-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eyfu8cDzGfdOH7AbE1Si7wx2m3tJlWUVk/4nVS94D25/qCaZQ4bxWdjKEOhWlITV tk8x+9A6XGCcQ1eH9RpDxg== 0000950117-96-000345.txt : 19960426 0000950117-96-000345.hdr.sgml : 19960426 ACCESSION NUMBER: 0000950117-96-000345 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960203 FILED AS OF DATE: 19960425 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOYS R US INC CENTRAL INDEX KEY: 0001005414 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOBBY, TOY & GAME SHOPS [5945] IRS NUMBER: 223260693 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11609 FILM NUMBER: 96550919 BUSINESS ADDRESS: STREET 1: 461 FROM RD CITY: PARAMUS STATE: NJ ZIP: 07652 BUSINESS PHONE: 2012627800 10-K405 1 TOYS "R" US FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended February 3, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-11609 TOYS "R" US, INC. (Exact name of registrant as specified in its charter) Delaware 22-3260693 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 461 From Road, Paramus, New Jersey 07652 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201)262-7800 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, par value $.10 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) 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 [ ] 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] As of April 15, 1996, the aggregate market value of voting stock held by non-affiliates of the registrant was $7,383,688,000. As of April 15, 1996, 273,469,926 shares of the registrant's sole class of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: The following documents, or portions thereof, have been incorporated herein by reference: (i) portions of the registrant's Annual Report to Stockholders for the fiscal year ended February 3, 1996 (the "Annual Report") are incorporated by reference into Parts I and II hereof; and (ii) portions of the registrant's definitive proxy statement for the 1996 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference into Part III hereof. 2 PART I Item 1. Business As of April 15, 1996, Toys "R" Us, Inc. and its subsidiaries 1 are principally engaged in the operation of 1,203 children's specialty retail stores consisting of 651 U.S. and 338 international toy stores under the name "Toys 'R' Us" and 214 children's clothing stores under the name "Kids 'R' Us". Worldwide Restructuring On February 1, 1996, the Company announced a restructuring of its worldwide operations and the early adoption of Financial Accounting Standards Board ("FAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of". The restructuring program consists of costs associated with the strategic repositioning of our inventory assortment. In response to changes in the retailing market place, our merchandise assortment will be streamlined by more than 20%, further enhancing our selection advantage and improving overall store productivity and profitability. The restructuring program also consists of the closings of 3 Toys "R" Us (2 of which have been closed to date) and 12 Kids "R" Us stores in the United States, the franchising or closings of 10 toy stores in Europe, and costs to consolidate 3 distribution centers and 7 administrative facilities in the United States and Europe. The restructuring plan and the adoption of FAS No. 121 resulted in charges of $396.6 million ($269.1 million, or - ------------------- 1 When used in this report the term "Company" refers to Toys "R" Us, Inc. and its subsidiaries, the term "Toys "R" Us" refers only to the Toys "R" Us U.S.A. toy specialty retail chain and the term "registrant" refers only to Toys "R" Us, Inc., a Delaware corporation. 3 $.98 cents per share, each net of tax benefits). The Company anticipates that the majority of this charge will be utilized throughout 1996 as elements of the restructuring are completed. In addition to the benefits from streamlining our merchandise selection as described above, the restructuring will also benefit the Company in two other important ways. First, the restructuring will have a positive cash impact and improve the Company's working capital. Second, the restructuring should enable the Company to achieve operating efficiencies resulting in improved operating earnings in 1996 and beyond. The Company estimates the restructuring should provide at least a $50 million benefit to operating earnings in 1996 and a greater amount in 1997 and thereafter. New Store Concepts The Company is planning to open approximately 10 Babies "R" Us stores in the United States in 1996. These stores will target the newborn to preschool market in an approximate 45,000 square foot prototype that will offer dominant assortments in juvenile furniture such as cribs and dressers as well as playards, strollers and carseats. The center of the store will carry over 8,000 square feet of clothing and the store will also carry a wide range of feeding supplies, health and beauty aids and infant care products. The store will also offer a computerized baby registry service. "Concept 2000" is the new floor plan for all new and remodeled 46,000 square foot Toys "R" Us stores in the United States. These stores will feature a spacious 14-foot center aisle and a 10-foot wide racetrack oval aisle, replacing the "supermarket" style layout 4 of the previous stores. The center of the store will feature low gondolas and various life-size icons that will permit instant identification of product categories. These stores will include seasonal areas that will change periodically, such as Warner Kids Shops and special Barbie presentations. The stores will also feature Lego Shops, Learning Centers and a video game section that will be displayed by game system. The Bike Shop will include an assembly window, which will allow customers to view bicycles being assembled. Furthermore, the center of the store will be highlighted by a large skylight. The Company's new superstore concept will combine elements of the "Concept 2000", the Babies "R" Us and the Kids "R" Us stores into one large store. These stores will encompass approximately 85,000 to 95,000 square feet with a single checkstand area. This concept will also include licensed operations for a national quick service food chain, snack bar, hair cutting center, photo studio and party room. Toys "R" Us - United States The Company believes that Toys "R" Us is the largest operation of its type in the country in terms of sales and earnings. 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 and everyday low prices. Toys "R" Us operates in 48 states and Puerto Rico and sells children's and adult's toys, games, bicycles and other wheel goods, sporting goods, electronic and video games, small pools, books, infant's and juvenile furniture and similar items. In 1995, the Company added educational and entertainment computer software for children in its Toys "R" Us stores. 5 Most of the Toys "R" Us stores conform to a prototype design consisting of approximately 46,000 square feet, with 30,000 and 20,000 square foot stores being opened in smaller markets, and are generally freestanding units or located in strip centers. As an integral part of its long-range growth plans, Toys "R" Us has been increasing its total toy store square footage by approximately 35 to 40 new toy stores each year. At April 15, 1996, Toys "R" Us utilized 16 warehouse/distribution centers and a large fleet of tractors and trailers, which it owns and maintains, to service its 651 stores. Toys "R" Us believes that 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 employs 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 the proper amount of merchandise to each store and to keep the stores adequately stocked at all times. The regional locations of Toys "R" Us stores and warehouse/distribution centers are listed in Item 2. Toys "R" Us utilizes demographic information in determining which markets to enter. During the fiscal year ended February 3, 1996, the Company opened 35 new Toys "R" Us stores. Plans for the fiscal year ending February 1, 1997 call for approximately 35 new Toys "R" Us stores in the United States. The Company will unveil its new "Concept 2000" toy store design in 16 locations, 6 4 of which will be retrofits of existing toy stores. The Company will also open 2 new superstores, one of which will be a retrofit of an existing Toy "R" Us and Kids "R" Us store (see "New Store Concepts"). Toys "R" Us - International During the fiscal year ended February 3, 1996, Toys "R" Us International continued its expansion by opening 42 stores in the following countries: Australia (4 stores), Canada (2 stores), France (8 stores), Germany (4 stores), Japan (13 stores), Malaysia (1 store), the Netherlands (1 store), Singapore (1 store), Spain (6 stores) and the United Kingdom (2 stores). The Company also closed one store in the United Kingdom in 1995. Stores located in foreign countries are serviced by executive and buying offices and warehouse/ distribution centers (see Item 2-Properties). At April 15, 1996, Toys "R" Us-International utilized 12 warehouse/distribution centers and a large fleet of tractors and trailers, which it owns and maintains, to service its' stores. The Toys "R" Us-International stores generally conform to prototypical designs similar to those used in the United States. Toys "R" Us - International utilizes demographic information in determining which markets to enter and employs computerized inventory systems similar to those utilized by Toys "R" Us. In 1993, the Company initiated a franchising division to provide for the opening of franchised stores in additional parts of the world. Franchise agreements have been signed in Israel (one store opened in 1995), 7 Indonesia, Saudi Arabia, Scandinavia, South Africa, Turkey and the United Arab Emirates (one store). The Company also operates, through 50%-owned joint ventures, four stores in Hong Kong and six stores (including two which opened in 1995) in Taiwan. In 1996, the Company plans to open approximately 55 new international toy stores, including approximately 20 franchise stores, 13 of which will be conversions of existing stores not owned by the Company. In addition, 4 stores located in Scandinavia, which were operated by the Company, will be converted into franchise stores. Financial information relating to foreign and domestic operations is hereby incorporated by reference to page 16 of the Company's Annual Report. Kids "R" Us In 1995, the Company continued its development of the Kids "R" Us children's clothing store division which was inaugurated in 1983. These stores feature brand name and private label first quality children's clothing. Nine additional stores were opened during 1995. In 1996, the Company plans to open about 10 stores and convert one existing store, along with an existing toy store, into a superstore. All stores are serviced from three existing distribution centers and by a fleet of tractors and trailers, which Kids "R" Us owns and maintains. Kids "R" Us utilizes demographic information in determining which markets to enter. 8 Competition Retailing remains an intensely competitive industry and all of the merchandise sold by the Company is available, in the markets in which the Company operates, from various retailers at competitive prices. Employees The Company employed approximately 60,000 associates at the end of the fiscal year. During the 1995 Holiday season, the number of associates increased to approximately 111,000. Seasonality and Working Capital The Company's business is highly seasonal, with most of its earnings occurring in the fourth quarter. See the quarterly financial data contained in the Company's Annual Report, which section is incorporated herein by reference to page 7 of the Company's Annual Report. For a discussion of the Company's working capital requirements, see "Management's Discussion - Results of Operations and Financial Condition - Liquidity and Capital Resources" included in the Company's Annual Report, which section is incorporated herein by reference to page 7 of the Company's Annual Report. Corporate Developments Effective January 1, 1996, the registrant adopted a holding company form of organizational structure. The holding company organizational structure was implemented by the merger (the "Merger") of a wholly-owned indirect subsidiary of the registrant with and into Toys "R" Us, Inc. ("Predecessor"), which was the surviving corporation, in accordance with Section 251(g) of the Delaware General Corporation Law. As a result of this merger, each share 9 of capital stock of the Predecessor issued and outstanding or held in its treasury was converted into one share of capital stock of the registrant (formerly known as Toys "R" Us-Headquarters, Inc.). The registrant became the holding company for the Company's operating subsidiaries and the Predecessor became a direct wholly-owned subsidiary of the registrant. On the effective date of the Merger, the name of registrant was changed to Toys "R" Us, Inc. and the name of the Predecessor was changed to Toys "R" Us-Delaware, Inc. Incorporation The registrant was incorporated in Delaware in 1993 for the purpose of engaging in the merger described above. The Predecessor was incorporated in Delaware in 1928. Item 2. Properties All information related to properties in Item 2 is as of April 15, 1996. Toys "R" Us - United States Toys "R" Us operated 16 distribution centers, 14 of which are owned and 2 of which are leased. The distribution centers average approximately 443,000 square feet each in size. Toys "R" Us operated 651 toy stores, 393 of which are owned and 258 of which are leased. Most of these stores are approximately 46,000 square feet and are typically freestanding units or located in strip centers. The Company is also opening and operating 30,000 and 20,000 square foot stores in smaller markets. 10 A significant portion of the properties constructed by Toys "R" Us are owned. Toys "R" Us plans to continue this policy in 1996. Where ownership is not feasible, Toys "R" Us generally has long term leases with multiple renewal options. The following chart sets forth certain information concerning the operating properties of Toys "R" Us: Number of Stores in Distribution Center Region Serviced Region - ------------------- ---------------------- ------------ Rialto, California Southern California/ 63 Arizona/Nevada/Hawaii Joliet, Illinois Illinois/Wisconsin/ 62 Minnesota Mount Olive, New Jersey New York/Northern New 55 Jersey Atlanta, Georgia Georgia/South Carolina/ 51 Tennessee/Alabama Landover, Maryland Virginia/Maryland/ 48 North Carolina Orlando, Florida Florida/Puerto Rico 45 Houston, Texas Southern Texas/Louisiana/ 42 Mississippi Stockton, California Northern California/Utah 40 Lees Summit, Missouri Kansas/Missouri/Iowa/ 39 Nebraska/Colorado Northboro, New England 33 Massachusetts Carrollton, Texas Northern Texas/Oklahoma/ 32 Arkansas/New Mexico Fairfield, Ohio Central Ohio/Indiana/ 31 Kentucky Youngstown, Ohio Northeastern Ohio/Western 30 Pennsylvania/Northwestern New York Fairless Hills, Pennsylvania/Delaware/ 29 Pennsylvania Southern New Jersey Canton, Michigan Michigan/Northwestern Ohio 28 Kent, Washington Pacific Northwest/Alaska 23 ----- 651 ===== The Company also leases corporate offices in Paramus and 11 Rochelle Park, New Jersey and owns a data center in Parsipanny, New Jersey. Kids "R" Us Kids "R" Us operated 214 children's clothing stores, of which 103 are owned and 111 are leased. The stores conform to prototypical designs consisting of approximately 15,500 to 21,500 square feet. The clothing stores are typically freestanding units or located in strip centers. Kids "R" Us operated three distribution centers, all of which are owned. The distribution centers average approximately 307,000 square feet each in size. The following chart sets forth certain information concerning the operating properties of Kids "R" Us: Number of Distribution Centers Stores Serviced - -------------------- --------------- Somerset, New Jersey 93 Southgate, Michigan 82 Irwindale, California 39 ----- 214 ===== Toys "R" Us-International Toys "R" Us-International operated 12 distribution centers, 5 of which are owned and 7 of which are leased. Toys "R" Us-International operated 326 stores, excluding 10 joint venture and 2 franchised stores, of which 106 are owned and 220 of which are leased. Toys "R" Us-International owns or leases properties in Australia, Austria, Belgium, Canada, Denmark, France, Germany, Japan, Luxembourg, Malaysia, the Netherlands, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. 12 The Toys "R" Us-International stores generally conform to prototypical designs similar to those used in the United States. The following chart sets forth certain information concerning the operating properties of Toys "R" Us-International, excluding joint venture properties: Number of Executive and Distribution Stores Buying Offices Centers Country Serviced Serviced - -------------- ------------ ----------------- ---------- Germany Koln(2), Germany, Austria, 77 Trossingen, The Netherlands, Harbke Switzerland Canada Concord, Ontario Canada 58 United Kingdom Conventry United Kingdom, 54 Denmark, Sweden France Evry France, Belgium, 42 Luxembourg Japan Yokohama, Japan 37 Sakai Spain Alcala de Henares Spain, Portugal 29 Australia Regents Park, NSW Australia 21 - Jurong Singapore, Malaysia 8 ----- 326 ===== See the Note, "Leases", in the Company's Notes to Consolidated Financial Statements included on page 14 of the Company's 1995 Annual Report, which note is incorporated herein by reference, for additional information with respect to the Company's leases. Item 3. Legal Proceedings The Company is named as a defendant in legal proceedings in the ordinary course of its business. The Company believes that none of these legal proceedings are material to its business or financial condition. 13 Item 4. Submission of Matters to a Vote of Security Holders None. Item 4A. Executive Officers of the Company as of April 15, 1996 (a) The following persons are the executive officers of the Company, 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 Office Michael Goldstein 54 Vice Chairman of the Board and Chief Executive Officer Robert C. Nakasone 48 President and Chief Operating Officer Roger V. Goddu 45 Executive Vice President - President of U.S. Toy Store Merchandising Division Louis Lipschitz 51 Executive Vice President and Chief Financial Officer Michael J. Madden 47 Executive Vice President - President of U.S. Toy Store Operations Division Richard L. Markee 43 Executive Vice President - President of Kids "R" Us and Babies "R" Us Divisions Gregory R. Staley 48 Executive Vice President - President of Toys "R" Us International Division Joseph J. Lombardi 34 Vice President - Controller (b) The following is a brief account of the business experience during the past five years of each of the executive officers of the Company: Mr. Goldstein has been employed by the Company for more than five years. Effective February 1994, he became Vice Chairman of the Board and Chief Executive Officer. From February 1993 to January 1994, he was Vice Chairman of the Board and Chief Administrative Officer. From prior to 1991 to January 14 1993, he was Vice Chairman of the Board and Chief Financial and Administrative Officer. Mr. Nakasone has been employed by the Company for more than five years. Effective February 1994, he became President and Chief Operating Officer. From prior to 1991 to January 1994, he was Vice Chairman of the Board and President of Worldwide Toy Stores. Mr. Goddu 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 U.S. Toy Store Merchandising Division. From prior to 1991 to January 1996, he was Executive Vice President - General Merchandise Manager - U.S. Toy Store Division. 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 of the Company. From February 1993 to January 1996, he was Senior Vice President - Finance and Chief Financial Officer. From prior to 1991 to January 1993, he was Vice President - Finance and Treasurer. 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 U.S. Toy Store Operations Division. From March 1995 to January 1996, he was Group Vice President of Store Operations - U.S. Toy Store Division. From February 1993 to February 1995, he was Senior Vice President, Regional Operations and Distribution - U.S. Toy Store Division. From prior to 1991 to January 1993, he was Vice President, Physical Distribution - U.S. Toy Store Division. 15 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 March 1993 and Babies "R" Us Division since its inception in September 1995. From prior to 1991 to February 1993, he was Vice President - General Merchandise Manager for Kids "R" Us Division. 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 October 1991 to July 1995, he was Senior Vice President - General Merchandise Manager of Toys "R" Us International Division. From prior to 1991 to September 1991, he was Vice President - Divisional Merchandise Manager - U.S. Toy Store Division. Mr. Lombardi has been employed by the Company since August 1995 as Vice President - Controller. From October 1994 to July 1995, he was a Partner with Ernst & Young, LLP, a public accounting firm, and was a Senior Manager with Ernst & Young, LLP, since prior to 1991 to September 1994. 16 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 7 of the Company's Annual Report. Item 6. Selected Financial Data Selected financial data are hereby incorporated by reference to page 1 of the Company's Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations is hereby incorporated by reference to pages 6 and 7 of the Company's Annual Report. Item 8. Financial Statements and Supplementary Data The following financial statements and supplementary data are hereby incorporated by reference to pages 8 to 17 of the Company's Annual Report. (i) Consolidated Balance Sheets at February 3, 1996 and January 28, 1995 (ii) Consolidated Statements of Earnings for each of the three years in the period ended February 3, 1996; (iii) Consolidated Statements of Cash Flows for each of the three years in the period ended February 3, 1996; 17 (iv) Consolidated Statements of Stockholders' Equity for each of the three years in the period ended February 3, 1996; (v) Notes to Consolidated Financial Statements; and (vi) Opinion 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 and all subsidiaries 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. 18 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 Proxy Statement. Information with respect to the executive officers of the Company is set forth in Item 4A of Part I hereof. 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" and "- Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values", in the Company's Proxy Statement. The sections, "- Report of the Compensation Committee on Executive Compensation" and "- Five-Year Stockholder Return Comparison", in the Company's 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. 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 Proxy Statement. 19 Item 13. Certain Relationships and Related Transactions Information with respect to certain relationships and related transactions is hereby incorporated herein by reference to the section, "Election of Directors - Certain Transactions", in the Company's Proxy Statement. 20 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) (1) The response to this portion of Item 14 is set forth in Item 8 of Part II hereof. (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) On February 1, 1996, the Company filed a Form 8-K in connection with the worldwide restructuring which was announced in the press release dated the same. (c) Reference is made to Item 14(a)(3) above. (d) Reference is made to Item 14(a)(2) above. 21 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 Louis Lipschitz Executive Vice President and Chief Financial Officer Date: April 25, 1996 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 25th day of April, 1996. Signature Title - ------------------- ------------------------------------------------ Charles Lazarus Chairman of the Board Michael Goldstein Director, Vice Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Louis Lipschitz Executive Vice President and Chief Financial Officer (Principal Financial Officer) Joseph J. Lombardi Vice President - Controller (Principal Accounting Officer) Robert A. Bernhard Director Milton S. Gould Director Shirley Strum Kenny Director 22 Reuben Mark Director Norman S. Matthews Director Howard W. Moore Director Robert C. Nakasone Director Norman M. Schneider Director Harold M. Wit Director The foregoing constitute all of the Board of Directors and the Principal Executive, Financial and Accounting Officers of the Registrant. 23 INDEX TO EXHIBITS The following is a list of all exhibits filed as part of this Report: Exhibit No. Document - ------- ------------------------------------------- 2 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"). 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. 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 registrant's 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(b) 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 by registrant. Incorporated herein by reference to Exhibit 4 to registrant's Registration Statement No. 33-42237. 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. 24 Exhibit No. - ------- 4 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) industrial revenue bonds issued by industrial development authorities and guaranteed by registrant, (ii) mortgages held by third parties on real estate owned by registrant, (iii) stepped coupon guaranteed bonds held by a third party and guaranteed by registrant and (iv) an agreement under which registrant guaranteed certain yen-denominated loans made by a third party to a 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* Stock Option Plan of the registrant, as amended as of April 22, 1993. Incorporated herein by reference to Exhibit 10A to registrant's Annual Report on Form 10-K for the year ended January 30, 1993. 10B* 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 to a 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). * 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. 25 Exhibit No. - ------- 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. 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 1-1117. 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 Nuimber 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. 26 Exhibit No. - ------- 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. Incorporated herein by reference to Exhibit 10H to registrant's Annual Report on Form 10-K for the year ended February 1, 1992. 10H* 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. 10I* 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. 10J* Toys "R" Us, Inc. 1994 Stock Option and Performance Incentive Plan effective November 1, 1993, as amended. Incorporated herein by reference to Exhibit 4.1 to registrant's Registration Statement No. 33-64315. 10K* Toys "R" Us Inc. Management Incentive Compensation Plan adopted March 28, 1994 (incorporated herein by reference to Exhibit 10L to registrant's Annual Report on Form 10-K for the year ended January 29, 1994). The first amendment to such plan adopted on April 20, 1995 (incorporated herein by reference to Exhibit 10.11 to the Form 8-B). * 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. 27 Exhibit No. - ------- 10L* 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. 10M* 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. 10N* Toys "R" Us Inc. Supplemental Executive Retirement Plan, effective as of December 6, 1995, (is filed herewith). 13 Registrant's Annual Report to Stockholders for the year ended February 3, 1996. 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. 27 Financial Data Schedule * 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. 28 EX-10 2 EXHIBIT 10N EXHIBIT 10N - -------------------------------------------------------------------------------- Toys "R" Us, Inc. Supplemental Executive Retirement Plan Effective as of December 6, 1995 - -------------------------------------------------------------------------------- TOYS "R" US, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Table of Contents -----------------
Article Page - ------- ---- I PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 III ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 IV ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . 9 V NOTIONAL CONTRIBUTIONS AND INTEREST CREDITS AND DEBITS. . . . . . . 9 VI VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 VII RETIREMENT DATES. . . . . . . . . . . . . . . . . . . . . . . . . . 13 VIII DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 IX DEATH BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 X SOURCE AND PAYMENT OF BENEFITS. . . . . . . . . . . . . . . . . . . 16 XI AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . 17 XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE I PURPOSE Toys "R" Us, Inc. adopted the Toys "R" Us, Inc. Supplemental Executive Retirement Plan (the "Plan") effective as of December 6, 1995. The purpose of the Plan is to provide a supplemental retirement benefit for certain eligible executives and their beneficiaries which is in excess of the limitations imposed by Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended, on certain contributions to the "TRU" Partnership Employees' Savings and Profit Sharing Plan. The Plan is intended to constitute an unfunded deferred compensation plan for a select group of management and highly compensated employees. ARTICLE II DEFINITIONS When used herein the following terms shall have the meanings set forth below: 2.1 "Account" means the unfunded bookkeeping account established for each Participant in accordance with Section 5.4. 2.2 "Administrative Committee" means the committee appointed by the Compensation Committee to administer the Plan. 2.3 "Beneficiary" means the person designated in writing by a Participant to receive the amount, if any, payable under the Plan upon the Participant's death. If a Participant does not designate a person to receive the amount payable under the Plan upon his or her death, "Beneficiary" means the person designated by the Participant to receive benefits which may be due under the Savings Plan upon his or her death. 2.4 "Board of Directors" means the Board of Directors of the Company or a duly appointed committee thereof. 2.5 "Compensation Committee" means the Management Compensation and Stock Option Committee of the Board of Directors. 2.6 "Declared Rate of Interest" means the percentage rate of interest (rounded, at the Administrative Committee's option, to the nearest tenth of a percent) equal to the aggregate percentage yield (gain or loss) on a portfolio of investments which is selected by the Administrative Committee, in its sole discretion, and which reflects each Participant's investment preferences as indicated by his or her investment elections under the Savings Plan. 2.7 "Disability Period" means, for purposes of Section 5.5, the period commencing on the date a Participant is determined to be disabled pursuant to the terms of the Savings Plan and ending on such Participant's Normal Retirement Date, Early Retirement Date, date of death or the date as of which the Participant is no longer disabled under the terms of the Savings Plan. 2.8 "Early Retirement Date" means the Early Retirement Date of a Participant as defined in Section 7.2. 2.9 "Effective Date" means December 6, 1995. 2.10 "Eligible Earnings" means that portion of a Participant's Total Compensation that exceeds the compensation limitation under Section 401(a)(17) of the Code, as determined under the terms of the Savings Plan as of the end of any Plan Year. 2.11 "Employer" means the Company and any corporation which, with the consent of the Board of Directors, adopts the Plan and becomes subject to its terms by filing with the Company a certified copy of a resolution of its board of directors adopting the Plan. 2 2.12 "Enhanced Rate of Interest" means for any Plan Year, a percentage rate of interest equal to 120% of the Declared Rate of Interest for such Plan Year (rounded, at the Administrative Committee's option, to the nearest tenth of a percent); provided, however, that in no event shall the Enhanced Rate of Interest for any Plan Year be less than the Declared Rate of Interest or greater than a rate of interest which is 4% above the Declared Rate of Interest for such Plan Year. 2.13 "Enhancement Period" means the period of years during which a Participant shall be eligible to receive an Enhanced Rate of Interest on his Account balance as established under Section 5.2. Such period shall equal the lesser of (i) the number of Years of Service completed by the Participant prior to February 1, 1996, rounded to the next higher whole year, or (ii) 10 years. 2.14 "Normal Retirement Date" means the retirement date of a Participant as defined in Section 7.1. 2.15 "Notional Contribution" shall equal the amount to be credited to a Participant's Account in accordance with the provisions of Section 5.1. 2.16 "Participant" means any Employee who becomes eligible for and commences participation in the Plan, as provided in Article IV. 2.17 "Plan" means the Toys "R" Us, Inc. Supplemental Executive Retirement Plan, as the same may be amended from time to time. 2.18 "Plan Year" means the short Plan Year commencing December 6, 1995 and ending January 31, 1996. Thereafter, "Plan Year" shall mean each February 1 through January 31. 3 2.19 "Savings Plan" means the "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. 2.20 "Target Cash Compensation" means (a) for a Participant who dies as of the last day of a Plan Year, an amount equal to the sum of such Participant s (i) cash wages, (ii) bonuses, and (iii) awards granted under the Toys "R" Us, Inc. Management Incentive Compensation Plan (the "Management Incentive Plan") during such Plan Year, or (b) for a Participant who dies other than on the last day of a Plan Year, an amount equal to (i) cash wages, (ii) bonuses, and (iii) awards granted under the Management Incentive Plan during such Plan Year, which the Administrative Committee projects and determines, under rules uniformly applicable to all Participants, the Participant would have received had he or she not died prior to the end of such Plan Year. Other capitalized terms used herein shall have the same meaning when used in this Plan as ascribed to them under the terms of the Savings Plan. Whenever appropriate, words used in the singular shall include the plural or the plural may include the singular, and words used in the masculine may include the feminine or the feminine may include the masculine. ARTICLE III ADMINISTRATION 3.1 The Compensation Committee or the Administrative Committee (subject to the ability of the Compensation Committee to restrict the Administrative Committee) shall administer the Plan in accordance with its terms, and shall have all powers necessary to 4 accomplish such purpose, including the power and authority to construe and interpret the Plan, to define the terms used herein, to prescribe, amend and rescind rules and regulations, agreements, forms, and notices relating to the administration of the Plan, and to make all other determinations necessary or advisable for the administration of the Plan including, without limitation, determination of Participant benefit claims in accordance with rules uniformly applicable to all Participants. Any actions of the Compensation Committee or the Administrative Committee with respect to the Plan shall be conclusive and binding upon all persons interested in the Plan, except that any action of the Administrative Committee will not be binding on the Compensation Committee. The Compensation Committee and Administrative Committee may each appoint agents and delegate thereto powers and duties under the Plan, except as otherwise limited by the Plan. 3.2 The Administrative Committee shall consist of such number of Participants as shall be determined by the Compensation Committee, each of whom shall be appointed by, shall remain in office at the will of, and may be removed, with or without cause, by the Compensation Committee. Any Participant of the Administrative Committee may resign at any time. No Participant of the Administrative Committee shall be entitled to act on or decide any matter relating solely to himself or herself or any of his or he rights or benefits under the Plan. The Participants of the Administrative Committee shall not receive any special compensation for serving in their capacities as Participants of the Administrative Committee but shall be reimbursed for any reasonable expenses incurred in connection therewith. No bond or other security need be required of the Administrative Committee or any Participant thereof in any jurisdiction. 5 3.3 Each Participant of the Compensation Committee and the Administrative Committee shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or other employee of the Company or any subsidiary of the Company, the Company's independent certified public accountants, or any executive compensation consultant, legal counsel, or other professional retained by the Company to assist in the administration of the Plan. To the maximum extent permitted by law, no Participant of the Compensation Committee or the Administrative Committee, nor any person to whom ministerial duties have been delegated, shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan. To the maximum extent permitted by law, the Company shall indemnify the Participants of the Compensation Committee and the Administrative Committee against any and all claims, losses, damages, expenses, including any counsel fees and costs, incurred by them, and any liability, including any amounts paid in settlement with their approval, arising from their action or failure to act. ARTICLE IV ELIGIBILITY AND PARTICIPATION Employees who are designated by the Compensation Committee as members of the Partnership Group and who are Participants in the Savings Plan shall be eligible to participate in the Plan for any Plan Year. ARTICLE V NOTIONAL CONTRIBUTIONS AND INTEREST CREDITS AND DEBITS 5.1 (a) For each Plan Year, each Participant who is an Employee on the last day of the Plan Year shall have credited to his or her Account a Notional Contribution 6 equal to 11% of such Participant's Eligible Earnings. Such Notional Contribution shall be credited to the Participant's Account under the Plan as soon as practicable, but in no event later than 120 days, following the end of the applicable Plan Year. (b) In addition to the Notional Contribution amount determined under Section 5.1(a), each Participant who is an Employee on the last day of the Plan Year beginning on the Effective Date shall receive an additional Notional Contribution which shall equal, in the aggregate, 11% of such Participant's Eligible Earnings, if any, determined for each of the Plan Years, respectively, beginning February 1, 1993, and February 1, 1994. 5.2 In addition to the Notional Contribution determined under Section 5.1, each Participant's Account shall be credited or debited each Plan Year with an interest amount determined under either Section 5.2(a) or (b) hereto: (a) Each Participant's Account shall be credited or debited with an Enhanced Rate of Interest for each Plan Year, if any, commencing during the Participant's Enhancement Period. The amount to be credited or debited shall equal the "product" determined by multiplying (i) the Participant's Account balance as of the last day of the immediately preceding Plan Year, by (ii) the Enhanced Rate of Interest established for the applicable Plan Year. The amount of interest to be credited or debited under this Section 5.2(a) shall be calculated and credited or debited to the Participant's Account during the 120 day period following the end of each applicable Plan Year. (b) In each Plan Year in which the Participant's Account is not credited with an Enhanced Interest amount under Section 5.2(a), the Participant's Account shall be credited or debited, whichever is applicable, with a Declared Interest amount determined 7 under this Section 5.2(b). The amount of such credit or debit shall equal the "product" determined by multiplying (i) the Participant's Account balance as of the last day of the immediately preceding Plan Year, by (ii) the Declared Rate of Interest established for the applicable Plan Year. The amount of interest to be credited or debited under this Section 5.2(b) shall be calculated and credited or debited to the Participant's Account during the 120 day period following the end of each applicable Plan Year. (c) Notwithstanding the provisions of Sections 5.2(a) and (b), neither a Declared Rate of Interest nor an Enhanced Rate of Interest shall be credited or debited for periods commencing prior to the Effective Date. 5.3 The Administrative Committee shall establish or cause to be established a separate, unfunded bookkeeping Account for each Participant showing the Notional Contributions, Declared Interest, Enhanced Interest and other relevant data pertaining thereto. Each Participant shall receive an annual statement of his or her Account balance, which shall reflect Notional ontributions made pursuant to Section 5.1 and interest credited or debited to his or her Account pursuant to Section 5.2 during the applicable Plan Year. 5.4 The establishment and maintenance of, or allocations, debits or credits to, the Account of any Participant shall not vest in that Participant or his or her Beneficiary any right, title, or interest in and to any specific assets of the Employer or in and to any trust fund maintained in connection with the Plan, except at the time or times and upon the terms and conditions expressly set forth in the Plan and any applicable trust document. 5.5 Notwithstanding the provisions of Sections 5.1 and 5.2, if a Participant terminates employment on account of Disability during any Plan Year, such Participant shall 8 receive a Notional Contribution and a Declared Interest credit or debit or an Enhanced Interest credit, if applicable, for each Plan Year ending within his or her Disability Period; provided, however, that (a) for purposes of determining the Notional Contribution under Section 5.1(a) to be made to such Participant, such Participant's Total Compensation shall be deemed to be his or her Total Compensation determined as of the last day of the Plan Year preceding the date on which his or her Disability occurred, increased by 4% for each Plan Year ending within the Disability Period; and (b) for purposes of determining his or her Declared Rate of Interest or Enhanced Rate of Interest, if applicable, the Administrative Committee shall assume that the Participant's Declared Rate of Interest for each Plan Year ending within the Participant's Disability Period shall equal the average aggregate yield (gain or loss) on all investment funds maintained under the Trust Fund for the Savings Plan. 5.6 (a) The Company shall have the option to require the trust fund maintained in connection with the Plan to bear all costs incident to the operation of this Plan. f the Company requires that the trust fund maintained in connection with the Plan bears any costs incident to the Plan's operation, each Participant's Account shall be debited its proportionate share of such expense in accordance with rules adopted by the Administrative Committee and uniformly applicable to all Participants. (b) If the Company does not exercise the option to charge the trust fund maintained in connection with the Plan for costs incident to the Plan's operation, each Employer shall pay such costs or such portion thereof with respect to which said option has not been exercised. The proportion of such costs to be paid by each Employer in a particular Plan Year shall be in the ratio which the total of such Employer's Notional Contributions bears 9 to the total of the Notional Contributions of all of the Employers credited during such Plan Year. ARTICLE VI VESTING 6.1 Each Participant who terminates employment on or after a Normal Retirement Date, Early Retirement Date, or due to Disability, shall have a 100% vested and non-forfeitable right to an amount equal to the Participant's Account balance, as adjusted pursuant to the provisions of Article V, as of the date of his or her termination of employment. The Beneficiary of any Participant who dies while actively employed shall have a 100% vested and non-forfeitable right to an amount equal to the Participant's Account balance, as adjusted pursuant to the provisions of Article V, as of the date of the Participant's death. 6.2 (a) Subject to the provisions of Article XI, each Participant who terminates employment with the Employer, other than as provided in Section 6.1, shall not, except as provided in Section 6.2(b), be vested in, and shall forfeit the right to, any benefit under the Plan. (b) Notwithstanding the provisions of Section 6.2(a), a Participant who has completed five Years of Service prior to his termination of employment with an Employer and who is not vested as provided under Section 6.2(a) may apply to the Compensation Committee to request full vesting of his or her Account balance. If the Compensation Committee approves such request, the Participant shall receive a 100% vested and non-forfeitable right to an amount equal to his or her Account balance, as adjusted pursuant to the provisions of Article V, as of the date of termination of employment and such amount shall 10 be payable in accordance with the provisions of Section 8.2(b). ARTICLE VII RETIREMENT DATES 7.1 The Normal Retirement Date of each Participant shall be the first day of any month coincident with or next following the date he or she terminates employment with an Employer at or after attainment of age sixty (60) with five or more Years of Service. 7.2 The Early Retirement Date of each Participant shall be the first day of any month coincident with or next following the date he or she terminates employment with an Employer at or after attainment of age fifty-five (55) with five or more Years of Service. 7.3 A Participant whose service is terminated by reason of Disability may retire as of any Normal Retirement Date or Early Retirement Date or, with the consent of the Compensation Committee, may retire as of the first day of any month coincident with or next following the calendar month in which the Participant terminates employment on account of Disability. ARTICLE VIII DISTRIBUTIONS 8.1 A Participant may not receive a distribution from his or her Account prior to the date he or she terminates employment with an Employer and shall receive such distribution only as provided in this Article VIII. 8.2 (a) Subject to the terms of any applicable insurance policies maintained under the provisions of Section 10.2 of the Plan, each Participant who terminates employment with an Employer as of a Normal Retirement Date, Early Retirement Date or on 11 account of Disability as provided under Article VII, shall receive as soon as practicable, but in no event later than 120 days following the date of the Participant's termination of employment, a lump sum cash distribution equal to the value of the Participant's Account, as adjusted pursuant to the provisions of Article V, as of such date. (b) In lieu of a lump sum cash distribution, any Participant who qualifies for a distribution on attainment of a Normal Retirement Date may (i) elect in accordance with rules established by the Administrative Committee, an actuarially equivalent annuity to be paid out over a fixed number of years commencing as of the date of the Participant's termination of employment, or (ii) request that the Administrative Committee transfer to the Participant, in lieu of any other payment under the Plan, the ownership of a life insurance policy or policies on the life of the Participant in which an amount equal to the value of the Participant's Account has been invested, such transfer to be completed at such time and in such manner as the Administrative Committee and the terms of the applicable policies shall require. (c) If a Participant terminates employment other than on his Normal Retirement Date and is entitled to a benefit under the Plan, such benefit shall be payable in a lump sum as soon as practicable, but in no event later than 120 days following the date the Participant terminates employment, or, if applicable, the date the Compensation Committee approves his or her request for full vesting under Section 6.2(b); provided, however, that a Participant may request and the Administrative Committee may approve an actuarially equivalent form of payment if such actuarially equivalent form of payment does not result in any additional cost to the Company. 12 ARTICLE IX DEATH BENEFITS 9.1 The Beneficiary of each Participant who dies while actively employed by an Employer shall be entitled to receive a lump sum distribution equal to the greater of (a) the value of such Participant's Account, as adjusted pursuant to the provisions of Article V, as of the date of his or her death, or(b) an amount equal to the lesser of (i) five times the Participant's current Target Cash Compensation for the Plan Year in which his or her death occurred, or (ii) the amount of insurance coverage maintained on the life of the Participant under the terms of the Plan. Any benefit payable pursuant to this Section 9.1 shall be paid to the Participant's Beneficiary as soon as practicable in accordance with the applicable terms of any insurance policy maintained on the Participant's life. 9.2 A Participant may change his or her Beneficiary at any time by filing a new Beneficiary designation form with the Administrative Committee. ARTICLE X SOURCE AND PAYMENT OF BENEFITS 10.1 Benefits under the Plan are a contractual obligation of the Participant's Employer and all payments under the Plan shall, unless paid in accordance with Section 10.2, be made from the general assets of such Employer. The rights of any person to receive benefits under the Plan shall be only those of a general unsecured creditor. Notwithstanding the foregoing, nothing herein shall prevent the transfer of funds to a trust for the purpose of paying benefits under the Plan as provided in Section 10.2. 10.2 Notwithstanding any provisions of Section 10.1 to the contrary, the 13 Administrative Committee may establish a grantor trust or other arrangement (including, but not limited to, insurance contracts) for the benefit of Participants in the Plan. The assets of said trust or arrangement shall be held separate and apart from other Employer funds and shall be used exclusively for the purposes set forth in the Plan and the applicable documents establishing the trust or other arrangement, subject to the following conditions: (a)the creation of said trust or other arrangement shall not cause the Plan to be other than "unfunded" for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended; (b) the Employer shall be treated as the "grantor" of any such trust for purposes of Sections 671 and 677 of the Code; and (c) the documents establishing the trust or other arrangement shall provide that the assets held under the trust or other arrangement may be used to satisfy claims of the Employer's general creditors, provided that the rights of such general creditors are enforceable under federal and state law. ARTICLE XI AMENDMENT AND TERMINATION The Compensation Committee may, with prospective or retroactive effect, amend, alter, suspend, discontinue or terminate the Plan at any time without the consent of Participants, stockholders or any other person; provided, however, that, without the consent of a Participant, no such action shall materially and adversely affect the rights of such Participant with respect to any rights to payment of amounts credited to such Participant's Account. Notwithstanding the foregoing, the Compensation Committee may, in its sole discretion, 14 terminate the Plan as of any date and distribute to the Participants an amount equal to their Account balances, as adjusted pursuant to the provisions of Article V, as of such date. ARTICLE XII MISCELLANEOUS 12.1 No person entitled to a benefit under the Plan shall have any power to assign, transfer, pledge, hypothecate or otherwise encumber the right to receive such payment and any attempt to do so shall be void and will not be recognized by the Administrative Committee. 12.2 The Company or any Employer shall have the right to deduct from amounts otherwise payable in settlement of an Account any sums that federal, state, local or foreign tax law requires to be withheld with respect to such payment. 12.3 Nothing in this Plan shall be construed to confer upon any person any legal right to be continued as an Employee of any Employer, and each Employer expressly reserves the right to discharge any Employee whenever the interest of the Company or Employer in its sole judgment may so require, without any liability on the part of the Company, the Employer, the Compensation Committee or the Administrative Committee. 12.4 Any final payment or distribution to the Participant or Beneficiary or their legal representative shall be in full satisfaction of all claims against the Plan, the Administrative Committee, the Compensation Committee and the Employer. 12.5 If the Administrative Committee finds that the Participant or other person entitled to a benefit under the Plan is unable to care for his or her affairs because of illness or accident or because he or she is a minor, the Administrative Committee may direct that any 15 benefit due him or her be paid to his or her spouse, a child, a parent or other blood relative or a person with whom he or she resides, unless a claim has been made for the benefit by a duly appointed legal representative. Any payment made under the provisions of this Section 12.5 shall be a complete discharge of the liabilities of the Plan for that benefit. 12.6 A Participant and his or her Beneficiary shall assume all risk in connection with any decrease in the value of an Account and neither the Plan, the Employer, the Compensation Committee nor the Administrative Committee shall be liable or responsible therefor. 12.7 In the event that any provision of the Plan shall be declared illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of the Plan but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein. 12.8 This Plan shall be construed and administered in accordance with the laws of the State of New York. 16
EX-13 3 EXHIBIT 13 BABIES "R" US (TRADE MARK SYMBOL) OUR NEWEST ARRIVAL "Delivering the service, selection and low prices you expect" Babies"R"Us is an exciting new juvenile retailing strategy which will enable Toys"R"Us to focus on a key customer base and increase our overall market share by attracting new moms, dads and mothers-to-be from the time before their baby's birth through the early years of their child's growth. For the first time Toys"R"Us can now offer to new parents and mothers-to-be an expansive 45,000 sq. ft. store with everything for baby all under one roof. Expectant and new parents will be able to do all their shopping from diapers to baby furniture to clothing and have the opportunity to design their dream nursery, aided by our in-store experts, all within their budget. With a selection of products second to none, they will be able to choose from aisles and aisles of top name strollers, car seats, carriages, bumper seats, high chairs, cribs, playards, health and baby care products, accessories, over 40 room settings of furniture, more than 5,000 sq. ft. of specialty name brand clothing... even infant, toddler and pre-school toys... all at everyday low prices. The store was designed with the customer in mind... an open, airy, customer-friendly environment with low merchandise displays in the center of the store providing a sweeping view of our entire merchandise selection from any location in the store; a special Mother's Room for nursing baby, complete with changing tables; and a state of the art Baby Registry that will help put an end to duplicate gifts and unnecessary returns. Our Baby Registry is just one of the many services that Babies"R"Us will provide for its customers. In fact, everything about Babies"R"Us is service oriented. All of our store associates will be trained to answer questions and provide all the services a new parent needs when making important decisions. By offering new parents and mothers-to-be the low prices they want and the service they need, Babies"R"Us adds another dimension to Toys"R"Us' preeminence in the marketplace. TOYS"R"US (TRADE MARK SYMBOL) NOW RE-DESIGNED "Shopping at Toys"R"Us has never been easier" Toys"R"Us has reinvented the shopping experience with a completely redesigned toy store for the 21st century...Concept 2000. It's an innovative new store format that combines the ultimate in shopping convenience and aesthetics. The store provides the customer with a sweeping panoramic view of all major categories from any location through the use of low merchandise displays in the center of the store. This new and innovative concept was designed to satisfy our customer's needs by making it not only easier to shop, but more fun and exciting and pleasing to the eye...in other words, a much more enjoyable shopping experience. Customers will enter a 14 foot wide main aisle that runs down the center of the store. This main aisle will be connected to an "oval race track" that circles the store and accesses every major category, each one color coded for ease of shopping. In addition, Concept 2000 adds visual excitement to the shopping experience with fun, animated icons standing 12 foot high, a huge skylight in the center of the store and a bike assembly shop that allows customers to actually see their bike being assembled. Operationally, we've redesigned the way merchandise is presented to the customer. It includes a game alcove that surrounds the customer with the newest and most exciting games, a Warner Kids shop, as well as a special Barbie and Lego presentation. And we have expanded the use of promotional power tables that are designed to increase impulse purchases, shopping convenience and profits. In addition, through the use of innovative storage systems, we have been able to convert 5,000 sq. ft. of storeroom space to sales floor space. The Concept 2000 store adds fun and excitement, ease and convenience of shopping, while maintaining the Toys"R"Us standard of everyday low prices, for a completely new and unique toy shopping experience. TOYS"R"US (TRADE MARK SYMBOL) SUPERSTORE "Superstore, the ultimate kids shopping experience" In the era of superstores and mega size wholesalers, the time is right for Toys"R"Us to enter this arena with a superstore of its own. This prototype superstore will encompass 90,000 sq. ft. and will be an open, easy to shop, friendly store with 30 foot ceiling heights and a huge skylight the center of the store. From a strategic point of view, Toys will now be able to offer its three retailing strategies under one roof... Toys"R"Us, Kids"R"Us and Babies"R"Us. Our superstore will quickly become the destination store for baby and kid related toys and products, emphasizing customer service, fun, excitement and huge selection in a great environment. In addition to the three retailing operations, we will also offer new and exciting opportunities for our customers. They will include licensed operations for a national quick service food chain, snack bar, haircutting center, photo studio and shoe department. To add even more fun and excitement, kids will be able to ride on a carousel, take computer courses in our Little Red School House, try on clothing in fitting rooms designed like castles, have birthday parties in our party room and participate in scheduled promotions including such fun activities as face painting and balloon sculpting. We have made shopping easier for parents too, as boys' and girls' toy sections will be located directly adjacent to their respective clothing sections. Our superstore will offer the consumer the widest selection of toys, clothes and infant needs in the industry at our traditional everyday low prices. All three new store concepts, Babies"R"Us, Concept 2000 and our superstore, will reshape the shopping experience and position the Toys"R"Us family of stores as the premiere retailer of children's products for the 21st Century. INTRODUCING BABIES"R"US (TRADE MARK SYMBOL) THE NEWLY DESIGNED TOYS"R"US (TRADE MARK SYMBOL) EVERYTHING FOR KIDS UNDER ONE ROOF TOYS"R"US (TRADE MARK SYMBOL) Superstore TABLE OF CONTENTS 1 Financial Highlights 2 Letter to Our Stockholders 6 Management's Discussion - Results of Operations and Financial Condition 7 Quarterly Financial Data and Market Information 8 Financial Statements 17 Report of Management 17 Report of Independent Auditors 18 Directors and Officers 19 Corporate Data STORE LOCATIONS TOYS"R"US UNITED STATES - 653 LOCATIONS Alabama - 7 Alaska - 1 Arizona - 12 Arkansas - 4 California - 80 Colorado - 11 Connecticut - 9 Delaware - 2 Florida - 41 Georgia - 17 Hawaii - 1 Idaho - 2 Illinois - 34 Indiana - 12 Iowa - 8 Kansas - 4 Kentucky - 8 Louisiana - 11 Maine - 2 Maryland - 18 Massachusetts - 18 Michigan - 24 Minnesota - 11 Mississippi - 5 Missouri - 12 Montana - 1 Nebraska - 3 Nevada - 4 New Hampshire - 5 New Jersey - 22 New Mexico - 3 New York - 44 North Carolina - 16 North Dakota - 1 Ohio - 29 Oklahoma - 4 Oregon - 8 Pennsylvania - 30 Rhode Island - 1 South Carolina - 8 South Dakota - 2 Tennessee - 12 Texas - 51 Utah - 5 Virginia - 20 Washington - 12 West Virginia - 3 Wisconsin - 11 Puerto Rico - 4 TOYS"R"US INTERNATIONAL - 337 LOCATIONS Australia - 21 Austria - 7 Belgium - 3 Canada - 58 Denmark - 1 France - 37 Germany - 57 Hong Kong - 4 Israel - 1 Japan - 37 Luxembourg - 1 Malaysia - 4 Netherlands - 9 Portugal - 3 Singapore - 4 Spain - 26 Sweden - 3 Switzerland - 4 Taiwan - 6 United Arab Emirates - 1 United Kingdom - 50 KIDS"R"US UNITED STATES - 213 LOCATIONS Alabama - 1 California - 27 Connecticut - 6 Delaware - 1 Florida - 10 Georgia - 4 Illinois - 20 Indiana - 7 Iowa - 1 Kansas - 1 Maine - 1 Maryland - 8 Massachusetts - 6 Michigan - 13 Minnesota - 5 Missouri - 4 Nebraska - 1 New Hampshire - 2 New Jersey - 17 New York - 21 Ohio - 19 Pennsylvania - 14 Rhode Island - 1 Tennessee - 1 Texas - 9 Utah - 3 Virginia - 7 Wisconsin - 3 Toys"R"Us is the world's largest retailer of children's products in terms of both sales and earnings. At February 3, 1996, the Company operated 653 toy stores in the United States, 337 international toy stores and 213 Kids"R"Us children's clothing stores. FINANCIAL HIGHLIGHTS TOYS"R"US, INC. AND SUBSIDIARIES
(Dollars in millions except per share information) Fiscal Year Ended - ---------------------------------------------------------------------------------------------------------------------------------- Feb. 3, Jan. 28, Jan. 29, Jan. 30, Feb. 1, Feb. 2, Jan. 28, Jan. 29, Jan. 31, Feb. 1, 1996* 1995 1994 1993 1992 1991 1990 1989 1988 1987 ------ ------- -------- -------- ------- ------- -------- -------- -------- ------- OPERATIONS: Net Sales $ 9,427 $ 8,746 $ 7,946 $ 7,169 $ 6,124 $ 5,510 $ 4,788 $ 4,000 $ 3,137 $ 2,445 Net Earnings 148 532 483 438 340 326 321 268 204 152 Earnings Per Share .53 1.85 1.63 1.47 1.15 1.11 1.09 .91 .69 .52 FINANCIAL POSITION AT YEAR END: Working Capital 326 484 633 797 328 177 238 255 225 155 Real Estate-Net 2,336 2,271 2,036 1,877 1,751 1,433 1,142 952 762 601 Total Assets 6,738 6,571 6,150 5,323 4,583 3,582 3,075 2,555 2,027 1,523 Long-Term Obligations 827 785 724 671 391 195 173 174 177 85 Stockholders Equity 3,432 3,429 3,148 2,889 2,426 2,046 1,705 1,424 1,135 901 NUMBER OF STORES AT YEAR END: Toys"R"Us - United States 653 618 581 540 497 451 404 358 313 271 Toys"R"Us - International 337 293 234 167 126 97 74 52 37 24 Kids"R"Us - United States 213 204 217 211 189 164 137 112 74 43
* After restructuring and other charges.
CONSOLIDATED NET SALES (billions) (GRAPHIC MATERIAL OMITTED) Fiscal Year 1986 2.4 1987 3.1 1988 4.0 1989 4.8 1990 5.5 1991 6.1 1992 7.2 1993 7.9 1994 8.7 1995 9.4
1 TO OUR STOCKHOLDERS INTRODUCTION In last year's letter to our stockholders, we addressed strategic initiatives that were being taken to improve our long-term profitability and market share. We further cautioned that these steps would adversely impact our ability to achieve our historic earnings growth rate in 1995. These strategies, coupled with a retailing environment that the media described as one of the most difficult in decades, have resulted in Toys"R"Us not reporting record earnings for the first time in our history as a public company. One can argue that the decline in earnings is understandable given the externalities which face our business: the abysmal retail climate, the lack of exciting product and the transition to a new generation of video games. We believe, however, such performance is not acceptable. In the true Toys"R"Us tradition, we have taken the initiative to regain the historic momentum we attained as a market leader and as one of the leading growth-oriented retailers in the world. Beginning in 1995, we launched an ambitious plan to not only restructure our operations, but to also grow our business through the exciting new formats highlighted on the cover of this report. The highlights of our strategic plan are discussed in this letter. We hope that when you read about our activities, you will be as excited as we are about our future. (Photo of Michael Goldstein, Vice Chairman and Chief Executive Officer and Robert C. Nakasone, President and Chief Operating Officer.) 1995 FINANCIAL HIGHLIGHTS We are pleased to report our 17th consecutive year of record sales since Toys"R"Us became a public company. For the year, sales grew to $9.4 billion, an 8% increase over the $8.7 billion in the prior year. However, before the restructuring charge described below, operating earnings decreased 18%, while net earnings fell to $417.2 million versus $531.8 million in 1994. Earnings per share, before the restructuring, decreased to $1.51 compared to $1.85 a year ago. As a result of the restructuring, net earnings for the year were $148.1 million or $.53 per share. Our restructuring program will place Toys"R"Us in a stronger position to generate significant earnings gains in 1996, and more importantly, should improve our growth trends over the longer term. The four main elements of the 1995 charge to earnings are: 1. Strategic Inventory Repositioning In response to changes in the retailing market place, we will streamline the number of items carried by more than 20%. We have learned from our customers that the breadth of our assortment can sometimes make it cumbersome to shop in our stores. By eliminating certain product, we will be able to display a more in-depth merchandise presentation, further enhancing our selection advantage and improving overall store productivity and profitability. Our inventory assortment after this restructuring will continue to far exceed the selection of our competitors. 2. Store Closings We reviewed all of our more than 1,200 operating locations throughout the world and have identified 25 stores which are not performing up to our expectations. Our restructuring plan includes the closing of 3 Toys"R"Us and 12 Kids"R"Us stores in the United States, and the franchising or closing of 10 toy stores in Europe. 3. Improved Administrative and Distribution Efficiencies In order to enhance the profitability of our business units, we will consolidate 3 distribution centers and 7 administrative facilities in the United States and Europe. 4. Asset Impairment In 1995, we elected early adoption of a new accounting pronouncement which resulted in a $24 million charge relating to the write down of impaired long-term assets. We are particularly proud that with over $4 billion of long-term assets, our total impairment is very small. Restructuring Benefits We believe these restructuring efforts will enable us to sustain our leadership position as the world's premier retailer of children's products. Although it is difficult to estimate, between the reduction in our cost structure and the benefits anticipated from repositioning our merchandise offerings, the restructuring should provide at least a $50 million benefit to operating earnings in 1996 and an even greater amount in 1997 and beyond. In addition, the restructuring will have a positive impact on our cash flow. 1995 Divisional Highlights When reviewing 1995 results, before the restructuring, it is important to remember that the 1994 Power Rangers' phenomena was not replaced with a similar hot toy. Comparable store sales at our U.S.A. toy stores fell 2 percent for the year. As mentioned previously, we expected profitability in 1995 to be adversely impacted by a number of pricing and marketing initiatives. We are pleased to report that the implementation of these initiatives was successful. We introduced more customer service programs in our stores and we introduced larger catalogs which featured more pages, more coupons and received wider distribution. In the fourth quarter, we experienced a significant upturn in the sale of video game hardware platforms with the release of the new 32-bit systems. In 1995, we also completed a significant number of operational and promotional initiatives. First, we completed the rollout of our Baby Registry to our entire U.S.A. toy store chain. We are very pleased with the number of expectant parents that have signed up for this service and the incremental business which has been generated. We firmly believe that the Baby Registry system will be an integral component of the success of our new Babies"R"Us and superstore concepts. Our revolving feature shop area was expanded in 1995 to include such exciting concepts as our Nickelodeon, Action Heroes, Pocahontas and Barbie shops. These shops enable us to display exciting new merchandise offerings in a dramatically enhanced visual environment. We are planning bigger and better things for our feature shop concepts in 1996. In addition, we added 100 Learning Centers and rolled out our new PC software department to our entire U.S.A. chain. We have expanded the space dedicated to outdoor playsets in our stores to further enhance our reputation as the selection leader of this merchandise. The new Toys"R"Us Visa credit card now allows us to develop unique promotional opportunities and special offers. This card enables us to reward our loyal customers with a 3% rebate on every purchase made in an "R"Us store (and a 1% rebate everywhere else) which enhances the value of the card from our customers point of view. Finally, we continue to improve our customers shopping experience through enhanced customer service. 1996 will further demonstrate our commitment to this essential area of our business and will continue to be a primary focus in our toy stores worldwide. Internationally, our U.K. toy stores had mid-single digit comparable store sales increases, primarily due to the introduction of computer hardware. Our Japanese comparable toy store sales were up in the mid-single digits, largely due to the continuing success of 32-bit video hardware and software which were released in Japan before the rest of the world. These gains were offset by lower comparable store sales in Canada, France, Germany, Spain and Australia. These results reflect continued difficult retail environments throughout the world, causing our international division to report a 19% decrease in operating earnings, before the impact of the restructuring. We have added new franchisees to the Toys"R"Us family in Indonesia, Scandinavia, South Africa, and Turkey. We will continue to aggressively pursue franchise agreements in 1996 and beyond. Our Kids"R"Us childrens clothing division was impacted by the extremely difficult apparel sales environment throughout 1995. Comparable store sales decreased in the mid-single digits and operating profits fell 36.3%, before the restructuring, after three successive years of strong growth. Under our $1 billion stock buy back program, we purchased 7.6 million shares at a cost of $200.2 million. This brings the total number of shares repurchased under this program to 21.3 million since its inception in January, 1994.
TOTAL ASSETS (billions) (GRAPHIC MATERIAL OMITTED) Fiscal Year 1986 1.5 1987 2.0 1988 2.6 1989 3.1 1990 3.6 1991 4.6 1992 5.3 1993 6.1 1994 6.6 1995 6.7
3 EXPANSION PLANS In 1995 we opened 89 stores: 35 U.S.A. toy stores, 45 international toy stores, and 9 Kids"R"Us stores. We are very excited about our 1996 expansion plans which have been highlighted in this report. Our Concept 2000 toy store design will be unveiled this year in approximately 16 locations, 4 of which will be retrofits of existing stores. Our new division, Babies"R"Us, will open about 10 locations in 1996, with a brand new store design specially tailored to the juvenile market. Our new superstore design combining all of the "R"Us concepts under one roof within approximately 90,000 square feet, will be showcased in 2 locations, one of which will be a retrofit of an existing Toys"R"Us and Kids"R"Us location. Including the "Concept 2000" format, we will open approximately 35 new toy stores and approximately 10 new Kids"R"Us stores in the United States this year. Internationally, we will open approximately 55 toy stores, including 20 franchise stores. 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. In 1995, we contributed funds to over 100 childrens health care organizations. We also continued our Hospital Playroom Program, which equips quality children's play centers in hospitals, bringing the total in operation to 35. Toys"R"Us is a signatory to the Fair Share Agreement with the NAACP and has taken steps to support women and minorities in the workplace. We are the leading purchaser of products from several minority-owned toy companies. Toys"R"Us continues to have a strong toy safety program which includes the inspection of directly imported toys. Furthermore, we continue to take numerous proactive steps, including a leadership position in eliminating the sale of look-alike toy guns. We are proud to be a recipient of the Consumer Product Safety Commission Chairman's Commendation for Significant Contributions to Product Safety. Through our Books"R"Us shops and our new learning center departments we are promoting literacy among children by demonstrating that learning is fun. Finally, with the help of Sharon Stone and Patti LaBelle who donated their time and talents, our annual Children's Benefit Fund Dinner raised over $2.5 million for children's charities. HUMAN RESOURCES In order to accomplish our aggressive goals for 1996 and beyond, we made the following important additions and promotions within our executive ranks: Additions: Pierre Buuron, President - Toys"R"Us Central Europe Joseph J. Lombardi, Vice President - Controller Gwen Manto, Senior Vice President - General Merchandise Manager - Kids"R"Us
NUMBER OF COUNTRIES - INTERNATIONAL DIVISION (GRAPHIC MATERIAL OMITTED) Fiscal Year 1986 4.0 1987 5.0 1988 6.0 1989 8.0 1990 8.0 1991 10.0 1992 11.0 1993 16.0 1994 20.0 1995 21.0
4 Promotions: Corporate and Administrative Louis Lipschitz, Executive Vice President and Chief Financial Officer Toys"R"Us U.S.A. Roger V. Goddu, President - Store Merchandising Michael J. Madden, President - Store Operations John F. Cummo, Vice President - Creative Services Debra M. Kachurak, Vice President - Operations Development Dennis J. Williams, Vice President - General Manager Toys"R"Us International Gregory R. Staley, President Kenneth G. Bonning, Vice President - Logistics and Franchise Operations Joan W. Donovan, Vice President - General Merchandise Manager John Schryver, Managing Director - Toys"R"Us Australia Keith Van Beek, Vice President - Development President, Toys"R"Us Canada Kids"R"Us Jeff Handler, Vice President - Advertising John Morrow, Vice President - Management Information Systems Babies"R"Us Richard L. Markee, President Jonathan M. Friedman, Vice President - Chief Financial Officer
CONSOLIDATED NUMBER OF STORES (GRAPHIC MATERIAL OMITTED) Fiscal Year 1986 338.0 1987 424.0 1988 522.0 1989 615.0 1990 712.0 1991 812.0 1992 918.0 1993 1,032.0 1994 1,115.0 1995 1,203.0
NET SALES - INTERNATIONAL DIVISION (billions) (GRAPHIC MATERIAL OMITTED) Fiscal Year 1986 0.1 1987 0.2 1988 0.4 1989 0.5 1990 0.8 1991 1.0 1992 1.4 1993 1.7 1994 2.1 1995 2.6
MANAGEMENT'S DISCUSSION - RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS* The Company has experienced sales growth in each of its last three years; sales were up 7.8% in 1995, 10.1% in 1994 and 10.8% in 1993. The growth is attributable to the opening of 113 new U.S.A. toy stores, 171 international toy stores and 25 children's clothing stores during the three year period, offset by the decrease of comparable U.S.A.toy store sales of 2% in 1995. Comparable U.S.A. toy store sales increased 2% and 3% in 1994 and 1993, respectively. Cost of sales as a percentage of sales increased to 69.9% in 1995 from 68.7% in 1994 due to an intensely competitive retail environment, the Company's aggressive pricing strategy and an unfavorable shift in the merchandise mix. Cost of sales as a percentage of sales decreased in 1994 from 69.2% in 1993 due to a more favorable merchandise mix. Selling, advertising, general and administrative expenses as a percentage of sales increased to 20.1% in 1995 from 19.0% in 1994 primarily as a result of heavier than normal promotional activity, customer service and marketing initiatives implemented in 1995 and a deleveraging factor resulting from a decrease in comparable store sales. Selling, advertising, general and administrative expenses increased in 1994 from 18.8% in 1993 primarily as a result of increases in such expenses at a rate faster than comparable store sales increases and customer service initiatives implemented in 1994. On February 1, 1996, the Company announced a restructuring of its worldwide operations and the early adoption of FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." Elements of the restructuring plan are described in the Notes to the Consolidated Financial Statements and consist of certain asset writeoffs and contractual obligations, primarily in the United States and Europe. Although retailing remains a competitive industry, the 1995 holiday selling season was particularly difficult for selling toys and apparel. Our restructuring program is designed to better position the Company over the long-term to compete more efficiently and increase market share. The restructuring plan and the adoption of FAS No. 121 resulted in charges of $396.6 million ($269.1 million, net of tax benefits or $.98 cents per share). The Company anticipates that the majority of this charge will be utilized throughout 1996 as elements of the restructuring are completed, except for amounts related to long-term property and lease commitments. The restructuring will benefit the Company in two important ways. First, the restructuring will have a positive cash impact and improve the Company's working capital. Secondly, the restructuring should enable the Company to achieve operating efficiencies resulting in improved operating earnings in 1996 and beyond. The Company estimates the restructuring should provide at least a $50 million benefit to operating earnings in 1996 and a greater amount in 1997 and thereafter. Interest expense increased in 1995 as compared to 1994 and 1993 due to increased average borrowings and a change in the mix of borrowings and interest rates among countries. Interest income increased in 1995 as compared to 1994 and decreased in 1994 as compared to 1993, principally due to the availability of cash for investments. The effective tax rate increased to 44.2% in 1995 from 37.0% in 1994, primarily due to the tax effects of the Companys restructuring of their worldwide operations. The effective rate decreased in 1994 as compared to 37.5% in 1993, due to a one-time retroactive adjustment in 1993 for an increase in the U.S. Federal corporate income tax rate. The Company believes its deferred tax assets, as reported, are fully realizable. The Company believes that its risks attendant to foreign operations are minimal as it owns assets and operates stores in nineteen different countries which are politically stable. The Company also operates stores through franchises in two countries. The Company's foreign exchange risk management objectives are to stabilize cash flow from the effect of foreign currency fluctuations. The Company will, whenever practical, offset local investments in foreign currencies with borrowings denominated in the same currency. The Company also enters into forward foreign exchange contracts or purchases options to eliminate specific transaction currency risk. International sales were favorably impacted by the translation of local currency results into U.S. dollars at higher average exchange rates for both 1995 and 1994 as compared to each prior year. International operating earnings were not impacted by the translation of local currency results into U.S. dollars in 1995, and were favorably impacted by higher exchange rates in 1994 than in 1993. Inflation has had little effect on the Company's operations in the last three years. *References to 1995, 1994, and 1993 are for the 53 weeks ended February 3, 1996 and the 52 weeks ended January 28, 1995 and January 29, 1994, respectively. 6 LIQUIDITY AND CAPITAL RESOURCES The Company continues to maintain a strong financial position as evidenced by its working capital of $326 million at February 3, 1996 and $484 million at January 28, 1995. The long-term debt to equity percentage is 24.7% at February 3, 1996 as compared to 23.0% at January 28, 1995. In 1996, the Company plans to open approximately 90 toy stores in the United States and internationally. The new revolutionary "Concept 2000" store design will be unveiled in approximately 16 United States locations, 4 of which are retrofits of existing stores. The signing of new franchise agreements will allow the Company to open approximately 20 franchise stores and enter the markets of Indonesia, Saudi Arabia, South Africa and Turkey in 1996. Our newest division, Babies"R"Us, will open approximately 10 stores in the United States. Additionally, there are plans to open about 10 Kids"R"Us children's clothing stores. Finally, the Company will open 2 superstores that combine all of the "R"Us concepts under one roof. One of these locations will be a retrofit of an existing Toys"R"Us and Kids"R"Us store. The Company opened 80 toy stores in 1995, 96 in 1994 and 108 in 1993, and 9 Kids"R"Us children's clothing stores in 1995, 6 in 1994 and 10 in 1993. The Company closed 19 Kids"R"Us clothing stores in 1994 and 4 in 1993 which did not meet our expectations. The Company closed 1 toy store in the United Kingdom in 1995. These closures did not have a significant impact on the Companys financial position. For 1996, capital requirements for real estate, store and warehouse fixtures and equipment, leasehold improvements and other additions to property and equipment are estimated at $550 million (including real estate and related costs of $350 million). The Company's policy is to purchase its real estate where appropriate and it plans to continue this policy. The Company has an existing $1 billion share repurchase program, under which it has repurchased 21.3 million shares of its common stock for $693.9 million, since the program was announced in January of 1994. The seasonal nature of the business (approximately 49% 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 revolving credit facility expiring in February 2000, from a syndicate of financial institutions. 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 short-term commercial paper and other bank borrowings for foreign subsidiaries. QUARTERLY FINANCIAL DATA AND MARKET INFORMATION QUARTERLY FINANCIAL DATA (Amounts in millions, except per share amounts) The following table sets forth certain unaudited quarterly financial information.
First Second Third Fourth Year Ended Quarter Quarter Quarter Quarter* - --------------------------------------------------------------------- February 3, 1996 - --------------------------------------------------------------------- Net Sales $ 1,493.0 $ 1,614.2 $ 1,714.5 $ 4,605.2 Cost of Sales 1,017.3 1,104.5 1,168.5 3,302.0 Restructuring and other charges - - - 396.6 Net Earnings 18.4 15.8 20.9 93.0 Earnings per Share $ .07 $ .06 $ .08 $ .34 January 28,1995 - --------------------------------------------------------------------- Net Sales $ 1,461.9 $ 1,452.1 $ 1,631.3 $ 4,200.3 Cost of Sales 1,001.2 982.9 1,097.2 2,926.7 Net Earnings 37.6 38.0 47.4 408.8 Earnings per Share $ .13 $ .13 $ .17 $ 1.46
(*For the 14 weeks ended February 3, 1996 and the 13 weeks ended January 28, 1995) 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-eighth) based on New York Stock Exchange trading since January 29, 1994. The Company has not paid any cash dividends, however, the Board of Directors of the Company reviews this policy annually. The number of stockholders of record of common stock on March 12, 1996 was approximately 32,900.
High Low - ---------------------------------------------- 1994 1st Quarter 37 3/8 32 3/8 2nd Quarter 36 3/4 32 1/4 3rd Quarter 38 3/4 33 4th Quarter 39 28 1/4 - ---------------------------------------------- 1995 1st Quarter 30 7/8 23 3/4 2nd Quarter 29 1/2 24 1/4 3rd Quarter 28 3/4 21 5/8 4th Quarter 24 3/8 20 1/2
7 Consolidated Statements of Earnings TOYS"R"US, INC. AND SUBSIDIARIES
Year Ended - --------------------------------------------------------------------------------------------- February 3, January 28, January 29, (In millions except per share information) 1996 1995 1994 - --------------------------------------------------------------------------------------------- Net sales $ 9,426.9 $ 8,745.6 $ 7,946.1 - --------------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 6,592.3 6,008.0 5,494.7 Selling, advertising, general and administrative 1,894.8 1,664.2 1,497.0 Restructuring and other charges 396.6 - - Depreciation and amortization 191.7 161.4 133.4 Interest expense 103.3 83.9 72.3 Interest and other income (17.4) (16.0) (24.1) - --------------------------------------------------------------------------------------------- 9,161.3 7,901.5 7,173.3 - --------------------------------------------------------------------------------------------- Earnings before taxes on income 265.6 844.1 772.8 Taxes on income 117.5 312.3 289.8 - --------------------------------------------------------------------------------------------- Net earnings $ 148.1 $ 531.8 $ 483.0 ============================================================================================= Earnings per share $ .53 $ 1.85 $ 1.63 =============================================================================================
See notes to consolidated financial statements. "We are truly the one-stop kids shop! 8 Consolidated Balance Sheets TOYS"R"US, INC. AND SUBSIDIARIES
February 3, January 28, (In millions) 1996 1995 - ---------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 202.7 $ 369.8 Accounts and other receivables 128.9 115.9 Merchandise inventories 1,999.5 1,999.2 Prepaid expenses and other current assets 87.8 45.8 - ---------------------------------------------------------------------------- Total Current Assets 2,418.9 2,530.7 - ---------------------------------------------------------------------------- Property and Equipment: Real estate, net 2,336.0 2,270.8 Other, net 1,522.2 1,398.0 - ---------------------------------------------------------------------------- Total Property and Equipment 3,858.2 3,668.8 - ---------------------------------------------------------------------------- Other Assets 460.4 371.7 - ---------------------------------------------------------------------------- $ 6,737.5 $ 6,571.2 ============================================================================ LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities: Short-term borrowings $ 332.8 $ 122.7 Accounts payable 1,182.0 1,339.1 Accrued expenses and other current liabilities 438.1 382.6 Income taxes payable 139.9 202.5 - ---------------------------------------------------------------------------- Total Current Liabilities 2,092.8 2,046.9 - ---------------------------------------------------------------------------- Long-Term Debt 826.8 785.4 Deferred Income Taxes 228.7 219.9 Other Liabilities 156.9 90.1 Stockholders' Equity: Common stock 30.0 29.8 Additional paid-in capital 542.8 521.3 Retained earnings 3,692.7 3,544.6 Foreign currency translation adjustments 12.9 (25.1) Treasury shares, at cost (846.1) (641.7) - ---------------------------------------------------------------------------- Total Stockholders' Equity 3,432.3 3,428.9 - ---------------------------------------------------------------------------- $ 6,737.5 $ 6,571.2 ============================================================================
See notes to consolidated financial statements. 9 Consolidated Statements of Cash Flows TOYS"R"US, INC. AND SUBSIDIARIES
Year Ended - ------------------------------------------------------------------------------------------------------------ February 3, January 28, January 29, (In millions) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 148.1 $ 531.8 $ 483.0 - ------------------------------------------------------------------------------------------------------------ Adjustments to reconcile net earnings to net cash provided by operating activities: Restructuring and other charges 396.6 - - Depreciation and amortization 191.7 161.4 133.4 Deferred income taxes (66.7) (14.5) 36.5 Changes in operating assets and liabilities: Accounts and other receivables (10.8) (17.4) (29.1) Merchandise inventories (193.1) (221.6) (278.9) Prepaid expenses and other operating assets (15.7) (31.7) (39.5) Accounts payable, accrued expenses and other liabilities (150.5) 183.5 325.1 Income taxes payable (49.3) (2.0) 26.6 - ------------------------------------------------------------------------------------------------------------ Total adjustments 102.2 57.7 174.1 - ------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 250.3 589.5 657.1 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures, net (467.5) (585.7) (555.3) Other assets (67.4) (44.6) (58.3) - ------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (534.9) (630.3) (613.6) - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Short-term borrowings, net 210.1 (117.2) 119.1 Long-term borrowings 82.2 34.6 40.5 Long-term debt repayments (9.3) (1.1) (1.3) Exercise of stock options 16.2 26.0 29.9 Share repurchase program (200.2) (469.7) (183.2) Sale of stock to Petrie Stores Corporation - 161.6 - - ------------------------------------------------------------------------------------------------------------ Net cash provided by/(used in) financing activities 99.0 (365.8) 5.0 - ------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash and cash equivalents 18.5 (15.5) (20.3) CASH AND CASH EQUIVALENTS (Decrease)/increase during year (167.1) (422.1) 28.2 Beginning of year 369.8 791.9 763.7 - ------------------------------------------------------------------------------------------------------------ End of year $ 202.7 $ 369.8 $ 791.9 ============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION The Company considers its highly liquid investments purchased as part of its daily cash management activities to be cash equivalents. During 1995, 1994 and 1993, the Company made income tax payments of $234.5, $318.9 and $220.2 and interest payments (net of amounts capitalized) of $118.4, $123.6 and $104.3, respectively. See notes to consolidated financial statements. 10 Consolidated Statements of Stockholders' Equity TOYS"R"US, INC. AND SUBSIDIARIES
Common Stock ------------------------------------- Foreign Issued In Treasury Additional currency ---------------- ----------------- paid-in Retained translation (In millions) Shares Amount Shares Amount capital earnings adjustments - ---------------------------------------------------------------------------------------------------------------------------------- Balance, January 30, 1993 297.9 $ 29.8 (4.9) $ (150.4) $ 465.5 $2,529.8 $ 14.3 Net earnings for the year - - - - - 483.0 - Share repurchase program - - (4.9) (183.2) - - - Exercise of stock options - - 1.4 41.2 (21.5) - - Tax benefit from exercise of stock options - - - - 10.0 - Foreign currency translation adjustments - - - - - - (70.3) - ---------------------------------------------------------------------------------------------------------------------------------- Balance, January 29, 1994 297.9 29.8 (8.4) (292.4) 454.0 3,012.8 (56.0) - ---------------------------------------------------------------------------------------------------------------------------------- Net earnings for the year - - - - - 531.8 - Share repurchase program - - (13.1) (469.7) - - Exercise of stock options 0.1 - 1.1 41.9 (21.9) - - Tax benefit from exercise of stock options - - - - 6.1 - - Exchange with and sale of stock to Petrie Stores Corporation - - 2.2 78.5 83.1 - - Foreign currency translation adjustments - - - - - - 30.9 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, January 28, 1995 298.0 29.8 (18.2) (641.7) 521.3 3,544.6 (25.1) - ---------------------------------------------------------------------------------------------------------------------------------- Net earnings for the year - - - - - 148.1 - Share repurchase program - - (7.6) (200.2) - - - Exercise of stock options - - .9 34.2 (19.8) - - Tax benefit from exercise of stock options - - - - 3.1 - - Corporate inversion 2.4 0.2 (2.4) (38.4) 38.2 - - Foreign currency translation adjustments - - - - - - 38.0 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, February 3, 1996 300.4 $ 30.0 (27.3) $ (846.1) $ 542.8 $3,692.7 $ 12.9 ==================================================================================================================================
See notes to consolidated financial statements. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TOYS"R"US, INC. AND SUBSIDIARIES (Amounts in millions, except per share amounts) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year The Company's fiscal year ends on the Saturday nearest to January 31. Reference to 1995, 1994 and 1993 are for the 53 weeks ended February 3, 1996 and the 52 weeks ended January 28, 1995 and January 29, 1994, respectively. Reclassification Certain amounts in the 1994 Consolidated Balance Sheet have been reclassified to conform with the 1995 presentation. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All material inter-company 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. Merchandise Inventories Merchandise inventories for the U.S.A. toy store operations, which represent over 61% 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 February 3, 1996, or January 28, 1995. 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. 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. Capitalized Interest Interest on borrowed funds is capitalized during construction of property and is amortized by charges to earnings over the depreciable lives of the related assets. Interest of $6.1, $6.9 and $7.3 was capitalized during 1995, 1994 and 1993, respectively. 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 February 3, 1996 or January 28, 1995. The related receivable, payable and deferred gain or loss are included on a net basis in the balance sheet. As of February 3, 1996 and January 28, 1995, the Company had approximately $205.0 and $547.0 of outstanding forward contracts maturing in 1996 and 1995, respectively, which are entered into with counterparties that have high credit ratings and with which the Company has the contractual right to net forward currency settlements. Stock Options The Company accounts for its stock compensation arrangements under the provisions of APB 25, "Accounting for Stock Issued to Employees," and intends to continue to do so. 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. RESTRUCTURING AND OTHER CHARGES On February 1, 1996, the Company recorded charges of $396.6 ($269.1 after tax or $.98 per share) to restructure its worldwide operations (the "restructuring") and to early adopt Financial Accounting Standards Board ("FAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." The restructuring charge includes $184.0 related to strategic inventory repositioning, $84.4 related to the closing of 25 stores, $71.6 for the consolidation of three distribution centers and seven administrative facilities and $32.4 of other costs. The charge to early adopt FAS No. 121 was $24.2, primarily relating to a write down of certain store assets to fair value, based on discounted cash flows. 12 Total restructuring and other charges are comprised of $208.8 relating to operations in the United States and $187.8 for international operations. The portion of the unused charge of $353.4 at February 3, 1996 is expected to be utilized throughout 1996, except for amounts related to long-term property and lease commitments, which will be utilized throughout 1996 and thereafter. PROPERTY AND EQUIPMENT
Useful Life February 3, January 28, (in years) 1996 1995 - ------------------------------------------------------------------------------ Land $ 802.4 $ 764.8 Buildings 45-50 1,745.3 1,627.1 Furniture and equipment 5-20 1,351.9 1,177.9 Leaseholds and leasehold improvements 12 1/2-50 959.0 809.4 Construction in progress 45.6 55.7 Leased property under capital leases 25.1 24.9 - ------------------------------------------------------------------------------ 4,929.3 4,459.8 Less accumulated depreciation and amortization 1,071.1 791.0 - ------------------------------------------------------------------------------ $ 3,858.2 $ 3,668.8 ==============================================================================
SEASONAL FINANCING AND LONG-TERM DEBT February 3, January 28, 1996 1995 British pound sterling 11% Stepped Coupon Guaranteed Bonds, due 2017 $ 198.4 $ 206.6 83/4% debentures, due 2021, net of expenses 198.1 198.1 Japanese yen loans payable at annual interest rates from 3.45% to 6.47%, due in varying amounts through 2012 178.3 192.9 81/4% sinking fund debentures, due 2017, net of discounts 88.3 88.2 British pound sterling loan payable at 7%, due quarterly through 2001(a) 77.3 - Industrial revenue bonds, net of expenses (b) 74.2 74.2 Mortgage notes payable at annual interest rates from 6% to 11% (c) 19.2 13.0 Obligations under capital leases 12.8 14.0 - ----------------------------------------------------------------------------- 846.6 787.0 Less current portion 19.8 1.6 - ----------------------------------------------------------------------------- $ 826.8 $ 785.4 =============================================================================
(a) British pound sterling loan payable is collateralized by property with a carrying value of $154.1 at February 3, 1996. (b) Bank letters of credit of $57.1, expiring in 1997, support certain industrial revenue bonds. The Company expects the bank letters of credit expiring in 1997 will be renewed. The bonds have fixed or variable interest rates with an average rate of 4.4% at February 3, 1996. (c) Mortgage notes payable are collateralized by property and equipment with an aggregate carrying value of $27.8 at February 3, 1996. The fair market value of the Company's long-term debt at February 3, 1996 was approximately $948.2. The fair market value was estimated using quoted market rates for publicly traded debt and estimated interest rates for non-public debt. On January 27, 1995, the Company entered into a $1 billion unsecured committed revolving credit facility expiring in February 2000. 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. 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 February 3, 1996 and at January 28, 1995 was 4.0% and 6.3%, respectively. The annual maturities of long-term debt at February 3, 1996 are as follows:
Year ending in - ---------------------------------- 1997 $ 19.8 1998 23.3 1999 25.9 2000 26.6 2001 22.8 2002 and subsequent 728.2 - ---------------------------------- $ 846.6 ==================================
13 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 February 3, 1996 were as follows:
Gross Net minimum Sublease minimum Year ending in rentals income rentals - ------------------------------------------------------------------------- 1997 $ 298.5 $ 16.1 $ 282.4 1998 292.4 15.7 276.7 1999 289.4 15.1 274.3 2000 291.5 15.3 276.2 2001 287.1 15.2 271.9 2002 and subsequent 3,340.8 52.8 3,288.0 - ------------------------------------------------------------------------- $ 4,799.7 $ 130.2 $ 4,669.5 =========================================================================
Total rental expense was as follows:
Year ended - ------------------------------------------------------------------------------- February 3, January 28, January 29, 1996 1995 1994 - ------------------------------------------------------------------------------- Minimum rentals $ 284.3 $ 226.4 $ 180.1 Additional amounts computed as percentages of sales 5.6 6.3 5.6 - ------------------------------------------------------------------------------- 289.9 232.7 185.7 Less sublease income 17.0 10.3 7.9 - ------------------------------------------------------------------------------- $ 272.9 $ 222.4 $ 177.8 ===============================================================================
STOCKHOLDERS EQUITY The common shares of the Company, par value $.10 per share, were as follows:
February 3, January 28, 1996 1995 - --------------------------------------------------------- Authorized shares 650.0 650.0 - --------------------------------------------------------- Issued shares 300.4 298.0 - --------------------------------------------------------- Treasury shares 27.3 18.2 =========================================================
Earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding after reduction for treasury shares and assuming exercise of dilutive stock options computed by the treasury stock method using the average market price during the year. Weighted average number of shares used in computing earnings per share were as follows:
Year ended - ------------------------------------------------------------------------- February 3, January 28, January 29, 1996 1995 1994 - ------------------------------------------------------------------------- Common and common equivalent shares 276.9 287.4 296.5 =========================================================================
Effective January 1, 1996, the Company formed a new parent company (the "Surviving Company"), thus making the former parent company (the "Predecessor Company") a wholly-owned subsidiary of the Surviving Company. As a result of this corporate inversion, each share of common stock of the Predecessor Company was converted into one share of common stock of the Surviving Company. In April 1994, the Company entered into an agreement with Petrie Stores Corporation ("Petrie"), the then holder of 14% of the Company's outstanding Common Stock. Pursuant to such agreement, the Company consummated a transaction with Petrie on January 24, 1995, wherein 42.1 shares of the Company's common stock were issued from its treasury in exchange for 39.9 shares of the Company's common stock and $165.0 in cash. TAXES ON INCOME The provisions for income taxes consist of the following:
Year ended - ------------------------------------------------------------------------------ February 3, January 28, January 29, 1996 1995 1994 - ------------------------------------------------------------------------------ Current: Federal $ 137.1 $ 251.6 $ 200.3 Foreign 26.7 29.2 17.3 State 20.4 46.0 35.7 - ------------------------------------------------------------------------------ 184.2 326.8 253.3 - ------------------------------------------------------------------------------ Deferred: Federal (21.8) 8.9 50.0 Foreign (41.6) (24.7) (16.2) State (3.3) 1.3 2.7 - ------------------------------------------------------------------------------ (66.7) (14.5) 36.5 - ------------------------------------------------------------------------------ Total $ 117.5 $ 312.3 $ 289.8 ==============================================================================
14 Deferred tax liabilities and deferred tax assets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company had gross deferred tax liabilities of $313.7 at February 3, 1996 and $270.9 at January 28, 1995, which consist primarily of temporary differences related to fixed assets of $245.0 and $217.0, respectively. The Company had gross deferred tax assets of $252.4 at February 3, 1996 and $129.9 at January 28, 1995, which consist primarily of tax benefits from the restructuring of $122.1 in 1995, foreign start-up net operating losses of $108.9 and $94.0 and operating costs not currently deductible for tax purposes of $3.4 and $25.4, respectively. Valuation allowances were not significant. A reconciliation of the federal statutory tax rate with the effective tax rate follows:
Year ended - ------------------------------------------------------------------------------- February 3, January 28, January 29, 1996 1995 1994 - ------------------------------------------------------------------------------- Statutory tax rate 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit 3.4 3.7 3.2 Foreign (1.3) (0.4) (0.5) Restructuring and other charges 7.2 - - Other, net (0.1) (1.3) (0.2) - ------------------------------------------------------------------------------- 44.2% 37.0% 37.5% ===============================================================================
Deferred income taxes are not provided on unremitted earnings of foreign subsidiaries that are intended to be indefinitely invested. Unremitted earnings were approximately $167.0 at February 3, 1996, exclusive of amounts that if remitted would result in little or no tax under current U.S. tax laws. Net income taxes of approximately $57.0 would be due if these earnings were to be remitted. 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 $32.3, $31.4 and $30.0 have been charged to operations in 1995, 1994 and 1993, respectively. STOCK OPTIONS The Company has Stock Option Plans (the "Plans") which provide for the granting of options to purchase the Company's common stock to substantially all employees and non-employee directors of the Company. The Plans provide for the issuance of non-qualified options, incentive stock options, performance share options, performance units, stock appreciation rights, restricted shares and unrestricted shares. The majority of the options become exercisable and vest approximately five years from the date of grant. Certain non-qualified options become exercisable nine years from the date of grant, however the exercise date of all or a portion of such options may be accelerated if the price of the Company's common stock reaches certain target amounts. 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, 2.9 stock options were granted to certain senior executives during the period from 1988 to 1993 pursuant to individual plans. These options are exercisable 20% each year on a cumulative basis commencing one year 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. Most options must be exercised within ten years from the date of grant. At February 3, 1996, an aggregate of 37.5 shares of authorized common stock was reserved for all of the Plans noted above, of which 17.1 were available for future grants. All outstanding options expire at dates varying from May 1996 to December 2005. Stock option transactions are summarized as follows:
Shares Under Option - ------------------------------------------------------------------------------ Non- Incentive Qualified Price Range - ------------------------------------------------------------------------------ Outstanding January 28, 1995 .4 19.0 $ 7.68 - 40.94 Granted - 13.4 22.06 - 28.94 Exercised (.2) (.9) 9.52 - 27.81 Canceled - (11.3) 7.68 - 40.94 - ------------------------------------------------------------------------------ Outstanding February 3, 1996 .2 20.2 $12.11 - 40.94 - ------------------------------------------------------------------------------ Options exercisable at February 3, 1996 .2 8.2 - ------------------------------------------------------------------------------
15 In May 1995, the Company granted non-qualified stock options at the then average market price of $25.44 per share to all employees, except for certain managemant employees and executive officers, in replacement of options with exercise prices ranging from $30.44 to $40.94, subject to the employees surrendering their outstanding options. Of the new options, 25% become exercisable May 17, 1997, 25% become exercisable May 17, 1998, with the remaining balance exercisable on or after May 17, 1999. All such options expire on May 17, 2000. The management employees referred to above were also granted similar options, but received fractional shares for each surrendered share. Such options became exercisable six months from the date of grant and expire after eight years, nine months. In order to promote increased employee share ownership, a restoration feature was added to encourage the early exercise of options and retention of shares. 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, become exercisable six months from the date of grant and generally expire on the same date as the original grant that was exercised. The exercise of nonqualified stock options results in state and federal income tax benefits to the Company related to the difference between the market price at the date of exercise and the option price. FOREIGN OPERATIONS Certain information relating to the Company's foreign operations is set forth below. Corporate assets include all cash and cash equivalents and other related assets.
Year ended - ------------------------------------------------------------------------------ February 3, January 28, January 29, 1996 1995 1994 - ------------------------------------------------------------------------------ Sales Domestic $ 6,791.5 $ 6,644.8 $ 6,278.6 Foreign 2,635.4 2,100.8 1,667.5 - ------------------------------------------------------------------------------ Total $ 9,426.9 $ 8,745.6 $ 7,946.1 ============================================================================== Operating Profit Domestic $ 432.8 (a) $ 778.7 $ 724.9 Foreign (74.2)(b) 140.8 102.9 General corporate expenses (7.1) (7.5) (6.8) Interest expense, net (85.9) (67.9) (48.2) - ------------------------------------------------------------------------------ Earnings before taxes on income $ 265.6 $ 844.1 $ 772.8 - ------------------------------------------------------------------------------ Identifiable Assets Domestic $ 4,013.2 $ 3,950.5 $ 3,630.9 Foreign 2,483.0 2,216.1 1,694.6 Corporate 241.3 404.6 824.1 - ------------------------------------------------------------------------------ Total $ 6,737.5 $ 6,571.2 $ 6,149.6 ==============================================================================
(a) After restructuring and other charges of $208.8. (b) After restructuring and other charges of $187.8. 16 REPORT OF MANAGEMENT Responsibility for the integrity and objectivity of the financial information presented in this Annual Report rests with Toys"R"Us management. 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 managements 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/ Michael Goldstein /S/Louis Lipschitz Vice Chairman and Executive Vice President Chief Executive Officer 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 February 3, 1996 and January 28, 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended February 3, 1996. 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 February 3, 1996 and January 28, 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 3, 1996, in conformity with generally accepted accounting principles. /S/ Ernst & Young LLP New York, New York March 13, 1996 17 DIRECTORS AND OFFICERS Directors Charles Lazarus Chairman of the Board of the Company Robert A. Bernhard Real Estate Developer Michael Goldstein Vice Chairman and Chief Executive Officer of the Company Milton S. Gould Attorney-at-law; Of Counsel to LeBoeuf, Lamb, Greene & MacRae Shirley Strum Kenny President, State University of New York at Stony Brook Reuben Mark Chairman and CEO Colgate-Palmolive Company Norman S. Matthews Former President, Federated Department Stores, Inc; Consultant Howard W. Moore Former Executive Vice President - General Merchandise Manager of the Company; Consultant Robert C. Nakasone President and Chief Operating Officer of the Company Norman M. Schneider Former Chairman, Leisure Products Division of Beatrice Foods Company; Consultant Harold M. Wit Managing Director, Allen & Company Incorporated; Investment Bankers Officers - Corporate and Administrative Michael Goldstein Vice Chairman and Chief Executive Officer Robert C. Nakasone President and Chief Operating Officer Louis Lipschitz Executive Vice President and Chief Financial Officer Dennis Healey Senior Vice President - Management Information Systems Michael P. Miller Senior Vice President - Real Estate Jeffrey S. Wells Senior Vice President - Human Resources Gayle C. Aertker Vice President - Real Estate Michael J. Corrigan Vice President - Compensation and Benefits Richard N. Cudrin Vice President - Employee and Labor Relations Eileen C. Gabriel Vice President - Information Systems Jon W. Kimmins Vice President - Treasurer Joseph J. Lombardi Vice President - Controller Matthew J. Lombardi Vice President - Information Technology Eric A. Swartwood Vice President - Architecture and Construction Michael L. Tumolo Vice President - Counsel Peter W. Weiss Vice President -Taxes Andre Weiss Secretary -Partner-Schulte Roth & Zabel Toys"R"Us United States - Officers and General Managers Roger V. Goddu President -Store Merchandising Michael J. Madden President -Store Operations Van H. Butler Senior Vice President - Divisional Merchandise Manager Bruce C. Hall Senior Vice President - Regional Operations Thomas J. Reinebach Senior Vice President -Distribution and Support Services Ernest V. Speranza Senior Vice President - Advertising/Marketing Robert J. Weinberg Senior Vice President - Divisional Merchandise Manager Kristopher M. Brown Vice President - Distribution Operations John F. Cummo Vice President - Creative Services Harvey J. Finkel Vice President - Regional Operations Martin Fogelman Vice President - Divisional Merchandise Manager Michael A. Gerety Vice President - Store Planning Debra M. Kachurak Vice President - Operations Development Lee Richardson Vice President - Advertising John P. Sullivan Vice President - Divisional Merchandise Manager Karl S. Taylor Vice President - Merchandise Planning and Allocation General Managers Robert F. Price Vice President Southern California/ Arizona/Nevada/Hawaii Dennis J. Williams Vice President New York/Northern New Jersey Thomas A. Drugan Alabama/Georgia/South Carolina/Tennessee Cathy Filion Michigan/N.W. Ohio Larry D. Gardner New England Mark H. Haag Pacific Northwest/Alaska Michael K. Heffner N. Texas/Oklahoma/Arkansas/New Mexico Daniel D. Hlavaty Central Ohio/Indiana/Kentucky Richard A. Moyer S. Texas/Louisiana/Mississippi Gerald S. Parker Maryland/Virginia/North Carolina John J. Prawlocki Florida/Puerto Rico J. Michael Roberts Pennsylvania/Delaware/Southern New Jersey David E. Schoenbeck Northern California/Utah Edward F. Siegler Colorado/Kansas/Missouri/Iowa/Nebraska Carl P. Spaulding N.E. Ohio/W. Pennsylvania/N. New York William A. Stephenson Illinois/Wisconsin/Minnesota 18 Toys"R"US International - Officers and Country Management Gregory R. Staley President Lawrence H. Meyer Vice President - Chief Financial Officer Kenneth G. Bonning Vice President - Logistics and Franchise Operations Joan W. Donovan Vice President - General Merchandise Manager Joseph Giamelli Vice President - Information Systems Adam F. Szopinski Vice President - Operations Keith C. Spurgeon Vice President - Toys"R"Us Asia/Australia Keith Van Beek Vice President - Development President - Toys"R"Us Canada Pierre Buuron President - Toys"R"Us Central Europe Jacques LeFoll President - Toys"R"Us France/Belgium Guillermo Porrati Managing Director - Toys"R"Us Iberia David Rurka Managing Director - Toys"R"Us United Kingdom/Scandinavia John Schryver Managing Director - Toys"R"Us Australia Manabu Tazaki President - Toys"R"Us Japan Scott Chen General Manager - Toys"R"Us Taiwan Joe Tang General Manager - Toys"R"Us Hong Kong Michael Yeo General Manager - Toys"R"Us Singapore Kids"R"Us - Officers Richard L. Markee President - Kids"R"Us and Babies"R"Us James G. Parros Senior Vice President - Stores and Distribution Center Operations Gwen Manto Senior Vice President - General Merchandise Manager Jonathan M. Friedman Vice President - Chief Financial Officer - Kids"R"Us and Babies"R"Us James L. Easton Vice President - Divisional Merchandise Manager Jeff Handler Vice President - Advertising Jerel G. Hollens Vice President - Merchandise Planning and Management Information Systems Debra G. Hyman Vice President - Divisional Merchandise Manager Elizabeth S. Jordan Vice President - Human Resources John Morrow Vice President - Management Information Systems Lorna E. Nagler Vice President - Divisional Merchandise Manager CORPORATE DATA Annual Meeting The Annual Meeting of the Stockholders of Toys"R"Us will be held at The Long Island Marriott Hotel, 101 James Doolittle Boulevard, Uniondale, New York on Wednesday, June 5, 1996 at 10:00 a.m. The office of the Company is located at 461 From Road Paramus, New Jersey 07652 Telephone: 201-262-7800 General Counsel Schulte Roth & Zabel 900 Third Avenue New York, New York 10022 Independent Auditors Ernst & Young LLP 787 Seventh Avenue New York, New York 10019 Stockholder Information The Company will supply to any owner of Common Stock, upon written request to Mr. Louis Lipschitz of the Company at the address set forth herein, and without charge, a copy of the Annual Report on Form 10-K for the year ended February 3, 1996, which has been filed with the Securities and Exchange Commission. Stockholder information, including quarterly earnings and other corporate news releases, can be obtained toll free by calling 800-785-TOYS. Significant news releases will be available on the following dates: Call After... For the following... May 20, 1996 1st Quarter Results Aug. 19, 1996 2nd Quarter Results Nov. 18, 1996 3rd Quarter Results Jan. 3, 1997 Christmas Sales Results Mar. 12, 1997 1996 Results Common Stock Listed New York Stock Exchange, Symbol: TOY Registrar and Transfer Agent American Stock Transfer and Trust Company 40 Wall Street New York, New York 10005 Telephone: 718-921-8200 (RECYCLED SYMBOL) Printed on recycled paper 19
EX-21 4 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT AS OF FEBRUARY 3, 1996 Name Jurisdiction of Incorporation - ----- ----------------------------- TRU, Inc. Delaware Geoffrey, Inc. Delaware Toys "R" Us-NY Holdings, Inc. Delaware Toys "R" Us-Ohio, Inc. Delaware Toys "R" Us-Delaware, Inc. Delaware KRU, Inc. Delaware Toys "R" Us-Mass., Inc. Massachusetts ABG Corp. Nevada Toys "R" Us-NYTEX, Inc. New York Toys "R" Us-N.Y. Limited Partnership New York Toys "R" Us-Penn., Inc. Pennsylvania TRU of Puerto Rico, Inc. Puerto Rico Toys "R" Us-Texas, Inc. Texas TRU Mass. Properties, Inc. Delaware TRU Ohio Properties, Inc. Delaware TRU Penn. Properties, Inc. Delaware TRU Properties, Inc. Delaware TRU (Vermont), Inc. Vermont Toys "R" Us Handelsgesellschaft m.b.H. Austria Toys "R" Us (Australia) Pty, Ltd. Australia TRU (Barbados), Ltd. Barbados Toys "R" Us-Belgium, SCA. Belgium Toys "R" Us (Canada) Ltd. Ontario, Canada TRU (NRO) Investments Ltd. Alberta, Canada TRU (NRO) II Investments Ltd. Alberta, Canada TRU (NRO) III Investments Ltd. Alberta, Canada Toys "R" Us A/S Denmark Toys "R" Us S.A.R.L. France Toys "R" Us GmbH Germany Toys "R" Us Operations GmbH Germany Toys "R" Us Logistik GmbH Germany Toys "R" Us Service GmbH Germany Toys "R" Us Asia Limited Hong Kong TRU (HK) Limited Hong Kong Toys "R" Us S.r.l. Italy Toys "R" Us-Japan Ltd.* Japan Toys "R" Us (Luxembourg) S.A. Luxembourg Toys "R" Us (Malaysia) SDN. BHN.** Malaysia Toys "R" Us (Mexico), S.A. de C.V. Mexico TRU (Netherlands) B.V. Netherland Toys "R" Us (Netherlands) B.V. Netherland Toys R Us Portugal, Limitada Portugal Toys "R" Us-Singapore (Pte) Limited Singapore Toys R Us, Iberia, S.A. Spain Toys "R" Us, Aktiebolag Sweden Toys R Us AG Switzerland TRU AG Switzerland Toys "R" Us Holdings PLC United Kingdom Toys "R" Us Limited United Kingdom Toys "R" Us Properties Limited United Kingdom Other subsidiaries are omitted because considered in the aggregate such subsidiaries would not constitute a significant subsidiary. * 80% owned ** 60% owned EX-23 5 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Toys "R" Us, Inc. We consent to the incorporation by reference in this Annual Report (Form 10-K) of Toys "R" Us, Inc. of our report dated March 13, 1996, included in the 1995 Annual Report to Stockholders of Toys "R" Us, Inc. We also consent to the incorporation by reference in Registration Statements (Form S-4 Number 33-56303; Form S-3 Numbers 2-87794, 33-23264, 33-34273, 33-42237, 33-51359 and 33-64315; Form S-8 Numbers 2-64887, 2-91834, 33-16821 and 33-42627) of Toys "R" Us, Inc. of our report dated March 13, 1996, with respect to the consolidated financial statements incorporated herein by reference. /s/ Ernst & Young LLP New York, New York April 25, 1996 EX-27 6 1995 10-K FDS
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets and 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. 1,000 YEAR FEB-3-1996 JAN-29-1995 FEB-3-1996 202,700 0 128,900 0 1,999,500 2,418,900 4,929,300 1,071,100 6,737,500 2,092,800 826,800 30,000 0 0 3,402,300 6,737,500 9,426,900 9,426,900 6,592,300 1,894,800 588,300 0 85,900 265,600 117,500 148,100 0 0 0 148,100 0.53 0.53
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