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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 1999
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Commission file number 1-11609
TOYS "R" US, INC.
Incorporated pursuant to the Laws of Delaware
Internal Revenue Service - Employer Identification No. 22-3260693
461 From Road, Paramus, New Jersey 07652
(201) 262-7800
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.10 par value New York Stock Exchange
Registrant has filed all reports to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
At April 12, 1999, the aggregate market value of voting stock held by
non-affiliates was $4,722,000,612 based on the 248,526,348 shares of Common
Stock which were outstanding at that date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended January 30, 1999 are incorporated by reference into Parts I and II of this
Form 10-K.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held June 9, 1999, are incorporated by reference into Part
III of this Form 10-K.
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INDEX
PAGE
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PART I.
Item 1. Business........................................................ 2
Item 2. Properties...................................................... 7
Item 3. Legal Proceedings............................................... 8
Item 4. Submission of Matters to a Vote of Security Holders............. 9
PART II.
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters................................... 9
Item 6. Selected Financial Data......................................... 9
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition....................................... 9
Item 7a. Qualitative and Quantitative Disclosures About Market Risk...... 9
Item 8. Financial Statements and Supplementary Data..................... 9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 10
PART III.
Item 10. Directors and Executive Officers of the Registrant.............. 11
Item 11. Executive Compensation.......................................... 13
Item 12. Security Ownership of Certain Beneficial
Owners and Management......................................... 14
Item 13. Certain Relationships and Related Transactions.................. 14
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K................................................... 14
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PART I
ITEM 1. BUSINESS
Toys "R" Us, Inc. and its subsidiaries (the "Company") is the worldwide
authority on kids, families and fun, bringing toys, apparel and baby needs to
children and their families. As of January 30, 1999, the Company was engaged in
the operation of 1,481 children's specialty retail stores consisting of 1,029
United States locations comprised of 704 toy stores under the name "Toys "R"
Us," 212 children's clothing stores under the name "Kids "R" Us," and 113
infant-toddler stores under the name "Babies "R" Us". Internationally, the
Company operates 452 toy stores, including franchise and joint venture stores,
under the name "Toys "R" Us." The Company is incorporated in the state of
Delaware.
(a) General Development of the Business
Restructuring and other charges
During 1998, the Company announced strategic initiatives to reposition
its worldwide business. These strategic initiatives consist of, amongst other
matters, the reformatting of its toy stores in the United States into the
Company's new C-3 format, the closing of nine underperforming toy stores in the
United States and the restructuring of the Company's International operations,
including the closing and/or disposition of approximately 50 toy stores,
primarily in Continental Europe. The Company plans to convert approximately 28
existing toy stores in the United States into Toys "R" Us/Kids "R" Us combo
stores in the C-3 format. This step will permit the Company to close
approximately 31 nearby Kids "R" Us stores. Additionally, the Company plans to
close several distribution centers and administrative offices worldwide and have
their functions absorbed within the existing support structure. Finally, the
Company recorded certain changes in accounting estimates and provisions for
legal settlements. All of the foregoing resulted in charges of $353 million
($279 million net of tax benefits, or $1.05 per share).
In 1998, the Company also announced markdowns and other charges of $345
million ($229 net of tax benefits, or $.86 per share). A significant portion of
these charges relate to markdowns required to clear excess inventory from
stores. These markdowns should enable the Company to achieve its optimal
inventory assortment and streamline systems so that it can proceed with the C-3
conversions on an accelerated basis. In addition, the Company recorded markdowns
relating to the store closings discussed above and charges to cost of sales
relating to inventory system refinements and changes in accounting estimates.
The implementation of the strategic initiatives, markdowns and other
charges described above are expected to have a significant positive effect on
the Company's Economic Value Added or "EVA(R)". EVA(R) is the management system
adopted by the Company to determine whether its business initiatives and
investments provide an adequate return on investment. The strategic initiatives,
markdowns and other charges are also expected to improve the Company's free cash
flow and increase operating earnings. Details on the components of the charges
mentioned above are described in the Notes to the Consolidated Financial
Statements on pages 21 and 22 of the Company's 1998 Annual Report, as well as in
Management's Discussion and Analysis of Results of Operations and Financial
Position on pages
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21 and 22 of the Company's 1998 Annual Report, as well as in Management's
Discussion and Analysis of Results of Operations and Financial Position on pages
9 through 12 of the Company's 1998 Annual Report, which sections are
incorporated herein by reference.
At January 30, 1999, the Company had approximately $45 million of reserves
remaining for its restructuring program announced in 1995 which relate primarily
to long-term lease obligations.
The Company believes that reserves are adequate to complete the
restructuring and other programs described above.
Merger with Baby Superstore
On February 3, 1997, the Company acquired Baby Superstore, Inc. ("Baby
Superstore") in a tax-free exchange of common stock valued at approximately $376
million. The Baby Superstore acquisition was accounted for as a purchase for
financial reporting purposes as of February 1, 1997. For a further discussion of
Baby Superstore, see "Item 1. Business - Narrative Description of the Business -
Babies "R" Us."
(b) Financial Information About Geographic Segments
Information about geographic segments, as set forth in the Notes to the
Consolidated Financial Statements on page 21 of the Company's 1998 Annual
Report, is incorporated herein by reference.
(c) Narrative Description of the Business
Toys "R" Us - United States
Toys "R" Us - United States ("Toys "R" Us") operates in 49 states and
Puerto Rico and sells both children's and adult's toys, games, bicycles,
sporting goods, VHS video tapes, electronic and video games, small pools, books,
infant and juvenile furniture and similar items and electronics, as well as
educational and entertainment computer software for children. The overall
merchandising philosophy of Toys "R" Us is the development of strong consumer
recognition and acceptance of its name by the use of mass media advertising that
promotes its broad selection.
Toys "R" Us believes the flexibility afforded by its
warehouse/distribution system and by ownership of its own fleet of trucks
provides maximum efficiency and capacity, particularly in light of the
seasonality of its business. Toys "R" Us utilizes a computerized inventory
system which allows management to constantly monitor the current activity and
inventory in each region and in each store. This system permits management to
allocate merchandise to each store and keep the stores adequately stocked at all
times. Toys "R" Us introduced a state of the art centralized distribution system
in Lees Summit, Missouri in 1997. Substantially all video game and computer
software merchandise are nationally distributed through this facility for all
domestic divisions. This facility has enabled Toys "R" Us to improve its
in-stock position and timeliness of replenishments of these products.
Furthermore, the Company has accelerated the
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implementation of its major initiative to improve its supply chain management,
which is aimed at optimizing its inventory assortment and presentation. In
addition, the Company is expanding its automated replenishment system to
maximize inventory turnover.
Currently, most Toys "R" Us stores conform to a traditional 46,000 square
feet prototype design, with 30,000 and 20,000 square feet stores opened in
smaller markets, and are generally freestanding units or located in strip malls.
Of the 703 stores currently operated by Toys "R" Us, 597 are in the traditional
format, nine are in the Company's new C-3 format and 97 are designed in the
Company's "Concept 2000" format.
The Company's new C-3 store design concept conforms to a 46,000 square
feet prototype. The Company's strategic initiative to convert existing Toys "R"
Us stores into C-3 format stores is intended to make the Toys "R" Us stores
easier to shop and present merchandise in a more dynamic selling environment.
The C-3 store layout creates wider aisles, more feature opportunities and
end-caps, more shops, and logical category adjacencies to improve customer
shopping patterns as compared with the traditional Toys "R" Us format. The C-3
sales floor is extended by 20% and has a one-third reduction in the size of the
backroom. The Company is planning to roll out the new C-3 store design concept
to approximately 200 existing toy stores in the United States in 1999 and to 325
more stores in 2000. In 1999, the Company also plans to implement some of the
high potential elements of the C-3 concept in about 125 of the 325 stores slated
for conversion in 2000. In addition, all new toy stores in the United States
will be formatted in the C-3 store concept.
The Company is also planning to introduce the merchandise "world" concept
in Toys "R" Us stores in 1999. Each "world" has a unique customer franchise from
juvenile to R Zone electronics and video products. Each "world" will establish
its own business plan and has a complete support team to develop its business
from product sourcing to customer advertising and promotion. The "worlds"
presently being developed are:
o R Zone (video, electronics, computer software, related products)
o Action and Adventure (action figures, diecast cars, etc.)
o Girls (dolls, collectibles, accessories, lifestyle products)
o Outdoor Fun (bikes, sports, playsets)
o Pre-School (toys, accessories)
o Seasonal (Christmas, Halloween, Summer, etc.)
o Juvenile (baby products and 0-4 apparel)
o Learning Center (educational and developmental products)
o Family Fun (games and puzzles)
The Company is planning to include a majority of the new "world" product
selection and merchandising in the C-3 rollouts in 1999.
Toys "R" Us opened five new toy stores while closing one store in 1998.
The Company utilizes demographic data to determine which markets to enter and
plans to open approximately 10 new toy stores in the United States in 1999. The
Company is also planning to close approximately nine underperforming toy stores
(two of which have been closed to date) as part of the Company's strategic
initiatives to reposition its worldwide business.
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Toys "R" Us - International
Toys "R" Us - International ("International") operates or franchises toy
stores in 25 countries outside the United States. These stores generally conform
to traditional prototypical designs similar to those used by Toys "R" Us.
International owns and maintains its own fleet of trailers in most of the
countries in which it operates stores. International also employs computerized
inventory systems similar to those utilized by Toys "R" Us. International added
28 new toy stores, including 10 franchise stores while closing three stores in
1998. Utilizing demographic data to determine which markets to enter, the
Company plans to add approximately 25 new toy stores in 1999, including
approximately 10 franchise stores. The Company terminated a franchise agreement
for 14 toy stores in Italy in January 1999. The Company also plans to close
approximately 50 underperforming International toy stores in 1999 (four of which
have been closed to date) as part of the Company's strategic restructuring
initiatives to reposition its worldwide business.
Kids "R" Us
Kids "R" Us children's clothing stores feature brand name and private
label first quality children's clothing. These stores conform to prototypical
designs consisting of approximately 15,500 to 21,500 square feet and are
typically freestanding units or located in strip centers. In 1998, Kids "R" Us
closed three underperforming stores as outlined in the Company's most recent
restructuring program and plans to close approximately 28 additional stores in
1999. These stores will be replaced by converting approximately 28 nearby
existing Toys "R" Us stores into Toys "R" Us/Kids "R" Us combo stores.
Babies "R" Us
The Company launched its newest division, Babies "R" Us, with its first
six store openings in 1996. These stores target the newborn to preschool market
in a 38,000 to 42,000 square feet prototype that offers up to 40 room settings
of juvenile furniture such as cribs and dressers as well as playards, bumper
seats, high chairs, strollers, car seats, infant toddler and preschool toys,
infant plush, and gifts. These stores devote over 5,000 square feet to specialty
name brand and private label clothing and a wide range of feeding supplies,
health and beauty aids and infant care products. In addition, a computerized
baby registry service is offered. The Babies "R" Us stores are designed with low
profile merchandise displays in the center of the stores providing a sweeping
view of the entire merchandise selection.
The Company accelerated the growth of the Babies "R" Us division with the
acquisition of Baby Superstore, a leading large format retailer of newborn to
preschool products in the United States. At the date of acquisition, Baby
Superstore operated 76 stores in 23 states, primarily in the southeast and
midwest. The Company has converted substantially all of the existing Baby
Superstore stores to the Babies "R" Us operating format. The Company utilizes
demographic data to determine which markets to enter and opened 15 Babies "R" Us
stores in 1998 and currently operates 118 Babies "R" Us stores in the United
States. As part of the
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Company's long range growth plan of its Babies "R" Us division, approximately 20
new Babies "R" Us stores are planned to open in 1999 (five of which have been
opened to date).
TRU Direct
TRU Direct is the newest division to the "R" Us family, selling
merchandise directly to the public via the internet at www.toysrus.com and
through mail order catalogs. The Company opened its virtual doors to the public
in June 1998, offering a broad selection of toys, games, computer software,
video systems, video software, and more. Approximately 2,000 unique products
were offered in 1998 representing over 200 vendors. The Company believes the
internet poses substantial opportunities as a medium for retail commerce and
therefore plans to continue the growth of the online business. This will be
achieved through various site enhancements, increased product availability and
differentiation. In addition, the recognition of the TRU name along with the
ability to leverage existing Company assets will lend a competitive advantage to
the online business.
The Company entered the mail order business this year with the
introduction of two catalogs, "Differently Abled" and "Holiday Toys". The
catalogs are also posted on the website, allowing customers the ability to place
an order either over the phone or via the internet. The Company plans to mail
several catalogs in 1999, branching into the juvenile and collectible markets.
(d) Trademarks
"TOYS "R" US", "KIDS "R" US", and "BABIES "R" US", as well as various of
the Company's family of "R" Us marks either have been registered, or have
trademark applications pending, with the United States Patent and Trademark
Office and with the trademark registries of many foreign countries. The Company
believes that its rights to these properties are adequately protected.
(e) Seasonality
Retail sales of toy and toy related products are highly seasonal, with a
majority of retail sales occurring during the period from September through
December. Consequently, a large portion of the Company's sales and earnings
occur during its fourth quarter.
See the section, "Quarterly Financial Data", contained on page 26 of the
Company's 1998 Annual Report, which section is incorporated herein by reference.
(f) Working Capital
For a discussion of the Company's working capital requirements, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 9 through 12 of the Company's 1998 Annual Report, which
section is incorporated herein by reference.
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(g) Competition
All aspects of the retailing industry are highly competitive. All of the
merchandise sold by the Company, in markets in which the Company operates, is
available from various retailers at competitive prices. The Company's
competitors consist of other specialty retailers of toy and children-related
products, department stores and discount and supercenter type retail stores.
(h) Employees
At January 30, 1999, the Company employed approximately 70,000
individuals. Due to the seasonality of the Company's business, employment rose
to approximately 114,000 during the 1998 Holiday Season.
ITEM 2. PROPERTIES
See the Note, "Leases," in the Company's Notes to Consolidated Financial
Statements included on page 18 of the Company's 1998 Annual Report, which note
is incorporated herein by reference. Also see the section "Store Locations" on
page 26 of the Company's 1998 Annual Report, which section is incorporated
herein by reference. The following information related to properties is as of
April 12, 1999:
Toys "R" Us - United States
A significant portion of the properties operated by Toys "R" Us are owned.
Toys "R" Us either purchases or leases properties depending on the economic
terms available. Where properties are leased, Toys "R" Us generally has
long-term leases with multiple renewal options. Toys "R" Us operates 703 toy
stores, 439 of which are owned and 264 are leased and 15 distribution centers,
13 of which are owned and 2 are leased. The distribution centers average
approximately 427,000 square feet each in size and are strategically located
throughout the United States to efficiently service these stores.
The Company leases corporate offices in Paramus and Rochelle Park, New
Jersey and owns a data center in Parsippany, New Jersey. The Rochelle Park lease
expires in 1999. In November 1998, the Company moved from its Rochelle Park
location to a newly purchased office building in Montvale, New Jersey.
Toys "R" Us - International
International operates 385 stores, excluding 16 joint ventures and 52
franchised stores, 111 of which are owned and 274 are leased. International also
operates 15 distribution centers, 6 of which are owned and 9 are leased.
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Kids "R" Us
Kids "R" Us operates 212 children's clothing stores, 105 of which are
owned and 107 are leased. Kids "R" Us operates 4 distribution centers, of which
2 are owned and 2 are leased. These distribution centers average approximately
158,000 square feet each in size.
Babies "R" Us
Babies "R" Us operates 118 juvenile retail stores, 25 of which are owned
and 93 are leased. Babies "R" Us stores are serviced by existing Toys "R" Us and
Kids "R" Us distribution centers discussed above.
ITEM 3. 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.
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 in principle to settle 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 has accrued
all anticipated costs related to this matter as of January 30, 1999.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market prices and other information with respect to the Company's common
stock are hereby incorporated by reference to page 26 of the Company's 1998
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is hereby incorporated by reference to page 3 of
the Company's 1998 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Management's discussion and analysis of results of operations and
financial condition is hereby incorporated by reference to pages 9 through 12 of
the Company's 1998 Annual Report.
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Qualitative and quantitative disclosures about market risk is hereby
incorporated by reference to page 11 of the Company's 1998 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are hereby
incorporated by reference to pages 13 to 23 of the Company's 1998 Annual Report.
(a) Consolidated Balance Sheets as of January 30, 1999 and January 31, 1998
(b) Consolidated Statements of Earnings for each of the three years in the
period ended January 30, 1999
(c) Consolidated Statements of Cash Flows for each of the three years in the
period ended January 30, 1999
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(d) Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended January 30, 1999
(e) Notes to Consolidated Financial Statements; and
(f) Report of Ernst & Young LLP.
Individual financial statements of the registrant's subsidiaries are not
furnished because consolidated financial statements are furnished. The
registrant is primarily a holding company, the expenses and obligations of which
are paid by its consolidated subsidiaries through a fee based on expenses
incurred for management services provided to such subsidiaries by the
registrant. All subsidiaries of the registrant are at least 80% owned.
Financial statements of 50%-owned joint ventures are not submitted because
such companies, considered in the aggregate, are not considered a significant
subsidiary as defined in Regulation S-X.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors of the Company is hereby
incorporated herein by reference to the section, "Election of Directors", in the
Company's 1998 Proxy Statement.
Executive Officers of the Company
(a) The following persons are the Executive Officers of the Company as of
April 12, 1999, having been elected to their respective offices by the Board of
Directors of the Company to serve until the election and qualification of their
respective successors:
Name Age Position with the Company
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Michael Goldstein 57 Chairman of the Board
Robert C. Nakasone 51 Chief Executive Officer and Director
Louis Lipschitz 54 Executive Vice President and Chief Financial
Officer
Michael J. Madden 50 Executive Vice President - President of
Operations of U.S. Toy Store Division
Richard L. Markee 45 Executive Vice President - President of Kids "R"
Us and Babies "R" Us Divisions
Michael G. Shannon 47 Executive Vice President and President of U.S.
Toy Store Division
Gregory R. Staley 51 Executive Vice President - President of Toys "R"
Us International Division
Keith C. Van Beek 52 Executive Vice President - President of
Merchandising and Marketing of U.S.
Toy Store Division
Francesca L. Brockett 39 Senior Vice President - Strategic Planning and
Business Development
Roger C. Gaston 43 Senior Vice President - Human Resources
Raymond L. Arthur 40 Vice President - Controller
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(b) The following is a brief account of the business experience during the
past five years for each of the Executive Officers of the Company:
Mr. Goldstein has been employed by the Company for more than five years.
Effective February 1998, he retired from the position of Chief Executive Officer
and was elected Chairman of the Board. From February 1994 to February 1998, he
was Vice Chairman of the Board and Chief Executive Officer.
Mr. Nakasone has been employed by the Company for more than five years.
Effective February 1998, he became Chief Executive Officer. From February 1994
to February 1998, he was President and Chief Operating Officer.
Mr. Lipschitz has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President and Chief Financial
Officer. From prior to 1994 to January 1996, he was Senior Vice President -
Finance and Chief Financial Officer.
Mr. Madden has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President of the Company and
President of Operations of U.S. Toy Store Division. From March 1995 to January
1996, he was Group Vice President of Store Operations - U.S. Toy Store Division.
From prior to 1994 to March 1995, he was Senior Vice President, Regional
Operations and Distribution - U.S. Toy Store Division.
Mr. Markee has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President of the Company and
has served as President of Kids "R" Us Division since prior to 1994, as well as
President of Babies "R" Us Division since its inception in September 1995.
Mr. Shannon has been employed by the Company since October 1998. Effective
March 1999, he became Executive Vice President of the Company and President of
U.S. Toy Store Division. From October 1998 to March 1999, he was Executive Vice
President and Chief Administrative Officer. From January 1995 to October 1998,
he was President and Chief Executive Officer of Gayfer's/Maison Blanche. From
February 1994 to January 1995, he was President and Chief Executive Officer of
Gayfer's/J.B. White.
Mr. Staley has been employed by the Company for more than five years.
Effective February 1996, he became Executive Vice President of the Company and
has served as President of Toys "R" Us International Division since August 1995.
From prior to 1994 to July 1995, he was Senior Vice President - General
Merchandise Manager for Toys "R" Us International Division.
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Mr. Van Beek has been employed by the Company for more than five years.
Effective February 1998, he became Executive Vice President of the Company and
President of Merchandising and Marketing of U.S. Toy Store Division. From August
1995 to February 1998, he was President - Toys "R" Us (Canada) Ltd. From prior
to 1994 to August 1995, he was Vice President - Business Development of Toys "R"
Us International Division.
Ms. Brockett has been employed by the Company since September 1998 as
Senior Vice President - Strategic Planning and Business Development. From August
1997 to September 1998, she was Senior Vice President - Strategic Planning of
Tricon Global Restaurants. From October 1995 to August 1997, she was Vice
President - Business Development of Taco Bell Corporation. From prior to 1994 to
October 1995, she was Vice President - Corporate Development of PepsiCo.
Mr. Gaston has been employed by the Company since December 1996 as Senior
Vice President - Human Resources. From prior to 1994 to November 1996, he was
Executive Vice President - Human Resources of Carson, Pirie, Scott and Company.
Mr. Arthur has been employed by the Company since January 1999 as Vice
President - Controller. From March 1997 to October 1998, he was Vice President -
Controller of General Signal Corporation. From June 1996 to February 1997, he
was Assistant Vice President -Director of Compliance of American Home Products
Corporation. From May 1995 to May 1996, he was Assistant Controller of American
Cyanamid Company. From December 1994 to April 1995, he was Senior Director -
Operations Support Finance of Wyeth Ayerst. From prior to 1994 to November 1994
he was Plant Controller of Lederle Laboratories.
Information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended is hereby incorporated by reference
to the section "Compliance with Section 16(a)" in the Company's Proxy Statement
for the Annual Meeting of Stockholders to be held June 9, 1999 ("1999 Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is hereby incorporated
herein by reference to the sections, "Election of Directors", "Compensation of
Directors", "Executive Compensation", "Summary Compensation Table", "Option
Grants in Last Fiscal Year", "Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values", "Long-Term Incentive Plans - Awards in Last
Fiscal Year" and "Employment Agreements" in the Company's 1999 Proxy Statement.
The sections, "Report of the Management Compensation and Stock Option Committee
on Executive Compensation" and "Five-Year Stockholder Return Comparison", in the
Company's 1999 Proxy Statement are not incorporated by reference herein. Such
sections are furnished solely for information and shall not be deemed to be
soliciting material or to be "filed" as a part of this report.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management is hereby incorporated by reference to the sections,
"Principal Stockholders" and "Election of Directors", in the Company's 1999
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) The response to this portion of Item 14 is set forth in Item 8 of Part
II of this report on Form 10-K.
(2) Financial Statement Schedules have been omitted because they are
inapplicable, not required, or the information is included elsewhere in the
financial statements or notes thereto.
(3) See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the accompanying
Index to Exhibits upon payment by such stockholder of the Company's
reasonable expenses in furnishing any such exhibit.
(b) Cautionary Statement Regarding Forward Looking Information
This Form 10-K contains certain "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
14
<PAGE>
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.
(c) Reports on Form 8-K
On September 17, 1998, the Company filed a Form 8-K in connection with the
repositioning of its worldwide business.
On October 16, 1998, the Company filed a Form 8-K in connection with the
initial decision upheld by the Federal Trade Commission.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TOYS "R" US, INC.
(Registrant)
By /s/ Louis Lipschitz
----------------------------
Louis Lipschitz
Executive Vice President and
Chief Financial Officer
Date: April 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 28th day of April, 1999.
Signature Title
--------- -----
*
- -------------------- Director and Chief Executive Officer (Principal
Robert C. Nakasone Executive Officer)
/s/ Louis Lipschitz Executive Vice President and Chief Financial Officer
- -------------------- (Principal Financial Officer)
Louis Lipschitz
* Vice President - Controller (Principal Accounting
- -------------------- Officer)
Raymond L. Arthur
* Chairman of the Board
- --------------------
Michael Goldstein
* Director
- --------------------
Robert A. Bernhard
* Director
- --------------------
RoAnn Costin
* Director
- --------------------
Calvin Hill
16
<PAGE>
* Director
- --------------------
Shirley Strum Kenny
* Director, Chairman Emeritus
- --------------------
Charles Lazarus
* Director
- --------------------
Norman S. Matthews
* Director
- --------------------
Howard W. Moore
* Director
- --------------------
Arthur B. Newman
The foregoing constitute all of the Board of Directors and the Principal
Executive, Financial and Accounting Officers of the Registrant.
* By /s/ Louis Lipschitz
- ---------------------------------
Louis Lipschitz, Attorney-In-Fact
17
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this Report:
Exhibit No. Document
- ----------- --------
2A Agreement and Plan of Merger, dated as of December 8, 1995, by
and among registrant, Toys "R" Us - Delaware, Inc. (f/k/a Toys
"R" Us, Inc.) and TRU Interim, Inc. Incorporated herein by
reference to Exhibit 2.1 to registrant's Registration of
Securities of Certain Successor Issuers on Form 8-B dated
January 3, 1996 (the "Form 8-B").
2B Agreement and Plan of Merger, dated as of October 1, 1996, and
as amended and restated as of December 26, 1996, among
registrant, BSST Acquisition Corp., Baby Superstore, Inc. and
Jack P. Tate. Incorporated by reference to Annex A to the Proxy
Statement/Prospectus Statement No. 333-18863.
3A Restated Certificate of Incorporation of registrant (filed on
January 2, 1996). Incorporated herein by reference to Exhibit
3.1 to the Form 8-B.
3B Amended and Restated By-Laws of registrant (as of January 1,
1996). Incorporated herein by reference to Exhibit 3.2 to the
Form 8-B. An amendment dated March 11, 1997 to Amended and
Restated By-Laws. Incorporated herein by reference to Exhibit
3B to registrant's Annual Report on Form 10-K for the year
ended January 31, 1998.
4 i) Form of Indenture dated as of January 1, 1987 between
registrant and United Jersey Bank, as Trustee, pursuant to
which securities in one or more series in an unlimited amount
may be issued by registrant. Incorporated herein by reference
to Exhibit 4(a) to Registration Statement No. 33-11461.
ii) Form of the registrant's 8 1/4% Sinking Fund Debentures due
2017. Incorporated herein by reference to Exhibit 4(a) to
Registration Statement No. 33-11461.
iii) Form of Indenture between registrant and United Jersey Bank, as
Trustee, pursuant to which one or more series of debt
securities up to $300,000,000 in principal amount may be issued
to registrant. Incorporated herein by reference to Exhibit 4 to
registrant's Registration Statement No. 33-42237.
18
<PAGE>
Exhibit No. Document
- ----------- --------
4 iv) Form of registrant's 8 3/4% Debentures due 2021. Incorporated
herein by reference to Exhibit 4 to registrant's Report on Form
8-K dated August 29, 1991.
v) Substantially all other long-term debt of registrant (which
other debt does not exceed on an aggregate basis 10% of the
total assets of the registrant and its subsidiaries on a
consolidated basis) is evidenced by, among other things, (i)
commercial paper (ii) industrial revenue bonds issued by
industrial development authorities and guaranteed by
registrant, (iii) mortgages held by third parties on real
estate owned by registrant, (iv) stepped coupon guaranteed
bonds held by a third party and guaranteed by registrant and
(v) an agreement under which registrant guaranteed certain
yen-denominated loans made by a third party subsidiary of
registrant. Registrant will file with the Securities and
Exchange Commission (the "Commission") copies of constituent
documents relating to such upon request of the Commission.
10A* Employment Agreement dated March 14, 1978 between registrant
and Charles Lazarus and an amendment thereto dated November 20,
1979 (incorporated herein by reference to Exhibit 2 in Schedule
13D dated February 1, 1980 filed by Charles Lazarus, et al). An
amendment dated March 23, 1982 to such employment agreement
(incorporated herein by reference to Exhibit 10B to
registrant's Annual Report on Form 10-K for the year ended
January 31, 1982, Commission File Number 1-1117). An amendment
dated December 7, 1982 to such employment agreement
(incorporated herein by reference to Exhibit 10B to
registrant's Annual Report on Form 10-K for the year ended
January 30, 1983, Commission File Number 1-1117). An amendment
dated April 10, 1984 to such employment agreement (incorporated
herein by reference to Exhibit 10B to registrant's Annual
Report on Form 10-K for the year ended January 29, 1989,
Commission File Number 1-1117).
10B* Amendment dated as of June 10, 1998 to Employment Agreement
between registrant and Charles Lazarus.
10C* Form of Indemnification Agreement between registrant and each
director. Incorporated herein by reference to Exhibit 10F to
registrant's Annual Report on Form 10-K for the year ended
February 1, 1987, Commission File Number 1-1117.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
19
<PAGE>
Exhibit No. Document
- ----------- --------
10D* Stock Option Agreement dated as of February 1, 1988 between
registrant and Robert Nakasone. Incorporated herein by
reference to Exhibit 10G to registrant's Annual Report on Form
10-K for the year ended January 31, 1988, Commission File
Number 1-117. The first amendment dated as of April 1, 1989 to
such agreement (incorporated herein by reference to Exhibit 10G
to registrant's Annual Report on Form 10-K for the year ended
January 29, 1989, Commission File Number 1-1117). The second
amendment dated as of September 19, 1989 to such agreement
(incorporated herein by reference to Exhibit 10G to
registrant's Annual Report on Form 10-K for the year ended
January 28, 1990, Commission File Number 1-1117).
10E* Stock Option Agreement dated as of February 1, 1988 between
registrant and Michael Goldstein (incorporated herein by
reference to Exhibit 10H to registrant's Annual Report on Form
10-K for the year ended January 31, 1988, Commission File
Number 1-1117). The first amendment dated as of April 1, 1989
to such agreement (incorporated herein by reference to Exhibit
10H to registrant's Annual Report on Form 10-K for the year
ended January 29, 1989, Commission File Number 1-1117). The
second amendment dated as of September 19, 1989 to such
agreement (incorporated herein by reference to Exhibit 10H to
registrant's Annual Report on Form 10-K for the year ended
January 28, 1990, Commission File Number 1-1117).
10F* Stock Option Plan and Agreement dated as of March 14, 1989
between registrant and Charles Lazarus, and a First Amendment
thereto dated as of September 19, 1989. Incorporated by
reference to Exhibit 10I to registrant's Annual Report on Form
10-K for the year ended January 28, 1990, Commission File
Number 1-1117.
10G* Non-Employee Directors' Stock Option Plan as adopted by the
Board of Directors on September 19, 1990 and approved by the
registrant's stockholders on June 3, 1991, and amended and
restated as of December 6, 1995. Incorporated herein by
reference to Exhibit 10A to registrant's Proxy Statement for
the year ended February 3, 1996.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
20
<PAGE>
Exhibit No. Document
- ----------- --------
10H* Non-Employee Director's Stock Unit Plan, effective as of May 1,
1997.
10I* Stock Option Plan and Agreement dated as of December 2, 1992
between the registrant and Robert C. Nakasone. Incorporated
herein by reference to Exhibit 10I to registrant's Annual
Report on Form 10-K for the year ended January 30, 1993.
10J* Stock Option Plan and Agreement dated as of December 2, 1992
between the registrant and Michael Goldstein. Incorporated
herein by reference to Exhibit 10J to registrant's Annual
Report on Form 10-K for the year ended January 30, 1993.
10K* Amended and Restated Toys "R" Us, Inc. 1994 Stock Option and
Performance Incentive Plan effective November 1, 1993.
Incorporated herein by reference to Exhibit A to registrant's
Proxy Statement for the year ended February 1, 1997.
10L* Amended and Restated Toys "R" Us, Inc. Management Incentive
Compensation Plan, effective beginning with the registrant's
fiscal year ending January 28, 1995. Incorporated herein by
reference to Exhibit B to registrant's Proxy Statement for the
year ended February 1, 1997.
10M* Toys "R" Us, Inc. Partnership Group Deferred Compensation Plan
effective as of May 17, 1995. Incorporated herein by reference
to Exhibit 10.13 to the Form 8-B.
10N* Toys "R" Us, Inc. Grantor Trust Agreement dated as of October
1, 1995 between registrant and American Express Trust Company.
Incorporated herein by reference to Exhibit 10.14 to the Form
8-B.
10O* Toys "R" Us, Inc. Supplemental Executive Retirement Plan,
effective as of December 6, 1995. Incorporated by reference to
Exhibit 10N to registrant's Annual Report on Form 10-K for the
year ended February 3, 1996.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
21
<PAGE>
Exhibit No. Document
- ----------- --------
10P* Toys "R" Us, Inc. Grantor Trust Agreement dated as of April 1,
1996 between registrant and Allmerica Trust Company, N.A.
Amendment No. 1 to Grantor Trust Agreement, effective as of
April 1, 1996. Amendment No. 2 to Grantor Trust Agreement,
effective as of April 1, 1996.
10Q Shareholders Agreement, dated October 1, 1996, by and among
registrant, Jack P. Tate and Linda M. Robertson. Incorporated
by reference to Exhibit A to Exhibit 2 to registrant's
Quarterly Report on Form 10-Q for the quarter ended November 2,
1996, File No. 1-11609 (the "Form 10-Q").
10R* Retention Agreements
- Retention Agreement between Toys "R" Us, Inc. and Roger
Gaston dated as of May 1, 1997.
- Retention Agreement between Toys "R" Us, Inc. and Louis
Lipschitz dated as of May 1, 1997.
- Retention Agreement between Toys "R" Us, Inc. and Michael J.
Madden dated as of May 1, 1997.
- Retention Agreement between Toys "R" Us, Inc. and Richard L.
Markee dated as of May 1, 1997.
- Retention Agreement between Toys "R" Us, Inc. and Gregory R.
Staley dated as of May 1, 1997.
Each incorporated herein by reference to Exhibit 10P to
registrant's Quarterly Report on Form 10-Q for the quarterly
period ended May 3, 1997.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c) hereof.
22
<PAGE>
Exhibit No. Document
- ----------- --------
10S Amended and Restated Rights Agreement, dated as of April 16,
1999, between Toys "R" Us, Inc. and American Stock Transfer &
Trust Company, which includes as Exhibit A the Form of Rights
Certificate and, as Exhibit B, the Summary of Rights to
Purchase Common Stock (incorporated herein by reference to
Exhibit 1 to registrant's Report on Form 8-K dated April 16,
1999).
10T* Retention Agreement between Toys "R" Us, Inc. and Michael
Goldstein dated as of February 25, 1998. Incorporated herein by
reference to Exhibit 10R to registrant's Annual Report on Form
10-K for the year ended January 31, 1998.
10U* Retention Agreement between Toys "R" Us, Inc. and Robert C.
Nakasone dated as of February 25, 1998. Incorporated herein by
reference to Exhibit 10S to registrant's Annual Report on Form
10-K for the year ended January 31, 1998.
10V* Retention Agreement between Toys "R" Us, Inc. and Keith Van
Beek dated as of February 25, 1998. Incorporated herein by
reference to Exhibit 10T to registrant's Annual Report on Form
10-K for the year ended January 31, 1998.
10W* Retention Agreement between Toys "R" Us, Inc. and Bruce W.
Krysiak dated as of February 12, 1998. Incorporated herein by
reference to Exhibit 10U to registrant's Annual Report on Form
10-K for the year ended January 31, 1998.
10X* Separation agreement between Toys "R" Us, Inc. and Bruce
Krysiak dated as of March 25, 1999.
10Y* Retention Agreement between Toys "R" Us, Inc. and Michael G.
Shannon dated October 12, 1998.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14 (c) hereof.
23
<PAGE>
Exhibit No. Document
- ----------- --------
13 Registrant's Annual Report to Stockholders for the year ended
January 30, 1999. Except for the portions thereof that are
expressly incorporated by reference into this report, such
Annual Report is furnished solely for the information of the
Commission and is not to be deemed "filed" as part of this
report.
21 Subsidiaries of registrant.
23 Consent of Independent Auditors, Ernst & Young LLP.
24.1 Power of Attorney, dated in April 1999.
24.2 Certified copy of resolution of the Board of Directors of Toys
"R" Us, Inc. authorizing signatures pursuant to Power of
Attorney.
27 Financial Data Schedule for the year ended January 30, 1999.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14 (c) hereof.
24
EXECUTION COPY
Exhibit 10B*
AMENDMENT TO EMPLOYMENT AGREEMENT
EIGHTH AMENDMENT AGREEMENT (the "Amendment"), dated as of June 10, 1998,
between TOYS "R" US, INC., a Delaware corporation (the "Corporation"), and
CHARLES LAZARUS (the "Employee");
WHEREAS, the Employee served as Chief Executive Officer of the Corporation
since its founding;
WHEREAS, the Corporation and the Employee are parties to an employment
agreement originally dated March 14, 1978 and subsequently amended by agreements
dated November 20, 1979, February 2, 1981, March 23, 1982, December 7, 1982,
April 10, 1984, May 20, 1988 and March 14, 1989 (collectively referred to as the
"Employment Agreement").
WHEREAS, pursuant to Section 1(b) of the Employment Agreement, the
Employee elected, effective January 31, 1994, to terminate the term of full-time
employment and to become a consultant to the Corporation for a five-year period
(the "Consulting Period") commencing on the date set forth in such election;
WHEREAS, commencing at the end of the Consulting Period (January 31,
1999), the Employee shall receive a retirement benefit payable for a five-year
period (the "Retirement Period") in accordance with Section 13 thereof;
WHEREAS, the Employee continues to serve as a director and has been named
by the Company to serve as Chairman Emeritus of the Corporation;
<PAGE>
WHEREAS, the advice of the Employee continues to be a valuable resource
for the Corporation; and
WHEREAS, in consideration of the Employee serving as Chairman Emeritus of
the Corporation, the Board of Directors has determined that it is fair and
reasonable to provide the Employee with certain corporate benefits during the
Retirement Period in addition to the payments due to him under Section 13 of the
Employment Agreement.
NOW, THEREFORE, it is hereby agreed as follows.
1. Section 13 of the Employment Agreement shall be amended as follows:
(a) The first paragraph of Section 13 shall be amended by (i) adding
"(the "Retirement Period")" to the end of the first sentence thereof; (ii)
by replacing the phrase "Such 5-year period" with the phrase "Such
Retirement Period" at the beginning of the second sentence thereof; and
(iii) by replacing the words "five year" in the third sentence thereof
with the words "Retirement Period"; and
(b) The following paragraph shall be added to Section 13 after the
first paragraph:
"During the Retirement Period:
(i) the Corporation shall provide the Employee with, or
reimburse the Employee for the expense of, a car and driver when he
is in the New York metropolitan area or on business for the
Corporation;
(ii) the Corporation shall provide the Employee office space
and secretarial services (by an individual to be chosen by the
Employee) comparable to those services provided to him during the
last year of the consulting period;
(iii) the Corporation shall reimburse the Employee, upon
submission of appropriate record of incurrence, his reasonable
business expenses and disbursements incurred in the course of the
performance of his duties as Chairman Emeritus; and
(iv) the Employee will be entitled to continuation (which
shall also continue after the Retirement Period) of health benefits
under the Corporation's health plans at a level commensurate with
such
<PAGE>
benefits as are generally made available to the Corporation's
executive officers; provided, that to the extent such benefits
cannot be provided to the Employee under the terms of such plan or
such plan cannot be amended in any manner not adverse to the
Corporation, the Corporation shall pay the Employee, on an after-tax
basis, an amount necessary for the Employee to acquire such benefits
from an independent insurance carrier; and provided further, that
the obligations of the Corporation under this clause (iv) shall be
terminated if, at any time during the Retirement Period, the
Employee is employed by or is otherwise affiliated with a party that
offers comparable health benefits to the Employee."
2. Except as specifically modified herein, all other provisions of the
Employment Agreement shall remain in full force and effect.
3. This Amendment shall be governed by the laws of the State of New York
applicable to agreements made and to be performed entirely within such State.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
TOYS "R" US, INC.
By: ___________________________
Name:
Title:
CHARLES LAZARUS
_______________________________
Exhibit 10H*
STOCK UNIT PLAN
FOR
NON-EMPLOYEE DIRECTORS
OF
TOYS "R" US, INC.
(Effective as of May 1, 1997)
1. Purpose. The purpose of the Stock Unit Plan for Non-Employee Directors
of Toys "R" Us, Inc. (the "Plan") is to provide certain directors of Toys "R"
Us, Inc. (the "Corporation") with a vehicle for acquiring shares of common
stock, $.10 par value per share, of the Corporation ("Common Stock") with
elective deferrals of compensation (as defined below) due to them for their
service and participation on the Board of Directors of the Corporation (the
"Board") or any Committee thereof, or in the capacity of Chairman thereon or
participation in meetings of the Board or any such Committee.
2. Effective Date. The Plan shall become effective as of May 1, 1997.
3. Eligibility. All directors of the Corporation who are not employees of
the Corporation or of any subsidiary of the Corporation at the date of any
Elective Deferral (as defined below) shall be eligible to participate in the
Plan with respect to such Deferral (each, an "eligible director").
4. Source of Shares. Shares of Common Stock utilized pursuant to the Plan
shall be issued shares reacquired by the Corporation.
5. Elective Deferral of Compensation.
(a) Timing of Election. An Elective Deferral must be made prior to the
beginning of each fiscal year of the Corporation with respect to compensation
for such fiscal year, provided that any eligible director initially elected to
the Board shall be entitled to elect to defer his or her compensation for the
fiscal year (or remainder thereof) in which such election occurs by making an
Elective Deferral at any time prior to the date of such eligible director's
initial election as a director of the Corporation, and provided, further, that
each eligible director may elect to defer such director's remaining compensation
for the fiscal year in which the Plan is approved by the stockholders of the
Corporation if such election is made at any time prior to the next meeting of
the Board (or any Committee thereof of which such eligible director is a member)
held after such approval. An election made under this paragraph 5 shall continue
in effect until the end of the fiscal year of the Corporation (unless a longer
period is specified) or until the death, resignation, removal or "retirement"
(as defined below) of the eligible director, whichever shall occur first.
Deferrals under this paragraph 5 shall be known as "Elective Deferrals."
<PAGE>
(b) Amount of Deferral. An eligible director may elect to defer receipt of
all or a specified portion of his or her (i) annual retainer, (ii) fees for
chairing a Committee, serving as a member of the Executive Committee and
attending meetings, and (iii) other similar compensation (collectively,
"compensation"), receivable by such director for service as a director of the
Corporation or on any Committee of the Board or as Chairman of any such
Committee.
(c) Manner of Electing Deferral. An eligible director shall elect to make
an Elective Deferral by giving written notice to the Corporation in the form
attached hereto as Exhibit A. Such notice shall include the percentage or amount
of the Elective Deferral and the manner of payment of the Elective Deferrals
upon termination of service as a director in a single sum or in annual
installments not to exceed five.
6. Deferred Compensation Account. The Corporation shall establish one or
more deferred compensation accounts for each eligible director as provided
below.
(a) Stock Account. All Elective Deferrals shall be credited to a Stock
Account established and maintained on the books of the Corporation subject to
the terms and conditions set forth below. The Corporation shall credit to the
Stock Account that number of shares of Common Stock (also referred to as "Stock
Units") that are purchased with the portion of each deferred amount that the
Broker has acquired for the benefit of the eligible director with respect to his
or her Elective Deferrals, in the manner provided in paragraphs 7 and 8.
(b) Dividend Account. On the date dividend payments are made on
outstanding shares of Common Stock (the "Dividend Payment Date"), an amount
equal to all dividends that would have been paid on shares of Common Stock
credited to an eligible director's Stock Account shall be credited automatically
to a Dividend Account established and maintained on the books of the
Corporation. Any credit balance in the Dividend Account shall be used by the
Broker to purchase additional shares of Common Stock in the manner provided in
paragraph 8.
7. Designation of Broker and Account With Broker.
(a) Broker. Subject to paragraph 14, the Corporation has designated Smith
Barney, Inc. (the "Broker") to open an account in the name of the Corporation
for the benefit of each eligible director (an "Account"). The Corporation
reserves the right to change such designation at any time without prior notice
to eligible directors, and the Broker has reserved the right to terminate its
services as Broker under the Plan at any time.
(b) Allocation of Shares. Shares purchased by the Broker shall be
allocated to the individual Account established for the benefit of each eligible
director, in proportion to the respective amounts received for such eligible
director's Account. Allocations shall be made in whole shares and in fractional
shares.
(c) Voting Rights. Shares of Common Stock held in an Account shall not be
voted and shall not be deemed to be outstanding.
2
<PAGE>
8. Purchase of Common Stock. From time to time, but no later than the 15th
day of the month following the month any amounts would otherwise have been
payable, the Corporation shall forward to the Broker (i) funds equivalent to the
amount of each eligible director's Elective Deferrals, and (ii) funds equivalent
to the amount of each eligible director's Dividend Account. As soon as the
Broker considers it advisable, it shall apply such funds to the purchase of
Common Stock in the market or in private transactions at prevailing market
prices for the Accounts of the eligible directors.
9. Value of Deferred Compensation Accounts. Within 90 days following the
close of each fiscal year of the Corporation a statement will be sent to each
eligible director as to the balance in the eligible director's Account as of the
end of such fiscal year, including the number of Stock Units and the market
price as of the close of such fiscal year with respect to the shares of Common
Stock held in the Account by the Broker.
10. Payment of Deferred Compensation. An eligible director's Stock Units
shall be paid in shares of Common Stock in the manner elected in accordance with
the provisions of paragraph 5(c) above. If annual installments are elected, the
amount of the first payment shall be a fraction of the number of shares in the
eligible director's Account, the numerator of which is one and the denominator
of which is the total number of installments elected, rounded to the nearest
whole share. The amount of each subsequent payment shall be a fraction of the
number of shares in the eligible director's Account, the numerator of which is
one and the denominator of which is the total number of installments elected
minus the number of installments previously paid, rounded to the nearest whole
share. During any such installment payment period, the Corporation shall
continue to maintain the Account as provided above and shall on each Dividend
Payment Date transfer the credit balance from the Dividend Account to the Stock
Account as provided above. In the event the eligible director has not made an
election to have his or her Stock Units paid in installments before the time his
or her Stock Units becomes payable, his or her Stock Units shall be paid in a
lump sum in shares of Common Stock of the Corporation.
11. Amount Payable on Death. In the event of an eligible director's death,
the shares of Common Stock in the eligible director's Account shall be
determined as of the date of death, and the shares shall be paid as soon as
reasonably possible thereafter in the manner elected by the eligible director in
accordance with the provisions of paragraph 5(c) above to the beneficiary or
beneficiaries previously designated by the eligible director. Any such
designation shall be in writing and delivered to the Corporation and may be
changed by a later-dated designation. If there is no designation in effect, the
Account shall be paid to the eligible director's estate.
12. Resignation, Removal or Retirement. In the event of an eligible
director's resignation, removal or retirement from the Board, the balance in the
eligible director's Account shall be determined as of the effective date of such
resignation, removal or retirement, and the Account shall be paid as soon as
reasonably possible thereafter to the eligible director in the manner elected in
accordance with the provisions of paragraph 5(c) above. For purposes of
3
<PAGE>
the Plan, retirement shall mean an eligible director's cessation of service on
the Board on or after such eligible director's attainment of age 60.
13. Financial Emergency. Notwithstanding the provisions of paragraphs 11
and 12 to the contrary, if, upon the written application of an eligible
director, the Board determines that the eligible director has a financial
emergency of such a substantial nature and beyond the director's individual
control that payment of his or her Account is warranted, the Board may direct
the payment to the eligible director of all or a portion of the Account and the
time and manner of such payment, and the Board may direct such payments in other
circumstances if, in the exercise of its independent judgment, it determines
that circumstances beyond the eligible director's control warrant such action.
14. Unfunded Promise to Pay: No Segregation of Funds or Assets. Neither
anything contained in this Plan nor the establishment or maintenance of the
Account shall require the segregation of any assets of the Corporation or any
type of funding by the Corporation of such Accounts or the amounts payable
therefrom, it being the intention of the parties that the Plan or the
establishment and maintenance of the Account, be an unfunded arrangement for
federal income tax purposes. No eligible director shall have any rights to or
interests in any specific assets or shares of Common Stock by reason of the
Plan, and his or her only rights to enforce payment of the obligations of the
Corporation hereunder shall be those of a general creditor of the Corporation.
In the event the Corporation establishes a trust or any other method of
providing for its payment of the obligations created hereunder, such trust shall
conform to the terms of the model trust described in Revenue Procedure 92-64,
and it is expressly understood that no eligible director will have any interest
therein other than as a general creditor of the Corporation.
15. Changes in Capitalization. The number of Stock Units credited to each
eligible director's Stock Account shall be proportionately adjusted for any
increase or decrease in the number of issued and outstanding shares of Common
Stock resulting from a subdivision or combination of shares or the payment of a
stock dividend in shares of Common Stock to holders of outstanding shares or any
other increase or decrease in the number of such shares effected without receipt
of consideration by the Corporation. Appropriate adjustments shall also be made
to reflect any recapitalization, reclassification of shares or reorganization
affecting the capital structure of the Corporation. In the event of a merger or
consolidation in which the Corporation is not the surviving corporation or in
which the Corporation survives only as a subsidiary of another corporation, and
in such transaction the holders of Common Stock of the Corporation become
entitled to receive shares of stock or securities of the surviving corporation
or any affiliate thereof, the eligible director's Stock Account shall be
credited with that number of shares of securities of the surviving corporation
(or affiliate) that would be exchanged for the shares of Common Stock of the
Corporation in such transaction if such shares of Common Stock had been
outstanding, and any cash or other consideration that would be receivable if
such shares had been outstanding shall be paid to the eligible director.
16. Compliance with Law. No shares of Common Stock shall be issued or
transferred to an eligible director pursuant to the Plan unless and until all
legal requirements
4
<PAGE>
applicable to the issuance or transfer of such shares have been complied with to
the satisfaction of the Board.
17. Rights Unsecured. The right of an eligible director to receive any
unpaid portion of the eligible director's Account shall be an unsecured claim
against the general assets of the Corporation.
18. Nonassignability. The right of an eligible director to receive any
unpaid portion of the eligible director's Accounts shall not be assigned,
transferred, pledged or encumbered or be subject in any manner to alienation or
anticipation.
19. Administration. This Plan shall be administered by the Board, which
shall have the authority to adopt rules and regulations for carrying out the
Plan and to interpret, construe and implement the provisions thereof. Any
decision of the Board in the administration of the Plan, as described herein,
shall be final and conclusive. The Board may act only by a majority of its
members in office, except that the members thereof may authorize any one or more
of their number or the Secretary or any other officer of the Corporation to
execute and deliver documents on behalf of the Board. No member of the Board
shall be liable for an act or failure to act by such member or by any other
member of the Board in connection with the Plan, except for such member's own
willful misconduct or as expressly provided by statute.
20. Amendment and Termination. This Plan may be amended, modified or
terminated at any time by the Board, provided, that no such amendment,
modification or termination shall, without the consent of an eligible director,
adversely affect such eligible director's rights with respect to amounts
theretofore credited to the eligible director's Account.
21. Governing Law. To the extent not preempted by Federal law, the Plan
shall be construed in accordance with and governed by the laws of the State of
New York.
EXHIBIT 10P
TOYS "R" US, INC.
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Grantor Trust Agreement
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<PAGE>
EXHIBIT 10P*
TOYS "R" US, INC.
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Grantor Trust Agreement
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Page
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Section 1. Establishment of Trust............................................1
Section 2. Duties of the Company and Plan Administrator, Payment to Plan
Participants and Their Beneficiaries.........................2
Section 3. Trustee Responsibility Regarding Payments to Trust
Beneficiary When the Company is Insolvent....................4
Section 4. Payments to the Company...........................................5
Section 5. Investment Authority..............................................6
Section 6. Additional Powers and Duties of the Trustee.......................6
Section 6A Life Insurance Policies...........................................8
Section 7. Disposition of Income.............................................8
Section 8. Accounting by the Trustee.........................................8
Section 9. Responsibility and Indemnification of the Trustee.................9
Section 10. Compensation and Expenses of the Trustee.........................10
Section 11. Resignation and Removal of the Trustee...........................10
Section 12. Appointment of Successor Trustee.................................10
Section 13. Amendment or Termination.........................................11
Section 14. Miscellaneous....................................................11
Section 15. Effective Date...................................................11
<PAGE>
TRUST UNDER THE TOYS "R" US, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Trust Agreement, effective on the first day of April, 1996, is made
by and between TOYS "R" US, Inc. (the "Company") and Allmerica Trust Company,
N.A., a nationally chartered trust company whose principal office is located at
440 Lincoln Street, Worcester, Massachusetts 01653 (the "Trustee").
WHEREAS, the Company has adopted the Toys "R" Us, Inc. Supplemental
Executive Retirement Plan (hereinafter called the "Plan"); and
WHEREAS, the Company has incurred or expects to incur liability under the
terms of such Plan with respect to the individuals participating in such Plan;
and
WHEREAS, the Company wishes to establish a trust (hereinafter called the
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event the Company
becomes Insolvent, as herein defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plan; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"); and
WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist in the meeting of its
liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) The Company hereby initially assigns to and deposits with the Trustee
in trust the group life insurance policy certificates on the lives of Plan
participants (the "Policies") listed on Appendix A, which shall become the
principal of the Trust, to be held administered and disposed of by the Trustee
as provided in this Trust Agreement.
(b) Subject to Section 4, the Trust hereby established shall be
irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part 1, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and
shall be construed accordingly.
<PAGE>
(d) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of Plan participants and general creditors as herein
set forth, other than as set forth in Section 2(f). Plan participants and their
beneficiaries shall have no preferred claim on, or any beneficial ownership
interest in, any assets of the Trust. Any rights created under the Plan and this
Trust Agreement shall be mere unsecured contractual rights of Plan participants
and their beneficiaries against the Company. Any assets held by the Trust will
be subject to the claims of the Company's general creditors under federal and
state law in the event that the Company becomes Insolvent, as defined in Section
3(a) herein.
(e) The Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property acceptable to the
Trustee, including additional life insurance policies, in trust with the Trustee
to augment the principal to be held, administered and disposed of by the Trustee
as provided in this Trust Agreement. Neither the Trustee nor any Plan
participant or his or her beneficiaries shall have any right to compel such
additional deposits.
(f) The Company represents that it shall restrict participation in the
Plan to a "select group of management or highly compensated employees," as that
phrase is used in and defined under Sections 201, 301, and 401 of ERISA. The
Company agrees to indemnify against, and hold the Trustee harmless from, any and
all claims, judgments, settlements and related costs or damages incurred by the
Trustee resulting from the Trustee's reliance on such representation.
(g) The Trustee shall hold, manage, invest, reinvest and otherwise
administer the assets of the Trust pursuant to the terms of this Trust
Agreement, The Trustee shall be responsible only for contributions and deposits
actually received by it hereunder. The Trustee shall have no duty or authority
to ascertain whether any contribution should be made to it pursuant to the Plan
or to bring any action or proceeding to enforce any obligation to make any such
contribution. The duties and obligations of the Trustee hereunder shall be
limited to those expressly imposed upon it by this Trust Agreement,
notwithstanding any reference herein to the Plan.
Section 2. Duties of the Company and Plan Administrator, Payment to Plan
Participants and Their Beneficiaries.
(a) The Company, acting through the Compensation Committee of its Board of
Directors (the "Compensation Committee"), may amend or terminate the Plan and,
through a Plan Administrator, control and manage the operation of the Plan. The
Plan Administrator (the "Administrative Committee") shall be appointed by the
Compensation Committee. The Administrative Committee shall be responsible for
instructing the Trustee in the disbursement of Plan benefits and performing
those Plan administration functions specified in the Plan.
The Company shall provide the Trustee with a certified copy of the Plan
and all amendments thereto and of the resolutions of the Board of Directors of
the Company approving the Plan and all amendments thereto, promptly upon their
adoption. After the execution of this Trust Agreement, the Company shall
promptly file with the Trustee a certified list of names and
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<PAGE>
titles of any persons properly designated and authorized to exercise any
discretionary authority, responsibility or control in the management or
administration of the Plan or the Trust. Until receipt by the Trustee of notice
that any person is no longer authorized so to act, the Trustee may continue to
rely on the authority of the person. All certifications, notices and directions
by any such person or persons to the Trustee shall be in writing signed by such
person or persons, and the Trustee may rely on any such certification, notice or
direction purporting to have been signed by or on behalf of such person or
persons that the Trustee believes to have signed thereby. The Trustee may rely
on any certification, notice or direction of the Company that the Trustee
reasonably believes to have been signed by a duly authorized officer or agent of
the Company.
(b) The establishment of the Trust and the payment or delivery to the
Trustee of money or other property acceptable to the Trustee shall not vest in
any Plan participant or his or her beneficiaries any right, title or interest in
and to any assets of the Trust.
(c) The Company shall remain primarily liable to pay benefits under the
Plan. However, the Company's liability under the Plan shall be reduced or offset
to the extent payments are made to Plan participants and their beneficiaries
from the Trust.
(d) The Administrative Committee shall deliver to the Trustee a schedule
(the "Payment Schedule") that indicates the amounts so payable in respect of
each Plan participant (and his or her beneficiaries), that provides a formula or
other instructions acceptable to the Trustee for determining the amounts so
payable, the form in which such amount is to be paid (as provided for or
available under the Plan), and the time of commencement of payment of such
amounts. Except as otherwise provided herein, the Trustee shall make payments to
the Plan participants and their beneficiaries in accordance with such Payment
Schedule. The Trustee shall make provision for the reporting and withholding of
any federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of the Plan and shall
pay amounts withheld to the appropriate taxing authorities or determine that
such amounts have been reported, withheld and paid by the Company. The Trustee
may delegate to the Company or the Administrative Committee the responsibility
for the reporting and withholding as described above.
(e) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Compensation Committee or
such party as the Compensation Committee shall designate under the Plan, and any
claim for such benefits shall be considered and reviewed under the procedures
adopted by the Compensation Committee or the Administrative Committee in
accordance with the terms of the Plan.
(f) The Administrative Committee may make payment of benefits directly to
Plan participants or their beneficiaries as they become due under the terms of
the Plan. The Administrative Committee shall notify the Trustee of its decision
to make payment of benefits directly prior to the time amounts are payable to
Plan participants or their beneficiaries. Upon presentation of proof of payment,
the Company shall be reimbursed by the Trustee from Trust assets in an amount
equal to any benefit payment made directly to a Plan participant or beneficiary.
In addition, if the principal of the Trust, and any earnings thereon, (i) are
not
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<PAGE>
sufficient to make payments of benefits to any Plan participant in
accordance with the terms of the Plan, the Administrative Committee shall make
the balance of each such payment as it falls due, or (ii) exceed the amount
necessary to make a full and complete payment of all benefits owing to any Plan
participant in accordance with the terms of the Plan (the "Excess"), the
Administrative Committee shall have the right to request the Trustee to return
out of applicable Trust assets an amount equal to all or any portion of such
Excess in any Policy maintained with respect to such Plan participant.
(g) Except as provided in Section 3, but notwithstanding any other
provision of this Trust Agreement to the contrary, if at any time (i) the Trust
is finally determined by the Internal Revenue Service (the "IRS") not to be a
"grantor trust," with the result that the income of the Trust is not treated as
income of the Company pursuant to Sections 671 through 679 of the Code, (ii) a
federal tax is finally determined by the IRS to be payable by the Trust
beneficiaries with respect to the entire value of the assets maintained under
the Trust prior to the final distribution of such assets to the Trust
beneficiaries, or (iii) the Trustee receives an opinion of counsel satisfactory
to it to the effect that it is likely that the IRS will determine that a tax
will be payable by Trust beneficiaries as described in (ii) above and it is
likely that such determination will be upheld, then, upon the written direction
of the Administrative Committee, the Trustee shall immediately terminate the
Trust and the assets attributable to each Trust beneficiary, as specified in
writing by the Administrative Committee, shall be liquidated and paid in cash in
a lump sum, subject to Section 6A, as soon as practicable by the Trustee to the
Trust beneficiary for whom such assets were attributable, regardless of whether
such Trust beneficiary's employment with the Company has terminated and
regardless of the form and time of payment specified in any applicable Payment
Schedule. All remaining assets (less any expenses or costs due under Section 10
hereof) shall then be paid by the Trustee to the Company. If the IRS
determination referred to in (ii) above or the opinion referred to in (iii)
above applies to less than the entire value of the Trust, then, upon the written
direction of the Administrative Committee, that part of the assets of the Trust
to which such determination or opinion relates shall be liquidated and paid in
cash in a lump sum, subject to Section 6A, as soon as practicable by the Trustee
to the Trust beneficiary upon whom such tax is or will be imposed, and the Trust
shall continue in effect.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
When the Company is Insolvent.
(a) The Trust shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to
pay its debts as they become due, or (ii) the Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section l(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
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<PAGE>
(1) The Administrative Committee shall have the duty to inform the
Trustee in writing of the Company's Insolvency. If a person claiming to be
a creditor of the Company alleges in writing to the Trustee that the
Company has become Insolvent, the Trustee shall determine whether the
Company is Insolvent and, pending such determination, the Trustee shall
discontinue payment of benefits to Plan participants or their
beneficiaries.
(2) Unless the Trustee has actual knowledge that the Company is
Insolvent, or has received notice from the Company or a person claiming to
be a creditor alleging that the Company is Insolvent, the Trustee shall
have no duty to inquire whether the Company is Insolvent. The Trustee may
in all events rely on such evidence concerning the Company's solvency as
may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Company's
solvency.
(3) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan participants or
their beneficiaries and shall hold the assets of the Trust for the benefit
of the Company's general creditors. Nothing in this Trust Agreement shall
in any way diminish any right of Plan participants or their beneficiaries
to pursue their rights as general creditors of the Company with respect to
benefits due under the Plan or otherwise.
(4) The Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has received a determination that
the Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by the Company in lieu of the payment
provided for hereunder during any such period of discontinuance.
Section 4. Payments to the Company.
Subject to the provisions of Sections 2, 3 and 13, the Company shall have
no right or power to direct the Trustee to return to the Company or to divert to
any other person any of the Trust assets before all payments of benefits have
been made to the Plan participants or their beneficiaries pursuant to the terms
of the Payment Schedules. The Administrative Committee shall certify to the
Trustee in writing whether all payments of benefits under the Trust have been
made. The Trustee may conclusively rely upon such certification.
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<PAGE>
Section 5. Investment Authority.
The Trustee shall invest and reinvest the principal and income of the
Trust and keep the Trust invested, without distinction between principal and
income, in such equity, fixed income or other investments acceptable to the
Trustee, including life insurance policies pursuant to Section 6A hereof, as
directed by the Administrative Committee or as are permitted in accordance with
the Investment Guidelines, if any, which are, or when adopted shall be, attached
hereto as Appendix B, as the same may be modified from time to time by the
Administrative Committee.
Section 6. Additional Powers and Duties of the Trustee.
Subject to the provisions of Section 5 and the Investment Guidelines
attached as Appendix B hereto, the Trustee shall have the following additional
powers and authority with respect to property constituting a part of the Trust:
(1) To exercise all powers conferred on the Trustee by applicable law,
unless expressly provided otherwise herein; provided, however, that if a life
insurance policy is held as an asset of the Trust, the Trustee shall have only
those powers specified in Section 6A hereof with respect to such Policy.
(2) To sell, exchange or transfer any such property at public or private
sale for cash or on credit and grant options for the purchase or exchange
thereof.
(3) To participate in any plan or reorganization, consolidation, merger,
combination, liquidation or other similar plan relating to any such property,
and to consent to or oppose any such plan or any action thereunder, or any
contract, lease, mortgage, purchase, sale or other action by any corporation or
other entity.
(4) To deposit any such property with any protective, reorganization or
similar committee; to delegate discretionary power to any such committee; and to
pay part of the expenses and compensation of any such committee and any
assessments levied with respect to any property so deposited.
(5) To exercise any conversion privilege or subscription right available
in connection with any such property; to oppose or consent to the
reorganization, consolidation, merger or readjustment of the finances of any
corporation, company or association, or to the sale, mortgage, pledge or lease
of the property of any corporation, company or association any of the securities
of which may at any time be held in the Trust and to do any act with reference
thereto, including the exercise of options, the making of agreements or
subscriptions and the payment of expenses, assessments or subscriptions, which
may be deemed necessary or advisable in connection therewith, and to hold and
retain any securities or other property which it may so acquire.
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<PAGE>
(6) To commence or defend suits or legal proceedings and to represent the
Trust in all suits or legal proceedings; to settle, compromise or submit to
arbitration, any claims, debts or damages, due or owing to or from the Trust.
(7) To exercise, personally or by general or limited power of attorney,
any right, including the right to vote, appurtenant to any securities or other
such property.
(8) To borrow money from any lender in such amounts and upon such terms
and conditions as shall be deemed advisable or proper to carry out the purposes
of the Trust and to pledge any securities or other property for the repayment of
any such loan.
(9) To engage suitable actuaries, agents, custodians, record keepers,
depositories and legal counsel, who may be legal counsel for the Company, to
assist the Trustee in the performance of its duties hereunder, and to pay their
reasonable expenses and compensation, to the extent not paid by the Company.
(10) To register any securities held by it in its own name or in the name
of any custodian of such property or of its nominee, including the nominee of
any system for the central handling of securities, with or without the addition
of words indicating that such securities are held in a fiduciary capacity, to
deposit or arrange for the deposit of any such securities with such a system and
to hold any securities in bearer form.
(11) To make, execute and deliver, as the Trustee, any and all deeds,
leases, notes, bonds, guarantees, mortgages. conveyances, contracts, waivers,
releases or other instruments in writing necessary or proper for the
accomplishment of any of the foregoing powers.
(12) To transfer assets of the Trust to a successor trustee.
(13) To exercise, generally, any of the powers which an individual owner
might exercise in connection with property, either real, personal or mixed, held
by the Trust, and to do all other acts that the Trustee may deem necessary or
proper to carry out any of the powers set forth in this Section 6 or otherwise
in the best interests of the Trust.
(14) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
(15) Notwithstanding anything in this Trust Agreement to the contrary, the
Trustee may, when directed by the Administrative Committee, invest Trust assets
in individual and group life insurance Policies issued by an insurance company
affiliated with the Trustee and in shares of regulated investment companies for
which an affiliate of the Trustee may act as investment adviser.
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<PAGE>
Section 6A. Life Insurance Policies.
(a) The Trustee shall receive and hold in the Trust, subject to the
following, all Policies obtained, the proceeds of any sale, assignment or
surrender of any such Policy, and any and all dividends and other payments of
any kind received with respect to any such Policy.
(b) Subject to any split dollar arrangement that the Trustee is directed
to enter into by the Administrative Committee, the Trustee shall be the complete
and absolute owner of all Policies held in the Trust. The Trustee, upon the
written direction of the Administrative Committee or pursuant to any Payment
Schedule forwarded by the Administrative Committee to the Trustee, shall deliver
any Policy held in the Trust to such person as specified in the direction or
Payment Schedule.
(c) Upon the Administrative Committee's written direction, or subject to
the Investment Guidelines attached as Appendix B hereto, the Trustee shall pay
from the Trust premiums, assessments, dues, charges and interest, if any, upon
any Policy held in the Trust.
Notwithstanding anything in this Trust Agreement to the contrary, the
Company may pay Policy premiums directly to the issuing insurance company and
such payments shall be deemed a contribution to the Trust to the same extent as
if payment had been made to the Trustee.
Section 7. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes (other than taxes on income earned by the Trust which will be
borne by the Company), shall be accumulated and reinvested.
Section 8. Accounting by the Trustee.
(a) The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
the Company and the Trustee. Within 30 days following the close of each fiscal
year (January 31) and within 90 days after the removal or resignation of the
Trustee, the Trustee shall deliver to the Administrative Committee a written
account of its administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
(b) At the direction of the Administrative Committee, the Trustee shall
from time to time permit an independent public accountant selected by the
Administrative Committee to have access during ordinary business hours to such
records as may be necessary to audit the Trustee's accounts.
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<PAGE>
(c) As of the last day of each fiscal year, and at such other times as the
Administrative Committee may reasonably direct, the fair market value of the
assets held in the Trust shall be determined.
(d) Nothing contained in this Trust Agreement shall be construed as
depriving the Trustee or the Administrative Committee of the right to have a
judicial settlement of the Trustee's account, and upon any proceeding for a
judicial settlement of the Trustee's accounts or for instructions, the only
necessary parties thereto in addition to the Trustee shall be the Administrative
Committee and the Trust beneficiaries.
(e) In the event of the removal or resignation of the Trustee, the Trustee
shall deliver to the successor trustee all records which shall be required by
the successor trustee to enable it to carry out the provisions of this Trust
Agreement.
(f) In addition to any returns required of the Trustee by law, the Trustee
shall prepare and file such tax reports and other returns as the Administrative
Committee and the Trustee may from time to time agree.
Section 9. Responsibility and Indemnification of the Trustee.
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such material would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall not be liable in discharging its duties hereunder, including
without limitation its duty to invest and reinvest the assets of the Trust, if
it acts in good faith and in accordance with the terms of this Trust Agreement
and in accordance with applicable federal or state laws, rules or regulations.
Notwithstanding the foregoing and anything in this Trust Agreement to the
contrary, the Trustee shall incur no liability to any person for any action
taken pursuant to a written direction, request or approval given by the
Administrative Committee. In the event of a dispute between the Company and a
party, the Trustee may apply to a court of competent jurisdiction to resolve the
dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's reasonable costs, expenses and liabilities (including, without
limitation, reasonable attorneys' fees and expenses) relating thereto and to be
liable for such payments, unless the Trustee is judicially determined not to
have acted in good faith, as required by Section 9(a).
(c) The Company shall indemnify and save harmless the Trustee from and
against any and all claims, losses, damages, expenses (including reasonable
attorneys' fees and expenses) and liability to which the Trustee may be
subjected by reason of any act done or omitted to be done in its capacity as
Trustee hereunder, except where the same is due to the negligence or willful
misconduct of the Trustee.
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<PAGE>
Section 10. Compensation and Expenses of the Trustee.
The Company shall pay all reasonable expenses incurred by the Trustee in
its administration of the Trust. The Company shall also pay the Trustee such
compensation as may be mutually agreed upon for its services hereunder. The
compensation of the Trustee and any reasonable expenses, including reasonable
attorneys' fees, incurred by the Trustee in the administration of the Trust,
shall be paid by the assets of the Trust unless paid by the Company and unless
or until so paid, shall constitute a charge upon the Trust.
Section 11. Resignation and Removal of the Trustee.
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective 60 days after receipt of such notice unless the Company
and the Trustee agree otherwise.
(b) The Trustee may be removed by the Compensation Committee on 60 days'
notice or upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor trustee, subject to the Trustee's rights to deduct fees and expenses
pursuant to Section 10, all assets shall subsequently be transferred to the
successor trustee. The transfer shall be completed within 90 days after receipt
of notice of resignation, removal or transfer, unless the Company extends the
time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 12 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this Section. If no such appointment has
been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All reasonable expenses of the
Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
Section 12. Appointment of Successor Trustee.
(a) If the Trustee resigns (or is removed) in accordance with Section 11
(a) or (b) hereof, the Compensation Committee may appoint any third party, such
as a bank trust department or other party that may be granted corporate trustee
powers under state law, as a successor to replace the Trustee upon resignation
or removal. The appointment shall be effective when accepted in writing by the
new Trustee, who shall have all of the rights and powers of the former Trustee,
including ownership rights in the Trust assets. The former Trustee shall execute
any instrument necessary or reasonably requested by the Compensation Committee
or the successor trustee to evidence the transfer.
(b) The successor trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 8 and 9 hereof.
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<PAGE>
Section 13. Amendment or Termination.
(a) This Trust Agreement, including the Appendices hereto, may be amended
by a written instrument executed by the Trustee and the Compensation Committee.
Notwithstanding the foregoing, no such amendment shall conflict with the terms
of the Plan or shall make the Trust revocable after it has become irrevocable in
accordance with Section 1 (b) hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan unless sooner revoked in accordance with Section 2(g)
hereof. Upon termination of the Trust and payment of benefits to Plan
participants as provided under the terms of the Plan, any Excess (as defined in
Section 2(f) hereof) in any Policy maintained with respect to a Plan participant
shall be returned to the Company.
Section 14. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of, and the Trust created hereunder shall have its situs in, the
Commonwealth of Massachusetts.
Section 15. Effective Date.
Upon the execution by the Trustee, the effective date of this Trust
Agreement shall be as of April 1, 1996.
- 11 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be executed as of the day and year first above written.
TOYS "R" US, INC.
By:_______________________________
Title:____________________________
Date:________________, 1996
Allmerica Trust Company, N.A.
By:_______________________________
Title:____________________________
Date:________________, 1996
- 12 -
<PAGE>
Appendix A
Insurance Policies
- 13 -
<PAGE>
Appendix B
Investment Guidelines
- 14 -
<PAGE>
EXHIBIT 10P*
AMENDMENT NO. 1
TO
GRANTOR TRUST AGREEMENT
AMENDMENT NO. 1, effective as of April 1, 1996, to the Grantor Trust
Agreement, effective as of April 1, 1996, by and between Toys "R" Us, Inc. and
Allmerica Trust Company, N.A.
1. Section 3(b)(1) is amended by deleting the words "Administrative
Committee" therefrom and inserting therein in their stead the words "Chief
Executive Officer and the Board of Directors of the Company".
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be executed effective as of the day and year first above written.
TOYS "R" US, INC.
By: __________________________
Name: Peter W. Weiss
Title: Vice President - Assistant Secretary
Date: ________________________
<PAGE>
ALLMERICA TRUST COMPANY, N.A.
By: _______________________
Name: _______________________
Title: _______________________
Date: _______________________
2
<PAGE>
EXHIBIT 10P*
AMENDMENT NO. 2
TO
GRANTOR TRUST AGREEMENT
AMENDMENT NO. 2, effective as of April 1, 1996, to the Grantor Trust
Agreement, effective as of April 1, 1996, by and between Toys "R" Us, Inc. and
Allmerica Trust Company, N.A.
1. Section 1(d) is amended by deleting the final sentence thereof and
inserting, in its stead, the following sentence: "Any assets held by the Trust
will be subject to the claims of the general creditors of the Company and those
affiliated entities, if any, that have adopted the Plan (an "Adopting
Affiliate") under federal and state law in the manner provided for under Section
3(b) herein in the event that the Company or an Adopting Affiliate becomes
Insolvent, as defined in Section 3(a) herein."
2. Section 3(a) is amended in its entirety to read as follows:
(a) If the Company or Adopting Affiliate is Insolvent, the Trustee
shall cease payment of benefits to those Plan participants who are
employed by the Insolvent Company or Adopting Affiliate, as the case may
be, and such participants' beneficiaries. The Company or an Adopting
Affiliate shall be considered "Insolvent" for purposes of this Trust
Agreement if (i) the Company or Adopting Affiliate, as the case may be, is
unable to pay its debts as they become due, or (ii) the Company or
Adopting Affiliate, as the case may be, is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code.
3. Section 3(b) is amended in its entirety to read as follows:
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the portion of the principal and income of the
Trust attributable to Plan participants who are employed by the Company or
an Adopting Affiliate, and such participants' beneficiaries, shall be
subject to claims of the respective general creditors of the
<PAGE>
Company and the Adopting Affiliate, as the case may be, under federal and
state law as set forth below.
(1) The Chief Executive Officer and Board of Directors of the
Company or Adopting Affiliate, as the case may be, (or, if an
Adopting Affiliate is an entity other than a corporation, the person
and body occupying positions analogous to those of Chief Executive
Officer and Board of Directors) shall have a duty to inform the
Trustee in writing of such Company's or Adopting Affiliate's
Insolvency. If a person claiming to be a creditor of the Company or
of an Adopting Affiliate alleges in writing to the Trustee that the
Company or an Adopting Affiliate has become Insolvent, the Trustee
shall determine whether such Company or Adopting Affiliate is
Insolvent and, pending such determination, the Trustee shall
discontinue payment of benefits to those Plan participants who are
employed by the Insolvent Company or Adopting Affiliate, as the case
may be, and such participants' beneficiaries.
(2) Unless the Trustee has actual knowledge that the Company
or Adopting Affiliate is Insolvent, or has received notice from the
Company, the Adopting Affiliate or a creditor of the Company or
Adopting Affiliate alleging that the Company or Adopting Affiliate
is Insolvent, the Trustee shall have no duty to inquire whether such
Company or Adopting Affiliate, as the case may be, is Insolvent. The
Trustee may in all events rely on such evidence concerning the
Company's or Adopting Affiliate's solvency as may be furnished to
the Trustee and that provides the Trustee with a reasonable basis
for making a determination concerning such Company's or Adopting
Affiliate's solvency.
(3) If at any time the Trustee has determined that the Company
or an Adopting Affiliate is Insolvent, the Trustee shall discontinue
payments to those Plan participants who are employed by the
Insolvent Company or Adopting Affiliate, as the case may be, and
such participants' beneficiaries and shall hold the portion of the
assets of the Trust attributable to Plan participants who are
employed by the Insolvent Company or Insolvent Adopting Affiliate,
as the case may be, and such participants' beneficiaries, for the
benefit of the respective general creditors of such Insolvent
Company or Adopting Affiliate.
2
<PAGE>
(4) The Trustee shall resume payment of benefits to the Plan
participants and beneficiaries described in Section 3(b)(3) in
accordance with Section 2 of this Trust Agreement only after the
Trustee has received a determination that the Company or Adopting
Affiliate, as the case may be, is not Insolvent (or is no longer
Insolvent).
(5) For purposes of this Section 3(b), the portion of the
principal and income of the Trust that is attributable to each of
the Company and any Adopting Affiliate is based upon the aggregate
certificate values of the respective employees of each such Company
or Adopting Affiliate who are Plan participants, and such
participants' respective beneficiaries.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
be executed effective as of the day and year first above written. TOYS "R" US,
INC.
By: _________________________
Name: Peter W. Weiss
Title: Vice President - Assistant Secretary
Date: _______________________
3
<PAGE>
ALLMERICA TRUST COMPANY, N.A.
By: _______________________
Name: _______________________
Title: _______________________
Date: _______________________
EXHIBIT 10X
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (this "Agreement"), dated as of March 25, 1999,
is by and between TOYS "R" US, INC., a Delaware corporation (the "Company"), and
BRUCE W. KRYSIAK (the "Executive").
RECITALS
WHEREAS, pursuant to a Retention Agreement dated as of February 12, 1998
between the Company and the Executive (the "Retention Agreement"), Executive is
a Director of the Company and is employed by the Company as President and Chief
Operating Officer ("COO"), and as President - U.S. Toy Stores Division; and
WHEREAS, pursuant to a Stock Unit Agreement dated as of February 12, 1998
between the Company and the Executive (the "Stock Unit Agreement"), on February
12, 1998, the Company granted Executive 200,000 Stock Units (the "Stock Units");
and
WHEREAS, pursuant to the Company's 1994 Stock Option and Performance
Incentive Plan (the "Plan"), on May 4, 1998, the Company granted Executive
options to acquire 300,000 shares of common stock (the "Initial Grant") and, on
September 8, 1998, the Company granted Executive options to acquire 600,000
shares of common stock (the "September Grant"); and
WHEREAS, Executive desires to resign his employment with the Company and
his position as President and COO and all other director, officer and employee
positions, if any, held by Executive in the Company and any of its subsidiaries
effective as of March 26, 1999 (the "Termination Date"); and
WHEREAS, the parties desire to set forth their respective rights and
obligations in respect of Executive's resignation from the above positions;
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties, intending to be legally bound,
agree as follows:
AGREEMENT
1. Resignation.
(a) Effective as of the Termination Date, Executive will resign from his
positions as a Director and President and COO, and all other director, officer
and employee positions, if any, held by Executive in the Company and any of its
subsidiaries. It is agreed by the parties that, on and as of the Termination
Date, all rights and obligations of Executive and the Company with respect to
such employment shall terminate.
<PAGE>
(b) On the Termination Date, Executive will deliver to the Company a
letter of resignation in the form of Exhibit A hereto and a certificate of
release in the form of Exhibit B hereto.
2. Benefits. In consideration of the agreements of Executive herein,
Executive will be entitled to the benefits set forth in this Section 2.
(a) Salary. From the Termination Date through the Second Anniversary of
the Termination Date and regardless of whether Executive obtains other
employment, the Company will pay Executive $800,000 per year, such amount to be
payable in accordance with the Company's regular payroll policies as in effect
from time to time. All payments to Executive under this Section 2(a) will be
less applicable withholdings for federal, state and local taxes.
(b) Relocation Expenses. If, during the two year period commencing on the
Termination Date and regardless of whether Executive obtains other employment
during such period, the Executive relocates his family to an area other than
Northeastern New Jersey, the Company will purchase at fair market value the
house currently being constructed for Executive in Ridgewood, NJ, subject to the
terms of the Company's relocation policy as from time to time in effect and
provided that the Executive has taken possession of such house.
(c) Health Benefits. From the Termination Date until the earlier to occur
of (i) the Second Anniversary of the Termination Date or (ii) the date Executive
commences employment with another employer, the Company will permit Executive to
continue to participate in the medical, prescription, dental and disability
plans maintained by the Company from time to time at a level commensurate with
the level at which senior executives of the Company participate.
(d) Stock Units. Executive hereby forfeits all of the Stock Units in their
entirety, except that on the second anniversary of the Termination Date, subject
to the achievement of the performance objective set forth on Exhibit A to the
Stock Unit Agreement, 40,000 of such units shall be converted into an equivalent
number of shares of common stock of the Company, which shares shall be delivered
to the Executive on the second anniversary of the Termination Date. Except as
modified by the preceding sentence, the Stock Unit Agreement shall continue in
full force and effect.
(e) Stock Options. All Stock Options granted to Executive as part of the
Initial Grant and the September Grant are hereby canceled, except that of the
300,000 options granted in the Initial Grant, Executive shall retain 60,000
options and of the 600,000 options granted in the September Grant, Executive
shall retain 120,000 options. All stock options retained by Executive pursuant
to this paragraph (e) shall be subject to the terms and conditions (including
vesting requirements) of the original grants.
(f) Life Insurance. From the Termination Date until the earlier to occur
of (i) the Second Anniversary of the Termination Date or (ii) the date Executive
commences employment with another employer, the Company will permit Executive to
continue to participate in the Company's basic life insurance and accidental
death and dismemberment
2
<PAGE>
policy for a benefit equal to two times the annual payment to be made by the
Company pursuant to Section 2(a) of this Agreement.
(g) Automobile. Executive will retain use of the automobile currently
leased for him by the Company until the end of the term of the lease for such
automobile (i.e., February 28, 2001). (h) 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. (i) No
payments shall be made under this Section 2 until this Agreement becomes
effective pursuant to Sections 20 and 24 hereof.
3. Termination of All Existing Agreements. All rights and obligations of
the Company and the Executive under any employment agreement, arrangement or
understanding and any other agreement between the Company and the Executive are
hereby canceled and terminated as of the Termination Date without liability of
any party hereunder, except that this Agreement, the Stock Unit Agreement (as
modified by Section 2(d) above) and the Partnership Option Agreements dated as
of September 8, 1998 and May 4, 1998 between the Company and Executive (each as
modified by Section 2(e) above) shall continue in full force and effect.
4. No Solicitation of Executives or Customers. Executive hereby represents
and warrants that during the six month period preceding the date of this
Agreement he has not (i) solicited any customers of the Company or induced any
customer of the Company to enter into a business relationship with Executive or
any other person or (ii) solicited for employment or induced any person employed
by the Company to terminate employment. During the two year period commencing on
the Termination Date, the Executive shall not, directly or indirectly, (i)
employ or seek to employ any person who is as of the Termination Date, or was at
any time during the six month period preceding the Termination Date, an officer,
general manager, or director or equivalent or more senior level employee of the
Company or any of its subsidiaries or otherwise solicit, encourage, cause or
induce any such employee of the Company or any of its subsidiaries to terminate
such employee's employment with the Company or such subsidiary for the
employment of another company (including for this purpose the contracting with
any person who was an independent contractor (excluding consultant) of the
Company during such period) or (ii) take any action that would interfere with
the relationship of the Company or its subsidiaries with their suppliers and
franchisees without, in either case, the prior written consent of the Company's
Board of Directors, or engage in any other action or business that would have a
material adverse effect on the Company.
5. Non-competition and Consulting.
(a) During the two year period commencing on tshe Termination Date (the
"Consulting Period"), the Executive shall not, directly or indirectly:
(x) engage in any managerial, administrative, advisory, consulting or
operational or sales activities in Restricted Business anywhere in the
Restricted Area, including, without limitation, as a director or partner of such
Restricted Business, or
3
<PAGE>
(y) organize, establish, operate, own, manage or control or have a direct
or indirect investment or ownership interest in a Restricted Business or in any
corporation, partnership (limited or general), limited liability company
enterprise or other business entity that engages in a Restricted Business
anywhere in the Restricted Area.
(b) During the Consulting Period, the Executive shall:
(x) be available to render services to the Company as an independent
contractor/consultant but not as an employee of the Company; and
(y) perform such duties as may be reasonably requested in writing from
time to time during the Consulting Period by the Company's Chief Executive
Officer, provided that such duties shall not conflict with the duties of the
Executive for a new employer if such employment does not violate the terms of
Section 5(a).
(c) Nothing in this Section 5 shall prohibit or otherwise restrict the
Executive from acquiring or owning, directly or indirectly, for passive
investment purposes not intended to circumvent this Agreement, securities of any
entity engaged, directly or indirectly, in a Business if either (i) such entity
is a public entity and the Executive (A) is not a controlling Person of, or a
member of a group that controls, such entity and (B) owns, directly or
indirectly, no more than 3% of any class of equity securities of such entity or
(ii) such entity is not a public entity and the Executive (A) is not a
controlling Person of, or a member of a group that controls, such entity and (B)
does not own, directly or indirectly, more than 1% of any class of equity
securities of such entity.
(d) For purposes of this Section 5, "Restricted Business" shall mean the
retail store or mail order business or internet business or any business, in
each case if it is involved in the manufacture or marketing of toys, juvenile or
baby products, juvenile furniture or children's clothing or any other business
in which the Company may be engaged on the Termination Date. "Restricted Area"
means any country in which the Company or its subsidiaries owns or franchises
any retail store operations or otherwise has operations on the Termination Date.
6. Retained Property. Subject to Section 2(g), no later than the
Termination Date, Executive shall return all property of the Company in his
possession, including, but not limited to, credit cards, security key cards,
telephone cards, car service cards, computer software or hardware, Company
identification cards, Company records and copies of records, correspondence and
copies of correspondence and other books or manuals issued by the Company.
Executive also warrants that he has no debts to or loans from the Company.
Notwithstanding the foregoing, Executive shall have the right to retain (i)
duplicate photocopies of books and records of the Company that do not fall
within the category of "Confidential Information" (as defined below) and (ii)
all personal property of the Executive located on the premises of the Company.
7. Confidentiality. Executive acknowledges that he has had and through the
Termination Date will continue to have access to Confidential Information (as
hereinafter defined) of the Company. Executive agrees not to disclose,
communicate or divulge to, or use for the direct or indirect benefit of, any
person (including Executive), firm, association or other
4
<PAGE>
entity (other than the Company or its affiliates) any Confidential Information.
"Confidential Information" includes, but is not limited to, customer and vendor
lists, database, computer programs, frameworks, models, marketing programs,
sales, financial, marketing, training and technical information, business
methods, business policies, procedures, techniques, research or development
projects or results, trade secrets (which Executive agrees include the Company's
customer and prospective customer lists), pricing policies, business plans,
computer software, intellectual property, information concerning how the Company
creates, develops, acquires or maintains its products and marketing plans,
targets its potential customers, and operates its retail and other businesses,
and any other information not otherwise available to the general public. If any
person (including any government employee) requests the disclosure or release of
Confidential Information, Executive shall (i) promptly notify the Company of
such request so that the Company may pursue any available remedies to prevent
the disclosure or release of such Confidential Information and (ii) furnish the
Company a copy of all written materials pertaining to such request for
Confidential Information as the Company shall deem appropriate.
8. No Inducements. Executive warrants that he is entering into this
Agreement voluntarily, and that, except as set forth herein, no promises or
inducements for this Agreement have been made, and he is entering into this
Agreement without reliance upon any statement or representation by any of the
Company and its affiliates, and its and their present and former stockholders,
directors, officers, employees, agents, attorneys, successors and assigns or any
other person, concerning any fact material hereto.
9. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
any and all prior agreements or understandings between the parties arising out
of or relating to the Executive's employment and the cessation thereof. This
Agreement may only be changed by written agreement executed by the parties.
10. Governing Law. This Agreement shall be governed by the laws of the
State of New Jersey, without giving effect to the conflicts of law principles
thereof.
11. Representations and Warranties. Each party represents and warrants to
the other party that (i) the execution and delivery of this Agreement has been
duly authorized and all actions necessary for the due execution of this
Agreement have been taken, (ii) this Agreement constitutes the legal, valid and
binding obligation of the party, and (iii) this Agreement has been executed and
delivered as its own free act and deed and not as the result of duress by the
other party hereto. Executive specifically acknowledges that he has been advised
to consult legal counsel prior to executing this Agreement, and has been
afforded the opportunity of at least 21 days to consider this Agreement.
12. Non-Disparagement. Executive covenants and agrees not to engage in any
act or say anything 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 agrees that it will engage in
no act which is intended, or may reasonably be expected to harm the reputation,
business or prospects of Executive.
5
<PAGE>
13. Public Announcement. Except as required by law, Executive agrees not
to make any public disclosure with respect to this Agreement, the events leading
up to this Agreement, and the transactions contemplated by this Agreement.
14. No Admissions. Nothing contained in this Agreement shall be considered
an admission by either party of any wrongdoing or liability under any Federal,
state or local statute, public policy, tort law, contract law, common law or
otherwise.
15. Expenses. Subject to the following sentence, each party shall pay its
own costs incident to the negotiation, preparation, performance, execution, and
enforcement of this Agreement, and all fees and expenses of its or his counsel,
accountants, and other consultants, advisors and representatives for all
activities of such persons undertaken in connection with this Agreement.
Notwithstanding the immediately preceding sentence, solely to the extent that
the Executive is successful with respect thereto, the Company agrees to pay all
reasonable legal fees and expenses of one counsel that the Executive may
reasonably incur as result of any contest by Executive, by the Company or others
of the validity or enforceability of, or liability under, any provision of this
Agreement (including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement).
16. Cooperation. Upon reasonable notice, Executive agrees to cooperate
reasonably with the Company and its affiliated corporation entities in the
defense of any claim asserted against them and as to which Executive has, or may
have, knowledge. The Company agrees to reimburse Executive for any regular and
ordinary expenses incurred in connection with such cooperation.
17. No Third Party Claims. Executive represents and warrants that no other
person or entity has, or to the best knowledge of Executive, claims, any
interest in any potential claims, demands, causes of action, obligations,
damages or suits pursuant to this Agreement; that he is the owner of all other
claims, demands, causes of action, obligations, damages or suits pursuant to
this Agreement; that he has full and complete authority to execute this
Agreement; and that he has not sold, assigned, transferred, conveyed or
otherwise disposed of any claim, demand, cause of action, obligation or
liability subject to this Agreement.
18. No Third Party Beneficiaries. Except as expressly stated herein, the
parties do not intend to make any person or entity who is not a party to this
Agreement a beneficiary hereof, and this Agreement should not be construed as
being made for the benefit of any person or entity not expressly provided for
herein.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be one and the same instrument.
20. Acceptance and Revocation. Executive shall have a period of twenty-one
(21) days from the date of receipt of this Agreement to review and accept this
Agreement. Executive shall have seven (7) days following his execution of this
Agreement during which time he may revoke this Agreement by providing the
Company with written notice of the revocation. This Agreement shall become
effective and enforceable after the expiration of seven
6
<PAGE>
(7) days following Executive's execution of the Agreement, and is not
enforceable until after the seven-day revocation period expires.
21. Future Employment. Executive hereby waives any right to reinstatement
or future employment with the Company following the Termination Date.
22. Arbitration. Except as otherwise provided for herein, any controversy
arising under, out of, in connection with, or relating to, this Agreement, and
any amendment hereof, or the breach hereof or thereof, shall be determined and
settled by arbitration in New York, New York, by a three person panel mutually
agreed upon, or in the event of a disagreement as to the selection of
arbitrators, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Any award rendered therein shall specify the
findings of fact of the arbitrator or arbitrators and the reasons of such award,
with references to and reliance on relevant law. Any such award shall be final
and binding on each and all of the parties thereto and their personal
representatives, and judgment may be entered thereon in any court having
jurisdiction thereof.
23. Merger, Consolidation, Sale of Assets by the Company. The Company
shall not merge or consolidate with any other person or sell or otherwise
dispose of all or substantially of its assets unless (i) the Company is the
continuing person in such merger or consolidation or (ii) the entity surviving
such consolidation or merger (if other than the Company) or to which such sale
or disposition is made assumes all of the obligations of the Company under this
Agreement.
24. Executive Committee Approval. This Agreement shall be subject to the
approval of the Executive Committee of the Company's Board of Directors. 1.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Toys "R" Us, Inc.
By: /s/ Robert C. Nakasone
---------------------------------
Name: Robert C. Nakasone
Title: Chief Executive Officer
EXECUTIVE
/s/ Bruce W. Krysiak
-------------------------------------
Bruce W. Krysiak
Original Document issued to Bruce W. Krysiak on March __, 1999
Exhibit 10Y*
RETENTION AGREEMENT
BETWEEN
TOYS "R" US, INC.
AND
MICHAEL SHANNON
DATED AS OF
OCTOBER 12, 1998
<PAGE>
TOYS "R" US, INC.
RETENTION AGREEMENT
AGREEMENT (this "Agreement"), by and between Toys "R" Us, Inc., a Delaware
corporation (the "Company"), and MICHAEL SHANNON (the "Officer"), dated as of
October 12, 1998. Capitalized terms used in this Agreement and in Exhibit A
hereto that are not defined in the operative provisions shall have the meanings
ascribed to them on Exhibit B hereto.
1. Employment Period. The Company hereby agrees to continue to employ the
Officer and the Officer hereby agrees to remain in the employ of the Company
subject to the terms and conditions of this Agreement, for the Employment
Period. The term "Employment Period" means the period commencing on the date
hereof and ending on the second anniversary of such date as automatically
extended for successive additional one-year periods unless, at least six months
prior to the scheduled expiration of the Employment Period, the Company shall
give notice to the Officer that the Employment Period shall not be so extended.
2. Terms of Employment. (a) Position. (i) Commencing on the date hereof
and for the remainder of the Employment Period, the Officer shall serve in the
position of Executive Vice President and Chief Administrative Officer of the
Company or such other senior position to which the Officer may be appointed by
the Company. The Officer shall be based in Northeastern New Jersey.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Officer is entitled, the Officer agrees to devote
full time during normal business hours to the business and affairs of the
Company and to use the Officer's best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period, the Officer
may, so long as such activities do not interfere with the performance of the
Officer's responsibilities as an employee of the Company in accordance with this
Agreement, continue the corporate directorships on which the Officer serves, if
any, as of the date hereof and such other corporate directorships as are
consented to by the Chief Executive Officer. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Officer with the knowledge of the Company prior to a Change of Control, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to a Change of Control shall not thereafter
be deemed to violate this Agreement.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Officer shall receive the Officer's Annual Base Salary which will be paid in
accordance with the Company's regular payroll policies as in effect from time to
time.
(ii) Incentive Bonus. The Officer shall also be eligible, for each fiscal
year ending during the Employment Period, to receive an annual incentive bonus
and long-term incentive awards pursuant to the Company's incentive Plans and
subject to the terms thereof at a level commensurate with the Company's grants
to the officer currently serving as Executive Vice
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<PAGE>
President or any more senior position(s) to which the Officer may be appointed.
Each such incentive bonus shall be paid in accordance with the Company's
incentive Plans.
(iii) Participation in Other Plans. During the Employment Period, the
Officer shall be eligible to participate in all other Plans at a level
commensurate with the Officer's position.
(iv) Stock Units. As further inducement for the Officer to enter into this
Agreement and to continue in the employ of the Company, the Company has granted
to the Officer stock units contingent on performance and future service,
pursuant to the Stock Unit Agreement executed and delivered by the Company on
the date hereof in the form attached as Annex A hereto.
3. Termination of Employment Upon Death, Disability or Retirement. The
Officer's employment shall terminate upon the Officer's death, Disability or
Retirement during the Employment Period and the obligations of the Company upon
such termination shall be limited to those benefits provided by the Plans at the
Date of Termination, except as specifically set forth herein or in the Stock
Unit Agreement.
4. Other Termination of Employment. (a) Company Termination. The Company
may terminate the Officer's employment during the Employment Period with or
without Cause.
(b) Good Reason. The Officer's employment may be terminated during the
Employment Period by the Officer for Good Reason.
(c) Notice of Termination. (i) Any termination by the Company for Cause,
or by the Officer for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with this Agreement.
The failure by the Officer or the Company to set forth in the Notice of
Termination any fact or circumstance that contributes to a showing of Good
Reason or Cause shall not waive any right of the Officer or the Company,
respectively, hereunder or preclude the Officer or the Company, respectively,
from asserting such fact or circumstance in enforcing the Officer's or the
Company's rights hereunder.
(ii) Resignation. Without limiting the obligations of the Officer, or the
rights of the Company, in connection with, or relating to, this Agreement, the
Officer agrees that in order for the Officer to resign his employment without
Good Reason with the Company or any of its Subsidiaries, the Officer shall
provide the Company with six (6) months notice of resignation prior to the
effective date of such resignation.
(d) Obligations of the Company Upon Termination Under Section 4. If the
Officer's employment shall have been terminated under Section 4(a) (other than
for Cause) or 4(b):
(i) the Company shall make a lump sum cash payment to the Officer within
30 days after the Date of Termination in an amount equal to the sum of (1) the
Officer's pro rata Annual Base Salary payable through the Date of Termination to
the extent not theretofore paid, (2) the targeted amount of the Officer's annual
bonus and long-term incentive awards that would have been payable with respect
to the fiscal year in which the Date of Termination occurs in each case
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absent the termination of the Officer's employment prorated for the portion of
such fiscal year through the Date of Termination taking into account the number
of complete months during such fiscal year through the Date of Termination and
(3) the Officer's actual earned annual or long-term incentive awards for any
completed fiscal year or period not theretofore paid or deferred;
(ii) the Company shall pay to the Officer in equal installments, made at
least monthly, over the twenty-four months following the Date of Termination an
aggregate amount equal to (1) two times the Officer's Annual Base Salary in
effect on the Date of Termination, (2) two times the targeted amount of the
annual incentive bonus that would have been paid to the Officer with respect to
the Company's fiscal year in which such Date of Termination occurs and (3) two
times the targeted amount of the long-term incentive award that would have been
paid to the Officer with respect to such fiscal year;
(iii) the Company shall continue to provide, in the manner and timing
provided for in the Plans (other than stock options and except as set forth in
this Section 4(d) and in Section 7(b)), the benefits provided under the Plans
that the Officer would receive on an after-tax basis if the Officer's employment
had continued for two years after the Date of Termination assuming for this
purpose that the Officer's compensation for each such year would have been
one-half of the amount payable pursuant to clause (ii) above, and the Officer
shall be fully vested in any account balance and all other benefits continuation
under such Plans; provided, however that the benefits provided under this clause
(iii) shall be limited to the coverage permitted by law or as would otherwise
not potentially adversely impact on the tax qualification of any Plans;
provided, further, that if such benefits may not be continued under the Plans,
the Company shall pay to the Officer an amount equal to the Company's cost had
such benefits been continued.
(iv) (1) all unvested options held by the Officer shall continue to vest
in accordance with their terms for two years after the Date of Termination, and
all remaining unvested options held by the Officer shall vest on the two year
anniversary date of the Date of Termination, (2) all unvested profit shares held
by the Officer or for the benefit of the Officer by a grantor trust established
by the Company shall continue to vest in accordance with their terms for two
years after the Date of Termination and all remaining profit shares shall vest
on the two year anniversary date of the Date of Termination, provided that, if
permitted by the terms of any such trust, any unvested profit shares shall
continue to be held by such grantor trust until such profit shares vest pursuant
to this clause (iv) and any such unvested profit shares not permitted to be so
held shall vest immediately and be delivered to the Officer, (3) any other
unvested equity based award (including, without limitation, restricted stock and
stock units) held by the Officer shall vest on the two year anniversary date of
the Date of Termination on a pro rata basis determined by a fraction, the
numerator of which is the number of months elapsed from the grant of such equity
award through the Date of Termination plus the twenty-four months after the Date
of Termination and the denominator of which is the total number of months in the
vesting period for such award and shall be promptly delivered to the Officer
entirely in the form of Common Stock, (4) any options held by the Officer that
are vested on the Date of Termination or vest thereafter pursuant to this clause
(iv) may be exercised until the earlier of (x) the thirty month anniversary date
of the Date of Termination and (y) the expiration date of such options and (5)
the Officer shall not be entitled to any additional grants of any stock options,
restricted stock, other equity based or long-term awards; and
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(v) the Officer will be entitled to continuation of health benefits under
the Plans at a level commensurate with the Officer's position or more senior
position(s) to which the Officer may be appointed, and if the Officer elects to
receive such health benefits, the Company shall pay the medical premiums
therefore for the first twenty-four months after the Date of Termination, and
thereafter the Officer shall pay the premium charged to former employees of the
Company pursuant to Section 4980B of the Code until the Officer is sixty-five
years of age; provided, that the Company can amend or otherwise alter the Plans
to provide benefits to the Officer that are no less than those commensurate with
the Officer's current position or more senior position(s) to which the Officer
may be appointed; provided, that to the extent such benefits cannot be provided
to the Officer 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 Officer, on an
after-tax basis, an amount necessary for the Officer to acquire such benefits
from an independent insurance carrier; and provided, further, that the
obligations of the Company under this clause (v) shall be terminated if, at any
time after the Date of Termination, the Officer is employed by or is otherwise
affiliated with a party that offers comparable health benefits to the Officer.
(e) Cause. If the Officer's employment shall be terminated for Cause
during the Employment Period or if the Officer voluntarily terminates employment
during the Employment Period, excluding a termination for Good Reason, death,
Disability or Retirement, the Employment Period shall terminate without further
obligations to the Officer other than the obligation to pay to the Officer all
payments and benefits due, in accordance with the Company's Plans through the
Date of Termination.
5. Release Agreement. The benefits pursuant to Section 4 are contingent
upon the Officer (i) executing a Separation and Release Agreement (the "Release
Agreement") upon or after any Date of Termination, a copy of which is attached
as Exhibit A to this Agreement and (ii) not revoking or challenging the
enforceability of the Release Agreement or this Agreement.
6. Offset. The Company shall have the right to offset the amounts required
to be paid to the Officer under this Agreement against any amounts owed by the
Officer to the Company, and nothing in this Agreement shall prevent the Company
from pursuing any other available remedies against the Officer.
7. Compensation and Benefits Following Change of Control.
(a) Notwithstanding any provision of this Agreement or any Plan, in no
event shall any compensation or benefits, individually or in the aggregate, to
which the Officer would be entitled be less favorable for the two years
following a Change of Control than the Officer would have been entitled based
upon the most favorable of the Company's Plans in effect for the Officer at any
time during the 120-day period immediately preceding such Change of Control.
(b) In the event of termination of the Officer's employment under Section
4(a) (other than for Cause) or 4(b), whether before or after a Change of
Control, following a Change of Control: (i) any remaining amounts payable under
Sections 4(d)(i), (ii) and (iii) shall be payable in a lump sum within 30 days
after the later of the Date of Termination or the Change of Control and (ii) in
lieu of the Company's obligations under Section 4(d)(iv), all unvested options
and
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equity based awards shall vest immediately on the later of the Date of
Termination or the Change of Control and all such options may be exercised until
the earlier of (x) the thirty-month anniversary date of the Date of Termination
and (y) the expiration date of such options.
8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Officer's continuing or future participation in any Plan for which the
Officer may qualify nor shall anything herein limit or otherwise affect such
rights as the Officer may have under any contract or agreement with the Company.
Amounts that are vested benefits or that the Officer is otherwise entitled to
receive under any Plan, contract or agreement with the Company at or subsequent
to the Date of Termination shall be payable in accordance with such Plan, or
contract or agreement except as explicitly modified by this Agreement.
9. Full Settlement; Legal Fees.
(a) No Obligation to Mitigate. In no event shall the Officer be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Officer under any of the provisions of this Agreement,
and, except as specifically provided in this Agreement, such amounts shall not
be reduced whether or not the Officer obtains other employment.
(b) Expenses of Contests.
(i) The following shall apply for any dispute arising hereunder, under the
Release Agreement or under the Stock Unit Agreement prior to a Change of
Control: In each case solely to the extent that the Officer is successful with
respect thereto, the Company agrees to pay all reasonable legal and professional
fees and expenses that the Officer may reasonably incur as a result of any
contest by the Officer, by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement, the
Release Agreement or the Stock Unit Agreement (including as a result of any
contest by the Officer about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code or any successor
Section of the Code.
(ii) The following shall apply for any dispute arising hereunder, under
the Release Agreement or under the Stock Unit Agreement upon or following a
Change of Control: The Company agrees to advance to the Officer all reasonable
legal and professional fees and expenses that the Officer may reasonably incur
as a result of any contest by the Officer, by the Company or others of the
validity or enforceability of, or liability under, any provision of this
Agreement, the Release Agreement or the Stock Unit Agreement (including as a
result of any contest by the Officer about the amount of any payment pursuant to
this Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code or any
successor Section of the Code.
(iii) The Officer shall reimburse the Company for its reasonable legal and
professional fees and expenses, and in the case of advances made pursuant to
paragraph (ii) above, shall refund the Company the amount of such advances, to
the extent there is a final determination that
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such fees, expenses or advances relate to claims brought by the Officer against,
or defenses by the Officer of any claim of, the Company with respect to this
Agreement, the Release Agreement or the Stock Unit Agreement that were
determined to have been made or asserted by the Officer in bad faith or
frivolously.
10. Certain Additional Payments by the Company. Anything in this Agreement
to the contrary notwithstanding, in the event that any actual or constructive
payment or distribution by the Company to or for the benefit of the Officer
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement, the Stock Unit Agreement or otherwise) is subject to the
excise tax imposed by Section 4999 of the Code or any successor provision of the
Code (the "Excise Tax"), then the Company shall make the payments described on
Exhibit C hereto.
11. Restrictions and Obligations of the Officer.
(a) Consideration for Restrictions and Covenants. The parties hereto
acknowledge and agree that the principal consideration for the agreement to make
the payments provided in Sections 3 and 4 hereof from the Company to the Officer
and the grant to the Officer of the stock units of the Company as set forth in
Section 2 hereof is the Officer's compliance with the undertakings set forth in
this Section 11. Specifically, Officer agrees to comply with the provisions of
this Section 11 irrespective of whether the Officer is entitled to receive any
payments under Section 3 or 4 of this Agreement.
(b) Confidentiality. The confidential and proprietary information and
trade secrets of the Company are among its most valuable assets, including but
not limited to, its customer and vendor lists, database, computer programs,
frameworks, models, its marketing programs, its sales, financial, marketing,
training and technical information, and any other information, whether
communicated orally, electronically, in writing or in other tangible forms
concerning how the Company creates, develops, acquires or maintains its products
and marketing plans, targets its potential customers and operates its retail and
other businesses. The Company has invested, and continues to invest,
considerable amounts of time and money in obtaining and developing the goodwill
of its customers, its other external relationships, its data systems and data
bases, and all the information described above (hereinafter collectively
referred to as "Confidential Information"), and any misappropriation or
unauthorized disclosure of Confidential Information in any form would
irreparably harm the Company. The Officer shall hold in a fiduciary capacity for
the benefit of the Company all Confidential Information relating to the Company
and its business, which shall have been obtained by the Officer during the
Officer's employment by the Company and which shall not be or become public
knowledge (other than by acts by the Officer or representatives of the Officer
in violation of this Agreement). After termination of the Officer's employment
with the Company, the Officer shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process,
communicate, divulge or use any such information, knowledge or data to anyone
other than the Company and those designated by it.
(c) Non-Solicitation or Hire. During the Employment Period and for a
two-year period following the termination of the Officer's employment for any
reason, the Officer shall not,
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directly or indirectly (i) employ or seek to employ any person who is at the
Date of Termination, or was at any time within the six-month period preceding
the Date of Termination, an officer, general manager or director or equivalent
or more senior level employee of the Company or any of its subsidiaries or
otherwise solicit, encourage, cause or induce any such employee of the Company
or any of its subsidiaries to terminate such employee's employment with the
Company or such subsidiary for the employment of another company (including for
this purpose the contracting with any person who was an independent contractor
(excluding consultant) of the Company during such period) or (ii) take any
action that would interfere with the relationship of the Company or its
subsidiaries with their suppliers and franchisees without, in either case, the
prior written consent of the Company's Board of Directors, or engage in any
other action or business that would have a material adverse effect on the
Company.
(d) Non-Competition and Consulting. (i) During the Employment Period and
for a two-year period (the "Consulting Period") following the termination of the
Officer's employment for any reason, the Officer shall not, directly or
indirectly:
(x) engage in any managerial, administrative, advisory, consulting,
operational or sales activities in a Restricted Business anywhere in the
Restricted Area, including, without limitation, as a director or partner
of such Restricted Business, or
(y) organize, establish, operate, own, manage, control or have a
direct or indirect investment or ownership interest in a Restricted
Business or in any corporation, partnership (limited or general), limited
liability company enterprise or other business entity that engages in a
Restricted Business anywhere in the Restricted Area; and
(ii) During the Consulting Period, the Officer shall
(x) be available to render services to the Company as an independent
contractor/consultant but not as an employee of the Company; and
(y) perform such duties as may be reasonably requested in writing
from time to time during the Consulting Period by the Chief Executive
Officer; provided that such duties shall not conflict with the duties of
the Officer for a new employer if such employment does not violate the
terms of Section 11(d)(i) hereof.
(iii) Section 11(d) shall not bind the Officer during any period following
the termination of the Officer's employment if there has been a Change of
Control irrespective of whether the Change of Control occurs before or after the
Date of Termination.
(iv) Nothing contained in this Section 11(d) shall prohibit or otherwise
restrict the Officer from acquiring or owning, directly or indirectly, for
passive investment purposes not intended to circumvent this Agreement,
securities of any entity engaged, directly or indirectly, in a Restricted
Business if either (i) such entity is a public entity and such Officer (A) is
not a controlling Person of, or a member of a group that controls, such entity
and (B) owns, directly or indirectly, no more than 3% of any class of equity
securities of such entity or (ii) such entity is not a public entity and the
Officer (A) is not a controlling Person of, or a member of a group that
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controls, such entity and (B) does not own, directly or indirectly, more than 1%
of any class of equity securities of such entity.
(e) Definitions. For purposes of this Section 11:
(i) "Restricted Business" means the retail store or mail order business or
any business, in each case if it is involved in the manufacture or marketing of
toys, juvenile or baby products, juvenile furniture or children's clothing or
any other business in which the Company may be engaged on the Date of
Termination.
(ii) "Restricted Area" means any country in which the Company or its
subsidiaries owns or franchises any retail store operations or otherwise has
operations on the Date of Termination.
(f) Relief. The parties hereto hereby acknowledge that the provisions of
this Section 11 are reasonable and necessary for the protection of the Company
and its subsidiaries. In addition, the Officer further acknowledges that the
Company and its subsidiaries will be irrevocably damaged if such covenants are
not specifically enforced. Accordingly, the Officer agrees that, in addition to
any other relief to which the Company may be entitled, the Company will be
entitled to seek and obtain injunctive relief (without the requirement of any
bond) from a court of competent jurisdiction for the purposes of restraining the
Officer from any actual or threatened breach of such covenants. In addition,
without limiting the Company's remedies for any breach of any restriction on the
Officer set forth in Section 11, except as required by law, the Officer shall
not be entitled to any payments set forth in Section 3 or 4 hereof if the
Officer breaches any of the covenants applicable to the Officer contained in
this Section 11, the Officer will immediately return to the Company any such
payments previously received upon such a breach, and, in the event of such
breach, the Company will have no obligation to pay any of the amounts that
remain payable by the Company under Section 3 or 4.
12. Successors. (a) This Agreement is personal to the Officer and without
the prior written consent of the Company shall not be assignable by the Officer
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Officer's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will, within thirty days after a Change of Control, and
the Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company within thirty days after any such event of
succession to, assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid that assumes and agrees to perform this Agreement by
operation of law, or otherwise.
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13. Miscellaneous. (a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New Jersey, without
reference to principles of conflict of laws.
(b) Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(c) Amendment. 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.
(d) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to the Officer, to the address on file with the Company; and
(ii) If to the Company, to it at Toys "R" Us, Inc., 461 From Road,
Paramus, New Jersey 07652, Attention: Senior Vice President - Human Resources;
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(e) Assistance to Company. At all times during and after the Employment
Period and at the Company's expense for significant out-of-pocket expenses
actually and reasonably incurred by the Officer in connection therewith, the
Officer shall provide reasonable assistance to the Company in the collection of
information and documents and shall make the Officer available when reasonably
requested by the Company in connection with claims or actions brought by or
against third parties or investigations by governmental agencies based upon
events or circumstances concerning the Officer's duties, responsibilities and
authority during the Employment Period.
(f) Severability of Provisions. 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. The Officer acknowledges that the restrictive covenants contained in
Section 11 are a condition of this Agreement and are reasonable and valid in
geographical and temporal scope and in all other respects. If any court or
arbitrator determines that any of the covenants in Section 11, or any part of
any of them, is invalid or unenforceable, the remainder of such covenants and
parts thereof shall not thereby be affected and shall be given full effect,
without regard to the invalid portion. If any court or arbitrator determines
that any of such covenants, or any part thereof, is invalid or unenforceable
because of the geographic or temporal scope of such provision, such court or
arbitrator shall reduce such scope to the minimum extent necessary to make such
covenants valid and enforceable.
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(g) Withholding. The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(h) Waiver. The Officer's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Officer or the Company may have hereunder
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(i) Arbitration. Except as otherwise provided for herein, any controversy
arising under, out of, in connection with, or relating to, this Agreement, and
any amendment hereof, or the breach hereof or thereof, shall be determined and
settled by arbitration in New York, New York, by a three person panel mutually
agreed upon, or in the event of a disagreement as to the selection of the
arbitrators, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Any award rendered therein shall specify the
findings of fact of the arbitrator or arbitrators and the reasons of such award,
with the reference to and reliance on relevant law. Any such award shall be
final and binding on each and all of the parties thereto and their personal
representatives, and judgment may be entered thereon in any court having
jurisdiction thereof.
IN WITNESS WHEREOF, the Officer has hereunto set the Officer's hand and
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
__________________________
Michael Shannon
TOYS "R" US, INC.
By: _____________________
Name:
Title:
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EXHIBIT A
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement ("Agreement") is entered into as of
this day of , 19 , between TOYS "R" US, INC. and any successor thereto
(collectively, the "Company") and ___________ (the "Officer").
The Officer and the Company agree as follows:
1. The employment relationship between the Officer and the Company
terminated on (the "Termination Date").
2. In accordance with the Officer's Retention Agreement, the Company has
agreed to pay the Officer certain payments and to make certain benefits
available after the Termination Date.
3. In consideration of the above, the sufficiency of which the Officer
hereby acknowledges, the Officer, on behalf of the Officer and the Officer'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
Officer may have arising from or relating to the Officer's employment or
termination from employment with the Company, including a release of any rights
or claims the Officer 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 Officer of any claims for wrongful
discharge, breach of contract, torts or any other claims in any way related to
the Officer'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 Officer be advised to consult with an attorney before the Officer
waives any claim under ADEA. In addition, the ADEA provides the Officer with at
least 21 days to decide whether to waive
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claims under ADEA and seven days after the Officer signs the Agreement to revoke
that waiver. This release does not release the Company from any obligations due
to the Officer under Section 4, 7, 9(b), 10, 11 or 13(e) of the Officer's
Retention Agreement, the Officer's Indemnification Agreement with the Company or
under this Agreement.
Additionally, the Company agrees to discharge and release the Officer and
the Officer'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 Officer's employment and/or affiliation with, or
termination and separation from the Company; provided that such release shall
not release the Officer from any loan or advance by the Company or any of its
subsidiaries, any act that would constitute "Cause" under the Officer's
Retention Agreement or a breach under Section 9(b), 11 or 13(e) of the Officer's
Retention Agreement.
4. This Agreement is not an admission by either the Officer or the Company
of any wrongdoing or liability.
5. The Officer waives any right to reinstatement or future employment with
the Company following the Officer's separation from the Company on the
Termination Date.
6. The Officer 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 Officer. This paragraph shall
not prohibit either party from cooperating with government agencies.
7. The Officer shall continue to be bound by Sections 11 and 13(e) of the
Officer's Retention Agreement.
8. The Officer shall promptly return all the Company property in the
Officer'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 Officer shall return any leased or Company car at the
expiration of the Consulting Period (as defined in the Officer'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 Officer's Retention Agreement.
10. This Agreement represents the complete agreement between the Officer
and the Company concerning the subject matter in this Agreement and supersedes
all prior agreements or understandings, written or oral. This Agreement may not
be amended or modified otherwise
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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 Officer 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
Officer shall be effective unless the Company has received within the 7-day
revocation period, written notice of any revocation, all monies received by the
Officer 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 Officer acknowledges that the
Officer 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 Officer acknowledges that the Officer has been afforded the
opportunity of at least 21 days to consider this Agreement.
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The parties to this Agreement have executed this Agreement as of the day
and year first written above.
TOYS "R" US, INC.
By: ________________________
Name:
Title:
_______________________
Michael Shannon
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EXHIBIT B
Capitalized terms used in the Agreement that are not elsewhere defined in
the Agreement have the definitions set forth below:
"Annual Base Salary" means $555,000 per annum as may be increased from
time to time in the discretion of either the Board, the Committee, or any
appropriate committee of the Board.
"Board" means the Board of Directors of the Company.
"Cause" means: (i) the conviction of, or pleading guilty or nolo
contendere to, a felony involving moral turpitude; (ii) the commission of any
fraud, misappropriation or misconduct which causes demonstrable injury to the
Company or a subsidiary; (iii) an act of dishonesty resulting or intended to
result, directly or indirectly, in material gain or personal enrichment to the
Officer at the expense of the Company or a subsidiary; (iv) any material breach
of the Officer's fiduciary duties to the Company as an employee or officer; (v)
a serious violation of the Toys "R" Us Ethics Agreement or any other serious
violation of a Company policy; (vi) the willful and continued failure of the
Officer to perform substantially the Officer's duties with the Company or one of
its subsidiaries (other than any such failure resulting from incapacity due to
physical or mental illness resulting in a Disability), within a reasonable time
after a written demand for substantial performance is delivered to the Officer
by the Board, which specifically identifies the manner in which the Board
believes that the Officer has not substantially performed the Officer's duties;
(vii) the failure by the Officer to comply, in any material respect, with the
provisions of Section 11 of the Agreement; or (viii) the failure by the Officer
to comply with any other undertaking set forth in the Agreement or any breach by
the Officer hereof that is reasonably likely to result in a material injury to
the Company.
For purposes of this provision, no act or failure to act, on the part of
the Officer, shall be considered "willful" unless it is done, or omitted to be
done, by the Officer in bad faith or without reasonable belief that the
Officer's action or omission was in the best interests of the Company. Any act,
or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of regular outside counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Officer in good faith and in the best interests of the Company. The cessation of
employment of the Officer shall not be deemed to be for Cause unless and until
there shall have been delivered to the Officer a copy of a resolution duly
adopted by the affirmative vote of a majority of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Officer and the Officer is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Officer is guilty of the conduct
described, and specifying the particulars thereof in detail. Notwithstanding the
foregoing, the Company shall have the right to suspend the Officer without
reducing the Officer's compensation and benefits.
"Change of Control" - See Exhibit C.
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<PAGE>
"Committee" means the Company's Management Compensation and Stock Option
Committee of the Board of Directors or any successor committee of the Board
performing equivalent functions.
"Date of Termination" means (i) if the Officer's employment is terminated
by the Company for Cause, or by the Officer for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein, as the case
may be (although such Date of Termination shall retroactively cease to apply if
the circumstances providing the basis of termination for Cause or Good Reason
are cured in accordance with the Agreement), (ii) if the Officer's employment is
terminated by the Company other than for Cause, the Date of Termination shall be
the date so designated by the Company in its notification to the Officer of such
termination, (iii) if the Officer's employment is terminated by reason of death
or Disability, the Date of Termination shall be the date of death of the Officer
or the effective date of the Disability, as the case may be, and (iv) the last
day of the Employment Period during which the Company shall have given notice to
the Officer that the Employment Period shall not be extended.
"Disability" means the determination that the Officer is disabled pursuant
to the terms of th TRU Partnership Employees' Savings and Profit Sharing Plan,
as amended and restated as of October 1, 1993, as the same may be amended from
time to time.
"Good Reason" means, without the Officer's prior written consent, the
occurrence of any of the following, provided that the Officer delivers a Notice
of Termination specifying such occurrence within 30 days thereof:
(i) the assignment of the Officer to a position materially inconsistent
with the requirements of Section 2(a) of the Agreement, excluding for this
purpose an action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Officer; provided,
however, that the foregoing shall not constitute "Good Reason" if it is not
attendant to a reduction in the Officer's Annual Base Salary or total target
compensation;
(ii) the relocation or attempted relocation by the Company of the Officer
outside Northeastern New Jersey;
(iii) any failure by the Company to comply in any material respect with
any of the provisions of Section 2(b) of the Agreement, other than failure not
occurring in bad faith and that is remedied by the Company within a reasonable
time after receipt of notice thereof given by the Officer;
(iv) any failure by the Company to comply with and satisfy Section 12(c)
of the Agreement; or
(v) notice by the Company that it is not extending the termination date of
the Employment Period.
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<PAGE>
"Notice of Termination" means a written notice that (i) indicates the
specific termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Officer's employment under the
provision so indicated and (iii) if the Date of Termination (as defined above)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such notice).
"Plans" means all employee compensation, benefit and welfare plans,
policies and programs of the Company, which may include, without limitation,
incentive, savings, retirement, stock option, restricted stock, supplemental
Officer retirement, pension, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans, vacation practices, fringe benefit practices and policies
relating to the reimbursement of business expenses.
"Retirement" shall have the meaning ascribed to that term in the Plan
under which benefits are being sought by the Officer and pursuant to which the
Officer is first considered retired.
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<PAGE>
EXHIBIT C
CHANGE OF CONTROL AND TAX GROSS-UP
I. Certain Definitions
"Change of Control" means, after the date hereof:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition by
the Company or any of its subsidiaries, (ii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
subsidiary of the Company, (iii) any acquisition by any Person pursuant to a
transaction that complies with clauses (i), (ii) and (iii) of subsection (c)
below, or (iv) any acquisition by any entity in which the Officer has a material
direct or indirect equity interest; or
(b) The cessation of the "Incumbent Board" for any reason to constitute at
least a majority of the Board. "Incumbent Board" means the members of the Board
on the date hereof and any member of the Board subsequent to the date hereof
whose election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board, except that the Incumbent Board shall not include any member of
the Board whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board.
(c) The consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, immediately following such
Business Combination each of the following would be correct:
(i) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the Person
resulting from such Business Combination (including, without limitation, a
Person which as a result of such transaction owns the Company
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<PAGE>
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, and
(ii) no Person (excluding (A) any employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary of the Company, or such
corporation resulting from such Business Combination or any Affiliate of such
corporation, or (B) any entity in which the Officer has a material equity
interest, or any "Affiliate" (as defined in Rule 405 under the Securities Act of
1933, as amended) of such entity) beneficially owns, directly or indirectly, 25%
or more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination, or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination, and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
II. Tax Gross-Up
(a) If required by Section 10 of the Agreement, in addition to the
payments described in Sections 4 and 7 of the Agreement and the grants described
in the Stock Unit Agreement, the Company shall pay to the Officer an amount (the
"Gross-up") such that the net amount retained by the Officer, after deduction of
any Excise Tax and any United States Federal, state and local income taxes,
equals the amount of such payments that the Officer would have retained had such
Excise Tax not been imposed. In addition, the Company shall indemnify and hold
the Officer harmless on an after-tax basis from any Excise Tax imposed on or
with respect to any such payment (including, without limitation, any interest,
penalties and additions to tax) payable in connection with any such Excise Tax.
For purposes of determining the amount of any Gross-up or the amount required to
make an indemnity payment on an after-tax basis, it shall be assumed that the
Officer is subject to Federal, state and local income tax at the highest
marginal statutory rates in effect for the relevant period after taking into
account any deduction available in respect of any such tax (e.g., if state and
local taxes are deductible for Federal income tax purposes in the relevant
period, it shall be assumed that such taxes offset income that would otherwise
be subject to Federal income tax at the highest marginal statutory rate in
effect for such period).
(b) Subject to the provisions of paragraph (c) of this Exhibit C , the
determination of (i) whether a Gross-up is required and the amount of such
Gross-up and (ii) the amount necessary to make any payment on an after-tax
basis, shall be made in accordance with the assumptions set forth in paragraph
(a) of this Exhibit C by Ernst & Young LLP or such other "Big Six" accounting
firm designated by the Officer and reasonably acceptable to the Company.
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<PAGE>
(c) The Officer shall notify the Company as soon as practicable in writing
of any claim by the Internal Revenue Service that, if successful, would require
any Gross-up or indemnity payment. The Officer shall not pay such claim prior to
the expiration of the 30-day period following the date on which it gives such
notice to the Company. If the Company notifies the Officer in writing prior to
the expiration of such period that it desires to contest such claim, the Officer
shall take all actions necessary to permit the Company to control all
proceedings taken in connection with such contest. In that connection, the
Company may, at its sole option, pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences in respect of such claim and may,
at its sole option, either direct the Officer to pay the tax claimed and sue for
a refund or contest the claim in any permissible manner; provided, however, that
the Company shall pay and indemnify the Officer from and against all costs and
expenses incurred in connection with such contest; provided further, however,
that if the Company directs the Officer to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to the Officer on an
interest-free basis and at no net after-tax cost to the Officer. If the Officer
becomes entitled to receive any refund or credit with respect to such claim (or
would be entitled to a refund or credit but for a counterclaim for taxes not
indemnified hereunder), the Officer shall promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon) plus the
amount of any tax benefit available to the Officer as a result of making such
payment (any such benefit calculated based on the assumption that any deduction
available to the Officer offsets income that would otherwise be taxed at the
highest marginal statutory rates of Federal, state and local income tax for the
relevant periods).
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<PAGE>
ANNEX A
STOCK UNIT AGREEMENT
STOCK UNIT AGREEMENT, dated as of November 2, 1998 (the "Unit Agreement"),
between TOYS "R" US, INC., a Delaware corporation (the "Company"), and Michael
Shannon (the "Officer").
W I T N E S S E T H:
WHEREAS, the Company proposed for the approval of the stockholders of the
Company at the 1997 Annual Meeting of Stockholders an Amendment (the
"Amendment") to the Company's 1994 Stock Option and Performance Incentive Plan
(the "Plan") providing for performance criteria that may be utilized by the
Management Compensation and Stock Option Committee (the "Committee") in
connection with the grant of Performance Shares (as defined in the Plan and
referred to herein as "Stock Units"), and the Stockholders approved such
Amendment;
WHEREAS, the Officer and the Company are entering into a Retention
Agreement, dated as of even date herewith (the "Retention Agreement");
WHEREAS, as further inducement for the Officer to execute the Retention
Agreement and continue in the employ of the Company, the Committee has
determined to grant the Officer the Stock Units as described in this Unit
Agreement, and
WHEREAS, the Board and the Committee desire that the compensation arising
from the Stock Units shall qualify as "performance-based compensation" for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the covenants set forth herein and for
other good and valuable consideration, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition shall
have the meanings ascribed to them in the Plan.
2. Stock Unit Grant. Subject to the terms and conditions set forth in this
Unit Agreement and in Section 10 of the Plan, the Officer is hereby granted
fifty thousand (50,000) Stock Units. Each Stock Unit represents the right to
receive one share of Common Stock (collectively, with other shares of Common
Stock relating to the Stock Units and held in the Officer's account in the Trust
(as defined below) in respect of the Stock Units, the "Shares"). The 50,000
Shares shall be promptly deposited after the date hereof in the grantor trust
created pursuant to the Grantor Trust Agreement, dated as of October 1, 1995
between the Company and American Express Trust Company, a Minnesota trust
company (together with any grantor trust subsequently established
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<PAGE>
by the Company, the "Trust") and shall be allocated by the Trust to the
Officer's account therein subject to the forfeiture conditions of Section 3
below. Any property attributable to the Shares, including, without limitation,
dividends and distributions thereon, shall be deposited into the Trust, shall as
promptly as practicable be reinvested in shares of Common Stock, and shall be
allocated by the Trust to the Officer's account therein subject to the
forfeiture conditions of Section 3 below.
3. Forfeiture Conditions. The Stock Units granted to the Officer hereunder
shall be forfeited in their entirety, subject to the terms of the Retention
Agreement, if:
(i) the Officer's employment with the Company terminates prior to the
fifth anniversary of the date hereof ; or
(ii) the Performance Objective set forth on Exhibit A hereto is not
achieved.
4. Payment of Stock Units. As soon as practicable but no later than
November 2, 2003, the Committee shall determine whether the Performance
Objective set forth on Exhibit A has been achieved. The Shares, together with
any property attributable thereto (including, without limitation, dividends and
distributions thereon), shall be delivered to the Officer promptly following
November 2, 2003 unless the Officer has elected to defer receipt of such Shares
in accordance with the terms and conditions of any deferred compensation program
maintained by the Company or has failed to satisfy the condition set forth in
Section 3(i) hereof.
5. Investment Representation. The Shares acquired by the Officer under
this Unit Agreement will be acquired for the Officer's account and not with a
view to the distribution thereof, and the Officer will not sell or otherwise
dispose of the Shares unless the Shares are registered under the Securities Act
of 1933, as amended (the "Act"), or the Officer shall furnish the Company with
an opinion of counsel reasonably satisfactory to the Company that such
registration is not required, and a legend to such effect may be placed on the
certificate for the Shares.
6. Liability; Indemnification. No member of the Committee, nor any person
to whom ministerial duties have been delegated, shall be personally liable for
any action, interpretation or determination made with respect to this Unit
Agreement, and each member of the Committee shall be fully indemnified and
protected by the Company with respect to any liability such member may incur
with respect to any such action, interpretation or determination, to the extent
permitted by applicable law and to the extent provided in the Company's
Certificate of Incorporation and Bylaws, as amended from time to time, or under
any agreement between any such member and the Company.
7. Severability. Each of the Sections contained in this Unit Agreement
shall be enforceable independently of every other section in this Unit
Agreement, and the invalidity or nonenforceability of any section shall not
invalidate or render unenforceable any other section contained in this Unit
Agreement
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<PAGE>
8. Governing Law. This Unit Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey, without reference to
principles of conflict of laws. Exclusive jurisdiction with respect to any legal
proceeding brought concerning any subject matter contained in this Unit
Agreement shall be settled by arbitration as provided in the Retention
Agreement.
9. Captions. The captions of this Unit Agreement are not part of the
provisions hereof and shall have no force or effect.
10. Amendment. This Unit 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. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
(i) If to the Officer, to the address on file with the Company; and
(ii) If to the Company, to it at Toys "R" Us, Inc., 461 From Road,
Paramus, New Jersey 07652, Attention: Senior Vice President - Human Resources;
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
12. Interpretation. The interpretation and decision with regard to any
question arising under this Unit Agreement or with respect to the Stock Units
made by the Committee shall be final and conclusive on the Officer.
13. Successors. This Unit Agreement shall be binding upon the Company and
its successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Company by one
of its duly authorized officers as of the date specified above.
TOYS "R" US, INC.
By: ______________________
Title: ___________________
I hereby acknowledge receipt of the Stock Units and agree to the
provisions set forth in this Agreement.
_____________________________
Michael Shannon
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<PAGE>
EXHIBIT A
Performance Objective Under Section 3(ii)
of the Stock Unit Agreement
The consolidated net earnings of the Company in any fiscal year (beginning with
the first fiscal quarter in 1999) of the Company's 1999, 2000, 2001 or 2002
fiscal year is at least equal to the amount of any corresponding quarter in
1998. For these purposes, "consolidated net earnings" shall exclude
extraordinary or unusual items reported by the Company as such.
-26-
EXHIBIT 13
Tomorrow
Begins With Us
[LOGO]
Toys "R" Us(R)
Annual Report 1998
<PAGE>
[PHOTO OMITTED]
Toys"R"Us
The Worldwide
Authority on
Kids, Families
and Fun
Table of Contents
Financial Highlights .................................................. page 3
Letter to Our Stockholders ............................................ page 4
Management's Discussion and Analysis
of Results of Operations and Financial Condition ...................... page 9
Financial Statements .................................................. page 13
Report of Management and
Report of Independent Auditors ........................................ page 23
Directors and Officers ................................................ page 24
Quarterly Financial Data,
Market Information and Store Locations ................................ page 26
Corporate Data and Citizenship ........................................ page 27
2
<PAGE>
Financial Highlights
Toys"R"Us, Inc. and subsidiaries
<TABLE>
<CAPTION>
(Dollars in millions except per share data) Fiscal Year Ended
=============================================================================================================================
Jan. 30, Jan. 31, Feb.1, Feb. 3, Jan. 28, Jan. 29, Jan. 30, Feb. 1, Feb. 2, Jan. 28,
1999* 1998 1997* 1996* 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net Sales $11,170 $11,038 $ 9,932 $ 9,427 $ 8,746 $ 7,946 $ 7,169 $ 6,124 $ 5,510 $ 4,788
Net (Loss)/Earnings (132) 490 427 148 532 483 438 340 326 321
Basic (Loss)/Earnings
Per Share (0.50) 1.72 1.56 0.54 1.88 1.66 1.51 1.18 1.12 1.11
Diluted (Loss)/Earnings
Per Share (0.50) 1.70 1.54 0.53 1.85 1.63 1.47 1.15 1.11 1.09
FINANCIAL POSITION AT YEAR END:
Working Capital $ 106 $ 579 $ 619 $ 326 $ 484 $ 633 $ 797 $ 328 $ 177 $ 238
Real Estate-Net 2,354 2,435 2,411 2,336 2,271 2,036 1,877 1,751 1,433 1,142
Total Assets 7,899 7,963 8,023 6,738 6,571 6,150 5,323 4,583 3,582 3,075
Long-Term Debt 1,222 851 909 827 785 724 671 391 195 173
Stockholders' Equity 3,624 4,428 4,191 3,432 3,429 3,148 2,889 2,426 2,046 1,705
NUMBER OF STORES AT YEAR END:
Toys"R"Us -
United States 704 700 682 653 618 581 540 497 451 404
Toys"R"Us -
International 452 441 396 337 293 234 167 126 97 74
Kids"R"Us -
United States 212 215 212 213 204 217 211 189 164 137
Babies"R"Us -
United States 113 98 82 -- -- -- -- -- -- --
Total Stores 1,481 1,454 1,372 1,203 1,115 1,032 918 812 712 615
</TABLE>
* After restructuring and other charges.
3
<PAGE>
[PHOTO]
ROBERT C. NAKASONE
Chief Executive Officer
To Our Stockholders
1998 was indeed a year of enormous challenge and change. We've spent the year
intensively reviewing every aspect of our business and making some tough calls
aimed at repositioning our worldwide business. Key elements of our strategic
plan include a Total Solutions Strategy focused on our C-3 plan, which includes
the reformatting and repositioning of our toy stores; development of a customer-
driven culture; expanding product development; improving our customer value
proposition; accelerating our supply chain management program; and expanding our
channels of selling. In conjunction with these restructuring efforts, we have
been proactively rebuilding and reshaping a stronger management team which will
serve to build the foundation for repositioning your Company in the years ahead.
We believe that the sum total of these efforts will serve as the springboard
toward implementing our expanded vision for the future: to position Toys"R"Us as
the worldwide authority on kids, families and fun.
Before outlining our strategic initiatives, let's take a quick look at 1998.
1998 Financial Summary
From a financial standpoint, 1998 was a disappointing year.
Our sales totaled $11.2 billion, which represented a 1.2% increase over the
$11.0 billion reported last year. Comparable store sales in our U.S. toy stores
declined by 4% while our International toy store sales declined by 2%, in local
currency. A key factor behind these sales declines was the much-publicized
weakness in the overall worldwide toy industry which was cycling against very
strong sales of virtual pets, action figures and plush a year ago. In addition,
the lower sales also reflect retail price deflation in the video game hardware
and software category, as well as the deflationary impact of clearance
merchandise sales related to our previously-announced inventory reduction
programs.
Comparable sales at Kids"R"Us were down 2%. Nonetheless, it is worth noting that
comparable store apparel sales were considerably stronger in our 65 "combo"
stores where we have reallocated roughly 6,000 square feet of Kids"R"Us
apparel into existing Toys"R"Us stores. We believe this underscores the
important role of apparel in all our future "R"Us store configurations.
At Babies"R"Us, we're very pleased to report a record performance for 1998.
Comparable store sales were up almost 20%. We now operate 118 Babies"R"Us stores
nationwide and are the market share leader in the juvenile specialty category.
Needless to say, we are extremely pleased with the performance of this division
and plan to continue our aggressive expansion with approximately 20 new stores
slated for '99.
Largely as a result of these sales trends, our net earnings, before
restructuring and other charges, were $376 million or $1.41 per share. Including
the restructuring and other charges of $698 million, ($508 million net of taxes)
the Company incurred a net loss of $132 million or $0.50 per share for 1998.
4
<PAGE>
1998 Restructuring Benefits
We ended 1998 a much healthier and vibrant company. This was attributable to
some tough strategic decisions that will shape the Company's future. We recorded
restructuring and other charges of $508 million net of taxes, which caused the
Company to incur a net loss in 1998. The impact of making these tough calls will
be evident in our future operations, growth and financial performance. These
charges are the result of an exhaustive review of all our operations in 1998
from both a strategic and an Economic Value Added ("EVA(R)") perspective. These
reviews prompted the following significant actions:
o The closing and/or downsizing of approximately 50 toy stores in the
International arena, predominantly in continental Europe, and about 9 U.S. toy
stores which do not meet the Company's strategic or financial objectives. This
will free our management to focus on higher return opportunities;
o The conversion of 28 existing U.S. toy stores into "combo" stores, which will
enable us to close 31 nearby Kids"R"Us stores. In addition to reducing operating
costs and releasing working capital, this will allow us to enhance our
productivity by further expanding kids' apparel into additional Toys"R"Us
stores;
o The consolidation of several distribution centers and over half a dozen
administrative offices. These actions will reduce administrative support
functions in the U.S. and Europe, which will not only generate selling, general
and administrative efficiencies, but "flatten" our organization and bring our
management even closer to our stores and customers;
o The continuation of taking aggressive markdowns on clearance product to
optimize inventory levels, accommodate new product offerings and accelerate our
store reformatting. In conjunction with the initial stages of our supply chain
re-engineering, we have already been able to reduce same store inventories in
all our divisions by over $560 million or 24% at year end 1998, with roughly
$480 million or 31% of this favorable swing coming from reduced inventory in the
U.S. toy stores division alone. This brought us into the new year with
heightened merchandise flexibility and increased "open to buy" as we begin the
rollout of the initial phase of our store reformat program in 1999.
One of our other key priorities in 1998 was to build a strong executive team,
and we are well on our way towards assembling a truly outstanding management
team. Since the beginning of '98, more than 50 percent of our officer team has
either joined the company from the outside, or has been promoted or transferred
to new assignments, bringing fresh perspectives and proven skills to our
business.
It is obvious our 1998 sales and earnings were not what we wanted them to be.
However, we've spent a year making tough calls and hard decisions, and we're now
ready to move forward stronger and more focused than ever.
Total Solutions Strategy
Our restructuring program, in September 1998, was the first step required to
launch a winning strategy for Toys"R"Us - a strategy which will realign our
assets, organization and thinking based on customer-driven priorities in a more
competitive marketplace. In the "R"Us brand, we have one of the best-known brand
names in the world: our challenge is to more effectively develop this strong
customer franchise potential. Today's retail marketplace demands stores that are
exciting, easy to shop and customer-friendly. While our selection is still
superior to our competitors, that alone is not compelling enough to rebuild
market share and brand loyalty. We must become more focused on developing
greater everyday customer value in terms of price, service and the total
shopping experience.
To fulfill these objectives, we are moving into the second phase of our Total
Solutions Strategy in 1999.
[PHOTO]
We are rebuilding our
"worlds" around theirs.
5
<PAGE>
C-3 - More Than Just a Store
Over the next two years, the C-3 plan will include the implementation of new
merchandise as well as customer service, store layout, price/value and supply
chain improvements that provide an integrated approach to maximizing customer
potential.
This has led our new management team to develop an initiative that is a Customer
driven . . .Cost effective . . . Concept delivering sustainable, long-term
performance. C-3 is a total customer solution involving every facet of our
Company from merchandising and replenishment to operations and people
development.
In October 1998, we started our C-3 development operationally in nine stores to
"stress test" a new, more customer-friendly store layout during our high sales
season. We proved that our operations could handle high velocity seasonal
inventory flow despite a 33% smaller backroom, and that we could maintain
acceptable in-stock conditions despite an entirely new operating approach. We
are encouraged by the positive customer reaction to these stores, and are
experiencing positive sales trends, even though a majority of C-3 merchandise
enhancements will not be implemented until mid-1999.
Based on the positive results of this initial operational phase of C-3, we are
even more committed to the 1999 conversion of approximately 200 U.S. stores,
which will include the development of many new merchandising "worlds." We will
also retrofit the front end in an additional 125 stores this year to include the
R Zone (teen electronics), promotional product and easier customer access. The
C-3 Total Solutions Strategy consists of an easier-to-shop store layout, an
expanded merchandise offering, a higher standard of customer service and a more
effective supply chain approach that will enable us to build long-term
performance improvement. Over the next few years we will align our organization,
capital investments and operating approach to fully focus on the following C-3
objectives:
o Store Repositioning
Our stores must be made easier to shop and present merchandise in a more dynamic
selling environment. The C-3 store layout creates 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 our
backrooms.
o Customer-Driven Culture
The customer must experience a higher level of service in our stores. To
accomplish this, we are streamlining our organization and operating processes to
allow us to invest more in sales floor staffing, associate product knowledge
training, and improving overall customer-friendly service. We are also
intensifying our in-store informational graphics and product inter-activity to
give our customers access to more substantial product knowledge on a
"self-service" basis.
[PHOTO]
R Zone, the new "hot spot" for
teens, features the newest in
electronics and videos.
6
<PAGE>
[PHOTO]
Families love shopping
at our newest location:
www.toysrus.com.
o Product Development
We must give our customers more reasons to shop our stores. Based on the results
of extensive customer research, we have created merchandise "worlds." Each
"world" has a unique customer franchise from juvenile (Mom and her baby), to R
Zone electronics and video products (the "cool" spot for teenage customers).
Each "world" will establish its own business plan and has a complete support
team to develop its business from product sourcing to customer advertising and
promotion.
The "worlds" presently being developed are:
o R Zone (video, electronics, computer software related products)
o Action and Adventure (action figures, diecast cars, etc.)
o Girls (dolls, collectibles, accessories, lifestyle products)
o Outdoor Fun (bikes, sports, playsets)
o Pre-School (toys, accessories)
o Seasonal (Christmas, Halloween, Summer, etc.)
o Juvenile (baby products and 0-4 apparel)
o Learning Center (educational and developmental products)
o Family Fun (games and puzzles)
1999 will see a majority of the new "world" product selection and merchandising
included in our C-3 rollout.
In addition, emphasis on proprietary product, private label, and branded
exclusives will continue to be a significant part of our product development
strategy. Retail sale of proprietary exclusive and private label merchandising
was up significantly in 1998, and we are targeting to double this business over
the next three years.
Customer Value Proposition
The "R"Us brand must take on new dimensions of significant value to our
customers. We are evaluating our pricing model to assure an everyday,
competitive position on key products. We are more aggressively pursuing high
demand and closeout product opportunities to bring more special price values to
our customers in 1999. We also see a great opportunity to further leverage our
substantial "R"Us customer database through the creation of a Loyalty Marketing
Program, which will be piloted in several metropolitan markets in 1999. The
mandate for our new team in marketing is quite clear: sharpen our advertising,
promotion and "R"Us brand-building efforts.
Supply Chain
The first step in improving our supply chain management in 1998 was to unclog
slow turning inventory from our stores. Our inventory reduction program will
allow us to transform our stores' physical and merchandising layout. This will
be completed in 1999. These actions will allow us to create a more
customer-driven product flow, improve turns, effectively manage space for
product productivity and operationally have the right product ...at the right
place ...at the right time.
E-Commerce
We are extending our presence beyond our stores by expanding our channels of
selling to our customers. We will be wherever our customers are, and that
includes mediums such as mail-order catalogs and electronic commerce.
1998 marked our entry into the exciting world of electronic commerce with the
introduction of Internet shopping through www.toysrus.com. Following our launch
on the Internet last June, traffic to our website has grown significantly. We
are upgrading our capacity to meet the growing demand and we are committed to
making this site a dominant force in online retailing. We are presently aligning
our distribution, buying and brand strengths to more broadly impact the Internet
in 1999.
7
<PAGE>
[PHOTO]
Everyday, a new
customer is born.
"Worldwide Authority on Kids,
Families and Fun" -
The "R"Us Potential
Most of us grew up as Toys"R"Us kids. We strongly believe that our Company's
success and growth as we proceed into the next millennium will be tied to our
unique ability to delight our valued customers - past, present and future. We
must captivate their imaginations and introduce them to the exciting and fun
world of limitless possibilities that the "R"Us family is committed to
providing: a world where they know they are the most important ingredient in
everything we do.
These are aggressive goals that require a total commitment to our customers,
dramatic cultural change in our organization and a clear, strategic vision that
effectively mobilizes the substantial resources of our Company. It will take
time. It will not be easy. But we believe in the strength and potential of the
"R"Us customer franchise, and we most importantly believe that the people in the
Toys"R"Us organization worldwide have what it takes to create a strong,
successful future for all of us.
That future begins now.
Sincerely,
/s/Robert C. Nakasone
Robert C. Nakasone
Chief Executive Officer
March 29, 1999
8
<PAGE>
Management's Discussion and Analysis
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations*
The Company's total sales increased to $11.2 billion for 1998, a 1.2% increase
from total sales of $11.0 billion last year. Sales increased by 11.1% in 1997
and 5.4% in 1996. In 1998 sales were negatively impacted by the overall weakness
in the worldwide toy industry which was cycling against strong sales of virtual
pets, action figures and plush a year ago. In addition, sales were negatively
impacted by sales of video hardware and software at lower price points as well
as the deflationary effect from sales of clearance merchandise related to the
Company's inventory reduction program. Comparable store sales for the Toys USA
division declined 4% while the Toys International division had a 2% comparable
store sales decline, in local currency. Kids"R"Us reported a 2% comparable store
sales decrease in 1998. The softness in Toys and Kids was offset to some extent
by an almost 20% comparable store sales gain in Babies"R"Us.
The Company's three-year sales growth is primarily attributable to the
acquisition of Baby Superstore and the Company's continued store expansion. The
Company opened 56 new U.S.A. toy stores, 133 international toy stores, including
franchise and joint venture stores, 10 children's clothing stores, 40 baby
specialty stores, and acquired 76 baby specialty stores during the three year
period. The Company closed 23 stores from 1996 through 1998 and terminated a
franchise agreement in Italy for 14 stores. These closures did not have a
significant impact on the Company's financial position.
Cost of sales as a percentage of sales increased to 73.3% in 1998 from 69.8% in
1997. Cost of sales was negatively impacted by clearance markdowns of $253
million, markdowns related to strategic initiatives of $29 million, and
inventory system refinements and changes in accounting estimates of $63 million.
Before the impact of these charges, cost of sales as a percentage of sales was
70.2%. Excluding these charges, the Toys USA division reported cost of sales as
a percentage of sales of 71.0% in 1998 and 70.5% in 1997. The Toys International
division, also excluding the charges, reported cost of sales as a percentage of
sales of 69.1% in 1998 and 68.8% in 1997. These increases were due to a change
in the sales mix consisting of a decrease in sales of higher margin action
figures and virtual pets, as well as higher sales of lower margin video software
merchandise. Consolidated cost of sales as a percentage of sales increased by
0.4% in 1997 from 69.4% in 1996 as a result of higher costs related to the
Company's promotional holiday selling program, higher than historical inventory
shrinkage and the continued strengthening of the Company's lower margin video
business.
Selling, advertising, general and administrative expenses (SG&A) as a percentage
of sales were 21.9% in 1998, 20.2% in 1997, and 20.3% in 1996. SG&A for 1998
includes $59 million of changes in accounting estimates and provisions for legal
settlements discussed below. Before the impact of these charges, SG&A as a
percentage of sales for 1998 was 21.3%. Excluding these charges, the Toys USA
division reported SG&A as a percentage of sales of 18.6% in 1998 and 17.5% in
1997, while Toys International's SG&A as a percentage of sales was 23.6% in 1998
and 23.1% in 1997. These increases were the result of the implementation of
strategic initiatives and store expansion, not offset by sales leveraging. The
slight decrease in consolidated SG&A in 1997 was primarily due to expense
control and sales leveraging, partially offset by additional distribution and
handling costs related to higher than planned inventory levels.
Depreciation, amortization and asset write-offs were $255 million, $253 million
and $206 million in 1998, 1997 and 1996, respectively. The increase in 1997
included $19 million in asset write-offs for store conversions.
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). The strategic initiatives
resulted in a restructuring charge of $294 million. The other charges of $59
million primarily consist of changes in accounting estimates and provisions for
legal settlements. The Company is closing and/or downsizing underperforming
stores and consolidating distribution centers and administrative offices. As a
result, approximately 2,600 employees will be terminated worldwide. Stores
expected to be closed had aggregate store sales and net operating losses of
approximately $322 million and $5 million, respectively, for the year ended
January 30, 1999. The write-down of property, plant and equipment relating to
the above mentioned closures and downsizings were based on both internal and
independent appraisals. Unused reserves at January 30, 1999, should be utilized
in 1999, with the exception of long-term lease commitments, which will be
utilized in 1999 and thereafter. Details on the components of the charges are
described in the Notes to the Consolidated Financial Statements and are as
follows:
* References to 1998, 1997 and 1996, are for the 52 weeks ended January 30,
1999, January 31, 1998 and February 1, 1997.
9
<PAGE>
Management's Discussion and Analysis
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Reserve Balance
Description Charge Utilized @1/30/99
- --------------------------------------------------------------------------------
Closings/Downsizings:
Lease commitments $ 81 $ -- $ 81
Severance and other
closing costs 29 4 25
Write-down of property,
plant & equipment 155 155 --
Other 29 5 24
- --------------------------------------------------------------------------------
Total Restructuring $ 294 $164 $130
================================================================================
Changes in accounting
estimates and provisions
for legal settlements $ 59 $ 20 $ 39
================================================================================
In 1998 the Company also announced markdowns and other charges of $345 million
($229 million net of tax benefits, or $.86 per share). Of this charge, $253
million relates to markdowns required to clear excess inventory from stores.
These markdowns should enable the Company to achieve its optimal inventory
assortment and streamline systems so that it can proceed with the C-3
conversions on an accelerated basis. The Company's objective with its new C-3
concept is to provide customers with a better shopping experience leading to
increased sales and higher inventory turns. In addition, the Company recorded
$29 million in markdowns related to the store closings discussed previously. The
Company also recorded charges to cost of sales of $63 million related to
inventory system refinements and changes in accounting estimates. Unused
reserves at January 30, 1999 are expected to be utilized in 1999. Details of the
markdowns and other charges are as follows:
Reserve Balance
Description Charge Utilized @1/30/99
- --------------------------------------------------------------------------------
Markdowns
Clear excess inventory $253 $179 $ 74
Store closings 29 2 27
Change in accounting
estimates and other 63 57 6
================================================================================
Total Cost of Sales $345 $238 $107
================================================================================
The strategic initiatives, markdowns and other charges described above are
expected to improve the Company's free cash flow and increase operating
earnings.
The Company's 1996 results were impacted by a charge of $60 million ($38 million
net of tax benefits, or $.14 cents per share), relating to an arbitration award
rendered against the Company involving a dispute over a 1982 franchise agreement
to operate stores in the Middle East.
At January 30, 1999, the Company had approximately $45 million of reserves
remaining from its restructuring program announced in 1995, primarily relating
to long-term lease obligations. The Company believes these reserves are adequate
to complete the restructuring program.
Interest expense increased by $17 million in 1998, as compared to 1997,
primarily due to higher borrowings throughout the year as a result of the
Company's share repurchase programs. Also included in 1998 interest expense is
$6 million for the early extinguishment of long-term debt. Interest expense
decreased in 1997 as compared to 1996 primarily due to lower average short-term
borrowings and to a $325 million medium-term financing which replaced borrowings
carrying higher interest rates.
The Company's effective tax rate for 1998 was unfavorably affected by the
restructuring and other charges recorded in the third quarter of 1998. Excluding
the impact of these charges, the Company's effective tax rate was 36.5% in 1998,
as well as in 1997 and 1996.
International sales were unfavorably impacted by the translation of local
currency results into U.S. dollars by approximately $30 million, $250 million
and $150 million in 1998, 1997 and 1996, respectively. Neither the translation
of local currency results into U.S. dollars nor inflation had a material effect
on the Company's operating results for the last three years.
Liquidity & Capital Resources
The Company's cash flows from operations increased to $964 million in 1998 from
$509 million in 1997 primarily due to a significant reduction in inventories
during 1998 as well as higher accounts payable, accrued expenses and other
liabilities at January 30, 1999. Cash flows from operations decreased by $234
million in 1997 compared with 1996 primarily due to higher inventories.
Cash flows used for investing activities decreased by $94 million in 1998,
primarily due to fewer new store openings in 1998, as well as fewer store
conversions in 1998 compared with 1997. Store conversions were the primary
factor in the $79 million capital expenditure increase in 1997.
Cash flows used for financing activities decreased to $344 million in 1998 from
$498 million in 1997 primarily due to repayment of a $115 million Baby
Superstore obligation in 1997. The Company repurchased over 32 million shares of
its stock for $723 million in 1998, which was the primary reason for the
increase in total borrowings net of cash of
10
<PAGE>
Management's Discussion and Analysis
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
$200 million in 1998 as compared with 1997. Cash flows used for financing
activities increased by $709 million in 1997 compared with 1996 primarily due to
the $325 million medium term financing in 1996, as well as $253 million expended
for the Company's stock repurchase program in 1997.
On February 3, 1997, the Company acquired Baby Superstore, Inc. for 13 million
treasury shares of the Company's common stock valued at approximately $376
million. This acquisition was accounted for as a purchase as of February 1,
1997, and the excess of purchase price over net assets acquired in the amount of
$365 million has been recorded as goodwill and is being amortized over 40 years.
In 1999, the Company plans to open approximately 10 toy stores in the United
States and approximately 25 international toy stores, including 10 franchise
stores. Our newest division, Babies"R"Us, will open approximately 20 stores in
the United States.
For 1999, capital requirements for real estate, store and warehouse fixtures and
equipment, leasehold improvements and other additions to property and equipment
are estimated at approximately $550 million. These plans include the full
conversion of approximately 200 toy stores and the partial conversion of an
additional 125 toy stores in the United States to the C-3 format.
In 1998 the Company repurchased over 32 million shares of its common stock
through its share repurchase programs for a total of $723 million. In 1998 the
Company completed its $1 billion share repurchase program announced in January
1994, and has $330 million remaining in its $1 billion share repurchase program
announced in January 1998.
The seasonal nature of the business (approximately 45% of sales take place in
the fourth quarter) typically causes cash to decline from the beginning of the
year through October as inventory increases for the holiday selling season and
funds are used for land purchases and construction of new stores, which usually
open in the first ten months of the year. The Company has a $1 billion
multi-currency unsecured committed revolving credit facility expiring in
December 2002, from a syndicate of financial institutions. There were no
outstanding balances under this revolver at January 1999, 1998, and 1997. Cash
requirements for operations, capital expenditures, lease commitments and the
share repurchase program will be met primarily through operating activities,
borrowings under the revolving credit facility, issuance of commercial paper
and/or other bank borrowings for foreign subsidiaries.
Quantitative and Qualitative
Disclosures About Market Risks
The Company is exposed to market risk from potential changes in interest rates
and foreign exchange rates. The Company regularly evaluates these risks and has
taken the following measures to mitigate these risks: the countries in which the
Company owns assets and operates stores are politically stable; the Company's
foreign exchange risk management objectives are to stabilize cash flow from the
effects of foreign currency fluctuations; the Company will, whenever practical,
offset local investments in foreign currencies with borrowings denominated in
the same currencies; the Company also enters into foreign exchange contracts or
purchases options to eliminate specific transaction risk. The market risk
related to these derivative contracts is offset by the changes in value of the
underlying items being hedged. Approximately half of the Company's long-term
debt is at fixed interest rates and therefore, the fair value is affected by
changes in market interest rates. The Company believes the amount of risk and
the use of derivative financial instruments described above are not material to
the Company's financial condition or results of operations.
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: 1) information technology (IT) systems, 2) non-IT
systems, 3) relationships with key business partners and 4) contingency
planning. The Company has substantially completed the required coding
conversions and testing on IT and non-IT systems as of January 30, 1999. The
Company will continue to perform full integrated testing in 1999. The Company
has utilized both internal and external resources to implement the conversion of
its systems for Year 2000 compliance.
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 January 30, 1999. All of these costs are being funded through
cash flows from operations. The Company has identified significant business
partners and is working closely with them to understand their Year 2000
compliance status. The Company anticipates minimal business interruption to
occur as a result of Year 2000 issues within its control. However, possible
consequences include, but are not limited to, loss of communication links with
store locations, loss of electric power, delayed product deliveries from major
suppliers, and
11
<PAGE>
Management's Discussion and Analysis
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
the inability to process transactions or engage in similar normal business
activities. In addition, not all customer situations can be anticipated.
The Company may experience an increase of sales returns of products
containing hardware or software components. Such returns, if they occur,
are likely to be the responsibility of the manufacturers and are not
expected to be material to the Company's financial condition or results of
operations. The Company believes the readiness of third parties is the
most significant area of risk to the Company related to Year 2000.
However, the Company also believes that ongoing communication with and
assessment of readiness of these third parties will minimize this risk.
The Company has begun to develop but has not yet finalized a contingency
plan for possible Year 2000 issues. Contingency plans are expected to be
in place by the end of the second quarter of 1999.
The total cost of the Year 2000 project is not expected to have a material
effect on the Company's financial condition or results of operations. The costs
of conversion and the completion dates for the project are management's best
estimates.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130 -
Reporting Comprehensive Income, which requires the separate reporting of all
changes to stockholders' equity, and SFAS No. 131 - Disclosures About Segments
of an Enterprise and Related Information, which revises existing guidelines
about the level of financial disclosure of a Company's operations. In March
1998, the Accounting Standards Executive Committee issued Statement of Position
98-1, Accounting for Computer Software Developed for Internal Use, which
requires capitalization of certain costs to develop internal use computer
software. These statements were adopted by the Company in fiscal 1998 and did
not have a material effect on the consolidated financial position, results of
operations or cash flows of the Company.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133
- - Accounting for Derivative Instruments and Hedging Activities, which the
Company is required to adopt in its fiscal year beginning February 2000. 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.
Euro Conversion
The Company has developed a plan to ensure business and systems continuity
during the introduction of the Euro currency in certain of the Company's
European operations. The initial phase of this plan was implemented prior to the
January 1, 1999 (Phase 1) introduction of the Euro. Further implementation of
this plan is scheduled to coincide with the transition phases (Phases 2 and 3)
of completely converting from local denominated currencies to the Euro (the
"Euro conversion"). Total costs for the entire Euro conversion program are not
expected to be material. Based on the actions taken to date, the Company does
not expect the Euro conversion to have a material effect on the consolidated
financial position, results of operations or cash flows of the Company.
Forward Looking Statements
This annual report contains "forward looking" statements which are intended to
be covered by the safe harbors created thereby. 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 that involve inherent risks and uncertainties. Actual results may differ
materially from those contained in any forward looking statement.
12
<PAGE>
Consolidated Statements of Earnings
TOYS "R"US, INC. AND SUBSIDIARIES
Year Ended
-------------------------------------
January 30, January 31, February 1,
(In millions except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------
Net Sales $ 11,170 $ 11,038 $ 9,932
Cost of sales 8,191 7,710 6,892
- -------------------------------------------------------------------------------
Gross Profit 2,979 3,328 3,040
- -------------------------------------------------------------------------------
Selling, advertising, general and
administrative expenses 2,443 2,231 2,020
Depreciation, amortization
and asset write-offs 255 253 206
Restructuring and other charges 294 -- 60
- -------------------------------------------------------------------------------
Total Operating Expenses 2,992 2,484 2,286
- -------------------------------------------------------------------------------
Operating (Loss)/Income (13) 844 754
Interest expense 102 85 98
Interest and other income (9) (13) (17)
- -------------------------------------------------------------------------------
Interest Expense, Net 93 72 81
- -------------------------------------------------------------------------------
(Loss)/Earnings Before Income Taxes (106) 772 673
Income Taxes 26 282 246
- -------------------------------------------------------------------------------
Net (Loss)/Earnings $ (132) $ 490 $ 427
===============================================================================
Basic (Loss)/Earnings Per Share $ (0.50) $ 1.72 $ 1.56
===============================================================================
Diluted (Loss)/Earnings Per Share $ (0.50) $ 1.70 $ 1.54
===============================================================================
See notes to consolidated financial statements
[PHOTO]
The "R"Us brand has successfully captured
young imaginations and a significant market share.
13
<PAGE>
[PHOTO]
Our ever-expanding outdoor and sports
headquarters features everything fun
under the sun.
Consolidated Balance Sheets
TOYS "R"US INC. AND SUBSIDIARIES
January 30, January 31,
(In millions) 1999 1998
- ------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 410 $ 214
Accounts and other receivables 204 175
Merchandise inventories 1,902 2,464
Prepaid expenses and other current assets 81 51
- ------------------------------------------------------------------------------
Total Current Assets 2,597 2,904
Property and Equipment:
Real estate, net 2,354 2,435
Other, net 1,872 1,777
- ------------------------------------------------------------------------------
Total Property and Equipment 4,226 4,212
Goodwill, net 347 356
Other assets 729 491
- ------------------------------------------------------------------------------
$ 7,899 $ 7,963
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 156 $ 134
Accounts payable 1,415 1,280
Accrued expenses and other current liabilities 696 680
Income taxes payable 224 231
- ------------------------------------------------------------------------------
Total Current Liabilities 2,491 2,325
Long-Term Debt 1,222 851
Deferred Income Taxes 333 219
Other Liabilities 229 140
Stockholders' Equity:
Common stock 30 30
Additional paid-in capital 459 467
Retained earnings 4,478 4,610
Foreign currency translation adjustments (100) (122)
Treasury shares, at cost (1,243) (557)
- ------------------------------------------------------------------------------
Total Stockholders' Equity 3,624 4,428
- ------------------------------------------------------------------------------
$ 7,899 $ 7,963
==============================================================================
See notes to consolidated financial statements.
14
<PAGE>
Consolidated Statements of Cash Flows
TOYS "R"US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
------------------------------------
January 30, January 31, February 1,
(In millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/earnings $(132) $ 490 $ 427
Adjustments to reconcile net (loss)/earnings to net cash
provided by operating activities:
Depreciation, amortization and asset write-offs 255 253 206
Deferred income taxes (90) 18 23
Restructuring and other charges 546 -- --
Changes in operating assets and liabilities:
Accounts and other receivables (43) (40) (14)
Merchandise inventories 233 (265) (195)
Prepaid expenses and other operating assets (27) (9) (10)
Accounts payable, accrued expenses and other liabilities 229 22 262
Income taxes payable (7) 40 44
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 964 509 743
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (373) (494) (415)
Other assets (49) (22) (36)
Cash received with the acquisition of Baby Superstore -- -- 67
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (422) (516) (384)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net 4 (142) (10)
Long-term borrowings 771 11 326
Long-term debt repayments (412) (176) (133)
Exercise of stock options 16 62 28
Share repurchase program (723) (253) --
- ----------------------------------------------------------------------------------------------------
Net cash (used in)/provided by financing activities (344) (498) 211
- ----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (2) (42) (12)
CASH AND CASH EQUIVALENTS
Increase/(decrease) during year 196 (547) 558
Beginning of year 214 761 203
- ----------------------------------------------------------------------------------------------------
End of year $ 410 $ 214 $ 761
====================================================================================================
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Income Tax Payments $ 122 $ 192 $ 177
Interest Payments $ 109 $ 83 $ 109
====================================================================================================
</TABLE>
See notes to consolidated financial statements
15
<PAGE>
Consolidated Statements of Stockholders' Equity
TOYS "R" US, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock
------------------------------ Foreign
Issued In Treasury Additional currency Total
------------- -------------- paid-in translation Retained stockholders'
(In millions) Shares Amount Shares Amount capital adjustments earnings equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 3, 1996 300.4 $30 (27.3) $ (846) $ 542 $ 13 $ 3,693 $ 3,432
Net earnings for the year -- -- -- -- -- -- 427 427
Foreign currency translation
adjustments -- -- -- -- -- (73) -- (73)
Comprehensive Income 354
Acquisition of Baby Superstore, Inc. -- -- 13.0 400 (23) -- -- 377
Exercise of stock options, net -- -- 1.7 58 (30) -- -- 28
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, February 1, 1997 300.4 30 (12.6) (388) 489 (60) 4,120 4,191
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings for the year -- -- -- -- -- -- 490 490
Foreign currency translation
adjustments -- -- -- -- -- (62) -- (62)
Comprehensive Income 428
Share repurchase program -- -- (8.2) (253) -- -- -- (253)
Exercise of stock options, net -- -- 2.8 84 (22) -- -- 62
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998 300.4 30 (18.0) (557) 467 (122) 4,610 4,428
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss for the year -- -- -- -- -- -- (132) (132)
Foreign currency translation
adjustments -- -- -- -- -- 22 -- 22
Comprehensive loss (110)
Share repurchase program -- -- (32.2) (723) -- -- -- (723)
Issuance of restricted stock -- -- -- 15 (2) -- -- 13
Exercise of stock options, net -- -- .4 22 (6) -- -- 16
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 30, 1999 300.4 $30 (49.8) $(1,243) $ 459 $(100) $ 4,478 $ 3,624
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements
[PHOTO]
#1 for Family Fun!
For generations Toys"R"Us
has given families ways to
spend quality time together.
16
<PAGE>
Notes to Consolidated Financial Statements
TOYS "R"US, INC. AND SUBSIDIARIES
(Amounts in millions except per share data)
Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31. Reference
to 1998, 1997 and 1996 are for the 52 weeks ended January 30, 1999, January 31,
1998, and February 1, 1997, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The 1996 consolidated statement of cash flows also reflects
the acquisition of Baby Superstore, Inc. All material intercompany balances and
transactions have been eliminated. Assets and liabilities of foreign operations
are translated at current rates of exchange at the balance sheet date while
results of operations are translated at average rates in effect for the period.
Translation gains or losses are shown as a separate component of stockholders'
equity.
Cash and Cash Equivalents
The Company considers its highly liquid investments with original maturities of
less than three months to be cash equivalents.
Merchandise Inventories
Merchandise inventories for the U.S.A. toy store operations, which represent
approximately 60% of total inventories, are stated at the lower of LIFO
(last-in, first-out) cost or market, as determined by the retail inventory
method. If inventories had been valued at the lower of FIFO (first-in,
first-out) cost or market, inventories would show no change at January 30, 1999
or January 31, 1998. All other merchandise inventories are stated at the lower
of FIFO cost or market as determined by the retail inventory method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets or, where applicable, the terms of the respective leases, whichever is
shorter. The Company evaluates the need to recognize impairment losses relating
to long-lived assets based on several factors including, but not limited to,
management's plans for future operations, recent operating results and projected
cash flows.
Preopening Costs
Preopening costs, which consist primarily of advertising, occupancy and payroll
expenses, are amortized over expected sales to the end of the fiscal year in
which the store opens.
Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents and short-term borrowings approximate their fair market values.
Forward Foreign Exchange Contracts
The Company enters into forward foreign exchange contracts to eliminate the risk
associated with currency movement relating to its short-term intercompany loan
program with foreign subsidiaries and inventory purchases denominated in foreign
currency. Gains and losses, which offset the movement in the underlying
transactions, are recognized as part of such transactions. Gross deferred
unrealized gains and losses on the forward contracts were not material at either
January 30, 1999 or January 31, 1998. The related receivable, payable and
deferred gain or loss are included on a net basis in the balance sheet. The
Company had $209 and $439 of short term outstanding forward contracts at January
30, 1999 and January 31, 1998, maturing in 1999 and 1998, respectively. These
contracts are entered into with counterparties that have high credit ratings and
with which the Company has the contractual right to net forward currency
settlements. In addition, the Company had a $342 currency swap obligation
outstanding at January 30, 1999 related to its 475 Swiss franc note payable due
2004.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
17
<PAGE>
PROPERTY AND EQUIPMENT
Useful Life January 30, January 31,
(in years) 1999 1998
- -------------------------------------------------------------------------------
Land $ 829 $ 817
Buildings 45-50 1,842 1,849
Furniture and equipment 5-20 1,861 1,711
Leaseholds and
leasehold improvements 12 1/2-35 1,213 1,158
Construction in progress 42 46
Leased property
under capital leases 27 29
- -------------------------------------------------------------------------------
5,814 5,610
Less accumulated depreciation
and amortization 1,588 1,398
===============================================================================
$ 4,226 $ 4,212
===============================================================================
Seasonal Financing
and Long-Term Debt
January 30, January 31,
1999 1998
- -------------------------------------------------------------------------------
Commercial Paper $ 368 $ --
interest rates from 4.87% to 4.89%
475 Swiss franc note payable, due 2004(a) 342 --
8 3/4% debentures, due 2021,
net of expenses 198 198
Japanese yen loans with interest payable
at annual rates from 1.49% to 6.47%,
due in varying amounts through 2012 198 123
Industrial revenue bonds,
net of expenses (b) 60 60
7% British pound sterling loan payable,
due quarterly through 2001(c) 33 49
8 1/4% sinking fund debentures,
due 2017, net of discounts 24 89
Mortgage notes payable at annual
interest rates from 10.16% to 11.00% (d) 11 14
Obligations under capital leases 11 14
5.78% 200 British pound sterling note payable (e) -- 325
- -------------------------------------------------------------------------------
1,245 872
Less current portion (f) 23 21
- -------------------------------------------------------------------------------
$ 1,222 $ 851
===============================================================================
(a) Supported by a 406 Swiss franc bank letter of credit. This note has been
converted by an interest rate and currency swap to a floating rate, US dollar
obligation at 3 month LIBOR less approximately 107 basis points.
(b) Bank letters of credit of $41, expiring in 2000, support certain of these
industrial revenue bonds. The Company expects that the bank letters of credit
will be renewed. The bonds have fixed or variable interest rates with an average
rate of 3.6% at January 30, 1999.
(c) Collateralized by property with a carrying value of $160 at January 30,
1999.
(d) Collateralized by property and equipment with an aggregate carrying value of
$15 at January 30, 1999.
(e) Supported by a 200 British pound sterling bank letter of credit. This note
was redeemed on January 29, 1999.
(f) Included in accrued expenses and other current liabilities on the
consolidated balance sheets.
The fair market value of the Company's long-term debt at January 30, 1999,
exclusive of commercial paper, and January 31, 1998 were approximately $980 and
$1,004, respectively. The fair market value was estimated using quoted market
rates for publicly traded debt and estimated interest rates for non-public debt.
The Company has a $1 billion unsecured committed revolving credit facility
expiring in December 2002. This multi-currency facility permits the Company to
borrow at the lower of LIBOR plus a fixed spread or a rate set by competitive
auction. The facility is available to support domestic commercial paper
borrowings and to meet worldwide cash requirements.
Commercial paper is classified as long-term debt at January 30, 1999 as the
company maintains long-term committed credit agreements, as described above, to
support these borrowings and intends to refinance them on a long-term basis
through continued commercial paper borrowings. Commercial paper of $70 at
January 31, 1998 was included in short-term borrowings.
Additionally, the Company also has lines of credit with various banks to meet
the short-term financing needs of its foreign subsidiaries.
The weighted average interest rate on short-term borrowings outstanding at
January 30, 1999 and January 31, 1998 was 3.8% and 5.0%, respectively.
The annual maturities of long-term debt at January 30, 1999, excluding
commercial paper of $368, are as follows:
- ------------------------------------------------------------------------
1999 $ 23
2000 65
2001 7
2002 8
2003 7
2004 and subsequent 767
========================================================================
$ 877
========================================================================
Leases
The Company leases a portion of the real estate used in its operations. Most
leases require the Company to pay real estate taxes and other expenses; some
require additional amounts based on percentages of sales. Minimum rental
commitments under noncancelable operating leases having a term of more than one
year as of January 30, 1999 are as follows:
Gross Net
minimum Sublease minimum
rentals income rentals
- -------------------------------------------------------------------------------
1999 $ 355 $ 20 $ 335
2000 352 18 334
2001 346 15 331
2002 339 13 326
2003 338 11 327
2004 and subsequent 2,964 60 2,904
- -------------------------------------------------------------------------------
$ 4,694 $ 137 $ 4,557
===============================================================================
Total rent expense, net of sublease income was $334, $309 and $282 in 1998, 1997
and 1996, respectively.
18
<PAGE>
STOCKHOLDERS' EQUITY
The common shares of the Company, par value $.10 per share, were as follows:
January 30, January 31,
1999 1998
- --------------------------------------------------------------------------------
Authorized shares 650.0 650.0
- --------------------------------------------------------------------------------
Issued shares 300.4 300.4
- --------------------------------------------------------------------------------
Treasury shares 49.8 18.0
- --------------------------------------------------------------------------------
Issued and outstanding shares 250.6 282.4
================================================================================
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
1998 1997 1996
- --------------------------------------------------------------------------------
Numerator:
Net(loss)/income available to
common stockholders $ (132) $ 490 $ 427
Denominator for basic earnings
per share - weighted average
shares 265.4 285.3 274.0
Effect of diluted securities:
Stock options, etc -- 3.1 3.5
Denominator for diluted
earnings per share - adjusted
weighted average shares 265.4 288.4 277.5
- --------------------------------------------------------------------------------
Basic (Loss)/Earnings per share $ (0.50) $ 1.72 $ 1.56
- --------------------------------------------------------------------------------
Diluted (Loss)/Earnings per share $ (0.50) $ 1.70 $ 1.54
================================================================================
Options to purchase approximately 25.0 shares of common stock were outstanding
during 1998, but were not included in the computation of diluted loss per share
as the effect would be antidilutive.
Taxes on Income
The provisions for income taxes consist of the following:
1998 1997 1996
- --------------------------------------------------------------------------------
Current:
Federal $ 78 $ 199 $ 136
Foreign 18 35 57
State 20 30 30
- --------------------------------------------------------------------------------
116 264 223
- --------------------------------------------------------------------------------
Deferred:
Federal (64) 32 58
Foreign (9) (17) (39)
State (17) 3 4
- --------------------------------------------------------------------------------
(90) 18 23
- --------------------------------------------------------------------------------
Total tax provision $ 26 $ 282 $ 246
================================================================================
The tax effects of temporary differences and carry forwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
January 30, January 31,
1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets:
Foreign net operating loss carryforwards $ 311 $ 214
Restructuring 92 20
Other 27 42
- --------------------------------------------------------------------------------
Gross deferred tax assets 430 276
Valuation allowance related to
net operating losses (141) (43)
- --------------------------------------------------------------------------------
$ 289 $ 233
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 281 277
LIFO inventory 50 88
Other tax -- --
- --------------------------------------------------------------------------------
Gross deferred tax liabilities $ 331 $ 365
================================================================================
Net deferred tax liability $ 42 $ 132
================================================================================
A reconciliation of the federal statutory tax rate with the effective tax rate
follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit (4.2) 3.2 3.7
Foreign taxes, net of
valuation allowances (52.3) (2.3) (2.3)
Subpart F income (8.5) -- --
Foreign tax credits 6.8 -- --
Amortization of goodwill (3.0) 0.4 --
Other, net 1.7 0.2 0.1
- --------------------------------------------------------------------------------
Effective tax rate (24.5)% 36.5% 36.5%
================================================================================
Certain foreign tax benefits have been offset by valuation allowances related to
net operating losses due in part to the restructuring and other charges recorded
in 1998. Deferred income taxes are not provided on unremitted earnings of
foreign subsidiaries that are intended to be indefinitely invested. Exclusive of
amounts, that if remitted would result in little or no tax under current U.S.
tax laws, unremitted earnings were approximately $515 at January 30, 1999. Net
income taxes of approximately $139 would be due if these earnings were to be
remitted.
19
<PAGE>
STOCK OPTIONS
The Company has Stock Option Plans (the "Plans") which provide for the granting
of options to purchase the Company's common stock. The plans cover substantially
all employees and non-employee directors of the Company and provide for the
issuance of non-qualified options, incentive stock options, performance share
options, performance units, stock appreciation rights, restricted shares,
restricted units and unrestricted shares. Of the total number of shares reserved
for the Plans, 3.0 shares of Company stock have been reserved for the issuance
of restricted shares, restricted units, performance units, and unrestricted
shares. The Plans provide for a variety of vesting dates with the majority of
the options vesting approximately five years from the date of grant. The options
granted to non-employee directors are exercisable 20% each year on a cumulative
basis commencing one year from the date of grant.
In addition to the aforementioned plans, 1.0 stock options were granted to
certain senior executives during the period from 1993 to 1996 pursuant to
stockholder approved individual plans. Of this total, 0.5 options vest 20% each
year on a cumulative basis commencing one year from the date of grant with the
balance of the options vesting five years from the date of grant.
The exercise price per share of all options granted has been the average of the
high and low market price of the Company's common stock on the date of grant.
All options must be exercised within ten years from the date of grant.
At January 30, 1999, an aggregate of 46.3 shares of authorized common stock were
reserved for all of the Plans noted above, of which 9.5 were available for
future grants. All outstanding options expire at dates ranging from July 5, 1999
to November 30, 2008.
Stock option transactions are summarized as follows:
Weighted-Average
Shares Exercise Price
- --------------------------------------------------------------------------------
Outstanding January 31, 1998 24.1 $ 29.12
Granted 17.7 22.18
Exercised (0.7) 17.99
Canceled (4.3) 28.89
- --------------------------------------------------------------------------------
Outstanding January 30, 1999 36.8 $ 26.02
- --------------------------------------------------------------------------------
Options exercisable
at January 30, 1999 10.8 $ 28.25
================================================================================
The Company utilizes a restoration feature to encourage the early exercise of
certain options and retention of shares, thereby promoting increased employee
ownership. This feature provides for the grant of new options when previously
owned shares of Company stock are used to exercise existing options. Restoration
option grants are non-dilutive as they do not increase the combined number of
shares of Company stock and options held by an employee prior to exercise. The
new options are granted at a price equal to the fair market value on the date of
the new grant, and generally expire on the same date as the original options
that were exercised.
The Company has adopted the disclosure only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, issued in October 1995. In accordance
with the provisions of SFAS No. 123, the Company applies APB Opinion 25 and
related interpre-tations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below:
1998 1997 1996
- --------------------------------------------------------------------------------
Net (loss)/income - as reported $ (132) $ 490 $ 427
Net (loss)/income - pro forma (162) 470 411
Basic (loss)/earnings per share -
as reported (0.50) 1.72 1.56
Basic (loss)/earnings per share -
pro forma (0.61) 1.65 1.50
Diluted (loss)/earnings per share -
as reported (0.50) 1.70 1.54
Diluted (loss)/earnings per share -
pro forma (0.61) 1.63 1.48
- --------------------------------------------------------------------------------
The weighted-average fair value at date of grant for options granted in 1998,
1997 and 1996 were $5.31, $7.66 and $7.35, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model. As there were a number of options granted during the years of
1996 through 1998, a range of assumptions are provided below:
1998 1997 1996
- --------------------------------------------------------------------------------
Expected stock price volatility .283 - .347 .294 - .334 .284 - .328
Risk-free interest rate 4.7% - 5.8% 5.0% - 6.9% 5.0% - 6.8%
Weighted average
expected life of options 6 years 6 years 6 years
- --------------------------------------------------------------------------------
The effects of applying SFAS No. 123 and the results obtained through the use of
the Black-Scholes option pricing model are not necessarily indicative of future
values.
PROFIT SHARING PLAN
The Company has a profit sharing plan with a 401(k) salary deferral feature for
eligible domestic employees. The terms of the plan call for annual contributions
by the Company as determined by the Board of Directors, subject to certain
limitations. The profit sharing plan may be terminated at the Company's
discretion. Provisions of $41, $39 and $31 have been charged to earnings in
1998, 1997, and 1996, respectively.
20
<PAGE>
SEGMENTS
As a result of the adoption of SFAS No. 131 - Disclosures About Segments of an
Enterprise and Related Information, segment information for 1997 and 1996 has
been restated to conform to the 1998 presentation.
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. This category is comprised of the
Kids"R"Us and Babies"R"Us divisions. Toys"R"Us - United States operates toy
stores in 49 states and Puerto Rico and Toys"R"Us - International operates or
franchises toy stores in 26 countries outside the United States. Information on
segments and a reconciliation to (loss)/income before income taxes, are as
follows:
Year ended
- --------------------------------------------------------------------------------
January 30, January 31, February 1,
1999 1998 1997
- --------------------------------------------------------------------------------
Sales
Toys"R"Us - USA $ 6,581 $ 6,814 $ 6,336
Toys"R"Us - International 2,996 2,867 2,781
Other 1,593 1,357 815
- --------------------------------------------------------------------------------
Total $ 11,170 $ 11,038 $ 9,932
- --------------------------------------------------------------------------------
Operating Profit
Toys"R"Us - USA $ 501 $ 654 $ 650
Toys"R"Us - International 146 165 126
Other 59 41 48
General corporate
expenses (21) (16) (10)
Interest expense, net (93) (72) (81)
Restructuring & other charges (698)(a) -- (60)(b)
- --------------------------------------------------------------------------------
(Loss)/earnings before taxes
on income $ (106) $ 772 $ 673
================================================================================
Identifiable Assets
Toys"R"Us - USA $ 5,075 $ 5,193 $ 3,889
Toys"R"Us - International 2,095 2,282 2,346
Other 303 243 993
Corporate(c) 426 245 795
- --------------------------------------------------------------------------------
Total $ 7,899 $ 7,963 $ 8,023
================================================================================
(a) The Company recorded charges of $698 ($508 net of tax benefits) for
restructuring and other charges.
(b) Arbitration award charge of $60 ($38 net of tax benefits).
(c) Consists primarily of cash and cash equivalents.
ACQUISITION
On February 3, 1997, the Company acquired all of the outstanding common shares
of Baby Superstore, Inc. ("Baby Superstore") for 13 shares of its treasury stock
valued at approximately $376. This acquisition was accounted for as a purchase
as at February 1, 1997. The excess of purchase price over net assets acquired of
$365 has been recorded as goodwill and is being amortized on a straight-line
basis over 40 years.
RESTRUCTURING AND OTHER CHARGES
On September 16, 1998, the Company announced strategic initiatives to reposition
its worldwide business. The cost to implement these initiatives, as well as
other charges resulted in a total charge of $333 ($266 net of tax benefits, or
$1.00 per share). The Company determined that the strategic initiatives required
a restructuring charge of $294 to close and/or downsize stores, distribution
centers and administrative functions. This worldwide plan includes the closing
of 50 toy stores in the International division, predominately in continental
Europe, and 9 in the United States that do not meet the Company's return on
investment objectives. The Company will also close 31 Kids"R"Us stores and
convert 28 nearby US toy stores into combination stores in the new C-3 format
discussed below. Combination stores include toys and an apparel selling space of
approximately 5,000 square feet. Other charges consist primarily of changes in
accounting estimates and provisions for legal settlements of $39 recorded in
selling, general and administrative expenses. Of the total restructuring and
other charges, $149 relates to domestic operations and $184 relates to
International operations. Remaining reserves of $149 should be utilized in 1999,
with the exception of long-term lease commitments, which will be utilized in
1999 and thereafter.
Also on September 16, 1998, the Company announced mark-downs and other charges
to cost of sales of $345 ($229 net of tax benefits, or $.86 per share). The
Company has designed a new store format called C-3. The Company plans to convert
approximately 200 US toy stores to the new C-3 format in 1999. Of this charge,
$253 related to markdowns required to clear excess inventory from its stores so
the Company can proceed with its new C-3 store format on an accelerated basis.
Another component of the charge was inventory markdowns of $29 related to the
closing and/or downsizing of stores discussed above. The Company also recorded
charges to cost of sales of $63 related to inventory system refinements and
changes in accounting estimates. Of these charges, $288 relate to domestic
operations and $57 relate to International operations. Remaining reserves of
$107 are expected to be utilized in 1999.
Additionally, in the fourth quarter of 1998 the Company recorded a charge of $20
($13 net of tax benefits, or $.05 per share), related to the resolution of third
party claims asserted from allegations made by the Federal Trade Commission.
This charge was in addition to a $15 charge relating to the same matter,
included in the charges mentioned above. (See Other Matters).
21
<PAGE>
At January 30, 1999, the Company had approximately $45 of liabilities remaining
for its restructuring program announced in 1995 primarily relating to long-term
lease obligations.
The Company believes that reserves are adequate to complete the restructuring
and other programs described previously.
On July 12, 1996, an arbitrator rendered an award against the Company in
connection with a dispute involving rights under a 1982 license agreement for
toy store operations in the Middle East. Accordingly, the Company recorded a
provision of $60 during 1996, ($38 net of tax benefits, or $.14 cents per
share), representing all costs in connection with this matter.
OTHER MATTERS
On May 22, 1996, the Staff of the Federal Trade Commission (the "FTC") filed an
administrative complaint against the Company alleging that the Company is in
violation of Section 5 of the Federal Trade Commission Act for its practices
relating to warehouse clubs. The complaint alleges that the Company reached
understandings with various suppliers that such suppliers not sell to the clubs
the same items that they sell to the Company. The complaint also alleges that
the Company "facilitated understandings" among the manufacturers that such
manufacturers not sell to clubs. The complaint seeks an order that the Company
cease and desist from this practice. 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.
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 in
principle to settle 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 has accrued all anticipated
costs relating to this matter as of January 30, 1999.
Some of the most popular
electronic systems, video games
and computer software are
seem first at Toys "R" Us!
[Photo]
22
<PAGE>
REPORT OF MANAGEMENT
Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report rests with the management of Toys"R"Us. The
accompanying financial statements have been prepared from accounting records
which management believes fairly and accurately reflect the operations and
financial position of the Company. Management has established a system of
internal controls to provide reasonable assurance that assets are maintained and
accounted for in accordance with its policies and that transactions are recorded
accurately on the Company's books and records.
The Company's comprehensive internal audit program provides for constant
evaluation of the adequacy of the adherence to management's established policies
and procedures. The Company has distributed to key employees its policies for
conducting business affairs in a lawful and ethical manner.
The Audit Committee of the Board of Directors, which is comprised solely of
outside directors, provides oversight to the financial reporting process through
periodic meetings with our independent auditors, internal auditors and
management.
The financial statements of the Company have been audited by Ernst & Young LLP,
independent auditors, in accordance with generally accepted auditing standards,
including a review of financial reporting matters and internal controls to the
extent necessary to express an opinion on the consolidated financial statements.
/s/ Robert C. Nakasone /s/ Louis Lipschitz
- ----------------------- ---------------------------
Robert C. Nakasone Louis Lipschitz
Chief Executive Officer Executive Vice President
and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Toys"R"Us, Inc.
We have audited the accompanying consolidated balance sheets of Toys"R"Us, Inc.
and subsidiaries as of January 30, 1999 and January 31, 1998, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended January 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Toys"R"Us, Inc.
and subsidiaries at January 30, 1999 and January 31, 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended January 30, 1999, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
New York, New York
March 10, 1999
23
<PAGE>
Directors and Officers
Directors
CHARLES LAZARUS
Chairman Emeritus of the Company
MICHAEL GOLDSTEIN
Chairman of the Board of the Company
ROBERT A. BERNHARD
Real Estate Developer
ROANN COSTIN
President, Reservoir Capital Management, Inc.
CALVIN HILL
Consultant
SHIRLEY STRUM KENNY
President, State University of
New York at Stony Brook
NORMAN S. MATTHEWS
Consultant
HOWARD W. MOORE
Consultant
ROBERT C. NAKASONE
Chief Executive Officer
of the Company
ARTHUR B. NEWMAN
Senior Managing Director,
Blackstone Group
Corporate and Administrative
ROBERT C. NAKASONE
Chief Executive Officer
LOUIS LIPSCHITZ
Executive Vice President
and Chief Financial Officer
MICHAEL G. SHANNON
Executive Vice President and
President U.S. Toy Stores
FRANCESCA L. BROCKETT
Senior Vice President -
Strategic Planning/Business Development
ROGER C. GASTON
Senior Vice President -
Human Resources
JOHN HOLOHAN
Senior Vice President -
Chief Information Officer
RAYMOND L. ARTHUR
Vice President - Corporate Controller
DAN BOOHER
Vice President -
Architecture and Construction
KRISTOPHER M. BROWN
Vice President - Distribution and Traffic
REBECCA A. CARUSO
Vice President -
Corporate Communications
MICHAEL J. CORRIGAN
Vice President -
Compensation and Benefits
RICHARD N. CUDRIN
Vice President -
Associate Relations
EILEEN C. GABRIEL
Vice President - Information Systems
ELIZABETH S. JORDAN
Vice President -
Organizational Development
JON W. KIMMINS
Vice President - Treasurer
DION C. ROONEY
Vice President - Systems Development
MICHAEL L. TUMOLO
Vice President - Counsel
PETER W. WEISS
Vice President - Taxes
ROBERT S. ZARRA
Vice President - Internal Audit
DENNIS J. BLOCK
Secretary
Partner-Cadwalader, Wickersham & Taft
Toys"R"Us United States
MICHAEL G. SHANNON
President
MICHAEL J. MADDEN
President - Store Operations
KEITH C. VAN BEEK
President -
Merchandising and Marketing
JAMES E. FELDT
Executive Vice President -
Merchandising
WARREN F. KORNBLUM
Senior Vice President -
Chief Marketing Officer
ROBERT J. WEINBERG
Senior Vice President -
General Merchandise Manager
JOEL D. ANDERSON
Vice President - Toys"R"Us Direct
DAVID M. BREWI
Vice President - World Leader
THOMAS F. DELUCA
Vice President - Imports, Product Development and Safety Assurance
BARBARA A. FITZGERALD
Vice President - People Development
PHILIP S. FOUSSEKIS
Vice President - Loss Prevention
ANDREW R. GATTO
Vice President -
Product Development
DANIEL D. HLAVATY
Vice President - Business Reengineering
JEREL G. HOLLENS
Vice President -
Merchandising Planning
MARIANITA HOWARD
Vice President -
Creative Services
FREDERICK L. HURLEY
Vice President - World Leader
JOSEPH J. LOMBARDI
Vice President - Controller
MITCHELL B. LOUKOTA
Vice President - World Leader
CHARLENE MADY
Vice President -
Area Merchandise Planning
GERALD S. PARKER
Vice President -
Customer Support and Administration
DAVID P. PICOT
Vice President - Real Estate
DEBRA M. ROOD
Vice President -
Toys"R"Us Direct Fulfillment
TIMOTHY J. SLADE
Vice President - Store Planning
WILLIAM A. STEPHENSON
Vice President -
Merchandise Planning and Allocation
JOHN P. SULLIVAN
Vice President - World Leader
GREGG TREADWAY
Vice President - C-3 Development
DENNIS J. WILLIAMS
Vice President - Sales
THOMAS A. DRUGAN
Regional Vice President - Midwest
HARVEY J. FINKEL
Regional Vice President - Northeast
TRUVILLUS HALL
Regional Vice President - Northwest
MICHAEL K. HEFFNER
Regional Vice President - Gulf States
SAMUEL M. MARTIN
Regional Vice President - West
JOHN J. PRAWLOCKI
Regional Vice President - Southeast
EDWARD F. SIEGLER
Regional Vice President - Mid-Atlantic
KEVIN VANDERGRIEND
Regional Vice President - Ohio Valley
24
<PAGE>
Toys"R"US International
GREGORY R. STALEY
President
BRUNO A. ROQUEPLO
Senior Vice President -
Finance and Administration
ERNEST V. SPERANZA
Senior Vice President - Marketing
JOAN W. DONOVAN
Vice President -
General Merchandise Manager
JEFF HANDLER
Vice President - Advertising
LARRY S. JOHNSON
Vice President - Franchise Markets
MICHAEL C. TAYLOR
Vice President - Franchising/Logistics
DAVID RURKA
Managing Director -
Toys"R"Us United Kingdom and
Chairman of the European
Management Board
JOHANNES DERCKS
President -
Toys"R"Us Central Europe
JACQUES LEFOLL
President -
Toys"R"Us France/Belgium
ROBERT F. MORAN
President - Toys "R" Us (Canada) Ltd.
JOHN SCHRYVER
Managing Director -
Toys"R"Us Australia
MANABU TAZAKI
President -
Toys"R"Us Japan
ANTONIO URCELAY
Managing Director -
Toys"R"Us Iberia
LARRY D. GARDNER
Vice President -
Toys"R"Us Asia
SCOTT W.K. CHEN*
General Manager -
Toys"R"Us Taiwan
JOE TANG*
General Manager -
Toys"R"Us Hong Kong
MICHAEL S.M. YEO*
General Manager -
Toys"R"Us Singapore
*Country Management
Kids"R"Us/Babies"R"Us*
RICHARD L. MARKEE
President -
Kids"R"Us and Babies"R"Us
JAMES G. PARROS
Senior Vice President -
Stores and Distribution Center Operations
MARTIN E. FOGELMAN
Vice President -
World Leader Juvenile Products
LAURA J. FREEMAN
Vice President - Divisional
Merchandise Manager
JONATHAN M. FRIEDMAN
Vice President - Chief Financial Officer -
Kids"R"Us and Babies"R"Us
JAMES L. EASTON
Vice President -
General Merchandise Manager
VINCENT A. SCARFONE
Vice President -
Human Resources
CHRISTOPHER M. SCHERM
Vice President -
Divisional Merchandise Manager
DAVID E. SCHOENBECK
Vice President -
Operations - Babies "R" Us
SANDEE A. SPRINGER
Vice President- Divisional
Merchandise Manager
DAVID S. WALKER
Vice President - Advertising
PAMELA B. WALLACK
Vice President - Product Development
*Kids"R"Us Officer, unless otherwise indicated.
Parents and children
discover amazing
ways to play and
learn in our
Learning Center.
[Photo]
25
<PAGE>
Quarterly Financial Data and Market Information
TOYS"R"US, INC. AND SUBSIDIARIES
Quarterly Financial Data
(In millions except per share data)
The following table sets forth certain unaudited quarterly financial
information.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
Net Sales $2,043 $2,020 $ 2,171 $4,936
Cost of Sales 1,417 1,390 1,831 3,553
Net Earnings/(Loss) 19 14 (475)(a) 310(b)
Basic Earnings/(Loss)
per Share $ .07 $ .05 $ (1.85) $ 1.23
Diluted Earnings/(Loss)
per Share $ .07 $ .05 $ (1.85) $ 1.23
1997
- --------------------------------------------------------------------------------
Net Sales $1,924 $1,989 $ 2,142 $4,983
Cost of Sales 1,326 1,355 1,455 3,574
Net Earnings 29 37 46 378
Basic Earnings per Share $ 0.10 $ 0.13 $ 0.16 $ 1.33
Diluted Earnings per Share $ 0.10 $ 0.13 $ 0.16 $ 1.32
(a) Third quarter results include restructuring and other charges of $678
($495 net of tax benefits, or $1.86 per share).
(b) Fourth quarter results include provisions for legal settlements of $20
($13 net of tax benefits, or $.05 per share).
Market Information
The Company's common stock is listed on the New York Stock Exchange. The
following table reflects the high and low prices (rounded to the nearest
one-sixteenth) based on New York Stock Exchange trading since February 1, 1997.
The Company has not paid any cash dividends, however, the Board of Directors of
the Company reviews this policy annually.
The Company had approximately 31,200 Stockholders of Record on March 9, 1999.
High Low
- --------------------------------------------------------------------------------
1997 1st Quarter 29 7/8 24 1/2
2nd Quarter 34 13/16 28 1/4
3rd Quarter 37 1/8 29 1/8
4th Quarter 35 7/16 24 7/8
- --------------------------------------------------------------------------------
1998 1st Quarter 30 7/8 25 7/8
2nd Quarter 29 1/2 22 5/16
3rd Quarter 23 13/16 15 5/8
4th Quarter 21 1/2 14 7/16
Store Locations
Stores Across the United States
Toys Kids Babies
- --------------------------------------------------------------------------------
Alabama 8 1 2
Alaska 1 -- --
Arizona 11 -- 2
Arkansas 4 -- --
California 87 23 8
Colorado 11 -- 2
Connecticut 11 6 --
Delaware 2 1 1
Florida 47 10 10
Georgia 18 4 6
Hawaii 1 -- --
Idaho 2 -- --
Illinois 34 19 5
Indiana 13 7 2
Iowa 8 1 --
Kansas 5 1 1
Kentucky 8 -- 1
Louisiana 11 -- 1
Maine 2 1 1
Maryland 19 9 3
Massachusetts 19 6 1
Michigan 25 13 5
Minnesota 12 2 1
Mississippi 5 -- --
Missouri 13 5 3
Montana 1 -- --
Nebraska 3 1 --
Nevada 4 -- 2
New Hampshire 5 2 --
New Jersey 26 18 7
New Mexico 4 -- --
New York 46 23 3
North Carolina 16 1 5
North Dakota 1 -- --
Ohio 33 18 6
Oklahoma 5 -- 1
Oregon 8 -- 1
Pennsylvania 33 15 3
Rhode Island 1 1 1
South Carolina 9 -- 3
South Dakota 2 -- --
Tennessee 14 2 4
Texas 54 9 13
Utah 6 3 1
Vermont 1 -- --
Virginia 22 7 7
Washington 14 -- 1
West Virginia 5 -- --
Wisconsin 10 3 --
Puerto Rico 4 -- --
- --------------------------------------------------------------------------------
704 212 113
================================================================================
TOYS"R"US International - 452
- -----------------------------
Australia - 24
Austria - 8
Belgium - 3
Canada - 64
Denmark - 10(a)
France - 44
Germany - 59
Hong Kong - 5(a)
Indonesia - 3(a)
Israel - 5(a)
Japan - 76(b)
Luxembourg - 1
Malaysia - 5(a)
Netherlands - 9(a)
Portugal - 6
Saudi Arabia - 3(a)
Singapore - 4
South Africa - 8(a)
Spain - 29
Sweden - 5
Switzerland - 5
Taiwan - 6(a)
Turkey - 5(a)
United Arab
Emirates - 4(a)
United Kingdom - 61
(a) Franchise or joint venture.
(b) 80% owned
26
<PAGE>
Corporate Data and Citizenship
TOYS"R"US, INC. AND SUBSIDIARIES
Annual Meeting
The Annual Meeting of the Stockholders
of Toys"R"Us will be held at the
Westin Hotel Atlanta North at Perimeter,
7 Concourse Parkway
in Atlanta, Georgia, on
June 9, 1999 at 10:00 A.M.
The Offices of The
Company are Located at
461 From Road
Paramus, New Jersey 07652
Telephone: 201-262-7800
225 Summit Avenue
Montvale, New Jersey 07645
Telephone: 201-802-5000
General Counsel
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10036
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
Registrar and Transfer Agent
American Stock Transfer and
Trust Company
40 Wall Street,
New York, New York 10005
Telephone: 718-921-8200
Common Stock Listed
New York Stock Exchange, Symbol: TOY
Stockholder Information
The Company will supply to any owner of Common Stock, upon written request to
Mr. Louis Lipschitz of the Company at the above address and without charge, a
copy of the Annual Report on Form 10-K for the year ended January 30, 1999,
which has been filed with the Securities and Exchange Commission.
Stockholder information, including quarterly earnings and other corporate news
releases, can be obtained by calling 800-785-TOYS, or at our web site on the
internet at www.toysrus.com
Significant news releases are anticipated to be available as
follows:
Call after... For the following...
May 17, 1999 1st Quarter Results
Aug. 16, 1999 2nd Quarter Results
Nov. 15, 1999 3rd Quarter Results
Jan. 6, 2000 Holiday Sales Results
Mar. 8, 2000 1999 Results
Corporate Citizenship
Toys"R"Us maintains a company-wide giving program focused on improving the
health care needs of children by supporting many national and regional
children's health care organizations. The Counsel on Economic Priority awarded
Toys"R"Us the Pioneer Award in Global Ethics. This award was the direct result
of the implementation of our Code of Conduct for suppliers which outlines the
Company's position against child labor and unsafe working conditions. In order
for a vendor's product to be sold in any of our stores, they must comply with
our Code of Conduct. If you would like to receive more information on Toys"R"Us'
corporate citizenship please write to Mr. Roger Gaston of the Company at the
Company's address.
Visit us on the internet at www.toysrus.com.
Undoubtedly,
the brand
kids love
most!
[Photo]
27
<PAGE>
TOYS "R" US
KIDS "R" US
BABIES "R" US
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AS OF JANUARY 30, 1999
Name Jurisdiction of Incorporation
- ---- -----------------------------
ABG Corp. Nevada
Baby Superstore, Inc. South Carolina
Geoffrey, Inc. Delaware
MLK, Inc. Missouri
MMT, Inc. Utah
Toys "R" Us - Belgium, Inc. Delaware
Toys "R" Us - Delaware, Inc. Delaware
Toys "R" Us - Del. Operations, Inc. Delaware
Toys "R" Us Group, Inc. Delaware
Toys "R" Us - Mass, Inc. Massachusetts
Toys "R" Us - NY/Texas Holdings, Inc. Delaware
Toys "R" Us - NY LLC New York
Toys "R" Us - NYTEX, Inc. Delaware
Toys "R" Us - Ohio, Inc. Delaware
Toys "R" Us - Penn, Inc. Pennsylvania
Toys "R" Us - Texas LLC Delaware
TRU (ANTS) Inc. Delaware
TRU Belgium Holdings II, Inc. Delaware
TRU Foreign Sales Corporation California
TRU Gulf Services, Inc. Delaware
TRU, Inc. Delaware
TRU - LSM Redevelopment Corporation Missouri
TRU Mass Properties Holdings, Inc. Delaware
TRU Mass Properties, Inc. Delaware
TRU Netherlands Holdings I, Inc. Delaware
TRU Netherlands Holdings II, Inc. Delaware
TRU Ohio Properties Holdings, Inc. Delaware
TRU Ohio Properties, Inc. Delaware
TRU Penn Properties Holdings, Inc. Delaware
TRU Penn Properties, Inc. Delaware
TRU Properties Holdings, Inc. Delaware
TRU Properties, Inc. Delaware
TRU (Vermont), Inc. Vermont
Toys "R" Us (Australia) Pty, Ltd. Australia
Toys "R" Us (Head Office) Pty. Ltd. Australia
Toys "R" Us (Wholesale) Pty. Ltd. Australia
TRU (Aust) Superannuation Pty. Ltd. Australia
<PAGE>
Toys "R" Us Handelsgesellschaft m.b.H. Austria
TRU (Barbados), Ltd. Barbados
Toys "R" Us - Belgium SCA Belgium
TRU (NRO III) Investments Ltd. Alberta, Canada
Toys "R" Us (Canada) Ltd. Ontario, Canada
Sumus Nos Limited Cayman Islands
TRU (Cayman Islands) Limited Cayman Islands
TRU (Cayman Islands) Investments LLC Cayman Islands
Toys "R" Us A/S Denmark
Toys "R" Us S.A.R.L. France
Toys "R" Us GmbH Germany
Toys "R" Us Logistik GmbH Germany
Toys "R" Us Operations GmbH Germany
Toys "R" Us - Lifung Limited Hong Kong
Toys "R" Us Asia Limited Hong Kong
TRU (HK) Limited Hong Kong
IOCA Limited Ireland
Toys "R" Us - Japan, Ltd. Japan
Toys "R" Us (Luxembourg) S.A. Luxembourg
Toys "R" Us (Malaysia) SDN. BHN. Malaysia
Toys "R" Us (Netherlands), B.V. Netherlands
TRU (Netherlands) B.V. Netherlands
TRU (Netherlands) Investments B.V. Netherlands
Toys R Us Portugal, Limitada Portugal
TRU of Puerto Rico, Inc. Puerto Rico
Toys "R" Us - Singapore (Pte) Limited Singapore
Toys R Us, Iberia, S.A. Spain
Toys "R" Us, Aktiebolag Sweden
Toys R Us AG Switzerland
Toys "R" Us - Lifung Taiwan Limited Taiwan
Toys "R" Us Holdings PLC United Kingdom
Toys "R" Us Limited United Kingdom
Toys "R" Us Properties Limited United Kingdom
Tru Toys (UK) Limited United Kingdom
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Toys "R" Us, Inc. and subsidiaries of our report dated March 10, 1999,
included in the 1998 Annual Report to Stockholders of Toys "R" Us, Inc. and
subsidiaries.
We also consent to the incorporation by reference in Registration
Statements (Form S-4 Number 33-56303 and 333-18863; Form S-3 Numbers 2-87794,
33-23264, 33-34273, 33-42237 and 33-51359; Form S-8 Numbers 2-64887, 2-91834,
33-42627, 333-11861, 333-15841, 333-23441, 333-20385, 33-64315 and 333-61827) of
Toys "R" Us, Inc. and subsidiaries of our report dated March 10, 1999, with
respect to the consolidated financial statements incorporated herein by
reference.
/s/ Ernst & Young LLP
New York, New York
April 28, 1999
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Louis Lipschitz and Dennis J. Block and each of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign the Annual Report on Form 10-K of
Toys "R" Us, Inc. for the fiscal year ended January 30, 1999, and any amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform such and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or his or her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
This Power of Attorney may be executed in separate counterparts, each of
which shall be an original, but all such counterparts shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the __ day of April, 1999.
Name Title Signature
---- ----- ---------
Robert C. Nakasone Director and Chief Executive
Officer (Principal Executive /s/ Robert C. Nakasone
Officer) -----------------------
Raymond L. Arthur Vice President - Controller
(Principal Accounting Officer) /s/ Raymond L. Arthur
-----------------------
Michael Goldstein Chairman of the Board /s/ Michael Goldstein
-----------------------
Robert A. Bernhard Director /s/ Robert A. Bernhard
-----------------------
RoAnn Costin Director /s/ RoAnn Costin
-----------------------
Calvin Hill Director /s/ Calvin Hill
-----------------------
Shirley Strum Kenny Director /s/ Shirley Strum Kenny
-----------------------
Charles Lazarus Director, Chairman Emeritus /s/ Charles Lazarus
-----------------------
Norman S. Matthews Director /s/ Norman S. Matthews
-----------------------
<PAGE>
Name Title Signature
---- ----- ---------
Howard W. Moore Director /s/ Howard W. Moore
-----------------------
Arthur B. Newman Director /s/ Arthur B. Newman
-----------------------
EXHIBIT 24.2
TOYS "R" US, INC.
Secretary's Certificate
I, Dennis J. Block, Secretary of Toys "R" Us, Inc., a Delaware corporation
(the "Company"), DO HEREBY CERTIFY that the following is a true and complete
copy of the resolution duly adopted by the Board of Directors of the company at
a meeting duly held on March 9, 1999. Said resolution has not been modified or
rescinded since its adoption and is in full force and effect as of the date
hereof.
RESOLVED, that the execution of the Company's Annual Report on
Form 10-K for the fiscal year ended January 30, 1999, and any
amendments thereto (the "Form 10-K"), by each of Robert C. Nakasone,
Chief Executive Officer of the Company (as Principal Executive
Officer), Louis Lipschitz, Executive Vice President and Chief
Financial Officer of the Company (as Principal Financial Officer)
and Raymond L. Arthur, Vice President - Controller of the Company
(as Principal Accounting Officer) pursuant to a Power of Attorney
(the "Power of Attorney"), substantially in the form approved by the
Board of Directors, be and hereby is approved, and that the Power of
Attorney along with a certified copy of this resolution be filed as
an exhibit to the Form 10-K pursuant to the requirements of Item
601(b)(24) of Regulation S-K promulgated under the Securities
Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this 1st of April, 1999.
/s/ Dennis J. Block
----------------------------
Dennis J. Block
Secretary
<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 in Exhibit 13 of the Form 10-K and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 410,000
<SECURITIES> 0
<RECEIVABLES> 204,000
<ALLOWANCES> 0
<INVENTORY> 1,902,000
<CURRENT-ASSETS> 2,597,000
<PP&E> 5,814,000
<DEPRECIATION> 1,588,000
<TOTAL-ASSETS> 7,899,000
<CURRENT-LIABILITIES> 2,491,000
<BONDS> 1,222,000
30,000
0
<COMMON> 0
<OTHER-SE> 3,594,000
<TOTAL-LIABILITY-AND-EQUITY> 7,899,000
<SALES> 11,170,000
<TOTAL-REVENUES> 11,170,000
<CGS> 8,191,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 549,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,000
<INCOME-PRETAX> (106,000)
<INCOME-TAX> 26,000
<INCOME-CONTINUING> (132,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (132,000)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
