===================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
============
FORM 10-Q
============
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 29, 2000
============
Commission file number 1-11609
TOYS "R" US, INC.
Incorporated pursuant to the Laws of Delaware
============
Internal Revenue Service - Employer Identification No. 22-3260693
225 Summit Avenue, Montvale, New Jersey 07645
(201) 802-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
204,037,079 shares of the registrant's Common Stock were outstanding on August
28, 2000.
===================================================================
<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets.......................2
Condensed Consolidated Statements of Earnings...............3
Condensed Consolidated Statements of Cash Flows.............4
Notes to Condensed Consolidated Financial
Statements..................................................5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition......................8
PART II - OTHER INFORMATION..................................................14
SIGNATURES...................................................................16
1
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
==========================================
(In millions)
<CAPTION>
<S>
ASSETS July 29, July 31, January 29,
------ 2000 1999 2000
------------ ------------- -----------
<C> <C> <C>
Current Assets:
Cash and cash equivalents $ 430 $ 259 $ 584
Accounts and other receivables 181 172 182
Merchandise inventories 2,303 2,304 2,027
Prepaid expenses and other current assets 81 108 80
------------ ------------ ------------
Total current assets 2,995 2,843 2,873
Property and equipment, net and other assets 4,487 5,026 5,106
Investment in Toys "R" Us - Japan, Ltd.
(market value of $723 at July 29, 2000) 94 - -
Goodwill, net 367 342 374
------------ ------------- -----------
$7,943 $8,211 $8,353
============ ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 779 $ 802 $ 278
Accounts payable 1,216 1,413 1,617
Accrued expenses and other current liabilities 530 523 836
Income taxes payable 242 137 107
------------ ------------- -----------
Total current liabilities 2,767 2,875 2,838
Long-term debt 1,131 1,221 1,230
Deferred income taxes 352 333 362
Other liabilities 191 222 243
Minority interest in Toysrus.com 55 - -
Stockholders' equity 3,447 3,560 3,680
------------ ------------- -----------
$ 7,943 $ 8,211 $ 8,353
============ ============= ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
===================================================
(In millions except per share data)
<CAPTION>
13 Weeks Ended 26 Weeks Ended
-------------- --------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------- ------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $ 1,994 $ 2,204 $ 4,313 $ 4,370
Cost of sales 1,358 1,522 2,959 3,027
-------- -------- -------- ---------
Gross profit 636 682 1,354 1,343
Selling, general and
administrative expenses 547 574 1,146 1,126
Depreciation and amortization 67 66 139 132
Equity in net earnings of
Toys "R" Us - Japan, Ltd. (5) - (5) -
-------- --------- --------- --------
Operating earnings 27 42 74 85
Other income (expense):
Gain from IPO of
Toys "R" Us - Japan, Ltd. - - 315 -
Interest expense - net (23) (23) (46) (39)
--------- --------- --------- --------
Earnings before taxes on income 4 19 343 46
Taxes on income 1 7 125 17
--------- --------- --------- --------
Net earnings $ 3 $ 12 $ 218 $ 29
========= ========= ========= =========
Basic earnings per share $ 0.01 $ 0.05 $ 0.98 $ 0.12
========= ========= ========= ========
Weighted average basic shares
outstanding 214.7 246.9 222.3 248.1
========= ========= ========= ========
Diluted earnings per share $ 0.01 $ 0.05 $ 0.97 $ 0.12
========= ========= ========= ========
Weighted average diluted shares
outstanding 217.9 248.8 224.6 249.1
========= ========= ========= ========
<FN>
</FN>
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
====================================================
(In millions)
<CAPTION>
26 Weeks Ended
----------------------------
July 29, July 31,
2000 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 218 $ 29
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 139 132
Deferred income taxes 33 1
Minority interest in Toysrus.com (5) -
Equity in net earnings of Toys "R" Us - Japan, Ltd. (5) -
Gain from initial public offering of
Toys "R" Us - Japan, Ltd. (315) -
Changes in operating assets and liabilities:
Merchandise inventories (470) (411)
Accounts payable and
other operating liabilities (211) (269)
Other operating assets (78) (19)
--------- --------
Net cash used in operating activities (694) (537)
--------- --------
Cash flows from investing activities:
Capital expenditures, net (103) (198)
Net proceeds from sale of
Toys "R" Us - Japan, Ltd. common stock 267 -
Reduction in cash due to deconsolidation of
Toys "R" Us - Japan, Ltd. (15) -
--------- --------
Net cash provided by (used in) investing activities 149 (198)
--------- --------
Cash flows from financing activities:
Short-term borrowings, net 610 647
Long-term borrowings 147 -
Long-term debt repayment (17) (5)
Proceeds received from investors in Toysrus.com 60 -
Issuance of stock warrants 10 -
Exercise of stock options - 17
Share repurchase program (449) (104)
--------- --------
Net cash provided by financing activities 361 555
--------- --------
Effect of exchange rate changes on cash
and cash equivalents 30 29
Cash and cash equivalents:
Decrease during period (154) (151)
Beginning of period 584 410
-------- --------
End of period $ 430 $ 259
======== ========
Supplemental disclosures of cash flow information:
Income tax (refunds) payments, net $ (47) $ 104
========= ========
Interest paid $ 58 $ 41
========= ========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
TOYS "R" US, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
==========================================================
(In millions)
1. Interim reporting
The interim condensed consolidated financial statements are unaudited
and are subject to year-end adjustments. However, in the opinion of
management, all known adjustments (which consist primarily of normal
recurring accruals), have been made and the interim financial
statements present fairly the consolidated financial condition and
operating results for the unaudited periods. Because of the seasonal
nature of the company's business, results for interim periods are not
indicative of results to be expected for the fiscal year.
The financial statements and notes are presented in accordance with the
rules and regulations of the Securities and Exchange Commission and do
not contain certain information included in the company's annual
report. Therefore, the interim statements should be read in conjunction
with the company's annual report for the fiscal year ended January 29,
2000.
2. Commercial paper
Commercial paper of $368 million is classified as long-term debt. The
company maintains long-term committed credit agreements to support
these borrowings and intends to refinance them on a long-term basis
through commercial paper borrowings. Additionally, commercial paper of
$760 million and $487 million are included in short-term borrowings at
July 29, 2000 and July 31, 1999, respectively.
3. Comprehensive income
Comprehensive income was $24 million and $5 million for the second
quarter ended July 29, 2000 and July 31, 1999, respectively, as a
result of the change in foreign currency translation. Comprehensive
income was $184 million and $23 million as a result of the change in
foreign currency translation for the 26 weeks ended July 29, 2000 and
July 31, 1999, respectively.
4. Gain from initial public offering of Toys - Japan, Ltd.
The company recorded a non-operating gain of $315 million ($200 million
net of taxes) resulting from the initial public offering of shares of
Toys "R" Us - Japan, Ltd. ("Toys - Japan"), which was completed on
April 24, 2000. Of this gain, $91 million resulted from an adjustment
to the basis of the company's investment in Toys - Japan and $224
million related to the sale of a portion of company-owned common stock
of Toys - Japan. In connection with this transaction the company also
received net cash proceeds of $267 million and recorded a provision for
current income taxes of $82 million and a provision for deferred income
taxes of $33 million, respectively. As a result of this transaction,
the company's ownership percentage in the common stock of Toys - Japan
was reduced from 80% to 48%. Toys - Japan is a licensee of the company.
5
<PAGE>
TOYS "R" US, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(continued)
==========================================================
(In millions)
5. Investment in Toys - Japan
The company accounts for its investment in the common stock of Toys -
Japan on the "equity method" of accounting since the Toys - Japan
initial public offering on April 24, 2000. Prior to this event, the
company had consolidated the financial statements of Toys - Japan for
all periods presented. At July 29, 2000 the market value of the
company's investment in Toys - Japan was $723 million based on the
quoted closing market price at that date.
6. Toysrus.com
On February 24, 2000, the company entered into a partnership agreement
with SOFTBANK Venture Capital and affiliates ("SOFTBANK") which
included an investment by SOFTBANK of $60 million in Toysrus.com for a
20% ownership interest. Accordingly, the company has recorded a 20%
minority interest in the net losses of Toysrus.com in selling, general
and administrative expenses for the second quarter and six months ended
July 29, 2000.
In connection with the partnership with SOFTBANK, the company issued
1.2 million stock purchase warrants ("warrants") for $8.33 per warrant.
Each warrant gives the holder thereof the right to purchase one share
of Toys "R" Us common stock at an exercise price of $13, until the
expiration date of February 24, 2010. As of July 29, 2000, none of
these warrants have been exercised.
On August 9, 2000, Toysrus.com entered into a 10-year strategic
alliance with Amazon.com to create a co-branded toy and video games
on-line store and a co-branded baby products on-line store. Under
this alliance each company will be responsible for specific aspects
of the on-line stores. Also on August 9, 2000, Amazon.com was
granted a warrant entitling it to acquire 5% of the capital of
Toysrus.com at the then market value. The transition to the
co-branded on-line store and related changes in the Toysrus.com
operational structure will result in significant short-term expenses
and additional charges. These costs will be recorded in the current
fiscal year.
7. Replacement of certain stock option grants with restricted stock
On March 24, 2000, the company authorized the exchange of certain stock
options, having an exercise price above $22 per share, for an
economically equivalent grant of restricted stock. The exchange, which
was voluntary, replaced approximately 14.4 million options with
approximately 1.7 million restricted shares. Shares of restricted stock
resulting from the exchange vest over a period of three years, with
one-half of the grant vesting on April 1, 2002 and the remainder
vesting on April 1, 2003. Accordingly, the company recognizes
compensation expense on a straight-line basis throughout the vesting
period of the restricted stock.
8. Long Term Debt
On July 21, 2000, the company borrowed the yen equivalent of $147
million. This borrowing is repayable in semi-annual installments, with
the final installment due on August 17, 2005. The effective cost of
this borrowing is 2.32% and is secured by expected future cash flows
from the license fees due from Toys - Japan.
6
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
==========================================================
(In millions)
(continued)
<CAPTION>
9. Segments
Information related to the various company segments is as follows:
-----------------------------------------------------------------------
13 Weeks Ended 26 Weeks Ended
---------------- --------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------
Net sales
Toys "R" Us - USA $ 1,238 $ 1,251 $ 2,480 $ 2,454
Toys "R" Us - International 321 356 626 671
Toys "R" Us - Japan - 222 277 430
Babies "R" Us 311 246 638 512
Toysrus.com 9 2 17 2
Kids "R" Us 115 127 275 301
----------------------------------------------------------------------
Total $ 1,994 $ 2,204 $ 4,313 $ 4,370
----------------------------------------------------------------------
Operating earnings
Toys "R" Us - USA $ 41 $ 45 $ 83 $ 86
Toys "R" Us - International 1 (12) (23) (44)
Toys "R" Us - Japan,
net of minority interest - 11 17 23
Babies "R" Us 23 16 53 37
Toysrus.com,
net of minority interest (20) (5) (34) (5)
Other (18) (13) (22) (12)
-----------------------------------------
Operating earnings 27 42 74 85
Interest expense, net (23) (23) (46) (39)
Gain from IPO
of Toys "R" Us - Japan - - 315 -
-----------------------------------------
Earnings before income taxes $ 4 $ 19 $ 343 $ 46
----------------------------------------------------------------------
<FN>
</FN>
</TABLE>
Included in the category classified as "Other" are the operating
results of the Kids "R" Us division and equity in the net earnings of
Toys "R" Us - Japan, as well as other corporate related items.
10. Restructuring and other charges
In 1998, the company recorded restructuring and other non-recurring
charges of $698 ($508 net of tax benefits) to strategically reposition
its worldwide business. See the company's annual report for the year
ended January 29, 2000 for details on these charges. Also see the
section "Management's Discussion and Analysis of Results of Operations
and Financial Condition" in this report for an update on the
initiatives and the status of related reserves.
11. Commitments and contingencies
See Part II - Item I - Legal Proceedings.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
Results of Operations
Net sales were $2.0 billion compared with $2.2 billion reported for the second
quarter of 1999. For the first six months of 2000, sales were $4.3 billion
versus $4.4 billion in the same period last year. Total sales, excluding sales
of Toys "R" Us - Japan, which is accounted for on the "equity method" since its
initial public offering on April 24, 2000, increased 1% and 2% for the quarter
and the six months ended July 29, 2000, respectively, as compared with the same
period in 1999.
Foreign currency exchange had an unfavorable impact on net sales of
approximately $25 million and $17 million, respectively, for the second quarter
and six months ended July 29, 2000, as compared with the same periods in 1999.
On a consolidated basis, comparable store sales, in local currencies, increased
by 1% for the second quarter of 2000, and 2% for the six months ended July 29,
2000, as compared with the same periods in 1999. Comparable store sales for the
Toys "R" Us - USA division decreased 2% for the second quarter of 2000 and
remained flat for the first six months of 2000, as compared with the same
periods in 1999, reflecting the strength of Furby and Star Wars related products
in the prior year. Internationally, the company's overall comparable toy store
sales, on a local currency basis, increased 3% for the second quarter of 2000,
and 5% for the six months ended July 29, 2000, as compared with the same periods
in 1999. The company's Babies "R" Us division reported double-digit comparable
store sales increases for both the second quarter and first six months of this
year, as compared with the same periods in 1999. These increases were driven by
strong sales in most categories.
On a consolidated basis, cost of sales, as a percentage of sales, decreased by
approximately 1% for the second quarter of 2000, and 0.7% for the six months
ended July 29, 2000, respectively, as compared with the same periods in 1999.
Cost of sales for the Toys "R" Us - USA division, as a percentage of sales,
decreased by 0.8% for the second quarter of 2000, and 0.9% for the six months
ended July 29, 2000, respectively, as compared with the same periods in 1999.
This decrease is primarily due to the change in sales mix from lower margin
video products to higher margin products. Cost of sales for the Toys "R" Us -
International division, as a percentage of sales, decreased by 2.6% for the
second quarter of 2000, and 0.5% for the six months ended July 29, 2000,
respectively, as compared with the same periods in 1999. This decrease was
largely due to higher initial markup due to a favorable sales shift in hot
products. Cost of sales, as a percentage of sales, for the Babies "R" Us
division decreased by 0.5% for the second quarter of 2000, and 1% for the six
months ended July 29, 2000, respectively, as compared with the same periods in
1999, largely due to a more favorable sales mix.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
On a consolidated basis, selling, general and administrative expenses (SG&A), as
a percentage of sales, increased by 1.4% for the second quarter of 2000 and 0.8%
for the six months of 2000, as compared with the same periods in 1999. SG&A for
Toys "R" Us - USA, as a percentage of sales, increased by 1.5% and 1.4%,
respectively, for the second quarter and six months ended July 29, 2000, as
compared with the same periods in 1999. These increases are primarily due to
increased payroll costs related to the implementation of the company's new
customer-focused initiatives. SG&A for the International division, as a
percentage of sales, excluding the impact of Toys "R" Us - Japan, remained flat
for the second quarter and six months ended July 29, 2000, as compared with the
same period in 1999. SG&A as a percentage of sales for the Babies "R" Us
division decreased 1% and 0.3%, respectively, for the second quarter of 2000 and
six months ended July 29, 2000, as compared with the same periods in 1999.
Included in the company's results for the second quarter and six months ended
July 29, 2000 is $13 million and $22 million, respectively, representing the
company's share of the net losses of Toysrus.com, its internet subsidiary.
Depreciation and amortization increased by $7 million for the six months ended
July 29, 2000, as compared with 1999. This increase is primarily due to the
company's continued store expansion, strategic investments to improve management
information systems and amortization of goodwill relating to its acquisition of
Imaginarium Toy Centers, Inc. in the second half of 1999.
Net interest expense increased $7 million for the six months ended July 29,
2000, as compared with 1999. This increase is mainly attributable to the funding
of the company's stock repurchase program, higher interest rates, and the mix of
currencies in which the company borrowed.
Foreign currency exchange did not have a material effect on net earnings for
either the second quarter or six months ended July 29, 2000.
Restructuring and Other Charges
During 1998, the company announced strategic initiatives to reposition its
worldwide business and other charges including the customer-focused reformatting
of its toy stores into the new C-3 format, as well as the restructuring of its
International operations, which resulted in a charge of $353 million ($279
million net of tax benefits, or $1.05 per share). Details on the components of
the company's strategic initiatives and other charges are described in the
company's annual report for the year ended January 29, 2000; the reserve
balances and subsequent utilization are as follows:
9
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
Reserve Balance Reserve Balance
Description @ 1/29/00 Utilized @ 7/29/00
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Closings/downsizings:
Lease commitments $62 $13 $49
Severance and other closing costs 14 4 10
Other 11 - 11
-------------------------------------------------------------------------------
Total restructuring $87 $17 $70
-------------------------------------------------------------------------------
Provisions for legal settlements $30 $13 $17
-------------------------------------------------------------------------------
<FN>
</FN>
</TABLE>
The company continues to aggressively negotiate the closing/downsizing of the
remaining stores and distribution centers included in its repositioning program
and intends to execute the remainder of the initiatives included in the program.
In 1998, the company also announced markdowns and other charges of $345 million
($229 million net of tax benefits, or $.86 per share). As of January 29, 2000,
the company had remaining markdown reserves of $2 million to clear excess
inventories and $12 million for store closings. At July 29, 2000, the company
had remaining markdown reserves of $9 million for store closings.
The company believes all reserves are adequate to complete its restructuring
program.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
Financial Condition
By February 3, 2001, the company expects to operate approximately 1,576 stores,
consisting of: 707 toy stores in the United States; 486 International toy stores
(including 210 franchise and joint venture stores); 196 Kids "R" Us children's
clothing stores; 148 Babies "R" Us stores and 39 Imaginarium stores. The company
expects to convert more than 90 existing USA toy stores to the C-3 combo stores
by the end of fiscal 2000. In addition, the company is continuing its C-3 store
refinement program in its test stores, aimed to find the optimal configuration
of fixturing, better segmentation and ultimate presentation of merchandise
concepts. The company has substantially completed refining an additional 49
stores in the second quarter of 2000 in addition to the 17 test stores mentioned
above. The company plans to complete approximately another 100 stores to be
ready for the 2000 holiday season. In addition, the company also sells
merchandise through its internet sites at www.toysrus.com and
www.imaginarium.com and through mail order catalogs.
For 2000, capital requirements for the company's expansion plans mentioned
above, as well as capital requirements are estimated to be approximately $500 to
$550 million.
Total borrowings, net of cash and cash equivalents, decreased by approximately
$294 million at July 29, 2000, as compared with July 31, 1999, due primarily to
the deconsolidation of the balance sheet of Toys - Japan.
On July 21, 2000, the company borrowed the yen equivalent of $147 million. This
borrowing is repayable in semi-annual installments, with the final installment
due on August 17, 2005. The effective cost of this borrowing is 2.32% and is
secured by expected future cash flows from the license fees due from Toys -
Japan.
The company repurchased 31 million shares of its common stock through its share
repurchase program for $449 million during the first six months ended July 29,
2000, as compared with 6 million shares for approximately $104 million in 1999.
The company expects to continue repurchasing shares during the second half of
the year and is currently forecasting its total debt to capital ratio to
determine the rate of share repurchase.
Cash requirements for operations, capital expenditures, lease commitments and
the share repurchase program will be met primarily through operating activities,
borrowings under the $1 billion revolving credit facility, issuance of
commercial paper and bank borrowings by foreign subsidiaries.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
Weighted-average diluted shares outstanding decreased to 224.6 million during
the first six months ended July 29, 2000 from 249.1 million during the six
months ended July 31, 1999, due primarily to the impact of shares repurchased by
the company under its share repurchase program.
The company's cash outflows from operations increased to $694 million for the
six months ended July 29, 2000 from $537 million for the six months ended July
31, 1999, primarily due to increases in merchandise inventories as well as lower
accrued expenses and other liabilities. The increase in merchandise inventory is
a result of the company's strategy to improve its in-stock position for the
upcoming holiday season.
On February 24, 2000, the company entered into a partnership agreement with
SOFTBANK Venture Capital and affiliates ("SOFTBANK") which included an
investment by SOFTBANK of $60 million in Toysrus.com for a 20% ownership
interest. Accordingly, the company has recorded a 20% minority interest in the
net losses of Toysrus.com in selling, general and administrative expenses for
the second quarter and six months ended July 29, 2000.
In connection with the partnership with SOFTBANK, the company issued 1.2 million
stock purchase warrants ("warrants") for $8.33 per warrant. Each warrant gives
the holder thereof the right to purchase one share of Toys "R" Us common stock
at an exercise price of $13, until the expiration date of February 24, 2010. As
of July 29, 2000, none of these warrants have been exercised.
On August 9, 2000, Toysrus.com entered into a 10-year strategic alliance with
Amazon.com to create a co-branded toy and video games on-line store and a
co-branded baby products on-line store. Under this alliance each company will be
responsible for specific aspects of the on-line stores. Also on August 9, 2000,
Amazon.com was granted a warrant entitling it to acquire 5% of the capital of
Toysrus.com at the then market value. The transition to the co-branded
on-line store and related changes in the Toysrus.com operational
structure will result in significant short-term expenses and additional
charges. These costs will be recorded in the current fiscal year.
The company recorded a non-operating gain of $315 million ($200 million net of
taxes) resulting from the initial public offering of shares of Toys "R" Us -
Japan, Ltd. ("Toys - Japan"), which was completed on April 24, 2000. Of this
gain, $91 million resulted from an adjustment to the basis of the company's
investment in Toys - Japan and $224 million related to the sale of a portion of
company owned common stock of Toys - Japan. In connection with this transaction
the company also received net cash proceeds of $267 million and recorded a
provision for current income taxes of $82 million and a provision for deferred
income taxes of $33 million, respectively. As a result of this transaction, the
company's ownership percentage in the common stock of Toys - Japan was reduced
from 80% to 48%. Toys - Japan is a licensee of the company.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
==================================================================
(continued)
Forward-Looking Statements
This Form 10-Q contains "forward-looking" statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. The company may also make forward-looking
statements in other documents filed with the Securities and Exchange Commission,
its annual report to shareholders, its proxy statement and in press releases.
All statements that are not historical facts, including statements about the
company's beliefs or expectations, are forward-looking statements. Such
statements involve risks and uncertainties that exist in the company's
operations and business environment that could render actual outcomes and
results materially different than predicted. The company's forward-looking
statements are based on assumptions about many factors, including, but not
limited to, ongoing competitive pressures in the retail industry, changes in
consumer spending, general economic conditions in the United States and other
jurisdictions in which the company conducts business (such as interest rates and
consumer confidence) and normal business uncertainty. While the company believes
that its assumptions are reasonable at the time forward-looking statements were
made, it cautions that it is impossible to predict the actual outcome of
numerous factors and, therefore, readers should not place undue reliance on such
statements. Forward-looking statements speak only as of the date they are made,
and the company undertakes no obligation to update such statements in light of
new information or future events that involve inherent risks and uncertainties.
Actual results may differ materially from those contained in any forward-looking
statement.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the Matter of Toys "R" Us, Inc.; In Re: Toys "R" Us
Antitrust Litigation.
-----------------------------------------------------------------
As previously reported in the company's report on Form 10-K for
the fiscal year ended January 29, 2000, the Staff of the Federal
Trade Commission (the "FTC") issued a final Order and Opinion (the
"Order") upholding the FTC's complaint against the company. The
company appealed the Order to the United States Court of Appeals
for the Seventh Circuit. The Seventh Circuit affirmed the Order on
August 1, 2000.
Class Action Suits against Toys "R" Us, Inc., et al.
----------------------------------------------------
In August 2000, eleven purported class action lawsuits were filed
(six in the United States District Court for the District of New
Jersey, three in the United States District Court for the Northern
District of California, one in the United States District Court
for the Western District of Texas and one in the Superior Court of
the State of California, County of San Bernardino), against the
company and its affiliates Toysrus.com, Inc. and Toysrus.com, LLC.
These actions generally purport to bring claims on behalf of all
persons who have visited one or more of the company's websites and
either made an online purchase or allegedly had information about
them unlawfully "intercepted," "monitored," "transmitted" or
"used." All of the suits (except one filed in the United States
District Court for the District of New Jersey) also name
Coremetrics, Inc. ("Coremetrics"), an internet marketing company,
as a defendant.
These lawsuits assert various claims under the federal privacy and
computer fraud statutes, as well as under state statutory and
common law, arising out of an agreement between the Company and
Coremetrics, alleging that the Company tracks its website users'
activities online and shares that information with third parties
in violation of the law. These suits seek damages in unspecified
amounts and other relief under state and federal law. The Company
believes that it has substantial defenses to these claims and
plans to vigorously defend these lawsuits.
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Item 4. Submission of Matters to a Vote of Security Holders
At the company's Annual Meeting on June 7, 2000 all of
management's nominees for director were elected.
Management's nominees for director received the following
votes:
Number of Shares Withheld Votes
RoAnn Costin 194,738,201 4,656,815
John H. Eyler, Jr. 194,740,941 4,656,075
Michael Goldstein 194,416,569 4,978,447
Calvin Hill 194,741,419 4,653,597
Shirley Strum Kenny 194,738,982 4,656,034
Charles Lazarus 194,617,177 4,777,839
Norman S. Matthews 194,595,138 4,799,878
Arthur B. Newman 194,741,264 4,653,752
The following proposals received the following votes:
(i) a proposal to approve the Stockholder Proposal
No. 1 - Maximize Value Resolution, 147,620,895
shares were voted against, 14,890,046 shares were
voted in favor of, and 2,663,842 shares abstained
from, such proposal; and
(ii) a proposal to approve the Stockholder Proposal No. 2
- Golden Parachute Resolution, 100,920,803 shares
were voted against, 61,924,391 shares were voted in
favor of, and 2,329,592 shares abstained from, such
proposal; and
(iii) a proposal to approve the Stockholder Proposal No. 3
- to redeem the stockholder rights agreement,
144,917,274 shares were voted in favor of,
18,967,259 shares were voted against, and 1,290,253
shares abstained from, such proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Financial Data Schedule for the quarter ended
July 29, 2000.
(b) Report on Form 8-K
On August 10, 2000, the company announced a strategic
alliance between its majority owned subsidiary,
Toysrus.com, LLC, and a subsidiary of Amazon.com,
Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: September 11, 2000 Toys "R" Us, Inc.
---------------------------------------
(Registrant)
s/ Louis Lipschitz
---------------------------------------
(Signature)
Louis Lipschitz
Executive Vice President and
Chief Financial Officer
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