deferred income taxes 334 168 333
Other liabilities 204 247 229
Stockholders' equity 3,477 3,341 3,624
============ ============= ===========
$ 9,224 $ 8,890 $ 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)
<CAPTION>
13 Weeks Ended 39 Weeks Ended
--------------------- -------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 2,465 $ 2,171 $ 6,835 $ 6,234
---------- ---------- ---------- ---------
Costs and expenses:
Cost of sales 1,704 1,831 4,731 4,638
Selling, general and
administrative expenses 641 600 1,767 1,638
Restructuring charge - 294 - 294
Depreciation and amortization 71 65 203 187
Interest expense - net 25 28 64 72
---------- ---------- ---------- --------
2,441 2,818 6,765 6,829
---------- ---------- ---------- --------
Earnings (loss) before
taxes on income 24 (647) 70 (595)
Income tax expense (benefit) 9 (172) 26 (153)
---------- ---------- ---------- --------
Net earnings (loss) $ 15 $ (475) $ 44 $ (442)
========== ========== ========== ========
Basic earnings (loss) per share $ .06 $ (1.85) $ .18 $ (1.64)
========== ========== ========== =========
Weighted average
basic shares outstanding 243.3 257.4 246.5 270.2
========== ========== ========== ==========
Diluted earnings (loss) per share $ .06 $ (1.85) $ .18 $ (1.64)
========== ========== ========== ==========
Weighted average
diluted shares outstanding 243.4 257.4 247.2 270.2
========== ========== ========== ==========
<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>
39 Weeks Ended
--------------------------
October 30, October 31,
1999 1998
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 44 $ (442)
Adjustments to reconcile net earnings
(loss) to net cash used in operatingactivities:
Restructuring and other charges - 546
Depreciation and amortization 203 187
Deferred income taxes - (51)
Changes in operating assets and liabilities:
Merchandise inventories (1,186) (1,143)
Accounts payable and other operating liabilities 473 510
Other operating assets (51) (87)
---------- ----------
Net cash used in operating activities (517) (480)
---------- ----------
Cash flows from investing activities:
Capital expenditures, net (364) (308)
Purchase of Imaginarium, net of cash acquired (43) -
----------- ----------
Net cash used in investing activities (407) (308)
----------- ----------
Cash flows from financing activities:
Short-term borrowings, net 989 1,590
Long-term borrowings - 31
Long-term debt repayment (8) (78)
Exercise of stock options 17 16
Share repurchase program (179) (705)
------------ -----------
Net cash provided by financing activities 819 854
Effect of exchange rate changes
on cash and cash equivalents (8) (30)
Cash and cash equivalents:
(Decrease)/increase during period (113) 36
Beginning of period 410 214
=========== ===========
End of period $ 297 $ 250
=========== ===========
Supplemental disclosures of cash flow information:
Income tax payments $ 123 $ 111
============ ===========
Interest paid $ 71 $ 85
============ ===========
<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 condensed consolidated 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 is classified as long-term debt at October 30,
1999 and January 30, 1999. 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 $800 and $1,270 are included in
short-term borrowings at October 30, 1999 and October 31, 1998,
respectively.
3. Comprehensive income
Comprehensive loss amounted to $1 and $456 for the thirteen weeks ended
October 30, 1999 and October 31, 1998, respectively, as a result of
foreign currency translation adjustments. Comprehensive income/(loss)
amounted to $22 and ($411) for the 39 weeks ended October 30, 1999 and
October 31, 1998, respectively, as a result of foreign currency
translation adjustments.
4. Segments
The company's reportable segments are Toys "R" Us - USA 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 39 weeks Ended
------------------------------------
October October October October
30, 1999 31,1998 30,1999 31,1998
<S> <C> <C> <C> <C>
- ----------------------------------- ---------- --------- ---------- --------
Net sales:
Toys "R" Us - USA $ 1,310 $ 1,143 $ 3,730 $ 3,496
Toys "R" Us - International 652 571 1,753 1,553
Other 503 457 1,352 1,185
- ----------------------------------- ---------- ---------- --------- ------
Total $ 2,465 $ 2,171 $ 6,835 $ 6,234
- ----------------------------------- ---------- --------- --------- -------
Operating earnings/(loss):
Toys "R" Us - USA $ 26 $ 34 $ 112 $ 144
Toys "R" Us - International 12 (9) (8) (37)
Other 22 38 51 57
General corporate expenses (11) (4) (21) (9)
Interest expense, net (25) (28) (64) (72)
Restructuring and other charges - (678) - (678)
- ------------------------------------ --------- --------- ------- ------
Earnings (loss) before taxes on
Income $ 24 $ (647) $ 70 $ (595)
- ------------------------------------ ---------- ---------- -------- ------
<FN>
</FN>
</TABLE>
5. Acquisition
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 in
cash and the assumption of certain liabilities. The acquisition
is accounted for using the purchase method of accounting and the
results of Imaginarium operations have been combined with those
of the company from the date of acquisition. Goodwill of
approximately $40 resulting from the purchase is being amortized
over 10 years.
6. Restructuring and other charges
On September 16, 1998, the company recorded charges of $678 ($508
net of tax benefits) to strategically reposition its worldwide
business. See the company's Annual Report for the year ended
January 30, 1999 for details on these charges. Also see the
section "Management's Discussion and Analysis of Results of
Operations and Financial Condition" in this report for an update
on the initiatives and the status of related reserves.
7. Commitments and contingencies
See Part II-Item I-Legal Proceedings.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
Results of Operations
Net sales were $2.5 billion and $6.8 billion, respectively, for the third
quarter and nine months ended October 30, 1999, an increase of $294 million, or
14% from the quarter ended October 31, 1998, and $601 million, or 10% from the
nine months ended October 31, 1998. The sales increases were primarily driven by
increases in comparable store sales versus the same periods in 1998, as well as
continued new store growth. The 1999 net sales increases were achieved despite
closing 31 under-performing stores this year (see "Restructuring and Other
Charges" below).
Foreign currency exchange had a favorable impact on net sales of approximately
$35 million and $66 million, respectively, for the third quarter and nine months
ended October 30, 1999, as compared with the same periods in 1998.
On a consolidated basis, comparable store sales, in local currencies, increased
by 8% for the third quarter of 1999, and 5% for the nine months ended October
30, 1999, as compared with the same periods in 1998. Comparable store sales for
the Toys "R" Us - USA division increased by 13% for the third quarter of 1999
and 6% for the first nine months of 1999, as compared with the same periods in
1998. These sales gains were driven primarily by stronger merchandising trends
offset by the impact of toy stores undergoing C-3 renovations. Internationally,
comparable toy store sales, on a local currency basis, increased 5% for the
third quarter of 1999, and 4% for the nine months ended October 30, 1999, as
compared with the same periods in 1998. Strong International sales performances
were achieved in most merchandise categories. In particular, the juvenile and
toy category was very strong, as well as electronics, excluding video games. The
company's Babies "R" Us division had comparable store sales increases in the
mid-single digits for the third quarter of 1999, and 10% for the nine months
ended October 30,1999. These increases were driven by strong sales in most
categories, in particular, in the infant care and apparel categories. The
company's Kids "R" Us division experienced a decrease in comparable store sales
in the mid to low-single digits for the third quarter of 1999, as well as the
nine months ended October 30, 1999, as compared with the same periods in 1998.
Kids "R" Us sales were adversely impacted by slow moving fall products such as
heavy outerwear, sweaters and fleece sets and less than anticipated sales during
the back to school period.
On September 16, 1998, the company recorded restructuring and other
non-recurring charges of $678 million to reposition its worldwide business.
Accordingly, cost of sales and selling, general and administrative expenses
("SG&A") for the three and nine months ended October 31, 1998 include charges of
$345 million and $39 million, respectively, with the remaining charges of $294
million reported as a restructuring charge. Refer to the company's Annual Report
for the year ended January 30, 1999 for details on these charges.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
On a consolidated basis, excluding these restructuring and other charges, cost
of sales, as a percentage of sales, increased by 0.7% for the third quarter of
1999, and 0.3% for the nine months ended October 30, 1999, respectively, as
compared with the same periods in 1998. Cost of sales as a percentage of sales
for the Toys "R" Us - USA division increased by 1.6% for the third quarter of
1999, as compared with the same period in 1998, resulting primarily from a
change in sales mix, as well as increased markdowns to keep inventory fresh.
Cost of sales as a percentage of sales for the Toys "R" Us - International
division decreased by 0.6% for the third quarter of 1999, as compared with the
same period in 1998, resulting primarily from a favorable shift in the sales mix
to higher margin categories. The company's other divisions experienced a
combined decrease in cost of sales, as a percentage of sales, of 0.5% for the
third quarter of 1999, as compared with the same periods in 1998, due to a
favorable change in the sales mix for the Babies "R" Us division, partially
offset by increased markdown expense in the Kids "R" Us division this year.
On a consolidated basis, excluding restructuring and other charges, SG&A, as a
percentage of sales, increased by 0.2% for the third quarter of 1999 and 0.3%
for the first nine months of 1999, as compared with the same periods in 1998.
SG&A for 1999 includes costs to operate the company's toysrus.com subsidiary, as
well as severance costs for the company's former Chief Executive Officer.
Excluding these costs, SG&A decreased 0.8% and 0.2% for the three and nine
months ended October 30, 1999, as compared with the same periods in 1998, due
primarily to sales leveraging. SG&A, as a percentage of sales for the Toys "R"
Us - USA division increased by 0.6% for the third quarter of 1999 as compared
with 1998. This increase was partially due to increased distribution costs, as
well as increased store payroll costs from the C-3 remodeling and "front-end"
conversion programs. SG&A for the International division, as a percentage of
sales, decreased 1.3% for the third quarter of 1999, as compared with 1998.
During the same period, the company's other divisions reported a combined 1%
increase in SG&A, as a percentage of sales.
Included in the company's results are net losses before income taxes of $17
million and $22 million, respectively, for the third quarter and nine months
ended October 30, 1999, related to establishing and operating its internet
subsidiary, toysrus.com.
Depreciation and amortization increased by $6 million and $16 million,
respectively, for the third quarter and the first nine months of 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 decreased by $3 million for the third quarter of 1999 from
$28 million for the third quarter of 1998. For the first nine months of 1999,
interest expense was $4 million less than 1998, excluding a 1998 second quarter
charge of $4 million related to early extinguishment of debt. These decreases
were primarily due to lower average borrowings.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
Foreign currency exchange did not have a material impact on net earnings for
either the third quarter or nine months ended October 30, 1999 as compared with
the same periods in 1998.
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 @ 10/30/99
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Closings/Downsizings:
Lease commitments $81 $11 $70
Severance and other closing costs 25 9 16
Other 24 - 24
- -------------------------------------------------------------------------------
Total Restructuring $130 $20 $110
- -------------------------------------------------------------------------------
Changes in accounting estimates and
Provisions for legal settlements $39 $6 $33
- -------------------------------------------------------------------------------
<FN>
</FN>
</TABLE>
The company has closed two Toys "R" Us toy stores and ten Kids "R" Us stores
in the United States, as well as 24 Toys "R" Us toy stores internationally since
recording the charges. In addition, the company has closed four distribution
centers and seven area offices in the United States since recording the charges.
Unused reserves are expected to be utilized in the company's upcoming business
cycle, 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). 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 @ 10/30/99
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Markdowns:
Clear excess inventory $ 74 $ 73 $1
Store closings 27 14 13
Other 6 - 6
- -------------------------------------------------------------------------------
Total Cost of Sales $107 $ 87 $ 20
- -------------------------------------------------------------------------------
Unused reserves are expected to be utilized in the company's upcoming business
cycle.
<FN>
</FN>
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
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 company completed an assessment of year 2000 requirements for the systems
supported by its Information Technology Department which included contacting its
software suppliers. The impacted systems, including those that are part of the
company's data processing infrastructure, are now year 2000 compliant as a
result of modification or replacement. The company completed remediation,
testing and rollout of all of its mainstream business systems in 1999.
The company has communicated with suppliers, equipment vendors and service
providers to determine the extent to which it is vulnerable to the failure of
these parties to remedy any year 2000 issues. Most of these parties have
indicated that they intend to be year 2000 compliant by January 1, 2000.
Regardless, the company has developed contingency plans for its major suppliers,
where feasible, to mitigate year 2000 risk.
The total estimated cost to achieve year 2000 compliance is approximately $25
million, which excludes internal labor and related costs. Approximately $22
million of these costs have been incurred as of October 30, 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 company has successfully completed its year 2000 compliance initiatives.
However, no assurance can be given that this issue, as it relates to the
company's internal systems or those of other companies on which it relies,
will not have a material adverse impact on the company's operations.
Financial Condition
By January 29, 2000, the company will operate approximately 1,546 stores,
consisting of: 707 toy stores in the United States; 458 International toy stores
(including 90 franchise and joint venture stores); 205 Kids "R" Us children's
clothing stores; 131 Babies "R" Us stores and 45 Imaginarium stores. The company
also sells merchandise through its Internet sites at www.toysrus.com and
www.imaginarium.com and through mail order catalogs.
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
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
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 completed its 1999 C-3 remodeling program and
now has 170 stores operating in the C-3 format. In addition, the company now
operates an additional 230 "front-end" retrofit stores. 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. The company plans to convert
additional existing stores to the C-3 format in 2000.
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 and
has identified several candidates. 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,
the immediate vesting of all unvested options and unvested profit shares held
by Mr. Nakasone, as well as the prorated vesting of other unvested equity
based awards on the second anniversary of the termination date. The company
accrued a total of $8 million as of October 30, 1999 to cover all costs
related to this agreement.
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 is currently operating the existing
Imaginarium stores under the Imaginarium name. The operating results of
Imaginarium from the date of acquisition were not material to the overall
results of the company.
For 1999, capital requirements for the company's expansion plans mentioned
above, as well as capital requirements for its toysrus.com subsidiary, are
estimated to be approximately $550 to $600 million.
The company's cash outflows from operations increased to $517 million for the
nine months ended October 30, 1999 from $480 million for the nine months ended
October 31, 1998 primarily due to a larger change in operating assets and
liabilities in 1999, as compared with 1998.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
During the first nine months of 1999, the company repurchased approximately 10.6
million shares of its common stock through its share repurchase program for
approximately $179 million. The company has $151 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 247.2 million during
the first nine months ended October 30, 1999 from 270.2 million during the first
nine months ended October 31, 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 its 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.
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
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
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.
13
<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 sought 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 final court approval (preliminary
approval having previously been granted by the court), 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.
14
<PAGE>
Item 5. Other Information
Stockholder Proposals
Sec. 2.1(b) of the Company's By-Laws provides for the Company
to provide notice of an upcoming Annual Meeting of
Stockholders at least 100 days in advance of such meeting.
Notice is hereby given that the Company's 2000 Annual Meeting
of Stockholders is expected to be held on June 7, 2000.
Pursuant to Sec. 2.1(b) of the By-Laws, stockholder
nominations of persons for election to the Board of Directors
of the Company must be received by the Company at its
principal executive office, 461 From Road, Paramus, New Jersey
07652, Attention: Secretary no later than March 9, 2000 in
order to be considered timely.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 - Financial Data Schedule for the quarter
ended October 30, 1999.
(b) Reports on Form 8-K
On August 26, 1999, the company filed a Form 8-K in
connection with the resignation of Robert C. Nakasone
as Chief Executive Officer and director of the
company and the appointment of Michael Goldstein as
acting Chief Executive Officer.
15
<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: December 14, 1999 Toys "R" Us, Inc.
------------------------
(Registrant)
s/ Louis Lipschitz
-----------------------
(Signature)
Louis Lipschitz
Executive Vice President and
Chief Financial Officer
16
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<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Condensed
Consolidated Balance Sheets and Condensed Consolidated Statements of
Earnings as reported on the third quarter Form 10-Q and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 297,000
<SECURITIES> 0
<RECEIVABLES> 170,000
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<INVENTORY> 3,101,000
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0
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<OTHER-EXPENSES> 203,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,000
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