UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 2003
Commission file number 1-11609
TOYS "R" US, INC.
Incorporated pursuant to the Laws of Delaware
Internal Revenue Service - Employer Identification No. 22-3260693
461 From Road, Paramus, New Jersey 07652
(201) 262-7800
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.10 par value New York Stock Exchange
Equity Security Units New York Stock Exchange
Indicate by checkmark whether registrant: (1) has filed all reports to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (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. |_|
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2). YES |X| NO |_|
The aggregate market value of common stock held by non-affiliates was
$2,671,205,888 based on the closing sales price of the common stock on the New
York Stock Exchange on August 3, 2002, the last business day of the registrant's
most recently completed second fiscal quarter.
Number of shares of common stock, $0.10 par value per share, outstanding as of
April 9, 2003: 213,055,666.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended February 1, 2003 are incorporated by reference into Parts I and II of this
Form 10-K.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held June 4, 2003 are incorporated by reference into Parts II
and III of this Form 10-K.
INDEX
PAGE
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PART I.
Item 1. Business............................................................ 2
Item 2. Properties.......................................................... 11
Item 3. Legal Proceedings................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders................. 13
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters............................................... 14
Item 6. Selected Financial Data............................................. 14
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition........................................... 14
Item 7a. Qualitative and Quantitative Disclosures About Market Risk.......... 14
Item 8. Financial Statements and Supplementary Data......................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 15
PART III.
Item 10. Directors and Executive Officers of the Registrant.................. 16
Item 11. Executive Compensation.............................................. 19
Item 12. Security Ownership of Certain Beneficial Owners and Management...... 19
Item 13. Certain Relationships and Related Transactions...................... 19
Item 14. Controls and Procedures............................................. 19
PART IV.
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.......................................................... 20
SIGNATURES................................................................... 21
CERTIFICATIONS............................................................... 23
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PART I
ITEM 1. BUSINESS
We are one of the world's leading retailers of toys, children's apparel and baby
products based on our consolidated net sales in 2002. As of February 1, 2003, we
operated 1,595 retail stores worldwide. These consist of 1,051 United States
locations comprised of 681 toy stores under the name "Toys "R" Us," 183
infant-toddler stores under the name "Babies "R" Us," 146 children's clothing
stores under the name "Kids "R" Us," 37 educational specialty stores under the
name "Imaginarium" and 4 "Geoffrey" stores that include products from Toys "R"
Us, Babies "R" Us and Kids "R" Us. Internationally, as of February 1, 2003, we
operated, licensed or franchised 544 stores. We also sell merchandise through
our Internet sites at www.toysrus.com, www.babiesrus.com, www.imaginarium.com
and www.giftsrus.com. Toys "R" Us, Inc. is incorporated in the state of
Delaware.
Our fiscal year ends on the Saturday nearest to January 31. Unless the context
otherwise indicates, references 2002, 2001 and 2000 are to our fiscal years,
which are the 52 weeks ended February 1, 2003 and February 2, 2002 and the 53
weeks ended February 3, 2001, respectively.
(a) General Development of the Business
Since inception, Toys "R" Us has built its reputation as a leading consumer
destination for toys and children's products, including apparel. Based upon our
net sales in 2002, we are a market share leader in most of the largest markets
in which "R" Us retail stores operate, including the United States, the United
Kingdom and Japan. Our toy stores offer approximately 10,000 distinct items
year-round, which we believe is more than twice the items found in other
discount or specialty stores selling toys. We believe that one of our key
competitive advantages, and a differentiating factor in the eyes of our guests,
is our broad and deep product selection.
Mission Possible Store Format
In early 2000, in order to further strengthen our market position and enhance
the shopping experience of consumers, we embarked on a three-year program to
reposition our U.S. toy stores. A key part of this repositioning involved the
renovation of the U.S. toy stores to our "Mission Possible" format. This format
allows our merchandise to be presented in a more dynamic selling environment and
to create a more enjoyable shopping experience for both adults and children. The
Mission Possible format enhances store layout by creating lower merchandise
displays, widening the aisles and reorganizing the merchandise in logical
categories to improve shopping patterns. In addition, the staff in the Mission
Possible stores adheres to an elevated standard of guest service, based on
training which focuses on deeper product knowledge and more targeted selling
skills. At the end of 2002, we had substantially completed the renovation of all
U.S. toy stores to the full Mission Possible format or to a partial renovation
that includes the addition of an Imaginarium boutique.
Times Square Flagship Store
In November 2001, we opened our Times Square flagship store in New York City.
This 110,000 square foot, multi-level store offers families a vast array of toys
and dramatic retail attractions including a 60-foot tall indoor Ferris Wheel.
From the opening of the store through the end of the 2002 holiday selling
season, approximately 10 million shoppers had visited Toys "R" Us Times Square
to see The Center of the Toy Universe(TM). In addition, we believe that our
flagship store provides us with increased visibility for the Toys "R" Us brand,
an effective platform for new product launches, and serves to further strengthen
our standing with the vendor community.
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Other Growth Initiatives
In 2002, we opened 4 Geoffrey stores, including 2 conversions of existing
domestic Toys "R" Us stores, to serve secondary and tertiary markets by
combining elements of Toys "R" Us, Babies "R" Us and Kids "R" Us in a 40,000 to
45,000 square foot format. These stores also incorporate new concepts like party
rooms, activity centers, haircut and styling salons, photo studios and play
areas. We have been pleased with the results of these stores to date. We plan to
test some of these new concepts in various Toys "R" Us stores in 2003.
In mid-2001, we began testing a concept called "Toys "R" Us Toybox" in which
partnering grocery chain stores provide approximately 200 to 500 square feet of
selling space, typically an aisle within the store. The "Toybox" features
smaller toy items with price points generally below $25. We continue to evaluate
the results of this initiative. Tests of other new growth initiatives are also
in development.
Initial Public Offering of Toys "R" Us - Japan Ltd. ("Toys - Japan")
On April 24, 2000, we completed the initial public offering in Japan of shares
of Toys - Japan. As a result of this transaction, our ownership percentage in
the common stock of Toys - Japan was reduced from 80% to 48%. We are no longer
in a position to exercise control over operations of Toys - Japan. Accordingly,
we no longer consolidate the financial statements of Toys - Japan and we have
accounted for our investment in the common stock of Toys - Japan under the
equity method of accounting since April 24, 2000. Toys - Japan operates as a
licensee of ours. For further discussion of this transaction refer to
Management's Discussion and Analysis of Results of Operations and Financial
Condition and to Notes to Consolidated Financial Statements on pages 27, 28 and
43, respectively, in our 2002 Annual Report.
On-Line Retailing Strategic Initiatives
As part of our strategy to become a global leader in the on-line retail market
for toys and, children's and baby products, several major strategic initiatives
were implemented during 2000.
In February 2000, we entered into a partnership agreement with SOFTBANK Venture
Capital and affiliates ("SOFTBANK"), pursuant to which SOFTBANK invested $60
million in Toysrus.com, our Internet subsidiary, for a 20% ownership interest.
Subsequent to that date, Toysrus.com received additional capital contributions
totaling $37 million from SOFTBANK, representing its proportionate share of
funding required for the operation of Toysrus.com.
In August 2000, Toysrus.com entered into a 10-year strategic alliance with
Amazon.com to create a co-branded toy and video game on-line store, which was
launched in September 2000. In addition, a co-branded baby products on-line
store was launched in May 2001 and a co-branded creative and learning products
on-line store launched in July 2001. Toysrus.com is responsible for
merchandising and content for the co-branded stores and identifies, purchases,
owns and manages the inventory. Amazon.com handles site development, order
fulfillment, customer service and the housing of Toysrus.com's inventory in
Amazon.com's U.S. distribution centers.
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For further discussion of Toysrus.com refer to Management's Discussion and
Analysis of Results of Operations and Financial Condition and to Notes to
Consolidated Financial Statements on pages 27 and 42, respectively, in our 2002
Annual Report.
Restructuring and Other Charges
On January 28, 2002, we announced strategic initiatives to restructure our
business. We recorded restructuring and other charges associated with these
initiatives in the fourth quarter of 2001. As part of these initiatives, we
closed 37 Kids "R" Us stores and 27 Toys "R" Us stores and eliminated
approximately 1,700 store and headquarters positions. We also plan to
consolidate five New Jersey store support center facilities into our new
headquarters in Wayne, New Jersey. Further details of the above charges and our
other strategic initiatives are described in Management's Discussion and
Analysis of Results of Operations and Financial Condition and Notes to
Consolidated Financial Statements on pages 24, 25, and 42, 43, respectively, in
our 2002 Annual Report, which sections are incorporated herein by reference.
(b) Financial Information About Industry Segments
Information about industry segments, as set forth in the Notes to the
Consolidated Financial Statements on page 42 of our 2002 Annual Report, is
incorporated herein by reference.
(c) Narrative Description of the Business
Toys "R" Us - United States
Toys "R" Us - United States ("Toys "R" Us") operates in 49 states and Puerto
Rico and sells toys, clothing, plush, games, bicycles, sporting goods, VHS and
DVD movies, electronic and video games, small pools, books and educational and
development products, infant and juvenile furniture and electronics, as well as
educational and entertainment computer software for children.
We seek to differentiate ourselves from competitors on several key dimensions
including product selection, product presentation, service, in-store experience,
and marketing. One important component of this strategy is to offer consumers a
broad and deep selection of merchandise, including both nationally branded and
exclusive products. We offer a wide selection of popular national brands such as
Barbie, G.I. Joe, Lego, Leapfrog, and Fisher Price, including many products
which are unique to, or launched at, Toys "R" Us. Several exclusive vendor
alliances and a broad selection of private label products further differentiate
these unique merchandise offerings. Over the past few years, we have entered
into exclusive branded product agreements with Animal Planet, Home Depot,
Scholastic and OshKosh B'Gosh among others, enabling us to offer products that
consumers will not find elsewhere. In addition to exclusive vendor alliances, we
offer a broad assortment of private label merchandise under names such as Animal
Alley(R), Fast Lane(R), Fun Years(R) and Dream Dazzlers(R) in Toys "R" Us stores
and K.R.U.(R) in Kids "R" Us stores and combo stores. A combo store is a toy
store that combines our toy offering with approximately a 5,500 square foot
apparel offering. We offer private label merchandise in Babies "R" Us stores
under the names Especially for Baby(R) and Koala Baby(R). We intend to
continually strengthen our "core merchandise content" (our top 1,500 selling
items) to generate consistent comparable store for store sales growth and to
lessen the dependence on trendy merchandise items to drive sales. By focusing on
the core merchandise, we believe that we can maintain strong relationships with
our vendors by allowing them to better plan production and
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meet agreed upon delivery timetables. We believe this approach helps to ensure
us a sufficient supply of core merchandise items and allows us to satisfy our
guests' demand for these items.
To further enhance the shopping experience of our guests, we utilize a
merchandise "world" concept in the U.S. toy stores. Each world has its own
customer franchise from juvenile to electronics and video products. Each world
establishes its own business plan and has a complete support team to develop its
business from product sourcing to advertising and promotion. In many of our
stores we have designated "World Leaders" in most of our major product
categories. The World Leaders are senior sales personnel who assist our guests
and help train other sales associates. The worlds presently consist of the
following;
o R Zone (video game hardware and software, electronics, computer software,
related products and VHS and DVD movies);
o Boys and Girls Core Toy (dolls and doll accessories, action figures, role
play, and vehicles);
o Pre School Toy (Preschool learning, activities and toys);
o Seasonal (Christmas, Halloween, summer, bikes, sports, play sets, and
other seasonal products);
o Juvenile (baby products and newborn to age four apparel);
o Imaginarium (educational and developmental products, accessories, games,
Animal Alley(R) plush and puzzles); and
o Apparel (shops within 376 combo stores with sizes ranging from newborn to
age ten).
As of February 1, 2003, we operated 681 U.S. toy stores. These stores conform to
the prototypical designs consisting of approximately 30,000 to 45,000 square
feet of space and are typically freestanding units or located in strip centers.
This division also operated 37 Imaginarium stand-alone stores. These Imaginarium
stores operate as educational specialty retail locations. An Imaginarium
boutique has also been incorporated into each of the renovated Mission Possible
stores. We believe these Imaginarium stores and boutiques have established a
leadership position for ourselves in the learning and educational category. We
did not open any new toy stores in 2002, although we have relocated certain
stores to nearby locations. As of February 1, 2003, we have closed all of the 27
stores identified as part of the strategic initiative, as described in the
"Restructuring and Other Charges" section above.
Toys "R" Us - International
Toys "R" Us - International ("International") operates, licenses or franchises
toy stores in 29 countries outside the United States. These stores generally
conform to traditional prototypical designs similar to those used by Toys "R"
Us. International also employs computerized inventory systems similar to those
utilized by our domestic divisions. International introduced new proprietary
brands and shopping "worlds" that have been successful in the United States
within some store locations. The worlds include Imaginarium boutiques, which are
known as "World of Imagination" in some geographies, and a Babies "R" Us
boutique in some stores.
As of February 1, 2003, International operated 289 stores and licensed or
franchised 255 stores. International added 45 new toy stores in 2002, including
licensed or franchised stores, and closed 8 stores. Utilizing demographic data
to determine which markets to enter, we intend to add approximately 30 new toy
stores in 2003, including approximately 25 licensed or franchised stores.
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The countries where International has operations include, among others, the
United Kingdom, Canada, Germany, Spain and France. International intends to
pursue opportunities that may arise in these and other countries. Net sales in
foreign countries (excluding sales by licensees and franchisees) represented
approximately 19% of consolidated net sales in 2002. We are subject to the risks
inherent in conducting business across national boundaries, many of which are
outside our control. These risks include the following;
o economic downturns;
o currency exchange rate and interest rate fluctuations;
o changes in governmental policy, including, among others, those relating to
taxation;
o international military, political, diplomatic and terrorist incidents;
o government instability;
o nationalization of foreign assets; and
o tariffs and governmental trade policies.
We cannot ensure that one or more of these factors will not negatively affect
International and, as a result, our business and financial performance.
Babies "R" Us
Babies "R" Us stores target the pre-natal to preschool market by offering up to
35 room settings of juvenile furniture, such as cribs, dressers, bedding and
accessories, as well as playyards, bumper seats, high chairs, strollers, car
seats, infant, toddler and preschool toys, infant plush toys, and gifts. As of
February 1, 2003, Babies "R" Us operated 183 juvenile retail locations. The
Babies "R" Us stores are designed with low profile merchandise displays in the
center of the stores providing a sweeping view of the entire merchandise
selection. Most Babies "R" Us stores devote over 5,000 square feet to specialty
name brand and private label clothing and offer a wide range of feeding
supplies, health and beauty aids and infant care products. Smaller prototype
Babies "R" Us stores have 3,000 square feet devoted to specialty name brand and
private label clothing. Private label and exclusive product account for
approximately 40% of sales at Babies "R" Us.
In addition, we offer a computerized baby registry service, and we believe that
Babies "R" Us registers more expectant parents than any other retailer in the
domestic market. In 2003, Babies "R" Us will make several enhancements to its
Baby Registry process to provide a better guest experience. Among these
enhancements is a more user-friendly printout, features to better guide
registrants in making their registry item choices, and an improved flow of
registry supplies to the stores.
Based on demographic data used to determine which markets to enter, we opened 19
Babies "R" Us stores in 2002. We also closed one Babies "R" Us store location.
As part of our long-range growth plan, we plan to open approximately 20 new
Babies "R" Us stores in 2003.
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Toysrus.com
Toysrus.com sells merchandise to the public via the Internet at www.toysrus.com,
www.babiesrus.com, www.imaginarium.com and www.giftsrus.com. We opened our
on-line doors to the public in June 1998. In order to provide better customer
service and order fulfillment, a strategic alliance was formed with Amazon.com
and a co-branded toy store was launched in September of 2000. This co-branded
store offers a toys and video games on-line store (Toysrus.com), baby products
on-line store (Babiesrus.com), and learning products and information on-line
store (Imaginarium.com) under the strategic alliance. The strategic alliance
agreement expires in 2010. The alliance combines Toysrus.com's merchandising
expertise and trusted brand name with Amazon.com's strengths in web site
operations, on-line customer service and reliable fulfillment. Toysrus.com and
Amazon.com continue to work closely together to realize efficiencies and to
reduce costs in this on-line business.
The Toysrus.com, Japan on-line toy store was launched in November 2000.
Toysrus.com owns 55% of this business, with the remaining 45% belonging to Toys
- - Japan and McDonald's, Japan. The operating results of Toysrus.com, Japan are
consolidated with the reported amounts for Toysrus.com. Toysrus.com, Japan does
not operate as part of the strategic alliance with Amazon.com.
Toysrus.com also opened an on-line store offering personalized gifts for all
ages (Giftsrus.com) in November 2002. Guests can choose from hundreds of
products ranging from exclusive stuffed animals, toys, clothing, home decor, and
keepsakes and have them personalized with messages, monogrammed, hand-painted or
engraved, gift wrapped and then delivered. Giftsrus.com does not operate as part
of the strategic alliance with Amazon.com.
Kids "R" Us
The Kids "R" Us team is responsible for sourcing all apparel sold within our
domestic segments. Our total apparel business represents approximately $900
million of net sales per year. Approximately 65% of these sales represent
exclusive product that have higher margins than branded product.
Kids "R" Us children's clothing stores feature brand name and private label
children's clothing. These stores conform to prototypical designs consisting of
approximately 15,000 to 20,000 square feet of space and are typically
freestanding units or located in strip centers in the United States. As of
February 1, 2003, Kids "R" Us operated 146 stand-alone stores. Apparel is also a
key product line in Toys "R" Us/Kids "R" Us combo stores, Babies "R" Us stores
and Geoffrey stores. As of February 1, 2003, there were 376 combo shops in Toys
"R" Us stores. 38 Kids "R" Us stores were closed in 2002, 37 of which were part
of the "Restructuring and Other Charges" described above. In almost all of these
locations, the nearest Toys "R" Us store was converted to a combo store in
tandem with the Kids "R" Us store closing.
Kids "R" Us has developed a new prototype store, called "R" Generation, that
incorporates significant design changes from a traditional Kids "R" Us apparel
store to an updated, easier to shop format. We believe that this store format
presents our core apparel offering in a fresh, compelling way. In addition,
these stores carry an assortment of non-apparel merchandise, such as fashion
accessories, bath and body products, cosmetics and home decor, kids'
electronics, Animal Alley(R) plush
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merchandise and other items. As of February 1, 2003, 41 "R" Generation Kids "R"
Us stores were operating. We will combine the senior management of Kids "R" Us
into the Babies "R" Us organization. The resulting reduction of managerial
positions will reduce operating expenses. We will continue to report results for
Kids "R" Us and Babies "R" Us separately.
Distribution Centers
In our U.S toy store division our stores are supported by 10 distribution
centers. Five of these distribution centers also support our Babies "R" Us
stores. The distribution centers average approximately 750,000 square feet each
in size and are strategically located throughout the United States to support
our stores efficiently.
We also operate six International distribution centers that support our
International toy stores. Four Kids "R" Us distribution centers supply apparel
to our Kids "R" Us stores, combo stores, Babies "R" Us stores and Geoffrey
stores.
We believe the flexibility afforded by our warehouse/distribution system and by
our ownership of a majority of our own fleet of trucks to distribute merchandise
provide efficiency and capacity to maintain in-stock inventory position at
stores. We are currently implementing a major initiative, known internally as
"Merchandise Transformation," to improve our supply chain management, which is
aimed at optimizing inventory assortment and presentation. We are also expanding
our automated replenishment system to improve inventory turnover.
The distribution centers employ warehouse management systems and material
handling equipment that help to minimize overall inventory levels and
distribution costs. Certain product processing and ticketing activities are
performed at the distribution centers to improve labor efficiency and to allow
store employees to concentrate on guest service and store presentation.
(d) Trademarks
"TOYS "R" US"(R), "KIDS "R" US" (R), "BABIES "R" US" (R), "Imaginarium" (R) and
"GEOFFREY"(TM), as well as variations of our family of "R" Us marks either have
been registered, or have trademark applications pending, with the United States
Patent and Trademark Office and with the trademark registries of many foreign
countries. We believe that our rights to these properties are adequately
protected.
(e) Seasonality
Our business is highly seasonal with net sales and earnings generally highest in
the fourth quarter. During the last three fiscal years, more than 40% of net
sales and the substantial portion of the operating earnings have been generated
in the fourth quarter. Our results of operations depend significantly upon the
holiday selling season in the fourth quarter. If less than satisfactory net
sales are achieved during the key fourth quarter, we may not be able to
compensate sufficiently for lower net sales during the first three quarters of
the fiscal year.
See the "Quarterly Financial Data" section contained on page 48 of our 2002
Annual Report, which section is incorporated herein by reference.
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(f) Working Capital
We have significant liquidity and capital requirements. Among other things, the
seasonality of our business requires us to purchase merchandise well in advance
of the holiday selling season. We depend on our ability to generate cash flow
from operations, and borrowings from our unsecured revolving credit facilities
to finance the carrying costs of this inventory, pay for capital expenditures
and maintain operations. Although we currently retain lower-tier investment
grade ratings from Moody's and Standard & Poors (although not from a third
rating agency), future rating agency actions could affect our ability to obtain
financing on satisfactory terms. We currently have adequate sources of funds to
provide for our ongoing operations and capital requirements; however, any
inability to have access in the future to financing, when needed, would have a
negative effect on results of our operations and financial condition.
For a discussion of our working capital requirements, see "Management's
Discussion and Analysis of Results of Operations and Financial Condition" on
pages 25 to 27 of our 2002 Annual Report, which section is incorporated herein
by reference.
(g) Competition
The retailing industry is highly competitive, and our results of operations are
sensitive to, and may be adversely affected by, competitive pricing, promotional
pressures, additional store openings and other factors. We compete with discount
and mass merchandisers, such as Wal-Mart, Target and Kmart, national and
regional chains and local retailers in the market areas we serve. Competition is
principally based on price, store location, advertising and promotion, product
selection, quality and service. Some of our competitors may have greater
financial resources, lower merchandise acquisition costs and lower operating
expenses than our company, and we may be unable to compete successfully in the
future. If we fail to compete successfully, we could face lower net sales and be
required to offer greater discounts to our guests, which could result in
decreased profitability.
Most of the merchandise we sell is also available from various retailers at
competitive prices. Discount and mass merchandisers use aggressive pricing
policies and enlarged toy selling areas during the holiday season to build
traffic for other store departments. We seek to address these competitive
tactics by continually building brand image, offering exclusive product, high
value items, and the best available selection of toys and toy related products
relative to the discount and mass merchandisers to attract consumers.
In addition, competition in the retail apparel business consists of national and
local department, specialty and discount store chains as well as Internet and
catalog businesses. Our apparel business is vulnerable to demand and pricing
shifts and to less than optimal selection as the result of these factors. We
review our merchandise assortments in order to identify slow-moving items and
use markdowns to clear such inventory.
(h) Other Risk Factors
We continue to implement a series of customer-oriented strategic initiatives to
differentiate and strengthen our core merchandise content and service levels. We
are also continuing with initiatives to reduce and optimize our operating
expense structure. The success of these initiatives will
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depend on various factors, including the appeal of renovated store formats e.g.,
"Mission Possible," and new products to customers and competitive and economic
conditions. If we are unsuccessful at implementing some or all of our strategic
initiatives, we may be unable to retain or attract customers, which could result
in lower net sales and a failure to realize the benefit of the sizeable
expenditures incurred for these strategic initiatives.
Our financial performance depends on the ability to identify, originate and
define product trends as well as to anticipate, gauge and react to changing
consumer demands in a timely manner. Our toy and other products must appeal to a
broad range of consumers whose preferences cannot be predicted with certainty
and are subject to change. We cannot guarantee the ability to continue to meet
changing consumer demands in the future. If we misjudge the market for our
products, we may be faced with significant excess inventories for some products
and missed opportunities for other products. In addition, because we place
orders for products well in advance of purchases by consumers, we could
experience excess inventory if our guests purchase fewer products than
anticipated.
We have over 2,000 vendor relationships through which we procure the merchandise
that we offer to consumers. For fiscal 2002, our top 20 vendors based on our
purchase volume represented approximately 45% of the total product we purchased.
The concentration of goods coming from a limited number of vendors could
negatively affect our business if our relationship deteriorated with any of
these top 20 vendors. If we were unable to negotiate reasonable terms to acquire
merchandise from any of the top 20 vendors and then fail to obtain similar
products from alternative sources, our net sales and profitability would be
negatively affected.
Sales of toys and other products may depend upon discretionary consumer
spending, which may be affected by general economic conditions, consumer
confidence and other factors beyond our control. A decline in consumer spending
could, among other things, negatively affect our net sales and could also result
in excess inventories, which could, in turn, lead to increased inventory
financing expenses. As a result, changes in consumer spending patterns could
adversely affect our profitability.
The retail apparel business fluctuates according to changes in consumer
preferences dictated in part by fashion, perceived value and season. These
fluctuations affect the merchandise in stock, since purchase orders are made
well in advance of the season and at times before fashion trends and high demand
brands are evidenced by consumer purchases.
A significant portion of the toys and other products sold by us is manufactured
outside the United States, primarily in Asia. As a result, any event causing a
disruption of imports, including the imposition of import restrictions or trade
restrictions in the form of tariffs or otherwise, acts of war or international
or domestic terrorism, could increase the cost and reduce the supply of products
available to us, which could, in turn, negatively affect our net sales and
profitability. We are unable to predict whether the emerging severe acute
respiratory syndrome, or SARS, epidemic will have a negative effect on our
procurement of toys and other products from Asia or elsewhere.
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We depend upon our management information systems in the conduct of our
operations. We are in the process of upgrading the inventory management,
distribution and supply chain management systems and the point of sale systems,
as well as other essential information technology. We have spent in excess of
$100 million in each of the last three years on our information technology.
Implementation of major new systems and enhancements to existing systems could
cause disruptions in our operations. If our major information systems fail to
perform as anticipated, we could experience difficulties in replenishing
inventories or in delivering toys and other products to store locations in
response to consumer demands. Any of these or other systems-related problems
could, in turn, adversely affect our net sales and profitability.
(i) Forward Looking Statements
This Form 10-K contains "forward looking" statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. All statements that are not historical facts, including
statements about our beliefs or expectations, are forward-looking statements. We
generally identify these statements by words or phrases such as "anticipate,"
"estimate," "plan," "expect," "believe," "intend," "foresee," "will," "may," and
similar words or phrases. These statements discuss, among other things, our
strategy, store openings and renovations, future performance and anticipated
cost savings, results of our restructuring, anticipated international
development and other goals and targets. Such statements involve risks and
uncertainties that exist in our operations and business environment that could
render actual outcomes and results materially different than predicted. Our
forward-looking statements are based on assumptions about many factors,
including, but not limited to, ongoing competitive pressures in the retail
industry, changes in consumer spending and consumer preferences, general
economic conditions in the United States and other jurisdictions in which we
conduct our business (such as interest rates, currency exchange rates and
consumer confidence) and normal business uncertainty. While we believe that our
assumptions are reasonable at the time forward-looking statements were made, we
caution that it is impossible to predict the actual outcome of numerous factors
and, therefore, readers should not place undue reliance on such statements.
Forward-looking statements speak only as of the date they were made, and we
undertake no obligation to update such statements in light of new information or
future events that involve inherent risks and uncertainties. Actual results may
differ materially from those contained in any forward-looking statement.
(j) Employees
At February 1, 2003, we employed approximately 65,000 full time and part time
individuals. Due to the seasonality of our business, we employed approximately
114,000 full time and part time employees during the 2002 Holiday Season.
(k) Available Information
Our investor relations website is http://www.toysrusinc.com. We make available
on this website under "INVESTOR RELATIONS, SEC Filings," free of charge, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports
on Form 8-K and amendments to those reports as soon as reasonably practicable
after we electronically file with or furnish such material to the U.S.
Securities and Exchange Commission.
ITEM 2. PROPERTIES
See the Note, "Leases," in our Notes to Consolidated Financial Statements
included on page 39 of our 2002 Annual Report, which note is incorporated herein
by reference. Also, see the section "Store Locations" on page 49 (the inside
back cover) of our 2002 Annual Report, which section is incorporated herein by
reference. Owned buildings on leased land (commonly known as ground leases) are
classified as owned for the detail below. The following information related to
properties is as of February 1, 2003:
Our main corporate offices are a leased building in Paramus, New Jersey and an
owned office building in Montvale, New Jersey. We also utilize other owned and
leased buildings in the Northern New Jersey surrounding area. In 2003, we plan
to consolidate five New Jersey store support center facilities into our new
headquarters in Wayne, New Jersey. The new corporate headquarters facility is
financed under a lease arrangement commonly referred to as a "synthetic lease."
Further details of the consolidation of existing store support facilities into
the new corporate headquarters facility and the "synthetic lease" are described
in Management's Discussion and Analysis of Results of Operations and Financial
Condition and Notes to Consolidated Financial Statements on pages 24, 25, 29,
and 39, 43, respectively, in our 2002 Annual Report, which sections are
incorporated herein by reference.
Toys "R" Us - United States
Toys "R" Us either purchases or leases properties depending on the economic
terms available. Where properties are leased, Toys "R" Us generally has
long-term leases with multiple renewal options.
11
Toys "R" Us operates 681 toy stores, 424 of which are owned and 257 are leased
and 10 distribution centers, four of which are owned and six are leased. This
division also operates 37 Imaginarium stores, all of which are leased. The
distribution centers average approximately 750,000 square feet each in size and
are strategically located throughout the United States to efficiently service
our stores.
Toys "R" Us - International
International operates 289 stores, excluding 255 licensed or franchised stores,
89 of which are owned and 200 are leased. International also operates six
distribution centers five of which are owned and one is leased.
Babies "R" Us
Babies "R" Us operates 183 juvenile retail stores, 71 of which are owned and 112
are leased. Babies "R" Us stores are served by existing Toys "R" Us, and Kids
"R" Us distribution centers.
Kids "R" Us
Kids "R" Us operates 146 stand-alone children's clothing stores, 77 of which are
owned and 69 are leased. Kids "R" Us operates four distribution centers, of
which two are owned and two are leased. These distribution centers average
approximately 350,000 square feet each in size.
Geoffrey Stores
The Geoffrey division operates 4 stores; two of which are owned and two are
leased. The existing Toys "R" Us distribution centers also support these
Geoffrey stores.
Toysrus.com
Toysrus.com leases a distribution center in Memphis, Tennessee as of February 1,
2003. This distribution center lease is actively being marketed for assignment
or sub-lease. Toysrus.com also leases corporate office space in Fort Lee, New
Jersey. Refer to "Restructuring and Other Charges" section above for planned
consolidation of store support facilities.
ITEM 3. LEGAL PROCEEDINGS
We are a party to the legal proceeding discussed below, which has arisen in the
normal course of business.
In re Toys "R" Us, Inc. Privacy Litigation. In August 2000, eleven purported
class action lawsuits were filed (six in the United States District Court for
the District of New Jersey, three in the United States District Court for the
Northern District of California, one in the United States District Court for the
Western District of Texas and one in the Superior Court of the State of
California, County of San Bernardino), against us and our affiliates
Toysrus.com, Inc. and Toysrus.com, LLC. In September 2000, three additional
purported class action lawsuits were filed (two in the United States District
Court for the District of New Jersey and one in the United States
12
District Court for the Western District of Texas). These actions generally
purport to bring claims under federal privacy and computer fraud statutes, as
well as under state statutory and common law, on behalf of all persons who have
visited one or more of our web sites and either made an online purchase or
allegedly had information about them unlawfully "intercepted," "monitored,"
"transmitted," or "used." All actions were consolidated and transferred to the
United States District Court for the Northern District of California.
On February 21, 2003, a Notice of Entry of Final Judgment and an Order of
Dismissal of Class Action was issued by the Court, along with an Order of
Dismissal of Class Action and Final Judgment.
In addition to the above action, various claims and lawsuits arising in the
normal course of business are pending against us. The subject matter of these
proceedings primarily include, or could include, commercial disputes, personal
injury claims and employment issues. The results of these proceedings are not
expected to have a material adverse effect on our financial condition or results
of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of stockholders during the fourth quarter
of the fiscal year ending February 1, 2003.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market prices and other information with respect to our common stock are hereby
incorporated by reference to page 48 of our 2002 Annual Report. The information
with respect to securities authorized for issuance under equity compensation
plans is hereby incorporated by reference to our 2003 Proxy Statement for the
Annual Meeting of Stockholders to be held on June 4, 2003 (the "2003 Proxy
Statement").
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is hereby incorporated by reference to page 1 of our
2002 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Management's Discussion and Analysis of Results of Operations and Financial
Condition is hereby incorporated by reference to pages 22 to 30 of our 2002
Annual Report.
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Qualitative and quantitative disclosures about market risk are hereby
incorporated by reference to page 28 of our 2002 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are hereby
incorporated by reference to pages 31 to 45 of our 2002 Annual Report.
(a) Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002
(b) Consolidated Statements of Earnings for each of the three years in the
period ended February 1, 2003
(c) Consolidated Statements of Cash Flows for each of the three years in the
period ended February 1, 2003
(d) Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended February 1, 2003
(e) Notes to Consolidated Financial Statements; and
(f) Report of Ernst & Young LLP.
14
Individual financial statements of the registrant's subsidiaries are not
furnished because consolidated financial statements are furnished. The
registrant is primarily a holding company, the expenses and obligations of which
are paid by its consolidated subsidiaries through a fee based on expenses
incurred for management services provided to such subsidiaries by the
registrant. All subsidiaries of the registrant currently are at least 80%-owned,
with the exception of Toysrus.com, Japan, which is 55% owned.
Financial statements of our unconsolidated investee (refer to "Initial Public
Offering of Toys "R" Us - Japan Ltd. ("Toys - Japan") in Item 1 (a) above) are
not furnished because the investee is 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.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to our directors is hereby incorporated herein by
reference to the section, "Nominees for the Board of Directors", in our 2003
Proxy Statement.
Executive Officers of the registrant
(a) The following persons are our Executive Officers as of April 9, 2003
having been elected to their respective offices by our Board of
Directors to serve until the election and qualification of their
respective successors:
- --------------------------------------------------------------------------------
Name Age Position with the registrant
- --------------------------------------------------------------------------------
John H. Eyler Jr. 55 Chairman, President and Chief Executive Officer
- --------------------------------------------------------------------------------
Raymond L. Arthur 44 President - Toysrus.com
- --------------------------------------------------------------------------------
John Barbour 43 Executive Vice President and President - Toys
"R" Us International
- --------------------------------------------------------------------------------
Francesca L. Brockett 43 Executive Vice President - Strategic Planning
and Business Development
- --------------------------------------------------------------------------------
Michael D'Ambrose 46 Executive Vice President - Human Resources
- --------------------------------------------------------------------------------
Karen Duvall 40 Executive Vice President - Supply Chain
- --------------------------------------------------------------------------------
James E. Feldt 48 Executive Vice President and President
Merchandising and Marketing of Toys "R" Us
United States Division
- --------------------------------------------------------------------------------
John Holohan 46 Executive Vice President - Chief Information
Officer
- --------------------------------------------------------------------------------
Christopher K. Kay 50 Executive Vice President - Operations and
General Counsel, Corporate Secretary
- --------------------------------------------------------------------------------
Warren F. Kornblum 50 Executive Vice President - Chief Marketing
Officer
- --------------------------------------------------------------------------------
Louis Lipschitz 58 Executive Vice President - Chief Financial
Officer
- --------------------------------------------------------------------------------
Richard L. Markee 49 Executive Vice President and President -
Specialty Businesses and International
Operations
- --------------------------------------------------------------------------------
Elliott Wahle 51 President - Babies "R" Us and Kids "R" Us
- --------------------------------------------------------------------------------
Dorvin D. Lively 44 Senior Vice President - Corporate Controller
- --------------------------------------------------------------------------------
16
(b) The following is a brief account of the business experience during the
past five years for each of our Executive Officers:
We have employed Mr. Eyler since January 2000. Effective June 2001, he became
Chairman of the Board in addition to President and Chief Executive Officer. From
January 2000 to June 2001, he was President and Chief Executive Officer. Prior
to his employment with us he served as Chairman and Chief Executive Officer of
FAO Schwarz. He had held this position since prior to January 1998.
We have employed Mr. Arthur since January 1999. In January 2002, he was
appointed President-Toysrus.com. From October 2000 through January 2002, he
served as Senior Vice President - Chief Financial Officer of Toysrus.com. From
April 2000 to October 2000, he was Vice President - Finance and Administration
of Toysrus.com. From January 1999 to April 2000, he was the company's Vice
President - Corporate Controller. Prior to his employment with the company, he
was Vice President and Corporate Controller of General Signal Corporation, a
manufacturer of industrial products.
We have employed Mr. Barbour since August 1999. Effective January 2002, he was
appointed our Executive Vice President and President of Toys "R" Us
International Division. From August 1999 to February 2002 he served as Chief
Executive Officer of Toysrus.com. From 1998 to August 1999 he served as Chief
Executive Officer of OddzOn, a division of Hasbro, Inc.
We have employed Ms. Brockett since September 1998. Effective October 2000 she
was appointed Executive Vice President - Strategic Planning and Business
Development. From September 1998 to October 2000, she was our Senior Vice
President - Strategic Planning and Business Development. From January 1998 to
September 1998, she was Senior Vice President - Strategic Planning of Tricon
Global Restaurants.
We have employed Mr. D'Ambrose since April 2001 as Executive Vice President -
Human Resources. From January 1998 to January 2001, he served as Senior Human
Resources Officer for Citigroup, Inc.
We have employed Ms. Duvall since May 2002. Effective May 2002, she was
appointed Executive Vice President - Supply Chain. From March 2000 to May 2002,
she was Senior Vice President, Worldwide Supply Chain of Levi Strauss & Company.
From 1998 until March 2000, she was Vice President of Global Operations at
Warner-Lambert Company.
17
We have employed Mr. Feldt since March 1999. Effective March 2000, he was
appointed our Executive Vice President and President - Merchandising and
Marketing of Toys "R" Us United States Division. From March 1999 to March 2000,
he was Executive Vice President - Merchandising of Toys "R" Us United States
Division. From 1998 to February 1999, he was Executive Vice President,
Merchandise and Marketing of Value City Department Stores.
We have employed Mr. Holohan since February 1999. Effective May 2002, he was
appointed Executive Vice President - Chief Information Officer. From February
1999 to May 2002, he served as our Senior Vice President - Chief Information
Officer. From 1998 until February 1999, he was President of Definitive Solutions
Company, Inc, a computer consulting firm, now owned by the company.
We have employed Mr. Kay since September 2000. Effective January 2002, he was
appointed Executive Vice President - Operations in addition to General Counsel
and Corporate Secretary. From September 2000 to January 2002 he served as
Executive Vice President - General Counsel and Corporate Secretary. Prior to
September 2000, he was a partner in the law firm of Kay, Gronek & Latham.
We have employed Mr. Kornblum since January 1999. Effective January 2002, he was
appointed Executive Vice President - Chief Marketing Officer. From March 2000 to
January 2002, he served as Executive Vice President - Worldwide Marketing and
Brand Management. From January 1999 to March 2000, he was Senior Vice President
and Chief Marketing Officer. From January 1998 to January 1999, he was Managing
Partner of Bozell Worldwide, an advertising firm.
We have employed Mr. Lipschitz for more than five years as Executive Vice
President - Chief Financial Officer.
We have employed Mr. Markee for more than five years. Effective February 2002,
he was appointed Executive Vice President and President - Specialty Businesses
and International Operations. From October 1999 to February 2002, he served as
Executive Vice President, President of the Babies "R" Us division and Chairman
of the Kids "R" Us Division. From January 1998 to October 1999, he served as
Executive Vice President, President of the Babies "R" Us Division and President
of the Kids "R" Us Division.
We have employed Mr. Wahle since December 2000. Effective March 2003, he was
appointed President of Babies "R" Us and Kids "R" Us. Effective September 2002,
he was appointed President - Babies "R" Us. From December 2000 until September
2002, he served as Vice President and General Manager - Times Square, Toys "R"
Us U.S. From 1998 until February 2000, he was President and Chief Executive
Officer of Dylex Limited, a Canadian specialty apparel retailer.
We have employed Mr. Lively since January 2001 as Senior Vice President -
Corporate Controller. From October 1998 to January 2001, he was Vice President -
Corporate Controller of Reader's Digest Association, Inc. From January 1998 to
September 1998, he was Vice President and Chief Financial Officer of Silverado
Foods, Inc.
18
Information with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, is hereby incorporated by reference to the
section "Beneficial Ownership of Directors and Executive Officers -- Section
16(a) Beneficial Ownership Reporting Compliance" in our 2003 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to executive compensation is hereby incorporated by
reference to our 2003 Proxy Statement.
The information with respect to compensation of directors is incorporated by
reference to our 2003 Proxy Statement. 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 our 2003 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained under the caption "Certain
Relationships and Related Transactions" in the 2003 Proxy Statement and is
incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rules 13a-14 (c)
and 15d-14 (c) under the Securities Exchange Act of 1934. Based on this
evaluation, our principal executive officer and our principal financial officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be included in our SEC
periodic reports. It should be noted that the design of any system of controls
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.
In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
19
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) The response to this portion of Item 15 is set forth in Item 8 of Part
II of this report on Form 10-K.
(2) Financial Statement Schedules have been omitted because they are
inapplicable, not required, or the information is included elsewhere in
the financial statements or notes thereto.
(3) Exhibits. See Item (c) below.
(b) Reports on Form 8-K
On January 21, 2003, we filed a Current Report on Form 8-K related to a
press release announcing the departure of Gregory R. Staley, President of
Toys "R" Us -U.S.
(c) Exhibits required by Item 601 of Regulation S-K
The information required by this item is incorporated by reference from
the Index to Exhibits on pages 25 through 31 of this report on Form 10-K.
We will furnish to any stockholder, upon written request, any exhibit
listed in the accompanying Index to Exhibits upon payment by such
stockholder of our reasonable expenses in furnishing any such exhibit.
Written requests should be sent to Investor Relations, Toys "R" Us Inc.,
225 Summit Avenue, Montvale, New Jersey 07645-1523.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TOYS "R" US, INC.
(Registrant)
By /s/ Louis Lipschitz
----------------------------
Louis Lipschitz
Executive Vice President - Chief
Financial Officer
Date: April 30, 2003
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 30th day of April 2003.
Signature Title
--------- -----
/s/ John H. Eyler Jr.
- ----------------------- Chairman, President and Chief Executive Officer
John H. Eyler Jr. (Principal Executive Officer)
/s/ Louis Lipschitz
- ----------------------- Executive Vice President - Chief
Louis Lipschitz Financial Officer (Principal Financial
Officer)
/s/ Dorvin D. Lively
- ----------------------- Senior Vice President - Corporate Controller
Dorvin D. Lively (Principal Accounting Officer)
*
- ----------------------- Director
RoAnn Costin
*
- ----------------------- Director
Roger N. Farah
*
- ----------------------- Director
Peter A. Georgescu
*
- ----------------------- Director
Michael Goldstein
*
- ----------------------- Director
Calvin Hill
21
Signature Title
--------- -----
*
- ----------------------- Director
Nancy Karch
*
- ----------------------- Director, Chairman Emeritus
Charles Lazarus
*
- ----------------------- Director
Norman S. Matthews
*
- ----------------------- Director
Arthur B. Newman
The foregoing constitutes all of the Board of Directors and the Principal
Executive, Financial and Accounting Officers of the Registrant.
* By /s/ Louis Lipschitz
- -------------------------
Louis Lipschitz, Attorney-In-Fact
22
CERTIFICATION
I, John H. Eyler, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Toys "R" Us,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent function): a) all significant
deficiencies in the design or operation of internal controls which
could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls;
and b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ John H. Eyler, Jr.
- -----------------------------------------------
Chairman, President and Chief Executive Officer
April 30, 2003
23
CERTIFICATION
I, Louis Lipschitz, certify that:
1. I have reviewed this annual report on Form 10-K of Toys "R" Us,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent function): a) all significant
deficiencies in the design or operation of internal controls which
could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls;
and b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Louis Lipschitz
- -----------------------------
Executive Vice President --
Chief Financial Officer
April 30, 2003
24
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this Report:
Exhibit No. Document
- ----------- --------
3.1 Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Form 8-B filed on January 3, 1996
and incorporated herein by reference).
3.2 Amended and Restated By-Laws of the Registrant (filed as Exhibit
3.2 to the Registrant's Form 8-B filed on January 3, 1996 and
incorporated herein by reference).
3.3 Amendment to Amended and Restated By-Laws of the Registrant (filed
as Exhibit 3B to the Registrant's Annual Report on Form 10-K for
the year ended February 1, 1997 and incorporated herein by
reference).
4.1 Form of Common Stock Certificate (filed as Exhibit 4.3 to Amendment
No. 2 to the Registrant's Registration Statement on Form S-3, No.
333-84258 filed on May 13, 2002 and incorporated herein by
reference).
4.2 Amended and Restated Rights Agreement, dated as of April 16, 1999,
by and between the Registrant and American Stock Transfer & Trust
Company (filed as Exhibit 1 to the Registrant's Current Report on
Form 8-K dated April 16, 1999 and incorporated herein by
reference).
Amendment dated as of June 3, 2002 to Amended and Restated Rights
Agreement (filed as Exhibit 1 to the Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended May 4, 2002).
The Rights Agreement includes the form of Rights Certificate (as
Exhibit A thereto) and the Summary of Rights to Purchase Common
Stock (as Exhibit B thereto).
4.3 Form of Rights (included in Exhibit 4.4).
4.4 Form of Indenture between the Registrant and United Jersey Bank, as
trustee, pursuant to which securities in one or more series up to
$300,000,000 in principal amount may be issued by the Registrant
(filed as Exhibit 4 to the Registrant's Registration Statement on
Form S-3 No. 33-42237 filed on August 31, 1991 and incorporated
herein by reference).
4.5 Form of Registrant's 83/4% Debentures due 2021 (filed as Exhibit 4
to the Registrant's Current Report on Form 8-K dated August 29,
1991 and incorporated herein by reference).
4.6 Indenture, dated July 24, 2001, between the Registrant and The Bank
of New York, as trustee (filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-4, No. 333-73800 filed on November
20, 2001 and incorporated herein by reference).
25
Exhibit No. Document
- ----------- --------
4.7 Form of Registrant's 6.875% Notes due 2006 and form of Registrant's
7.25% Notes due 2011 (filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-4, No. 333-73800 filed on November
20, 2001 and incorporated herein by reference).
4.7 Purchase Contract Agreement dated as of May 28, 2002 between the
Registrant and The Bank of New York, as purchase contract agent
(filed as Exhibit 4.11 to the Post-Effective Amendment to the
Registrant's Registration Statement on Form S-3, No. 333-84254
filed on May 28, 2002 and incorporated herein by reference).
4.8 Certificate representing the Registrant's Equity Security Units
(filed as Exhibit 4.12 to the Post-Effective Amendment to the
Registrant's Registration Statement on Form S-3, No. 333-84254
filed on May 28, 2002 and incorporated herein by reference).
4.9 Indenture dated as of May 28, 2002 between the Registrant and The
Bank of New York, as trustee (filed as Exhibit 4.13 to the
Post-Effective Amendment to the Registrant's Registration Statement
on Form S-3, No. 333-84254 filed on May 28, 2002 and incorporated
herein by reference).
4.10 First Supplemental Indenture dated as of May 28, 2002 between the
Registrant and The Bank of New York, as trustee (filed as Exhibit
4.14 to the Post-Effective Amendment to the Registrant's
Registration Statement on Form S-3, No. 333-84254 filed on May 28,
2002 and incorporated herein by reference).
4.11 Certificate representing the Registrant's Senior Note issued in
connection with Registrant's Equity Security Units (filed as
Exhibit 4.15 to the Post-Effective Amendment to the Registrant's
Registration Statement on Form S-3, No. 333-84254 filed on May 28,
2002 and incorporated herein by reference).
4.12 Pledge Agreement dated as of May 28, 2002 among the Registrant,
JPMorgan Chase Bank, as collateral agent, custodial agent and
securities intermediary and The Bank of New York, as purchase
contract agent (filed as Exhibit 4.16 to the Post-Effective
Amendment to the Registrant's Registration Statement on Form S-3,
No. 333-84254 filed on May 28, 2002 and incorporated herein by
reference).
4.13 Five-Year Credit Agreement, dated as of September 19, 2001, among
the Registrant, the lenders party thereto, The Bank of New York, as
Administrative Agent, Citibank, N.A., and J.P. Morgan Chase, as
Co-Syndication Agents, and Credit Suisse First Boston, First Union
National Bank, The Dai-Ichi Kangyo Bank, Ltd. and Societe General,
as Co-Documentation Agents, and BNY Capital Markets, Inc., as Lead
Manager and Book Manager (filed as Exhibit 4(vi) to the
Registrant's Annual Report on Form 10-K for the year ended February
2, 2002 and incorporated herein by reference).
4.14 Amendment No. 1 to the Five-Year Credit Agreement, dated as of May
16, 2002 (filed as Exhibit 4.1 to the registrant's quarterly report
on Form 10-Q for the quarterly period ended November 2, 2002 and
incorporated herein by reference).
26
Exhibit No. Document
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4.15 Amendment No. 2 to the Five-Year Credit Agreement, dated as of
August 26, 2002 (filed as Exhibit 4.2 to the registrant's quarterly
report on Form 10-Q for the quarterly period ended November 2, 2002
and incorporated herein by reference).
4.16 364-Day Credit Agreement, dated as of September 19, 2001, among the
Registrant, the lenders party thereto, The Bank of New York, as
Administrative Agent, Citibank, N.A., and J.P. Morgan Chase, as
Co-Syndication Agents, and Credit Suisse First Boston, First Union
National Bank, The Dai-Ichi Kangyo Bank, Ltd. and Societe General,
as Co-Documentation Agents, and BNY Capital Markets, Inc., as Lead
Manager and Book Manager (filed as Exhibit 4(vii) to the
Registrant's Annual Report on Form 10-K for the year ended February
2, 2002 and incorporated herein by reference).
4.17 Amendment No. 1 to the 364-Day Credit Agreement, dated as of May
16, 2002 (filed as Exhibit 4.3 to the registrant's quarterly report
on Form 10-Q for the quarterly period ended November 2, 2002 and
incorporated herein by reference).
4.18 Amendment No. 2 to 364-Day Credit Agreement, dated as of August 26,
2002 (filed as Exhibit 4.4 to the registrant's quarterly report on
Form 10-Q for the quarterly period ended November 2, 2002 and
incorporated herein by reference).
4.19 Lease Agreement dated as of September 26, 2001 between First Union
Development Corporation, as Lessor, and the Registrant, as Lessee
(filed as Exhibit 4(viii) to the Registrant's Annual Report on Form
10-K for the year ended February 2, 2002 and incorporated herein by
reference).
4.20 Participation Agreement dated as of September 26, 2001 among the
Registrant, as the Construction Agent and as the Lessee, First
Union Development Corporation, as the Borrower and as the Lessor,
the various financial institutions and other institutional
investors which are parties thereto from time to time, as the
Tranche A Note Purchasers, the various banks and other lending
institutions which are parties thereto from time to time, as the
Tranche B Lenders, the various banks and other lending institutions
which are parties thereto from time to time, as the Cash Collateral
Lenders, and First Union National Bank, as the Agent for the
Primary Financing Parties and, respecting the Security Documents,
as agent for the Secured Parties and First Union National Bank as
Escrow Agent Lessee (filed as Exhibit 4(ix) to the Registrant's
Annual Report on Form 10-K for the year ended February 2, 2002 and
incorporated herein by reference).
27
Exhibit No. Document
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4.21 Substantially all other long-term debt of registrant (which other
debt does not exceed on an aggregate basis 10% of the total assets
of the registrant and its subsidiaries on a consolidated basis) is
evidenced by, among other things, (i) commercial paper, (ii)
industrial revenue bonds issued by industrial development
authorities and guaranteed by registrant, (iii) mortgages held by
third parties on real estate owned by registrant, (iv) stepped
coupon guaranteed bonds held by a third party and guaranteed by
registrant, (v) Euro bond public indebtedness issued to refinance
outstanding commercial paper obligations and (vi) yen denominated
note payable collateralized by the expected future yen cash flows
from license fees from Toys - Japan. Registrant will file with the
Securities and Exchange Commission (the "Commission") copies of
constituent documents relating to such upon request of the
Commission.
10.1* Employment Agreement dated March 14, 1978 between registrant and
Charles Lazarus and an amendment thereto dated November 20, 1979
(incorporated herein by reference to Exhibit 2 in Schedule 13D
dated February 1, 1980 filed by Charles Lazarus, et al). An
amendment dated March 23, 1982 to such employment agreement,
incorporated herein by reference to Exhibit 10B to registrant's
Annual Report on Form 10-K for the year ended January 31, 1982,
Commission File Number 1-1117. An amendment dated December 7, 1982
to such employment agreement, incorporated herein by reference to
Exhibit 10B to registrant's Annual Report on Form 10-K for the year
ended January 30, 1983, Commission File Number 1-1117. An amendment
dated April 10, 1984 to such employment agreement, incorporated
herein by reference to Exhibit 10B to registrant's Annual Report on
Form 10-K for the year ended January 29, 1989, Commission File
Number 1-1117.
10.2* Amendment dated as of June 10, 1998 to Employment Agreement between
registrant and Charles Lazarus (filed as Exhibit 10B to
registrant's Annual Report on Form 10-K for the year ended January
30, 1999 and incorporated herein by reference).
10.3 Form of Indemnification Agreement between registrant and each
director (filed as Exhibit 10F to registrant's Annual Report on
Form 10-K for the year ended February 1, 1987, Commission File
Number 1-1117, and incorporated herein by reference).
10.4* Amended and Restated Toys "R" Us, Inc. Non-Employee Directors'
Stock Option Plan effective as of September 19, 1990 (filed as
Exhibit C to registrant's Proxy Statement for the year ended
February 1, 1997 and incorporated herein by reference).
10.5* Stock Option Plan and Agreement dated as of December 2, 1992
between the registrant and Robert C. Nakasone (filed as Exhibit 10I
to registrant's Annual Report on Form 10-K for the year ended
January 30, 1993 and incorporated herein by reference).
10.6* Stock Option Plan and Agreement dated as of December 2, 1992
between the registrant and Michael Goldstein (filed as Exhibit 10J
to registrant's Annual Report on Form 10-K for the year ended
January 30, 1993 and incorporated herein by reference).
28
Exhibit No. Document
- ----------- --------
10.7* Amended and Restated Toys "R" Us, Inc. 1994 Stock Option and
Performance Incentive Plan effective as of November 1, 1993 (filed
as Exhibit A to registrant's Proxy Statement for the year ended
February 1, 1997 and incorporated herein by reference).
10.8* Stock Unit Plan for Non-Employee Directors of Toys "R" Us, Inc.,
effective as of May 1, 1997 (filed as Exhibit 10H to registrant's
Annual Report on Form 10-K for the year ended January 30, 1999 and
incorporated herein by reference).
10.9* Amended and Restated Toys "R" Us, Inc. Management Incentive
Compensation Plan, effective beginning with the registrant's fiscal
year ending January 28, 1995 (filed as Exhibit B to registrant's
Proxy Statement for the year ended February 1, 1997 and
incorporated herein by reference).
10.10* Toys "R" Us, Inc. Partnership Group Deferred Compensation Plan
effective as of May 17, 1995 (filed as Exhibit 10.13 to the Form
8-B filed on January 3, 1996 and incorporated herein by reference).
10.11* Toys "R" Us, Inc. Grantor Trust Agreement dated as of October 1,
1995 between registrant and American Express Trust company (filed
as Exhibit 10.14 to the Form 8-B filed on January 3, 1996 and
incorporated herein by reference).
10.12* Toys "R" Us, Inc. Supplemental Executive Retirement Plan, effective
as of December 6, 1995 (filed as Exhibit 10N to registrant's Annual
Report on Form 10-K for the year ended February 3, 1996 and
incorporated herein by reference).
10.13* Toys "R" Us, Inc. Grantor Trust Agreement dated as of April 1, 1996
between registrant and Allmerica Trust company, N.A; Amendment No.
1 to Grantor Trust Agreement, effective as of April 1, 1996; and
Amendment No. 2 to Grantor Trust Agreement, effective as of April
1, 1996 (filed as Exhibit 10P to registrant's Annual Report on Form
10-K for the year ended January 30, 1999 and incorporated herein by
reference).
10.14 Shareholders Agreement, dated October 1, 1996, by and among
registrant, Jack P. Tate and Linda M. Robertson (filed as Exhibit A
to Exhibit 2 to registrant's Quarterly Report on Form 10-Q for the
quarter ended November 2, 1996, File No. 1-11609, and incorporated
herein by reference).
29
Exhibit No. Document
- ----------- --------
10.15* Retention Agreements
- Retention Agreement between Toys "R" Us, Inc. and Louis Lipschitz
dated as of May 1, 1997.
- Retention Agreement between Toys "R" Us, Inc. and Richard L.
Markee dated as of May 1, 1997.
- Retention Agreement between Toys "R" Us, Inc. and Gregory R.
Staley dated as of May 1, 1997.
Filed as Exhibit 10P to registrant's Quarterly Report on Form 10-Q
for the quarterly period ended May 3, 1997 and incorporated herein
by reference.
10.16* Amendment to Retention Agreement between Toys "R" Us, Inc. and
Richard L. Markee dated May 6, 1999 (filed as Exhibit 10P to
registrant's Annual Report on Form 10-K for the year ended January
29, 2000 and incorporated herein by reference).
10.17* Amendments to Retention Agreement between Toys "R" Us, Inc. and
Gregory R. Staley dated May 6, 1999 and March 2, 2000, respectively
(filed as Exhibit 10Q to registrant's Annual Report on Form 10-K
for the year ended January 29, 2000 and incorporated herein by
reference).
10.18* Retention Agreement between Toys "R" Us, Inc. and Michael G.
Shannon dated October 12, 1998 (filed as Exhibit 10Y to
registrant's Annual Report on Form 10-K for the year ended January
30, 1999 and incorporated herein by reference).
10.19* Amended Form of Retention Agreement for Executive Officers of Toys
"R" Us, Inc. (filed as Exhibit 10U to registrant's Annual Report on
Form 10-K for the year ended February 3, 2001 and incorporated
herein by reference).
10.20* Retention Agreement between Toys "R" Us, Inc. and John H. Eyler,
Jr. dated January 6, 2000 (filed as Exhibit 10BB to registrant's
Annual Report on Form 10-K for the year ended January 29, 2000 and
incorporated herein by reference).
10.21* Toys "R" Us, Inc. Non-Employee Directors' Stock Unit Plan,
effective as of June 10, 1999 (filed as Exhibit A to registrant's
Proxy Statement for the year ended January 30, 1999 and
incorporated herein by reference).
10.22* Toys "R" Us, Inc. Non-Employee Directors' Stock Option Plan,
effective as of June 10, 1999 (filed as Exhibit B to registrant's
Proxy Statement for the year ended January 30, 1999 and
incorporated herein by reference).
10.23* Toys "R" Us, Inc. Non-Employee Directors' Deferred Compensation
Plan, effective as of June 10, 1999 (filed as Exhibit C to
registrant's Proxy Statement for the year ended January 30, 1999
and incorporated herein by reference).
30
Exhibit No. Document
- ----------- --------
10.24* Separation and Release Agreement between Toys "R" Us, Inc. and
Robert C. Nakasone dated as of August 26, 1999 (filed as Exhibit
10.1 to registrant's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1999 and incorporated herein by reference).
10.25* Separation and Release agreement between Toys "R" Us, Inc. and
Michael G. Shannon dated as of February 27, 2002 (filed as Exhibit
10DD to the registrant's Annual Report on Form 10-K for the year
ended February 2, 2002 and incorporated herein by reference).
10.26* Consulting Agreement between Toys "R" Us, Inc. and Michael
Goldstein dated as of June 6, 2001 (filed as Exhibit 10EE to the
registrant's Annual Report on Form 10-K for the year ended February
2, 2002 and incorporated by reference).
10.27* Toys "R" Us, Inc. 2001 Stock Option and Performance Incentive Plan
effective as of June 6, 2001 (filed as Exhibit B to registrant's
Proxy Statement for the year ended February 3, 2001 and
incorporated herein by reference).
10.28 Stock Pledge Agreement, dated as of July 20, 2001, between
Toysrus.com, Inc. and John Barbour.
10.29 Non-Recourse Promissory Note, dated as of July 20, 2001, from John
Barbour to Toysrus.com, Inc.
10.30* Toys "R" Us, Inc. Amended and Restated 1995 Employee Stock Option
Plan.
10.31* Toys "R" Us, Inc. Amended and Restated 1997 Employee Stock Option
Plan.
10.32* Toys "R" Us, Inc. Partnership Group Deferred Compensation Plan.
13 Registrant's Annual Report to Stockholders for the year ended
February 1, 2003. Except for the portions thereof that are
expressly incorporated by reference into this report, such Annual
Report is furnished solely for the information of the Commission
and is not to be deemed "filed" as part of this report.
21 Subsidiaries of registrant.
23 Consent of Independent Auditors, Ernst & Young LLP.
24 Power of Attorney, dated in March 2003.
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
* Management contract or compensatory plan, contract or arrangement.
31